<PAGE> 1


                       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, 1998

                          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.
|_|

      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  $26,500,000,  based upon the last sales price as quoted on
The NASDAQ Stock Market for September 22, 1998.

      The number of shares of Common Stock outstanding as of September 22, 1998:
2,230,823.




<PAGE> 2





                                    INDEX

                                                                         PAGE

                                    PART I



Item 1.   Description of Business..................................        1
Item 2.   Properties...............................................       37
Item 3.   Legal Proceedings........................................       38
Item 4.   Submission of Matters to a Vote of Security Holders......       38



                                   PART II



Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters......................................       38
Item 6.   Selected Financial Data..................................       39
Item 7.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations......................       41
Item 8.   Financial Statements and Supplementary Data..............       58
Item 9.   Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure...................       100



                                   PART III



Item 10.  Directors and Executive Officers of the Registrant.......       100
Item 11.  Executive Compensation...................................       100

Item 12.  Security Ownership of Certain Beneficial Owners
          and Management...........................................       100
Item 13.  Certain Relationships and Related Transactions...........       100



                                   PART IV



Item 14.  Exhibits, Financial Statements Schedules and Reports
          on Form 8-K..............................................       100



Signatures  .......................................................       102






<PAGE> 3



                                     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  retains  virtually all the
servicing  rights  of  loans  sold.  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  is currently  seeking to expand its market share through
the  acquisition  of additional  branch  offices in its current  market area. If
successful,  the  Association  believes  it would  increase  total  deposits  by
approximately  $60  million  or 20%.  There can be no  assurance,  however,  the
Association  will be successful.  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

                                        1


<PAGE> 4



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.

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, 1998, the  Association  had total loans  outstanding of
$297.6 million, of which $247.1 million were one- to four-family, owner-occupied
residential  mortgage  loans,  or 83.1% of the  Association's  total loans.  The
remainder of the portfolio  consists of $29.5 million of  multi-family  mortgage
loans, or 9.9% of total loans; $11.9 million of commercial real estate loans, or
4.0% of total loans;  and consumer loans of $9.0 million or 3.0% of total loans.
The Association had $391,000 in loans held for sale as of June 30, 1998. At that
same date,  78.9% of the  Association's  mortgage loans had adjustable  interest
rates. Of the Association's adjustable-rate mortgage loans, 21.7% are indexed to
the one-year  Constant  Maturity Treasury ("CMT") Index and 78.0% 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> 5
<TABLE>
<CAPTION>


                                                                              AT JUNE 30,
                                       ---------------------------------------------------------------------------------------------
                                             1998              1997                1996               1995                1994
                                       ---------------    ---------------    ----------------   ----------------    ----------------
                                               Percent            Percent             Percent           Percent             Percent
                                       AMOUNT of Total    Amount of Total    Amount  of Total   Amount  of Total    Amount  of Total
                                       ------ --------    ------ --------    ------  --------   ------  --------    ------  --------
                                                                            (DOLLARS IN THOUSANDS)
<S>                                  <C>       <C>      <C>       <C>      <C>        <C>      <C>       <C>      <C>        <C>   
REAL ESTATE AND OTHER:
One- to four family                  $247,129   83.04%  $250,303   87.29%  $226,660    87.81%  $187,693  85.82%   $177,544    85.00%
Multi-family                           29,546    9.93     27,241    9.50     21,690     8.40     20,431    9.34     20,215     9.68
Commercial                             11,895    4.00      8,660    3.02      9,331     3.62      9,567    4.37      9,791     4.69
Construction and land                       -    0.00          -    0.00          -     0.00        415    0.19        665     0.32
Consumer                                9,007    3.03        533    0.19        440     0.17        602    0.28        643     0.31
                                     --------  -------  --------  -------   -------   -------  --------  -------  --------   -------
  Total loans                         297,577  100.00%   286,737  100.00%   258,121   100.00%   218,708  100.00%   208,858   100.00%
                                               =======            =======             =======            =======             =======
LESS:
Unamortized yield adjustments, net       (613)               121                (64)                 45                101
Deferred loan fees, net                   635                515                451                 472                528
Allowance for estimated loan losses     1,425              1,263              1,058                 792                562
                                     --------            --------           -------            --------           --------   
  Total loans, net                    296,130            284,838            256,676             217,399            207,667
LESS:
Loans receivable held for sale:
  One- to four-family                     391                230                723                   -                  -
                                     --------            --------           -------            --------           --------
    Loans receivable held for
     investment                      $295,739           $284,608           $255,953            $217,399           $207,667
                                     ========           ========           ========            ========           ========
</TABLE>

                                                                          3


<PAGE> 6
<TABLE>
<CAPTION>


      LOAN MATURITY.  The following table shows the contractual  maturity of the
Association's gross loans at June 30, 1998. The table does not include principal
repayments.  Principal  repayments  on total loans totaled $61.0 million for the
year ended June 30, 1998 and $33.2 million and $25.0 million for the years ended
June 30, 1997 and 1996, respectively.

  
                                                                 AT JUNE 30, 1998
                                             ---------------------------------------------------------------------
                                             ONE- TO                                                      TOTAL
                                              FOUR-     MULTI-                CONSTRUCTION                LOANS
                                              FAMILY    FAMILY    COMMERCIAL    AND LAND     CONSUMER   RECEIVABLE
                                             --------  ---------  ----------  ------------  ---------- -----------
                                                                         (IN THOUSANDS)
  
<S>                                         <C>         <C>       <C>          <C>           <C>        <C>      
AMOUNTS DUE:
   One year or less                         $   2,734   $    -    $    186     $       -     $    481   $   3,401
   After one year:
      More than one year to three years         1,117    5,729          72             -            -       6,918
      More than three years to five years       6,081    5,743       2,037             -            -      13,861
      More than five years to 10 years          3,797    1,677         625             -            -       6,099
      More than 10 years to 20 years           38,233   15,977       6,986             -            -      61,196
      More than 20 years                      195,167      420       1,989             -        8,526     206,102
                                             --------   ------    --------      --------      -------    --------
      Total due after June 30, 1999           244,395   29,546      11,709             -        8,526     294,176
                                             --------   ------    --------      --------      -------    --------
      Total amount due                        247,129   29,546      11,895             -        9,007     297,577
   Less:
      Unamortized yield adjustments              (521)     143           -             -         (235)       (613)
      Deferred loan fees                          377      195          63             -            -         635
      Allowance for estimated loan losses         616      397          89             -          323       1,425
                                             --------   ------    --------      --------      -------    --------  
   Total loans, net                           246,657   28,811      11,743             -        8,919     296,130

   Loans receivable held for sale                 391        -           -             -            -         391
                                             --------   ------    --------      --------      -------    --------
   Loans receivable held for investment      $246,266  $28,811     $11,743       $     -      $ 8,919    $295,739
                                             ========  =======     =======       ========     =======    ========

</TABLE>



                                                                4


<PAGE> 7
<TABLE>
<CAPTION>

      The  following  table sets forth at June 30,  1998,  the dollar  amount of
gross loans receivable  contractually  due after June 30, 1999, and whether such
loans have fixed interest rates or adjustable interest rates.


                                            DUE AFTER JUNE 30, 1999
                                ------------------------------------------------
                                    FIXED           Adjustable         Total
                                --------------    ---------------   ------------
                                                  (IN THOUSANDS)
<S>                              <C>                <C>              <C>      
Real estate loans:
   One- to four-family           $  51,550          $ 192,845        $ 244,395
   Multi-family                      4,874             24,672           29,546
   Commercial real estate            2,822              8,887           11,709
   Construction and land                 -                  -                -
Consumer                                 -              8,526            8,526
                                --------------    ---------------  -------------
      Total loans receivable     $  59,246          $ 234,930        $ 294,176
                                ==============    ===============  =============
</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 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 commitments to hedge the risks associated with
a change in interest rates between  origination  and sale of loans.  At June 30,
1998,  the  Association  had  one  forward  commitment  of  $1.0  million.   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,  1998,  there was  $391,000 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, 1998, the  Association  purchased  $29.9 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  also  purchased  $10.7  million of home equity lines of credit with
adjustable  interest rates indexed to COFI and LIBOR. These loans are considered
consumer  loans as they  were  underwritten  primarily  based  upon  the  credit
worthiness  of the customer  with a trust deed filed as an abundance of caution.
The Association has purchased loans during the past two 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, 1998.


                                        5

<PAGE> 8
<TABLE>
<CAPTION>


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


                                           FOR THE YEARS ENDED JUNE 30,
                                     ----------------------------------------
                                         1998           1997           1996
                                     ------------   ------------   ----------
                                                   (IN THOUSANDS)
<S>                                  <C>            <C>            <C>        
Gross loans (1):
Beginning balance                    $  286,101     $   257,734    $   218,191

   Loans originated:
      One- to four-family (2)            46,787          33,108         31,110
      Multi-family                        3,977           3,242          1,163
      Commercial                          3,540             160             70
                                     ------------   ------------   -------------
         Total loans originated          54,304          36,510         32,343
   Loans purchased:
      Mortgage loans                     29,941          33,320         48,297
      Consumer loans                     10,682               -              -
                                     ------------   ------------   -------------
         Total                          381,028         327,564        298,831
Less:
   Principal repayments                  61,019          33,216         25,029

   Sales of loans                        19,526           5,644         13,183

   Transfer to REO                        2,928           2,603          2,885
                                     ------------   ------------   -------------
Total loans                             297,555         286,101        257,734
   Loans held for sale                      391             230            723
                                     ------------   ------------   -------------
Ending balance, loans held
   for investment                    $  297,164     $   285,871    $   257,011

                                     ============   ============   =============
</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.


                                       6


<PAGE> 9



      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, 1998, the  Association's  total loans  outstanding were $297.6
million,  of which $247.1 million or 83.1% were one- to four-family  residential
mortgage loans. Of the one-to four-family residential mortgage loans outstanding
at that  date,  22.0% were  fixed-rate  loans,  and 78.0%  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, 1998,  approximately  $500,000 of the
Association's  one- to four-family  adjustable-rate  mortgage loans had interest
rates that were between 0 to 200 basis points below their lifetime  caps,  $52.1
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 $78.2  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, $44.9 million, or
18.2%,  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 


                                       7

<PAGE> 10



rates  on  the  Association's   fixed-rate   mortgage  loan  portfolio  and  the
Association has generally exercised its rights under theseclauses.

      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 to a maximum  amount of  $750,000.
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,  1998  totaled  $29.5
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 presen 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, 1998, had an outstanding  balance of $1.1 million,
was current at that date and is secured by a 22-unit apartment complex.

      The  Association  may  purchase  multi-family  loans from other  financial
institutions.  As part of the review  process,  the loans  being  purchased  are
appraised  and must  meet the same  underwriting  standards  as loans  processed
internally.  During the year ended June 30, 1998, the Association purchased $1.1
million of multi-family loans from another financial institution.

      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.



                                       8

<PAGE> 11


      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,
1998, had an outstanding  balance of $1.0 million,  was current at that date and
is secured by a  mini-storage  warehouse.  At June 30, 1998,  the  Association's
commercial  real estate loan portfolio was $11.9 million or 3.0% 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.

      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,  1998,  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 0.2% of the  Association's  loan portfolio.
In this fiscal year, the Association  purchased a portfolio of home equity lines
of credit  (HELOCs)  from another  financial  institution  which were  primarily
approved  based upon the credit  worthiness  of the borrower and also had a lien


                                       9

<PAGE> 12


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  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 fixed term loan
with no further access to the line. The  Association's  HELOC  portfolio of $8.5
million represents approximately 2.9% 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,  1998,  the  Association  was
servicing $99.7 million of loans for others.

      DELINQUENCIES  AND CLASSIFIED  ASSETS.  The Board of Directors  performs a
monthly  review  of all  delinquent  loans  ninety  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 


                                       10

<PAGE> 13


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 asset so  classified or
to charge off such amount.

      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.


                                       11

<PAGE> 14


      The  Association's  Internal Asset Review Committee 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, 1998, the  Association  had $3.0 million of assets
classified as Special Mention, $6.3 million of assets classified as Substandard,
with no assets classified  as Doubtful or as Loss.  Loans  classified as Special
Mention are a result of past delinquencies or other identifiable weaknesses.  At
June 30, 1998, the largest loan classified as Special Mention had a loan balance
of $843,000.

      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.




                                       12

<PAGE> 15

<TABLE>
<CAPTION>


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



                               AT JUNE 30, 1998                            AT JUNE 30, 1997
                     -------------------------------------  --------------------------------------------
                         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     $  206        9     $  1,215        3      $  834        12     $ 1,699
Multi-family              -          -        1          570        -           -         -           -
Commercial                -          -        -            -        -           -         -           -
Construction and land     -          -        -            -        -           -         -           -
Consumer loans            3         59        9          126        -           -         -           -
                      --------  ---------  --------  ---------  --------   --------  ---------  --------
  Total                   4     $  265       19      $ 1,911        3      $  834        12     $ 1,699
                      ========  =========  ========  =========  ========   ========  =========  ========
Delinquent loans to 
  total gross loans    0.13%      0.09%    0.63%        0.65%    0.11%       0.29%     0.46%       0.59%
</TABLE>

<TABLE>
<CAPTION>

                                 AT JUNE 30, 1996
                     ----------------------------------------
                         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      2     $  165         6     $   821
Multi-family             -          -         2         473
Commercial               -          -         1         668
Construction and land    -          -         -           -
Consumer loans           -          -         -           -
                     -------- ----------  --------  ---------
  Total                  2     $  165         9     $ 1,962
                     ========  =========  ========  =========
Delinquent loans to 
  total gross loans   0.09%      0.06%     0.41%       0.76%

</TABLE>



                                       13

<PAGE> 16



      NON-ACCRUAL AND PAST-DUE LOANS. The following table sets forth information
regarding  non-accrual loans,  troubled-debt  restructurings and REO. There were
three troubled-debt restructured loans within the meaning of SFAS 15, ACCOUNTING
BY DEBTORS AND CREDITORS FOR TROUBLED DEBT RESTRUCTURINGS, and 10 REO properties
at June 30, 1998. 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,  1998,  1997,
1996, 1995 and 1994, 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  $101,000,  $77,000,  $118,000,
$126,000 and $54,000,  none of which was recognized.  For the same periods,  the
amount of  interest  income  recognized  on  troubled  debt  restructurings  was
$55,000, $55,000, $58,000, $55,000 and $16,000, respectively.

<TABLE>
<CAPTION>

                                                     AT JUNE 30,
                                 --------------------------------------------------
                                   1998       1997      1996      1995       1994
                                 --------  ---------  --------  ---------  --------
                                              (DOLLARS IN THOUSANDS)
<S>                              <C>       <C>        <C>       <C>        <C>    
Non-accrual loans:
  Residential real estate:
    One- to four-family          $ 1,215   $ 1,699    $   821   $ 1,507    $ 1,115
    Multi-family                     570         -        473         -          -
  Construction and land                -         -          -       415          -
  Commercial                           -         -        668         -          -
  Consumer                           126         -          -         -          -
                                 --------  ---------  --------  --------   --------
    Total                          1,911     1,699      1,962     1,922      1,115
REO, net(3)                        1,902     1,150      1,489       822      1,005
                                 --------  ---------  --------  --------   --------
    Total non-performing assets  $ 3,813   $ 2,849    $ 3,451   $ 2,744    $ 2,120
                                 ========  =========  ========  =========  ========
Restructured loans               $   761   $   771    $ 1,130   $ 1,545    $   470
                                 ========  =========  ========  =========  ========
Allowance for estimated loan
  losses as a percent of gross 
  loans receivable(1)               0.48%     0.44%      0.41%     0.36%      0.27%
Allowance for estimated loan
  losses as a percent of total
  non-performing loans(2)          74.56%    74.34%     53.92%    41.21%     50.40%
Non-performing loans as a percent
  of gross loans receivable(1)(2)   0.64%     0.59%      0.76%     0.88%      0.54%
Non-performing assets as a percent
  of total Company assets(2)        0.93%     0.70%      1.03%     1.00%      0.83%

</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.



                                       14

<PAGE> 17



      ALLOWANCE FOR  ESTIMATED  LOAN LOSSES.  The  allowance for estimated  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 estimated  loan
losses. Such agencies may require the Association to make additional  provisions
for  estimated  loan  losses  based  upon  judgments  different  from  those  of
management.  As of June 30, 1998, the Association's allowance for estimated loan
losses was 0.48% of gross loans as compared  to 0.44% as of June 30,  1997.  The
Association had  non-accrual  loans of $1.9 million and $1.7 million at June 30,
1998 and June 30, 1997,  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,  1998,  the  Company had  classified  $569,000 of its loans as
impaired  with $100,000 in 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,  1997,  the Company  had  classified
$530,000  of its loans as  impaired  with  $100,000  in  specific  reserves.  In
addition,  the  Company has $1.3  million and $1.7  million at June 30, 1998 and
1997,  respectively,  in impaired  loans which were  collectively  evaluated for
impairment with no specific reserves set aside. The average recorded  investment
in impaired loans, inclusive of those evaluated  collectively,  during the years
ended  June 30,  1998,  1997,  and 1996 was  approximately  $2.9  million,  $1.6
million,  and $2.4 million,  respectively.  Interest income on impaired loans of
$28,000,  $28,000,  and $31,000 was recognized for cash payments received in the
years ended June 30, 1998, 1997, and 1996.


