<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                   FORM 10-K


                  Annual report pursuant to Section 13 of the
                        Securities Exchange Act of 1934

                    For the fiscal year ended June 30, 1999

                         Commission File No.: 0-25664

                               SGV BANCORP, INC.
            (exact name of registrant as specified in its charter)

          DELAWARE                                          95-4524789
(State or other jurisdiction of                       (I.R.S. Employer I.D. No.)
incorporation or organization)

           225 North Barranca Street, West Covina, California 91791
                   (Address of principal executive offices)

      Registrant's telephone number, including area code: (626) 859-4200
       Securities registered pursuant to Section 12(b) of the Act:  None
          Securities registered pursuant to Section 12(g) of the Act:


                    Common Stock, par value $0.01 per share
                               (Title of class)


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.    Yes    X     No ____.
                                                   ---

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive amendment to this Form 10-K.
[X]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than the directors and executive officers of
the registrant, was $42,000,000, based upon the last sales price as quoted on
The NASDAQ Stock Market for September 13, 1999.

     The number of shares of Common Stock outstanding as of September 13, 1999:
2,176,323.
<PAGE>

                                     INDEX
<TABLE>
<CAPTION>
                                                                           PAGE
                                    PART I
<S>                                                                        <C>
Item 1.   Description of Business......................................       1
Item 2.   Properties...................................................      26
Item 3.   Legal Proceedings............................................      27
Item 4.   Submission of Matters to a Vote of Security Holders..........      27

                                  PART II

Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters..........................................      28
Item 6.   Selected Financial Data......................................      28
Item 7.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations..........................      30
Item 8.   Financial Statements and Supplementary Data..................      44
Item 9.   Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure.......................      76

                                 PART III

Item 10.  Directors and Executive Officers of the Registrant...........      76
Item 11.  Executive Compensation.......................................      76
Item 12.  Security Ownership of Certain Beneficial Owners
          and Management...............................................      76
Item 13.  Certain Relationships and Related Transactions...............      76

                                  PART IV

Item 14.  Exhibits, Financial Statements Schedules and Reports
          on Form 8-K..................................................      76

Signatures.............................................................      78
</TABLE>
<PAGE>

                                    PART I

Item 1.  Description of Business
--------------------------------

General

          SGV Bancorp, Inc. (the "Company") completed its initial public
offering of common stock on June 28, 1995, in connection with the conversion of
First Federal Savings and Loan Association of San Gabriel Valley (the
"Association") from the mutual to stock form of ownership. The Company utilized
approximately 50% of the net proceeds of the initial public offering to acquire
all of the issued and outstanding stock of the Association. The Company is
headquartered in West Covina, California and its principal business currently
consists of the operations of its wholly-owned subsidiary, First Federal Savings
and Loan Association of San Gabriel Valley. The Company's only significant
assets, other than its investment in the capital stock of the Association and a
loan to the Association's ESOP, are cash, investments and mortgage-backed
securities. Operational activity of the Savings and Loan Association will
hereafter be referred to as "Association," where applicable. The Company had no
operations prior to June 28, 1995, and accordingly, the results of operations
prior to such date reflect only those of the Association and its subsidiary. The
Company, as a savings and loan holding company, and the Association are subject
to regulation by the Office of Thrift Supervision (the "OTS"), the Federal
Deposit Insurance Corporation (the "FDIC") and the Securities and Exchange
Commission (the "SEC").

          The principal business of the Association is attracting retail
deposits from the general public and investing those deposits, together with
funds generated from operations and borrowings, primarily in one- to four-family
residential mortgage loans.  To a lesser extent, the Association engages in
secondary market activities and invests in multi-family, commercial real estate,
construction, land and consumer loans.  Loan sales come from loans held in the
Association's portfolio designated as being held for sale or originated during
the period and being so designated.  The Association has historically retained
all the servicing rights of loans sold, although during the past fiscal year,
has begun selling loans on a servicing released basis.  The Association's
revenues are derived principally from interest on its mortgage loans, and to a
lesser extent, interest and dividends on its investment and mortgage-backed
securities, income from loan servicing, and fee income generated from deposit
accounts.  The Association's primary sources of funds are deposits, principal
and interest payments on loans, advances from the Federal Home Loan Bank of San
Francisco (the "FHLB") and, to a lesser extent, proceeds from the sale of loans.

Market Area and Competition

          The Association conducts business from its administrative branch
office located in West Covina, California and its seven other offices located in
Covina, Hacienda Heights, La Verne, City of Industry, Arcadia, and Duarte, all
of which are located in the eastern part of the greater Los Angeles metropolitan
area.  The Association has been and continues to be a community-oriented savings
institution, which primarily originates one- to four-family residential mortgage
loans within its primary market area.  The Association's deposit gathering is
concentrated in the communities surrounding its offices in eastern Los Angeles
county.  The Association makes loans secured by deeds of trust in portions of
eastern Los Angeles, western San Bernardino and Riverside, and Orange counties.

          The Los Angeles metropolitan area is a highly competitive market.  The
Association faces significant competition both in making loans and in attracting
deposits.  The Association's share of deposits and loan originations in the Los
Angeles metropolitan area amounts to less than one percent.  The Association
faces direct competition from a significant number of financial institutions
operating in its market area, many with a statewide or regional presence and in
some cases a national presence.  Many of these financial institutions are
significantly larger and have greater financial resources than the Association.
The Association's competition for loans comes principally from commercial banks,
savings and loan associations, mortgage banking companies, credit unions and
insurance companies.  Its most direct competition for deposits has historically
come from savings and loan associations and commercial banks.  In addition, the
Association faces increasing competition for deposits from non-bank institutions
such as brokerage firms and insurance companies in such areas as short-term
money market funds, corporate and government securities funds, mutual funds and
annuities.  Competition may also increase as a result of the lifting of
restrictions on the interstate operations of financial institutions.

          On March 16, 1999, the Association entered into a definitive agreement
with Citibank, California, a federal savings bank, to purchase two branches
located in La Verne, California and Covina, California.  The two branches

                                       1
<PAGE>

had combined deposits of approximately $57.0 million at the time the agreement
was entered into. The branch acquisition was consummated on July 25, 1999.

Recent Developments - Acquisition by IndyMac Mortgage Holdings, Inc.

          On July 12, 1999, the Company and IndyMac Mortgage Holdings, Inc.
("IndyMac") entered into a definitive agreement pursuant to which IndyMac will
acquire the Company for cash.  Under the terms of the merger agreement, each
share of the Company's common stock will be exchangeable for $25.00 in cash.
This price may be subject to adjustment as a result of changes in the net
portfolio value of certain assets and liabilities of the Company.  In no event
will the purchase price be reduced below $22.50 or increased above $27.50 per
share.  IndyMac will pay a total of approximately $62.5 million to acquire all
of the Company's shares outstanding and subject to options.  In accordance with
the terms of the merger agreement, the Company will be the surviving entity of
the merger.  To this end, IndyMac's current shareholders will receive one share
of the Company's common stock in exchange for each share of IndyMac common stock
they own when the merger is completed.  The merger is subject to shareholder
approval by both companies as well as certain regulatory approvals.  The merger
is expected to be completed in the first half of 2000.

Lending Activities

          Loan Portfolio Composition.  The Association's loan portfolio consists
primarily of conventional first mortgage loans secured by one- to four-family
residences.  At June 30, 1999, the Association had total loans outstanding of
$356.2 million, of which $279.9 million were one- to four-family, owner-occupied
residential mortgage loans, or 78.6% of the Association's total loans.  The
remainder of the portfolio consists of $46.4 million of multi-family mortgage
loans, or 13.0% of total loans; $23.9 million of commercial real estate loans,
or 6.7% of total loans; and consumer loans of $6.0 million or 1.7% of total
loans.  The Association had $100,000 in loans held for sale as of June 30, 1999.
At that same date, 74.4% of the Association's mortgage loans had adjustable
interest rates.  Of the Association's adjustable-rate mortgage loans, 32.9% are
indexed to the one-year Constant Maturity Treasury ("CMT") Index and 62.3% are
indexed to the 11th District Cost of Funds Index ("COFI").  The COFI is a
lagging market index and therefore may adjust more slowly than the cost of the
Association's interest-bearing liabilities.  As the determination of the COFI
becomes concentrated in fewer institutions, funding decisions by a relatively
few large institutions could potentially further reduce the correlation of COFI
to changes in general market interest rates and the Company's cost of funds.

          The types of loans that the Association may originate are subject to
federal and state law and regulations.  Interest rates charged by the
Association on loans are affected by the demand for such loans and the supply of
money available for lending purposes and the rates offered by competitors.
These factors are, in turn, affected by, among other things, economic
conditions, monetary policies of the federal government, including the Federal
Reserve Board, and legislative tax policies.

          The following table sets forth the composition of the Association's
loan portfolio in dollar amounts and as a percentage of the portfolio at the
dates indicated.

                                       2
<PAGE>

<TABLE>
<CAPTION>
                                                                          At June 30,
                                           ----------------------------------------------------------------------
                                                 1999                       1998                    1997
                                           ---------------------     ---------------------     ------------------
                                                         Percent                   Percent               Percent
                                            Amount      of Total     Amount       of Total     Amount    of Total
                                           --------     --------     --------     --------     --------  --------
                                                                   (Dollars in thousands)
<S>                                        <C>          <C>          <C>          <C>          <C>       <C>
Real estate and Other:
One- to four family                        $279,897        78.59%    $247,129        83.04%    $250,303     87.29%
Multi-family                                 46,425        13.03       29,546         9.93       27,241      9.50
Commercial                                   23,901         6.71       11,895         4.00        8,660      3.02
Construction and land                             -         0.00            -         0.00            -      0.00
Consumer                                      5,961         1.67        9,007         3.03          533      0.19
                                           --------     --------     --------     --------     --------  --------
  Total loans                               356,184       100.00%     297,577       100.00%     286,737    100.00%
                                                        ========                  ========               ========
Less:
Unamortized yield adjustments, net            (1486)                     (613)                      121
Deferred loan fees, net                         736                       635                       515
Allowance for estimated loan losses           1,845                     1,425                     1,263
                                           --------                  --------                  --------
  Total loans, net                          355,089                   296,130                   284,838
Less:
Loans receivable held for sale:
  One- to four-family                           100                       391                       230
                                           --------                  --------                  --------
    Loans receivable held for
     investment                            $354,989                  $295,739                  $284,608
                                           ========                  ========                  ========

<CAPTION>
                                                         At June 30,
                                       -----------------------------------------------
                                                1996                      1995
                                       ---------------------      --------------------
                                                     Percent                Percent
                                        Amount      of Total     Amount     of Total
                                       --------     --------     --------   ----------
<S>                                    <C>          <C>          <C>        <C>
Real estate and Other:
One- to four family                    $226,660        87.81%    $187,693        85.82%
Multi-family                             21,690         8.40       20,431         9.34
Commercial                                9,331         3.62        9,567         4.37
Construction and land                         -         0.00          415         0.19
Consumer                                    440         0.17          602         0.28
                                       --------     --------     --------     --------
  Total loans                           258,121       100.00%     218,708       100.00%
                                                    ========                  ========
Less:
Unamortized yield adjustments, net          (64)                       45
Deferred loan fees, net                     451                       472
Allowance for estimated loan losses       1,058                       792
                                       --------                  --------
  Total loans, net                      256,676                   217,399
Less:
Loans receivable held for sale:
  One- to four-family                       723                         -
                                       --------                  --------
    Loans receivable held for
     investment                        $255,953                  $217,399
                                       ========                  ========
</TABLE>

                                       3
<PAGE>

     Loan Maturity.  The following table shows the contractual maturity of the
Association's gross loans at June 30, 1999.  The table does not include
principal repayments.  Principal repayments on total loans totaled $94.3 million
for the year ended June 30, 1999 and $61.0 million and $33.2 million for the
years ended June 30, 1998 and 1997, respectively.

<TABLE>
<CAPTION>
                                                                            At June 30, 1999
                                          ---------------------------------------------------------------------------------------
                                             One- to                                                                    Total
                                              Four-             Multi-                                                  Loans
                                              Family            Family         Commercial           Consumer          Receivable
                                          --------------    ------------     --------------        ----------       -------------
                                                                             (In thousands)
<S>                                       <C>               <C>              <C>                   <C>              <C>
Amounts due:
   One year or less                             $  1,170         $   460            $     5            $  358           $  1,993
   After one year:
      More than one year to three years              357           5,064              1,451                 -              6,872
      More than three years to five years          4,930           6,706                555                 -             12,191
      More than five years to 10 years             6,535           1,517              6,400                 -             14,452
      More than 10 years to 20 years              58,054           8,159             12,088                 -             78,301
      More than 20 years                         208,851          24,519              3,402             5,603            242,375
                                          --------------    ------------     --------------        ----------       ------------

      Total due after June 30, 2000              278,727          45,965             23,896             5,603            354,191
                                          --------------    ------------     --------------        ----------       ------------

      Total amount due                           279,897          46,425             23,901             5,961            356,184
   Less:
      Unamortized yield adjustments               (1,253)              8                (88)             (153)            (1,486)
      Deferred loan fees                             354             276                106                 -                736
      Allowance for loan losses                      838             469                 99               439              1,845
                                          --------------    ------------     --------------        ----------       ------------
   Total loans, net                              279,958          45,672             23,784             5,675            355,089

   Loans receivable held for sale                    100               -                  -                 -                100
                                          --------------    ------------     --------------        ----------       ------------

   Loans receivable held for investment         $279,858         $45,672            $23,784            $5,675           $354,989
                                          ==============    ============     ==============        ==========       ============
</TABLE>

     The following table sets forth at June 30, 1999, the dollar amount of
gross loans receivable contractually due after June 30, 2000, and whether such
loans have fixed interest rates or adjustable interest rates.

<TABLE>
<CAPTION>
                                                                      Due After June 30, 2000
                                           ----------------------------------------------------------------------------
                                                    Fixed                    Adjustable                   Total
                                           ----------------------     ----------------------     ----------------------
                                                                           (In thousands)
<S>                                        <C>                        <C>                        <C>
Real estate loans:
   One- to four-family                                    $82,950                  $195,777                    $278,727
   Multi-family                                             4,166                    41,799                      45,965
   Commercial real estate                                   2,680                    21,216                      23,896
Consumer                                                        -                     5,603                       5,603
                                           ----------------------     ---------------------         -------------------
      Total loans receivable                              $89,796                  $264,395                    $354,191
                                           ======================     =====================         ===================
</TABLE>

     Origination, Sale, Servicing and Purchase of Loans. The Association's
mortgage lending activities are conducted primarily by commissioned loan
representatives and through its eight branch offices. The Association originates
both adjustable-rate and fixed-rate mortgage loans. The Association's ability to
originate loans is dependent upon the relative customer demand for fixed-rate or
adjustable-rate mortgage loans, which is affected by the current and expected
future level of interest rates. It is the general policy of the Association to
sell the majority

                                       4
<PAGE>

of the fixed-rate mortgage loans that it originates. The Association may also
sell the adjustable-rate mortgage loans that it originates. The Association
utilizes forward sales contracts to hedge the risks associated with a change in
interest rates between origination and sale of loans. At June 30, 1999, the
Association did not have any forward sales contracts outstanding. The
Association retains virtually all servicing of the loans sold. See "Loan
Servicing." The Association recognizes, at the time of sale, the cash gain or
loss on the sale of the loans sold. At June 30, 1999, there was $100,000 in
fixed-rate mortgage loans categorized as held for sale. From time to time, the
Association has purchased loans originated by other institutions based upon the
Association's investment needs and market opportunities. During the year ended
June 30, 1999, the Association purchased $80.8 million of one- to four-family
mortgage loans with adjustable interest rates indexed primarily to COFI, which
are secured by principal properties located in Southern California. The
Association has purchased loans during the past three years as a supplement to
its internal origination process in order to meet internal goals. The
Association has reviewed each loan it purchases to ensure it meets the
Association's underwriting guidelines. The loans were purchased in several
transactions consummated during the year ended June 30, 1999.

     The following table sets forth the Association's loan originations,
purchases, sales and principal repayments for the periods indicated:

<TABLE>
<CAPTION>
                                                                      For the Years Ended June 30,
                                                  ---------------------------------------------------------------
                                                          1999                   1998                   1997
                                                  -----------------      -----------------      -----------------
                                                                            (In thousands)
     <S>                                          <C>                    <C>                    <C>
     Gross loans (1):                                      $297,555               $286,101               $257,734
     Beginning balance
        Loans originated:                                    74,082                 46,787                 33,108
           One- to four-family (2)                           14,507                  3,977                  3,242
           Multi-family                                       6,010                  3,540                    160
           Commercial                             -----------------      -----------------      -----------------
              Total loans originated                         94,599                 54,304                 36,510
        Loans purchased:
           Mortgage loans                                    80,754                 29,941                 33,320
           Consumer loans                                         -                 10,682                      -
                                                  -----------------      -----------------      -----------------
              Total                                         472,908                381,028                327,564
     Less:
        Principal repayments                                 94,343                 61,019                 33,216
        Sales of loans                                       19,366                 19,526                  5,644
        Transfer to REO                                       2,265                  2,928                  2,603
                                                  -----------------      -----------------      -----------------

                                                            356,934                297,555                286,101
     Total loans                                                100                    391                    230
        Loans held for sale                       -----------------      -----------------      -----------------

     Ending balance, loans held
        for investment                                     $356,834               $297,164               $285,871
                                                  =================      =================      =================
</TABLE>

     ----------------------------------------------------------------
     (1)  Gross loans includes loans receivable held for investment and loans
          held for sale, net of deferred loan fees, undisbursed loan funds and
          unamortized premiums and discounts.
     (2)  Consumer loans originated are included in one- to four-family loans.


     One- to Four-Family Mortgage Lending.  The Association offers both fixed-
rate and adjustable-rate mortgage loans secured by one- to four-family
residences located in the Association's primary market area, with maturities up
to forty years.  Substantially all of such loans are secured by property located
in the Association's primary market area.  Loan originations are generally
obtained from the Association's commissioned loan representatives and their
contacts with the local real estate industry, existing or past customers, and
members of the local communities.

     At June 30, 1999, the Association's total loans outstanding were $356.1
million, of which $279.9 million or 78.6% were one- to four-family residential
mortgage loans.  Of the one-to four-family residential mortgage loans

                                       5
<PAGE>

outstanding at that date, 25.6% were fixed-rate loans, and 74.4% were
adjustable-rate mortgage loans. The Association's adjustable-rate mortgage loans
are generally indexed to COFI and the CMT. The Association currently offers a
number of adjustable-rate mortgage loan programs with interest rates which
adjust monthly, semi-annually, or annually. A portion of the Association's
adjustable-rate mortgage loans have introductory terms of three or five years
and at the end of such period will adjust either monthly or annually according
to their terms. The Association's adjustable-rate mortgage loans generally
provide for periodic and overall caps on the increase or decrease in interest
rate at any adjustment date and over the life of the loan. At June 30, 1999, the
Association had no one- to four-family adjustable-rate mortgage loans with
interest rates that were between 0 to 200 basis points below their lifetime
caps, $31.8 million that were between 200 to 400 basis points below their
lifetime caps, with the remainder having interest rates that were more than 400
basis points below their lifetime caps. The Association currently has $75.6
million in mortgage loans that may be subject to negative amortization. The
negative amortization is currently capped at up to 115% of the original loan
amount. Negative amortization involves a greater risk to the Association because
during a period of high interest rates, the loan principal may increase above
the amount originally advanced. However, the Association believes that the risk
of default may be reduced by negative amortization caps, underwriting criteria
and the stability provided by payment schedules.

     Of the Association's one- to four-family mortgage loans, $55.8 million, or
19.9%, were secured by non-owner-occupied residences.  Loans secured by non-
owner-occupied properties are generally considered to involve a higher degree of
credit risk than loans secured by owner-occupied properties because payment is
generally dependent upon the property producing sufficient income to cover debt
service and any operating expenses.

     The Association's policy is to originate one- to four-family residential
mortgage loans in amounts up to 80% of the lower of the appraised value or the
selling price of the property securing the loan and up to 95% of the appraised
value or selling price if private mortgage insurance is obtained.  The
Association currently has a limited program which is designed to promote home
ownership and allows potential borrowers the ability to receive a mortgage loan
with loan-to-values up to 100% with no private mortgage insurance.  This program
is capped at $1 million in loans outstanding.  Mortgage loans originated by the
Association generally include due-on-sale clauses, which provide the Association
with the contractual right to deem the loan immediately due and payable in the
event the borrower transfers ownership of the property without the Association's
consent.  Due-on-sale clauses are an important means of adjusting the rates on
the Association's fixed-rate mortgage loan portfolio and the Association has
generally exercised its rights under these clauses.

     Multi-Family Lending.  The Association originates multi-family mortgage
loans generally secured by five- to thirty-six unit apartment buildings located
in the Association's primary market area.  As a result of uncertain market
conditions in its primary market area, the Association currently originates
multi-family loans on a limited and highly selective basis.  In reaching its
decision on whether to make a multi-family loan, the Association considers the
qualifications of the borrower as well as the underlying property.  Some of the
factors to be considered are:  the net operating income of the mortgaged
premises before debt service and depreciation; the debt service ratio (the ratio
of net earnings to debt service); and the ratio of loan amount to appraised
value.  Pursuant to the Association's current underwriting policies, a multi-
family adjustable-rate mortgage loan may only be made in an amount up to 75% of
the appraised value of the underlying property.  Subsequent declines in the real
estate values in the Association's primary market area have resulted in some
increase in the loan-to-value ratio on some mortgage loans.  In addition, the
Association generally requires a minimum debt service ratio of 115%.  Properties
securing a loan are appraised by an independent appraiser and title insurance is
required on all loans.  The Association's multi-family loan portfolio at June
30, 1999 totaled $46.4 million.

     When evaluating the qualifications of the borrower for a multi-family loan,
the Association considers the financial resources and income level of the
borrower, the borrower's experience in owning or managing similar property, and
the Association's lending experience with the borrower.  The Association's
underwriting policies require that the borrower be able to demonstrate strong
management skills and the ability to maintain the property from current rental
income.  The borrower is required to present evidence of the ability to repay
the mortgage and a history of making mortgage payments on a timely basis.  In
making its assessment of the creditworthiness of the borrower, the Association
generally reviews the financial statements, employment and credit history of the
borrower, as well as other related documentation.  The Association's largest
multi-family loan at June 30, 1999, had an outstanding balance of $1.5 million,
was current at that date and is secured by a 24-unit apartment complex.

                                       6
<PAGE>

     Loans secured by apartment buildings and other multi-family residential
properties are generally larger and involve a greater degree of risk than one-
to four-family residential mortgage loans.  Because payments on loans secured by
multi-family properties are often dependent on successful operation or
management of the properties, repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or the economy.
The Association seeks to minimize these risks through its underwriting policies,
which require such loans to be qualified at origination on the basis of the
property's income and debt coverage ratio.

     Commercial Real Estate Lending.  The Association originates commercial real
estate loans that are generally secured by properties used for business purposes
such as small office buildings or retail facilities located in the Association's
primary market area.  The Association's underwriting procedures provide that
commercial real estate loans be made in amounts up to the lesser of 75% of the
appraised value of the property, or at the Association's current loans-to-one
borrower limit.  These loans may be made with terms up to thirty years for
adjustable-rate loans and are indexed to CMT or COFI.  The Association's
underwriting standards and procedures are similar to those applicable to its
multi-family loans, whereby the Association considers the net operating income
of the property and the borrower's expertise, credit history and profitability.
The Association has generally required that the properties securing commercial
real estate loans have debt service coverage ratios of at least 115%.  The
largest commercial real estate loan in the Association's portfolio at June 30,
1999, had an outstanding balance of $1.7 million, was current at that date and
is secured by an office building.  At June 30, 1999, the Association's
commercial real estate loan portfolio was $23.9 million or 6.7% of total loans.
The Association currently originates commercial real estate loans on a limited
and highly selective basis in its primary market area.

     Loans secured by commercial real estate properties, like multi-family
loans, are generally larger and involve a greater degree of risk than one- to
four-family residential mortgage loans.  Because payments on loans secured by
commercial real estate properties are often dependent on successful operation or
management of the properties, repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or the economy.
The Association seeks to minimize these risks through its underwriting
standards, which require such loans to be qualified on the basis of the
property's income and debt service ratio.

     The Association may purchase or participate in multi-family loans from
other financial institutions.  As part of the review process, the loans being
purchased or the loan participations being entered into are appraised and must
meet the same underwriting standards as loans processed internally.  During the
year ended June 30, 1999, the Association purchased $5.3 million of multi-family
loans from another financial institution, and currently has $2.9 million in
multi-family loan participations with other financial institutions.

     Construction and Land Lending.  The Association has in the past originated
loans for the acquisition and development of property to contractors and
individuals in its primary market area.  The Association's construction loans
primarily have been made to finance the construction of one- to four-family,
owner-occupied residential properties.  These loans were primarily adjustable-
rate loans with maturities of one year or less.  The Association is not
currently originating construction and land loans but may in the future
depending on market conditions.  At June 30, 1999, the Association had no
construction or land loans outstanding.

     Construction and land financing is generally considered to involve a higher
degree of credit risk than long-term financing on improved, owner-occupied real
estate.  Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development compared to the estimated cost (including interest)
of construction.  If the estimate of value proves to be inaccurate, the
Association may be confronted with a project, when completed, having a value
which is insufficient to assure full repayment.

     Consumer Lending.  The Association originates consumer loans such as lines
of credit and loans secured by savings accounts.  The total amount comprising
these two product types is less than 0.1% of the Association's loan portfolio.
The Association purchased a portfolio of home equity lines of credit (HELOCs)
from another financial institution in December 1997 which were primarily
approved based upon the credit worthiness of the borrower and also had a lien
placed on the borrower's property, usually as a second lien.  The loan-to-values
of this portfolio of loans generally were in excess of 100%.  Loans which met
the Association's underwriting requirements were selected for purchase.  The
HELOCs have interest rates indexed primarily to COFI and LIBOR, with margins of
9.95% and adjust monthly.  The maximum lines granted were generally for $25,000.
The borrower is generally

                                       7
<PAGE>

allowed to draw on the line of credit for a period of ten year to fifteen years
after which time the loan is converted to a fixed term loan with no further
access to the line. The Association's HELOC portfolio of $5.6 million represents
approximately 1.6% of its total loan portfolio.

     The Association's HELOC portfolio has a higher degree of credit risk than
loans secured by real estate property with loan-to-values less than 70% as the
payment as to interest and principal is generally dependent upon the capacity of
the borrower and not upon the collateral.  For loans which have become non-
accrual, the Association would generally not initiate foreclosure proceedings on
any property which has been determined to have a current combined loan-to-value
in excess of 100%.  Loans in this category would generally be charged-off
although, in certain circumstances, collection efforts may continue.  The
Association has set aside general valuation allowances which management believes
reflect the risk of the portfolio.  If future loss experience or other factors
change management's expectations, management will adjust the general valuation
allowance to reflect such expectations.

     Loan Servicing.  The Association also services mortgage loans for others.
All of the loans currently being serviced for others are loans which have been
sold by the Association.  Loan servicing includes collecting and remitting loan
payments, accounting for principal and interest, making inspections as required
of mortgaged premises, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults,
making certain insurance and tax payments on behalf of the borrowers and
generally administering the loans.  At June 30, 1999, the Association was
servicing $87.4 million of loans for others.

     Delinquencies and Classified Assets.  The Board of Directors performs a
monthly review of all delinquent loans 90 days or more past due.  In addition,
management reviews on an ongoing basis all loans 15 or more days delinquent.
The procedures taken by the Association with respect to delinquencies vary
depending on the nature of the loan and period of delinquency.  When a borrower
fails to make a required payment on a loan, the Association takes a number of
steps to have the borrower cure the delinquency and restore the loan to current
status.  The Association generally sends the borrower a written notice of non-
payment after the loan is first past due.  In the event payment is not then
received, additional letters and phone calls generally are made.  If the loan is
still not brought current and it becomes necessary for the Association to take
legal action, which typically occurs after a loan is delinquent at least 30 days
or more, the Association will commence foreclosure proceedings against any real
property that secures the loan.  If a foreclosure action is instituted and the
loan is not brought current, paid in full, or refinanced before the foreclosure
sale, the real property securing the loan generally is sold at foreclosure.

     Federal regulations and the Association's Classification of Assets Policy
require that the Association utilize an internal asset classification system as
a means of reporting problem and potential problem assets.  The Association has
incorporated the OTS internal asset classifications as a part of its credit
monitoring system.  The Association currently classifies problem and potential
problem assets as "Substandard," "Doubtful," or "Loss" assets.  An asset is
considered "Substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected.  Assets classified as "Doubtful" have all of the weaknesses
inherent in those classified "Substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable."  Assets classified as "Loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted.  Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."

     When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets.  When an insured institution classifies one or more assets, or
portions thereof, as "Loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the net exposure of the
asset so classified or to charge off the amount of the asset, taking into
consideration the collateral value, if any, of the asset.

