<PAGE>   1
 
   
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1997
    
   
                                                      REGISTRATION NO. 333-22013
    
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               ------------------
 
   
                                AMENDMENT NO. 1
    
   
                                       TO
    
 
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                               ------------------
 
                        LONG BEACH FINANCIAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                                    DELAWARE
                        (STATE OR OTHER JURISDICTION OF
                         INCORPORATION OR ORGANIZATION)
                                      6162
                          (PRIMARY STANDARD INDUSTRIAL
                          CLASSIFICATION CODE NUMBER)
                                   33-0739843
                                (I.R.S. EMPLOYER
                             IDENTIFICATION NUMBER)
 
                               ------------------
                      1100 TOWN & COUNTRY ROAD, SUITE 900
                            ORANGE, CALIFORNIA 92868
                                 (714) 541-5378
           (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
                   INCLUDING AREA CODE, OF AGENT FOR SERVICE)
                               ------------------
 
                                 M. JACK MAYESH
                            CHIEF EXECUTIVE OFFICER
                        LONG BEACH FINANCIAL CORPORATION
                      1100 TOWN & COUNTRY ROAD, SUITE 900
                            ORANGE, CALIFORNIA 92868
                                 (714) 541-5378
           (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
                   INCLUDING AREA CODE, OF AGENT FOR SERVICE)
                               ------------------
 
                                WITH COPIES TO:
 
                              ROBERT E. DEAN, ESQ.
                          GIBSON, DUNN & CRUTCHER LLP
                                  4 PARK PLAZA
                         IRVINE, CALIFORNIA 92614-8557
                                 (714) 451-3800
                             BRUCE R. HALLETT, ESQ.
                        BROBECK, PHLEGER & HARRISON LLP
                        4675 MACARTHUR COURT, SUITE 1000
                        NEWPORT BEACH, CALIFORNIA 92660
                                 (714) 752-7535
 
                               ------------------
        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  As soon as practicable after this Registration Statement becomes effective.
 
     If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
 
     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
 
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
                               ------------------
                        CALCULATION OF REGISTRATION FEE
 
<TABLE>
<S>                                       <C>               <C>               <C>               <C>
================================================================================================================
                                                                                  PROPOSED
                                                                PROPOSED          MAXIMUM
                                                                MAXIMUM          AGGREGATE
TITLE OF EACH CLASS OF                      AMOUNT TO BE     OFFERING PRICE       OFFERING         AMOUNT OF
  SECURITIES TO BE REGISTERED              REGISTERED(1)      PER SHARE(2)        PRICE(2)      REGISTRATION FEE
----------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share...................................     25,000,000          $12.00         $300,000,000        $90,910
================================================================================================================
</TABLE>
 
(1) Includes shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457 based on an estimate of the maximum offering price.
                               ------------------
 
     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>   2
 
     THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
     REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
     SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
     MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
     BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
     THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
     SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
     UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
     OF ANY SUCH STATE.
 
   
                  SUBJECT TO COMPLETION, DATED MARCH 17, 1997
    
 
PROSPECTUS
                                     [LOGO]

                               21,750,000 SHARES
                        LONG BEACH FINANCIAL CORPORATION
 
                                  COMMON STOCK

                            ------------------------
 
       All of the shares of Common Stock, $.001 par value per share (the "Common
Stock"), of Long Beach Financial Corporation, a Delaware corporation ("LBFC"),
offered hereby are being sold by the sole stockholder of LBFC (the "Selling
Stockholder"), which prior to the Reorganization (as defined below) operated
LBFC's broker-sourced mortgage loan business under the name "Long Beach Mortgage
Company." LBFC will not receive any proceeds from the sale of shares by the
Selling Stockholder. Subsequent to this offering, the Selling Stockholder will
own 13.0% of the outstanding Common Stock. If the Underwriters' over-allotment
option is exercised in full, the Selling Stockholder will own no shares of LBFC.
See "Beneficial Ownership of Securities and Selling Stockholder."
 
   
     Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price per
share of Common Stock will be between $10.00 and $12.00. See "Underwriting" for
a discussion of the factors considered in determining the initial public
offering price. The Common Stock has been approved for listing on the Nasdaq
National Market under the symbol "LBFC."
    
 
     SEE "RISK FACTORS" ON PAGES 7 THROUGH 14 FOR MATERIAL RISKS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
                            ------------------------
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
   AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
                               CRIMINAL OFFENSE.
 
<TABLE>
<CAPTION>
=========================================================================================================
                                                                                         PROCEEDS TO
                                                    PRICE TO                               SELLING
                                                     PUBLIC         UNDERWRITING       STOCKHOLDER(2)
                                                                    DISCOUNTS AND
                                                                   COMMISSIONS(1)
---------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>                <C>
Per Share......................................         $                 $                   $
---------------------------------------------------------------------------------------------------------
Total(3).......................................         $                 $                   $
=========================================================================================================
</TABLE>
 
(1) See "Underwriting" for information relating to indemnification of the
    Underwriters.
   
(2) Before deducting expenses payable by the Selling Stockholder estimated to be
    $850,000.
    
(3) The Selling Stockholder has granted the Underwriters a 30-day option to
    purchase from the Selling Stockholder up to 3,250,000 additional shares of
    Common Stock at the Price to Public less the Underwriting Discounts and
    Commissions, solely to cover over-allotments, if any. If the Underwriters
    exercise the option in full, the total Price to Public, Underwriting
    Discounts and Commissions and Proceeds to Selling Stockholder will be
    $          , $          , and $          , respectively. See "Underwriting."
 
     The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or part. It is
expected that delivery of the shares of Common Stock will be made against
payment therefor at the offices of Friedman, Billings, Ramsey & Co., Inc.,
Arlington, Virginia, the representative of the several Underwriters (the
"Representative"), or in book entry form through the book entry facilities of
The Depository Trust Company on or about           , 1997.
 
                            ------------------------
 
                     FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
 
                The date of this Prospectus is           , 1997
<PAGE>   3
 
                                   [ARTWORK]
 
<TABLE>
<CAPTION>
                                                         AT OR FOR THE YEAR ENDED DECEMBER
                                                                        31,
                                                        ------------------------------------
                                                          1994         1995          1996
                                                        --------     --------     ----------
                                                               (DOLLARS IN THOUSANDS)
    <S>                                                 <C>          <C>          <C>
    Loan Originations and Purchases...................  $565,547     $592,542     $1,058,122
    States in which Loans were Originated.............        27           35             43
    Loan Origination Offices..........................        24           45             63
    States with Loan Origination Offices..............        10           22             32
    Account Executives................................        79           64            120
    Approved Independent Brokers......................     4,004        5,043          7,463
</TABLE>
 
                            ------------------------
 
   
     CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSAC-
TIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON
STOCK, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
    
 
                            ------------------------
<PAGE>   4
 
                                    SUMMARY
 
   
     The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Except as otherwise specified, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option or of
outstanding options under the Company's 1997 Stock Incentive Plan. Unless the
context otherwise requires, (i) the information contained in this Prospectus
gives effect to the Reorganization described elsewhere herein, which will be
consummated prior to the completion of this Offering, (ii) all references to the
"Company" herein shall be deemed to include LBFC and its wholly-owned subsidiary
and the operations of the broker-sourced mortgage lending division of Old Long
Beach prior to the Reorganization and the prior operations of the broker-sourced
mortgage lending division of Long Beach Bank, F.S.B., and (iii) all references
to "Old Long Beach" herein shall be deemed to include prior to the
Reorganization all of the operations of the Selling Stockholder (which included
the operations of the Company) and after the Reorganization shall be deemed to
include all continuing operations that are not being transferred to the Company.
See "Reorganization."
    
 
     Certain statements contained in this Prospectus that are not related to
historical results are forward-looking statements. These forward-looking
statements involve risks and uncertainties and actual results may differ
materially from those projected or implied in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
Further, certain forward-looking statements are based upon assumptions as to
future events that may not prove to be accurate.
 
                                  THE COMPANY
 
   
     The Company is a specialty finance company engaged in the business of
originating, purchasing and selling sub-prime residential mortgage loans secured
by one-to-four family residences. The Company originates loans primarily through
independent mortgage brokers (the "broker-sourced business"). Prior to the
Reorganization, the Company's business has been conducted as a division of Old
Long Beach under the name "Long Beach Mortgage Company." The Company's primary
operating strategy is to generate positive cash flow by selling for cash, at a
premium, substantially all originated and purchased loans to institutional
purchasers several times a quarter. The Company does not currently sell loans
through securitizations and therefore retains no residual interests, or the
related risks, in the loans sold (except risks associated with servicing rights,
which the Company normally retains, and certain repurchase risks associated with
representations and warranties). As a result, the Company has less risk than is
typically inherent in a mortgage lender's business and has historically had a
source of cash flow to fund lending and growth, reducing the need for other
sources of financing. See "Business -- Financing and Sale of Loans."
Substantially all loans originated or purchased by the Company are secured by a
first priority mortgage on the subject property. In 1996, less than .03% of the
principal balance of the loans originated and purchased were secured by second
priority mortgages. The Company's core borrower base consists of individuals who
do not qualify for traditional "A" credit because their credit history, income
or other factors cause them not to conform to standard agency lending criteria.
Approximately 69% of the principal balance of the loans originated by the
Company in 1996 were to borrowers with a Company risk classification of "A-" or
"B+," while the remainder were to borrowers with a Company risk classification
of "B," "B-," "C" or "C-." See "Business -- Underwriting."
    
 
   
     The Company has relationships with approximately 7,500 independent approved
mortgage brokers located in 43 states. During 1996, approximately 5,000 of these
brokers submitted loan packages to the Company and the Company funded loans from
approximately 2,800 brokers. The Company's large independent broker network
provides comprehensive geographic coverage for the Company's products and
reflects the Company's strategy of using a diverse group of small brokers to
avoid becoming dependent on a few primary producers. During the year ended
December 31, 1996, the Company's single largest producing independent broker was
responsible for less than 1% of the principal balance of the Company's
originations. The Company maintains a close working relationship with brokers
through its team of approximately 120 account executives located in 63 offices
in 32 states.
    
 
                                        3
<PAGE>   5
 
     The Company believes that its primary strengths are (i) its established
position in the sub-prime mortgage lending industry, (ii) the extensive
experience of its management, as well as many members of its staff, in the
sub-prime lending industry, (iii) its use of regional processing teams linked to
the home office by a computer network to expedite loan origination and
production, (iv) the thoroughness of the training received by its personnel, (v)
its use of technology to efficiently maximize work flow and (vi) the efficiency
of its operations as a result of its high volume of loans and consistency in
applying underwriting standards. See "Business -- General."
 
   
     The Company began originating sub-prime mortgage loans in Southern
California in 1988 as a division of Long Beach Bank, F.S.B. and started to
expand its business outside of California on a limited basis in 1992. In 1994,
the Company began to focus on expansion outside of California. To facilitate
this expansion and to permit the Company to provide competitive products and
pricing, in October 1994 Long Beach Bank, F.S.B. ceased operations and the
Company commenced operations as a mortgage company. Since that time, the Company
has experienced significant growth in loan originations and purchases, with
approximately $1.1 billion of originations and purchases in 43 states during
calendar 1996 compared to $592.5 million in 35 states during calendar 1995 and
$565.5 million in 27 states during calendar 1994. Total originations and
purchases were $300.7 million during the fourth quarter of 1996, which
represents a $122.4 million increase from total originations and purchases
during the fourth quarter of 1995. This growth in originations and purchases has
resulted in the Company's earnings increasing to $9.4 million in 1996 compared
to earnings of $5.8 million and $22,000 in 1995 and 1994, respectively.
    
 
     The Company sells substantially all of its originated and purchased loans
several times a quarter to institutional purchasers for cash, historically at a
premium over the principal balance of the loans. Prior to originating or
purchasing loans, the Company obtains a purchase commitment from an
institutional purchaser. The Company delivers loans and receives payments for
the loans shortly after funding. This strategy, as opposed to securitizations,
in which a residual interest in future payments on the loans is retained,
provides certain benefits. The Company receives cash revenue, rather than
recognizing non-cash revenue attributable to residual interests, as is the case
in securitizations. The Company thereby avoids the risk present in
securitizations of having to adjust revenue in future periods to reflect a lower
realization on residual interests because actual prepayments or defaults
exceeded levels assumed at the time of securitization. By selling its originated
and purchased loans, the Company also reduces its exposure to default risk
(other than certain first payment defaults) and the prepayment risk normally
inherent in a mortgage lender's business. The Company may also be required to
repurchase or substitute loans in the event of a breach of representations and
warranties, including any fraud or any misrepresentation made during the
mortgage loan origination process, and retains the risk of having to adjust
noncash revenues attributable to the realization of the retained servicing
rights. Management believes that the cash received in loan sales provides the
Company greater flexibility and operating leverage than a traditional portfolio
lender, which holds the loans it originates, by allowing the Company to generate
income through interest on loans held for sale and gain on loans sold. Loan
sales have been an important factor in generating the Company's historic
earnings and creating consistent positive cash flow to fund operations. See
"Business -- Financing and Sale of Loans."
 
   
     Substantially all of the loans originated by the Company while it operated
as a division of Old Long Beach are serviced by the servicing division of Old
Long Beach (the "Sub-Servicer"). The Sub-Servicer and the Company are entering
into a contract pursuant to which the Sub-Servicer will sub-service loans
originated or purchased by the Company following the Reorganization. The
Sub-Servicer is one of the largest and most experienced sub-prime mortgage
servicers in the nation, with a servicing portfolio of approximately $3.5
billion of sub-prime mortgage loans at December 31, 1996. Since the servicing
procedures of the Sub-Servicer were developed while the Company was part of Old
Long Beach and are coordinated with the Company's origination practices,
management believes that the Sub-Servicer will be able to provide faster and
more effective servicing of the Company's loans than another independent
servicer. See "Business -- Servicing."
    
 
     The Company actively originated loans during 1996 in 112 of the
approximately 300 metropolitan statistical areas ("MSAs") in the United States
having populations in excess of 100,000, as compared to loan originations in 54
of these MSAs during 1995. The Company seeks to expand its broker-sourced loan
business through increased penetration in its existing markets and expansion
into new geographic markets. In addition,
 
                                        4
<PAGE>   6
 
   
although the Company currently primarily conducts a broker-sourced business, the
Company intends to develop a direct-sourced loan origination business (i.e.,
where the lender deals directly with the borrower and does not involve an
independent broker). Direct lending will provide the Company with an additional
distribution channel for its products and the ability to retain the origination
fees for the loans it funds. The Company plans to commence its direct-sourced
lending operations in 1997 and estimates it will expend approximately $1.0
million in 1997 for this purpose. The Company's senior management is also
experienced in direct-sourced loan originations as several of the senior
executives were involved in creating the direct-sourced lending operations of
Old Long Beach prior to the Reorganization. No assurance can be given that the
Company will be able to commence direct-sourced loan origination operations as
planned or that such operations will be successful. See "Business -- Loan
Origination and Purchasing -- Direct-Sourced Loan Operations."
    
 
   
     In connection with this Offering, Old Long Beach is reorganizing its
business operations (the "Reorganization") by transferring to LBFC the assets
and personnel related to Old Long Beach's broker-sourced mortgage lending and
loan sales operations and approximately $40 million in cash in exchange for
25,000,000 shares of Common Stock, 21,750,000 of which are being sold pursuant
to this Offering (25,000,000 if the Underwriters' over-allotment option is
exercised in full). The assets being transferred to LBFC do not include any
funded loans or funded loan servicing rights. LBFC will have no interest in Old
Long Beach's direct-sourced mortgage lending or servicing operations, which are
being retained by Old Long Beach after the Reorganization. In the
Reorganization, LBFC is acquiring the right to the "Long Beach Mortgage Company"
name and the intangible benefits related to the name, which will be used after
the Reorganization by a wholly-owned subsidiary of LBFC ("New Long Beach") that
will conduct the broker-sourced business. The Company is not assuming any of the
liabilities of Old Long Beach arising from Old Long Beach's lending or loan
servicing activities prior to the Reorganization other than certain liabilities
relating to the assets or personnel being transferred. Old Long Beach and the
Company will be free to compete against each other after the completion of this
Offering. Old Long Beach and the Company are entering into an agreement not to
solicit or hire each other's employees for a specified period following the
Reorganization. See "Reorganization."
    
 
     The principal executive offices of the Company are located at 1100 Town &
Country Road, Suite 900, Orange, California 92868, and its telephone number is
(714) 541-5378.
 
                                  THE OFFERING
 
   
<TABLE>
<S>                                            <C>
Common Stock Offered by the Selling
  Stockholder(1).............................  21,750,000 shares
Common Stock to be Outstanding after the
  Offering(2)................................  25,000,000 shares
Nasdaq National Market symbol................  LBFC
Risk Factors.................................  See "Risk Factors" for a discussion of
                                               certain material factors that should be
                                               considered in connection with an investment
                                               in the Common Stock offered hereby.
</TABLE>
    
 
---------------
   
(1) Prior to completion of this Offering, the Selling Stockholder (i.e., Old
    Long Beach), as the sole stockholder of LBFC, will own 25,000,000 shares of
    Common Stock. All of the 3,250,000 shares being retained by the Selling
    Stockholder are subject to the Underwriters' over-allotment option. If the
    over-allotment option is exercised in full, the Selling Stockholder will not
    own any shares of Common Stock. See "Beneficial Ownership of Securities and
    Selling Stockholder."
    
 
(2) Excludes 3,000,000 shares of Common Stock reserved for issuance under the
    1997 Stock Incentive Plan. In connection with the Offering, options are
    being granted at the public offering price to key officers and employees of
    the Company. See "Management -- 1997 Stock Incentive Plan."
 
                                        5
<PAGE>   7
 
                 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
           (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA AND RATIOS)
 
     The financial data set forth below should be read in conjunction with the
Financial Statements of the Company and related Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operation"
included elsewhere herein.
 
<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                  ---------------------------------------------------
                                                                                                          PRO FORMA
                                                                   1994         1995         1996          1996(1)
                                                                  -------      -------      -------      ------------
<S>                                                               <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS:
 
  Revenues:
    Gain on sales of loans.....................................   $21,668      $31,691      $50,699       $   49,465
    Loan servicing and other fees..............................        --           --           --            1,529(2)
    Interest income............................................     2,510        2,494        3,275            5,369
                                                                  -------      -------      -------       ----------
        Total revenues.........................................    24,178       34,185       53,974           56,363
  Expenses:
    Compensation and employee benefits.........................    15,496       13,564       22,299           22,899
    Rent and other occupancy costs.............................     2,565        3,258        4,188            4,188
    Office supplies and courier service........................       712          816        1,903            1,903
    Depreciation...............................................       281          667        1,025            1,025
    Legal and professional.....................................     1,443        1,082        1,828            1,828
    Interest...................................................     1,814        2,312        2,814            3,140
    Loan sub-servicing.........................................        --           --           --            1,990
    Other......................................................     1,831        2,525        3,945            3,945
                                                                  -------      -------      -------       ----------
        Total expenses.........................................    24,142       24,224       38,002           40,918
                                                                  -------      -------      -------       ----------
  Income before provision for income taxes.....................        36        9,961       15,972           15,445
  Provision for income taxes...................................        14        4,169        6,580            6,363
                                                                  -------      -------      -------       ----------
  Net income...................................................   $    22      $ 5,792      $ 9,392       $    9,082
                                                                  =======      =======      =======       ==========
  Pro forma earnings per share(3)..............................                                           $      .36
                                                                                                          ==========
  Pro forma weighted average number of shares outstanding(3)...                                           25,000,000
                                                                                                          ==========
</TABLE>
 
   
<TABLE>
<CAPTION>
                                                                                         AS OF DECEMBER 31, 1996
                                                                                       ---------------------------
                                                                                       ACTUAL        PRO FORMA(1)
                                                                                       -------       -------------
<S>                                                                                    <C>           <C>
STATEMENT OF FINANCIAL CONDITION DATA:
 
  Cash..............................................................................   $    --          $40,000
  Loans held for sale...............................................................    49,580               --
  Deferred income taxes.............................................................     2,120           36,000
  Total assets......................................................................    79,750           78,215
  Warehouse financing facility......................................................    72,829               --
  Total liabilities.................................................................    78,613            2,256
  Stockholders' equity..............................................................     1,137           75,959
</TABLE>
    
 
   
<TABLE>
<CAPTION>
                                                                              AS OF OR FOR YEAR ENDED DECEMBER 31,
                                                                             --------------------------------------
                                                                               1994          1995           1996
                                                                             --------      --------      ----------
<S>                                                                          <C>           <C>           <C>
OPERATING DATA:
 
  Loans originated and purchased..........................................   $565,547      $592,542      $1,058,122
  Whole loan sales........................................................    562,054       580,366       1,029,789
  "A-" and "B+" loans as a percentage of total principal balance of
    loans(4)..............................................................       44.6%         55.0%           69.2%
  Average original loan principal balance.................................   $    116      $     99      $      105
  31-60 day delinquencies as a percentage of total principal balance as of
    period end(5).........................................................        0.8%          1.5%            1.6%
  61-90 day delinquencies as a percentage of total principal balance as of
    period end(5).........................................................        0.9           1.0             1.0
  91 or more day delinquencies as a percentage of total principal balance
    as of period end(5)...................................................        3.9           4.5             4.5
  Total delinquencies as a percentage of total principal balance as of
    period end(5).........................................................        5.7           7.0             7.1
  Total losses on loans as a percentage of average principal balance of
    loans serviced(5).....................................................        1.5           1.4             1.3
FINANCIAL RATIOS(4):
  Weighted average interest rate on fixed rate loans......................        N/A          11.3%           10.5%
  Weighted average interest rate on adjustable rate loans.................        8.6%         10.4             9.6
  Weighted average interest rate on fixed/adjustable loans................        9.5          11.3            10.0
  Weighted average initial combined loan-to-value ratio...................       69.1          72.2            75.0
</TABLE>
    
 
---------------
(1) Gives pro forma effect to the Reorganization as if it had occurred as of
    January 1, 1996 as to the Statement of Operations and December 31, 1996 as
    to the Statement of Financial Condition Data. The pro forma results of
    operations are not necessarily indicative of the future operations of the
    Company. See "Unaudited Pro Forma Consolidated Financial Data."
 
(2) Net of amortization of capitalized mortgage servicing rights of $1.8
    million.
 
(3) Historical earnings per share information for 1994, 1995 and 1996 was not
    deemed meaningful.
 
   
(4) Calculated based on loans originated and purchased, net of loans rescinded
    because the related lending transactions did not close. Such rescinded loans
    aggregated approximately $1.0 million, $7.0 million and $3.0 million in
    1994, 1995 and 1996, respectively.
    
 
(5) Calculated based on the total broker-sourced servicing portfolio of Old Long
    Beach.
 
                                        6
<PAGE>   8
 
                                  RISK FACTORS
 
     The following risk factors should be carefully considered before making an
investment in the Company. This Prospectus contains forward-looking statements
which involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors.
 
ECONOMIC SLOWDOWN AND DECLINE IN COLLATERAL VALUE MAY ADVERSELY AFFECT VOLUME OF
LOANS
 
   
     Periods of economic slowdown may reduce the demand for mortgage loans as
people elect not to purchase new homes due to economic uncertainty and also may
adversely affect the financial condition of potential borrowers so that they do
not meet the Company's underwriting criteria. In addition, economic slowdowns
may cause a decline in real estate values. Any material decline in real estate
values will reduce the ability of borrowers to use home equity to support
borrowings by negatively affecting loan-to-value ratios of the home equity
collateral. To the extent that the loan-to-value ratios of prospective
borrowers' home equity collateral do not meet the Company's underwriting
criteria, the volume of loans originated by the Company could decline. A decline
in loan origination volumes could have a material adverse effect on the
Company's operations and financial condition.
    
 
FOCUS ON CREDIT IMPAIRED BORROWERS MAY RESULT IN INCREASED DELINQUENCY RATES,
FORECLOSURES AND LOSSES
 
     The Company focuses its marketing efforts on borrowers who may be unable to
obtain mortgage financing from conventional mortgage sources. Loans made to such
borrowers may entail a higher risk of delinquency and higher losses than loans
made to borrowers who utilize conventional mortgage sources. Delinquencies,
foreclosures and losses generally increase during economic slowdowns or
recessions. Further, any material decline in real estate values increases the
loan-to-value ratios of loans previously made by the Company, thereby weakening
collateral coverage and increasing the possibility of a loss in the event of a
borrower default. Any sustained period of increased delinquencies, foreclosures
or losses after the loans are sold could adversely affect the pricing of the
Company's future loan sales and the ability of the Company to sell its loans in
the future.
 
IMPAIRMENT OF VALUE OF LOAN SERVICING RIGHTS; DECLINING INTEREST RATES
 
     The Company records gains on sales of loans based in part on the fair value
of retained servicing rights related to such loans. The fair values of such
servicing rights are in turn based in part on projected loan prepayment and
credit loss rates. Higher than anticipated rates of loan prepayments or credit
losses may require the Company to write down the value of such servicing rights
and result in a material adverse impact on the Company's results of operations
and financial condition. Higher than anticipated rates of loan prepayments may
be caused by, among other factors, a material decline in the level of interest
rates.
 
RELIANCE ON SECONDARY PURCHASERS OF LOANS
 
   
     Gain on sales of loans generated by the Company's loan sales represents the
primary source of the Company's revenues and net income. Furthermore, the
Company will rely almost entirely on proceeds from loan sales to generate cash
for repayment of borrowings under its $200 million secured revolving line of
credit (the "Warehouse Financing Facility"), which will be used by the Company
to originate and purchase additional loans. The Company has historically sold
substantially all of its loan originations in the secondary market to a limited
number of institutional purchasers. There can be no assurance that such
purchasers will continue to purchase loans or will be willing to purchase loans
on the terms under which such purchasers have historically purchased the
Company's loans. To the extent that the Company could not successfully replace
such loan purchasers or negotiate favorable terms for such loan purchases, the
Company's results of operations and financial condition could be materially and
adversely affected.
    
 
                                        7
<PAGE>   9
 
IMPACT OF LAWS AND REGULATIONS AFFECTING LENDING OPERATIONS
 
     The Company's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on a substantial portion of its operations. The Company's consumer
lending activities are subject to the Federal Truth-in-Lending Act and
Regulation Z (including the Home Ownership and Equity Protection Act of 1994),
the Federal Equal Credit Opportunity Act and Regulation B, as amended, the Fair
Credit Reporting Act of 1970, as amended, the Federal Real Estate Settlement
Procedures Act of 1974, as amended ("RESPA"), and Regulation X, the Fair Housing
Act, the Home Mortgage Disclosure Act and Regulation C and the Federal Debt
Collection Practices Act, as well as other federal and state statutes and
regulations affecting the Company's activities. The Company is also subject to
the rules and regulations of and examinations by the Department of Housing and
Urban Development and state regulatory authorities with respect to originating,
processing, underwriting, selling and servicing mortgage loans.
 
     These rules and regulations, among other things, impose licensing
obligations on the Company, establish eligibility criteria for mortgage loans,
prohibit discrimination, provide for inspections and appraisals of properties,
require credit reports on loan applicants, regulate assessment, collection,
foreclosure and claims handling, investment and interest payments on escrow
balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to loss of approved
status, termination or suspension of servicing contracts without compensation to
the servicer, demands for indemnifications or mortgage loan repurchases, certain
rights of rescission for borrowers, class action lawsuits and administrative
enforcement actions.
 
     The Company is subject to licensing by state authorities. In addition, any
person who acquires more than 10% of the Company's stock will become subject to
certain state licensing regulations requiring such person periodically to file
certain financial and other information. If any person holding more than 10% of
the Company's stock refuses to adhere to such filing requirements, the Company's
existing licensing arrangements could be jeopardized. The loss of required
licenses could have a material adverse effect on the Company's results of
operation and financial condition.
 
     Although the Company believes that it has systems and procedures to
facilitate compliance with these requirements and believes that it is in
compliance in all material respects with applicable local, state and federal
laws, rules and regulations, in the future more restrictive laws, rules and
regulations or the judicial interpretation of existing laws, rules and
regulations could make compliance more difficult or expensive. See
"Business -- Regulation."
 
REQUIRED COMPLIANCE WITH DEPARTMENT OF JUSTICE SETTLEMENT AGREEMENT
 
   
     In September 1996, Old Long Beach entered into a settlement agreement with
the U.S. Department of Justice (the "DOJ") which is binding upon New Long Beach,
as a successor to Old Long Beach. Pursuant to the settlement agreement, the
Company will (i) document any price exceptions from the Company's rate sheet on
broker-sourced loans, (ii) periodically review the results of its broker-sourced
lending operations for its compliance with fair lending laws (but in no event
shall the Company be required to disclose any documents or information
therewith, including the identities of any brokers with whom it does business),
(iii) retain all loan application files submitted for mortgage loans and all
loan-rider documents and notices relevant to any pricing decisions until
September 1999 and report to the DOJ semi-annually on compliance with the
settlement agreement, and (iv) provide to brokers information about the
Company's fair-lending and pricing procedures and an opportunity to participate
in fair-lending training.
    
 
     In addition, if, as expected, the Company commences direct-sourced mortgage
lending, it will be required to provide certain training courses for Company
employees involved in direct-sourced mortgage loan pricing, use its best efforts
to place mortgage loan applicants in appropriate risk classifications based on
objective credit and risk-related criteria, and implement a direct-sourced
mortgage loan monitoring system of mortgage loan prices.
 
                                        8
<PAGE>   10
 
     While the Company believes it is in compliance with the broker-sourced
provisions of the settlement agreement and also expects to be able to comply
with the direct-sourced provisions of the settlement agreement, there can be no
assurance that the DOJ will not take a contrary position in the future and seek
to compel compliance by the Company. See "Business -- Department of Justice
Settlement Agreement."
 
ELIMINATION OF LENDER PAYMENTS TO BROKERS COULD ADVERSELY AFFECT RESULTS OF
OPERATIONS
 
     Lawsuits have been filed against several mortgage lenders, including Old
Long Beach, alleging that such lenders have made certain payments to independent
mortgage brokers in violation of RESPA. These lawsuits have generally been filed
on behalf of a purported nationwide class of borrowers alleging that payments
made by a lender to a broker in addition to payments made by the borrower to a
broker are prohibited by RESPA and are therefore illegal. If these cases are
resolved against the lenders, it may cause an industry-wide change in the way
independent mortgage brokers are compensated. The Company's broker compensation
programs permit such payments. Although the Company believes that its broker
compensation programs comply with all applicable laws and are consistent with
long-standing industry practice and regulatory interpretations, in the future
new regulatory interpretations or judicial decisions may require the Company to
change its broker compensation practices. Such a change may have a material
adverse effect on the Company and the entire mortgage lending industry. See
"Business -- Legal Proceedings."
 
ELIMINATION OF DEDUCTIBILITY OF MORTGAGE INTEREST COULD ADVERSELY AFFECT RESULTS
OF OPERATIONS
 
     Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Company's loans are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for the kind of
loans offered by the Company.
 
RISK OF VARIATIONS IN QUARTERLY OPERATING RESULTS
 
     Several factors affecting the Company's business can cause significant
variations in its quarterly results of operations. In particular, variations in
the volume of the Company's loan originations and purchases, the differences
between the Company's costs of funds and the average interest rates of
originated or purchased loans, the inability of the Company to complete
significant loan sales transactions in a particular quarter, and problems
generally affecting the mortgage loan industry can result in significant
increases or decreases in the Company's revenues from quarter to quarter. A
delay in closing a particular loan sale transaction during a particular quarter
would postpone recognition of gain on sale of loans. In addition, unanticipated
delays in closing a particular loan sale transaction would also increase the
Company's exposure to interest rate fluctuations by lengthening the period
during which its variable rate borrowings under its Warehouse Financing Facility
are outstanding. If the Company were unable to sell a sufficient number of its
loans at a premium in a particular reporting period, the Company's revenues for
such period would decline, resulting in lower net income and possibly a net loss
for such period, which could have a material adverse effect on the Company's
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
 
RISK OF COMPETITION
 
     As an originator of mortgage loans, the Company faces intense competition,
primarily from mortgage banking companies, commercial banks, credit unions,
thrift institutions and finance companies. Many of these competitors are
substantially larger and have more capital and other resources than the Company
and may have lower costs of funds than the Company. Furthermore, the current
level of gains realized by the Company and its competitors on the sale of the
type of loans they originate and purchase is attracting and may continue to
attract additional competitors into the sub-prime mortgage market. Establishing
a broker-sourced loan business requires a substantially smaller commitment of
capital and personnel resources than a direct-sourced
 
                                        9
<PAGE>   11
 
loan business. This relatively low barrier to entry permits new competitors to
enter this market quickly, particularly existing direct-sourced lenders which
can draw upon existing branch networks and personnel in seeking to sell products
through independent brokers.
 