                                       15

<PAGE> 18

<TABLE>
<CAPTION>


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


                                              AT OR FOR THE YEAR ENDED JUNE 30,
                                   -----------------------------------------------------
                                    1998       1997        1996       1995        1994
                                   -------    -------    --------    -------    --------
                                                       (IN THOUSANDS)

<S>                                <C>        <C>        <C>         <C>        <C>    
Balance at beginning of period     $ 1,263    $ 1,058    $   792     $   562    $   472
Provision for (recapture of)
  estimated loan losses                735        557        575         483         95
Charge-offs:
  Real Estate:
    One- to four-family               (545)      (343)      (299)       (247)         -
    Multi-family                         -          -          -           -          -
    Commercial                           -          -          -           -          -
    Construction and land                -          -          -           -          -
    Consumer                           (28)        (9)       (11)        (11)       (10)
                                   -------    --------   --------    --------   --------
        Total                         (573)      (352)      (310)       (258)       (10)
Recoveries                               -          -          1           5          5
                                   -------    --------   --------    --------   --------
Balance at end of period           $ 1,425    $ 1,263    $ 1,058     $   792    $   562
                                   ========   ========   ===-====    ========   ========

</TABLE>


                                                         16

<PAGE> 19

<TABLE>
<CAPTION>


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

                                                                      AT JUNE 30,
                  ------------------------------------------------------------------------------------------------------------
                                 1998                                 1997                                  1996
                  ----------------------------------  -----------------------------------  -----------------------------------
                                        Percent of                           Percent of                            Percent of
                           Percent of    Loans in               Percent of    Loans in               Percent of     Loans in
                           Allowance       Each                 Allowance       Each                 Allowance        Each  
                           to Total     Category to              to Total    Category to             to Total      Category to
                  Amount   Allowance    Total Loans    Amount   Allowance    Total Loans    Amount   Allowance     Total Loans
                 -------- -----------  -------------  -------- ---------  ---------------  -------- ------------  ------------
                                                              (DOLLARS IN THOUSANDS)
<S>             <C>        <C>           <C>          <C>       <C>           <C>          <C>         <C>          <C>   
One- to
  four-family   $   616     43.23%        85.04%      $   994    78.70%        87.29%      $   696      65.79%       87.82%

Multi-family        397     27.86          9.93           164    12.99          9.50           195      18.43         8.40

Commercial           89      6.25          4.00            95     7.52          3.02           153      14.46         3.61

Construction
  and land            -      0.00          0.00             -     0.00          0.00             -       0.00         0.00

Consumer            162     11.37          3.03            10     0.79          0.19            14       1.32         0.17

Unallocated         161     11.29             -             -        -             -             -          -            -
                --------  --------      --------      -------- --------      --------      --------   --------     --------
    Total       $ 1,425    100.00%       100.00%      $ 1,263   100.00%       100.00%      $ 1,058     100.00%      100.00%
                ========  ========      ========      ======== ========      ========      ========   ========     ========
</TABLE>

<TABLE>
<CAPTION>
                                                   AT JUNE 30,
                  -----------------------------------------------------------------------
                                 1995                                 1995               
                  ----------------------------------  -----------------------------------
                                        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     $   466     58.84%       85.82%      $   359     63.88%        85.00%

Multi-family         105     13.26         9.34            88     15.66          9.68

Commercial           166     20.96         4.37            96     17.08          4.69

Construction
  and land            42      5.30         0.19             7      1.25          0.32

Consumer              13      1.64         0.28            12      2.13          0.31

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

Total            $   792    100.00%      100.00%      $   562    100.00%       100.00%
                 ========  ========      =======      ========   =======       =======
</TABLE>

                                                  17


<PAGE> 20



      REAL ESTATE OWNED.  At June 30, 1998,  the  Association  had $1,902,000 of
REO, net of reserves as compared to  $1,150,000  of REO, net of reserves at June
30, 1997. The $752,000  increase was due primarily to the  foreclosure of higher
average  balance  REOs during the year ended June 30, 1998.  If the  Association
acquires  any  REO,  it is  initially  recorded  at the  lower  of the  recorded
investment  in the loan or 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  fund  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, 1998,  the Company had federal
funds  sold  and  other  short-term   investments,   investment  securities  and
mortgage-backed  securities  in the  aggregate  amount of $94.7  million  with a
market value of $94.9 million.

      At June 30, 1998,  the Company had $19.2 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, 1998,  the majority of the  Company's  $59.3 million of
mortgage-backed  securities  were insured or guaranteed by either FNMA,  GNMA or
FHLMC, including $29.4 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 


                                       18

<PAGE> 21


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.

<TABLE>
<CAPTION>

      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.



                                                                     At June 30,
                                       ---------------------------------------------------------------
                                               1998                  1997                  1996
                                       --------------------  --------------------   ------------------
                                                 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                               $  11,163    19.16%   $ 29,236     39.00%   $  15,693    36.07%
  FNMA                                    7,118    12.22      13,449     17.94        9,004    20.69
  GNMA                                   38,106    65.42      29,213     38.97       15,175    34.88
  Other                                   1,863     3.20       3,061      4.09        3,636     8.36
                                      ----------  -------   ---------   -------   ----------  -------
     Total mortgage-backed securities    58,250   100.00%     74,959    100.00%      43,508   100.00%
                                                  =======               =======               =======
Plus:
  Unamortized premium, net                1,069                1,277                    807
                                      ----------            ---------              ---------
     Total mortgage-backed securities,
       net                               59,319               76,236                 44,315
Less:
  Mortgage-backed securities available
    for sale:
    FHLMC                                 5,311               21,908                  3,923
    FNMA                                  7,965               13,445                 10,592
    GNMA                                 15,050                    -                      -
    Other                                 1,057                1,811                  2,099
                                      ----------            ---------              ---------
Mortgage-backed securities
  available for sale                     29,383               37,164                 16,614
Mortgage-backed securities
  held to maturity                    $  29,936             $ 39,072               $ 27,701
                                      ==========            =========              =========
</TABLE>




                                                   19


<PAGE> 22
<TABLE>
<CAPTION>

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


                                                                         FOR THE YEAR ENDED JUNE 30,
                                                                       -------------------------------
                                                                         1998         1997      1996
                                                                       --------     --------  --------
                                                                                 (IN THOUSANDS)
<S>                                                                    <C>          <C>       <C>     
Beginning balance                                                      $ 76,236     $ 44,315  $ 19,349
   Mortgage-backed securities purchased - held to-maturity                    -       15,451    21,116
   Mortgage-backed securities purchased - available for sale             15,281       35,229    11,914
   Less:
      Principal repayments                                              (15,510)      (8,935)   (7,647)
      Sale of mortgage-backed securities available for sale             (16,566)      (9,866)        -
      Gain on sale of mortgage-backed securities                             33          161         -
      Amortization of premium/(discount), net                              (311)        (209)     (228)
      Change in net unrealized gain (loss) on available for sale            156           90      (189)
                                                                       ---------    --------- ---------
Ending balance                                                         $ 59,319     $ 76,236  $ 44,315
                                                                       =========    ========= =========
</TABLE>


<TABLE>
<CAPTION>

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


                                                                AT JUNE 30,
                                    --------------------------------------------------------------------
                                           1998                    1997                    1996
                                    --------------------   ---------------------   ---------------------
                                     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                            $    106   $    109   $    208   $    211      $    287   $    295
    FHLMC                              5,178      5,187      7,745      7,715        10,426     10,361
    GNMA                              23,829     23,973     29,842     29,575        15,420     14,903
    Other                                823        820      1,277      1,282         1,568      1,565
                                    ---------  ---------  ---------  ---------    ----------  ---------
        Total held to maturity        29,936     30,089     39,072     38,783        27,701     27,124
                                    ---------  ---------  ---------  ---------    ----------  ---------
  Available for sale:
    FNMA                               7,965      7,965     13,445     13,445        10,592     10,592
    FHLMC                              5,311      5,311     21,908     21,908         3,923      3,923
    GNMA                              15,050     15,050          -          -             -          -
    Other                              1,057      1,057      1,811      1,811         2,099      2,099
                                    ---------  ---------  ---------  ---------    ----------  ---------
      Total available for sale        29,383     29,383     37,164     37,164        16,614     16,614
                                    ---------  ---------  ---------  ---------    ----------  ---------
        Total mortgage-backed
          securities                $ 59,319   $ 59,472   $ 76,236   $ 75,947      $ 44,315   $ 43,738
                                    =========  =========  =========  =========    =========  ==========
</TABLE>



                                                      20


<PAGE> 23

<TABLE>
<CAPTION>


      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:


                                                                          AT JUNE 30,
                                                -----------------------------------------------------------------------
                                                         1998                     1997                   1996
                                                ----------------------   ---------------------   ----------------------
                                                  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                        $ 16,202     $ 16,202     $ 18,600    $ 18,600    $  4,025     $  4,025
Investment securities:
  Held to maturity:
    U.S. government and federal agency
      obligations                                      -            -            -           -           -            -
                                                ---------    ---------    ---------   ---------   ---------    ---------
  Available for sale:
    U.S. government and federal agency
      obligations                                  8,239        8,239        9,473       9,473       5,928        5,928
    Mutual and money market fundes                10,982       10,982        2,994       2,994       8,976        8,976
                                                ---------    ---------    ---------   ---------   ---------    ---------
      Total available for sale                    19,221       19,221       12,467      12,467      14,904       14,904
                                                ---------    ---------    ---------   ---------   ---------    ---------
    Total investment securities                 $ 35,423     $ 35,423     $ 31,067    $ 31,067    $ 18,929     $ 18,929
                                                =========    =========    =========   =========   =========    =========
</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,  investment securities and
mortgage-backed securities as of June 30, 1998.




                                                  21

<PAGE> 24

<TABLE>
<CAPTION>

                                                                   At June 30, 1998
                                  --------------------------------------------------------------------------------------------------
                                                     More than One Year  More than Five Years
                                   One Year or Less     to Five Years        to Ten Years      More than Ten Years       Total
                                  ------------------ ------------------- -------------------- -------------------- -----------------
                                            Weighted            Weighted           Weighted             Weighted            Weighted
                                   Carrying Average   Carrying  Average  Carrying  Average    Carrying  Average   Carrying  Average
                                    Value    Yield     Value     Yield    Value     Yield      Value     Yield     Value     Yield
                                  --------- -------- --------- --------- --------  ---------- --------  ---------- -------- --------
                                                                         (Dollars in thousands)
<S>                               <C>         <C>      <C>        <C>    <C>         <C>       <C>         <C>    <C>         <C>  
Federal funds sold and 
  other short-term investments    $ 16,202    5.69%    $    -     0.00%  $     -     0.00%     $     -     0.00%  $ 16,202    5.69%
                                  =========            ========          =========             ========           =========
Investment securities:
  Held to maturity:
    U.S. government and 
      federal agency
      Obligations                 $      -    0.00%    $    -     0.00%  $     -     0.00%     $     -     0.00%  $      -    0.00%
                                  =========            ========          =========             ========           =========
      Total held to maturity             -    0.00%         -     0.00%        -     0.00%           -     0.00%         -    0.00%
                                  ---------            --------          ---------             --------           ---------
  Available for sale:
    Money market funds and 
      adjustable rate mutual 
       funds                        10,982    5.61%         -     0.00%        -     0.00%           -     0.00%    10,982    5.61%
    U.S. government and 
      federal agency obligations         -    0.00%     7,982     6.22%        -     0.00%           -     0.00%     7,982    6.22%
    Other                                -    0.00%         -     0.00%        -     0.00%         257     9.75%       257    9.75%
                                  ---------            --------          ---------             --------           ---------
      Total available for sale      10,982    5.61%     7,982     6.22%        -     0.00%         257     9.75%    19,221    5.92%
                                  ---------            --------          ---------             --------           ---------
Total investment securities         10,982    5.61%     7,982     6.22%        -     0.00%         257     9.75%    19,221    5.92%
                                  =========            ========          =========             ========           =========
Mortgage-backed securities:
  Held to maturity:
    FNMA                                 -    0.00%       106     8.50%        -     0.00%           -     0.00%       106    8.50%
    FHLMC                                -    0.00%     1,994     7.12%    1,974     5.90%       1,210     4.82%     5,178    6.12%
    GNMA                                 -    0.00%         -     0.00%        -     0.00%      23,829     6.73%    23,829    6.73%
    Other                                -    0.00%         -     0.00%        -     0.00%         823     5.72%       823    5.72%
                                  ---------            --------          ---------             --------           ---------
      Total held to maturity             -    0.00%     2,100     7.19%    1,974     5.90%      25,862     6.61%    29,936    6.60%
                                  ---------            --------          ---------             --------           ---------
  Available for sale:
    FNMA                               862    6.51%         -     0.00%    6,150     6.23%         954     5.81%     7,966    6.21%
    FHLMC                            1,035    5.14%       281     6.84%    3,898     6.27%          96     8.89%     5,310    6.13%
    GNMA                                 -    0.00%         -     0.00%        -     0.00%      15,050     6.53%    15,050    6.53%
    Other                                -    0.00%         -     0.00%        -     0.00%       1,057     7.14%     1,057    7.14%
                                  ---------            --------          ---------             --------           ---------
      Total available for sale       1,897    5.76%       281     6.84%   10,048     6.25%      17,157     6.54%    29,383    6.39%
                                  ---------            --------          ---------             --------           ---------
        Total mortgage-backed
          securities               $ 1,897    5.76%    $2,381     7.15%  $12,022     6.19%    $ 43,019     6.58%  $ 59,319    6.50%
                                  =========            ========          =========             ========           =========

</TABLE>


                                                                           22


<PAGE> 25



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,  1998,  certificates  of
deposit  constituted  77.1% 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.

<TABLE>
<CAPTION>

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


                                                                   For the Year Ended June 30,
                                                         --------------------------------------------
                                                             1998            1997            1996
                                                         ------------    ------------    ------------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                                       <C>             <C>             <C>      
Net deposits (withdrawals)                                $  (5,429)      $  23,345       $  20,852
Deposits acquired by branch purchase                              -          20,159               -
Interest credited on deposit accounts                        12,371          10,796           8,923
                                                          ----------      ----------      -----------
Total increase (decrease) in deposit accounts             $   6,942       $  54,300       $  29,775
                                                          ==========      ==========      ===========
</TABLE>

<TABLE>
<CAPTION>

      At June 30,  1998,  the  Association  had  $57.3  million  in  certificate
accounts in amounts of $100,000 or more maturing as follows:


                                                                 Weighted
          Maturity Period                    Amount            Average Rate
------------------------------------      ------------        ---------------
                                               (Dollars in thousands)

<S>                                       <C>                      <C>  
Three months or less                      $  11,036                5.25%
Over three through six months                17,045                5.59%
Over six through 12 months                   22,296                5.47%
Over 12 months                                6,908                5.90%
                                          ------------        ---------------
    Total                                 $  57,285                5.51%
                                          ============        ===============
</TABLE>





                                          23

<PAGE> 26

<TABLE>
<CAPTION>

      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.

                                                                   For the Year Ended June 30,
                                           -----------------------------------------------------------------------------------------
                                                        1998                          1997                         1996
                                           -----------------------------------------------------------------------------------------
                                                       Percent                       Percent                      Percent
                                                       of Total  Weighted            of Total  Weighted           of Total  Weighted
                                             Average   Average   Average    Average  Average   Average  Average   Average   Average
                                             Balance   Deposits   Yield     Balance  Deposits   Yield   Balance   Deposits   Yield
                                           ---------- ---------- --------  -------- ---------- -------- -------  ---------  --------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                         <C>         <C>       <C>      <C>       <C>        <C>    <C>        <C>         <C>  
Money market savings account                $ 31,291     10.7%    4.37%    $ 13,334    5.2%     3.70%  $  7,473     3.5%      2.21%
Passbook accounts                             18,516      6.3     2.04       17,432    6.7      2.00     18,108     8.4       2.04
NOW accounts                                  21,171      7.3     1.46       20,249    7.8      1.38     20,299     9.4       1.68
Non interest-bearing accounts                  7,879      2.7     0.00        3,998    1.6      0.00      3,905     1.8       0.00
                                           ---------- ---------- --------  -------- ---------- -------- -------  ---------  --------
  Total                                       78,857     27.0%    2.60%      55,013   21.3%     2.04%    49,785    23.1%      1.43%
                                           ---------- ---------- --------  -------- ---------- -------- -------  ---------  --------
Certificate accounts:
  Less than six months                         9,941      3.4%    4.28%      14,487    5.6%     4.09%    15,016     7.0%      4.70%
  Over six through 12 months                  46,615     16.0     5.27       54,112   20.9      5.45     41,471    19.3       5.34
  Over 12 through 24 months                  126,606     43.4     5.54       99,151   38.3      5.49     71,393    33.1       5.67
  Over 24 months                              29,144     10.0     5.80       34,987   13.5      5.77     35,172    16.3       5.93
  Certificates over $98,000                      438      0.2     5.19        1,007    0.4      5.26      2,625     1.2       5.47
                                           ---------- ---------- --------  -------- ---------- -------- -------  ---------  --------
    Total certificate accounts               212,744     73.0%    5.44%     203,744   78.7%     5.44%   165,677    76.9%      5.55%
                                           ---------- ----------           -------- ----------          -------  ---------
    Total average deposits                  $291,601    100.0%    4.67%    $258,757  100.0%     4.71%  $215,462   100.0%      4.60%
                                           ========== ==========           ======== ==========         ========  =========
</TABLE>

<TABLE>
<CAPTION>

      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, 1998.


                                             Period to Maturity from June 30, 1998                         At June 30,
                               ------------------------------------------------------------- --------------------------------------
                                 Less than   One to       Two to     Three to    Four to
                                 One Year   Two years  Three years  Four years  Five years       1998         1997          1996
                               ----------  ----------- -----------  ----------  ----------   -----------   -----------   ----------
                                                                         (IN THOUSANDS)
<S>                            <C>          <C>         <C>          <C>         <C>           <C>          <C>          <C>     
Certificate accounts:
0 to 4.00%                     $   3,946    $       -   $      -     $      -    $     -       $   3,946    $       -    $      33
4.01 to 5.00%                     34,163           49          -            -          -          34,212       25,557       41,779
5.01 to 6.00%                    119,111       14,368      2,895        2,822      2,532         141,728      176,487      125,492
6.01 to 7.00%                     12,429        4,521        423        1,358        461          19,192       19,748       16,210
7.01 to 8.00%                        163           75        136            -          -             374          604        2,527
8.01 to 9.00%                          -            -          -            -          -               -            -            -
Over 9.01%                             -            -          -            -          -               -            -            -
                               ----------  ----------- -----------  ----------  ----------   -----------   -----------   ----------
  Total                        $ 169,812    $  19,013   $  3,454     $  4,180    $ 2,993       $ 199,452    $ 222,396    $ 186,041
                               ==========  =========== ===========  ==========  ==========   ===========   ===========   ==========
</TABLE>

                                                          24




<PAGE> 27



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.  See " Regulation - Federal Home Loan Bank  System."
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, 1998, the Association repaid  approximately
$12.4 million in FHLB  advances.  At June 30, 1998,  the  Association  had $70.5
million in outstanding advances from the FHLB.