                                       8
<PAGE>

     A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances.  The OTS, in conjunction with the other federal banking agencies,
adopted an interagency policy statement on the allowance for loan and lease
losses.  The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines.  Generally, the policy
statement recommends that management has analyzed all significant factors that
affect the collectibility of the portfolio in a reasonable manner; and that
management has established acceptable allowance evaluation processes that meet
the objectives set forth in the policy statement.  As a result of the declines
in local and regional real estate market values and the significant losses
experienced by many financial institutions, there has been a greater level of
scrutiny by regulatory authorities of the loan portfolios of financial
institutions undertaken as part of the examination of institutions by the OTS
and the FDIC.  While the Association believes that it has established an
adequate allowance for loan losses, there can be no assurance that regulators,
in reviewing the Association's loan portfolio, will not request the Association
to materially increase at that time its allowance for loan losses, thereby
negatively affecting the Association's financial condition and earnings at that
time.  Although management believes that adequate specific and general loan loss
allowances have been established, actual losses are dependent upon future events
and, as such, further additions to the level of specific and general loan loss
allowances may become necessary.

     The Association's Internal Asset Review is conducted by an employee
independent of the loan origination and loan servicing functions.  This
individual reviews and classifies the Association's assets monthly and reports
the results of its review to the Board of Directors.  The Association classifies
assets in accordance with the management guidelines described above.  Real
Estate Owned ("REO") is classified as Substandard.  At June 30, 1999, the
Association had $1.2 million of assets classified as Special Mention, $5.1
million of assets classified as Substandard, and $37,000 in assets classified as
Loss.  Loans classified as Special Mention are a result of past delinquencies or
other identifiable weaknesses.  At June 30, 1999, the largest loan classified as
Special Mention had a loan balance of $230,000.

     The Association generally requires appraisals on an annual basis on
foreclosed properties and, to the extent necessary, on impaired loans.  The
Association conducts external inspections on foreclosed properties and certain
other properties as deemed necessary.

                                       9
<PAGE>

     The following table sets forth delinquencies in the Association's loan
portfolio as of the dates indicated:

<TABLE>
<CAPTION>
                                                 At June 30, 1999                                      At June 30, 1998
                            -----------------------------------------------   ---------------------------------------------------
                                   60-89 Days            90 Days or More              60-89 Days               90 Days or More
                            ----------------------   ----------------------   ------------------------   ------------------------
                                        Principal                Principal                  Principal                  Principal
                              Number     Balance       Number     Balance       Number       Balance       Number       Balance
                             of Loans    of Loans     of Loans    of Loans     of Loans      of Loans     of Loans      of Loans
                            ---------- -----------   ---------- -----------   ----------   -----------   ----------   -----------
                                                                        (Dollars in thousands)
<S>                         <C>        <C>           <C>        <C>           <C>          <C>           <C>          <C>
One- to four-family              1     $     94           7     $   1,406          1       $    206           9       $   1,215
Multi-family                     -            -           -             -          -              -           1             570
Commercial                       -            -           -             -          -              -           -               -
Consumer loans                   3           30           7           118          3             59           9             126
                            ------     --------      ------     ---------     ------       --------      ------       ---------
  Total                          4     $    124          14     $   1,524          4       $    265          19       $   1,911
                            ======     ========      ======     =========     ======       ========      ======       =========
Delinquent loans to total
  gross loans                 0.13%        0.03%       0.44%         0.43%      0.13%          0.09%       0.63%           0.64%
</TABLE>

<TABLE>
<CAPTION>
                                                At June 30, 1997
                            -----------------------------------------------------
                                      60-89 Days              90 Days or More
                            -----------------------------------------------------
                                          Principal                 Principal
                              Number       Balance      Number       Balance
                             of Loans     of Loans     of Loans     of Loans
                            ----------   ----------   ----------   ----------
                                             (Dollars in thousands)
<S>                         <C>          <C>          <C>          <C>
One- to four-family                3     $   834             12      $   1,699
Multi-family                       -           -              -              -
Commercial                         -           -              -              -
Consumer loans                     -           -              -              -
                            --------     -------      ---------      ---------
  Total                            3     $   834             12      $   1,699
                            ========     =======      =========      =========
Delinquent loans to total
  gross loans                   0.11%       0.29%          0.46%          0.59%
</TABLE>

                                       10
<PAGE>

     Non-Accrual and Past-Due Loans. The following table sets forth information
regarding non-accrual loans, troubled-debt restructurings and REO. There were
two troubled-debt restructured loans within the meaning of SFAS 15, Accounting
by Debtors and Creditors for Troubled Debt Restructurings, and 5 REO properties
at June 30, 1999. It is the policy of the Association to cease accruing interest
on loans 90 days or more past due. For the years ended June 30, 1999, 1998,
1997, 1996 and 1995, respectively, the amount of interest income that would have
been recognized on nonaccrual loans if such loans had continued to perform in
accordance with their contractual terms was $80,000, $101,000, $77,000, $118,000
and $126,000, none of which was recognized. For the same periods, the amount of
interest income recognized on troubled debt restructurings was $35,000, $55,000,
$55,000, $58,000 and $55,000, respectively.

<TABLE>
<CAPTION>
                                                                                 At June 30,
                                          --------------------------------------------------------------------------------------
                                                1999              1998              1997              1996              1995
                                          --------------    --------------    --------------    --------------    --------------
                                                                           (Dollars in thousands)
<S>                                       <C>               <C>               <C>               <C>               <C>
Non-accrual loans:
  Residential real estate:
    One- to four-family                          $ 1,406            $1,215            $1,699            $  821            $1,507
    Multi-family                                       -               570                 -               473                 -
  Construction and land                                -                 -                 -                 -               415
  Commercial                                           -                 -                 -               668                 -
  Consumer                                           118               126                 -                 -                 -
                                          --------------    --------------    --------------    --------------    --------------
    Total                                          1,524             1,911             1,699             1,962             1,922
REO, net(3)                                          827             1,902             1,150             1,489               822
                                          --------------    --------------    --------------    --------------    --------------
    Total non-performing assets                  $ 2,351            $3,813            $2,849            $3,451            $2,744
                                          --------------    --------------    --------------    --------------    --------------
Restructured loans                               $   446            $  761            $  771            $1,130            $1,545
                                          ==============    ==============    ==============    ==============    ==============
Allowance for loan losses as a percent
  of gross loans receivable(1)                      0.52%             0.48%             0.44%             0.41%             0.36%
Allowance for loan losses as a percent
  of total non-performing loans(2)                121.06%            74.56%            74.34%            53.92%            41.21%
Non-performing loans as a percent
  of gross loans receivable(1)(2)                   0.43%             0.64%             0.59%             0.76%             0.88%
Non-performing assets as a percent
  of total Company assets(2)                        0.50%             0.93%             0.70%             1.03%             1.00%
</TABLE>

------------------------------------------
(1)  Gross loans includes loans receivable held for investment and loans
     receivable held for sale, less undisbursed loan funds, deferred loan fees
     and unamortized premiums and discounts.
(2)  Non-performing assets consist of non-performing loans and REO. Non-
     performing loans consist of non-accrual loans.
(3)  REO balances are shown net of related loss allowances.

                                       11
<PAGE>

     Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses in loans receivable which are deemed probable and estimable.
The allowance is based upon a number of factors, including current economic
conditions, actual loss experience and industry trends. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Association's allowance for loan losses. Such agencies
may require the Association to make additional provisions for loan losses based
upon judgments different from those of management. As of June 30, 1999, the
Association's allowance for loan losses was 0.52% of gross loans as compared to
0.48% as of June 30, 1998. The Association had non-accrual loans of $1.5 million
and $1.9 million at June 30, 1999 and June 30, 1998, respectively. The
Association will continue to monitor and modify its allowances for loan losses
as conditions dictate.

     The Company considers a loan impaired when it is probable that the Company
will be unable to collect all contractual principal and interest payments under
the terms of the loan agreement.  Loans are evaluated for impairment as part of
the Company's normal internal asset review process.  The Company evaluates all
loans in its portfolio on an individual basis with the exception of one- to
four-family residential mortgage loans and consumer lines of credit which are
evaluated on a collective basis.  Also, loans which have delays in payments of
less than four months are not necessarily considered impaired unless other
factors apply to the loans.  The accrual of interest income on impaired loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due.  When the interest accrual is discontinued, all
unpaid accrued interest is reversed.  Interest income is subsequently recognized
only to the extent cash payments are received.  Where impairment is considered
permanent, a charge-off is recorded; where impairment is considered temporary,
an allowance is established.  Impaired loans, which are performing under the
contractual terms, are reported as performing loans, and cash payments are
allocated to principal and interest in accordance with the terms of the loan.

     At June 30, 1999, for those loans which are reviewed individually for
impairment, the Company had classified none of such loans as impaired with no
specific reserves as determined in accordance with SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures.  At
June 30, 1998, for those loans which are reviewed individually for impairment,
the Company had classified $569,000 of its loans as impaired with $100,000 in
specific reserves and none with no specific reserves.  In addition, the Company
has $1.5 million and $1.3 million at June 30, 1999 and 1998, respectively, in
impaired loans which were collectively evaluated for impairment with $238,000 in
reserves set aside as of June 30, 1999 and no reserves as of June 30, 1998.  The
average recorded investment in impaired loans, inclusive of those evaluated
collectively, during the years ended June 30, 1999, 1998, and 1997 was
approximately $1.9 million, $2.9 million, and $1.6 million, respectively.
Interest income on impaired loans of $34,000, $28,000, and $28,000 was
recognized for cash payments received in the years ended June 30, 1999, 1998,
and 1997.

     The following table sets forth activity in the Association's allowance for
loan losses for the periods set forth in the table.

<TABLE>
<CAPTION>
                                                                         At or For the Year Ended June 30,
                                              ------------------------------------------------------------------------------------
                                                   1999              1998              1997              1996              1995
                                              ------------      ------------      ------------      ------------      ------------
                                                                                  (In thousands)
<S>                                           <C>               <C>               <C>               <C>               <C>
Balance at beginning of period                  $    1,425         $   1,263         $   1,058        $      792      $     562
Provision for loan losses                              969               735               557               575            483
Charge-offs:
  Real Estate:
    One- to four-family                                (98)             (545)             (343)             (299)          (247)
    Multi-family                                      (142)                -                 -                 -              -
    Commercial                                           -                 -                 -                 -              -
    Construction and land                                -                 -                 -                 -              -
  Consumer                                            (324)              (28)               (9)              (11)           (11)
                                                ----------         ---------         ---------        ----------      ---------
        Total                                         (564)             (573)             (352)             (310)          (258)
Recoveries                                              15                 -                 -                 1              5
                                                ----------         ---------         ---------        ----------      ---------
Balance at end of period                        $    1,845         $   1,425         $   1,263        $    1,058      $     792
                                                ==========         =========         =========        ==========      =========
</TABLE>

                                       12
<PAGE>

     The following table sets forth the Association's percent of allowance for
loan losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.

<TABLE>
<CAPTION>
                                                        At June 30,
                      -------------------------------------------------------------------------------
                                       1999                                     1998
                      ---------------------------------------   -------------------------------------
                                                  Percent of                               Percent of
                                   Percent of      Loans in                Percent of       Loans in
                                   Allowance         Each                   Allowance         Each
                                   to Total      Category to                to Total      Category to
                       Amount      Allowance     Total Loans     Amount     Allowance     Total Loans
                     ----------   -----------   -------------  ----------  ------------  ------------
<S>                  <C>          <C>           <C>            <C>         <C>           <C>
One- to
 four-family          $     734        39.79%          78.59%   $    616          43.23%      85.04%

Multi-family                469        25.42           13.03         397          27.86        9.93

Commercial                   99         5.37            6.71          89           6.25        4.00

Construction
 and land                     -         0.00            0.00           -           0.00        0.00

Consumer                    439        23.79            1.67         162          11.37        3.03

Unallocated                 104         5.63               -         161          11.29           -
                     -----------  ------------   ------------  -----------  -----------   -----------

 Total               $    1,845       100.00%         100.00%    $ 1,425         100.00%     100.00%
                     ===========  ============   ============  ===========  ===========   ===========

<CAPTION>
                                                           At June 30,
                     --------------------------------------------------------------------------------
                                        1997                                     1996
                     ----------------------------------------   -------------------------------------
                                                 Percent of                               Percent of
                                   Percent of     Loans in                  Percent of     Loans in
                                   Allowance       Each                     Allowance        Each
                                   to Total      Category to                to Total      Category to
                       Amount      Allowance     Total Loans     Amount     Allowance     Total Loans
                     ---------   -------------  --------------  ---------- ------------  ------------
                                                 (Dollars in thousands)
<S>                  <C>         <C>            <C>             <C>         <C>           <C>
One- to
 four-family          $  994         78.70%        87.29%       $  696         65.79%         87.82%

Multi-family             164         12.99          9.50           195         18.43           8.40

Commercial                95          7.52          3.02           153         14.46           3.61

Construction
 and land                  -          0.00          0.00             -          0.00           0.00

Consumer                  10          0.79          0.19            14          1.32           0.17

Unallocated                -             -             -             -             -              -
                     ----------   -----------   -----------   -----------   -----------   -----------

 Total               $ 1,263        100.00%       100.00%      $ 1,058        100.00%        100.00%
                     ==========   ===========   ===========   ===========   ===========   ===========
<CAPTION>
                     ------------------------------------
                                      1995
                     ------------------------------------
                                              Percent of
                                Percent of     Loans in
                                 Allowance      Each
                                  to Total   Category to
                       Amount    Allowance   Total Loans
                     ---------  -----------  ------------
<S>                  <C>        <C>          <C>
One- to
 four-family          $  466         58.84%        85.82%

Multi-family             105         13.26          9.34

Commercial               166         20.96          4.37

Construction
 and land                 42          5.30          0.19

Consumer                  13          1.64          0.28

Unallocated                -             -             -
                     ----------   -----------  -----------

Total                 $  792        100.00%       100.00%
                     ==========   ===========  ===========
</TABLE>

                                      13
<PAGE>

     Real Estate Owned.  At June 30, 1999, the Association had $827,000 of real
estate owned ("REO") as compared to $1,902,000 of REO, net of reserves at June
30, 1998.  The $1.1 million decrease was due primarily to the sale of REO during
the year ended June 30, 1999.  If the Association acquires any REO, it is
initially recorded at the fair value of the related assets at the date of
foreclosure, less costs to sell.  Thereafter, if there is a further
deterioration in value, the Association provides for a specific valuation
allowance and charges operations for the diminution in value.  It is the policy
of the Association to obtain an appraisal on all real estate acquired through
foreclosure at the time of possession.

Investment Activities

     Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured banks
and savings institutions, bankers' acceptances, repurchase agreements and
federal funds.  Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment-grade
corporate debt securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly.  Additionally, the Association must maintain
minimum levels of investments that qualify as liquid assets under OTS
regulations.  See "Regulation - Federal Savings Institution Regulation -
Liquidity."  Historically, the Association has maintained liquid assets above
the minimum OTS requirements and at a level considered to be adequate to meet
its normal daily activities.

     The investment policy of the Company as established by the Board of
Directors attempts to provide and maintain liquidity, generate a favorable
return on investments without incurring undue interest rate and credit risk, and
complement the Company's lending activities. Specifically, the Company's
policies generally limit investments to government and federal agency-backed
securities and other non-government guaranteed securities, including corporate
debt obligations, that are investment grade. The Company's policies provide the
authority to invest in marketable equity securities meeting the Company's
guidelines and in mortgage-backed securities guaranteed by the U.S. government
and agencies thereof and other financial institutions. The Company's policies
provide that all investment purchases must be approved by two officers (either a
Senior Vice President, Executive Vice President or the President) and be
ratified by the Board of Directors. At June 30, 1999, the Company had federal
funds sold and other short-term investments, investment securities and mortgage-
backed securities in the aggregate amount of $93.3 million with a market value
of $92.6 million.

     At June 30, 1999, the Company had $25.8 million in investment securities
consisting primarily of U.S. agency securities and investments in an adjustable
rate mortgage-backed mutual fund and a money market fund investing in short-term
securities.  At June 30, 1999, the majority of the Company's $62.6 million of
mortgage-backed securities were insured or guaranteed by either FNMA, GNMA or
FHLMC, including $24.9 million in mortgage-backed securities available for sale.
Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated prepayments over the life of the security which
may require adjustments to the amortization of any premium or accretion of any
discount relating to such instruments thereby reducing the net yield on such
securities.  There is also reinvestment risk associated with the cash flows from
such securities.  In addition, the market value of such securities may be
adversely affected by changes in interest rates.

                                      14
<PAGE>

     The following table sets forth the composition of the Company's mortgage-
backed securities portfolio in dollar amounts and in percentages of the
portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                                   At June 30,
                                                 --------------------------------------------------------------------------
                                                             1999                     1998                     1997
                                                 --------------------------   ----------------------  ---------------------
                                                                  Percent                  Percent                  Percent
                                                      Amount     of Total      Amount     of Total      Amount     of Total
                                                 ------------- ------------   --------- ------------  ---------- ----------
                                                                             (Dollars in thousands)
<S>                                              <C>           <C>           <C>        <C>           <C>        <C>
Mortgage-backed securities:
  FHLMC                                               $ 3,360        5.43%     $11,163       19.16%     $29,236       39.00%
  FNMA                                                  2,024        3.27        7,118       12.22       13,449       17.94
  GNMA                                                 47,394       76.62       38,106       65.42       29,213       38.97
  Other                                                 9,082       14.68        1,863        3.20        3,061        4.09
                                                 ------------- ------------  ---------- ------------  ---------- ----------
        Total mortgage-backed securities               61,860      100.00%      58,250      100.00%      74,959      100.00%
                                                               ============             ============             ==========
Plus:
  Unamortized premium, net                                728                    1,069                    1,277
                                                 -------------               ----------               ----------
        Total mortgage-backed securities, net          62,588                   59,319                   76,236
Less:
  Mortgage-backed securities available
    for sale:
    FHLMC                                                 361                    5,311                   21,908
    FNMA                                                1,984                    7,965                   13,445
    GNMA                                               22,526                   15,050                        -
    Other                                                   -                    1,057                    1,811
                                                 -------------               ----------               ----------
Mortgage-backed securities
  available for sale                                   24,871                   29,383                   37,164
                                                 -------------               ----------               ----------
Mortgage-backed securities
  held to maturity                                    $37,717                  $29,936                  $39,072
                                                 =============               ==========               ==========
</TABLE>

     The following table sets forth the Company's mortgage-backed securities
activities for the periods indicated:

<TABLE>
<CAPTION>
                                                                                    For the Year Ended June 30,
                                                                     ------------------------------------------------------
                                                                           1999                1998                1997
                                                                     --------------      --------------      --------------
                                                                                          (In thousands)
    <S>                                                              <C>                 <C>                 <C>
    Beginning balance                                                      $ 59,319            $ 76,236             $44,315
       Mortgage-backed securities purchased - held to maturity               20,004                   -              15,451
       Mortgage-backed securities purchased - available for sale             15,106              15,281              35,229
       Less:
         Principal repayments                                               (24,036)            (15,510)             (8,935)
         Sale of mortgage-backed securities available for sale               (6,928)            (16,566)             (9,866)
         (Loss) gain on sale of mortgage-backed securities                       (1)                 33                 161
         Amortization of (premium) discount, net                               (424)               (311)               (209)
         Change in net unrealized (loss) gain on available for sale            (452)                156                  90
                                                                     --------------      --------------      --------------
    Ending balance                                                         $ 62,588            $ 59,319             $76,236
                                                                     ==============      ==============      ==============
</TABLE>

                                       15
<PAGE>

     The following table sets forth certain information regarding the carrying
and market value of the Company's mortgage-backed securities at the dates
indicated:

<TABLE>
<CAPTION>
                                                                       At June 30,
                                    ---------------------------------------------------------------------------------------
                                               1999                           1998                          1997
                                    ---------------------------   ---------------------------   ---------------------------
                                       Carrying        Market        Carrying        Market        Carrying        Market
                                        Value          Value          Value          Value          Value          Value
                                    ------------   ------------   ------------   ------------   ------------   ------------
                                                                     (In thousands)
<S>                                 <C>            <C>            <C>            <C>            <C>            <C>
Mortgage-backed securities:
Held to maturity:
    FNMA                                 $    67        $    68        $   106        $   109        $   208        $   211
    FHLMC                                  3,071          3,046          5,178          5,187          7,745          7,715
    GNMA                                  25,424         24,917         23,829         23,973         29,842         29,575
    Other                                  9,155          8,953            823            820          1,277          1,282
                                    ------------   ------------   ------------   ------------   ------------   ------------
        Total held to maturity            37,717         36,984         29,936         30,089         39,072         38,783
                                    ------------   ------------   ------------   ------------   ------------   ------------
  Available for sale:
    FNMA                                   1,984          1,984          7,965          7,965         13,445         13,445
    FHLMC                                    361            361          5,311          5,311         21,908         21,908
    GNMA                                  22,526         22,526         15,050         15,050              -              -
    Other                                      -              -          1,057          1,057          1,811          1,811
                                    ------------   ------------   ------------   ------------   ------------   ------------
      Total available for sale            24,871         24,871         29,383         29,383         37,164         37,164
                                    ------------   ------------   ------------   ------------   ------------   ------------
        Total mortgage-backed
          securities                     $62,588        $61,855        $59,319        $59,472        $76,236        $75,947
                                    ============   ============   ============   ============   ============   ============
</TABLE>

     The following table sets forth certain information regarding the carrying
and market values of the Company's federal funds sold and other short-term
investments and investment securities at the dates indicated:

<TABLE>
<CAPTION>
                                                                       At June 30,
                                    ---------------------------------------------------------------------------------------
                                               1999                           1998                          1997
                                    ---------------------------   ---------------------------   ---------------------------
                                       Carrying        Market        Carrying        Market        Carrying        Market
                                        Value          Value          Value          Value          Value          Value
                                    ------------   ------------   ------------   ------------   ------------   ------------
                                                                     (In thousands)
<S>                                 <C>            <C>            <C>            <C>            <C>            <C>
Federal funds sold and other
  short-term investments                 $ 4,940        $ 4,940        $16,202        $16,202        $18,600        $18,600
                                    ------------   ------------   ------------   ------------   ------------   ------------
Investment securities:
  Available for sale:
    U.S. government and federal
      agency obligations                   8,831          8,831          8,239          8,239          9,473          9,473
    Mutual and money market funds         12,467         12,467         10,982         10,982          2,994          2,994
    Other equities and bonds               4,518          4,518              -              -              -              -
                                    ------------   ------------   ------------   ------------   ------------   ------------
        Total available for sale          25,816         25,816         19,221         19,221         12,467         12,467
                                    ------------   ------------   ------------   ------------   ------------   ------------
    Total investment securities          $30,756        $30,756        $35,423        $35,423        $31,067        $31,067
                                    ============   ============   ============   ============   ============   ============
</TABLE>

     The following table sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Company's
federal funds sold and other short-term investments and investment securities as
of June 30, 1999.

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                                             At June 30, 1999
                                           ---------------------------------------------------------------------------------------
                                                                  More than One Year    More than Five Years
                                             One Year or Less        to Five Years         to Ten Years       More than Ten Years
                                           --------------------   -------------------   --------------------  -------------------
                                                       Weighted              Weighted               Weighted             Weighted
                                           Carrying    Average    Carrying   Average     Carrying   Average   Carrying   Average
                                            Value       Yield      Value      Yield       Value      Yield     Value      Yield
                                           --------    --------   --------   --------   ---------   --------  --------  ---------
                                                                            (Dollars in thousands)
<S>                                        <C>         <C>        <C>        <C>        <C>         <C>       <C>       <C>
Federal funds sold and other short-term
  investments                              $  4,940        5.12%  $      -       0.00%  $       -     0.00%   $              0.00%
                                           --------               --------              ---------             --------
Investment securities:
  Held to maturity:
    U.S. government and federal agency
      obligations                                 -                      -                      -                    -
                                           --------               --------              ---------             --------
      Total held to maturity                      -        0.00%         -       0.00%          -     0.00%          -       0.00%
                                           --------               --------              ---------             --------
  Available for sale:
    Money market funds and adjustable
      interest rate mutual funds             12,467        4.95%         -                      -                    -
    U.S. government and federal agency
      obligations                                 -                  6,875       6.02%      1,956     6.13%          -
    Other                                         -                      -                  2,283     7.01%      2,235       6.22%
      Total available for sale               12,467        4.95%     6,875       6.02%      4,239     6.60%      2,235       6.22%
                                           --------               --------              ---------             --------
Total investment securities                $ 12,467        4.95%  $  6,875       6.02%  $   4,239     6.60%   $  2,235       6.22%
                                           ========               ========              =========             ========

<CAPTION>
                                                  ---------------------

                                                          Total
                                                  ---------------------
                                                               Weighted
                                                  Carrying     Average
                                                   Value        Yield
                                                  --------     --------
<S>                                               <C>          <C>
Federal funds sold and other short-term
  investments                                     $  4,940         5.12%
                                                  --------
Investment securities:
  Held to maturity:
    U.S. government and federal agency
      obligations                                        -
                                                  --------
      Total held to maturity                             -         0.00%
                                                  --------
  Available for sale:
    Money market funds and adjustable
      interest rate mutual funds                    12,467         4.95%
    U.S. government and federal agency
      obligations                                    8,831         6.04%
    Other                                            4,518         6.62%
                                                  --------
      Total available for sale                      25,816         5.62%
                                                  --------
Total investment securities                       $ 25,816         5.62%
                                                  ========
</TABLE>

                                      17

<PAGE>

Sources of Funds

  General.  Deposits, loan repayments and prepayments, proceeds from sales of
loans, cash flows generated from operations and FHLB advances are primary
sources of the Association's funds for use in lending, investing and for other
general purposes.

  Deposits.  The Association offers a variety of deposit accounts with a range
of interest rates and terms.  The Association's deposits consist of passbook
savings, NOW accounts, checking accounts, money market accounts and certificates
of deposit.  For the year ended June 30, 1999, certificates of deposit
constituted 61.9% of total average deposits.  The flow of deposits is influenced
significantly by general economic conditions, changes in money market rates,
prevailing interest rates and competition.  The Association's deposits are
obtained predominantly from the areas in which its branch offices are located.
During the year ended June 30, 1997, the Association acquired $20.2 million in
deposits from another institution.  The Association relies primarily on customer
service and long-standing relationships with customers to attract and retain
these deposits; however, market interest rates and rates offered by competing
financial institutions significantly affect the Association's ability to attract
and retain deposits.  Certificate accounts in excess of $100,000 are not
actively solicited by the Association nor has the Association since 1992 used
brokers to obtain deposits.

  The following table presents the deposit activity of the Association for the
periods indicated:

<TABLE>
<CAPTION>
                                                                       For the Year Ended June 30,
                                                  --------------------------------------------------------------------
                                                          1999                     1998                    1997
                                                  -------------------     -------------------      -------------------
                                                                         (Dollars in thousands)
<S>                                               <C>                    <C>                       <C>
Net deposits (withdrawals)                              $16,385                 $(5,429)                 $23,345
Deposits acquired by branch purchase                          -                       -                   20,159
Interest credited on deposit accounts                    12,440                  12,371                   10,796
                                                  -------------------     -------------------      -------------------
Total increase in deposit accounts                      $28,825                 $ 6,942                  $54,300
                                                  ===================     ===================      ===================
</TABLE>


       At June 30, 1999, the Association had $57.0 million in certificate
accounts in amounts of $100,000 or more maturing as follows:

<TABLE>
<CAPTION>
                                                                                              Weighted
                 Maturity Period                               Amount                       Average Rate
--------------------------------------------------       -------------------          ------------------------
                                                                      (Dollars in thousands)
<S>                                                      <C>                          <C>
Three months or less                                           $13,418                           5.08%
Over three through six months                                   12,957                           4.83%
Over six through 12 months                                      26,737                           4.94%
Over 12 months                                                   3,914                           5.56%
                                                         -------------------          ------------------------
    Total                                                      $57,026                           4.99%
                                                         ===================          ========================
</TABLE>

                                       18
<PAGE>

    The following table sets forth the distribution of the Association's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented.

