<PAGE>

================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K



(Mark One)


[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934


                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997


                                       OR


[_]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934 [NO FEE REQUIRED]



                 FOR THE TRANSITION PERIOD FROM              TO


                        COMMISSION FILE NUMBER 0-28292
                        ------------------------------


                             BANK PLUS CORPORATION
             (Exact name of Registrant as specified in its charter)


           DELAWARE                                    95-4571410
(STATE OR OTHER JURISDICTION OF         (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)


      4565 COLORADO BOULEVARD                               90039
      LOS ANGELES, CALIFORNIA                             (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)


     REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:   (818) 241-6215

      SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:    NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    COMMON STOCK, PAR VALUE $.01 PER SHARE


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

  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [_]


  The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, as of March 2, 1998, was $271,562,956.

  As of March 2, 1998, Registrant had outstanding 19,382,683 shares of Common
Stock, par value $.01 per share.


                      DOCUMENTS INCORPORATED BY REFERENCE

  Portions of the Registrant's Proxy Statement relating to the Registrant's 1998
Annual Meeting of Stockholders are incorporated by reference in Part III hereof.

================================================================================
<PAGE>

                             BANK PLUS CORPORATION

                           ANNUAL REPORT ON FORM 10-K

                      FOR THE YEAR ENDED DECEMBER 31, 1997




<TABLE>
<CAPTION>

                                                                                                            PAGE
                                                                                                            ----
<S>             <C>                                                                                         <C>
                                               PART I

Item 1.      Business....................................................................................      1
             General.....................................................................................      1
             Recent Developments.........................................................................      1
             Business Strategy...........................................................................      2
             Retail Financial Services...................................................................      4
             Lending Activities..........................................................................      5
             Credit Administration.......................................................................     13
             Credit Loss Experience......................................................................     23
             Foreclosure Policies........................................................................     26
             Real Estate Acquired in Settlement of Loans.................................................     26
             Bulk Sales..................................................................................     29
             Treasury Activities.........................................................................     29
             Sources of Funds............................................................................     31
             Interest Rate Risk Management...............................................................     35
             Competition.................................................................................     35
             Employees...................................................................................     36
             Regulation and Supervision..................................................................     36
Item 2.      Properties..................................................................................     48
Item 3.      Legal Proceedings...........................................................................     49
Item 4.      Submission of Matters to a Vote of Security Holders.........................................     50

                                              PART II

Item 5.      Market for the Registrant's Common Equity and Related Stockholder Matters...................     51
Item 6.      Selected Financial Data.....................................................................     52
Item 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations..........  54
             Forward-looking Statements..................................................................     54
             Results of Operations.......................................................................     54
             Acquisitions................................................................................     55
             Writedown of Mortgage-backed Securities.....................................................     55
             Asset Growth................................................................................     56
             Asset/Liability Management..................................................................     56
             Market Risk.................................................................................     59
             Asset Quality...............................................................................     60
             Net Interest Income.........................................................................     65
             Noninterest Income/Expense..................................................................     67
             Operating Expenses..........................................................................     68
             Income Taxes................................................................................     70
             Regulatory Capital Compliance...............................................................     72
             Capital Resources and Liquidity.............................................................     74
Item 8.      Financial Statements and Supplementary Data.................................................    F-1
Item 9.      Change in and Disagreements with Accountants on Accounting and Financial Disclosure.........   II-1

                                              PART III

Item 10.     Directors and Executive Officers of the Registrant..........................................   II-1
Item 11.     Executive Compensation......................................................................   II-1
Item 12.     Security Ownership of Certain Beneficial Owners and Management..............................   II-1
Item 13.     Certain Relationships and Related Transactions..............................................   II-1

                                              PART IV

Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................   II-1
             Signatures..................................................................................   II-5
</TABLE>

                                       i
<PAGE>

                                     PART I

ITEM 1. BUSINESS

                             BANK PLUS CORPORATION

GENERAL

  Bank Plus Corporation ("Bank Plus"), through its wholly-owned subsidiaries,
Fidelity Federal Bank, A Federal Savings Bank, and its subsidiaries ("Fidelity"
or the "Bank"), and Gateway Investment Services, Inc., ("Gateway")
(collectively, the "Company"), offers a broad range of consumer financial
services, including demand and term deposits and loans to consumers. Fidelity
operates through 38 full-service branches, which are primarily located in
southern California. The Bank makes available to its customers residential
mortgages and consumer loans, which the Bank does not underwrite or fund, by
referral to certain established providers of mortgage and consumer loan products
with which the Bank has negotiated strategic alliances. In addition, through
Gateway, a National Association of Securities Dealers, Inc. ("NASD") registered
broker/dealer, the Bank provides customers with uninsured investment products,
including mutual funds and annuities.

  The Company derives its income primarily from the interest it receives on real
estate loans and investment securities and, to a lesser extent, from fees
received from the sale of uninsured investment products and fees in connection
with loans and deposit services, as well as other services. Its major expenses
are the interest it pays on deposits and on borrowings and general operating
expenses. The Company's operations, like those of other financial institutions,
are significantly influenced by general economic conditions, by the strength of
the real estate market, by the monetary, fiscal and regulatory policies of the
federal government and by the policies of financial institution regulatory
authorities.

  Fidelity's deposits are highly concentrated in Los Angeles and Orange
counties. The retail branches held average deposit balances of $78.2 million and
total balances of approximately $2.9 billion at December 31, 1997. At December
31, 1997, the Bank's gross mortgage loan portfolio aggregated approximately $2.8
billion, 57% of which was secured by residential properties containing 5 or more
units, 33% of which was secured by single family and multifamily residential
properties containing 2 to 4 units and 7% of which was secured by commercial and
other property. At that same date, 94% of the Bank's loans consisted of
adjustable-rate mortgages.

  Unless the context otherwise requires, all references to the "Company" in this
Annual Report on Form 10-K (the "Form 10-K") include Bank Plus and its
subsidiaries on a consolidated basis. All references to Fidelity or the Bank
with respect to the period after August 3, 1994 and before Bank Plus became the
holding company for Fidelity on May 16, 1996 (the "Reorganization") include
Gateway, which was a wholly-owned subsidiary of the Bank's former holding
company, Citadel Holding Corporation ("Citadel"), during a portion of the
periods covered hereby, and on August 3, 1994, became a wholly-owned subsidiary
of Fidelity until the Reorganization. The principal executive offices of Bank
Plus and Fidelity are located at 4565 Colorado Boulevard, Los Angeles,
California 90039, telephone number (818) 241-6215.

RECENT DEVELOPMENTS

  On July 29, 1997, the Company completed the acquisition of all of the
outstanding stock of Hancock Savings Bank, FSB ("Hancock"), which had five
branches, assets of approximately $210.1 million and deposits of approximately
$203.7 million at June 30, 1997. The Company acquired all of the stock of
Hancock in exchange for 1,058,575 shares of Bank Plus Common Stock in a
transaction valued at approximately $12.0 million.

                                       1
<PAGE>

  On September 19, 1997, the Company completed a purchase of approximately $48.8
million of deposits from a branch of Coast Federal Bank, FSB ("Coast"), located
in Westwood, California. See Note 1 and 2 of the Notes to Consolidated Financial
Statements for additional discussion of the Hancock and Coast acquisitions.

  On July 18, 1997, the Company completed an exchange offer (the "Exchange
Offer") of the Company's 12% Senior Notes due July 18, 2007 (the "Senior Notes")
for the outstanding shares of 12% Noncumulative Exchangeable Perpetual Stock,
Series A (the "Series A Preferred Stock") issued by Fidelity in 1995. The
Company received 2,059,120 shares of Series A Preferred Stock in exchange for
approximately $51.5 million principal amount of Senior Notes. Holders of
approximately 11,000 shares of the Series A Preferred Stock elected not to
participate in the Exchange Offer and are reflected as minority interest on the
Statement of Financial Condition as of December 31, 1997.

  In the first quarter of 1997, the Company filed a Registration Statement on
Form S-4 (the "Acquisition S-4") for up to approximately $75.0 million in shares
of Bank Plus Common Stock (the "Acquisition Shares") that may be issued from
time to time as consideration (in whole or in part) for possible future
acquisitions. The Securities and Exchange Commission (the "SEC") declared the
Acquisition S-4 effective on June 2, 1997. Under the Acquisition S-4, the
Company, on July 29, 1997, issued 1,058,575 shares of Common Stock in connection
with the acquisition of Hancock. The Board of Directors of Bank Plus (or an
authorized committee thereof) will negotiate, determine and approve on behalf of
the Company any Acquisition Shares to be issued in any future acquisition, and
the terms and conditions of all agreements to be entered into by the Company in
connection therewith. Offers, if any, to sell Acquisition Shares will be made
only pursuant to the prospectus constituting a part of the Acquisition S-4.

BUSINESS STRATEGY

  The Company's business strategy is to be a consumer-focused provider of
financial services by enhancing its franchise to integrate its traditional
services and products (deposit services, checking and savings accounts, and
mortgages) with the offering of investment products through Gateway and consumer
credit products through strategic alliances. As a part of such strategy,
management continues to explore new opportunities to expand the retail network,
to increase fee income growth, and to build upon the use of technology in
delivering financial products and services.

  Management believes that, given the highly competitive nature of the financial
services industry and the regulatory constraints that the Company faces in
competing with unregulated companies, the Company must continue to expand from
its historical business focus and develop new customer bases and provide
customers with a wider array of internally and externally sourced products
through a variety of delivery channels. The Company is pursuing the use of
various electronic delivery systems, which include an Internet bank, and
software to enhance customer convenience and the Company's fee income
opportunities.

 Expansion of Retail Network

  The Hancock acquisition and the acquisition of the Coast branch deposits
provide a number of benefits to the Company including an increased customer base
and branch network, and operating efficiencies through consolidation. The
acquired branch network and associated customer base include approximately
14,200 and 7,100 transaction and time deposit accounts, respectively, and will
provide new territory in which to implement Fidelity's sales platform of credit
and investment products. The Company will introduce to the acquired customer
base a wide range of investment, insurance and consumer loan products to enhance
the Company's fee income. The Company has reduced consolidated operating
expenses resulting from the acquisitions through the closure and consolidation
of the administrative office of Hancock and the consolidation of two of the
branches acquired into existing Fidelity branches.

                                       2
<PAGE>

  In 1997, the Company commenced two new programs which provide for the
wholesale acquisition of retail customers: credit card issuance for affinity
groups and financial education and planning and investment product sales for the
members of the California Public Employees' Retirement System ("CalPERS").

  Fidelity has formed a plan to develop credit card issuance programs with
affinity partners. The affinity card program involves the solicitation of
prospective individual customers from identifiable groups with a common interest
or affiliation. These programs will include unsecured credit cards and credit
cards secured by real estate or by cash deposits. Fidelity will serve as issuer
and owner of the credit card accounts and will develop the card portfolio from
prospects provided by the affinity partner. Fidelity retains the right to market
other products to the card members and expects to offer multiple financial
products related to significant life events of the typical household, such as
home purchase, insurance and retirement planning. At December 31, 1997,
outstanding credit cards and balances associated with the affinity program were
approximately 30,000 and $50.7 million, respectively. See "--Lending Activities"
below for further discussion of the affinity card programs.

  Effective July 1, 1997 Gateway was awarded the contract to serve as the
Financial Education Presenter for the more than one million members of CalPERS.
Under the terms of the contract, Gateway's primary responsibility is to provide
financial education information through seminars and customized financial plans
to CalPERS members. The contract is for an initial one-year term and is
thereafter renewable for a two-year period at the option of CalPERS, but no
assurance can be given that the contract will, in fact, be renewed. Under the
contract, Gateway will be providing, among other services, experienced speakers
at CalPERS-scheduled and coordinated financial planning seminars throughout
California, customized seminar materials, and the offer of personal
consultations to seminar attendees (which will include the development of a
personalized financial plan). The program is expected to generate fee income
from the sale of uninsured investment products, such as mutual funds, annuities
and insurance products. The Company is seeking other similar opportunities to
provide financial planning for customer groups with specific affiliations and
will be introducing the financial planning products to its customers in the
current branch network.

 Strategic Alliances

  Through strategic alliances with third party providers, the Company has
introduced a wide range of investment, insurance and consumer loan products to
increase fee income. The use of strategic partners allows the Company to
emphasize or de-emphasize particular products based on consumer demand and other
business or market factors without the traditional costs of modification or
discontinuance of product lines. At this time, the Company provides residential
mortgages and consumer loans, which the Company does not underwrite or fund, to
its retail bank customers by referral to certain established providers of those
products with which the Company has negotiated strategic alliances.

  The Company's credit product channel is responsible for providing the retail
bank distribution system with a variety of consumer credit products to satisfy
customers' financial needs and objectives. Strategic alliances are in place with
established providers of auto, boat and recreational vehicle loans, credit
cards, home equity lines of credit and first mortgage products. The Company uses
the strength of its strategic allies to attempt to maximize product
availability, minimize product risk, operating expenses and development costs.

  The Company has implemented its strategy to integrate sales of investment
products along with traditional banking products in its branches. The Company's
investment product channel is responsible for providing the retail bank
distribution system with a variety of investment products, such as mutual funds,
fixed and variable annuities and insurance products. Through Gateway, the
Company has developed strategic relationships with nationally known providers of
investment and insurance products. The use of strategic allies' products shifts
market acceptance risk away from the Company, and enhances product and name
recognition through relationships with nationally known entities, which also
provide marketing support.

                                       3
<PAGE>

  Implementation of the Company's principal business strategy has resulted in an
increase in general and administrative expenses due to increased infrastructure
and growth of the customer base, business lines and retail network. These
expenses may significantly increase in future periods as the Company further
expands its business lines and franchise network. The targeted benefits of this
transformation, namely increased interest margin and higher fee income, may lag
the increase in expenditures depending on the timing of the investment in new
business lines and the increase in revenues that is intended to result from the
investment.

RETAIL FINANCIAL SERVICES

  Fidelity operates 37 of the 38 branches in Los Angeles, Orange and San
Bernardino counties. At each of its branch locations, Fidelity offers loan
products, financial services and investment products to current and potential
customers. These products and services are provided either directly or through
Gateway. Fidelity's deposits are concentrated in Los Angeles and Orange
counties. Six branches exceed $100 million in deposits, sixteen branches have
deposits between $60 million and $100 million and fifteen of the branches are in
the $30 million to $60 million deposit range.

  Fidelity is expanding its delivery channels to include Internet banking.
Management believes a transactional Internet site is essential to remain
competitive in the highly technological environment of the financial services
industry. The Internet site will also serve as a conduit for delivering
financial products to the customers of the affinity card and CalPERS programs
that maybe located in areas of the country not currently serviced by the Bank's
existing branch network. Fidelity is in the process of completing the first
phase of its Internet bank site, which will open to customers under the name
"iBank" in 1998 at the Internet address of http://www.iBank.com. iBank will
initially offer on-line transactional capabilities for selected Bank services,
with plans to expand such offerings to include the investment products currently
sold through the Company's integrated sales platform.

  The Internet site will also complement the newest branch opened by the Bank in
the Mall of America in Bloomington, Minnesota. The branch opened to the mall
merchants in December 1997 and to retail customers in March 1998, replacing
First Bank as the mall's sole banking institution. This branch operates under
the name "iBank", and represents a departure from the traditional branch
concept. It is a highly automated center, allowing customers to browse and
experiment with new and different access devices, including screen telephones,
personal computers and self-service ATM machines. Additionally, the branch will
reach into the mall community to stimulate business with merchants and employees
of the mall, offering merchant services that have not previously been part of
the Bank's product array. The Mall of America is the largest mall in America
with over 500 merchants, 12,000 employees and 40 million visitors a year. At
December 31, 1997, the branch had new deposits of $5.0 million.

  In June 1997, Fidelity entered into an arrangement with Americash L.L.C.
("Americash") in which Fidelity acts as cash services provider for Americash's
newly established and rapidly expanding network of cash-dispensing automatic
teller machines. Fidelity has agreed to provide cash for Americash ATMs
throughout the United States, and is entitled to fees based on the volume of
cash withdrawal transactions. If the transaction volume is below certain agreed
upon minimums, the fees to which Fidelity is entitled are calculated using a
formula designed to ensure Fidelity a minimum return for the use of its cash.
The average cash balance in use for the Americash program during the third and
fourth quarters of 1997 was $34.8 million, and the program generated fees, which
are reported as noninterest income, of $1.0 million during the same period. See
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A")--Net Interest Income" for the impact of the Americash
program on net interest margin.

  During 1997, the average transaction volume for the Americash ATM network was
insufficient to

                                       4
<PAGE>

generate transaction fees above the minimum threshold provided for in the
agreement between Americash and Fidelity. Therefore, Fidelity's fees during 1997
were calculated using the minimum return formula described above. At the request
of Americash, Fidelity has agreed to defer collection of a portion of those
accrued fees in order to assist Americash with its cash flow needs during the
initial rollout period. As a result of this deferral of fees, an accounts
receivable of $1.0 million from Americash was recorded as of December 31, 1997.
This fee-deferral arrangement is temporary, and management anticipates that
Americash will secure other sources of financing for its capital requirements
during 1998. Until such alternative financing is obtained, management believes
the Bank has adequate remedies under its agreement with Americash to ensure full
and prompt collection of the fee receivable referred to above.

  The recently declining interest rate environment along with major stock and
bond market fluctuations have made insured savings deposit products more
attractive relative to certain uninsured products, such as mutual funds and
annuities. Net deposit inflow in 1997 was $395.9 million which included two
acquisitions closed in 1997. The acquisition of Hancock and the Coast branch
accounted for $252.3 million in transaction accounts and certificate of deposit
accounts at the respective acquisition dates. The Company may consider exploring
potential sales or purchases of branches from time to time to further its
business strategy.

LENDING ACTIVITIES

  The Bank closed its wholesale correspondent single family origination network
and its multifamily origination operations in the third quarter of 1994. Since
that time the Bank has entered into strategic partnerships with established
providers of consumer credit products pursuant to which all consumer credit
products made available to the Bank's retail branch customers are referred to
and underwritten, funded and serviced by the strategic partners. See "--Business
Strategy--Strategic Alliances."

  Although the Bank closed its origination operations in 1994, the Bank
originated $11.5 million and $5.8 million, in 1997 and 1996, respectively, in
first and second trust deed mortgages, principally in connection with the sale
of real estate owned ("REO").

  Fidelity has formed a plan to develop credit card issuance programs with
affinity groups. The Bank has entered into contracts to establish such programs
with several entities. Fidelity will serve as issuer and owner of certain credit
card accounts and will develop the card portfolio from prospects provided by the
affinity groups. Generally, there are two types of affinity programs: credit
enhancement programs and shared risk programs. In both programs, the Bank is
responsible for the risk management associated with the extensions of credit.
The Bank develops and implements the underwriting standards as well as the
supporting risk management support systems. Underwriting is primarily based on
industry-accepted Fair Isaac Company ("FICO") credit scoring methodology. The
Bank establishes reserve requirement levels based on the loss expectation by
credit tranche, and reserves are adjusted at least monthly based on actual
volumes outstanding in the programs.

  Under the credit enhancement programs, the affinity partners have the right to
purchase outstanding card receivables at par and, in exchange, provide credit
enhancements to guarantee full repayment of the Bank's outstanding receivables
in the event of cardholder defaults. The credit enhancements include funding by
the affinity counter party of a reserve account or pledging of collateral as
receivables are funded by the Bank. As a result of the credit enhancements
provided under these affinity programs, the Bank does not record any loan loss
provisions associated with the outstanding balances. The Bank has committed to
fund up to an aggregate outstanding balance of $425 million under the credit
enhancement programs. At December 31, 1997, outstanding credit card balances
associated with these affinity programs were approximately $50.7 million.

  Under the shared risk programs, the Bank and the affinity counter party share
the net earnings or loss of the program based on contracted percentages. The net
earnings or loss is determined after consideration of all direct revenues and
expenses, including loan loss provisions and the Bank's cost of funding card
balances, plus an appropriate interest rate spread. In January 1998, the Bank
began issuing cards under a shared risk program with an affinity counter party
which has an affiliation with approximately 17 million members. The Bank intends
to offer cards with limits ranging from $300 to $5,000 to the full credit
spectrum of borrowers.

                                       5
<PAGE>

  Generally speaking, credit card loss provisions are initially established
based on a multiple of the loss experience, i.e., industry average charge-offs,
associated with specific tranches of the FICO based credit scores. The shared
risk programs are expected to significantly increase the Bank's loan loss
provisions and allowance for estimated loan loss in 1998. Credit card industry
averages for net charge-off ratios can range from 5% to 7%, which is
significantly higher than the Bank's charge-off ratio in 1997 for single family
and multifamily mortgage loans of 1.2%.

  Fidelity is evaluating other affinity credit card transactions with several
potential strategic allies. These transactions, if consummated, would involve
the issuance of substantial numbers of credit cards, and both the risks and
benefits associated with these programs would be shared with Fidelity's
strategic allies. No assurances can be given as to whether any of these
transactions will be consummated or, if consummated, as to the ultimate success
of any of these transactions.

  The Bank currently outsources all card processing and customer service to
third party providers. However, the Company is establishing a credit processing
center to handle card-related services internally. The Company believes that
customer satisfaction and the Company's responsiveness and availability are key
factors that will enhance and extend the Company's relationship with its card
customers, and that its ability to achieve customer satisfaction is
significantly enhanced by developing and maintaining a credit processing center
internally. The credit processing center will operate as a new subsidiary of
Bank Plus named Bank Plus Credit Services Corporation. The Company has recently
employed senior and middle management with significant credit card operations
experience to start up and operate the credit processing center, as such
experience was not previously resident in the Company. The establishment of this
processing center requires funding of significant start-up costs, and no
assurances can be given that these costs will be recovered.

  The Bank offers overdraft protection for checking account customers through
its "Instant Reserve" personal line of credit. Instant Reserve is available to
new and existing checking customers with average credit limits of approximately
$1,500. The committed Instant Reserve lines of credit at December 31, 1997 and
1996 totaled $28.9 million and $19.7 million, respectively. The outstanding
balance of Instant Reserve lines of credit at December 31, 1997 and 1996 totaled
$2.6 million and $2.0 million, respectively.

                                       6
<PAGE>

 Portfolio statistics

  All presentations of the total loan portfolio include loans receivable and
loans held for sale unless stated otherwise. The following table sets forth the
composition of total loans by type of security at the dates indicated:
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                ------------------------------------------------------------------------------------------------
                                      1997                1996                 1995                1994               1993
                                ------------------    ----------------   ------------------   ----------------   ----------------
                                           PERCENT             PERCENT             PERCENT             PERCENT            PERCENT
                                              OF                  OF                  OF                  OF                 OF
                                            TOTAL               TOTAL               TOTAL               TOTAL              TOTAL
LOANS BY TYPE OF SECURITY       AMOUNT      LOANS      AMOUNT   LOANS     AMOUNT    LOANS     AMOUNT    LOANS     AMOUNT   LOANS
-------------------------       ------     -------     ------  -------    ------   -------    ------   -------    ------  -------
                                                                       (DOLLARS IN THOUSANDS)
<S>                           <C>          <C>         <C>      <C>    <C>          <C>    <C>          <C>     <C>         <C>
Residential loans:
 Single family............... $  638,539    22.16%  $  517,288  18.72% $  594,019   19.58% $  755,253   22.44%  $  792,054  20.80%
 Multifamily:
  2 to 4 units...............    322,309    11.18      319,281  11.55     345,884   11.40     393,943   11.71      505,219  13.27
  5 to 36 units..............  1,343,597    46.62    1,408,317  50.95   1,521,056   50.13   1,612,926   47.93    1,795,374  47.16
  37 units and over..........    308,473    10.70      307,741  11.13     329,916   10.87     345,287   10.26      406,330  10.67
                              ----------   ------   ---------- ------  ----------  ------  ----------  ------   ---------- ------
   Total multifamily.........  1,974,379    68.50    2,035,339  73.63   2,196,856   72.40   2,352,156   69.90    2,706,923  71.10
                              ----------   ------   ---------- ------  ----------  ------  ----------  ------   ---------- ------
    Total residential
     loans...................  2,612,918    90.66    2,552,627  92.35   2,790,875   91.98   3,107,409   92.34    3,498,977  91.90
                              ----------   ------   ---------- ------  ----------  ------  ----------  ------   ---------- ------
Other real estate loans:
 Commercial and
  industrial.................    204,656     7.10      203,510   7.36     234,384    7.72     248,255    7.38      295,761   7.77
 Land and land
  improvements...............      1,656     0.06        1,670   0.06       3,032    0.10       2,050    0.06        3,736   0.10
                              ----------   ------   ---------- ------  ----------  ------  ----------  ------   ---------- ------
  Total other real estate
   loans.....................    206,312     7.16      205,180   7.42     237,416    7.82     250,305    7.44      299,497   7.87
                              ----------   ------   ---------- ------  ----------  ------  ----------  ------   ---------- ------
Gross mortgage loans.........  2,819,230    97.82    2,757,807  99.77   3,028,291   99.80   3,357,714   99.78    3,798,474  99.77
Loans secured by savings
 accounts and other non-
 real estate loans...........     62,912(2)  2.18        6,373   0.23       6,040    0.20       7,251    0.22        8,758   0.23
                              ----------   ------   ---------- ------  ----------  ------  ----------  ------   ---------- ------
Total loans, gross...........  2,882,142   100.00%   2,764,180 100.00%  3,034,331  100.00%  3,364,965  100.00%   3,807,232 100.00%
                              ----------   ======   ---------- ======  ----------  ======  ----------  ======   ---------- ======
Less:
 Undisbursed loan funds......      1,710                    --                 --                 259                   --
 Unearned (premiums)
  discounts, net.............     (2,722)                1,974              2,463               1,980                  210

 Deferred loan fees..........      9,039                12,767              7,317               7,221               11,139
 Allowance for estimated
  losses.....................     50,538(1)             57,508(1)          89,435(1)           67,202               83,832
                              ----------            ----------         ----------          ----------           ----------
                                  58,565                72,249             99,215              76,662               95,181
                              ----------            ----------         ----------          ----------           ----------
  Total loans, net........... $2,823,577            $2,691,931         $2,935,116          $3,288,303           $3,712,051
                              ==========            ==========         ==========          ==========           ==========
</TABLE>
------------
(1)  At December 31, 1997, 1996 and 1995, the allowance for estimated loan
     losses includes $14.4 million, $16.7 million and $36.7 million,
     respectively, of remaining loan general valuation allowance ("GVA") and
     specific valuation allowance ("SVA") for the Accelerated Asset Resolution
     Plan (the "Plan"). See Item 7. "MD&A--Asset Quality--Accelerated Asset
     Resolution Plan."

(2)  Includes $50.7 million of credit card loans at December 31, 1997.

  The following table sets forth the composition of loans held for sale, which
are included in the table above, by type of security at the dates indicated:

<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                ------------------------------------------------------------------------------------------------
                                      1997                1996                 1995                1994               1993
                                ----------------    -----------------    ------------------   ----------------   ---------------
                                         PERCENT              PERCENT               PERCENT            PERCENT           PERCENT
                                            OF                   OF                    OF                 OF                OF
LOANS BY TYPE OF SECURITY       AMOUNT    TOTAL     AMOUNT     TOTAL      AMOUNT     TOTAL    AMOUNT    TOTAL    AMOUNT   TOTAL
-------------------------       ------   -------    ------    -------     ------    -------   ------   -------   ------  -------
                                                                       (DOLLARS IN THOUSANDS)
<S>                          <C>         <C>        <C>       <C>        <C>        <C>       <C>      <C>       <C>     <C>
Residential loans:
 Single family...............   $  --       --%    $  --        --%      $ --          --%   $47,339   97.98%   $239,371    65.10%
 Multifamily (2 to 4 units)..      --       --        --        --         --          --        976    2.02     128,317    34.90
                                -----     ----     -----      ----       ----        ----    -------  ------    --------   ------
  Total loans held for sale..   $  --       --%    $  --        --%      $ --          --%   $48,315  100.00%   $367,688   100.00%
                                =====     ====     =====      ====       ====        ====    =======  ======    ========   ======
</TABLE>

                                       7
<PAGE>

  The following table presents gross mortgage loans by type and location as of
December 31, 1997:
<TABLE>
<CAPTION>
                                                                               COMMERCIAL
                                                 MULTIFAMILY                  AND INDUSTRIAL
                                        ------------------------------    ---------------------                PERCENTAGE
                               SINGLE    2 TO 4    5 TO 36    37 UNITS     HOTEL/      OTHER                       OF
                               FAMILY     UNITS     UNITS     AND OVER     MOTEL        C&I           TOTAL      TOTAL
                               ------   --------  ---------   --------    --------    ---------     ---------  ----------
                                                                (DOLLARS IN THOUSANDS)
<S>                           <C>       <C>       <C>         <C>         <C>         <C>           <C>        <C>
California:
 Southern California
  Counties:
  Los Angeles................ $263,949  $118,731  $  973,980  $200,830     $10,220     $ 93,282     $1,660,992      58.9%
  Orange.....................   95,138   119,871     146,893    21,965      20,256       36,359        440,482      15.6
  San Diego..................   30,694    10,552      75,369    33,469          --        4,580        154,664       5.5
  San Bernardino.............   22,393    12,269      29,016    14,712          --        7,433         85,823       3.0
  Riverside..................   22,311     7,277      19,274    12,904          --        7,414         69,180       2.5
  Ventura....................   29,560     6,192      29,859     2,368          --        5,065         73,044       2.6
  Other......................   17,354     8,531      24,876     7,035       2,430        3,702         63,928       2.3
                              --------  --------  ----------  --------     -------     --------     ----------     -----
                               481,399   283,423   1,299,267   293,283      32,906      157,835      2,548,113      90.4
 Northern California
  Counties:
  Santa Clara................   32,736    17,808      27,094       175          --          204         78,017       2.8
  Other......................   72,060    13,547      17,236    12,229       1,178        5,821        122,071       4.3
                              --------  --------  ----------  --------     -------     --------     ----------     -----
   Total California..........  586,195   314,778   1,343,597   305,687      34,084      163,860      2,748,201      97.5
                              --------  --------  ----------  --------     -------     --------     ----------     -----
Arizona......................    1,969        --          --     2,786          --        5,869         10,624       0.4
Maryland.....................    4,175       185          --        --       1,987           --          6,347       0.2
All other states.............   46,200     7,346          --        --          --          512         54,058       1.9
                              --------  --------  ----------  --------     -------     --------     ----------     -----
   Total out-of-state........   52,344     7,531          --     2,786       1,987        6,381         71,029       2.5
                              --------  --------  ----------  --------     -------     --------     ----------     -----
Gross mortgage loans......... $638,539  $322,309  $1,343,597  $308,473     $36,071     $170,241     $2,819,230     100.0%
                              ========  ========  ==========  ========     =======     ========     ==========     =====

</TABLE>


  The following table sets forth the types of loans by repricing attributes at
the dates indicated:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                ---------------------------------------------------------------------------------------------------
                                           1997                1996            1995                 1994            1993
                                ----------------------  -------------------- -----------------  ----------------  -----------------
                                            PERCENT               PERCENT           PERCENT              PERCENT           PERCENT
                                            OF TOTAL              OF TOTAL          OF TOTAL             OF TOTAL          OF TOTAL
                                 AMOUNT      LOANS      AMOUNT     LOANS    AMOUNT   LOANS     AMOUNT     LOANS    AMOUNT   LOANS
                                --------    --------    -------   --------  ------  --------   ------    --------  ------  --------
                                                                        (DOLLARS IN THOUSANDS)
<S>                            <C>           <C>       <C>        <C>      <C>        <C>      <C>        <C>     <C>        <C>
Adjustable rate   Loans......  $2,711,975(1)  94.10%   $2,675,425  96.79%  $2,939,807  96.88%  $3,257,368  96.80% $3,649,714 95.83%
Fixed rate loans.............     170,167      5.90        88,755   3.21       94,524   3.12      107,597   3.20     157,518  4.17
                               ----------    ------    ---------- ------   ---------- ------   ---------- ------  ---------- -----
Total loans, gross...........   2,882,142    100.00%    2,764,180 100.00%   3,034,331 100.00%   3,364,965 100.00%  3,807,232 100.00%
                                             ======               ======              ======              ======             ======
Less:
Undisbursed loan funds.......       1,710                      --                  --                 259                 --
Unearned (premiums)
 discounts, net..............      (2,722)                  1,974               2,463               1,980                210
Deferred loan fees...........       9,039                  12,767               7,317               7,221             11,139
Allowance for estimated
 losses......................      50,538(2)               57,508(1)           89,435(1)           67,202             83,832
                                ---------               ---------           ---------            --------           --------
                                   58,565                  72,249              99,215              76,662             95,181
                                ---------               ---------           ---------            --------           --------
 Total loans, net............  $2,823,577              $2,691,931          $2,935,116          $3,288,303         $3,712,051
                               ==========              ==========          ==========          ==========         ==========
</TABLE>
----------------
(1) Includes $50.7 million of credit card loans at December 31, 1997.
(2) At December 31, 1997, 1996 and 1995, the allowance for estimated loan losses
    includes $14.4 million, $16.7 million and $36.7 million, respectively, of
    remaining loan GVA and SVA for the Plan. See Item 7. "MD&A--Asset Quality--
    Accelerated Asset Resolution Plan."

                                       8
<PAGE>

  The following table sets forth, by contractual maturity and interest rate, the
fixed rate and adjustable rate loan portfolios at December 31, 1997. The table
does not consider the prepayment experience of the loan portfolio when
scheduling the maturities of loans. See Item 7. "MD&A--Asset/Liability
Management."

<TABLE>
<CAPTION>
                                                         SUBTOTAL
                                                        MATURITIES                         MATURES IN
                                                         GREATER    ----------------------------------------------------------
                                  TOTAL LOANS  MATURES     THAN                         2001-     2003-     2008-      AFTER
                                  RECEIVABLE   IN 1998   ONE YEAR     1999     2000     2002      2007      2012       2012
                                  ----------   -------  ----------  -------  -------  --------  --------  --------  ----------
                                                                          (DOLLARS IN THOUSANDS)
<S>                               <C>          <C>      <C>         <C>      <C>      <C>       <C>       <C>       <C>
Adjustable rate loans:
 Under 5.00%.................     $       24   $    24  $       --  $    --  $    --  $     --  $     --  $     --  $       --
 05.00% - 6.99%..............         58,136         5      58,131       --       --       128     2,160     1,122      54,721
 07.00% - 8.99%..............      2,600,170    60,837   2,539,333   10,846   60,373    93,380   543,009   122,036   1,709,689
 09.00% - 10.99%.............         49,654     3,437      46,217    2,013    6,207     7,013     2,345     6,599      22,040
 11.00% - 12.99%.............          1,431       286       1,145       --      480        --       665        --          --
 Over 13.00%.................          2,560        --       2,560       --       --     2,560        --        --          --
                                  ----------   -------  ----------  -------  -------  --------  --------  --------  ----------
  Total adjustable rate loans      2,711,975    64,589   2,647,386   12,859   67,060   103,081   548,179   129,757   1,786,450
                                  ----------   -------  ----------  -------  -------  --------  --------  --------  ----------
Fixed rate loans:
 Under 5.00%.................            572       457         115       --       --        --        --        --         115
 05.00% - 6.99%..............          9,351       855       8,496       16       --        30       117     1,877       6,456
 07.00% - 8.99%..............        120,818     5,909     114,909      411      394     2,882     5,917     3,282     102,023
 09.00% - 10.99%.............         33,866       586      33,280       41       96       742     9,142     5,711      17,548
 11.00% - 12.99%.............          2,275       560       1,715        1       10        --        98       382       1,224
 Over 13.00%.................          3,285     2,691         594       --       --        --        85       453          56
                                  ----------   -------  ----------  -------  -------  --------  --------  --------  ----------
  Total fixed rate loans.....        170,167    11,058     159,109      469      500     3,654    15,359    11,705     127,422
                                  ----------   -------  ----------  -------  -------  --------  --------  --------  ----------
  Total loans, gross.........      2,882,142   $75,647  $2,806,495  $13,328  $67,560  $106,735  $563,538  $141,462  $1,913,872
                                  ==========   =======  ==========  =======  =======  ========  ========  ========  ==========
Less:
 Undisbursed loan funds......          1,710
 Unearned (premiums)
  discounts, net.............         (2,722)
 Deferred loan fees..........          9,039
 Allowance for estimated
  losses.....................         50,538(1)
                                  ----------
                                      58,565
                                  ----------
  Total loans, net...........     $2,823,577
                                  ==========
</TABLE>
-----------------
(1)  At December 31, 1997, the allowance for estimated loan losses includes
     $14.4 million of remaining loan GVA and SVA for the Plan. See Item 7.
     "MD&A--Asset Quality--Accelerated Asset Resolution Plan."
(2)  Includes $50.7 million of credit card loans at December 31, 1997.

                                       9
<PAGE>

  The following table sets forth, by contractual maturity and property type, the
loan portfolio at December 31, 1997. The table does not consider the prepayment
experience of the loan portfolio when scheduling the maturities of loans. See
Item 7. "MD&A--Asset/Liability Management."
<TABLE>
<CAPTION>


                                                              SUBTOTAL
                                                             MATURITIES                       MATURES IN
                                                              GREATER        -----------------------------------------------
                                TOTAL LOANS     MATURES        THAN                                    2001 -         2003 -
                                 RECEIVABLE     IN 1998       ONE YEAR        1999         2000        2002           2007
                                ------------   --------      ----------      ------        -----       ------        -------
                                                                 (DOLLARS IN THOUSANDS)
<S>                              <C>           <C>          <C>             <C>          <C>         <C>          <C>
Residential loans:
 Single family...............     $  638,539      $ 5,080     $  633,459     $ 1,541     $ 2,883     $  2,446     $  5,878
 Multifamily:
  2 to 4 units...............        322,309          141        322,168          13       7,426        4,189        8,257
  5 to 36 units..............      1,343,597          646      1,342,951       1,090      31,077       28,273      376,482
  37 units and over..........        308,473           --        308,473          --       1,690       12,577       86,146
                                  ----------      -------     ----------     -------     -------     --------     --------
   Total multifamily.........      1,974,379          787      1,973,592       1,103      40,193       45,039      470,885
                                  ----------      -------     ----------     -------     -------     --------     --------
    Total residential loans..      2,612,918        5,867      2,607,051       2,644      43,076       47,485      476,763
                                  ----------      -------     ----------     -------     -------     --------     --------
Other real estate loans:
 Commercial and industrial...        204,656        9,673        194,983      10,636      24,133       56,690       85,312
 Land and land improvements..          1,656          822            834          --          --           --          795
                                  ----------      -------     ----------     -------     -------     --------     --------
  Total other real estate
   loans.....................        206,312       10,495        195,817      10,636      24,133       56,690       86,107
                                  ----------      -------     ----------     -------     -------     --------     --------
Gross mortgage loans.........      2,819,230       16,362      2,802,868      13,280      67,209      104,175      562,870
                                  ----------      -------     ----------     -------     -------     --------     --------
Loans secured by savings
 accounts and other
 non-real estate loans (1)...         62,912       59,285          3,627          48         351        2,560         668
                                  ----------      -------     ----------     -------     -------     --------    --------
Total loans, gross...........      2,882,142      $75,647     $2,806,495     $13,328     $67,560     $106,735    $563,538
                                                  =======     ==========     =======     ========    =========   ========
Less:
 Undisbursed loan funds......          1,710
 Unearned (premiums)
  discounts, net.............         (2,722)
 Deferred loan fees..........          9,039
 Allowance for estimated
  loan losses................         50,538(2)
                                  ----------
                                      58,565
                                  ----------
  Total loans, net...........     $2,823,577
                                  ==========
<CAPTION>

                                             MATURES IN
                                     ---------------------------
                                         2008-          AFTER
                                         2012           2012
                                     -----------     -----------
                                       (DOLLARS IN THOUSANDS)
<S>                                 <C>             <C>
Residential loans:
 Single family...............           $ 12,592     $  608,119
 Multifamily:
  2 to 4 units...............              2,409        299,874
  5 to 36 units..............             95,205        810,824
  37 units and over..........             26,946        181,114
                                        --------     ----------
   Total multifamily.........            124,560      1,291,812
                                        --------     ----------
    Total residential loans..            137,152      1,899,931
                                        --------     ----------
Other real estate loans:
 Commercial and industrial...              4,310         13,902
 Land and land improvements..                 --             39
                                        --------     ----------
  Total other real estate
   loans.....................              4,310         13,941
                                        --------     ----------
Gross mortgage loans.........            141,462      1,913,872
                                        --------     ----------
Loans secured by savings
 accounts and other
 non-real estate loans (1)...                 --             --
                                        --------     ----------
Total loans, gross...........           $141,462     $1,913,872
                                        ========     ==========
Less:
 Undisbursed loan funds......
 Unearned (premiums)
  discounts, net.............
 Deferred loan fees..........
 Allowance for estimated
  loan losses................


  Total loans, net...........
</TABLE>
------------------
(1) Includes $50.7 million of credit card loans at December 31, 1997.
(2) At December 31, 1997, the allowance for estimated loan losses includes $14.4
    million of remaining loan GVA and SVA for the Plan. See Item 7. "MD&A--Asset
    Quality--Accelerated Asset Resolution Plan."

                                       10
<PAGE>

  The following table details the activity in the loan portfolio for the periods
indicated:
<TABLE>
<CAPTION>

                                                                   YEAR ENDED DECEMBER 31,
                                           ========================================================================
                                               1997           1996           1995           1994           1993
                                           ------------   ------------   ------------   ------------   ------------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                        <C>            <C>            <C>            <C>            <C>
Principal balance at beginning of
 Period.................................    $2,691,931     $2,935,116     $3,288,303     $3,712,051     $3,990,449
Real estate loans originated:
 Conventional:
  Single family.........................           836             --          3,411        238,944        271,316
  Multifamily:
    2 to 4 units........................            --             --            515         38,100         42,931
    5 to 36 units.......................         7,373          1,673          4,743         68,862         89,935
    37 units and over...................         1,144          3,628          3,207         65,940         12,887
                                            ----------     ----------     ----------     ----------     ----------
     Total multifamily..................         8,517          5,301          8,465        172,902        145,753
  Commercial and industrial.............         2,150            533          6,586          5,597          1,335
                                            ----------     ----------     ----------     ----------     ----------
    Total real estate loans
     originated (1).....................        11,513          5,834         18,462        417,443        418,404
                                            ----------     ----------     ----------     ----------     ----------
Real estate loans purchased:
  Single family (2).....................       195,333          7,444         (1,237)       100,756             --
  Multifamily:
    2 to 4 units........................        23,749            319             --            250             --
    5 to 36 units.......................           338             --             --          2,466          3,741
    37 units and over...................         2,184             --             --            665             --
                                            ----------     ----------     ----------     ----------     ----------
     Total multifamily..................        26,271            319             --          3,381          3,741
  Commercial and industrial.............            --            262          2,171             --            210
                                            ----------     ----------     ----------     ----------     ----------
    Total real estate loans
     purchased..........................       221,604          8,025            934        104,137          3,951
                                            ----------     ----------     ----------     ----------     ----------
     Total real estate loans
      funded............................       233,107         13,859         19,396        521,580        422,355
                                            ----------     ----------     ----------     ----------     ----------
  Loans sold or securitized:
  Whole loans...........................       (13,516)        (4,508)      (123,080)      (326,797)      (137,870)
  Bulk sales............................            --             --             --       (341,432)            --
  Repurchases...........................         6,842          6,577          9,850          9,072         22,867
                                            ----------     ----------     ----------     ----------     ----------
    Total loans sold or securitized.....        (6,674)         2,069       (113,230)      (659,157)      (115,003)
                                            ----------     ----------     ----------     ----------     ----------
Payments and refinances.................      (311,774)      (286,577)      (236,650)      (310,697)      (575,348)
Hancock loans acquired..................       146,802             --             --             --             --
Increase (decrease) in non-real
 estate loans...........................        56,539(3)         333         (1,211)        (1,507)           720
Other increase (decrease) in total
 loans, net.............................         6,676         (4,796)           741          9,403          8,433
Decrease (increase) in reserves for
 loan losses............................         6,970         31,927        (22,233)        16,630        (19,555)
                                            ----------     ----------     ----------     ----------     ----------
Net increase (decrease) in total loans,
 net....................................       131,646       (243,185)      (353,187)      (423,748)      (278,398)
                                            ----------     ----------     ----------     ----------     ----------
Principal balance at end of period......    $2,823,577     $2,691,931     $2,935,116     $3,288,303     $3,712,051
                                            ==========     ==========     ==========     ==========     ==========
Loans serviced for others...............    $  308,761     $  433,767     $  600,288     $1,147,015     $  888,362
                                            ==========     ==========     ==========     ==========     ==========
</TABLE>
-------------------
(1) Includes loans originated to finance sales of REO of $8.4 million, $4.8
    million, $9.0 million, $27.0 million and $51.6 million for the years ended
    December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
(2) Net of repurchases.
(3) Includes $50.7 million of credit card loans at December 31, 1997.

                                       11
<PAGE>

 Sale of Loans

  Over the past several years, the Bank has sold a portion of its loans in the
secondary mortgage market. During 1997, 1996 and 1995, respectively, the Bank
sold $13.5 million, $4.5 million and $10.2 million of loans and repurchased $6.8
million, $6.6 million and $9.8 million of loans sold in prior periods as
described below. In addition, sales of mortgage backed securities ("MBSs")
totaled $266.7 million, $65.5 million, and $160.7 million, for the years ended
December 31, 1997, 1996 and 1995, respectively. Fidelity is an approved
originator and servicer for the Federal National Mortgage Association (the
"FNMA"), the Federal Home Loan Mortgage Corporation (the "FHLMC") and the
Federal Housing Administration (the "FHA").

  As of December 31, 1997, the Company had certain loans with a gross principal
balance of $85.0 million, of which $71.0 million had been sold in the form of
mortgage pass-through certificates, over various periods of time, to four
investor financial institutions leaving a balance of $14.0 million in loans
retained by the Company. These mortgage pass-through certificates provide a
credit enhancement to the investors in the form of the Company's subordination
of its retained percentage interest to that of the investors. In this regard,
the aggregate of $71.0 million held by the investors are deemed Senior Mortgage
Pass-Through Certificates and the $14.0 million in loans held by the Company are
subordinated to the Senior Mortgage Pass-Through Certificates in the event of
borrower default. Full recovery of the $14.0 million is subject to this
contingent liability due to its subordination. In 1993, the Bank repurchased as
an investment a portion of the mortgage pass-through certificates, and at
December 31, 1997, the balance of the repurchased certificate was $24.9 million
and was included in the MBSs available for sale portfolio and accounted for in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115.
The other Senior Mortgage Pass-Through Certificates totaling $46.1 million at
December 31, 1997 are owned by other investor institutions. Charge-offs
resulting from the subordination of the Company's retained percentage interest
have been $0.3 million, $0.1 million and $4.3 million for the years ended
December 31, 1997, 1996 and 1995, respectively. Due to the subordination of the
retained percentage interest, the Company considers all the loans underlying the
Senior Mortgage Pass-Through Certificates in determining its allowance for loan
losses and any estimated losses are reflected in the provision for loan losses.

  During 1992, the Company also effected the securitization by FNMA of $114.3
million of multifamily mortgages wherein $114.3 million in whole loans were
swapped for Triple A rated MBSs through FNMA's Alternative Credit Enhancement
Structure ("ACES") program. These MBSs were sold in December 1993 and the
current outstanding balance as of December 31, 1997 of $70.9 million is serviced
by the Company.

  As part of a credit enhancement to absorb losses relating to the ACES
transaction, the Company has pledged and placed in a trust account, as of
December 31, 1997, $13.1 million, comprised of $9.9 million in cash and $3.2
million in U.S. Treasury securities at book value. The Company shall absorb
losses, if any, which may be incurred on the securitized multifamily loans to
the extent of $13.1 million. FNMA is responsible for any losses in excess of the
$13.1 million. The Company has charged off less than $0.1 million, $3.8 million
and $3.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The corresponding contingent liability for credit losses secured
by the trust assets was $2.9 million and $6.6 million at December 31, 1997 and
1996, respectively, and is included in other liabilities.

  As a result of the Hancock acquisition, the Company has assumed the commitment
to absorb losses from Hancock's loan sale and securitization to FNMA under the
ACES program. Loans sold subject to recourse provisions had remaining unpaid
principal balances at December 31, 1997 of $28.0 million. At December 31, 1997,
the Company has pledged U.S. Treasury securities and MBSs of $4.7 million as
security for the recourse contingencies associated with the loans. The
corresponding contingent liability for credit losses secured by the pledged
assets was $1.1 million at December 31, 1997 and is included in other
liabilities. Charge-offs resulting from the subordination of Hancock's retained
percentage interest was $0.3 million for the year ended December 31, 1997.

                                       12
<PAGE>

 Sale of Servicing

  As a cost reduction measure, the Bank sold the servicing rights to
substantially all of the single family and 2-4 unit loans in the Bank's loan
portfolio during the second quarter of 1996. The servicing rights to $938.5
million in loans were transferred for a total sale price of $10.0 million. Such
sales proceeds have been accounted for as a reduction in the carrying value of
the loans based on the relative fair values of the servicing sold and loans
retained and is to be accreted over the estimated life of the loans. Accretion
of this amount of the deferred revenue totaled $2.2 million and $1.5 million
during 1997 and 1996, respectively.