<TABLE>
<CAPTION>

      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:


                                                  At or For the Years Ended June 30,
                                          -----------------------------------------------
                                              1998             1997              1996
                                          ------------     ------------      ------------
                                                         (DOLLARS IN THOUSANDS)
<S>                                         <C>             <C>               <C>     
FHLB advances:
  Average balance outstanding               $ 72,722        $ 73,513          $ 49,419
  Maximum amount outstanding at
    any month-end during the period           75,876          78,172            74,115
  Balance outstanding at end of period        70,543          77,907            67,509
  Weighted average interest rate
    during the period                           6.28%           6.25%             6.50%
  Weighted average interest rate at
    end of period                               6.21%           6.27%             6.23%
</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, 1998, the Company had $6.0 million
outstanding of such borrowings. During the year ended June 30, 1998, the Company
repaid approximately $3,430,000 of such borrowings.




                                       25

<PAGE> 28

<TABLE>
<CAPTION>


      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:


                                                               At or For the Years Ended June 30,
                                                         -------------------------------------------
                                                             1998             1997           1996
                                                         ------------     ------------   -----------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                                      <C>             <C>                  <C>
Securities sold under agreements to repurchase
  Average balance outstanding                            $    6,528      $    8,729           N/A
  Maximum amount outstanding at
    any month-end during the period                           9,450           9,600           N/A
  Balance outstanding at end of period                        6,000           9,430           N/A
  Weighted average interest rate during the period             6.04%           5.93%          N/A 
  Weighted average interest rate at end of period              6.05%           5.95%          N/A 

</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

PERSONNEL

      As of June  30,  1998,  the  Company  had 73  full-time  employees  and 28
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.




                                       26


<PAGE> 29



REGULATION AND SUPERVISION


GENERAL

      The Company,  as a savings and loan holding  company,  is required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS under the Home Owners' Loan Act, as amended (the "HOLA").  In addition,  the
activities of savings institutions, such as the Association, are governed by the
HOLA and the Federal Deposit Insurance Act ("FDI Act").

      The  Association  is  subject to  extensive  regulation,  examination  and
supervision by the OTS, as its primary federal  regulator,  and the FDIC, as the
insurer of its deposits.  The  Association  is a member of the Federal Home Loan
Bank  ("FHLB")  System 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 t 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   compliance  with  various
regulatory   requirements.   This  regulation  and  supervision   establishes  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 herein
does not purport to be a complete  description of such statutes and  regulations
and their effects on the Association and the Company.

HOLDING COMPANY REGULATION

      The Company is a  nondiversified  unitary savings and loan holding company
within the meaning of the HOLA. As a unitary  savings and loan holding  company,
the Company generally will not be 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  ("QTL").  Upon any  non-supervisory
acquisition by the Company of another  savings  institution or savings bank that
meets  the QTL test and is deemed to b 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 be subject to
extensive  limitations  on the types of  business  activities  in which it could
engage.  The HOLA limits the  activities of a multiple  savings and loan holding
company and its  non-insured  institution  subsidiaries  primarily to activities
permissible for bank holding companies under Section 4(C)(8) of the Bank Holding
Company Act ("BHC Act"),  subject to the prior  approval of the OTS, and certain
activities authorized by OTS regulation and no multiple savings and loan holding
company may  acquire  more than 5% of the voting  stock of a company  engaged in
impermissible activities.

      The HOLA  prohibits  a  savings  and loan  holding  company,  directly  or
indirectly, or through one or more subsidiaries,  from acquiring more than 5% of
the voting stock of another  savings  institution  or holding  company  thereof,
without prior written approval of the OTS or acquiring or retaining control of a
depository   institution  that  is  not  insured  by  the  FDIC.  In  evaluating
applications by holding 



                                       27


<PAGE> 30


companies to acquire savings  institutions,  the OTS must consider the financial
and  managerial  resources and future  prospects of the company and  institution
involved,  the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.

      The OTS is prohibited from approving 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 the  permit  interstate  savings  and loan
holding company acquisitions.

      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, HOLA does 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

      CAPITAL   REQUIREMENTS.   The  OTS  capital  regulations  require  savings
institutions to meet three minimum capital  standards:  a 1.5% tangible  capital
ratio, a 3% leverage (core capital) 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 (core) capital
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.  Core capital is defined as
common stockholder's 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
purchased  mortgage  servicing  rights and credit  card  relationships.  The OTS
regulations  also  require  that,  in meeting the leverage  ratio,  tangible and
risk-based capital standards,  institutions must generally deduct investments in
and loans to  subsidiaries  engaged in activities 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 of
0% to 100%,  as assigned by the OTS  capital  regulation  based on the risks OTS
believes  are  inherent in the type of asset.  The  components  of Tier I (core)
capital are equivalent to those discussed above. 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.  Overall,  the  amount  of
supplementary  capital  included as part of total capital  cannot exceed 100% of
core capital.

      The OTS regulatory capital  requirements 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.  A savings  institution's
interest rate risk is measured by the decline in the net portfolio  value of its
assets (I.E., the difference between incoming and outgoing discounted cash flows
from assets,  liabilities and off-balance sheet contracts)



                                       28

<PAGE> 31


that would result from a  hypothetical  200 basis point  increase or decrease in
market   interest  rates  divided  by  the  estimated   economic  value  of  the
institution's  assets.  In  calculating  its total capital under the  risk-based
capital rule, a savings  institution  whose measured interest rate risk exposure
exceeds 2% must deduct an amount equal to one-half of the difference between the
institution's  measured  interest rate risk and 2%,  multiplied by the estimated
economic value of the institution's assets. The Director of the OTS may waive or
defer a savings  institution's  interest rate risk  component on a  case-by-case
basis.  A  savings  institution  with  assets  of less  than  $300  million  and
risk-based  capital  ratios in excess of 12% is not subject to the interest rate
risk component,  unless the OTS determines otherwise.  For the present time, the
OTS has deferred implementation of the interest rate risk component. At June 30,
1998, the Association met each of its capital requirements and it is anticipated
that the Association will not be subject to the interest rate risk component.

<TABLE>
<CAPTION>

                                                           Excess             Capital(1)
                                                                      --------------------------
                               Actual       Required    (Deficiency)     Actual       Required
                              Capital       Capital        Amount       Percent       Percent
                           ------------   ------------  ------------  ------------  ------------
                                                  (Dollars in thousands)
<S>                        <C>           <C>             <C>              <C>            <C>  
Tangible                   $   27,930    $    6,117      $  21,813        6.86%          1.50%
Core (Leverage)                27,930        12,222         15,708        6.86           3.00
Risk-based                     29,255        15,520         13,735       15.08           8.00

</TABLE>

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

(1)   Although the OTS capital regulations require savings institutions to  meet
      a 1.5% tangible  capital ratio and a 3% leverage (core) capital ratio, the
      prompt  corrective  action  standards  discussed below also establish,  in
      effect,  a minimum 2% tangible  capital  standard,  a 4%  leverage  (core)
      capital 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.



                                       29

<PAGE> 32



      PROMPT  CORRECTIVE  REGULATORY  ACTION.  Under the OTS  prompt  corrective
action  regulations,  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  risk-based  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  banking  regulator  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.  Both the SAIF and the Bank  Insurance  Fund ("BIF"),  (the
deposit  insurance  fund  that  covers  most  commercial  bank  deposits),   are
statutorily  required to be recapitalized to a 1.25% of insured reserve deposits
ratio.  Until recently,  members of the SAIF and BIF were paying average deposit
insurance  premiums of between 24 and 25 basis points.  The BIF met the required
reserve  in 1995,  whereas  the  SAIF was not  expected  to meet or  exceed  the
required  level until 2002 at the earliest.  This situation was primarily due to
the statutory requirement that SAIF members make payments on bonds issued in the
late 1980s by the Financing Corporation ("FICO") to recapitalize the predecessor
to the SAIF.

      In view of the  BIF's  achieving  the  1.25%  ratio,  the FDIC  ultimately
adopted a new assessment  rate schedule of from 0 to 27 basis points under which
92% of BIF members paid an annual  premium of only $2,000.  With respect to SAIF
member  institutions,  the FDIC adopted a final rule  retaining  the  previously
existing  assessment rate schedule  applicable to SAIF member institutions of 23
to 31 basis points. As long as the premium differential  continued,  it may have
had adverse  consequences  for SAIF members  including  reduced  earnings and an
impaired  ability to raise  funds in the  capital  markets.  In  addition,  SAIF
members,  such as the  Association,  were  placed at a  substantial  competitive
disadvantage  to BIF members  with  respect to pricing of loans and deposits and
the ability to achieve lower operating costs.

      On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposed a special
one-time assessment of 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  generally  tax
deductible. The Association took a pre-tax charge of $1.3 million as a result of
the FDIC special assessment.

      The Funds Act also spreads the  obligations  for payment of the  Financing
Corporation ("FICO") bonds across all SAIF and BIF members. Beginning on January
1, 1997,  BIF deposits  were  assessed for a FICO payment of  approximately  1.3
basis points, while SAIF deposits pay approximately 6.4 basis 



                                       30

<PAGE> 33



points on the FICO bonds. Full pro rata sharing of the FICO payments between BIF
and SAIF members  will occur on the earlier of January 1, 2000,  or the date the
BIF and SAIF are merged.  The Funds Act specifies  that the BIF and SAIF will be
merged on January 1, 1999,  provided no savings  associations  remain as of that
time.

      As a result of the Funds  Act,  the FDIC voted to  effectively  lower SAIF
assessments  to 0 to  27  basis  points  effective  January  1,  1997,  a  range
comparable  to that of BIF members.  SAIF members will also continue to make the
FICO  payments  described  above.  The FDIC  also  lowered  the SAIF  assessment
schedule  for the third  quarter  of 1997 to 18 to 27 basis  points.  Management
cannot  predict the level of FDIC insurance  assessments  on an on-going  basis,
whether the savings  association  charter will be  eliminated or whether the BIF
and SAIF will eventually be merged.

      The  Association's  assessment rate for fiscal 1998 ranged from 6.1 to 6.4
basis points and the premium paid for this period was  $180,000.  A  significant
increase in SAIF  insurance  premiums would likely have an adverse effect on the
operating expenses and results of operations of the Association.

      Under the FDI Act,  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.  The Funds Act provides that the BIF and
SAIF will merge on January 1, 1999 if there are no more savings  associations as
of that date.  That  legislation  also required that the  Department of Treasury
submit a report  to  Congress  that  makes  recommendations  regarding  a common
financial  institutions  charter,  including  whether the  separate  charter for
thrifts and banks  should be  abolished.  Various  proposals  to  eliminate  the
federal thrift  charter,  create a uniform  financial  institutions  charter and
abolish  the OTS have been  introduced  in  Congress.  The bills  would  require
federal savings institutions to convert to a national bank or some type of state
charter by a specified date under some bills, or they would automatically become
national  banks.  Under the same  proposals,  converted  federal  thrifts  would
generally be required to conform  their  activities  to those  permitted for the
charter selected and divestiture of nonconforming  assets would be required over
a two year period, subject to two possible one year extensions.  State chartered
thrifts would become subject to the same federal  regulation as applies to state
commercial banks. A more recent bill passed by the House Banking Committee would
not affect the federal thrift  charter,  but would subject  unitary  savings and
loan holding companies to the same activity restrictions  applicable to multiple
savings and loan holding  companies.  Unitary savings and loan holding companies
existing  on or  applied  for by March  31,  1998  would be  grandfathered.  The
Association is unable to predict  whether such  legislation  would be enacted or
the extent to which the legislation would restrict or disrupt its operations.

      LOANS TO ONE BORROWER.  Under the HOLA, savings institutions are generally
subject to the limits on loans to one  borrower  applicable  to national  banks.
Generally, savings institutions 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 such loan is secured by readily-marketable  collateral, which is
defined to include certain financial  instruments and bullion. At June 30, 1998,
the Association's  limit on loans to one borrower was $4.2 million.  At June 30,
1998, the Association's  largest aggregate  outstanding  balance of loans to one
borrower totaled $1.5 million. All loans to this borrower were current.


                                       31

<PAGE> 34



      QTL TEST. The HOLA requires savings institutions to meet a QTL test. Under
the QTL test,  a savings and loan  association  is required to 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  "qualified  thrift
investments" (primarily residential mortgages and related investments, including
certain  mortgage-backed  securities)  in at least 9 months out of each 12 month
period.

      A savings  institution  that  fails  the QTL test is  subject  to  certain
operating  restrictions and may be required to convert to a bank charter.  As of
June 30, 1998,  the  Association  maintained  94.0% of its  portfolio  assets in
qualified  thrift  investments  and,   therefore,   met  the  QTL  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 savings institutions,  such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another  institution  in a cash-out  merger and other  distributions  charged
against  capital.  The rule establishes  three tiers of institutions,  which are
based primarily on an  institution's  capital level. An institution that exceeds
all fully phased-in  capital  requirements  before and after a proposed  capital
distribution  ("Tier I Association") and has not been advised by the OTS that it
is in need of more than  normal  supervision,  could,  after  prior  notice  but
without  obtaining  approval of the OTS,  make  capital  distributions  during a
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  its
"surplus  capital  ratio" (the excess capital over its fully  phased-in  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
would require prior regulatory approval.  In the event the Association's capital
fell below its  regulatory  requirements  or the OTS  notified it 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.  In December  1994,  the OTS proposed
amendments to its capital distribution regulation that would generally authorize
the payment of capital  distributions  without OTS  approval  provided  that the
payment does not cause the institution to be undercapitalized within the meaning
of the prompt corrective action regulation.  However,  institutions in a holding
company  structure  would still have a prior  notice  requirement.  At March 31,
1997, the Association was a Tier I Bank.

      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%  depending
upon economic conditions and the savings flows of member  institutions.  The OTS
has recently lowered the liquidity  requirement from 5% to 4% and eliminated the
1% short term liquid asset  requirement.  Monetary  penalties may be imposed for
failure to meet these liquidity requirements.  The Association's liquidity ratio
for June 30, 1998 was 22.33%,  which exceeded the then applicable  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  assessment,  paid  on a
semi-annual  basis,  is computed  upon the savings  institution's  total assets,
including  consolidated  subsidiaries,  as reported in the Association's  



                                       32

<PAGE> 35


latest  quarterly  thrift  financial   report.   The  assessments  paid  by  the
Association for the fiscal year ended June 30, 1998 totaled $98,000.

      BRANCHING.  OTS  regulations  permit  nationwide  branching  by  federally
chartered  savings  institutions to the extent allowed by federal statute.  This
permits federal savings  institutions  to establish  interstate  networks and to
geographically  diversify their loan  portfolios and lines of business.  The OTS
authority  preempts any state law  purporting  to regulate  branching by federal
savings institutions.

      TRANSACTIONS WITH RELATED PARTIES.  The Association's  authority to engage
in transactions  with related parties or  "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 Sections 23A and 23B
of the Federal Reserve Act ("FRA").  Section 23A limits the aggregate  amount of
covered  transactions  with any  individual  affiliate to 10% of the capital and
surplus 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 Section  23A and the  purchase  of low  quality  assets from
affiliates is generally prohibited.  Section 23B generally provides that certain
transactions  with affiliates,  including loans and asset purchases,  must be on
terms  and  under   circumstances,   including   credit   standards,   that  are
substantially  the same or 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,  as well as entities such persons  control,  is
governed by Sections  22(g) and 22(h) of the FRA and  Regulation  O  thereunder.
Among other  things,  such loans are required to be made on terms  substantially
the same as those offered to  unaffiliated  individuals  and to 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
insiders over other employees. Regulation O also places individual and aggregate
limits on the amount of loans the Association may make to such persons based, in
part, on the Association's  capital position and requires certain board approval
procedures to be followed.

      ENFORCEMENT.   Under  the  FDI  Act,  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 an
amount to $25,000 per day, or even $1 million  per day in  especially  egregious
cases.  Under  the FDI Act,  the  FDIC has the  authority  to  recommend  to the
Director of the OTS enforcement  action to be taken with respect to a particular
savings  institutions.  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
("Guidelines")  and a final rule to  implement  safety and  soundness  standards
required  under the FDI Act. 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.  The
standards set forth in the Guidelines  address internal controls and information
systems;  internal  audit  systems;  credit  underwriting;  loan  



                                       33

<PAGE> 36



documentation;  interest rate exposure; asset growth; and compensation, fees and
benefits.  The agencies  are  expected to adopt a proposed  rule that sets forth
asset quality and earnings  standards which, if adopted in final, would be added
to the Guidelines.  If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines,  the agency
may  require  the  institution  to submit to the  agency an  acceptable  plan to
achieve compliance with the standard, as required by the FDI Act. The final rule
establishes  a  deadline  for the  submission  and  review  of such  safety  and
soundness compliance plans when such plans are required.

FEDERAL HOME LOAN BANK SYSTEM

      The  Association  is a member of the FHLB  System,  which  consists  of 12
regional FHLBs. The FHLB provides a central credit facility primarily for member
institutions.  The  Association,  as a  member  of the  FHLB-San  Francisco,  is
required to acquire  and hold shares of capital  stock in that FHLB in an amount
at least equal to 1% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings) from the FHL San Francisco,  whichever is greater. The
Association  was in  compliance  with this  requirement,  with an  investment in
FHLB-San  Francisco stock at June 30, 1998, of $4.2 million.  FHLB advances must
be secured by specified  types of collateral  and may be obtained  primarily for
the purpose of providing funds for residential housing finance.

      The FHLBs are required to provide  funds to cover certain  obligations  on
bonds issued to fund the resolution of insolvent thrifts and to contribute funds
for affordable  housing programs.  These requirements could reduce the amount of
dividends that the FHLBs pay to their members and could also result in the FHLBs
imposing a higher rate of interest on advances to their  members.  For the years
ended June 30, 1998,  1997, and 1996,  dividends from the FHLB-San  Francisco to
the Association amounted to $247,000, $237,000, and $152,000,  respectively.  If
dividends  were  reduced,  or interest on future FHLB  advances  increased,  the
Association's net interest income might also be reduced.

