<PAGE> 1


                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549

                                   FORM 10-Q

(Mark One)

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

                For the quarterly period ended December 31, 1998

                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
    EXCHANGE ACT OF 1934

For the transition period from________________________to_______________________

                         Commission File Number 0-25664


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


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


225 NORTH BARRANCA STREET, WEST COVINA, CALIFORNIA                     91791
--------------------------------------------------------------------------------
(Address of principal executive offices)


                                 (626) 859-4200
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


                                 Not Applicable
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

      Indicate by check mark  whether the  registrant  (1) has filed all reports
require  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
                                               ---     ---

                      APPLICABLE ONLY TO CORPORATE ISSUERS:
      Indicate the number of shares  outstanding of each of the issuer's classes
of common stock, as of the latest  practicable date:  2,181,323 shares of common
stock, par value $0.01 per share, were outstanding as of February 9, 1999.



<PAGE> 2



                                SGV BANCORP, INC.
                                    FORM 10-Q
                                      INDEX


PART I   FINANCIAL INFORMATION                                             PAGE
                                                                           ----

Item 1   Consolidated Statements of Financial Condition:
         December 31, 1998 (unaudited) and June 30, 1998.....................1

         Consolidated Statements of Operations (unaudited):
         For the Six Months Ended December 31, 1998 and 1997 and for the
         Three Months Ended December 31, 1998 and 1997 ......................2

         Consolidated Statements of Cash Flows (unaudited):
         For the Six Months Ended December 31, 1998 and 1997.................3

         Notes to Consolidated Financial Statements..........................5

Item 2   Management's Discussion and Analysis of
         Results of Operations and Financial Condition.......................8

Item 3   Quantitative and Qualitative Disclosure Regarding Market Risk......21

PART II  OTHER INFORMATION

Item 1   Legal Proceedings..................................................22

Item 2   Changes in Securities..............................................22

Item 3   Defaults Upon Senior Securities....................................22

Item 4   Submission of Matters to a Vote of Security Holders................22

Item 5   Other Information..................................................22

Item 6   Exhibits and Reports on Form 8-K...................................23

SIGNATURES..................................................................24



<PAGE> 3
<TABLE>
<CAPTION>

SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
-------------------------------------------------------------------------------------------------------------------
                                                                                DECEMBER 31,          JUNE 30,
                                                                                  1998                  1998
                                                                                  ----                  ----
ASSETS:                                                                        (Unaudited)
<S>                                                                              <C>                   <C> 
  Cash and cash equivalents, including short-term bank obligations of
    $3,390 at December 31, 1998 and $16,202 at June 30, 1998                     $   11,595            $   20,008
  Investment securities available for sale, amortized cost of $25,325
    at December 31, 1998 and $19,241 at June 30, 1998                                25,227                19,221
  Mortgage-backed securities available for sale, amortized cost of
    $26,664 at December 31, 1998 and $29,386 at June 30, 1998                        26,623                29,383
  Mortgage-backed securities held to maturity, estimated fair value of
    $33,880 at December 31, 1998 and $30,089 at June 30, 1998                        33,748                29,936
  Loans receivable held for sale                                                      1,287                   391
  Loans receivable held for investment, net of allowance for estimated
    loan losses of $1,563 at December 31, 1998 and $1,425 at June 30, 1998          346,873               295,739
  Accrued interest receivable                                                         3,071                 2,774
  Stock of Federal Home Loan Bank of San Francisco, at cost                           5,266                 4,234
  Real estate acquired through foreclosure, net                                         814                 1,902
  Premises and equipment, net                                                         3,322                 3,537
  Prepaid expenses and other assets, net                                              3,707                 1,221
                                                                             ---------------          -----------
      Total assets                                                               $  461,533            $  408,346
                                                                             ===============          ===========
LIABILITIES AND STOCKHOLDERS' EQUITY

 LIABILITIES:
  Deposit accounts                                                               $  317,564            $  295,281
  Federal Home Loan Bank advances                                                   103,991                70,543
  Securities sold under agreements to repurchase                                      4,300                 6,000
  Accrued expenses and other liabilities                                              4,583                 4,289
                                                                             ---------------          -----------
      Total liabilities                                                             430,438               376,113

 STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued
  Common stock, $.01 par value; 10,000,000 shares authorized;
    2,727,656 issued; 2,181,323 shares outstanding at December 31, 1998 and
    2,348,068 shares outstanding at June 30, 1998                                        27                    27
  Additional paid-in capital                                                         21,229                21,147
  Retained earnings, substantially restricted                                        17,879                16,688
  Accumulated other comprehensive income                                                (81)                  (13)
  Deferred stock compensation                                                        (1,412)               (1,555)
  Treasury stock, 546,333 shares at December 31,1998 and
    379,588 shares at June 30, 1998                                                  (6,547)               (4,061)
                                                                             ---------------          ------------
      Total stockholders' equity                                                     31,095                32,233
                                                                             ---------------          ------------
      Total liabilities and stockholders' equity                                 $  461,533            $  408,346
                                                                             ===============          ============

</TABLE>
                                                    1



<PAGE> 4
<TABLE>
<CAPTION>

SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------
                                                               FOR THE THREE MONTHS                 FOR THE SIX MONTHS
                                                                ENDED DECEMBER 31,                  ENDED DECEMBER 31,
                                                               1998             1997              1998              1997
                                                             ----------------------------    --------------------------------
<S>                                                            <C>              <C>             <C>                <C>      
INTEREST INCOME:
  Interest on loans                                            $  6,717         $  5,980        $  12,656          $  11,458
  Interest on investment securities                                 283              263              648                576
  Interest on mortgage-backed securities                            980              985            2,004              2,253
  Other                                                             146              231              355                496
                                                           -------------     ------------     ------------     --------------
      Total interest income                                       8,126            7,459           15,663             14,783
                                                           -------------     ------------     ------------     --------------
INTEREST EXPENSE:
  Interest on deposit accounts                                    3,442            3,558            6,839              7,033
  Interest on borrowings                                          1,590            1,282            2,868              2,624
                                                           -------------     ------------     ------------     --------------
      Total interest expense                                      5,032            4,840            9,707              9,657
                                                           -------------     ------------     ------------     --------------
Net interest income before provision
  for estimated loan losses                                       3,094            2,619            5,956              5,126
PROVISION FOR ESTIMATED LOAN LOSSES                                 210              268              479                343
                                                           -------------     ------------     ------------     --------------

Net interest income after provision for
  estimated loan losses                                           2,884            2,351            5,477              4,783

OTHER INCOME (EXPENSE):
  Loan servicing and other fees                                     151              137              296                263
  Deposit account fees                                              144              136              288                264
  Secondary marketing activity, net                                  40               14               61                  9
  Gain on sale or redemption of securities
    available for sale, net                                                                             7                 37
  Other income                                                      158               40              254                 81
  Net (loss) gain on real estate acquired through
    foreclosure                                                    (10)             (75)              135               (63)
                                                           -------------     ------------     ------------     --------------
      Total other income                                            483              252            1,041                591
                                                           -------------     ------------     ------------     --------------
GENERAL AND ADMINISTRATIVE EXPENSES:
  Compensation and other employee expenses                        1,249            1,194            2,478              2,382
  Office occupancy                                                  269              272              535                541
  Data Processing and Equipment                                     298              275              575                529
  Advertising                                                        38               26               68                 78
  FDIC insurance premiums                                            43               45               87                 89
  Other operating expenses                                          409              387              752                776
                                                           -------------     ------------     ------------     --------------
      Total general and administrative expenses                   2,306            2,199            4,495              4,395
                                                           -------------     ------------     ------------     --------------

EARNINGS BEFORE INCOME TAXES                                      1,061              404            2,023                979
INCOME TAXES                                                        437              170              833                414
                                                           -------------     ------------     ------------     --------------
      NET EARNINGS                                            $     624        $     234       $    1,190        $       565
                                                           =============     ============     ============     ==============
EARNINGS PER SHARE - Basic                                    $    0.28        $    0.10       $     0.53        $      0.24
                                                           =============     ============     ============     ==============
EARNINGS PER SHARE - Diluted                                  $    0.27        $    0.09       $     0.51        $      0.23
                                                           =============     ============     ============     ==============
</TABLE>