     In the future, the Company may also face competition from, among others,
government-sponsored entities who may enter the sub-prime mortgage market.
Existing or new loan purchase programs may be expanded by the Federal National
Mortgage Association or the Government National Mortgage Association to include
sub-prime mortgages, particularly those in the "A-" category, which constitute a
significant portion of the Company's loan production.
 
   
     Because Old Long Beach was the parent of the Company before the
Reorganization, Old Long Beach is familiar with the methodology, practices and
procedures used by the Company to develop its broker-sourced mortgage loan
business. Old Long Beach could use this knowledge to build a broker-sourced
mortgage loan business which would compete directly against the Company. Because
of Old Long Beach's knowledge of the Company, a broker-sourced mortgage loan
business developed by Old Long Beach might be able to compete more effectively
against the Company than could a typical competitor in the sub-prime mortgage
loan industry.
    
 
     Increased competition could have the possible effects of (i) lowering gains
that may be realized on the Company's loan sales, (ii) reducing the volume of
the Company's loan originations and loan sales, (iii) increasing the demand for
the Company's experienced personnel and the potential that such personnel will
be recruited by the Company's competitors, and (iv) lowering the industry
standard for sub-prime underwriting guidelines (for example, by providing for
less stringent loan-to-value ratios) as competitors attempt to increase or
maintain market share in the face of increased competition. See "-- Economic
Slowdown and Decline in Collateral Value May Adversely Affect Volume of Loans"
and "-- Focus on Credit Impaired Borrowers May Result in Increased Delinquency
Rates, Foreclosures and Losses" for a description of the potential adverse
effects to the Company of impaired loan-to-value ratios.
 
     Competition also may be affected by fluctuations in interest rates, general
economic conditions, and localized economic conditions. During periods of rising
interest rates, competitors that have "locked in" low borrowing costs may have a
competitive advantage. During periods of declining rates, competitors may
solicit the Company's customers to refinance their loans. During economic
slowdowns or recessions, the Company's borrowers may have new financial
difficulties and may be receptive to refinancing offers by the Company's
competitors. See "-- Focus on Credit Impaired Borrowers May Result in Increased
Delinquency Rates, Foreclosures and Losses."
 
     There can be no assurance that the Company will be able to continue to
compete successfully in the markets it serves. Inability to compete successfully
would have a material adverse effect on the Company's results of operations and
financial condition.
 
     As the Company expands into new geographic markets, it may face competition
from lenders with established positions in these locations. There can be no
assurance that the Company will be able to successfully compete with such
established lenders.
 
NO HISTORY OF INDEPENDENT OPERATIONS
 
   
     LBFC was formed in January 1997 and prior to the Reorganization its
mortgage lending operations have been conducted as a division of Old Long Beach.
The Company is developing certain systems and administrative capabilities
necessary to function as an independent entity. The Company and Old Long Beach
are entering into certain agreements pursuant to which certain administrative
functions will be provided by Old Long Beach for an interim period after the
Reorganization. The agreements have been developed in the context of a
parent/subsidiary relationship and therefore are not the result of arm's-length
negotiations between independent parties. Further, there can be no assurances
that the Company will be able to effectively function as an independent entity.
See "-- Risk of Contracted Services" and "Certain Transactions."
    
 
                                       10
<PAGE>   12
 
RISKS OF CONTRACTED SERVICES
 
   
     The Company typically retains servicing rights upon the sale of loans
originated or purchased by the Company and agrees to certain servicing
performance criteria. If the Company does not meet such servicing performance
criteria, the loan purchaser may terminate the servicing rights of the Company.
The Company is entering into an agreement with the Sub-Servicer (a division of
Old Long Beach) pursuant to which the Sub-Servicer will sub-service loans
originated or purchased by the Company after the Reorganization. If the Sub-
Servicer fails to meet the servicing performance criteria set forth in the
relevant servicing agreements governing the loans, the Company's servicing
rights could be terminated. Any termination of servicing rights could have a
material adverse effect on the Company's results of operations and financial
condition.
    
 
     In connection with the Reorganization, the Company and Old Long Beach are
entering into an administrative services agreement under which Old Long Beach
will continue to provide various services to the Company, including certain
employee benefits administration, finance and accounting technical support,
information services and data processing functions. The Company currently
anticipates it will have the capability to perform the functions covered by the
administrative services agreement internally within one year from the date of
the Reorganization. Once the Company develops the internal capability to perform
each such function, the Company intends to terminate the administrative services
agreement with respect to that function. Any failure by Old Long Beach to
provide such administrative services to the Company during the term of the
administrative services agreement could have a material adverse effect on the
Company's operations and financial condition. See "Certain Transactions."
 
DEPENDENCE UPON INDEPENDENT MORTGAGE BROKERS
 
     The Company depends largely on independent mortgage brokers, and, to a
lesser extent, smaller mortgage companies and commercial banks, for its
originations and purchases of mortgage loans. Substantially all of the
independent mortgage brokers with whom the Company does business deal with
multiple loan originators for each prospective borrower. Such originators,
including the Company, compete for business based upon pricing, service, loan
fees and costs and other factors. The Company's competitors also seek to
establish relationships with such independent mortgage brokers, mortgage
companies and commercial banks, none of whom is obligated by contract or
otherwise to continue to do business with the Company. In addition, the Company
expects the volume of broker-sourced loans purchased by the Company to increase.
The Company's future operating and financial results may be more susceptible to
fluctuations in the volume and cost of its broker-sourced loans resulting from,
among other things, competition from other purchasers of such loans.
 
LOSS OF FUNDING SOURCES
 
     The Company funds substantially all of the loans which it originates or
purchases through borrowings under the Warehouse Financing Facility. These
borrowings are in turn repaid with the proceeds received by the Company from
selling such loans. Any failure to renew or obtain adequate funding under the
Warehouse Financing Facility, or other borrowings, or any substantial reduction
in the size of or pricing in the markets for the Company's loans, could have a
material adverse effect on the Company's results of operations and financial
condition. To the extent that the Company is not successful in maintaining or
replacing the Warehouse Financing Facility, it would have to curtail its loan
production activities, thereby having a material adverse effect on the Company's
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Reorganization."
 
RISKS RELATED TO REPRESENTATIONS AND WARRANTIES IN LOAN SALES
 
     The Company engages in bulk loan sales pursuant to agreements that
generally require the Company to repurchase or substitute loans in the event of
a breach of a representation or warranty made by the Company to the loan
purchaser, any misrepresentation during the mortgage loan origination process
or, in some cases, upon any fraud or first payment default on such mortgage
loans.
 
                                       11
<PAGE>   13
 
   
     For loans the Company purchases from mortgage companies, banks and other
originators, the Company generally limits the potential remedies of the
institutions to which the Company later sells the loans to the potential
remedies the Company receives from the parties from whom the Company purchased
the loans. However, in some cases, the remedies available to a purchaser of
loans from the Company may be broader than those available to the Company
against the originators of such loans, and, even where this is not the case,
should a purchaser enforce its remedies against the Company, the Company may not
always be able to enforce its remedies against the related originators.
    
 
     Any claims asserted against the Company in the future by one of its loan
purchasers may result in liabilities or legal expenses that could have a
material adverse effect on the Company's results of operations and financial
condition.
 
CONCENTRATION OF OPERATIONS IN CALIFORNIA
 
     Approximately 37% of the dollar volume of loans originated or purchased by
the Company during 1996 were secured by properties located in California. No
other state contained properties securing more than 10% of the dollar volume of
loans originated or purchased by the Company during 1996. Although the Company
has a nationwide independent broker network and a developing regional processing
center network, the Company is likely to continue to have a significant amount
of its loan originations and purchases in California for the foreseeable future,
primarily because California represents a significant portion of the national
mortgage marketplace. Consequently, the Company's results of operations and
financial condition are dependent upon general trends in the California economy
and its residential real estate market. The California economy experienced a
slowdown or recession in recent years that has been accompanied by a sustained
decline in the California real estate market. Residential real estate market
declines may adversely affect the values of the properties securing loans such
that the principal balances of such loans will equal or exceed the value of the
mortgaged properties. Reduced collateral value will adversely affect the volume
of the Company's loans as well as the pricing of the Company's loans and the
Company's ability to sell its loans. See "-- Economic Slowdown and Decline in
Collateral Value May Adversely Affect Volume of Loans" and "-- Focus on Credit
Impaired Borrowers May Result in Increased Delinquency Rates, Foreclosures and
Losses."
 
   
     In addition, California historically has been vulnerable to certain natural
disaster risks, such as earthquakes and erosion-caused mudslides, which are not
typically covered by the standard hazard insurance policies maintained by
borrowers. Uninsured disasters may adversely impact borrowers' ability to repay
loans made by the Company. Because the Company sells its loans on a forward
basis, it is not exposed to the risk of loan delinquencies and defaults (except
to the extent they affect servicing rights) unless the Company is required to
repurchase or substitute a loan due to a breach of a representation or warranty
in connection with a loan sale, or, under certain circumstances, due to fraud or
default on the first payment due after sale. However, any sustained period of
increased delinquencies or defaults could adversely affect the pricing of the
Company's loan sales and the ability of the Company to sell its loans. The
existence of adverse economic conditions or the occurrence of such natural
disasters in California could have a material adverse effect on the Company's
results of operations and financial condition.
    
 
ABILITY OF THE COMPANY TO IMPLEMENT ITS GROWTH STRATEGY
 
     The Company's growth strategy involves expanding its broker-sourced loan
business through increased penetration into existing markets and expansion into
new markets and developing a direct-sourced loan origination business while
maintaining its customary premiums on sale, interest rate spreads and
underwriting criteria. Implementation of this strategy will depend in large part
on the Company's ability to (i) expand its independent mortgage broker network
and establish direct-sourced origination activities in markets with a sufficient
concentration of borrowers meeting the Company's underwriting criteria, (ii)
hire, train and retain skilled employees, and (iii) continue to expand in the
face of increasing competition from other mortgage lenders. There can be no
assurance that the Company will be able to implement these growth strategies, or
that such strategies will be effective. See "Business."
 
                                       12
<PAGE>   14
 
DEPENDENCE ON A LIMITED NUMBER OF KEY PERSONNEL
 
   
     The Company's growth and development to date have been largely dependent
upon the services of M. Jack Mayesh, Edward Resendez, and Frank Curry, Chairman
of the Board and Chief Executive Officer, President and Executive Vice President
of the Company, respectively. The loss of Messrs. Mayesh's, Resendez's or
Curry's services for any reason could have a material adverse effect on the
Company. The Company is entering into employment agreements with Messrs. Mayesh,
Resendez and Curry at or before the consummation of this Offering. See
"Management -- Management Compensation and Employment Agreements."
    
 
INCOME TAX RISK
 
   
     As a result of the Offering, the tax basis of the assets transferred by Old
Long Beach to LBFC will be increased, in the hands of LBFC, to their fair market
value (determined by reference to the initial public offering price). Such tax
basis is generally expected to produce a tax benefit to LBFC in future years
through depreciation or amortization deductions or through decreased gain or
(subject to certain limitations) increased loss on a disposition of any LBFC
asset. However, the "anti-churning" rules under Section 197 of the Internal
Revenue Code of 1986, as amended (the "Code"), might apply to disallow such
amortization with respect to certain intangible assets of LBFC. LBFC will record
a deferred tax asset (with a corresponding credit to additional paid-in capital)
for the tax effect of the excess of the tax basis of LBFC assets following the
Offering over their net book value. Solely for financial accounting and
reporting purposes, such tax basis will be reduced to take into account LBFC's
assessment of the possible application of the "anti-churning" rules under
Section 197 of the Code, which generally apply to the sale or transfer of
certain types of intangible assets between related parties. LBFC's best estimate
of the amount of this uncertainty is subject to revisions and resolution of the
uncertainty may not occur until such time as an audit of LBFC's tax return for
the period ended December 31, 1997, or any subsequent year in which amortization
deductions are claimed, is completed by the IRS. Any revisions to the deferred
tax asset resulting from resolution of this uncertainty will be offset by a
corresponding charge or credit directly to additional paid-in capital at the
time such resolution occurs. No assurances can be given that the anti-churning
rules will not be applied to disallow amortization with respect to a significant
portion of LBFC's deferred tax asset, that LBFC will generate sufficient taxable
income to realize the deferred tax asset through future deductions, or that
changes in applicable tax law (possibly on a retroactive basis) will not limit
LBFC's ability to take such deductions.
    
 
   
     Based upon an assumed initial public offering price of $11.00 per share,
the pro forma excess of the tax basis of LBFC's net assets (determined for
financial accounting and reporting purposes as described above) over their pro
forma net book value at December 31, 1996 is approximately $230.0 million
resulting in a pro forma gross deferred tax asset of $92.0 million. Based upon
LBFC's preliminary assessments, a valuation allowance of $56.0 million has been
provided for the potential that the IRS may disallow some portion of the
resulting deduction. The unaudited pro forma consolidated statement of financial
condition reflects a net deferred tax asset of $36.0 million. For income tax
purposes, LBFC intends to amortize, over a 15-year period, all or a portion of
the intangible assets acquired from Old Long Beach in the Reorganization.
    
 
POSSIBLE VOLATILITY OF STOCK PRICE
 
   
     The market price of the Common Stock may experience fluctuations that are
unrelated to the operating performance of the Company. In particular, the price
of the Common Stock may be affected by general market price movements as well as
developments specifically related to the mortgage finance industry or the
financial services sector generally, such as interest rate movements, quarterly
variations or changes in financial estimates by securities analysts and a
significant reduction in the price of the stock of another participant in the
mortgage finance industry. In addition, the Company's operating income on a
quarterly basis is significantly dependent upon, among other things, the
successful completion of the Company's loan sales at a premium in the secondary
market for sub-prime mortgages. See "-- Risk of Variations in Quarterly
Operating Results." The inability of the Company to complete significant loan
sales transactions in a particular quarter may have a material adverse effect on
the Company's results of operations for that quarter and could, therefore,
negatively impact the price of the Common Stock.
    
 
                                       13
<PAGE>   15
 
DILUTION RISK
 
     The initial public offering price per share of Common Stock will exceed the
net tangible book value per share of Common Stock. Accordingly, the purchasers
of Common Stock will experience immediate and substantial dilution in the net
tangible book value of their equity investment in the Company. See "Dilution."
 
ABSENCE OF A PUBLIC MARKET; DETERMINATION OF OFFERING PRICE
 
     Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined
through negotiations between the Selling Stockholder and representatives of the
Underwriters. See "Underwriting" for factors to be considered in determining the
initial public offering price. There can be no assurance that a regular trading
market for the Common Stock will develop after this Offering or, if developed,
that a public trading market can be sustained. The initial public offering price
will not necessarily reflect, and may be higher than, the market price of the
Common Stock after this Offering.
 
ANTI-TAKEOVER EFFECT OF DELAWARE LAW
 
     The Company is a Delaware corporation and is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law. In general,
Section 203 prevents an "interested stockholder" (defined generally as a person
owning 15% or more of the Company's outstanding voting stock) from engaging in a
"business combination" with the Company for three years following the date that
person became an interested stockholder unless the business combination is
approved in a prescribed manner. This statute could make it more difficult for a
third party to acquire control of the Company. See "Description of Capital
Stock -- Certain Provisions of Delaware Law."
 
RESTRICTIONS ON FUTURE SALES BY STOCKHOLDERS; EFFECT ON SHARE PRICE OF SHARES
AVAILABLE FOR FUTURE SALE
 
     If the Underwriters' over-allotment option is not exercised in full, the
Selling Stockholder will be subject to certain lock-up restrictions with respect
to its ability to sell or otherwise dispose of any shares of Common Stock it
owns for a period of 180 days from the date of completion of this Offering
without the prior written consent of the Representative of the Underwriters and
the Company. When such lock-up restrictions lapse, such shares of Common Stock
may be sold in the public market or otherwise disposed of, subject to compliance
with applicable securities laws. Sales of a substantial number of shares of
Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices for the Common Stock. See "Shares Eligible for
Future Sale." In addition, if the Underwriters' over-allotment option is not
exercised in full, a substantial competitor of the Company (the Selling
Stockholder) will hold up to 3,250,000 shares of the Company's Common Stock.
 
                                       14
<PAGE>   16
 
                                 REORGANIZATION
 
   
     The Company's broker-sourced mortgage business was begun in 1988 by Long
Beach Savings and Loan Association (later known as Long Beach Bank, F.S.B.). In
order to gain greater operating flexibility and improve its ability to compete
against other financial services companies, in October 1994 Long Beach Bank,
F.S.B. ceased operations, voluntarily surrendered its federal thrift charter and
transferred the broker-sourced business, along with its direct-sourced business
and loan servicing operations, to Old Long Beach, which prior to the
Reorganization has operated under the name "Long Beach Mortgage Company."
    
 
   
     In the Reorganization, Old Long Beach is reorganizing its business
operations by transferring to LBFC the assets (including independent broker
lists, trade name, office leases and furniture, fixtures and equipment) and
personnel related to Old Long Beach's broker-sourced mortgage lending and loan
sales operations and approximately $40 million in cash in exchange for
25,000,000 shares of Common Stock, 21,750,000 of which are being sold pursuant
to this Offering (25,000,000 if the Underwriters' over-allotment option is
exercised in full). The assets being transferred to LBFC include loans in
process as of the time of the Reorganization but do not include loans funded
prior to the Reorganization or servicing rights with respect to loans funded
prior to the Reorganization. LBFC will have no interest in Old Long Beach's
direct-sourced mortgage lending or loan servicing operations, which are being
retained by Old Long Beach after the Reorganization. In the Reorganization, LBFC
is acquiring the right to the "Long Beach Mortgage Company" name and the
intangible benefits related to the name and Old Long Beach will no longer use
the name in its business.
    
 
   
     After the Reorganization, LBFC's broker-sourced business will be conducted
by New Long Beach, a wholly owned subsidiary of LBFC, under the "Long Beach
Mortgage Company" name. The Company is not assuming any of the liabilities of
Old Long Beach arising from Old Long Beach's lending or loan servicing
activities prior to the Reorganization other than certain liabilities relating
to the assets or personnel being transferred. However, as a successor to Old
Long Beach, New Long Beach will be bound by the terms of the settlement
agreement between Old Long Beach and the DOJ. See "Business -- Department of
Justice Settlement Agreement."
    
 
   
     In the Reorganization, Old Long Beach will be obligated to sell the shares
of Common Stock offered hereby at the time it transfers to LBFC the assets and
personnel related to its broker-sourced mortgage lending and loan sales
operations. In the opinion of counsel to the Company, the transfer of the assets
and personnel by Old Long Beach to LBFC in exchange for 25,000,000 shares of
Common Stock will be treated for federal income tax purposes as a taxable sale
of assets. As a result of the Offering, the tax basis (for income tax purposes)
of the assets transferred from Old Long Beach to LBFC in the Reorganization will
be increased, in the hands of LBFC, to their fair market value (determined by
reference to the initial public offering price). Such tax basis is generally
expected to produce a tax benefit to LBFC in future tax years through
depreciation or amortization deductions or through decreased gain or (subject to
certain limitations) increased loss on a disposition of any LBFC asset. However,
the "anti-churning" rules under Section 197 of the Code (generally applicable to
the sale or transfer of certain types of intangible assets between related
parties), might apply to disallow such amortization with respect to certain
intangible assets of LBFC.
    
 
   
     Pursuant to the requirements of Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," LBFC will record a deferred tax
asset (with a corresponding credit to additional paid in capital) for the tax
effect of the excess of the tax basis of LBFC's assets following the Offering
over their net book value. Solely for financial accounting and reporting
purposes, such tax basis will be reduced to take into account management's
assessment of the possible application of the "anti-churning" rules under
Section 197 of the Code. Adjustments of the net deferred tax asset attributable
to the resolution of the uncertainties associated with provisions of the Code
will be charged against or credited to additional paid in capital. See "Risk
Factors -- Income Tax Risk."
    
 
     Prior to the Reorganization, the Company funded loans by borrowing under
Old Long Beach's revolving warehouse credit facility. Because this facility will
not be available to the Company after the completion of this Offering, the
Company is obtaining the Warehouse Financing Facility. It is a condition
precedent to the Reorganization and the consummation of this Offering that the
Company obtain the Warehouse Financing Facility. See "Business -- Financing and
Sale of Loans -- Warehouse Financing Facility."
 
                                       15
<PAGE>   17
 
     Old Long Beach has entered into a forward loan sale contract under which it
has committed to deliver loans, if any, that will be originated by the Company
prior to April 1, 1997. The Company will sell any such loans to Old Long Beach
at the same price that Old Long Beach has committed to sell such loans to its
loan purchaser in order to enable Old Long Beach to fulfill this commitment. The
Company expects that loans originated by the Company on or after April 1, 1997
will be sold by it pursuant to forward whole loan sales contracts entered into
directly with the purchasers.
 
   
     As part of the contribution agreement Old Long Beach and the Company are
entering into in connection with the Reorganization, Old Long Beach and the
corporate parent of Old Long Beach have agreed to indemnify the Company for
certain income tax liabilities. See "Certain Transactions -- Contribution
Agreement."
    
 
     Following the Reorganization, the Company will not have the internal
capability to support certain administrative services such as finance and
accounting technical support, some employee benefits administration functions,
data processing and information services because these services have
historically been provided by Old Long Beach. Old Long Beach is contracting to
continue to provide these services to the Company after the Reorganization until
the Company develops the capability internally. The Company anticipates that it
will be able to perform these services internally within one year after the
Reorganization. See "Certain Transactions -- Administrative Services
Agreements."
 
     Because the personnel that have historically conducted Old Long Beach's
secondary market sales activities will be employed by the Company after the
Reorganization, Old Long Beach initially will not have the expertise to conduct
sales of the loans that it originates after the Reorganization. The Company is
agreeing to provide secondary market sales services to Old Long Beach until Old
Long Beach develops the necessary level of expertise to conduct loan sales
itself. See "Certain Transactions -- Administrative Services Agreements."
 
   
     Following the Reorganization, the Sub-Servicer (a division of Old Long
Beach) will sub-service the loans originated or purchased by the Company. See
"Business -- Servicing" and "Certain Transactions -- Loan Sub-Servicing
Agreement."
    
 
     Old Long Beach currently owns 100% of the issued and outstanding capital
stock of LBFC and is selling 87.0% of the capital stock in this Offering. The
remaining 13.0% is subject to the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, Old Long Beach will have no
ownership interest in the Company after this Offering.
 
   
     Old Long Beach and the Company will be free to compete against each other
after the completion of this Offering, although each is agreeing not to solicit
or hire the employees of the other for five years following the Reorganization.
    
 
                                   DIVIDENDS
 
   
     LBFC does not anticipate declaring or paying any cash dividends in the
foreseeable future.
    
 
                                       16
<PAGE>   18
 
                                    DILUTION
 
   
     The pro forma net tangible book value of the Company's Common Stock as of
December 31, 1996, was $76.0 million, or $3.04 per share. Pro forma net tangible
book value per share has been determined by dividing the pro forma tangible net
worth of the Company (total assets less intangible assets and total liabilities)
after giving effect to the Reorganization by 25,000,000 shares outstanding and
without taking into account any changes in such pro forma net tangible book
value after December 31, 1996. Assuming an initial public offering price of
$11.00 per share, new stockholders will experience immediate dilution of $7.96
per share. Dilution to new stockholders is determined by subtracting the pro
forma net tangible book value per share after this Offering from the initial
public offering price per share. The following table illustrates this dilution.
    
 
   
<TABLE>
    <S>                                                                     <C>     <C>
    Initial public offering price per share......................................   $11.00
      Pro forma net tangible book value per share before Offering.........  $3.04(1)
      Increase per share attributable to sale of Common Stock.............     --
                                                                            -----
    Pro forma net tangible book value per share after Offering...................     3.04(1)
                                                                                    ------
    Dilution per share to new investors..........................................   $ 7.96
                                                                                    ======
</TABLE>
    
 
---------------
   
(1) Includes $1.44 per share attributable to the deferred income tax asset.
    
     See "Reorganization" and "Unaudited Pro Forma Consolidated Financial Data."
 
                                       17
<PAGE>   19
 
                                 CAPITALIZATION
 
     The following table sets forth the actual capitalization of Long Beach
Mortgage Company Broker-Sourced Loan Division as of December 31, 1996 and the
pro forma capitalization to reflect the Reorganization and the sale of shares by
the Selling Stockholder. See "Reorganization." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and Notes thereto
included elsewhere herein.
 
   
<TABLE>
<CAPTION>
                                                                     ACTUAL      PRO FORMA(1)(2)
                                                                    --------     ---------------
                                                                           (IN THOUSANDS)
<S>                                                                 <C>          <C>
DEBT:
  Short-term borrowings due under warehouse financing facility....  $ 72,829        $      --
                                                                    --------         --------
STOCKHOLDERS' EQUITY:
  Divisional equity...............................................     1,137               --
  Preferred Stock, $.001 par value, 25,000,000 shares authorized,
     no shares outstanding actual and pro forma...................        --               --
  Common Stock, $.001 par value, 150,000,000 shares authorized, 1
     share issued and outstanding (actual), 25,000,000 shares
     issued and outstanding (pro forma)(3)........................        --               25
  Additional Paid-in Capital......................................        --           75,934
  Retained Earnings...............................................        --               --
                                                                    --------         --------
          Total Stockholders' Equity..............................     1,137           75,959
                                                                    --------         --------
          Total Capitalization....................................  $  1,137        $  75,959
                                                                    ========         ========
</TABLE>
    
 
---------------
(1) See "Unaudited Pro Forma Consolidated Financial Data."
 
(2) See "Reorganization."
 
(3) Excludes 3,000,000 shares of Common Stock reserved for issuance under the
    1997 Stock Incentive Plan. See "Management -- 1997 Stock Incentive Plan."
 
                                       18
<PAGE>   20
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
                (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
 
   
     The following table sets forth selected consolidated financial data as of
the period ended or for the periods presented. The selected consolidated
financial data of the Company presented for the years ended December 31, 1994,
1995 and 1996 and as of December 31, 1995 and 1996 are derived from financial
statements of the Company audited by Deloitte & Touche LLP, independent
auditors. The selected consolidated financial data of the Company presented for
the years ended December 31, 1992 and 1993 and as of December 31, 1992, 1993 and
1994 are derived from unaudited financial statements of the Company. In the
opinion of the Company, such unaudited financial statements reflect all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the results of such periods. The selected consolidated financial
data should be read in conjunction with, and is qualified in its entirety by,
the Financial Statements of the Company and related Notes thereto that appear
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
    
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                --------------------------------------------------------------------
                                                                                                          PRO FORMA
                                                 1992        1993        1994        1995        1996      1996(1)
                                                -------     -------     -------     -------     -------   ----------
<S>                                             <C>         <C>         <C>         <C>         <C>       <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  Gain on sales of loans......................  $33,107     $23,675     $21,668     $31,691     $50,699   $   49,465
  Loan servicing and other fees...............       --          --          --          --          --        1,529(2)
  Interest income.............................    9,016       3,493       2,510       2,494       3,275        5,369
                                                -------     -------     -------     -------     -------   ----------
         Total revenues.......................   42,123      27,168      24,178      34,185      53,974       56,363
Expenses:
  Selling, general and administrative.........   13,498      12,823      22,328      21,912      35,188       37,778
  Interest....................................    5,558       2,453       1,814       2,312       2,814        3,140
                                                -------     -------     -------     -------     -------   ----------
         Total expenses.......................   19,056      15,276      24,142      24,224      38,002       40,918
                                                -------     -------     -------     -------     -------   ----------
Income before provision for income taxes......   23,067      11,892          36       9,961      15,972       15,445
Provision for income taxes....................   12,182       6,280          14       4,169       6,580        6,363
                                                -------     -------     -------     -------     -------   ----------
Net income....................................  $10,885     $ 5,612     $    22     $ 5,792     $ 9,392   $    9,082
                                                =======     =======     =======     =======     =======   ==========
Pro forma earnings per share(3)...............                                                            $      .36
                                                                                                          ==========
Pro forma weighted average number of shares
  outstanding(3)..............................                                                            25,000,000
                                                                                                          ==========
</TABLE>
 
   
<TABLE>
<CAPTION>
                                                                         AS OF DECEMBER 31,
                                                --------------------------------------------------------------------
                                                                                                          PRO FORMA
                                                 1992        1993        1994        1995        1996      1996(1)
                                                -------     -------     -------     -------     -------   ----------
<S>                                             <C>         <C>         <C>         <C>         <C>       <C>
STATEMENT OF FINANCIAL CONDITION DATA:
Cash..........................................  $    --     $    --     $    --     $    --     $    --   $   40,000
Loans held for sale...........................   19,678       9,950      10,364      21,342      49,580           --
Deferred income taxes.........................       --          --          --         882       2,120       36,000
Total assets..................................   20,525      10,887      12,529      24,778      79,750       78,215
Warehouse financing facility..................       --          --      11,483      20,613      72,829           --
Total liabilities.............................   20,765      11,014      13,391      23,046      78,613        2,256
Stockholders' equity (deficit)................     (240)       (127)       (862)      1,732       1,137       75,959
</TABLE>
    
 
---------------
 
(1) Gives pro forma effect to the Reorganization as if it had occurred as of
    January 1, 1996 as to the Statement of Operations Data and December 31, 1996
    as to the Statement of Financial Condition Data. The pro forma results of
    operations are not necessarily indicative of the future operations of the
    Company. See "Unaudited Pro Forma Consolidated Financial Data."
 
(2) Net of amortization of capitalized mortgage servicing rights of $1.8
    million.
 
(3) Historical earnings per share information for 1992 through 1996 was not
    deemed meaningful.
 
                                       19
<PAGE>   21
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
GENERAL
 
     The Company is a specialty finance company engaged in the business of
originating, purchasing and selling sub-prime residential mortgage loans secured
by one-to-four family residences. The Company's core borrower base consists of
individuals who do not qualify for traditional "A" credit because their credit
history, income or other factors cause them not to conform to standard agency
lending criteria. The Company originates loans through independent mortgage
brokers and, to a lesser extent, purchases loans from smaller mortgage companies
and commercial banks. Substantially all of the Company's loan originations and
purchases are sold in the secondary market through loan sales in which the
Company disposes of its entire economic interest in the loans for cash, except
for the related servicing rights which it retains in most cases. See "Business."
 
     The following table shows the Company's loan originations and purchases and
loan sales for the periods indicated:
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                        ------------------------------------
                                                          1994         1995          1996
                                                        --------     --------     ----------
                                                               (DOLLARS IN THOUSANDS)
    <S>                                                 <C>          <C>          <C>
    Loan originations and purchases...................  $565,547     $592,542     $1,058,122
    Loan sales........................................   562,054      580,366      1,029,789
</TABLE>
 
   
     Revenue is derived primarily from gain on sales of loans and interest
income from loans held for sale. The key factors that affect the Company's
revenue are (i) the volume of loans originated and purchased, (ii) the premium
over principal amount received in loan sales, (iii) origination points received
or paid, (iv) origination fees received and (v) the differential between the
interest rate on borrowings under Old Long Beach's revolving warehouse credit
facility and the interest rate of loans held for sale. Loan sales premium is
affected by, among other things, the interest rate and/or margin of the loans
sold. Revenues increased to $54.0 million in 1996 compared to $34.2 million and
$24.2 million in 1995 and 1994, respectively.
    