FEDERAL RESERVE SYSTEM

      The  regulations  of the Board of Governors of the Federal  Reserve System
("Federal Reserve Board") require savings institutions to maintain  non-interest
earning reserves against their transaction  accounts  (primarily NOW and regular
checking accounts). The Federal Reserve Board regulations generally require that
reserves be maintained against aggregate  transaction  accounts as follows:  for
accounts aggregating $47.8 million or less (subject to adjustment by the Federal
Reserve  Board) the reserve  requirement  is 3%; and for  accounts  greater than
$47.8  million,  the reserve  requirement  is $1.29 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 $47.8 million. The first $4.7 million
of otherwise  reservable balances (subject to adjustments by the Federal Reserve
Board)  are  exempted  from the  reserve  requirements.  The  Association  is in
compliance with the foregoing  requirements.  The balances maintaine to meet the
reserve requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements imposed by the OTS.

FEDERAL SECURITIES LAWS

      The Company's  Common Stock is registered with the SEC under Section 12(g)
of the  Securities  Exchange Act of 1934, as amended (the "Exchange  Act").  The
Company is subject to the periodic  reporting  requirements,  proxy solicitation
rules, insider trading  restrictions,  tender offer rules and other requirements
under the Exchange Act.


                                       34

<PAGE> 37


      The registration  under the Securities Act of 1933 (the "Securities  Act")
of shares of the Common Stock that were issued in the  Association's  conversion
from  mutual to stock form does not cover the resale of such  shares.  Shares of
the Common Stock  purchased by persons who are not affiliates of the Company may
be resold without registration.  Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current  public  information  requirements  of Rule 144
under the  Securities  Act, each  affiliate of the Company who complies with the
other  conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated  with those of certain other  persons) would be able to sell in
the public market,  without  registration,  a number of shares not to exceed, in
any three-month  period,  the greater of (I) 1% of the outstanding shares of the
Company or (ii) the average  weekly  volume of trading in such shares during the
preceding four calendar  weeks.  Shares  acquired  through the Company's  option
plans have been  registered  under the  Securities Act and,  therefore,  are not
subject to resale restrictions.


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").

      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  



                                       35


<PAGE> 38


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, 1998, the Association's
tax bad debt reserve  grandfathered under the new law for which federal deferred
taxes have not been provided totale  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.



                                       36

<PAGE> 39



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.

<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, 1998
------------------------------------   -------  ----------  ------------  -----------------
<S>                                     <C>       <C>       <C>             <C>
ADMINISTRATIVE/BRANCH OFFICE:

225 North Barranca Street               Owned     1984            -         $ 1,402,000
West Covina, California  91791

BRANCH OFFICES:

COVINA:
   144 North Second Avenue              Owned     1952            -             117,000
   Covina, California  91723

HACIENDA HEIGHTS:
   2233 South Hacienda Boulevard        Owned     1970            -             499,000
   Hacienda Heights, California  91745

LA VERNE:
   2111 Bonita Avenue                   Owned     1972             -            188,000
   La Verne, California  91750

CITY OF INDUSTRY:
   220 North Hacienda Boulevard         Leased    1977       9/30/03(1)           1,000
   City of Industry, California  91744

ARCADIA:
   One East Foothill Boulevard          Leased    1986      12/31/05             20,000
   Arcadia, California  91006

NORTH LA VERNE:
   1413 Foothill Boulevard              Leased    1997       1/31/00             12,000
   La Verne, California  91750

DUARTE:
   1475 East Huntington Drive           Leased    1997       6/30/05             50,000
   Duarte, California  91010
</TABLE>

(1) THE  ASSOCIATION  HAS OPTIONS TO EXTEND THE LEASE TERM FOR FOUR  CONSECUTIVE
    FIVE-YEAR PERIODS.


                                       37

<PAGE> 40


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.

                                      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. In the future, the Board of Directors may consider
a policy of paying cash  dividends  on the Common  Stock.  As of June 30,  1998,
there  were 194  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 2,348,068 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, 1998
                ------------------------------------------------------------------
                 4th Quarter      3rd Quarter      2nd Quarter       1st 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>

<TABLE>
<CAPTION>

                                  Year Ended June 30, 1997
                ------------------------------------------------------------------
                 4th Quarter      3rd Quarter      2nd Quarter       1st Quarter
                -------------    -------------    -------------    ---------------

<S>                <C>              <C>              <C>             <C>
High               14 1/4           13 7/8           11 11/16         9 3/4
Low                11               11 1/8           9 3/8            7 3/4

</TABLE>



                                       38


<PAGE> 41
<TABLE>
<CAPTION>

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

  SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY

                                                                      At June 30,
                                          ----------------------------------------------------------------
                                               1998         1997         1996         1995        1994
                                          ------------  -----------  -----------  -----------  -----------
                                                                    (In thousands)
<S>                                         <C>           <C>          <C>          <C>          <C>     
Selected Financial Condition Data:
Total assets                                $408,346      $409,340     $336,055     $273,396     $255,410
Investment securities available
  for sale                                    19,221        12,467       14,904        1,000        4,898
Investment securities held to
  maturity                                         -             -            -        3,200        3,200
Mortgage-backed securities
  available for sale                          29,383        37,164       16,614        3,614        4,140
Mortgage-backed securities
  held to maturity                            29,936        39,072       27,701       15,735       19,609
Loans receivable held for sale                   391           230          723            -            -
Loans receivable held for
  investment, net(1)                         295,739       284,608      255,953      217,399      207,667
Deposit accounts                             295,281       288,339      234,039      204,264      200,658
FHLB advances                                 70,543        77,907       67,509       33,447       37,799
Stockholders' equity, substantially
  restricted                                  32,233        29,903       31,586       33,006       13,581

</TABLE>

<TABLE>
<CAPTION>

                                                            FOR THE YEAR ENDED JUNE 30,
                                          ----------------------------------------------------------------
                                               1998         1997         1996         1995        1994
                                          ------------  -----------  -----------  -----------  -----------
                                                                    (In thousands)
<S>                                         <C>           <C>          <C>          <C>          <C>     
Selected Operating Data:
Interest income                             $  29,602     $  26,700    $  21,259    $  17,855    $  16,971
Interest expense                               18,661        17,138       13,304       10,900        9,363
                                           -----------    ----------   ----------   ----------   ----------
  Net interest income before
    provision for estimated loan losses        10,941         9,562        7,955        6,955        7,608
Provision for estimated loan losses               735           557          575          483           95
                                           -----------    ----------   ----------   ----------   ----------
  Net interest income after provision
    for estimated loan losses                  10,206         9,005        7,380        6,472        7,513
Other income                                    1,259         1,218          612          538          447
General and administrative expenses             8,934         8,958        6,966        6,705        6,775
                                           -----------    ----------   ----------   ----------   ----------
Earnings before income taxes                    2,531         1,265        1,026          305        1,185
Income taxes                                    1,044           534          432          128          493
                                           -----------    ----------   ----------   ----------   ----------
Net earnings                               $    1,487      $     73     $    594     $    177     $    692
                                           ===========    ==========   ==========   ==========   ==========
Earnings per share - basic                 $     0.63      $   0.29     $   0.22          N/A          N/A 
                                           ===========    ==========   ==========   ==========   ==========
Earning per share - diluted                $     0.60      $   0.29     $   0.22          N/A          N/A
                                           ===========    ==========   ==========   ==========   ==========
</TABLE>



                                                       39




<PAGE> 42
<TABLE>
<CAPTION>


                                                        At or for the year ended June 30,
                                             -----------------------------------------------------
                                                1998       1997       1996      1995       1994
                                             ---------  ---------  ---------  --------  ----------
<S>                                           <C>        <C>        <C>        <C>        <C>  
Selected Financial Ratios and
Other Data(2):
Performance Ratios:
  Return on average assets                      0.37%      0.20%      0.20%      0.07%      0.28%
  Return on average equity                      4.80       2.38       1.81       1.16       5.16
  Average equity to average assets              7.62       8.22      11.00       5.86       5.33
  Equity to total assets at end of period       7.89       7.31       9.40      12.07       5.32
  Average interest rate spread (3)              2.40       2.27       2.28       2.61       3.01
  Net interest margin (4)                       2.78       2.65       2.76       2.79       3.15
  Average interest-earning assets to
    average interest-bearing liabilities      108.22     107.98     110.37     103.97     103.81
  General and administrative expenses
    to average assets (5)                       2.19       2.40       2.33       2.58       2.69
REGULATORY CAPITAL RATIOS:
  Tangible capital                              6.86%      6.34%      7.63%      9.04%      5.31%
  Core capital                                  6.86       6.34       7.63       9.04       5.31
  Risk-based capital                           15.08      14.43      16.51      18.56      11.03
ASSET QUALITY RATIOS:
  Non-performing loans as a percent of
    gross loans receivable(6)(7)                0.64%      0.59%      0.76%      0.88%      0.54%
  Non-performing assets as a percent
   of total assets(7)                           0.93       0.70       1.03       1.00       0.83
  Allowance for estimated loan losses
    as a percent of gross loans
   receivable(6)                                0.48       0.44       0.41       0.36       0.27
  Allowance for estimated loan losses
    as a percent of non-performing
    loans(7)                                   74.56      74.34      53.92      41.21      50.40
NUMBER OF FULL-SERVICE CUSTOMER
  FACILITIES                                     8          8          6          6          6
</TABLE>



(1)  The allowance for estimated loan losses at June 30, 1998, 1997,  1996, 1995
     and 1994 was $1,425,000,  $1,263,000,  $1,058,000,  $792,000, and $562,000,
     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.


                                       40

<PAGE> 43



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 a 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, 1998, the Association's Sensitivity Measure, as measured by
the OTS, was 1.49%.  At that same date, the  Sensitivity  Measure as measured by
the  Association,  was 0.96%.  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 twelve month period, based upon certain specific  assumptions.  For the
years ended June 30, 1998,  1997 and 1996, the forecasted net interest income in
the existing rate  environment  (held constant for the period) for interest rate
risk  management  purposes was $10.2  million,  $8.1 million,  and $7.3 million,
respectively,  compared  to the actual net  interest  income  recorded  of $10.9
million, $9.6 million, and $8.0 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 



                                       41

<PAGE> 44


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 provid 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.

      The  following  table sets  forth,  at 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  (+/-400  basis  points,  measured in 100 basis point
increments).

<TABLE>
<CAPTION>

               Change in
             Interest Rates                     Net Portfolio Value
            In Basis Points          ---------------------------------------
             (Rate Shock)                            Change         Change
                                        Amount          $              %
             --------------          ------------   ----------     ---------
                                              (Dollars in thousands)

                 <S>                 <C>            <C>              <C>
                  400                $  24,415      $ (15,696)       (39.1)%
                  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
                 (400)                  41,345          1,234          3.1
</TABLE>




                                       42


<PAGE> 45



      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 amount
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>    
SELECTED ASSETS:
  Investments and Fed Funds              $27,202    $     -    $     -    $ 8,000     $    -     $     -
     Average interest rate                  5.66%      0.00%      0.00%      6.99%      0.00%       0.00%

  Mortgage-backed securities -
     fixed-rate                            9,543      7,523      5,972      4,964      3,828      16,780
     Average interest rate                  7.52%      7.50%      7.48%      7.47%      7.45%       7.43%

  Mortgage-backed securities -
     adjustable rate                       8,985          -          -          -          -           -
     Average interest rate                  6.63%      0.00%      0.00%      0.00%      0.00%       0.00%

  Loans - fixed rates                     14,920     10,974      8,219     15,394      3,467       9,512
     Average interest rate                  8.18%      8.16%      8.15%      8.39%      8.04%       8.02%

  Loans - adjustable rate                226,212      6,531        542          -          -           -
     Average interest rate                  7.93%      8.31%      9.16%      0.00%      0.00%       0.00%

SELECTED LIABILITIES:
  Interest-bearing NOW
    passbook and MMDAs                    25,476     16,827     11,638      8,153      5,793      18,282
     Average interest rate                  3.67%      3.61%      3.46%      3.29%      3.10%       2.32%

  Certificates of deposit                169,812     19,013      3,454      4,180      2,993           -
     Average interest rate                  5.29%      5.60%      5.69%      5.08%      5.58%       0.00%

  FHLB advances and securities
    sold under agreements to
    repurchase                            37,733     13,200      4,276     14,252      7,082           -
     Average interest rate                  6.15%      6.56%      6.05%      6.14%      6.31%       0.00%

</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.




                                       43

<PAGE> 46

<TABLE>
<CAPTION>

AVERAGE BALANCE SHEET

      The following table sets forth certain information relating to the Company
for the fiscal  years ended June 30, 1998,  1997 and 1996.  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.


                                                                    Year Ended June 30,
                                         -----------------------------------------------------------------------------------
                                                      1998                       1997                        1996
                                         --------------------------   --------------------------  --------------------------
                                                           Average                      Average                     Average
                                          Average           Yield/     Average           Yield/    Average           Yield/
                                          Balance  Interest  Cost      Balance  Interest  Cost     Balance  Interest  Cost
                                         -------- --------- -------   --------  -------- -------  -------- --------- -------
                                                                        (DOLLARS IN THOUSANDS)
<S>                                      <C>       <C>        <C>     <C>       <C>        <C>     <C>       <C>       <C>  
Assets:
  Interest-earning assets:
    Interest earning deposits and
      short-term investments             $ 10,109  $   609    6.02%   $  7,176  $   389    5.42%   $  8,491  $   522   6.15%
    Investment securities, net             16,705    1,073    6.42      17,222    1,133    6.58       9,454      601   6.36
    Loans receivable                      301,984   23,641    7.83     273,469   20,890    7.64     233,356   17,798   7.63
    Mortgage-backed securities,
      net                                  60,413    4,032    6.67      59,733    4,051    6.78      33,944    2,186   6.44
    FHLB stock                              4,130      247    5.98       3,884      237    6.10       3,175      152   4.79
                                         -------- ---------           --------  --------          --------- --------        
      Total interest-earning assets       393,341  $29,602    7.53%    361,484  $26,700    7.39%    288,420  $21,259   7.37%
                                                  =========                     ========                    ========
      Non-interest-earning assets          13,710                       11,773                       10,612
                                         --------                     --------                    ---------
        Total assets                     $407,051                     $373,257                     $299,032
                                         ========                     ========                    =========
Liabilities and Equity:
  Interest-bearing liabilities:
    Money market savings
      accounts                           $ 31,291  $ 1,367    4.37%   $ 13,334  $   493    3.70%   $  7,473  $   166   2.21%
    Passbook accounts                      18,516      377    2.04      17,432      348    2.00      18,108      370   2.04
    NOW accounts                           21,171      309    1.46      20,249      280    1.38      20,299      341   1.68
    Certificate accounts                  212,744   11,574    5.44     203,744   11,074    5.44     165,677    9,194   5.55
                                        --------- ---------           --------  --------          --------- --------
      Total savings accounts              283,722   13,627    4.80     254,759   12,195    4.79     211,557   10,071   4.76
    FHLB advances                          72,722    4,615    6.35      73,513    4,569    6.22      49,419    3,212   6.50
    Securities sold under
      agreements to repurchase              6,528      397    6.08       6,043      349    5.78           -        -   0.00
    Impounds & other
     borrowings                               485       22    4.54         443       25    5.64         346       21   6.07
                                        --------- ---------           --------  --------          --------- --------
      Total interest-bearing
        liabilities                       363,457  $18,661    5.13%    334,758  $17,138    5.12%    261,322  $13,304   5.09%
                                                  =========                     ========                    ========
  Non-interest bearing liabilities         12,596                        7,821                        4,831
                                        ---------                     --------                    ---------
      Total liabilities                   376,053                      342,579                      266,153
  Equity                                   30,998                       30,678                       32,879
                                        ---------                     --------                    ---------
      Total liabilities and equity       $407,051                     $373,257                     $299,032
                                        =========                     ========                    =========
  Net interest rate spread                                    2.40%                        2.27%                       2.28%
  Net interest margin                                         2.78%                        2.65%                       2.76%
  Ratio of interest-earning assets
    to interest-bearing liabilities        108.22%                      107.98%                      110.37%

</TABLE>

                                                                     44

<PAGE> 47

<TABLE>
<CAPTION>

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.


                                              Year Ended June 30, 1998     Year Ended June 30, 1997
                                                    Compared to                   Compared to
                                              Year Ended June 30, 1997     Year Ended June 30, 1996
                                            ----------------------------  ---------------------------
                                             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                  $   173     $    4    $   220    $   (75)   $  (58)   $  (133)
  Investment securities, net (1)                (33)       (27)       (60)       510        22        532
  Loans receivable, net (1)                   2,221        530      2,751      3,069        23      3,092
  Mortgage-backed securities,net (1)             44        (63)       (19)     1,744       121      1,865
  FHLB stock                                     15         (5)        10         38        47         85
                                            --------    -------   --------   --------   -------   --------
    Total interest-earning assets             2,420        482      2,902      5,286       155      5,441
                                            --------    -------   --------   --------   -------   --------
INTEREST-BEARING LIABILITIES:
  Money market savings accounts                 771        103        874        176       151        327
  Passbook accounts                              22          7         29        (15)       (7)       (22)
  NOW accounts                                   13         16         29         (1)      (60)       (61)
  Certificate accounts                          500          -        500      2,057      (177)     1,880
  FHLB advances                                 (48)        94         46      1,488      (131)     1,357
  Securities sold under agreement to
     repurchase                                  29         19         48        349         -        349
  Impounds & other borrowings                     2         (5)        (3)         5        (1)         4
                                            --------    -------   --------   --------   -------   --------
    Total interest-bearing liabilities        1,289        234      1,523      4,059      (225)     3,834
                                            --------    -------   --------   --------   -------   --------
Net change in net interest income             1,131        248      1,379    $ 1,227    $  380    $ 1,607
                                            ========    =======   ========   ========   ========  ========
</TABLE>

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

(1) Includes assets available for sale.