<TABLE>
<CAPTION>
                                                                       For the Year Ended June 30,
                                --------------------------------------------------------------------------------------------------
                                                1999                               1998                           1997
                                --------------------------------------------------------------------------------------------------
                                               Percent                            Percent                        Percent
                                               of Total   Weighted                of Total   Weighted            of Total   Weighted
                                  Average      Average    Average     Average     Average    Average   Average   Average    Average
                                  Balance      Deposits    Rate       Balance     Deposits     Rate    Balance   Deposits    Rate
                                -----------  ----------- --------    ---------   ---------- ---------  -------- ---------  --------
                                                                            (Dollars in thousands)
<S>                             <C>          <C>         <C>         <C>         <C>        <C>        <C>      <C>        <C>
Money market savings account     $ 67,399        21.7%      4.55%    $ 31,291      10.7%      4.37%    $ 13,334     5.2%     3.70%
Passbook accounts                  18,413         5.9       1.99       18,516       6.3       2.04       17,432     6.7      2.00
NOW accounts                       21,165         6.8       1.13       21,171       7.3       1.46       20,249     7.8      1.38
Non interest-bearing accounts      11,408         3.7       0.00        7,879       2.7       0.00        3,998     1.6      0.00
                                 --------    --------                --------    ------                --------  ------
  Total                           118,385        38.1%      3.10%      78,857      27.0%      2.60%      55,013    21.3%     2.04%
                                 --------    --------                --------    ------                --------  ------

Certificate accounts:
  Less than six months              8,596         2.8%      4.09%       9,941       3.4%      4.28%      14,487     5.6%     4.09%
  Over six through 12 months       36,627        11.8       4.78       46,615      16.0       5.27       54,112    20.9      5.45
  Over 12 through 24 months       120,774        38.8       5.16      126,606      43.4       5.54       99,151    38.3      5.49
  Over 24 months                   26,406         8.5       5.73       29,144      10.0       5.80       34,987    13.5      5.77
  Local agency certificates            92         0.0       5.10          438       0.2       5.19        1,007     0.4      5.26
                                 --------    --------                --------    ------                --------  -------
    Total certificate accounts    192,495        61.9%      5.13%     212,744      73.0%      5.44%     203,744    78.7%     5.44%
                                 --------    --------                --------    ------                --------  -------
    Total average deposits       $310,880       100.0%      4.36%    $291,601     100.0%      4.67%    $258,757   100.0%     4.71%
                                 ========    ========                ========    ======                ========  ======
</TABLE>


  The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at June 30, 1999.

<TABLE>
<CAPTION>
                                         Period to Maturity from June 30, 1999                              At June 30,
                       ------------------------------------------------------------------------------------------------------------
                           Less than     One to        Two to        Three to      Four to
                           One Year     Two years    Three years    Four years    Five years      1999         1998         1997
                       -------------   ----------   ------------    ----------    ----------   ----------   ----------   ----------
                                                                        (In thousands)
<S>                    <C>             <C>          <C>             <C>           <C>          <C>          <C>          <C>
Certificate accounts:

0 to 4.00%             $       5,591    $       -    $         -    $        -     $       -   $    5,591   $    3,946   $        -
4.01 to 5.00%                118,767        4,706            272             -           631      124,376       34,212       25,557
5.01 to 6.00%                 38,734        3,865          2,756         2,746           836       48,937      141,728      176,487
6.01 to 7.00%                  4,656          494          1,410           382             -        6,942       19,192       19,748
7.01 to 8.00%                     75          146              -             -             -          221          374          604
                       -------------    ---------    -----------    ----------     ---------   ----------   ----------   ----------
  Total                $     167,823    $   9,211    $     4,438    $    3,128     $   1,467   $  186,067   $  199,452   $  222,396
                       =============    =========    ===========    ==========     =========   ==========   ==========   ==========
</TABLE>

                                       19
<PAGE>

Borrowings

     From time to time the Association has obtained advances from the FHLB as an
alternative to retail deposit funds and may do so in the future as part of its
operating strategy.  FHLB advances may also be used to acquire certain other
assets as may be deemed appropriate for investment purposes.  These advances are
collateralized primarily by certain of the Association's mortgage loans and
mortgage-backed securities and secondarily by the Association's investment in
capital stock of the FHLB.  Such advances are made pursuant to several different
credit programs, each of which has its own interest rate and range of
maturities.  The maximum amount that the FHLB will advance to member
institutions, including the Association, fluctuates from time to time in
accordance with the policies of the OTS and the FHLB.  During the year ended
June 30, 1999, the Association repaid approximately $38.0 million in FHLB
advances.  At June 30, 1999, the Association had $108.0 million in outstanding
advances from the FHLB.

     The following table sets forth certain information regarding the
Association's borrowed funds from the FHLB at or for the periods ended on the
dates indicated:

<TABLE>
<CAPTION>
                                                                              At or For the Years Ended June 30,
                                                         -------------------------------------------------------------------------
                                                                  1999                       1998                       1997
                                                         -------------------        -------------------        -------------------
                                                                                   (Dollars in thousands)
<S>                                                      <C>                        <C>                        <C>
FHLB advances:
  Average balance outstanding                                       $ 97,110                    $72,722                    $73,513
  Maximum amount outstanding at
    any month-end during the period                                  108,017                     75,876                     78,172
  Balance outstanding at end of period                               108,002                     70,543                     77,907
  Weighted average interest rate during the period                      5.68%                      6.28%                      6.25%
  Weighted average interest rate at end of period                       5.41%                      6.21%                      6.27%
</TABLE>

     As part of its funding strategy, the Company may obtain funds from approved
securities dealers through securities sold under agreements to repurchase.  The
collateral used in such borrowings is normally agency securities or mortgage-
backed securities.  At June 30, 1999, the Company had no outstanding borrowings.
During the year ended June 30, 1999, the Company repaid approximately $10.3
million of such borrowings.

   The following table sets forth certain information regarding the
Association's borrowed funds from securities sold under agreements to repurchase
at or for the periods ended on the dates indicated:

<TABLE>
<CAPTION>
                                                                          At or For the Years Ended June 30,
                                                     -------------------------------------------------------------------------
                                                              1999                       1998                       1997
                                                     -------------------        -------------------        -------------------
                                                                               (Dollars in thousands)
<S>                                                  <C>                       <C>                         <C>
Securities sold under agreements to repurchase
  Average balance outstanding                                    $ 3,831                     $6,528                     $8,729
  Maximum amount outstanding at any
    month-end during the period                                   10,300                      9,450                      9,600
  Balance outstanding at end of period                                 -                      6,000                      9,430
  Weighted average interest rate during the
   period                                                           5.62%                      6.04%                      5.93%
  Weighted average interest rate at end of period                      -                       6.05%                      5.95%
</TABLE>


Subsidiary Activities

   First Covina Service Company, a wholly-owned subsidiary of the Association,
acts as trustee for deeds of trust on behalf of the Association and offers non-
insured investment products such as tax-deferred annuities and mutual funds
through licensed representatives.  The assets of First Covina primarily consist
of a $625,000 loan to the Association.  Other than interest on the note to the
Association, First Covina Service Company earns commissions on the sale of tax-
deferred annuities and mutual funds.

                                       20
<PAGE>

Personnel

   As of June 30, 1999, the Company had 83 full-time employees and 32 part-time
employees.  The employees are not represented by a collective bargaining unit
and the Company considers its relationship with its employees to be good.


REGULATION AND SUPERVISION

General

   As a savings and loan holding company, the Company is required by federal law
to file reports with, and otherwise comply with, the rules and regulations of
the OTS.  The Association is subject to extensive regulation, examination and
supervision by the OTS, as its primary federal regulator, and the FDIC, as the
deposit insurer.  The Association is a member of the Federal Home Loan Bank
("FHLB") and its deposit accounts are insured up to applicable limits by the
Savings Association Insurance Fund ("SAIF") managed by the FDIC.  The
Association must file reports with the OTS and the FDIC concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions.  The OTS and/or the FDIC conduct
periodic examinations to test the Association's safety and soundness and
compliance with various regulatory requirements.  This regulation and
supervision established a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors.  The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes.  Any change in such regulatory
requirements and policies, whether by the OTS, the FDIC or the Congress, could
have a material adverse impact on the Company, the Association and their
operations.  Certain of the regulatory requirements applicable to the
Association and to the Company are referred to below or elsewhere herein.  The
description of statutory provisions and regulations applicable to savings
institutions and their holding companies set forth in this proxy statement does
not purport to be a complete description of such statutes and regulations and
their effects on the Company and the Association.

Holding Company Regulation

   The Company is a nondiversified unitary savings and loan holding company
within the meaning of federal law.  As a unitary savings and loan holding
company, the Company generally is not restricted under existing laws as to the
types of business activities in which it may engage, provided that the
Association continues to be a qualified thrift lender.  See "Federal Savings
Institution Regulation--QTL Test."  Upon any non-supervisory acquisition by the
Company of another savings institution or savings bank that meets the qualified
thrift lender test and is deemed to be a savings institution by the OTS, the
Company would become a multiple savings and loan holding company (if the
acquired institution is held as a separate subsidiary) and would generally be
limited to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the
OTS, and certain activities authorized by OTS regulation.

   A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written approval
of the OTS and from acquiring or retaining control of a depository institution
that is not insured by the FDIC.  In evaluating applications by holding
companies to acquire savings institutions, the OTS considers the financial and
managerial resources and future prospects of the Company and institution
involved, the effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and competitive factors.

   The OTS may not approve any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies and (ii) the acquisition of a
savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions.  The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.

                                       21
<PAGE>

   Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions, as described below.  The Association must
notify the OTS 30 days before declaring any dividend to the Company.  In
addition, the financial impact of a holding company on its subsidiary
institution is a matter that is evaluated by the OTS and the agency has
authority to order cessation of activities or divestiture of subsidiaries deemed
to pose a threat to the safety and soundness of the institution.

Federal Savings Institution Regulation

   Business Activities.  The activities of federal savings institutions are
governed by federal law and regulations.  These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage.  In particular, many types of lending authority for a federal
association, e.g., commercial, non-residential real property loans and consumer
loans, are limited to a specified percentage of the institution's capital or
assets.

   Capital Requirements.  The OTS capital regulations require savings
institutions to meet three minimum capital standards:  a 1.5% tangible capital
ratio, a 3% leverage ratio and an 8% risk-based capital ratio.  In addition, the
prompt corrective action standards discussed below also establish, in effect, a
minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions
receiving the highest rating on the CAMEL financial institution rating system),
and, together with the risk-based capital standard itself, a 4% Tier I risk-
based capital standard.  The OTS regulations also require that, in meeting the
tangible, leverage and risk-based capital standards, institutions must generally
deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.

   The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively.  In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset.  Core (Tier I) capital is defined as
common stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships.  The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets and up to 45% of
unrealized gains on available-for-sale equity securities with readily
determinable fair values.  Overall, the amount of supplementary capital included
as part of total capital cannot exceed 100% of core capital.

   The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements.  For the present time, the OTS has deferred implementation
of the interest rate risk component.  At June 30, 1999, the Association met each
of its capital requirements.

   The following table presents the Association's capital position at June 30,
1999.

<TABLE>
<CAPTION>
                                                                     Excess                      Capital
                                                                                  ----------------------------------
                                Actual           Required         (Deficiency)          Actual            Required
                                Capital           Capital            Amount            Percent            Percent
                           ---------------   ---------------   ---------------    ---------------    ---------------
                                                             (Dollars in thousands)
<S>                        <C>               <C>             <C>                  <C>                <C>
Tangible                       $30,994           $ 7,034            $23,960             6.61%              1.50%
Core (Leverage)                 30,994            14,068             16,926             6.61               3.00
Risk-based                      32,601            19,544             13,057            13.34               8.00
</TABLE>

                                       22
<PAGE>

   Prompt Corrective Regulatory Action.  The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization.  Generally, a
savings institution that has a ratio of total capital to risk-weighted assets of
less than 8%, a ratio of Tier I (core) capital to risk-weighted assets of less
than 4% or a ratio of core capital to total assets of less than 4% (3% or less
for institutions with the highest examination rating) is considered to be
"undercapitalized."  A savings institution that has a total risk-based capital
ratio less than 6%, a Tier I capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized."  Subject to a narrow
exception, the OTS is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized."  The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date a savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized."  Compliance
with the plan must be guaranteed by any parent holding company.  In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion.  The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.

   Insurance of Deposit Accounts.  Deposits of the Association are presently
insured by the SAIF.  The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information.  An institution's assessment rate depends upon
the categories to which it is assigned.  Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.

   In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the SAIF.  During 1998,
FICO payments for SAIF members, including the Association, approximated 6.10
basis points, while Bank Insurance Fund ("BIF") members paid 1.22 basis points.
By law, there will be equal sharing of FICO payments between SAIF and BIF
members on the earlier of January 1, 2000 or the date the SAIF and BIF are
merged.  The FDIC has authority to increase insurance assessments.  A
significant increase in SAIF insurance premiums would likely have an adverse
effect on the operating expenses and results of operations of the Association.
Management cannot predict what insurance assessment rates will be in the future.

   Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS.  The
management of the Association does not know of any practice, condition or
violation that might lead to termination of deposit insurance.

   Thrift Rechartering Legislation.  Legislation enacted in 1996 provided that
the BIF and SAIF were to have merged on January 1, 1999 if there are no more
savings associations as of that date.  Various proposals to eliminate the
federal savings association charter, create a uniform financial institutions
charter, abolish the OTS and restrict savings and loan holding company
activities have been introduced in Congress.  The Association is unable to
predict whether such legislation will be enacted or the extent to which the
legislation would restrict or disrupt its operations.

   Loans to One Borrower.  Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks.  A savings institution may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus.  An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral.  At June 30,
1999, the Association's limit on loans to one borrower was $4.6 million, and the
Association's largest aggregate outstanding balance of loans to one borrower
totaled $3.1 million.

   QTL Test.  The HOLA requires savings institutions to meet a qualified thrift
lender test.  Under the test, a savings association is required to either
quality as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain

                                       23
<PAGE>

"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least nine
months out of each 12 month period.

   A savings institution that fails the qualified thrift lender test is subject
to certain operating restrictions and may be required to convert to a bank
charter.  As of June 30, 1999, the Association met the qualified thrift lender
test.  Recent legislation has expanded the extent to which education loans,
credit card loans and small business loans may be considered "qualified thrift
investments."

   Limitation on Capital Distributions.  OTS regulations impose limitations upon
all capital distributions by a savings institution, including cash dividends,
payments to repurchase its shares and payments to shareholders of another
institution in a cash-out merger.  The rule effective in 1998 established three
tiers of institutions based primarily on an institution's capital level.  An
institution that exceeded all capital requirements before and after a proposed
capital distribution ("Tier I Bank") and had not been advised by the OTS that it
was in need of more than normal supervision, could, after prior notice but
without obtaining approval of the OTS, make capital distributions during the
calendar year equal to the greater of (i) 100% of its net earnings to date
during the calendar year plus the amount that would reduce by one-half the
excess capital over its capital requirements at the beginning of the calendar
year or (ii) 75% of its net income for the previous four quarters.  Any
additional capital distributions required prior regulatory approval.  At June
30, 1999, the Association was a Tier I Bank.  Effective April 1, 1999, the OTS's
capital distribution regulation changed.  Under the new regulation, an
application to and the prior approval of the OTS will be required prior to any
capital distribution if the institution does not meet the criteria for
"expedited treatment" of applications under OTS regulations (i.e., generally,
examination ratings in the two top categories), the total capital distributions
for the calendar year exceed net income for that year plus the amount of
retained net income for the preceding two years, the institution would be
undercapitalized following the distribution or the distribution would otherwise
be contrary to a statute, regulation or agreement with OTS.  If an application
is not required, the institution must still provide prior notice to OTS of the
capital distribution.  In that it was in need of more than normal supervision,
the Association's ability to make capital distributions could be restricted.  In
addition, the OTS could prohibit a proposed capital distribution by any
institution, which would otherwise be permitted by the regulation, if the OTS
determines that such distribution would constitute an unsafe or unsound
practice.

   Liquidity.  The Association is required to maintain an average daily balance
of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings.  This liquidity requirement is currently 4%, but may be changed from
time to time by the OTS to any amount within the range of 4% to 10%.  Monetary
penalties may be imposed for failure to meet these liquidity requirements.  The
Association has never been subject to monetary penalties for failure to meet its
liquidity requirements.

   Assessments.  Savings institutions are required to pay assessments to the OTS
to fund the agency's operations.  The general assessments, paid on a semi-annual
basis, are computed upon the savings institution's total assets, including
consolidated subsidiaries, as reported in the Association's latest quarterly
thrift financial report.

   Transactions with Related Parties.  The Association's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law.  The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
capital and surplus of the savings institution.  The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus.  Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in federal law.  The
purchase of low quality assets from affiliates is generally prohibited.  The
transactions with affiliates must be on terms and under circumstances that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies.  In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.

   The Association's authority to extend credit to executive officers, directors
and 10% shareholders ("insiders"), as well as entities such persons control, is
also governed by federal law.  Such loans are required to be made on terms
substantially the same as those offered to unaffiliated individuals and not
involve more than the normal risk of repayment.  Recent legislation created an
exception for loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does not give
preference to

                                       24
<PAGE>

insiders over other employees. The law limits both the individual and aggregate
amount of loans the Association may make to such insiders based, in part, on the
Association's capital position and requires certain board approval procedures to
be followed.

   Enforcement.  The OTS has primary enforcement responsibility over savings
institutions and has the authority to bring actions against the institution and
all institution-affiliated parties, including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution.  Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to removal of officers and/or directors to institution of
receivership, conservatorship or termination of deposit insurance.  Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
even $1 million per day in especially egregious cases.  The FDIC has the
authority to recommend to the Director of the OTS that enforcement action to be
taken with respect to a particular savings institution.  If action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances.  Federal law also establishes criminal penalties for certain
violations.

   Standards for Safety and Soundness.  The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired.  If the OTS determines that a
savings institution fails to meet any standard prescribed by the guidelines, the
OTS may require the institution to submit an acceptable plan to achieve
compliance with the standard.

Federal Reserve System

   The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts).  The regulations generally
provide that reserves be maintained against aggregate transaction accounts as
follows: for accounts aggregating $46.5 million or less (subject to adjustment
by the Federal Reserve Board), the reserve requirement is 3%; and for accounts
aggregating greater than $46.5 million, the reserve requirement is $1.395
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $46.5
million.  The first $4.9 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements.  The Association complies with the foregoing requirements.


FEDERAL AND STATE TAXATION

Federal Taxation

   General.  The Company and the Association report their income on a fiscal
year ending June 30 using the accrual method of accounting and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Association's reserve for bad debts
discussed below.  The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Association or the Company.

   Bad Debt Reserve.  For tax years beginning prior to January 1, 1996, savings
institutions such as the Association which met certain definitional tests
primarily related to their assets and the nature of their business ("qualified
institutions") were permitted to establish a reserve for bad debts ("reserve
method").  Annual additions to the reserve, within specified formula limits, may
be deducted in arriving at taxable income.

   Under the reserve method, qualifying institutions were generally allowed to
use either of two alternative computations:  Under the "percentage of taxable
income" method computation, qualifying institutions could claim a bad debt
deduction computed as a percentage of taxable income adjusted for certain items.
Alternatively, a qualifying institution could elect to utilize its own bad debt
loss experience to compute its annual addition to its bad debt reserves (the
"experience method").

                                       25
<PAGE>

   Under Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, savings associations were not required to provide a federal
deferred tax liability for the bad debt reserves that arose in tax years
beginning before January 1, 1988.  Such reserves were, however, subject to
recapture in whole or in part upon the occurrence of certain events such as
failure to remain a qualified institution, distributions to shareholders in
excess of the association's current and accumulated earnings and profits, a
redemption of shares, or upon a partial or complete liquidation of the
association.  Upon the occurrence of such events, the association would be
required to provide federal deferred taxes in their financial statements for the
recaptured portion of the tax reserve.

   Legislation enacted in 1996 repealed the special bad debt rules applicable to
savings associations for taxable years beginning after December 31, 1995.  Under
these provisions, savings associations will follow the same rules for purposes
of computing allowable bad debt deductions as banks, which allows an annual
addition to the association's bad debt reserve under the experience method as
long as total assets do not exceed $500 million, but does not allow for an
addition based on the percentage of taxable income method.

   Under the 1996 Legislation, if a savings association converts to a bank or is
merged into a bank, the association's bad debt reserve will not automatically be
subject to recapture.  Recapture of the grandfathered bad debt reserve would
still occur in the event of certain distributions, redemptions or partial
liquidations, as previously discussed.  As of June 30, 1999, the Association's
tax bad debt reserve grandfathered under the new law for which federal deferred
taxes have not been provided totaled approximately $2.7 million.  The
Association does not intend to pay dividends or enter into any other type of
transaction as noted above, that would result in the recapture of any portion of
its grandfathered bad debt reserve.

State and Local Taxation

   State of California.  The California franchise tax rate applicable to the
Association equals the franchise tax rate applicable to corporations generally,
plus an "in lieu" rate approximately equal to personal property taxes and
business license taxes paid by such corporations (but not generally paid by
banks or financial corporations such as the Association); however, the total tax
rate is approximately 10.84%.  Under California regulations, bad debt deductions
are available in computing California franchise taxes using a three or six year
weighted average loss experience method.  The Association and its California
subsidiary file California state franchise tax returns on a combined basis.

   Delaware Taxation.  As a Delaware holding company not earning income in
Delaware, the Company is exempted from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.


Item 2. Properties
------------------

   The Company neither owns nor leases any real property.  For the time being,
it utilizes the property and equipment of the Association without payment to the
Association.

   The Association conducts its business through an administrative and full
service office located in West Covina and seven other full service offices.  The
Company believes that the Association's current facilities are adequate to meet
the present and immediately foreseeable needs of the Association and the
Company.

                                       26
<PAGE>

<TABLE>
<CAPTION>
                                                                     Original                                Net Book Value
                                                                       Year                                  of Property or
                                                     Leased           Leased            Date of                 Leasehold
                                                       or               or               Lease               Improvements at
                  Location                           Owned           Acquired          Expiration             June 30, 1999
---------------------------------------------   --------------   ---------------   -----------------      ------------------------
<S>                                             <C>              <C>               <C>                    <C>
Administrative/Branch Office:

225 North Barranca Street                           Owned              1984                    -                  $1,347,000
West Covina, California  91791

Branch Offices:

Covina:
   144 North Second Avenue                          Owned              1952                    -                     107,000
   Covina, California  91723

Hacienda Heights:
   2233 South Hacienda Boulevard                    Owned              1970                    -                     454,000
   Hacienda Heights, California  91745

La Verne:
   2111 Bonita Avenue                               Owned              1972                    -                     176,000
   La Verne, California  91750

City of Industry:
   220 North Hacienda Boulevard                     Leased             1977              9/30/03(1)                        -
   City of Industry, California  91744

Arcadia:
   One East Foothill Boulevard                      Leased             1986             12/31/05                      18,000
   Arcadia, California  91006

North La Verne:
   1413 Foothill Boulevard                          Leased             1997              1/31/00                       7,000
   La Verne, California  91750

Duarte:
   1475 East Huntington Drive                       Leased             1997              6/30/05                      41,000
   Duarte, California  91010
</TABLE>

---------------------------------------------
(1)  The Association has options to extend the lease term for four consecutive
     five-year periods.


Item 3.  Legal Proceedings
--------------------------

     The Company is not involved in any pending legal proceeding other than
routine proceedings occurring in the ordinary course of business, which in the
aggregate are believed by management to be immaterial to the Company's financial
condition or results of operations of the Company.


Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

     None.

                                       27
<PAGE>

                                    PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters
------------------------------------------------------------------------------

     The Common Stock of SGV Bancorp, Inc., is traded over-the-counter on
the NASDAQ Stock Market under the symbol "SGVB."  To date, the Company has not
paid a dividend to its shareholders.  As of June 30, 1999, there were 192
holders of record of the Common Stock of the Company (not including the number
of persons holding stock in nominee or street name through various nominee
holders), and 2,176,323 shares outstanding.  The following table sets forth for
the quarters indicated the range of high and low bid price information for the
common stock of the Company as reported on the NASDAQ National Market.

<TABLE>
<CAPTION>
                                                         Year Ended June 30, 1999
                    -------------------------------------------------------------------------------------------------
                        4/th/ Quarter            3/rd/ Quarter            2/nd/ Quarter             1/st/ Quarter
                    --------------------     --------------------     --------------------     ----------------------
<S>                 <C>                      <C>                      <C>                      <C>
High                      19 3/4                   13 1/2                   13 1/4                    17 1/16
Low                       10 3/8                   10                       12                        11 1/2
</TABLE>

<TABLE>
<CAPTION>
                                                         Year Ended June 30, 1998
                    -------------------------------------------------------------------------------------------------
                        4/th/ Quarter            3/rd/ Quarter            2/nd/ Quarter             1/st/ Quarter
                    --------------------     --------------------     --------------------     ----------------------
<S>                 <C>                      <C>                      <C>                      <C>
High                      19                       18 1/4                   19 3/4                     17 7/8
Low                       17 1/4                   16                       17 1/8                     13 3/4
</TABLE>


Item 6.  Selected Financial Data
--------------------------------

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY

<TABLE>
<CAPTION>
                                                                                   At June 30,
                                                 -----------------------------------------------------------------------------
                                                   1999             1998             1997             1996             1995
                                                 -----------------------------------------------------------------------------
                                                                                 (In thousands)
<S>                                              <C>              <C>              <C>              <C>              <C>
Selected Financial Condition Data:
Total assets                                     $468,730         $408,346         $409,340         $336,055         $273,396
Investment securities available for sale           25,816           19,221           12,467           14,904            1,000
Investment securities held to maturity                  -                -                -                -            3,200
Mortgage-backed securities
  available for sale                               24,871           29,383           37,164           16,614            3,614
Mortgage-backed securities
  held to maturity                                 37,717           29,936           39,072           27,701           15,735
Loans receivable held for sale                        100              391              230              723                -
Loans receivable held for investment, net (1)     354,989          295,739          284,608          255,953          217,399
Deposit accounts                                  324,106          295,281          288,339          234,039          204,264
FHLB advances                                     108,002           70,543           77,907           67,509           33,447
Stockholders' equity, substantially restricted     32,371           32,233           29,903           31,586           33,006
</TABLE>

                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                                          For the Year Ended June 30,
                                         -----------------------------------------------------------------------------------------
                                                 1999              1998              1997              1996              1995
                                         -----------------   ---------------   ---------------   ---------------   ---------------
<S>                                      <C>                 <C>               <C>               <C>               <C>
Selected Operating Data:
Interest income                          $          31,778   $        29,602   $        26,700   $        21,259   $        17,855
Interest expense                                    19,370            18,661            17,138            13,304            10,900
                                         -----------------   ---------------   ---------------   ---------------   ---------------
  Net interest income before provision
    for loan losses                                 12,408            10,941             9,562             7,955             6,955
Provision for loan losses                              969               735               557               575               483
                                         -----------------   ---------------   ---------------   ---------------   ---------------
  Net interest income after provision
    for loan losses                                 11,439            10,206             9,005             7,380             6,472
Other income                                         1,933             1,368             1,061               883               755
Other expenses                                       9,081             9,043             8,801             7,237             6,922
                                         -----------------   ---------------   ---------------   ---------------   ---------------
Earnings before income taxes                         4,291             2,531             1,265             1,026               305
Income taxes                                         1,743             1,044               534               432               128
                                         =================   ===============   ===============   ===============   ===============
Net earnings                             $           2,548   $         1,487   $           731   $           594   $           177
                                         =================   ===============   ===============   ===============   ===============
Earnings per share - basic               $            1.16   $          0.63   $          0.29   $          0.22          N/A
                                         =================   ===============   ===============   ===============   ===============
Earnings per share - diluted             $            1.13   $          0.60   $          0.29   $          0.22          N/A
                                         =================   ===============   ===============   ===============   ===============
</TABLE>

<TABLE>
<CAPTION>
Selected Financial Ratios and
Other Data (2):
Performance Ratios:
<S>                                               <C>                <C>                <C>                <C>              <C>
  Return on average assets                          0.57%              0.37%              0.20%              0.20%            0.07%
  Return on average equity                          8.04               4.80               2.38               1.81             1.16
  Average equity to average assets                  7.06               7.62               8.22              11.00             5.86
  Equity to total assets at end of period           6.91               7.89               7.31               9.40            12.07
  Average interest rate spread (3)                  2.54               2.40               2.27               2.28             2.61
  Net interest margin (4)                           2.88               2.78               2.65               2.76             2.79
  Average interest-earning assets to
    average interest-bearing liabilities          107.59             108.22             107.98             110.37           103.97
  General and administrative expenses
    to average assets (5)(8)                        2.08               2.19               2.40               2.33             2.58
Regulatory Capital Ratios:
  Tangible capital                                  6.61%              6.86%              6.34%              7.63%            9.04%
  Core capital                                      6.61               6.86               6.34               7.63             9.04
  Risk-based capital                               13.34              15.08              14.43              16.51            18.56
Asset Quality Ratios:
  Non-performing loans as a percent of
    gross loans receivable (6)(7)                   0.43%              0.64%              0.59%              0.76%            0.88%
  Non-performing assets as a percent
   of total assets (7)                              0.50               0.93               0.70               1.03             1.00
  Allowance for loan losses as a percent of
    gross loans receivable (6)                      0.52               0.48               0.44               0.41             0.36
  Allowance for loan losses as a percent of
    non-performing loans (7)                      121.06              74.56              74.34              53.92            41.21
Number of full-service customer facilities             8                  8                  8                  6                6
</TABLE>

-------------------------------------------------------------
(1)  The allowance for loan losses at June 30, 1999, 1998, 1997, 1996 and 1995
     was $1,845,000, $1,425,000, $1,263,000, $1,058,000, and $792,000,
     respectively.
(2)  Asset Quality Ratios and Regulatory Capital Ratios are end of period
     ratios.  With the exception of end of period ratios, all ratios are based
     on average monthly balances during the indicated periods and are annualized
     where appropriate.
(3)  The average interest rate spread represents the difference between the
     weighted average yield on interest-earning assets and the weighted average
     cost of interest-bearing liabilities.
(4)  The net interest margin represents net interest income as a percent of
     average interest-earning assets.
(5)  Includes the one-time special assessment to recapitalize SAIF of $1.3
     million in 1997.
(6)  Gross loans receivable include loans receivable held for investment and
     loans held for sale, less undisbursed loan funds, deferred loan fees and
     unamortized discounts/premiums.
(7)  Non-performing assets consist of non-performing loans and real estate
     acquired through foreclosure ("REO").  Non-performing loans consist of all
     loans 90 days or more past due.  It is the Association's policy to cease
     accruing interest on all such loans.
(8)  Excludes net gain (loss) on real estate acquired through foreclosure for
     periods ended June 30, 1999, 1998, 1997, 1996 and 1995 of $255,000,
     $(109,000), $157,000, $(271,000) and $(217,000), respectively.