 ARM Loans

  Prior to the closure of its mortgage origination operation in the third
quarter of 1994, Fidelity emphasized the origination of adjustable rate
mortgages ("ARMs") for its portfolio to assist in reducing the sensitivity of
its earnings to interest rate fluctuations. ARMs help to improve the matching of
interest rate repricing between Fidelity's asset and liability portfolios. ARMs
reduce the interest rate risk inherent in a portfolio of long-term mortgages by
repricing each individual asset at regular intervals over the life of the asset.
The initial period before the first adjustment varies between one month and five
years. ARM loans represented 94% of the total loan portfolio at December 31,
1997. Of Fidelity's ARMs, 92% bear an interest rate which periodically adjusts
at a stated margin (the "contractual spread") above the Federal Home Loan Bank
(the "FHLB") Eleventh District Cost of Funds Index ("COFI"), which is the index
that most closely matches Fidelity's liability base.

  ARMs may have greater vulnerability to default than fixed rate loans during
times of increasing interest rates due to the potential for substantial
increases in the amount of a borrower's payments or erosion of a borrower's
equity in the underlying property, to the extent payments do not increase, as in
the case of negatively amortizing mortgages. Risks of default may be reduced on
certain loans by caps on both the maximum interest that can be charged and the
amount by which a borrower's payments can be periodically increased. However,
during periods of significant interest rate increases, interest rate caps can
adversely affect interest rate margins and payment caps can increase borrower
exposure to negative amortization, unless the loan contains a prohibition on
negative amortization. When the borrower's payment is not sufficient to cover
the computed interest amount, negative amortization occurs and the difference
then increases the principal balance of the loan. Fidelity uses a combination of
interest rate caps and payment caps to reduce risk of default and, to date,
negative amortization has not adversely affected Fidelity's default ratios.
There was $0.5 million of negative amortization included in the loan portfolio
at December 31, 1997 and $0.8 million at December 31, 1996.

  During periods of declining interest rates, ARMs with high interest rate caps
relative to market are vulnerable to prepayment as borrowers refinance into ARMs
with lower caps or into fixed rate loans. Fidelity has also attempted to
minimize the risk of default associated with all ARMs by using the COFI (a
relatively stable index) for adjustment, thereby limiting interest rate
volatility over short periods, and requiring loan-to-value ratios generally not
in excess of 80% unless private mortgage insurance is obtained. During periods
of declining interest rates, ARMs with negative amortization potential will
experience accelerated amortization, thereby offsetting, in whole or in part,
previously incurred negative amortization, if any, or reducing the principal
balance ahead of the original schedule.

CREDIT ADMINISTRATION

  The credit administration function identifies, measures and establishes SVAs
and assesses and establishes the allowance for loan losses in conformity with
regulatory guidelines and generally accepted accounting principles ("GAAP"). See
"--Credit Loss Experience."

                                       13
<PAGE>

 Loan Portfolio Risk Elements


  Fidelity's loan portfolio risk elements and credit loss experience may be more
clearly understood when the following sections are read in conjunction with Item
7. "MD&A--Asset Quality."

  The following table presents net delinquent mortgage loans at December 31,
1997, by property type and location.
<TABLE>
<CAPTION>
                                                       MULTIFAMILY
                                            --------------------------------
                                 SINGLE     2 TO 4      5 TO 36     37 UNITS    COMMERCIAL
                                 FAMILY     UNITS        UNITS      AND OVER  AND INDUSTRIAL  TOTAL
                                 ------     ------      -------     --------  -------------- -------
                                                        (DOLLARS IN THOUSANDS)
<S>                              <C>        <C>         <C>          <C>          <C>        <C>
California:
 Southern California
  Counties:
  Los Angeles................    $4,253     $  958      $ 8,973      $1,430       $  736     $16,350
  Orange.....................     1,532        855           --          --          481       2,868
  San Bernardino.............       851         72          375          --           --       1,298
  Santa Barbara..............       647        143           --          --           --         790
  San Diego..................        94         --          680          --           --         774
  Ventura....................       106         --          631          --           --         737
  Riverside..................       692         --           --          --           --         692
                                 ------     ------      -------      ------       ------     -------
                                  8,175      2,028       10,659       1,430        1,217      23,509
 Northern California
  Counties:
  Santa Clara................       791        287           61          --           --       1,139
  Merced.....................       135         --           --         531           --         666
  Fresno.....................        --         --           --         660           --         660
  Alameda....................       243         --           --          --           --         243
  Contra Costa...............       169         --           --          --           --         169
                                 ------     ------      -------      ------       ------     -------
                                  1,338        287           61       1,191           --       2,877
Hawaii.......................       216         --           --          --           --         216
                                 ------     ------      -------      ------       ------     -------
    Total delinquent loans...    $9,729     $2,315      $10,720      $2,621       $1,217     $26,602
                                 ======     ======      =======      ======       ======     =======
</TABLE>

                                      14
<PAGE>

  The following table presents delinquencies as a percentage of the loan
mortgage portfolio by property type and location at December 31, 1997, with
ratios calculated net of SVA and writedowns.
<TABLE>
<CAPTION>

                                                                           MULTIFAMILY
                                                            =========================================
                                          SINGLE            2 TO 4          5 TO 36          37 UNITS         COMMERCIAL
                                          FAMILY             UNITS           UNITS           AND OVER       AND INDUSTRIAL   TOTAL
                                          ------            ------          -------          --------       --------------  -------
<S>                                       <C>               <C>             <C>              <C>            <C>             <C>
California:
 Southern California Counties:
  Los Angeles............................   1.6%             0.8%             0.9%              0.7%               0.7%        1.0%
  Orange.................................   1.6%             0.7%              --                --                0.8%        0.7%
  San Bernardino.........................   3.7%             0.6%             1.3%               --                 --         1.5%
  Santa Barbara..........................   4.4%             1.9%              --                --                 --         1.7%
  San Diego..............................   0.3%              --              0.9%               --                 --         0.5%
  Ventura................................   0.4%              --              2.1%               --                 --         1.0%
  Riverside..............................   3.1%              --               --                --                 --         1.0%
  Percent of Southern California
   delinquencies by property type........   1.7%             0.7%             0.8%              0.5%               0.6%        0.9%
 Northern California
  Counties:
  Santa Clara............................   2.3%             1.6%             0.2%               --                 --         1.4%
  Merced.................................  11.2%              --               --              28.4%                --        14.4%
  Fresno.................................    --               --               --              13.4%                --         5.7%
  Alameda................................   1.8%              --               --                --                 --         1.3%
  Contra Costa...........................   1.7%              --               --                --                 --         1.5%
  Percent of Northern California
   delinquencies by property type........   1.3%             0.9%             0.1%             10.0%                --         1.5%
Hawaii...................................   4.5%              --               --                --                 --          --
  Percent of out-of-state delinquencies
   by property type......................   0.4%              --               --                --                 --         0.3%
Percent of total delinquencies by
 property type...........................   1.5%             0.7%             0.8%              0.9%               0.6%        0.9%
</TABLE>

  The following table presents net delinquent mortgage loans at December 31,
1997, by property type and year of origination.

<TABLE>
<CAPTION>
                                                                          YEAR OF ORIGINATION
                                  =================================================================================================
                                   TOTAL     1996     1995        1994        1993        1992        1991        1990        1989
                                  -------    -----    -----      ------      ------      ------      ------      ------      ------
                                                                      (DOLLARS IN THOUSANDS)
<S>                              <C>         <C>      <C>      <C>         <C>         <C>         <C>         <C>         <C>
Property type:
 Single Family...............     $ 9,729    $   1    $   2      $2,146      $  583      $  365      $  525      $1,638      $  571
 Multifamily loans:
  2 to 4 units...............       2,315       --       --          --         246          --         447         574         601
  5 to 36 units..............      10,720       --       --          --         236       1,009         613       5,328       1,559
  37 units and over..........       2,621       --       --          --          --         660          --          --          --
                                  -------    -----    -----      ------      ------      ------      ------      ------      ------
   Total multifamily.........      15,656       --       --          --         482       1,669       1,060       5,902       2,160
 Commercial and other........       1,217       48       --          --          --          --          --          58          --
                                  -------    -----    -----      ------      ------      ------      ------      ------      ------
  Total delinquent loans.....     $26,602    $  49    $   2      $2,146      $1,065      $2,034      $1,585      $7,598      $2,731
                                  =======    =====    =====      ======      ======      ======      ======      ======      ======
  Percent of net delinquent
   loans to remaining
   portfolio.................         0.9%     0.1%      --%        0.8%        0.6%        1.2%        0.9%       1.6%         0.8%
                                  =======    =====    =====      ======      ======      ======      ======      ======      ======
</TABLE>

<TABLE>
<CAPTION>
                                YEAR OF ORIGINATION
                               ======================
                                   1988 AND PRIOR
                               ----------------------
                               (DOLLARS IN THOUSANDS)
<S>                                <C>
Property type:
 Single Family...............          $3,898
 Multifamily loans:
  2 to 4 units...............             447
  5 to 36 units..............           1,975
  37 units and over..........           1,961
                                       ------
   Total multifamily.........           4,383
 Commercial and other........           1,111
                                       ------
  Total delinquent loans.....          $9,392
                                       ======
  Percent of net delinquent
   loans to remaining
   portfolio.................             0.9%
                                       ======
</TABLE>

                                       15
<PAGE>

  The following tables present net delinquent loans, including credit card
loans, at the dates indicated:
<TABLE>
<CAPTION>

                                       DECEMBER 31,         SEPTEMBER 30,        JUNE 30,            MARCH 31,
                                          1997                  1997               1997                1997
                                      --------------       ---------------      ----------          -----------
                                                           (DOLLARS IN THOUSANDS)
<S>                                   <C>                    <C>                 <C>                <C>
 Total delinquencies:
  30 to 59 days................        $11,905                 $12,618            $11,638             $16,828
  60 to 89 days................          5,527                   3,661              7,370               6,565
  90 days and over.............         14,583                  21,914             28,449              39,482
                                       -------                 -------            -------             -------
                                       $32,015(1)              $38,193(1)         $47,457             $62,875
                                       =======                 =======            =======             =======
</TABLE>
--------------------
(1) Included in the net delinquent loan balance at December 31, 1997 and
    September 31, 1997, are $5.4 million and $1.1 million, respectively, of
    credit card balances related to the credit enhancement affinity program. No
    losses are expected from these delinquencies as a result of the credit
    enhancements provided by the affinity partner.
<TABLE>
<CAPTION>
                                       DECEMBER 31,         SEPTEMBER 30,        JUNE 30,            MARCH 31,
                                          1996                  1996               1996                1996
                                      --------------       ---------------      ----------          -----------
                                                           (DOLLARS IN THOUSANDS)
<S>                                   <C>                  <C>                  <C>                  <C>
 Total delinquencies:
  30 to 59 days................        $14,959                 $22,748            $23,467              17,135
  60 to 89 days................         11,668                   8,260              8,026               9,552
  90 days and over.............         35,853                  36,249             43,292              40,111
                                       -------                 -------            -------             -------
                                       $62,480                 $67,257            $74,785             $66,798
                                       =======                 =======            =======             =======

</TABLE>
  The following table details net loans which are 30 to 89 days delinquent at
the dates indicated.
<TABLE>
<CAPTION>

                                                               DECEMBER 31,
                                           ====================================================
                                             1997       1996       1995       1994       1993
                                           --------   --------   --------   --------   --------
                                                          (DOLLARS IN THOUSANDS)
<S>                                        <C>        <C>        <C>        <C>        <C>
Loans 30 to 59 days contractually
 delinquent:
  Single family.........................    $ 4,153    $ 4,986    $ 4,283    $ 4,413    $ 7,480
  Multifamily:
   2 to 4 units.........................      1,111      1,023      1,748      4,281      3,599
   5 to 36 units........................      3,638      5,617      5,434     15,438     16,948
   37 units and over....................        531      2,461        304         --      4,114
                                            -------    -------    -------    -------    -------
     Total multifamily..................      5,280      9,101      7,486     19,719     24,661
  Commercial and industrial.............         --        872        958        264      2,048
  Credit card...........................      2,472         --         --         --         --
                                            -------    -------    -------    -------    -------
                                             11,905     14,959     12,727     24,396     34,189
                                            -------    -------    -------    -------    -------
Loans 60 to 89 days contractually
 delinquent:
  Single family.........................      1,354      3,479        924      1,016      2,497
  Multifamily:
   2 to 4 units.........................        257      1,790        282        904      1,707
   5 to 36 units........................      2,329      6,130      5,801      5,247     12,770
   37 units and over....................         --         --         --      2,272      5,035
                                            -------    -------    -------    -------    -------
     Total multifamily..................      2,586      7,920      6,083      8,423     19,512
  Commercial and industrial.............        155        269        213      1,385      1,723
  Credit card...........................      1,432         --         --         --         --
                                            -------    -------    -------    -------    -------
                                              5,527     11,668      7,220     10,824     23,732
                                            -------    -------    -------    -------    -------
     Total loans delinquent 30 to 89        $17,432    $26,627    $19,947    $35,220    $57,921
      days..............................    =======    =======    =======    =======    =======

</TABLE>
 Nonaccruing Loans

  The Bank places a loan on nonaccrual status whenever the payment of interest
is 90 or more days delinquent, or earlier if management determines that it is
warranted. Loans on nonaccrual status are resolved by the borrower bringing the
loan current, by the Bank and the borrower agreeing to modify the terms of the
loan or by foreclosure of the collateral securing the loan. See "--Restructured
Loans" and "--Foreclosure Policies."

                                       16
<PAGE>

  The following table presents net nonaccruing loans by property type at the
dates indicated:

<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                -----------------------------------------------
                                 1997     1996     1995       1994       1993
                                -------  -------  -------    -------    -------
<S>                             <C>      <C>      <C>        <C>        <C>
                                             (DOLLARS IN THOUSANDS)
Single family...............    $ 4,221  $ 8,019  $ 7,226    $ 7,775    $12,661
Multifamily:
  2 to 4 units..............        948    5,959    6,671      6,590     15,652
  5 to 36 units.............      4,753   18,071   14,312     23,112     34,746
  37 units and over.........      2,090    2,671    3,190      7,088     17,973
                                -------  -------  -------    -------    -------
Total multifamily...........      7,791   26,701   24,173     36,790     68,371
Commercial and industrial...      1,062    1,405   20,511(1)  27,049(1)  12,443
                                -------  -------  -------    -------    -------
  Total nonaccruing loans...    $13,074  $36,125  $51,910    $71,614    $93,475
                                =======  =======  =======    =======    =======
</TABLE>
--------
(1) Includes two loans on one hotel property with a total balance of $15.9
    million at December 31, 1995 and one loan on the same hotel property with a
    balance of $13.8 million at December 31, 1994.

  It is the Bank's policy to reserve all earned but unpaid interest on loans
placed on nonaccrual status. The reduction in income related to such reserves,
net of interest recognized on cured delinquencies, was $3.9 million, $6.0
million, and $5.8 million for the years ended December 31, 1997, 1996, and 1995,
respectively.

  The following table presents net nonaccruing loans by property type and
geographic location at December 31, 1997.

<TABLE>
<CAPTION>
                                               MULTIFAMILY
                                        -------------------------                           PERCENTAGE
                                SINGLE  2 TO 4  5 TO 36  37 UNITS    COMMERCIAL                 OF
                                FAMILY  UNITS    UNITS   AND OVER  AND INDUSTRIAL   TOTAL     TOTAL
                                ------  ------  -------  --------  --------------  -------  ----------
                                                          (DOLLARS IN THOUSANDS)
<S>                             <C>     <C>     <C>      <C>       <C>             <C>      <C>
California:
 Southern California
  Counties:
  Los Angeles................   $2,287  $441    $4,090   $1,430       $  735       $ 8,983      68.7%
  Orange.....................      593   435        --       --          327         1,355      10.4
  San Bernardino.............      551    72       261       --           --           884       6.8
  Riverside..................      467    --        --       --           --           467       3.6
  Ventura....................       93    --       235       --           --           328       2.5
  San Diego..................       19    --       167       --           --           186       1.4
                                ------  ----    ------   ------       ------       -------     -----
                                 4,010   948     4,753    1,430        1,062        12,203      93.4
 Northern California
  Counties:
  Fresno.....................       --    --        --      660           --           660       5.0
  Santa Clara................      193    --        --       --           --           193       1.5
  Alameda....................       18    --        --       --           --            18       0.1
                                ------  ----    ------   ------       ------       -------     -----
                                   211    --        --      660           --           871       6.6
                                ------  ----    ------   ------       ------       -------     -----
    Total nonaccruing loans..   $4,221  $948    $4,753   $2,090       $1,062       $13,074     100.0%
                                ======  ====    ======   ======       ======       =======     =====
</TABLE>

                                       17
<PAGE>

 Restructured Loans

  The Bank will consider modifying the terms of a loan when the borrower is
experiencing financial difficulty and the Bank determines that the loan, as
modified, is likely to result in a greater ultimate recovery to the Bank than
taking title to the property.

  According to SFAS No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructuring," a troubled debt restructuring ("TDR") occurs when a
creditor, for economic or legal reasons related to a debtor's difficulties,
grants a concession to the debtor that it would not otherwise consider.
Generally, Fidelity restructures loans by temporarily or permanently reducing
interest rates, allowing interest only payments, reducing the loan balance,
extending property tax repayment plans, extending maturity dates or recasting
principal and interest payments. However, debt restructuring is not necessarily
a TDR even if the borrower is experiencing some difficulties, as long as the
restructuring terms are consistent with current market rates and risk. The
adoption of SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--
Income Recognition and Disclosures," requires that TDRs be measured for
impairment in the same manner as any impaired loan. A loan is considered
impaired when, based on current information and events, it is probable that the
Bank will be unable to collect all amounts due (contractual interest and
principal) according to the contractual terms of the loan agreement.

  The following table presents TDRs by property type at the dates indicated:
<TABLE>
<CAPTION>

                                                      DECEMBER 31,
                               ==========================================================
                                  1997          1996         1995       1994       1993
                               -----------   -----------   --------   --------   --------
<S>                            <C>           <C>           <C>        <C>        <C>
                                                 (DOLLARS IN THOUSANDS)
Property type:
Single family...............      $   575       $ 1,178     $ 1,162    $   459    $   633
Multifamily:
  2 to 4 units..............        3,287         4,260       2,597      2,511      3,171
  5 to 36 units.............       14,972        11,647      15,189     35,347     13,648
  37 units and over.........        6,485         5,805       9,109     10,292     11,090
                               ----------    ----------     -------    -------    -------
    Total multifamily.......       24,744        21,712      26,895     48,150     27,909
Commercial and industrial...       18,674(1)     22,306(1)    3,688      1,645         --
Land........................           --            --         946      1,890        171
                               ----------    ----------     -------    -------    -------
    Total TDRs..............      $43,993       $45,196     $32,691    $52,144    $28,713
                               ==========    ==========     =======    =======    =======
</TABLE>
-----------------

(1)  Includes a hotel property loan with a balance of $18.1 million and $18.4
     million at December 31, 1997 and 1996, respectively.

                                       18
<PAGE>

  The following table presents TDRs at December 31, 1997 by property type and
geographic location.

<TABLE>
<CAPTION>
                                                                MULTIFAMILY
                                                   --------------------------------------                            PERCENTAGE
                                     SINGLE        2 TO 4           5 TO         37 UNITS   COMMERCIAL                   OF
                                     FAMILY        UNITS          36 UNITS       AND OVER  AND INDUSTRIAL   TOTAL       TOTAL
                                     ------        ------         --------       --------  --------------  -------      ------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                  <C>          <C>            <C>             <C>          <C>          <C>         <C>
Southern California:
 Los Angeles.................         $516         $1,650         $10,000         $5,537      $    --      $17,703        40.2%
 Orange......................           --          1,637           3,124             --       18,674(1)    23,435        53.3
 San Diego...................           --             --           1,514            948           --        2,462         5.6
 Riverside...................           59             --             334             --           --          393         0.9
                                      ----         ------         -------         ------      -------      -------      ------
  Total TDRs.................         $575         $3,287         $14,972         $6,485      $18,674      $43,993      100.0%
                                      ====         ======         =======         ======      =======      =======      ======
</TABLE>

(1)  Includes a hotel property loan with a balance of $18.1 million at December
     31, 1997.


 Loan Monitoring

  The Bank has a loan review system that is designed to meet the following
objectives:

     . To identify, in a timely manner, loans with potential credit or
       collateral weaknesses and to appropriately classify loans with well
       defined weaknesses that jeopardize loan repayment so that timely action
       can be taken and credit losses can be mitigated.

     . To project relevant trends that affect the collectibility of the loan
       portfolio and to isolate potential problem areas that may exhibit adverse
       trends.

     . To provide essential information to assess the adequacy of the allowance
       for loan losses and to identify and recognize in a timely manner
       estimated specific loan losses.

     . To assess the adequacy of and adherence to the Bank's internal credit
       policies and loan administration procedures and to monitor compliance
       with the foregoing and with relevant laws and regulations.

  The Bank considers such risk factors as payment history, collateral value,
income property cash flow, property condition, and the borrower's financial
capacity and property management experience in its monitoring and risk grading
process. Current property operating statements are requested on a periodic basis
for substantially all income property collateral and property inspections are
conducted. The assignment of loan grades in the Bank's asset review process is
subjective and greatly dependent upon having current and accurate information
regarding the borrower's financial capability and willingness to repay the debt
as well as the collateral property's condition, operating results and fair
value. If current and accurate data is not available, it is critical to have
current knowledge of the general economic conditions affecting the borrower and
the collateral property.

  Although these general key information elements are desired for accurate loan
grading, the Bank is required to assign loan grades notwithstanding the lack of
any one or more of these elements. Loan grading decisions are made using
judgment based on the best and most current information available including, but
not limited to, the borrower's payment history with the Bank on all existing
credits, real estate property tax and hazard insurance payment records, the
borrower's payment record, current financial statements of the borrower,
guarantors, and principals or general partners of the borrower, property
inspection reports, rent rolls and operating statements for income properties
and loan "work-out" status, if applicable.

                                       19
<PAGE>

  When a borrower requests a modification of loan terms, the loan is considered
to be in a possible work-out status. The Bank will consider a workout of a loan
when the borrower is experiencing financial difficulty and the Bank determines
that the loan, as modified, is likely to result in a greater ultimate recovery
to the Bank than taking title to the property. A work-out may range from (i) a
modification, allowing the payment of interest only for a short period of time
and then returning to payments of principal and interest, to (ii) a complex
agreement which may include, among other things, the Bank writing off a portion
of loan principal or forgiving accrued and unpaid interest. A loan work-out,
therefore, could be a modification or a TDR. See "--Credit Loss Experience." For
purposes of loan classification and grading, a loan where work-out negotiations
are in progress is classified in a manner that reflects the asset's
circumstances at the time of review.

  The Bank also analyzes its multifamily loans, which represent the largest
portion of the Bank's portfolio, by geographic submarkets. In this process, the
Bank utilizes a national real estate consulting firm and the Bank's appraisal
department to understand key real estate market trends in those submarkets.

 Loan Grading System

  In the second half of 1995, the Bank enhanced its existing policy of
specifically identifying loans in the portfolio through implementation of a loan
grading system ("LGS") that management believes improved the grading process.
Since implementing the LGS in the latter half of 1995, over 79% of the
multifamily and non-residential loan portfolios have been reviewed. The
evaluation of each loan is based on four key risk attributes: (1) ability of
income from the property to act as the primary source of repayment, (2) value of
the collateral if a sale is required, (3) ability and willingness of the
borrower to pay, and (4) market trends in the area around the property.

 Asset Classification

  Credit risk is graded based on the Bank's internal asset review policies and
procedures, and individual loans are categorized as Pass, Special Mention,
Substandard, Doubtful or Loss depending on the risk characteristics of each
loan. All such grading requires the application of subjective judgment by the
Bank. A brief description of these categories follows:

  A Pass asset is considered of sufficient quality to preclude designation as
Special Mention or a substandard asset. Pass assets generally are protected by
the current net worth and paying capacity of the obligor and by the value of the
underlying collateral.

  An asset designated as Special Mention does not currently expose an
institution to a sufficient degree of risk to warrant an adverse classification.
However, it does possess credit deficiencies or potential weaknesses deserving
management's close attention. If uncorrected, such weaknesses or deficiencies
may expose an institution to an increased risk of loss in the future. Special
Mention assets are also referred to as criticized.

  An asset classified as Substandard is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged.
Assets so classified have a well-defined weakness or weaknesses. They are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected.

  Assets classified as Doubtful have all the weaknesses inherent in those
classified as Substandard. In addition, these weaknesses make collection or
liquidation in full, on the basis of currently existing facts, conditions and
values, highly questionable or improbable. The Bank will generally classify
assets as Doubtful when inadequate data is available or when such uncertainty
exists as to preclude a Substandard classification.

                                       20
<PAGE>

  Assets classified as Loss are considered uncollectible and of such little
value that their continuance as assets without establishment of a specific
reserve is not warranted. A Loss classification does not mean that an asset has
absolutely no recovery or salvage value; rather it means that it is not
practical or desirable to defer establishing a specific allowance for a
basically worthless asset even though partial recovery may be effected in the
future. The Bank will generally classify as Loss the portion of assets
identified as exceeding the asset's fair market value and a specific reserve is
established for such excess.

  The following table presents net classified assets by property type at the
dates indicated:

<TABLE>
<CAPTION>
                                       DECEMBER 31,      SEPTEMBER 30,       JUNE 30,        MARCH 31,      DECEMBER 31,
                                          1997               1997              1997            1997             1996
                                       ------------      -------------       --------        ---------      ------------
                                                                    (DOLLAIN THOUSANDS)
<S>                                     <C>                 <C>             <C>              <C>             <C>
Performing classified loans:
 Single family..........................  $  3,551          $  3,521        $  3,331         $  2,757        $  4,555
 Multifamily:
  2 to 4 units..........................     4,241             4,455           4,856            5,527           6,030
  5 to 36 units.........................    63,777            58,694          62,509           50,306          60,785
  37 units and over.....................    22,704            24,551          20,761           12,196          10,375
                                          --------          --------        --------         --------        --------

   Total multifamily properties.........    90,722            87,700          88,126           68,029          77,190
 Commercial and other...................    10,412            11,373           9,788            9,342          29,503(2)
                                          --------          --------        --------         --------        --------
  Total performing classified loans.....   104,685           102,594         101,245           80,128         111,248
                                          --------          --------        --------         --------        --------
Nonperforming classified loans:
 Single family..........................     4,222             4,501           5,980            7,001           8,019
 Multifamily:
  2 to 4 units..........................       948             1,721           2,677            5,527           5,959
  5 to 36 units.........................     4,752            10,006          15,745           21,041          18,071
  37 units and over.....................     2,090             5,139           4,929            4,162           2,671
                                          --------          --------        --------         --------        --------
   Total multifamily properties.........     7,790            16,866          23,351           30,730          26,701
 Commercial and other...................     1,062               437           3,845            1,982           1,405
                                          --------          --------        --------         --------        --------
  Total nonperforming classified loans..    13,074            21,804          33,176           39,713          36,125
                                          --------          --------        --------         --------        --------
   Total classified loans...............   117,759           124,398         134,421          119,841         147,373
                                          --------          --------        --------         --------        --------
Real estate owned:
 Single family..........................     2,611             2,992           4,095            5,211           3,185
 Multifamily:
  2 to 4 units..........................     1,091             1,326           2,215            2,766           3,410
  5 to 36 units.........................     5,318            10,911          12,992           11,218          13,574
  37 units and over.....................     3,149             3,105           3,106            2,812           1,844
                                          --------          --------        --------         --------        --------
   Total multifamily properties.........     9,558            15,342          18,313           16,796          18,828
 Commercial and other...................       624               635           2,432            2,933           3,950
                                          --------          --------        --------         --------        --------
  Net REO before REO GVA................    12,793            18,969          24,840           24,940          25,963
 REO GVA................................      (500)             (500)         (1,200)          (1,300)         (1,300)
                                          --------          --------        --------         --------        --------
  Total real estate owned...............    12,293            18,469          23,640           23,640          24,663
                                          --------          --------        --------         --------        --------
Other classified assets.................    23,450(1)         14,027(1)        1,404            1,382           2,060
                                          --------          --------        --------         --------        --------
  Total classified assets...............  $153,502          $156,894        $159,465         $144,863        $174,096
                                          ========          ========        ========         ========        ========
</TABLE>
--------------------
(1)  Includes the Libor Asset Trust investment securities with a book value of
     $20.9 million and $12.3 million at December 31, 1997 and September 30,
     1997, respectively, which were classified due to the performance of the
     underlying collateral. These assets were sold in January 1998.
(2)  Includes a hotel property loan with a balance of $18.4 million at December
     31, 1996.

                                       21
<PAGE>

  The following table summarizes net classified assets at the dates indicated:
<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                        ========================================================================
                                          1997             1996             1995             1994        1993
                                        --------         --------         --------         --------     --------
                                                                        (DOLLARS IN THOUSANDS)
<S>                                     <C>              <C>              <C>              <C>          <C>
Nonperforming assets ("NPAs"):
  Nonaccruing loans.................... $ 13,074         $ 36,125         $ 51,910         $ 71,614     $ 93,475
  ISFs(1)..............................       --               --               --               --       28,362
  REO(2)...............................   12,293           24,663           19,521           14,115      113,784
                                        --------         --------         --------         --------     --------
     Total NPAs........................   25,367           60,788           71,431           85,729      235,621
                                        --------         --------         --------         --------     --------
Performing classified loans:
  Single family........................    3,551            4,555            4,368              544        5,749
  Multifamily:
     2 to 4 units......................    4,241            6,030            8,297              951        7,616
     5 to 36 units.....................   63,777           60,785           85,581           28,872       56,485
     Over 37 units.....................   22,704           10,375           39,301           19,925       51,965
                                        --------         --------         --------         --------     --------
        Total multifamily..............   90,722           77,190          133,179           49,748      116,066
  Commercial and industrial............   10,412           29,503(4)        10,099            5,515        3,905
                                        --------         --------         --------         --------     --------
     Total performing classified
       Loans...........................  104,685          111,248          147,646           55,807      125,720
                                        --------         --------         --------         --------     --------
Other classified assets................   23,450(3)         2,060               --               --       11,161
                                        --------         --------         --------         --------     --------
     Total classified assets........... $153,502         $174,096         $219,077         $141,536     $372,502
                                        ========         ========         ========         ========     ========
NPAs to total assets...................     0.61%            1.83%            2.16%            2.31%        5.37%
                                        ========         ========         ========         ========     ========
Classified assets to total assets......     3.68%            5.23%           6.64%            3.82%         8.49%
                                        ========         ========         ========         ========     ========
</TABLE>
-----------------
(1) On January 1, 1994 the Bank implemented SFAS No. 114, which effectively
    eliminated the in-substance foreclosure ("ISF") designation. Loans
    previously considered ISFs are included in loans beginning in 1994.
(2) For presentation purposes, NPAs include REO net of REO GVA, if any.
(3) Includes the Libor Asset Trust investment securities with a book value of
    $20.9 million at December 31, 1997 which were classified due to the
    performance of the underlying collateral. These assets were sold in January
    1998.
(4) Includes a hotel property loan with a balance of $18.4 million at December
    31, 1996.

                                       22
<PAGE>

  The following tables present net classified assets for the quarters indicated:

<TABLE>
<CAPTION>
                                               DECEMBER 31,           SEPTEMBER 30,          JUNE 30,           MARCH 31,
                                                   1997                   1997                 1997                1997
                                                ----------             -----------           --------            --------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                             <C>                    <C>                   <C>                 <C>
NPAs:
 Nonaccruing loans..................            $   13,074             $    21,804           $ 33,176            $ 39,713
 REO, before REO GVA................                12,793                  18,969             24,840              24,940
 REO GVA............................                  (500)                   (500)            (1,200)             (1,300)
                                                ----------             -----------           --------            --------
  Total NPAs........................                25,367                  40,273             56,816              63,353
Performing classified loans.........               104,685                 102,594            101,245              80,128
 Other classified assets............                23,450(1)               14,027(1)           1,404               1,382
                                                ----------             -----------           --------            --------
  Total classified assets...........            $  153,502             $   156,894           $159,465            $144,863
                                                ==========             ===========           ========            ========
NPAs to total assets................                  0.61%                   1.03%              1.61%               1.92%
                                                ==========             ===========           ========            ========
Classified assets to total assets...                  3.68%                   4.00%              4.51%               4.40%
                                                ==========             ===========           ========            ========
</TABLE>
---------------------
(1)  Includes the Libor Asset Trust investment securities with a book value of
     $20.9 million and $12.3 million at December 31, 1997 and September 30,
     1997, respectively, which were classified due to the performance of the
     underlying collateral. These assets were sold in January 1998.


<TABLE>
<CAPTION>
                                                DECEMBER 31,          SEPTEMBER 30,          JUNE 30,           MARCH 31,
                                                   1996                   1996                 1996                1996
                                                ----------             -----------           --------            --------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                               <C>                     <C>                <C>                 <C>
NPAs:
  Nonaccruing loans.................              $ 36,125                $ 36,480           $ 43,292            $ 40,111
  REO, before REO GVA...............                25,963                  26,216             21,219              23,933
  REO GVA...........................                (1,300)                 (1,000)              (700)               (400)
                                                  --------                --------           --------            --------
     Total NPAs.....................                60,788                  61,696             63,811              63,644
Performing classified loans.........               111,248                 248,967            251,847             222,279
  Other classified assets...........                 2,060                   2,503              3,100               2,979
                                                  --------                --------           --------            --------
     Total classified assets........              $174,096                $313,166           $318,758            $288,902
                                                  ========                ========           ========            ========
NPAs to total assets................                  1.83%                   1.86%              1.94%               1.94%
                                                  ========                ========           ========            ========
Classified assets to total assets...                  5.23%                   9.42%              9.67%               8.81%
                                                  ========                ========           ========            ========
</TABLE>

CREDIT LOSS EXPERIENCE

  Credit losses are inherent in the business of originating and retaining loans.
The portfolio monitoring procedures discussed earlier (see "--Credit
Administration--Loan Portfolio Risk Elements" and "--Loan Monitoring") assist
the Bank in early identification of potential problem loans and losses. The
Bank's loan service and special assets departments are responsible for working
with borrowers to resolve problem loans and minimize credit losses. The Bank's
REO department is responsible for selling properties acquired through
foreclosure.

  The Company establishes allowances for estimated losses on loans and REO which
represent the Company's estimate of identified and unidentified losses in the
Company's portfolios. These estimates, while based upon historical loss
experience and other relevant data, are ultimately subjective and inherently
uncertain. The Company has established valuation allowances for estimated losses
on specific loans and REO ("specific valuation allowances" or "SVA") and for the
inherent risk in the loan and REO portfolios which has yet to be specifically
identified ("general valuation allowances" or "GVA"). SVAs are allocated from
the GVA when, in the Company's judgment, a loan is impaired or REO has declined
in value and the loss is probable and estimable. When these estimated losses are
determined to be permanent, such as when a loan is foreclosed and the related
property is transferred to REO, specific valuation allowances are charged off.

                                       23
<PAGE>

  On January 1, 1994, the Bank adopted SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures." This statement
prescribes the recognition criteria for loan impairment and the measurement
methods for certain impaired loans and loans whose terms are modified in TDRs.
SFAS No. 114 states that a loan is impaired when it is probable that a creditor
will be unable to collect all principal and interest amounts due according to
the contracted terms of the loan agreement. A creditor is required to measure
impairment by discounting expected future cash flows at the loan's effective
interest rate, or by reference to an observable market price, or by determining
the fair value of the collateral for a collateral dependent asset. Regardless of
the measurement method, a creditor shall measure impairment based on the fair
value of the collateral when the creditor determines that foreclosure is
probable. The statement also clarifies the existing accounting for ISFs by
stating that a collateral dependent real estate loan would be reported as REO
only if the lender had taken possession of the collateral.

  In measuring the risk of the loan portfolio, the Bank reviews and classifies
loans through its internal asset review process principally utilizing the LGS.
This process involves the evaluation of loans in order to determine if a SVA
should be placed against those assets which exhibit characteristics of inherent
risk of loss although actual loss may not be certain at the time such an SVA is
established.

  The Company establishes the level of GVA utilizing several models and
methodologies which are based upon a number of factors, including historical
loss experience, the level of nonperforming and internally classified loans, the
composition of the loan portfolio, estimated remaining lives of the various
types of loans within the portfolio, prevailing and forecasted economic
conditions and management's judgment. Additions to GVA, in the form of
provisions, are reflected in current operations.

  The amount of the Bank's allowance for loan losses represents management's
estimate of the amount of loan losses likely to be incurred by the Bank, based
upon various assumptions as to economic and other conditions. As such, the
allowance for loan losses does not represent the amount of such losses that
could be incurred under adverse conditions that management does not consider to
be the most likely to arise. In addition, management's classification of assets
and evaluation of the adequacy of the allowance for loan losses is an ongoing
process. Consequently, there can be no assurance that material additions to the
Bank's allowance for loan losses will not be required in the future, thereby
adversely affecting earnings and the Bank's ability to maintain or build
capital. While management believes that the current allowance is adequate to
absorb the known and inherent risks in the loan portfolio, no assurances can be
given that the allowance is adequate or that economic conditions which may
adversely affect the Bank's market area or other circumstances will not result
in future loan losses, which may not be covered completely by the current
allowance or may require an increased provision which could have a significant
adverse effect on the Bank's financial condition, results of operations and
levels of regulatory capital.

                                       24
<PAGE>

  The following table sets forth the allowance for estimated loan losses broken
out by GVA and SVA for loan or REO at the dates indicated:
<TABLE>
<CAPTION>

                 DECEMBER 31, 1997                      DECEMBER 31, 1996
         =================================    ==================================
             LOANS         REO      TOTAL         LOANS         REO      TOTAL
         -------------   -------   --------   -------------   -------   --------
                                (DOLLARS IN THOUSANDS)
<S>      <C>             <C>       <C>        <C>             <C>       <C>
GVA...     $   32,426     $  500    $32,926     $   25,308     $1,300    $26,608
SVA...         18,112        623     18,735         32,200        781     32,981
           ----------     ------    -------     ----------     ------    -------
           $   50,538(1)  $1,123    $51,661     $   57,508(1)  $2,081    $59,589
           ==========     ======    =======     ==========     ======    =======
</TABLE>
(1) At December 31, 1997 and 1996, the allowance for estimated loan losses
    includes $14.4 million and $16.7 million, respectively, of remaining loan
    GVA and SVA for the Plan. See Item 7. "MD&A--Asset Quality--Accelerated
    Asset Resolution Plan."


  The following table summarizes the activity in the allowance for estimated
loan and REO losses for the periods indicated:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                           ===============================================================
                                              1997         1996         1995          1994         1993
                                           ----------   ----------   -----------   ----------   ----------
                                                               (DOLLARS IN THOUSANDS)
<S>                                        <C>          <C>          <C>           <C>          <C>
Balance at beginning of period..........   $  59,589    $  92,927    $   69,520    $ 101,547    $  80,727
 Provision for estimated loan and REO
  losses................................      14,064       18,829        73,090(2)    74,327       95,300
  Charge-offs...........................     (44,000)     (55,471)      (52,636)     (72,505)     (79,444)
  GVA charged off on bulk sale assets...          --           --            --      (38,391)          --
  Allowances related to acquisition (1).      12,890           --            --           --           --
  Recoveries and other..................       9,118        3,304         2,953        4,542        4,964
                                           ---------    ---------    ----------    ---------    ---------
Balance at end of period................   $  51,661    $  59,589    $   92,927    $  69,520    $ 101,547
                                           =========    =========    ==========    =========    =========
</TABLE>
--------------------------
(1) Included in the estimated loan losses related to the Hancock acquisition is
    $5.8 million associated with the Plan. See Item 7. "MD&A--Asset Quality
    Accelerated Asset Resolution Plan."
(2) Included in the provision for estimated loan losses for 1995 is the $45
    million loan portfolio charge associated with the Plan. See Item 7. "MD&A --
    Asset Quality Accelerated Asset Resolution Plan."

  The following table presents loan and REO charge-offs by property type for the
periods indicated:

<TABLE>
<CAPTION>

                                        YEAR ENDED DECEMBER 31,
                               ==========================================
                                1997     1996     1995     1994     1993
                               ------   ------   ------   ------   ------
                                        (DOLLARS IN MILLIONS)
<S>                            <C>      <C>      <C>      <C>      <C>
Single family...............    $ 3.3    $ 4.3    $ 2.7    $ 4.1    $ 3.5
Multifamily loans:
 2 to 4 units...............      6.3      6.2      5.2      8.6      5.0
 5 to 36 units..............     28.7     33.1     33.9     39.1     44.0
 37 units and over..........      3.6      6.0      8.2     16.3     21.8
                                -----    -----    -----    -----    -----
  Total multifamily.........     38.6     45.3     47.3     64.0     70.8
Commercial and industrial...      2.1      5.8      2.6      4.4      5.1
                                -----    -----    -----    -----    -----
  Total charge-offs.........    $44.0    $55.4    $52.6    $72.5    $79.4
                                =====    =====    =====    =====    =====
</TABLE>

                                       25
<PAGE>

  The following table presents loan and REO recoveries by property type and net
charge-offs for the periods indicated:

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                           ===============================================
                                            1997      1996      1995      1994      1993
                                           -------   -------   -------   -------   -------
                                                       (DOLLARS IN MILLIONS)
<S>                                        <C>       <C>       <C>       <C>       <C>
Single family...........................    $ 2.2     $ 0.6     $ 0.1     $ 0.1     $ 0.4
Multifamily loans:
 2 to 4 units...........................      1.3       0.3       0.1       0.2        --
 5 to 36 units..........................      4.6       1.2       1.8       3.2       3.3
 37 units and over......................      0.2       0.5       0.8       0.7       0.9
                                            -----     -----     -----     -----     -----
  Total multifamily.....................      6.1       2.0       2.7       4.1       4.2
Commercial and industrial...............      0.8       0.7       0.2       0.3       0.4
                                            -----     -----     -----     -----     -----
  Total recoveries......................    $ 9.1     $ 3.3     $ 3.0     $ 4.5     $ 5.0
                                            -----     -----     =====     =====     =====
Total charge-offs, net of recoveries....    $34.9     $52.1     $49.6     $68.0     $74.4
                                            =====     =====     =====     =====     =====
Ratio of net charge-offs during the
 period to average loans outstanding....      1.2%      1.8%      1.6%      1.9%      1.9%
                                            =====     =====     =====     =====     =====
</TABLE>

  Though the southern California economy continues to be characterized by higher
unemployment than the national and state averages and real estate values that,
in some cases, continue to decline, there are indicators that imply the economy
is beginning to recover. There can be no assurances that the southern California
economy will recover in the near term as many factors key to recovery may be
impacted adversely by the Federal Reserve Board's interest rate policy as well
as other factors. Consequently, rents and real estate values may not stabilize,
which may affect future delinquency and foreclosure levels and may adversely
impact the Company's asset quality, earnings performance and capital levels.


FORECLOSURE POLICIES

  The Bank typically initiates foreclosure proceedings between 30 and 90 days
after a borrower defaults on a loan. The proceedings take at least four months
before the collateral for the loan can become property of the Bank, and this
period can be extended under certain circumstances, such as, if the borrower
files bankruptcy or if the Bank enters into negotiations with the borrower to
restructure the loan. In California, foreclosure proceedings almost always take
the form of a nonjudicial foreclosure, upon the completion of which the lender
is left without recourse against the borrower for any deficiency or shortfall
from the difference between the value of the collateral and the amount of the
loan, and in most cases the Bank obtains title to the property. In some cases,
while the foreclosure proceedings are underway, the borrower requests
forbearance from foreclosure in order to have more time to cure the default or
restructure the loan. The Bank agrees to restructure when it determines that the
loan, as modified, is likely to result in a greater ultimate recovery than
taking title to the property. Among the factors the Bank considers in
restructuring a loan is the extent to which the borrower pays down the loan,
furnishes additional collateral or makes a further investment in the property by
way of repairs or refurbishment, and demonstrates an awareness and ability to
manage the property according to a reasonable operating plan.


REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS

  Real estate is acquired in settlement of loans when property collateralizing a
loan is foreclosed upon or otherwise acquired in satisfaction of the loan and
the Bank takes title to the property. Prior to January 1, 1994, certain loans
were also included in REO when they exhibited characteristics more closely
associated with the risk of real estate ownership than with loans. These loans
were designated as ISF if they met the

                                       26
<PAGE>

following criteria: (a) the borrower currently has little or no equity at fair
market value in the underlying collateral, (b) the only source of repayment is
the property securing the loan and (c) the borrower has abandoned the property
or will not be able to rebuild equity in the foreseeable future. As a result of
the adoption of SFAS No. 114, beginning January 1, 1994, loans that meet the
criteria for ISF designation are no longer reported as REO, although they
continue to be valued based on the fair value of the collateral and generally
continue to be included in NPAs.

  The following table presents net REO, including ISFs (prior to 1994), by
property type at the dates indicated:
<TABLE>
<CAPTION>

                                                            DECEMBER 31,
                                   ==============================================================
                                     1997        1996        1995          1994           1993
                                   ---------   ---------   ---------   -------------   ----------
                                                      (DOLLARS IN THOUSANDS)
<S>                                <C>         <C>         <C>         <C>             <C>
    Single family...............    $ 2,611    $  3,185    $  2,952      $      930     $  6,942
    Multifamily:
     2 to 4 units...............      1,091       3,410       2,598             198       10,345
     5 to 36 units..............      5,318      13,574       8,421           4,884       41,177
     37 units and over..........      3,149       1,844          --           1,041       47,565
                                    -------    --------    --------      ----------     --------
        Total multifamily.......      9,558      18,828      11,019           6,123       99,087
    Commercial and industrial...        624       3,950       7,850           7,062       44,559
  REO GVA.......................       (500)     (1,300)     (2,300)             --       (8,442)
                                    -------    --------    --------      ----------     --------
     Total net REO (1)..........    $12,293    $ 24,663    $ 19,521      $   14,115(2)  $142,146
                                    =======    ========    ========      ==========     ========
  Total ISFs included above.....    $    --    $     --    $     --      $       --     $ 28,362
                                    =======    ========    ========      ==========     ========
</TABLE>
-----------------------
(1) Foreclosed real estate is shown net of first trust deed loans to others,
    where applicable.
(2) Bulk sales of REO in the third and fourth quarters of 1994 contributed to
    the significant decrease in REO.

                                       27
<PAGE>

  The following table presents the Bank's real estate acquired in settlement of
loans by location and property type at December 31, 1997.
<TABLE>
<CAPTION>

                                                                          MULTIFAMILY
                                                          ============================================
                                        SINGLE            2 TO 4           5 TO 36            37 UNITS     COMMERCIAL
                                        FAMILY            UNITS             UNITS             AND OVER    & INDUSTRIAL      TOTAL
                                        ------            ------           -------            --------    ------------    ---------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                     <C>              <C>               <C>                <C>         <C>             <C>
California:
 Southern California
  Counties:
  Los Angeles................            $1,086           $  531            $4,213            $  765          $ --          $ 6,595
  Orange.....................               217              452                --                --           624            1,293
  Riverside..................               597               --                78                --            --              675
  San Bernardino.............                92               --               648                --            --              740
  San Diego..................                63               --               379                --            --              442
  Kern.......................               316               --                --                --            --              316
  Ventura                                    68               --                --                --            --               68
                                         ------           ------            ------            ------          ----          -------
                                          2,439              983             5,318               765           624           10,129
                                         ------           ------            ------            ------          ----          -------
 Northern California Counties:
  Sacramento.................                --               --                --             1,844            --            1,844
  Fresno.....................                --              108                --               540            --              648
  Contra Costa...............               172               --                --                --            --              172
                                         ------           ------            ------            ------          ----          -------
                                            172              108                --             2,384            --            2,664
                                         ------           ------            ------            ------          ----          -------
 Total REO...................            $2,611           $1,091            $5,318            $3,149          $624           12,793
                                         ======           ======            ======            ======          ====
REO GVA................................................................................................................        (500)
                                                                                                                            -------
   Total REO, net of GVA...............................................................................................     $12,293
                                                                                                                            =======
</TABLE>

  In the current market, the Bank rarely sells REO for a price equal to or
greater than the gross loan balance, and the losses suffered are impacted by the
market factors discussed elsewhere in this document. REO is recorded at
acquisition at the lower of the recorded investment in the subject loan or the
fair market value of the assets received. The fair market value of the assets
received is based upon a current appraisal adjusted for estimated carrying,
rehabilitation and selling costs. Most income-producing properties acquired by
the Bank through foreclosure are managed by third party contract managers, under
the supervision of Bank personnel.

  During 1997, the Bank sold 318 REO properties with a net book balance of $60.3
million for net sales proceeds of $67.9 million. The Bank made 21 loans in
connection with the sales of these REO properties for a total of $8.4 million
during the year. Of these, one loan in the amount of $1.6 million contained
terms favorable to the borrower that were not available to borrowers for the
purchase of non-REO property.