                                                           2


<PAGE> 5
<TABLE>
<CAPTION>

SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------
                                                                                    FOR THE SIX MONTHS
                                                                                     ENDED DECEMBER 31,
                                                                        ---------------------------------------------
                                                                               1998                       1997
                                                                        ------------------        -------------------
<S>                                                                       <C>                      <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings                                                            $      1,190             $        565
  Adjustments to reconcile net earnings to net
    cash provided by operating activities:
      Depreciation and amortization                                                320                      328
      Loans originated for sale                                                (11,266)                  (7,258)
      Proceeds from sale of loans                                               10,455                    7,055
      Gain on sale of loans, net                                                   (85)                     (25)
      Gain on sale of investments available for sale, net                          (10)                      (7)
      Gain on sale of mortgage-backed securities available for sale, net            (2)                     (31)
      Federal Home Loan Bank stock dividend                                       (126)                    (126)
      (Increase) decrease in prepaid expenses and other assets                  (2,538)                      20
      Amortization of deferred loan fees                                          (159)                     (36)
      Deferred loan origination costs                                             (228)                    (121)
      Increase in accrued expenses and other liabilities                           343                      435
      Provision for estimated loan losses                                          479                      343
      (Recapture of) provision for estimated real estate losses                    (45)                      56
      Premium amortization, net                                                    386                      118
      (Increase) decrease in accrued interest receivable                          (297)                      84
      Other, net                                                                   133                     (125)
                                                                          ----------------         ---------------
        Net cash provided by operating activities                               (1,450)                   1,275

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of investment securities available for sale                          (65,871)                (21,748)
  Proceeds from sale and redemption of investment securities
    available for sale                                                           59,802                  20,507
  Purchase of mortgage-backed securities available for sale                     (10,153)
  Proceeds from sale of mortgage-backed securities available for sale             6,931                  14,480
  Purchase of mortgage-backed securities held to maturity                       (10,030)
  Principal repayments on mortgage-backed securities                             11,939                   6,328
  Loans funded, net                                                             (35,521)                (13,267)
  Loans purchased, net                                                          (63,926)                (40,623)
  Principal repayments on loans                                                  46,993                  21,778
  Proceeds from sale of real estate                                               2,127                   1,069
  Purchase of premises and equipment                                               (71)                    (113)
  Purchase of Federal Home Loan Bank Stock                                        (906)
  Other, net                                                                       (37)                     (69)
                                                                          --------------           ---------------   
      Net cash used in investing activities                                    (58,723)                 (11,658)
</TABLE>


                                                      3



<PAGE> 6
<TABLE>
<CAPTION>

SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)(CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------
                                                                                             FOR THE SIX MONTHS
                                                                                             ENDED DECEMBER 31,
                                                                                ---------------------------------------------
                                                                                      1998                       1997
                                                                                ------------------        -------------------
<S>                                                                             <C>                         <C>          
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net decrease in certificate accounts                                          $     (4,603)               $     (5,985)
  Net increase in passbook, money market savings,
    NOW and non-interest-bearing accounts                                             26,886                      13,197
  Proceeds from Federal Home Loan Bank advances                                       46,500
  Repayment of Federal Home Loan Bank advances                                       (13,052)                     (6,686)
  Proceeds from securities sold under agreements to repurchase                         4,300
  Repayment of securities sold under agreements to repurchase                         (6,000)                     (3,430)
  Purchase of treasury stock                                                          (2,486)
  Other, net                                                                             215                         233
                                                                                ------------------        -------------------
      Net cash provided by (used in) financing activities                             51,760                      (2,671)

NET DECREASE  IN CASH AND CASH  EQUIVALENTS                                           (8,413)                    (13,054)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                        20,008                      22,664
                                                                                ------------------        -------------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                        $     11,595                $      9,610
                                                                                ==================        ===================

SUPPLEMENTAL CASH FLOW DISCLOSURES
  Cash paid during the period for:
Interest                                                                        $      9,629               $       9,652
Income taxes, net                                                                      1,060                         536

NONCASH INVESTING ACTIVITIES DURING THE PERIOD:
Real estate acquired through foreclosure                                                 951                       1,312
Change in net unrealized loss on investment securities and
  mortgage-backed securities available for sale, net of taxes                            (68)                         87

</TABLE>

                                               4


<PAGE> 7


                        SGV BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998
                                   (UNAUDITED)

1.    Basis of Presentation:

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

      SGV  engages  only in  limited  business  operations  primarily  involving
investments in federal agency securities and mortgage-backed  securities, and as
a result,  substantially all of the net earnings and performance  figures herein
reflect the results of the Association.

      The  Association  is primarily  engaged in  attracting  deposits  from the
general public in the areas in which its branches are located and investing such
deposits  and other  available  funds  primarily  in mortgage  loans  secured by
one-to-four  family residences.  To a lesser extent, the Association  invests in
multi-family  residential  mortgages,  commercial  real  estate,  land and other
loans. The Association's  revenues are derived  principally from interest on its
mortgage loans, and to a lesser extent, interest and dividends on its investment
and mortgage-backed securities and income from loan servicing. The Association's
primary sources of funds are deposits, principal and interest payments on loans,
advances from the Federal Home Loan Bank of San  Francisco  (the FHLB) and, to a
lesser  extent,  proceeds from the sale of loans.  As of December 31, 1998,  the
Association operated eight branch offices located in the San Gabriel Valley.