                                                      45


<PAGE> 48



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  fo 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 




                                       46


<PAGE> 49


of the downward trend in interest rates  resulting in a faster  amortization  of
related premiums on purchased securities.

      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.  Th 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 ESTIMATED LOAN LOSSES

      The Company's  provision for estimated  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 




                                       47

<PAGE> 50



allowance for estimated  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 estimated 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.  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 estimated 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 adjustment 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 $1.3 million for the year ended
June 30, 1998  compared to $1.2  million  for the year ended June 30,  1997,  an
increase of $41,000,  or 3.4%. 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.  Offsetting  these
improvements  was the  recording of a net loss on real estate owned  activity of
$109,000  for the  year  ended  June  30,  1998 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.  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.

GENERAL AND ADMINISTRATIVE EXPENSES

      General and  administrative  expenses  increased  by $1.3  million to $8.9
million  for the year ended June 30,  1998 from $7.6  million for the year ended
June 30,  1997  (excluding  the $1.3  million  one-time  special  assessment  to
recapitalize  the SAIF  insurance  fund paid in the year ended  June 30,  1997).
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 



                                       48

<PAGE> 51


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.

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 $10.6  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 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



                                       49

<PAGE> 52


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 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, a
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.

COMPARISON OF OPERATING RESULTS FOR THE YEAR  ENDED  JUNE 30, 1997, AND JUNE 30,
1996

GENERAL

      The net  earnings  for the year  ended  June 30,  1997 were  $731,000,  an
increase of $137,000,  or 23.1%,  from the $594,000 in net earnings for the year
ended  June 30,  1996.  The  improvement  in  operating  results  was due to the
increase in average interest-earning assets which resulted in a $1.6 million net
increase in net interest  income which was partially  offset by the $2.0 million
increase in general and administrative  expenses,  resulting  primarily from the


                                       50


<PAGE> 53



payment of 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,  1997  was  $26.7  million
compared to $21.3  million for the year ended June 30, 1996, an increase of $5.4
million,  or 25.4%.  The increase in interest  income was  primarily  due to the
increase in average balance of interest-earning assets to $361.5 million for the
year ended June 30, 1997 from $288.4  million for the year ended June 30,  1996.
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 and  mortgage-backed  securities
funded primarily by the growth in deposits,  including the branch purchase,  and
the use of borrowings such as FHLB advances.

      Interest  income  on loans  receivable  increased  $3.1  million  to $20.9
million for the year ended June 30,  1997 from $17.8  million for the year ended
June 30,  1996.  The  increase  in  interest  income was the result of the $40.1
million  increase in the average balance of loans  receivable for the year ended
June 30,  1997  primarily  as a result  of the  purchase  of  $33.3  million  of
adjustable  rate loans from other  financial  institutions.  The loans purchased
were  indexed  to the  Eleventh  District  Cost of Funds  Index  (COFI) and were
primarily seasoned,  fully-indexed loans. Furthermore,  the loans purchased were
$4.1 million of multi-family  and $29.2 million of one- to four-family  mortgage
loans.  The average yield on loans  receivable  for the year ended June 30, 1997
was 7.64%,  which approximated the 7.63% yield for loans receivable for the year
ended June 30, 1996.

      Interest income on mortgage-backed securities increased by $1.9 million to
$4.1  million  for the year ended June 30,  1997 from $2.2  million for the year
ended June 30, 1996. The increase in interest  income was due to the increase in
the average balance of mortgage-backed  securities to $59.7 million for the year
ended June 30,  1997 from $33.9  million for the year ended June 30, 1996 and to
the increase in the average yield to 6.78% for the year ended June 30, 1997 from
6.44% for the year ended June 30,  1996.  The  increase in the  average  balance
during  the year ended June 30,  1997 was the  result of the  purchase  of $50.7
million  in  mortgage-backed  securities,  both  available  for sale and held to
maturity,  partially  offset  by the  sale of $9.9  million  in  mortgage-backed
securities   available  for  sale.   The  Company   utilized   acquisitions   of
mortgage-backed   securities   during  the  year  to  increase   the   Company's
interest-earning  assets and as a  substitute  for mortgage  loans.  The average
yield on  mortgage-backe  securities  increased  in the year ended June 30, 1997
primarily  due to the  higher  yields on the  securities  purchased,  which were
principally fixed rate.

      Interest  income on  investment  securities  increased by $532,000 to $1.1
million for the year ended June 30, 1997 from  $601,000  for the year ended June
30, 1996.  The increase was  primarily  due to the $7.7 million  increase in the
average  balance of  investment  securities  to $17.2 million for the year ended
June 30,  1997 from $9.5  million  for the year ended  June 30,  1996 and to the
increase  in the  average  yield to 6.58% for the year ended June 30,  1997 from
6.36% for the year ended June 30, 1996.  The increase in yield was primarily due
to the increase 



                                       51

<PAGE> 54


in U.S.  agency  callable  securities  during the year  ended  June 30,  1997 as
compared to June 30,  1996.  Interest  income on  interest-earning  deposits and
daily  investments  decreased by $48,000 to $626,000 for the year ended June 30,
1997 from  $674,000 for the year ended June 30,  1996.  The decrease in interest
income  on  interest-earning  deposits  and  daily  investments  was  due to the
decrease in the average balance to $7.2 million for the year ended June 30, 1997
from $8.5  million for the year ended June 30,  1996 and to the  decrease in the
average  yield to 5.42% for the year ended June 30, 1997 from 6.15% for the year
ended June 30, 1996.

INTEREST EXPENSE

      Interest  expense  for the year  ended  June 30,  1997 was  $17.1  million
compared to $13.3  million for the year ended June 30, 1996, an increase of $3.8
million, or 28.6%. The increase in interest expense was due to the $73.4 million
increase  in the  average  balances of  interest-bearing  liabilities  to $334.7
million for the year ended June 30, 1997 from $261.3  million for the year ended
June 30,  1996.  The  increase  in  interest  expense was also due to the slight
increase in the average cost of  interest-bearing  liabilities  to 5.12% for the
year ending June 30, 1997 from 5.09% for the year ending June 30, 1996. Interest
expense on deposit  accounts  increased to $12.2 million for the year ended June
30, 1997 from $10.1  million for the year ended June 30,  1996.  The increase in
interest expense on deposit accounts  reflects the $43.2 million increase in the
average  balance of deposit  accounts to $254.8 million for the year ending June
30,  1997 from  $211.6  million  for the year  ending  June 30,  1996  which was
partially  the result of the purchase of $20.2  million in deposits from another
institution  in February  1997 and due to the  establishment  of a new branch in
March 1997 which generated $5.3 million in deposits in its first three months of
operation.

      The  Company's  use  of  borrowed  funds,   including  FHLB  advances  and
securities sold under agreements to repurchase,  increased during the year ended
June 30, 1997.  The Company  increased its usage of such  borrowings to fund the
growth in assets to  enhance  net  interest  income  and to extend  the  average
maturities of the  liabilities  of the Company.  Interest  expense on borrowings
increased  $1.7  million to $4.9  million  for the year ended June 30, 1997 from
$3.2 million for the year ended June 30, 1996.  Th increase in interest  expense
was primarily due to the increase in average borrowings to $79.6 million for the
year ended June 30, 1997 from $49.4  million  for the year ended June 30,  1996,
partially  offset by the decrease in the average cost of borrowings to 6.18% for
the year ended June 30, 1997 from 6.50% for the year ended June 30 1996.

PROVISION FOR ESTIMATED LOAN LOSSES

      The Company's  provision for estimated loan losses  decreased  slightly to
$557,000 for the year ended June 30, 1997 from  $575,000 for the year ended June
30, 1996.  The current  year's  allowance  for  estimated  loan losses  reflects
$352,000 in loan charge-offs as compared to $310,000 for the year ended June 30,
1996.  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  loan  portfolio  during  the  year  ended  June  30,  1997  and
management's concerns regarding the general market conditions continuing and the
overall decline in real estate activity as well as the continuation of soft real
estate values in our primary  market area.  The  allowance  


                                       52


<PAGE> 55


for estimated  loan losses  increased to $1.3  million,  or 0.44% of gross loans
receivable,  at June 30,  1997  from  $1.1  million,  or  0.41%  of gross  loans
receivable  at June 30,  1996.  As a percentage  of  non-performing  loans,  the
allowance for loan losses increase to 74.34% at June 30, 1997 compared to 53.92%
at June 30, 1996.  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 estimated 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 $1.2 million for the year ended
June 30, 1997 compared to $612,000 for the year ended June 30, 1996, an increase
of $606,000,  or 99.0%. The increase in non-interest income was primarily due to
the  improvement  in the activity on real estate owned and to net gains recorded
on sales of mortgage-backed securities and other investments available for sale.
The Company  posted a net gain on real estate owned activity  totaling  $157,000
for the year ending June 30, 1997 as compared to a net loss of $271,000  for the
year  ending  June 30,  1996,  an increase of  $428,000.  This  improvement  was
primarily the result of a $344,000 favorable  litigation  settlement received in
May 1997;  culminating a litigation  process relating to a land development real
estate owned foreclosed on by the Company in 1992. The Company posted a net gain
of $148,000 in regards to sales of investments  and  mortgage-backed  securities
during the year ended June 30, 1997 as compared to a net loss of $12,000 for the
year ended June 30, 1996.  The  Company's  income  derived  from loan  servicing
operations and deposit fees were approximately the same for both the years ended
June 30, 1997 and 1996.

GENERAL AND ADMINISTRATIVE EXPENSES

      General and  administrative  expenses  increased  by $2.0  million to $9.0
million  for the year ended June 30,  1997 from $7.0  million for the year ended
June 30, 1996.  Included in the  expenses for the year ended June 30, 1997,  was
the $1.3 million one-time special  assessment to recapitalize the SAIF insurance
fund. This special assessment represented 65.7 basis points of the deposits held
by the  Association  as of March  31,  1995.  Compensation  and  other  employee
benefits  increased by $539,000 to $4.1 million for the year ended June 30, 1997
from $3.6 million for the year ended June 30, 1996. The increase in compensation
costs was primarily  attributable  to the increase in staff primarily due to the
addition of two branches.  Employee benefits  increased as a result of the costs
related to the employee stock ownership and the stock  compensation  plans which
increased  to $472,000  for the year ended June 30, 1997 from  $302,000  for the
year ended June 30,  1996.  Equipment  and data  processing  costs  increased to
$932,000 for the year ended June 30, 1997 from  $748,000 for the year ended June
30, 1996  primarily as a result of the  completion of a conversion to a new data
processor which included approximately  $100,000 in non-recurring  expenses. The
increase  in costs was due to the  replacement  of  outdated  equipment,  to the
initial costs of the  conversion and to the  deconversion  


                                       53

<PAGE> 56


costs of the previous data processor.  The regular insurance assessments paid to
the FDIC  decreased to $313,000  for the year ended June 30, 1997 from  $472,000
for the year ended June 30, 1996 as a result of the  lowering of the  assessment
rate as of January 1, 1997, following the recapitalization of SAIF.

INCOME TAX

      Income tax expense was $534,000 for the year ended June 30, 1997  compared
to  $432,000  for the year ended June 30,  1996,  representing  an  increase  of
$102,000.  This increase is principally due to the increase in taxable income in
fiscal  1997 as  compared  to  fiscal  1996.  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, 1997 AND JUNE 30, 1996

      The Company's  total assets  increased to $409.3  million at June 30, 1997
from $336.1 million at June 30, 1996, an increase of $73.2  million.  During the
year, the Company  increased its loans  receivable  held for investment by $28.6
million to $284.6  million at June 30, 1997 from $256.0 million at June 30, 1996
primarily as a result of the $33.3  million in loans  purchased  throughout  the
year. All of the loans  purchased were adjustable rate mortgage loans indexed to
COFI,   with  $4.1  million   being  multi-   family  loans  and  the  remainder
single-family mortgages. The properties securing the loans purchased are located
primarily in southern California, but are dispersed throughout a wider area than
the Company's normal lending area.

      The Company's  investment  in  mortgage-backed  securities  increased to a
total of $76.2 million at June 30, 1997 from $44.3 million at June 30, 1996. The
increase in this portfolio reflects the continuation of management's strategy to
increase the interest-earning  assets of the Company to enhance the net interest
income of the Company.  Cash and short-term bank obligations  increased to $22.7
million at June 30,  1997 from $8.9  million  at June 30,  1996  primarily  as a
result  of the  increase  in cash  flow  generated  from  the  loans  receivable
portfolio  due to a slower  than  expected  lending  market  and the  desire  of
management to maintain more additional liquid assets.

      The  Company's  investment  in premises  and  equipment  increased to $3.9
million at June 30, 1997 from $3.0  million at June 30, 1996 due to the purchase
of new computer  equipment  as part of the  Company's  conversion  to a new data
processor,  and due to the  improvements  required  as  part  of two  additional
branches and other branch upgrades.  Prepaid expenses and other assets increased
to $1.2  million at June 30,  1997 from  $437,000  primarily  as a result of the
premium paid on the branch acquisition of approximately $500,000.

      The total  liabilities of the Company  increased to $379.4 million at June
30, 1997 from $304.5 million at June 30, 1996.  The increase in liabilities  was
in support of the  strategy  to  enhance  net  interest  income.  Total  deposit
accounts  increased to $288.3 million at June 30, 1997 from $234.0 million aided
by  the  acquisition  of  $20.2  million  in  deposits   acquired  in  a  branch
acquisition.  Core deposits  (excluding  certificates  of deposit)  increased to
$65.9 million, or 22.9% of total deposits,  at June 30, 1997 from $48.0 million,
or 20.5% of total deposits,  at June 


                                       54

<PAGE> 57



30,  1996.  The growth of core  deposits  is an  integral  part of  management's
strategy to enhance net interest  income and build customer  relationships.  The
Company  continued  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,
1997, the Company  increased its borrowings  from the FHLB to $77.9 million from
$67.5 million at June 30, 1996.  Also, the Company borrowed $9.4 million through
securities sold under agreements to repurchase.

      The Company's  stockholders'  equity was $29.9 million at June 30, 1997, a
decrease of $1.7 million from the $31.6 million in stockholders'  equity at June
30, 1996. The decrease in stockholders'  equity in fiscal 1997 was due primarily
to the repurchase of 249,100 shares of stock to be held as treasury stock with a
total value of $2.9 million. The reduction of stockholders' equity caused by the
stock  repurchase  was partially  offset by the $731,000 in net earnings and the
$273,000 in amortization of deferred stock compensation.

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  Compan 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

      In June 1996,  the FASB issued SFAS No. 125,  ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL  ASSETS AND  EXTINGUISHMENTS  OF  LIABILITIES,  which was
amended by SFAS No. 127, DEFERRAL OF THE EFFECTIVE DATE OF CERTAIN PROVISIONS OF
FASB  STATEMENT  NO. 125.  These  statements  provide  accounting  and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities.  SFAS No. 125, as amended, is effective for transfers and servicing
of financial assets and extinguishments of liabilities  occurring after December
31, 1996 or December 31, 1997 for certain transactions. The adoption of SFAS No.
125 did not have a material  impact on the  Company's  financial  condition  and
results of operations.

      In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME
and SFAS No.  131,  DISCLOSURES  ABOUT  SEGMENTS  OF AN  ENTERPRISE  AND RELATED
INFORMATION.  SFAS No. 130  establishes  standards  for reporting and display of
comprehensive  income  and  its  components  in a full  set  of  general-purpose
financial  statements.  SFAS No.  131  establishes  standards  of  reporting  by
publicly held business enterprises and disclosure of information about operating
segments in annual financial statements to a lesser extent, in interim financial
reports  issued to  shareholders.  SFAS No. 130 and 131 are effective for fiscal
years  beginning after December 15, 1997. As both SFAS No. 130 and 131 deal with
financial statement disclosure,  


                                       55

<PAGE> 58


the Company does not  anticipate the adoption of these new standards will have a
material impact on the Company's financial condition and results of operations.

      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 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Earlier  application is encouraged,  but it
is permitted  only as of the  beginning of iscal  quarter that begins after June
1998.  The adoption of the  provisions of SFAS No. 133 is not expected to have a
material  impact on the results of operations  or the financial  position of the
Company.

YEAR 2000

      The Year 2000 Issue  concerns the  potential  impact of historic  computer
software  code that only  utilizes  two digits to represent  the  calendar  year
(e.g.,  "98" for "1998").  Software so developed  could  produce  inaccurate  or
unpredictable  results  upon  January 1, 2000,  when  current  and future  dates
present a lower two digit  year  number  than  dates in the prior  century.  The
Company,  similar  to most  financial  services  providers,  is  subject  to the
potential  impact  of  the  Year  2000  Issue  due  to the  nature  o  financial
information. Potential impacts to the Company may arise from software, hardware,
and  equipment  both  within the  Company's  direct  control  and outside of the
Company's ownership,  yet with which the Company electronically or operationally
interfaces (i.e., vendors providing or receiving service bureau information).

      Financial institution  regulators have recently increased their focus upon
year 2000 issues,  issuing guidance  concerning the  responsibilities  of senior
management and directors. Year 2000 testing and certification is being addressed
as a key safety and soundness issue in conjunction with regulatory exams.

      In order to address the year 2000 issue,  the  Company has  developed  and
implemented a five phase plan divided into the following major components:

-  awareness
-  assessment
-  renovation
-  validation
-  implementation

      The  Company  has  completed  the  first  two  phases  of the  plan and is
currently  working  internally  and with  external  vendors  on the final  three
phases.  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
Company  replaced its internal retail branch computer system and its back office
computer systems in 1997 with personal  computers which are year 2000 ready. The
software used in these systems,  both purchased and related to our external data
processing vendors, is currently being tested for year 2000 readiness. Also, the
Company is currently testing its primary data processor 


                                       56


<PAGE> 59


for year 2000  readiness.  The Company  has  contacted  its primary  vendors and
others with whom it relies on to assure  their  systems will be year 2000 ready.
However,  there can be no assurance  that these systems of other vendors will be
year 2000 ready or that an such failure in  readiness by such vendors  would not
have an adverse effect on the Company's operations. Another important segment of
the Year 2000 Plan is to identify  those loan  customers  whose possible lack of
year 2000 preparedness  might expose the Bank to financial loss. Upon completion
of its review and testing of both internal operations and external vendors,  the
Company  will  complete  its  contingency   plans.  It  is  expected  that  such
contingency plans will be completed by January 31, 1999.