 
     Expenses are incurred for, among other things, compensation and employee
benefits, rent and other occupancy costs, office supplies and courier service,
depreciation, legal and professional services, and interest. Compensation and
employee benefits, which in 1996, 1995 and 1994 accounted for 58.7%, 56.0% and
64.2% of total expenses, respectively, is tied in part to the loan origination
volume because the Company's sales force is compensated on a commission basis.
Expenses increased to $38.0 million in 1996 compared to $24.2 million and $24.1
million in 1995 and 1994, respectively. Of the expenses incurred in 1996, 1995
and 1994, $8.9 million, $7.0 million and $9.7 million, respectively, consisted
of expenses incurred by Old Long Beach which were allocated to the Company.
These allocated expenses included executive compensation of parent company
corporate officers and legal and professional expenses.
 
     The Company's net income increased to $9.4 million in 1996 compared to $5.8
million and $22,000 in 1995 and 1994, respectively.
 
BASIS OF FINANCIAL PRESENTATION
 
     Prior to the Reorganization, the Company operated as a division of Old Long
Beach. As a result, the Company had no separate legal status or existence
through December 31, 1996. In the normal course of business, the Company had
various transactions with other divisions of Old Long Beach that are material in
amount. The financial statements of the Company have been prepared in part from
records maintained by Old Long Beach. The historical financial statements of the
Company may not necessarily be indicative of the conditions that would have
existed if the Company had operated as an independent entity.
 
     The financial statements of the Company reflect the assets, liabilities,
revenues and expenses that were directly related to the continuing operations of
the Company as they were operated by Old Long Beach. Old Long Beach's historical
cost basis of the assets and liabilities has been carried over to the Company.
The financial statements reflect key assumptions regarding the allocation of
certain revenue and expense items and
 
                                       20
<PAGE>   22
 
certain balance sheet accounts, many of which could be material. In particular,
in cases involving assets, liabilities, revenues and expenses not specifically
identifiable to any particular division of Old Long Beach, certain allocations
were made to reflect the operations of the Company. These allocations were based
on a variety of factors which management believes provide a reliable basis for
the financial statements.
 
RESULTS OF OPERATIONS
 
  Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
 
     The Company had substantial growth in 1996 as a result of increased loan
originations and purchases in both existing and new markets. Total revenues
increased $19.8 million or 57.9% to $54.0 million in 1996 from $34.2 million in
1995. During the same period, the Company's total expenses increased $13.8
million or 56.9% to $38.0 million in 1996 compared to $24.2 million in 1995. As
a result, net income increased $3.6 million or 62.2% to $9.4 million in 1996
from $5.8 million in 1995.
 
     Revenues.  The following table sets forth the components of the Company's
revenues for the periods indicated:
 
<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER
                                                                               31,
                                                                       -------------------
                                                                        1995        1996
                                                                       -------     -------
                                                                         (IN THOUSANDS)
    <S>                                                                <C>         <C>
    Gain on sales of loans...........................................  $31,691     $50,699
    Interest income..................................................    2,494       3,275
                                                                       -------     -------
              Total revenues.........................................  $34,185     $53,974
                                                                       =======     =======
</TABLE>
 
     The increase in revenues was due primarily to an increase of $465.6 million
or 78.6% in loan originations and purchases to approximately $1.1 billion in
1996 compared to $592.5 million in 1995, which resulted in increased loan sales.
The increase in loan originations and purchases was due to both increased
production in existing markets and expansion into new markets.
 
     Gain on sales of loans increased $19.0 million or 60.0% to $50.7 million in
1996 from $31.7 million in 1995. The increase was due primarily to the 78.6%
increase in loan originations and purchases during 1996. Total loans of
approximately $1.0 billion were sold in 1996 with a weighted average gain on
sale of 4.92%. During 1995, total loans of $580.4 million were sold with a
weighted average gain on sale of 5.46%. The decline in weighted average gain on
sale was attributable to fixed rate loans, which typically yield a lower average
gain on sale than adjustable rate loans, constituting 37.1% of the loans sold in
1996 compared to 13.3% of the loans sold in 1995.
 
     Interest income increased $0.8 million or 31.3% to $3.3 million in 1996
from $2.5 million in 1995. This increase was due to a higher balance of loans
held for sale during 1996 as a result of the increase in loan originations and
purchases during the year. The Company's average balance of loans held for sale
increased $12.3 million or 61.1% to $32.6 million in 1996 from $20.2 million in
1995.
 
     Expenses.  The following table sets forth the components of the Company's
expenses for the periods indicated:
 
<TABLE>
<CAPTION>
                                                                           YEAR ENDED
                                                                          DECEMBER 31,
                                                                       -------------------
                                                                        1995        1996
                                                                       -------     -------
                                                                         (IN THOUSANDS)
    <S>                                                                <C>         <C>
    Compensation and employee benefits...............................  $13,564     $22,299
    Rent and other occupancy costs...................................    3,258       4,188
    Office supplies and courier service..............................      816       1,903
    Depreciation.....................................................      667       1,025
    Legal and professional...........................................    1,082       1,828
    Interest.........................................................    2,312       2,814
    Other............................................................    2,525       3,945
                                                                       -------     -------
                                                                       $24,224     $38,002
                                                                       =======     =======
</TABLE>
 
                                       21
<PAGE>   23
 
     Total expenses increased $13.8 million or 56.9% to $38.0 million in 1996
from $24.2 million in 1995, due in large part to increased compensation and
other personnel costs related to the 78.6% increase in loan originations and
purchases during 1996.
 
     Compensation and employee benefits expense increased $8.7 million or 64.4%
to $22.3 million in 1996 from $13.6 million in 1995. This increase was due
primarily to increased commissions paid during 1996 to the sales force as a
result of the increased loan originations during the year as well as increased
staffing required to support the increase in loan origination and purchase
volume. During 1996, the Company's full time personnel increased to 338 from 175
at December 31, 1995.
 
     Rent and other occupancy costs increased $0.9 million or 28.5% to $4.2
million in 1996 from $3.3 million in 1995. This was due to the establishment of
18 new loan origination offices and two regional processing centers and the
relocation of the corporate headquarters to a larger facility during 1996.
 
     Office supplies and courier service expense increased $1.1 million or
133.2% to $1.9 million in 1996 from $0.8 million in 1995. The increase was due
to the expansion of the Company's loan origination office network and increased
loan originations during 1996.
 
     Depreciation increased $0.4 million or 53.7% to $1.0 million in 1996 from
$0.7 million in 1995. The increase was attributable to additional computer and
office equipment necessary to support the Company's expanded work force.
 
     Legal and professional expenses increased $0.7 million or 68.9% to $1.8
million in 1996 from $1.1 million in 1995. This was due primarily to the higher
level of legal and professional services required to complete the DOJ settlement
in September 1996. See "Business -- Department of Justice Settlement Agreement."
 
     Interest expense increased $0.5 million or 21.7% to $2.8 million in 1996
from $2.3 million in 1995. The increase was due to greater short-term borrowings
in 1996 to fund the increased loan originations and purchases.
 
     Other expenses increased $1.4 million or 56.2% to $3.9 million in 1996 from
$2.5 million in 1995. This was due in large part to the incurrence of $1.1
million of DOJ settlement costs in 1996 compared to $0.3 million of settlement
costs in 1995, as well as to a $0.4 million increase in marketing expenses
attributable to an expansion of the Company's marketing program.
 
  Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
 
     In 1995 the Company substantially improved its operating results by
increasing premiums on its loan sales and reducing expenses after a workforce
reduction. In addition, 1995 marked the first full year utilizing three new core
operating computer systems as well as the first full year operating as a
mortgage company rather than a federally-chartered thrift. As a mortgage
company, the Company was able to offer certain loan products that it could not
offer as a thrift. Total revenues increased $10.0 million or 41.4% to $34.2
million in 1995 from $24.2 million in 1994. During the same period, the
Company's total expenses increased $0.1 million or 0.3% to $24.2 million in 1995
from $24.1 million in 1994. As a result, net income increased to $5.8 million in
1995 from $22,000 in 1994.
 
     Revenues.  The following table sets forth the components of the Company's
revenues for the periods indicated:
 
<TABLE>
<CAPTION>
                                                                           YEAR ENDED
                                                                          DECEMBER 31,
                                                                       -------------------
                                                                        1994        1995
                                                                       -------     -------
                                                                         (IN THOUSANDS)
    <S>                                                                <C>         <C>
    Gain on sales of loans...........................................  $21,668     $31,691
    Interest income..................................................    2,510       2,494
                                                                       -------     -------
                                                                       $24,178     $34,185
                                                                       =======     =======
</TABLE>
 
                                       22
<PAGE>   24
 
     The increase in revenues was due primarily to an 46.3% increase in gain on
sales of loans. Loan originations and purchases increased $27.0 million or 4.8%
to $592.5 million in 1995 from $565.5 million in 1994.
 
   
     Gain on sales of loans increased $10.0 million or 46.3% to $31.7 million in
1995 from $21.7 million in 1994. This was due primarily to (i) a 41.5% increase
in weighted average gain on sale to 5.46% in 1995 from 3.86% in 1994 and (ii)
$4.1 million of gain recognized during 1995 due to the Company's adoption of
Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for
Mortgage Servicing Rights" as of January 1, 1995. The Company improved the
weighted average gain on sale by selling loans in 1995 to large institutional
purchasers who were willing to pay higher premiums than the Company's past
purchasers. These institutional buyers were willing to pay higher premiums
because their strategy of securitizing the loans and keeping the residual
interest supported a higher cost structure than that of the whole loan
purchasers to whom the Company had previously sold loans. SFAS No. 122 requires
the Company, upon the sale of servicing retained mortgages, to capitalize the
cost associated with the right to service loans based on their relative fair
values. As a result, the Company will recognize more revenue when a loan is sold
and less revenue over the period that such loan is serviced.
    
 
   
     Interest income remained unchanged during 1995 compared to 1994, because a
reduction in the time period between the funding of loans and the delivery of
the loans to the whole loan purchasers was offset by an increase in the
differential between the interest rate on borrowings under Old Long Beach's
revolving warehouse credit facility and the interest rates of loans held for
sale. In 1995, the Company typically delivered loans to purchasers nine times
during each quarter compared to three times a quarter in 1994.
    
 
     Expenses.  The following table sets forth the components of the Company's
expenses for the periods indicated:
 
<TABLE>
<CAPTION>
                                                                           YEAR ENDED
                                                                          DECEMBER 31,
                                                                       -------------------
                                                                        1994        1995
                                                                       -------     -------
                                                                         (IN THOUSANDS)
    <S>                                                                <C>         <C>
    Compensation and employee benefits...............................  $15,496     $13,564
    Rent and other occupancy costs...................................    2,565       3,258
    Office supplies and courier service..............................      712         816
    Depreciation.....................................................      281         667
    Legal and professional...........................................    1,443       1,082
    Interest.........................................................    1,814       2,312
    Other............................................................    1,831       2,525
                                                                       -------     -------
                                                                       $24,142     $24,224
                                                                       =======     =======
</TABLE>
 
     Total expenses increased $0.1 million or 0.3% to $24.2 million in 1995 from
$24.1 million in 1994. This was due in large part to increases in rent,
depreciation and interest expense, offset in part by decreases in compensation
and legal and professional services.
 
     Compensation and employee benefit expense decreased $1.9 million or 12.5%
to $13.6 million in 1995 from $15.5 million in 1994. The decrease was due to (i)
the elimination of several positions that were no longer required after October
1994 when the Company ceased to operate as a division of a thrift, and (ii) a
reduction in the Company's non-production work force in January 1995, partially
offset by an increase in the Company's sales force. The work force reduction was
made possible by the implementation of the Company's new computerized systems in
October 1994, which substantially improved processing efficiency.
 
     Rent and other occupancy costs increased $0.7 million or 27.0% to $3.3
million in 1995 from $2.6 million in 1994. The increase was due to the
establishment of 21 new loan origination offices and the first regional
processing center during 1995.
 
     Office supplies and courier service expense increased $0.1 million or 14.6%
to $0.8 million in 1995 from $0.7 million in 1994. The increase was due to the
expansion of the Company's loan origination office network and increased loan
originations.
 
                                       23
<PAGE>   25
 
     Depreciation increased $0.4 million or 137.4% to $0.7 million in 1995 from
$0.3 million in 1994. This was due to additional computer equipment to support
the new loan origination system and the expanded loan origination office
network.
 
     Legal and professional expenses decreased $0.4 million or 25.0% to $1.1
million in 1995 from $1.4 million in 1994. The decrease was due primarily to the
legal expenses incurred in 1994 in connection with the transition from a
federally-chartered thrift to a mortgage company.
 
   
     Interest expense increased $0.5 million or 27.5% to $2.3 million in 1995
from $1.8 million in 1994. This was due to the fact that interest rates on
borrowings to fund loans were higher after October 1994 than before. Prior to
that time, the Company operated as a division of Long Beach Bank, F.S.B., and
funded loans through the bank's deposits, but after converting to a mortgage
company the Company funded loans through borrowings under Old Long Beach's
revolving warehouse credit facility.
    
 
     Other expenses increased $0.7 million or 37.9% to $2.5 million in 1995 from
$1.8 million in 1994. The increase was due primarily to a $0.3 million accrual
in 1995 with respect to the DOJ settlement and a $0.2 million increase in
marketing expenses.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company has historically generated positive cash flow. The Company's
sources of cash flow include loan sales at a premium, net interest income and
borrowings under its Warehouse Financing Facility. The Company enters into
forward loan sales contracts under which it commits to deliver loans to be
originated or purchased by the Company at a future date. The Company sells loans
at a premium several times a quarter pursuant to such contracts. The Company's
uses of cash include the funding of loan originations and purchases, payment of
interest expenses, repayment of the Warehouse Financing Facility, operating and
administrative expenses, income taxes and capital expenditures. Capital
expenditures totaled $1.2 million, $0.7 million and $1.7 million for the years
ended December 31, 1996, 1995 and 1994, respectively.
 
   
     The Company funds its business through cash reserves and a revolving
warehouse credit facility under which it borrows money to finance the
origination and purchase of loans. The Company repays borrowings with the
proceeds of its loan sales. Prior to the Reorganization, the Company funded
loans by borrowing under Old Long Beach's revolving warehouse credit facility.
After the Reorganization, the Company will have in place a $200 million
Warehouse Financing Facility with terms substantially similar to Old Long
Beach's revolving warehouse credit facility. Borrowings under the Warehouse
Financing Facility for a particular loan may remain outstanding for no more than
120 days, except for an aggregate amount not to exceed $10 million, which may
remain outstanding for up to 180 days. Borrowings under the Warehouse Financing
Facility are permitted up to 98% of the principal balance of the originated and
purchased loans and bear interest at rates ranging from 1.375% to 1.625% over
the 30-day reserve-adjusted London Inter Bank Offered Rate ("LIBOR"), depending
on the level of loan documentation the Company has delivered to the agent for
the syndicate of banks providing credit under the Warehouse Financing Facility.
The Warehouse Financing Facility also includes a $25 million subline for
servicing advances, as well as principal and interest advances, primarily to
securityholders in connection with securitizations by purchasers of the
Company's loans in which the Company serves as the master servicer, and a $5
million subline which may be used to finance mortgage loans owned by the Company
that are in the process of collection or resale to investors. The sublines bear
interest at rates ranging from 1.875% to 2.0% over the 30-day reserve-adjusted
LIBOR. The Warehouse Financing Facility will expire on March 31, 1999, unless
earlier terminated or extended in accordance with its terms. The Warehouse
Financing Facility contains financial covenants that (i) New Long Beach maintain
tangible net worth equal to at least $25 million, plus 25% of cumulative net
earnings, (ii) delinquencies on New Long Beach's mortgage servicing portfolio
not exceed 12% and (iii) the ratio of total liabilities to adjusted tangible net
worth not exceed 9:1. The Warehouse Financing Facility also contains other
affirmative, negative and financial covenants typical of similar credit
facilities.
    
 
     The Company's ability to continue to originate and purchase loans is
dependent in large part upon its ability to sell the loans at a premium in the
secondary market in order to generate cash proceeds to repay borrowings under
the Warehouse Financing Facility, thereby creating borrowing capacity to fund
new
 
                                       24
<PAGE>   26
 
   
originations and purchases. The value of and market for the Company's loans are
dependent upon a number of factors, including the loan-to-value ratios and
interest rates on the loans, general economic conditions, interest rates and
governmental regulations. Adverse changes in such factors may affect the
Company's ability to sell loans for acceptable prices within a reasonable period
of time. A prolonged, substantial reduction in the size of the secondary market
for loans of the type originated or purchased by the Company may adversely
affect the Company's ability to sell loans in the secondary market with a
consequent adverse impact on the Company's results of operations, financial
condition and ability to fund future originations and purchases. During 1996,
1995 and 1994, the Company used cash in the approximate amounts of $1.1 billion,
$592.5 million and $565.5 million, respectively, for new loan originations and
purchases. During the same periods, the Company received cash proceeds from the
sale of loans of $1.0 billion, $580.4 million and $562.1 million, respectively,
representing the principal balance of loans sold. The Company received cash
proceeds from the premiums on such sale of loans of $48.7 million, $31.3 million
and $25.2 million, respectively, for 1996, 1995 and 1994.
    
 
     The Company believes that cash flow from operations, including the net
proceeds from loan sales, and the borrowings under the Warehouse Financing
Facility will be sufficient to fund operating needs and capital expenditures for
the next 12 months.
 
ACCOUNTING CONSIDERATIONS
 
   
     Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
as amended by SFAS No. 127, was issued by the Financial Accounting Standards
Board in June 1996. SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
This statement also provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured borrowings.
It requires that liabilities and derivatives incurred or obtained by transferors
as part of a transfer of financial assets be initially measured at fair value.
SFAS No. 125 also requires that servicing assets be measured by allocating the
carrying amount between the assets sold and retained interests based on their
relative fair values at the date of transfer. Additionally, this statement
requires that the servicing assets and liabilities be subsequently measured by
(a) amortization in proportion to and over the period of estimated net servicing
income and (b) assessment for asset impairment or increased obligation based on
their fair values. As required by the statement, the Company has adopted the new
requirements effective January 1, 1997. Upon implementation, the statement did
not have material impact on the financial statements of the Company.
    
 
                                       25
<PAGE>   27
 
                                    BUSINESS
GENERAL
 
   
     The Company is a specialty finance company engaged in the business of
originating, purchasing and selling sub-prime residential mortgage loans secured
by one-to-four family residences. The Company's primary operating strategy is to
generate positive cash flow by selling for cash, at a premium, substantially all
originated and purchased loans to institutional purchasers several times a
quarter. The Company does not currently sell loans through securitizations and
therefore retains no residual interests, or the related risks, in the loans sold
(except risks associated with servicing rights, which the Company normally
retains, and certain repurchase risks associated with representations and
warranties). As a result, the Company has less risk than is typically inherent
in a mortgage lender's business and has historically had a source of cash flow
to fund lending and growth, reducing the need for other sources of financing.
See "-- Financing and Sale of Loans." Substantially all loans originated or
purchased by the Company are secured by a first priority mortgage on the subject
property. In 1996, less than .03% of the principal balance of the loans
originated and purchased were secured by second priority mortgages. The
Company's core borrower base consists of individuals who do not qualify for
traditional "A" credit because their credit history, income verification or
other factors cause them not to conform to standard agency lending criteria.
Approximately 69% of the principal balance of the loans originated by the
Company in 1996 were to borrowers with a Company risk classification of "A-" or
"B+," while the remainder were to borrowers with a Company risk classification
of "B," "B-," "C" or "C-." See "-- Underwriting."
    
 
   
     The Company has relationships with approximately 7,500 independent approved
mortgage brokers located in 43 states. During 1996, approximately 5,000 of these
brokers submitted loan packages to the Company and the Company funded loans from
approximately 2,800 brokers. The Company's large independent broker network
provides comprehensive geographic coverage for the Company's products and
reflects the Company's strategy of using a large and diverse group of small
brokers to avoid becoming dependent on a few primary producers. During the year
ended December 31, 1996, the Company's single largest producing independent
broker was responsible for less than 1% of the principal balance of the
Company's originations. The Company maintains a close working relationship with
brokers through its sales force of approximately 120 account executives located
in 63 offices in 32 states. The Company delivers a high level of customer
service to brokers by (i) locating its account executives and, to an increasing
extent, its loan processing teams, geographically close to the brokers, (ii)
actively assisting the brokers in identifying the appropriate product for the
borrowers, (iii) applying lending criteria in a consistent manner, (iv) promptly
processing loan applications and (v) providing other assistance to brokers to
complete loan transactions. A high level of customer service, together with each
account executive's and loan processing team's knowledge of the local market and
the Company's products, is a key part of the Company's origination strategy.
    
 
   
     The Company (as a division of Long Beach Bank, F.S.B.) began originating
sub-prime mortgage loans in Southern California in 1988 and started to expand
its business outside of California on a limited basis in 1992. In 1994, the
Company began to focus on expansion outside of California. To facilitate this
expansion and to permit the Company to provide competitive products and pricing,
in October 1994 Long Beach Bank, F.S.B. ceased operations and the Company
commenced operations as a mortgage company. Since that time, the Company has
experienced significant growth in loan originations and purchases, with
approximately $1.1 billion of originations and purchases in 43 states during
calendar 1996 compared to $592.5 million in 35 states during calendar 1995 and
$565.5 million in 27 states during calendar 1994. Total originations and
purchases were $300.7 million during the fourth quarter of 1996, which
represents a $122.4 million increase from total originations and purchases
during the fourth quarter of 1995. This growth in originations and purchases has
resulted in the Company's earnings increasing to $9.4 million in 1996 compared
to earnings of $5.8 million and $22,000 in 1995 and 1994, respectively.
    
 
     The Company sells substantially all of its originated and purchased loans
several times a quarter to institutional purchasers for cash, historically at a
premium over the principal balance of the loans. Prior to originating or
purchasing loans, the Company obtains a purchase commitment from an
institutional purchaser. The Company delivers loans and receives payments for
the loans shortly after funding. This strategy, as opposed to securitizations,
in which a residual interest in future payments on the loans is retained,
provides
 
                                       26
<PAGE>   28
 
certain benefits. The Company receives cash revenue, rather than recognizing
non-cash revenue attributable to residual interests, as is the case in
securitizations. The Company thereby avoids the risk present in securitizations
of having to adjust revenue in future periods to reflect a lower realization on
residual interests because actual prepayments or defaults exceeded levels
assumed at the time of securitization. By selling its originated and purchased
loans, the Company also reduces its exposure to default risk (other than certain
first payment defaults) and prepayment risk normally inherent in a mortgage
lender's business. The Company may also be required to repurchase or substitute
loans in the event of a breach of representations and warranties, including any
fraud or any misrepresentation during the mortgage loan origination process, and
retains the risk of having to adjust noncash revenue attributable to the
realization of the retained servicing rights. Management believes that the cash
received in loan sales provides the Company greater flexibility and operating
leverage than a traditional portfolio lender, which holds the loans it
originates, by allowing the Company to generate income through interest on loans
held for sale and gain on loans sold. Loan sales have been an important factor
in generating the Company's historic earnings and creating consistent positive
cash flow to fund operations.
 
   
     Substantially all of the loans originated by the Company while it operated
as a division of Old Long Beach are serviced by the Sub-Servicer. The
Sub-Servicer and the Company are entering into a contract pursuant to which the
Sub-Servicer will sub-service loans originated or purchased by the Company
following the Reorganization. The Sub-Servicer is one of the largest and most
experienced sub-prime mortgage servicers in the nation, with a servicing
portfolio of approximately $3.5 billion of sub-prime mortgage loans at December
31, 1996. Since the servicing procedures of the Sub-Servicer were developed
while the Company was part of Old Long Beach and are coordinated with the
Company's origination practices, management believes that the Sub-Servicer will
be able to provide faster and more effective servicing of the Company's loans
than another independent servicer. See "-- Servicing."
    
 
     The Company believes that its primary strengths are the following:
 
     - Established Position in the Sub-Prime Mortgage Lending Industry.  The
       Company was one of the original lenders in the sub-prime mortgage lending
       industry and its volume of loans originated or purchased has been
       consistently strong even during past down-turns in the local and regional
       economies in which it operates. Management believes that the Company is
       recognized by independent brokers, institutional loan purchasers, issuers
       of asset-backed securities and rating agencies as being able to
       effectively originate and sell loans on a consistent basis.
 
   
     - Experienced Personnel With Performance-Based Compensation.  The Company's
       management, as well as many members of its staff, have worked in the
       sub-prime lending industry for many years. Messrs. Jack Mayesh, Edward
       Resendez and Frank Curry, the Company's Chief Executive Officer,
       President and Executive Vice President, respectively, have 45 years of
       sub-prime industry experience collectively and have worked together at
       the Company for nine years. The Company's compensation structure is
       designed to incentivize its personnel to work toward maximizing overall
       Company performance. The Company intends to use stock options to
       incentivize key employees as well as senior management after this
       Offering.
    
 
     - Regional Processing Teams.  The Company's markets are serviced by 15
       regional processing teams. Each team is a self-contained mortgage banking
       team linked to the home office through a computer network that, in most
       cases, can conduct all loan origination and production functions in its
       region within guidelines established by the home office. This concept of
       regional processing teams, which the Company believes is unique in the
       industry, enables the Company to more effectively anticipate and respond
       to broker and borrower needs in each region and avoids origination and
       production bottlenecks that can occur in a system where these functions
       are centralized at the home office. In addition, management believes that
       these teams enable the Company to move more rapidly into newly identified
       markets.
 
     - Thoroughly Trained Personnel.  Before commencing regular operations, each
       new employee of the Company receives training through the Company's
       three-part training program which includes computer-based training,
       classroom training and extensive on-the-job training. In many cases, this
 
                                       27
<PAGE>   29
 
       training includes cross-training regarding other functions to enhance
       coordination between personnel. The Company believes that its training
       program improves efficiency and the quality of the loans it produces.
 
     - Extensive Technological Capability.  The Company utilizes a nationwide
       communication system and computer network in all aspects of operations
       from origination through funding, which enables it to, among other
       things, maximize work flow by efficiently originating, underwriting and
       closing loans. In addition, these systems link Company personnel in the
       field to the home office and enable senior management to monitor all
       regional functions on a real time basis.
 
     - Efficiency of Operations.  The Company operates efficiently due to its
       high volume of loans (which produce economies of scale) and consistency
       in applying underwriting standards, which reduces non-qualifying
       submissions from brokers, thereby increasing the Company's funding to
       submission ratio. The Company believes its infrastructure is adequate to
       support anticipated growth.
 
     The Company seeks to profitably expand its broker-sourced loan business
through increased penetration in its existing markets and expansion into new
geographic markets. Elements in achieving these objectives include the
following: (i) expanding the account executive network to reach new brokers;
(ii) developing and implementing a centralized telemarketing campaign and
increasing coordination between the Company's centralized marketing efforts and
the account executives in the field; (iii) developing and implementing
electronic broker support systems (including electronic loan application
submission and risk classification through the Company's wide-area network); and
(iv) expanding the automation of the underwriting process in order to increase
the number of loan applications processed by each underwriter in a given day.
 
     Although the Company currently conducts primarily broker-sourced business,
the Company intends to develop a fully integrated mortgage banking business. An
important step in this expansion is the planned commencement during 1997 of
direct-sourced loan origination activities, which will provide the Company with
an additional distribution channel for its products. See "-- Loan Origination
and Purchasing -- Direct-Sourced Loan Operations."
 
LOAN ORIGINATION AND PURCHASING
 
     The Company originates loans through Company-approved independent mortgage
brokers and, to a lesser extent, purchases loans from other mortgage banking
companies. The following table shows certain combined data regarding the
Company's loan originations and purchases for the periods indicated:
 
   
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                        ------------------------------------
                                                          1994         1995          1996
                                                        --------     --------     ----------
                                                               (DOLLARS IN THOUSANDS)
    <S>                                                 <C>          <C>          <C>
    Aggregate Principal Balance.......................  $565,547     $592,542     $1,058,122
    Number of Loans...................................     4,883        6,008         10,041
    Average Principal Balance per Loan................  $    116     $     99     $      105
    Combined Weighted Average Loan-to-Value(1)(2).....      69.1%        72.2%          75.0%
    Weighted Average Fixed Interest Rate(1)(3)........       N/A         11.3           10.5
    Weighted Average Adjustable Interest Rate(1)......       8.6%        10.4            9.6
    Weighted Average Fixed/Adjustable Interest
      Rate(1).........................................       9.5         11.3           10.0
    Loans on Single Unit Properties(1)................  $535,872     $551,871     $1,004,398
    Loans on Two to Four Unit Properties(1)...........    28,204       34,106         50,488
    "A-" and "B+" Loans as a Percentage of Total
      Loans(1)(4).....................................      44.6%        55.0%          69.2%
</TABLE>
    
 
---------------
 
   
(1) Calculated based on loans originated and purchased, net of loans rescinded
    because the related lending transactions did not close. Such rescinded loans
    aggregated approximately $1.0 million, $7.0 million and $3.0 million in
    1994, 1995 and 1996, respectively.
    
 
(2) Determined by dividing the amount of the loan by the lesser of the purchase
    price or the appraised value of the mortgaged property at origination.
 
(3) The Company did not offer fixed rate loans during 1994.
 
                                       28
<PAGE>   30
 
(4) Based on original principal balance.
 
     Substantially all loans originated or purchased by the Company are secured
by a first priority mortgage on the subject property. In 1996, less than .03% of
the principal balance of the loans originated and purchased were secured by
second priority mortgages.
 
  Geographic Markets
 
     The approximately 7,500 approved independent mortgage brokers with whom the
Company has relationships are located in 43 states. During 1996, approximately
5,000 of these brokers submitted loan packages to the Company and the Company
funded loans from approximately 2,800 brokers. The following table shows
geographic distribution of (i) the aggregate principal balance of loan
originations and purchases for the periods shown, and (ii) Company-approved
independent mortgage brokers for the year ended December 31, 1996:
 
<TABLE>
<CAPTION>
                                                 LOAN ORIGINATIONS
                                                   AND PURCHASES             INDEPENDENT MORTGAGE
                                              YEAR ENDED DECEMBER 31,            LOAN BROKERS
                                             -------------------------       --------------------
                                             1994      1995      1996         DECEMBER 31, 1996
                                             -----     -----     -----       --------------------
    <S>                                      <C>       <C>       <C>         <C>
    STATES(1)(2):
      California...........................   70.4%     43.1%     37.1%               51.1%
      Colorado.............................    2.1       2.9       7.3                 4.3
      Illinois.............................    1.4       8.7       6.2                 4.3
      Utah.................................    4.3       6.6       5.1                 1.4
      Oregon...............................    2.7       4.0       4.3                 1.8
      Texas................................    0.0       1.5       3.8                 5.4
      Washington...........................    8.2       5.3       3.7                 3.8
      Michigan.............................    0.2       3.9       3.7                 1.5
      Florida..............................    0.1       1.5       3.5                 4.7
      All other States(3)..................   10.6      22.5      25.3                21.7
                                             -----     -----     -----               -----
              Total........................  100.0%    100.0%    100.0%              100.0%
                                             =====     =====     =====               =====
</TABLE>
 
---------------
 
(1) States are listed in order of percentage of loan originations and purchases
    for the year ended December 31, 1996.
 
(2) Calculated based on loans originated and purchased, net of loans rescinded
    because the related lending transactions did not close.
 
(3) For the year ended December 31, 1996, loan originations and purchases in
    each other state were less than 2.6% of total originations and purchases for
    the year.
 
     The Company currently actively originates loans in 112 of the approximately
300 MSAs in the United States having populations in excess of 100,000, as
compared to loan originations in 54 of these MSAs in 1995. Another 12 MSAs have
been identified as expansion opportunities in 1997 and the Company plans to add
approximately 120 new account executives during the year in order to more
effectively enter these new markets as well as further penetrate the Company's
existing markets.
 
     The Company's geographic markets are divided into 15 regions, with a
completely self-contained mortgage banking team assigned to each region. Each
team is headed up by a regional manager and includes dedicated account
executives, underwriters, appraisers and other production personnel so that the
team can originate and produce loans in that region. This concept of regional
processing teams, which the Company believes is unique in the industry, enables
the Company to more effectively anticipate and respond to broker and borrower
needs in each region. Management believes that the concept also appeals to
independent brokers who may be reluctant to deal with a larger, more remote
lender. Each regional team is connected to senior management by a computer link
that enables senior management to monitor all regional functions on a real time
basis.
 