                                       29
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations
-------------

Management of Interest Rate Risk

   The principal objective of the Association's interest rate risk management
function is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Association's
business focus, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with Board approved
guidelines.  Through such management, the Association seeks to reduce the
vulnerability of its operations to changes in interest rates.  The Association
monitors its interest rate risk as such risk relates to its operating
strategies.  The Association's Board of Directors has established an
Asset/Liability Committee, responsible for reviewing its asset/liability
policies and interest rate risk position, which meets monthly and reports trends
to the Board of Directors on a monthly basis and the Association's interest rate
risk position on a quarterly basis.  The extent of the movement of interest
rates, higher or lower, is an uncertainty that could have a negative impact on
the earnings of the Association.

   In recent years, the Association has utilized the following strategies to
manage rate risk: (i) emphasizing the origination or purchase of adjustable-rate
one- to four-family mortgage loans for portfolio; (ii) selling to the secondary
market the majority of fixed-rate mortgage loans originated; and, (iii)
attempting to reduce the overall interest rate sensitivity of liabilities
emphasizing core and longer-term deposits and utilizing FHLB advances.

   Net Portfolio Value.  The Association's interest rate sensitivity is
monitored by management through the use of an internally generated model which
estimates the change in net portfolio value ("NPV") over a range of interest
rate scenarios.  NPV is the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts.  An NPV Ratio, in any interest rate
scenario, is defined as the NPV in that scenario divided by the market value of
assets in the same scenario.  The Sensitivity Measure is the decline in the NPV
Ratio, in basis points, caused by a 2% increase or decrease in rates, whichever
produces a larger decline.  The higher an institution's Sensitivity Measure is,
the greater its exposure to interest rate risk is considered to be.  The OTS
also produces a similar analysis using its own model, based upon data submitted
on the Association's quarterly Thrift Financial Reports.

   As of June 30, 1999, the Association's Sensitivity Measure, as measured by
the OTS, was 2.13%.  At that same date, the Sensitivity Measure as measured by
the Association, was 1.62%.  The differences between the two measurements is
partially attributed to differences in assigning various prepayment rates, decay
rates and discount rates.  The Association compares the results from the OTS
with its internally generated results and provides the Board of Directors a
comparison to determine if there is any additional risk.

   In addition to monitoring selected measures of NPV, management also monitors
effects on net interest income resulting from changes in interest rates.  These
measures are used in conjunction with NPV measures to identify potential
interest rate risk.  The Association projects net interest income for the next
12 month period, based upon certain specific assumptions.  For the years ended
June 30, 1999, 1998 and 1997, the forecasted net interest income in the existing
rate environment (held constant for the period) for interest rate risk
management purposes was $11.5 million, $10.2 million, and $8.1 million,
respectively, compared to the actual net interest income recorded of $12.4
million, $10.9 million, and $9.6 million, respectively.

   Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements.  Modeling changes in NPV requires the making of
certain assumptions which may tend to oversimplify the manner in which actual
yields and costs respond to changes in market interest rates.  First, the models
assume that the composition of the Association's interest sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured.  Second, the models assume that a particular change in
interest rates is reflected uniformly across the yield curve regardless of
duration to maturity or repricing of specific assets and liabilities.  Third,
the model does not take into account the Association's business or strategic
plans.  Accordingly, although the NPV measurements and interest income models do
provide an indication of the Association's interest rate risk exposure at a
particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
the Association's net interest income and will differ from actual results.

                                       30
<PAGE>

   The following table sets forth, at June 30, 1999 and June 30, 1998, an
analysis of the Association's internal report of its interest rate risk measured
by the estimated changes in the NPV resulting from instantaneous and sustained
parallel shifts in the yield curve (300 basis points, measured in 100 basis
point increments).


<TABLE>
<CAPTION>
            Change in
          Interest Rates                                                 Net Portfolio Value - June 30, 1999
                                                      -----------------------------------------------------------------------
         In Basis Points                                                              Change                    Change
           (Rate Shock)                                       Amount                    $                         %
----------------------------------                    --------------------     --------------------      --------------------
                                                                              (Dollars in thousands)
<S>                                                   <C>                      <C>                       <C>
               300                                            $26,429                $(14,378)                   (35.2)%
               200                                             32,065                  (8,742)                   (21.4)
               100                                             36,939                  (3,868)                    (9.5)
                --                                             40,807                       -                        -
              (100)                                            39,691                  (1,115)                    (2.7)
              (200)                                            39,976                    (831)                    (2.0)
              (300)                                            41,642                     836                      2.1
</TABLE>

<TABLE>
<CAPTION>
            Change in
          Interest Rates                                                 Net Portfolio Value - June 30, 1998
                                                      -----------------------------------------------------------------------
         In Basis Points                                                              Change                    Change
           (Rate Shock)                                       Amount                    $                         %
----------------------------------                    --------------------     --------------------      --------------------
                                                                              (Dollars in thousands)
<S>                                                   <C>                      <C>                       <C>
               300                                            $29,977                $(10,133)                   (25.2)%
               200                                             35,258                  (4,852)                   (12.1)
               100                                             38,861                  (1,250)                    (3.1)
                --                                             40,111                       -                        -
              (100)                                            39,419                    (692)                    (1.7)
              (200)                                            40,939                     828                      2.1
              (300)                                            40,943                     832                      2.1
</TABLE>

     At June 30, 1999, the Association was generally more sensitive to rising
interest rates than was evident at June 30, 1998.  The increased sensitivity was
due to an overall increase in rates at June 30, 1999 as compared to June 30,
1998, the increase in the amount of fixed-rate loans in the Association's
portfolio and the additional amount of short-term borrowings held at June 30,
1999 versus June 30, 1998.  In regards to the higher level of short-term
borrowings, the intent of the Association was to payoff a significant portion of
such borrowings with the proceeds received from the acquisition of two branches
from Citibank Savings.  The deposits acquired from Citibank include
approximately 36% in core deposits which are less sensitive to changes in
interest rates and are expected to reduce the Association's change in NPV in
rising rate environments.

                                       31
<PAGE>

     The following table provides information regarding the Company's primary
categories of assets and liabilities which are sensitive to changes in interest
rates.  The information presented reflects the expected cash flows of the
primary categories by year including the related weighted average interest rate.
The cash flows for loans and mortgage-backed securities are based on maturity
date and are adjusted for expected prepayments which are based on historical and
current market information.  The loans and mortgage-backed securities which have
adjustable rate features are presented in accordance with their next interest-
repricing date.  Cash flow information on interest-bearing liabilities such as
passbooks, NOW accounts and money market accounts also is adjusted for expected
decay rates which are based on historical information.  Also, for purposes of
cash flow presentation, premiums or discounts on purchased assets, mark-to-
market adjustments and loans on non-accrual are excluded from the amounts
presented.  Investment securities are presented as to maturity date as are all
certificates of deposit and borrowings.

<TABLE>
<CAPTION>
(Dollars in thousands)                            Year 1       Year 2      Year 3      Year 4      Year 5     Thereafter
                                                ---------    ---------   ---------   ---------   ---------   ------------
<S>                                             <C>          <C>         <C>         <C>         <C>         <C>
Interest Sensitive Assets:
  Investments and Fed Funds                       $ 21,440     $     -     $ 2,000     $ 2,000     $ 5,000      $       -
     Average interest rate                            5.11%          -        6.52%       6.88%       6.65%             -

  Mortgage-backed securities - fixed-rate            6,698       5,842       5,085       4,433       3,758         23,586
     Average interest rate                            7.07%       7.07%       7.08%       7.08%       7.10%          7.17%

  Mortgage-backed securities - adjustable rate      12,911           -           -           -           -              -
     Average interest rate                            5.63%          -           -           -           -              -

  Loans - fixed rates                               14,313      11,537       9,575      13,347       5,989         37,057
     Average interest rate                            7.79%       7.74%       7.70%       7.97%       7.55%          7.53%

  Loans - adjustable rates                         226,727      18,795       8,207           -           -          9,074
     Average interest rate                            7.61%       7.77%       7.74%          -           -           8.17%

Interest Sensitive Liabilities:
  Interest-bearing NOW passbook and MMDAs           34,307      24,400      17,427      12,511       9,037         27,357
     Average interest rate                            3.83%       3.76%       3.67%       3.58%       3.47%          2.80%

  Certificates of deposit                          167,823       9,211       4,438       3,128       1,467              -
     Average interest rate                            4.78%       5.03%       5.74%       5.57%       4.95%             -

  FHLB advances                                     46,071      24,154      26,639       1,138      10,000              -
     Average interest rate                            5.65%       5.52%       4.96%       6.49%       5.07%             -
</TABLE>


     The Company does not have any foreign exchange exposure nor any commodity
exposure and therefore does not have any market risk exposure for these issues.

                                       32
<PAGE>

Average Balance Sheet

     The following table sets forth certain information relating to the Company
for the fiscal years ended June 30, 1999, 1998 and 1997.  The yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown.  Average balances are derived
from average month-end balances.  Management does not believe that the use of
average monthly balances instead of average daily balances has caused any
material differences in the information presented.  The yields and costs include
fees which are considered adjustments to yields.

<TABLE>
<CAPTION>
                                                                         Year Ended June 30,
                                          ------------------------------------------------------------------------------
                                                        1999                                      1998
                                          --------------------------------         -------------------------------------
                                                                   Average                                   Average
                                            Average                Yield/           Average                  Yield/
                                            Balance    Interest     Cost            Balance       Interest    Cost
                                          ----------   --------   --------         ---------      --------  ------------

                                                                         (Dollars in thousands)
<S>                                       <C>          <C>        <C>              <C>            <C>       <C>
Assets:
  Interest-earning assets:
    Interest earning deposits and
      short-term investments               $   5,675   $   295      5.20%           $ 10,109      $   609     6.02%
    Investment securities, net                22,543     1,425      6.32              16,705        1,073     6.42
    Loans receivable                         336,311    25,978      7.72             301,984       23,641     7.83
    Mortgage-backed securities,
      net                                     61,841     3,813      6.17              60,413        4,032     6.67
    FHLB stock                                 5,082       267      5.25               4,130          247     5.98
                                           ---------   -------                      --------      -------
      Total interest-earning assets          431,452   $31,778      7.37%            393,341      $29,602     7.53%
                                                       =======                                    =======
      Non-interest-earning assets             17,416                                  13,710
                                           ---------                                --------
        Total assets                       $ 448,868                                $407,051
                                           =========                                ========

Liabilities and Equity:
  Interest-bearing liabilities:
    Money market savings
      accounts                             $  67,399   $ 3,069      4.55%           $ 31,291      $ 1,367     4.37%
    Passbook accounts                         18,413       367      1.99              18,516          377     2.04
    NOW accounts                              21,165       240      1.13              21,171          309     1.46
    Certificate accounts                     192,496     9,856      5.12             212,744       11,574     5.44
                                           ---------   -------                      --------      -------

        Total savings accounts               299,473    13,532      4.52             283,722       13,627     4.80
    FHLB advances                             97,110     5,572      5.74              72,722        4,615     6.35
    Securities sold under
      agreements to repurchase                 3,831       237      6.18               6,528          397     6.08
    Impounds & other
      borrowings                                 615        29      4.72                 485           22     4.54
                                           ---------   -------                      --------      -------

      Total interest-bearing
        liabilities                          401,029   $19,370      4.83%            363,457      $18,661     5.13%
                                                       =======                                    =======
  Non-interest bearing liabilities            16,147                                  12,596
                                           ---------                                --------

      Total liabilities                      417,176                                 376,053
  Equity                                      31,692                                  30,998
                                           ---------                                --------

      Total liabilities and equity         $ 448,868                                $407,051
                                           =========                                ========

  Net interest rate spread                                              2.54%                                 2.40%
  Net interest margin                                                   2.88%                                 2.78%
  Ratio of interest-earning assets
    to interest-bearing liabilities          107.59%                                  108.22%

 <CAPTION>
                                    ----------------------------------
                                                   1997
                                    ----------------------------------
                                                               Average
                                       Average                 Yield/
                                       Balance     Interest     Cost
                                    -----------    --------    -------

<S>                                 <C>            <C>         <C>
Assets:
  Interest-earning assets:
    Interest earning deposits and
      short-term investments          $  7,176      $   389     5.42%
    Investment securities, net          17,222        1,133     6.58
    Loans receivable                   273,469       20,890     7.64
    Mortgage-backed securities,
      net                               59,733        4,051     6.78
    FHLB stock                           3,884          237     6.10
                                      --------      -------
      Total interest-earning assets    361,484      $26,700     7.39%
                                                    =======
      Non-interest-earning assets       11,773
                                      --------
        Total assets                  $373,257
                                      ========
Liabilities and Equity:
  Interest-bearing liabilities:
    Money market savings
      accounts                        $ 13,334      $   493     3.70%
    Passbook accounts                   17,432          348     2.00
    NOW accounts                        20,249          280     1.38
    Certificate accounts               203,744       11,074     5.44
                                      --------      -------

        Total savings accounts         254,759       12,195     4.79
    FHLB advances                       73,513        4,569     6.22
    Securities sold under
      agreements to repurchase           6,043          349     5.78
    Impounds & other
      borrowings                           443           25     5.64
                                      --------      -------

      Total interest-bearing
        liabilities                    334,758      $17,138     5.12%
                                                    =======
  Non-interest bearing liabilities       7,821
                                      --------

      Total liabilities                342,579
  Equity                                30,678
                                      --------

      Total liabilities and equity    $373,257
                                      ========

  Net interest rate spread
  Net interest margin                                           2.27%
  Ratio of interest-earning assets                              2.65%
    to interest-bearing liabilities
    to interest-bearing liabilities     107.98%
</TABLE>


                                       33
<PAGE>

Rate/Volume Analysis

     The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.

<TABLE>
<CAPTION>
                                             Year Ended June 30, 1999               Year Ended June 30, 1998
                                                    Compared to                            Compared to
                                             Year Ended June 30, 1998               Year Ended June 30, 1997
                                        ------------------------------------  ---------------------------------
                                            Increase (decrease) due to             Increase (decrease) due to
                                         Average                                Average
                                          Volume        Rate          Net        Volume     Rate        Net
                                        ----------   ----------   ----------  ----------  ---------  ----------
                                                                    (In thousands)
<S>                                     <C>          <C>          <C>         <C>         <C>        <C>
Interest-earning assets:
  Interest-earning deposits and
    short-term investments               $  (240)    $   (74)     $  (314)    $   173     $    47    $   220
  Investment securities, net (1)             369         (17)         352         (33)        (27)       (60)
  Loans receivable, net (1)                2,666        (329)       2,337       2,221         530      2,751
  Mortgage-backed securities, net (1)        101        (320)        (219)         44         (63)       (19)
  FHLB stock                                  42         (22)          20          15          (5)        10
                                        ----------   ----------   ----------  ----------  ---------  ----------
    Total interest-earning assets          2,938        (762)       2,176       2,420         482      2,902
                                        ----------   ----------   ----------  ----------  ---------  ----------
Interest-bearing liabilities:
  Money market savings accounts            1,644          58        1,702         771         103        874
  Passbook accounts                           (2)         (8)         (10)         22           7         29
  NOW accounts                                 -         (69)         (69)         13          16         29
  Certificate accounts                    (1,061)       (657)      (1,718)        500           -        500
  FHLB advances                            1,342        (385)         957         (48)         94         46
  Securities sold under agreement to
     repurchase                             (167)          7         (160)         29          19         48
  Impounds & other borrowings                  6           1            7           2          (5)        (3)
                                        ----------   ----------   ----------  ----------  ---------  ---------
    Total interest-bearing liabilities     1,762      (1,053)         709       1,289         234      1,523
                                        ----------   ----------   ----------  ----------  ---------  ---------
Net change in net interest income        $ 1,176     $   291      $ 1,467     $ 1,131     $   248    $ 1,379
                                        ==========   ==========   ==========  ==========  =========  =========
</TABLE>
_______________________

(1) Includes assets available for sale.


Comparison of Operating Results for the Years Ended June 30, 1999 and June 30,
1998

General

     The net earnings for the year ended June 30, 1999 were $2,548,000, an
increase of $1,061,000, or 71.4%, from the $1,487,000 in net earnings for the
year ended June 30, 1998.  The improvement in operating results was due to the
increase in average interest-earning assets which resulted in a $1.5 million net
increase in net interest income.  Although total other expenses were relatively
unchanged over the two fiscal years, the year ended June 30, 1999 included a net
gain on real estate owned activity of approximately $255,000 versus a net loss
of $109,000 for the year ended June 30, 1998.

                                       34
<PAGE>

Interest Income

     Interest income for the year ended June 30, 1999 was $31.8 million compared
to $29.6 million for the year ended June 30, 1998, an increase of $2.2 million,
or 7.4%.  The increase in interest income was primarily due to the increase in
average balance of interest-earning assets to $431.5 million for the year ended
June 30, 1999 from $393.3 million for the year ended June 30, 1998.  The
increase in the average balance of interest-earning assets was the result of a
continuation of the growth strategy begun in the fiscal year ended June 30, 1997
to enhance the Company's earning ability.  Key elements of the growth strategy
continued to be the purchase of mortgage loans funded primarily by the growth in
deposits and the growth in borrowings.

     Interest income on loans receivable increased $2.4 million to $26.0 million
for the year ended June 30, 1999 from $23.6 million for the year ended June 30,
1998.  The increase in interest income was primarily the result of the $34.3
million increase in the average balance of loans receivable for the year ended
June 30, 1999 primarily as a result of the purchase of $80.8 million of
adjustable rate loans and the origination of $75.7 million in mortgage loans.
The loans purchased were indexed to the Eleventh District Cost of Funds Index
(COFI) and to the one year Constant Maturity Treasury Index (CMT) and were
primarily seasoned, fully-indexed loans.  Although the Company was able to
purchase and originate a total of $156.5 million in mortgage loans during this
fiscal year, the continuation of a lower interest rate environment for the
majority of the year contributed to a substantial increase in prepayments of
mortgage loans.  In this regard, principal repayments on loans increased to
$94.3 million for the year ended June 30, 1999 compared to $61.0 million for the
year ended June 30, 1998.  The lower interest rate environment also resulted in
a decline in the indices to which the Company's adjustable rate loans are
indexed to.  For example, the COFI index declined approximately 40 basis points
from June 1998 to June 1999.  Partially offsetting this decline in yields due to
the decline in the overall indices, was the increase in the origination of non-
residential loans in the year ended June 30, 1999 to approximately $20.5
million.  The yields on non-residential loans generally have higher rates and
margins.  Overall, the Company's average yield on loans receivable for the year
ended June 30, 1999 declined to 7.72% from 7.83% for the year ended June 30,
1998.

     Interest income on mortgage-backed securities for the year ended June 30,
1999 declined slightly to $3.8 million as compared to $4.0 million for the year
ended June 30, 1998.  The slight decrease in interest income was primarily due
to the decrease in the average yield to 6.17% for the year ended June 30, 1999
from 6.67% for the year ended June 30, 1998.  The decrease in the average yield
was primarily due to the increase in prepayments on the portfolio as a result of
the downward trend in interest rates resulting in a faster amortization of
related premiums on purchased securities.  Also contributing to the decrease in
yield and interest income was the purchase of $35 million in mortgage-backed
securities with overall lower yields than the balances lost through the increase
in prepayments.

     Interest income on investment securities increased $352,000 to $1.4 million
for the year ended June 30, 1999 from $1.1 million for the year ended June 30,
1998.  The increase was primarily due to the $5.8 million increase in the
average balance of investment securities to $22.5 million for the year ended
June 30, 1999 from $16.7 million for the year ended June 30, 1998, partially
offset by the 10 basis point decrease in the average yield to 6.32% for the year
ended June 30, 1999 from 6.42% for the year ended June 30, 1998.  The decrease
in yield was primarily due to the decrease in overall interest rate environment
during the year ended June 30, 1999 as compared to June 30, 1998.  Interest
income on interest-earning deposits and short-term investments decreased by
$314,000 to $295,000 for the year ended June 30, 1999 from $609,000 for the year
ended June 30, 1998.  The decrease in interest income on interest-earning
deposits and daily investments was due to the decrease in the average balance to
$5.7 million for the year ended June 30, 1999 from $10.1 million for the year
ended June 30, 1998 and to the decrease in the average yield to 5.20% for the
year ended June 30, 1999 from 6.02% for the year ended June 30, 1998 as a result
of the lower interest rate environment.

Interest Expense

     Interest expense for the year ended June 30, 1999 was $19.4 million
compared to $18.7 million for the year ended June 30, 1998, an increase of $0.7
million, or 3.8%. The increase in interest expense was due to the $37.6 million
increase in the average balances of interest-bearing liabilities to $401.0
million for the year ended June 30, 1999 from $363.4 million for the year ended
June 30, 1998, partially offset by the 30 basis point decrease in the Company's
overall average cost of interest-bearing liabilities to 4.83% for the year
ending June 30, 1999 as compared to 5.13% for the year ending June 30, 1998.
Interest expense on deposit accounts fell slightly to $13.5 million for the year
ended June 30, 1999 from $13.6 million for the year ended June 30, 1998. The
decrease in interest expense on savings accounts reflects the 28 basis point
decrease in the average cost of savings accounts to 4.52% for the year ending
June 30, 1999 as compared to 4.80% for the year ending June 30, 1998. Partially
offsetting this was the $15.8 million increase in the average balance of deposit
accounts to $299.5 million for the

                                       35
<PAGE>

year ending June 30, 1999 from $283.7 million for the year ending June 30, 1998.
The growth in average savings accounts was due primarily to the growth in money
market savings accounts during the current year to $67.4 million from $31.3
million in the prior year, partially offset by the decrease in the average
balance of certificates of deposit which declined to $192.5 million for the year
ending June 30, 1999 from $212.7 million for the year ending June 30, 1998.

     The Company's use of borrowed funds, including FHLB advances and securities
sold under agreements to repurchase increased during the year ended June 30,
1999 as compared to the year ended June 30, 1998.  Interest expense on
borrowings increased to $5.8 million for the year ended June 30, 1999 from $5.0
million for the year ended June 30, 1998.  The increase in interest expense was
primarily due to the increase in the average balance of borrowings to $101.6
million for the year ended June 30, 1999 as compared to $79.7 million for the
year ended June 30, 1998, partially offset by the decline in the average cost of
borrowings to 5.75% for the year ended June 30, 1999 as compared to 6.31% for
the year ended June 30, 1998.  The decline in the average cost of borrowings was
primarily due to the overall reduction in the interest rate environment and the
replacement of higher cost borrowings which matured during the year ended June
30, 1999 with those of lower rates.

Provision for Loan Losses

     The Company's provision for loan losses increased to $969,000 for the year
ended June 30, 1999 from $735,000 for the year ended June 30, 1998.  The
increase in the provision for loan losses was due primarily to the growth in the
loan portfolio, to the overall increase in non-residential mortgage loans as
compared to the total loan portfolio (Non-residential loans generally have
higher allowance for loan loss factors) and to the increase in the allowance
designated for the consumer loan portfolio which has experienced higher losses
than initially forecast.  The current year's allowance for loan losses reflects
a slight decrease in loan charge-offs to $564,000 as compared to $573,000 for
the year ended June 30, 1998.  In regards to the consumer loan portfolio,
specifically, the home equity lines of credit, charge-offs increased to $324,000
for the year ended June 30, 1999 from $28,000 for the year ended June 30, 1998.
The increase in consumer charge-offs was primarily due to the aging of the
portfolio as the bulk of the loans were purchased in December 1997 and the year
ended June 30, 1999 represents the first full year the Company owned these
receivables.  As stated above, the allowance for loan losses for this portfolio
has been increased to reflect higher expected losses in the future.  The
allowance for loan losses increased to $1.8 million, or 0.52% of gross loans
receivable, at June 30, 1999 from $1.4 million, or 0.48% of gross loans
receivable at June 30, 1998.  As a percentage of non-performing loans, the
allowance for loan losses increased to 121.1% at June 30, 1999 compared to 74.6%
at June 30, 1998.  The amount of the provision and allowance for loan losses is
influenced by current economic conditions, actual loss experience, industry
trends and other factors such as adverse economic conditions.  In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Association's allowance for loan losses.  Such agencies
may require the Association to recognize additions to the allowance based upon
judgments which differ from those of management.  Although management uses the
best information available, future adjustments to the allowance may be necessary
due to economic, operating, regulatory and other conditions that may be beyond
management's control.

Other Income

     Other income for the Company increased to $1.9 million for the year ended
June 30, 1999 compared to $1.4 million for the year ended June 30, 1998, an
increase of $565,000, or 41.3%.  The increase in non-interest income was due to
the improvement in the fees related to deposit accounts which increased $72,000
to $594,000, an increase in the net income from secondary marketing activities
to $105,000 as compared to zero for the prior year and a $128,000 increase in
commissions on the sales of non-insured products such as annuities and mutual
funds.  The increase in deposit-related fees was primarily due to the continued
growth in core deposits (primarily non-interest bearing checking accounts) which
generate higher fee income such as non-sufficient fee income and fees related to
ATM transactions.  Income from loan servicing and related fees increased
slightly to $549,000 for the year ended June 30, 1999 as compared to $532,000
for the year ended June 30, 1998.  The Company also posted $71,000 in net gains
in regards to sales of investments and mortgage-backed securities during the
year ended June 30, 1999 as compared to a net gain of $45,000 for the year ended
June 30, 1998.

Other Expenses

     Other expenses totaled $9.1 million for the year ended June 30, 1999 as
compared to $9.0 million for the year ended June 30, 1998.  Compensation and
other employee benefits increased by $383,000 to $5.3 million for the year ended
June 30, 1999 from $4.9 million for the year ended June 30, 1998.  The increase
in compensation costs was primarily attributable to the increase in staff during
the year to enhance the Company's lending operations and

                                       36
<PAGE>

to the overall annual adjustments in compensation for the entire employee base.
The increase in compensation and employee benefits costs was offset by the
improvement in net gains on real estate owned activities which reflected
$255,000 in net gains for the year ended June 30, 1999 as compared to a net loss
of $109,000 for the year ended June 30, 1998. The improvement in the net gains
on real estate owned activity was due to the gains on sales of foreclosed
properties.

Income Tax

     Income tax expense was $1.7 million for the year ended June 30, 1999
compared to $1.0 million for the year ended June 30, 1998, representing an
increase of $699,000.  This increase is principally due to the increase in
taxable income in fiscal 1999 as compared to fiscal 1998.  See Note 11 of the
Notes to the Consolidated Financial Statements for additional information on the
Company's income taxes.

Comparison of Financial Condition at June 30, 1999 and June 30, 1998

     The Company's total assets increased to $468.7 million at June 30, 1999
from $408.3 million at June 30, 1998, an increase of $60.4 million primarily due
to the increase in the loans receivable. During the year, the Company increased
its loans receivable held for investment by $59.3 million to $355.0 million at
June 30, 1999 from $295.7 million at June 30, 1998 primarily as a result of the
$80.8 million in loans purchased and $75.7 million in loans originated
throughout the year. With the exception of approximately $5.4 million in fixed
rate loans, all of the loans purchased were adjustable rate mortgage loans
indexed to COFI, the CMT and LIBOR. The properties securing all loans purchased
are located throughout California (primarily in southern California) and are
dispersed throughout a wider area than the Company's normal lending area. Also,
of the loans purchased, approximately $12.2 million was secured by multi-family
and commercial real estate properties with all of these loans having adjustable
rate features. Although the Company originated and purchased a total of $156.5
million in loans for portfolio during the year ended June 30, 1999, the increase
in prepayments resulting from the continuation of lower interest rates,
prevented the Company from increasing its portfolio significantly more. During
the year ended June 30, 1999, the Company experienced an 55% increase in
prepayments to $94.3 million as compared to $61.0 million for the year ended
June 30, 1998. During the year ended June 30, 1999, the Company increased its
investment in non-residential mortgage loans (multi-family and commercial real
estate) to approximately 19.7% of total loans from 13.9% at June 30, 1998. This
increase was to provide a measure of diversification to the Company's loan
portfolio and to provide improvement in overall yields. The Company still
remains focused on being a single-family lender as evidenced by the 78.6% of its
loan portfolio being in this category.