  During 1996, the Bank sold 203 REO properties with a net book balance of $41.7
million for net sales proceeds of $40.3 million. The Bank made six loans in
connection with the sales of these REO properties for a total of $4.8 million
during the year. Of these, one loan in the amount of $1.1 million contained
terms favorable to the borrower that were not available to borrowers for the
purchase of non-REO property.

  During 1997, the Bank foreclosed on 257 properties with an aggregate gross
loan balance of $75.4 million and acquired 18 properties with an aggregate gross
loan balance of $5.3 million through the acquisition of Hancock. The average
gross book value per asset foreclosed or acquired in 1997 was $0.3 million.
During 1996 and 1995, the Bank foreclosed on 226 and 270 assets with gross loan
balances of $77.6 million and $92.7 million, respectively. The average gross
book balance per asset foreclosed in 1996 and 1995 was $0.3 million.

                                       28
<PAGE>

BULK SALES

  During 1994, the Bank completed bulk sales of $563.3 million of NPAs and other
problem assets. The table below presents the composition of the gross book
balance of assets sold.

<TABLE>
<CAPTION>
                                     PERFORMING   NONACCRUAL
                                       LOANS        LOANS      TDRS      REO      TOTAL
                                     ----------   ----------  -------  --------  --------
                                                   (DOLLARS IN THOUSANDS)
<S>                                  <C>          <C>         <C>      <C>       <C>

Single family residences...........   $  2,766     $ 14,413   $    --  $ 10,856  $ 28,035
Multifamily:
  2 to 4 units.....................      2,947       15,030     1,209    14,081    33,267
  5 units and over.................    138,869       75,725    24,484   146,764   385,842
Commercial and other real estate...     26,612       39,377        --    50,142   116,131
                                      --------     --------   -------  --------  --------
                                      $171,194     $144,545   $25,693  $221,843  $563,275
                                      ========     ========   =======  ========  ========
</TABLE>

  At the date of sale, SVA and writedowns of $116.4 million were associated with
these assets. Net proceeds from the sales were $354.9 million.


TREASURY ACTIVITIES

 Investments

  At December 31, 1997, the Bank maintained an available for sale portfolio to
provide a source of liquid earning assets to meet funding and other
requirements.

  As a consequence of concerns regarding the Bank's ability to maintain minimum
regulatory capital levels to remain adequately capitalized, the Bank
reclassified all held to maturity investment securities and MBSs to its
available for sale portfolio in the second quarter of 1995. Subsequent to their
reclassification, certain available for sale securities were sold within the
quarter. In the third quarter of 1996, the Company identified certain MBSs and
investment securities for which it had the ability and intent to hold to
maturity, and transferred them from its available for sale portfolio to its held
to maturity portfolio, at fair value. In the third quarter 1997, the Company
transferred certain MBSs at fair value from the held to maturity portfolio to
the available for sale portfolio. The transfer was the result of significant
deterioration in the credit worthiness of the borrowers of the underlying loans
collateralizing the securities. See Item 7, "MD&A--Writedown of Mortgage-backed
Securities."

  Fidelity is required by federal regulations to maintain a minimum level of
liquid assets which may be invested in certain government and other specified
securities. See "--Regulation and Supervision--Fidelity--Activities Regulation
Not Related to Capital Compliance." Investment decisions are made within
guidelines approved by Fidelity's Board of Directors. Investment portfolios are
managed in an effort to maximize yields consistent with maintaining safety of
principal and compliance with applicable regulations.

                                       29
<PAGE>

  The securities portfolio consisted of the following at the dates indicated:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                  ------------------------------------------------------------
                                          1997                 1996                1995
                                  --------------------  ------------------  ------------------
                                              WEIGHTED            WEIGHTED            WEIGHTED
                                    AMOUNT      YIELD    AMOUNT     YIELD    AMOUNT     YIELD
                                  ----------  --------  --------  --------  --------  --------
                                                   (DOLLARS IN THOUSANDS)
<S>                               <C>         <C>       <C>       <C>       <C>       <C>
Whole loan investment
 repurchase agreements.......     $   28,000    7.19%   $     --      --%   $     --      --%
Federal funds sold...........             --      --      29,000    7.00          --      --
                                  ----------            --------            --------
                                      28,000    7.19      29,000    7.00          --      --
                                  ----------            --------            --------
Investment securities:
 Available for sale:
  U.S. Government and agency
   obligations...............        100,837    5.53     156,251    6.20      87,184    4.66
  Other investments..........             --      --          --      --       7,471    5.54
                                  ----------            --------            --------
                                     100,837    5.53     156,251    6.20      94,655    4.70
                                  ----------            --------            --------
 Held to maturity:
  Other investments..........          3,189    6.00       5,178    5.77          --      --
                                  ----------            --------            --------
   Total investment
    securities...............        104,026    5.54     161,429    6.19      94,655    4.70
                                  ----------            --------            --------
MBSs:
 Available for sale:
  FHLMC......................         10,275    6.35      62,362    7.87       3,038    5.51
  FNMA.......................        230,509    6.96      55,548    7.24          91    2.72
  GNMA.......................        222,808    6.98      35,680    6.54          --      --
  Participation certificates.         24,860    6.04      25,813    6.72      28,604    7.01
  CMO........................        343,212    7.22          --      --          --      --
  LIBOR Asset Trust..........         20,940    7.47          --      --          --      --
                                  ----------            --------            --------
                                     852,604    7.05     179,403    7.51      31,733    6.85
                                  ----------            --------            --------
 Held to maturity:
  LIBOR Asset Trust..........             --      --      30,024    7.52          --      --
                                  ----------            --------            --------
 Trading:
  GNMA.......................         41,050    6.66      14,121    6.52          --      --
                                  ----------            --------            --------
   Total MBSs................        893,654    7.03     223,548    7.51      31,733    6.85
                                  ----------            --------            --------
FHLB stock...................         60,498    6.10      52,330    6.00      49,425    5.00
                                  ----------            --------            --------
                                  $1,086,178    6.85    $466,307    6.85    $175,813    5.18
                                  ==========            ========            ========
</TABLE>

                                       30
<PAGE>

  The following table summarizes the maturity and weighted average yield of
investment securities at December 31, 1997.

<TABLE>
<CAPTION>
                                                                                          MATURES IN
                                                                      --------------------------------------------
                                                                                                   1999 THROUGH
                                                     TOTAL                      1998                   2002
                                           ------------------------   ----------------------  --------------------
                                                          WEIGHTED                  WEIGHTED              WEIGHTED
                                             AMOUNT         YIELD       AMOUNT        YIELD     AMOUNT     YIELD
                                           ----------    ----------   ---------     --------  ---------  ---------
<S>                                       <C>            <C>         <C>          <C>         <C>        <C>
                                                                    (DOLLARS IN THOUSANDS)
Whole loan investment repurchase
 agreements...........................     $   28,000       7.19%     $ 28,000       7.19%          --         --%
Investment securities:
 U.S. Government and
  agency obligations:
   Available for sale.................        100,837       5.53        65,909       4.92       24,928       6.26
   Held to maturity...................          3,189       6.00         2,171       5.91        1,018       6.19
                                           ----------                 --------               ---------
Total investment securities...........        104,026       5.54        68,080       4.95       25,946       6.26
                                           ----------                 --------               ---------

MBSs:
 Available for sale...................        852,604       7.05       123,732       6.68           --         --
 Trading..............................         41,050       6.66            --         --           --         --
                                           ----------                 --------               ---------
Total MBSs............................        893,654       7.03       123,732       6.68           --         --
                                           ----------                 --------               ---------

FHLB stock............................         60,498       6.10        60,498       6.21           --         --
                                           ----------                 --------               ---------
                                           $1,086,178       6.85      $280,310       6.21      $25,946       6.26
                                           ==========                 ========               =========
</TABLE>

<TABLE>
<CAPTION>
                                                                         MATURES IN
                                                --------------------------------------------------------
                                                        2003  THROUGH                  2008 and
                                                            2007                      THEREAFTER
                                                --------------------------    --------------------------
                                                              WEIGHTED                         WEIGHTED
                                                AMOUNT          YIELD             AMOUNT         YIELD
                                                -------       -----------      -----------     ---------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                             <C>           <C>               <C>           <C>
Whole loan investment repurchase
  agreements..........................        $    --            --%          $      --            --%
Investment securities:
 U.S. Government and
  agency obligations:
   Available for sale.................              --            --              10,000          7.75
   Held to maturity...................              --            --                  --            --
                                              --------       -------            --------      --------
Total investment securities...........                                            10,000          7.75
                                              --------       -------            --------

MBSs:
 Available for sale...................             --             --             728,872          7.11
 Trading..............................             --             --              41,050          6.66
                                              -------        -------            --------
Total MBSs............................             --             --             769,922          7.09
                                              -------        -------            --------
FHLB stock............................             --             --                  --            --
                                              -------        -------            --------
                                              $    --             --            $779,922          7.10
                                              =======                           ========
</TABLE>

SOURCES OF FUNDS

  The Bank derives funds from deposits, FHLB advances, securities sold under
agreements to repurchase, and other short-term and long-term borrowings. In
addition, funds are generated from loan payments and payoffs as well as from the
sale of loans and investments.
                                       31

<PAGE>

 Deposits

  The largest source of funds for the Company is deposits. Customer deposits are
insured by the Federal Deposit Insurance Corporation ("FDIC") to the maximum
amount permitted by law up to $100,000 per account. The Company has several
types of deposit accounts designed to attract both short-term and long-term
deposits. The following table sets forth the weighted average interest rates
paid and the amounts of deposits held at the dates indicated:

<TABLE>
<CAPTION>
                                                  WEIGHTED AVERAGE
                                                       RATES AT                               DEPOSITS AT
                                                     DECEMBER 31,                             DECEMBER 31,
                                             ===========================         ==================================
                                              1997       1996     1995                 1997      1996        1995
                                             -------   -------   -------         ----------  ----------  ----------
                                                                                        (DOLLARS IN THOUSANDS)
<S>                                          <C>       <C>       <C>             <C>         <C>         <C>
Checking--no minimum term:
 NOW......................................   1.7%        1.5%    1.3%            $  232,932  $  214,985  $  232,554
 Money market checking....................   2.8         2.8     2.8                  3,529       2,287       3,363
 Noninterest bearing......................     -           -       -                 99,575      70,439      73,148
Savings--no minimum term:
 Passbook.................................   2.0         2.0     2.0                 67,502      53,665      62,934
 Money market savings.....................   4.2         4.1     3.1                 55,885      65,605      93,901
Certificate accounts:
Original term:
  Less than 3 months......................   3.8         3.5     3.3                  6,033       3,870       7,053
  3 months to 5 months....................   4.8         4.7     4.3                 23,583      22,108      29,258
  6 months to 11 months (1)...............   5.4         5.1     4.9                250,037     223,800     271,951
  12 months to 23 months (1)..............   5.4         5.1     5.6              1,963,318   1,565,662   1,464,757
  24 months to 59 months..................   5.9         6.0     5.5                123,467     117,082     142,454
  60 months and over......................   5.8         6.4     6.7                 65,940     156,430     219,496
                                                                                  ---------   ---------   ---------
Total certificate accounts................   5.4         5.3     5.6              2,432,378   2,088,952   2,134,969
                                                                                  ---------   ---------   ---------
    Total deposits........................   4.8%        4.7%    4.9%            $2,891,801  $2,495,933  $2,600,869
                                                                                 ==========  ==========  ==========
</TABLE>
--------------
(1) At December 31, 1997, there were no accounts with product features including
    withdrawal and deposit options without penalty. Included in the above
    balances at December 31, 1996, and 1995, are $0.1 million, and $771.5
    million, respectively, of certain accounts with product features including
    withdrawal and deposit options without penalty.

    The following tables provide additional deposit information by remaining
    maturity at December 31, 1997.

<TABLE>
<CAPTION>
                                                                             OVER 6     OVER 12    OVER 24
                                                                 OVER 3      MONTHS     MONTHS     MONTHS
                                                                 MONTHS       BUT        BUT       BUT
                                                                 BUT         WITHIN     WITHIN    WITHIN
                                                       WITHIN     WITHIN       12         24        36      OVER 36
                                                      3 MONTHS   6 months    MONTHS     MONTHS    MONTHS    MONTHS     TOTAL
                                                   -----------  ---------  ---------  ---------  -------   --------  ---------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                                <C>          <C>        <C>        <C>        <C>       <C>       <C>
Type of account,
Weighted-average interest rate:
 Passbook, 2.00%.................................. $   67,502   $     --   $     --   $     --  $    --    $    --   $   67,502
 Checking and money market checking, 1.17%........    336,036         --         --         --       --         --      336,036
 Money market passbook, 4.17%.....................     55,885         --         --         --       --         --       55,885
Certificate accounts:
  Under 3.00%.....................................      4,264        277        634         81       49         54        5,359
  3.01--4.00%.....................................      7,618      4,241         93         --       --         --       11,952
  4.01--5.00%.....................................    350,184    130,419    289,660     65,380      177        442      836,262
  5.01--6.00%.....................................    359,482    200,778    533,012    167,076    7,329     20,786    1,288,463
  6.01--7.00%.....................................     32,795     55,084    142,065     31,442    7,086     11,530      280,002
  7.01--8.00%.....................................        423         --         31      8,631      607        243        9,935
  Over 8.01%......................................         --        170         44         80      111         --          405
                                                   ----------   --------   --------   --------   ------    -------   ----------
   Total certificates.............................    754,766    390,969    965,539    272,690   15,359     33,055    2,432,378
                                                   ----------   --------   --------   --------   ------    -------   ----------
   Total deposits................................. $1,214,189   $390,969   $965,539   $272,690  $15,359    $33,055   $2,891,801
                                                   ==========   ========   ========   ========  =======    =======   ==========
</TABLE>

                                      32
<PAGE>

  Certificates of deposit of $100,000 or more totaled $721.2 million and
represented 24.9% of all deposits at December 31, 1997 and totaled $543.3
million and represented 21.8% of all deposits at December 31, 1996. The Company
intends to continue to use such certificates of deposits as a source of funds to
manage its liquidity.

  The following table summarizes certificates of deposits of $100,000 or more by
remaining maturity and weighted average rate at December 31, 1997.

<TABLE>
<CAPTION>
                                                                                                          Weighted
                                                                                     Percent of Total      Average
  Remaining term to maturity (in months)                             AMOUNT             Deposits            Rate
  --------------------------------------                          -----------        ----------------    ----------
                                                                                (Dollars in thousands)
<S>                                                                 <C>                      <C>             <C>
  Within three..............................................        $ 21,881                   0.8%          5.56%
  Over three but within six.................................          12,518                   0.4           5.55
  Over six but within twelve................................          27,208                   0.9           5.58
  Over twelve...............................................         659,599                  22.8           5.61
                                                                    --------                  ----
                                                                    $721,206                  24.9%          5.61
                                                                    ========                  ====
</TABLE>

  The distribution of certificate accounts by date of maturity is an important
indicator of the relative stability of a major source of funds. Longer term
certificate accounts generally provide greater stability as a source of funds,
but currently entail greater interest costs than passbook accounts. The
following tables summarize certificate accounts by maturity, as a percentage of
total deposits and weighted average rate at December 31, 1997:

<TABLE>
<CAPTION>

                                                            DECEMBER 31, 1997
                                              =================================================
                                                                                     Weighted
                                                                  Percent of Total    Average
  Matures in quarter ended:                       Amount             Deposits          Rate
  -------------------------                   --------------      ----------------   ----------
                                                              (Dollars in thousands)
  <S>                                              <C>                 <C>            <C>
  March 31, 1998...........................       $ 754,766              26.1%         5.31%
  June 30, 1998............................         390,969              13.4          5.29
  September 30, 1998.......................         556,261              19.1          5.36
  December 31, 1998........................         409,278              14.2          5.31
  March 31, 1999...........................         128,183               4.4          5.25
  June 30, 1999............................         108,946               3.8          5.22
  September 30, 1999.......................          19,409               0.7          5.28
  December 31, 1999........................          16,152               0.6          5.21
  March 31, 2000...........................           4,395               0.2          5.18
  June 30, 2000............................           4,490               0.2          5.23
  September 30, 2000.......................           2,939               0.1          5.25
  December 31, 2000........................           3,535               0.1          5.23
  After December 31, 2000..................          33,055               1.2          5.49
                                                  ----------             ----
                                                  $2,432,378             84.1%         5.41
                                                  ==========             ====
</TABLE>

  The Bank may, from time to time, utilize brokered deposits as a short-term
means of funding. These deposits are obtained or placed by or through a deposit
broker and are subject to certain regulatory limitations. Should the Bank become
undercapitalized, it would be prohibited from accepting, renewing or rolling
over deposits obtained through a deposit broker. Although the Bank is currently
eligible to accept brokered deposits, at December 31, 1997, 1996 and 1995, no
brokered deposits were outstanding. See "--Regulation and Supervision--Fidelity-
-Capital Requirements and Capital Categories--Mandatory Restrictions on
Undercapitalized Institutions."

                                       33
<PAGE>

 Borrowings

  The Company utilizes FHLB advances as a source of funds for operations. The
FHLB System functions as a source of credit to financial institutions which are
members of a Federal Home Loan Bank. See "--Regulation and Supervision--Federal
Home Loan Bank System." Fidelity may apply for advances from the FHLB secured by
the capital stock of the FHLB owned by Fidelity and certain of Fidelity's
mortgages and other assets (principally obligations issued or guaranteed by the
U.S. Government or agencies thereof). Advances can be requested for any business
purpose in which Fidelity is authorized to engage, except that advances with a
term greater than five years can be granted only for the purpose of providing
funds for residential housing finance. In granting advances, the FHLB considers
a member's creditworthiness and other relevant factors. FHLB advances to
Fidelity totaled $1.0 billion and $449.9 million at December 31, 1997 and 1996,
respectively. The increase in FHLB advances of $550.1 million in 1997 is
primarily due to the Company's business strategy to grow assets. See Item 7. "MD
& A--Asset Growth". Included in the FHLB advances outstanding at December 31,
1997 were advances of $400.0 million backed by specifically pledged securities.
Fidelity's available FHLB line of credit is based primarily on a portion of
Fidelity's residential loan portfolio pledged for such purpose, up to a maximum
of 35% of total assets. The commercial paper program expired on August 5, 1997
and was not renewed by the decision of the Bank. Based on the total collateral
pledged as of December 31, 1997, Fidelity's remaining available FHLB line of
credit was $359.9 million.

  The Company has utilized the capital markets to obtain funds for its
operations. The only such borrowing outstanding during 1997 and 1996 was an
8.50% mortgage-backed medium-term note, Series A, due April 15, 1997 (the
"MTN"). The Bank retired its $100 million mortgage-backed bonds on April 15,
1997. The funds were replaced with FHLB advances.

  On July 18, 1997, the Company issued approximately $51.5 million of its Senior
Notes in exchange for the outstanding shares of Series A Preferred Stock issued
by Fidelity in 1995. Holders of approximately 11,000 shares of the Series A
Preferred Stock elected not to exchange their stock for Senior Notes and are
reflected as preferred stock issued by consolidated subsidiary on the Statement
of Financial Condition as of December 31, 1997.

  From time to time, Fidelity enters into reverse repurchase agreements by which
it sells securities with an agreement to repurchase the same securities at a
specific future date (overnight to one year). The Company deals only with
dealers who are recognized as primary dealers in U.S. Treasury securities by the
Federal Reserve Board or perceived by management to be financially strong. There
were no reverse repurchase agreements outstanding at December 31, 1997 or 1996.

                                       34
<PAGE>

  The following table sets forth certain information as to the Company's FHLB
advances and other borrowings at the dates indicated:
<TABLE>
<CAPTION>

                                                        DECEMBER 31,
                                           ======================================
                                               1997          1996         1995
                                           ------------   ----------   ----------
                                                  (DOLLARS IN THOUSANDS)
<S>                                        <C>            <C>          <C>
FHLB advances:
 Fixed rate advances....................    $  835,000     $237,151     $ 80,000
 Floating rate advances.................       174,960      212,700      212,700
                                            ----------     --------     --------
                                             1,009,960      449,851      292,700
                                            ----------     --------     --------
Other borrowings:
 Senior notes...........................        51,478           --           --
 Mortgage-backed notes..................            --      100,000      100,000
 Commercial paper.......................            --       40,000       50,000
                                            ----------     --------     --------
                                                51,478      140,000      150,000
                                            ----------     --------     --------
 Total borrowings.......................    $1,061,438     $589,851     $442,700
                                            ==========     ========     ========
 Weighted average interest rate on all
  borrowings............................          6.13%        6.02%        6.05%
                                            ==========     ========     ========
 Percent of total borrowings to total
  liabilities and stockholders'
  equity................................         25.46%       17.71%       13.42%
                                            ==========     ========     ========
</TABLE>
INTEREST RATE RISK MANAGEMENT

  The Asset/Liability Committee ("ALCO") of the Bank management convenes
periodically to manage the interest rate risk exposure of the Bank. For a
discussion of the Bank's management of interest rate risk, see Item 7. "MD&A--
Asset/Liability Management."


COMPETITION

  The Company believes that the traditional role of thrift institutions as the
nation's primary housing lenders has diminished, and that thrift institutions
are subject to increasing competition from commercial banks, mortgage bankers
and others for both depositor funds and lending opportunities. In addition, with
assets of approximately $4.2 billion at December 31, 1997, the Company faces
competition from a number of substantially larger institutions. The ability of
thrift institutions, such as Fidelity, to compete by diversifying into lending
activities other than real estate lending and by offering investments other than
deposit-like investments is subject to certain regulatory and legal
restrictions. The ability of thrift institutions to compete is also limited by
their lack of experience in such other activities. However, the Company believes
these nontraditional activities and the related fee income is vital for future
success. See "--Business Strategy."

  The Company faces significant competition in attracting savings deposits and
in originating loans as many of the nation's largest depository and other
financial institutions are headquartered or have a significant number of
branches in the areas where Fidelity conducts its business. Competition for
customers' funds comes principally from other savings and thrift institutions,
commercial banks, mutual funds, insurance companies, credit unions, corporate
and government debt securities, pension funds and investment banks and
investment brokerage firms. The principal basis of competition for investable
funds is the interest rate paid or effective return, the perceived credit risk
and the quality, types, and costs of services offered. In addition to offering
competitive rates and terms, the Company attracts customers through advertising,
readily accessible office locations, the diversity of its products, and the
quality of its customer service. Management believes that in the past the
Company's financial condition has, in some cases, also hindered its ability to
attract and retain employees.

  Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal

                                       35
<PAGE>

Act"), commercial banks will be able to open branch offices outside of their
home state after June 1, 1997, although the extent of their ability to branch
into a new state will depend on the law of the state. California adopted an
early "opt-in" statute that was effective on October 2, 1995. The new
legislation permits out-of-state banks to acquire California banks that satisfy
a five-year minimum age requirement (subject to exceptions for supervisory
transactions) by means of merger or purchases of assets, although entry through
acquisition of individual branches of California institutions and "de novo"
branching into California are not permitted. The Riegle-Neal Act and the
California branching statute will likely increase competition from out-of-state
banks in the markets in which Fidelity operates.

  Effective January 1, 1997 through June 30, 1997, the FDIC lowered risk based
deposit insurance premiums for Savings Association Insurance Fund ("SAIF")
insured depository institutions to a range of 0 to 27 basis points. The new
rates are identical to those effective for Bank Insurance Fund ("BIF") member
institutions and eliminate the previously existing premium differential (23
basis points for institutions in the lowest risk category), which was
competitively disadvantageous to SAIF members. However, assessment rates to pay
interest on Financing Corporation bonds incurred in an effort to recapitalize
the former Federal Savings and Loan Insurance Corporation (the "FSLIC") are
higher for SAIF members (6.48 basis points for the first six months of 1997)
than for BIF members (1.3 basis points for such period). By law the Financing
Corporation assessment rate for BIF members is required to be one-fifth the rate
for SAIF members until the earlier of January 1, 2000 or such time as the two
insurance funds may be merged.

EMPLOYEES

  At December 31, 1997, the Company had 644 employees (including both full-time
and part-time employees) with 506 average full-time equivalent ("FTEs") for the
1997 year and 563 FTEs for the month of December 1997, none of whom were
represented by a collective bargaining group. Eligible employees are provided
with 401(k) and other benefits, including life, medical, dental, vision
insurance and short and long-term disability insurance.

  The Company increased total employee headcount during 1997 by 105 to achieve
organizational goals involving the acquisition of Hancock and changes in product
and strategic focus. Areas which experienced employee increases in 1997 included
the Retail Financial Services Group (an increase of 74 employees), the Consumer
Lending and Credit Group (an increase of 13 employees), the Gateway Investment
Services Group (an increase of 13 employees), and other administrative services
(an increase of 5 employees). In line with the Company's business strategy, it
is anticipated that the FTE count of the Company will significantly increase in
the future as the business strategy is implemented.

REGULATION AND SUPERVISION

 General

  Bank Plus is a savings and loan holding company and, as such, is subject to
the Office of Thrift Supervision (the "OTS") regulation, examination,
supervision and reporting requirements. Fidelity is a federally chartered
savings bank, a member of the FHLB of San Francisco, and its deposits are
insured by the FDIC through the SAIF to the maximum extent permitted by law.
Fidelity is subject to extensive regulation by the OTS, as its chartering
agency, and by the FDIC, as its deposit insurer. In addition to the statutes and
regulations discussed below, Fidelity must undergo at least one full scope, on-
site safety and soundness examination every year. The Director of the OTS is
authorized to impose assessments on Fidelity to fund OTS operations, including
the cost of examinations. The FDIC has "back-up" authority to take enforcement
action against Fidelity if the OTS fails to take such action after a
recommendation by the FDIC. The FDIC may also impose assessments on Fidelity to
cover the cost of FDIC examinations. Finally, Fidelity is subject

                                       36
<PAGE>

to regulation by the Board of Governors of the Federal Reserve System ("FRB")
with respect to certain aspects of its business.

  Changes in legislation and regulatory policy and the interpretations thereof
have materially affected the business of the Company and other financial
institutions in the past and are likely to do so in the future. There can be no
assurance that future changes in the regulations or their interpretation will
not adversely affect the business of Fidelity. Future legislation and regulatory
policy could also alter the structures and competitive relationships among
financial institutions. Regulatory authorities also have the power, in certain
circumstances, to prohibit or limit the payment of dividends or other
distributions by Fidelity. In addition, certain regulatory actions, including
general increases in federal deposit insurance premiums, additional insurance
premium assessments to recapitalize the SAIF or the application of the risk-
based insurance premium system to Fidelity, may increase Fidelity's operating
expenses in future periods and may have a material adverse impact on Fidelity's
capital levels and results of operations.

 Bank Plus Regulation

  Bank Plus is a unitary savings and loan holding company within the meaning of
the Home Owners' Loan Act of 1933, as amended ("HOLA"). As such, Bank Plus is
required to be registered with the OTS and is subject to OTS regulations,
examinations, supervision and reporting requirements. Among other things, the
OTS has enforcement authority which permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
institution.

  Activities Restrictions. There are generally no restrictions on the activities
of a unitary savings and loan holding company. However, if the savings
institution subsidiary of such a holding company fails to meet the qualified
thrift lender ("QTL") test, then such unitary holding company also will become
subject to the activities restrictions applicable to multiple savings and loan
holding companies and, unless the savings institution requalifies as a QTL
within one year thereafter, will have to register as, and become subject to the
restrictions applicable to, a bank holding company. See "--Fidelity--Activities
Regulation Not Related to Capital Compliance."

  If Bank Plus were to acquire control of another savings institution, other
than through merger or other business combination with Fidelity, Bank Plus would
thereupon become a multiple savings and loan holding company. Except under
limited circumstances, the activities of Bank Plus and any of its subsidiaries
(other than Fidelity or other subsidiary savings institutions) would thereafter
be subject to further extensive limitations. In general, such holding company
would be limited primarily to activities permissible for bank holding companies
under the Bank Holding Company Act and other activities in which multiple
savings and loan companies were authorized by regulation to engage as of March
5, 1987.

  Restrictions on Acquisitions. Except under limited circumstances, savings and
loan holding companies are prohibited from acquiring, without prior approval of
the Director of the OTS, (i) control of any other savings institution or savings
and loan holding company or substantially all the assets thereof or (ii) more
than 5% of the voting shares of a savings institution or holding company thereof
which is not a subsidiary. Except with the prior approval of the Director of the
OTS, no director or officer of a savings and loan holding company or person
owning or controlling by proxy or otherwise more than 25% of such company's
stock, may acquire control of any savings institution, other than a subsidiary
savings institution, or of any other savings and loan holding company.

  The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to

                                       37
<PAGE>

acquire control of the savings institution pursuant to the emergency acquisition
provisions of the Federal Deposit Insurance Act ("FDIA"); or (iii) the statutes
of the state in which the institution to be acquired by the state-chartered
institutions or savings and loan holding companies located in the state where
the acquiring entity is located (or by a holding company that controls such
state-chartered savings institutions).

 Fidelity Regulation--Capital Requirements and Capital Categories

  FIRREA Capital Requirements. The OTS capital regulations, as required by the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"),
include three separate minimum capital requirements for the savings institution
industry--a "tangible capital requirement," a "leverage limit" and a "risk-based
capital requirement." These capital standards must be no less stringent than the
capital standards applicable to national banks. The OTS also has the authority,
after giving the affected institution notice and an opportunity to respond, to
establish an individual minimum capital requirement ("IMCR") for a savings
institution which is higher than the industry minimum requirements, upon a
determination that an individual minimum capital requirement is necessary or
appropriate in light of the institution's particular circumstances, such as if
the institution is expected to have losses resulting in capital inadequacy, has
a high degree of exposure to credit risk, has a high amount of nonperforming
loans, has a high degree of exposure to concentration of credit risk or risks
arising from nontraditional activities, or fails to adequately monitor and
control the risks presented by concentration of credit and nontraditional
activities.

  The industry minimum capital requirements are as follows:

  Tangible capital of at least 1.5% of adjusted tangible assets. Tangible
capital is composed of (1) common stockholders' equity, noncumulative perpetual
preferred stock and related earnings, nonwithdrawable accounts and pledged
deposits qualifying as core capital and minority interests in the equity
accounts of fully consolidated subsidiaries, after deducting (a) intangible
assets other than certain purchased or originated mortgage servicing rights,
(b) equity and debt investments in subsidiaries engaged in activities not
permissible for a national bank (except as otherwise provided), and (c) the
amount by which investments in subsidiaries engaged as principal in activities
not permissible for national banks exceeds the amount of such investments as of
April 12, 1989 and the lesser of the institution's investments in and extensions
of credit to such subsidiaries, net of any reserves established against such
investments, (i) as of April 12, 1989 and (ii) as of the date on which the
institution's tangible capital is being determined. In general, adjusted
tangible assets equal the institution's consolidated tangible assets, minus any
assets that are deducted in calculating capital.

  Core capital of at least 3% of adjusted tangible assets (the "leverage
limit"). Core capital consists of tangible capital plus (1) qualifying goodwill
resulting from pre-April 12, 1989 acquisitions of troubled savings institutions
and (2) certain qualifying intangible assets and mortgage servicing rights.
Certain deferred tax assets must also be deducted from core capital.

  Total capital of at least 8% of risk-weighted assets (the "risk-based capital
requirement"). Total capital includes both core capital and "supplementary"
capital items deemed less permanent than core capital, such as subordinated debt
and general loan loss allowances (subject to certain limits). Equity investments
(with the exception of investments in subsidiaries and investments permissible
for national banks) and portions of certain high-risk land loans and
nonresidential construction loans must be deducted from total capital. At least
half of total capital must consist of core capital.

  Risk-weighted assets are determined by multiplying each category of an
institution's assets, including off balance sheet asset equivalents, by an
assigned risk weight based on the credit risk associated with those assets, and
adding the resulting products. The four risk weight categories range from 0% for
cash and government securities to 100% for assets (including past-due loans and
real estate owned) that do not qualify for preferential risk-weighting.

                                       38
<PAGE>

  On March 18, 1994, the OTS published a final regulation effective on that date
that permits a loan secured by multifamily residential property, regardless of
the number of units, to be risk-weighted at 50% for purposes of the risk-based
capital standards if the loan meets specified criteria relating to the term of
the loan, timely payments of interest and principal, loan-to-value ratio and
ratio of net operating income to debt service requirements. Under the prior
regulation, only loans secured by multifamily residential properties consisting
of 5 to 36 units were eligible for risk-weighting at 50%, and then only if such
loans had a loan-to-value ratio at origination of not more than 80% and the
collateral property had an average annual occupancy rate of at least 80% for a
year or more.

  Any loans that qualified for risk-weighting under the prior regulation as of
March 18, 1994 will be "grandfathered" and will continue to be risk-weighted at
50% as long as they continue to meet the criteria of the prior regulation. Thus
occupancy rates, which recently have been decreasing generally, will continue to
affect the risk-weighting of such grandfathered multifamily loans unless such
loans qualify for 50% risk-weighting under the criteria of the new rule, which
criteria do not include an occupancy requirement.

  Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the OTS was required to revise its risk-based capital standards to
ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and risks of nontraditional activities. The OTS has
incorporated an interest rate risk component into its regulatory capital rule.
Under the rule, savings institutions with "above normal" interest rate risk
exposure would be subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. An institution whose interest
rate risk exposure (measured as set forth in the rule) exceeded 2% would be
required to deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2% multiplied by the estimated economic value of the
bank's assets. That dollar amount would be deducted from a bank's total capital
in calculating compliance with its risk-based capital requirement. Under the
rule, there is a lag between the reporting date of an institution's financial
data and the effective date for the new capital requirement based on that data.
The rule also provides that the Director of the OTS may waive or defer a bank's
interest rate risk component on a case-by-case basis. The OTS has postponed the
implementation of the new rule until the OTS has collected sufficient data to
determine whether the rule is effective in monitoring and managing interest rate
risk. No interest rate risk component would have been required to be added to
the Bank's risk-based capital requirement at December 31, 1997 had the rule been
in effect at that time.

  FDICIA Prompt Correction Action Regulations. FDICIA required the OTS to
implement a system requiring regulatory sanctions against institutions that are
not adequately capitalized, with the sanctions growing more severe the lower the
institution's capital. The OTS has established specific capital ratios under the
Prompt Corrective Action ("PCA") Regulations for five separate capital
categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.

  Under the OTS regulations implementing FDICIA, an institution is treated as
well capitalized if its ratio of total capital to risk-weighted assets is at
least 10.0%, its ratio of core capital to risk-weighted assets is at least 6.0%,
its ratio of core capital to adjusted tangible assets is at least 5.0%, and it
is not subject to any order or directive by the OTS to meet a specific capital
level. An institution will be adequately capitalized if its ratio of total
capital to risk-weighted assets is at least 8.0%, its ratio of core capital to
risk-weighted assets is at least 4.0%, and its ratio of core capital to adjusted
tangible assets (leverage ratio) is at least 4.0% (3.0% if the institution
receives the highest rating on the OTS financial institutions rating system).

  An institution whose capital does not meet the amounts required in order to be
adequately capitalized will be treated as undercapitalized. If an
undercapitalized institution's capital ratios are less than 6.0% total capital
to risk-weighted assets, 3.0% core capital to risk-weighted assets, or 3.0% core
capital to adjusted tangible assets, it will be treated as significantly
undercapitalized. Finally, an institution will be treated as critically
undercapitalized if its ratio of "tangible equity" (core capital plus cumulative
perpetual preferred

                                       39
<PAGE>

stock minus intangible assets other than supervisory goodwill and certain
originated and purchased mortgage servicing rights) to adjusted tangible assets
is equal to or less than 2.0%. At December 31, 1997, the Bank was well
capitalized. See Item 7. "MD&A--Regulatory Capital Compliance."

  Mandatory Restrictions on Undercapitalized Institutions. There are numerous
mandatory restrictions on the activities of undercapitalized institutions. An
institution that is undercapitalized must submit a capital restoration plan to
the OTS that the OTS may approve only if it determines that the plan is likely
to succeed in restoring the institution's capital and will not appreciably
increase the risks to which the institution is exposed. In addition, the
institution's performance under the plan must be guaranteed by every company
that controls the institution, up to specified limits. An institution that is
undercapitalized may not acquire an interest in any company, open a new branch
office or engage in a new line of business without OTS or FDIC approval. An
undercapitalized institution also may not increase its average total assets
during any quarter except in accordance with an approved capital restoration
plan. An undercapitalized savings institution generally may not pay any
dividends or make other capital distributions. Undercapitalized institutions
also may not pay management fees to any company or individual that controls the
institution. An undercapitalized savings institution cannot accept, renew, or
rollover deposits obtained through a deposit broker, and may not solicit
deposits by offering interest rates that are more than 75 basis points higher
than market rates. Savings institutions that are adequately capitalized but not
well capitalized must obtain a waiver from the FDIC in order to accept, renew,
or rollover brokered deposits, and even if a waiver is granted may not solicit
deposits, through a broker or otherwise, by offering interest rates that exceed
market rates by more than 75 basis points. The Bank is currently eligible to
accept brokered deposits.

  Restrictions on Significantly and Critically Undercapitalized Institutions. In
addition to the above mandatory restrictions which apply to all undercapitalized
savings institutions, institutions that are significantly undercapitalized may
not without the OTS' prior approval (a) pay a bonus to any senior executive
officer or (b) increase any senior executive officer's compensation over the
average rate of compensation (excluding bonuses, options and profit-sharing)
during the 12 months preceding the month in which the institution became
undercapitalized. The same restriction applies to undercapitalized institutions
that fail to submit or implement an acceptable capital restoration plan. If a
savings institution is critically undercapitalized, the institution is also
generally prohibited from making payments of principal or interest on
subordinated debt beginning 60 days after the institution becomes critically
undercapitalized. In addition, the institution cannot without prior FDIC
approval enter into any material transaction outside the ordinary course of
business. Critically undercapitalized savings institutions must be placed in
receivership or conservatorship within 90 days of becoming critically
undercapitalized unless the OTS, with the concurrence of the FDIC, determines
that some other action would better resolve the problems of the institution at
the least possible long-term loss to the insurance fund, and documents the
reasons for its determination.

  Discretionary Sanctions. With respect to an undercapitalized institution, the
OTS, under certain circumstances, has the authority, among other things, to
order the institution to recapitalize by selling shares of capital stock or
other securities, order the institution to agree to be acquired by another
depository institution holding company or combine with another depository
institution, restrict transactions with affiliates, restrict the interest rates
paid by the institution on new deposits to the prevailing rates of interest in
the region where the institution is located, require the institution to divest
any subsidiary or the institution's holding company to divest the institution or
any other subsidiary or take any other action that the OTS determines will
better resolve the institution's problems at the least possible loss to the
deposit insurance fund. With respect to significantly undercapitalized
institutions and certain undercapitalized institutions, the OTS must take
certain of the above mentioned actions.

  In addition to the mandatory appointment of a conservator or receiver for
critically undercapitalized institutions, described above, the OTS or FDIC may
appoint a receiver or conservator for an undercapitalized institution if it (a)
has no reasonable prospect of becoming adequately capitalized, (b) fails to
submit a capital restoration plan within the required time period or (c)
materially fails to implement its capital restoration

                                       40
<PAGE>

plan.

  Finally, the OTS can apply to an institution in a particular capital category
the sanctions that apply to the next lower capital category, if the OTS
determines, after providing the institution notice and opportunity for a
hearing, that (a) the institution is in an unsafe or unsound condition or (b)
the institution received, in its most recent report of examination, a less-than-
satisfactory rating for asset quality, management, earnings or liquidity, and
the deficiency has not been corrected. The OTS cannot, however, use this
authority to require an adequately capitalized institution to file a capital
restoration plan, or to subject a significantly undercapitalized institution to
the sanctions applicable to critically undercapitalized institutions.

 Fidelity Regulation--Activities Regulation Not Related to Capital Compliance

  Safety and Soundness Standards. In addition to the PCA provisions discussed
above based on an institution's regulatory capital ratios, FDICIA contains
several measures intended to promote early identification of management problems
at depository institutions and to ensure that regulators intervene promptly to
require corrective action by institutions with inadequate operational and
managerial standards.

  FDICIA requires the OTS to prescribe minimum acceptable operational and
managerial standards, and standards for asset quality, earnings, and valuation
of publicly traded shares, for savings institutions and their holding companies.
The operational standards must cover internal controls, loan documentation,
credit underwriting, interest rate exposure, asset growth and employee
compensation. The asset quality and earnings standards must specify a maximum
ratio of classified assets to capital, minimum earnings sufficient to absorb
losses, and minimum ratio of market value to book value for publicly traded
shares.

  Any institution or holding company that fails to meet the standards must
submit a plan for corrective action within 30 days. If a savings institution
fails to submit or implement an acceptable plan, the OTS must order it to
correct the safety and soundness deficiency, and may restrict its rate of asset
growth, prohibit asset growth entirely, require the institution to increase its
ratio of tangible equity to assets, restrict the interest rate paid on deposits
to the prevailing rates of interest on deposits of comparable amounts and
maturities, or require the institution to take any other action that the OTS
determines will better carry out the purpose of prompt corrective action.
Imposition of these sanctions is within the discretion of the OTS in most cases
but is mandatory if the savings institution commenced operations or experienced
a change in control during the 24 months preceding the institution's failure to
meet the safety and soundness standards, or underwent extraordinary growth
during the preceding 18 months.

  The OTS has adopted guidelines for operational and managerial standards
relating to internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits and excessive
compensatory arrangements for executive officers, employees, directors or
principal shareholders.

  In addition, each depository institution with assets above $500 million must
annually prepare a report, signed by the chief executive officer and chief
financial officer, on the effectiveness of the institution's internal control
structures and procedures for financial reporting, and on the institution's
compliance with laws and regulations relating to safety and soundness. The
institution's independent public accountant must attest to, and report
separately on, management's assertions in that report. The report and the
attestations, along with financial statements and such other disclosure
requirements as the FDIC and the OTS may prescribe, must be submitted to the
FDIC and the OTS. Such institutions must also have an audit committee of its
Board of Directors made up entirely of directors who are independent of the
management of the institution. Audit committees of "large" institutions (defined
by the FDIC as an institution with more than $3

                                       41
<PAGE>

other billion in assets, which includes Fidelity) must include members with
banking or financial management expertise, may not include members who are large
customers of the institution, and must have access to independent counsel.

  In May 1997, the OTS completed its annual safety and soundness examination and
the Company has addressed the OTS' recommendations.

  Qualified Thrift Lender Test. The qualified thrift lender ("QTL") test
requires that, in at least nine out of every twelve months, at least 65% of a
savings bank's "portfolio assets" must be invested in a limited list of
qualified thrift investments, primarily investments related to housing loans. If
Fidelity fails to satisfy the QTL test and does not requalify as a QTL within
one year, any entity in control of Fidelity must register and be regulated as a
bank holding company, and Fidelity must either convert to a commercial bank
charter or become subject to restrictions on branching, business activities and
dividends as if it were a national bank. Portfolio assets consist of tangible
assets minus (a) assets used to satisfy liquidity requirements and (b) property
used by the institution to conduct its business. In 1996, the Economic Growth
and Regulatory Paperwork Reduction Act ("EGRPRA") was adopted, amending the QTL
requirements to allow educational loans, small business loans and credit card
loans to count as qualified thrift assets without limit and to allow loans for
personal, family or household purposes to count as qualified thrift assets in
the category limited to 20% of portfolio assets. Prior to EGRPRA, small business
loans were included in qualified thrift assets only if made in a credit-needy
area and educational and credit card loans were included subject to a 10% of
portfolio assets limit. The previous limit for loans for personal, family or
household purposes was also 10% of portfolio assets. Finally, EGRPRA provided
that as an alternative to the QTL test, thrifts may choose to comply with the
Internal Revenue Service's domestic building and loan tax code test.

  Investments and Loans. In general, federal savings institutions such as
Fidelity may not invest directly in equity securities, noninvestment grade debt
securities or real estate, other than real estate used for the institution's
offices and related facilities. Indirect equity investment in real estate
through a subsidiary is permissible, but subject to certain limitations and
deductions from regulatory capital. Loans by a savings institution to a single
borrower are generally limited to 15% of an institution's "unimpaired capital
and unimpaired surplus," which is similar but not identical to total capital.
Aggregate loans secured by nonresidential real property are generally limited to
400% of an institution's total capital. Commercial loans may not exceed 10% of
an institution's total assets, and consumer loans may not exceed 35% of an
institution's total assets.

  Activities of Subsidiaries. A savings institution seeking to establish a new
subsidiary, acquire control of an existing company or conduct a new activity
through an existing subsidiary must provide 30 days prior notice to the FDIC and
OTS. A subsidiary of Fidelity may be able to engage in activities that are not
permissible for Fidelity directly, if the OTS determines that such activities
are reasonably related to Fidelity's business, but Fidelity may be required to
deduct its investment in such a subsidiary from capital. The OTS has the power
to require a savings institution to divest any subsidiary or terminate any
activity conducted by a subsidiary that the OTS determines to be a serious
threat to the financial safety, soundness or stability of such savings
institution or to be otherwise inconsistent with sound banking practices.

  Real Estate Lending Standards. The OTS and the other federal banking agencies
have adopted regulations which require institutions to adopt and at least
annually review written real estate lending policies. The lending policies must
include diversification standards, underwriting standards (including loan-to-
value limits), loan administration procedures, and procedures for monitoring
compliance with the policies. The policies must reflect consideration of
guidelines adopted by the banking agencies. Among the guidelines adopted by the
agencies are maximum loan-to-value ratios for unimproved land loans (65%);
development loans (75%); construction loans (80%-85%); loans on owner-occupied 1
to 4 family property, including home equity lines of credit (no limit, but loans
at or above 90% require private mortgage insurance); and loans on other

                                       42
<PAGE>

improved property (85%). The guidelines permit institutions to make loans in
excess of the supervisory loan-to-value limits if such loans are supported by
other credit factors, but the aggregate of such nonconforming loans should not
exceed the institution's risk-based capital, and the aggregate of nonconforming
loans secured by real estate other than 1 to 4 family property should not exceed
30% of risk-based capital.

  Notification of New Officers and Directors. A federal savings bank that has
undergone a change in control in the preceding two years, is subject to a
supervisory agreement with the OTS or is deemed to be in "troubled condition" by
the OTS, must give the OTS 30 days notice prior to any change in its Board of
Directors or its senior executive officers. The OTS must disapprove such change
if the competence, experience or integrity of the affected individual indicates
that it would not be in the best interests of the public to permit the
appointment. Fidelity is not currently subject to this notice requirement.

  Payment of Dividends and Other Capital Distributions. The payment of
dividends, stock repurchases, and other capital distributions by Fidelity to
Bank Plus is subject to regulation by the OTS. Currently, 30 days' prior notice
to the OTS of any capital distribution is required.

  The OTS has promulgated a "safe-harbor" regulation that permits capital
distributions of certain amounts after providing notice to the OTS, but without
prior approval. Institutions can distribute amounts in excess of the safe harbor
only with the prior approval of the OTS. For institutions ("Tier 1
institutions") that meet their fully phased-in capital requirements (the
requirements that will apply when the phase-out of supervisory goodwill and
investments in certain subsidiaries from capital is complete), the safe harbor
amount is the greater of (a) 75% of net income for the prior four quarters, or
(b) the sum of (1) the current year's net income and (2) the amount that would
reduce the excess of the institution's total capital to risk-weighted assets
ratio over 8% to one-half of such excess at the beginning of the year in which
the dividend is paid. For institutions that meet their current minimum capital
requirements but do not meet their fully phased-in requirements ("Tier 2
institutions"), the safe harbor distribution is 75% of net income for the prior
four quarters reduced by prior distributions during the period. Savings
institutions that do not meet their current minimum capital requirements before,
or on a pro forma basis after giving effect to a proposed distribution, ("Tier 3
institutions") may not make any capital distributions, with certain exceptions.
At December 31, 1997, Fidelity was a Tier 1 institution.

  The OTS retains the authority to prohibit any capital distribution otherwise
authorized under the regulation if the OTS determines that the distribution
would constitute an unsafe or unsound practice. The OTS also may reclassify a
Tier 1 institution as a Tier 2 or Tier 3 institution by notifying the
institution that it is in need of more than normal supervision. Further, an
adequately capitalized institution may not make a capital distribution if such
payment would cause the institution to become undercapitalized.

  The OTS recently revised its proposed ruemaking to amend the capital
distribution rule to conform to the PCA system. Under the proposed rule, an
institution would be able to make a capital distribution (i) without prior
notice to the OTS if it is not owned by a savings and loan holding company and,
after the proposed capital distribution, will remain at least "adequately
capitalized," the distribution would not reduce the amount of common or
preferred stock or retire debt that is included in capital, and the distribution
would not otherwise violate any statutory regulatory or other prohibition; (ii)
without an application if the institution has a composite rating of "1" or "2",
is otherwise elegible for expedited treatment and the distribution does not
exceed a specified amount; and (iii) without notice or application if all of the
conditions specified above are met. If the regulation is adopted as proposed,
Fidelity would still be required to obtain OTS approval prior to making a
capital distribution.