     When a regional processing team is first established to serve a particular
region, the team is physically located at the Company's headquarters. Once the
Company determines that the level of current and projected
 
                                       29
<PAGE>   31
 
business from a region warrants creation of a regional processing center for
that region, the Company will establish a processing center in or near the
region and relocate the relevant regional processing team to the new center.
Currently 11 of the 15 regional processing teams are located at the Company's
headquarters in Orange, California. One team is located in the Woodland Hills,
California, processing center, which was opened in 1995, two more teams are
located in the Company's Rolling Meadows, Illinois, center and a fourth team is
located in San Diego, California. The Rolling Meadows and San Diego centers were
established in 1996. The Company expects to relocate four more regional teams to
new processing centers during the first quarter of 1997 in Walnut Creek,
California, Hingham, Massachusetts (which will house two regional teams), and
Fort Lauderdale, Florida.
 
  Products and Marketing
 
   
     The Company offers both fixed rate and adjustable rate loans, as well as
loans with an interest rate that is initially fixed for a period of time after
which the interest rate converts to an adjustable rate. The Company's borrowers,
who use the loans primarily to consolidate other debt or purchase homes, fall
into six sub-prime risk classifications (see "-- Underwriting") and the
Company's products are available at different interest rates and with different
origination and application points and fees depending on the particular
borrower's risk classification. The Company's core loan products provide for
loan amounts of up to $500,000 with a loan-to-value ratio of up to 85%, although
loans of this type originated in 1996 had an average loan amount of
approximately $103,600 and an average loan-to-value ratio of 74.1%. Core product
loans represented approximately 91.2% of the principal balance of the loans
originated or purchased by the Company in 1996. The Company recently introduced
a "jumbo" product providing for loans of up to $1,000,000 with lower loan-
to-value ratios than the core products, and also offers products that permit a
loan-to-value ratio of up to 90% for selected borrowers with a risk
classification of "A-" or "B+." The Company frequently reviews its products and
pricing for competitiveness and introduces new products to meet the needs of its
borrowers.
    
 
     The Company's primary means of marketing its products is direct contact
between its account executives and the independent mortgage brokers. Each
account executive is responsible for maintaining and expanding existing broker
relationships within the executive's assigned territory through personal contact
and promotional materials. Each account executive is typically responsible for
approximately five key brokers and is expected to have daily contact with each
of these brokers. In addition, each account executive is responsible for up to
50 additional brokers with whom the executive will have frequent, although
typically not daily, contact. Each account executive also works to develop new
broker relationships through "cold calls" and following up on inquiries made by
brokers to a toll-free number.
 
     The Company believes that the key element in developing, maintaining and
expanding its independent mortgage broker relationships is to provide the
highest possible level of product knowledge and customer service to its brokers.
Each account executive receives comprehensive training prior to being assigned
to a territory. In most cases, training includes experience in the loan
production department so that the account executive will be familiar with all
phases of loan origination and production. This training enables the account
executive to quickly review a loan application in order to identify the
borrower's probable risk classification and then assist the broker in
identifying the appropriate product for the borrower, thereby enhancing the
likelihood that the loan will be approved at the rate and on the terms
anticipated by the borrower. After a loan package is submitted to the Company,
the account executive provides assistance to the broker throughout the process
to complete the loan transaction. Account executives are compensated based on
the number and the dollar volume of loans funded.
 
   
     The marketing department designs and produces all of the Company's
marketing materials in-house. Marketing materials are delivered through the
account executives as well as through regional and national advertising outlets,
daily faxing, fax-on-demand, direct mail and the Company's recently established
interactive internet website. The Company has a presence at and is a sponsor of
substantially all national industry conventions and trade shows, as well as
substantially all state and regional industry conventions and trade shows in
states where the Company has an operating location. The Company conducts free
seminars at each of its operating locations designed to target new and existing
independent brokers.
    
 
                                       30
<PAGE>   32
 
  Technology
 
     The Company utilizes computer technology to maximize the efficiency and
volume of its loan originations. Most of the account executives are linked to
the Company's computer systems by a wide area network. Through this network, an
account executive receives daily status reports regarding pending loans so that
he or she can direct efforts to those cases that require attention to complete
the processing. Certain account executives, who are not on the network, receive
the same data by daily fax communication. The Company recently established an
internet website through which independent brokers can access information about
the Company and its products. Brokers also can use the website to submit
requests for loan prequalification. The website address is
http://www.lbmcwholesale.com.
 
     The Company makes extensive use of computer technology in its underwriting
process. Each loan application file is computerized so that it can be accessed
immediately by the appropriate persons, thereby eliminating delay that would
otherwise be caused by not having physical access to the file. The system also
reduces the time required for an underwriter to make certain essential
calculations by enabling the underwriter to input specified raw data after which
the computer will automatically make such calculations.
 
   
     The Company regularly reviews its computer capabilities to better utilize
and expand those capabilities. The Company is developing a system to enable its
account executives to use electronic risk classifying and loan application
technology to expedite the origination process. This system is expected to be
operational sometime during the second half of 1997. The Company is also working
to expand the automation of its underwriting process to increase the number of
loan applications processed by each underwriter in a given day.
    
 
     The Company is currently dependent on Old Long Beach for many of these
computer systems. See "Risk Factors -- Risks of Contracted Services" and
"Certain Transactions."
 
  Correspondent Loan Purchasing
 
     The Company augments its loan production by purchasing loans on a
correspondent basis from smaller mortgage companies and commercial banks after
such loans have been funded by the originator. The Company typically purchases
the servicing rights to the loans as well. The Company believes that purchasing
loans from such originators is attractive because the Company is able to acquire
a pool of loans in a single transaction on a cost-efficient basis. The cost
efficiency is due to the Company not having to incur origination and processing
costs with respect to the loans it purchases from an established originator such
as a bank or smaller mortgage company.
 
     When it first begins buying loans from an originator, the Company works
closely with the originator's personnel to familiarize them with the process
necessary to produce loans that the Company is willing to purchase. This ensures
that the Company will be able to include these loans in its loan sales. In the
initial phase with a new originator, the Company processes the loan applications
as if they were the Company's own originations and then the loans are funded by
the originator. Once the Company is comfortable that the originator has
developed the capability to originate and process loans that comply with the
Company's guidelines and standards, the Company's active involvement in the
processing of the originator's loans ceases, although the Company reviews loans
submitted by the originator prior to accepting them in order to confirm that
each complies with the Company's underwriting guidelines and documentation
standards. It is at this point that the Company begins to recognize the cost
efficiency of purchasing loans.
 
     When the Company purchases loans, it receives representations and
warranties and first payment default and fraud protections from the originators
that are similar to those that the Company provides to its loan purchasers. See
"-- Financing and Sale of Loans -- Loan Sales."
 
     The loan purchase program accounted for approximately 3% of the Company's
total loan volume by principal amount during 1996. The Company intends to expand
the loan purchase program in 1997, although it is expected that loan purchases
during the year will constitute less than 10% of the Company's loan volume for
1997. Expansion is expected to be accomplished through better integration of the
loan purchasing process into the Company's regional processing team structure.
 
                                       31
<PAGE>   33
 
  Direct-Sourced Loan Operations
 
   
     Although the Company currently originates primarily broker-sourced loans,
the Company intends to develop a fully integrated mortgage banking business. An
important step in this expansion is the planned commencement during 1997 of
direct-sourced loan origination activities. Direct-sourced lending will provide
the Company with an additional distribution channel for its products and the
ability to retain the origination fees for the loans it funds. The Company
expects that the gain on future sales of direct-sourced loans will be greater
than the gain on sales of broker-sourced loans because, unlike in the case of
broker-sourced originations, a third party does not share in the fees and points
paid by the borrower.
    
 
     The Company expects that its direct-sourced loan operations will offer the
same products as those of the broker-sourced operations and will be sourced
primarily through technology-based marketing, relying to a great extent on
telemarketing rather than a network of sales offices. This will enable the
Company to commence these operations more rapidly and with less overhead than a
direct-sourced loan business that operates through a sales office network. The
Company's senior management is also experienced in direct-sourced loan
originations, since several of the senior executives were involved in creating
the direct-sourced lending operations of Old Long Beach prior to the
Reorganization. In addition, the Company expects to fill a portion of the
staffing needs of the direct-sourced loan operations with experienced personnel
currently working in the broker-sourced loan operations. The Company estimates
that it will expend approximately $1.0 million in 1997 in connection with its
commencement of direct-sourced loan operations.
 
     The direct-sourced loan operations will compete directly with several well
established financial services companies, including Old Long Beach. No assurance
can be given that the Company will be able to commence direct-sourced loan
origination operations as planned or that such operations will be successful.
 
UNDERWRITING
 
     The Company trains its underwriters and account executives to evaluate each
loan application and supporting documentation (a "loan package") against the
Company's underwriting guidelines. The Company utilizes experienced underwriters
who have been comprehensively trained. The Company's underwriters are required
to have had either one or more years of sub-prime underwriting experience with a
consumer finance company or other sub-prime lender or one or more years of
experience with the Company in other aspects of the sub-prime mortgage finance
industry before becoming part of the Company's underwriting department. Upon
joining the underwriting department, each underwriter is educated regarding the
Company's underwriting guidelines and trained to implement the Company's
underwriting procedures. The Company believes that its training program enables
its underwriters to quickly review and evaluate loan packages while
understanding and adhering to the Company's underwriting guidelines.
 
   
     The Company's underwriting guidelines are primarily intended to evaluate
the value and adequacy of the mortgaged property as collateral and are also
intended to consider the borrower's credit standing and repayment ability. Loan
applications meeting the Company's guidelines for its core products may be
approved by a senior underwriter who is required to have a minimum of five years
experience in the sub-prime mortgage industry. On a case-by-case basis and only
with the approval of two or more senior lending officers, each of whom is
required to have a minimum of seven years experience in the sub-prime mortgage
industry, the Company may determine that, based upon compensating factors, a
prospective borrower not strictly qualifying under the Company's underwriting
guidelines warrants an underwriting exception. Compensating factors may include,
but are not limited to, low loan-to-value ratios, low debt-to-income ratios,
good credit history, stable employment and time in residence at the borrower's
current address. In the year ended December 31, 1996, not more than fifteen
percent of the principal balance of the loans originated by the Company
qualified based on compensating factors.
    
 
     All of the loans originated by the Company are based on loan packages
submitted through mortgage brokers directly or through Company account
executives or are purchased from Company-approved originators. Loan packages
submitted through mortgage brokers, which are required to include in each case
relevant credit, property and underwriting information, are compiled by the
submitting mortgage brokers and
 
                                       32
<PAGE>   34
 
submitted to the Company for approval and funding. The mortgage brokers receive
a portion of the loan origination fee charged to the borrower at the time the
loan is funded.
 
     Each prospective borrower is required to complete an application which
includes information with respect to the borrower's liabilities, income, credit
history and employment history, as well as certain other personal information.
After the loan package is received by the Company and entered into the Company's
computerized underwriting system, the underwriters on the appropriate regional
processing team or the underwriting department of the originator of a purchased
loan typically review and verify the prospective borrower's sources of income,
calculate the amount of income from all sources indicated on the loan
application, review the credit history of the prospective borrower, calculate
the debt-to-income ratio to determine the prospective borrower's ability to
repay the loan, and review the mortgaged property for compliance with Company
guidelines. The prospective borrower must generally provide to the Company or
the originator of a purchased loan a letter explaining all late payments on
mortgage debt and, generally, consumer debt. The Company or the originator of a
purchased loan also obtains a credit report on each prospective borrower from an
established credit reporting company. The report typically contains information
relating to such matters as credit history with local and national merchants and
lenders, installment debt payments and any record of default, bankruptcy,
repossession, suits or judgments. Self-employed individuals are generally
required to submit their two most recent federal income tax returns. As part of
its quality control system, the Company reverifies information with respect to
any of the foregoing matters that has been provided by the mortgage brokers
prior to funding a loan and periodically audits files based on a random sample
of closed loans. In the course of its pre-funding audit, the Company reverifies
the income of each borrower or, for a self-employed individual, reviews the
income documentation obtained pursuant to the Company's guidelines. The Company
generally also verifies the source of funds for the downpayment. In addition,
the Company reviews loan packages submitted by originators prior to accepting
them in order to confirm that each complies with the Company's underwriting
guidelines and documentation standards.
 
   
     The Company strives to process each loan application as quickly as possible
in accordance with the Company's underwriting criteria. Accordingly, most loan
applications receive decisions within 24 to 48 hours of receipt and are funded,
on average, within 25 calendar days of submission. The Company also utilizes
four different income documentation programs which impose less rigorous
documentation standards than those described above, namely, the full income
documentation program (pursuant to which a prospective borrower's income is
evaluated based on tax returns, W-2 forms and pay stubs), the limited income
documentation program (pursuant to which a prospective borrower's income is
evaluated based on bank statements and profit and loss statements), the stated
income program (pursuant to which a prospective borrower's employment, rather
than income, is verified) and the no ratio loan program (pursuant to which a
prospective borrower's credit history and collateral values, rather than income
or employment, are verified).
    
 
     The Company believes its underwriting procedure complies with applicable
federal and state laws and regulations. The Company requires (i) an appraisal of
the mortgaged property which conforms to agency standards and (ii) a review of
such appraisal, which review may be conducted by a Company-trained underwriter,
a Company staff appraiser or a Company-approved independent appraiser and,
depending upon the original principal balance and loan-to-value ratio of the
mortgaged property, may include a drive-by review appraisal of the mortgaged
property.
 
     Mortgaged properties that are to secure mortgage loans underwritten by the
Company are appraised by qualified independent appraisers who are approved by
the Company's internal chief appraiser. In most cases, properties in
below-average condition and with below-average marketability (including
properties requiring major deferred maintenance) are not acceptable as security
for the Company's mortgage loans. Each appraisal includes a market data analysis
based on recent sales of comparable homes in the area and, where deemed
appropriate, replacement cost analysis based on the current cost of constructing
a similar home. Every independent appraisal is reviewed by a Company-trained
underwriter, a Company staff appraiser or a Company-approved independent
appraiser before the loan is funded.
 
     With respect to the borrower's credit standing and repayment ability, the
Company's guidelines are less stringent than the standards generally acceptable
to the Federal National Mortgage Association ("FNMA")
 
                                       33
<PAGE>   35
 
and the Federal Home Loan Mortgage Corporation ("FHLMC"). Borrowers who qualify
under the Company's guidelines generally have payment histories and debt ratios
which would not satisfy FNMA and FHLMC underwriting guidelines and may have a
record of major derogatory credit items such as outstanding judgments or prior
bankruptcies. The Company's guidelines establish the maximum permitted
loan-to-value ratio for each loan type based upon these and other risk factors.
 
     The Company requires all mortgage loans to be covered by title insurance
and to be secured by liens on real property. The Company also requires fire and
extended coverage casualty insurance to be maintained on the secured property in
an amount at least equal to the principal balance of the related loan. Flood
insurance is also required for all properties located in a defined flood zone.
If the borrower fails to provide fire and extended coverage insurance (and flood
insurance if required) prior to closing of the borrower's loan or if the
borrower's coverage is subsequently canceled or not renewed at any time during
the loan period and the borrower fails to obtain new coverage, the Company,
through an outside insurance vendor who monitors whether insurance is
maintained, will provide coverage on the borrower's behalf under policies
insuring the Company's interest in the collateral (a "forced placement" of
insurance). The amount and type of insurance and the circumstances under which
the Company can force place insurance are subject to state and federal
regulations with which the Company believes it is in compliance.
 
     Upon completion of the underwriting process, the closing of the loan is
scheduled with a Company-approved closing attorney or agent. The closing
attorney or agent is responsible for completing the loan closing transaction in
accordance with applicable law and the Company's operating procedures. The
closing attorney or agent is typically selected by the mortgage broker through
which the Company originated the loan. The Company audits the selected closing
attorney or agent to ensure such attorney or agent is a fully licensed and
experienced professional from an established firm or company. In addition, the
Company requires that the closing attorneys and agents it utilizes maintain
insurance against the errors and omissions of such closing attorneys and agents.
 
  Underwriting Criteria
 
     The Company has established classifications with respect to the credit
profiles of loans based on certain of the prospective borrower's characteristics
to grade the likelihood that the borrower will satisfy the repayment condition
of the mortgage loan. Each prospective borrower currently is placed into one of
six letter ratings ("A-", "B+", "B", "B-", "C" and "C-"). Ratings are based upon
a number of factors including the prospective borrower's credit history, the
value of the property, the loan-to-value ratio and loan amount, the occupancy
status of the mortgaged property and the borrower's debt ratio. In general, high
credit risk mortgage loans are graded in categories which permit higher debt
ratios and more (or more recent) major derogatory credit items such as
outstanding judgments or prior bankruptcies; to counteract such risk, the
Company imposes lower maximum loan-to-value ratios and maximum loan amounts for
loans graded in such categories. Terms of loans made by the Company, as well as
the maximum loan-to-value ratio and debt service-to-income coverage vary
depending upon the classification of the borrower.
 
                                       34
<PAGE>   36
 
     The general criteria currently used by the Company in classifying
prospective borrowers of its core loan products who have provided the basic
documentation described above are summarized in the chart below:
 
<TABLE>
<CAPTION>
UNDERWRITING
CRITERIA/RISK
CLASSIFICATION     "A-" RISK          "B+" RISK          "B" RISK           "B-" RISK          "C" RISK           "C-" RISK
-------------  -----------------  -----------------  -----------------  -----------------  -----------------  -----------------
<S>            <C>                <C>                <C>                <C>                <C>                <C>
LOAN-TO-VALUE
  RATIO......  85% for purchases  80% for purchases  80% for purchases  75% for purchases  75% for purchases  70% for purchases
               or refinancings    or refinancings    or refinancings    or refinancings    or refinancings    and 65% for
               of single family   of single family   of single family   of properties      of properties      refinancings of
               residences which   residences which   residences which   which are owner    which are owner    properties which
               are owner          are owner          are owner          occupied; 65% for  occupied; 60% for  are owner
               occupied; 75% for  occupied; 75% for  occupied; 75% for  any non-owner      any non-owner      occupied; 50%
               purchases or       purchases or       purchases or       occupied           occupied           ratio is
               refinancings of 2  refinancings of 2  refinancings of 2  properties or      properties or      considered on a
               to 4 unit          to 4 unit          to 4 unit          second homes       second homes       case-by-case
               dwellings and      dwellings and      dwellings and                                            basis on any
               condominiums; 70%  condominiums; 70%  condominiums; 70%                                        non-owner
               for non-owner      for non-owner      for non-owner                                            occupied
               occupied single    occupied single    occupied single                                          properties or
               family             family             family                                                   second homes
               residences,        residences,        residences,
               planned unit       planned unit       planned unit
               developments or    developments or    developments and
               condominiums; 65%  condominiums; 65%  condominiums; 65%
               for non-owner      for non-owner      for non-owner
               occupied 2 to 4    occupied 2 to 4    occupied 2 to 4
               unit dwellings or  unit dwellings or  unit dwellings or
               second homes       second homes       second homes
MAXIMUM DEBT
  RATIO......  47%(1)             50%(1)             50%(1)             55%                55%; 55% to 60%    55%; 55% to 60%
                                                                                           considered on a    considered on a
                                                                                           case-by-case       case-by-case
                                                                                           basis              basis
CONSUMER
  CREDIT.....  With certain       With certain       With certain       Derogatory credit  Other derogatory   Other derogatory
               exceptions, no     exceptions, no     exceptions, no     items are less     credit items are   credit items are
               payments more      payments more      payments more      than 50% of total  considered on a    considered on a
               than 30 days late  than 60 days late  than 60 days late  items on credit    case-by-case       case-by-case
               in the past 12     in the past 12     in the past 12     report(3); no      basis; no          basis; not
               months(2);         months(2);         months(2);         bankruptcies in    bankruptcies in    currently in
               derogatory credit  derogatory credit  derogatory credit  the last 24        the last 12        bankruptcy
               items are less     items are less     items are less     months             months
               than 25% of total  than 35% of total  than 50% of total
               items on credit    items on credit    items on credit
               report(3); no      report(3); no      report(3); no
               bankruptcies in    bankruptcies in    bankruptcies in
               the last 36        the last 36        the last 24
               months             months             months
MORTGAGE
 CREDIT(4)...  Maximum of 1 30-   Maximum of 2 30-   Maximum of 4 30-   Maximum of 1 60-   Maximum of 2 60-   Maximum of 2 60-
               day late payment   day late payments  day late payments  day late payment   day late payments  day late payments
               in the past 12     in the past 12     in the past 12     in the past 12     and 1 90-day late  and 1 90-day late
               months; no         months; no         months; no         months; maximum    payment or 3 60-   payment or 3 60-
               notices of         notices of         notices of         of a 30 day        day late payments  day late payments
               default or         default or         default or         delinquency at     and no 90-day      and no 90-day
               foreclosures in    foreclosures in    foreclosures in    the time of        late payments in   late payments in
               the last 36        the last 36        the last 24        application/       the last 12        the last 12
               months             months             months             funding; no        months; maximum    months; may have
                                                                        notices of         of a 60 day        notices of
                                                                        default or         delinquency at     default or
                                                                        foreclosures in    the time of        foreclosures in
                                                                        the last 24        funding; no        the last 24
                                                                        months             notices of         months on a
                                                                                           default or         case-by-case
                                                                                           foreclosures in    basis
                                                                                           the last 12
                                                                                           months
</TABLE>
 
---------------
(1) Debt ratios may be increased if the loan-to-value ratio is decreased under
    certain circumstances.
 
(2) For "A-" risk classifications, 60-day late payments in the last 12 months
    are permitted but may not (i) represent more than 25% of the items reported
    on a credit report during that period unless approved by a Company officer
    or wholesale credit manager or (ii) exceed three items. For "B+" risk
    classifications 60-day and 90-day late payments in the last 12 months are
    permitted but may not (i) represent more than 35% of the items reported on a
    credit report during that period unless approved by a Company officer or
    wholesale credit manager or (ii) exceed four items. For "B" and "B-" risk
    classifications 60-day and 90-day late payments in the last 12 months are
    permitted but may not (i) represent more than 50% of items reported on a
    credit report during that period unless approved by a Company officer or
    wholesale credit manager or (ii) exceed five items.
 
(3) Non-mortgage and consumer-related credit, collections or judgments may be
    disregarded on a case-by-case basis. Thirty day credit may be disregarded is
    not included in the percentage of derogatory credit items.
 
(4) Consecutive rolling consumer and mortgage 30-day delinquencies up to six
    months reported on a credit report may be counted as one late payment.
 
                                       35
<PAGE>   37
 
     The Company's core loan products represented approximately 91.2% of the
loans originated and purchased by the Company in 1996. In addition to its core
loan products, the Company recently introduced a "jumbo" product providing for
loans of up to $1,000,000 with lower loan-to-value ratios than the core
products, and also offers products that permit a loan-to-value ratio of up to
90% for selected borrowers with a risk classification of "A-" or "B+."
 
   
     The following table sets forth certain information with respect to the
Company's loan purchases and originations by product and risk classification,
along with weighted average interest rates and margins, for the periods shown.
The table has been compiled based on loans originated and purchased, net of
loans rescinded because the related lending transactions did not close. Such
rescinded loans aggregated approximately $1.0 million, $7.0 million and $3.0
million in 1994, 1995 and 1996, respectively.
    
   
<TABLE>
<CAPTION>
                                       1994                                           1995                            1996
                   --------------------------------------------   --------------------------------------------   --------------
                                           WEIGHTED                                       WEIGHTED
                                           AVERAGE    WEIGHTED                            AVERAGE    WEIGHTED
   PRODUCT/RISK                    % OF    INTEREST    AVERAGE                    % OF    INTEREST    AVERAGE
 CLASSIFICATIONS      VOLUME      TOTAL    RATE(1)    MARGIN(2)      VOLUME      TOTAL    RATE(1)    MARGIN(2)       VOLUME
------------------ ------------   ------   --------   ---------   ------------   ------   --------   ---------   --------------
<S>                <C>            <C>      <C>        <C>         <C>            <C>      <C>        <C>         <C>
FIXED RATE:
 A-...............                                                $ 38,896,090    49.86%    10.95%               $  231,791,811
 B+...............                                                  18,576,798    23.81     11.25                    53,183,511
 B................                                                   6,365,227     8.16     11.23                    36,257,423
 B-...............                Product Not Offered                4,358,785     5.59     11.74                    28,698,749
 C................                                                   9,597,677    12.30     12.46                    39,593,871
 C-...............                                                     219,450     0.28     12.83                     1,820,230
                                                                  ------------   ------     -----                --------------
   Totals.........                                                $ 78,014,027   100.00%    11.28%               $  391,345,595
ADJUSTABLE RATE:
 A-............... $181,389,102    32.78%     8.04%       5.35%   $207,152,082    43.11%     9.70%       5.80%   $  293,519,071
 B+...............   63,797,497    11.53      8.06        5.30      42,810,928     8.91     10.13        5.84        67,306,298
 B................   37,766,717     6.81      8.68        5.67      42,050,074     8.75     10.50        6.29        51,769,516
 B-...............  105,467,270    19.06      8.48        5.56      63,323,882    13.18     10.64        6.29        45,080,472
 C................  122,937,538    22.22      9.13        5.89     100,768,358    20.97     11.28        6.58        86,777,574
 C-...............   42,041,084     7.60     10.02        6.22      24,378,019     5.08     12.33        6.87        22,001,379
                   ------------   ------     -----        ----    ------------   ------     -----        ----    --------------
   Totals......... $553,399,208   100.00%     8.56%       5.60%   $480,483,343   100.00%    10.40%       6.13%   $  566,454,310
FIXED/ADJUSTABLE
 RATE:
 A-............... $  5,717,490    53.55%     9.15%       4.90%   $ 11,803,892    42.96%    10.61%       5.24%   $   70,948,782
 B+...............      598,375     5.60      9.19        4.88       2,853,825    10.39     10.78        5.35        13,462,405
 B................      734,880     6.88      9.85        5.20       2,877,870    10.47     11.17        5.18         6,648,603
 B-...............    1,503,425    14.09      9.73        4.96       3,921,375    14.27     11.57        5.58         1,987,247
 C................    1,721,500    16.12     10.42        5.77       4,826,445    17.56     12.53        5.74         3,521,179
 C-...............      401,200     3.76     10.36        6.14       1,195,467     4.35     13.37        6.10           518,050
                   ------------   ------     -----        ----    ------------   ------     -----        ----    --------------
   Totals......... $ 10,676,870   100.00%     9.53%       5.11%   $ 27,478,874   100.00%    11.28%       5.42%   $   97,086,266
ALL PRODUCTS
 A-............... $187,106,592    33.17%                         $257,852,064    44.01%                         $  596,259,664
 B+...............   64,395,872    11.42                            64,241,551    10.96                             133,952,214
 B................   38,501,597     6.83                            51,293,171     8.75                              94,675,542
 B-...............  106,970,695    18.96                            71,604,042    12.22                              75,766,468
 C................  124,659,038    22.10                           115,192,480    19.66                             129,892,624
 C-...............   42,442,284     7.52                            25,792,936     4.40                              24,339,659
                   ------------   ------                          ------------   ------                          --------------
   Totals......... $564,076,078   100.00%                         $585,976,244   100.00%                         $1,054,886,171
 
<CAPTION>
 
                             WEIGHTED
                             AVERAGE    WEIGHTED
   PRODUCT/RISK      % OF    INTEREST    AVERAGE
 CLASSIFICATIONS    TOTAL    RATE(1)    MARGIN(2)
------------------  ------   --------   ---------
<S>                <<C>      <C>        <C>
FIXED RATE:
 A-...............   59.23%    10.20%
 B+...............   13.59     10.43
 B................    9.26     10.76
 B-...............    7.33     10.97
 C................   10.12     11.66
 C-...............    0.47     11.36
                    ------     -----
   Totals.........  100.00%    10.49%
ADJUSTABLE RATE:
 A-...............   51.82%     8.98%       6.09%
 B+...............   11.88      9.30        6.15
 B................    9.14      9.90        6.39
 B-...............    7.96     10.00        6.49
 C................   15.32     10.73        6.64
 C-...............    3.88     11.89        6.85
                    ------     -----        ----
   Totals.........  100.00%     9.57%       6.27%
FIXED/ADJUSTABLE
 RATE:
 A-...............   73.08%     9.84%       5.58%
 B+...............   13.86     10.30        6.00
 B................    6.85     10.46        6.17
 B-...............    2.05     10.72        6.41
 C................    3.63     11.19        6.77
 C-...............    0.53     11.11        6.87
                    ------     -----        ----
   Totals.........  100.00%    10.02%       5.75%
ALL PRODUCTS
 A-...............   56.52%
 B+...............   12.70
 B................    8.98
 B-...............    7.18
 C................   12.31
 C-...............    2.31
                    ------
   Totals.........  100.00%
</TABLE>
    
 
---------------
 
(1) Each Fixed Rate loan bears interest at a fixed rate set on its date of
    funding and lasting through the term of the loan. Loans bearing interest at
    the Adjustable Rate adjust every six months to a new rate through the term
    of the loan. The Weighted Average Interest Rate for loans bearing interest
    at an Adjustable Rate is the weighted average of the rates of such loans
    during the initial six month period. Loans bearing interest at the
    Fixed/Adjustable Rate bear interest at a fixed rate for an initial period
    commencing on the date of funding (e.g., two years, five years or ten years)
    and thereafter adjust to new rates every six months for the remaining term
    of the loans. The Weighted Average Interest Rate for loans bearing interest
    at a Fixed/Adjustable Rate is the weighted average of the rates of such
    loans during the initial period.
 
(2) The Margin for a loan is a fixed amount set for the life of the loan, which
    when added to the Index (as described below) determines the interest rate on
    the loan (subject to interest rate floors, ceilings and caps). The Index
    used by the Company is the six-month London Inter Bank Offered Rate, as
    published each Monday in The Wall Street Journal. Fixed Rate loans have no
    Margin because such loans are not tied to an index.
 
                                       36
<PAGE>   38
 
FINANCING AND SALE OF LOANS
 
  Warehouse Financing Facility
 
   
     The Company finances its origination and purchase of loans primarily with
the proceeds of borrowings under its $200 million mortgage Warehouse Financing
Facility (which is being obtained in connection with the Reorganization).
Borrowings under the Warehouse Financing Facility for a particular loan may
remain outstanding for no more than 120 days, except for an aggregate amount not
to exceed $10 million, which may remain outstanding for up to 180 days.
Borrowings under the Warehouse Financing Facility are permitted up to 98% of the
principal balance of the originated and purchased loans and bear interest at
rates ranging from 1.375% to 1.625% over the 30-day reserve-adjusted LIBOR
(i.e., the London Inter Bank Offered Rate), depending on the level of loan
documentation the Company has delivered to the agent for the syndicate of banks
providing credit under the Warehouse Financing Facility. The Warehouse Financing
Facility also includes a $25 million subline for servicing advances, as well as
principal and interest advances, primarily to securityholders in connection with
securitizations by purchasers of the Company's loans in which the Company serves
as the master servicer, and a $5 million subline which may be used to finance
mortgage loans owned by the Company that are in the process of collection or
resale to investors. The sublines bear interest at rates ranging from 1.875% to
2.0% over the 30-day reserve-adjusted LIBOR. The Warehouse Financing Facility
will expire on March 31, 1999, unless earlier terminated or extended in
accordance with its terms. The Warehouse Financing Facility contains financial
covenants that (i) New Long Beach maintain tangible net worth equal to at least
$25 million, plus 25% of cumulative net earnings, (ii) delinquencies on New Long
Beach's mortgage servicing portfolio not exceed 12% and (iii) the ratio of total
liabilities to adjusted tangible net worth not exceed 9:1. The Warehouse
Financing Facility also contains other affirmative, negative and financial
covenants typical of similar credit facilities.
    
 
  Loan Sales
 
     The Company follows a strategy of selling for cash substantially all of its
loan originations and purchases (while retaining the related servicing rights in
most cases) in the secondary market through loan sales in which the Company
disposes of its entire economic interest in the loans (other than the servicing
rights) for a cash price that represents a premium over the principal balance of
the loans sold. The Company sold $562.1 million, $580.4 million and
approximately $1.0 billion of loans through loan sales during 1994, 1995 and
1996, respectively. The Company did not sell any loans directly through
securitizations during these periods; however, substantially all of the loans
sold during these periods were ultimately securitized by the purchasers thereof.
 