     The Company's investment in mortgage-backed securities increased to $62.6
million at June 30, 1999 from $59.3 million at June 30, 1998.  The increase in
this portfolio was primarily the result of the $35.1 million in purchases during
the year offset by substantial increase in prepayments, to $24.0 million for the
year, and the sale of approximately $6.9 million in securities.  Investment
securities available for sale increased to $25.8 million at June 30, 1999 from
$19.2 million at June 30, 1998 due primarily to the $10.5 decrease in cash and
short-term investments (including overnight investments).

     The Company's investment in real estate acquired through foreclosure
decreased to $0.8 million at June 30, 1999 from $1.9 million at June 30, 1998 as
a result of the sales of previously owned foreclosed properties and to the
decrease in the number of foreclosures in the year ended June 30, 1999 to eleven
versus eighteen in the prior year.

     The total liabilities of the Company increased to $436.4 million at June
30, 1999 from $376.1 million at June 30, 1998 primarily due to increases in the
Company's deposit accounts and to increases in FHLB advances, partially offset
by the repayment in full of the securities sold under agreements to repurchase.
Total deposit accounts increased to $324.1 million at June 30, 1999 from $295.3
million. Core deposits (excluding certificates of deposit) increased to $138.0
million, or 42.6% of total deposits, at June 30, 1999 from $95.8 million, or
32.4% of total deposits, at June 30, 1998. The growth of core deposits is an
integral part of management's strategy to enhance net interest income and build
customer relationships. The majority of growth in the Company's core deposits
was in the growth of money market savings accounts which increased to $85.2
million at June 30, 1999 from $47.5 million at June 30, 1998. The growth in this
account was aided by direct mail solicitations which offered higher rates
although the rates offered were lower than comparative rates on certificates of
deposit. Also, the Company's noninterest-bearing checking accounts increased
significantly in the year ended June 30, 1999 to $13.0 million from $9.7 million
in the year ended June 30, 1998. The overall increase in core deposits benefits
the Company in terms of lower cost of funds, the ability to generate additional
fee income and the ability to build multiple relationships. In July 1999, the
Company completed its acquisition of two Citibank savings branches in La Verne
and Covina which

                                       37
<PAGE>

combined had total deposits of $36.8 million. This acquisition enables the
Company to enhance its market share of deposits in both communities.

     The Company continues to utilize borrowings as a means to enhance net
interest income and provide for longer-term financing of its asset base,
although at June 30, 1999, approximately $28 million in borrowings matured
within three months.  These relatively short-term borrowings were purposely left
as short-term rather than rolled into longer-terms with the expectation of
paying a significant portion off with the proceeds received with the completed
branch acquisition.  As of June 30, 1999, the Company's borrowings from the FHLB
totaled $108.0 million as compared to $70.5 million at June 30, 1998.  Also, the
Company's borrowings through securities sold under agreements to repurchase were
brought to zero at June 30, 1999 as compared to $6.0 million at June 30, 1998.

     The Company's stockholders' equity was $32.4 million at June 30, 1999, a
increase of $0.2 million from the $32.2 million in stockholders' equity at June
30, 1998.  The increase in stockholders' equity in fiscal 1999 was due primarily
to the net earnings of $2.5 million primarily offset by the repurchase of
171,745 shares of common stock for a total of $2.5 million.

Comparison of Operating Results for the Years Ended June 30, 1998 and June 30,
1997

General

     The net earnings for the year ended June 30, 1998 were $1,487,000, an
increase of $756,000, or 103.4%, from the $731,000 in net earnings for the year
ended June 30, 1997.  The improvement in operating results was due to the
increase in average interest-earning assets which resulted in a $1.4 million net
increase in net interest income.  Although the total general and administrative
expenses were relatively unchanged over the two fiscal years, the year ended
June 30, 1998 included higher expenses related to higher staff levels primarily
related to two additional branches for a full year and higher compensation costs
related to stock compensation plans.  In regards to the year ended June 30,
1997, the Association paid a special assessment totaling $1.3 million for the
recapitalization of the insurance fund (SAIF).

Interest Income

     Interest income for the year ended June 30, 1998 was $29.6 million compared
to $26.7 million for the year ended June 30, 1997, an increase of $2.9 million,
or 10.9%.  The increase in interest income was primarily due to the increase in
average balance of interest-earning assets to $393.3 million for the year ended
June 30, 1998 from $361.5 million for the year ended June 30, 1997.  The
increase in the average balance of interest-earning assets was the result of a
continuation of the growth strategy begun in the previous fiscal year to enhance
the Company's earning ability.  Key elements of the growth strategy continued to
be the purchase of mortgage loans funded primarily by the growth in deposits.

     Interest income on loans receivable increased $2.8 million to $23.6 million
for the year ended June 30, 1998 from $20.9 million for the year ended June 30,
1997.  The increase in interest income was the result of the $28.5 million
increase in the average balance of loans receivable for the year ended June 30,
1998 primarily as a result of the purchase of $40.6 million of adjustable rate
loans from other financial institutions.  The loans purchased were primarily
indexed to the Eleventh District Cost of Funds Index (COFI) and were primarily
seasoned, fully-indexed loans.  Furthermore, the loans purchased included $10.6
million in home equity lines of credit with yields in excess or 10%.  These home
equity lines of credit are considered consumer loans as they were primarily
funded based upon the credit worthiness of the borrower and, therefore, have
more credit risk.  The average yield on loans receivable for the year ended June
30, 1998 was 7.83%, which exceeded the 7.64% yield for loans receivable for the
year ended June 30, 1997.  The increase in the yield on loans receivable was
substantially enhanced with the acquisition of the home equity lines of credit.

     Interest income on mortgage-backed securities for the year ended June 30,
1998 was relatively unchanged at $4.0 million for the year ended June 30, 1998
as compared to $4.1 million for the year ended June 30, 1997.  The slight
decrease in interest income was due to the decrease in the average yield to
6.67% for the year ended June 30, 1998 from 6.78% for the year ended June 30,
1997 partially offset by the increase in the average balances to $60.4 million
for the year ended June 30, 1998 from $59.7 million for the year ended June 30,
1997.  The decrease in the average yield was primarily due to the increase in
prepayments on the portfolio as a result of the downward trend in interest rates
resulting in a faster amortization of related premiums on purchased securities.

                                       38
<PAGE>

     Interest income on investment securities decreased $60,000 to $1.07 million
for the year ended June 30, 1998 from $1.13 million for the year ended June 30,
1997.  The increase was primarily due to the $0.5 million decrease in the
average balance of investment securities to $16.7 million for the year ended
June 30, 1998 from $17.2 million for the year ended June 30, 1997 and to the
decrease in the average yield to 6.42% for the year ended June 30, 1998 from
6.58% for the year ended June 30, 1997.  The decrease in yield was primarily due
to the decrease in overall interest rate environment during the year ended June
30, 1998 as compared to June 30, 1997.  Interest income on interest-earning
deposits and short-term investments increased by $220,000 to $609,000 for the
year ended June 30, 1998 from $389,000 for the year ended June 30, 1997.  The
increase in interest income on interest-earning deposits and daily investments
was due to the increase in the average balance to $10.1 million for the year
ended June 30, 1998 from $7.2 million for the year ended June 30, 1997 and to
the increase in the average yield to 6.02% for the year ended June 30, 1998 from
5.42% for the year ended June 30, 1997.

Interest Expense

     Interest expense for the year ended June 30, 1998 was $18.7 million
compared to $17.1 million for the year ended June 30, 1997, an increase of $1.6
million, or 9.4%. The increase in interest expense was due to the $28.7 million
increase in the average balances of interest-bearing liabilities to $363.5
million for the year ended June 30, 1998 from $334.7 million for the year ended
June 30, 1997. The Company's overall average cost of interest-bearing
liabilities was virtually unchanged for the year ending June 30, 1998 as
compared to the year ending June 30, 1997. Interest expense on deposit accounts
increased to $13.6 million for the year ended June 30, 1998 from $12.2 million
for the year ended June 30, 1997. The increase in interest expense on deposit
accounts reflects the $28.9 million increase in the average balance of deposit
accounts to $283.7 million for the year ending June 30, 1998 from $254.8 million
for the year ending June 30, 1997 due primarily to the growth in the Company's
money market savings accounts during the current year, the growth of the
deposits in its de novo branch opened on March 31, 1997 and to the deposits from
an office purchased in February 1997 being outstanding for a full year.

     The Company's use of borrowed funds, including FHLB advances and securities
sold under agreements to repurchase, was relatively unchanged for the year ended
June 30, 1998 as compared to the year ended June 30, 1997.  Interest expense on
borrowings increased slightly to $5.0 million for the year ended June 30, 1998
from $4.9 million for the year ended June 30, 1997.  The increase in interest
expense was primarily due to the increase in the average cost of borrowings to
6.31% for the year ended June 30, 1998 compared to 6.18% for the year ended June
30, 1997 as a result of the lengthening of the average maturities of the
Company's liabilities.

Provision for Loan Losses

     The Company's provision for loan losses increased to $735,000 for the year
ended June 30, 1998 from $557,000 for the year ended June 30, 1997.  The current
year's allowance for loan losses reflects $573,000 in loan charge-offs as
compared to $352,000 for the year ended June 30, 1997.  The difference between
the actual amount of charge-offs for the current year and the amount reflected
in the provision represents an allocation for the growth in the consumer loan
portfolio during the year ended June 30, 1998 and management's concerns
regarding the general market conditions.  The allowance for loan losses
increased to $1.4 million, or 0.48% of gross loans receivable, at June 30, 1998
from $1.3 million, or 0.44% of gross loans receivable at June 30, 1997.  As a
percentage of non-performing loans, the allowance for loan losses increased to
74.56% at June 30, 1998 compared to 74.34% at June 30, 1997.

Other Income

     Other income for the Company increased to $1.4 million for the year ended
June 30, 1998 compared to $1.0 million for the year ended June 30, 1997, an
increase of $307,000, or 28.9%.  The increase in non-interest income was
primarily due to the improvement in the fees related to deposit accounts which
increased to $522,000 for the year ended June 30, 1998 as compared to $306,000
for the year ended June 30, 1997.  The increase in deposit related fees was
primarily due to the continued growth in core deposits (primarily non-interest
bearing checking accounts) which generate higher fee income such as non-
sufficient fee income and fees related to ATM transactions.  Income from loan
servicing and related fees increased by $82,000 to $532,000 for the year ended
June 30, 1998 as compared to $450,000 for the year ended June 30, 1997  The
Company also posted only $45,000 in net gains in regards to sales of investments
and mortgage-backed securities during the year ended June 30, 1998 as compared
to a net gain of $148,000 for the year ended June 30, 1997.

                                       39
<PAGE>

Other Expenses

     Other expenses increased by $0.2 million to $9.0 million for the year ended
June 30, 1998 from $8.8 million for the year ended June 30, 1997.  Included in
other expenses for the year ended June 30, 1997 was the $1.3 million one-time
special assessment to recapitalize SAIF which did not recur in the year ended
June 30, 1998.  Compensation and other employee benefits increased by $780,000
to $4.9 million for the year ended June 30, 1998 from $4.1 million for the year
ended June 30, 1997.  The increase in compensation costs was primarily
attributable to the increase in staff primarily due to the addition of two
branches for a full year.  Employee benefits increased as a result of the costs
related to the employee stock ownership and the stock compensation plans which
increased to $724,000 for the year ended June 30, 1998 from $472,000 for the
year ended June 30, 1997.  Equipment and data processing costs increased to $1.1
million for the year ended June 30, 1998 from $932,000 for the year ended June
30, 1997 primarily related to the addition of two branches in February and March
of 1997.  Also, the increase in costs was due to the replacement of outdated
equipment with data processing equipment which is Year 2000 ready.  The regular
insurance assessments paid to the FDIC decreased to $180,000 for the year ended
June 30, 1998 from $313,000 for the year ended June 30, 1997 as a result of the
lowering of the assessment rate as of January 1, 1997, following the
recapitalization of SAIF.  During the year ended June 30, 1998, the Company
recorded a net loss on real estate owned activity of $109,000 as compared to the
net gain of $157,000 for the year ended June 30, 1997.  The net gain in the year
ended June 30, 1997 was primarily the result of a $344,000 favorable litigation
settlement culminating a settlement process relating to a land development
foreclosure which occurred in 1992.

Income Tax

     Income tax expense was $1.0 million for the year ended June 30, 1998
compared to $534,000 for the year ended June 30, 1997, representing an increase
of $510,000.  This increase is principally due to the increase in taxable income
in fiscal 1998 as compared to fiscal 1997.  See Note 11 of the Notes to the
Consolidated Financial Statements for additional information on the Company's
income taxes.

Comparison of Financial Condition at June 30, 1998 and June 30, 1997

     The Company's total assets decreased slightly to $408.3 million at June 30,
1998 from $409.3 million at June 30, 1997, a decrease of $1.0 million primarily
due to decreases in the Association's mortgage-backed securities, which were
partially offset by increases in the Association's loans receivable.  During the
year, the Company increased its loans receivable held for investment by $11.1
million to $295.7 million at June 30, 1998 from $284.6 million at June 30, 1997
primarily as a result of the $40.6 million in loans purchased throughout the
year.  All of the loans purchased were adjustable rate mortgage loans primarily
indexed to COFI, with $10.7 million in home equity lines of credit which are
considered consumer loans as they are underwritten primarily on the credit
worthiness of the individual.  These home equity lines of credit loans have a
significantly higher yield, in excess of 10%, but also have a higher credit risk
profile.  The Association recognizes this higher credit risk and has assigned a
higher general allowance loss factor to them.  To date, these loans have
generally performed as expected.  The properties securing all loans purchased
are located primarily in southern California, but are dispersed throughout a
wider area than the Company's normal lending area.  Although the Company
originated and purchased a total of $75.1 million in loans for portfolio during
the year ended June 30, 1998, the increase in prepayments from lower interest
rates significantly reduced the ability to increase the Company's loan
portfolio.  During the year ended June 30, 1998, the Company experienced an 84%
increase in prepayments to $61.0 million as compared to $33.2 million for the
year ended June 30, 1997.

     The Company's investment in mortgage-backed securities decreased to $59.3
million at June 30, 1998 from $76.2 million at June 30, 1997.  The decrease in
this portfolio was primarily the result of the increase in prepayments, to $15.5
million for the year, and the sale of approximately $16.4 million in securities
used to fund the increase in the loan portfolio.  Investment securities
available for sale increased to $19.2 million at June 30, 1998 from $12.5
million at June 30, 1997 due primarily to the additional cash generated by the
substantial increase in prepayments related to the Company's loan and mortgage-
backed securities portfolios.

     The Company's investment in real estate acquired through foreclosure
increased to $1.9 million at June 30, 1998 from $1.2 million at June 30, 1997 as
a result of the higher foreclosures experienced during the year.  The higher
foreclosures were the primary result of the depressed real estate market which
resulted in lower home values in the Company's general lending area throughout
most of the current year.

    The total liabilities of the Company decreased to $376.1 million at June 30,
1998 from $379.4 million at June 30, 1997 primarily due to decreases in the
Association's FHLB advances and securities sold under agreements

                                       40
<PAGE>

to repurchase, which was partially offset by increases in the Association's
deposits. Total deposit accounts increased to $295.3 million at June 30, 1998
from $288.3 million. Core deposits (excluding certificates of deposit) increased
to $95.8 million, or 32.4% of total deposits, at June 30, 1998 from $65.9
million, or 22.9% of total deposits, at June 30, 1997. The growth of core
deposits is an integral part of management's strategy to enhance net interest
income and build customer relationships. The majority of growth in the Company's
core deposits was in the growth of money market savings accounts which increased
to $47.5 million at June 30, 1998 from $19.6 million at June 30, 1997. The
growth in this account was aided by direct mail solicitations which offered
higher rates although the rates offered were lower than comparative rates on
certificates of deposit. Also, the Company's noninterest-bearing checking
accounts increased significantly in the year ended June 30, 1998 to $9.7 million
from $5.9 million in the year ended June 30, 1997. The overall increase in core
deposits benefits the Company in terms of lower cost of funds, the ability to
generate additional fee income and the ability to build multiple relationships.

     The Company continues to utilize borrowings as a means to enhance net
interest income and provide for longer-term financing of its asset base. As of
June 30, 1998, the Company's borrowings from the FHLB totaled $70.5 million as
compared to $77.9 million at June 30, 1997. Also, the Company's borrowings
through securities sold under agreements to repurchase totaled $6.0 million at
June 30, 1998 as compared to $9.4 million at June 30, 1997.

     The Company's stockholders' equity was $32.2 million at June 30, 1998, an
increase of $2.3 million from the $29.9 million in stockholders' equity at June
30, 1997. The increase in stockholders' equity in fiscal 1998 was due primarily
to the net earnings of $1.5 million and the $686,000 change related to the
deferred stock compensation plans.

Impact of Inflation

     The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollar amounts
without considering the changes in the relative purchasing power of money over
time due to inflation.  The impact of inflation is reflected in the increased
cost of the Company's operations.  Unlike industrial companies, nearly all of
the assets and liabilities of the Company are monetary in nature.  As a result,
interest rates have a greater impact on the Company's performance than do the
effects of general levels of inflation.  Interest rates do not necessarily move
in the same direction or to the same extent as the price of goods and services.

Impact of New Accounting Standards

     Comprehensive Income - Effective July 1, 1998, the Company adopted SFAS No.
130, Reporting Comprehensive Income.  Under the provisions of SFAS No. 130, an
entity that provides a full set of financial statements is required to report
comprehensive income in the presentation of its financial statements.  The term
"comprehensive income" describes the total of all components of comprehensive
income including net income.  "Other comprehensive income" refers to revenues,
expenses, and gains and losses that are included in comprehensive income but are
excluded from net income as they have been recorded directly in equity under the
provisions of other Financial Accounting Standard Board statements.  The Company
presents the comprehensive income disclosure as a part of the statements of
changes in stockholders' equity, by identifying each element of other
comprehensive income, including net income.  All comparative financial
statements presented reflect the application of the provisions of SFAS No. 130.

     Recent Accounting Developments - SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, was issued in June 1998 and establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities.  SFAS No. 133 was effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.  In July 1999,
the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, which
delays the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000.  Earlier application is encouraged, but it is permitted only as of the
beginning of any fiscal quarter that begins after June 1998.  The adoption of
the provisions of SFAS No. 133 as amended by SFAS No. 137 are not expected to
have a material impact on the results of operations or the financial position of
the Company.

                                       41
<PAGE>

Year 2000

     In recent years the Company has been executing a formal plan to address
year 2000 issues ("Y2K").  The Y2K issues relate to the way software was
programmed through much of this Century.  Specifically, years were coded with
two digits.  The Company's Y2K plan has been designed to address potential
problems that could arise from software, hardware and equipment both within the
Company's direct control and outside of the Company's control, yet which the
Company relies upon, in that it electronically or operationally interfaces with
such software, hardware and equipment.

     The Company principally utilizes third-party data processors and third-
party software for its information technology (IT) needs.  As a result, the year
2000 compliance of the company's information technology assets, such as computer
hardware, software and systems, is primarily dependent upon the year 2000
compliance efforts and results of its third-party vendors.  The year 2000
compliance of the Company's non-IT assets, such as automated teller machines,
telecommunication systems, copiers, fax machines, elevators, and HVAC systems,
is also primarily dependent upon the year 2000 compliance efforts and results of
third parties.

     Financial institution regulators have focused their attention on year 2000
issues and have published guidance concerning the responsibilities of senior
management and directors.  Year 2000 testing and certification, liquidity risk,
customer awareness, and contingency planning are being addressed as key safety
and soundness issues in conjunction with regulatory Y2K examinations.

     The Company has appointed a year 2000 team that includes officers and staff
from all operational areas.  The team is responsible for the development,
implementation and monitoring of the Company's Year 2000 Plan.  Also, the
Company has enlisted the services of outside contractors to assist in the
attainment of year 2000 readiness.  In order to address the year 2000 issue, the
Company has developed and implemented a five-phase plan, which is divided into
the following major components:

     .  awareness
     .  assessment
     .  renovation
     .  validation
     .  implementation

     The Company has completed all phases of this plan.  Because the Company
outsources its data processing and item processing operations, a significant
component of the Year 2000 Plan is to work with external vendors to test and
certify their systems as year 2000 compliant.  The software used in these
systems, both purchased and related to our external data processing vendors, has
been tested for year 2000 readiness with minimal issues detected.  Any issues
detected have been reported to the respective vendor or service provider for
corrective action.  None of the issues noted during the testing, if not
corrected by year 2000, are expected to have any material effect on the Company.
The Company's primary third-party service bureau provides data processing for
all of the Company's savings accounts, lending operations and its general
ledger.  Upon review of the test results, the few issues detected were forwarded
to the data processor for corrective action.  Although the Company is confident
these issues will be resolved, none of the issues detected are expected to have
any material impact to the Company's successful transition to year 2000 even if
they have not been corrected by year 2000.  The Company also completed testing
with the Federal Reserve Bank of San Francisco, its primary ATM processor,
primary ATM interchange provider, its accounting sub-systems, its front-end loan
origination system and Fannie Mae and detected no date-related issues which
would be expected to present any material Y2K problems to the Company.

     The Company surveyed its primary vendors and others with whom it relies on
to assure their systems will be year 2000 ready.  Of the vendors the Company
considers critical to its operations, all have responded that they are year 2000
ready or are in process of becoming ready.  Vendors the Company considers
mission critical include its primary data processor, item processor, ATM
provider, the Federal Reserve Bank and the FHLB, as well as all utility
providers.  Of the critical vendors the Company tested, no material year 2000
date-related issues were identified. In addition, the majority of critical
vendors not tested (primarily utility providers) have represented that they are
Y2K ready.  If any mission critical vendor were to fall out of Y2K compliance,
the Company will seek to switch to a new vendor.  However, due to the timing
required to change to another vendor, if mission critical vendors are not year
2000 ready (all have represented that they are or expect to be year 2000 ready),
the Company may be adversely affected.  Further, the Company will be unable to
seek alternative service providers with respect to some critical vendors such as
utility providers.  The Company has endeavored to determine such vendors will be
year 2000 compliant and at this time, based upon information supplied by such
vendors, has no information

                                       42
<PAGE>

suggesting utility services will be interrupted. However, any disruption in
utility service would directly affect the Company's ability to operate.

     In regard to vendors or service providers the Company deems are important
for the normal operations of the Company, but not considered critical,
approximately 87% have represented that they are year 2000 ready or are working
towards readiness.  The Company is continuing to perform follow-up work on those
vendors or service providers (primarily title companies and appraisal firms) who
have not responded.  For those vendors the Company believes will not be year
2000 ready, the Company will evaluate the potential impact on the operations of
the Company by such vendor to determine if changing vendors or other solutions
are necessary.  However, there can be no assurance that these systems or other
vendors will be year 2000 ready or that any such failure in readiness by such
vendors would not have an adverse effect on the Company's operations.  The
Company has completed proxy testing with its data processor in third-party
interfaces for year 2000 readiness.

     Another important segment of the Year 2000 Plan is to identify those loan
customers or deposit customers whose possible lack of year 2000 preparedness
might expose the Company to financial loss.  The Company completes a risk
analysis of their large dollar fund users and fund providers quarterly and has
determined that such customers are not expected to expose the Company to any
material impact by a lack of year 2000 preparedness.  Also, the analysis of fund
users indicates that the Company does not expect to have any material financial
exposure in regard to its loan portfolio as the portfolio is comprised primarily
of loans to individuals and, to a lessor extent, to businesses secured by real
estate.  Management believes that loans secured by real estate are less likely
to be impacted by any year 2000 issues.

     The Company has completed its Year 2000 Contingency Plan for handling
issues which may present concern to the Company if certain processes or vendors
are unable to provide services.  The contingency plan provides a basis for
identifying and allocating resources in the event of year 2000 disruptions and
the timely resumption and recovery of critical functions.  The contingency plan
has been reviewed by an independent outside consultant for feasibility with
management's stated business resumption goals and other plans adopted by the
Company.  Recommendations made by the consultant were reviewed by management and
incorporated into the contingency plan.  The Company will conduct testing of its
contingency plan during the three months ended September 30, 1999.  The results
of this testing will assist in updating, if necessary, the contingency plan
throughout the remainder of calendar 1999.  Also, the contingency plan will be
updated as new information becomes available on the Company's vendors and
service providers.

     During the execution of this project, the Company will incur internal
staff costs as well as consulting and other expenses related to enhancements
necessary to prepare the systems for the year 2000. Since the Company replaced
many of the internal systems with year 2000 compliant personal computers in
1997, the expenses incurred to bring the Company to year 2000 compliance will be
expensed as incurred, with the majority of such costs being the reallocation of
current staff to bring about this readiness. The Company replaced the majority
of its internal computer hardware and software in early 1997. The capitalized
costs of this replacement were in excess of $700,000 and are being amortized
over several years in compliance with the Company's normal depreciation of such
hardware or software. The future expenses of the year 2000 project as well as
the related potential effect on the Company's earnings is not expected to have a
material effect on its financial position or results of operations. Through the
fiscal year ended June 30, 1999, the Company has spent approximately $168,000
for year 2000 related issues which included approximately $131,000 of internal
staff resources. Management does not expect the total costs of the year 2000
project to exceed $260,000 (excluding the $700,000 in hardware and software
discussed above), the majority of which is primarily related to the reallocation
of internal staff resources.

     The Company believes it has developed an effective and prudent plan to
review, renovate and resolve any potential year 2000 issues.  In respect to
operations under the Company's direct control and due to management's year 2000
readiness efforts and those of its strategic business partners, management does
not expect that Year 2000 failures will have a material effect on the financial
condition or results of operations of the Company.  However, the impact of
disruptions in the local or national economy as a result of year 2000 issues is
not quantifiable at this time and could adversely and materially affect the
Company.  In addition, the Company is heavily dependent on the year 2000
readiness of infrastructure suppliers such as utilities, communication and other
such services.  As discussed above, if such infrastructure suppliers would have
year 2000 disruptions, this could adversely and materially affect the Company's
ability to provide services to its customers.