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

      The accompanying  consolidated  financial statements have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information and with the  instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly,  they do not include  all of the  information  and  footnotes
required by generally  accepted  accounting  principles  for complete  financial
statements.  In the opinion of management all necessary adjustments,  consisting
only of normal recurring adjustments necessary for a fair presentation have been
included.  The results of operations  for the three and six-month  periods ended
December  31, 1998 are not  necessarily  indicative  of the results  that may be
expected for the entire fiscal year.


                                       5

<PAGE> 8



      These  consolidated  financial  statements and the  information  under the
heading  "Management's  Discussion  and  Analysis of Results of  Operations  and
Financial Condition" should be read in conjunction with the audited consolidated
financial  statements and notes thereto of SGV Bancorp,  Inc. for the year ended
June 30,  1998  included  in the  Company's  Annual  Report on Form 10-K for the
fiscal year ended June 30, 1998.

2.    Earnings Per Share

      Earnings per share reconciliation is as follows:
<TABLE>
<CAPTION>
                                                                              WEIGHTED
                                                                              AVERAGE
                                                           INCOME             SHARES              PER SHARE
                                                           (NUMERATOR)        (DENOMINATOR)       AMOUNT
                                                         --------------      --------------      -----------
                                                                 THREE MONTHS ENDED DECEMBER 31, 1998
                                                         ---------------------------------------------------
<S>                                                        <C>                <C>                  <C>     
BASIC EPS
  Income available to common stockholders                  $  624,000         2,208,000            $   0.28
EFFECT OF DILUTIVE SECURITIES
  Incremental shares from assumed exercise
    of outstanding options                                          -            68,000               (0.01)
                                                         -----------------  ------------------  -------------
DILUTED EPS
  Income available to common stockholders                  $  624,000         2,276,000            $   0.27
                                                         =================  ==================  =============

                                                                 SIX MONTHS ENDED DECEMBER 31, 1998
                                                        -----------------------------------------------------
BASIC EPS
  Income available to common stockholders                  $   1,190,000      2,254,000            $   0.53
EFFECT OF DILUTIVE SECURITIES
  Incremental shares from assumed exercise
    of outstanding options                                             -         83,000               (0.02)
                                                         -----------------  ------------------  -------------
DILUTED EPS
  Income available to common stockholders                  $   1,190,000      2,337,000            $   0.51
                                                         =================  ==================  =============
                                                                 THREE MONTHS ENDED DECEMBER 31, 1997
                                                         ----------------------------------------------------
BASIC EPS
  Income available to common stockholders                  $  234,000         2,343,000            $   0.10
EFFECT OF DILUTIVE SECURITIES
  Incremental shares from assumed exercise
    of outstanding options                                          -           129,000               (0.01)
                                                         -----------------  ------------------  -------------
DILUTED EPS
  Income available to common stockholders                  $  234,000         2,472,000            $   0.09

                                                         =================  ==================  =============
                                                                 SIX MONTHS ENDED DECEMBER 31, 1997
                                                           ----------------------------------------------------------
BASIC EPS
  Income available to common stockholders                  $  565,000         2,343,000            $   0.24

EFFECT OF DILUTIVE SECURITIES
  Incremental shares from assumed exercise

    of outstanding options                                          -           123,000               (0.01)
                                                         -----------------  ------------------  -------------
DILUTED EPS
  Income available to common stockholders                  $  565,000         2,466,000            $   0.23
                                                         =================  ==================  =============
</TABLE>

                                                6


<PAGE> 9




3.   Comprehensive Income
     --------------------

      The Company adopted Statement of Financial  Accounting  Standards No. 130,
REPORTING  COMPREHENSIVE  INCOME,  effective July 1, 1998. The standard requires
that  comprehensive  income and its  components  be disclosed  in the  financial
statements. The Company's comprehensive income includes all items which comprise
net income plus the unrealized holding losses on available-for-sale  securities.
For the three months and six months ended  December 1998 and 1997, the Company's
comprehensive income was as follows:

<TABLE>
<CAPTION>

                                                                  FOR THE THREE MONTHS ENDED:
                                                ----------------------------------------------------------------
                                                    DECEMBER 31, 1998                    DECEMBER 31, 1997
                                                ---------------------------          ---------------------------
                                                                    (Dollars in thousands)
<S>                                                       <C>                                  <C>    
Net income                                                $   624                              $   234
Other comprehensive income (loss)                             (21)                                 (18)
                                                ===========================          ===========================
    Total comprehensive income                            $   603                              $   216
                                                ===========================          ===========================
                                                                   FOR THE SIX MONTHS ENDED:
                                                ----------------------------------------------------------------
                                                    DECEMBER 31, 1998                    DECEMBER 31, 1997
                                                ---------------------------          ---------------------------
                                                                    (Dollars in thousands)

Net income                                                $ 1,190                              $   565
Other comprehensive income (loss)                             (68)                                  87
                                                ===========================          ===========================
    Total comprehensive income                            $ 1,122                              $   652
                                                ===========================          ===========================
</TABLE>


4.   Accounting Principles
     ---------------------

      In June 1997, the FASB issued SFAS No. 131,  DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED  INFORMATION.  SFAS No. 131  establishes  standards of
reporting by publicly held business  enterprises  and  disclosure of information
about operating  segments in annual financial  statements to a lesser extent, in
interim financial reports issued to shareholders.  SFAS No. 131 is effective for
fiscal years  beginning after December 15, 1997.  Since the primary  business of
the  Company  is  performed  through  the  Association,  there  is  no  material
difference in the  information  already  presented in the  financial  statements
contained  herein and those  required under SFAS No. 131 for  information  about
operating segments. At this time, no additional disclosure is required.

      SFAS  No.  133,   ACCOUNTING  FOR  DERIVATIVE   INSTRUMENTS   AND  HEDGING
ACTIVITIES,  was issued in June 1998 and  establishes  accounting  and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts,  (collectively  referred to as derivatives) and for
hedging activities.  SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Earlier  application is encouraged,  but it
is permitted  only as of the  beginning of any fiscal  quarter that begins after
June 1998.  The  adoption of the  provisions  of SFAS No. 133 is not expected to
have a material impact on the results of operations or the financial position of
the Company.


                                       7


<PAGE> 10



5.   Use of Estimates in the Preparation of Financial Statements
     -----------------------------------------------------------

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


Item 2. Management's Discussion and Analysis of Results of Operations and 
        ------------------------------------------------------------------
        Financial Condition
        -------------------

      This  Management's  Discussion and Analysis  should be read in conjunction
with the Management's  Discussion and Analysis contained in the Company's Annual
Report on Form 10-K,  which focuses upon relevant  matters  occurring during the
year ended June 30, 1998.  Accordingly,  the ensuing discussion focuses upon the
material  matters at and for the three months and six months ended  December 31,
1998.

GENERAL
-------

      The principal  business of the Company is attracting  retail deposits from
the general public and investing those  deposits,  together with funds generated
from  operations and  borrowings,  primarily in one- to four-family  residential
mortgage loans. To a lesser extent,  the Company engages in secondary  marketing
activities and invests in  multi-family,  commercial real estate,  construction,
land and  consumer  loans.  Loan sales  come from  loans  held in the  Company's
portfolio  designated as being held for sale or originated during the period and
being so designated.  The Company retains  virtually all the servicing rights of
loans sold. The Company's revenues are derived  principally from interest on its
mortgage loans, and to a lesser extent, interest and dividends on its investment
and  mortgage-backed  securities and income from loan  servicing.  The Company's
primary sources of funds are deposits, principal and interest payments on loans,
advances from the FHLB, securities sold under agreements to repurchase and, to a
lesser extent, proceeds from the sale of loans.

RESULTS OF OPERATIONS
---------------------

      The Company  posted net  earnings of $624,000  for the three  months ended
December  31, 1998  compared to net  earnings of $234,000  for the three  months
ended  December 31,  1997.  For the six months  ended  December  31,  1998,  the
Company's  net  earnings  were $1.2  million,  as  compared  to net  earnings of
$565,000 for the six months ended  December 31, 1997. For the three months ended
December 31, 1998,  the net earnings  were $0.28 per share - basic,  compared to
$0.10 per share - basic for the three  months ended  December 31, 1997.  For the
six months  ended  December 31,  1998,  the net earnings  were $0.53 per share -
basic,  compared  to net  earnings of $0.24 per share - basic for the six months
ended December 31, 1997. A discussion of the specific components of net earnings
per share is set forth in the Notes to Consolidated Financial Statements.