   
     Loans generally are sold to institutional purchasers. Upon the consummation
of loan sales, the Company receives a "premium," representing a cash payment in
excess of the par value of the loans (par value representing the unpaid
principal balance of the loan). Premiums on loan sales represented 90.3% of the
Company's total revenues in 1996. The Company maximizes its premium on loan sale
revenue by closely monitoring institutional purchasers' requirements and
focusing on originating or purchasing the types of loans that meet those
requirements and for which institutional purchasers tend to pay higher rates.
During 1996, the Company sold loans to eight institutional purchasers. The
Company's loan purchasers typically resell the loans through securitizations.
    
 
     The Company makes loan sales by obtaining commitments from its whole loan
purchasers 30 to 90 days in advance of funding the loans to be purchased. These
commitments are obtained through a competitive bidding process among four to
nine potential purchasers who in most cases have purchased loans from the
Company in the past. The successful bidder is committed to a minimum quantity of
loans at a determined price, and is generally granted the option to purchase
more than the minimum quantity at a negotiated price. The Company continuously
monitors its loan production and purchasing against its unfilled purchase
commitments to identify potential shortfalls or overages in whole loans
available for delivery. As loans are funded, the Company packages them and
delivers them to the purchaser on a periodic basis.
 
     Loan sales are made on a non-recourse basis pursuant to a purchase
agreement containing customary representations and warranties by the Company
regarding the underwriting criteria and the origination process. The Company,
therefore, may be required to repurchase or substitute loans in the event of a
breach of its representations and warranties. In addition, the Company sometimes
commits to repurchase or substitute a
 
                                       37
<PAGE>   39
 
loan if a payment default occurs within the first month following the date the
loan is funded, unless other arrangements are made between the Company and the
purchaser. The Company is also required in some cases to repurchase or
substitute a loan if the loan documentation is alleged to contain fraudulent
misrepresentations made by the borrower.
 
  Securitization
 
   
     The Company has not sold loans directly through securitizations for several
years but will review its loan sale strategy from time to time and may decide to
sell loans directly through securitizations in the future if management
determines that such sales are more beneficial. Because the Company's loan
purchasers usually purchase those loans for resale in securitizations and the
Company typically assists with such securitizations, management is experienced
with the securitization process and market. In addition, rating agencies and
bond insurers have evaluated and are familiar with the Company's procedures and
underwriting guidelines in connection with such securitizations.
    
 
   
     Typically in a securitization, the issuer aggregates mortgages into a real
estate mortgage investment conduit trust. The regular interests or the senior
tranches of the trust are investment grade and are sold. While the issuer
generally retains the residual interests in the trust, it immediately sells the
regular interests and generally uses the proceeds to repay borrowings that were
used to fund or purchase the loans in the securitized pool. The holders of the
regular interests are entitled to receive scheduled principal collected on the
pool of securitized loans and interest at the pass-through interest rate on the
certificate balance for such interests. The residual interests represent the
subordinated right to receive cash flows from the pool of securitized loans
after payment of the required amounts to the holders of the regular interests
and the costs associated with the securitization. The issuer recognizes non-cash
revenue relating to the residual interest at the time of the securitization.
    
 
SERVICING
 
     The Company typically sells all of its originated and purchased loans for
cash and does not retain residual interests in the performance of portfolios
after they are sold (other than servicing rights, which the Company normally
retains). After the consummation of this Offering, the Company will retain no
servicing rights which relate to loans funded prior to the Reorganization.
 
     While the performance of the servicing portfolio will not directly impact
the Company's performance, any material change in the performance of the
portfolio could affect the pricing of the Company's future loan sales and the
ability of the Company to sell its loans in the future.
 
     The following table shows certain combined data regarding the performance
of the broker-sourced servicing portfolio of Old Long Beach.
 
<TABLE>
<CAPTION>
                                                                      AS OF OR FOR YEAR
                                                                      ENDED DECEMBER 31,
                                                                    ----------------------
                                                                    1994     1995     1996
                                                                    ----     ----     ----
    <S>                                                             <C>      <C>      <C>
    31-60 day delinquencies as a percentage of total principal
      balance as of period end(1).................................  0.8 %    1.5 %    1.6 %
    61-90 day delinquencies as a percentage of total principal
      balance as of period end(1).................................  0.9      1.0      1.0
    91 or more day delinquencies as a percentage of total
      principal balance as of period end(1).......................  3.9      4.5      4.5
    Total delinquencies as a percentage of total principal balance
      as of period end(1).........................................  5.7      7.0      7.1
    Total losses on loans as a percentage of average loans
      serviced(1).................................................  1.5      1.4      1.3
</TABLE>
 
---------------
 
(1) Calculated based on the total broker-sourced servicing portfolio of Old Long
    Beach.
 
   
     Because the Company will not have internal servicing capabilities
immediately after the Reorganization, the loans originated by the Company will
continue to be serviced by the Sub-Servicer, a division of Old Long Beach, the
Company's parent company prior to the completion of this Offering.
    
 
                                       38
<PAGE>   40
 
   
     The Sub-Servicer is one of the largest and most experienced sub-prime
mortgage loan servicers in the nation, with a servicing portfolio of
approximately $3.5 billion of sub-prime mortgage loans at December 31, 1996.
Management of the Company believes that the Sub-Servicer's success is due to the
sub-prime experience of the Sub-Servicer's management, the individualized
attention the Sub-Servicer's loan counselors pay to borrowers and the
streamlined collection procedures the Sub-Servicer has implemented. With nine
years of experience in the sub-prime mortgage loan servicing industry, the
Sub-Servicer is one of the oldest established sub-prime mortgage loan servicers
in the industry. The Sub-Servicer's loan counselors place emphasis on giving
personal attention to borrowers and routinely contact borrowers following the
funding of loans to confirm loan terms and due dates. Finally, the
Sub-Servicer's use of computer technology has streamlined its collection
procedures as well as the procedures governing the timing of the notice of
intent to foreclose for certain high risk borrowers. This computerization has
improved the efficiency of the Sub-Servicer's collections and the possibility of
collection of certain high risk debt. In addition, the Sub-Servicer's servicing
procedures were developed while the Company was part of Old Long Beach and are
coordinated with the Company's origination practices. Because of these factors,
management believes that the Sub-Servicer is able to provide faster and more
effective servicing of the Company's loans than could another independent
servicer.
    
 
   
     The Company is entering into a three-year agreement with the Sub-Servicer
under which the Sub-Servicer will sub-service loans originated or purchased by
the Company. Sub-servicing will be provided by the Sub-Servicer at an
agreed-upon rate and with default terms comparable to industry standards. The
agreement contains other customary terms and conditions and either party has the
right to terminate the agreement at any time effective after 18 months upon six
months' prior written notice to the other party. In the event of a termination,
either party may request that the loans that were sub-serviced by the
Sub-Servicer be transferred to the Company or its designee for servicing,
subject to obtaining any required consents to such transfer. The Company may
conduct its own servicing operations or select an alternate servicer following
termination or expiration of the agreement with the Sub-Servicer. See "Certain
Transactions -- Loan Sub-Servicing Agreement."
    
 
REGULATION
 
     New Long Beach's consumer lending activities are subject to the Federal
Truth-in-Lending Act ("TILA") and Regulation Z (including the Home Ownership and
Equity Protection Act of 1994), the Equal Credit Opportunity Act of 1974, as
amended ("ECOA") and Regulation B, the Fair Credit Reporting Act of 1970, as
amended, the Real Estate Settlement Procedures Act of 1974, as amended ("RESPA")
and Regulation X, the Home Mortgage Disclosure Act ("HMDA") and Regulation C,
the Federal Debt Collection Practices Act and the Fair Housing Act, as well as
other federal and state statutes and regulations affecting New Long Beach's
activities. Failure to comply with these requirements can lead to loss of
approved status, termination or suspension of servicing contracts without
compensation to the servicer, demands for indemnification or mortgage loan
repurchases, certain rights of rescission for mortgage loans, class action
lawsuits and administrative enforcements actions.
 
     New Long Beach is subject to the rules and regulations of, and examinations
by, the Department of Housing and Urban Development, the Federal Housing
Administration and other federal and state regulatory authorities with respect
to originating, underwriting, funding, acquiring, selling and servicing mortgage
loans. In addition, there are other federal and state statutes and regulations
affecting such activities. These rules and regulations, among other things,
impose licensing obligations on New Long Beach, establish eligibility criteria
for loans, prohibit discrimination, provide for inspection and appraisals of
properties, require credit reports on prospective borrowers, regulate payment
features and, in some cases, fix maximum interest rates, fees and loan amounts.
New Long Beach is required to submit annual audited financial statements to
various governmental regulatory agencies that require the maintenance of
specified net worth levels.
 
     New Long Beach is a FNMA approved seller/servicer and is subject to the
supervision of FNMA. In addition, New Long Beach's operations are subject to
supervision by state authorities (typically state banking or consumer credit
authorities), many of which generally require that New Long Beach be licensed to
conduct its business. This normally requires state examinations and reporting
requirements on an annual basis.
 
                                       39
<PAGE>   41
 
     The TILA requires a written statement showing an annual percentage rate of
finance charges and requires that other information be presented to debtors when
consumer credit contracts are executed. RESPA requires written disclosure
concerning settlement fees and charges, mortgage servicing transfer practices
and escrow or impound account practices. It also prohibits the payment or
receipt of kickbacks or referral fees in connection with the performance of
settlement services. The Fair Credit Reporting Act requires certain disclosures
to applicants concerning information that is used as a basis for denial of
credit. HMDA requires collection and reporting of statistical data concerning
the loan transaction. ECOA prohibits discrimination against applicants with
respect to any aspect of a credit transaction on the basis of sex, marital
status, race, color, religion, national origin, age, derivation of income from
public assistance programs, or the good faith exercise of a right under the
Federal Consumer Credit Protection Act. The Fair Housing Act prohibits
discrimination in mortgage lending on the basis of race, color, religion, sex,
handicap, familial status or national origin.
 
     The interest rates which New Long Beach may charge on its loans are subject
to state usury laws, which specify the maximum rate which may be charged to
consumers. In addition, both federal and state truth-in-lending regulations
require that New Long Beach disclose to its borrowers prior to execution of the
loans all material terms and conditions of the financing, including the payment
schedule and total obligation under the loans. New Long Beach believes that it
is in compliance in all material respects with such regulations.
 
     As a condition to funding of its loans, New Long Beach requires each
borrower to obtain and maintain in force a policy of insurance providing
coverage for improvements on any real property securing the borrower's loan. If
the borrower fails to provide fire and extended coverage insurance (and flood
insurance if required) prior to closing of the borrower's loan or if the
borrower's coverage is subsequently canceled or not renewed at any time during
the loan period and the borrower fails to obtain new coverage, New Long Beach,
through an outside insurance vendor who monitors whether insurance is
maintained, will provide coverage on the borrower's behalf under policies
insuring New Long Beach's interest in the collateral. Such practice is commonly
referred to as a "forced placement" of insurance. The insurance which can be
required and insurance which is forced placed is subject to regulation under
TILA, the National Flood Insurance Act, and state insurance regulatory and
lender statutes. Such laws and regulations generally impose disclosure and
notice requirements which must be satisfied in connection with insurance
requirements and the forced placement of coverage, limitations on the amount of
coverage that a lender may obtain to protect its interest in the collateral and
restrictions on fees and charges that New Long Beach may assess in connection
with such insurance.
 
     Failure to comply with any of the foregoing federal and state laws and
regulations could result in the imposition of civil and criminal penalties on
New Long Beach, class action lawsuits and administrative enforcement actions.
 
DEPARTMENT OF JUSTICE SETTLEMENT AGREEMENT
 
   
     In September 1996, Old Long Beach entered into a settlement agreement with
the U.S. Department of Justice (the "DOJ") arising out of a DOJ investigation
and complaint which alleged that Long Beach Bank, F.S.B. during the period from
January 1991 through June 1994 charged certain African-American, Hispanic,
female and older borrowers more than younger, white male borrowers in violation
of fair lending laws. Old Long Beach denied all allegations in the complaint and
all claims of discrimination. Old Long Beach also disputed the validity of the
statistical analysis relied upon by the DOJ as the principal basis for its
claims and further maintained that the DOJ theories of liability regarding
broker-sourced lending were legally unsupportable. Nonetheless, to avoid costly,
protracted litigation, Old Long Beach agreed to establish a $3 million fund to
reimburse up to 1,200 borrowers identified by the DOJ as the maximum number of
individuals who may have been affected by the alleged fair lending violations.
Old Long Beach asserted that the better solution to the issues raised by the DOJ
was an intensive national effort in consumer education and industry-wide
initiatives directed at employee and broker education and training. For this
reason, Old Long Beach also agreed to contribute an additional $1 million
(payable over 3 years) to fund consumer education programs in conjunction with
civil rights groups. Old Long Beach has established all funds required by the
settlement agreement.
    
 
     Pursuant to the settlement agreement, New Long Beach, as a successor to Old
Long Beach, will (i) document any price exceptions from the Company's rate sheet
on broker-sourced loans, (ii) periodically
 
                                       40
<PAGE>   42
 
review the results of its broker-sourced lending operations for its compliance
with fair lending laws (but in no event shall the Company be required to
disclose any documents or information therewith, including the identities of any
brokers with whom it does business), (iii) retain all loan application files
submitted for mortgage loans and all loan-rider documents and notices relevant
to any pricing decisions until September 1999 and report to the DOJ
semi-annually on compliance with the settlement agreement, and (iv) provide to
brokers information about the Company's fair-lending and pricing procedures and
an opportunity to participate in fair-lending training.
 
     In addition, if, as expected, the Company commences direct-sourced mortgage
lending, it will be required to provide certain training courses for Company
employees involved in direct-sourced mortgage loan pricing, use its best efforts
to place mortgage loan applicants in appropriate risk classifications based on
objective credit and risk-related criteria, and implement a direct-sourced
mortgage loan monitoring system of mortgage loan prices.
 
EMPLOYEES
 
   
     As of February 28, 1997, the Company had a total of 343 employees, two of
whom were part-time employees and 341 of whom were full-time employees. The
Company has 147 employees working at its corporate headquarters. None of the
Company employees are covered by a collective bargaining agreement. The Company
considers its relations with its employees to be good.
    
 
PROPERTIES
 
   
     The Company's corporate headquarters are located at 1100 Town & County
Road, Orange, California 92868, where Old Long Beach leases approximately 23,000
square feet of office space used by the Company. The Old Long Beach lease
expires on May 14, 2001, and Old Long Beach has an option to renew the lease for
five years. The current annual rent on such space is approximately $412,700. The
lease provides for certain scheduled increases in annual rent. The Company is
currently negotiating a separate lease for such office space which it
anticipates will contain terms substantially similar to the Old Long Beach
lease.
    
 
     The Company also leases or subleases space for five regional processing
centers and approximately 60 account executive offices. The regional processing
centers range in size from 2,388 to 6,160 square feet and the account executive
offices are between approximately 150 and 1,500 square feet. The Company
believes that these spaces are being leased at market rates.
 
   
     In connection with the Reorganization, the Company plans to lease
approximately 9,000 additional square feet of office space for its corporate
headquarters. The Company believes its facilities are both suitable and adequate
for the current business activities conducted at its regional centers and at its
existing sales offices. As part of the Company's geographic expansion, the
Company anticipates leasing additional office space in the future.
    
 
LEGAL PROCEEDINGS
 
   
     When the Company operated as a division of Old Long Beach, it was involved
in various lawsuits incidental to its business, none of which had a material
adverse effect on the Company. In the Reorganization the Company is not assuming
any liabilities that may arise out of any lending or loan servicing activities
of Old Long Beach prior to the Reorganization, other than certain liabilities
relating to the assets or personnel being transferred, including liabilities
related to the broker-sourced mortgage loan operations, nor is the Company
indemnifying Old Long Beach against any such liabilities. As such, the Company
is not involved currently in any litigation. See "Reorganization."
    
 
     Old Long Beach is the defendant in a lawsuit filed in November 1996 in the
United States District Court for the District of Massachusetts, which alleges
that Old Long Beach made certain payments to mortgage brokers in violation of
RESPA. The plaintiff has requested that the case be treated as a nationwide
class action, but no court has ruled on that request. Old Long Beach intends to
defend vigorously against this action, and in January 1997 filed its answer to
the complaint denying all allegations of illegal or improper activities. Old
Long Beach believes that its mortgage broker compensation programs comply with
all applicable laws and are consistent with long-standing industry practice and
regulatory interpretations. The Company is not a party to the Old Long Beach
lawsuit and none of the loans underlying the claim are being transferred to the
Company.
 
                                       41
<PAGE>   43
 
                UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
 
     Old Long Beach is reorganizing its business operations (i.e., the
Reorganization) by transferring certain assets (including independent broker
lists, office leases, furniture, leasehold improvements and equipment) and
personnel related to the broker-sourced mortgage lending and loan sales
operations of Old Long Beach and approximately $40 million in cash to the
Company. The assets being transferred to the Company include loans in process as
of the time of the Reorganization but do not include loans funded prior to the
Reorganization or servicing rights with respect to loans funded prior to the
Reorganization.
 
     The following unaudited pro forma consolidated financial data have been
prepared based on the Company's historical audited consolidated financial
statements for the year ended December 31, 1996. The unaudited pro forma
consolidated financial data give effect to the necessary adjustments to
illustrate the estimated effects of the Reorganization as if it had occurred as
of January 1, 1996 as to the statement of operations and December 31, 1996 as to
the statement of financial condition. The unaudited pro forma consolidated
financial data are for illustrative purposes only and do not purport to
represent what the results of operations or financial position of the Company
would have actually been if the Reorganization had occurred on such date or to
project the results of operations or financial position of the Company for any
future date or period. The unaudited pro forma consolidated financial data
should be read together with the Financial Statements of the Company and related
Notes included elsewhere in this Prospectus.
 
   
<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31, 1996
                                                         -----------------------------------------
                                                         ACTUAL        ADJUSTMENTS       PRO FORMA
                                                         -------       -----------       ---------
                                                         (IN THOUSANDS, EXCEPT PER SHARE AND SHARE
                                                         DATA)
<S>                                                      <C>           <C>               <C>
STATEMENT OF FINANCIAL CONDITION (UNAUDITED):
Cash.................................................    $    --        $  40,000(1)      $40,000
Loans held for sale..................................     49,580          (49,580)(2)          --
Receivable from sales of loans.......................     25,103          (25,103)(2)          --
Premises and equipment, net..........................      2,033               --           2,033
Deferred income taxes................................      2,120           (2,120)(2)      36,000
                                                                           36,000(3)
Prepaid expenses and other assets....................        914             (732)(2)         182
                                                         -------        ---------         -------
          Total assets...............................    $79,750        $  (1,535)        $78,215
                                                         =======        =========         =======
Liabilities:
Warehouse financing facility.........................    $72,829        $ (72,829)(2)     $    --
Accounts payable and accrued liabilities.............      5,784           (5,028)(2)       2,256
                                                                            1,500(8)
                                                         -------        ---------         -------
          Total liabilities..........................     78,613          (76,357)          2,256
Stockholders' equity.................................      1,137           40,000(1)       75,959
                                                                              322(2)
                                                                           36,000(3)
                                                                           (1,500)(8)
                                                         -------        ---------         -------
          Total liabilities and stockholders'
            equity...................................    $79,750        $  (1,535)        $78,215
                                                         =======        =========         =======
</TABLE>
    
 
                                       42
<PAGE>   44
 
   
<TABLE>
<CAPTION>
                                                            FOR THE YEAR ENDED DECEMBER 31, 1996
                                                          ----------------------------------------
                                                          ACTUAL      ADJUSTMENTS       PRO FORMA
                                                          -------     -----------       ----------
                                                            (IN THOUSANDS, EXCEPT PER SHARE AND
                                                                        SHARE DATA)
<S>                                                       <C>         <C>               <C>
STATEMENT OF OPERATIONS (UNAUDITED):
  Revenue:
     Gain on sales of loans.............................  $50,699      $  (1,234)(4)    $   49,465
     Loan servicing and other fees......................       --          1,529(5)          1,529
     Interest income....................................    3,275          2,094(6)          5,369
                                                          -------        -------        ----------
          Total revenues................................   53,974          2,389            56,363
  Expenses:
     Compensation and employee benefits.................   22,299            600(5)         22,899
     Rent and other occupancy costs.....................    4,188             --             4,188
     Office supplies and courier service................    1,903             --             1,903
     Depreciation.......................................    1,025             --             1,025
     Legal and professional.............................    1,828             --             1,828
     Interest...........................................    2,814            326(7)          3,140
     Loan sub-servicing.................................       --          1,990(5)          1,990
     Other..............................................    3,945             --             3,945
                                                          -------        -------        ----------
          Total expenses................................   38,002          2,916            40,918
  Income before provision for income taxes..............   15,972           (527)           15,445
  Provision for income taxes............................    6,580           (217)(9)         6,363
                                                          -------        -------        ----------
  Net income............................................  $ 9,392      $    (310)       $    9,082
                                                          =======        =======        ==========
  Pro forma earnings per share..........................                                $      .36
                                                                                        ==========
  Pro forma weighted average number of shares
     outstanding........................................                                25,000,000
                                                                                        ==========
</TABLE>
    
 
---------------
(1) Reflects the cash proceeds received by the Company from Old Long Beach
    pursuant to the Reorganization. See "Reorganization."
 
   
(2) Reflects the elimination of the receivable from the sales of loans, loans
    held for sale, certain prepaid expenses and other assets, deferred income
    taxes, Old Long Beach's revolving warehouse financing facility, certain
    accounts payable and accrued liabilities which are to be retained by Old
    Long Beach pursuant to the Reorganization. See "Reorganization." Liabilities
    assumed by the Company represent capital lease obligations and accrued
    vacation liability.
    
 
(3) Reflects the inclusion of the deferred income taxes pursuant to the
    Reorganization (see "Reorganization").
 
(4) Gain on sale of loans has been decreased to reflect the elimination of the
    gain on sale of loans originated prior to January 1, 1996 (the effective
    date of the Reorganization for the pro forma statement of operations).
 
(5) Reflects the inclusion of loan servicing fees, net of the amortization of
    mortgage servicing rights of $1.8 million, and loan sub-servicing costs
    related to loans originated during the period. Pursuant to the Loan
    Sub-Servicing Agreement, the Company retains the loan servicing fees and
    mortgage servicing rights related to loans it originates and incurs
    sub-servicing costs of 45 basis points per annum, paid monthly, on the
    declining principal balance of each loan serviced. Other fees and
    compensation expense have been increased to reflect the administrative
    services agreement pursuant to which the Company will perform all functions
    necessary on behalf of Old Long Beach to sell the mortgage loans originated
    by Old Long Beach.
 
(6) Reflects additional interest income related to the inclusion of cash
    proceeds received by the Company pursuant to the Reorganization. See
    "Reorganization." The additional interest income was calculated using an
    estimated return on United States treasury securities with one-year
    maturities of 5.2%.
 
   
(7) Reflects an adjustment to interest expense pursuant to the terms of the
    Company's Warehouse Financing Facility. The Warehouse Financing Facility
    bears interest at a rate based on London Interbank Offered Rate ("LIBOR")
    for U.S. dollar deposits which is  1/8% less than the interest rate on Old
    Long Beach's revolving warehouse financing facility. The pro forma
    amortization of debt issuance costs for the Warehouse Financing Facility is
    $662,000 which is $417,000 greater than the historical amortization expense.
    Interest expense also reflects the inclusion of interest charges related to
    the financing of servicing-related advances to loan purchasers.
    
 
   
(8) Reflects accrued liabilities related to the Reorganization.
    
 
   
(9) Reflects the tax impact of the reduction in earnings related to the pro
    forma adjustments to earnings before taxes as discussed above.
    
 
                                       43
<PAGE>   45
 
                                   MANAGEMENT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
     The following table sets forth the name, age and position with the Company
of the persons who serve as directors and executive officers of the Company.
Officers of the Company are elected by the Board of Directors of the Company and
serve at the discretion of the Board.
 
   
<TABLE>
<CAPTION>
               NAME                    AGE                        POSITIONS
-----------------------------------    ---     ------------------------------------------------
<S>                                    <C>     <C>
M. Jack Mayesh.....................    55      Chairman of the Board and Chief Executive
                                               Officer
Edward Resendez....................    40      President, Director
Frank J. Curry.....................    35      Executive Vice President
James H. Leonetti .................    37      Senior Vice President, Chief Financial Officer
James J. Sullivan .................    39      Senior Vice President, General Counsel,
                                               Secretary
David S. Engelman..................    59      Director
C. Stephen Mansfield...............    57      Director
</TABLE>
    
 
   
     The Company intends to add at least one additional non-management director
to the Board of Directors prior to or shortly after the completion of this
Offering.
    
 
     M. Jack Mayesh has served as Chief Executive Officer and Chairman of the
Board of LBFC since January 1997. Prior to the Reorganization, he served as
President of Old Long Beach since its formation in October 1994. Mr. Mayesh was
employed by Long Beach Savings and Loan Association (later known as Long Beach
Bank, F.S.B.) ("Long Beach Bank") in a variety of positions between 1983 and
1994, including serving as President between 1993 and 1994 and as Executive Vice
President, with responsibility for liability management and secondary market
loan sales activities, from 1986 to 1993.
 
     Edward Resendez has served as President and a director of LBFC since
January 1997. He served as President of the broker-sourced mortgage loan
division of Old Long Beach between August 1995 and January 1997. From January
1995 through August 1995, Mr. Resendez served as First Vice President of the
broker-sourced mortgage loan division of Old Long Beach, where he oversaw
residential lending and production. From October 1994 through January 1995, he
served as First Vice President of the broker-sourced and direct-sourced mortgage
loan divisions of Old Long Beach, where he oversaw residential lending and
production, and held the same position for Long Beach Bank from November 1993
through October 1994. From 1987 through 1993, Mr. Resendez served as Vice
President of Long Beach Bank, with a variety of managerial responsibilities in
the broker-sourced and direct-sourced mortgage loan divisions, including loan
production, risk management, internal auditing and regulatory compliance.
 
     Frank J. Curry has served as Executive Vice President of LBFC since January
1997. He served as Executive Vice President of the broker-sourced mortgage loan
division of Old Long Beach between October 1994 and January 1997, with
responsibility for production and processing, and held the same position with
Long Beach Bank from 1993 to October 1994. Mr. Curry was employed by Long Beach
Bank in a variety of other positions between 1988 and 1993, including serving as
a Regional Vice President in charge of expansion of the broker-sourced mortgage
loan division from 1992 to 1993, as a regional manager of broker-sourced
mortgage loan activities from 1990 to 1992, and as a sales manager responsible
for broker-sourced mortgage loan production from 1988 to 1990.
 
   
     James H. Leonetti, C.P.A., has served as Senior Vice President and Chief
Financial Officer of LBFC since March 1997. From 1989 to March 1997, Mr.
Leonetti was employed by California Federal Bank, where he most recently served
as Senior Vice President and Controller, with a variety of responsibilities,
including functioning as Chief Financial Officer for the bank's consumer finance
and real estate subsidiaries, directing the corporate accounting functions and
related activities of the bank. From 1984 to 1989, Mr. Leonetti served as Vice
President and Assistant Controller of FarWest Financial Corp., where he managed
accounting functions.
    
 
                                       44
<PAGE>   46
 
   
     James J. Sullivan, C.P.A., J.D., has served as Senior Vice President,
General Counsel and Secretary of LBFC since March 1997. From July 1991 to March
1997, Mr. Sullivan served as Vice President and Legal Counsel of American
Savings Bank, F.A., with a variety of responsibilities, including serving as the
lead corporate attorney for the bank and its subsidiaries, the attorney in
charge of the bank's finance division, and the lead transactional attorney for
the bank's loan servicing division. From 1985 to July 1991, Mr. Sullivan was
employed as an associate at the law firm of Gibson, Dunn & Crutcher LLP, where
his practice focused on mergers and acquisitions, public and private financings,
asset-based lending, general Securities and Exchange Commission compliance work,
and bank regulatory advice.
    
 
   
     David S. Engelman has served as director of LBFC since March 1997. He also
serves as a director of MGIC Investment Corporation. Mr. Engelman served as
Chairman, Chief Executive Officer and President of UnionFed Financial
Corporation from 1991 until March 1997, and held the same positions at its
subsidiary, Union Federal Bank, until the Office of Thrift Supervision appointed
a receiver for the bank in August 1996. From 1989 to 1991, Mr. Engelman was a
consultant to Portland General Corporation, a diversified public utility holding
company, with responsibility for the management and liquidation of real estate
assets.
    
 
     C. Stephen Mansfield has served as a director of LBFC since January 1997.
Mr. Mansfield also serves as a director of Noel Joanna, Inc. and Marine National
Bank. Mr. Mansfield was a partner with Deloitte & Touche and its predecessors
from 1977 until he retired as a senior partner in 1990. Mr. Mansfield is a
director of Old Long Beach and a director of the sole stockholder of Old Long
Beach but will resign from such boards upon completion of this Offering.
 
   
THE BOARD OF DIRECTORS
    
 
   
     The Board of Directors currently has four members and is divided into three
classes. Class I Directors will serve until the annual meeting of stockholders
in 1998 and thereafter for terms of three years until their successors have been
elected and qualified. Class II Directors will serve until the annual meeting of
stockholders in 1999 and thereafter for terms of three years until their
successors have been elected and qualified. Class III Directors will serve until
the annual meeting of stockholders in 2000 and thereafter for terms of three
years until their successors have been elected and qualified. Edward Resendez is
a Class I Director; M. Jack Mayesh and David S. Engelman are Class II Directors;
and C. Stephen Mansfield is a Class III Director.
    
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
  Audit Committee
 
   
     The Board of Directors will establish an audit committee (the "Audit
Committee"). The Audit Committee, among other things, will make recommendations
to the Board of Directors concerning the engagement of independent public
accountants; monitor and review the quality and activities of the Company's
internal audit function and those of its independent accountants; and monitor
the adequacy of the Company's operating and internal controls as reported by
management and the independent or internal auditors. The members of the Audit
Committee will be C. Stephen Mansfield (Chairman), David S. Engelman and at
least one other independent director.
    
 
  Compensation Committee
 
   
     The Board of Directors will establish a compensation committee (the
"Compensation Committee"). The Compensation Committee, among other things, will
review salaries, benefits and other compensation, including stock based
compensation under the Company's 1997 Stock Incentive Plan, of directors,
officers and other employees of the Company and make recommendations to the
Board of Directors. The members of the Compensation Committee will be David S.
Engelman (Chairman), C. Stephen Mansfield and at least one other independent
director.
    
 
                                       45
<PAGE>   47
 
NON-EMPLOYEE DIRECTORS COMPENSATION
 
     The Company intends to pay its non-employee directors an annual retainer of
$25,000 and a fee of $1,000 for each board or committee meeting attended ($500
for committee meetings on a Board meeting date). Each chairman of a committee of
the Board of Directors also will receive an annual retainer of $3,000. All
directors will be reimbursed for expenses incurred to attend meetings of the
Board of Directors or committees thereof. In addition, each non-employee
director will receive an option to purchase 25,000 shares of the Company's
Common Stock at an exercise price per share equal to the Company's initial
offering price, under the terms and conditions of the Company's stock incentive
plan. (See "-- 1997 Stock Incentive Plan"). The Company anticipates that each
non-employee director will also receive additional option grants on an annual
basis under the Company's stock incentive plan.
 
EXECUTIVE COMPENSATION
 
   
     All compensation paid prior to the Reorganization to Messrs. Mayesh,
Resendez, Curry, Leonetti, and Sullivan was paid by Old Long Beach for services
rendered to Old Long Beach.
    
 
   
     Following the Reorganization, the Company will pay compensation to its
Chief Executive Officer and its four other most highly compensated executive
officers pursuant to the terms of their respective employment agreements.
    