  Required Liquidity. OTS regulations require savings institutions to maintain,
for each calendar quarter, an average daily balance of liquid assets (including
cash, certain time deposits, bankers' acceptances, certain mortgage-related
securities, certin loans secured by first liens on residential property,
specified United States government, state and federal agency obligations, and
balances maintained in satisfaction of the FRB reserve requirements described
below) equal to at least 4% of either (i) the prior quarter end

                                       43
<PAGE>

balance of its net withdrawable accounts due in one year or less plus borrowings
due in one year or less (the "liquidity base") or (ii) the average daily balance
of the liquidity base during the prior calendar quarter. In addition, savings
institutions must comply with a general non-quantitative requirement to maintain
a safe and sound level of liquidity. The OTS may change this liquidity
requirement from time to time to an amount within a range of 4% to 10% of such
accounts and borrowings depending upon economic conditions and the deposit flows
of member institutions, and may exclude from the definition of liquid assets any
item other than cash and the balances maintained in satisfaction of FRB reserve
requirements. Fidelity's average regulatory liquidity ratio for the fourth
quarter of 1997 was 22.75%, and accordingly Fidelity was in compliance with the
liquidity requirement. Monetary penalties may be imposed for failure to meet
liquidity ratio requirements.

  Classification of Assets. Savings institutions are required to classify their
assets on a regular basis, to establish appropriate allowances for losses and
report the results of such classification quarterly to the OTS. A savings
institution is also required to set aside adequate valuation allowances, and to
establish liabilities for off-balance sheet items, such as letters of credit,
when a loss becomes probable and estimable. The OTS has the authority to review
the institution's classification of its assets and to determine whether
additional assets must be classified, or the institution's valuation allowances
must be increased. See "--Credit Administration--Loan Monitoring."

  Assets are classified as "pass", "special mention", "substandard", "doubtful"
or "loss." An asset which possesses no apparent weakness or deficiency is
designated "satisfactory". An asset which possesses weaknesses or deficiencies
deserving close attention is designated as "special mention". An asset, or a
portion thereof, is generally classified as "substandard" if it possesses a
well-defined weakness which could jeopardize the timely liquidation of the asset
or realization of the collateral at the asset's book value. Thus, these assets
are characterized by the possibility that the institution will sustain some loss
if the deficiencies are not corrected. An asset, or portion thereof, is
classified as "doubtful" if a probable loss of principal and/or interest exists
but the amount of the loss, if any, is subject to the outcome of future events
which are indeterminable at the time of classification. If an asset, or portion
thereof, is classified as "loss", the institution must either establish a SVA
equal to the amount classified as loss or charge off such amount.

 Fidelity--Deposit Insurance

  General. Fidelity's deposits are insured by the FDIC to the maximum limits
permitted by law. Under FIRREA, the FDIC administers two separate deposit
insurance funds: the BIF which insures the deposits of institutions that were
insured by the FDIC prior to FIRREA, and the SAIF which maintains a fund to
insure the deposits of institutions, such as Fidelity, that were insured by the
FSLIC prior to FIRREA.

  Insurance Premium Assessments. The FDICIA directed the FDIC to establish a
risk-based system for setting deposit insurance premium assessments. The FDIC
has implemented such a system, under which an institution's insurance
assessments will vary depending on the level of capital the institution holds
and the degree to which it is the subject of supervisory concern to the FDIC.

  Legislation was enacted on September 30, 1996 to address the disparity in bank
and thrift deposit insurance premiums. Such legislation imposed a requirement on
all SAIF member institutions to fully recapitalize the SAIF by paying a one-time
special assessment of approximately 65.7 basis points on all assessable deposits
as of March 31, 1995. This one-time special assessment of 65.7 basis points
resulted in the Bank recording $18.0 million in additional SAIF premiums. As of
December 31, 1997, after giving effect to the deduction of 65.7 basis point
assessment, the Bank's core and risk-based capital ratios are 5.48% and 11.99%,
respectively, and the Bank remains well capitalized under the PCA regulations.

  Termination of Deposit Insurance. The FDIC may initiate a proceeding to
terminate an institution's deposit insurance if, among other things, the
institution is in an unsafe or unsound condition to continue operations. It is
the policy of the FDIC to deem an insured institution to be in an unsafe or
unsound condition if its ratio of Tier 1 capital to total assets is less than
2%. Tier 1 capital is similar to core capital but includes

                                       44
<PAGE>

certain investments in and extensions of credit to subsidiaries engaged in
activities not permitted for national banks.

  Conversion of Deposit Insurance. Generally, under a moratorium imposed by
FIRREA, savings institutions may not convert from SAIF membership to BIF
membership until SAIF has increased its reserves to 1.25% of insured deposits.
However, a savings institution may convert to a bank charter, if the resulting
bank remains a SAIF member, and may merge with a BIF-member institution as long
as deposits attributable to the savings institution remain subject to assessment
by the SAIF. In addition, under an exception to the moratorium, savings
institutions may transfer and convert to BIF insurance (for example, in a branch
sale to a BIF-member institution) up to 35% of their deposits. Institutions that
convert from SAIF to BIF membership, either under an exception during the
moratorium or after expiration of the moratorium, must pay exit fees to SAIF and
entrance fees to BIF. In addition, legislation has been proposed that would
require all savings and loans to convert to banks.

 Regulation of Fidelity Affiliates

  Affiliate and Insider Transactions. The ability of Bank Plus and its non-
depository subsidiaries to deal with Fidelity is limited by the affiliate
transaction rules, including Sections 23A and 23B of the Federal Reserve Act,
which also govern BIF-insured banks. With very limited exceptions, these rules
require that all transactions between Fidelity and an affiliate must be on arms'
length terms. The term "affiliate" covers any company that controls or is under
common control with Fidelity, but does not include individuals and generally
does not include Fidelity's subsidiaries.

  Under Section 23A and Section 11 of the HOLA, specific restrictions apply to
transactions in which Fidelity provides funding to its affiliates: Fidelity may
not purchase the securities of an affiliate, make a loan to any affiliate that
is engaged in activities not permissible for a bank holding company, or acquire
from an affiliate any asset that has been classified, a nonaccrual loan, a
restructured loan, or a loan that is more than 30 days past due. As to
affiliates engaged in bank holding company-permissible activities, the aggregate
of (a) loans, guarantees, and letters of credit provided by the savings bank
for the benefit of any one affiliate and (b)  purchases of assets by the savings
bank from the affiliate, may not exceed 10% of the savings bank's capital stock
and surplus (20% for the aggregate of permissible transactions with all
affiliates). All loans to affiliates must be secured by collateral ranging from
100% to 130% of the amount of the loan, depending on the type of collateral.

  In addition, OTS regulations on affiliate transactions require, among other
things, that savings institutions retain records of their affiliate transactions
that reflect such transactions in reasonable detail. If a savings institution
has been the subject of a change of control application or notice within the
preceding two-year period, does not meet its minimum capital requirements, has
entered into a supervisory agreement, is subject to a formal enforcement
proceeding, or is determined by the OTS to be the subject of supervisory
concern, the institution may be required to provide the OTS with 30 days' prior
notice of any affiliate transaction.

  Under these regulatory limitations, loans by Fidelity to directors, executive
officers and 10% stockholders of Fidelity, Bank Plus, and Bank Plus'
subsidiaries (collectively, "insiders"), or to a corporation or partnership that
is at least 10% owned by an insider (a "related interest") are subject to limits
separate from the affiliate transaction rules. However, a company that controls
a savings institution is excluded from the coverage of the insider lending rules
even if it owns 10% or more of the stock of the institution, and is subject only
to the affiliate transaction rules. All loans to insiders and their related
interests must be underwritten and made on non-preferential terms; loans in
excess of $500,000 must be approved in advance by Fidelity's Board of Directors;
and Fidelity's total of such loans may not exceed 100% of Fidelity's capital.
Loans by Fidelity to its executive officers are subject to additional limits
which are even more stringent. In

                                       45
<PAGE>

addition to these regulatory limitations, Fidelity has adopted a policy which
requires prior approval of its Board of Directors for any loans to insiders or
their related interests.

  Enforcement. Whenever the OTS has reasonable cause to believe that the
continuation by a savings and loan holding company of any activity or of
ownership or control of any non FDIC-insured subsidiary constitutes a serious
risk to the financial safety, soundness, or stability of a savings and loan
holding company's subsidiary savings institution and is inconsistent with the
sound operation of the savings institution, the OTS may order the holding
company, after notice and opportunity for a hearing, to terminate such
activities or to divest such noninsured subsidiary. FIRREA also empowers the
OTS, in such a situation, to issue a directive without any notice or opportunity
for a hearing, which directive may (a) limit the payment of dividends by the
savings institution, (b) limit transactions between the savings institution and
its holding company or its affiliates and (c) limit any activity of the
association that creates a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings institution.

  In addition, FIRREA includes savings and loan holding companies within the
category of person designated as "institution-affiliated parties." An
institution-affiliated party may be subject to significant penalties and/or loss
of voting rights in the event such party took any action for or toward causing,
bringing about, participating in, counseling, or aiding and abetting a violation
of law or unsafe or unsound practice by a savings institution.

 Community Reinvestment Act

  The Community Reinvestment Act ("CRA") requires each savings institution, as
well as other lenders, to identify and delineate the communities served through
and by the institution's offices and to affirmatively meet the credit needs of
its delineated communities and to market the types of credit the institution is
prepared to extend within such communities. The CRA also requires the OTS to
assess the performance of the institution in meeting the credit needs of its
community and to take such assessment into consideration in reviewing
applications for mergers, acquisitions, and other transactions. An
unsatisfactory CRA rating may be the basis for denying such an application.
Performance is assessed on the basis of an institution's actual lending, service
and investment performance rather than the extent to which the institution
conducts needs assessments, documents community outreach or complies with other
procedural requirements. In connection with its assessment of CRA performance,
the OTS assigns a rating of "outstanding," "satisfactory," "needs improvement"
or "substantial noncompliance." Based on its most recent examination, Fidelity
was rated "satisfactory."

 Federal Home Loan Bank System

  The Federal Home Loan Banks provide a credit facility for member institutions.
As a member of the FHLB of San Francisco, Fidelity is required to own capital
stock in the FHLB of San Francisco in an amount at least equal to the greater of
1% of the aggregate principal amount of its unpaid home loans, home purchase
contracts and similar obligations at the end of each calendar year, assuming for
such purposes that at least 30% of its assets were home mortgage loans, or 5% of
its advances from the FHLB of San Francisco. At December 31, 1997, Fidelity was
in compliance with this requirement with an investment in the stock of the FHLB
of San Francisco of $60.5 million. Long-term FHLB advances may be obtained only
for the purpose of providing funds for residential housing finance and all FHLB
advances must be secured by specific types of collateral.

                                       46
<PAGE>

 Federal Reserve System

  The FRB requires savings institutions to maintain noninterest-earning reserves
against certain of their transaction accounts (primarily deposit accounts that
may be accessed by writing unlimited checks) and non-personal time deposits. For
the calculation period at December 31, 1997, Fidelity was required to maintain
$8.8 million in noninterest-earning reserves and was in compliance with this
requirement. The balances maintained to meet the reserve requirements imposed by
the FRB may be used to satisfy Fidelity's liquidity requirements discussed
above.

  As a creditor and a financial institution, Fidelity is subject to certain
regulations promulgated by the FRB, including, without limitation, Regulation B
(Equal Credit Opportunity Act), Regulation D (Reserves), Regulation E
(Electronic Funds Transfers Act), Regulation F (limits on exposure to any one
correspondent depository institution), Regulation Z (Truth in Lending Act),
Regulation CC (Expedited Funds Availability Act), and Regulation DD (Truth in
Savings Act). As creditors of loans secured by real property and as owners of
real property, financial institutions, including Fidelity, may be subject to
potential liability under various statutes and regulations applicable to
property owners, generally including statutes and regulations relating to the
environmental condition of the property. See "--Regulation and Supervision--Non-
Banking Regulation."

 Non-Banking Regulation

  Under various federal, state and local environmental laws and regulations, a
current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous substances on, under or in such
property. In addition, any person or entity who arranges for the disposal or
treatment of hazardous substances may also be liable for the costs of removal or
remediation of hazardous substances at the disposal or treatment facility. Such
laws and regulations often impose liability regardless of fault and liability
has been interpreted to be joint and several unless the harm is divisible and
there is a reasonable basis for allocation of responsibility. Pursuant to these
laws and regulations, under certain circumstances, a lender may become liable
for the environmental liabilities in connection with its borrowers' properties,
if, among other things, it either forecloses or participates in the management
of its borrowers' operations or hazardous substance handling or disposal
practices. Although the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA") and certain state counterparts provide
exemptions for secured lenders, the scope of such exemptions is limited and a
rule issued by the Environmental Protection Agency clarifying such exemption
under CERCLA has recently been held invalid. In addition, CERCLA and certain
state counterparts impose a statutory lien, which may be prior to a bank's
interest securing a loan, for certain costs incurred in connection with removal
or remediation of hazardous substances. Other laws and regulations may also
require the removal or remediation of hazardous substances located on a property
before such property may be sold or transferred.

  It is the Bank's current policy to identify and review certain environmental
issues pertaining to its borrowers and the properties securing the loans of its
borrowers prior to making any loan and foreclosing on any multifamily property.
If such review reveals any environmental issues, a Phase I environmental audit
(which generally involves a physical inspection without any sampling) and under
certain circumstances, a Phase II environmental audit (which generally involves
sampling) may be conducted by an independent environmental consultant. It is
also the Bank's current policy with respect to loans secured by residential
property with five or more units to automatically conduct a Phase I
environmental audit prior to foreclosing on such property. Under certain
circumstances, the Bank may decide not to foreclose on a property. There can be
no assurances that such review, Phase I environmental audits or Phase II
environmental audits have identified or will identify all potential
environmental liabilities that may exist with respect to a foreclosed property
or a property securing any loan or that historical, current or future uses of
such property or surrounding properties will not result in the imposition of
environmental liability on the Bank.

                                       47
<PAGE>

  The Bank is aware that certain current or former properties on which it has
foreclosed and properties securing its loans contain contamination or hazardous
substances, including asbestos and lead paint. Under certain circumstances, the
Bank may be required to remove or remediate such contamination or hazardous
substances. Although the Bank is not aware of any environmental liability
relating to these properties that it believes would have a material adverse
effect on its business or results of operations, there can be no assurances that
the costs of any required removal or remediation would not be material or
substantially exceed the value of affected properties or the loans secured by
the properties or that the Bank's ability to sell any foreclosed property would
not be adversely affected.

 Gateway

  Gateway has been an NASD registered broker/dealer since October 1993 and
offers securities products, such as mutual funds and variable annuities, to
customers of the Bank and others. Fixed annuities are offered through the Bank's
insurance agency, Citadel Service Corporation, dba, Fidelity Insurance Agency of
Glendale. Gateway does not maintain security or cash accounts for customers or
perform custodial functions relating to customer securities.

  Gateway is required to conduct its activities in compliance with the February
1994 interagency guidelines of the federal bank and thrift regulators on retail
sales of uninsured, nondeposit investment products by federally insured
financial institutions. The interagency guidelines require that, among other
things, customers are fully informed that investment products are not insured,
are not deposits of or guaranteed by the Bank and involve investment risk
including the potential loss of principal.

  The securities business is subject to regulation by the SEC and other federal
and state agencies. Regulatory violations can result in the revocation of
broker/dealer licenses, the imposition of censures or fines and the suspension
or expulsion from the securities business of a firm, its officers or employees.
With the enactment of the Insider Trading and Securities Fraud Enforcement Act
of 1988, the SEC and the securities exchanges have intensified their regulation
of broker/dealers, emphasizing in particular the need for supervision and
control by broker/dealers of their own employees. In 1994, Gateway was audited
by the NASD, SEC and the State of California Department of Corporations.

  The NASD has incorporated changes to its Conduct Rules effective February 15,
1998. The new rules apply exclusively to the activities of NASD members that are
conducting broker/dealer services on the premises of a financial institution
where retail deposits are taken. The main focus of the new rules is to minimize
confusion by retail customers. The new rules cover the location setting,
networking and brokerage affiliate agreements, customer disclosure and written
acknowledgment, communications with the public and notifications of
terminations.

  As a broker/dealer registered with the NASD, Gateway is subject to the SEC's
uniform net capital rules, designed to measure the general financial condition
and liquidity of a broker/dealer. Gateway is required to file monthly reports
with the NASD and annual reports with the NASD and SEC containing detailed
financial information with respect to its broker/dealer operation.

ITEM 2. PROPERTIES

  The executive offices of Fidelity are located at 4565 Colorado Boulevard, Los
Angeles, California 90039. This facility also houses the Bank's administrative
operations and has approximately 130,000 square feet of office space. Present
local zoning entitlements will allow for the construction of approximately
300,000 square feet of additional office space plus parking on this 7.75-acre
parcel. The potential for increasing the amount of office space at this Los
Angeles site would satisfy Company's anticipated facilities requirements for the
foreseeable future.

                                       48
<PAGE>

  The aggregate net book value of all owned administrative facilities was
approximately $15.1 million as of December 31, 1997. On December 31, 1997,
Fidelity owned 13 of its branch facilities having an aggregate net book value of
approximately $7.3 million, and leased the remaining 25 of its branch facilities
under leases with terms (including optional extension periods) expiring from
1998 through 2027. The aggregate annual rent under leases as of December 31,
1997 was approximately $2.9 million and the aggregate net book value of
Fidelity's leasehold improvements associated with leased premises was
approximately $1.7 million. At December 31, 1997, Fidelity owned furniture,
fixtures and equipment, related to both owned and leased facilities, having a
net book value of approximately $8.5 million.

  All owned and leased office facilities are located in southern California with
the exception of the leased space for the iBank branch located in Bloomington,
Minnesota and the credit processing center located in Beaverton, Oregon.

ITEM 3. LEGAL PROCEEDINGS

  The Bank was named as a defendant in a purported class action lawsuit alleging
violations of federal securities laws in connection with the offering of common
stock by the Bank in 1994 as part of the Bank's previously reported 1994
restructuring and recapitalization. The suit was filed by Harbor Finance
Partners ("Harbor") in an alleged class action complaint in the United States
District Court-Central District of California on July 28, 1995 and originally
named as defendants the Bank, Citadel, Richard M. Greenwood (the Bank's chief
executive officer and Citadel's former chief executive officer), J. P. Morgan
Securities, Inc., and Deloitte & Touche LLP. The suit alleged that false or
misleading information was provided by the defendants in connection with the
Bank's 1994 Restructuring and Recapitalization and stock offering and that the
defendants knew and failed to disclose negative information concerning the Bank.
A motion to dismiss the original complaint was filed by the Bank, and was
granted without opposition. Thereafter, Harbor filed an amended complaint which
did not include J. P. Morgan Securities, Inc. and Deloitte & Touche LLP as
defendants and which contained some factual and legal contentions which were
different from those set forth originally. On August 30, 1996, Harbor filed an
alleged class action complaint in state court containing allegations similar to
those raised in the federal court action as well as claims for unfair business
practices.

  On November 14, 1997 the Bank and Harbor entered into a settlement agreement
through which Harbor relinquished all claims against the Bank and all other
defendants named in the litigation. No money was paid to Harbor by the Bank or
any other defendant in connection with the settlement. As a part of such
settlement

                                       49
<PAGE>

the Bank conditionally relinquished its claims for attorney's fees under the
State Court order. Resulting from the settlement, all appeals initiated by
Harbor from both the Federal and State Court proceedings were dismissed and
all of Harbor's claims against the Bank and all other named defendants arising
out of the Bank's 1994 restructuring and recapitalization have been released.

  In addition, the Bank is a defendant in several individual and class actions
brought by several borrowers which raise claims with respect to the manner in
which the Bank serviced certain adjustable rate mortgages which were originated
during the period 1983 through 1988.  Six actions were filed between July 1,
1992 and February of 1995, one in Federal District Court and five in California
Superior Court.  In the federal case the Bank won a summary judgment in the
District Court.  This judgment was appealed and the Ninth Circuit Court of
Appeals affirmed in part, reversed in part and remanded back to the District
Court for further proceedings.  The District Court has ruled in favor of
certifying a class in that action.  Three of the California Superior Court cases
resulted in final judgments in favor of the Bank, after the plaintiffs
unsuccessfully appealed the trial court judgments in favor of the Bank.  Two
other cases are pending in the California Superior Court.  In one of these
actions the parties have reached a tentative settlement, subject to final
documentation and approval by the court.  The plaintiffs' principal claim in
these actions is that the bank selected an inappropriate review date to consult
the index upon which the rate adjustment is based that was one or two months
earlier than what was required under the notes.  In a declining interest rate
environment, the lag effect of an earlier review date defers the benefit to the
borrower of such decline, and the reverse would be true in a rising interest
rate environment.  The Bank strongly disputes these contentions and is
vigorously defending these suits.  The legal responsibility and financial
exposure of these claims presently cannot be reasonably ascertained and,
accordingly, there is a risk that the outcome of one or more of the remaining
claims could result in the payment of monetary damages which could be material
in relation to the financial condition or results of operations of the Bank.
The bank does not believe the likelihood of such a result is probable and has
not established any specific litigation reerves with respect to such lawsuits.

  In the normal course of business, the Company and certain of its subsidiaries
have a number of other lawsuits and claims pending. Although there can be no
assurance, the Company's management and its counsel believe that none of the
foregoing lawsuits or claims will have a material adverse effect on the
financial condition or business of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  None

                                       50
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

MARKET INFORMATION

  Effective March 14, 1996, Fidelity's Common Stock was listed and quoted on
Nasdaq National Market ("NASDAQ"). Commencing May 1996, in connection with the
Reorganization, the Company's Common Stock was listed and quoted on NASDAQ
replacing Fidelity's Common Stock.

  The following table sets forth the high and low daily closing sales prices of
the Common Stock on NASDAQ commencing May 5, 1996 and the high and low bid price
on the Over the Counter Bulletin Board (the "OTCBB") between January 1, 1996 and
May 5, 1996 for each of the following quarters.  Closing sale prices reflect the
one-for-four Reverse Stock Split approved by the stockholders on February 9,
1996.

<TABLE>
<CAPTION>

                                                       HIGH            LOW
                                                      ------         ------
1997:
<S>                                                   <C>            <C>
 Fourth quarter..............................         $13.69         $11.06

 Third quarter...............................          13.25          10.75

 Second quarter..............................          11.50           9.63

 First quarter...............................          13.75          10.38

1996:
 Fourth quarter..............................          11.75          10.63

 Third quarter...............................          10.63           8.75

 Second quarter..............................           9.50           8.63

 First quarter...............................           9.75           8.50

</TABLE>

HOLDERS OF RECORD

    The number of holders of record of the Company's Common Stock at March 2,
1998 was 811.

DIVIDENDS

    Bank Plus has paid no dividends on the Common Stock since its formation in
May 1996. Prior thereto, Fidelity had not paid dividends on its Common Stock
since August 1994. Bank Plus currently has no plans to pay dividends on the
Common Stock. Bank Plus is a holding company with no significant assets other
than its investment in the Bank and Gateway, and is substantially dependent on
dividends from such subsidiaries to meet its cash requirements, including its
interest obligations on the Senior Notes. The ability of the Bank to pay
dividends or to make certain loans or advances to Bank Plus is subject to
significant restrictions. See Item 1. "Business--Regulation and Supervision--
Fidelity--Activities Regulation Not Related to Capital Compliance" and " --
Regulation of Fidelity Affiliates."

                                       51
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

                       FIVE-YEAR SELECTED FINANCIAL DATA

  The table below sets forth certain historical financial data regarding the
Company. This information is derived in part from, and should be read in
conjunction with, the Company's consolidated financial statements and notes
thereto included in Item 8.--Financial Statements and Supplementary Data.

<TABLE>
<CAPTION>

                                                                     AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                        -------------------------------------------------------------
                                                            1997         1996         1995         1994      1993
                                                        ----------   ----------   ----------   ----------  ----------
                                                              (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                      <C>         <C>       <C>       <C>       <C>

BALANCE SHEET DATA:
Total assets..........................................    $4,167,806    $3,330,290  $3,299,444  $3,709,838  $4,389,781
Total loans, net......................................     2,823,577     2,691,931   2,935,116   3,288,303   3,712,051
Deposits..............................................     2,891,801     2,495,933   2,600,869   2,697,272   3,368,664
FHLB advances.........................................     1,009,960       449,851     292,700     332,700     326,400
Senior notes..........................................        51,478             -           -           -           -
Other borrowings......................................             -        140,000    150,000     500,000     407,830
Preferred stock issued by consolidated subsidiary.....           272         51,750          -           -           -
Subordinated notes....................................             -              -          -           -      60,000
Stockholders' equity..................................       181,345        161,657    229,043      156,547    182,284
Stockholders' equity per common share (1)(2)..........          9.36           8.86       9.72(3)     24.11     173.51
Common shares outstanding (1)(2)......................    19,367,215     18,245,265 18,242,465    6,492,465  1,050,561
OPERATING DATA:
Interest income.......................................    $  255,007    $   237,913 $  246,477  $   241,465 $  289,331
Interest expense......................................       174,009        152,623    174,836      155,828    188,494
                                                          ----------    ----------- ----------  ----------- ----------
Net interest income...................................        80,998         85,290     71,641       85,637    100,837
Provision for estimated loan losses...................        13,004         15,610     69,724(4)    65,559     65,100
                                                          ----------    ----------- ----------  ----------- ----------
Net interest income after provision for estimated
 loan losses..........................................        67,994         69,680      1,917       20,078     35,737
Gains (losses) on loans held for sale, net............            37             22        522       (3,963)       194
Gains (losses) on securities activities, net..........         2,670          1,336      4,098        1,130      1,304
Writedown of MBSs, available for sale.................        (4,838)             -          -            -          -
Gains on sales of servicing...........................             -              -      4,604            -          -
Fee income from sale of uninsured investment
 products (5).........................................         5,959           4,456      4,117        3,419          -
Loans, retail banking and other fees..................         6,535           5,339      6,866        9,040      8,660
Real estate operations................................        (6,473)         (8,907)    (9,145)     (17,419)   (48,843)
SAIF special assessment...............................             -         (18,000)         -            -          -
1994 restructuring and recapitalization charges,
 net..................................................             -               -          -      (65,394)         -
Operating expense other than SAIF special
 assessment and 1994 restructuring
 and recapitalization charges.........................       (63,096)       (64,451)   (81,954)     (91,859)   (98,732)
                                                          ----------    ----------- ----------  ----------- ----------
Earnings (loss) before income taxes...................         8,788        (10,525)   (68,975)    (144,968)  (101,680)
Income tax (benefit) expense..........................        (8,100)        (1,093)         4      (16,524)   (35,793)
                                                          ----------    ----------- ----------  ----------- ----------
Net earnings (loss) before minority interest in
 subsidiary...........................................        16,888         (9,432)   (68,979)    (128,444)   (65,887)

Minority interest in subsidiary (dividends on
 subsidiary preferred stock)..........................        (4,235)        (4,657)         -            -          -
                                                          ----------    ----------- ----------  ----------- ----------
Net earnings (loss)...................................        12,653        (14,089)   (68,979)    (128,444)   (65,887)
Preferred stock dividends.............................                       (1,553)         -            -          -
                                                          ----------    ----------- ----------  ----------- ----------
Net earnings (loss) available for common                  $   12,653    $   (15,642)$  (68,979) $  (128,444)$  (65,887)
 Stockholders.........................................    ==========    =========== ==========  =========== ==========
Basic earnings (loss) per common share (1)(2)             $     0.67    $     (0.86)$    (8.84) $    (39.08)$   (62.72)
                                                          ==========    =========== ==========  =========== ==========
Basic weighted average common shares
 Outstanding (1)(2)..................................     18,794,887     18,242,887  7,807,201    3,286,960  1,050,561
                                                          ==========    =========== ==========  =========== ==========
Diluted earnings (loss) per common share (1)(2)           $     0.66    $     (0.85)$    (8.83) $    (39.07)$   (62.72)
                                                          ==========    =========== ==========  =========== ==========
Diluted weighted average common shares
 Outstanding (1)(2)................................       19,143,233     18,438,454  7,815,560     3,287,757  1,050,561
                                                          ==========    =========== ==========  ============ ==========
</TABLE>

                                                                     (continued)

                                       52
<PAGE>

<TABLE>
<CAPTION>
                                                                       AT OR FOR THE YEAR ENDED DECEMBER 31,
                                                          -------------------------------------------------------------
                                                             1997         1996         1995         1994             1993
                                                          ----------   ----------   ----------    ----------      ----------
(continued)                                                         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                          <C>         <C>           <C>            <C>            <C>
SELECTED OPERATING RATIOS:
Return (loss) on average assets.......................       0.35%       (0.42)%      (1.92)%       (3.17)%         (1.43)%
Return (loss) on average equity.......................       7.43%       (7.01)%     (42.31)%      (83.00)%        (29.99)%
Average equity divided by average assets..............       4.67%        6.71%        4.54%         3.82%           4.77%
Ending equity divided by ending assets................       4.35%        4.85%        6.94%         4.22%           4.15%
Operating expense to average assets (6)...............       1.73%        1.94%        2.28%         2.27%           2.14%
Efficiency ratio (7)..................................      67.46%       67.77%       89.81%        97.58%          79.66%
Interest rate spread for the period...................       2.05%        2.31%        1.89%         2.24%           2.31%
Net yield on interest-earning assets..................       2.27%        2.63%        2.05%         2.22%           2.31%

ASSET QUALITY DATA:
NPAs (8)..............................................   $ 25,367     $ 60,788     $ 71,431      $ 85,729        $235,621
NPAs to total assets..................................       0.61%        1.83%        2.16%         2.31%           5.37%
Nonaccruing loans.....................................   $ 13,074     $ 36,125     $ 51,910      $ 71,614        $ 93,475
Nonaccruing loans to total loans, net.................       0.46%        1.34%        1.77%         2.18%           2.52%
Classified assets.....................................   $153,502     $174,096      219,077      $141,536        $372,502
Classified assets to total assets.....................       3.68%        5.23%        6.64%         3.82%           8.49%
REGULATORY CAPITAL RATIOS:
Tangible capital ratio................................       5.27%        6.28%        6.91%         4.28%           4.10%
Core capital ratio....................................       5.48%        6.29%        6.92%         4.29%           4.15%
Risk-based capital ratio..............................      11.99%       11.85%       12.43%         8.28%           9.32%

OTHER DATA:
Sales of investment products (5)......................   $159,791     $118,061     $ 89,824      $112,430        $ 96,253
Real estate loans funded..............................   $233,108     $ 13,859     $ 19,396      $521,580        $422,355
Average interest rate on new loans....................       7.62%        8.41%        9.61%         5.85%           6.75%
Loans sold, net (9)...................................   $  6,674     $ (2,069)    $    390      $273,272        $115,003
Number of:
  Real estate loan accounts (in thousands)............         12            11          12            14              16
  Deposit accounts (in thousands).....................        205           194         207           216             241
-------------
</TABLE>
(1) For the periods prior to August 4, 1994, Fidelity's one share owned by
    Citadel, its former holding company and sole stockholder, has been
    retroactively reclassified into 1,050,561 shares of Class A Common Stock.
(2) On February 9, 1996, the Bank's stockholders approved the Reverse Stock
    Split. All per share data and weighted average common shares outstanding
    have been retroactively adjusted to reflect this change.
(3) Calculation excludes $51.8 million of preferred stock issued by consolidated
    subsidiary.
(4) In 1995, the Bank recorded $45 million loan portfolio charge in connection
    with its adoption of the Plan. See Item 7. "MD&A--Accelerated Asset
    Resolution Plan."
(5) Includes 100% of Gateway investment product sales.
(6) Excludes the impact of the SAIF special assessment and the net 1994
    restructuring and recapitalization charges.
(7) The efficiency ratio is computed by dividing total operating expense by net
    interest income and noninterest income, excluding infrequent items,
    provisions for estimated loan and real estate losses, direct costs of real
    estate operations and gains/losses on the sale and writedown of securities.
(8) NPAs include nonaccruing loans and foreclosed real estate, net of SVAs,
    writedowns and REO GVA, if any.
(9) Excludes loans sold in certain bulk sales consummated in 1994, and is net of
    repurchases.

                                       53
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FORWARD-LOOKING STATEMENTS

  Certain statements included or incorporated by reference in this Form 10-K,
including without limitation statements containing the words "believes,"
"anticipates," "intends," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the continuing impact of California's economic recession on collateral values
and the ability of certain borrowers to repay their obligations to Fidelity; the
potential risk associated with the Bank's level of nonperforming assets and
other assets with increased risk; changes in or amendments to regulatory
authorities' capital requirements or other regulations applicable to Fidelity;
fluctuations in interest rates; increased levels of competition for loans and
deposits; start-up risks associated with new business lines, including affinity
card programs and credit processing activities; and other factors referred to in
this Form 10-K. Given these uncertainties, undue reliance should not be placed
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the results of any revisions to
any of the forward-looking statements included herein to reflect future events
or developments.

RESULTS OF OPERATIONS

  The Company reported net earnings available to common stockholders of $12.7
million ($0.67 per basic common share; computed on the basis of 18,794,887 basic
weighted average common shares outstanding and $0.66 per diluted common share;
computed on the basis of 19,143,233 diluted weighted average common shares
outstanding) for the year ended December 31, 1997. This compares to net losses
available to common stockholders of $15.6 million $(0.86) per basic common
share; computed on the basis of 18,242,887 basic weighted average common shares
outstanding and $(0.85) per diluted common share; computed on the basis of
18,438,454 diluted weighted average common shares outstanding) for the year
ended December 31, 1996.

  Results of operations for the year ended December 31, 1997, as compared to the
same period in 1996, reflect: (a) decreased operating expenses of $19.4 million
primarily due to lower FDIC insurance costs of $22.4 million resulting from the
special one-time SAIF recapitalization payment of $18.0 million in the third
quarter of 1996 and an upgrade in the Bank's assessment classification, (b)
increased income tax benefit of $7.0 million (see "--Income Taxes"), (c)
decreased provisions for estimated loan and REO losses of $4.8 million and (d)
and increased noninterest income of $4.1 million related to higher volumes of
uninsured investment product sales, MBSs sales and deposit and ATM cash services
activities. These favorable changes were partially offset by (a) decreased net
interest income of $4.3 million primarily due to lower rates on average interest
earning assets and higher levels of average borrowing balances and (b) the
writedown of the LIBOR asset trust securities of $4.8 million due to the credit
deterioration of the securities underlying collateral.

  The Company reported a net loss available to common stockholders of $15.6
million $(0.86) per basic and diluted common share; computed on the basis of
18,242,887 basic weighted average common shares outstanding and $(0.85) per
diluted common share; computed on the basis of 18,438,454 diluted weighted
average common shares outstanding) for the year ended December 31, 1996. Without
the SAIF special assessment of $18.0 million, the Company would have reported
earnings available to common stockholders of $2.4 million for the year ended
December 31, 1996. This compares to a net loss of $69.0 million $(8.84) per
basic common share; computed on the basis of 7,807,201 basic weighted average
common shares outstanding and $(8.83) per diluted common share; computed on the
basis of 7,815,560 diluted weighted average common shares outstanding) for the
year ended December 31, 1995.

                                       54
<PAGE>

  Results of operations for the year ended December 31, 1996, excluding the SAIF
special assessment of $18.0 million, as compared to the same period in 1995,
reflect: (a) a decrease in provisions for loan losses of $54.1 million due in
part to the 1995 loan portfolio charge of $45 million which was a consequence of
the adoption of the Accelerated Asset Resolution Plan, with no comparable amount
in 1996, and the reduction of NPAs during 1996, (b) increased net interest
income of $13.6 million due primarily to the impact of lower interest rates on
the Company's interest-bearing liabilities and utilization of the capital raised
in 1995 and (c) an increase of $1.1 million in income tax benefits resulting
from the filing of various amended federal income tax returns to reflect a
specified liability loss carryback under Internal Revenue Code ("IRC") Section
172 (f). These favorable changes were partially offset by, (a) decreased gains
on sales of loans, investment securities and MBSs of $3.3 million, (b) a gain on
sale of servicing of $4.6 million in 1995 with no comparable amounts in 1996,
(c) decreased loan fee income of $1.3 million primarily due to the sale of
servicing in 1995, and (d) preferred stock dividends of the Bank of $6.2 million
with no comparable amounts in 1995.


ACQUISITIONS

  On July 29, 1997, the Company completed the acquisition of all of the
outstanding stock of Hancock, which had five branches, assets of approximately
$210.1 million and deposits of approximately $203.7 million at June 30, 1997.
The Company acquired all of the stock of Hancock in exchange for 1,058,575
shares of Bank Plus Common Stock in a transaction valued at approximately $12
million.

  The acquisition of Hancock was accounted for as a purchase and was reflected
in the consolidated statement of condition of the Company at June 30, 1997. The
Company's consolidated statements of operations include the revenues and
expenses of the acquired business beginning July 1, 1997. The purchase price was
allocated to the assets purchased (including identifiable intangible assets) and
the liabilities assumed based upon their estimated fair market values at the
date of acquisition. The Company identified a core deposit intangible of
approximately $8.6 million, which will be amortized over seven years, the
estimated average life of the deposits acquired. The excess of the purchase
price over the estimated fair value of net assets acquired amounted to
approximately $6.6 million, which has been accounted for as goodwill and will be
amortized over 15 years using the straight-line method.

  On September 19, 1997, the Company completed the purchase of deposits from
Coast. The Coast branch, located in Westwood, California, had deposits of
approximately $48.6 million at September 19, 1997. The Company identified a core
deposit intangible of approximately $1.5 million, which will be amortized over
seven years, the estimated average life of the deposits acquired.

  The acquisitions of Hancock and the Coast branch provide a number of benefits
to the Company including an increased customer base and larger branch network
and operating efficiencies through consolidation. The acquired branch network
and associated customer base included approximately 14,200 and 7,100 transaction
and time deposit accounts, respectively, and will provide new territory in which
to implement Fidelity's sales platform of credit and investment products.
Through strategic alliances with third party providers, the Company will
introduce to the acquired customer base a wide range of securities, insurance
and consumer loan products to enhance the Company's fee income.

  The Company has reduced consolidated operating expenses as a result of the
merger through the closure and consolidation of the administrative office of
Hancock and the consolidation of two of the branches acquired into existing
Fidelity branches.


WRITEDOWN OF MORTGAGE-BACKED SECURITIES

  As of September 30, 1997, the Company transferred two securities with a total
amortized cost of $27.0 million and a total estimated fair value of $22.5
million from the held-to-maturity portfolio to the available-for-sale portfolio.
The transfer was the result of significant deterioration in the credit
worthiness of the

                                       55
<PAGE>

borrowers of the underlying loans collateralizing the securities. The unrealized
holding loss of $4.5 million at September 30, 1997 was reported in a separate
component of shareholders' equity as the decline in fair value was not believed
to be other than temporary. The continued poor performance of the securities
underlying collateral in the three months subsequent to September 30, 1997
motivated management to seek a buyer for the securities rather than risk
possible continued decline in fair value. The securities were sold in January
1998 at a loss of $4.8 million, which was recorded through earnings in 1997 as
the loss was now considered to be other than temporary.

ASSET GROWTH

  As a part of the business strategy in 1997, the Company developed a plan to
grow assets (loans and securities) by approximately $600 million. This plan, in
general terms, was based upon certain risk adjusted return and liquidity
objectives and was designed to increase the Company's securities and loan
portfolios to enhance the Company's earning capabilities. Under this plan, the
Company purchased $1.0 billion in investment and MBSs and $221.6 million in
single family whole loans in 1997. The asset growth was primarily funded through
FHLB advances. The increase in earning assets generally had lower interest rate
spreads than the Company's existing assets, see "--Asset/Liability Management"
for a discussion on the Company's interest rate spread for the year ended 1997
and the change from the year ended 1996.


ASSET/LIABILITY MANAGEMENT

  Net interest income is the difference between interest earned on the Company's
loans, MBSs and investment securities ("interest-earning assets") and interest
paid on its deposits and borrowings ("interest-bearing liabilities"). Net
interest income is affected by the interest rate spread, which is the difference
between the rates earned on the Company's interest-earning assets and rates paid
on its interest-bearing liabilities, as well as the relative amounts of its
interest-earning assets and interest-bearing liabilities. The Company's average
interest rate spread for the years ended December 31, 1997, 1996, and 1995 was
2.05% 2.31%, and 1.89%, respectively.

  The objective of interest rate risk management is to maximize the net income
of the Company while controlling interest rate risk exposure. Banks and savings
institutions are subject to interest rate risk when assets and liabilities
mature or reprice at different times (duration risk), against different indices
(basis risk) or for different terms (yield curve risk). The decision to control
or accept interest rate risk can only be made with an understanding of the
probability of various scenarios occurring. Having liabilities that reprice more
quickly than assets is beneficial when interest rates fall, but may be
detrimental when interest rates rise.

  The Company manages interest rate risk by, among other things, maintaining a
portfolio consisting primarily of ARM loans. ARM loans comprised 94%, of the
total loan portfolio at December 31, 1997, and 97% at December 31, 1996, and
1995. The percentage of monthly adjustable ARMs to total loans was approximately
71%, 76%, and 75% at December 31, 1997, 1996, and 1995, respectively. Interest
sensitive assets provide the Company with a degree of long-term protection from
rising interest rates. At December 31, 1997, approximately 93% of Fidelity's
total loan portfolio consisted of loans which mature or reprice within one year,
compared to approximately 93% at December 31, 1996 and 94% at December 31, 1995.
Fidelity has in recent periods been negatively impacted by the fact that
increases in the interest rates accruing on Fidelity's ARMs lagged the increases
in interest rates accruing on its deposits due to reporting delays and
contractual look-back periods contained in the Bank's loan documents. At
December 31, 1997, 86% of the Bank's loans, which are indexed to COFI at
December 31, 1997, as with all COFI portfolios in the industry, do not reprice
until some time after the industry liabilities composing COFI reprice. The
Company's liabilities reprice generally in line with the cost of funds of
institutions which comprise the FHLB Eleventh District. In the Company's case,
the lag between the repricing of its liabilities and its ARM loans indexed to
COFI is approximately four months. Thus, in a rising rate environment there will
be upward pressure on rates paid on deposit accounts and wholesale borrowings,
and the Company's net interest income will be

                                       56
<PAGE>

adversely affected until the majority of its interest-earning assets fully
reprice. Conversely, in a falling interest rate environment, net interest income
will be positively affected.

  The Company utilizes various financial instruments in the normal course of its
business. By their nature all such instruments involve risk, and the maximum
potential loss may exceed the value at which such instruments are carried. As is
customary for these types of instruments, the Company usually does not require
collateral or other security from other parties to these instruments. The
Company manages its credit exposure to counterparties through credit approvals,
credit limits and other monitoring procedures. The Company's Credit Policy
Committee makes recommendations regarding counterparties and credit limits which
are subject to approval by the Board of Directors.

  The Company may employ interest rate swaps, caps and floors in the management
of interest rate risk. An interest rate swap agreement is a financial
transaction where two counterparties agree to exchange different streams of
payments over time. An interest rate swap involves no exchange of principal
either at inception or upon maturity; rather, it involves the periodic exchange
of interest payments arising from an underlying notional principal amount.
Interest rate caps and floors generally involve the payment of a one-time
premium to a counterparty who, if interest rates rise or fall, above or below a
predetermined level, will make payments to the Company at an agreed upon rate
for the term of the agreement until such time as interest rates fall below or
rise above the cap or floor level.

  During the first quarter of 1995, the Bank terminated interest rate swap
agreements with a notional amount of $700 million, resulting in a deferred gain
of $1.2 million which was fully amortized in 1995. Also, during the fourth
quarter of 1995, the Bank terminated its remaining interest swap agreements,
which were entered into in 1993 and 1994, with a notional amount of $446.7
million and as a result recorded a deferred loss of $3.2 million that is being
amortized as a yield adjustment over the remaining life of the original
transactions. These interest rate swap agreements were intended to modify the
repricing characteristics of specific assets and liabilities. In 1997 the Bank
entered into an interest rate swap agreement with a notional amount of $90.0
million to convert a fixed rate FHLB advance to a floating rate. The swap was
terminated in the fourth quarter of 1997 and as a result recorded a deferred
gain of $0.6 million that is being amortized as a yield adjustment over the
remaining life of the FHLB advance.

                                       57
<PAGE>

  The following table sets out the maturity and rate sensitivity of the
interest-earning assets and interest-bearing liabilities as of December 31,
1997. "Gap," as reflected in the table, represents the estimated difference
between the amount of interest-earning assets and interest-bearing liabilities
repricing during future periods as adjusted for interest-rate swaps and other
financial instruments as applicable, and based on certain assumptions, including
those stated in the notes to the table.

                     MATURITY AND RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
                                                                     AS OF DECEMBER 31, 1997 MATURITY OR REPRICING
                                                      --------------------------------------------------------------------------
                                                        WITHIN 3     4-12           1-5         6-10       OVER 10
                                                        MONTHS       MONTHS        YEARS        YEARS       YEARS        TOTAL
                                                      ----------  ------------  -----------  -----------  ----------   ---------
<S>                                                   <C>         <C>           <C>          <C>          <C>          <C>
                                                                                 (DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
 Cash and cash equivalents..........................  $   41,622  $        594   $       --   $       --    $     --   $   42,216
 Investment securities(1)(2)........................      60,498        68,080       25,946           --      10,000      164,524
 MBSs (1)...........................................     122,197         1,535           --           --     769,922      893,654
 Loans receivable:
  ARMs and other adjustables(3).....................   2,247,917       421,010       39,719        3,329          --    2,711,975
  Fixed rate loans..................................       9,636         1,055        4,759       14,565     140,152      170,167
                                                      ----------  ------------   ----------   ----------    --------   ----------
   Total gross loans receivable.....................   2,257,553       422,065       44,478       17,894     140,152    2,882,142
                                                      ----------  ------------   ----------   ----------    --------   ----------
    Total interest-earning assets...................   2,481,870       492,274       70,424       17,894     920,074    3,982,536
                                                      ----------  ------------   ----------   ----------    --------   ----------
INTEREST-BEARING LIABILITIES:
 Deposits:
  Checking and savings accounts(4)..................     400,009            --           --           --          --      400,009
  Money market accounts(4)..........................      59,414            --           --           --          --       59,414
  Fixed maturity deposits:
   Retail customers.................................     651,954     1,437,190      331,119          847       1,619    2,422,729
   Wholesale customers..............................         749           800        8,100           --          --        9,649
                                                      ----------  ------------   ----------   ----------    --------   ----------
    Total deposits..................................   1,112,126     1,437,990      339,219          847       1,619    2,891,801
                                                      ----------  ------------   ----------   ----------    --------   ----------
 Borrowings:
  FHLB advances(3)..................................     224,960       150,000      445,000      190,000          --    1,009,960
  Other.............................................          --            --           --       51,478          --       51,478
                                                      ----------  ------------   ----------   ----------    --------   ----------
   Total borrowings.................................     224,960       150,000      445,000      241,478          --    1,061,438
                                                      ----------  ------------   ----------   ----------    --------   ----------
    Total interest-bearing liabilities..............   1,337,086     1,587,990      784,219      242,325       1,619   $3,953,239
                                                      ----------  ------------   ----------   ----------    --------   ----------
Impact of hedging...................................       5,000            --       (5,000)          --          --
                                                      ----------  ------------   ----------   ----------    --------
Repricing Gap.......................................  $1,149,784  $ (1,095,716)  $ (718,795)  $ (224,431)   $918,455
                                                      ==========  ============   ==========   ==========    ========

 Gap to total assets................................       27.59%       (26.29)%     (17.25)%      (5.38)%     22.04%
                                                      ==========  ============   ==========   ==========    ========

 Cumulative Gap to Total Assets.....................       27.59%         1.30 %     (15.95)%     (21.33)%      0.71%
                                                      ==========  ============   ==========   ==========    ========
</TABLE>
--------------
(1) Repricings shown are based on the contractual maturity or repricing
    frequency of the instrument.
(2) Investment securities include FHLB stock of $60.5 million.
(3) ARMs and variable rate borrowings from the FHLB system (FHLB advances) are
    primarily in the shorter categories as they are subject to interest rate
    adjustments.
(4) These liabilities are subject to daily adjustments and are therefore
    included in the "Within 3 Months" category.


  Analysis of the Gap provides only a static view of the Company's interest rate
sensitivity at a specific point in time. The actual impact of interest rate
movements on the Company's net interest income may differ from that implied by
any Gap measurement. The actual impact on net interest income may depend on the
direction and magnitude of the interest rate movement, as well as competitive
and market pressures.

                                       58
<PAGE>

 Other Derivative Instruments

  During the third quarter of 1996, the Company entered into an advisory
agreement with an investment advisor, pursuant to which the advisor will
recommend trading related investments, subject to prior approval and direction
of the Company, and execute trading activities in accordance with the Company's
investment strategy. Such strategy includes the use of derivative instruments
for trading or yield enhancement purposes. Realized and unrealized changes in
fair values of the instruments are recognized in earnings in the period in which
the changes occur. Under the advisory agreement, outstanding forward commitments
to purchase and sell adjustable rate MBSs totaled $30.0 million and $15.0
million, respectively, at December 31, 1997. Also outstanding in relation to
this managed portfolio at December 31, 1997, were $71.0 million notional amount
of interest rate caps which will mature in 2007, $5.0 million notional amount
interest rate swaps which will mature in 2002 and $6.5 million notional amount
of call options on treasury futures with an exercise date in 1998.