                                       43
<PAGE>

Item 8. Financial Statements and Supplementary Data
---------------------------------------------------

                  Index to Consolidated Financial Statements

<TABLE>
<S>                                                                                                         <C>
Independent Auditors' Report..............................................................................  45

Consolidated Statements of Financial Condition as of June 30, 1999 and 1998...............................  46

Consolidated Statements of Operations for Each of the Three Years in the Period Ended June 30, 1999.......  47

Consolidated Statements of Stockholders' Equity for Each of the Three Years in the Period
  Ended June 30, 1999.....................................................................................  48

Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended June 30, 1999.......  49

Notes to Consolidated Financial Statements for Each of the Three Years in the Period Ended June 30, 1999..  51
</TABLE>

                                       44
<PAGE>

INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
SGV Bancorp, Inc.
West Covina, California


We have audited the accompanying consolidated statements of financial condition
of SGV Bancorp, Inc. and subsidiary (the Company) as of June 30, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended June 30, 1999.  These
consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of SGV Bancorp, Inc. and subsidiary as
of June 30, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1999, in
conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

Costa Mesa, California
August 31, 1999

                                       45
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STAEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                     1999               1998
                                                                                                  ----------         -----------
                                                                                                      (Dollars in thousands)
<S>                                                                                               <C>                <C>
ASSETS
Cash, including short-term bank obligations of $4,940 and $16,202
  at June 30, 1999 and 1998, respectively                                                           $  9,515            $ 20,008
Investment securities available for sale, amortized cost of $26,109 and
  $19,241 at June 30, 1999 and 1998, respectively (Note 3)                                            25,816              19,221
Mortgage-backed securities available for sale, amortized cost of $25,326
  and $29,386 at June 30, 1999 and 1998, respectively (Notes 3 and 10)                                24,871              29,383
Mortgage-backed securities held to maturity, estimated fair value of $36,984
  and $30,089 at June 30, 1999 and 1998, respectively (Notes 4 and 10)                                37,717              29,936
Loans receivable held for investment, net of allowance for loan losses of $1,845
  and $1,425 at June 30, 1999 and 1998, respectively (Notes 5 and 10)                                354,989             295,739
Loans receivable held for sale (Note 5)                                                                  100                 391
Accrued interest receivable (Note 6)                                                                   2,979               2,774
Stock of Federal Home Loan Bank of San Francisco, at cost (Note 10)                                    5,407               4,234
Real estate acquired through foreclosure, net (Note 7)                                                   827               1,902
Premises and equipment, net (Note 8)                                                                   3,166               3,537
Prepaid expenses and other assets, net                                                                 3,343               1,221
                                                                                                  ----------         -----------

  Total assets                                                                                      $468,730            $408,346
                                                                                                  ==========         ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Deposit accounts (Note 9)                                                                           $324,106            $295,281
Federal Home Loan Bank advances (Note 10)                                                            108,002              70,543
Securities sold under agreements to repurchase (Note 10)                                                   -               6,000
Accrued expenses and other liabilities (Note 11)                                                       4,251               4,289
                                                                                                  ----------         -----------

  Total liabilities                                                                                  436,359             376,113

COMMITMENTS AND CONTINGENT LIABILITIES (Note 13)

STOCKHOLDERS' EQUITY (Notes 1, 2, 11, 13 and 15):
Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued
Common stock, $.01 par value; 10,000,000 shares authorized; 2,727,656
  shares issued (1999 and 1998); 2,176,323 (1999) and 2,348,068 (1998)
  shares outstanding                                                                                      27                  27
Additional paid-in capital                                                                            21,297              21,147
Retained earnings, substantially restricted                                                           19,236              16,688
Accumulated other comprehensive loss                                                                    (440)                (13)
Deferred stock compensation                                                                           (1,141)             (1,555)
Treasury stock, 551,333 (1999) and 379,588 (1998) shares                                              (6,608)             (4,061)
                                                                                                  ----------         -----------

  Total stockholders' equity                                                                          32,371              32,233
                                                                                                  ----------         -----------

  Total liabilities and stockholders' equity                                                        $468,730            $408,346
                                                                                                  ==========         ===========
</TABLE>

See notes to consolidated financial statements

                                       46
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                               1999                1998                 1997
                                                                         ---------------     ---------------     ---------------
                                                                                   (In thousands, except per share data)
<S>                                                                      <C>                 <C>                 <C>
INTEREST INCOME:
Interest on loans                                                        $        25,978      $        23,641     $       20,890
Interest on investment securities                                                  1,425                1,073              1,133
Interest on mortgage-backed securities                                             3,813                4,032              4,051
Other                                                                                562                  856                626
                                                                         ---------------       --------------     --------------
    Total interest income                                                         31,778               29,602             26,700

INTEREST EXPENSE:
Interest on deposit accounts (Note 9)                                             13,532               13,627             12,195
Interest on borrowings                                                             5,838                5,034              4,943
                                                                         ---------------      ---------------     --------------
    Total interest expense                                                        19,370               18,661             17,138
                                                                         ---------------      ---------------     --------------

NET INTEREST INCOME BEFORE PROVISION FOR
  LOAN LOSSES                                                                     12,408               10,941              9,562

PROVISION FOR LOAN LOSSES (Note 5)                                                   969                  735                557
                                                                         ---------------      ---------------     --------------

NET INTEREST INCOME AFTER PROVISION FOR
  LOAN LOSSES                                                                     11,439               10,206              9,005

OTHER INCOME:
Loan servicing and other fees                                                        549                  532                450
Deposit account fees                                                                 594                  522                306
Secondary market activity, net                                                       105                    -                (42)
Gain on sale or redemption of securities
  available for sale, net (Note 3)                                                    71                   45                148
Other income                                                                         614                  269                199
                                                                         ---------------      ---------------     --------------
    Total other income                                                             1,933                1,368              1,061

OTHER EXPENSES:
General and administrative expenses:
  Compensation and other employee expenses                                         5,292                4,909              4,129
  Office occupancy                                                                 1,034                1,064                834
  Data processing/equipment                                                        1,141                1,117                932
  Advertising                                                                        139                  157                137
  FDIC insurance premiums                                                            178                  180                313
  SAIF special assessment                                                              -                    -              1,332
  Other operating expenses                                                         1,552                1,507              1,281
                                                                         ---------------      ---------------     --------------
    Total general and administrative expenses                                      9,336                8,934              8,958
Net (gain) loss on real estate acquired through foreclosure (Note 7)                (255)                 109               (157)
                                                                         ---------------      ---------------     --------------
      Total other expenses                                                         9,081                9,043              8,801
                                                                         ---------------      ---------------     --------------

EARNINGS BEFORE INCOME TAXES                                                       4,291                2,531              1,265

INCOME TAXES (Note 11)                                                             1,743                1,044                534
                                                                         ---------------      ---------------     --------------

NET EARNINGS                                                             $         2,548      $         1,487     $          731
                                                                         ===============      ===============     ==============

EARNINGS PER SHARE - Basic (Note 12)                                     $          1.16      $          0.63     $         0.29
                                                                         ===============      ===============     ==============

EARNINGS PER SHARE - Diluted (Note 12)                                   $          1.13      $          0.60     $         0.29
                                                                         ===============      ===============     ==============
</TABLE>

See notes to consolidated financial statements

                                       47
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999
--------------------------------------------------------------------------------
(In thousands)

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                                      Additional                        Other
                                             Preferred     Common       Paid-in        Retained      Comprehensive
                                               Stock       Stock        Capital        Earnings      Income(loss)
                                          -------------  ---------  -------------   ------------   ----------------
<S>                                       <C>            <C>        <C>             <C>            <C>
BALANCE, July 1, 1996                       $        -    $    27     $   20,684      $  14,470       $      (202)
Comprehensive income
  Net earnings                                       -          -              -            731                 -
  Other comprehensive income, net of tax
    Net change in unrealized losses on
      securities, net of reclassification
       adjustment                                    -          -              -              -                92
Comprehensive income
Amortization of deferred compensation                -          -            105              -                 -
Repurchase of stock (249,100 shares)                 -          -              -              -                 -
                                          -------------  ---------  -------------   ------------   ----------------
BALANCE, June 30, 1997                               -         27         20,789         15,201              (110)
Comprehensive income
  Net earnings                                       -          -              -          1,487                 -
  Other comprehensive income, net of tax
    Net change in unrealized losses on
      securities, net of reclassification
       adjustment                                    -          -              -              -                97
Comprehensive income
Exercise of stock options (5,892 shares)             -          -             (3)             -                 -
Amortization of deferred compensation                -          -            361              -                 -
                                          -------------  ---------  -------------   ------------   ----------------
BALANCE, June 30, 1998                               -         27         21,147         16,688               (13)
Comprehensive income
  Net earnings                                       -          -              -          2,548                 -
  Other comprehensive income, net of tax
    Net change in unrealized losses on
      securities, net of reclassification
       adjustment                                    -          -              -              -              (427)
Comprehensive income
Amortization of deferred compensation                -          -            150              -                 -
Repurchase of stock (171,745 shares)                 -          -              -              -                 -
                                          -------------  ---------  -------------   ------------   ----------------
BALANCE, June 30, 1999                      $        -    $    27     $   21,297     $   19,236       $      (440)
                                          =============  =========  =============   ============   ================

<CAPTION>

                                              Deferred                                          Total
                                                Stock        Treasury     Comprehensive     Stockholders'
                                            Compensation       Stock          Income            Equity
                                           --------------  -----------   ---------------   ---------------

<S>                                        <C>             <C>            <C>               <C>
BALANCE, July 1, 1996                        $   (2,153)   $  (1,240)                         $   31,586
Comprehensive income
  Net earnings                                        -            -         $     731               731
  Other comprehensive income, net of tax
    Net change in unrealized losses on
      securities, net of reclassification
       adjustment                                     -            -                92                92
                                                                         ---------------
Comprehensive income                                                         $     823
                                                                         ===============
Amortization of deferred compensation               273            -                                 378
Repurchase of stock (249,100 shares)                  -       (2,884)                             (2,884)
                                           --------------  -----------                     ---------------
BALANCE, June 30, 1997                           (1,880)      (4,124)                             29,903
Comprehensive income
  Net earnings                                        -            -            $1,487             1,487
  Other comprehensive income, net of tax
    Net change in unrealized losses on
      securities, net of reclassification
       adjustment                                     -            -                97                97
                                                                         ---------------
Comprehensive income                                                         $   1,584
                                                                         ===============
Exercise of stock options (5,892 shares)              -           63                                  60
Amortization of deferred compensation               325            -                                 686
                                           --------------  -----------                       -------------
BALANCE, June 30, 1998                           (1,555)      (4,061)                             32,233
Comprehensive income
  Net earnings                                        -            -         $   2,548             2,548
  Other comprehensive income, net of tax
    Net change in unrealized losses on
      securities, net of reclassification
       adjustment                                     -            -              (427)             (427)
                                                                         ---------------
Comprehensive income                                                         $   2,121
                                                                         ===============

Amortization of deferred compensation               414            -                                 564
Repurchase of stock (171,745 shares)                  -       (2,547)                             (2,547)
                                           --------------  -----------                       -------------
BALANCE, June 30, 1999                       $   (1,141)   $  (6,608)                         $   32,371
                                           ==============  ===========                       =============
</TABLE>


<TABLE>
<CAPTION>

Disclosure of reclassification amount for June 30:                                         1999       1998      1997
                                                                                        ---------  --------  ---------
<S>                                                                                     <C>        <C>       <C>
Unrealized holding (losses) gains during period, net of tax (benefit) expense
  of ($263) in 1999, $86 in 1998, and $129 in 1997                                       $  (385)   $  123    $  178
Less:  Reclassification adjustment for gains included in net earnings,
  net of tax expense of $29 in 1999, $19 in 1998, and $62 in 1997                            (42)      (26)      (86)
                                                                                        ---------  --------  ---------
Net change in unrealized (losses) gains on securities, net of tax (benefit) expense of
  ($292) in 1999, $67 in 1998, and $67 in 1997                                           $  (427)   $   97    $   92
                                                                                        =========  ========  =========
</TABLE>

See notes to consolidated financial statements

                                       48
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                 1999                1998                1997
                                                                          ----------------    ----------------    ----------------
                                                                                                (In thousands)
<S>                                                                       <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                                                  $      2,548        $      1,487        $        731
Adjustments to reconcile net earnings to net cash provided
  by operating activities:
  Depreciation and amortization                                                        675                 683                 430
  Loans originated for sale                                                        (19,075)            (19,687)             (5,644)
  Proceeds from sale of loans                                                       19,501              19,567               5,657
  Gain on sale of loans, net                                                          (135)                (41)                (13)
  (Gain) loss on sale or redemption of investment
    securities available for sale, net                                                 (72)                (12)                 13
  Loss (gain) on sale of mortgage-backed securities available for
   sale, net                                                                             1                 (33)               (161)
  Federal Home Loan Bank stock dividend                                               (267)               (247)               (237)
  Increase in prepaid expenses and other assets                                     (2,227)               (116)               (835)
  Amortization of deferred loan fees                                                  (273)               (111)                (74)
  Deferred loan origination costs                                                     (420)               (344)               (147)
  Increase in accrued expenses and other liabilities                                   521                 641                 267
  Deferred income taxes                                                               (259)               (185)                266
  Provision for loan losses                                                            969                 735                 557
  (Recapture of) provision for real estate losses                                      (40)                124                  95
  Premium amortization on securities, net                                              839                 458                 235
  (Increase) decrease in accrued interest receivable                                  (205)                137                (323)
  Other, net                                                                           170                (357)                164
                                                                          ----------------    ----------------    ----------------

      Net cash provided by operating activities                                      2,251               2,699                 981

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities available for sale                          $   (111,273)       $    (29,739)       $    (57,451)
Proceeds from sale and redemption of investment
    securities available for sale                                                  104,488              23,012              59,936
Purchase of mortgage-backed securities available for sale                          (15,106)            (15,281)            (35,229)
Proceeds from sale of mortgage-backed securities
    available for sale                                                               6,928              16,566               9,866
Purchase of mortgage-backed securities held to maturity                            (20,004)                  -             (15,451)
Principal repayments on mortgage-backed securities                                  24,036              15,510               8,935
Loans funded, net                                                                  (75,698)            (34,512)            (30,955)
Loans purchased, net                                                               (80,754)            (40,623)            (33,320)
Principal repayments on loans                                                       94,343              61,019              33,216
Proceeds from sale of real estate                                                    3,596               2,161               2,935
Purchase of premises and equipment                                                    (197)               (248)             (1,242)
Purchase of FHLB stock                                                                (906)                  -                  (3)
Other, net                                                                            (487)               (114)                  -
                                                                          ----------------   -----------------  ------------------

      Net cash used in investing activities                                        (71,034)             (2,249)            (58,763)
</TABLE>

See notes to consolidated financial statements

                                       49
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                            1999               1998               1997
                                                                      ---------------    ---------------    ---------------
                                                                                           (In thousands)
<S>                                                                   <C>                <C>                <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in certificate accounts                            $  (13,385)        $  (22,944)        $   21,347
Net increase in passbook, money market
  savings, NOW, and noninterest-bearing accounts                               42,210             29,886             12,794
Purchase of deposit accounts                                                        -                  -             20,159
Proceeds from Federal Home Loan Bank advances                                  75,500              5,000             73,800
Repayment of Federal Home Loan Bank advances                                  (38,041)           (12,364)           (63,402)
Proceeds from securities sold under agreements to repurchase                    4,300                  -              9,600
Repayment of securities sold under agreements to repurchase                   (10,300)            (3,430)              (170)
Purchase of treasury stock                                                     (2,547)                 -             (2,884)
Exercise of stock options                                                           -                 60                  -
Other, net                                                                        553                686                318
                                                                      ---------------    ---------------    ---------------

      Net cash provided by (used in) financing activities                      58,290             (3,106)            71,562
                                                                      ---------------    ---------------    ---------------

NET (DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS                                                              $  (10,493)         $  (2,656)         $  13,780

CASH AND CASH EQUIVALENTS, beginning of year                                   20,008             22,664              8,884
                                                                      ---------------    ---------------    ---------------

CASH AND CASH EQUIVALENTS, end of year                                     $    9,515          $  20,008          $  22,664
                                                                      ===============    ===============    ===============
SUPPLEMENTAL CASH FLOW DISCLOSURES -
  Cash paid during the year for:
Interest                                                                   $   19,411          $  18,610          $  17,214
Income taxes                                                                    2,205                941                188

NONCASH INVESTING ACTIVITIES DURING THE YEAR:
Real estate acquired through foreclosure                                   $    2,265          $   2,928          $   2,603
Change in net unrealized loss on securities available for sale, net              (427)                97                 92
</TABLE>


See notes to consolidated financial statements

                                       50
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999
--------------------------------------------------------------------------------

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis for Presentation - SGV Bancorp, Inc. (SGV) is a savings and loan
holding company incorporated in the State of Delaware that was organized for the
purpose of acquiring all of the capital stock of First Federal Savings and Loan
Association of San Gabriel Valley (the Association) upon its conversion from a
federally chartered mutual savings and loan association to a federally chartered
stock savings and loan association.  On June 28, 1995, SGV completed its sale of
2,727,656 shares of its common stock through subscription and community
offerings to the Association's depositors, Board of Directors, management,
employees and the public and used approximately 60% of the net proceeds from
such sales to purchase all of the Association's common stock issued in the
Association's conversion to stock form.  Such business combination was accounted
for at historical cost in a manner similar to a pooling of interests.

     Description of Business - The business of SGV consists principally of the
business of the Association.  SGV's only significant assets are cash,
investments and mortgage-backed securities, the capital stock of the Association
and SGV's loan to the Association's employee stock ownership plan (ESOP) (Notes
13 and 16).  SGV has no significant liabilities.

     The Association is primarily engaged in attracting deposits from the
general public in the areas in which its branches are located and investing such
deposits and other available funds primarily in mortgage loans secured by one-
to four-family residences.  To a lesser extent, the Association invests in
multi-family residential mortgages, commercial real estate, consumer and other
loans.  As of June 30, 1999, the Association operated eight branch offices
located in the San Gabriel Valley.

     Principles of Consolidation - The consolidated financial statements include
the accounts of SGV Bancorp, Inc. and its wholly-owned subsidiary, First Federal
Savings and Loan Association of San Gabriel Valley and its wholly-owned
subsidiary, First Covina Service Company (collectively, the Company).  All
material intercompany balances and transactions have been eliminated in
consolidation.

     Investment Securities and Mortgage-Backed Securities - The Company
classifies investments in debt and equity securities into three categories: held
to maturity, trading, and available for sale.  Debt securities that the Company
has the positive intent and ability to hold to maturity are classified as held
to maturity securities and reported at amortized cost.  Debt and equity
securities that are bought and held principally for the purpose of selling them
in the near-term are classified as trading securities and reported at fair
value, with unrealized gains and losses included in earnings.  The Company has
no trading securities.  Debt and equity securities not classified as either held
to maturity securities or trading securities are classified as available for
sale securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of other
comprehensive income, net of deferred taxes.

     The Company designates investment securities and mortgage-backed securities
as held to maturity or available for sale upon acquisition.  Gains or losses on
the sales of investment securities and mortgage-backed securities available for
sale are determined on the specific identification method.  Premiums and
discounts on investment securities and mortgage-backed securities are amortized
or accreted using the interest method over the expected lives of the related
securities.

     Loans Receivable - The Company originates mortgage loans for both portfolio
investment and sale in the secondary market.  During the period of origination,
mortgage loans are designated as held for sale or held for investment.  Loans
receivable held for sale are carried at the lower of cost or estimated market
value determined on an aggregate basis and include loan origination costs and
related fees.  Any transfers of loans held for sale to the investment portfolio
are recorded at the lower of cost or estimated market value on the transfer
date.

                                       51
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     Loans receivable held for investment are carried at amortized cost adjusted
for unamortized premiums and discounts and net of deferred loan origination fees
and allowance for estimated loan losses.  Premiums and discounts on loans are
amortized or accreted using the interest method over the expected lives of the
loans.  These loans are not adjusted to the lower of cost or estimated market
value because it is management's intention, and the Company has the ability, to
hold these loans to maturity.

     The Company considers a loan impaired when it is probable that the Company
will be unable to collect all contractual principal and interest payments under
the terms of the loan agreement.  Loans are evaluated for impairment as part of
the Company's normal internal asset review process.  The Company evaluates all
loans in its portfolio on an individual basis with the exception of one- to
four-family residential mortgage loans and consumer lines of credit, which are
evaluated on a collective basis.  Also, loans which have delays in payments of
less than four months are not necessarily considered impaired unless other
factors apply to the loans such as the knowledge that the collection of the loan
will only come from the collateral and that collateral is known to have
deteriorated.  The accrual of interest income on impaired loans is discontinued
when, in management's opinion, the borrower may be unable to meet payments as
they become due.  When the interest accrual is discontinued, all unpaid accrued
interest is reversed.  Interest income is subsequently recognized only to the
extent cash payments are received.  Where impairment is considered permanent, a
charge-off is recorded; where impairment is considered temporary, an allowance
is established.  Impaired loans which are performing under the contractual terms
are reported as performing loans, and cash payments are allocated to principal
and interest in accordance with the terms of the loan.

     Interest on loans is credited to income as earned.  Interest receivable is
accrued only if deemed collectible.  Generally, interest is not accrued on loans
delinquent three payments or more.  Loan origination and commitment fees and
certain incremental direct loan origination costs are deferred, and the net fees
or costs for loans held for investment are amortized into interest income over
the contractual lives of the related loans.  Other loan fees and charges
representing service costs for the repayments of loans, delinquent payments or
miscellaneous loan services are recorded as income when collected.

     The Company may hedge its interest rate exposure on loans held for sale and
commitments to originate loans by entering into forward sales contracts.
Realized and unrealized gains and losses on forward sales contracts are deferred
and recognized as adjustments to the gain or loss on sale of loans.

     Real Estate Acquired Through Foreclosure - Properties acquired through
foreclosure are initially recorded at the lower of cost or fair value less
estimated costs to sell through a charge to the allowance for estimated loan
losses.  Subsequent declines in value are charged to operations.

     Allowances for Loan and Real Estate Losses - Valuation allowances for loan
and real estate losses are provided when any significant decline in value is
deemed to have occurred.  Specific loss allowances are established for loans
that are deemed impaired, if the fair value of the loan or the collateral is
estimated to be less than the gross carrying value of the loan.  In estimating
losses, management considers the estimated sales price, cost of refurbishment,
payment of delinquent taxes, cost of holding the property (if an extended period
is anticipated) and cost of disposal.  Additionally, general valuation
allowances for loan and real estate losses have been established.  The estimates
for these allowances are normally influenced by current economic conditions,
actual loss experience, industry trends and other factors such as the current
adverse economic conditions experienced (including declining real estate values)
in the area in which the Company's lending and real estate activities are based.

     In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Association's allowance for loan
losses.  Such agencies may require the Association to recognize additions to the
allowance based on judgments different from those of management.

                                       52
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     Although management uses the best information available to make these
estimates, future adjustments to the allowances may be necessary due to
economic, operating, regulatory and other conditions that may be beyond the
Company's control.

     Premises and Equipment - Premises and equipment are stated at cost less
accumulated depreciation and amortization.  The Company depreciates its premises
and equipment primarily by use of the straight-line method over the estimated
useful lives as follows

          Office buildings                                      20 to 40 years
          Furniture, fixtures and equipment                      3 to 10 years

     Income Taxes - Deferred tax assets and liabilities represent the tax
effects of the temporary differences in the bases of certain assets and
liabilities for tax and financial statement purposes, calculated at currently
effective tax rates, of future deductible or taxable amounts attributable to
events that have been recognized on a cumulative basis in the financial
statements.

     The Company files its tax returns on a fiscal year basis.

     Comprehensive Income - Effective July 1, 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income.  Under the provisions of SFAS No. 130, an entity that
provides a full set of financial statements is required to report comprehensive
income in the presentation of its financial statements.  The term "comprehensive
income" describes the total of all components of comprehensive income including
net income.  "Other comprehensive income" refers to revenues, expenses, and
gains and losses that are included in comprehensive income but are excluded from
net income as they have been recorded directly in equity under the provisions of
other Financial Accounting Standard Board (FASB) statements.  The Company
presents the comprehensive income disclosure as a part of the statements of
changes in stockholders' equity, by identifying each element of other
comprehensive income, including net income.  All comparative financial
statements presented reflect the application of the provisions of SFAS No. 130.

     Segment Reporting - Effective July 1, 1998, the Company adopted SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information, and
operates as one segment.

     Recent Accounting Developments - SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, was issued in June 1998 and establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities.  SFAS No. 133 was effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.  In July 1999,
the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, which
delays the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000.  Earlier application is encouraged, but it is permitted only as of the
beginning of any fiscal quarter that begins after June 1998.  The adoption of
the provisions of SFAS No. 133 as amended by SFAS No. 137 is not expected to
have a material impact on the results of operations or the financial position of
the Company.

     Use of Estimates in the Preparation of Consolidated Financial Statements -
The preparation of the consolidated 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 years.  Actual results could differ from those estimates.

     Presentation of Cash Flows - All highly liquid instruments with original
maturities of three months or less are considered to be cash equivalents.

                                       53
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     Reclassifications - Certain amounts in the 1998 and 1997 financial
statements have been reclassified to conform with classifications in 1999.


2.   REGULATORY CAPITAL REQUIREMENTS AND OTHER REGULATORY MATTERS

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

     Quantitative measures that have been established by regulation to ensure
capital adequacy require the Association to maintain minimum capital amounts and
ratios (set forth in the table below).  The Federal Deposit Insurance
Corporation (FDIC) requires the Association to maintain a minimum of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined) and of Tier I capital (as defined) to average assets (as defined).
Management believes, that as of June 30, 1999 and 1998, the Association meets
all capital adequacy requirements to which it is subject.

     As of June 30, 1999 and June 30, 1998, the most recent notification from
the Office of Thrift Supervision (OTS) categorized the Association as well
capitalized under the regulatory framework for prompt corrective action.  To be
categorized as well capitalized, the Association must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table.  There are no conditions or events since that notification that
management believes have changed the Association's category.

     The Association's actual capital amounts and ratios are also presented in
the table.

<TABLE>
<CAPTION>
                                                                                                              To Be Well
                                                                                                           Capitalized Under
                                                                                 For Capital               Prompt Corrective
                                                        Actual                Adequacy Purposes            Action Provisions
                                                ----------------------    -------------------------     ------------------------
                                                  Amount       Ratio         Amount        Ratio          Amount          Ratio
                                                                           (Dollars in thousands)
<S>                                             <C>            <C>        <C>              <C>          <C>               <C>
As of June 30, 1999:
  Total Capital (to Risk Weighted Assets)        $ 32,601      13.34%       $ 19,544        8.00%        $ 24,430         10.00%
  Core Capital (to Adjusted Tangible Assets)     $ 30,994       6.61%       $ 18,757        4.00%        $ 23,446          5.00%
  Tangible Capital (to Tangible Assets)          $ 30,994       6.61%       $  7,034        1.50%           N/A             N/A
  Tier I Capital (to Risk Weighted Assets)       $ 30,994      12.69%         N/A            N/A         $ 14,658          6.00%


As of June 30, 1998:
  Total Capital (to Risk Weighted Assets)        $ 29,255      15.08%       $ 15,520        8.00%        $ 19,400         10.00%
  Core Capital (to Adjusted Tangible Assets)     $ 27,930       6.86%       $ 16,296        4.00%        $ 20,369          5.00%
  Tangible Capital (to Tangible Assets)          $ 27,930       6.86%       $  6,117        1.50%           N/A             N/A
  Tier I Capital (to Risk Weighted Assets)       $ 27,930      14.40%          N/A           N/A         $ 11,640          6.00%
</TABLE>

                                       54
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     The OTS issued final regulations which set forth the methodology for
calculating an interest rate risk component that is being incorporated into the
OTS regulatory capital rules.  Under the new regulations, only savings
institutions with above normal interest rate risk exposure are required to
maintain additional capital.  This additional capital would increase the amount
of a savings institution's otherwise required risk-based capital requirement.
The final rule became effective January 1, 1994 and implementation will not
begin until the Association has been notified by the OTS.

     Management believes that, under current regulations, the Association will
continue to meet its minimum capital requirements in the foreseeable future.
However, events beyond the control of the Association, such as changing interest
rates or a further downturn in the economy in areas where the Association has
most of its loans, could adversely affect future earnings and, consequently, the
ability of the Association to meet its future minimum capital requirements.

     At periodic intervals, both the OTS and the FDIC routinely examine the
Association's financial statements as part of their legally prescribed oversight
of the savings and loan industry.  Based on these examinations, the regulators
can direct that the Association's financial statements be adjusted in accordance
with their findings.

     As of August 31, 1999, the OTS is in the process of examining the
Association.  This examination and future examinations by the OTS or FDIC could
include a review of certain transactions or other amounts reported in the
Association's 1999 financial statements.  Adjustments, if any, cannot presently
be determined.

     On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the Funds Act), which, among other things, imposes a special
one-time assessment on Savings Association Insurance Fund (SAIF) member
institutions, including the Association, to recapitalize the SAIF.  As required
by the Funds Act, the FDIC imposed a special assessment of 65.7 basis points on
SAIF-assessable deposits held as of March 31, 1995, payable November 27, 1996.
The special assessment was recognized as an expense in the quarter ended
September 30, 1996 and is tax deductible.  The Association took a pre-tax charge
of $1,332,000 as a result of the SAIF special assessment.


3.   INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

     A summary of investment securities and mortgage-backed securities available
for sale at June 30 follows:

<TABLE>
<CAPTION>
                                                                                             1999
                                                      ------------------------------------------------------------------------------
                                                                                  Gross               Gross             Estimated
                                                            Amortized           unrealized          unrealized             fair
                                                               cost               gains               losses              value
                                                                                       (In thousands)
<S>                                                    <C>                  <C>                 <C>                 <C>
Money market funds and adjustable
  interest rate mutual funds                            $         12,500      $            -     $            33     $        12,467
U.S. Government and federal agency obligations                     9,000                   -                 169               8,831
Other investment securities                                        4,609                  21                 112               4,518
                                                      ------------------    ----------------    ----------------    ----------------
  Total investment securities                                     26,109                  21                 314              25,816
                                                      ------------------    ----------------    ----------------    ----------------

FHLMC mortgage-backed securities                                     358                   6                   3                 361
FNMA mortgage-backed securities                                    2,014                   -                  30               1,984
GNMA mortgage-backed securities                                   22,954                   -                 428              22,526
                                                      ------------------    ----------------    ----------------    ----------------
  Total mortgage-backed securities                                25,326                   6                 461              24,871
                                                      ------------------    ----------------    ----------------    ----------------

    Total                                               $         51,435      $           27     $           775     $        50,687
                                                      ==================    ================    ================    ================
</TABLE>

                                       55
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
---------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                             1998
                                                      ------------------------------------------------------------------------------
                                                                                  Gross               Gross             Estimated
                                                            Amortized           unrealized          unrealized             fair
                                                               cost               gains               losses              value
                                                                                        (In thousands)
<S>                                                   <C>                   <C>                 <C>                 <C>
Money market funds and adjustable
  interest rate mutual funds                                $     11,000        $          -        $         18        $     10,982
U.S. Government and federal agency obligations                     7,991                   -                   9               7,982
Other investment securities                                          250                   7                   -                 257
                                                      ------------------    ----------------    ----------------    ----------------
  Total investment securities                                     19,241                   7                  27              19,221
                                                      ------------------    ----------------    ----------------    ----------------

FHLMC mortgage-backed securities                                   5,320                   6                  15               5,311
FNMA mortgage-backed securities                                    7,972                  10                  17               7,965
GNMA mortgage-backed securities                                   15,025                  32                   7              15,050
Other mortgage-backed securities                                   1,069                   -                  12               1,057
                                                      ------------------    ----------------    ----------------    ----------------
  Total mortgage-backed securities                                29,386                  48                  51              29,383
                                                      ------------------    ----------------    ----------------    ----------------

    Total                                                   $     48,627        $         55        $         78        $     48,604
                                                      ==================    ================    ================    ================
</TABLE>


     During the year ended June 30, 1999, the Company sold $6.9 million in
mortgage-backed securities, which resulted in total gains of $1,000 and total
losses of $2,000.  Also, the Company sold $6.1 million in investment securities
resulting in gains totaling $72,000 and had $3.0 million in investment
securities called during the year at par.