 
MANAGEMENT COMPENSATION AND EMPLOYMENT AGREEMENTS
 
   
     The Company expects to enter into employment agreements with each of its
executive officers for a specified term. The employment agreements for Messrs.
Mayesh, Resendez and Curry will provide for an annual salary of not less than
$200,000 per year plus an annual bonus of up to 100% of base salary. The
employment agreement for Mr. Leonetti will provide for an annual salary of not
less than $175,000 per year plus an annual bonus of up to 75% of base salary,
and the employment agreement for Mr. Sullivan will provide for an annual salary
of not less than $160,000 per year plus an annual bonus of up to 50% of base
salary. Each of the Company's executive officers will also be entitled to
specified benefits and reimbursement of expenses. Under the employment
agreements, each executive officer will be entitled to severance and other
payments following termination of his employment in certain circumstances,
including termination by the Company without cause and termination by such
officer for good reason (including the material reduction or material adverse
modification of authority or duties, any material breach by the Company of the
employment agreement, or any requirement to move such officer's principal place
of employment outside of Orange County, California). Under such circumstances,
the officer will be entitled to receive monthly severance payments from the
Company for twelve months following termination, with monthly payments equal to
the officer's monthly base salary plus bonus. The agreements will require each
officer to devote his best efforts to the interests and business of the Company
and will contain proprietary information provisions and nonsolicitation
provisions for specified periods following termination of employment. Each of
Messrs. Mayesh, Resendez and Curry will receive an option to purchase 500,000
shares of the Company's Common Stock, and each of Messrs. Leonetti and Sullivan
will receive an option to purchase 100,000 shares of the Company's Common Stock.
Such options will be at an exercise price equal to the initial Offering price of
the Common Stock and will vest 20% per year over five years.
    
 
     The Company has no other employment agreements with any other officers or
employees.
 
1997 STOCK INCENTIVE PLAN
 
   
     LBFC has established the 1997 Stock Incentive Plan (the "Plan") to enable
directors, executive officers, independent contractors and other key employees
of LBFC to participate in the ownership of LBFC. The Plan covers 3,000,000
shares of Common Stock. On the date of this Prospectus, LBFC granted options to
acquire an aggregate of 2,200,000 shares of Common Stock to approximately 20
officers and key employees. These options expire on the earlier of ten years
from the date of grant or thirty days after a holder's termination of service.
    
 
                                       46
<PAGE>   48
 
  Purpose and Eligibility
 
   
     The Plan is intended to promote the interests of LBFC and its stockholders
by using investment interests in LBFC to attract, retain and motivate its
management and other persons, to encourage and reward their contributions to the
performance of LBFC and to align their interests with the interests of LBFC's
stockholders. The persons eligible to receive an Award under the Plan include
directors, officers, employees, consultants, and advisors of LBFC and its
affiliated entities.
    
 
  Administration, Amendment and Termination
 
   
     The administering body for the Plan is the Compensation Committee. As long
as LBFC has a class of equity securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), the Compensation
Committee will be composed solely of "non-employee directors" within the meaning
of Rule 16b-3 under the Exchange Act. The administering body will have the power
to construe the Plan and the rights of recipients of Awards granted thereunder.
The administering body will also have the power to (i) discontinue, suspend or
amend the Plan in any manner (subject to certain limited exceptions, including
increases in the number of shares available that may be the subject of Awards
under the Plan and stockholder approval of other amendments that would
materially increase the benefits accruing to participants) and (ii) modify,
extend, renew or exchange outstanding Awards. The Plan, as amended from time to
time shall, in the discretion of the Compensation Committee, apply to and govern
Awards granted under the Plan prior to the date of such amendment, provided that
the consent of an Award holder is required if such amendment would alter,
terminate, impair or adversely affect an Award. Awards may be granted under the
Plan until the tenth anniversary of the adoption of the Plan by LBFC's Board of
Directors.
    
 
  Securities Subject to the Plan
 
   
     The Plan provides for the grant ("Award") of stock options (including
incentive stock options or nonqualified stock options), stock appreciation
rights, stock payments, dividend equivalents, stock bonuses, stock sales,
phantom stock and other stock-based benefits. Stock options granted under the
Plan may be incentive stock options ("ISOs") intended to qualify under the
provisions of Section 422 of the Internal Revenue Code ("Code") or non-qualified
stock options that do not so qualify. The maximum number of shares of Common
Stock that may be the subject of Awards granted under the Plan may not exceed
3,000,000 shares in the aggregate, subject to adjustments for stock splits or
other adjustments as discussed below. The shares available under the Plan may
either be authorized and unissued shares or shares reacquired by LBFC through
open market purchases or otherwise. If any Award granted under the Plan expires,
terminates or is forfeited before the exercise thereof or the payment in full
thereof, the shares covered by the unexercised or unpaid portion will become
available for new grants under the Plan.
    
 
   
     If (i) the outstanding shares of Common Stock of LBFC are increased,
decreased or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed in respect of such shares of Common Stock (or any
stock or securities received with respect to such Common Stock), through merger,
consolidation, sale or exchange of all or substantially all of the properties of
LBFC, reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split, spin-off or other distribution with respect to such
shares of Common Stock (or any stock or securities received with respect to such
Common Stock) or (ii) the value of the outstanding shares of Common Stock of
LBFC is reduced by reason of an extraordinary cash dividend, an appropriate and
proportionate adjustment may be made in (1) the maximum number and kind of
shares subject to the Plan, (2) the number and kind of shares or other
securities subject to then outstanding Awards, and/or (3) the price for each
share or other unit of any other securities subject to then outstanding Awards.
Any adjustments under the Plan will be made by the Compensation Committee, whose
determination as to any adjustment will be final, binding and conclusive.
    
 
   
     As of the effective time and date of any change in control of LBFC, the
Plan and any then outstanding Awards (whether or not vested) shall automatically
terminate unless (i) provision is made in writing in connection with such
transaction for the continuance of the Plan and for the assumption of such
Awards, or
    
 
                                       47
<PAGE>   49
 
for the substitution for such Awards of new awards covering the securities of a
successor entity or an affiliate thereof with appropriate adjustments as to the
number and kind of securities and exercise prices, in which event the Plan and
such outstanding Awards shall continue or be replaced, as the case may be, in
the manner and under the terms so provided; or (ii) the Board otherwise shall
provide for the cancellation of Awards and their automatic conversion into the
right to receive the securities, cash or other consideration that a holder of
the shares underlying such Awards would have been entitled to receive upon
consummation of such change in control had such shares been issued and
outstanding immediately prior to the effective date and time of the change in
control (net of the appropriate option exercise prices). If, pursuant to the
foregoing provisions of the Plan, the Plan and the Awards shall terminate by
reason of the occurrence of a change in control without provision for any of the
action(s) described in clause (i) or (ii) above, then any recipient holding
outstanding Awards shall have the right, at such time immediately prior to the
consummation of the change in control as the Board shall designate, to exercise
the recipient's Awards to the full extent not theretofore exercised, including
any installments which have not yet become vested.
 
  Terms and Conditions of Awards Under the Plan
 
     The Compensation Committee will select the recipients of Awards granted
under the Plan and will determine the dates, amounts, exercise prices, vesting
periods and other relevant terms of the Awards. The maximum number of shares of
Common Stock with respect to which an Award or Awards may be granted to any
eligible person in any one year shall not exceed 1,000,000 shares, subject to
antidilution adjustment as provided in the Plan.
 
     Award Pricing.  The pricing of Awards, including the exercise price for
stock options granted under the Plan, shall be determined by the Compensation
Committee as of the date the Award is granted, provided that the exercise price
shall be no less than 100% of the fair market value (as determined under the
Plan) of the underlying shares as of such date.
 
   
     Award Vesting.  Awards granted under the Plan vest and become exercisable
as determined by the Compensation Committee in its discretion. Awards granted
under the Plan may be exercised at any time after they vest and before the
expiration date determined by the Compensation Committee, provided that no Award
may be exercised more than ten years after its grant (five years after grant in
the case of any Award intended to qualify as incentive stock options under the
Code and granted to certain holders of significant amounts of LBFC's outstanding
Common Stock). Furthermore, in the absence of a specific agreement to the
contrary, options will generally expire and become unexercisable immediately
upon termination of the recipient's employment with LBFC for cause, 30 days in
the case of termination without cause, or six months after the termination of
the recipient's employment with LBFC by reason of death, permanent disability or
normal retirement. The Compensation Committee may accelerate the vesting of any
options and may also extend the period following termination of employment with
LBFC during which options may vest and/or be exercised (subject to a maximum
ten-year term from date of grant).
    
 
   
     Award Payments.  The exercise price for Awards may be paid in cash or in
any other consideration the Compensation Committee deems acceptable, including
securities of LBFC surrendered by the Award holder or withheld from the shares
otherwise deliverable upon exercise. LBFC may extend or arrange for the
extension of credit to any Award holder to finance the Award holder's purchase
of shares upon exercise of the holder's Award on terms approved by the
Compensation Committee, subject to restrictions under applicable laws and
regulations, or allow exercise in a broker's transaction in which the exercise
price will not be received until after exercise and subsequent sale of the
underlying Common Stock. Consideration received by LBFC upon exercise of Awards
granted under the Plan will be used for general working capital purposes.
    
 
     Limited Transferability of Awards.  Awards are generally not transferable
by the recipient during the life of the recipient.
 
   
     Awards Documentation.  Awards granted under the Plan will be evidenced by
an agreement duly executed on behalf of LBFC and by the recipient or a
confirming memorandum issued by LBFC to the recipient, setting forth such terms
and conditions applicable to the Award. The adoption of the Plan shall not
affect any other stock option, incentive or other compensation plans in effect
for LBFC, and the Plan shall not
    
 
                                       48
<PAGE>   50
 
   
preclude LBFC from establishing any other forms of incentive or other
compensation for employees, directors, advisors or consultants of LBFC, whether
or not approved by stockholders.
    
 
     Rights With Respect to Common Stock.  No recipient of an Award under the
Plan and no beneficiary or other person claiming under or through such
individual will have any right, title or interest in or to any shares of Common
Stock subject to any Award or any rights as a stockholder unless and until such
Award is duly exercised pursuant to the terms of the Plan and the exercise of
such Award results in the issuance of shares of Common Stock to the recipient.
 
   
     Plan Provisions Regarding Section 162(m) the Internal Revenue Code.  In
general, Section 162(m) of the Code imposes a $1,000,000 limit on the amount of
compensation that may be deducted by LBFC in any tax year with respect to the
Chief Executive Officer of LBFC and its other four most highly compensated
employees, including any compensation relating to an Award under the Plan. To
prevent compensation relating to an Award under the Plan from being subject to
the $1,000,000 limit of Code Section 162(m), the Plan provides that no one
eligible person shall be granted any Awards with respect to more than 1,000,000
shares of Common Stock in any one calendar year if such grant would otherwise be
subject to Code Section 162(m). Furthermore, if Code Section 162(m) would
otherwise apply and if the amount of compensation an eligible person would
receive under an Award is not based solely on an increase in the value of the
underlying common stock of LBFC after the date of grant or award, the
Compensation Committee can condition the grant, vesting, or exercisability of
such an Award on the attainment of a preestablished objective performance goal.
For this purpose, a preestablished objective performance goal may include one or
more of the following performance criteria: (a) cash flow, (b) earnings per
share (including earnings before interest, taxes, and amortization), (c) return
on equity, (d) total stockholder return, (e) return on capital, (f) return on
assets or net assets, (g) income or net income, (h) operating income or net
operating income, (i) operating margin, (j) return on operating revenue, and (k)
any other similar performance criteria.
    
 
DEFERRED COMPENSATION PLAN
 
     The Company has established a Deferred Compensation Plan (the "Deferred
Plan") to provide certain key employees of the Company enhanced deferred
compensation benefits, which are designed to attract and retain outstanding
individuals in key positions within the Company.
 
  Administration
 
     The Deferred Plan will be administered by the Compensation Committee. The
Compensation Committee will have the authority to delegate those administrative
tasks the Compensation Committee determines are in the best interest of the
Deferred Plan, participants or the Company. Amendment or termination of the
Deferred Plan shall be and remain a function of the Board of Directors of the
Company.
 
  Eligibility
 
     Each key employee of the Company designated by the Compensation Committee
shall be eligible to participate in the Deferred Plan upon execution of a
Deferred Compensation Agreement.
 
  Amount of Deferral
 
     An eligible employee who elects to participate in the Deferred Plan may
designate in his or her Agreement with the Company any percentage of such
employee's compensation to be deferred by the Company. Compensation shall
include the employee's basic salary, bonuses, commissions, incentive
compensation, overtime pay and all other forms of cash compensation before
giving effect to amounts deferred pursuant to the Deferred Plan. An eligible
employee shall make his or her deferral election with respect to his or her base
salary separately from his or her deferral election with respect to other
compensation. Any election to commence participation or to change the amount
deferred shall be effective as of the beginning of the first pay period
beginning after the January 1 next following the date on which the employee
gives written notice to the Company of such election. In the case of an employee
who first becomes eligible to participate in the Deferred Plan in the first
calendar year in which the Deferred Plan is adopted, participants shall have 30
days after notice of eligibility to provide an election to participate. Deferral
shall be effected by reduction in the amount of salary, and/or bonuses and other
incentive compensation, if applicable, paid through the payroll
 
                                       49
<PAGE>   51
 
system. Amounts deferred shall be credited on the Company's books to a
bookkeeping account for each participant of the Deferred Plan and will be
accumulated until payable.
 
  Payment of Amounts Deferred
 
     Concurrently with his or her election to participate in the Deferred Plan,
an eligible employee shall designate a specified future date to which payment of
the amount covered by such election is to be deferred and shall also designate
the method of payment, which shall be either a lump sum payment on the
designated payment date or substantially equal installments for a two, three,
four or five-year period commencing on the designated date. Upon the death or
permanent disability of the participant, payment of all amounts deferred by such
participant shall be paid as soon as reasonably practicable following the date
of such death or disability. In the event of the death of the participant,
amounts payable pursuant to the Deferred Plan shall be paid to the beneficiary
specifically designated in the participant's agreement, or if the beneficiary is
not designated, or the designated beneficiary is not living, then to the
participant's estate. No interest shall be paid by the Company on amounts
deferred by an eligible employee under this Deferred Plan unless the employee's
Agreement with the Company specifically provides therefor.
 
  Withdrawal of Deferred Amounts
 
     No deferrals under the Deferred Plan may be withdrawn by the employee prior
to the designated payment date, except in cases of extreme financial hardship or
for good cause as demonstrated by the employee to and accepted by the
Compensation Committee. Any distribution by reason of financial hardship shall
not exceed the amount reasonably necessary to eliminate the extreme financial
hardship.
 
  Unsecured General Creditor
 
     All title to and beneficial interest in all funds maintained or held by the
Company on account of this Deferred Plan, whether or not earmarked for that
purpose, shall be and remain in the Company and no employee shall have any
interest in such funds. The Company shall have no obligation to any employee to
maintain a fund, separate from the Company's general accounts, on account of the
Deferred Plan and the Company's obligation under the Deferred Plan shall be
merely that of an unfunded and unsecured promise of the Company to pay money in
the future.
 
  Assignment
 
     A participant shall have no right to sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt any amounts payable under the Deferred Plan. No part
of the amounts payable under the Deferred Plan shall, prior to actual payment,
be subject to seizure or sequestration for payment of debts, judgments, alimony
or separate maintenance owed by a participant or any other person or be
transferable by operation of law in the event of a participant's or any other
person's bankruptcy or insolvency.
 
  Withholding
 
     To the extent required by federal, state, local or foreign law, the Company
shall have the right to withhold from payments made under the Deferred Plan, any
taxes required to be withheld.
 
   
  Deferred Plan Amendment
    
 
   
     The Deferred Plan may be amended by the Board of Directors of the Company
at any time and from time to time, provided that no such amendment shall operate
to adversely effect a participant's rights under the Deferred Plan with respect
to amounts deferred prior to the date of such amendment.
    
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     The Compensation Committee will not be formed until promptly following the
closing of the Offering. The Company intends that none of the executive officers
of the Company will serve on the compensation committee of another entity or on
any other committee of the board of directors of another entity performing
similar functions.
 
                                       50
<PAGE>   52
 
                              CERTAIN TRANSACTIONS
 
   
     Old Long Beach presently owns 100% of the outstanding Common Stock of the
Company. Upon consummation of this Offering, if the Underwriters exercise the
over-allotment option in full, Old Long Beach will have no continuing interest
in the Company. In connection with the Reorganization, Old Long Beach and the
Company are entering into certain agreements for the purpose of providing
certain services and defining their ongoing relationship. The agreements have
been developed in the context of a parent/subsidiary relationship and therefore
are not the result of arm's-length negotiations between independent parties. It
is the intention of the Company and Old Long Beach that such agreements and the
transactions provided for therein, taken as a whole, are fair to both parties,
while continuing certain mutually beneficial arrangements. However, there can be
no assurance that each of such agreements, or the transactions provided for
therein, are or will be on terms at least as favorable to the Company as could
have been obtained from unaffiliated parties.
    
 
   
     Additional or modified arrangements and transactions may be entered into by
the Company, Old Long Beach and their respective affiliates after completion of
this Offering. Any such future arrangements and transactions will be determined
through negotiations between the Company and Old Long Beach.
    
 
     The following is a summary of the principal arrangements and transactions
between the Company and Old Long Beach and its affiliates.
 
   
CONTRIBUTION AGREEMENT
    
 
   
     Pursuant to a Contribution Agreement (the "Contribution Agreement") between
LBFC and Old Long Beach that is being entered into in connection with the
Reorganization, Old Long Beach will transfer to LBFC all personnel and the
assets of the broker-sourced lending and loan sales operations of Old Long Beach
in exchange for 25,000,000 shares of Common Stock. The assets being transferred
include independent broker lists, trade name, office and equipment leases,
certain other contract rights, furniture, fixtures and equipment. In addition,
all mortgage loans in process, that are not yet funded at the time of the
Reorganization, are also being transferred to LBFC. No funded loans or other
personnel and assets from the other operations of Old Long Beach are being
transferred to LBFC and Old Long Beach shall be solely responsible for any
liabilities that may arise from such retained operations, personnel and assets.
LBFC is not assuming any liabilities arising out of Old Long Beach's lending or
loan servicing activities prior to the Reorganization, other than certain
liabilities relating to the assets or personnel being transferred to LBFC. As
part of the Contribution Agreement, the Company and Old Long Beach will agree
not to solicit or hire the employees of the other (existing at the time of the
Reorganization) for a period of five years.
    
 
   
     Old Long Beach and Long Beach Financial Services Company ("Old Long Beach
Holdings"), a Delaware corporation and the sole stockholder of Old Long Beach,
have also agreed to indemnify and hold the Company harmless from any tax
liability attributable to periods ending on or before the consummation of this
Offering. For periods ending after the consummation of this Offering, the
Company will pay its tax liability directly to the appropriate taxing
authorities. Old Long Beach Holdings generally will control audits and
administrative and judicial proceedings with respect to periods ending on or
before the consummation of this Offering, although Old Long Beach Holdings
cannot compromise or settle any issue that increases the Company's liability
without first obtaining the consent of the Company. The Company generally will
control all other audits and administrative and judicial proceedings.
    
 
   
     The Internal Revenue Service and the California Franchise Tax Board are
currently auditing Old Long Beach in connection with issues relating to the
timing of recognition of income and expenses. Under the
    
 
                                       51
<PAGE>   53
 
   
Contribution Agreement, Old Long Beach Holdings will indemnify the Company
against any liability incurred by the Company in connection with such audit.
    
 
ADMINISTRATIVE SERVICES AGREEMENTS
 
     The Company (while operating as a division of Old Long Beach) has been
historically allocated portions of total expenses of various administrative
services provided to it by Old Long Beach. The costs of such services primarily
included general corporate overhead, such as data processing, information
services and cash management services, employee benefits and other
administrative functions. These expenses were calculated as a pro rata share of
certain administrative costs based on a variety of factors which take into
consideration loan origination volume and historical ratios of direct expenses
incurred by the various divisions of Old Long Beach to total direct expenses,
which management believed was a reasonable method of allocation. The allocation
of expenses to the Company for the years ended December 31, 1994, 1995 and 1996
was approximately $9.7 million, $7.0 million, and $8.9 million, respectively.
 
     In connection with the Reorganization, the Company and Old Long Beach are
entering into an administrative services agreement under which Old Long Beach
will continue to provide various services to the Company, including certain
employee benefits administration, finance and accounting technical support,
information services and data processing functions. Certain precautions are
being taken to eliminate the opportunity for Old Long Beach to improperly use
the confidential information relating to the Company to which Old Long Beach
will have access after the Reorganization as a result of the services provided
pursuant to the administrative services agreement.
 
   
     Old Long Beach will charge the Company a fixed fee of $125,000 per month
for the information systems and data processing services that Old Long Beach
will provide under the administrative services agreement. Old Long Beach will
charge the Company for the other services that are provided under the
administrative services agreement in an amount substantially equal to the cost
of providing such services. The administrative services agreement will have a
one-year term, unless earlier terminated by the Company upon 30 days' written
notice. The Company currently anticipates it will have the capability to perform
the functions covered by the administrative services agreement internally within
one year from the date of the Reorganization. Once the Company develops the
internal capability to perform each such function, the Company intends to
terminate the administrative services agreement with respect to that function.
    
 
   
     In addition, the Company and Old Long Beach are entering into a second
administrative services agreement pursuant to which the Company will perform all
functions necessary on behalf of Old Long Beach to sell the mortgage loans
originated by Old Long Beach and provide investor coordination and information
for the existing loan portfolio as well as new loan originations. The
administrative services agreement will have a term of one year, unless earlier
terminated by Old Long Beach upon 30 days' written notice. There will be a fixed
fee of $55,000 per month for such services. The Company currently anticipates
Old Long Beach will have the capability to internally perform these sales
functions within one year from the date of the Reorganization. Once Old Long
Beach develops such internal capability, it is anticipated that Old Long Beach
will terminate this administrative services agreement.
    
 
LOAN SUB-SERVICING AGREEMENT
 
   
     In connection with the Reorganization, the Company and the Sub-Servicer (a
division of Old Long Beach) are entering into a three-year loan sub-servicing
agreement (the "Loan Sub-Servicing Agreement") pursuant to which the
Sub-Servicer will sub-service mortgage loans originated or purchased by the
Company after the Reorganization. The Company expects to retain substantially
all of the servicing rights for such loans, including loans sold to investors.
Sub-servicing activities include collecting and remitting loan payments,
accounting for principal and interest, holding escrow or impound funds for
payment of taxes and insurance, if applicable, making required inspections of
the mortgaged property, contacting delinquent borrowers and supervising
foreclosures and property dispositions. Under the Loan Sub-Servicing Agreement,
the Company is obligated to pay the Sub-Servicer a 45 basis point annual
servicing fee on the declining balance of each loan serviced.
    
 
                                       52
<PAGE>   54
 
   
     The Sub-Servicer is required to pay all expenses related to the performance
of its duties under the Loan Sub-Servicing Agreement. However, the Company will
provide the funding for required advances on delinquent mortgage payments, taxes
and required insurance premiums that are not collected from borrowers with
respect to any mortgage loan.
    
 
   
     The Company may terminate for cause the Loan Sub-Servicing Agreement with
notice upon the occurrence of one or more of the events specified in such
agreement, generally relating to the Sub-Servicer's proper and timely
performance of its duties and obligations under the Loan Sub-Servicing
Agreement. Either the Company or the Sub-Servicer may terminate the Loan
Sub-Servicing Agreement without cause at any time effective after 18 months upon
six months' prior written notice to the other party. In the event of a
termination, either party may request that the loans that were sub-serviced by
the Sub-Servicer be transferred to the Company or its designee for servicing,
subject to obtaining any required consents to such transfer. The Company may in
the future commence its own servicing operations.
    
 
   
     Under the Loan Sub-Servicing Agreement, the Company is entitled to all late
payment charges, penalties and assumption fees collected in connection with the
mortgage loans. The Company also receives any benefit derived from interest
earned on collected principal and interest payments between the date of
collection and the date of remittance to the Company and, to the extent allowed
by law, from interest earned on tax and insurance impound funds.
    
 
   
INDEMNIFICATION AGREEMENTS
    
 
     The Company will enter into indemnification agreements with its executive
officers and directors which require the Company to indemnify each in certain
circumstances, in the manner and to the fullest extent permitted by the Delaware
General Corporation Law.
 
                                       53
<PAGE>   55
 
           BENEFICIAL OWNERSHIP OF SECURITIES AND SELLING STOCKHOLDER
 
     The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 5, 1997, and as adjusted
to reflect the sale of 21,750,000 shares of Common Stock by the Selling
Stockholder offered hereby, by (i) each director of the Company, (ii) the
Company's most highly compensated executive officers, (iii) each person known to
the Company to be the beneficial owner of more than 5% of the Common Stock and
(iv) all directors and executive officers of the Company as a group.
 
   
<TABLE>
<CAPTION>
                                              COMMON                                      COMMON
                                           STOCK OWNED                                 STOCK TO BE
                                             PRIOR TO                                  OWNED AFTER
                                           OFFERING(1)            NUMBER OF          THE OFFERING(4)
                                      ----------------------     SHARES TO BE     ----------------------
                                      NUMBER OF                  SOLD IN THE      NUMBER OF
              NAME(2)                   SHARES       PERCENT       OFFERING         SHARES       PERCENT
------------------------------------  ----------     -------     ------------     ----------     -------
<S>                                   <C>            <C>         <C>              <C>            <C>
Long Beach Mortgage Company
  (i.e., Old Long Beach)(3).........  25,000,000        100%       21,750,000      3,250,000(5)      13%(5)
M. Jack Mayesh......................          --         --                --             --         --
Edward Resendez.....................          --         --                --             --         --
Frank J. Curry......................          --         --                --             --         --
James H. Leonetti...................          --         --                --             --         --
James J. Sullivan...................          --         --                --             --         --
David S. Engelman...................          --         --                --             --         --
C. Stephen Mansfield................          --         --                --             --         --
All Directors and Officers as a
  Group (seven persons).............          --         --                --             --         --
</TABLE>
    
 
---------------
 
(1) The persons named in the table have sole voting and investment power with
    respect to all shares of Common Stock shown as beneficially owned.
 
(2) Each of such persons may be reached at 1100 Town & Country Road, Suite 900,
    Orange, California 92868.
 
   
(3) Old Long Beach is a wholly-owned subsidiary of Old Long Beach Holdings, of
    which Roland E. Arnall owns 69.9% of the currently outstanding common stock.
    
 
(4) Certain officers and directors of the Company are being offered the
    opportunity to purchase shares of Common Stock at the Offering price. See
    "Underwriting." In addition, certain officers of the Company are being
    granted options to purchase shares of Common Stock pursuant to the 1997
    Stock Incentive Plan. See "Management -- 1997 Stock Incentive Plan."
 
(5) Assumes no exercise of the Underwriters' over-allotment option. If the
    Underwriters' over-allotment option is exercised in full, Old Long Beach
    will own no shares of LBFC. See "Underwriting."
 
                                       54
<PAGE>   56
 
                          DESCRIPTION OF CAPITAL STOCK
 
GENERAL
 
   
     The authorized capital stock of LBFC consists of (i) 25,000,000 shares of
preferred stock, $.001 par value (the "Preferred Stock"), and (ii) 150,000,000
shares of common stock, $.001 par value (the "Common Stock").
    
 
COMMON STOCK
 
   
     All of the outstanding Common Stock is beneficially owned by the Selling
Stockholder. Upon completion of the Offering, there will be 25,000,000 shares of
Common Stock outstanding, 3,250,000 of which will be owned by the Selling
Stockholder (assuming no exercise of the Underwriters' over-allotment option).
If the Underwriters' over-allotment option is exercised in full, the Selling
Stockholder will own no shares of Common Stock. The issued and outstanding
shares of Common Stock have been duly authorized, validly issued, fully paid and
nonassessable.
    
 
     Holders of Common Stock are entitled to one vote for each share held of
record. Shares of Common Stock do not have cumulative voting rights with respect
to the election of directors.
 
   
     Holders of Common Stock do not have any preemptive rights or rights to
subscribe for additional securities of LBFC. Shares of Common Stock are not
redeemable and there are no sinking fund provisions. The shares of Common Stock
are not convertible into any other series or class of LBFC's securities.
    
 
   
     Subject to the preferences applicable to Preferred Stock outstanding at the
time, holders of shares of Common Stock are entitled to dividends as may be as
declared by the Board of Directors from time to time out of assets or funds of
LBFC legally available therefor, and are entitled, in the event of liquidation,
to share ratably in all assets remaining after payment of debts and liabilities
and Preferred Stock preferences, if any.
    
 
   
     LBFC's Board of Directors will have five members following completion of
this Offering. Either the directors or the stockholders may amend the Bylaws to
change the size of the Board of Directors, subject to the requirement in the
Bylaws that the entire Board of Directors must consist of at least five and no
more than nine directors. After the initial term, each director serves for a
term ending on the date of the third annual meeting following the annual meeting
at which such director was elected and until his or her successor is duly
elected and qualified or until his or her death, resignation or removal. Any
stockholder entitled to vote at a meeting regarding the election of director may
nominate a person for election as a director, provided that the stockholder
gives LBFC written notice of the nomination at least 90 days before the meeting
(or, if later, the seventh day after the first public announcement of the date
of such meeting), which notice must contain specified information about the
stockholder and the nominee.
    
 
   
     The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "LBFC."
    
 
PREFERRED STOCK
 
   
     Pursuant to LBFC's Certificate of Incorporation, the Board of Directors has
the authority to issue up to 25,000,000 shares of Preferred Stock in one or more
series with such designations, powers, preferences and rights, including voting
rights, as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue Preferred Stock with dividend, liquidation, conversion, voting or other
rights that adversely affect the voting power or other rights of the holders of
LBFC's Common Stock. In the event of issuance, the Preferred Stock could be
utilized, under certain circumstances, as a way of discouraging, delaying or
preventing an acquisition or change in control of the Company. LBFC currently
has no plans to issue any shares of its Preferred Stock.
    
 
                                       55
<PAGE>   57
 
CERTAIN PROVISIONS OF DELAWARE LAW
 
   
     The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
LBFC's outstanding voting stock) from engaging in a "business combination" (as
defined in Section 203) with LBFC for three years following the date that person
became an interested stockholder unless: (i) before that person became an
interested stockholder, the Board of Directors approved the transaction in which
the interested stockholder became an interested stockholder or approved the
business combination; (ii) upon completion of the transaction that resulted in
the interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of LBFC outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of LBFC and by employee stock plans that do not provide employees with
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer); or (iii) on or following the
date on which that person became an interested stockholder, the business
combination is approved by LBFC's Board of Directors and authorized at a meeting
of stockholders by the affirmative vote of the holders of at least 66 2/3% of
the outstanding voting stock of LBFC not owned by the interested stockholder.
    
 
   
     Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving LBFC and a
person who was not an interested stockholder during the previous three years or
who became an interested stockholder with the approval of a majority of LBFC's
directors, if that extraordinary transaction is approved or not opposed by a
majority of the directors (but not less than one) who were directors before any
person became an interested stockholder in the previous three years or who were
recommended for election or elected to succeed such directors by a majority of
such directors then in office.
    
 
   
     Pursuant to Section 162 of the Delaware General Corporation Law, the Board
of Directors of LBFC can, without stockholder approval, issue shares of capital
stock, which may have the effect of delaying, deferring or preventing a change
of control of LBFC. LBFC has no plan or arrangement for the issuance of any
shares of capital stock other than in the ordinary course pursuant to the 1997
Stock Incentive Plan.
    
 
CERTAIN CHARTER AND BYLAW PROVISIONS
 
   
     LBFC's Certificate of Incorporation provides that no action which has not
been previously approved by the Board of Directors may be taken by the
stockholders except at an annual meeting or a special meeting of the
stockholders.
    
 
   
     LBFC's Bylaws require stockholders to provide advance notice of any
stockholder nominations for directors and of any business to be brought before
any meeting of stockholders. Stockholders are not entitled to cumulative voting
in connection with the election of directors. As a result, a person or a group
controlling the majority of shares of Common Stock can elect all of the
directors.
    
 
   
     The Certificate of Incorporation of LBFC contains certain provisions
permitted under the Delaware General Corporation Law relating to the liability
of directors. These provisions eliminate the directors' liability for monetary
damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, including the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
a law. LBFC's Certificate of Incorporation also contains provisions to indemnify
its directors and officers to the fullest extent permitted by the Delaware
General Corporation Law.
    