  In 1997, as part of the growth strategy, the Company purchased approximately
$360.0 million in fixed rate U.S. Agency MBSs, which were categorized as
available for sale. Due to the higher price volatility of fixed rate securities
during interest rate fluctuations as compared to adjustable rate securities,
management began a strategy to hedge the fluctuations of the fair value of the
fixed rate MBSs. The Company used futures on Treasury Notes which have a high
correlation with Agency MBSs. Outstanding at December 31, 1997 were $205.9
million notional amount of futures on Treasury Notes. The derivative instruments
used to hedge the fluctuations in fair values of available for sale securities
are carried at fair value, with realized and unrealized changes in fair value
reported as a separate component of stockholders' equity. Realized changes in
fair value are amortized as a yield adjustment over the life of the hedged
instrument.

MARKET RISK

  The Company's ALCO, which includes senior management representatives, monitors
and considers methods of managing the rate and sensitivity repricing
characteristics of the balance sheet components consistent with maintaining
acceptable levels of changes in net portfolio value ("NPV") and net interest
income. A primary purpose of the Company's asset/liability management is to
manage interest rate risk to effectively invest the Company's capital and to
preserve the value created by its core business operations. As such, certain
management monitoring processes are designed to minimize the impact of sudden
and sustained changes in interest rates on NPV and net interest income.

  The Company's exposure to interest rate risk is reviewed on at least a
quarterly basis by the Board of Directors and the ALCO. Interest rate risk
exposure is measured using interest rate sensitivity analysis to determine the
Company's change in NPV in the event of hypothetical changes in interest rates
and interest rate sensitivity gap analysis is used to determine the repricing
characteristics of the Bank's assets and liabilities.

  Interest rate sensitivity analysis is used to measure the Company's interest
rate risk by computing estimated changes in NPV of its cash flows from assets,
liabilities and off-balance sheet items in the event of a range of assumed
changes in market interest rates. NPV is equal to the estimated market value of
assets minus the market value of liabilities, with adjustments made for off-
balance sheet items. This analysis assesses the risk of loss in market risk
sensitive instruments in the event of a sudden and sustained one hundred to four
hundred basis points increase or decrease in the market interest rates. The
interest rate risk policy of the Fidelity Board establishes maximum decreases in
NPV of 20%, 30%, 60% and 80% in the event of sudden and sustained one hundred to
four hundred basis point increases in market rates. The

                                       59
<PAGE>

policy also establishes maximum decreases in NPV of 10%, 20%, 30% and 40% in the
event of sudden and sustained one hundred to four hundred basis point decreases
in market rates. The following table presents the Company's projected change in
NPV for the various rate shock levels as of December 31, 1997.

<TABLE>
<CAPTION>


                                                NET PORTFOLIO VALUE AT DECEMBER 31, 1997
                     -------------------------------------------------------------------------------------------------
                                                                                         NET PORTFOLIO VALUE AS A % OF
                                                                                            PORTFOLIO VALUE ASSETS
                                                                                        ------------------------------
                         Dollar            Dollar         Percent          Board        NET PORTFOLIO     BASIS POINT
     Rate Shock          Amount            Change         Change           Limit         VALUE RATIO        CHANGE
-------------------  --------------   ---------------   --------------- -------------   ------------------------------
                                                                         (DOLLARS IN MILLIONS)
<S>                   <C>              <C>               <C>             <C>             <C>                 <C>
        +400             $220            $ (59)            (21)%          (80)%            5.51%             (111)
        +300              237              (43)            (15)           (60)             5.84               (78)
        +200              252              (27)            (10)           (30)             6.14               (48)
        +100              267              (13)             (4)           (20)             6.41               (21)
      Base Case           280               --              --             --              6.62                --
        -100              287                8               3            (10)             6.72                10
        -200              293               13               5            (20)             6.76                14
        -300              306               27              10            (30)             6.97                35
        -400              315               35              13            (40)             7.06                44
</TABLE>

  The preceding table indicates that at December 31, 1997, in the event of an
increase in prevailing market interest rates, the Company's NPV would be
expected to decrease, and that in the event of a decrease in prevailing market
interest rates, the Company's NPV would be expected to increase. At December 31,
1997, the Company's estimated changes in NPV were within the targets established
by the Board of Directors.

  NPV is calculated by the Company pursuant to the guidelines established by the
OTS. The calculation is based on the net present value of estimated discounted
cash flows utilizing market prepayment assumptions and market rates of interest
provided by independent broker quotations and other public sources as of
December 31, 1997, with adjustments made to reflect the shift in the treasury
yield curve as appropriate. Computation of prospective effects of hypothetical
interest rate changes are based on numerous assumptions, including relative
levels of market interest rates, loan prepayments and deposits decay, and should
not be relied upon as indicative of actual results. Further, the computations do
not contemplate any actions the ALCO could undertake in response to changes in
interest rates.

ASSET QUALITY

 General

  The Company's loan portfolio is primarily secured by assets located in
southern California and is comprised principally of single family and
multifamily (2 units or more) residential loans. At December 31, 1997, 22.2% of
Fidelity's real estate loan portfolio consisted of California single family
residences, while another 11.2% and 57.3% consisted of California multifamily
dwellings of 2 to 4 units and 5 or more units, respectively. At December 31,
1996, 18.7% of Fidelity's real estate loan portfolio (including loans held for
sale) consisted of California single family residences while another 11.6% and
62.0% consisted of California multifamily dwellings of 2 to 4 units and 5 or
more units, respectively.

  The performance of the Company's loans secured by multifamily and commercial
properties has been adversely affected by southern California economic
conditions. These portfolios are particularly susceptible to the potential for
further declines in the southern California economy, such as increasing vacancy
rates, declining rents, increasing interest rates, declining debt coverage
ratios, and declining market values for multifamily and commercial properties.
In addition, the possibility that investors may abandon properties or seek
bankruptcy protection with respect to properties experiencing negative cash
flow, particularly where such properties are not cross-collateralized by other
performing assets, can also adversely affect the multifamily loan portfolio.
There can be no assurances that current improved economic indicators will have a

                                       60
<PAGE>

material impact on the Bank's portfolio in the near future as many factors key
to recovery may be impacted adversely by the Federal Reserve Board's interest
rate policy as well as other factors.

  The Bank's internal asset review process reviews the quality and
recoverability of each of those assets which exhibit credit risk to the Bank
based on delinquency and other criteria in order to establish adequate GVA and
SVA. See Item 1. "Business--Credit Loss Experience."


 Accelerated Asset Resolution Plan

  An important component of the Company's business strategy is the reduction of
risk in the Bank's loan and REO portfolios. In the fourth quarter of 1995, the
Bank adopted the Plan, which was designed to aggressively dispose of, resolve or
otherwise manage a pool (the "AARP Pool") of primarily multifamily loans and REO
that at that time were considered by the Bank to have higher risk of future
nonperformance or impairment relative to the remainder of the Bank's multifamily
loan portfolio. The Plan reflected both acceleration in estimated timing of
asset resolution, as well as a potential change in recovery method from the
normal course of business. In an effort to maximize recovery on loans and REO
included in the AARP Pool, the Plan allowed for a range of possible methods of
resolution including, but not limited to, (i) individual loan restructuring,
potentially including additional extensions of credit or write-offs of existing
principal, (ii) foreclosure and sale of collateral properties, (iii)
securitization of loans, (iv) the bulk sale of loans and (v) bulk sale or
accelerated disposition of REO properties.

  The AARP Pool originally consisted of 411 assets with an aggregate gross book
balance of approximately $213.3 million, comprised of $137.0 million in gross
book balance of loans and $76.3 million in gross book balance of REO. As a
consequence of the adoption of the Plan, the Bank recorded a $45.0 million loan
portfolio charge in the fourth quarter of 1995, which was reflected as a credit
to the Bank's allowance for estimated loan and REO losses. This amount
represented the estimated additional losses, net of SVAs, anticipated to be
incurred by the Bank in executing the Plan. Such additional losses represented,
among other things, estimated reduced recoveries from restructuring loans and
the acceptance of lower proceeds from the sale of individual REO and the
estimated incremental losses associated with recovery through possible bulk
sales of performing and nonperforming loans and REO.

  In conjunction with the acquisition of Hancock, the Bank identified a pool of
Hancock assets, with similar risk profiles to the assets included in the Bank's
AARP Pool, for inclusion in the Plan. The Bank identified 54 Hancock assets with
an aggregate gross book balance of approximately $31.1 million, comprised of
$25.8 million in gross book balance of loans and $5.3 million in gross book
balance of REO. Simultaneously with the consummation of the acquisition, Hancock
recorded $5.8 million as an addition to the allowance for estimated loan losses
representing the estimated reduced recoveries in executing the Plan.

  Through December 31, 1997, (i) $40.5 million in gross book balances of AARP
Pool loans had been resolved through either a negotiated sale or discounted
payoff, (ii) $8.5 million in gross book balances of AARP Pool loans were
collected through normal principal amortization or paid off through the normal
course without loss, (iii) $24.4 million in gross book balances of AARP Pool
loans had been modified or restructured and retained in the Bank's mortgage
portfolio, (iv) $15.4 million in gross book balances of AARP Pool loans were
removed from the AARP Pool upon management's determination that such assets no
longer met the risk profile for inclusion in the AARP Pool or that accelerated
resolution of such assets was no longer appropriate and (v) $126.6 million in
gross book balances of REO were sold ($52.6 million in gross book balances of
AARP Pool loans were taken through foreclosure and acquired as REO since the
inception of the AARP). As of December 31, 1997, the AARP Pool consisted of 55
assets with an aggregate gross book balance of $29.0 million, comprised of
accruing and nonaccruing multifamily real estate loans totaling approximately
$21.4 million and REO properties totaling approximately $7.6 million, which are
reported as real estate owned on the statement of financial condition. Through
December 31, 1997, of the $50.8 million of reserves established in connection
with the Plan, including the $5.8 million established by Hancock, $8.8 million
had been charged off and $31.6 million had been allocated to SVAs or REO
writedowns in connection with the Bank's

                                       61
<PAGE>

estimate of recovery for AARP Pool assets. Due to the addition of the Hancock
assets to the Plan, it is anticipated that the remaining AARP Pool will be
resolved in 1998.

  Notwithstanding the actions taken by the Bank in implementing the Plan, there
can be no assurance that the AARP Pool assets retained by the Bank will not
result in additional losses. The Bank's allowance for loan and REO losses and
the SVAs established in connection with such assets are ultimately subjective
and inherently uncertain. There can be no assurance that further additions to
the Bank's allowance for loan and REO losses will not be required in the future
in connection with such assets, which could have an adverse effect on the Bank's
financial condition, results of operations and levels of regulatory capital.


 Classified Assets

  Total classified assets decreased $20.6 million or 11.8% from December 31,
1996, to $153.5 million at December 31, 1997. This decrease was due to lower
levels of nonperforming and performing classified loans and the large volume of
REO sales during 1997, offset by an increase in other classified assets of $21.4
million related to the classification of the LIBOR Asset Trust securities due to
the performance of the underlying collateral. The ratio of NPAs to total assets
decreased from 1.83% at December 31, 1996, to 0.61% at December 31, 1997. This
decrease is due to both a decrease in the level of NPAs at December 31, 1997,
compared to December 31, 1996 and to an increase in total assets at December 31,
1997 compared to December 31, 1996.

  All assets and ratios are reported net of SVA and writedowns unless otherwise
stated. The following table presents asset quality details at the dates
indicated:
<TABLE>
<CAPTION>
                                                         DECEMBER 31,      DECEMBER 31,
                                                             1997             1996
                                                         -----------       ------------
                                                            (DOLLARS IN THOUSANDS)
<S>                                                       <C>              <C>
NPAs by type:
  Nonaccruing loans.....................................  $   13,074       $    36,125
  REO, net of REO GVA...................................      12,293            24,663
                                                          ----------       -----------
    Total NPAs..........................................  $   25,367       $    60,788
                                                          ==========       ===========
NPAs by composition:
  Single family residences..............................  $    6,833       $    11,204
  Multifamily 2 to 4 units..............................       2,039             9,369
  Multifamily 5 units and over..........................      15,309            36,160
  Commercial and other..................................       1,686             5,355
  REO GVA...............................................        (500)           (1,300)
                                                          ----------       -----------
    Total NPAs..........................................      25,367            60,788
Total TDRs(2)...........................................      43,993            45,196
                                                          ----------       -----------
    Total TDRs and NPAs.................................  $   69,360       $   105,984
                                                          ==========       ===========
Classified assets:
  NPAs..................................................  $   25,367       $    60,788
  Performing classified loans...........................     104,685           111,248(1)
  Other classified assets...............................      23,450(2)          2,060
                                                          ----------       -----------
    Total classified assets.............................  $  153,502       $   174,096
                                                          ==========       ===========
Classified asset ratios:
  Nonaccruing loans to total assets.....................        0.31%           1.08  %
  NPAs to total assets..................................        0.61%           1.83  %
  TDRs to total assets..................................        1.06%           1.36  %
  NPAs and TDRs to total assets.........................        1.66%           3.18  %
  Classified assets to total assets.....................        3.68%           5.23  %
  REO to NPAs...........................................       48.46%          40.57  %
  Nonaccruing loans to NPAs.............................       51.54%          59.43  %
</TABLE>
-----------
(1)  Includes a hotel property loan with a balance of $18.4 million at December
     31, 1996.
(2)  Includes the Libor Asset Trust investment securities with a book value of
     $20.9 million which were classified due to the performance of the
     underlying collateral. The securities were sold in January 1998.

                                       62
<PAGE>

 REO

  Direct costs of foreclosed real estate operations totaled $5.4 million, $5.7
million and $5.8 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The decrease was primarily due to decreases in both the average
number of REO outstanding and the average gross book value of properties
foreclosed. The following table provides information about the change in the
book value and the number of properties owned and foreclosed for the periods
indicated:
<TABLE>
<CAPTION>
                                                                           AT OR FOR THE YEARS ENDED
                                                                                 DECEMBER 31,
                                                                           -------------------------
                                                                              1997           1996
                                                                           ---------       ---------
                                                                            (DOLLARS IN THOUSANDS)
<S>                                                                         <C>            <C>
REO net book value........................................................  $ 12,293       $24,663
(Decrease) increase in REO for the period.................................  $(12,370)      $ 5,142

Number of real properties owned...........................................        88           131
(Decrease) increase in number of properties owned for the period..........       (43)           22

Number of properties foreclosed for the period............................       257           226
Gross book value of properties foreclosed.................................  $ 75,385       $77,585
Average gross book value of properties foreclosed.........................  $    294       $   343
</TABLE>

                                       63
<PAGE>

 Allowance for Estimated Loan and REO Losses

  The following table summarizes the reserves, writedowns and certain coverage
ratios at the dates indicated:
<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                                    -----------------------
                                                                                       1997          1996
                                                                                    -----------   ---------
                                                                                    (DOLLARS IN THOUSANDS)
<S>                                                                                 <C>           <C>
Loans:
    GVA   ..........................................................................  $32,426      $25,308
    SVA.............................................................................   18,112       32,200
                                                                                      -------      -------
      Total allowance for estimated loan losses (1) (2).............................  $50,538      $57,508
                                                                                      =======      =======
    Writedowns (3)..................................................................  $   183      $   146
                                                                                      =======      =======
    Total loan allowances and loan writedowns to gross loans (4)....................     1.76%        2.09%
    Total loan allowances to gross loans............................................     1.75%        2.08%
    Loan GVA to loans (4)...........................................................     1.14%        0.93%
    Loan GVA to nonaccruing loans...................................................   248.02%       70.06%
    Nonaccruing loans to total loans, net...........................................     0.46%        1.34%
Real estate owned:
    REO GVA.........................................................................  $   500      $ 1,300
    SVA   ..........................................................................      623          781
                                                                                      -------      -------
      Total REO allowance for estimated losses......................................  $ 1,123      $ 2,081
                                                                                      =======      =======
    Writedowns (3)..................................................................  $ 7,227      $14,819
                                                                                      =======      =======
    Total REO allowances and REO writedowns to gross REO............................    40.45%       40.66%
    Total REO allowances to gross REO (5)...........................................     8.37%        7.78%
    REO GVA to REO (4)..............................................................     3.91%        5.01%
Total loans and REO:
    GVA.............................................................................  $32,926      $26,608
    SVA.............................................................................   18,735       32,981
                                                                                      -------      -------
      Total allowance for estimated losses (2)......................................  $51,661      $59,589
                                                                                      =======      =======
    Writedowns (3)..................................................................  $ 7,410      $14,965
                                                                                      =======      =======
    Total allowances and writedowns to gross loans and REO..........................     2.03%        2.66%
    Total allowances to gross loans and REO (4).....................................     1.78%        2.14%
    Total GVA to loans and REO (4)..................................................     1.15%        0.97%
    Total GVA to NPAs...............................................................   127.29%       42.86%
</TABLE>
---------------
(1) All allowances for loan losses are for the Bank's portfolio of mortgage
    loans.
(2) At December 31, 1997 and 1996, the allowance for estimated loan losses
    includes $14.4 million and $16.7 million, respectively, of remaining loan
    GVA and SVA for the Plan. See "--Asset Quality--Accelerated Asset Resolution
    Plan."
(3) Writedowns include cumulative charge-offs on outstanding loans and REO as of
    the dates indicated.
(4) Loans and REO, as applicable, in these ratios are calculated prior to their
    reduction for loan and REO GVA, respectively, but are net of SVA and
    writedowns.
(5) Net of writedowns.

                                       64
<PAGE>

  The following tables summarize the activity in the allowances for estimated
loan and REO losses for the periods indicated:
<TABLE>
<CAPTION>
                                                                    YEAR ENDED                     YEAR ENDED
                                                                 DECEMBER 31, 1997              DECEMBER 31, 1996
                                                        -------------------------------  --------------------------------
                                                         LOANS(1)      REO      TOTAL      LOANS(1)      REO      TOTAL
                                                       ----------   --------  ---------  ----------   --------  ---------
                                                                              (DOLLARS IN THOUSANDS)
<S>                                                    <C>          <C>       <C>        <C>          <C>       <C>
Balance on January 1,...............................    $ 57,508     $ 2,081   $ 59,589   $ 89,435     $ 3,492   $ 92,927
  Provision for losses..............................      13,004       1,060     14,064     15,610       3,219     18,829
  Charge-offs.......................................     (41,190)     (2,810)   (44,000)   (50,841)     (4,630)   (55,471)
  Allocations related to acquisition (2)............      12,770         120     12,890         --          --         --
  Recoveries........................................       8,446         672      9,118      3,304          --      3,304
                                                        --------     -------   --------   --------     -------   --------
Balance on December 31..............................    $ 50,538     $ 1,123   $ 51,661   $ 57,508     $ 2,081   $ 59,589
                                                        ========     =======   ========   ========     =======   ========
</TABLE>
---------------------
(1) All allowances for loan losses are for the Bank's portfolio of mortgage
    loans.
(2) Included in the estimated loan losses related to the Hancock acquisition is
    $5.8 million associated with the Plan. See "--Asset Quality--Accelerated
    Asset Resolution Plan."


  The following table details the activity affecting SVA for the periods
indicated:
<TABLE>
<CAPTION>
                                                                    YEAR ENDED                     YEAR ENDED
                                                                 DECEMBER 31, 1997              DECEMBER 31, 1996
                                                        -------------------------------  --------------------------------
                                                         LOANS(1)      REO      TOTAL      LOANS(1)      REO      TOTAL
                                                       ----------   --------  ---------  ----------   --------  ---------
                                                                              (DOLLARS IN THOUSANDS)
<S>                                                    <C>          <C>       <C>        <C>          <C>       <C>
Balance on January 1,...............................    $ 32,200     $   781   $ 32,981   $ 40,514     $ 1,192   $ 41,706
  Allocations from GVA to SVA.......................      23,987       2,532     26,519     42,527       4,219     46,746
  Charge-offs.......................................     (41,190)     (2,810)   (44,000)   (50,841)     (4,630)   (55,471)
  Allocations related to acquisition................       3,115         120      3,235         --          --         --
                                                        --------     -------   --------   --------     -------   --------
Balance on December 31..............................    $ 18,112     $   623   $ 18,735   $ 32,200     $   781   $ 32,981
                                                        ========     =======   ========   ========     =======   ========
</TABLE>
NET INTEREST INCOME

  Net interest income is the difference between interest earned on loans, MBSs
and investment securities ("interest-earning assets") and interest paid on
savings deposits and borrowings ("interest-bearing liabilities"). For the year
ended December 31, 1997, net interest income totaled $81.0 million, decreasing
by $4.3 million from $85.3 million for the year-end 1996. Net interest income in
1996 increased by $13.7 million from 1995.

  Net interest income is primarily affected by (a) the average volume and
repricing characteristics of the Company's interest-earning assets and interest-
bearing liabilities, (b) the level and volatility of market interest rates, (c)
the level of nonaccruing loans ("NPLs") and (d) the interest rate spread between
the yields earned and the rates paid.

                                       65
<PAGE>

  The following table presents the primary determinants of net interest income
for the periods indicated. For the purpose of this analysis, nonaccrual loans
are included in the average balances, and delinquent interest on such loans has
been deducted from interest income.
<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                             -----------------------------------------------------------------------------
                                                             1997                                     1996
                                             ----------------------------------         ----------------------------------
                                              AVERAGE                   AVERAGE          AVERAGE                  AVERAGE
                                               DAILY                     YIELD/           DAILY                    YIELD/
                                              BALANCE      INTEREST       RATE           BALANCE       INTEREST     RATE
                                             ----------   ----------    -------         ----------     --------   --------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                          <C>          <C>           <C>           <C>            <C>          <C>
Interest-earning assets:
 Loans....................................   $2,810,193   $  205,275       7.30%        $2,901,908     $213,013      7.34%
 MBSs.....................................      429,483       29,435       6.85             78,242        5,772      7.38
 Investment securities....................      263,573       16,822       6.38            233,797       16,056      6.87
 Investment in FHLB stock.................       55,129        3,475       6.30             50,976        3,072      6.03
                                             ----------   ----------                    ----------     --------
  Total interest-earning assets...........    3,558,378      255,007       7.16          3,264,923      237,913      7.29
                                                          ----------                                   --------
Noninterest-earning assets................       88,119                                     57,351
                                             ----------                                 ----------
  Total assets............................   $3,646,497                                 $3,322,274
                                             ==========                                 ==========
Interest-bearing liabilities:
 Deposits:
  Demand deposits.........................   $  282,886        3,451       1.22         $  298,287        3,098      1.04
  Savings deposits........................      112,904        6,135       5.43            137,885        3,743      2.71
  Time deposits...........................    2,246,770      117,131       5.18          2,103,369      113,424      5.38
                                             ----------   ----------                    ----------     --------
   Total deposits.........................    2,642,560      126,717       4.80          2,539,541      120,265      4.72
 Borrowings...............................      764,350       47,292       6.19            515,435       32,358      6.26
                                             ----------   ----------                    ----------     --------
  Total interest-bearing liabilities......    3,406,910      174,009       5.11          3,054,976      152,623      4.98
                                                          ----------                                   --------
Noninterest-bearing liabilities...........       40,621                                     44,251
Preferred stock issued by
 consolidated subsidiary..................       28,640                                     51,750
Stockholders' equity......................      170,326                                    171,297
                                             ----------                                 ----------
 Total liabilities and equity.............   $3,646,497                                 $3,322,274
                                             ==========                                 ==========
Net interest income; interest
 rate spread..............................                $   80,998(1)    2.05%                       $ 85,290      2.31%
                                                          ==========      =====                        ========     =====
Net yield on interest
 earning assets...........................                                 2.27%(1)                                  2.63%
                                                                          =====                                     =====
Average nonaccruing loan
 balance included in average
 loan balance................                $   43,117                                 $   60,364
                                             ==========                                 ==========
Net delinquent interest removed
 from interest income.....................                $    3,909                                   $  6,018
                                                          ==========                                   ========
Reduction in net yield on
 interest-earning assets
 due to delinquent interest...............                                 0.11%                                     0.18%
                                                                          =====                                     =====
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                               ------------------------------------
                                                               1995
                                               ------------------------------------
                                                AVERAGE                   AVERAGE
                                                 DAILY                     YIELD/
                                                BALANCE      INTEREST       RATE
                                               ----------   ----------    -------
                                                      (DOLLARS IN THOUSANDS)
<S>                                          <C>            <C>           <C>
Interest-earning assets:
 Loans....................................     $3,196,024     $227,710      7.12%
 MBSs.....................................         55,538        3,535      6.37
 Investment securities....................        201,243       12,794      6.36
 Investment in FHLB stock.................         48,373        2,438      5.04
                                               ----------     --------
  Total interest-earning assets...........      3,501,178      246,477      7.04
                                                              --------
Noninterest-earning assets................         87,525
                                               ----------
  Total assets............................     $3,588,703
                                               ==========
Interest-bearing liabilities:
 Deposits:
  Demand deposits.........................     $  304,644        2,767      0.91
  Savings deposits........................        167,000        4,469      2.68
  Time deposits...........................      2,207,145      121,006      5.47
                                               ----------     --------
   Total deposits.........................      2,678,789      128,242      4.79
 Borrowings...............................        716,267       46,594      6.51
                                               ----------     --------
  Total interest-bearing liabilities......      3,395,056      174,836      5.15
                                                              --------
Noninterest-bearing liabilities...........         30,615
Preferred stock issued by
 consolidated subsidiary..................
Stockholders' equity......................        163,032
                                               ----------
 Total liabilities and equity.............     $3,588,703
                                               ==========
Net interest income; interest
 rate spread..............................                    $ 71,641      1.89%
                                                              ========     =====
Net yield on interest
 earning assets...........................                                  2.05%
                                                                           =====
Average nonaccruing loan
 balance included in average
 loan balance................                  $   76,758
                                               ==========
Net delinquent interest removed
 from interest income.....................                    $  5,813
                                                              ========
Reduction in net yield on
 interest-earning assets
 due to delinquent interest...............                                  0.17%
                                                                           =====

</TABLE>
--------------------------
(1)  At December 31, 1997, the impact of the Americash program on net interest
     income and margin would be increases of $1.1 million and 2 basis points,
     respectively.

                                       66
<PAGE>

  The following tables present the dollar amount of changes in interest income
and expense for each major component of interest-earning assets and interest-
bearing liabilities and the amount of change attributable to changes in average
balances and average rates for the periods indicated. Because of numerous
changes in both balances and rates, it is difficult to allocate precisely the
effects thereof. For purposes of these tables, the change due to volume is
initially calculated as the change in average balance multiplied by the average
rate during the prior period and the change due to rate is calculated as the
change in average rate multiplied by the average volume during the prior period.
Any change that remains unallocated after such calculations is allocated
proportionately to changes in volume and changes in rates.
<TABLE>
<CAPTION>
                                                              YEAR ENDED                                YEAR ENDED
                                                           DECEMBER 31, 1997                         DECEMBER 31, 1996
                                                              COMPARED TO                               COMPARED TO
                                                               YEAR ENDED                                YEAR ENDED
                                                            DECEMBER 31, 1996                         DECEMBER 31, 1995
                                                          FAVORABLE (UNFAVORABLE)                  FAVORABLE (UNFAVORABLE)
                                                   ------------------------------------    -------------------------------------
                                                    VOLUME          RATE          NET       VOLUME          RATE          NET
                                                   --------       -------      --------    --------       -------       --------
                                                                               (DOLLARS IN THOUSANDS)
<S>                                               <C>             <C>          <C>          <C>           <C>           <C>
Interest income:
 Loans..........................................   $ (6,600)      $(1,138)     $ (7,738)   $(21,530)      $ 6,833       $(14,697)
 MBSs...........................................     24,107          (444)       23,663       1,612           625          2,237
 Investment securities..........................      1,926        (1,160)          766       2,181         1,081          3,262
 Investment in FHLB stock.......................        253           149           403         136           498            634
                                                   --------       -------      --------    --------       -------       --------
  Total interest income.........................     19,686        (2,593)       17,094     (17,601)        9,037         (8,564)
                                                   --------       -------      --------    --------       -------       --------
Interest expense:
 Deposits:
  Demand deposits...............................        166          (519)         (353)         59          (390)          (331)
  Savings deposits..............................        781        (3,173)       (2,392)        776           (50)           726
  Time deposits.................................     (7,411)        3,704        (3,707)      5,379         2,203          7,582
                                                   --------       -------      --------    --------       -------       --------
    Total deposits..............................     (6,464)           12        (6,452)      6,214         1,763          7,977
 Borrowings.....................................    (12,709)       (2,225)      (14,934)     11,563         2,673         14,236
                                                   --------       -------      --------    --------       -------       --------
  Total interest expense........................   $(19,173)       (2,213)      (21,386)     17,777         4,436         22,213
                                                   --------       -------      --------    --------       -------       --------
(Decrease) increase in net interest income......   $    513       $(4,806)     $ (4,292)   $    176       $13,473       $ 13,649
                                                   ========       =======      ========    ========       =======       ========
</TABLE>

  The $4.3 million decrease in net interest income between 1997 and 1996 was
primarily due to decreased rates on average interest-earning assets combined
with an increase in rates and the average level of interest-bearing liabilities.
This was partially offset by an increase in the level of interest-earning
assets.

  The $13.7 million increase in net interest income between 1996 and 1995 was
primarily the result of generally decreasing rates and the lag effect on the
COFI portfolio, (see "--Asset/Liability Management") utilization of new capital
raised in 1995, and a lower level of average interest-bearing liabilities. This
was partially offset by a decline in the level of average interest-earning
loans.

  The Company's net interest income, interest rate margin and operating results
have been negatively affected by the level of loans on nonaccrual status. Gross
balances of nonaccruing loans averaged $43.1 million, $60.4 million, and $76.8
million in 1997, 1996, and 1995, respectively. As a result, the Company's net
interest rate margin was decreased by 0.11%, 0.18%, and 0.17% in those years,
respectively.


NONINTEREST INCOME/EXPENSE

  Noninterest income has three major components: (a) noninterest income from
ongoing operations, which includes loan fee income, gains or losses on loans
held for sale, fees earned on the sale of uninsured investment products and
annuities and retail banking fees, (b) income/expenses associated with owned
real estate, which includes both the provision for real estate losses as well as
income/expenses incurred by the Company associated with the operations of its
owned real estate properties and (c) gains and losses on the sales of loan
servicing, investment securities and MBSs. Items (b) and (c) can fluctuate
widely, and could therefore mask the underlying fee generating performance of
the Company on an ongoing basis.

                                       67
<PAGE>

  Noninterest income increased by $1.7 million from $2.2 million in the year
ended December 31, 1996 to $3.9 million in the year ended December 31, 1997. The
major component of this increase are (a) fee income from sale of uninsured
investment products increased by $1.5 million as a result of increased sales,
(b) fee income on deposits and other income increased by $0.3 million primarily
as a result of a higher average volume of deposit balances in 1997 as compared
to 1996, (c) net gains on securities activities in the year ended December 31,
1997 increased by $1.3 million from the 1996 twelve month period primarily due
to increased sales, (d) fee income on Americash increased $1.0 million as a
result of cash service fees received in 1997, with no comparable amounts in 1996
and (e) decreased real estate operations of $2.4 million primarily due to
improved execution on sales of foreclosed properties. These favorable variances
were partially offset by the writedown of MBSs of $4.8 million (see "--Writedown
of Mortgage-backed Securities").

  Noninterest income decreased by $8.8 million from net noninterest income of
$11.1 million in the year ended December 31, 1995 to $2.3 million in the year
ended December 31, 1996. The major components of this decrease are: (a) other
noninterest income (expense) decreased by $4.5 million as a result of a net gain
of $4.6 million realized in 1995 from the sale of $495.5 million in rights to
service loans for others, with no comparable amounts in 1996; (b) loan servicing
fees decreased by $1.3 million primarily as a result of the sale of the rights
to service loans in the first quarter of 1995 and the second quarter of 1996;
(c) net gains on sales of MBSs decreased during the year ended December 31, 1996
by $0.6 million from the 1995 twelve-month period; and (d) net gains on
securities activities in the year ended December 31, 1996 decreased by $2.2
million from the 1995 twelve month period. The increased sales activity in
loans, MBSs and investment securities in 1995 was primarily for regulatory
capital maintenance purposes.


OPERATING EXPENSES

  Operating expenses decreased by $19.4 million to $63.1 million for the year
ended December 31, 1997 compared to $82.5 million (including the SAIF special
assessment of $18.0 million) for the year ended December 31, 1996. The change
was primarily due to (a) a decrease of $22.4 million of FDIC insurance costs
resulting from the special one-time recapitalization payment of $18.0 million to
the SAIF in the third quarter of 1996 and an upgrade in the Bank's assessment
classification, (b) a decrease of $1.0 million in other expenses primarily due
to lower legal settlement costs related to certain litigation. These favorable
variances were partially offset by (a) a $2.5 million increase in personnel and
benefit expense due to an increase of 104 or 22.7% in FTEs during 1997 primarily
due to the Hancock acquisition and implementation of the business strategy; (b)
an increase of $1.3 million in occupancy costs primarily due to Hancock and
Coast branch acquisitions completed in 1997.

  The Company increased total employee headcount during 1997 by 105 related to
the acquisition of Hancock and implementation of the business strategy. Areas
which experienced employee increases in 1997 included the Retail Financial
Services Group (an increase of 74 employees), the Consumer Lending and Credit
Group (an increase of 13 employees), the Gateway Investment Services Group (an
increase of 13 employees), and other administrative services (an increase of 5
employees). In line with the Company's business strategy, it is anticipated that
the FTE count of the Company will significantly increase in the future as the
business strategy is implemented.

  While the Company intends to continue to control operating expenses, the level
of expenses are expected to significantly increase as the business initiatives
described under Item 1. "Business--Business Strategy" are implemented. The
Company also intends to expend resources as it evaluates and pursues earning
asset acquisition opportunities.

  Operating expenses (excluding the SAIF special assessment of $18.0 million)
decreased by $17.5 million to $64.5 million for the year ended December 31, 1996
compared to $82.0 million for the year ended December 31, 1995. The change was
primarily due to (a) a $7.8 million decrease in personnel and benefit expense
due to a decline of 152 or 23.6% in the twelve month average number of FTEs; (b)
a decrease of $2.0 million in occupancy costs; (c) a decrease of $1.3 million of
FDIC insurance costs due to the

                                       68
<PAGE>

recapitalization of the SAIF in 1996 and an upgrade in the Bank's assessment
classification, excluding the SAIF special assessment of $18.0 million; (d) a
decrease of $4.3 million resulting in provisions for capitalized software costs
in 1995 with no corresponding amount in 1996; and (e) a decrease of $2.7 million
in office-related expenses and other costs which was largely tied to the overall
reduction in personnel and overhead. These favorable variances were partially
offset by an increase of $0.6 million in professional services due largely to
cost reengineering efforts and outsourcing of certain administrative functions.

  The Company decreased total employee headcount during 1996 by 97 to achieve
organizational goals involving cost reductions, outsourcing opportunities and
changes in product focus. Areas which experienced employee reductions in 1996
included the Consumer Lending Group (a reduction of 56 employees), the Finance
Group (a reduction of 21 employees) and the Retail Financial Services Group,
other administrative services and subsidiaries (a reduction of 20 employees).

  Decreased operating expenses resulted in a decrease in the annualized
operating expense ratio (the ratio of operating expenses to total average
assets) to 1.73% for the year ended December 31, 1997 from 1.94%, excluding the
SAIF special assessment of $18.0 million, for the same period in 1996, based on
the total average asset size of the Company (from $3.3 billion for the year
ended December 31, 1996 to $3.6 billion for the year ended December 31, 1997).

  Decreased operating expenses, excluding the SAIF special assessment of $18.0
million, resulted in a decrease in the annualized operating expense ratio (the
ratio of operating expenses to total average assets) to 1.94% for the year ended
December 31, 1996 from 2.28% for the same period in 1995, notwithstanding the
decrease in total average asset size of the Company (from $3.6 billion for the
year ended December 31, 1995 to $3.3 billion for the year ended December 31,
1996).

  Due to the sensitivity of the operating expense ratio to changes in the size
of the balance sheet, management also looks at trends in the efficiency ratio to
assess the changing relationship between operating expenses and income. The
efficiency ratio measures the amount of cost expended by the Bank to generate a
given level of revenues in the normal course of business. It is computed by
dividing total operating expense by net interest income and noninterest income,
excluding infrequent items. A decrease in the efficiency ratio is favorable in
that it indicates that less expenses were incurred to generate a given level of
revenue.

  The efficiency ratio improved between the year ended December 31, 1996 and
December 31, 1997 from 67.77% to 67.46%. This decrease was due to increased
noninterest income (excluding the $4.8 million writedown on MBSs available for
sale) and decreased operating expense (excluding the SAIF special assessment of
$18.0 million), for reasons described above, which were partially offset by
decreased net interest income.

  The efficiency ratio improved between the year ended December 31, 1995 and
December 31, 1996 from 89.81% to 67.77%. This decrease was due to increased net
interest income and decreased operating expense (excluding the SAIF special
assessment of $18.0 million), for reasons described above, which were partially
offset by decreased noninterest income.


 Year 2000

  The Company utilizes numerous computer software programs and systems across
the organization to support ongoing operations. Many of these programs and
systems may not be able to appropriately interpret and process dates into the
year 2000. To the extent that programs and systems are unable to process into
the year 2000, some degree of modification, upgrade, or replacement of such
systems may be necessary. The Company has established a task force to develop a
comprehensive year 2000 plan with the goal of completing updates to key systems
by December 31, 1998. Given information currently known about the Company's
systems and servicers, the current expense estimate for year 2000 corrective
activities is $3.6 to $4.0 million, of which a significant portion would be
related to increased staffing of technology and support personnel to complete
the modifications or upgrades necessary.

                                       69
<PAGE>

  While the Company believes it will achieve year 2000 compliance, it is to some
extent dependent upon the efforts of third parties who provide systems and
services. The Company is closely monitoring the year 2000 progress of third
party vendors and has planned a program of testing key systems for compliance.
No assurance can be given that the Company will be successful in addressing year
2000 issues within this estimated timeframe or at specified cost.

INCOME TAXES

  The Company's expected combined federal and state statutory tax rate is
approximately 42.0% of earnings before income taxes. The effective tax benefit
rate of 92.2% on earnings before income taxes for 1997, reflect the federal and
state tax benefit attributable to the utilization of net operating loss ("NOL")
carryforwards, and the partial recognition of the deferred tax asset based on
anticipated future operations. The effective tax benefit rate of 10.4% on losses
before income taxes for 1996 reflects the federal tax benefit attributable to
the third quarter filing of a loss carryback claim under IRC Section 172(f), as
discussed below.

  As of December 31, 1996 a valuation allowance was provided for the total net
deferred tax asset. Under SFAS No. 109, "Accounting for Income Taxes," the
reduction in valuation allowance is dependent upon a "more likely than not"
expectation of realization of the deferred tax asset, based upon the weight of
available evidence. After consideration of the Company's recent earnings history
and other available evidence, management of the Company determined that under
the criteria of SFAS No. 109 it was appropriate to record a $8.3 net deferred
tax asset for the year ended December 31, 1997.

  The analysis of available evidence is performed each quarter utilizing the
"more likely than not" criteria required by SFAS 109 to determine the amount, if
any, of the deferred tax asset to be realized. Accordingly, there can be no
assurance that the Company will recognize additional portions of the deferred
tax asset in future periods. The criteria of SFAS No. 109 could require the
recording of valuation allowances against this $8.3 million net deferred tax
asset through the recording of tax expense in future periods if the "more likely
than not" criteria can no longer be met.

  Various federal Form 1120Xs "Amended U.S. Corporation Income Tax Return" were
filed in 1996 for years 1986 through 1989, 1991, 1992 and 1994 to reflect the
10-year loss carryback under IRC Section 172(f) for qualifying deductions
through August 4, 1994.  These returns were filed with the Bank's former parent
company, Citadel.  The amended returns, if accepted in total, would result in a
net refund of $19.0 million to Fidelity.  IRC Section 172(f) is an area of the
tax law without significant legal precedent.  The Internal Revenue Service (the
"Service") is currently examining this issue with respect to Fidelity's ability
to carryback such losses.  Therefore, no assurances can be given as to
Fidelity's entitlement to such claim.  Fidelity has recorded $1.1 million of tax
benefit in 1996 with respect to these amended tax returns.

  Through August 4, 1994, the 1994 restructuring and recapitalization date, the
Bank filed a consolidated federal income tax return and a combined California
franchise tax return with its former parent company, Citadel. Pursuant to the
1994 restructuring and recapitalization Fidelity raised approximately $109
million in net new equity, and Citadel's ownership interest in Fidelity was
reduced to 16.2% of the then outstanding common stock. As a result of this 1994
restructuring and recapitalization, the Bank was no longer eligible to file a
tax return on a consolidated or combined basis with Citadel. Accordingly,
Fidelity and its subsidiaries filed a consolidated federal income tax return and
a combined California franchise tax return with the Bank as the common parent
corporation for the period of August 5, 1994 through December 31, 1994 and the
1995 calendar year. Fidelity and its subsidiaries have filed a consolidated
federal income tax return and a combined California franchise tax return with
its new parent company, Bank Plus for the 1996 calendar year, and will continue
to file as such for subsequent years.

  Although Fidelity ceased to be a member of the Citadel consolidated group as a
result of the 1994 restructuring and recapitalization, Fidelity will remain
severally liable for the federal income tax of the Citadel consolidated group
for those tax years during which it was a member of the Citadel consolidated
group at any time. Citadel and Fidelity are parties to a tax disaffiliation
agreement governing certain tax

                                       70
<PAGE>

matters. For additional information, see "Related Party Transactions--Tax
Sharing" at Note 17 to the consolidated financial statements.

  Effective for taxable years beginning after 1995, legislation enacted in 1996
has repealed for federal purposes the reserve method of accounting for bad debts
for thrift institutions. While thrifts qualifying as "small banks" may continue
to use the experience method, Fidelity, deemed a "large bank," is required to
use the specific charge off method. In addition, this enacted legislation
contains certain income recapture provisions which are discussed below.

  Thrift institutions deemed "large banks" are required to include into income
ratably over 6 years, beginning with the first taxable year beginning after
1995, the institution's "applicable excess reserves." The applicable excess
reserves are the excess of (1) the balance of the institution's reserves for
losses on loans other than supplemental reserves at the close of its last
taxable year beginning before January 1, 1996, over (2) the adjusted balance of
such reserves as of the close of its last taxable year beginning before January
1, 1988. Fidelity's applicable excess reserves at December 31, 1995 were $14.6
million. This amount will be recognized into taxable income over six years at
the rate of $2.4 million per year starting with the taxable year ended December
31, 1996.  The remaining applicable excess reserves at December 31, 1997 were
$9.8 million.

  The remaining adjusted pre-1988 total reserve balance of $26.0 million at
December 31, 1997, will be recaptured into taxable income in the event Fidelity
(1) ceases to be a "bank" or "thrift," or (2) makes distributions to
shareholders in excess of post-1951 earnings and profits, redemptions, or
liquidations. Based on current estimates, Fidelity had post-1951 earnings and
profits at December 31, 1997 sufficient to cover 1997 distributions to
shareholders for federal income tax purposes. As a result, Fidelity did not
trigger any reserve recapture into taxable income for 1997.

  For federal income tax purposes, the maximum rate of tax applicable to savings
institutions is currently 35% for taxable income over $10 million. For
California franchise tax purposes, savings institutions are taxed as "financial
corporations" at a higher rate than that applicable to nonfinancial corporations
because of exemptions from certain state and local taxes. The California
franchise tax rate applicable to financial corporations is approximately 11%.

  The Service has completed its examination of the Bank's federal income tax
returns through 1991. The Service is currently conducting an examination of the
federal income tax returns for 1992, 1993 and tax year ended August 4, 1994. The
California Franchise Tax Board (the "FTB") has completed its examination of the
California franchise tax returns through 1988, and has completed the field
examination of the California franchise tax returns for years 1989 through 1991.
However, this examination is currently in the appeals process with the FTB. For
additional information regarding the federal income and California franchise
taxes payable by the Bank, see Note 12 to the consolidated financial statements.

  IRC Sections 382 and 383 and the Treasury Regulations thereunder generally
provide that, following an ownership change of a corporation with an NOL, a net
unrealized built-in loss or tax credit carryovers, the amount of annual post-
ownership change taxable income that can be offset by pre-ownership change NOLs
or recognized built-in losses, and the amount of post-ownership change tax
liability that can be offset by pre-ownership change tax credits, generally
cannot exceed a limitation prescribed by Section 382. The Section 382 annual
limitation generally equals the product of the fair market value of the equity
of the corporation immediately before the ownership change (subject to various
adjustments) and the long-term tax-exempt rate prescribed monthly by the
Service.

  As a result of the 1994 restructuring and recapitalization, the Bank underwent
an ownership change, ceased to be a member of the Citadel consolidated group,
and became subject to the annual limitations under IRC Section 382. As a result
of the 1995 Recapitalization, the Bank again underwent an ownership change, and
became subject to the annual limitations under IRC Section 382. The limitations
imposed by the 1995 change of ownership are inclusive of the limitations imposed
by the 1994 change of ownership.

                                       71
<PAGE>

  Hancock was merged with and into Fidelity as of June 30, 1997 in a tax-free
reorganization within the meaning of IRC Section 368(a)(1)(A), by reason of the
application of IRC Section 368(a)(2)(D). The cumulative total of net deferred
tax assets of Hancock and the related valuation allowance are included in the
balances of net deferred taxes as of December 31, 1997. In accordance with SFAS
No. 109, any subsequent reductions in the valuation allowance associated with
the deferred tax assets of Hancock will be reflected as an adjustment to any
goodwill with respect to the acquisition that remains unamortized.

  As of December 31, 1997, the Bank had an estimated NOL carryover for federal
income tax purposes of $109.1 million expiring in years 2008 through 2011. Of
this amount, $70.1 million is subject to annual utilization limitations as a
result of the 1994 and 1995 changes of ownership. Of the estimated federal NOL
carryover, $3.2 million represents Hancock NOLs which are subject to an annual
utilization limitation as a result of the 1997 change of ownership occurring as
part of its acquisition by the Bank. For California franchise tax purposes, the
Bank had an estimated NOL carryover of $43.9 million. Of the estimated
California NOL carryover, $40.3 million relates to the Bank's operations and
expire in years 1998 through 2002, with $24.9 million of this amount subject to
annual utilization limitations as a result of the 1994 and 1995 changes of
ownership. The remaining $3.6 million in estimated California NOLs represent
Hancock NOLs expiring in years 2000 through 2009 with an annual utilization
limitation as a result of the 1997 change of ownership occurring as part of its
acquisition by the Bank.

  The deferred tax assets related to both the estimated federal and California
NOL carryovers at December 31, 1997 have been recorded with a partial
corresponding valuation allowance  in accordance with the provisions of SFAS No.
109.


REGULATORY CAPITAL COMPLIANCE

  The OTS capital regulations, as required by FIRREA include three separate
minimum capital requirements for the savings institution industry--a "tangible
capital requirement," a "leverage limit" and a "risk-based capital requirement."
These capital standards must be no less stringent than the capital standards
applicable to national banks.

  As of December 31, 1997 and 1996, the Bank was "well capitalized" under PCA
regulations adopted by the OTS pursuant to FDICIA. To be categorized as "well
capitalized", the Bank must maintain minimum core capital, core risk-based
capital and risk-based capital ratios as set forth in the table below. The
Bank's capital amounts and classification are subject to review by federal
regulators about components, risk-weightings and other factors. There are no
conditions or events since December 31, 1997 that management believes have
changed the institution's category.

                                       72
<PAGE>

  The Bank's actual and required capital as of December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>

                                                                                        TO BE CATEGORIZED
                                                                                       AS WELL CAPITALIZED
                                                                                           UNDER PROMPT
                                                                   FOR CAPITAL          CORRECTIVE ACTION
                                             ACTUAL             ADEQUACY PURPOSES          PROVISIONS
                                        ------------------      ------------------     -------------------
                                         AMOUNT      RATIO       AMOUNT      RATIO      AMOUNT      RATIO
                                        ---------    -----      --------     -----     --------     ------
                                                              (DOLLARS IN THOUSANDS)
<S>                                      <C>         <C>        <C>          <C>       <C>          <C>
As of December 31, 1997:
 Total capital (to risk-weighted
  assets)............................... $254,200    11.99%  *  $169,700  *  8.00%  *  $212,100  *  10.00%
 Core capital (to adjusted tangible
  assets)...............................  227,700     5.48   *   124,600  *  3.00   *   207,700  *   5.00
 Tangible capital (to tangible assets)..  218,300     5.27   *    62,200  *  1.50              N/A
 Core capital (to risk-weighted
  assets)...............................  227,700    10.74              N/A         *   127,200  *   6.00
As of December 31, 1996:
 Total capital (to risk-weighted
  assets)...............................  233,600    11.85   *   157,700  *  8.00   *   197,100  *  10.00
 Core capital (to adjusted tangible
  assets)...............................  209,200     6.29   *    99,800  *  3.00   *   166,300  *   5.00
 Tangible capital (to tangible assets)..  208,900     6.28   *    49,900  *  1.50              N/A
 Core capital (to risk-weighted
  assets)...............................  209,200    10.61              N/A         *   118,300  *   6.00
 </TABLE>

* represents greater than or equal to

  Under FDICIA, the OTS was required to revise its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk, and risks of nontraditional activities. The OTS
added an interest rate risk capital component to its risk-based capital
requirement originally effective September 30, 1994. However, the OTS has
temporarily postponed the implementation of the rule implementing the interest
rate risk capital component until the OTS has collected sufficient data to
determine whether the rule is effective in monitoring and managing interest rate
risk. This capital component will require institutions deemed to have above
normal interest rate risk to hold additional capital equal to 50% of the excess
risk. No interest rate risk component would have been required to be added to
the Bank's risk-based capital requirement at December 31, 1997 and 1996 had the
rule been in effect at these times.