      The Company expects its year 2000 date conversion  project to be completed
by March 31, 1999. 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 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.


                                       57

<PAGE> 60



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report..................................................59
Consolidated Statements of Financial Condition as of June 30, 1998 and 1997...60
Consolidated Statements of Operations for Each of the Three Years 
  in the Period Ended June 30, 1998...........................................62
Consolidated Statements of Stockholders' Equity for Each of the Three 
  Years in the Period Ended June 30, 1998.....................................64
Consolidated Statements of Cash Flows for Each of the Three 
  Years in the Period Ended June 30, 1998.....................................65
Notes to Consolidated Financial Statements for Each of the Three 
  Years in the Period Ended June 30, 1998.....................................68





                                       58

<PAGE> 61




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  as of June 30,  1998 and 1997,  and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three  years in the  period  ended  June 30,  1998.  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, 1998 and 1997,  and the results of their  operations  and their cash
flows  for  each of the  three  years  in the  period  ended  June  30,  1998 in
conformity with generally accepted accounting principles.

/S/Deloitte & Touche LLP

Costa Mesa, California
August 27, 1998






                                        59



<PAGE> 62


<TABLE>
<CAPTION>


SGV BANCORP, INC. AND SUBSIDIARY 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1998 AND 1997
---------------------------------------------------------------------------------------------------------


                                                                                      1998       1997
                                                                                   (DOLLARS IN THOUSANDS)
ASSETS
<S>                                                                              <C>          <C>      
Cash, including short-term bank obligations of $16,202 and $18,600
  at June 30, 1998 and 1997, respectively                                        $   20,008   $  22,664
Investment securities available for sale, amortized cost of $19,241 and
  $12,500 at June 30, 1998 and 1997, respectively (Note 3)                           19,221      12,467
Mortgage-backed securities available for sale, amortized cost of $29,386
  and $37,323 at June 30, 1998 and 1997, respectively (Notes 3 and 10)               29,383      37,164
Mortgage-backed securities held to maturity, estimated fair value of $30,089
  and $38,783 at June 30, 1998 and 1997, respectively (Notes 4 and 10)               29,936      39,072
Loans receivable held for investment, net of allowance for estimated loan
  losses of $1,425 and $1,263 at June 30, 1998 and 1997, respectively
  (Notes 5 and 10)                                                                  295,739     284,608
Loans receivable held for sale (Note 5)                                                 391         230
Accrued interest receivable (Note 6)                                                  2,774       2,911
Stock of Federal Home Loan Bank of San Francisco, at cost (Note 10)                   4,234       3,987
Real estate acquired through foreclosure, net (Note 7)                                1,902       1,150
Premises and equipment, net (Note 8)                                                  3,537       3,866
Prepaid expenses and other assets, net                                                1,221       1,221
                                                                                  ---------   ---------



  Total assets                                                                   $  408,346   $ 409,340
                                                                                 ==========   =========
</TABLE>














See notes to consolidated financial statements     60




<PAGE> 63

<TABLE>
<CAPTION>

SGV BANCORP, INC. AND SUBSIDIARY 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1998 AND 1997 (CONTINUED)
--------------------------------------------------------------------------------------------------



                                                                             1998         1997
                                                                          (DOLLARS IN THOUSANDS)


<S>                                                                      <C>           <C>       
LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Deposit accounts (Note 9)                                                $  295,281    $  288,339
Federal Home Loan Bank advances (Note 10)                                    70,543        77,907
Securities sold under agreements to repurchase (Note 10)                      6,000         9,430
Accrued expenses and other liabilities (Note 11)                              4,289         3,761
                                                                        -----------   ----------- 

  Total liabilities                                                         376,113       379,437

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 (1998 and 1997); 2,348,068 (1998) and 2,342,176 (1997)
  shares outstanding                                                             27            27
Additional paid-in capital                                                   21,147        20,789
Retained earnings, substantially restricted                                  16,688        15,201
Net unrealized loss on securities available for sale, net of taxes              (13)         (110)
Deferred stock compensation                                                  (1,555)       (1,880)
Treasury stock, 379,588 (1998) and 385,480 (1997) shares                     (4,061)       (4,124)
                                                                        ------------  ------------ 
  Total stockholders' equity                                                 32,233        29,903
                                                                        ------------  ------------ 
  Total liabilities and stockholders' equity                             $  408,346    $  409,340
                                                                        ===========   ===========

</TABLE>







See notes to consolidated financial statements     61



<PAGE> 64

<TABLE>
<CAPTION>



SGV BANCORP, INC. AND SUBSIDIARY 

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 
----------------------------------------------------------------------------------------------


                                                              1998        1997         1996
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                                        <C>          <C>         <C>     
INTEREST INCOME:
Interest on loans                                          $ 23,641     $ 20,890    $ 17,798
Interest on investment securities                             1,073        1,133         601
Interest on mortgage-backed securities                        4,032        4,051       2,186
Other                                                           856          626         674
                                                          ---------`    --------    --------

    Total interest income                                    29,602       26,700      21,259

INTEREST EXPENSE:
Interest on deposit accounts (Note 9)                        13,627       12,195      10,071
Interest on borrowings                                        5,034        4,943       3,233
                                                          ---------     --------    --------

    Total interest expense                                   18,661       17,138      13,304
                                                          ---------     --------    --------

NET INTEREST INCOME BEFORE PROVISION FOR
  ESTIMATED LOAN LOSSES                                      10,941        9,562       7,955

PROVISION FOR ESTIMATED LOAN LOSSES (Note 5)                    735          557         575
                                                          ---------     --------    --------
 
NET INTEREST INCOME AFTER PROVISION FOR
  ESTIMATED LOAN LOSSES                                      10,206        9,005       7,380

OTHER INCOME (EXPENSE):  
Loan servicing and other fees                                   532          450         446
Deposit account fees                                            522          306         194
Secondary market activity, net                                    -          (42)        (56)
Gain (loss) on sale or redemption of securities
  available for sale, net (Note 3)                               45          148         (12)
Net gain (loss) on real estate acquired through foreclosure
  (Note 7)                                                     (109)         157        (271)
Other income                                                    269          199         311
                                                          ---------     --------    --------

    Total other income                                        1,259        1,218         612


</TABLE>








See notes to consolidated financial statments     62


<PAGE> 65
<TABLE>
<CAPTION>


SGV BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
-------------------------------------------------------------------------------------


                                                 1998          1997          1996
                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                         <C>            <C>           <C>        
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and other employee expenses    $     4,909    $    4,129    $     3,590
Office occupancy                                  1,064           834            789
Equipment                                         1,117           932            748
Advertising                                         157           137            121
FDIC insurance premiums                             180           313            472
SAIF special assessment                               -         1,332              -
Other operating expenses                          1,507         1,281          1,246
                                            -----------    ----------    -----------
  Total general and administrative expenses       8,934         8,958          6,966
                                            -----------    ----------    -----------
EARNINGS BEFORE INCOME TAXES                      2,531         1,265          1,026

INCOME TAXES (Note 11)                            1,044           534            432
                                            -----------    ----------    -----------
NET EARNINGS                                $     1,487    $      731    $       594
                                            ===========    ==========    ===========

EARNINGS PER SHARE - Basic (Note 12)        $      0.63    $     0.29    $      0.22
                                            ===========    ==========    ===========

EARNINGS PER SHARE - Diluted (Note 12)      $      0.60    $     0.29    $      0.22
                                            ===========    ==========    ===========

</TABLE>















See notes to consolidated financial statements    63



<PAGE> 66

<TABLE>
<CAPTION>


SGV BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 
------------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)

                                                                               NET UNREALIZED
                                                         ADDITIONAL          LOSS ON SECURITIES    DEFERRED               TOTAL
                                                          PAID-IN   RETAINED AVAILABLE FOR SALE     STOCK     TREASURY STOCKHOLDERS'
                         PREFERRED STOCK   COMMON STOCK   CAPITAL   EARNINGS     NET OF TAXES    COMPENSATION  STOCK      EQUITY
                         ---------------   -------------  -------   -------- ------------------  ------------ --------    ------
                         SHARES   AMOUNT   SHARES AMOUNT

<S>                           <C> <C>      <C>    <C>     <C>      <C>            <C>            <C>          <C>        <C>  
BALANCE, July 1, 1995         -   $        2,728  $  27   $20,666  $ 13,876       $  (35)        $  ($1,528)  $     -    $  33,006
Net earnings                  -       -        -      -         -       594            -                  -         -          594
Common stock acquired by
  stock compensation plan     -       -        -      -         -         -            -               (844)        -         (844)
Amortization of deferred
  compensation                -       -        -      -        18         -            -                219         -          237
Repurchase of stock (136,380
  shares)                     -       -        -      -         -         -            -                  -    (1,240)      (1,240)
Change in net unrealized loss
  on securities available for
  sale, net of taxes          -       -        -      -         -         -         (167)                 -         -         (167)
                          ------  ------ -------  -----  --------  --------       ------          ---------   -------    ---------
BALANCE, June 30, 1996        -       -    2,728     27    20,684    14,470         (202)            (2,153)   (1,240)      31,586
Net earnings                  -       -        -      -         -       731            -                  -         -          731
Amortization of deferred
  compensation                -       -        -      -       105         -            -                273         -          378
Repurchase of stock (249,100
  shares)                     -       -        -      -         -         -            -                  -    (2,884)      (2,884)
Change in net unrealized loss
  on securities available for
  sale, net of taxes          -       -        -      -         -         -           92                  -         -           92
                          ------  ------ -------  -----  --------  --------       ------          ---------   -------    ---------
BALANCE, June 30, 1997        -       -    2,728     27    20,789    15,201         (110)            (1,880)   (4,124)   $  29,903
Net earnings                  -       -        -      -         -     1,487            -                  -         -        1,487
Exercise of stock options
  (5,892 shares)              -       -        -      -        (3)        -            -                  -        63           60
Amortization of deferred 
  compensation                -       -        -      -       361         -            -                325         -          686
Change in net unrealized loss
  on securities available for 
  sale, net of taxes          -       -        -      -         -         -           97                  -         -           97
                          ------  ------ -------  -----  --------  --------       ------          ---------   -------    ---------
BALANCE, June 30, 1998        -   $   -    2,728  $  27  $ 21,147  $ 16,688       $  (13)         $  (1,555)  $(4,061)   $  32,233
                          ======  ====== =======  =====  ========  ========       ======          =========   =======    =========
</TABLE>







See notes to consolidated financial statements              64


<PAGE> 67

<TABLE>
<CAPTION>

SGV BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 
------------------------------------------------------------------------------------------------------------------------------------

                                                              1998         1997        1996
                                                                       (IN THOUSANDS)

<S>                                                        <C>          <C>         <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                               $   1,487    $    731    $     594
Adjustments to reconcile net earnings to net cash provided
  by operating activities:
  Depreciation and amortization                                  683         430          370
  Loans originated for sale                                  (19,687)     (5,644)     (13,906)
  Proceeds from sale of loans                                 19,567       5,657       13,152
  (Gain) loss on sale of loans, net                              (41)        (13)          31
  (Gain) loss on sale or redemption of investment
    securities available for sale, net                           (12)         13           12
  Gain on sale of mortgage-backed securities available for
    sale, net                                                    (33)       (161)           -
  Federal Home Loan Bank stock dividend                         (247)       (237)        (152)
  (Increase) decrease in prepaid expenses and other assets      (116)       (835)          15
  Amortization of deferred loan fees                            (111)        (74)         (80)
  Deferred loan origination costs                               (344)       (147)        (194)
  Increase (decrease) in accrued expenses and other
    liabilities                                                  641         267         (204)
  Deferred income taxes                                         (185)        266           (2)
  Provision for estimated loan losses                            735         557          575
  Provision for estimated real estate losses                     124          95          204
  Premium (discount) amortization on securities, net             458         235          246
  Decrease (increase) in accrued interest receivable             137        (323)        (534)
  Other, net                                                    (357)        164          481
                                                           ----------   ---------   ---------

      Net cash provided by operating activities                2,699         981         608
</TABLE>









See notes to consolidated financial statements             65


<PAGE> 68
<TABLE>
<CAPTION>


SGV BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
---------------------------------------------------------------------------------------------------



                                                             1998            1997           1996
                                                                        (IN THOUSANDS)

<S>                                                     <C>              <C>             <C>       
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities available for sale    $   (29,739)     $  (57,451)     $ (42,650)
Proceeds from sale and redemption of investment
    securities available for sale                            23,012          59,936         28,683
Purchase of mortgage-backed securities available            (15,281)        (35,229)       (11,914)
Proceeds from sale of mortgage-backed securities
    available for sale                                       16,566           9,866              -
Proceeds from call of investment securities held to
    maturity                                                      -               -          3,200
Purchase of mortgage-backed securities held to maturity           -         (15,451)       (21,116)
Principal repayments on mortgage-backed securities           15,510           8,935          7,647
Loans funded, net                                           (34,512)        (30,955)       (17,719)
Loans purchased, net                                        (40,623)        (33,320)       (48,297)
Principal repayments on loans                                61,019          33,216         25,029
Proceeds from sale of real estate                             2,161           2,935          1,451
Purchase of premises and equipment                             (248)         (1,242)          (517)
Purchase of FHLB stock                                            -              (3)          (730)
Other, net                                                     (114)              -              -
                                                         -----------     -----------      ---------

      Net cash used in investing activities                  (2,249)        (58,763)       (76,933)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in certificate accounts             (22,944)          21,347        31,704
Net increase (decrease) in passbook, money market
  savings, NOW, and noninterest-bearing accounts             29,886           12,794        (1,929)
Purchase of deposit accounts                                      -           20,159             -
Proceeds from Federal Home Loan Bank advances                 5,000           73,800        50,000
Repayment of Federal Home Loan Bank advances                (12,364)         (63,402)      (15,938)
Proceeds from securities sold under agreements to
  repurchase                                                      -            9,600             -
Repayment of securities sold under agreements to
  repurchase                                                 (3,430)            (170)            -
Purchase of treasury stock                                        -           (2,884)       (1,240)
Purchase of stock for deferred compensation plans                 -                -          (775)
Exercise of stock options                                        60                -             -
Other, net                                                      686              318             -
                                                         -----------     -----------      --------

      Net cash (used in) provided by financing activities    (3,106)          71,562        61,822
                                                         -----------     -----------      --------


</TABLE>





See notes to consolidated financial statements                66


<PAGE> 69
<TABLE>
<CAPTION>


SGV BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 
------------------------------------------------------------------------------------------------------



                                                                 1998          1997          1996
                                                                         (IN THOUSANDS)
<S>                                                            <C>           <C>           <C>       
NET (DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS                                                  $  (2,656)    $   13,780    $ (14,503)

CASH AND CASH EQUIVALENTS, beginning of year                      22,664          8,884       23,387

CASH AND CASH EQUIVALENTS, end of year                         $  20,008     $   22,664    $   8,884
                                                              ==========     ==========    =========


SUPPLEMENTAL CASH FLOW DISCLOSURES-
 Cash paid during the year for:
Interest                                                       $  18,610     $   17,214    $  12,930
Income taxes                                                         941            188          324

NONCASH INVESTING ACTIVITIES DURING THE YEAR:
Real estate acquired through foreclosure                       $   2,928     $    2,603    $   2,885
Mortgage-backed securities transferred from held to
  maturity to available for sale classification                        -              -        4,775
Loans to facilitate sales of real estate acquired through
  foreclosure                                                          -              -          641
Change in net unrealized loss on securities available for
  sale, net                                                           97             92        (167)

</TABLE>












See notes to consolidated financial statements          67


<PAGE> 70



SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 
--------------------------------------------------------------------------------

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, 1998,  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 stockholders'  equity, net
of deferred taxes.




                                     68
<PAGE> 71


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

      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.

      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.  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


                                       69


<PAGE> 72


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

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  ESTIMATED  LOAN  AND  REAL  ESTATE  LOSSES  -  Valuation
allowances  for  estimated  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 delinquen 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.

      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

<TABLE>
<CAPTION>
           <S>                                             <C>   <C>  
           Office buildings                                20 to 40 years
           Furniture, fixtures and equipment                3 to 10 years
</TABLE>

      INCOME TAXES - The Company  accounts  for income taxes under  Statement of
Financial  Accounting  Standards  (SFAS) No. 109,  ACCOUNTING  FOR INCOME TAXES.
Under this  standard,



                                         70

<PAGE> 73

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

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 basi in the financial statements.

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

      EARNINGS PER SHARE - In 1997,  the Financial  Accounting  Standards  Board
issued SFAS No. 128,  EARNINGS PER SHARE.  SFAS No. 128 replaced the calculation
of primary and diluted  earnings  per share with basic and diluted  earnings per
share.  Basic  earnings  per share  excludes  any  dilutive  effects of options,
warrants, and convertible securities, unlike primary earnings per share. Diluted
earnings  per share is very  similar to fully  diluted  earnings per share under
previous guidance. All earnings-per-shar  amounts for previous periods have been
restated to conform with SFAS No. 128.

      RECENT  ACCOUNTING  DEVELOPMENTS  - In June 1996, the FASB issued SFAS No.
125,   ACCOUNTING   FOR  TRANSFERS   AND  SERVICING  OF  FINANCIAL   ASSETS  AND
EXTINGUISHMENTS  OF LIABILITIES,  which was amended by SFAS No. 127, DEFERRAL OF
THE  EFFECTIVE  DATE OF CERTAIN  PROVISIONS  OF FASB  STATEMENT  NO. 125.  These
statements  provide  accounting  and  reporting   standards  for  transfers  and
servicing of financial assets and extinguishments of liabilities.  SFAS No. 125,
as amended,  is effective for  transfers  and servicing of financial  assets and
extinguishments of liabilities occurring after December 31, 1996 or December 31,
1997 for  certain  transactions.  The  adoption  of SFAS No.  125 did not have a
material impact on the Company's financial condition and results of operations.