     During the year ended June 30, 1998, the Company sold $16.6 million in
mortgage-backed securities resulting in $44,000 in total gains and $11,000 in
total losses.  Also, the Company sold $14.0 million in investment securities
resulting in total gains of $13,000 and total losses of $1,000 and had $9.0
million in investment securities called during the year at par.

     During the year ended June 30, 1997, the Company sold $9.9 million in
mortgage-backed securities resulting in total gains of $161,000.  Also, the
Company sold $1.5 million in investment securities resulting in total losses of
$13,000 and had $2.0 million in investment securities called during the year at
par.

     The weighted average interest rates on investment securities available for
sale were 5.54% and 5.92% at June 30, 1999 and 1998, respectively.  The weighted
average interest rates on mortgage-backed securities available for sale were
6.33% and 6.87% at June 30, 1999 and 1998, respectively.

     At June 30, 1999, $11.9 million of mortgage-backed securities available for
sale had adjustable interest rates, with the remaining $13.0 million having
fixed interest rates.  The weighted average remaining years to maturity of the
mortgage-backed securities available for sale is 27.0 years at June 30, 1999.

                                       56
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
-------------------------------------------------------------------------

4.   MORTGAGE-BACKED SECURITIES HELD TO MATURITY

     A summary of mortgage-backed securities held to maturity at June 30
follows:

<TABLE>
<CAPTION>
                                                                               1999
                                          --------------------------------------------------------------------------
                                                                     Gross              Gross            Estimated
                                                Amortized         unrealized         unrealized            fair
                                                  cost               gains             losses              value
                                                                         (In thousands)
<S>                                       <C>                 <C>                 <C>                <C>
FHLMC mortgage-backed securities               $      3,071        $        11         $       36        $     3,046
FNMA mortgage-backed securities                          67                  1                  -                 68
GNMA mortgage-backed securities                      25,424                  -                507             24,917
Other mortgage-backed securities                      9,155                  -                202              8,953
                                          -----------------    ---------------    ---------------    ---------------

  Total mortgage-backed securities             $     37,717        $        12         $      745        $    36,984
                                          =================    ===============    ===============    ===============

                                                                              1998
                                          --------------------------------------------------------------------------
                                                                     Gross              Gross            Estimated
                                                Amortized         unrealized         unrealized            fair
                                                  cost               gains             losses              value
                                                                          (In thousands)

FHLMC mortgage-backed securities               $      5,178        $        40         $       31        $     5,187
FNMA mortgage-backed securities                         106                  3                  -                109
GNMA mortgage-backed securities                      23,829                144                  -             23,973
Other mortgage-backed securities                        823                  -                  3                820
                                          -----------------    ---------------    ---------------    ---------------

    Total mortgage-backed securities           $     29,936        $       187         $       34        $    30,089
                                          =================    ===============    ===============    ===============
</TABLE>


     Mortgage-backed securities totaling approximately $16.5 million were
pledged at June 30, 1999 as collateral for FHLB borrowings.

     The Company did not sell any mortgage-backed securities held to maturity
during the years ended June 30, 1999, 1998 and 1997.

     The weighted average interest rate on mortgage-backed securities held to
maturity was 7.14% and 7.82% at June 30, 1999 and 1998, respectively.  At June
30, 1999, $1.1 million of the Company's mortgage-backed securities held to
maturity had adjustable interest rates with the remaining $36.6 million having
fixed interest rates.  At June 30, 1998, $2.0 million of the Company's mortgage-
backed securities held to maturity had adjustable interest rates, with the
remaining $27.9 million having fixed interest rates.  The weighted average
remaining years to maturity of the mortgage-backed securities held to maturity
is 23.2 years at June 30, 1999.

                                       57
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

5.   LOANS RECEIVABLE

     A summary of loans receivable at June 30 follows:

<TABLE>
<CAPTION>
                                                               1999                 1998
                                                            -----------         ------------
                                                                  (Dollars in thousands)
<S>                                                         <C>                 <C>
Conventional trust deed loans on real estate:
Single family 1-4 units                                     $   279,897         $    247,129
Multifamily                                                      46,425               29,546
Commercial loans secured by trust deeds                          23,901               11,895
Consumer                                                          5,961                9,007
                                                            -----------         ------------

  Total                                                         356,184              297,577

Less (plus):
Unamortized yield adjustments                                    (1,486)                (613)
Deferred loan fees                                                  736                  635
Allowance for loan losses                                         1,845                1,425
                                                            -----------         ------------
  Total                                                         355,089              296,130

Less - Loans held for sale                                          100                  391
                                                            -----------         ------------

Loans receivable held for investment, net                   $   354,989         $    295,739
                                                            ===========         ============

Weighted average interest rate at end of period                    7.62%                8.03%
                                                            ===========         ============
</TABLE>


     At June 30, 1999, adjustable rate loans approximated $265.0 million.  The
adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the Eleventh District Cost of Funds and the one-year
Constant Maturity Treasury index.  Future market factors may affect the
correlation of the interest rate adjustment with the rates the Company pays on
short-term deposits that have been utilized primarily to fund these loans.

     Activity in the allowance for loan losses is summarized as follows for the
year ended June 30:

<TABLE>
<CAPTION>
                                                   1999                  1998                  1997
                                             --------------        --------------        --------------
                                                                    (In thousands)
<S>                                          <C>                   <C>                   <C>
Balance, beginning of year                       $    1,425            $    1,263            $    1,058
Provision for estimated loan losses                     969                   735                   557
Charge-offs                                            (564)                 (573)                 (352)
Recoveries                                               15                     -                     -
                                             --------------        --------------        --------------

Balance, end of year                             $    1,845            $    1,425            $    1,263
                                             ==============        ==============        ==============
</TABLE>

                                       58
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     At June 30, 1999, for those loans which are reviewed individually for
impairment, the Company had classified none of such loans as impaired and there
were no specific reserves determined in accordance with SFAS No. 114, as amended
by SFAS No. 118.  At June 30, 1998, for those loans which are reviewed
individually for impairment, the Company had classified $569,000 of its loans as
impaired with $100,000 in specific reserves and none with no specific reserves.
In addition, the Company has $1.5 million and $1.3 million at June 30, 1999 and
1998, respectively, in impaired loans, which were collectively evaluated for
impairment with $238,000 in reserves set aside as of June 30, 1999 and no
reserves as of June 30, 1998.  The average recorded investment in impaired
loans, inclusive of those evaluated collectively, during the years ended June
30, 1999, 1998 and 1997 was approximately $1.9 million, $2.9 million and $1.6
million, respectively.  Interest income on impaired loans of $34,000, $28,000
and $28,000 was recognized for cash payments received in the years ended June
30, 1999, 1998 and 1997.

     Generally, loans delinquent three payments or more are placed on nonaccrual
status, meaning that the Company stops accruing interest on such loans and
reverses any interest previously accrued but not collected.  A nonaccrual loan
may be restored to accrual status when delinquent principal and interest
payments are brought current and future monthly principal and interest payments
are expected to be collected.  For the years ended June 30, 1999, 1998 and 1997,
contractually due interest of approximately $80,000, $101,000 and $77,000,
respectively, was not recognized in income.  At June 30, 1999, 1998 and 1997,
nonaccrual loans approximated $1,524,000, $1,911,000 and $1,699,000,
respectively.  At June 30, 1999, the Company had two troubled-debt restructured
loans with a net balance outstanding of approximately $446,000.

     The Company is engaged in attracting deposits from the general public and
using those deposits together with borrowings and other funds primarily to
originate permanent residential mortgage loans in its normal lending areas in
Los Angeles, San Bernardino, Riverside and Orange counties.

     At June 30, 1999, 1998 and 1997, the Company was servicing loans for others
amounting to approximately $87,000,000, $100,000,000 and $94,000,000,
respectively.

     Under FIRREA, a federally chartered savings and loan association's
aggregate commercial real estate loans may not exceed 400% of its capital as
determined under the capital standards provisions of FIRREA.  FIRREA does not
require divestiture of any loan that was lawful when it was originated.  At June
30, 1999, the Association estimates that, while complying with this limitation,
it may originate an additional $99.4 million of commercial real estate loans.

     The Association is subject to numerous lending-related regulations.  Under
FIRREA, the Association may not make real estate loans to one borrower in excess
of 15% of its unimpaired capital and surplus, plus an additional 10% for loans
secured by readily marketable collateral.  This 15% limitation results in a
dollar limitation of approximately $4,624,000 at June 30, 1999.

     Transactions in loans to officers, directors and employees are as follows
for the years ended June 30:

<TABLE>
<CAPTION>
                                               1999                       1998                       1997
                                        -------------------        -------------------        -------------------
                                                                       (In thousands)
<S>                                     <C>                        <C>                        <C>
Balance, beginning of year                       $    1,726                 $      788                 $    1,010
  New loans to employees                              1,676                        966                         92
  Principal paydowns and payoffs                       (135)                       (28)                      (314)
                                        -------------------        -------------------        -------------------
Balance, end of year                             $    3,267                 $    1,726                 $      788
                                        ===================        ===================        ===================
</TABLE>

                                       59
<PAGE>
SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

6.   ACCRUED INTEREST RECEIVABLE

     A summary of accrued interest receivable at June 30 follows:

<TABLE>
<CAPTION>
                                          1999                     1998
                                   ------------------       ------------------
                                                (In thousands)
<S>                                <C>                      <C>
Loans receivable                           $    2,447               $    2,286
Mortgage-backed securities                        371                      378
Investment securities and other                   161                      110
                                   ------------------       ------------------
  Total                                    $    2,979               $    2,774
                                   ==================       ==================
</TABLE>


7.   REAL ESTATE ACQUIRED THROUGH FORECLOSURE

     A summary of real estate acquired through foreclosure at June 30 follows:

<TABLE>
<CAPTION>
                                         1999                      1998
                                   ------------------       ------------------
                                                   (In thousands)
<S>                                <C>                      <C>
One- to four-unit properties                 $    827               $    1,728
Multifamily                                         -                      274
Allowance for real estate losses                    -                     (100)
                                   ------------------       ------------------

  Total                                      $    827               $    1,902
                                   ==================       ==================
</TABLE>


     Activity in the allowance for estimated real estate losses is as follows
for the years ended June 30:

<TABLE>
<CAPTION>
                                                              1999                      1998                     1997
                                                       ------------------        ------------------        ------------------
                                                                                    (In thousands)
<S>                                                    <C>                       <C>                       <C>
Balance, beginning of year                                      $     100                 $      60                 $     557
(Recapture of) provision for real estate losses                       (40)                      124                        95
Charge-offs                                                           (60)                      (84)                     (592)
                                                       ------------------        ------------------        ------------------

Balance, end of year                                            $       -                 $     100                 $      60
                                                       ==================        ==================        ==================
</TABLE>


     Net gain (loss) on real estate acquired through foreclosure is summarized
as follows for the years ended June 30:

<TABLE>
<CAPTION>
                                                                      1999                1998                1997
                                                               ---------------     ---------------     ---------------
                                                                                     (In thousands)
<S>                                                            <C>                 <C>                 <C>
Net gain on sales of real estate                                     $     297           $     153           $      49
Other (expenses) income, net                                               (82)               (138)                203
Recapture of (provision for) real estate losses                             40                (124)                (95)
                                                               ---------------     ---------------     ---------------

Net gain (loss) on real estate acquired through foreclosure          $     255           $    (109)          $     157
                                                               ===============     ===============     ===============
</TABLE>

                                       60
<PAGE>


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

8.   PREMISES AND EQUIPMENT

     A summary of premises and equipment at June 30 follows:

<TABLE>
<CAPTION>
                                                    1999              1998
                                                ------------      -----------
                                                        (In thousands)
<S>                                             <C>               <C>
Land                                             $       523       $      523
Office buildings                                       5,066            5,055
Furniture, fixtures and equipment                      3,688            3,519
                                                ------------      -----------
  Total                                                9,277            9,097
Less accumulated depreciation and amortization        (6,111)          (5,560)
                                                ------------      -----------

  Total                                          $     3,166       $    3,537
                                                ============      ===========
</TABLE>


9.   DEPOSIT ACCOUNTS

     Deposit accounts are summarized as follows at June 30:

<TABLE>
<CAPTION>
                                           1999                               1998
                                    -----------------------           --------------------
                                                   Interest                       Interest
                                    Balance          rate*            Balance       rate*
                                                     (Dollars in thousands)
<S>                                 <C>            <C>                <C>         <C>
Passbook accounts                    $   19,466        2.00%           $  17,892      2.00%
Money market savings accounts            85,176        4.47%              47,469      4.64%
NOW accounts                             20,397        1.00%              20,808      1.23%
Noninterest-bearing accounts             13,000           -                9,660         -
                                    -----------                       ----------
    Total                               138,039        3.19%              95,829      2.94%

Certificates of deposit:**
  Less than three months                  3,203        3.92%               2,637      3.97%
  Three to six months                     4,706        4.06%               6,490      4.42%
  Six to twelve months                   47,835        4.63%              29,861      4.91%
  Twelve months and greater             130,323        4.96%             160,464      5.49%
                                    -----------                       ----------
    Total                               186,067        4.83%             199,452      5.35%
                                    -----------                       ----------
      Total                          $  324,106        4.14%           $ 295,281      4.57%
                                    ===========                       ==========

*   Based on weighted average stated interest rates.
**  Based on original maturity. Also, at June 30, 1999, included in certificate
    accounts are 414 accounts totaling $57,026,000, with balances of $100,000
    or more
</TABLE>

     Certificate accounts are scheduled to mature as follows at June 30, 1999:

<TABLE>
<CAPTION>
                                             (In thousands)
<S>                                          <C>
Within one year                              $     167,823
One to two years                                     9,211
Two to three years                                   4,438
Three to four years                                  3,128
Four to five years                                   1,467
                                             -------------
  Total                                      $     186,067
                                             =============
</TABLE>

                                       61
<PAGE>



SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     Interest expense on deposit accounts is summarized as follows for the year
ended June 30:

<TABLE>
<CAPTION>
                                    1999           1998             1997
                                ------------    ------------     ------------
                                               (In thousands)
<S>                             <C>             <C>              <C>
Passbook accounts                $       367     $       377      $       348
NOW accounts                             240             309              280
Money market savings accounts          3,069           1,367              493
Certificate accounts                   9,856          11,574           11,074
                                ------------    ------------     ------------
  Total                          $    13,532     $    13,627      $    12,195
                                ============    ============     ============
</TABLE>


10.  OTHER BORROWED FUNDS

     Advances from the Federal Home Loan Bank (FHLB) are scheduled to mature as
follows at June 30, 1999:

<TABLE>
<CAPTION>
                                                (In thousands)
Year ending June 30:
<S>                                             <C>
  2000                                           $     46,071
  2001                                                 24,154
  2002                                                 26,639
  2003                                                  1,138
  2004                                                 10,000
                                                -------------
   Total                                         $    108,002
                                                =============
</TABLE>

     At June 30, 1999 and 1998, the weighted average interest rate on FHLB
advances was 5.41% and 6.21%, respectively.  At June 30, 1999, the advances, all
of which are fixed rate, were collateralized by certain real estate loans with
aggregate unpaid principal balances of approximately $166.9 million and by
certain mortgage-backed securities with an aggregate remaining principal balance
of approximately $16.5 million and the Company's investment in the capital stock
of the FHLB of San Francisco.

     The following summarizes activities in advances from the FHLB for the year
ended June 30:

<TABLE>
<CAPTION>
                                                       1999          1998         1997
                                                   ------------  -----------  -----------
                                                           (Dollars in thousands)
<S>                                                <C>           <C>          <C>
Average amount outstanding during the period        $   97,110    $   72,722   $   73,513
                                                   ===========   ===========  ===========

Maximum amount outstanding at any month-end
  during the period                                 $  108,017    $   75,876   $   78,172
                                                   ===========   ===========  ===========

Weighted average interest rate during the period          5.68%         6.28%        6.25%
                                                   ===========   ===========  ===========
</TABLE>

                                       62
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     The following summarizes activities in securities sold under agreements to
repurchase as of June 30:

<TABLE>
<CAPTION>
                                                                     1999                1998                1997
                                                              ---------------     ---------------     ---------------
                                                                              (Dollars in thousands)
<S>                                                           <C>                 <C>                 <C>
Average amount outstanding during the period                      $     3,831          $    6,528          $    8,729
                                                              ===============     ===============     ===============

Maximum amount outstanding at any month-end
  during the period                                               $    10,300          $    9,450          $    9,600
                                                              ===============     ===============     ===============

Weighted average interest rate during the period                         5.62%               6.04%               5.93%
                                                              ===============     ===============     ===============
</TABLE>


     At June 30, 1999, there were no securities sold under agreements to
repurchase outstanding.  The Company enters into these agreements only with
primary government securities dealers.  The lender maintains possession of the
collateral securities for these agreements.


11.  INCOME TAXES

     Income taxes are summarized as follows for the year ended June 30:

<TABLE>
<CAPTION>
                               1999             1998              1997
                           ------------     -------------     ------------
                                            (In thousands)
<S>                        <C>              <C>               <C>
Current:
  Federal                   $     1,499      $        978      $       225
  State                             503               251               43
                           ------------     -------------     ------------

    Total current                 2,002             1,229              268

Deferred:
  Federal                          (215)             (209)             173
  State                             (44)               24               93
                           ------------     -------------     ------------

    Total deferred                 (259)             (185)             266
                           ------------     -------------     ------------

      Total                 $     1,743      $      1,044      $       534
                           ============     =============     ============
</TABLE>


     A reconciliation from the statutory federal income tax rate to the
consolidated effective income tax rate follows for the year ended June 30:

<TABLE>
<CAPTION>
                                             1999          1998         1997
                                          ----------    ----------   ----------
<S>                                       <C>           <C>          <C>
Federal income tax rate                         35.0%         35.0%        35.0%
State taxes, net of federal benefit              7.1           7.2          7.1
Other, net                                      (1.5)         (1.0)         0.1
                                          ----------    ----------   ----------

  Total                                         40.6%         41.2%        42.2%
                                          ==========    ==========   ==========
</TABLE>

                                       63
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     At June 30, 1999 and 1998, the deferred components of the Company's total
income tax liabilities (assets), as included in the consolidated statements of
financial condition, are summarized as follows:

<TABLE>
<CAPTION>
                                                1999             1998
                                            ------------     ------------
                                                   (In thousands)
<S>                                         <C>              <C>
Deferred tax liabilities:

  Federal Home Loan Bank stock dividends    $      1,022      $       903
  Depreciation                                       285              344
  Loan fees                                          727              817
  Prepaid expenses                                   120               56
  Other                                                -                -
                                            ------------     ------------

    Gross deferred tax liabilities                 2,154            2,120

Deferred tax assets:
  Bad debt reserve                                  (680)            (538)
  State taxes                                       (277)            (230)
  Deferred compensation                             (358)            (269)
  Capital loss carryforward                          (20)             (20)
  Unrealized losses on securities                   (308)              (9)
  Amortization of deposit premium                    (74)             (43)
  Other                                              (15)             (31)
                                            ------------     ------------

    Gross deferred tax assets                     (1,732)          (1,140)

Valuation allowance                                    -                -
                                            ------------     ------------

Net deferred tax liability                   $       422      $       980
                                            ============     ============
</TABLE>


     The Association's financial statement retained earnings includes tax bad
debt deductions for which no provision for federal income taxes has been made.
If distributions to shareholders are made in excess of current or accumulated
earnings and profits or if stock of the Association is partially redeemed, this
tax bad debt reserve, which approximates $2,700,000 at June 30, 1999, will be
recaptured into income at the then prevailing federal income tax rate.  The
related unrecognized deferred tax liability is approximately $945,000.  It is
not contemplated that the Association will make any disqualifying distributions
that would result in the recapture of these reserves.

                                       64
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

12.  EARNINGS PER SHARE RECONCILIATION

<TABLE>
<CAPTION>
                                                                                     Weighted
                                                                                     Average
                                                               Income                 Shares                Per Share
                                                             (Numerator)           (Denominator)              Amount
                                                         -------------------    --------------------    -------------------

                                                                                    June 30, 1999
                                                         ------------------------------------------------------------------
<S>                                                      <C>                    <C>                     <C>
Basic EPS
  Income available to common stockholders                   $  2,548,000              2,190,000           $       1.16
Effect of Dilutive Securities
  Incremental shares from assumed exercise
    of outstanding options                                             -                 73,000                  (0.03)
                                                         -------------------    --------------------    -------------------
Diluted EPS
  Income available to common stockholders                   $  2,548,000              2,263,000           $       1.13
                                                         ===================    ====================    ===================

                                                                                    June 30, 1998
                                                         ------------------------------------------------------------------
Basic EPS
  Income available to common stockholders                   $  1,487,000              2,345,000           $       0.63
Effect of Dilutive Securities
  Incremental shares from assumed exercise
    of outstanding options                                             -                124,000                  (0.03)
                                                         -------------------    --------------------    -------------------
Diluted EPS
  Income available to common stockholders                   $  1,487,000              2,469,000           $       0.60
                                                         ===================    ====================    ===================

                                                                                    June 30, 1997
                                                         ------------------------------------------------------------------
Basic EPS
  Income available to common stockholders                   $    731,000              2,482,000           $       0.29
Effect of Dilutive Securities
  Incremental shares from assumed exercise
    of outstanding options                                             -                 37,000                      -
                                                         -------------------    --------------------    -------------------
Diluted EPS
  Income available to common stockholders                   $    731,000              2,519,000           $       0.29
                                                         ===================    ====================    ===================
</TABLE>


13.  COMMITMENTS AND CONTINGENT LIABILITIES

     The Company conducts a portion of its operations from premises under
operating leases. Rental expense, net of sublease payments, was $309,000,
$307,000 and $206,000 for the years ended June 30, 1999, 1998 and 1997,
respectively. Sublease payments were $158,000, $158,000 and $121,000 for the
years ended June 30, 1999, 1998 and 1997, respectively. Minimum rental
commitments for noncancelable leases follow at June 30, 1999:

<TABLE>
<CAPTION>
                                    (In thousands)

<S>                                 <C>
First year                          $        417
Second year                                  215
Third year                                   217
Fourth year                                  217
Fifth year                                   181
Thereafter                                   217
                                    ------------
  Total                             $      1,464
                                    ============
</TABLE>

                                       65
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     The Company becomes involved in claims and litigation arising from its
normal business activities. After consultation with legal counsel, management is
of the opinion that the ultimate liability, if any, resulting from the
disposition of such claims and litigation would not be material to the
consolidated financial statements of the Company.

     The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. The Company's
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 notional amount of those instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. Moreover, the total commitment amounts do not
necessarily represent future cash requirements. Collateral generally includes
residential or commercial real estate. For forward sales contracts, the contract
or notional amounts do not represent exposure to credit loss. The Company
controls the credit risk of its forward sales contracts through limits and
monitoring procedures.

     At June 30, 1999 and 1998, the Company had loan funding commitments of
approximately $4.8 million and $3.0 million, respectively. Loan funding
commitments are generally for a period of 15 to 45 days. The loan commitments
outstanding at June 30, 1999 were primarily for adjustable rate mortgage loans,
whereas they were predominantly for fixed rate mortgages as of June 30, 1998.

     The Company uses forward sales contracts to hedge interest rate exposure
generally on secondary mortgage market operations. As of June 30, 1999, the
Company had no open forward sales contracts. As of June 30, 1998, the Company
had $1.0 million in open forward sales contracts.

     The Company provides a profit-sharing plan and a 401(k) plan, which are
offered to officers and full-time employees meeting the eligibility requirements
specified in the plans. The plans provide for optional annual contributions by
the Company at the discretion of the Board of Directors. The 401(k) plan is a
defined contributory plan which allows employee contributions. Total profit-
sharing and 401(k) plan expenses were $100,000, $79,000 and $68,000 for the
years ended June 30, 1999, 1998 and 1997, respectively. The Company's maximum
annual contribution is 15% of the amount of eligible compensation.

     The Company previously maintained a separate defined benefit plan covering
only outside Board of Director members. Such plan was terminated during the year
ended June 30, 1995. Participants currently remaining in the plan will be paid
out according to existing plan terms. No further contributions will be made by
the Company. Pension expense was $18,000, $13,000 and $15,000 for the years
ended June 30, 1999, 1998 and 1997, respectively. The accrued pension liability
cost was approximately $150,000 at June 30, 1999.

     The Association established for eligible employees an ESOP and related
trust that became effective upon the conversion of the Association from a mutual
to a stock savings and loan association (the Conversion). Full-time employees
employed with the Association as of January 1, 1995 and full-time employees of
the Company or the Association employed after such date, who have been credited
with at least 1,000 hours during a 12-month period and who have attained the age
of 21 will become participants. The ESOP purchased 7% of the common stock issued
by SGV Bancorp, Inc. (See Note 1).

     The ESOP borrowed $1,528,000 from the Company in order to purchase the
common stock. The loan will be repaid principally from the Association's
contributions to the ESOP over a period of seven years, and the collateral for
the loan will be the common stock purchased by the ESOP. The interest rate for
the loan is 8%. At June 30, 1999 the outstanding balance of the loan was
$764,000 and a total of 95,470 shares of common stock has been allocated to
employee accounts.

                                       66
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     Shares purchased by the ESOP are pledged as collateral for the loan and
will be held in a suspense account until released for allocation among
participants as the loan is repaid. The pledged shares will be released annually
from the suspense account in an amount proportional to the repayment of the ESOP
loan for each plan year. The released shares will be allocated among the
accounts of participants on the basis of the participant's compensation for the
year of allocation. Participants generally become 100% vested in their ESOP
account after six years of credited service or if their service was terminated
due to death, early retirement, permanent disability or a change in control.
Prior to the completion of two years of credited service, a participant who
terminates employment for reasons other than death, retirement, disability, or
change of control of the Association or Company will not receive any benefit.
Forfeitures will be reallocated among remaining participating employees, in the
same proportion as contributions. Benefits may be payable upon death,
retirement, disability or separation from service. The contributions to the ESOP
are not fixed, so benefits payable under the ESOP cannot be estimated.

     The expense related to the ESOP for the year ended June 30, 1999 was
approximately $367,000. At June 30, 1999, unearned compensation related to the
ESOP approximated $655,000 and is shown as a reduction of stockholders' equity
in the accompanying consolidated statements of financial condition.

     The Association maintains a non-qualified Supplemental Executive Retirement
Plan (SERP) to provide certain officers and highly compensated employees with
additional retirement benefits. The benefits provided under the SERP will make
up the benefits lost to the SERP participants due to application of limitations
on compensation and maximum benefits applicable to the Association's tax-
qualified 401(k) plan and the ESOP. Benefits will be provided under the SERP at
the same time and in the same form as the benefits will be provided under the
401(k) plan and the ESOP. Included in other assets at June 30, 1999 are $32,000
in investment securities accounted for as trading securities related to the
SERP. Included in accrued expenses at June 30, 1999 is $97,000 of benefits
related to the SERP.

     The Association has implemented a Directors' Deferred Fee Stock Unit Plan
(Deferred Fee Plan) for its directors. The Deferred Fee Plan permits directors
to defer receipt of directors' fees paid by the Association until their service
with the Board of Directors terminates. The Deferred Fee Plan also permits
directors to defer receipt of the vested accrued benefit otherwise payable from
the terminated Director's Retirement Plan into the director's account under the
terms of the Deferred Fee Plan. The directors' deferred fees are credited to the
account of participating directors under the terms of the Deferred Fee Plan and
are credited with earnings based on several investment choices, including
Company stock. If a participant chooses to have deferred fees credited to a
stock unit account with the Deferred Fee Plan, the participant will receive a
benefit based on the value and appreciation in the stock of the Company.
Included in other assets at June 30, 1999 is $298,000 in investment securities
accounted for as trading securities related to the Deferred Fee Plan. Included
in accrued expenses at June 30, 1999 is $572,000 of deferrals related to the
Deferred Fee Plan.

     At the Company's Annual Meeting of Stockholders on January 17, 1996, the
stockholders approved the First Federal Savings and Loan Association of San
Gabriel Valley 1995 Master Stock Compensation Plan (the Stock Compensation
Plan). The Stock Compensation Plan, which is a non-qualified plan, was
authorized to acquire up to 81,829 shares of the Company common stock either
directly for the Company or through purchases in the open market to be used for
the granting of plan share grants and plan share allocations. The Association
contributed funds to the Stock Compensation Plan to enable the Stock
Compensation Plan trustees to acquire the necessary shares of the common stock.
The 81,829 shares were acquired in several transactions at an average market
price of $9.469 per share. These shares represent deferred compensation and have
been accounted for as a reduction in stockholders' equity in the accompanying
consolidated statement of financial condition. Such shares are held in trust.