 
TRANSFER AGENT
 
   
     The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
    
 
                                       56
<PAGE>   58
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
   
     Upon completion of this Offering, LBFC will have 25,000,000 shares of
Common Stock outstanding. The 21,750,000 shares of Common Stock sold in this
Offering (25,000,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction under the
Securities Act, except for any such shares held at any time by an "affiliate" of
the Company, as such term is defined in Rule 144 promulgated under the
Securities Act ("Rule 144"). If the Underwriters' over-allotment option is not
exercised, Old Long Beach will own 3,250,000 shares of Common Stock which will
be "restricted securities," as that term is defined in Rule 144. The Selling
Stockholder has agreed with the Underwriters that it will not, without the prior
written consent of the Representative, offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock, for a period of 180 days after
the date of the completion of the Offering, subject to certain limited
exceptions.
    
 
     An "affiliate" or holder of restricted securities is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of one percent (1%) of the then outstanding shares of the Common Stock
or the average weekly trading volume of the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are subject to certain
manner of sale limitations, notice requirements and the availability of current
public information about the Company.
 
   
     In addition, LBFC intends to file a registration statement under the
Securities Act shortly after the completion of this Offering (to become
effective as soon thereafter as practicable) to register 3,000,000 shares of
Common Stock reserved for issuance pursuant of the 1997 Stock Incentive Plan.
Shares issued upon exercise of outstanding options under the 1997 Stock
Incentive Plan after the effective date of such registration statement generally
may be sold on the open market.
    
 
     Prior to this Offering there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that future sales of
shares pursuant to a future registration statement or Rule 144 or the
availability of shares for future sale will have on the market price of the
Common Stock prevailing from time to time. Sales of substantial amounts of the
Common Stock in the public market, or the perception that such sales could
occur, could adversely affect prevailing market prices.
 
                                       57
<PAGE>   59
 
                                  UNDERWRITING
 
     Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters") through their Representative, have
severally agreed to purchase from the Selling Stockholder the following
respective number of shares of Common Stock at the Offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
 
<TABLE>
<CAPTION>
                                                                               NUMBER OF
                                   UNDERWRITER                                   SHARES
    -------------------------------------------------------------------------  ----------
    <S>                                                                        <C>
    Friedman, Billings, Ramsey & Co., Inc. ..................................
 
                                                                               ----------
              Total Underwriters.............................................  21,750,000
                                                                               ==========
</TABLE>
 
     The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of the Common Stock offered hereby
if any such shares are purchased.
 
     The Selling Stockholder has been advised by the Underwriters that the
Underwriters propose to offer the shares of Common Stock to the public at the
Offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $     per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $     per share to certain other dealers. After this Offering, the offering
price and other selling terms may be changed by the Representative of the
Underwriters.
 
   
     The Underwriters have reserved up to 500,000 shares of Common Stock offered
hereby for sale at the Offering price to directors, officers and employees of
the Company and to certain other persons.
    
 
   
     The Selling Stockholder (if the over-allotment option is not exercised in
full) and the Company have each agreed not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock, or any security convertible
into or exercisable for shares of Common Stock, for a period of 180 days after
the date of this Prospectus without the prior written consent of the
Representative.
    
 
     The Selling Stockholder has granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to additional 3,250,000 shares of Common Stock at the Offering price
less the underwriting discounts and commissions set forth on the cover page of
this Prospectus. To the extent that the Underwriters exercise such option, each
of the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 3,250,000 and the Selling
Stockholder will be obligated, pursuant to the option, to sell such shares to
the Underwriters. The Underwriters may exercise such option in whole or in part
only to cover over-allotments made in connection with the sale of Common Stock
offered hereby. If purchased, the Underwriters will offer such additional shares
on the same terms as those on which the 21,750,000 shares are being offered.
 
     The Representative of the Underwriters has advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
 
     The Selling Stockholder has agreed to indemnify the Underwriters against
certain liabilities including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). The Selling Stockholder has been advised that in
the opinion of the Securities and Exchange Commission (the "Commission") such
 
                                       58
<PAGE>   60
 
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities is asserted by the Underwriters in connection with the
shares of Common Stock offered hereby, the Selling Stockholder will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of competent jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
 
   
     In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Selling Stockholder, and in such case
may purchase Common Stock in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriters may
also cover all or a portion of such short position by exercising the
Underwriters' over-allotment option referred to above. In addition, the
Representative, on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the Offering) for the account of other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. The
imposition of a penalty bid might also affect the price of the Common Stock to
the extent that it could discourage resales of the security. Neither the Company
nor any of the Underwriters makes any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the Common Stock. In addition, neither the Company nor any
of the Underwriters makes any representation that the Representative will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
    
 
     Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Selling Stockholder and the Underwriters. Among the factors to be
considered in determining the initial public offering price will be prevailing
market and economic conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant.
 
   
     The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "LBFC." There can be no assurance, however, that the
Company will be able to maintain the inclusion of the Common Stock in the Nasdaq
National Market or that an active trading market will develop.
    
 
                                 LEGAL MATTERS
 
     Certain legal matters will be passed upon for the Company by Gibson, Dunn &
Crutcher LLP, Orange County, California. Certain legal matters will be passed
upon for the Underwriters by Brobeck, Phleger & Harrison LLP, Newport Beach,
California.
 
                                       59
<PAGE>   61
 
                                    EXPERTS
 
     The statement of financial condition of Long Beach Financial Corporation as
of February 14, 1997 included in this Prospectus, has been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and is included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
 
     The financial statements of Long Beach Mortgage Company Broker-Sourced Loan
Division as of December 31, 1995 and 1996 and for each of the three years in the
period ended December 31, 1996 included in this Prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
 
                             AVAILABLE INFORMATION
 
   
     The Company has filed with the Commission a Registration Statement on Form
S-1 (File No. 333-22013) under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Common Stock,
reference is hereby made to such Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement, including
all exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 500 West
Madison Street, Room 1400, Chicago, Illinois 60606 and at 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission,
including the Company. The address of the Commission's website is
http://www.sec.gov.
    
 
     The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by the Company's independent auditors as well as quarterly reports for
the first three fiscal quarters of each fiscal year containing unaudited
consolidated condensed financial statements.
 
                                       60
<PAGE>   62
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                       ------
<S>                                                                                    <C>
LONG BEACH FINANCIAL CORPORATION:
Independent Auditors' Report.........................................................  F-2
Consolidated Statement of Financial Condition as of February 14, 1997................  F-3
Notes to Consolidated Financial Statement............................................  F-4
 
LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION:
Independent Auditors' Report.........................................................  F-6
Statements of Financial Condition as of December 31, 1995 and 1996...................  F-7
Statements of Operations for each of the three years in the period ended December 31,
  1996...............................................................................  F-8
Statements of Divisional Equity (Deficit) for each of the three years in the period
  ended December 31, 1996............................................................  F-9
Statements of Cash Flows for each of the three years in the period ended December 31,
  1996...............................................................................  F-10
Notes to Financial Statements........................................................  F-11
</TABLE>
 
                                       F-1
<PAGE>   63
 
                          INDEPENDENT AUDITORS' REPORT
 
To the Stockholder of
Long Beach Financial Corporation:
 
     We have audited the accompanying consolidated statement of financial
condition of Long Beach Financial Corporation and subsidiary (the "Company") as
of February 14, 1997. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
 
     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of financial condition is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of financial condition.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
financial condition presentation. We believe that our audit of the statement of
financial condition provides a reasonable basis for our opinion.
 
     In our opinion, such consolidated statement of financial condition presents
fairly, in all material respects, the financial position of Long Beach Financial
Corporation and subsidiary as of February 14, 1997, in conformity with generally
accepted accounting principles.
 
DELOITTE & TOUCHE LLP
 
Costa Mesa, California
February 14, 1997
 
                                       F-2
<PAGE>   64
 
                        LONG BEACH FINANCIAL CORPORATION
 
                 CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
 
                            AS OF FEBRUARY 14, 1997
 
<TABLE>
<S>                                                                                 <C>
                                           ASSETS
Cash..............................................................................   $520,000
                                                                                     ========
                            LIABILITIES AND STOCKHOLDER'S EQUITY
Stockholder's equity:
  Preferred stock, $.001 par value;
     25,000,000 shares authorized; no shares outstanding..........................         --
  Common stock, $.001 par value; 150,000,000 shares authorized;
     one share issued and outstanding.............................................         --
  Additional paid in capital......................................................   $520,000
                                                                                    ---------
          Total stockholder's equity..............................................   $520,000
                                                                                     ========
</TABLE>
 
                 See notes to consolidated financial statement.
 
                                       F-3
<PAGE>   65
 
                        LONG BEACH FINANCIAL CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENT
 
                            AS OF FEBRUARY 14, 1997
 
1. GENERAL
 
     Long Beach Financial Corporation ("LBFC") was formed by Long Beach Mortgage
Company ("Old Long Beach") to be a holding company whose assets will
substantially consist of certain of the assets of Old Long Beach's
broker-sourced mortgage lending and loan sales operations. The financial
statements of LBFC include its wholly owned subsidiary Ameriquest Mortgage
Corporation.
 
   
     Old Long Beach is reorganizing its business operations (the
"Reorganization") by transferring certain assets (including independent broker
lists, office leases, furniture, leasehold improvements and equipment) and
personnel related to the broker-sourced mortgage lending and loan sales
operations of Old Long Beach and approximately $40 million in cash to LBFC, in
exchange for 25,000,000 shares of common stock for the purpose of selling
certain shares of LBFC in an initial public offering (the "Offering"). The
assets being transferred to LBFC include loans in process as of the time of the
Reorganization but do not include loans funded prior to the Reorganization or
servicing rights with respect to loans funded prior to the Reorganization. LBFC
will have no interest in Old Long Beach's direct-sourced mortgage lending or
loan servicing operations, which are being retained by Old Long Beach after the
Reorganization. In the Reorganization, LBFC is acquiring the right to the "Long
Beach Mortgage Company" name and Old Long Beach will no longer use the name in
its business. LBFC will then contribute such assets to its subsidiary,
Ameriquest Mortgage Corporation, which is licensed to perform mortgage banking
activities. As part of the Reorganization, Ameriquest Mortgage Corporation will
change its name to Long Beach Mortgage Company. LBFC is not assuming any of the
liabilities of Old Long Beach that may have arisen out of Old Long Beach's
lending or loan servicing activities prior to the Reorganization other than
certain liabilities relating to the assets or personnel being transferred. A
condition precedent to effecting the Reorganization is the establishment by LBFC
of an independent warehouse financing facility for its broker-sourced
operations.
    
 
   
     The acquisition will be accounted for similar to a pooling of interests.
The consolidated financial position and consolidated results of operations of
LBFC will consist substantially of the certain assets of Old Long Beach's
broker-sourced loan division as described above.
    
 
   
     As a result of the Offering, the tax basis (for income tax purposes) of the
assets transferred from Old Long Beach to LBFC in the Reorganization will be
increased, in the hands of LBFC, to their fair market value (determined by
reference to the initial public offering price). Such tax basis is generally
expected to produce a tax benefit to LBFC in future tax years through
depreciation or amortization deductions or through decreased gain or (subject to
certain limitations) increased loss on a disposition of any LBFC asset. However,
the "anti-churning" rules under Section 197 of the Internal Revenue Code of
1986, as amended (the "Code"), (generally applicable to the sale or transfer of
certain types of intangible assets between related parties), might apply to
disallow such amortization with respect to certain intangible assets of LBFC.
    
 
   
     Pursuant to the requirements of Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes", LBFC will record a deferred tax
asset (with a corresponding credit to additional paid in capital) for the tax
effect of the excess of the tax basis of LBFC's assets following the Offering
over their net book value. Solely for financial accounting and reporting
purposes, such tax basis will be reduced to take into account management's
assessment of the possible application of the "anti-churning" rules under
Section 197 of the Code. Adjustments of the net deferred tax asset attributable
to the resolution of the uncertainties associated with provisions of the Code
will be charged against or credited to additional paid in capital.
    
 
                                       F-4
<PAGE>   66
 
2. AGREEMENTS WITH RELATED PARTIES
 
     Administrative Services -- In connection with the Reorganization, LBFC and
Old Long Beach are entering into an administrative services agreement under
which Old Long Beach will continue to provide various services to LBFC,
including certain employee benefits administration, finance and accounting
technical support, information services and data processing functions. Any
failure by Old Long Beach to provide such administrative services to LBFC during
the term of the administrative services agreement could have a material adverse
effect on LBFC's results of operations and financial condition.
 
     In addition, LBFC and Old Long Beach are entering into a second
administrative services agreement pursuant to which LBFC will perform all
functions necessary on behalf of Old Long Beach to sell the mortgage loans
originated by Old Long Beach. Once Old Long Beach develops such internal
capability, Old Long Beach will terminate such agreement.
 
   
     Loan Subservicing -- In connection with the Reorganization, LBFC and Old
Long Beach are entering into a loan sub-servicing agreement (the "Loan
Sub-Servicing Agreement") pursuant to which a division of Old Long Beach will
sub-service mortgage loans originated or purchased by LBFC after the
Reorganization.
    
 
   
     Income Taxes -- In connection with the Reorganization, Old Long Beach and
Long Beach Financial Services Company, the sole stockholder of Old Long Beach,
have agreed to indemnify and hold LBFC harmless from any tax liability
attributable to periods ending on or before the consummation of the Offering.
For periods ending after the consummation of the Offering, LBFC will pay its tax
liability directly to the appropriate taxing authorities.
    
 
   
     These agreements have been developed in the context of a parent/subsidiary
relationship and therefore are not the result of arm's length negotiations
between independent parties.
    
 
                                       F-5
<PAGE>   67
 
                          INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors and Stockholder of
  Long Beach Mortgage Company:
 
     We have audited the accompanying statements of financial condition of Long
Beach Mortgage Company Broker-Sourced Loan Division (the "Company") as of
December 31, 1995 and 1996, and the related statements of operations, divisional
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, such financial statements present fairly, in all material
respects, the financial position of Long Beach Mortgage Company Broker-Sourced
Loan Division as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
 
     As more fully described in Notes 1 and 3, the Company is part of Long Beach
Mortgage Company ("Old Long Beach") and had no separate legal status or
existence through December 31, 1996. The Company had various transactions with
Old Long Beach, including various expense allocations and reimbursements, that
are material in amount. The financial statements of the Company have been
prepared from the records of Old Long Beach and may not necessarily be
indicative of the conditions that would have existed if the Company had operated
as an independent entity.
 
     As described in Note 2, on January 1, 1995, the Company adopted Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights."
 
DELOITTE & TOUCHE LLP
 
Costa Mesa, California
February 16, 1997
 
                                       F-6
<PAGE>   68
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                       STATEMENTS OF FINANCIAL CONDITION
                        AS OF DECEMBER 31, 1995 AND 1996
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                       1995            1996
                                                                    -----------     -----------
<S>                                                                 <C>             <C>
Loans held for sale (Note 5)......................................  $21,342,000     $49,580,000
Receivable from sales of loans (Note 2)...........................                   25,103,000
Premises and equipment, net (Notes 4 and 6).......................    1,826,000       2,033,000
Deferred income taxes (Note 7)....................................      882,000       2,120,000
Prepaid expenses and other assets.................................      728,000         914,000
                                                                    -----------     -----------
          Total assets............................................  $24,778,000     $79,750,000
                                                                    ===========     ===========
 
                               LIABILITIES AND DIVISIONAL EQUITY
Liabilities:
Warehouse financing facility (Note 5).............................  $20,613,000     $72,829,000
Accounts payable and accrued liabilities (Note 6).................    2,433,000       5,784,000
                                                                    -----------     -----------
          Total liabilities.......................................   23,046,000      78,613,000
 
Commitments and contingencies (Note 6)
 
Divisional equity.................................................    1,732,000       1,137,000
                                                                    -----------     -----------
          Total liabilities and divisional equity.................  $24,778,000     $79,750,000
                                                                    ===========     ===========
</TABLE>
 
                       See notes to financial statements.
 
                                       F-7
<PAGE>   69
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                            STATEMENTS OF OPERATIONS
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
<TABLE>
<CAPTION>
                                                         1994            1995            1996
                                                      -----------     -----------     -----------
<S>                                                   <C>             <C>             <C>
REVENUES:
Gain on sales of loans..............................  $21,668,000     $31,691,000     $50,699,000
Interest income.....................................    2,510,000       2,494,000       3,275,000
                                                      -----------     -----------     -----------
          Total revenues............................   24,178,000      34,185,000      53,974,000
 
EXPENSES:
Compensation and employee benefits..................   15,496,000      13,564,000      22,299,000
Rent and other occupancy costs (Note 6).............    2,565,000       3,258,000       4,188,000
Office supplies and courier service.................      712,000         816,000       1,903,000
Depreciation........................................      281,000         667,000       1,025,000
Legal and professional..............................    1,443,000       1,082,000       1,828,000
Interest (Notes 3 and 5)............................    1,814,000       2,312,000       2,814,000
Other (Note 6)......................................    1,831,000       2,525,000       3,945,000
                                                      -----------     -----------     -----------
          Total expenses............................   24,142,000      24,224,000      38,002,000
                                                      -----------     -----------     -----------
INCOME BEFORE PROVISION FOR INCOME TAXES............       36,000       9,961,000      15,972,000
PROVISION FOR INCOME TAXES (Note 7).................       14,000       4,169,000       6,580,000
                                                      -----------     -----------     -----------
NET INCOME..........................................  $    22,000     $ 5,792,000     $ 9,392,000
                                                      ===========     ===========     ===========
</TABLE>
 
                       See notes to financial statements.
 
                                       F-8
<PAGE>   70
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                   STATEMENTS OF DIVISIONAL EQUITY (DEFICIT)
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
<TABLE>
<S>                                                                               <C>
BALANCE, January 1, 1994........................................................  $  (127,000)
Net change in divisional deficit arising from intracompany transactions (Note
  3)............................................................................     (757,000)
Net income......................................................................       22,000
                                                                                  -----------
BALANCE, December 31, 1994......................................................     (862,000)
Net change in divisional equity arising from intracompany transactions (Note
  3)............................................................................   (3,198,000)
Net income......................................................................    5,792,000
                                                                                  -----------
BALANCE, December 31, 1995......................................................    1,732,000
Net change in divisional equity arising from intracompany transactions (Note
  3)............................................................................   (9,987,000)
Net income......................................................................    9,392,000
                                                                                  -----------
BALANCE, December 31, 1996......................................................  $ 1,137,000
                                                                                  ===========
</TABLE>
 
                       See notes to financial statements.
 
                                       F-9
<PAGE>   71
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                            STATEMENTS OF CASH FLOWS
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
<TABLE>
<CAPTION>
                                                        1994               1995                1996
                                                    -------------      -------------      ---------------
<S>                                                 <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................   $      22,000      $   5,792,000      $     9,392,000
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
  Depreciation and amortization of premises,
    equipment and warehouse financing facility
    issuance costs...............................         354,000            900,000            1,270,000
  Loans originated and purchased for sale........    (565,547,000)      (592,542,000)      (1,058,122,000)
  Proceeds from sales of loans held for sale.....     562,054,000        580,366,000        1,029,789,000
  Noncash gain recognized on capitalization of
    mortgage servicing rights....................              --         (4,144,000)          (9,225,000)
  Proceeds from mortgage servicing rights
    transferred to Old Long Beach................              --          4,144,000            9,225,000
  Principal repayments and other changes in loans
    held for sale................................       3,079,000          1,198,000               95,000
  Changes in:
    Receivable from sales of loans...............              --                 --          (25,103,000)
    Deferred income taxes........................              --           (882,000)          (1,238,000)
    Prepaid expenses and other assets............         153,000           (333,000)            (186,000)
    Accounts payable and accrued liabilities.....         876,000            523,000            3,351,000
                                                    -------------      -------------      ---------------
         Net cash provided by (used in) operating
           activities............................         991,000         (4,978,000)         (40,752,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of premises and equipment...............      (1,663,000)          (721,000)          (1,232,000)
                                                    -------------      -------------      ---------------
         Net cash used in investing activities...      (1,663,000)          (721,000)          (1,232,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in warehouse financing facility.......      11,410,000          8,897,000           51,971,000
Net change in warehouse financing from Old Long
  Beach..........................................      (9,981,000)                --                   --
Cash provided to Old Long Beach..................        (757,000)        (3,198,000)          (9,987,000)
                                                    -------------      -------------      ---------------
         Net cash provided by financing
           activities............................         672,000          5,699,000           41,984,000
                                                    -------------      -------------      ---------------
NET INCREASE (DECREASE) IN CASH..................              --                 --                   --
CASH, beginning of year..........................              --                 --                   --
                                                    -------------      -------------      ---------------
CASH, end of year................................   $          --      $          --      $            --
                                                    =============      =============      ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION --
  Cash paid during the year for:
    Interest on warehouse financing facility.....   $     350,000      $   1,581,000      $     2,569,000
                                                    =============      =============      ===============
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
  Transfer of loans to real estate acquired
    through foreclosure..........................   $     168,000      $          --      $            --
                                                    =============      =============      ===============
</TABLE>
 
                                      F-10
<PAGE>   72
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                         NOTES TO FINANCIAL STATEMENTS
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
 
     Long Beach Mortgage Company Broker-Sourced Loan Division (the "Company") is
engaged in the business of originating, purchasing and selling sub-prime
residential mortgage loans secured by one-to-four family residences. The Company
originates loans primarily through independent mortgage loan brokers. The
Company's core borrower base consists of individuals who do not qualify for
traditional "A" credit because their credit history, income or other factors
cause them not to conform to standard agency lending criteria.
 
     The Company follows a strategy of selling substantially all of it loan
originations (while retaining the related servicing rights in most cases) in the
secondary market through loan sales. Prior to originating loans, the Company
generally obtains a purchase commitment with respect to such loans from a loan
purchaser, thereby assuring a buyer for the loans once they are funded.
 
     The Company had no separate legal status or existence through December 31,
1996 and operated as a division of Long Beach Mortgage Company ("Old Long
Beach"). In the normal course of business, the Company had various transactions
with other divisions of Old Long Beach that are material in amount. The
accompanying financial statements of the Company have been prepared from records
maintained by Old Long Beach. These financial statements also reflect key
assumptions regarding the allocation of certain revenue and expense items and
certain balance sheet accounts, many of which could be material (Note 3). The
accompanying historical financial statements of the Company may not necessarily
be indicative of the conditions that would have existed if the Company had
operated as an independent entity.
 
   
     Prior to 1994, Old Long Beach operated as a federally-insured thrift
institution (then known as Long Beach Bank, F.S.B.). Long Beach Bank, F.S.B.
ceased operations and voluntarily surrendered its federal thrift charter in
October 1994 and transferred its broker-sourced business, along with its
direct-sourced business and loan servicing operations, to Old Long Beach, a then
newly formed entity, which has been operating under the name "Long Beach
Mortgage Company."
    
 
     Old Long Beach is reorganizing its business operations (the
"Reorganization") by transferring certain assets (including independent broker
lists, office leases, furniture, leasehold improvements and equipment) and
personnel related to the broker-sourced mortgage lending and loan sales
operations of Old Long Beach and approximately $40 million in cash to a newly
formed company, Long Beach Financial Corporation ("LBFC"), in exchange for
25,000,000 shares of common stock for the purpose of selling certain shares of
LBFC in an initial public offering (the "Offering"). The assets being
transferred to LBFC include loans in process as of the time of the
Reorganization but do not include loans funded prior to the Reorganization or
servicing rights with respect to loans funded prior to the Reorganization. In
the Reorganization, LBFC is acquiring the right to the "Long Beach Mortgage
Company" name, and Old Long Beach will no longer use the name in its business.
LBFC will then contribute such assets to a subsidiary licensed to perform
mortgage banking activities.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Loans Held for Sale -- Loans held for sale are carried at the lower of
aggregate cost or market value. Loan origination fees and related direct
origination costs are deferred until the related loan is sold. Market value is
determined by outstanding commitments from investors, if any, or current
investor yield requirements on the aggregate basis.
 
     Mortgage Servicing Rights -- Effective January 1, 1995, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for
Mortgage Servicing Rights," which requires that upon sale of servicing retained
mortgages, companies capitalize the cost associated with the right to service
mortgage loans based on their relative fair values. Retroactive implementation
of SFAS No. 122 was not permitted. The impact of adopting SFAS No. 122 was an
increase in pretax income of $4.1 million for the
 
                                      F-11
<PAGE>   73
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
year ended December 31, 1995. The Company capitalized $9.2 million in mortgage
servicing rights during the year ended December 31, 1996. The Company determines
fair value based on the present value of estimated net future cash flows related
to servicing income.
 
     During 1995 and 1996, immediately after sale of the loans, the Company
transferred the servicing rights to an affiliated division of Old Long Beach at
their carrying value. If, in the future, the Company retains the mortgage
servicing rights asset, the cost allocated to the servicing rights will be
amortized in proportion to and over the period of estimated net future servicing
fee income. Such servicing rights will be reviewed periodically for impairment
which would be recognized in a valuation allowance for such pool in the period
of impairment.
 
     Receivable from Sales of Loans -- Receivable from sales of loans represents
proceeds due from certain sales transactions which closed in December 1996. All
amounts due to the Company were collected by January 10, 1997.
 
     Premises and Equipment -- Premises and equipment are stated at cost and
depreciated over the estimated useful lives of the assets using the
straight-line method. Leasehold improvements are amortized on the straight-line
method over the lesser of the useful lives of the assets or the terms of the
related leases. Useful lives generally range from three to five years.
 
     Income Taxes -- The Company accounts for taxes under SFAS No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach to
financial accounting for income taxes. Deferred tax assets arise from temporary
differences on which the Company has paid income taxes or recognized income tax
benefits that will be realized as a reduction of future tax liabilities. The
income tax provision has been computed as if the Company filed "separate
company" federal and state tax returns.
 
     Divisional Equity -- Divisional equity represents cumulative net income
(loss), net of allocations of costs and expenses incurred by the Company and
paid by Old Long Beach, and cash generated and remitted to Old Long Beach.
 
     Revenue Recognition -- Gain on sales of loans, representing the difference
between the total sales price received for the loans and the net carrying amount
of the loan, is recognized when mortgage loans are sold and delivered to the
purchasers.
 
     Interest income is recorded as earned. Interest income represents the
interest earned on loans during the warehousing period (the period prior to
their sale).
 
     Use of Estimates in the Preparation of Financial Statements -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
 
     Stock Based Compensation -- In 1995, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation,"
which encourages companies to account for stock compensation awards based on
their fair value at the date the awards are granted. SFAS No. 123 does not
require the application of the fair value method and allows for the continuance
of current accounting methods, which require accounting for stock compensation
awards based on their intrinsic value as of the grant date. However, SFAS No.
123 requires proforma disclosure of net income and, if presented, earnings per
share, as if the fair value based method of accounting defined in this Statement
had been applied. The accounting and disclosure requirements of this Statement
are effective for financial statements for fiscal years beginning after December
15, 1995. The Company will not adopt the accounting method in SFAS No. 123 with
respect to future stock incentive plans and will account for such plans in
accordance with Accounting Principles Board Opinion No. 25.
 
                                      F-12
<PAGE>   74
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
     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. This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. Many of these assets and liabilities
are components of financial assets that existed prior to the transfer. If a
transfer does not meet the criteria for a sale, the transfer is accounted for as
a secured borrowing with pledge of collateral. The Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. Retroactive application of this Statement is
not permitted. The Company does not anticipate that the implementation of SFAS
No. 125 will have a material impact on its results of operations or financial
condition.
 
3. ASSUMPTIONS RELATED TO HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY
 
     The accompanying financial statements reflect the assets, liabilities,
revenues and expenses that were directly related to the continuing operations of
the Company as they were operated by Old Long Beach. Old Long Beach's historical
cost basis of the assets and liabilities has been carried over to the Company.
In cases involving assets, liabilities, revenues and expenses not specifically
identifiable to any particular division of Old Long Beach, certain allocations
were made to reflect the operations of the Company. Allocations have been made
for, among other things, accounting, information services, legal, compliance,
and other executive and administrative services. These allocations were based on
a variety of factors which take into consideration the loan origination volume,
employee head count, and historical ratios of direct expenses incurred by the
divisions to total direct expenses. Management believes these allocations
provide a reliable basis for the accompanying financial statements, which are
also based on the following assumptions:
 
          1. No cash balances are recorded as part of these historical financial
     statements as it was the practice of Old Long Beach not to maintain
     separate cash balances for the various divisions.
 
          2. The net change in divisional equity (deficit) arising from
     intracompany transactions, as reflected in the statements of divisional
     equity (deficit) includes, (i) the aggregate intracompany allocations of
     costs and expenses incurred by the Company and paid by Old Long Beach, (ii)
     cash generated by the Company and collected by Old Long Beach during the
     periods presented and (iii) cash advanced to the Company by Old Long Beach
     and its related accrued interest. The net change in divisional equity
     (deficit) arising from intracompany transactions also includes all
     liabilities of the Company, such as income taxes payable, that are not
     separate legal obligations of the Company but have been charged to the
     Company.
 
   
          3. Prior to October 1994, when Long Beach Bank, F.S.B. ceased
     operations and Old Long Beach commenced operations as a mortgage banking
     company with the concurrent establishment of the warehouse financing
     facility (see Note 5), interest expense was recorded as if Old Long Beach
     provided warehouse financing bearing interest at a rate equal to its
     internal cost of funds.
    
 
                                      F-13
<PAGE>   75
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
4. PREMISES AND EQUIPMENT
 
     Premises and equipment at December 31 consists of the following:
 
<TABLE>
<CAPTION>
                                                                1995           1996
                                                             ----------     -----------
        <S>                                                  <C>            <C>
        Furniture and equipment............................  $2,789,000     $ 2,947,000
        Leasehold improvements.............................          --         149,000
                                                             ----------     -----------
                                                              2,789,000       3,096,000
        Less accumulated depreciation and amortization.....    (963,000)     (1,063,000)
                                                             ----------     -----------
                                                             $1,826,000     $ 2,033,000
                                                             ==========     ===========
</TABLE>
 
5. WAREHOUSE FINANCING FACILITY
 
     The Company shares the use of an Old Long Beach warehouse financing
facility funded by a national banking association and a syndicate of lenders.
This facility commenced in October 1994 when Old Long Beach voluntarily
surrendered its thrift charter. The facility which the Company utilizes, along
with other divisions of Old Long Beach, provides for a borrowing capacity of
$300 million. The facility expires on May 31, 1997 and is collateralized by
loans held for sale and advances to investors. The facility bears interest at a
fixed rate, a rate based on the London Interbank Offered Rate ("LIBOR") for U.S.
dollar deposits, or a combination of the two, at the option of Old Long Beach.
 
   
     The following table presents data on the warehouse financing facility of
Old Long Beach for the years ended December 31:
    
 
<TABLE>
<CAPTION>
                                                   1994             1995             1996
                                                -----------     ------------     ------------
    <S>                                         <C>             <C>              <C>
    Weighted average interest rate for the
      period..................................         7.49%            7.77%            7.28%
    Weighted average interest rate at the end
      of the period...........................         7.90%            7.51%            7.25%
    Weighted average amount outstanding for
      the period..............................  $53,223,000     $ 78,588,000     $ 97,714,000
    Maximum amount outstanding at any
      month-end...............................  $78,747,000     $108,735,000     $170,102,000
</TABLE>
 
     Because this facility will not be available to the Company after the
Reorganization and Offering, the Company is in negotiations to establish an
independent line of credit for the exclusive use of Company operations. The
Company believes that it will establish this new facility with adequate
borrowing capacity and terms similar to those of the existing facility described
above. The establishment of such a facility is a condition precedent to
effecting the Reorganization.
 
     The Company was allocated capitalized warehouse financing issuance costs of
$352,000, $34,000 and $165,000 for the years ended December 31, 1994, 1995 and
1996, respectively. The Company recorded interest expense related to the
amortization of warehouse financing issuance costs of $73,000, $233,000 and
$245,000 for the years ended December 31, 1994, 1995 and 1996, respectively. At
December 31, 1995, the unamortized warehouse financing issuance cost was
$80,000. There were no unamortized warehouse financing issuance costs at
December 31, 1996.
 