      In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME
and SFAS No.  131,  DISCLOSURES  ABOUT  SEGMENTS  OF AN  ENTERPRISE  AND RELATED
INFORMATION.  SFAS No. 130  establishes  standards  for reporting and display of
comprehensive  income  and  its  components  in a full  set  of  general-purpose
financial  statements.  SFAS No.  131  establishes  standards  of  reporting  by
publicly held business enterprises and disclosure of information about operating
segments in annual financial statements to a lesser extent, in interim financial
reports issued to  shareholders.  SFAS Nos. 130 and 131 are effective for fiscal
years beginning after December 15, 1997. As both SFAS Nos. 130 and 131 deal with
financial statement disclosure,  the Company does not anticipate the adoption of
these new  standards  will have a  material  impact on the  Company's  financial
condition and results of operations.

      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 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. 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

                                         71
<PAGE> 74

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

of SFAS No. 133 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.

      RECLASSIFICATIONS  -  Certain  amounts  in the  1997  and  1996  financial
statements have been reclassified to conform with classifications in 1998.


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 following table). The Association's  primary regulatory
agency, the Office of Thrift  Supervision  (OTS),  requires that the Association
maintain  minimum ratios of tangible  capital (as defined in the regulations) of
1.5%, core capital (as defined) of 3%, and total risk-based capital (as defined)
of 8%. The  Association  is also  subject to prompt  corrective  action  capital
requirement  regulations set forth by the Federal Deposit Insurance  Corporation
(FDIC).  The 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, 1998 and 1997, the Association  meets
all capital adequacy requirements to which it is subject.


                                        72

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

      As of June 30, 1998 and June 30, 1997, the most recent  notification  from
the 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, 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%    $ 12,222    3.00%    $ 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%


AS OF JUNE 30, 1997:
  Total Capital
    (to Risk Weighted Assets)     $ 26,963   14.43%    $ 14,949    8.00%    $ 18,686    10.00%
  Core Capital
   (to Adjusted Tangible Assets)  $ 25,800    6.34%    $ 12,205    3.00%    $ 20,342     5.00%
  Tangible Capital
   (to Tangible Assets)           $ 25,800    6.34%    $  6,103    1.50%       N/A       N/A
  Tier I Capital
   (to Risk Weighted Assets)      $ 25,800   13.81%        N/A      N/A     $ 11,211     6.00%

</TABLE>

      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

                                            73

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

rule became effective January 1, 1994 an 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  27,  1998,  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 1998 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.

      The Funds Act also spreads the  obligations  for payment of the  Financing
Corporation  (FICO) bonds across all SAIF and Bank Insurance Fund (BIF) members.
Beginning on January 1, 1997,  BIF deposits are assessed for FICO  payments at a
rate of 20% of the rate assessed on SAIF deposits. Based on current estimates by
the FDIC,  BIF  deposits  will be assessed a FICO  payment of 0.3 basis  points,
while SAIF  deposits  will pay an estimated  6.1 basis points on the FICO bonds.
Full pro rata  sharing of the FICO  payments  between BIF and SAIF  members will
occur on the earlier of January 1, 2000 or the date the BIF and SAIF are merged.
The Funds Act specifies  that the BIF and SAIF will be merged on January 1, 1999
provided no savings associations remain as of that time.

      As a result of the Funds Act, the FDIC lowered SAIF assessments to 0 to 27
basis  points  effective  January 1,  1997,  a range  comparable  to that of BIF
members.  However,  SAIF members will  continue to make the higher FICO payments
described  above.  Management


                                        74
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SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

cannot  predict  the level of FDIC  insurance  assessments  on an ongoing basis,
whether  the  savings association charter  will be eliminated or whether the BIF
and SAIF will eventually be merged.

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>
                                                         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 securitie        1,069         -          12        1,057
                                    --------     -----      ------    ---------
  Total mortgage-backed securities    29,386        48          51       29,383
                                    --------     -----      ------    --------- 

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

<TABLE>
<CAPTION>
                                                      1997
                                    ------------------------------------------
                                                  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        $  3,000     $   -       $   6    $   2,994
U.S. Government and federal
  agency obligations                   9,500         4          31        9,473
                                    --------     -----       -----    ---------
  Total investment securities         12,500         4          37       12,467
                                    --------     -----       -----    ---------
FHLMC mortgage-backed securities      21,987        32         111       21,908
FNMA mortgage-backed securities       13,464        60          79       13,445
Other mortgage-backed securities       1,872         -          61        1,811
                                    --------     -----       -----    ---------
  Total mortgage-backed securities    37,323        92         251       37,164
                                    --------     -----       -----    ---------

    Total                           $ 49,823     $  96       $ 288    $  49,631
                                    ========     =====       =====    =========
</TABLE>


                                         75
<PAGE> 78


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

      During the year ended June 30,  1998,  the Company  sold $16.4  million in
mortgage-backed securities, which resulted in a net gain totaling $33,000. Also,
the Company sold $14.0 million in investment  securities resulting in a net gain
totaling  $12,000 and had $9.0 million in  investment  securiti es called during
the year at par.

      During the year  ended  June 30,  1997 the  Company  sold $9.7  million in
mortgage-backed  securities which resulted in gains totaling $161,000. Also, the
Company sold $1.5 million in investment  securities resulting in losses totaling
$13,000 and had $2.0 million in investment securities called du ring the year at
par.

      There  were  no  sales  of  investment   securities  and   mortgage-backed
securities available for sale during the year ended June 30, 1996. Proceeds from
the redemption of the adjustable interest rate mutual fund during the year ended
June 30, 1996 were $2,000,000. A loss of $12,000 was realized on the redemption.

      The weighted average interest rates on investment securities available for
sale were 5.92% and 6.69% at June 30, 1998 and 1997, respectively.  The weighted
average  interest rates on  mortgage-backed  securities  available for sale were
6.87% and 7.08% at June 30, 1998 and 1997, respectively.

      At June 30, 1998, $7.1 million of mortgage-backed securities available for
sale had  adjustable  interest  rates,  with the remaining  $22.3 million having
fixed interest rates.  The weighted  average  remaining years to maturity of the
mortgage-backed securities available for sale is 18.6 years at June 30, 1998.


                                       76

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SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

4.    MORTGAGE-BACKED SECURITIES HELD TO  MATURITY

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

<TABLE>
<CAPTION>
                                                       1998
                                    -------------------------------------------
                                                 GROSS       GROSS     ESTIMATED
                                    AMORTIZED  UNREALIZED  UNREALIZED     FAIR
                                      COST       GAINS       LOSSES      VALUE
                                                   (IN THOUSANDS)

<S>                                 <C>          <C>         <C>       <C>     
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>

<TABLE>
<CAPTION>

                                                       1997
                                   ---------------------------------------------
                                                 GROSS       GROSS     ESTIMATED
                                    AMORTIZED  UNREALIZED  UNREALIZED     FAIR
                                       COST      GAINS       LOSSES      VALUE
                                                   (IN THOUSANDS)

<S>                                 <C>          <C>         <C>       <C>     
FHLMC mortgage-backed securities    $  7,745     $   11      $   41    $  7,715
FNMA mortgage-backed securities          208          3           -         211
GNMA mortgage-backed securities       29,842          -         267      29,575
Other mortgage-backed securities       1,277          5           -       1,282
                                    --------     ------      ------    --------

    Total mortgage-backed securities  39,072     $   19      $  308    $ 38,783
                                    ========     ======      ======    ========
</TABLE>

      Mortgage-backed  securities  totaling  approximately  $19.7  million  were
pledged at June 30, 1998 as collateral  for FHLB  borrowings and $7.6 million of
mortgage-backed  securities  were used as collateral for  securities  sold under
repurchase agreements.

      The Company did not sell any  mortgage-backed  securities held to maturity
during the years ended June 30, 1998, 1997, and 1996.

      The weighted average interest rate on  mortgage-backed  securities held to
maturity  was 7.82% and 7.85% at June 30, 1998 and 1997,  respectively.  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 mi llion having
fixed  interest  rates.  At  June  30,  1997,  $3.0  million  of  the


                                        77

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SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

Company's mortgage-backed securities  held to maturity  had  adjustable interest
rates with the remaining $36.1 million having fixed interes rates.  The weighted
average remaining  years to maturity of the  mortgage-backed  securities held to
maturity is 24.7 years at June 30, 1998.

5.    LOANS RECEIVABLE

      A summary of loans receivable at June 30 follows:

<TABLE>
<CAPTION>

                                                   1998               1997
                                                    (DOLLARS IN THOUSANDS)

<S>                                             <C>             <C>        
Conventional trust deed loans on real estate:
Single family 1-4 units                         $  247,129      $   250,303
Multifamily                                         29,546           27,241
Commercial loans secured by trust deeds             11,895            8,660
Consumer                                             9,007              533
                                                ------------    -------------

  Total                                            297,577          286,737

Less (plus):
Unamortized yield adjustments                         (613)             121
Deferred loan fees                                     635              515
Allowance for estimated loan losses                  1,425            1,263
                                                ------------    -------------
  Total                                            296,130          284,838

Less - Loans held for sale                             391              230
                                                ------------    -------------

Loans receivable held for investment, net       $  295,739      $   284,608
                                                ============    =============

Weighted average interest rate at end of period       8.03%            7.69% 
                                                ============    =============

</TABLE>

      At June 30, 1998,  adjustable rate loans approximated $234.8 million.  The
adjustable  rate  loans  have  interest  rate  adjustment  limitations  and  are
generally indexed to the Eleventh District Cost of Funds and the weekly one-year
Treasury  constant  maturity  index.  Future  market  factors  may  affec  t 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.


                                      78

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SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>

                                              1998          1997          1996
                                                       (IN THOUSANDS)

<S>                                         <C>           <C>          <C>    
Balance, beginning of year                  $ 1,263       $ 1,058      $   792
Provision for estimated loan losses             735           557          575
Charge-offs                                    (573)         (352)        (310)
Recoveries                                        -             -            1
                                            ---------     ---------    ---------

Balance, end of year                        $ 1,425       $ 1,263      $ 1,058
                                            =========     =========    =========
</TABLE>

      At June 30,  1998,  the  Company had  classified  $569,000 of its loans as
impaired  with $100,000 in specific  reserves as  determined in accordance  with
SFAS No.  114, as amended by SFAS No.  118.  At June 30,  1997,  the Company had
classified $530,000 of its loans as impaired with $100,000 in specific reserves.
In addition,  the Company has $1.3 million and $1.7 million at June 30, 1998 and
1997,  respectively,  in impaired loans,  which were collectively  evaluated for
impairment with no specific reserves set aside. The average recorded  investment
in impaired loans, inclusive of those evaluated  collectively,  during the years
ended  June 30,  1998,  1997,  and 1996 was  approximately  $2.9  million,  $1.6
million,  and $2.4 million,  respectively.  Interest income on impaired loans of
$28,000,  $28,000,  and $31,000 was recognized for cash payments received in the
years ended June 30, 1998, 1997, and 1996.

      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, 1998,  1997
and 1996,  contractually  due interest of  approximately  $101,000,  $77,000 and
$118,000, respectively, was not recognized in income. At June 30, 1998, 1997 and
1996,  nonaccrual  loans  approximated  $1,911,000,  $1,699,000 and  $1,962,000,
respectively. At June 30, 1998, the Company had three troubled-debt restructured
loans totaling approximately $761,000.

      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,  1998,  1997 and 1996,  the  Company was  servicing  loans for
others  amounting to  approximately  $100,000,000,  $94,000,000 and $98,000,000,
respectively.

                                        79

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SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

      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, 1998, the Association  estimates that, while complying with this limitation,
it may originate an additional $101.3 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% limita  tion  results in a
dollar limitation of approximately $4,245,000 at June 30, 1998.

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

<TABLE>
<CAPTION>

                                       1998            1997              1996
                                                   (IN THOUSANDS)

<S>                                  <C>             <C>             <C>      
Balance, beginning of year           $   788         $  1,010        $   1,192
  New loans to employees                 966               92                -
  Principal paydowns and payoffs         (28)            (314)            (182)
                                   -----------     ------------    -------------
Balance, end of year                 $ 1,726         $    788        $   1,010
                                   ===========     ============    =============
</TABLE>


6.    ACCRUED INTEREST RECEIVABLE

      A summary of accrued interest receivable at June 30 follows:

<TABLE>
<CAPTION>
                                                       1998             1997
                                                           (IN THOUSANDS)

<S>                                                  <C>             <C>     
Loans receivable                                     $  2,286        $  2,238
Mortgage-backed securities                                378             512
Investment securities and other                           110             161
                                                   ------------     -----------
  Total                                              $  2,774        $  2,911
                                                   ============     ===========
</TABLE>





                                       80
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SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

7.    REAL ESTATE ACQUIRED THROUGH FORECLOSURE

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

<TABLE>
<CAPTION>

                                                     1998              1997
                                                            (IN THOUSANDS)

<S>                                                <C>               <C>      
One- to four-unit properties                       $   1,728         $   1,210
Multi-family                                             274                 -
Allowance for estimated real estate losses              (100)              (60)
                                                 -------------     -------------

  Total                                            $   1,902         $   1,150
                                                 =============     =============
</TABLE>


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

<TABLE>
<CAPTION>
                                               1998           1997          1996
                                                        (IN THOUSANDS)

<S>                                         <C>          <C>          <C> 
Balance, beginning of year                  $  60        $   557      $   569
Provision for estimated real estate losses    124             95          204
Charge-offs                                   (84)          (592)        (216)
                                          ---------    -----------   -----------
Balance, end of year                        $ 100        $    60       $   557
                                          =========    ===========   ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                1998        1997       1996
                                                       (IN THOUSANDS)

<S>                                            <C>         <C>        <C>    
Net gain on sales of real estate               $  153      $   49     $    95
Other income (expenses), net                     (138)        203        (162)
Provision for estimated real estate losses       (124)        (95)       (204)
                                               ---------   --------   ----------
Net gain (loss) on real estate acquired through
  foreclosure                                  $ (109)     $  157     $  (271)
                                               =========   ========   ==========
</TABLE>




                                        81

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SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

8.    PREMISES AND EQUIPMENT

      A summary of premises and equipment at June 30 follows:

<TABLE>
<CAPTION>

                                                           1998          1997
                                                             (IN THOUSANDS)

<S>                                                     <C>           <C>      
Land                                                    $     523     $     523
Office buildings                                            5,055         5,052
Furniture, fixtures and equipment                           3,519         3,279
                                                       -----------   -----------

  Total                                                     9,097         8,854
Less accumulated depreciation and amortization             (5,560)       (4,988)
                                                       -----------   -----------

  Total                                                 $   3,537     $   3,866
                                                       ===========   ===========
</TABLE>


9.    DEPOSIT ACCOUNTS

      Deposit accounts are summarized as follows at June 30:

<TABLE>
<CAPTION>
                                               1998                       1997
                                      -----------------------   -----------------------
                                                    INTEREST                  INTEREST
                                       BALANCE        RATE*      BALANCE        RATE*
                                                  (DOLLARS IN THOUSANDS)

<S>                                  <C>              <C>      <C>              <C>  
Passbook accounts                    $  17,892        2.00%    $   19,161       2.00%
Money market savings accounts           47,469        4.64%        19,620       4.01%
NOW accounts                            20,808        1.23%        21,292       1.34%
Noninterest-bearing accounts             9,660           -          5,870          -
                                    -----------               -------------
    Total                               95,829        2.94%        65,943       2.21%

Certificates of deposit:**
  Less than three months                 2,637        3.97%         4,105       4.15%
  Three to six months                    6,490        4.42%         7,625       4.42%
  Six to twelve months                  29,861        4.91%        52,577       5.36%
  Twelve months and greater            160,464        5.49%       158,089       5.68%
                                    ------------              -------------
    Total                              199,452        5.35%       222,396       5.53%
                                    ------------              -------------
      Total                          $ 295,281        4.57%    $  288,339       4.76%
                                    ============              =============

</TABLE>

*   Based on weighted average stated interest rates.
**  At June  30,  1998,  included  in  certificate  accounts  are 442  accounts
    totaling $57,285,000, with balances of $100,000 or more.

                                          82

<PAGE> 85


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

      Certificate accounts are scheduled to mature as follows at June 30, 1998:

<TABLE>
<CAPTION>

                                                               (IN THOUSANDS)

<S>                                                            <C>         
Within one year                                                $  169,812
One to two years                                                   19,013
Two to three years                                                  3,454
Three to four years                                                 4,180
Four to five years                                                  2,993
                                                             --------------
  Total                                                        $  199,452
                                                             ==============
</TABLE>

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

                                            1998          1997          1996
                                                     (IN THOUSANDS)

<S>                                       <C>          <C>            <C>      
Passbook accounts                         $    377     $     348      $     370
NOW accounts                                   309           280            341
Money market savings accounts                1,367           493            166
Certificate accounts                        11,574        11,074          9,194
                                          --------     ---------      ---------
  Total                                   $ 13,627     $  12,195      $  10,071
                                          ========     =========     ==========
</TABLE>


10.   OTHER BORROWED FUNDS

      Advances from the Federal Home Loan Bank (FHLB) are scheduled to mature as
follows at June 30, 1998:
<TABLE>
<CAPTION>


                                                              (IN THOUSANDS)
<S>                                                             <C>        
Year ending June 30:
  1999                                                          $    31,733
  2000                                                               13,200
  2001                                                                4,276
  2002                                                               14,252
  Thereafter through 2003                                             7,082
                                                                -----------
    Total                                                       $    70,543
                                                                ===========
</TABLE>

      At June 30, 1998 and 1997,  the  weighted  average  interest  rate on FHLB
advances was 6.21% and 6.27%, respectively.  At June 30, 1998, the advances, all
of which are fixed rate, were  collateralized  by certain real estate loans with
aggregate  unpaid  principal  balances  of  approximately  $80.7  million and by
certain mortgage-backed securities with an aggregate

                                       83

<PAGE> 86


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

remaining principal balance of  approximately  $19.7  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>
                                                   1998       1997       1996
                                                     (DOLLARS IN THOUSANDS)

<S>                                              <C>        <C>        <C>     
Average amount outstanding during the period     $ 72,722   $ 73,513   $ 49,419
                                                 =========  =========  =========

Maximum amount outstanding at any month-end
  during the period                              $ 75,876   $ 78,172   $ 74,115
                                                 =========  =========  ========-

Weighted average interest rate during the period     6.28%      6.25%      6.50%
                                                 =========  =========  =========
</TABLE>

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

<TABLE>
<CAPTION>
                                                   1998       1997        1996
                                                     (DOLLARS IN THOUSANDS)

<S>                                              <C>        <C>           <C>    
Average amount outstanding during the period     $  6,528   $  8,729      N/A
                                                 =========  =========  =========

Maximum amount outstanding at any month-end
  during the period                              $  9,450   $  9,600      N/A
                                                 =========  =========  =========

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

      At June 30, 1998, all $6 million of the securities  sold under  agreements
to   repurchase   mature  on  October  30,   1998.   The  market  value  of  the
mortgage-backed securities underlying the agreements was $7.6 million as of June
30, 1998. The Company enters into these agreements only with primary go vernment
securities dealers. The lender maintains possession of the collateral securities
for these agreements.