     The Stock Compensation Plan allocated 16,366 shares to current and future
directors with the remaining shares allocated to employees. The shares allocated
to directors are granted in equal installments over a five-year period. The
shares allocated to employees are granted over a five-year period, with a
percentage considered as a

                                       67
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

base grant and the remaining percentages granted if the Company achieves certain
performance levels. The percentages are determined by the Company's compensation
committee. The expense related to the Stock Compensation Plan for the year ended
June 30, 1999 was approximately $203,000.

     At the Company's Annual Meeting of Stockholders on January 17, 1996, the
stockholders approved the SGV Bancorp, Inc. 1995 Master Stock Option Plan (the
1995 Stock Option Plan). The Stock Option Plan authorizes the granting of
options equal to 272,765 shares of common stock. All officers and other
employees of the Company and its affiliates, and directors who are not also
serving as employees of the Company or any of its affiliates are eligible to
receive awards under the Stock Option Plan.

     Options granted under the 1995 Stock Option Plan will be made at an
exercisable price equal to the fair market value on the date of grant. Options
expire ten years from the date of the grant.

     Awards granted to employees may include incentive stock options,
nonstatutory stock options and limited rights which are exercisable only upon a
change in control of the Company. Awards granted to nonemployee directors are
nonstatutory options. Options are exercisable in five equal annual installments
of 20%, commencing one year from the date of the grant.

     Also, at the Company's Annual Meeting of Stockholders on November 20, 1997,
the stockholders approved the SGV Bancorp, Inc. 1997 Stock-Based Incentive Plan
(the 1997 Stock-Based Incentive Plan). This plan authorizes the granting of
options to purchase common stock, option-related awards and awards of common
stock equivalent to one percent of the adjusted average common stock outstanding
used to calculate diluted earnings per share as reported in the annual report
for the preceding year for each calendar year from 1997 to 2006. In no event
will more than 230,000 shares be granted under this plan which is available to
all officers, other employees and outside Directors.

     Options granted under the 1997 Stock-Based Incentive Plan will be made at
an exercisable price equal to fair market value on the date of grant. Options
expire ten years from the date of the grant.

     In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which establishes financial accounting and reporting standards for
stock-based employee compensation plans. This statement establishes a fair value
based method of accounting for stock-based compensation plans. It encourages,
but does not require, entities to adopt that method in place of the provisions
of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, for all arrangements under which employees receive shares of stock
or other equity instruments of the employer or the employer incurs liabilities
to employees in amounts based on the price of its stock. SFAS No. 123 also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from nonemployees. Those transactions must be
accounted for based on the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.

     The Company has elected to continue to apply the accounting provisions of
APB No. 25 to its stock-based compensation awards to employees. Under APB No.
25, compensation cost for stock options is measured as the excess, if any, of
the fair market value of the Company's stock at the date of grant over the
amount the director or employee must pay to acquire the stock. Because the plan
provides for the issuance of options at a price of no less than the fair market
value at the date of grant, no compensation cost has been recognized for the
stock option components of the plans.

                                       68
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     Had compensation costs for the stock option components of the 1995 Stock
Option and 1997 Stock-Based Incentive Plans been determined based upon the fair
value at the date of grant consistent with SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated as follows as of June 30 for the years indicated:

<TABLE>
<CAPTION>
                                                                 1999                1998                1997
                                                           ----------------    ----------------    ----------------
                                                                     (In thousands, except per share data)
<S>                                                        <C>                 <C>                 <C>
Net earnings:
  As reported                                                 $    2,548          $    1,487           $     731
  Pro forma                                                        2,252               1,218                 469
Earnings per common share - Basic:
  As reported                                                 $     1.16          $     0.63           $    0.29
  Pro forma                                                   $     1.03          $     0.52           $    0.19
Earnings per common share - Diluted:
  As reported                                                 $     1.13          $     0.60           $    0.29
  Pro forma                                                   $     1.00          $     0.49           $    0.19
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: dividend
yield of 0% for all years; risk-free interest rate of 6.00% for 1999, 5.50% for
1998 and 6.50% for 1997; expected life of 7 years for 1999 and 10 years for 1998
and 1997; and a volatility factor of 25.72% for 1999, 23.37% for 1998 and 18.79%
for 1997.

     Stock options granted, exercised or forfeited were as follows:

<TABLE>
<CAPTION>
                                                                          Weighted Average                Weighted Average
                                               Number of                   Exercise Price                   Fair Value of
                                             Option Shares                of Option Shares              Option Shares Granted
<S>                                          <C>                          <C>                           <C>
Outstanding June 30, 1996                       261,850                     $      9.63
  Granted during year                            15,275                           12.88                      $     12.88
  Forfeited during year                          (2,182)                           9.63
                                             ----------                     --------------
Outstanding June 30, 1997                       274,943                            9.81
  Granted during year                            20,100                           17.13                            17.13
  Exercised during year                          (5,892                            9.63
  Forfeited during year                          (1,746                            9.63
                                             ----------                     --------------
Outstanding June 30, 1998                       287,405                           10.33
  Granted during year                            37,425                           12.22                            12.22
  Forfeited during year                          (1,400                           17.13
                                             ----------                     --------------
Outstanding June 30, 1999                       323,430                     $     10.52
                                             ==========
</TABLE>

                                       69
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

     Financial data pertaining to outstanding stock options as of June 30, 1999
were as follows:

<TABLE>
<CAPTION>
                                                                                                                  Weighted
                                             Weighted                Weighted                                      Average
                        Number               Average                 Average               Number of           Exercise Price
   Exercise           of Option             Remaining             Exercise Price          Exercisable          of Exercisable
    Price               Shares           Contractual Life        of Option Shares        Option Shares          Option Shares
--------------    ----------------    --------------------    --------------------    ------------------    -------------------
<S>               <C>                 <C>                     <C>                     <C>                   <C>
   $   9.63                252,030              6.5               $   9.63                  149,032               $    9.63
   $  12.88                 15,275              7.7               $  12.88                    7,638               $   12.88
   $  17.13                 18,700              8.6               $  17.13                   10,167               $   17.13
   $  11.75                 14,025              9.2               $  11.75                        -                       -
   $  12.50                 23,400              9.6               $  12.50                        -                       -
                  ----------------    --------------------    --------------------    ------------------    -------------------
                           323,430              7.1               $  10.52                  166,837               $   10.24
                  ================                                                    ==================
</TABLE>

     During the year ended June 30, 1995, the Company entered into employment
agreements (Agreements) with its president/chief executive officer and its
executive vice president/chief financial officer.  The Agreements provide for
three-year terms for both individuals commencing on June 28, 1995 which have
been extended through June 28, 2002.  The Agreements provide that, commencing on
the first anniversary date and continuing each anniversary date thereafter, the
Board of Directors may extend the Agreements for an additional year so that the
remaining term shall be three years.  The Agreements provide for the payment of
severance benefits upon termination.


14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following disclosures of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments.  The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies.  However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value.  Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange.  The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts at
June 30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                               1999
                                                                             --------------------------------------
                                                                                 Carrying                Estimated
                                                                                  amount                fair value
                                                                                          (In thousands)
<S>                                                                          <C>                        <C>
Assets:
Cash, including short-term bank obligations                                       $  9,515                $  9,515
Investment securities available for sale                                            25,816                  25,816
Mortgage-backed securities available for sale                                       24,871                  24,871
Mortgage-backed securities held to maturity                                         37,717                  36,984

Loans receivable:
  Fixed                                                                             91,164                  90,199
  Variable                                                                         263,496                 263,496

Federal Home Loan Bank stock                                                         5,407                   5,407

Liabilities:
Term deposit accounts                                                              186,067                 186,374
Other deposit accounts                                                             138,039                 138,039
Borrowings                                                                         108,002                 106,948

Off-balance sheet unrealized gains (losses):
Loan funding commitments                                                                 -                       -
Forward sales contracts                                                                  -                       -
</TABLE>

                                       70
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                  1998
                                                                               ---------------------------------------
                                                                                   Carrying                Estimated
                                                                                    amount                 fair value
                                                                                            (In thousands)
<S>                                                                            <C>                         <C>
Assets:
Cash, including short-term bank obligations                                        $ 20,008                $ 20,008
Investment securities available for sale                                             19,221                  19,221
Mortgage-backed securities available for sale                                        29,383                  29,383
Mortgage-backed securities held to maturity                                          29,936                  30,089

Loans receivable:
  Fixed                                                                              62,516                  63,914
  Variable                                                                          233,150                 233,150

Federal Home Loan Bank stock                                                          4,234                   4,234

Liabilities:
Term deposit accounts                                                               199,452                 200,130
Other deposit accounts                                                               95,829                  95,829
Borrowings                                                                           76,543                  77,232

Off-balance sheet unrealized gains (losses):
Loan funding commitments                                                                  -                       6
Forward sales contracts                                                                   -                      (2)
</TABLE>

     The estimated fair values of investment securities and mortgage-backed
securities available for sale and held to maturity are based on quoted market
prices or dealer quotes.

     The fair value of loans receivable with fixed interest rates is estimated
by discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings for the same remaining
maturities.

     The fair value of nonperforming loans with a carrying value of
approximately $1,524,000 and $1,911,000 at June 30, 1999 and 1998, respectively,
was not estimated because it is not practicable to reasonably assess the credit
adjustment that would be applied in the market place for such loans.  These
nonperforming loans are primarily residential real estate loans.

     The fair value of Federal Home Loan Bank stock is based on its redemption
value.

     The fair value of term deposit accounts is estimated using the rates
currently offered for deposits of similar remaining maturities.  The fair value
of other deposit accounts is the amount payable on demand at June 30, 1999 and
1998.

     Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of borrowings.

     For fixed-rate loan funding commitments, the fair value is estimated based
on the difference between current levels of interest rates and the committed
rates.

     The fair value of forward sales contracts is based on dealer quotes.

     The fair value estimates presented herein are based on pertinent
information available to management as of June 30, 1999 and 1998.  Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these consolidated financial

                                       71
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

statements since that date, and therefore, current estimates of fair value may
differ significantly from the amounts presented herein.


15.  CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP

     On June 28, 1995, the Association converted from a federally chartered
mutual savings and loan association to a federally chartered stock savings and
loan association.  At that time, the Association established a liquidation
account in an amount equal to its equity as reflected in the latest statement of
financial condition used in the final conversion prospectus.  The amount of the
liquidation account as of March 31, 1995 was $13,763,000.  The liquidation
account will be maintained for the benefit of eligible account holders and
supplemental eligible account holders who continue to maintain their accounts at
the Association after the conversion.  The liquidation account will be reduced
annually to the extent that eligible account holders and supplemental eligible
account holders have reduced their qualifying deposits as of each anniversary
date.  Subsequent increases will not restore an eligible account holder's or
supplemental eligible account holder's interest in the liquidation account.  In
the event of a complete liquidation of the Association, each eligible account
holder and supplemental eligible account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held.

     Subsequent to the conversion, the Association may not declare or pay cash
dividends on or repurchase any of its shares of common stock if the effect
thereof would cause equity to be reduced below applicable regulatory capital
maintenance requirements or if such declaration and payment would otherwise
violate regulatory requirements.

                                       72
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

16.  PARENT COMPANY FINANCIAL INFORMATION

     The following presents the unconsolidated financial statements of the
parent company only, SGV Bancorp, Inc. (Note 1).

SGV BANCORP, INC. (Parent company only)

STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                        1999                              1998
                                                                 ------------------                ------------------
                                                                                    (In thousands)
<S>                                                              <C>                               <C>
ASSETS:
Cash and cash equivalents                                      $                608              $              1,995
Investment securities available for sale                                        725                               258
Mortgage-backed securities available for sale                                     -                               862
Investment in subsidiary                                                     30,489                            27,769
Receivable from subsidiary                                                      764                               982
Other assets                                                                     38                               367
                                                               --------------------              --------------------

  Total assets                                                 $             32,624              $             32,233
                                                               ====================              ====================

LIABILITIES AND STOCKHOLDERS' EQUITY:
Accrued expenses and other liabilities                         $                253              $                  -
                                                               --------------------              --------------------
  Total liabilities                                                             253                                 -
Stockholders' equity                                                         32,371                            32,233
                                                               --------------------              --------------------
    Total liabilities and stockholders' equity                 $             32,624              $             32,233
                                                               ====================              ====================
</TABLE>

SGV BANCORP, INC. (Parent company only)

STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
                                                                            1999               1998               1997
                                                                     ---------------    ---------------    ---------------
                                                                                          (In thousands)
<S>                                                                  <C>                <C>                <C>
Interest income                                                      $           124    $           266    $           360
Other expenses                                                                  (190)              (249)              (212)
Income taxes                                                                      27                 (7)               (62)
                                                                     ---------------    ---------------    ---------------
  Earnings before equity in net earnings of subsidiary                           (39)                10                 86
Equity in net earnings of subsidiary                                           2,587              1,477                645
                                                                     ---------------    ---------------    ---------------

Net earnings                                                         $         2,548    $         1,487    $           731
                                                                     ===============    ===============    ===============
</TABLE>

                                       73
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

SGV BANCORP, INC. (Parent company only)

SUMMARY STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
                                                                            1999               1998               1997
                                                                       -------------      -------------      --------------
                                                                                          (In thousands)
<S>                                                                    <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings                                                               $ 2,548            $ 1,487             $   731
  Adjustments to reconcile net earnings to net cash provided by
    (used in) operating activities:
  (Gain) loss on sale or redemption of investment
    securities available for sale                                                (64)                (5)                 13
  Equity in net earnings of subsidiary                                        (2,587)            (1,477)               (645)
  Premium amortization on securities                                               4                 15                  19
  Increase in accrued expenses and other liabilities                             253                  -                   -
  Decrease (increase) in other assets                                            329               (228)                 74
                                                                     ---------------    ---------------    ----------------
    Net cash provided by (used in) operating activities                          483               (208)                192

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of investment securities available for sale                          (586)              (750)                  -
  Proceeds from sale or redemption of investment
    securities available for sale                                                187              2,005               1,487
  Principal repayments on mortgage-backed securities                             858                461                 363
  Principal repayment on loan to subsidiary                                      218                218                 218
                                                                     ---------------    ---------------    ----------------
    Net cash provided by investing activities                                    677              1,934               2,068

CASH FLOWS FROM FINANCING ACTIVITIES:
  Exercise of stock options                                                        -                 60                   -
  Purchase of treasury stock                                                  (2,547)                 -              (2,884)
  Other, net                                                                       -                  5                   -
                                                                     ---------------    ---------------    ----------------
    Net cash (used in) provided by financing activities                       (2,547)                65              (2,884)
                                                                     ---------------    ---------------    ----------------

Net (decrease) increase in cash and cash equivalents                          (1,387)             1,791                (624)
CASH AND CASH EQUIVALENTS,
  beginning of year                                                            1,995                204                 828
                                                                     ---------------    ---------------    ----------------
CASH AND CASH EQUIVALENTS, end of year                                       $   608            $ 1,995             $   204
                                                                     ===============    ===============    ================

NONCASH INVESTING ACTIVITIES DURING
  THE YEAR:                                                               1999               1998                1997
                                                                     ---------------    ---------------    ----------------
Change in net unrealized gain/loss on securities
  available for sale, net of taxes                                           $     3            $   (12)            $   (39)
</TABLE>

                                       74
<PAGE>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999 (Continued)
--------------------------------------------------------------------------------

17.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of quarterly results for the years ended June
30, 1999 and 1998:

<TABLE>
<CAPTION>
                                                        First             Second              Third             Fourth
(In thousands, except per share data)                  Quarter            Quarter            Quarter            Quarter
<S>                                                    <C>                <C>                <C>                <C>
1999
  Interest income                                       $7,537             $8,126             $8,095             $8,020
  Interest expense                                       4,675              5,032              4,878              4,785
  Provision for loan losses                                269                210                280                210
  Net earnings                                             566                624                701                657
  Earnings per share - basic                              0.25               0.28               0.32               0.30
  Earnings per share - diluted                            0.24               0.27               0.31               0.29

1998
  Interest income                                       $7,324             $7,459             $7,434             $7,385
  Interest expense                                       4,817              4,840              4,533              4,471
  Provision for loan losses                                 75                268                115                277
  Net earnings                                             331                234                491                431
  Earnings per share - basic                              0.14               0.10               0.21               0.18
  Earnings per share - diluted                            0.14               0.09               0.20               0.17
</TABLE>

18.  SUBSEQUENT EVENTS

     On July 12, 1999, SGV and IndyMac Mortgage Holdings, Inc. (IndyMac) entered
into an Agreement and Plan of Merger pursuant to which IndyMac would acquire SGV
for cash.  Under the terms of the merger agreement, each share of SGV common
stock would be exchanged for $25.00 in cash.  This price may be subject to
adjustment as a result of changes in the net portfolio value of assets and
liabilities of SGV.  In no event will the purchase price per share be reduced
below $22.50 or increased above $27.50 per share.  IndyMac will acquire all of
the shares outstanding and subject to options of SGV.  The transaction is
subject to the approval of the stockholders of both SGV and IndyMac as well as
certain regulatory approvals including the OTS.  The merger is expected to be
completed in the first half of 2000.

     On July 25, 1999, the Association completed its acquisition of two branches
of Citibank, California, a federal savings bank.  The branch located in La Verne
was combined with an existing branch located in the same shopping center.  The
second branch is located in Covina in a freestanding branch building at 100
North Azusa Avenue.  The Association acquired approximately $37 million in total
deposits from Citibank.  The Association paid a one-time premium of 3.50% of the
deposits acquired and purchased the branch in Covina for $475,000.

                                       75
<PAGE>

Item 9.  Change in and Disagreements with Accountants on Accounting and
-----------------------------------------------------------------------
Financial Disclosure
--------------------

     None.


                                    PART III


Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

     Incorporated herein by this reference is the information set forth in the
section entitled "Information with Respect to Nominees, Continuing Directors and
Executive Officers" contained in the Company's Proxy Statement for its 1999
Annual Meeting of Stockholders (the "1999 Proxy Statement"). Pursuant to General
Instruction G(3) to the Form 10-K, the Company's Proxy Statement for its 1999
Annual Meeting of Stockholders will be filed with the Commission not later than
(20 days) after the end of the fiscal year covered by this Form 10-K.


Item 11.  Executive Compensation
--------------------------------

     Incorporated herein by this reference is the information set forth in the
section entitled "Executive Compensation" contained in the 1999 Proxy Statement.
Pursuant to General Instruction G(3) to the Form 10-K, the Company's Proxy
Statement for its 1999 Annual Meeting of Stockholders will be filed with the
Commission not later than (20 days) after the end of the fiscal year covered by
this Form 10-K.


Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

     Incorporated herein by this reference is the information set forth in the
sections entitled "Security Ownership of Certain Beneficial Owners" and
"Information with Respect to Nominees, Continuing Directors and Executive
Officers" contained in the 1999 Proxy Statement. Pursuant to General Instruction
G(3) to the Form 10-K, the Company's Proxy Statement for its 1999 Annual Meeting
of Stockholders will be filed with the Commission not later than (20 days) after
the end of the fiscal year covered by this Form 10-K.


Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------

     Incorporated herein by this reference is the information set forth in the
section entitled "Transactions with Certain Related Persons" contained in the
1999 Proxy Statement.  Pursuant to General Instruction G(3) to the Form 10-K,
the Company's Proxy Statement for its 1999 Annual Meeting of Stockholders will
be filed with the Commission not later than (20 days) after the end of the
fiscal year covered by this Form 10-K.


                                    PART IV


Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K
-------------------------------------------------------------------------

(a)(1)  Financial Statements

                                  Description
                                  -----------

        Independent Auditors' Report
        Consolidated Statements of Financial Condition as of June 30, 1999 and
        1998
        Consolidated Statements of Operations for Each of the Three Years in the
        Period
        Ended June 30, 1999
        Consolidated Statements of Stockholders' Equity for Each of the Three
        Years in the Period Ended June 30, 1999
        Consolidated Statements of Cash Flows for Each of the Three Years in the
        Period Ended June 30, 1999
        Notes to Consolidated Financial Statements for Each of the Three Years
        in the Period Ended June 30, 1999

(a)(2)  Financial Statement Schedules

        All schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or the
notes thereto.

                                       76
<PAGE>

(a)(3)  Exhibits

          (a)  The following exhibits are filed as part of this report:

          2.1  Agreement to Purchase Assets and Assume Liabilities by and
               between First Federal Savings and Loan Association of San Gabriel
               Valley and Citibank, Federal Savings Bank***
          2.2  Agreement and Plan of Merger dated as of July 12, 1999 by and
               between SGV Bancorp, Inc. and IndyMac Mortgage Holdings, Inc.****
          3.1  Certificates of Incorporation of SGV Bancorp, Inc.*
          3.2  Bylaws of SGV Bancorp, Inc.*
          4.0  Stock Certificate of SGV Bancorp, Inc.*
         10.1  Employment Agreement between First Federal Savings and Loan
               Association of San Gabriel Valley and Barrett G. Andersen*****
         10.2  Employment Agreement between SGV Bancorp, Inc. and Barrett G.
               Andersen*****
         10.3  Employment Agreement between First Federal Savings and Loan
               Association of San Gabriel Valley and Ronald A. Ott*****
         10.4  Employment Agreement between SGV Bancorp, Inc. and Ronald A. Ott
               (filed electronically with the SEC)*****
         10.5  Form of Two-year Change in Control Agreement between First
               Federal Savings and Loan Association of San Gabriel Valley and
               certain executive officers*****
         10.6  Form of Two-year Change in Control Agreement between SGV Bancorp,
               Inc. and certain executive officers*****
         10.7  Form of One-year Change in Control Agreement between First
               Federal Savings and Loan Association of San Gabriel Valley and
               certain officers*****
         10.8  Form of One-year Change in Control Agreement between SGV Bancorp,
               Inc. and certain officers*****
         10.9  Form of Proposed First Federal Savings and Loan Association of
               San Gabriel Valley Employee Severance Compensation Plan*
        10.10  First Federal Savings and Loan Association of San Gabriel Valley
               Employees' Savings & Profit Sharing Plan and Trust*
        10.11  Form of First Federal Savings and Loan Association of San Gabriel
               Valley 1995 Supplemental Executive Retirement Plan*
        10.12  First Federal Savings and Loan Association of San Gabriel Valley
               1995 Directors Deferred Stock Unit Plan**
        10.13  SGV Bancorp, Inc. Amended 1997 Stock-Based Incentive Plan*****
        10.14  SGV Bancorp, Inc. 1995 Amended and Restated Stock-Based
               Incentive Plan*****
         11.0  Computation of Earnings Per Share (filed herewith under Item 8)
         21.0  Subsidiary Information is incorporated herein by reference to
               "Part I - Subsidiary Activities"
         23.0  Consent of Independent Accountant
         27.0  Financial Data Schedule (filed electronically with the SEC)
          (b)  Reports on Form 8-K
               i.  On July 14, 1999, the Company filed a Current Report on Form
                   8-K to announce that it had entered into a definitive merger
                   agreement with IndyMac Mortgage Holdings, Inc.
               ii. On April 5, 1999, the Company filed a Current Report on Form
                   8-K to announce that the Association had entered into a
                   definitive agreement with Citibank, California to acquire two
                   of Citibank's branches.

________________
*     Incorporated herein by reference from the Exhibits to the Registration
Statement on Form S-1, as amended, filed on March 6, 1995, Registration No. 33-
90018.
**    Incorporated herein by reference from the Definitive Proxy material for
the Registrant's 1995 Annual Meeting of Stockholders, filed on December 7, 1995.
***   Incorporated herein by reference from the Exhibits to the Current Report
on Form 8-K filed on April 5, 1999, Registration No. 33-90018.
****  Incorporated herein by reference from the Exhibits to the Current Report
on Form 8-K filed on July 14, 1999, Registration No. 33-90018.
***** Incorporated herein by reference from the Exhibits to the Annual Report on
Form 10-K filed on September 28, 1998, Registration No. 33-90018.

                                       77
<PAGE>

CONFORMED                     SIGNATURES

     Pursuant to the requirements of Section 13 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.

                                        SGV BANCORP, INC.


                                        By: /s/ Barrett G. Andersen
                                            -----------------------
                                        Barrett G. Andersen
DATED: September 22, 1999               President, Chief Executive Officer
                                        and Director


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

<TABLE>
<CAPTION>
                  Name                                       Title                              Date
                  ----                                       -----                              ----
<S>                                             <C>                                        <C>
/s/ Barrett G. Andersen                         President, Chief Executive Officer         September 22, 1999
-----------------------------------------
Barrett G. Andersen                             and Director
                                                (principal executive officer)

/s/ Ronald A. Ott                               Executive Vice President, Chief            September 22, 1999
-----------------------------------------
Ronald A. Ott                                   Financial Officer and Treasurer
                                                (principal accounting officer)

/s/ John D. Randall                             Chairman of the Board                      September 22, 1999
-----------------------------------------
John D. Randall                                 of Directors


/s/ Royce A. Stutzman                           Director                                   September 22, 1999
-----------------------------------------
Royce A. Stutzman


/s/ Irven G. Reynolds                           Director                                   September 22, 1999
-----------------------------------------
Irven G. Reynolds


/s/ Benjamin S. Wong                            Director                                   September 22, 1999
-----------------------------------------
Benjamin S. Wong


/s/ Thomas A. Patronite                         Director                                   September 22, 1999
-----------------------------------------
Thomas A. Patronite
</TABLE>

                                       78
<PAGE>

                             CORPORATE INFORMATION



<TABLE>
<S>                                           <C>                               <C>
          Executive Offices                          Special Counsel              Transfer Agent and Registrar

          SGV Bancorp, Inc.                     Muldoon, Murphy & Faucette                Chase Mellon
      225 North Barranca Street                                                      400 South Hope Street
        West Covina, CA 91791                                                              4th Floor
                                                                                     Los Angeles, CA 90071
                                               Certified Public Accountants

                                                  Deloitte & Touche, LLP



        Financial Information                                                            Annual Meeting

 For Information about SGV Bancorp,                                             The Annual Meeting of Stockholders
Inc. and its subsidiaries, contact:                                                 will be held at 2:00 p.m.
            Ronald A. Ott                           Market Information            on November 18, 1999, at the
      225 North Barranca Street                                                          Radisson Hotel
        West Covina, CA 91791                          Symbol: SGVB                    San Gabriel Valley
            (626)859-4210                           Quoted: NASDAQ-NMS            14635 Baldwin Park Town Ctr
                                                                                     Baldwin Park, CA 91706


                                                     Branch Locations

                                                     Corporate Office
                                                225 North Barranca Street
                                                  West Covina, CA 91791

                Covina                               Hacienda Heights                       La Verne
       144 North Second Avenue                2233 South Hacienda Boulevard            2111 Bonita Avenue
           Covina, CA 91723                     Hacienda Heights, CA 91745             La Verne, CA 91750

           City of Industry                              Arcadia                         North La Verne
     220 North Hacienda Boulevard              One East Foothill Boulevard          1413 Foothill Boulevard
     City of Industry, CA  91744                    Arcadia, CA 91006                  La Verne, CA 91750

                                                          Duarte
                                                1475 East Huntington Drive
                                                     Duarte, CA 91010
</TABLE>

                                       79
<PAGE>

<TABLE>
<S>                                      <C>                                                    <C>
                                                      SGV BANCORP, INC.


                                                          Directors
  Benjamin S. Wong, Ph.D.
      General Manager                                 Barrett Andersen                               Irven G. Reynolds
 The Great Wall Restaurant                                President                                        Owner
                                                   Chief Executive Officer                       Reynolds Buick/GMC Trucks
  Royce A. Stutzman, CPA
     Managing Partner                              John D. Randall, Ed.D.                           Thomas A. Patronite
Vicente, Lloyd, & Stutzman                         Educational Consultant                                President
           CPAs                                                                                   Azusa Engineering, Inc.


                                                          Officers
     Barrett Andersen
         President                                      Ronald A. Ott                               Edie J. Beachboard
  Chief Executive Officer                         Executive Vice President                          Corporate Secretary
                                                   Chief Financial Officer                            Vice President
                                                                                                      Human Resources



                                         FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
                                                    OF SAN GABRIEL VALLEY
     Barrett Andersen
         President                                      Ronald A. Ott                               Jeanne R. Thompson
  Chief Executive Officer                         Executive Vice President                         Senior Vice President
                                                   Chief Financial Officer                            Retail Banking
    Michael A. Quigley
   Senior Vice President                              Dale J. Schiering                             Edie J. Beachboard
 Retail Banking, Marketing                          Senior Vice President                           Corporate Secretary
  Administrative Services                           Chief Lending Officer                             Vice President
                                                                                                      Human Resources
     Douglas E. Nigbor
      Vice President                                  Raymond A. Spirko                             Jeffrey E. Foreman
  Marketing and Corporate                              Vice President                                 Vice President
      Communications                             Asset/Liability Management                     Director of Internal Audit
                                                     Information Systems

                                                      M. Douglass Barry
                                                       Vice President
                                                      Loan Origination
</TABLE>

                                       80