                                       73
<PAGE>

  The following table reconciles the Bank's capital in accordance with GAAP to
the Bank's tangible, core and risk-based capital as of December 31, 1997 and
1996.
<TABLE>
<CAPTION>
                                                        TANGIBLE        CORE        RISK-BASED
                                                         CAPITAL       CAPITAL        CAPITAL
                                                         --------      --------       --------
                                                         BALANCE       BALANCE        BALANCE
                                                                (DOLLARS IN THOUSANDS)
<S>                                                      <C>           <C>            <C>
As of December 31, 1997:
Stockholders' equity (1)...............................  $230,000      $230,000       $230,000
Unrealized loss on securities..........................     4,500         4,500          4,500
Adjustments:
 Goodwill..............................................    (6,500)       (6,500)        (6,500)
 Intangible assets.....................................    (9,700)         (300)          (300)
 GVA...................................................        --            --         26,600
 Equity investments....................................        --            --           (100)
                                                         --------      --------       --------
Regulatory capital (2).................................  $218,300      $227,700       $254,200
                                                         ========      ========       ========
As of December 31, 1996:
Stockholders' equity (1)...............................  $210,300      $210,300       $210,300
Unrealized gains on securities.........................    (1,000)       (1,000)        (1,000)
Adjustments:
 Goodwill..............................................      (300)           --             --
 Intangible assets.....................................      (100)         (100)          (100)
 GVA...................................................        --            --         24,600
 Equity investments....................................        --            --           (200)
                                                         --------      --------       --------
Regulatory capital (2).................................  $208,900      $209,200       $233,600
                                                         ========      ========       ========
</TABLE>
------------------

(1) Fidelity's total stockholders' equity, in accordance with GAAP, was 5.52%
    and 6.32% of its total assets at December 31, 1997 and 1996, respectively.
(2) Both the OTS and the FDIC may examine the Bank as part of their legally
    prescribed oversight of the industry. Based on their examinations, the
    regulators can direct that the Bank's financial statements be adjusted in
    accordance with their findings.


CAPITAL RESOURCES AND LIQUIDITY

  The Bank derives funds from deposits, FHLB advances, securities sold under
agreements to repurchase, and other short-term and long-term borrowings. In
addition, funds are generated from loan payments and payoffs as well as from the
sale of loans and investments.


 Sales and Securitization of Loans:

  During 1997 and 1996, no loans were securitized compared to $112.8 million of
single family adjustable rate mortgages that the Bank securitized during 1995
through a swap of whole loans for MBSs. See "--Sales of Securities" below. Loan
sales and securitizations in 1995 were completed for the purpose of downsizing
the Bank's assets to maintain regulatory capital ratios. Sales of loans are
dependent upon various factors, including volume of loans originated, interest
rate movements, investor demand for loan products, deposit flows, the
availability and attractiveness of other sources of funds, loan demand by
borrowers, desired asset size and evolving capital and liquidity requirements.
Due to the volatility and unpredictability of these factors, the volume of
Fidelity's sales of loans has fluctuated significantly and no estimate of future
sales can be made at this time. At December 31, 1997, 1996 and 1995, the Bank
had no loans held for sale. Sales of loans, if any, from the held for investment
portfolio, except for problem loans, would be caused by unusual events.

                                       74
<PAGE>

 FHLB Advances:

  The Company had a net increase in FHLB advances of $560.1 million for the year
ended December 31, 1997. This compares to a net increase of $157.2 million for
the year ended December 31, 1996, and net repayments of $40.0 million for the
year ended December 31, 1995.


 Commercial Paper:

  Commercial paper outstanding was reduced by $40.0 million, $10.0 million and
$350.0 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The commercial paper program expired on August 5, 1997 and was not
renewed by decision of the Bank.

 Loan Payments and Payoffs:

  Loan principal payments, including prepayments and payoffs, provided $262.8
million, $248.5 million and $194.1 million for the years ended December 31,
1997, 1996 and 1995, respectively. The Company expects that loan payments and
prepayments will remain a significant funding source.


 Sales of Securities:

  The sale of investment securities and MBSs provided $309.5 million, $154.9
million and $264.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The Bank held $953.4 million, $335.7 million and $126.0 million of
investment securities and MBSs in its available for sale portfolio as of
December 31, 1997, 1996 and 1995, respectively.


 Sale of Common and Preferred Stock:

  In the fourth quarter of 1995, Fidelity completed the 1995 Recapitalization of
the Bank, pursuant to which Fidelity raised approximately $134.4 million in net
new equity through the sale of 2,070,000 shares of Series A Preferred Stock and
11,750,000 shares of Class A Common Stock.


 Undrawn Sources:

  The Company maintains other sources of liquidity to draw upon, which at
December 31, 1997 include (a) a line of credit with the FHLB with $359.9 million
available, (b) $395.2 million in unpledged securities available to be placed in
reverse repurchase agreements or sold and (c) $620.6 million of unpledged loans,
some of which would be available to collateralize additional FHLB or private
borrowings, or be securitized.

                                       75
<PAGE>

 Deposits:

  At December 31, 1997, the Company had deposits of $2.9 billion, up from the
December 31, 1996 balance of $2.5 billion. The following table presents the
distribution of deposit accounts at the dates indicated:
<TABLE>
<CAPTION>
                                                               DECEMBER 31, 1997        DECEMBER 31, 1996
                                                             --------------------     ---------------------
<S>                                                          <C>           <C>        <C>           <C>
                                                                          (DOLLARS IN THOUSANDS)
Money market accounts...................                     $   55,885       1.9%    $   65,605        2.6%
Checking accounts.......................                        336,036      11.7        287,711       11.5
Passbook accounts.......................                         67,502       2.3         53,665        2.2
                                                             ----------    ------     ----------     ------
 Total transaction accounts.............                        459,423      15.9        406,981       16.3
                                                             ----------    ------     ----------     ------
Certificates of deposit $100,000 and over                       721,206      24.9        543,336       21.8
Certificates of deposit less than $100,000                    1,711,172      59.2      1,545,616       61.9
                                                             ----------    ------     ----------     ------
 Total certificates of deposit..........                      2,432,378      84.1      2,088,952       83.7
                                                             ----------    ------     ----------     ------
 Total deposits.........................                     $2,891,801     100.0%    $2,495,933      100.0%
                                                             ==========    ======     ==========     ======
</TABLE>

  The Company is currently eligible to accept brokered deposits; however, there
were no brokered deposits outstanding at December 31, 1997 and 1996.


 Reverse Repurchase Agreements:

  From time to time the Company enters into reverse repurchase agreements by
which it sells securities with an agreement to repurchase the same securities at
a specific future date (overnight to one year). The Company deals only with
dealers who are recognized as primary dealers in U.S. Treasury securities by the
Federal Reserve Board or perceived by management to be financially strong. There
were no reverse repurchase agreements outstanding at December 31, 1997, 1996 and
1995. In the year ended December 31, 1997 and 1996, the Company borrowed and
repaid funds from reverse repurchase agreements of $25.5 million and $73.0
million, respectively. During 1995, the Bank had net repayments of reverse
repurchase agreements of $46.5 million.


 Loan Fundings:

  Fidelity funded, either directly or through purchases, $233.1 million of gross
loans (excluding Fidelity's refinancings) in the year ended December 31, 1997
compared to $13.9 million in the same period of 1996 and $19.1 million in the
same 1995 period. The closing of the Company's wholesale and correspondent
lending operations in the fourth quarter of 1994 resulted in reduced loan
fundings in 1995 and a significant decrease in loan fundings during the year
ended December 31, 1996.


 Contingent or Potential Uses of Funds:

  The Bank had unfunded loans totaling $1.7 million at December 31, 1997. The
Bank had no unfunded loans at December 31, 1996 and 1995. The unfunded loans at
December 31, 1997 were assumed as part of the Hancock acquisition.

                                       76
<PAGE>

 Liquidity:

  Effective November 24, 1997 the OTS revised its liquidity regulations. The
required average daily balance of liquid assets was reduced from 5% to 4% of the
liquidity base and the calculation changed from a monthly average to a quarterly
average. The liquidity base calculation changed to include only the deposits due
in one year or less rather than all deposits. Liabilities due in one year or
less continue to be included in the base calculation. Additionally, the
liquidity base is calculated only at quarter end and not based on a daily
average. The type of securities qualified for liquidity was expanded to include
all agency securities regardless of maturity. The Bank's quarterly average
regulatory liquidity ratio was 22.75% at December 31, 1997. The Bank's monthly
average regulatory liquidity ratios, under the liquidity regulations in force at
the time were 6.86% and 6.85% for December 1996 and 1995, respectively.

 Holding Company Liquidity:

  At December 31, 1997 and 1996, Bank Plus had cash and cash equivalents of $1.0
million and $0.8 million, respectively, and no material potential cash producing
operations or assets other than its investments in Fidelity and Gateway.
Accordingly, Bank Plus is substantially dependent on dividends from Fidelity and
Gateway in order to fund its cash needs, including its payment obligations on
the $51.5 principal amount of Senior Notes issued in exchange for Fidelity's
Preferred Stock. See Item 1."Business--General--Exchange Offer". Both Gateway's
and Fidelity's ability to pay dividends or otherwise provide funds to Bank Plus
are subject to significant regulatory restrictions. See Item 1. "Business--
Regulation and Supervision--Fidelity--Activities Regulation Not Related to
Capital Compliance" and "--Regulation of Fidelity Affiliates."


RECENT ACCOUNTING PRONOUNCEMENTS

  The Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131,"Disclosures about Segments of
an Enterprise and Related Information" in June 1997.

  SFAS No. 130  Reporting Comprehensive Income

  SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 does not require
a specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.

  SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.

  SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.

 SFAS No. 131 -- Disclosures about Segments of an Enterprise and Related
                 Information

  SFAS No. 131 establishes standards for the reporting by public business
enterprises of information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 supersedes FASB Statement No.
14, "Financial Reporting for Segments of a Business Enterprise,"

                                       77
<PAGE>

but retains the requirements to report information about major customers. It
amends FASB Statement No. 94, "Consolidation of All Majority-Owned
Subsidiaries," to remove the special disclosure requirements for previously
unconsolidated subsidiaries.

  SFAS No. 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision-maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.

  SFAS No. 131 requires that a public business enterprise report a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. It requires reconciliations of total segment revenues, total segment
profit or loss, total segment assets, and other amounts disclosed for segments
to corresponding amounts in the enterprise's general-purpose financial
statements. It requires that all public business enterprises report information
about the revenues derived from the enterprise's products or services (or groups
of similar products and services), about the countries in which the enterprise
earns revenues and holds assets, and about major customers regardless of whether
that information is used in making operating decisions. However, SFAS No. 131
does not require an enterprise to report information that is not prepared for
internal use if reporting it would be impracticable.

  SFAS No. 131 also requires that a public business enterprise report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.

  SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. This Statement need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application.

                                       78
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                                                                     PAGE
                                                                     ----
 ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
  INDEPENDENT AUDITORS' REPORT.....................................   F-2


  CONSOLIDATED FINANCIAL STATEMENTS:
     Consolidated Statements of Financial Condition................   F-3
     Consolidated Statements of Operations.........................   F-4
     Consolidated Statements of Stockholders' Equity...............   F-5
     Consolidated Statements of Cash Flows.........................   F-6
     Notes to Consolidated Financial Statements....................   F-8


                                      F-1
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
Bank Plus Corporation
Los Angeles, California


  We have audited the consolidated statements of financial condition of Bank
Plus Corporation and subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

  In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Bank Plus Corporation
and subsidiaries at December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.



DELOITTE & TOUCHE LLP

Los Angeles, California
February 13, 1998

                                      F-2
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
               (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                           -------------------------
                                                                                              1997           1996
                                                                                           ----------     ----------
<S>                                                                                        <C>            <C>
ASSETS:
 Cash and cash equivalents...............................................................  $  165,945     $   70,126
 Investment securities available for sale, at fair value.................................     100,837        156,251
 Investment securities held to maturity, at amortized cost...............................       3,189          5,178
 Mortgage-backed securities held for trading, at fair value..............................      41,050         14,121
 Mortgage-backed securities available for sale, at fair value............................     852,604        179,403
 Mortgage-backed securities held to maturity, at amortized cost..........................          --         30,024
 Loans receivable, net of allowances of $50,538 and $57,508
  at December 31, 1997 and 1996, respectively............................................   2,823,577      2,691,931
 Interest receivable.....................................................................      24,114         20,201
 Investment in Federal Home Loan Bank stock..............................................      60,498         52,330
 Real estate owned, net..................................................................      12,293         24,663
 Premises and equipment, net.............................................................      32,707         31,372
 Other assets............................................................................      50,992         54,690
                                                                                           ----------     ----------
                                                                                           $4,167,806     $3,330,290
                                                                                           ==========     ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
 Liabilities:
  Deposits...............................................................................  $2,891,801     $2,495,933
  Federal Home Loan Bank advances........................................................   1,009,960        449,851
  Senior notes...........................................................................      51,478             --
  Commercial paper.......................................................................          --         40,000
  Mortgage-backed notes..................................................................          --        100,000
  Other liabilities......................................................................      32,950         31,099
                                                                                           ----------     ----------
                                                                                            3,986,189      3,116,883
                                                                                           ----------     ----------
 Commitments and contingencies

 Preferred stock issued by consolidated subsidiary.......................................         272         51,750

 Stockholders' equity:
  Common stock:
    Common stock, par value $.01 per share; 78,500,000 shares
     authorized; 19,367,215 and 18,245,265 shares outstanding
     at December 31, 1997 and December 31, 1996, respectively............................         194            182
  Paid-in capital........................................................................     274,432        261,902
  Unrealized (losses) gains on securities available for sale, net of taxes...............      (4,467)         1,043
  Accumulated deficit....................................................................     (88,814)      (101,470)
                                                                                           ----------     ----------
                                                                                              181,345        161,657
                                                                                           ----------     ----------
                                                                                           $4,167,806     $3,330,290
                                                                                           ==========     ==========
</TABLE>

                See notes to consolidated financial statements.

                                      F-3
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                              YEAR ENDED DECEMBER 31,
                                                                                     -----------------------------------------
                                                                                         1997           1996           1995
                                                                                     -----------    -----------     ----------
<S>                                                                                  <C>            <C>             <C>
INTEREST INCOME:
 Loans.............................................................................  $   205,275    $   213,013     $  227,710
 Mortgage-backed securities........................................................       29,435          5,772          3,535
 Investment securities and other...................................................       20,297         19,128         15,232
                                                                                     -----------    -----------     ----------
  Total interest income............................................................      255,007        237,913        246,477
                                                                                     -----------    -----------     ----------
INTEREST EXPENSE:
 Deposits..........................................................................      126,717        120,265        128,242
 Federal Home Loan Bank advances...................................................       40,807         16,161         17,411
 Other borrowings..................................................................        6,485         16,197         29,183
                                                                                     -----------    -----------     ----------
  Total interest expense...........................................................      174,009        152,623        174,836
                                                                                     -----------    -----------     ----------
NET INTEREST INCOME................................................................       80,998         85,290         71,641
 Provision for estimated loan losses...............................................       13,004         15,610         69,724
                                                                                     -----------    -----------     ----------
NET INTEREST INCOME AFTER PROVISION FOR ESTIMATED LOAN LOSSES......................       67,994         69,680          1,917
                                                                                     -----------    -----------     ----------
NONINTEREST INCOME (EXPENSE):
 Loan fee income...................................................................        2,121          2,295          3,606
 Gains on loans sales, net.........................................................           37             22            522
 Fee income from sale of uninsured investment products.............................        5,959          4,456          4,117
 Fee income on deposits and other income...........................................        3,365          3,044          3,260
 Gains on sales of securities and trading activities, net..........................        2,670          1,336          4,098
 Writedown of mortgage-backed securities, available for sale.......................       (4,838)            --             --
 Fee income on Americash...........................................................        1,049             --             --
 Gains on sales of servicing.......................................................           --             --          4,604
                                                                                     -----------    -----------     ----------
                                                                                          10,363         11,153         20,207
                                                                                     -----------    -----------     ----------
 Provision for estimated real estate losses........................................       (1,060)        (3,219)        (3,366)
 Direct costs of real estate operations, net.......................................       (5,413)        (5,688)        (5,779)
                                                                                     -----------    -----------     ----------
                                                                                          (6,473)        (8,907)        (9,145)
                                                                                     -----------    -----------     ----------
  Total noninterest income.........................................................        3,890          2,246         11,062
                                                                                     -----------    -----------     ----------
OPERATING EXPENSE:
 Personnel and benefits............................................................       29,564         27,022         34,859
 Occupancy.........................................................................       11,647         10,353         12,337
 Federal Deposit Insurance Corporation insurance...................................        2,563          6,936          8,205
 Professional services.............................................................       11,054         11,156         10,601
 Office-related expenses...........................................................        3,819          3,552          4,611
 Capitalized software charge.......................................................           --             --          4,297
 Other.............................................................................        4,449          5,432          7,044
                                                                                     -----------    -----------     ----------
                                                                                          63,096         64,451         81,954
 Savings Association Insurance Fund special assessment.............................           --         18,000             --
                                                                                     -----------    -----------     ----------
  Total operating expense..........................................................       63,096         82,451         81,954
                                                                                     -----------    -----------     ----------
EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY
 INTEREST IN SUBSIDIARY............................................................        8,788        (10,525)       (68,975)
 Income tax (benefit) expense......................................................       (8,100)        (1,093)             4
                                                                                     -----------    -----------     ----------
EARNINGS (LOSS) BEFORE MINORITY INTEREST IN SUBSIDIARY.............................       16,888         (9,432)       (68,979)
 Minority interest in subsidiary (dividends on subsidiary
  preferred stock).................................................................        4,235          4,657             --
                                                                                     -----------    -----------     ----------
NET EARNINGS (LOSS)................................................................       12,653        (14,089)       (68,979)
 Preferred stock dividends.........................................................           --          1,553             --
                                                                                     -----------    -----------     ----------
EARNINGS (LOSS) AVAILABLE FOR COMMON STOCKHOLDERS..................................  $    12,653    $   (15,642)    $  (68,979)
                                                                                     ===========    ===========     ==========
BASIC EARNINGS (LOSS) PER COMMON SHARE.............................................  $      0.67    $     (0.86)    $    (8.84)
                                                                                     ===========    ===========     ==========
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING...................................   18,794,887     18,242,887      7,807,201
                                                                                     ===========    ===========     ==========
DILUTED EARNINGS (LOSS) PER COMMON SHARE...........................................  $      0.66    $     (0.85)    $    (8.83)
                                                                                     ===========    ===========     ==========
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................................   19,143,233     18,438,454      7,815,560
                                                                                     ===========    ===========     ==========
</TABLE>

                See notes to consolidated financial statements.

                                      F-4
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                             CLASS A              CLASS B             CLASS C
                                      COMMON STOCK         COMMON STOCK         COMMON STOCK        COMMON STOCK
                                  -------------------  -------------------  -------------------  -------------------
                                    SHARES     AMOUNT     SHARES    AMOUNT    SHARES     AMOUNT    SHARES     AMOUNT
                                  ----------   ------  -----------  ------  ----------  -------  ----------  -------
<S>                               <C>          <C>      <C>         <C>     <C>         <C>       <C>        <C>
Balance, January 1, 1995..........         -   $    -   19,860,474  $  199   4,202,243  $    42   1,907,143  $    19
Reclass Class B Stock to Class
  A Stock(1).....................          -        -    4,202,243      42  (4,202,243)     (42)          -        -
Reclass Class C Stock to Class
  A Stock(1).....................          -        -    1,907,143      19           -        -  (1,907,143)     (19)
Issuance of Class A Stock (2)....          -        -   47,000,000     470           -        -           -        -
Unrealized gain on securities
 available for sale, net of taxes          -        -            -       -           -        -           -        -
Minimum pension liability
 Adjustment......................          -        -            -       -           -        -           -        -
Effect of one-for-four Reverse
 Stock Split (3).................          -        -  (54,727,395)   (548)          -        -           -        -
Net loss for 1995................          -        -            -       -           -        -           -        -
                                  ----------   ------  -----------  ------  ----------  -------  ----------  -------
Balance, December 31,1995........          -        -   18,242,465     182           -        -           -        -
Unrealized gain on securities
 available for sale, net of taxes          -        -            -       -           -        -           -        -
Cash dividends on preferred stock
 issued by consolidated
 subsidiary......................          -        -            -       -           -        -           -        -
Exercise of stock options........          -        -        2,800       -           -        -           -        -
Holding company re-organization
 and capitalization (4).......... 18,245,265      182  (18,245,265)   (182)          -        -           -        -
Net loss for 1996................          -        -            -       -           -        -           -        -
                                  ----------   ------  -----------  ------  ----------  -------  ----------  -------
Balance, December 31,1996........ 18,245,265      182            -       -           -        -           -        -
Unrealized (loss) on securities
 available for sale, net of taxes          -        -            -       -           -        -           -        -
Minority interest in subsidiary
 (accrued dividends on
  subsidiary preferred stock)....          -        -            -       -           -        -           -        -
Acquisition of Hancock Savings
 Bank (5)........................  1,058,575       11            -       -           -        -           -        -
Exercise of stock options........     63,375        1            -       -           -        -           -        -
Net earnings for 1997............          -        -            -       -           -        -           -        -
                                  ----------   ------  -----------  ------  ----------  -------  ----------  -------
Balance, December 31,1997........ 19,367,215   $  194            -  $    -           -  $     -           -       -
                                  ==========   ======  ===========  ======  ==========  =======  ==========  =======
</TABLE>

<TABLE>
<CAPTION>
                                                                    UNREALIZED    MINIMUM      RETAINED       TOTAL
                                     PREFERRED STOCK                GAIN(LOSS)    PENSION     EARNINGS/       STOCK-
                                   --------------------   PAID-IN      ON         LIABILITY  (ACCUMULATED    HOLDERS'
                                    SHARES       AMOUNT   CAPITAL   SECURITIES   ADJUSTMENT   DEFICIT)       EQUITY
                                   ---------     ------  --------   ----------   ----------   -----------   ---------
<S>                                <C>           <C>     <C>        <C>          <C>          <C>           <C>
Balance, January 1, 1995..........         -     $    -  $179,431       (3,482)      (2,813)      (16,849)  $ 156,547
Reclass Class B Stock to Class
  A Stock(1).....................          -          -         -            -            -             -           -
Reclass Class C Stock to Class
  A Stock(1).....................          -          -         -            -            -             -           -
Issuance of Class A Stock (2)....  2,070,000     51,750    82,172            -            -             -     134,392
Unrealized gain on securities
 available for sale, net of taxes          -          -         -        4,270            -             -       4,270
Minimum pension liability
 Adjustment......................          -          -         -            -        2,813             -       2,813
Effect of one-for-four Reverse
 Stock Split (3).................          -          -       548            -            -             -           -
Net loss for 1995................          -          -         -            -            -       (68,979)    (68,979)
                                    ---------    ------  --------   ----------   ----------   -----------   ---------
Balance, December 31,1995........   2,070,000    51,750   262,151          788            -       (85,828)    229,043
Unrealized (loss) on securities
 available for sale, net of taxes           -         -         -          255            -             -         255
Cash dividends on preferred
 stock issued by consolidated
 subsidiary......................           -         -         -            -            -        (1,553)     (1,553)
Exercise of stock options........           -         -        23            -                          -          23
Holding company re-organization
 and capitalization (4)..........  (2,070,000)  (51,750)     (272)           -                          -     (52,022)
Net loss for 1996................           -         -         -            -            -       (14,089)    (14,089)
                                    ---------    ------  --------   ----------   ----------   -----------   ---------
Balance, December 31,1996........           -         -   261,902        1,043            -      (101,470)    161,657
Unrealized gain on securities
 available for sale, net of taxes           -         -         -       (5,510)           -             -      (5,510)
Minority interest in subsidiary
 (accrued dividends on
  subsidiary preferred stock)....           -         -         -            -            -             3           3
Acquisition of Hancock Savings
 Bank (5)........................           -         -    12,001            -            -             -      12,012
Exercise of stock options........           -         -       529            -                          -         530
Net earnings for 1997............           -         -         -            -            -        12,653      12,653
                                    ---------    ------  --------   ----------   ----------   -----------   ---------
Balance, December 31,1997........           -    $    -  $274,432   $   (4,467)  $        -   $   (88,814)  $ 181,345
                                    =========    ======  ========   ==========   ==========   ===========   =========
</TABLE>


(1) In connection with the 1995 Recapitalization the Company converted 4,202,243
    shares of Class B Common Stock and 1,907,143 shares of Class C Common Stock
    to Class A Common Stock.
(2) During 1995, Fidelity issued and sold to investors in a public offering
    47,000,000 shares of Class A Common Stock for $82.6 million and 2,070,000
    shares of preferred stock for $51.8 million.
(3) Common Stock share data has been retroactively adjusted for the one-for-four
    reverse stock split approved by stockholders on February 9, 1996.
(4) In May 1996, Fidelity completed a holding company reorganization pursuant to
    which all of the outstanding Common Stock of Fidelity was converted on a
    one-for-one basis into all the outstanding Common Stock of Bank Plus, the
    holding company.  In addition, the Preferred Stock of the Bank was reclassed
    from stockholders equity to minority interests.
(5) In July 1997, the Company completed the acquisition of all of the
    outstanding common stock of Hancock Savings Bank, F.S.B., a Los Angeles
    based federal savings bank with five branches.


                See notes to consolidated financial statements.

                                      F-5
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                              ---------------------------------------
                                                                                 1997           1996           1995
                                                                              ---------      ---------       --------
<S>                                                                           <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net earnings (loss)........................................................  $  12,653      $ (14,089)      $(68,979)
 Adjustments to reconcile net loss to net cash provided by (used in)
  operating activities:
  Provisions for estimated loan and real estate losses......................     14,064         18,829         73,090
  Provisions for capitalized software charge................................         --             --          4,297
  Capitalized loan origination costs........................................        (32)          (103)           (58)
  Gains on sale of loans and securities.....................................     (2,707)        (1,358)        (4,620)
  Federal Home Loan Bank stock dividends....................................     (3,473)        (3,072)        (2,438)
  Depreciation and amortization.............................................      4,764          3,834          5,587
  Amortization of discounts and accretion of premiums
   and deferred loan items, net.............................................        295         (2,049)        (2,790)
  Writedown on mortgage-backed securities available for sale................      4,838             --             --
 Purchases of mortgage-backed securities held for trading...................    (60,717)       (38,972)            --
 Principal repayments of mortgage-backed securities held for trading........      2,405             62             --
 Proceeds from sales of mortgage-backed securities held for trading.........     31,915         24,971             --
 Purchases of Federal Home Loan Bank stock..................................     (3,506)            --             --
 Proceeds from sales of loans held for sale.................................         --             --          1,290
 Interest receivable (increase) decrease....................................     (2,795)           (39)            94
 Other assets decrease (increase)...........................................     31,317        (34,383)        (1,092)
 Deferred income tax benefit................................................     (8,353)            --             --
 Interest payable increase..................................................        989          1,280          8,017
 Other liabilities and deferred income (decrease) increase..................     (5,681)         2,554           (400)
                                                                              ---------      ---------       --------
  Net cash provided by (used in) operating activities.......................     15,976        (42,535)        11,998
                                                                              ---------      ---------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Hancock Saving Bank, F.S.B. acquisition....................................     52,908             --             --
 Coast Federal Bank, FSB branch acquisition.................................     47,489             --             --
 Purchases of investment securities available for sale......................         --       (201,313)       (45,569)
 Maturities of investment securities available for sale.....................     15,000         42,950         22,286
 Proceeds from sales of investment securities available for sale............     42,850         89,479        102,061
 Purchase of investment securities held to maturity.........................         --             --        (25,001)
 Maturities of investment securities held to maturity.......................      2,286          2,286         10,000
 Purchases of mortgage-backed securities available for sale.................   (945,191)      (206,089)       (27,858)
 Principal repayments of mortgage-backed securities available for sale......     62,798          4,655          7,952
 Proceeds from sales of mortgage-backed securities available for sale.......    234,747         40,490        162,365
 Purchase of mortgage-backed securities held to maturity....................         --        (15,869)       (16,234)
 Principal repayments of mortgage-backed securities held to maturity........      3,037          1,397          3,408
 Realized loss on hedging of mortgage-backed securities available
  for sale..................................................................     (3,541)            --             --
 Loans receivable, net (increase) decrease..................................    (52,292)       184,768        131,608
 Proceeds from sales of real estate, net....................................     59,542         35,544         34,063
 Premises and equipment (additions) dispositions, net.......................     (3,768)          (844)         1,661
                                                                              ---------      ---------       --------
     Net cash (used in) provided by investing activities....................   (484,135)       (22,546)       360,742
                                                                              ---------      ---------       --------
                                                                                        (Continued on following page)
</TABLE>

                                      F-6
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                              -------------------------------------------
                                                                                   1997            1996            1995
                                                                                ----------       --------        --------
<S>                                                                             <C>              <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES:

 Demand deposits and passbook savings, net decrease...........................  $   (3,179)      $(125,589)      $ (66,670)
 Certificate accounts, net increase (decrease)................................     146,518          20,653         (29,733)
 Payment of preferred stock dividend..........................................          --          (1,553)             --
 Proceeds from Federal Home Loan Bank advances................................   1,320,941         349,008          80,000
 Repayments of Federal Home Loan Bank advances................................    (760,832)       (191,857)       (120,000)
 Short-term borrowing decrease................................................     (40,000)        (10,000)       (350,000)
 Repayments of long-term borrowings, net......................................    (100,000)             --              --
 Proceeds from issuance of capital stock, net.................................          --              --         134,392
 Bank Plus capitalization costs...............................................          --            (272)             --
 Stock options exercised......................................................         530              23              --
                                                                                ----------       ---------       ---------
  Net cash provided by (used in) financing activities.........................     563,978          40,413        (352,011)
                                                                                ----------       ---------       ---------
    Net increase (decrease) in cash and cash equivalents......................      95,819         (24,668)         20,729
  Cash and cash equivalents at beginning of period............................      70,126          94,794          74,065
                                                                                ----------       ---------       ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD................................  $  165,945       $  70,126       $  94,794
                                                                                ==========       =========       =========
SUPPLEMENTAL CASH FLOW INFORMATION:
 Cash (paid) received during the period for:
  Interest on deposits, advances and other borrowings.........................  $ (171,811)      $(149,067)      $(166,239)
  Income tax refund...........................................................         493             257           5,837
SUPPLEMENTAL SCHEDULE OF NONCASH
 INVESTING AND FINANCING   ACTIVITIES:
 Additions to real estate acquired through foreclosure........................      53,214          48,663          51,872
 Loans originated to finance sale of real estate owned........................       8,378           4,758           9,037
 Loans originated to finance bulk sale of real estate
  owned to Citadel Holding Corporation........................................          --              --           5,339
 Transfers from held to maturity portfolio to available for sale
  portfolio:
  Loans receivable............................................................          --              --          68,995
  Investment securities.......................................................          --              --         141,678
  Mortgage-backed securities..................................................      26,998              --          16,404
 Transfers from available for sale portfolio to held to maturity
  portfolio:
  Investment securities.......................................................          --           7,378              --
  Mortgage-backed securities..................................................          --          15,552           3,603
 Mortgage loans exchanged for mortgage-backed securities......................          --              --         112,840
 Exchange of preferred stock for senior notes:
  Senior notes................................................................      51,478              --              --
  Minority Interest:  Preferred stock of consolidated subsidiary..............     (51,478)             --              --
DETAILS OF HANCOCK SAVING BANK, F.S.B. ACQUISITION:
 Fair value of assets and intangible acquired.................................     212,693              --              --
 Goodwill.....................................................................       6,589              --              --
 Liabilities assumed..........................................................     207,270              --              --
 Common stock issued..........................................................      12,012              --              --
 Cash acquired................................................................      52,908              --              --
</TABLE>

                See notes to consolidated financial statements.

                                      F-7
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

 NOTES TO CONSOLIDATD FINANCIAL STATEMENTS Three Years Ended December 31, 1997


NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 Principles of Consolidation

  The consolidated financial statements include the accounts of Bank Plus
Corporation ("Bank Plus") and subsidiaries. Bank Plus is the holding company of
Fidelity Federal Bank, a Federal Savings Bank and its subsidiaries (the "Bank"
or "Fidelity") and Gateway Investment Services, Inc. ("Gateway"). Unless
otherwise indicated, references to the "Company" include Bank Plus, Fidelity,
Gateway, and all subsidiaries of Bank Plus and Fidelity. Bank Plus' headquarters
are in Los Angeles, California. The Company offers a broad range of consumer
financial services, including demand and term deposits, uninsured investment
products, and loans to consumers, through 38 full-service branches, 37 of which
are located in southern California, principally in Los Angeles and Orange
counties and one is located in Bloomington, Minnesota. All significant
intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to prior years' consolidated financial
statements to conform to the 1997 presentation.

  In the first quarter of 1997, the Company filed a Registration Statement on
Form S-4 (the "Acquisition S-4") for up to approximately $75.0 million in shares
of Bank Plus Common Stock (the "Acquisition Shares") that may be issued from
time to time as consideration (in whole or in part) for possible future
acquisitions. The Securities and Exchange Commission (the "SEC") declared the
Acquisition S-4 effective on June 2, 1997. Under the Acquisition S-4, the
Company, on July 29, 1997, issued 1,058,575 shares of Bank Plus Common Stock in
connection with the acquisition of Hancock Savings Bank, FSB ("Hancock") (see
"Note 2--Acquisitions"). The Board of Directors of Bank Plus (or an authorized
committee thereof) will negotiate, determine and approve on behalf of the
Company the number of Acquisition Shares to be issued in any acquisition and the
terms and conditions of all agreements to be entered into by the Company in
connection therewith. Offers to sell any of the Acquisition Shares, if any, will
be made only pursuant to the prospectus constituting a part of the Acquisition
S-4.

  On July 29, 1997, the Company completed the acquisition of all of the
outstanding stock of Hancock, which had five branches, assets of approximately
$210.1 million and deposits of approximately $203.7 million at June 30, 1997.
The Company acquired all of the stock of Hancock in exchange for 1,058,575
shares of Bank Plus Common Stock in a transaction valued at approximately $12
million.

  On July 18, 1997, the Company completed an exchange offer (the "Exchange
Offer") of the Company's 12% Senior Notes due July 18, 2007 (the "Senior Notes")
for the outstanding shares of 12% Noncumulative Exchangeable Perpetual Stock,
Series A (the "Series A Preferred Stock") issued by Fidelity in 1995. The
Company accepted 2,059,120 shares of Series A Preferred Stock in exchange for
approximately $51.5 million principal amount of Senior Notes. Holders of
approximately 11,000 shares of the Series A Preferred Stock elected not to
participate in the Exchange Offer and are reflected as minority interest on the
Statement of Financial Condition as of December 31, 1997.

  In May 1996, the Bank completed a reorganization pursuant to which all of the
outstanding Class A Common Stock of Fidelity was converted on a one-for-one
basis into all of the outstanding common stock of Bank Plus and Bank Plus became
the holding company for Fidelity (the "Reorganization"). Bank Plus currently has
no significant business or operations other than serving as the holding company
for Fidelity and Gateway, which prior to the Reorganization was a subsidiary of
the Bank. All references to "Fidelity" prior to the Reorganization include
Gateway.

                                      F-8
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  On February 9, 1996, the Bank's stockholders approved a one-for-four reverse
stock split (the "Reverse Stock Split") of the issued and outstanding shares of
the Bank's Common Stock. Upon effectiveness of the Reverse Stock Split, each
stockholder became the owner of one share of Common Stock for each four shares
of Common Stock held at the time of the Reverse Stock Split and became entitled
to receive cash in lieu of any fractional shares. All per share data and
weighted average common shares outstanding have been retroactively adjusted to
reflect the Reverse Stock Split.

  In the fourth quarter of 1995, Fidelity completed a plan of recapitalization
(the "1995 Recapitalization"), pursuant to which Fidelity raised approximately
$134.4 million in net new equity through the sale of 2,070,000 shares of Series
A Preferred Stock, and 47,000,000 shares of Fidelity Class A Common Stock. As of
December 31, 1996, the Series A Preferred Stock of the Bank is presented on the
Company's Consolidated Statements of Financial Condition as "Preferred stock
issued by consolidated subsidiary" and the dividends on such preferred stock
subsequent to the date of the Reorganization are reflected in the Company's
Consolidated Statement of Operations as "Minority interest in subsidiary."


 Cash and Cash Equivalents

  For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal funds
are sold for one-day periods. There were no federal funds outstanding at
December 31, 1997 and $29.0 million of federal funds outstanding at December 31,
1996. There were $28.0 million in whole loan investment repurchase agreements at
December 31, 1997 and none at December 31, 1996. Fidelity is required by the
Federal Reserve System to maintain noninterest-earnings cash funds reserves
based upon the outstanding balances in certain of its transaction accounts. At
December 31, 1997, the required reserves, including vault cash, totaled $8.8
million.


 Investment Securities and Mortgage-backed Securities

  The Company's investment in securities principally consists of U.S. treasury
and agency securities and mortgage-backed securities ("MBSs"). The Bank
classifies its investment in securities as held to maturity securities, trading
securities and available for sale securities as applicable. Held to maturity
securities are carried at amortized cost, while trading and available for sale
securities are carried at fair value. Unrealized gains or losses on trading
securities are reflected currently in earnings, and on available for sale
securities are reflected as a separate component in stockholder's equity, net of
any tax effect. Income on securities is recognized using the level yield method
and gains or losses on sales are recorded on a specific identification basis.

 Loans

  Loans are considered impaired when it is deemed probable by management the
Company will be unable to collect all principal and interest amounts due
according to the contracted terms of the loan agreement. The Company may measure
impairment by discounting expected future cash flows at the loan's effective
interest rate, or by reference to an observable market price, or by determining
the fair value of the collateral for a collateral dependent asset. Regardless of
the measurement method, the Company will measure impairment based on the fair
value of the collateral when it is determined that foreclosure is probable.

  Interest on loans, including impaired loans, is credited to income as earned
and is accrued only if deemed collectible, using the interest method. Unpaid
interest income is reversed when a loan becomes over 90 days contractually
delinquent and on other loans, if management determines it is warranted, prior
to being

                                      F-9
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


90 days delinquent. While a loan is on nonaccrual status, interest is recognized
only as cash is received. Discounts and premiums on purchased loans are
classified with loans receivable on the statement of financial condition and are
credited or charged to operations over the estimated life of the related loans
using the interest method. The Company charges fees for originating loans. Loan
origination fees, net of certain direct costs of originating the loan, are
recognized as an adjustment of the loan yield over the estimated life of the
loan by the interest method. When a loan is sold, unamortized net loan
origination fees and direct costs are recognized in earnings with the related
gain or loss on sale. Other loan fees and charges representing service costs for
the prepayment of loans, for delinquent payments or for miscellaneous loan
services are recognized when collected. Loan commitment fees received are
deferred to the extent they exceed direct underwriting costs.

  The Bank has securitized and sold certain loans and provided investors with
credit enhancements to absorb losses through either subordination of the Bank's
retained percentage or the pledging of cash and securities. The Bank estimates
losses to be incurred from the credit enhancements by considering all the
underlying loans in the securitizations in determining its allowance for loan
losses or through the establishment of a contingent liability based on the
historical loss experience of the loan pools. Any estimated losses are reflected
in current operations in the form of provisions for loan losses.

  As of January 1, 1995, the Bank adopted Statement of Financial Accounting
Standards ("SFAS') No. 122, "Accounting for Mortgage Servicing Rights." SFAS No.
122 amends certain provisions of SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities," to require recognition of the rights to service mortgage
loans for others as separate assets, however those rights are acquired,
eliminating the accounting distinction between rights to service mortgage loans
for others that are acquired through loan origination activities and those
acquired through purchase transactions. SFAS No. 122 also requires that
capitalized mortgage servicing assets be assessed for impairment based on the
fair value of those rights. As a consequence of the adoption of SFAS No. 122,
gains on sales of loans for the year ended December 31, 1995 increased by $0.7
million and the Company's loss per share decreased by $0.08. SFAS No. 122 was
superseded for transactions recorded after December 31, 1996, by SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Debt".  There were no transactions recorded after December 31, 1996.


 Real Estate Owned

  Real estate held for sale is acquired when property collateralizing a loan is
foreclosed upon or otherwise acquired by the Company in satisfaction of the
loan. Real estate acquired through foreclosure is recorded at the lower of fair
value or the recorded investment in the loan satisfied at the date of
foreclosure. Fair value is based on the net amount that the Company could
reasonably expect to receive for the asset in a current sale between a willing
buyer and a willing seller, that is, other than in a forced or liquidation sale.
Inherent in the computation of estimated fair value are assumptions about the
length of time the Company may have to hold the property before disposition. The
holding costs through the expected date of sale and estimated disposition costs
are included in the valuations. Adjustments to the carrying value of the assets
are made through valuation allowances and charge-offs, recognized through a
charge to operations.


 Allowances for Estimated Losses on Loans and Real Estate Owned

  The Company estimates allowances for estimated losses on loans and real estate
owned ("REO") which represents the Company's estimate of identified and
unidentified losses in the Company's portfolios. These estimates, while based
upon historical loss experience and other relevant data, are ultimately
subjective and inherently uncertain. The Company has established valuation
allowances for estimated losses on specific loans

                                      F-10
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and REO ("specific valuation allowances" or "SVA") and for the inherent risk in
the loan and REO portfolios which has yet to be specifically identified
("general valuation allowances" or "GVA"). Specific valuation allowances are
allocated from the GVA when, in the Company's judgment, a loan is impaired or
the REO has declined in value and the loss is probable and estimable. When these
estimated losses are determined to be permanent, such as when a loan is
foreclosed and the related property is transferred to REO, specific valuation
allowances are charged off.

  The Company establishes the level of GVA utilizing several models and
methodologies which are based upon a number of factors, including historical
loss experience, the level of nonperforming and internally classified loans, the
composition of the loan portfolio, estimated remaining lives of the various
types of loans within the portfolio, prevailing and forecasted economic
conditions and management's judgment. Additions to GVA, in the form of
provisions, are reflected in current operations.


 Loan Servicing

  Fidelity services mortgage loans for investors. Fees earned for servicing
loans owned by investors are reported as income when the related loan payments
are collected. Loan servicing costs are charged to expense as incurred.


 Stock-based Compensation

  SFAS No. 123 "Accounting for Stock-based Compensation," became effective in
1996. The statement encourages, but does not require companies to record
compensation cost for stock based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. As required by SFAS
No. 123, the Company has disclosed the pro forma effects of the fair value
method in Note 16.


 Depreciation and Amortization

  Depreciation and amortization are computed principally on the straight-line
method over the estimated useful lives of the related assets. Leasehold
improvements are amortized over the lives of the respective leases or the useful
lives of the improvements, whichever is shorter.


 Earnings per Share

  SFAS No. 128 "Earnings Per Share" became effective in 1997. This statement
simplifies the standards for computing and presenting earnings per share ("EPS")
as previously prescribed by Accounting Principles Board Opinion No. 15,
"Earnings Per Share." SFAS No. 128 replaces primary EPS with basic EPS and fully
diluted EPS with diluted EPS. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted from issuance of
common stock that then shared in earnings. The dilutive potential common share
as of December 31, 1997, 1996 and 1995 are 348,346,

                                      F-11
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


195,567 and 8,359, respectively, relating to incremental shares from assumed
conversions of stock options and deferred stock grants.


 Intangible Assets

  The excess of cost over the fair value of net assets acquired in connection
with the acquisition of Hancock in 1997, which is included in other assets on
the Company's Consolidated Statements of Financial Condition, and is being
amortized to operations over fifteen years. The cost of core deposits purchased
is being amortized over the average life of the deposits acquired, generally
five to ten years. At December 31, 1997, goodwill and the cost of deposits
purchased totaled $6.4 million and $9.4 million, respectively, and had a
remaining life of 15 years and 7 years, respectively.


 Income Taxes

  Income taxes are provided to reflect deferred tax assets or liabilities on the
balance sheet based upon the tax effects of differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements.

  Through August 4, 1994, the 1994 restructuring and recapitalization date, the
Bank filed a consolidated federal income tax return and a combined California
franchise tax return with its former parent company, Citadel. Pursuant to the
1994 restructuring and recapitalization Fidelity raised approximately $109
million in net new equity, and Citadel's ownership interest in Fidelity was
reduced to 16.2% of the then outstanding common stock. As a result of this 1994
restructuring and recapitalization, the Bank was no longer eligible to file a
tax return on a consolidated or combined basis with Citadel. Accordingly,
Fidelity and its subsidiaries filed a consolidated federal income tax return and
a combined California franchise tax return with the Bank as the common parent
corporation for the period of August 5, 1994 through December 31, 1994 and the
1995 calendar year. Fidelity and its subsidiaries have filed a consolidated
federal income tax return and a combined California franchise tax return with
its new parent company, Bank Plus for the 1996 calendar year, and will continue
to file as such for subsequent years.


 Derivative Financial Instruments

  The Company utilizes various financial instruments in the normal course of its
business. By their nature all such instruments involve risk, and the maximum
potential loss may exceed the value at which such instruments are carried. As is
customary for these types of instruments, the Company is required to pledge
collateral or other security to other parties to these instruments. The Company
controls its credit exposure to counterparties through credit approvals, credit
limits and other monitoring procedures. The amount of credit exposure for such
instruments at any given time is represented by the fair value of instruments
having a positive value.

  The Company has employed interest rate swaps, caps and floors in the
management of interest rate risk. Interest rate swaps generally involve the
exchange of fixed or floating interest payments without the exchange of the
underlying principal amounts. Interest rate caps and floors generally involve
the payment of a one time premium to a counterparty who, if interest rates rise
or fall above or below a predetermined level, will make payments to the Company
at an agreed upon rate for the term of the agreement until such time as interest
rates fall below or rise above the cap or floor level. Settlement accounting is
utilized for interest rate swaps, caps or floors entered into for purposes of
modifying the interest rate characteristic of interest-earning assets

                                      F-12
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


or interest-bearing liabilities. Under settlement accounting, amounts receivable
or payable related to such contracts are recognized as interest income or
expense, depending upon the assets or liabilities to which they are matched.
Gains or losses on early terminations of swaps, caps or floors are included in
the carrying amount of the related asset or liability and amortized as yield
adjustments over the remaining terms of the terminated instruments. The premiums
paid for interest rate caps and floors are capitalized and amortized over the
life of the contracts using the straight line method. To qualify for settlement
accounting, the instruments must have notional amounts equal to or less than the
matched asset or liability and the term must be equal to or a shorter period
than the matched asset or liability. If the criteria for settlement accounting
is not met, the derivative instruments utilized are fair valued with such
amounts reported in current earnings.

  Options on treasury futures, interest rate caps and swaps and forward
commitments to purchase or sell MBSs entered into for trading purposes are
carried at fair value. Realized and unrealized changes in fair values are
recognized in earnings in the period in which the changes occur. Treasury
futures used to hedge the fluctuations in fair values of available for sale
securities are carried at fair value, with realized and unrealized changes in
fair value recognized in a separate component of stockholders' equity. Realized
gains and losses on termination of such hedge instruments are amortized into
interest income or expense over the expected remaining life of the hedged asset
or liability. Management monitors the correlation of the changes in fair values
between the hedge instruments and the securities being hedged to ensure high
correlation. Prior to the inception of a new hedge program the Company reviews
historical relationships of the potential hedge instrument and the securities to
be hedge to determine that correlation is expected. The correlation of new hedge
programs is reviewed after the first six months and at the end of every quarter
thereafter. If the criteria for hedge accounting is not met, the fair value
adjustments of the derivative instruments are reported in current earnings.


 Use of Estimates

  The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


 Recent Accounting Pronouncements

  The Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" in June 1997.

SFAS No. 130--Reporting Comprehensive Income

  SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 does not require
a specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement.

                                      F-13
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.

  SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.

SFAS No. 131 -- Disclosures about Segments of an Enterprise and Related
Information

  SFAS No. 131 establishes standards for the reporting by public business
enterprises of information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 supersedes FASB Statement No.
14, "Financial Reporting for Segments of a Business Enterprise," but retains the
requirements to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.

  SFAS No. 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision-maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.