                                        84

<PAGE> 87


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------


11.   INCOME TAXES

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

<TABLE>
<CAPTION>
                                                  1998        1997       1996
                                                         (IN THOUSANDS)

<S>                                             <C>         <C>         <C>     
Current:
  Federal                                       $   978     $   225    $    354
  State                                             251          43          80
                                                --------    --------   --------

    Total current                                 1,229         268         434

Deferred:
  Federal                                          (209)        173         (22)
  State                                              24          93          20
                                                --------    --------   --------
  
    Total deferred                                 (185)        266          (2)
                                                --------    --------   --------

      Total                                     $ 1,044     $   534    $    432
                                                ========    ========   ========
</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>

                                                  1998       1997        1996

<S>                                               <C>        <C>         <C>  
Federal income tax rate                           35.0%      35.0%       35.0%
State taxes, net of federal benefit                7.2        7.1         8.0
Other, net                                        (1.0)       0.1        (0.9)
                                                -------    -------    --------
  Total                                           41.2%      42.2%       42.1%
                                                =======    =======    ========
</TABLE>

                                     85

<PAGE> 88


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

      At June 30, 1998 and 1997, 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>

                                                     1998            1997
                                                         (IN THOUSANDS)
<S>                                                 <C>            <C>     
Deferred tax liabilities:
  Federal Home Loan Bank stock dividends            $   903        $    792
  Depreciation                                          344             368
  Loan fees                                             817             830
  Prepaid expenses                                       56              79
  Other                                                   -               -
                                                    -------         -------
    Gross deferred tax liabilities                    2,120           2,069

Deferred tax assets:
  Bad debt reserve                                     (538)           (510)
  State taxes                                          (230)           (142)
  Deferred compensation                                (269)           (189)
  Capital loss carryforward                             (20)            (20)
  Unrealized losses on securities                        (9)            (81)
  Amortization of deposit premium                       (43)            (10)
  Other                                                 (31)            (23)
                                                    --------       ---------
    Gross deferred tax assets                        (1,140)           (975)

Valuation allowance                                       -               -
                                                    --------       --------
Net deferred tax liability                          $   980        $  1,094
                                                    ========       ========
</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, 1998, 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.


                                        86

<PAGE> 89


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

12.   EARNINGS PER SHARE RECONCILIATION

<TABLE>
<CAPTION>
                                                         WEIGHTED
                                                          AVERAGE
                                             INCOME       SHARES     PER SHARE
                                           (NUMERATOR) (DENOMINATOR)   AMOUNT
                                          ------------ ------------- -----------

                                                      JUNE 30, 1998
                                          --------------------------------------

<S>                                        <C>          <C>         <C>     
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
                                           ===========  =========   =========
</TABLE>
<TABLE>
<CAPTION>

                                                      JUNE 30, 1997
                                           -------------------------------------

<S>                                        <C>          <C>         <C>     
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>
<TABLE>
<CAPTION>

                                                      JUNE 30, 1996
                                           -------------------------------------

<S>                                        <C>          <C>         <C>     
BASIC EPS
  Income available to common stockholders  $   594,000  2,707,000   $   0.22
EFFECT OF DILUTIVE SECURITIES
  Incremental shares from assumed exercise
    of outstanding options                           -          -          -
                                           -----------  ---------   ---------
DILUTED EPS
  Income available to common stockholders  $   594,000  2,707,000   $   0.22
                                           ===========  =========   =========

</TABLE>

                                     87

<PAGE> 90


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

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  $307,000,
$206,000  and  $143,000  for the  years  ended  June 30,  1998,  1997 and  1996,
respectively.  Sublease  payments were  $158,000,  $121,000 and $107,000 for the
years  ended  June  30,  1998,  1997  and  1996,  respectively.  Minimum  rental
commitments for noncancelable leases follow at June 30, 1998:

<TABLE>
<CAPTION>
                                                                (IN THOUSANDS)

<S>                                                               <C>       
First year                                                        $      447
Second year                                                              423
Third year                                                               216
Fourth year                                                              217
Fifth year                                                               217
Thereafter                                                               398
                                                               -------------

  Total                                                           $    1,918
                                                               =============
</TABLE>

      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 th e
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, 1998 and 1997,  the Company had loan  funding  commitments  of
approximately $3.0 million and $1.4 million,  respectively. At June 30, 1998 and
1997, the majority were fixed rate mortgage loans. Loan funding  commitments are
generally  for a period  of 15 to 45 days.  also,  the  Company  had  agreed  to
purchase  approximately $9.3 million in 1-4 unit  single-family  adjustable rate
mortgage  loans from  another  financial  institution  scheduled to fund in July
1998.


                                        88
<PAGE> 91


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

      The Company uses forward sales  contracts to hedge  interest rate exposure
generally on secondary  mortgage  market  operations.  As of June 30, 1998,  the
Company  had $1.0  million in open  forward  sales  contracts  with no  material
unrecorded  gains/losses.  As of June 30, 1997, the company had $250,000 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 $79,000,  $68,000 and $39,000 for
the years ended June 30, 1998, 1997 and 1996 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 contri butions will be made by
the  Company.  Pension  expense was  $13,000,  $15,000 and $16,000 for the years
ended June 30, 1998, 1997 and 1996, respectively.  The accrued pension liability
cost was approximately $161,000 at June 30, 1998.

      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,  1998  the  outstanding  balance  of the loan was
$982,000  and a total of 68,190  shares of common  stock has been  allocated  to
employee accounts.

      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 

                                        89

<PAGE> 92

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

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,  1998 was
approximately  $469,000.  At June 30, 1998, unearned compensation related to the
ESOP approximated  $873,000 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 a the  benefits  will be
provided  under the 401(k) plan and the ESOP.  Included  in accrued  expenses at
June 30, 1998 is $23,000 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 accrued  expenses at June 30, 1998 is $302,000 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


                                       90

<PAGE> 93

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

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 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, 1998 was approximately $255,000.

      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 i nstallments
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.

                                        91

<PAGE> 94

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

      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 gr ant 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.

      Had  compensation  costs for the stock option  components of the Plan been
determined  based upon the fair value at the date of grant  consistent with SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the pro  forma  amounts  indicated  as  follow  as of  June 30 for the  years
indicated:
<TABLE>
<CAPTION>

                                            1998        1997         1996
                                                     (IN THOUSANDS,
                                                 EXCEPT PER SHARE DATA)

<S>                                     <C>          <C>          <C>      
Net income:
  As reported                           $   1,487    $     731    $     594
  Pro forma                                 1,218          469          463

Earnings per common share - Basic:
  As reported                           $    0.63    $    0.29    $    0.22
  Pro forma                             $    0.52    $    0.19    $    0.17

Shares utilized in EPS calculations     2,344,980    2,482,391    2,707,674

</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 both



                                       92

<PAGE> 95


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

years;  risk-free interest  rate of 5.50% for 1998, 6.50% for 1997 and 6.75% for
1996; expected life of 10 years for all years; and a volatility factor of 23.37%
for 1998 and 18.79% for 1997 and 1996.

      Stock options granted, exercised or forfeited were as follows:

<TABLE>
<CAPTION>
                                                                WEIGHTED AVERAGE
                                            WEIGHTED AVERAGE      FAIR VALUE OF
                              NUMBER OF      EXERCISE PRICE       OPTION SHARES
                            OPTION SHARES   OF OPTION SHARES         GRANTED

<S>                            <C>             <C>                  <C>                                             
Outstanding July 1, 1995             -                  -                  -
  Granted during year          261,851         $     9.63           $   9.63
                           --------------   ----------------
Outstanding June 30, 1996      261,851               9.63
  Granted during year           15,275              12.88              12.88
  Forfeited during year         (2,182)              9.63
                           --------------   ----------------
Outstanding June 30, 1997      274,944               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      287,406         $    10.33
                           ==============   ================
</TABLE>

      Financial data pertaining to outstanding stock options as of June 30, 1998
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       252,031        7.5 years          $   9.63           97,538     $     9.63
  12.88        15,275        8.6 years             12.88            3,819          12.88
  17.13        20,100        9.6 years             17.13                -              -
            ------------  ----------------  ----------------  -------------  ------------- 
              287,406        7.7 years          $  10.33          101,357     $     9.75
            ============  ================  ================  =============  =============

</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, 2001. 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.



                                      93
<PAGE> 96


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

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 infor mation
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, 1998 and 1997:

<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>



                                        94

<PAGE> 97

<TABLE>
<CAPTION>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------


                                                               1997
                                                    ---------------------------
                                                     CARRYING        ESTIMATED
                                                      AMOUNT        FAIR VALUE
 
                                                        (IN THOUSANDS)

<S>                                                 <C>             <C>       
Assets:
Cash, including short-term bank obligations         $   22,664      $   22,664
Investment securities available for sale                12,467          12,467
Mortgage-backed securities available for sale           37,164          37,164
Mortgage-backed securities held to maturity             39,072          38,783

Loans receivable:
  Fixed                                                 63,756          64,499
  Variable                                             221,282         221,282

Federal Home Loan Bank stock                             3,987           3,987

Liabilities:
Term deposit accounts                                  222,396         223,055
Other deposit accounts                                  65,943          65,943
Borrowings                                              87,337          87,280

Off-balance sheet unrealized gains (losses) -
  Loan funding commitments                                   -               -

  Forward sales contracts                                    -               1

</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 $1,911,000 and $1,699,000 at June 30, 1998 and 1997, 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.


                                      95


<PAGE> 98



SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

      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, 1998 and
1997.

      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,  1998 and 1997.  Although
management  is not aware of any  factors  that  would  significantly  affect the
estimated fair value amounts,  such amounts have not been  comprehensively  reva
lued for purposes of these  consolidated  financial  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.

                                       96


<PAGE> 99


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (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)

<TABLE>
<CAPTION>

  STATEMENTS OF FINANCIAL CONDITION
  AS OF JUNE 30, 1998 AND 1997

                                                   1998               1997
                                               --------------------------------
                                                       (IN THOUSANDS)
<S>                                             <C>                <C>      
ASSETS:
Cash and cash equivalents                       $   1,995          $     204
Investment securities available for sale              258              1,485
Mortgage-backed securities available for sale         862              1,349
Investment in subsidiary                           27,769             25,526
Receivable from subsidiary                            982              1,200
Other assets                                          367                139

  Total assets                                  $  32,233          $  29,903
                                                =========          =========

TOTAL STOCKHOLDERS' EQUITY:                     $  32,233          $  29,903
                                                =========          =========

</TABLE>

SGV BANCORP, INC. (PARENT COMPANY ONLY)

  STATEMENTS OF OPERATIONS
  FOR EACH OF THE THREE YEARS
  IN THE PERIOD ENDED JUNE 30, 1998

<TABLE>
<CAPTION>

                                                       1998      1997     1996
                                                            (IN THOUSANDS)

<S>                                                  <C>       <C>      <C>    
Interest income                                      $   266   $  360   $   420
Other expenses                                          (249)    (212)     (168)
Income taxes                                              (7)     (62)     (106)
                                                     -------   ------   -------
  Earnings before equity in net earnings of subsidiary    10       86       146
Equity in net earnings of subsidiary                   1,477      645       448
                                                     -------   ------   -------

Net earnings                                         $ 1,487   $  731   $   594
                                                     =======   ======   =======

</TABLE>
                                       97

<PAGE> 100

<TABLE>
<CAPTION>

SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
------------------------------------------------------------------------------------------------------

SGV BANCORP, INC. (PARENT COMPANY ONLY)

  SUMMARY STATEMENTS OF CASH FLOWS
  FOR EACH OF THE THREE YEARS
  IN THE PERIOD ENDED JUNE 30, 1998
                                                                  1998              1997          1996
                                                                               (IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                            <C>               <C>           <C>    
  Net earnings                                                 $  1,487          $   731       $    594
  Adjustments to reconcile net earnings to cash
    used in operating activities:
  (Gain) loss on sale or redemption of investment
    securities available for sale                                    (5)              13              -
  Equity in net earnings of subsidiary                           (1,477)            (645)          (448)
  Premium amortization on securities                                 15               19             16
  (Increase) decrease in other assets                              (228)              74           (206)
                                                               ---------         --------      ---------
    Net cash (used in) provided by operating activities            (208)             192            (44)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of investment securities available for                  (750)               -         (7,000)
  Proceeds from sale or redemption of investment
    securities available for sale                                 2,005            1,487          4,000
  Purchase of mortgage-backed securities
    available for sale                                                -                -         (2,105)
  Principal repayments on mortgage-backed securities                461              363            358
  Principal repayment on loan to subsidiary                         218              218            110
                                                               ---------         --------      ---------
    Net cash provided by (used in) investing activities           1,934            2,068         (4,637)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Exercise of stock options                                          60                -              -
  Purchase of treasury stock                                          -           (2,884)        (1,240)
  Other, net                                                          5                -              -
    Net cash provided by (used in) financing activities              65           (2,884)        (1,240)
                                                               ---------         --------      ---------
Net increase (decrease) in cash and cash equivalents              1,791             (624)        (5,921)
CASH AND CASH EQUIVALENTS,
  beginning of year                                                 204              828          6,749
                                                               ---------         --------      ---------
CASH AND CASH EQUIVALENTS, end of year                         $  1,995          $   204       $    828
                                                               =========         ========      =========
</TABLE>
<TABLE>
<CAPTION>

<S>                                                          <C>               <C>           <C> 
NONCASH INVESTING ACTIVITIES DURING
  THE YEAR:                                                      1998             1997           1996
Change in net unrealized gain/loss on securities
  available for sale, net of taxes                           $      (12)       $     (39)    $       80

</TABLE>

                                                   98
<PAGE> 101


SGV BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1998 (CONTINUED)
--------------------------------------------------------------------------------

17.   QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

      The  following is a summary of quarterly  results for the years ended June
30, 1998 and 1997 (The 1997 and first quarter of 1998 earning-per-share  amounts
have been restated to comply with SFAS 128, EARNINGS PER SHARE):

<TABLE>
<CAPTION>

                                        FIRST     SECOND      THIRD       FOURTH
(IN THOUSANDS, EXCEPT PER SHARE DATA)  QUARTER    QUARTER    QUARTER     QUARTER

<S>                                   <C>        <C>         <C>        <C>     
1998
   Interest income                    $  7,324   $  7,459    $  7,434   $  7,385
  Interest expense                       4,817      4,840       4,533      4,471
  Provision for estimated 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

1997
  Interest income                     $  6,108   $  6,441    $  6,865   $  7,286
  Interest expense                       3,863      4,120       4,431      4,724
  Provision for estimated loan losses      188        105         194         70
  Net earnings (loss)                     (464)       416         285        494
  Earnings (loss) per share - basic      (0.18)      0.16        0.12       0.21
  Earnings (loss) per share - diluted    (0.18)      0.16        0.12       0.21

</TABLE>






                                      99


<PAGE> 102


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 1998
Annual Meeting of Stockholders (the "1998 Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

      Incorporated  herein by this reference is the information set forth in the
section entitled "Executive Compensation" contained in the 1998 Proxy Statement.

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 1998 Proxy Statement.

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
1998 Proxy Statement.

                                      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, 1998 and
      1997 
      Consolidated  Statements of Operations for Each of the Three  Years in the
      Period Ended June 30, 1998  
      Consolidated  Statements of  Stockholders' Equity  for Each  of the  Three
      Years in the  Period  Ended  June 30,  1998
      Consolidated  Statements  of Cash Flows for Each of the Three Years in the
      Period Ended June 30, 1998 
      Notes to Consolidated  Financial Statements for Each of the Three Years in
      the Period Ended June 30, 1998





                                     100


<PAGE> 103


(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.

(a)(3) Exhibits

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

        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
       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  1997  Stock-Based  Incentive Plan
      10.14  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 (filed herewith)
       27.0  Financial Data Schedule (filed herewith)
      (b)    Reports on Form  8-K
             None
--------------------
*    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 materia1 for the
     Registrant's  1995  Annual  Meeting  of  Stockholders, filed on December 7,
     1995.



                                       101

<PAGE> 104



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 25, 1998    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.


          Name                         Title                        Date
          ----                         -----                        ----

/s/ Barrett G. Andersen   President, Chief Executive Officer  September 25, 1998
------------------------
Barrett G. Andersen       and Director
                          (principal executive officer)

/s/ Ronald A. Ott         Executive Vice President, Chief     September 25, 1998
------------------------
Ronald A. Ott             Financial Officer and Treasurer
                          (principal accounting officer)

/s/ Benjamin S. Wong      Chairman of the Board               September 25, 1998
------------------------
Benjamin S. Wong          of Directors


/s/ Royce A. Stutzman     Director                            September 25, 1998
------------------------
Royce A. Stutzman


/s/ Irven G. Reynolds     Director                            September 25, 1998
------------------------
Irven G. Reynolds


/s/ John D. Randall       Director                            September 25, 1998
------------------------       
John D. Randall


/s/ Thomas A. Patronite   Director                            September 25, 1998
------------------------          
Thomas A. Patronite


                                        102