                                      F-14
<PAGE>   76
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
6. COMMITMENTS, CONTINGENCIES, CONCENTRATIONS OF RISK AND RELATED PARTY
   TRANSACTIONS
 
COMMITMENTS
 
     The Company's operations are conducted from leased facilities located in
various areas of the United States. These leases have clauses which provide for
increases in rent based on increases in the cost of living index and options for
renewal. Rental expense for the years ended December 31, 1994, 1995 and 1996 was
$840,000, $1,290,000 and $1,394,000, respectively. The future minimum lease
payments are as follows:
 
<TABLE>
        <S>                                                                <C>
        Year ending December 31:
          1997.........................................................    $  897,000
          1998.........................................................       682,000
          1999.........................................................       577,000
          2000.........................................................       509,000
          2001.........................................................       223,000
          Thereafter...................................................            --
                                                                           ----------
                                                                           $2,888,000
                                                                           ==========
</TABLE>
 
     The following table sets forth the minimum lease payments related to the
Company's capital lease obligations of certain furniture and equipment as of
December 31, 1996:
 
<TABLE>
        <S>                                                                 <C>
        Year ending December 31:
          1997..........................................................    $120,500
          1998..........................................................     120,500
          1999..........................................................     120,500
          2000..........................................................     120,500
          2001..........................................................      65,000
                                                                            --------
                                                                             547,000
        Less amounts representing interest..............................     (92,000)
                                                                            --------
        Capital lease obligations as of December 31, 1996...............    $455,000
                                                                            ========
</TABLE>
 
     The capital lease obligations are included in accrued liabilities in the
accompanying statement of financial condition. As of December 31, 1996, the net
book value of furniture and equipment under capital lease was $447,000. The
Company did not have any capital lease obligations as of December 31, 1995.
 
     In the ordinary course of business, the Company has liability under
representations and warranties made to purchasers and insurers of mortgage
loans. Under certain circumstances, the Company may become liable for the unpaid
principal and interest on defaulted loans or other loans if there has been a
breach of representation or warranties.
 
     The Company is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments primarily represent commitments to fund and sell
loans. These instruments involve, to varying degrees, elements of interest rate
risk and credit risk in excess of the amount recognized in the statement of
financial condition. The credit risk is mitigated by the Company's evaluation of
the creditworthiness of potential borrowers on a case-by-case basis.
 
     Commitments to fund and sell loans generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Also, external
market forces impact the probability of commitments being exercised; therefore,
total commitments outstanding do not necessarily represent future cash
requirements.
 
                                      F-15
<PAGE>   77
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
   
     The Company had commitments to fund loans of $107.7 million and $165.4
million at December 31, 1995 and 1996, respectively. The Company had no loan
purchase commitments outstanding at December 31, 1995. The Company's loan
purchase commitments totaled $7.0 million at December 31, 1996. Old Long Beach
had loan sale commitments of $293.0 million at December 31, 1995. Old Long Beach
has entered into forward loan sale contracts under which it has committed to
deliver $720.0 million loans that will be originated prior to April 1, 1997. The
Company will sell any such loans to Old Long Beach at the same price that Old
Long Beach has committed to sell such loans to its loan purchaser in order to
enable Old Long Beach to fulfill this commitment. The Company expects that loans
originated by the Company on or after April 1, 1997 will be sold by it pursuant
to loan sales contracts entered into directly with the purchasers.
    
 
CONTINGENCIES
 
   
     In September 1996, Old Long Beach entered into a settlement agreement with
the U.S. Department of Justice ("DOJ") arising out of a DOJ investigation and
complaint which alleged that Long Beach Bank, F.S.B. during the period from
January 1991 through June 1994 charged certain African-American, Hispanic,
female and older borrowers more than younger, white male borrowers in violation
of fair lending laws. Old Long Beach denied all allegations in the complaint and
all claims of discrimination. Old Long Beach also disputed the validity of the
statistical analysis relied upon by the DOJ as the principal basis for its
claims and further maintained that the DOJ theories of liability regarding
broker-sourced lending were legally unsupportable. Nonetheless, to avoid costly,
protracted litigation, Old Long Beach agreed to establish a $3 million fund to
reimburse up to 1,200 borrowers identified by the DOJ as the maximum number of
individuals who may have been affected by the alleged fair lending violations.
Old Long Beach asserted that the better solution to the issued raised by the DOJ
was an intensive national effort in consumer education and industry-wide
initiatives directed at employee and broker education and training. For this
reason, Old Long Beach also agreed to contribute an additional $1 million
(payable over 3 years) to fund consumer education programs in conjunction with
civil rights groups. Old Long Beach has established all funds required by the
settlement agreement.
    
 
     The DOJ settlement, which is binding upon the Company as a successor to Old
Long Beach, provides that the Company will (i) document any price exceptions
from the Company's rate sheet on broker-sourced loans, (ii) periodically review
the results of its broker-sourced lending operations for its compliance with
fair lending laws but in no event shall the Company be required to disclose any
documents or information therewith, including the identities of any brokers with
whom it does business, (iii) retain all loan application files submitted for
mortgage loans and all loan-rider documents and notices relevant to any pricing
decisions until September 1999 and report to the DOJ semi-annually on compliance
with the settlement agreement and (iv) provide to brokers information about the
Company's fair-lending and pricing procedures and an opportunity to participate
in fair-lending training.
 
     While the Company believes it is in compliance with the broker-sourced
provisions of the settlement agreement, there can be no assurance that the DOJ
will not take a contrary position in the future and seek to compel compliance by
the Company. The Company was allocated $267,000 and $1,065,000 in 1995 and 1996,
respectively, of the settlement costs on the basis of the portion of the
settlement pertaining to broker-sourced loans, as stipulated in the settlement
agreement, which is included in other expenses in the accompanying statement of
operations.
 
   
     When the Company operated as a division of Old Long Beach, it was involved
in various lawsuits incidental to its business, none of which had a material
adverse effect on the Company. However, in the Reorganization, the Company is
not assuming any liabilities that may arise out of any lending activities of Old
Long Beach prior to the Reorganization, other than certain liabilities relating
to the assets or personnel being transferred, including liabilities related to
the broker-sourced mortgage loan operations, nor is the Company
    
 
                                      F-16
<PAGE>   78
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
indemnifying Old Long Beach against any such liabilities. As such, the Company
is not involved currently in any litigation.
 
CONCENTRATIONS OF RISK
 
     The Company funds substantially all of the loans which it originates or
purchases through borrowings under the warehouse financing facility (see Note
5). These borrowings are in turn repaid with the proceeds received by the
Company from selling such loans. Because this facility will not be available to
the Company after the Reorganization and Offering, any failure to obtain
adequate funding under new borrowing facilities or any substantial reduction in
the size of or pricing in the markets for the Company's loans, could have a
material adverse effect on the Company's results of operations and financial
condition. To the extent that the Company is not successful in replacing
existing financing, it would have to curtail its loan production activities,
thereby having a material adverse effect on the Company's results of operations
and financial condition.
 
     Periods of economic slowdown may reduce the demand for mortgage loans as
people elect not to purchase new homes due to economic uncertainty and also may
adversely affect the financial condition of potential borrowers so that they do
not meet the Company's underwriting criteria. In addition, economic slowdowns
may cause a decline in real estate values. Any material decline in real estate
values will reduce the ability of borrowers to use home equity to support
borrowings by negatively affecting loan-to-value ratios of the home equity
collateral. To the extent that the loan-to-value ratios of prospective
borrowers' home equity collateral do not meet the Company's underwriting
criteria, the volume of loans originated by the Company could decline.
 
     The Company began originating sub-prime mortgage loans in southern
California in 1988 and started to expand its business outside California on a
limited basis in 1992. In 1994, the Company began to focus its attention on more
aggressive expansion outside California. For the year ended December 31, 1996,
approximately 37.1% of the dollar volume of loans originated or purchased by the
Company were secured by properties located in California. No other state
contained properties securing more than 10% of the dollar volume of loans
originated or purchased by the Company during the year ended December 31, 1996.
Although the Company has a nationwide independent broker network and regional
processing center network, the Company is likely to continue to have a
significant amount of its loan originations and purchases in California for the
foreseeable future, primarily because California represents a significant
portion of the national mortgage marketplace. Consequently, the Company's
results of operations and financial condition are dependent upon the general
trends in the California economy and its residential real estate market.
Residential real estate market declines may adversely affect the values of
properties securing loans such that the principal balances of such loans will
equal or exceed the value of the mortgaged properties. Reduced collateral value
will adversely affect the volume of the Company's loans as well as the pricing
of the Company's loans and the Company's ability to sell its loans.
 
     The Company focuses its marketing efforts on borrowers who may be unable to
obtain mortgage financing from conventional mortgage sources. Loans made to such
borrowers may entail a higher risk of delinquency and higher losses than loans
made to borrowers who utilize conventional mortgage sources. Accordingly, the
actual rates of delinquencies, foreclosures and losses on such loans could be
higher under adverse economic conditions than those currently experienced by the
mortgage lending industry in general. Any sustained period of increased
delinquencies, foreclosures or losses after the loans are sold could adversely
affect the pricing of the Company's loan sales and the ability of the Company to
sell its loans.
 
     The Company has historically sold substantially all of its loan
originations in the secondary market to a limited number of institutional
purchasers. There can be no assurance that such purchasers of the Company's
loans will continue to purchase loans or be willing to purchase loans under
terms which such purchasers have historically purchased the Company's loans. To
the extent that the Company could not successfully replace
 
                                      F-17
<PAGE>   79
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
such loan purchasers or negotiate favorable terms for such loan purchasers, the
Company's results of operations and financial condition could be materially
adversely affected.
 
     The Company depends largely on independent mortgage brokers, and to a
lesser extent, smaller mortgage companies and commercial banks for its
originations and purchases of loans. The Company's competitors also seek to
establish relationships with such independent mortgage brokers, mortgage
companies and commercial banks, none of whom is obligated by contract or
otherwise to continue to do business with the Company. The Company's future
operating and financial results may be more susceptible to fluctuations in the
volume and costs of its broker-sourced loans resulting from, among other things,
competition from other purchasers of such loans.
 
     The Company's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on a substantial portion of its operations. These rules and
regulations, among other things, impose licensing obligations on the Company,
establish eligibility criteria for mortgage loans, prohibit discrimination,
provide for inspections and appraisals of properties, require credit reports on
loan applicants, regulate assessment, collection, foreclosure and claims
handling, investment and interest payments on escrow balances and payment
features, mandate certain disclosures and notices to borrowers and, in some
cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to
comply with these requirements can lead to loss of approved status, termination
or suspension of servicing contracts without compensation to the servicer,
demands for indemnifications or mortgage loan repurchases, certain rights of
recission for borrowers, class action lawsuits and administrative enforcement
actions. Although the Company believes that it has systems and procedures to
facilitate compliance with these requirements and believes that it is in
compliance in all material respects with applicable local, state and federal
laws, rules and regulations, in the future more restrictive laws, rules and
regulations or the judicial interpretation of existing laws, rules and
regulations could make compliance more difficult or expensive.
 
     Lawsuits have been filed against several mortgage lenders, including Old
Long Beach, alleging that such lenders have made certain payments to independent
mortgage brokers in violation of RESPA. These lawsuits have generally been filed
on behalf of a purported nationwide class of borrowers alleging that payments
made by a lender to a broker in addition to payments made by the borrower to a
broker are prohibited by RESPA and are therefore illegal. If these cases are
resolved against the lenders, it may cause an industry-wide change in the way
independent mortgage brokers are compensated. The Company's broker compensation
programs permit such payments. Although the Company believes that its broker
compensation programs comply with all applicable laws and are consistent with
long-standing industry practice and regulatory interpretations, in the future,
new regulatory interpretations or judicial decisions may require the Company to
change its broker compensation practices. Such a change may have a material
adverse effect on the Company and the entire mortgage lending industry.
 
RELATED PARTY TRANSACTIONS
 
     Administrative Services -- In connection with the Reorganization, the
Company and Old Long Beach are entering into an administrative services
agreement under which Old Long Beach will continue to provide various services
to the Company, including certain employee benefits administration, finance and
accounting technical support, information services and data processing
functions. Any failure by Old Long Beach to provide such administrative services
to the Company during the term of the administrative services agreement could
have a material adverse effect on the Company's results of operations and
financial condition.
 
     In addition, the Company and Old Long Beach are entering into a second
administrative services agreement pursuant to which the Company will perform all
functions necessary on behalf of Old Long Beach
 
                                      F-18
<PAGE>   80
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
to sell the mortgage loans originated by Old Long Beach. Once Old Long Beach
develops such internal capability, Old Long Beach will terminate such agreement.
 
   
     Loan Sub-Servicing -- In connection with the Reorganization, the Company
and Old Long Beach are entering into a loan sub-servicing agreement pursuant to
which a division of Old Long Beach will sub-service mortgage loans originated or
purchased by the Company after the Reorganization.
    
 
   
     Income Taxes -- In connection with the Reorganization, Old Long Beach and
Long Beach Financial Services Company, the sole stockholder of Old Long Beach,
have agreed to indemnify and hold the Company harmless from any tax liability
attributable to periods ending on or before the consummation of the Offering.
For periods ending after the consummation of the Offering, the Company will pay
its tax liability directly to the appropriate taxing authorities.
    
 
   
     The above-described agreements have been developed in the context of a
parent/subsidiary relationship and therefore are not the result of arm's length
negotiations between independent parties.
    
 
7. INCOME TAXES
 
     The income tax provision (benefit) consists of the following:
 
<TABLE>
<CAPTION>
                                                      1994           1995           1996
                                                    ---------     ----------     -----------
    <S>                                             <C>           <C>            <C>
    Current:
      Federal.....................................  $ 189,000     $3,606,000     $ 5,895,000
      State.......................................      1,000      1,125,000       1,923,000
                                                    ---------     -----------    -----------
                                                      190,000      4,731,000       7,818,000
                                                    ---------     -----------    -----------
    Deferred:
      Federal.....................................   (195,000)      (562,000)     (1,135,000)
      State.......................................     19,000                       (103,000)
                                                    ---------     -----------    -----------
                                                     (176,000)      (562,000)     (1,238,000)
                                                    ---------     -----------    -----------
                                                    $  14,000     $4,169,000     $ 6,580,000
                                                    =========     ===========    ===========
</TABLE>
 
     Actual income tax rates differed from statutory rates as follows:
 
<TABLE>
<CAPTION>
                                                              1994        1995        1996
                                                              -----       -----       -----
    <S>                                                       <C>         <C>         <C>
    Federal income taxes at statutory rates.................   35.0%       35.0%       35.0%
    California franchise tax, net of federal tax benefit....    4.0         7.4         7.4
 
    Other...................................................    (.1)       (0.5)       (1.2)
                                                               ----        ----        ----
                                                               38.9%       41.9%       41.2%
                                                               ====        ====        ====
</TABLE>
 
                                      F-19
<PAGE>   81
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
     The components of the net deferred tax assets (liabilities) are as follows:
 
<TABLE>
<CAPTION>
                                                                    1995           1996
                                                                  ---------     ----------
    <S>                                                           <C>           <C>
    Deferred tax liabilities:
 
      Depreciation..............................................  $(110,000)    $ (158,000)
                                                                  ---------     ----------
    Deferred tax assets:
      Bad debt reserves.........................................         --        164,000
      Mark to market adjustment.................................    426,000        998,000
      Legal reserves............................................    183,000        482,000
      State taxes...............................................    383,000        634,000
                                                                  ---------     ----------
                                                                    992,000      2,278,000
                                                                  ---------     ----------
    Net deferred tax asset......................................  $ 882,000     $2,120,000
                                                                  =========     ==========
</TABLE>
 
8. FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET ACTIVITIES
 
     The following disclosures of the estimated fair value of the financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosure About Fair Value of Financial Instruments." The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts at
December 31:
 
<TABLE>
<CAPTION>
                                                    1995                        1996
                                          -------------------------   -------------------------
                                           CARRYING      ESTIMATED     CARRYING      ESTIMATED
                                            AMOUNT      FAIR VALUE      AMOUNT      FAIR VALUE
                                          -----------   -----------   -----------   -----------
    <S>                                   <C>           <C>           <C>           <C>
    Assets:
         Loans held for sale............  $21,342,000   $22,459,000   $49,580,000   $52,122,000
 
    Liabilities:
         Warehouse financing facility...  $20,613,000   $20,613,000   $72,829,000   $72,829,000
    Off-balance-sheet unrealized gains
      (losses):
         Loan origination commitments...  $        --   $        --   $        --   $        --
</TABLE>
 
     The estimated fair value of loans is based upon quoted market prices.
 
     Warehouse financing facility is valued at par as management believes that
the terms of the warehouse financing facility represent current market rates.
 
     The fair value of loan origination commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties.
 
     The fair value estimates are based on pertinent information available to
management as of December 31, 1995 and 1996. Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date and, therefore, current estimates of fair
value may differ significantly from the amounts presented herein.
 
                                      F-20
<PAGE>   82
 
            LONG BEACH MORTGAGE COMPANY BROKER-SOURCED LOAN DIVISION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
       FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
 
9. EMPLOYEE BENEFIT PLAN
 
     Old Long Beach has a 401(k) defined contribution plan available to
substantially all employees. Employees may generally contribute up to 15% of
qualifying contribution each year; and Old Long Beach, at its discretion, may
match up to the first 6% of qualifying compensation. Employees become vested in
Old Long Beach's contribution at a rate of 25% per year after the second year of
service, with complete vesting after five years. The Company's allocated share
of contribution expense was $144,000, $84,000 and $149,000 in the years ended
December 31, 1994, 1995 and 1996, respectively, based on estimated contribution
levels. The Company determined that it would not contribute for the 1994 plan
year in 1995, and the expense was reversed and recorded as income in that
period.
 
                                      F-21
<PAGE>   83
 
======================================================
 
  NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
 
                            ------------------------
 
                               TABLE OF CONTENTS
 
   
<TABLE>
<CAPTION>
                                             PAGE
                                             -----
<S>                                          <C>
Summary...................................       3
Risk Factors..............................       7
Reorganization............................      15
Dividends.................................      16
Dilution..................................      17
Capitalization............................      18
Selected Consolidated Financial Data......      19
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations..............................      20
Business..................................      26
Unaudited Pro Forma Consolidated Financial
  Data....................................      42
Management................................      44
Certain Transactions......................      51
Beneficial Ownership of Securities and
  Selling Stockholder.....................      54
Description of Capital Stock..............      55
Shares Eligible for Future Sale...........      57
Underwriting..............................      58
Legal Matters.............................      59
Experts...................................      60
Available Information.....................      60
Index to Financial Statements.............     F-1
</TABLE>
    
 
  UNTIL           , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERING HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
 
======================================================
 
======================================================
 
                               21,750,000 SHARES
 
                              LONG BEACH FINANCIAL
                                  CORPORATION
                                  COMMON STOCK
                               -----------------
                                   PROSPECTUS
                               -----------------
                              FRIEDMAN, BILLINGS,
                               RAMSEY & CO., INC.
                                          , 1997
======================================================
<PAGE>   84
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
   
     The estimated expenses in connection with the offering (all of which will
be borne by Long Beach Mortgage Company ("Old Long Beach")) are as follows:
    
 
   
<TABLE>
<CAPTION>
                                     EXPENSES                                AMOUNT
        ------------------------------------------------------------------  --------
        <S>                                                                 <C>
        Securities and Exchange Commission Registration Fee...............  $ 90,910
        National Association of Securities Dealers, Inc. Filing Fee.......    30,500
        Nasdaq Listing Fee................................................    50,000
        Printing Expenses.................................................   150,000
        Legal Fees and Expenses...........................................   300,000
        Transfer Agent and Registrar Fees.................................     2,000
        Accounting Fees and Expenses......................................   200,000
        Blue Sky Fees and Expenses........................................    10,000
        Miscellaneous Expenses............................................    16,590
                                                                            --------
                  Total...................................................  $850,000
                                                                            ========
</TABLE>
    
 
   
ITEM 14.  INDEMNIFICATION OF OFFICERS AND DIRECTORS.
    
 
     Section 145(a) of the Delaware General Corporation Law (the "GCL") provides
that a Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no cause to believe his
or her conduct was unlawful.
 
     Section 145(b) of the GCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if he or she acted under similar standards,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
 
     Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, such officer or director shall be indemnified
against expenses actually and reasonably incurred by him or her in connection
therewith; that indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
such officer or director and incurred by him or her in any such
 
                                      II-1
<PAGE>   85
 
capacity or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such
liabilities under Section 145.
 
     As permitted by Section 102(b)(7) of the GCL, the Company's Certificate of
Incorporation provides that a director shall not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
However, such provision does not eliminate or limit the liability of a director
for acts or omissions not in good faith or for breaching his or her duty of
loyalty, engaging in intentional misconduct or knowingly violating a law, paying
a dividend or approving a stock repurchase which was illegal, or obtaining an
improper personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or rescission, for breach
of fiduciary duty.
 
     The Company's Certificate of Incorporation requires the Company to
indemnify any person (or the estate of any person) who was or is a party to or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether or not by or in the right of the Company and whether
civil, criminal, administrative or investigative or otherwise by reason of the
fact that such person is or was a director or officer of the Company, or is or
was serving at the request of the Company as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses incurred (including attorneys' fees), judgments, fines and amounts paid
in settlement. Any such expenses shall be paid by the Company in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the person seeking indemnification to repay such
amounts if it is ultimately determined that he or she is not entitled to be
indemnified.
 
     Notwithstanding the foregoing, the Company will not make such an advance if
a determination is reasonably and promptly made by the Board of Directors by a
majority vote of a quorum of disinterested Directors, or (if such a quorum is
not obtainable or, even if obtainable, a quorum of disinterested Directors so
directs) by independent legal counsel to the Company, that, based upon the facts
known to the Board of Directors or such counsel at the time such determination
is made, (a) the party seeking an advance acted in bad faith or deliberately
breached his or her duty to the Company or its stockholders, and (b) as a result
of such actions by the party seeking an advance, it is more likely than not that
it will ultimately be determined that such party is not entitled to
indemnification pursuant to the provisions of the Certificate of Incorporation.
 
     The Company may, to the fullest extent permitted by the GCL, purchase and
maintain insurance on behalf of any such person against any liability which may
be asserted against such person. The Company may create a trust fund, grant a
security interest or use other means (including without limitation a letter of
credit) to ensure the payment of such sums as may become necessary or desirable
to effect the indemnification as provided in the Certificate of Incorporation.
 
     The Company may, but only to the extent that the Board of Directors may
authorize from time to time, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Company to the fullest
extent of the provisions described above as it applies to the indemnification
and advancement of expenses of directors and officers of the Company.
 
     The Company anticipates obtaining a policy of directors' and officers'
liability insurance prior to the completion of the Offering.
 
     The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Underwriters of the
Company, its directors, officers and controlling persons against certain
liabilities.
 
   
     The Company will enter into indemnification agreements (the
"Indemnification Agreements") with its executive officers and directors. These
Indemnification Agreements require the Company to indemnify, in the manner and
to the fullest extent permitted by the GCL, each executive officer and director
if he or she is or was a party to, or is threatened to be made a party to, any
action, suit or proceeding individually or in the right of the Company or any
subsidiary of the Company, by reason of (a) the fact that such executive officer
or director is or was an executive officer or director of the Company or any
subsidiary and/or (b) the fact that such executive officer or director is or was
serving at the request of the Company as a director or officer of another
corporation or other enterprise. The indemnification extends to all expenses as
incurred (including
    
 
                                      II-2
<PAGE>   86
 
   
attorneys' fees), judgments, fines and amounts paid in settlement of such
action, suit or proceeding. The Company must further advance, within 20 days of
a written request, all expenses incurred by the executive officer or director in
connection with the investigation, defense, settlement or appeal of any such
action or proceeding; provided, however, that the executive officer or director
must repay such amounts advanced if it is ultimately determined that he or she
is not entitled to be indemnified by the Company. Notwithstanding the foregoing,
the Company will not make such an advance if a determination is reasonably and
promptly made by the Board of Directors by a majority vote of a quorum of
disinterested Directors, or (if such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested Directors so directs) by independent legal
counsel to the Company, that, based upon the facts known to the Board of
Directors or such counsel at the time such determination is made, (a) the party
seeking an advance acted in bad faith or deliberately breached his or her duty
to the Company or its stockholders, and (b) as a result of such actions by the
party seeking an advance, it is more likely than not that it will ultimately be
determined that such party is not entitled to indemnification pursuant to the
provisions of the Indemnification Agreement. Under the Indemnification
Agreements, the executive officers and directors are permitted to petition the
court to seek recovery of amounts due under the Indemnification Agreements and
to recover the expenses of seeking such recovery if he or she is successful.
Absent the Indemnification Agreements, indemnification that might be made
available to executive officers and directors could be changed by amendments to
the Company's Certificate of Incorporation or Bylaws. Benefits under the
Indemnification Agreements are not available, however, to indemnify an executive
officer or director (a) with respect to proceedings or claims initiated by the
executive officer or director that are not by way of defense (unless authorized
by the Board of Directors); (b) with respect to liability for transactions from
which the executive officer or director derived an improper personal benefit;
(c) if the executive officer or director is determined to have committed acts of
active and deliberate dishonesty; (d) for expenses or liabilities that have been
paid to the executive officer or director under an insurance policy maintained
by the Company or otherwise by any other means; or (e) for an accounting of
profits realized from the purchase and sale of securities within the meaning of
Section 16(b) of the Securities Exchange Act of 1934.
    
 
     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
 
ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.
 
   
     The Company issued one share of its common stock to Old Long Beach on
January 31, 1997, in consideration of $1,000 in cash. The Company is issuing an
additional 24,999,999 shares of its common stock to Old Long Beach in
consideration of the contribution to the Company by Old Long Beach of the assets
and personnel related to Old Long Beach's broker-sourced mortgage lending and
loan sales operations and approximately $40 million in cash. These issuances to
Old Long Beach constitute private placement exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to the
exemption provided by Section 4(2) thereof.
    
 
                                      II-3
<PAGE>   87
 
ITEM 16.  EXHIBITS.
 
     (a) Exhibits.
 
   
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                       DESCRIPTION
------   ------------------------------------------------------------------------------------
<C>      <S>
  *1.1   Form of Underwriting Agreement
 **3.1   Amended and Restated Certificate of Incorporation of Long Beach Financial
         Corporation
 **3.2   Bylaws of Long Beach Financial Corporation
  *5.1   Opinion of Gibson, Dunn & Crutcher LLP
  *5.2   Opinion of Gibson, Dunn & Crutcher LLP
 *10.1   Form of Administrative Services Agreement, between Long Beach Mortgage Company and
         Long Beach Financial Corporation
 *10.2   Form of Administrative Services Agreement, between Long Beach Mortgage Company and
         Long Beach Financial Corporation
 *10.3   Form of Loan Sub-Servicing Agreement, between Long Beach Mortgage Company and Long
         Beach Financial Corporation
 *10.4   Form of Warehouse Financing Facility, among Long Beach Financial Corporation and
         Texas Commerce Bank, as Agent
**10.5   1997 Stock Incentive Plan
 *10.6   Form of Employment Agreement, between Long Beach Financial Corporation and certain
         executive officers
 *10.7   Form of Indemnity Agreement, between Long Beach Financial Corporation and certain
         executive officers and directors
 *10.8   Contribution Agreement, dated           , between Long Beach Mortgage Company and
         Long Beach Financial Corporation
 *10.9   Contribution Agreement, dated           , between Long Beach Financial Corporation
         and Ameriquest Mortgage Corporation
*10.10   Department of Justice Settlement Agreement, dated September 3, 1996
**21.1   List of Subsidiaries
  23.1   Consent of Deloitte & Touche LLP
  23.2   Consent of Deloitte & Touche LLP
 *23.3   Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)
  24.1   Power of Attorney (included on signature page)
**27     Financial Data Schedule
</TABLE>
    
 
---------------
 * To be filed by amendment.
 
   
** Previously filed.
    
 
     (b) Financial Statement Schedules.
 
     All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the applicable instructions or are inapplicable and therefore
have been omitted.
 
                                      II-4
<PAGE>   88
 
ITEM 17.  UNDERTAKINGS.
 
     Insofar as indemnification for liabilities arising out of the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that, in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
 
     The undersigned registrant hereby undertakes that:
 
     (1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
 
     (2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
 
     The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
 
                                      II-5
<PAGE>   89
 
                        SIGNATURES AND POWER OF ATTORNEY
 
   
     Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Orange, State of California, on March 17, 1997.
    
 
                                          LONG BEACH FINANCIAL CORPORATION
 
                                          By: /s/ M. JACK MAYESH
 
                                          --------------------------------------
                                          M. Jack Mayesh
                                          Chairman of the Board of Directors
                                          and Chief Executive Officer
 
   
     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints M. Jack Mayesh, Edward Resendez and James
J. Sullivan his true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to the
Registration Statement, and to file the same, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
    
 
   
     Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on the dates indicated.
    
 
   
<TABLE>
<CAPTION>
                SIGNATURE                                 TITLE                     DATE
------------------------------------------  ---------------------------------  ---------------
 
<S>                                         <C>                                <C>
/s/ M. JACK MAYESH                          Chairman of the Board of           March 17, 1997
------------------------------------------  Directors and Chief Executive
M. Jack Mayesh                              Officer (Principal Executive
                                            Officer)
 
/s/ JAMES H. LEONETTI                       Chief Financial Officer,           March 17, 1997
------------------------------------------  Senior Vice President
James H. Leonetti                           (Principal Financial Officer)
 
/s/ BRETT ATKINSON                          Controller                         March 17, 1997
------------------------------------------  (Principal Accounting Officer)
Brett Atkinson
 
/s/ EDWARD RESENDEZ                         President, Director                March 17, 1997
------------------------------------------
Edward Resendez
 
/s/ DAVID S. ENGELMAN                       Director                           March 17, 1997
------------------------------------------
David S. Engelman
 
/s/ C. STEPHEN MANSFIELD                    Director                           March 17, 1997
------------------------------------------
C. Stephen Mansfield
</TABLE>
    
 
                                      II-6
<PAGE>   90
 
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
EXHIBIT                                                                                NUMBERED
NUMBER                                   DESCRIPTION                                     PAGE
-------    ------------------------------------------------------------------------  ------------
<C>        <S>                                                                       <C>
   *1.1    Form of Underwriting Agreement..........................................
  **3.1    Amended and Restated Certificate of Incorporation of Long Beach
           Financial Corporation...................................................
  **3.2    Bylaws of Long Beach Financial Corporation..............................
   *5.1    Opinion of Gibson, Dunn & Crutcher LLP..................................
   *5.2    Opinion of Gibson, Dunn & Crutcher LLP..................................
  *10.1    Form of Administrative Services Agreement, between Long Beach Mortgage
           Company and Long Beach Financial Corporation............................
  *10.2    Form of Administrative Services Agreement, between Long Beach Mortgage
           Company and Long Beach Financial Corporation............................
  *10.3    Form of Loan Sub-Servicing Agreement, between Long Beach Mortgage
           Company and Long Beach Financial Corporation............................
  *10.4    Form of Warehouse Financing Facility, among Long Beach Financial
           Corporation and Texas Commerce Bank, as Agent...........................
 **10.5    1997 Stock Incentive Plan...............................................
  *10.6    Form of Employment Agreement, between Long Beach Financial Corporation
           and certain executive officers..........................................
  *10.7    Form of Indemnity Agreement, between Long Beach Financial Corporation
           and certain executive officers and directors............................
  *10.8    Contribution Agreement, dated           , between Long Beach Mortgage
           Company and Long Beach Financial Corporation............................
  *10.9    Contribution Agreement, dated           , between Long Beach Financial
           Corporation and Ameriquest Mortgage Corporation.........................
 *10.10    Department of Justice Settlement Agreement, dated September 3, 1996.....
 **21.1    List of Subsidiaries....................................................
   23.1    Consent of Deloitte & Touche LLP........................................
   23.2    Consent of Deloitte & Touche LLP........................................
  *23.3    Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)........
   24.1    Power of Attorney (included on signature page)..........................
 **27      Financial Data Schedule.................................................
</TABLE>
    
 
---------------
 * To be filed by amendment.
 
   
** Previously filed.