  SFAS No. 131 requires that a public business enterprise report a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. It requires reconciliation's of total segment revenues, total segment
profit or loss, total segment assets, and other amounts disclosed for segments
to corresponding amounts in the enterprise's general-purpose financial
statements. It requires that all public business enterprises report information
about the revenues derived from the enterprise's products or services (or groups
of similar products and services), about the countries in which the enterprise
earns revenues and holds assets, and about major customers regardless of whether
that information is used in making operating decisions. However, SFAS No. 131
does not require an enterprise to report information that is not prepared for
internal use if reporting it would be impracticable.

  SFAS No. 131 also requires that a public business enterprise report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.

  SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. This Statement need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application.

                                      F-14
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 2--ACQUISITIONS

  On July 29, 1997, the Company completed the acquisition of all of the
outstanding common stock of Hancock, a Los Angeles-based institution with five
branches. The total consideration paid to the Hancock stockholders was 1,058,575
shares of Bank Plus Common Stock valued at $11.3469 per share.

  The acquisition of Hancock was accounted for as a purchase and was reflected
in the consolidated statements of financial condition of the Company as of June
30, 1997. The Company's consolidated statement of operations includes the
revenues and expenses of the acquired business beginning July 1, 1997. The
purchase price was allocated to the assets purchased (including identifiable
intangible assets) and the liabilities assumed based upon their estimated fair
values at the date of acquisition. The Company identified a core deposit
intangible of approximately $8.6 million, which will be amortized over seven
years, the estimated average life of the deposits acquired. The excess of the
purchase price over the estimated fair value of net assets acquired amounted to
approximately $6.6 million, which has been accounted for as goodwill and will be
amortized over 15 years using the straight-line method.

  The following unaudited pro forma information presents a summary of
consolidated results of operations for the years ended December 31, 1997 and
1996 of the Company and Hancock assuming the acquisition had occurred on January
1, 1997 and 1996, with pro forma adjustments to give effect to the amortization
of goodwill and the core deposit intangible.

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED
                                                                 DECEMBER 31,
                                                              -----------------
                                                                1997      1996
                                                              -------  --------
                                                             (Dollars in thousands,
                                                           except per share amounts)

<S>                                                           <C>      <C>
    Net interest income....................                   $83,386  $ 90,161
    Provisions for estimated loan losses...                    13,514    22,585
    Other income...........................                     4,057     2,726
    Operating expenses.....................                    66,390    89,370
    Net earnings (loss) available for common stockholders.     11,402   (24,187)
    Basic earnings (loss) per common share.                      0.59     (1.25)
    Diluted earnings (loss) per common share........             0.58     (1.24)
</TABLE>

  These pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of the results of operations which actually
would have resulted had the transaction been consummated on the above dates, nor
are they indicative of future results of operations of the consolidated
entities.

  On September 19, 1997, the Company completed the purchase of deposits from
Coast Federal Bank, FSB ("Coast"). The Coast branch, located in Westwood,
California, had deposits of approximately $48.6 million at September 19, 1997.
The Company identified a core deposit intangible of approximately $1.5 million,
which will be amortized over seven years, the estimated average life of the
deposits acquired.

                                      F-15
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 3--INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES

  The following table summarizes investment securities and MBSs available for
sale portfolio.
<TABLE>
<CAPTION>

                                                                                         UNREALIZED
                                                                 AMORTIZED   ----------------------------------    AGGREGATE
                                                                   COST       GAINS      LOSSES          NET       FAIR VALUE
                                                                 ---------   -------   -----------   ----------    ----------
<S>                                                              <C>         <C>       <C>           <C>           <C>
                                                                                    (DOLLARS IN THOUSANDS)
DECEMBER 31, 1997
Investment securities:
 U.S. Treasury and agency securities (1)........................  $100,032    $  880     $    (75)     $    805      $100,837
                                                                  --------    ------     --------      --------      --------
MBSs:
 FHLMC..........................................................    10,384        11         (120)         (109)       10,275
 FNMA...........................................................   228,893     2,095         (479)        1,616       230,509
 GNMA...........................................................   221,716     1,092           --         1,092       222,808
 Participation certificates.....................................    24,860        --           --            --        24,860
 Collateralized mortgage obligations............................   344,513       194       (1,495)       (1,301)      343,212
 LIBOR Asset Trust..............................................    20,940        --           --            --        20,940
                                                                  --------    ------     --------      --------      --------
                                                                   851,306     3,392       (2,094)        1,298       852,604
                                                                  --------    ------     --------      --------      --------
  Total available for sale......................................  $951,338    $4,272     $ (2,169)        2,103      $953,441
                                                                  ========    ======     ========                    ========
Net unrealized losses on investment securities
 included in amortized cost (1).................................                                          (872)
Net unrealized and realized losses, hedging
 activities (1)(2)..............................................                                         (5,898)
Deferred tax benefit associated with total mark
 to market loss.................................................                                            200
                                                                                                       --------
Net amount included in stockholders' equity.....................                                       $ (4,467)
                                                                                                       ========

DECEMBER 31, 1996
Investment securities:
 U.S. Treasury and agency securities (1)........................  $155,353    $1,298     $   (400)     $    898      $156,251
                                                                  --------    ------     --------      --------      --------
MBSs:
 FHLMC..........................................................    61,469       903          (10)          893        62,362
 FNMA...........................................................    54,624       946          (22)          924        55,548
 GNMA...........................................................    35,703       110         (133)          (23)       35,680
 Participation certificates.....................................    25,813        --           --            --        25,813
                                                                  --------    ------     --------      --------      --------
                                                                   177,609     1,959         (165)        1,794       179,403
                                                                  --------    ------     --------      --------      --------
  Total available for sale......................................  $332,962    $3,257     $   (565)        2,692      $335,654
                                                                  ========    ======     ========                    ========
Net unrealized losses on investment securities
 included in amortized cost (1)...............................                                           (2,009)
Net unrealized and realized gains, hedging......................                                            360
 activities (1)(2)..............................................                                       --------
Net amount included in stockholders'............................                                       $  1,043
 equity.................................                                                               ========
</TABLE>
---------------

(1) Amortized cost of certain securities that were previously transferred
    between portfolios includes unamortized market value adjustments recorded at
    the time of transfer to the held to maturity portfolio.
(2) Includes net realized gains (losses) of $(3.4) million and $0.3 million in
    1997 and 1996, respectively, from hedging activities which are amortized
    over the lives of the hedged securities as required by SFAS No. 115.

                                      F-16
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following table summarizes the investment securities and MBSs held to
maturity portfolios.

<TABLE>
<CAPTION>
                                                             UNREALIZED
                                      AMORTIZED   ---------------------------------   AGGREGATE
                                        COST      GAINS     LOSSES          NET       FAIR VALUE
                                      ---------   -----   -----------   -----------   ----------
                                                        (DOLLARS IN THOUSANDS)
<S>                                     <C>        <C>      <C>           <C>           <C>
DECEMBER 31, 1997
 Investment securities(1) (2)......     $ 3,189     $19     $  --         $     19       $ 3,208
                                        =======     ===     ========      ========       =======
DECEMBER 31, 1996
 Investment securities(1) (2)......     $ 5,178     $20     $  --               20       $ 5,198
 MBSs non-agency...................      30,024      --       (2,855)       (2,855)       27,169
                                        -------     ---     --------      --------       -------
  Total held to maturity...........     $35,202     $20     $ (2,855)     $ (2,835)      $32,367
                                        =======     ===     ========      ========       =======
</TABLE>

--------------
(1) Amortized cost of certain securities that were previously transferred
    between portfolios includes unamortized market value adjustments recorded at
    the time of transfer to the held to maturity portfolio.
(2) Represents U.S. Treasury securities which have been pledged as credit
    support to a securitization of loans by the Company.


  The following table summarizes the weighted average yield of debt securities
as of the dates indicated:

<TABLE>
<CAPTION>
                                         DECEMBER 31,
                                        --------------
                                        1997      1996
                                        ----      ----
     <S>                                <C>       <C>
     Investment securities:
      Available for sale............    5.53%     6.20%
      Held to maturity..............    6.00      5.77
     MBSs:
      Available for sale............    7.05      7.51
      Held to maturity..............      --      7.52
      Held for trading..............    6.66      6.54

</TABLE>

  The following table presents the available for sale and held to maturity
portfolios at December 31, 1997 by contractual maturity. Actual maturities on
MBSs may differ from contractual maturities due to scheduled periodic payments
and prepayments.

<TABLE>
<CAPTION>
                                                                          UNREALIZED
                                                         AMORTIZED   --------------------    AGGREGATE
                                                           COST       GAINS      LOSSES      FAIR VALUE
                                                         ---------   -------   -----------   ----------
                                                                     (DOLLARS IN THOUSANDS)

<S>                                                      <C>         <C>       <C>           <C>
AVAILABLE FOR SALE:
 Investment Securities:
  Over 1 year to 5 years..............................    $ 90,032    $  880     $    (75)     $ 90,837
  Over 10 years.......................................      10,000        --           --        10,000
                                                          --------    ------     --------      --------
                                                           100,032       880          (75)      100,837
                                                          --------    ------     --------      --------
 MBSs:
  Over 1 year to 5 years..............................     124,320        11         (599)      123,732
  Over 10 years.......................................     726,986     3,381       (1,495)      728,872
                                                          --------    ------     --------      --------
                                                           851,306     3,392       (2,094)      852,604
                                                          --------    ------     --------      --------
   Total Available for Sale...........................    $951,338    $4,272     $ (2,169)     $953,441
                                                          ========    ======     ========      ========

HELD TO MATURITY:
 Investment Securities over 1 year to 5 years.........    $  3,189    $   19     $     --      $  3,208
                                                          ========    ======     ========      ========
</TABLE>

                                      F-17
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following gains and losses were realized from the sale of investment
securities and MBSs, the costs of which were computed on a specific
identification method, during the periods indicated:
<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31,
                                                                   ---------------------------------
                                                                    1997         1996         1995
                                                                   --------   ----------   ---------
                                                                        (DOLLARS IN THOUSANDS)
       <S>                                                        <C>         <C>          <C>
       SALES OF INVESTMENT SECURITIES AND MBSS:
        Available for sale.......................................  $277,597    $129,969     $264,426
        Held for trading.........................................    31,915      24,971           --
                                                                   --------    --------     --------
                                                                   $309,512    $154,940     $264,426
                                                                   ========    ========     ========
       GAINS (LOSSES) ON SECURITIES AND TRADING ACTIVITIES, NET:
        Gains (losses)on sales of securities available for sale:
         Gains...................................................  $  2,483    $  1,215     $  3,903
         Losses..................................................        --         (59)        (566)
                                                                   --------    --------     --------
                                                                      2,483       1,156        3,337
                                                                   --------    --------     --------
        Gains (losses) on trading activities:
         Realized gains, net.....................................       187         187          761
         Unrealized losses, net..................................        --          (7)          --
                                                                   --------    --------     --------
                                                                        187         180          761
                                                                   --------    --------     --------
          Gains on securities and trading                          $  2,670    $  1,336     $  4,098
           activities, net.......................................  ========    ========     ========
 </TABLE>

  At December 31, 1997 and 1996, interest receivable in the accompanying
statements of financial condition include accrued interest receivable on debt
securities of $6.7 million and $3.2 million, respectively.

  As of September 30, 1997, the Company transferred two securities with a total
amortized cost of $27.0 million and a total estimated fair value of $22.5
million from the held to maturity portfolio to the available for sale portfolio.
The transfer was the result of significant deterioration in the credit
worthiness of the borrowers of the underlying loans collateralizing the
securities. The unrealized holding loss of $4.5 million at September 30, 1997
was reported in a separate component of shareholders' equity as the decline in
fair value was not believed to be other than temporary. The continued poor
performance of the securities underlying collateral in the three months
subsequent to September 30, 1997 motivated management to seek a buyer for the
securities rather than risk possible continued decline in fair value. The
securities were sold in January 1998 at a loss of $4.8 million, which was
recorded through earnings in 1997 as the loss was now considered to be other
than temporary.


NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS

 Trading

  During the third quarter of 1996, the Company entered into a one-year advisory
agreement with an investment advisor, pursuant to which the advisor will
recommend investments, subject to prior approval and direction of the Company,
and execute investment activities in accordance with the Company's investment
strategy. Under this agreement, the investment advisor utilizes financial
instruments to manage the risks and returns of the program, including options,
caps and forward commitments of MBSs. All investment and other financial
instrument activity relating to the investment advisor's account are treated as
trading activities. During both 1997 and 1996, the Company recognized net losses
from trading activities of $0.1 million compared to net gains in 1995 of $0.8
million.

                                      F-18
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Available for Sale

  During 1997, the Company entered into a program to hedge the fluctuations in
fair value of fixed rate MBSs in the available for sale portfolio. Realized
losses on closed hedging positions under this program totaled $3.5 million and
have been recorded in a separate component of stockholders equity, consistent
with reporting for those securities, in accordance with SFAS No. 115. The loss
is being amortized as a yield adjustment to the MBSs over the life of the
securities.

  The following trading and available for sale instruments were outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
                                                      MATURITY/    AVERAGE       FAIR VALUE AT
                                          NOTIONAL    EXERCISE      FAIR          DECEMBER 31,      UNREALIZED
    INSTRUMENT                             AMOUNT       DATE        VALUE            1997           GAIN (LOSS)
    ----------------------------------   -----------  ----------  -----------  ------------------  ------------
                                                             (DOLLARS IN THOUSANDS)
<S>                                      <C>             <C>      <C>             <C>                <C>
    Trading:
     Interest rate cap................   $ 71,000        2007     $ 1,050         $   818            $  (956)
     Put option on treasury futures...      6,500        1998          66             104                 21
     Commitments to purchase MBSs
     TBA..............................     30,000        1998          58              58                 58
     Commitments to sell MBSs TBA.....     15,000        1998           1               1                  1
     Interest rate swap...............      5,000        2002          16             (46)               (46)
    Available for sale:
     Treasury futures.................    205,900        1998      (2,615)         (2,496)            (2,496)

</TABLE>

  The following instruments were outstanding at December 31, 1996:

<TABLE>
<CAPTION>
                                                      MATURITY/    AVERAGE       FAIR VALUE AT
                                          NOTIONAL    EXERCISE      FAIR          DECEMBER 31,      UNREALIZED
    INSTRUMENT                             AMOUNT       DATE        VALUE            1997             (LOSS)
    ----------------------------------   -----------  ----------  -----------  ------------------  ------------
                                                             (DOLLARS IN THOUSANDS)
<S>                                      <C>             <C>      <C>             <C>                <C>
    Trading:
     Interest rate cap................    $21,000        2003     $    790        $    718           $   (171)
     Put option on treasury futures...      8,000        1997           15              33                (18)
     Commitments to purchase MBSs
      TBA............... .............     12,500        1997           (2)             (4)                (4)

</TABLE>

  Also included as a hedge to the available for sale investment portfolio is a
commitment to sell MBS TBA adjustable rate mortgages ("ARMs") of $20.4 million,
with an average fair value of $20.5 million and an unrealized gain of $0.03
million at December 31, 1996.

                                      F-19
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 5--LOANS RECEIVABLE

  Loans receivable are summarized as follows:
<TABLE>
<CAPTION>

                                                DECEMBER 31,
                                          -------------------------
                                             1997          1996
                                          ----------     ----------
                                            (DOLLARS IN THOUSANDS)
<S>                                       <C>            <C>
Real estate loans:
 Single family........................    $  638,539     $  517,288
 Multifamily:
   2 to 4 units.......................       322,309        319,281
   5 to 36 units......................     1,343,597      1,408,317
   37 units and over..................       308,473        307,741
                                          ----------     ----------
    Total multifamily.................     1,974,379      2,035,339

 Commercial and industrial............       204,656        203,510
 Land.................................         1,656          1,670
                                          ----------     ----------
    Total real estate loans...........     2,819,230      2,757,807

Other (1).............................        62,912          6,373
                                          ----------     ----------
                                           2,882,142      2,764,180
                                          ----------     ----------
Less:
 Undisbursed loan funds...............         1,710             --
 Unearned (premiums) discounts........        (2,722)         1,974
 Deferred loan fees...................         9,039         12,767
 Allowance for estimated losses (2)...        50,538         57,508
                                          ----------     ----------
                                              58,565         72,249
                                          ----------     ----------
                                          $2,823,577     $2,691,931
                                          ==========     ==========
</TABLE>

--------------------
(1)  At December 31, 1997, the other category included $50.7 million of credit
     card loans.
(2)  At December 31, 1997 and 1996, the allowance for estimated loan losses
     includes $14.4 million and $16.7 million, respectively, of remaining loan
     GVA and SVA for the Accelerated Asset Resolution Plan.


  Fidelity's portfolio of mortgage loans serviced for others amounted to $308.8
million at December 31, 1997 and $433.8 million at December 31, 1996. The Bank
sold the servicing rights to substantially all of the single family and 2-4 unit
loans in the Bank's loan portfolio during the second quarter of 1996. The
servicing rights to $938.5 million in loans were transferred for a total sale
price of $10.0 million. Such sales proceeds have been accounted for as a
reduction in the carrying value of the loans based on the relative fair values
of the servicing sold and loans retained and is to be accreted over the
estimated life of the loans. Accretion of this amount of the deferred revenue
totaled $2.2 million and $1.5 million during 1997 and 1996, respectively.

  Fidelity's mortgage loan portfolio includes multifamily, commercial and
industrial loans of $2.2 billion at both December 31, 1997 and 1996, which
depend primarily on operating income to provide debt service coverage. These
loans generally have a greater risk of default than single family residential
loans and, accordingly, earn a higher rate of interest to compensate in part for
the risk. Approximately 99% of these loans are secured by property within the
state of California.

  The Company has modified the terms of a number of its mortgage loans that it
would not otherwise consider to protect its investment by granting concessions
to borrowers because of borrowers' financial difficulties. These modifications
take several forms, including interest only payments for a limited time at
current rates, a reduced loan balance in exchange for a payment of the loan or
other terms that the Bank

                                      F-20
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


deems appropriate in the circumstances. Modifications are granted when the
collateral is inadequate or the borrower does not have the ability or
willingness to continue making scheduled payments and management determines that
the modification is the best alternative for the collection of its investment.
Modifications are reported as Troubled Debt Restructurings ("TDRs") as defined
by SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings," and accounted for in accordance with SFAS No. 15 and SFAS No.
114, "Accounting by Creditors for Impairment of a Loan." At December 31, 1997
and 1996, outstanding TDRs totaled $44.0 million and $45.2 million,
respectively.

  For the years ended December 31, 1997, 1996 and 1995, interest income of $3.4
million, $3.6 million and $3.2 million, respectively, was recorded on TDRs.
During 1997, 1996 and 1995 the reduction in interest income had the loans
performed according to their original terms was immaterial.

  The total of mortgage loans on nonaccrual status was $13.1 million, $36.1
million and $51.9 million at December 31, 1997, 1996 and 1995, respectively. The
reduction in income related to nonaccrual loans upon which interest was not paid
was $3.9 million, $6.0 million and $5.8 million for the corresponding years.

  In the fourth quarter of 1995, the Bank adopted the Accelerated Asset
Resolution Plan (the "Plan"), which was designed to aggressively dispose of,
resolve or otherwise manage a pool (the "AARP Pool") of primarily multifamily
loans and REO that at that time were considered by the Bank to have higher risk
of future nonperformance or impairment relative to the remainder of the Bank's
multifamily loan portfolio. The Plan reflected both acceleration in estimated
timing of asset resolution, as well as a potential change in recovery method
from the normal course of business. In an effort to maximize recovery on loans
and REO included in the AARP Pool, the Plan allowed for a range of possible
methods of resolution including, but not limited to, (i) individual loan
restructuring, potentially including additional extensions of credit or write-
offs of existing principal, (ii) foreclosure and sale of collateral properties,
(iii) securitization of loans, (iv) the bulk sale of loans and (v) bulk sale or
accelerated disposition of REO properties.

  The AARP Pool originally consisted of 411 assets with an aggregate gross book
balance of approximately $213.3 million, comprised of $137.0 million in gross
book balance of loans and $76.3 million in gross book balance of REO. As a
consequence of the adoption of the Plan, the Bank recorded a $45.0 million loan
portfolio charge in the fourth quarter of 1995, which was reflected as a credit
to the Bank's allowance for estimated loan and REO losses. This amount
represented the estimated additional losses, net of SVAs, anticipated to be
incurred by the Bank in executing the Plan. Such additional losses represented,
among other things, estimated reduced recoveries from restructuring loans and
the acceptance of lower proceeds from the sale of individual REO and the
estimated incremental losses associated with recovery through possible bulk
sales of performing and nonperforming loans and REO.

  In conjunction with the acquisition of Hancock, the Bank identified a pool of
Hancock assets, with similar risk profiles to the assets included in the Bank's
AARP Pool, for inclusion in the Plan. The Bank identified 54 Hancock assets with
an aggregate gross book balance of approximately $31.1 million, comprised of
$25.8 million in gross book balance of loans and $5.3 million in gross book
balance of REO. Simultaneously with the consummation of the acquisition, Hancock
recorded $5.8 million as an addition to the allowance for estimated loan losses
representing the estimated reduced recoveries in executing the Plan.

  Through December 31, 1997, (i) $40.5 million in gross book balances of AARP
Pool loans had been resolved through either a negotiated sale or discounted
payoff, (ii) $8.5 million in gross book balances of AARP Pool loans were
collected through normal principal amortization or paid off through the normal
course without loss, (iii) $24.4 million in gross book balances of AARP Pool
loans had been modified or restructured and retained in the Bank's mortgage
portfolio, (iv) $15.4 million in gross book balances of AARP Pool loans were
removed from the AARP Pool upon management's determination that such assets no
longer met the risk

                                      F-21
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


profile for inclusion in the AARP Pool or that accelerated resolution of such
assets was no longer appropriate and (v) $126.6 million in gross book balances
of REO were sold ($52.6 million in gross book balances of AARP Pool loans were
taken through foreclosure and acquired as REO since the inception of the AARP).
As of December 31, 1997, the AARP Pool consisted of 55 assets with an aggregate
gross book balance of $29.0 million, comprised primarily of accruing and
nonaccruing multifamily real estate loans totaling approximately $21.4 million
and REO properties totaling approximately $7.6 million, which are reported as
real estate owned on the statement of financial condition. Through December 31,
1997, of the $50.8 million of reserves established in connection with the Plan,
including the $5.8 million established for the Hancock assets, $8.8 million had
been charged off and $31.6 million had been allocated to SVAs or REO writedowns
in connection with the Bank's estimate of recovery for AARP Pool assets. Due to
the addition of the Hancock assets to the Plan, it is anticipated that the
remaining AARP Pool will be resolved in 1998.

  Notwithstanding the actions taken by the Bank in implementing the Plan, there
can be no assurance that the AARP Pool assets retained by the Bank will not
result in additional losses. The Bank's allowance for loan and REO losses and
the SVAs established in connection with such assets are ultimately subjective
and inherently uncertain. There can be no assurance that further additions to
the Bank's allowance for loan and REO losses will not be required in the future
in connection with such assets, which could have an adverse effect on the Bank's
financial condition, results of operations and levels of regulatory capital.


NOTE 6--REAL ESTATE OWNED

  REO consists of the following:

<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                                -----------------------
                                                   1997          1996
                                                -----------   ---------
                                                (DOLLARS IN THOUSANDS)
     <S>                                          <C>          <C>
     Real estate acquired through foreclosure.    $ 13,416     $ 26,744
     Allowance for estimated losses...........      (1,123)      (2,081)
                                                  --------     --------
                                                  $ 12,293     $ 24,663
                                                  ========     ========
</TABLE>

  The following summarizes the results of REO operations:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                              --------------------------------------
                                                                 1997          1996          1995
                                                              -----------   -----------   ----------
                                                                      (DOLLARS IN THOUSANDS)

     <S>                                                      <C>           <C>           <C>
     Losses from:
      Real estate acquired through                               $(5,413)      $(5,688)      $(5,779)
       foreclosure...........................
      Provision for estimated real estate                         (1,060)       (3,219)       (3,366)
       losses................................                    -------       -------       -------
       Net loss from real estate operations..                    $(6,473)      $(8,907)      $(9,145)
                                                                 =======       =======       =======

</TABLE>

                                      F-22
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 7--ALLOWANCE FOR ESTIMATED LOAN AND REAL ESTATE OWNED LOSSES

  The following summarizes the activity in the allowances for estimated loan and
real estate losses:

<TABLE>
<CAPTION>
                                                       REAL ESTATE
                                            LOANS         OWNED      TOTAL
                                           --------      -------    --------
                                                 (DOLLARS IN THOUSANDS)
  <S>                                      <C>           <C>        <C>
  Balance at January 1, 1995............   $ 67,202      $ 2,318    $ 69,520
   Provision for losses.................     69,724 (1)    3,366      73,090
   Charge-offs..........................    (44,278)      (8,358)    (52,636)
   Allocations from GVA to REO..........     (6,166)       6,166          --
   Recoveries and other.................      2,953           --       2,953
                                           --------      -------    --------
  Balance at December 31, 1995..........     89,435        3,492      92,927
   Provision for losses.................     15,610        3,219      18,829
   Charge-offs..........................    (50,841)      (4,630)    (55,471)
   Recoveries and other.................      3,304           --       3,304
                                           --------      -------    --------
  Balance at December 31, 1996..........     57,508        2,081      59,589
   Provision for losses.................     13,004        1,060      14,064
   Charge-offs..........................    (41,190)      (2,810)    (44,000)
   Allocations related to acquisition...     12,770 (2)      120      12,890
   Recoveries and other.................      8,446          672       9,118
                                           --------      -------    --------
  Balance at December 31, 1997..........   $ 50,538      $ 1,123    $ 51,661
                                           ========      =======    ========
</TABLE>

(1)  Included in the provision for estimated loan losses for 1995 is the $45.0
     million loan portfolio charge associated with the Plan.
(2)  Included is the $5.8 million loan portfolio charge taken by Hancock
     associated with the Plan.


  At December 31, 1997 and December 31, 1996, the gross recorded investment in
mortgage loans that are considered to be impaired was $40.8 million, and $153.5
million, respectively. Included in these amounts are $30.1 million and $105.1
million of impaired loans for which allowance for credit losses have been
established totaling $10.5 million and $30.3 million. The average recorded
investment and the amount of interest income recognized on impaired loans during
1997 and 1996 was $97.2 million and $151.4 million and $2.1 million and $9.4
million, respectively.

  The performance of the Company's mortgage loan portfolio has been adversely
affected by southern California economic conditions. The performance of the
Company's multifamily loan portfolio is particularly susceptible to further
declines in the southern California economy, increasing vacancy rates, declining
rents, increasing interest rates, declining debt coverage ratios, declining
market values for multifamily residential properties, and the possibility that
investors may abandon properties or seek bankruptcy protection with respect to
properties experiencing negative cash flow, particularly where such properties
are not cross-collateralized by other performing assets. There can be no
assurances that these economic conditions will improve in the near future as
many factors key to recovery may be impacted adversely by the Federal Reserve
Bank's interest rate policy as well as other factors. Consequently, rents and
real estate values may not stabilize which may affect future delinquency and
foreclosure levels and may adversely impact the Company's asset quality,
earnings performance and capital levels.

                                      F-23
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 8--DEPOSITS

  Deposits consist of the following balances at the dates indicated:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                           -------------------------------------------------
                                                    1997                      1996
                                           -----------------------   -----------------------
                                              AMOUNT         %          AMOUNT         %
                                           ------------   --------   ------------   --------
                                                        (DOLLARS IN THOUSANDS)
<S>                                        <C>            <C>        <C>            <C>
TYPE OF ACCOUNT, WEIGHTED AVERAGE
 INTEREST RATE:
 Passbook, 2.00% at December 31, 1997
  and 1996..............................    $   67,502        2.3%    $   53,665        2.2%
 Checking and money market checking,
  1.17% at December 31, 1997 and 1.10%
  at December 31, 1996..................       336,036       11.7        287,711       11.5
 Money market savings, 4.17% at
  December 31, 1997 and 4.14% at
  December 31, 1996.....................        55,885        1.9         65,605        2.6
                                            ----------     ------     ----------     ------
                                               459,423       15.9        406,981       16.3
                                            ----------     ------     ----------     ------
 Certificates with rates of:
   Under 3.00%..........................         5,359        0.2          4,640        0.2
   3.01 - 4.00%.........................        11,952        0.4         19,601        0.8
   4.01 - 5.00%.........................       836,262       28.9      1,166,347       46.7
   5.01 - 6.00%.........................     1,288,463       44.6        669,603       26.8
   6.01 - 7.00%.........................       280,002        9.7        199,747        8.0
   7.01 - 8.00%.........................         9,935        0.3         17,321        0.7
   Over 8.00%...........................           405         --         11,693        0.5
                                            ----------     ------     ----------     ------
                                             2,432,378       84.1      2,088,952       83.7
                                            ----------     ------     ----------     ------
     Total deposits.....................    $2,891,801      100.0%    $2,495,933      100.0%
----------------------------------------    ==========     ======     ==========     ======
 Weighted average interest rate.........          4.82%                     4.69%
                                            ==========                ==========
</TABLE>

  Fidelity had noninterest-bearing checking accounts of $99.6 million and $70.4
million at December 31, 1997 and 1996, respectively. At December 31, 1997,
certificate accounts were scheduled to mature as follows:

<TABLE>
<CAPTION>
                                          AMOUNT
                              ---------------------------
YEAR OF MATURITY                 (DOLLARS IN THOUSANDS)
-------------------
<S>                               <C>
   1998......................          $2,111,274
   1999......................             272,690
   2000......................              15,359
   2001......................              11,900
   After 2002................              21,155
                                       ----------
                                       $2,432,378
                                       ==========

</TABLE>

  At December 31, 1997, securities totaling $0.6 million were pledged as
collateral for $0.2 million of public funds on deposit with the Company and
potential future deposits.

  Certificates of deposits of $100,000 or more accounted for $721.2 million and
represented 24.9% of all deposits at December 31, 1997 and $543.3 million or
21.8% of all deposits at December 31, 1996.

  The Company, from time to time, has also utilized brokered deposits as a
short-term means of funding. These deposits are obtained or placed by or through
a deposit broker and are subject to certain regulatory

                                      F-24
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

limitations. Should the Bank become undercapitalized, it would be prohibited
from accepting, renewing or rolling over deposits obtained through a deposit
broker. The Company is currently eligible to accept brokered deposits. The
Company had no brokered deposits outstanding at December 31, 1997 and 1996.


NOTE 9--FEDERAL HOME LOAN BANK ADVANCES

  Federal Home Loan Bank ("FHLB") advances are summarized as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                      ------------------------
                                                         1997         1996
                                                      ----------   ----------
                                                       (DOLLARS IN THOUSANDS)
<S>                                                   <C>           <C>
Balance at year-end.................................  $1,009,960   $  449,851
Average amount outstanding during the year..........  $  698,261   $  296,596
Maximum amount outstanding at any month-end.........  $1,209,960   $  449,851
Weighted average interest rate during the year......        5.84%        5.43%
Weighted average interest rate at year-end..........        5.82%        5.53%
Secured by:
 FHLB Stock.........................................  $   60,498   $   52,330
 Loans receivable...................................   1,315,389      989,138(1)
 Investment securities and MBSs, at cost............     581,445      117,786
                                                      ----------   ----------
                                                      $1,957,332   $1,159,254
                                                      ==========   ==========
</TABLE>

(1) Includes pledged loans available for use under the letter of credit securing
    commercial paper. See Note 10.

  The maturities and weighted average interest rates on FHLB advances are
summarized as follows:

<TABLE>
<CAPTION>
                                1997                     1996
                     -------------------------  -----------------------
                                    WEIGHTED                 WEIGHTED
                                    AVERAGE                  AVERAGE
                       AMOUNT    INTEREST RATE   AMOUNT   INTEREST RATE
                     ----------  -------------  --------  -------------
                                 (DOLLARS IN THOUSANDS)
<S>                  <C>         <C>            <C>         <C>
YEAR OF MATURITY
----------------
  1997.............  $       --         --%     $329,851       5.05%
  1998.............     374,960       5.81            --         --
  1999.............     200,000       5.74            --         --
  2000.............     245,000       5.48        20,000       8.61
  2003.............     190,000       6.43       100,000       6.49
                     ----------                 --------
                     $1,009,960       5.83      $449,851       5.53
                     ==========                 ========
</TABLE>

                                      F-25
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 10--OTHER BORROWINGS

  Other borrowings consist of the following:

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                           YEAR OF    --------------------
                                           MATURITY     1997         1996
                                           --------   -------     --------
                                                     (DOLLARS IN THOUSANDS)
<S>                                        <C>        <C>         <C>
Short-term borrowings:
 Commercial paper.......................     1997     $    --     $ 40,000
 8 1/2% Mortgage-backed medium-term
  notes.................................     1997          --      100,000
                                                      -------     --------
                                                           --      140,000
                                                      -------     --------
Long-term borrowings:
 Senior notes...........................     2007      51,478           --
                                                      -------     --------
                                                      $51,478     $140,000
                                                      =======     ========
</TABLE>

  The 8 1/2% mortgage-backed medium-term notes matured on April 15, 1997 and
the funds were replaced by FHLB advances. At December 31, 1996, the 8 1/2%
mortgage-backed medium-term notes were secured by a joint pool of mortgage loans
and U.S. Treasury notes, at cost, totaling $226.2 million.

  Borrowings other than the 8 1/2% mortgage-backed medium-term notes are
summarized as follows:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       ---------------------
                                                        1997          1996
                                                       -------      --------
                                                       (DOLLARS IN THOUSANDS)
<S>                                                    <C>          <C>
Commercial paper:
 Balance at year-end.................................  $    --      $ 40,000
 Average amount outstanding during the year..........  $11,417      $ 93,457
 Maximum amount outstanding at any month-end.........  $40,000      $140,000
 Weighted average interest rate during the year......     6.26%         5.72%
 Weighted average interest rate at year end..........       --%         5.36%
 Secured by Letter of Credit from FHLB...............  $    --      $150,000
Securities sold under agreement to repurchase:
 Balance at year-end.................................  $    --      $     --
 Average amount outstanding during the year..........  $ 2,260      $ 25,382
 Maximum amount outstanding at any month-end.........  $25,500      $ 73,007
 Weighted average interest rate during the year......     5.35%         5.17%
Federal funds purchased:
 Balance at year-end.................................  $    --      $     --
 Average amount outstanding during the year..........  $   135      $     --
 Maximum amount outstanding at any month-end.........  $    --      $     --
 Weighted average interest rate during the year......     5.93%           --%
Senior notes:
 Balance at year-end.................................  $51,478      $     --
 Average amount outstanding during the year..........  $23,110      $     --
 Maximum amount outstanding at any month-end.........  $51,478      $     --
 Weighted average interest rate during the year......    12.04%           --%
</TABLE>

  The weighted average interest rate on other borrowings was 6.10% and 7.60% at
December 31, 1997 and 1996, respectively. The commercial paper program expired
on August 5, 1997 and was not renewed by decision of the Bank.

                                     F-26
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 11--BENEFIT PLANS

 Retirement Income Plan

  The Company has a retirement income plan covering substantially all employees.
The defined benefit plan provides for payment of retirement benefits commencing
normally at age 65 in a monthly annuity; however, the option of a lump sum
payment is available upon retirement or in the event of early termination. An
employee becomes vested upon five years of service. Benefits payable under the
plan are generally determined on the basis of the employee's length of service
and average earnings over the previous five years. Annual contributions to the
plan are sufficient to satisfy legal funding requirements.

  In February 1994, the Board of Directors passed a resolution to amend the plan
by discontinuing participation in the plan by newly hired employees and freezing
the level of service and salaries used to compute the plan benefit to February
28, 1994 levels. The Bank has funded the retirement income plan such that the
fair value of plan assets exceed the projected benefit obligation.

  The components of net pension costs are as follows:

<TABLE>
<CAPTION>
                                     YEAR ENDED DECEMBER 31,
                                     -----------------------
                                     1997     1996     1995
                                     -----    -----    -----
                                      (DOLLARS IN THOUSANDS)
  <S>                                <C>      <C>      <C>
  Interest cost...................   $ 158    $ 202    $ 218
  Actual return on plan assets....    (207)    (426)    (371)
  Net amortization and deferral...     (51)     149       92
  Effect of partial settlements...      55      189      252
                                     -----    -----    -----
                                     $ (45)   $ 114    $ 191
                                     =====    =====    =====

</TABLE>

  The funded status of this plan, as of the dates indicated, was as follows:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                            ----------------------
                                                             1997           1996
                                                            -------        -------
                                                            (DOLLARS IN THOUSANDS)
<S>                                                         <C>            <C>
  Accumulated benefit obligation:
  Vested................................................    $ 2,461        $ 2,360
  Nonvested.............................................         --             62
                                                            -------        -------
                                                            $ 2,461        $ 2,422
                                                            =======        =======

  Projected benefit obligation..........................    $(2,461)       $(2,422)
  Fair value of plan assets.............................      2,839          2,546
                                                            -------        -------
    Net plan assets under projected benefit obligation..        378            124
  Minimum liability adjustment..........................        474            753
                                                            -------        -------
    Prepaid pension cost................................    $   852        $   877
                                                            =======        =======
  Actuarial assumptions:
    Discount rate.......................................       7.25%          7.25%
    Expected long-term rate of return on plan assets....       9.00%          9.00%
</TABLE>

                                      F-27
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 401(k) Plan

  The Company has a 401(k) defined contribution plan available to all employees
who have been with the Company for one year and have reached the age of 21.
Employees may generally contribute up to 15% of their salary each year, and the
Company matches 12.5% up to the first 6% contributed by the employee. In
addition, the Company may elect, at its discretion, to match an amount based on
the Company's profitability as determined on an annual basis by the Board of
Directors. The Company's contribution expense was $0.1 million, $0.1 million and
$0.3 million in the years ended December 31, 1997, 1996 and 1995, respectively.


 Director Retirement Plan

  The Directors Retirement Plan provides for non-employee directors who have at
least three years of Board service, including service on the Board prior to the
1994 restructuring and recapitalization.

  An eligible director shall, after termination from Board service for any
reason other than cause, be entitled to receive a quarterly payment equal to one
quarter of his/her average annual compensation (including compensation for
service on the Board of any of the Company's subsidiaries), including all
retainers and meeting fees, received during his/her last three years of Board
service. Such payments shall commence at the beginning of the first fiscal
quarter subsequent to termination and continue for a 3-year period. If a
director's Board membership is terminated for cause, no benefits are payable
under this plan.

  If a director's Board membership is terminated within two years following the
effective date of a change in control, then he/she also shall be eligible for a
lump sum payment in an amount that is the greater of: (1) 150% times average
annual compensation during the preceding 3-year period, (2) the sum of all
retirement benefits payable under normal retirement provisions described in the
preceding paragraph or (3) $78,000. The Company's accumulated benefit obligation
was $0.9 million and $0.5 million at December 31, 1997 and 1996, and net pension
costs were $0.3 million and $0.3 million for the years ended December 31, 1997
and 1996, respectively.


NOTE 12--INCOME TAXES

  Income tax expense/(benefit) comprised the following:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                               ----------------------------------
                                                 1997         1996         1995
                                               -------       -------      -------
                                                     (DOLLARS IN THOUSANDS)
  <S>                                        <C>           <C>                <C>
  Current income tax expense (benefit):
   Federal................................     $   199       $(1,100)     $   --
   State..................................          54             7            4
                                               -------       -------      -------
                                                   253        (1,093)           4
                                               -------       -------      -------
  Deferred income tax (benefit) expense:
   Federal................................      (7,425)           --           --
   State..................................        (928)           --           --
                                               -------       -------      -------
                                                (8,353)           --           --
                                               -------       -------      -------
                                               $(8,100)      $(1,093)     $     4
                                               =======       =======      =======
</TABLE>

                                      F-28
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Income tax liability/(asset) comprised the following:

<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                                -------------------
                                                  1997       1996
                                                --------    -------
                                              (DOLLARS IN THOUSANDS)
  <S>                                        <C>             <C>
  Current income tax asset:
     Federal..............................      $   (626)   $  (286)
     State................................          (186)       (73)
                                                --------    -------
                                                    (812)      (359)
                                                --------    -------
  Deferred income tax (asset) liability:
     Federal..............................       (39,225)   (32,632)
     Valuation allowance--Federal.........        31,808     32,632
     State................................        (7,593)    (6,633)
     Valuation allowance--State...........         6,749      6,633
                                                --------    -------
                                                  (8,261)        --
                                                --------    -------
                                                $ (9,073)   $  (359)
                                                ========    =======
</TABLE>

                                      F-29
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  The components of the net deferred tax liability/(asset) are as follows:

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                            --------------------
                                              1997        1996
                                            --------    --------
                                           (DOLLARS IN THOUSANDS)
<S>                                        <C>           <C>
FEDERAL:
 Deferred tax liabilities:
   Loan fees and interest...............    $  6,714    $  7,202
   FHLB stock dividends.................      15,556      13,620
   Accrual to cash adjustment on
    pre-1986 loans......................       2,508       1,907
   Mark to market adjustment............       1,633          --
   Unrealized gain on securities
    available for sale..................          --         365
   Sale of servicing income.............          --         505
   Other................................       1,919       1,301
                                            --------    --------
 Gross deferred tax liabilities.........      28,330      24,900
                                            --------    --------
 Deferred tax assets:
   Bad debt and loan loss deduction.....      12,218       6,997
   Net operating loss carryover.........      38,186      40,190
   Alternative minimum tax and other
    credits carryover...................       2,839       2,839
   Deposit base intangibles.............       5,504       2,392
   Contingent liabilities...............       1,970       2,752
   Debt modification gain...............       1,189          --
   Sale of servicing income.............       1,184          --
   Depreciation.........................         577         694
   Mark to market adjustment............          --         365
   Unrealized loss on securities
    available for sale..................       1,633          --
   Other................................       2,255       1,303
                                            --------    --------
 Gross deferred tax assets..............      67,555      57,532
 Valuation allowance....................     (31,808)    (32,632)
                                            --------    --------
 Deferred tax assets, net of allowance..      35,747      24,900
                                            --------    --------
   Net deferred tax asset...............    $ (7,417)   $     --
                                            ========    ========
STATE:
 Deferred tax liabilities:
   Loan fees and interest...............    $  2,061    $  2,325
   FHLB stock dividends.................       4,818       4,397
   Mark to market adjustment............         619          --
   Accrual to cash adjustment on
    pre-1986 loans......................         777         616
   Unrealized gain on securities
    available for sale..................          --         118
   Other................................         592         446
                                            --------    --------
 Gross deferred tax liabilities.........       8,867       7,902
                                            --------    --------
 Deferred tax assets:
   Bad debt and loan loss deduction.....       7,867       8,729
   Net operating loss carryover.........       4,765       4,126
   Deposit base intangibles.............         966          38
   Depreciation.........................         448         498
   Sale of servicing income.............         486          --
   Mark to market adjustment............          --         118
   Contingent liabilities...............         610         889
   Unrealized loss on securities
    available for sale..................         506          --
   Other................................         812         137
                                            --------    --------
 Gross deferred tax assets..............      16,460      14,535
 Valuation allowance....................      (6,749)     (6,633)
                                            --------    --------
 Deferred tax assets, net of allowance..       9,711       7,902
                                            --------    --------
   Net deferred tax asset...............    $   (844)   $     --
                                            ========    ========
</TABLE>

                                     F-30
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


    As of December 31, 1996 a valuation allowance was provided for the total net
deferred tax asset. Under SFAS No. 109, "Accounting for Income Taxes", the
reduction in valuation allowance is dependent upon a "more likely than not"
expectation of realization of the deferred tax asset, based upon the weight of
available evidence. After consideration of the Company's recent earnings history
and other available evidence, management of the Company determined that under
the criteria of SFAS No. 109 it was appropriate to allow a $8.3 million net
deferred tax asset for the year ended December 31, 1997.

  The analysis of available evidence is performed each quarter utilizing the
"more likely than not" criteria required by SFAS No. 109 to determine the
amount, if any, of the deferred tax asset to be realized. Accordingly, there can
be no assurance that the Company will recognize additional portions of the
deferred tax asset in future periods. The criteria of SFAS No. 109 could require
the recording of valuation allowances against this $8.3 million net deferred tax
asset through the recording of tax expense in future periods.

  In conjunction with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", certain securities were classified as available for sale
during the year. Under SFAS No. 115, adjustments to the fair market value of
securities held as available for sale are reflected through an adjustment to
stockholders' equity. The related current tax benefit has been reflected in
stockholders' equity.

  A reconciliation from the consolidated statutory federal income tax expense
(benefit) to the consolidated effective income tax expense (benefit) follows:

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                               -------------------------------------
                                                                                  1997        1996           1995
                                                                               --------      ---------     ---------
                                                                                     (DOLLARS IN THOUSANDS)
  <S>                                                                          <C>           <C>           <C>
  Expected federal income tax expense (benefit).......................         $  3,075      $ (3,684)     $ (24,141)
  Increases (reductions) in taxes resulting from:
   Franchise tax expense (benefit), net of federal income
    tax and valuation allowance.......................................             (568)            4              4
   (Reduction) addition to valuation allowance........................          (10,408)           91         23,779
   Specified liability loss carryback under IRC
    Section 172(f)....................................................               --        (1,100)            --
   Bad debt recapture.................................................               --         3,227             --
   Other, net.........................................................             (199)          369            362
                                                                               --------      --------      ---------
  Income tax (benefit) expense........................................         $ (8,100)     $ (1,093)     $       4
                                                                               ========      ========      =========
</TABLE>

  The Internal Revenue Service (the "Service") has completed its examination of
the Bank's federal income tax returns through 1991. The Service is currently
conducting an examination of the federal income tax returns for 1992, 1993 and
tax year ended August 4, 1994. The California Franchise Tax Board (the "FTB")
has completed its examination of the California franchise tax returns through
1988 and has completed the field examination of the California franchise tax
returns for years 1989 through 1991. However, this examination is currently in
the appeals process with the FTB.

  Internal Revenue Code ("IRC") Sections 382 and 383 and the Treasury
Regulations thereunder generally provide that, following an ownership change of
a corporation with a net operating loss ("NOL"), a net unrealized built-in loss,
or tax credit carryovers, the amount of annual post-ownership change taxable
income that can be offset by pre-ownership change NOLs, or recognized built-in
losses, and the amount of post-ownership change tax liability that can be offset
by pre-ownership change tax credits, generally cannot exceed a limitation
prescribed by Section 382. The Section 382 annual limitation generally equals
the product of the

                                      F-31
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


fair market value of the equity of the corporation immediately before the
ownership change (subject to various adjustments) and the federal long-term tax-
exempt rate prescribed monthly by the Service.

  As a result of the 1994 restructuring and recapitalization, the Bank underwent
an ownership change, ceased to be a member of the Citadel consolidated group,
and became subject to the annual limitations under Section 382. As a result of
the 1995 Recapitalization, the Bank again underwent an ownership change and
became subject to the annual limitations under Section 382. The limitations
imposed by the 1995 change of ownership are inclusive of the limitations imposed
by the 1994 change of ownership.

  Hancock was merged with and into Fidelity as of June 30, 1997 in a tax-free
reorganization within the meaning of IRC Section 368(a)(1)(A), by reason of the
application of IRC Section 368(a)(2)(D). The cumulative total of net deferred
tax assets of Hancock and the related valuation allowance are included in the
balances of net deferred taxes as of December 31, 1997. In accordance with the
provisions of SFAS No. 109, any subsequent reductions in the valuation allowance
associated with the deferred tax assets of Hancock will be reflected as an
adjustment to any goodwill with respect to the acquisition that remains
unamortized.

  As of December 31, 1997, the Bank had an estimated NOL carryover for federal
income tax purposes of $109.1 million expiring in years 2008 through 2011. Of
this amount, $70.1 million is subject to annual utilization limitations as a
result of the 1994 and 1995 changes of ownership. Of the estimated federal NOL
carryover, $3.2 million represents Hancock NOLs which are subject to an annual
utilization limitation as a result of the 1997 change of ownership occurring as
part of its acquisition by the Bank. For California franchise tax purposes, the
Bank had an estimated NOL carryover of $43.9 million. Of the estimated
California NOL carryover, $40.3 million relates to the Bank's operations and
expire in years 1998 through 2002, with $24.9 million of this amount subject to
annual utilization limitations as a result of the 1994 and 1995 changes of
ownership. The remaining $3.6 million in estimated California NOLs represent
Hancock NOLs expiring in years 2000 through 2009 with an annual utilization
limitation as a result of the 1997 change of ownership occurring as part of its
acquisition by the Bank.

  Various federal Form 1120Xs "Amended U.S. Corporation Income Tax Return" were
filed in 1996 for years 1986 through 1989, 1991, 1992 and 1994 to reflect the
10-year loss carryback under IRC Section 172(f) for qualifying deductions
through August 4, 1994.  These returns were filed with the Bank's former parent
company, Citadel.  The amended returns, if accepted in total, would result in a
net refund of $19.0 million to Fidelity.  IRC Section 172(f) is an area of the
tax law without significant legal precedent.  The Internal Revenue Service (the
"Service") is currently examining this issue with respect to Fidelity's ability
to carryback such losses.  Therefore, no assurances can be given as to
Fidelity's entitlement to such claim.  Fidelity has recorded $1.1 million of tax
benefit in 1996 with respect to these amended tax returns.

  Effective for taxable years beginning after 1995, legislation enacted in 1996
has repealed for federal purposes the reserve method of accounting for bad debts
for thrift institutions. While thrifts qualifying as "small banks" may continue
to use the experience method, Fidelity is deemed a "large bank" and is required
to use the specific charge off method. In addition, this enacted legislation
contains certain income recapture provisions which are discussed below.

  A thrift institution deemed a "large bank" is required to include into income
ratably over 6 years, beginning with the first taxable year beginning after
1995, the institution's "applicable excess reserves." The applicable excess
reserves are the excess of (1) the balance of the institution's reserves for
losses on loans other than supplemental reserves at the close of its last
taxable year beginning before January 1, 1996, over (2) the adjusted balance of
such reserves as of the close of its last taxable year beginning before January
1, 1988. Fidelity's applicable excess reserves at December 31, 1995 were $14.6
million. This amount is being recognized into taxable income over six years at
the rate of $2.4 million per year starting with the taxable year ended December
31, 1996. The remaining applicable excess reserves at December 31, 1997 were
$9.8 million.

  The remaining adjusted pre-1988 total loan loss reserve balance of $26.0
million at December 31, 1997, will be recaptured into taxable income in the
event Fidelity (1) ceases to be a "bank" or "thrift," or (2) makes distributions
to shareholders in excess of post-1951 earnings and profits, redemptions, or
liquidations. Based on current estimates, Fidelity had post-1951 earnings and
profits at December 31, 1997 sufficient to cover 1997 distributions to
shareholders for federal income tax purposes. As a result, Fidelity did not
trigger any reserve recapture into taxable income for 1997.

                                      F-32
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Under the provisions of SFAS No. 109, a deferred tax liability of $9.1 million
has not been provided for the remaining adjusted pre-1988 total loan loss
reserve balance of $26.0 million at December 31, 1997. The use of these reserves
in a manner that results in a recapture into taxable income as previously
discussed will require federal taxes to be provided at the then current income
tax rate. The use of these reserves in such a manner is not anticipated.


NOTE 13--COMMITMENTS AND CONTINGENCIES

  In the normal course of business, the Company and certain of its subsidiaries
had a number of lawsuits and claims pending at December 31, 1997. The Company's
management and its counsel believe that the lawsuits and claims are without
merit. There is a risk that the final outcome of one or more of these claims
could result in the payment of monetary damages which could be material in
relation to the financial condition or results of operations of the Company. The
Company does not believe that the likelihood of such a result is probable and
has not established any specific litigation reserves with respect to such
lawsuits.

  Fidelity enters into agreements to extend credit to customers on an ongoing
basis. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Most commitments are expected to be
drawn upon and, therefore, the total commitment amounts generally represent
future cash requirements. At December 31, 1997, the Company had $1.7 million in
commitment to fund loans.

  As of December 31, 1997, the Company had certain mortgage loans with a gross
principal balance of $85.0 million, of which $71.0 million had been sold in the
form of mortgage pass-through certificates, over various periods of time, to
four investor financial institutions leaving a balance of $14.0 million in loans
retained by the Company. These mortgage pass-through certificates provide a
credit enhancement to the investors in the form of the Company's subordination
of its retained percentage interest to that of the investors. In this regard,
the aggregate of $71.0 million held by investors are deemed Senior Mortgage
Pass-Through Certificates and the $14.0 million in loans held by the Company are
subordinated to the Senior Mortgage Pass-Through Certificates in the event of
borrower default. Full recovery of the $14.0 million is subject to this
contingent liability due to its subordination. In 1993, the Bank repurchased as
an investment a portion of the mortgage pass-through certificates, and at
December 31, 1997, the balance of the repurchased certificate was $24.9 million
and was included in the MBSs available for sale portfolio and accounted for in
accordance with SFAS No. 115. The other Senior Mortgage Pass-Through
Certificates totaling $46.1 million at December 31, 1997 are owned by other
investor institutions. Due to the subordination of its retained percentage
interest, the Company considers all the loans underlying the Senior Mortgage
Pass-Through Certificates in determining its allowance for loan losses and any
estimated losses are reflected in the provision for loan losses.

  During 1992, the Company also effected the securitization by FNMA of $114.3
million of multifamily mortgages wherein $114.3 million in whole loans were
swapped for Triple A rated MBSs through FNMA's Alternative Credit Enhancement
Structure ("ACES") program. These MBSs were sold in December 1993 and the
current outstanding balance as of December 31, 1997 of $70.9 million is serviced
by the Company.

  As part of a credit enhancement to absorb losses relating to the ACES
transaction, the Company has pledged and placed in a trust account, as of
December 31, 1997, $13. 1 million, comprised of $9.9 million in cash and $3.2
million in U.S. Treasury securities at book value. The Company shall absorb
losses, if any, which may be incurred on the securitized multifamily loans to
the extent of $13.1 million. FNMA is responsible for any losses in excess of the
$13.1 million. The corresponding contingent liability for credit losses secured
by the trust assets was $2.9 million and $6.6 million at December 31, 1997 and
1996, respectively, and is included in other liabilities.

                                      F-33
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  As a result of the Hancock acquisition, the Company has assumed the commitment
to absorb losses from Hancock's loan sale and securitization to FNMA under the
ACES program. Loans sold subject to recourse provisions had remaining unpaid
principal balances at December 31, 1997 of $28.0 million. At December 31, 1997,
the Company has pledged U.S. Treasury securities and MBSs of $4.7 million as
security for the recourse contingencies associated with the loans. The
corresponding contingent liability for credit losses secured by the pledged
assets was $1.1 million at December 31, 1997 and is included in other
liabilities.

  On September 30, 1996 legislation was enacted that required member
institutions to recapitalize the Savings Association Insurance Fund ("SAIF") by
paying a one-time special assessment of approximately 65.7 basis points on all
assessable deposits as of March 31, 1995. The one-time special assessment
resulted in the Bank recording an $18.0 million charge in additional SAIF
premiums at September 30, 1996.

  The Company conducts portions of its operations from leased facilities. All of
the Company's leases are operating leases. At December 31, 1997, aggregate
minimum rental commitments on operating leases with noncancelable terms in
excess of one year were as follows:

<TABLE>
<CAPTION>
                                          AMOUNT
                                       ------------
                                       (DOLLARS IN
  YEAR OF COMMITMENT                    THOUSANDS)
  ---------------------
  <S>                                     <C>
     1998.............................    $ 4,352
     1999.............................      4,054
     2000.............................      3,372
     2001.............................      3,091
     2002.............................      2,535
     Thereafter.......................      8,345
                                          -------
                                          $25,749
                                          =======
</TABLE>

  Operating expense includes rent expense of $2.9 million in 1997, $3.3 million
in 1996 and $3.1 million in 1995.


NOTE 14--RECAPITALIZATION

 1995 Recapitalization

  In the fourth quarter of 1995, Fidelity completed the 1995 Recapitalization of
the Bank, pursuant to which Fidelity raised approximately $134.4 million in net
new equity through the sale of 2,070,000 of Series A Preferred Stock and
47,000,000 of Class A Common Stock. As part of the 1995 Recapitalization,
Fidelity adopted the Plan (see Note 5--Loans Receivable) which is designed to
aggressively dispose of, resolve or otherwise manage a pool of multifamily
loans. As a result, the Bank recorded a $45.0 million loan portfolio charge
which represents the estimated additional losses expected to be incurred.

  The 1995 Recapitalization expenses of $2.6 million were charged directly
against equity while the $45.0 million loan portfolio restructuring charge is
reflected in the statement of operations.

                                      F-34
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 15--REGULATORY MATTERS

  The Office of Thrift Supervision (the "OTS") capital regulations, as required
by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") include three separate minimum capital requirements for the savings
institution industry--a "tangible capital requirement," a "leverage limit" and a
"risk-based capital requirement." These capital standards must be no less
stringent than the capital standards applicable to national banks.

  As of December 31, 1997 and 1996, the Bank was "well capitalized" under the
Prompt Corrective Action ("PCA") regulations adopted by the OTS pursuant to the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). To be
categorized as "well capitalized", the Bank must maintain minimum core capital,
core risk-based capital and risk-based capital ratios as set forth in the table
below. The Bank's capital amounts and classification are subject to review by
federal regulators about components, risk-weightings and other factors. There
are no conditions or events since December 31, 1997 that management believes
have changed the institution's category.

  The Bank's actual and required capital as of December 31, 1997 and 1996 are as
follows:

<TABLE>
<CAPTION>
                                                                                                    TO BE CATEGORIZED AS WELL
                                                                    FOR CAPITAL                      CAPITALIZED UNDER PROMPT
                                       ACTUAL                    ADEQUACY PURPOSES                 CORRECTIVE ACTION PROVISIONS
                                =====================       ==============================       ===============================
                                  AMOUNT      RATIO            AMOUNT            RATIO               AMOUNT             RATIO
                                ----------   --------       ------------       ---------         --------------       ----------
                                                                      (DOLLARS IN THOUSANDS)
<S>                             <C>          <C>            <C>                  <C>               <C>                <C>
As of December 31, 1997:
 Total capital (to
  risk-weighted assets)......     $254,200     11.99%    *     $169,700     *      8.00%     *     $212,100      *      10.00%
 Core capital (to adjusted
  tangible assets)...........      227,700      5.48     *      124,600     *      3.00      *      207,700      *       5.00
 Tangible capital (to
  tangible assets)...........      218,300      5.27     *       62,200     *      1.50                         N/A
 Core capital (to
  risk-weighted assets)......      227,700     10.74                       N/A               *      127,200      *       6.00

As of December 31, 1996:
 Total capital (to
  risk-weighted assets)......      233,600     11.85     *      157,700     *      8.00      *      197,100      *      10.00
 Core capital (to adjusted
  tangible assets)...........      209,200      6.29     *       99,800     *      3.00      *      166,300      *       5.00
 Tangible capital (to
  tangible assets)...........      208,900      6.28     *       49,900     *      1.50                        N/A
 Core capital (to
  risk-weighted assets)......      209,200     10.61                       N/A               *      118,300      *       6.00
</TABLE>
--------------------
* Represents "greater than or equal to."

  Under FDICIA, the OTS was required to revise its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk, and risks of nontraditional activities. The OTS
added an interest rate risk capital component to its risk-based capital
requirement originally effective September 30, 1994. However, the OTS has
temporarily postponed the implementation of the rule implementing the interest
rate risk capital component until the OTS has collected sufficient data to
determine

                                      F-35
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


whether the rule is effective in monitoring and managing interest rate risk.
This capital component will require institutions deemed to have above normal
interest rate risk to hold additional capital equal to 50% of the excess risk.
No interest rate risk component would have been required to be added to the
Bank's risk-based capital requirement at December 31, 1997 and 1996 had the rule
been in effect at these times.

  The following table reconciles the Bank's capital in accordance with GAAP to
the Bank's tangible, core and risk-based capital as of December 31, 1997 and
1996.

<TABLE>
<CAPTION>
                                     TANGIBLE CAPITAL     CORE CAPITAL      RISK-BASED CAPITAL
                                    ===================   =============   =====================
                                          BALANCE            BALANCE             BALANCE
                                    -------------------   -------------   ---------------------
                                                      (DOLLARS IN THOUSANDS)
<S>                                 <C>                   <C>             <C>
As of December 31, 1997:
Stockholders' equity (1).........             $230,000        $230,000                $230,000
Unrealized loss on securities....                4,500           4,500                   4,500
Adjustments:
 Goodwill........................               (6,500)         (6,500)                 (6,500)
 Intangible assets (2)...........               (9,700)           (300)                   (300)
 GVA.............................                   --              --                  26,600
 Equity investments..............                   --              --                    (100)
                                              --------        --------                --------
Regulatory capital (3)...........             $218,300        $227,700                $254,200
                                              ========        ========                ========
As of December 31, 1996:
Stockholders' equity (1).........             $210,300        $210,300                $210,300
Unrealized gains on securities...               (1,000)         (1,000)                 (1,000)
Adjustments:
 Goodwill........................                 (300)             --                      --
 Intangible assets...............                 (100)           (100)                   (100)
 GVA.............................                   --              --                  24,600
 Equity investments..............                   --              --                    (200)
                                              --------        --------                --------
Regulatory capital (3)...........             $208,900        $209,200                $233,600
                                              ========        ========                ========
</TABLE>
--------------
(1)  Fidelity's total stockholder's equity, calculated in accordance with GAAP,
     was 5.52% and 6.32% of its total assets at December 31, 1997 and 1996,
     respectively.
(2)  Includes core deposit intangibles associated with the acquisition of
     Hancock and the Coast branch acquisition at December 31, 1997.
(3)  At periodic intervals, both the OTS and the FDIC routinely examine the Bank
     as part of their legally prescribed oversight of the industry. Based on
     their examinations, the regulators can direct that the Bank's financial
     statements be adjusted in accordance with their findings.


 Capitalized Software Costs

  The Bank was notified by the OTS West Regional Office in April 1995 by a
written directive that certain computer software implementation or enhancement
related costs capitalized in accordance with GAAP are required to be immediately
expensed in the Bank's Thrift Financial Report (the "TFR") and deducted from
regulatory capital as required in the instructions to the TFR and by OTS policy.
As of December 31, 1995, the full amount in question, approximately $4.3
million, was reserved and subsequently written-off in the first quarter of 1996.

                                      F-36
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 16--STOCK OPTION PLANS

 Stock Option Plans

  On February 26, 1997, the Board of Directors of the Company adopted, subject
to stockholder approval, a Stock Option and Equity Incentive Plan (the "Stock
Option Plan"). The Stock Option Plan consists of certain amendments to, and a
restatement of, the Bank's 1996 Stock Option Plan. On April 30, 1997, the
Company's stockholders approved the Stock Option Plan which provides (1) the
granting of stock options, restricted stock and deferred stock units (2)
deferred stock awards in lieu of cash compensation otherwise payable to
directors and (3) stock options, restricted stock or deferred stock units in
lieu of cash awards for senior officers. The number of shares of the Bank's
Common Stock available for grants has increased 750,000 to 2,125,000 under the
Stock Option Plan. A provision has been added limiting to 100,000 the number of
shares of Common Stock that can be subject to stock option grants in any year to
any participant. The Stock Option Plan also provides for 2,500 annual grants of
stock options to non-employee directors. The Stock Option Plan is administered
by the Compensation/Stock Options Committee of the Board of Directors, which is
authorized to select award recipients, establish award terms and conditions, and
make other related administrative determinations in accordance with the
provisions of the Stock Option Plan. Unexercised options granted under the Stock
Option Plan expire on the earlier of the tenth anniversary of the Stock Option
Plan effective date (February 9, 1996) or 90 days following the effective date
of the recipients termination for cause, all outstanding options are canceled as
of the effective date of such termination. Bank Plus assumed the 1996 Stock
Option Plan in connection with the Reorganization.

  On December 11, 1995, the Board approved the grant of options to certain
executives and key employees of the Bank at an exercise price of $2.10 ($8.35
after giving effect to the Reverse Stock Split), at which time the market value
of the underlying Class A Common Stock was $2.06 per share ($8.25 after giving
effect to the Reverse Stock Split). The options vest at a rate of 10% on
February 13, 1996 and, thereafter, 30 % per year over the next three years at
the anniversary of the Stock Option Plan effective date. Of the total options
granted, 1,025,000 were granted to six executives of the Bank, 87,500 were
granted to other key employees of the Bank and 184,000 were granted to the seven
non-employee directors of the Bank. In 1997, the Board approved the grant of
100,000 to a new executive at $11.125. The options vest at 10% at date of grant
and, thereafter, 30% per year over the next three years. In addition, nine non-
employee directors were automatically granted options to purchase 22,500 shares
at $10.25 which all vest immediately.


  The following is a summary of the Stock Option Plan:

<TABLE>
<CAPTION>
                                                      Average
                                           Number      Option
                                         of Options    Price
                                         ----------   -------

<S>                                       <C>          <C>
     Granted, December 11, 1995...        1,296,500    $ 8.35
                                          ---------
     Balance, December 31, 1995...        1,296,500      8.35
      Expired.....................          (14,500)     8.35
      Exercised...................           (2,800)     8.35
                                          ---------
     Balance, December 31, 1996...        1,279,200      8.35
      Granted.....................          122,500     10.96
      Expired.....................         (114,450)     8.35
      Exercised...................          (63,375)     8.35
                                          ---------
     Balance, December 31, 1997...        1,223,875      8.61
                                          =========
</TABLE>

                                      F-37
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The fair value of options granted under the 1996 Stock Option Plan for 1997,
1996 and 1995 were estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for 1997 and 1996 and
1995, respectively: no dividend yield, expected stock price volatility of 60%
for 1997 and 77% for both 1996 and 1995 based on daily market prices for the
preceding five year period, risk free interest rate equivalent to the 10-year
Treasury rate on the date of the grant of 5.74% for 1997 and 5.70% for both 1996
and 1995, and an option contract life of 10 years. The Company applied
Accounting Board Opinion No. 25 and related Interpretations in accounting for
its stock option and purchase plans. Accordingly, no compensation cost has been
recognized for its Stock Option Plan. Had compensation cost for the Company's
Stock Option Plan been determined based on the fair value at the grant dates for
awards under the Stock Option Plan consistent with the method of SFAS No. 123,
the Company's net earnings and earnings per share for the years ended December
31, 1997, 1996 and 1995 would have been changed to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                     ----------------------------------------
                                                       1997           1996             1995
                                                     -------        --------         --------
                                                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
     <S>                                             <C>            <C>                <C>
     Net earnings (loss):
      As reported............................        $12,653        $(14,089)        $(68,979)
      Pro forma..............................        $ 9,182        $(14,968)        $(68,979)
     Net earnings (loss) to common
      stockholders:
      As reported............................        $12,653        $(15,642)        $(68,979)
      Pro forma..............................        $ 9,182        $(16,521)        $(68,979)
     Basic net earnings (loss) per common
      share:
      As reported............................        $  0.67        $  (0.86)        $  (8.84)
      Pro forma..............................        $  0.49        $  (0.91)        $  (8.84)
     Diluted net earnings (loss) per common
      share:
      As reported............................        $  0.66        $  (0.85)        $  (8.83)
      Pro forma..............................        $  0.48        $  (0.90)        $  (8.83)
     Weighted-average fair value per share
      of options granted.....................        $  9.57        $   6.87         $   6.87
</TABLE>

  Two non-employee directors participated in receiving deferred stock awards in
lieu of cash compensation. As of December 31, 1997, there were 6,982 deferred
stock grants with an average grant price of $11.61. Included in deferred
compensation is approximately $0.1 million as of December 31, 1997.


NOTE 17--RELATED PARTY TRANSACTIONS

 Administrative and Operational Services

  Pursuant to the terms of a Expense Sharing Agreement between Bank Plus and
Fidelity, Fidelity provides Bank Plus with all payroll, marketing, legal,
management information services, accounts payable, human resources and general
administrative services for a fee equal to 2.5% of the cost of certain shared
expenses plus a pro rata share of the overhead costs and expenses associated
with Bank employees who render such services to Bank Plus. Bank Plus paid
Fidelity $0.3 million and $0.1 million under this agreement in 1997 and 1996,
respectively. No such costs were paid to Fidelity prior to the formation of the
holding company in May 1996.

                                      F-38
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Tax Sharing

  The tax sharing agreement between Citadel and Fidelity was terminated prior to
the closing of the 1994 restructuring and recapitalization on August 4, 1994.
Citadel and Fidelity entered into a tax disaffiliation agreement which sets
forth each party's rights and obligations with respect to deficiencies and
refunds, if any, of federal, state, local or foreign taxes for periods before
and after the closing and related matters such as the filing of tax returns and
the conduct of examinations by the Service and other taxing authorities.

  Fidelity entered into a new tax sharing agreement with its new parent company,
Bank Plus, which sets forth each party's rights and obligations with respect to
deficiencies and refunds, if any, of federal or state income or franchise taxes
effective on May 16, 1996 and related matters such as the filing of tax returns
and the conduct of examinations by the Service and other taxing authorities.


 Contribution of Gateway Capital Stock

  In May 1996, Fidelity contributed all the outstanding capital stock of Gateway
to Bank Plus as a capital contribution. The net book value of such stock at
December 31, 1995 was $0.8 million. As a result, Gateway became a wholly owned
subsidiary of Bank Plus.


 Other Equity Transactions

  Fidelity paid a cash dividend of $2.0 million in May 1996 to capitalize Bank
Plus, which had an immaterial effect on the Bank's tangible, core and risk-based
capital. In addition, in April 1997 and November 1996, Gateway paid cash
dividends of $0.3 million to Bank Plus.

  At December 31, 1997 and 1996, Bank Plus had cash and cash equivalents of $1.0
million and $0.8 million, respectively, and no material potential cash producing
operations or assets other than its investments in Fidelity and Gateway.
Accordingly, Bank Plus is substantially dependent on dividends from Fidelity and
Gateway in order to fund its cash needs, including its payment obligations on
the $51.5 principal amount of Senior Notes issued in exchange for Fidelity's
Series A Preferred Stock. See Note 1--Summary of significant Accounting
Policies. Both Gateway's and Fidelity's ability to pay dividends or otherwise
provide funds to Bank Plus are subject to significant regulatory restrictions.

                                      F-39
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 18--FAIR VALUE OF FINANCIAL INSTRUMENTS

  The following is the Company's disclosure of the estimated 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 judgement is 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.

<TABLE>
<CAPTION>
                                                      DECEMBER 31, 1997                  DECEMBER 31, 1996
                                                  =========================        ===========================
                                                   CARRYING         FAIR            CARRYING           FAIR
                                                    AMOUNT          VALUE            AMOUNT            VALUE
                                                   --------         -----           --------           -----
                                                                    (DOLLARS IN THOUSANDS)
<S>                                               <C>            <C>                <C>               <C>
 FINANCIAL ASSETS:
 Investment securities available for
  sale..................................          $  100,837     $  100,837         $  156,251        $  156,251
 Investment securities held to maturity.               3,189          3,208              5,178             5,198
 MBSs available for sale................             852,604        852,604            179,403           179,403
 MBSs held to maturity..................                  --             --             30,024            27,169
 MBSs held for trading..................              41,050         41,050             14,121            14,121
 Loans receivable.......................           2,823,577      2,818,236          2,691,931         2,630,100
 Mortgage servicing rights..............               2,056          5,346              2,141            11,000
 Other assets...........................                 922            922                751               751

 FINANCIAL LIABILITIES:
 Deposits...............................           2,891,801      2,899,964          2,495,933         2,425,284
 FHLB advances..........................           1,009,960      1,012,640            449,851           450,284
 Senior notes...........................              51,478         61,522                 --                --
 Commercial paper.......................                  --             --             40,000            40,016
 Mortgage-backed notes..................                  --             --            100,000           100,000

 OFF-BALANCE-SHEET ASSETS (LIABILITIES):
 Commitment to sell MBSs................                  --              1                 --                25
 Commitment to purchase MBSs............                  --             58                 --                (4)
 Interest rate swap.....................                  --            (46)                --                --
</TABLE>

  The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:

 Investment Securities and Mortgage-backed Securities

  Estimated fair values for investment and MBSs are based on quoted market
prices, where available. If quoted market prices are not available, estimated
fair values are based on quoted market prices of comparable instruments.

 Loans

  The estimated fair values of loans receivable are based on an option adjusted
cash flow valuation ("OACFV"). The OACFV includes forward interest rate
simulations and takes into account the credit quality of performing and
nonperforming loans. Such valuations may not be indicative of the value derived
upon a sale of all or part of the portfolio.

                                      F-40
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Mortgage Servicing Rights

  The estimated fair values of mortgage servicing rights are based on an OACFV
analysis.

 Other Assets

  Fair value of trading derivative instruments are based on quoted market
prices.

 Deposits

  The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand. The fair value of fixed rate
certificates of deposits is estimated by using an OACFV analysis.

 Borrowings (Including Federal Home Loan Bank Advances and Other Borrowings)

  The estimated fair value is based on an OACFV model.

 Off-balance sheet instruments, which include interest rate swaps, floors and
options

  The estimated fair value for the Company's off-balance sheet instruments are
based on quoted market prices, when available, or an OACFV analysis.

 Other Financial Instruments

  Financial instruments of the Bank, as included in the Consolidated Statements
of Financial Condition, for which fair value approximates the carrying amount at
December 31, 1997 and 1996 include "Cash and cash equivalents", "Interest
receivable", "Investment in FHLB stock" and interest payable.

                                      F-41
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 19--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                  FIRST           SECOND                THIRD            FOURTH          YEAR
                                                 QUARTER          QUARTER              QUARTER           QUARTER
                                               -----------     ------------       --------------       -------------   -----------
                                                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                        <C>                <C>                <C>                 <C>                 <C>
1997:
 Interest income........................       $    58,707      $    58,455        $    65,531         $    72,314    $   255,007
 Interest expense.......................            38,350           38,129             45,098              52,432        174,009
 Provision for estimated loan losses....             4,251            4,251              4,251                 251         13,004
 Provision for estimated real estate
  losses................................               742              620               (333)                 31          1,060
 Gains on loan sales, net...............                 7               21                  2                   7             37
 Gains on sales of securities and
  trading activities, net...............             1,221              995                362                  92          2,670
 Writedown of MBSs, available for sale..                --               --                 --              (4,838)        (4,838)
 Operating expense......................            14,336           15,041             16,481              17,238         63,096
 Earnings before minority interest in
  subsidiary............................             5,768            5,583              3,750               1,787         16,888
 Minority interest in subsidiary
   (dividends on subsidiary
    preferred stock)....................             1,553            2,333                342                   7          4,235
 Net earning............................             4,215            3,250              3,408               1,780         12,653
 Earnings available for common
  stockholders..........................             4,215            3,250              3,408               1,780         12,653
 Basic earnings per common share........              0.23             0.18               0.18                0.08           0.67
 Basic weighted average common shares
  outstanding...........................        18,245,265       18,248,754         19,310,813          19,356,825     18,794,887
 Diluted earnings per common share......              0.23             0.18               0.17                0.08           0.66
 Diluted weighted average common shares
  outstanding...........................        18,656,085       18,496,194         19,648,242          19,732,348     19,143,233
Market prices of common stock:
 High...................................             13.75            11.50              13.25               13.69          13.75
 Low....................................             10.38             9.63              10.75               11.06           9.63
1996:
 Interest income........................       $    60,052      $    59,556        $    59,020         $    59,285    $   237,913
 Interest expense.......................            38,216           37,790             37,775              38,842        152,623
 Provision for estimated loan losses....             3,905            3,905              3,900               3,900         15,610
 Provision for estimated real estate
  losses................................               668              578                731               1,242          3,219
 Gains on loan sales, net...............                --                6                  3                  13             22
 Gains (losses) on sales of securities
  and trading activities, net...........               (83)             235                610                 574          1,336
 Operating expense......................            16,627           16,538             17,433              13,853         64,451
 SAIF special assessment................                --               --             18,000                  --         18,000
 Earnings (loss) before minority
  interest in subsidiary................             1,531            2,222            (16,371)              3,186         (9,432)
 Minority interest in subsidiary
  (dividends on subsidiary
  preferred stock)......................                --            1,552              1,553               1,552          4,657
 Net earning (loss).....................             1,531              670            (17,924)              1,634        (14,089)
 Preferred stock dividends..............             1,553               --                 --                  --          1,553
 (Loss) earnings available for common
  stockholders..........................               (22)             670            (17,924)              1,634        (15,642)
 Basic (loss) earnings per common share.                --             0.04              (0.98)               0.08          (0.86)
 Basic weighted average common shares
  outstanding...........................        18,242,465       18,242,465         18,242,715          18,243,890     18,242,887
 Diluted (loss) earnings per common
  share.................................                --             0.04              (0.97)               0.08          (0.85)
 Diluted weighted average common shares
  outstanding...........................        18,349,019       18,348,901         18,438,661          18,580,957     18,438,454
Market prices of common stock:
 High...................................              9.75             9.50              10.63               11.75          11.75
 Low....................................              8.50             8.63               8.75               10.63           8.50
                                                                                                                         (continued)
</TABLE>

                                      F-42
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(continued)

<TABLE>
<CAPTION>
                                                     FIRST            SECOND             THIRD           FOURTH
                                                    QUARTER           QUARTER           QUARTER          QUARTER         YEAR
                                                 -----------       -----------       ------------     ------------   ------------
                                                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                              <C>                <C>               <C>              <C>           <C>
1995:
 Interest income................................  $   60,570        $   62,521        $   61,700       $    61,686    $  246,477
 Interest expense...............................      42,641            45,625            43,618            42,952       174,836
 Provision for estimated loan losses............       4,020            11,131             8,773            45,800        69,724
 Provision for estimated real estate losses.....         391             1,153             1,229               593         3,366
 (Losses) gains on loan sales, net..............        (292)              938                15              (139)          522
 Gains on sales of securities and
  trading activities, net.......................         939             3,159                --                --         4,098
 Operating expense..............................      19,151            19,035            20,466            23,302        81,954
 Net earnings (loss)............................       1,049            (9,027)          (10,579)          (50,422)      (68,979)
 Basic (loss) earnings per share................        0.16             (1.39)            (1.63)            (4.31)        (8.84)
 Basic weighted average common shares
  outstanding...................................   6,492,465         6,492,465         6,492,465        11,708,539     7,807,201
 Diluted (loss) earnings per common share.......        0.16             (1.39)            (1.63)            (4.29)        (8.83)
 Diluted weighted average common shares
  outstanding...................................   6,492,465         6,492,465         6,492,465        11,739,718     7,815,560
Market prices of common stock:
 High...........................................       20.00             18.00             11.50              9.25         20.00
 Low............................................       16.00             11.00              6.00              5.50          5.50

</TABLE>

                                      F-43
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 20--PARENT COMPANY CONDENSED FINANCIAL INFORMATION

  This information should be read in conjunction with the other notes to the
consolidated financial statements.

                             BANK PLUS CORPORATION
                       STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,    DECEMBER 31,
                                                                                    1997             1996
                                                                                ------------    ------------
                                                                                   (DOLLARS IN THOUSANDS)
  <S>                                                                           <C>                 <C>
  ASSETS:
   Cash and cash equivalents...............................................     $    974            $    792
   Loans receivable........................................................          565                 709
   Investment in preferred stock of subsidiary.............................       51,478                  --
   Investment in subsidiaries..............................................      184,079             158,513
   Other assets............................................................        1,126                 731
                                                                                --------            --------
                                                                                $238,222            $160,745
                                                                                ========            ========
  LIABILITIES AND STOCKHOLDERS' EQUITY:
   Liabilities:
    Senior notes...........................................................     $ 51,478            $     --
    Other liabilities......................................................          932                 131
                                                                                --------            --------
                                                                                  52,410                 131
   Stockholder's equity....................................................      185,812             160,614
                                                                                --------            --------
                                                                                $238,222            $160,745
                                                                                ========            ========
</TABLE>

                                      F-44
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


                             BANK PLUS CORPORATION
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                           EIGHT MONTHS
                                                                                             YEAR ENDED       ENDED
                                                                                             DECEMBER 31,  DECEMBER 31,
                                                                                                 1997          1996
                                                                                             ------------  ------------
                                                                                               (Dollars in thousands)
<S>                                                                                            <C>           <C>
INCOME:
 Interest income............................................................................   $     49      $     29
 Interest expense...........................................................................      2,782            --
                                                                                               --------      --------
NET INTEREST (EXPENSE) INCOME..............................................................     (2,733)           29
                                                                                               --------      --------
EXPENSES:
 Occupancy..................................................................................        257            --
 Professional services......................................................................        219           208
 Intercompany expense allocation............................................................        271           143
 Other......................................................................................         93            42
                                                                                               --------      --------
                                                                                                    840           393
                                                                                               --------      --------
LOSS BEFORE INCOME TAX BENEFIT..............................................................     (3,573)         (364)
 Income tax benefit.........................................................................        384           149
                                                                                               --------      --------
LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS (LOSS) AND MINORITY
 INTEREST OF SUBSIDIARIES...................................................................     (3,189)         (215)
  Equity in undistributed net earnings (loss) of subsidiaries...............................     20,077        (9,217)
  Minority interest in subsidiary (dividend on subsidiary
   preferred stock).........................................................................     (4,235)       (4,657)
                                                                                               --------      --------
NET EARNINGS (LOSS).........................................................................   $ 12,653      $(14,089)
                                                                                               ========      ========
</TABLE>

                                      F-45
<PAGE>

                    BANK PLUS CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


                             BANK PLUS CORPORATION
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                              EIGHT MONTHS
                                                                                         YEAR ENDED              ENDED
                                                                                         DECEMBER 31,          DECEMBER 31,
                                                                                             1997                 1996
                                                                                       ----------------       -------------
                                                                                          (Dollars in thousands)
<S>                                                                                      <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net earnings (loss)..........................................................              $  12,653          $ (14,089)
 Equity in undistributed net (earnings) loss of subsidiaries..................                (20,077)             9,217
 Minority interest in subsidiary (dividend on subsidiary preferred stock).....                  4,235              4,657
 Other assets increase........................................................                   (395)              (707)
 Senior notes interest payable, increase......................................                  2,782                 --
 Other liabilities increase...................................................                     12                119
 Other........................................................................                     --                (19)
                                                                                            ---------          ---------
  Net cash used in operating activities.......................................                   (790)              (822)
                                                                                            ---------          ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Loans receivable decrease (increase).........................................                    144               (709)
                                                                                            ---------          ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Dividends from subsidiaries..................................................                  2,290              2,300
 Stock options exercised......................................................                    530                 23
 Senior notes interest........................................................                 (1,992)                --
                                                                                            ---------          ---------
  Net cash provided by financing activities...................................                    828              2,323
                                                                                            ---------          ---------
    Net increase in cash and cash equivalents.................................                    182                792
  Cash and cash equivalents at beginning of period............................                    792                 --
                                                                                            ---------          ---------
  Cash and cash equivalents at the end of period..............................              $     974          $     792
                                                                                            =========          =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
  Exchange of preferred stock for senior notes:
    Investment in preferred stock of subsidiary...............................              $  51,478          $      --
    Senior notes..............................................................                 51,478                 --
</TABLE>

                                      F-46
<PAGE>

ITEM 9.   CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE:

   None

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   Incorporated herein by this reference is the information set forth in the
sections entitled "PROPOSAL NUMBER 1: ELECTION OF DIRECTORS," "DIRECTORS AND
EXECUTIVE OFFICERS" contained in the Company's Proxy Statement for its 1998
Annual Meeting of Stockholders (the "1998 Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION

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

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  Incorporated herein by this reference is the information set forth in the
section entitled "BENEFICIAL OWNERSHIP OF COMMON STOCK" contained in the 1998
Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  Incorporated herein by this reference is the information set forth in the
section entitled "RELATED PARTY TRANSACTIONS" contained in the 1998 Proxy
Statement.

                                    PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


  (a)(1)  Financial Statements


<TABLE>
<CAPTION>
                                           DESCRIPTION                                                PAGE NO.
                                           -----------                                               -----------
<S>                                                                                                     <C>
Independent Auditor's Report.......................................................................     F-2
Consolidated Statements of Financial Condition at December 31, 1997 and 1996.......................     F-3
Consolidated Statements of Operations for Each of the Three Years in the Period Ended
  December 31, 1997................................................................................     F-4
Consolidated Statements of Stockholders' Equity for Each of the Three Years in the Period Ended
  December 31, 1997................................................................................     F-5
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December
  31, 1997.........................................................................................     F-6
Notes to Consolidated Financial Statements for Each of the Three Years in the Period Ended
 December 31, 1997.................................................................................     F-8
</TABLE>

  (a)(2) Financial Statement Schedules


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

                                      II-1
<PAGE>

  (b)  Reports on Form 8-K

  None

  (c)  Exhibits


<TABLE>
<CAPTION>
   EXHIBIT
     NO.                                                   DESCRIPTION
--------------   -------------------------------------------------------------------------------------------------
           <S>   <C>
           2.1   Agreement and Plan of Reorganization, dated as of March 27, 1996, among Fidelity, Bank Plus
                 Corporation and Fidelity Interim Bank. (incorporated by reference to Exhibit 2.1 to the Form 8-B
                 of Bank Plus filed with the SEC on April 22, 1996 (the  "Form 8-B")).*

           2.2   Agreement and Plan of Merger, dated June 25, 1997, among Bank Plus Corporation, Fidelity and
                 Hancock Savings Bank, F.S.B (incorporated by reference to Exhibit 2.2 to the Form S-4 of Bank
                 Plus filed with the SEC on June 30, 1997).*

           3.1   Certificate of Incorporation of Bank Plus Corporation (incorporated by reference to Exhibit 3.1
                 to the Form 8-B).*

           3.2   Bylaws of Bank Plus Corporation (incorporated by reference to Exhibit 3.2 to the Form 8-B).*

           4.1   Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Form 8-B).*

           4.2   Indenture dated as of July 18, 1997 between Bank Plus Corporation and The Bank of New York, as
                 trustee relating to the 12% Senior Notes due July 18, 2007 of Bank Plus Corporation
                 (incorporated by reference to Exhibit 4.4 of the Registration Statement on Form S-8 of Bank Plus
                 filed on September 4, 1997).*

          10.1   Settlement Agreement between Fidelity, Citadel and certain lenders, dated as of June 3, 1994
                 (the  "Letter Agreement") (incorporated by reference to Exhibit 10.1 to the Form 8-B).*

          10.2   Amendment No. 1 to Letter Agreement, dated as of June 20, 1994 (incorporated by reference to
                 Exhibit 10.2 to the Form 8-B).*

          10.3   Amendment No. 2 to Letter Agreement, dated as of July 28, 1994 (incorporated by reference to
                 Exhibit 10.3 to the Form 8-B).*

          10.4   Amendment No. 3 to Letter Agreement, dated as of August 3, 1994 (incorporated by reference to
                 Exhibit 10.4 to the Form 8-B).*

          10.5   Mutual Release, dated as of August 4, 1994, between Fidelity, Citadel and certain lenders
                 (incorporated by reference to Exhibit 10.5 to the Form 8-B).*

          10.6   Mutual Release between Fidelity, Citadel and The Chase Manhattan Bank, NA, dated June 17, 1994
                 (incorporated by reference to Exhibit 10.6 to the Form 8-B).*

          10.7   Loan and REO Purchase Agreement (Primary), dated as of July 13, 1994, between Fidelity and
                 Colony Capital, Inc. (incorporated by reference to Exhibit 10.7 to the Form 8-B).*

          10.8   Real Estate Purchase Agreement, dated as of August 3, 1994, between Fidelity and CRI
                 (incorporated by reference to Exhibit 10.8 to the Form 8-B).*

          10.9   Loan and REO Purchase Agreement (Secondary), dated as of July 12, 1994, between Fidelity and EMC
                 Mortgage Corporation (incorporated by reference to Exhibit 10.9 to the Form 8-B).*

         10.10   Loan and REO Purchase Agreement (Secondary), dated as of July 21, 1994, between Fidelity and
                 International Nederlanden (US) Capital Corporation, Farallon Capital Partners, L.P., Tinicum
                 Partners, L.P. and Essex Management Corporation (incorporated by reference to Exhibit 10.10 to
                 the Form 8-B).*

         10.11   Purchase of Assets and Liability Assumption Agreement by and between Home Savings of America,
                 FSB and Fidelity, dated as of July 19, 1994 (incorporated by reference to Exhibit 10.11 to the
                 Form 8-B).*

         10.12   Promissory Note, dated July 28, 1994, by CRI in favor of Fidelity and related loan documents
                 (3943 Veselich Avenue) (incorporated by reference to Exhibit 10.12 to the Form 8-B).*
</TABLE>

                                      II-2
<PAGE>

<TABLE>
<CAPTION>
   EXHIBIT
     NO.                                                   DESCRIPTION
--------------   -------------------------------------------------------------------------------------------------
         <S>     <C>
         10.13   Promissory Note, dated July 28, 1994, by CRI in favor of Fidelity and related loan
                 documents (23200 Western Avenue) (incorporated by reference to Exhibit 10.13 to the Form
                 8-B).*

         10.14   Promissory Note, dated August 3, 1994, by CRI in favor of Fidelity and related loan
                 documents (1661 Camelback Road) (incorporated by reference to Exhibit 10.14 to the Form
                 8-B).*

         10.15   Guaranty Agreement, dated August 3, 1994, by Citadel in favor of Fidelity (incorporated by
                 reference to Exhibit 10.15 to the Form 8-B).*

         10.16   Tax Disaffiliation Agreement, dated as of August 4, 1994, by and between Citadel and
                 Fidelity (incorporated by reference to Exhibit 10.16 to the Form 8-B).*

         10.17   Option Agreement, dated as of August 4, 1994, by and between Fidelity and Citadel
                 (incorporated by reference to Exhibit 10.17 to the Form 8-B).*

         10.18   Executive Employment Agreement, dated as of August 1, 1997, between Richard M. Greenwood
                 and Fidelity (incorporated by reference to Exhibit 10.18 to the quarterly report on Form
                 10Q for the quarter ended June 30, 1997).*

         10.19   Guaranty of Employment Agreement, dated as of August 1, 1997, between Richard M. Greenwood and Bank Plus
                 (incorporated by reference to Exhibit 10.19 to the quarterly report on Form 10Q for the quarter ended June 30,
                 1997).*

         10.20   Amended Service Agreement between Fidelity and Citadel dated as of August 1, 1994
                 (incorporated by reference to Exhibit 10.19 to the Form 8-B).*

         10.21   Side letter, dated August 3, 1994, between Fidelity and CRI (incorporated by reference to
                 Exhibit 10.20 to the Form 8-B).*

         10.22   Placement Agency Agreement, dated July 12, 1994, between Fidelity, Citadel and J.P. Morgan
                 Securities Inc. (incorporated by reference to Exhibit 10.21 to the Form 8-B).*

         10.23   Stock Purchase Agreement, dated as of August 3, 1994, between Fidelity and Citadel
                 (incorporated by reference to Exhibit 10.22 to the Form 8-B).*

         10.24   Litigation and Judgment Assignment and Assumption Agreement, dated as of August 3, 1994,
                 between Fidelity and Citadel (incorporated by reference to Exhibit 10.23 to the Form 8-B).*

         10.25   Amended and Restated 1996 Stock Option Plan (incorporated by reference to Exhibit 10.24 to
                 the quarterly report on Form 10Q for the quarterly period ended March 31, 1997).*

         10.26   Retirement Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.25 to
                 the Form 8-B).*

         10.27   Form of Severance Agreement between the Bank and Mr. Sanders (incorporated by reference to
                 Exhibit 10.26 to the Form 8-B).*

         10.28   Form of Change in Control Agreement between the Bank and Mr. Greenwood (incorporated by
                 reference to Exhibit 10.28 to the quarterly report on Form 10Q for the quarter ended June
                 30, 1997).*

         10.29   Form of Severance and Change in Control Agreement between the Bank and each of Messrs.
                 Austin, Evans & Taylor (incorporated by reference to Exhibit 10.29 to the quarterly report
                 on Form 10Q for the quarter ended June 30, 1997).*

         10.30   Form of Severance and Change in Control Agreement between the Bank and each of Messrs.
                 Condon, & Stutz (incorporated by reference to Exhibit 10.30 to the quarterly report on Form
                 10Q for the quarter ended June 30, 1997).*

         10.31   Form of Severance Agreement between the Bank and Mr. Renstrom (incorporated by reference to
                 Exhibit 10.29 to the Form 8-B).*

         10.32   Form of Incentive Stock Option Agreement between the Bank and certain officers
                 (incorporated by reference to Exhibit 10.30 to the Form 8-B).*
</TABLE>

                                      II-3
<PAGE>

<TABLE>
<CAPTION>
   EXHIBIT
     NO.                                                   DESCRIPTION
--------------   -------------------------------------------------------------------------------------------------
         <S>     <C>
         10.33   Form of Amendment to incentive Stock Option Agreement between the Bank and certain officers
                 (incorporated by reference Exhibit 10.31 to the Form 8-B).*

         10.34   Form of Non-Employee Director Stock Option Agreement between the Bank and certain directors
                 (incorporated by reference to Exhibit 10.32 to the Form 8-B).*

         10.35   Form of Amendment to Non-Employee Director Stock Option Agreement between the Bank and
                 certain directors (incorporated by reference to Exhibit 10.33 to the Form 8-B).*

         10.36   Loan and REO Purchase Agreement, dated as of December 15, 1994 between Fidelity and
                 Berkeley Federal Bank & Trust FSB (incorporated by reference to Exhibit 10.34 to the Form
                 8-B).*

         10.37   Standard Office Lease-Net, dated July 15, 1994, between the Bank and 14455 Ventura Blvd.,
                 Inc. (incorporated by reference to Exhibit 10.35 to the Form 8-B).*

         10.38   Standard Office Lease--Modified Gross, dated July 15, 1994, between the Bank and Citadel
                 Realty, Inc. (incorporated by reference to Exhibit 10.36 to the Form 8-B).*

         10.39   Loan Servicing Purchase and Sale Agreement dated March 31, 1995 between the Bank and
                 Western Financial Savings Bank, FSB (incorporated by reference to Exhibit 10.37 to the Form
                 8-B).*

         10.40   Supervisory Agreement dated June 28, 1995, between Fidelity and the OTS (incorporated by
                 reference to Exhibit 10.38 to the Form 8-B).*

         10.41   Form of Indemnity Agreement between the Bank and its directors and senior officers
                 (incorporated by reference to Exhibit 10.39 to the Form 8-B).*

         10.42   Letter from the OTS to the Bank dated December 8, 1995, terminating the Supervisory
                 Agreement as of the date of the letter (incorporated by reference to Exhibit 10.40 to the
                 Form 8-B).*

         10.43   Loan Servicing Purchase and Sale Agreement dated May 15, 1996 between Fidelity and Western
                 Financial Savings Bank (incorporated by reference to Exhibit 10.37 to the quarterly report
                 on Form 10-Q for the quarterly period ended June 30, 1996).*

         10.44   First Amendment to Standard Office Lease--Modified Gross, dated as of May 15, 1995 between
                 the Bank and Citadel Realty, Inc (incorporated by reference to Exhibit 10.42 to the
                 quarterly report on Form 10-Q for the quarterly period ended September 30, 1996).*

         10.45   Second Amendment to Standard Office Lease--Modified Gross, dated as of October 1, 1996,
                 between the Bank and Citadel Realty, Inc (incorporated by reference to Exhibit 10.43 to the
                 quarterly report on Form 10-Q for the quarterly period ended September 30, 1996).*

         10.46   Form of Indemnity Agreement between Bank Plus and its directors and senior officers
                 (incorporated by reference to Exhibit 10.44 to the quarterly report on Form 10-Q for the
                 quarterly period ended September 30, 1996).*

         10.55   Promissory Note, dated July 31, 1996, from Richard M. Greenwood to Bank Plus (incorporated
                 by reference to Exhibit 10.55 to the 1996 Form 10-K).*

         10.56   Bank Plus Corporation Deferred Compensation Plan (incorporated by reference to Exhibit
                 10.56 to the quarterly report on Form 10Q for the quarter ended June 30, 1997).*.

         10.57   Form of 1997 Non-Employee Director Stock Option Agreement between the Company and certain
                 directors.

         11.     Statement re Computation of Per Share Earnings.

         12.     Computation of Ratio of Earnings (Loss) to Combined Fixed Charges and Preferred Stock
                 Dividends.

         21.1    List of Subsidiaries.

         27.     Financial Data Schedule.
</TABLE>
-----------------
            * Indicates previously filed documents.

                                      II-4
<PAGE>

                                   SIGNATURES


  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.


                                  BANK PLUS CORPORATION



                                  By:    /S/    GORDON V. SMITH
                                     -----------------------------
                                               GORDON V. SMITH
                                             Chairman of the Board


Date:  March 30, 1998


  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED.



<TABLE>
<CAPTION>
SIGNATURE                                                     CAPACITY                              DATE
----------------------------------------  ------------------------------------------------    -----------------
<S>                                       <C>                                                 <C>
/S/ GORDON V. SMITH                       Chairman of the Board of Directors                  March 30, 1998
----------------------------------------
         GORDON V. SMITH

/S/ RICHARD M. GREENWOOD                  President and Chief Executive Officer; Vice         March 30, 1998
----------------------------------------             Chairman of the Board
         RICHARD M. GREENWOOD                        (Principal Financial Officer)

/S/ NORMAN BARKER, JR.                    Director                                            March 30, 1998
----------------------------------------
    NORMAN BARKER, JR.

/S/ WALDO H. BURNSIDE                     Director                                            March 30, 1998
----------------------------------------
    WALDO H. BURNSIDE

/S/ GEORGE GIBBS, JR.                     Director                                            March 30, 1998
----------------------------------------
    GEORGE GIBBS, JR.

/S/ LILLY V. LEE                          Director                                            March 30, 1998
----------------------------------------
    LILLY V. LEE

/S/ MARK SULLIVAN III                     Director                                            March 30, 1998
----------------------------------------
    MARK SULLIVAN III

/S/ RICHARD VILLA                            Senior Vice President, Controller and            March 30, 1998
----------------------------------------     Chief Accounting Officer
    RICHARD VILLA                            (Principal Accounting Officer)
</TABLE>

                                      II-5