                                       8

<PAGE> 11


Net Interest Income
-------------------

      Net interest  income before the  provision  for estimated  loan losses was
$3.1  million for the three  months  ended  December  31, 1998  compared to $2.6
million for the three months ended  December 31, 1997.  For the six months ended
December 31, 1998, net interest income was $6.0 million compared to $5.1 million
for the six months ended December 31, 1997.

Interest Income
---------------

      Total  interest  income for the three months  ended  December 31, 1998 was
$8.1 million, an increase of $0.6 million from the comparable period a year ago.
The increase in interest income was primarily due to the $41.4 million  increase
in the  average  balance of  interest-earning  assets to $438.9  million for the
three  months ended  December 31, 1998 from $397.5  million for the three months
ended  December 31, 1997.  This increase was  partially  offset by the ten basis
point decrease in the average yield on interest-earning  assets to 7.41% for the
three  months ended  December  31, 1998 as compared to 7.51% for the  comparable
period a year ago.  The interest  income on loans  increased to $6.7 million for
the three months ended  December 31, 1998 from $6.0 million for the three months
ended  December 31, 1997. The increase in interest on loans was due primarily to
the increase in the average  balance of loans  receivable  outstanding to $345.1
million for the three months ended December 31, 1998 from $310.0 million for the
three months ended December 31, 1997. The increase in interest on loans was also
due to the  increase in the yield on loans to 7.79% for the three  months  ended
December  31,  1998 from 7.72% for the three  months  ended  December  31,  1997
primarily due to the acquisition of loans with higher yields.

      The interest income on mortgage-backed securities was relatively unchanged
as it totaled  $980,000 for the three months ended December 31, 1998 compared to
$985,000  for the three  months  ended  December  31,  1997 as the $6.8  million
increase in the average balance of  mortgage-backed  securities to $63.9 million
was offset by the 78 basis point  decline to 6.13% in the  average  yield on the
securities.  This decline in yield on the mortgage-backed  securities  portfolio
was partially due to the faster amortization of premiums on purchased securities
resulting  from  increased  prepayments  as a result of the lower  interest rate
environment.  The interest income on investment securities and other declined by
$65,000 to $429,000 for the three months ended  December 31, 1998 primarily as a
result of the declining interest rate environment. This was due primarily to the
decline in the average  yield to 5.74% for the current  period  versus 6.49% for
the same period a year ago and partially to the decrease in the average  balance
of investment  securities  and other to $29.9 million for the three months ended
December  31, 1998 from $30.5  million for the same period a year ago. The total
yield on total  interest-earning  assets decreased to 7.41% for the three months
ended December 31, 1998 as compared to 7.51% for the three months ended December
31, 1997  primarily as a result of the decline in the interest rate  environment
resulting in lower yields and faster amortization of premiums on mortgage-backed
securities.

      Total interest income for the six months ended December 31, 1998 was $15.7
million,  an increase of $880,000  from the  comparable  period a year ago.  The
increase in interest  income was primarily due to the $25.5 million  increase in
the average  balance of  interest-earning  assets to $422.0  million for the six
months  ended  December  31, 1998 from $396.5  million for the six 


                                       9

<PAGE> 12


months ended December 31, 1997. The interest  income on loans increased to $12.7
million for the six months ended  December  31, 1998 from $11.5  million for the
six months ended December 31, 1997. The increase in interest on loans receivable
was due to the increase in the average balance of loans  receivable  outstanding
to $326.7 million for the six months ended December 31, 1998 from $298.6 million
for the six months ended  December  31, 1997.  The increase in interest on loans
was also due to the  increase  in the yield on loans to 7.75% for the six months
ended  December 31, 1998 from 7.68% for the six months  ended  December 31, 1997
resulting from the  origination and purchase of loans with higher yields such as
the  December  1997  purchase of equity lines of credit with yields in excess of
13%. The interest income on mortgage-backed securities decreased to $2.0 million
for the six months ended  December 31, 1998 compared to $2.3 million for the six
months  ended  December  31,  1997  primarily  as a result of the decline in the
average yield to 6.33% for the current period versus 6.94% for the same period a
year ago. The decline is primarily due to the lower  interest  rate  environment
resulting in an increase in  prepayment  speeds and faster  amortization  of the
related  premiums.  The  interest  income  on  investment  securities  and other
securities  declined  slightly to $1.0 million for the six months ended December
31, 1998 as compared to $1.1 million for the same period a year ago. The decline
in investment  securities and other income was due to the decline in the average
yield to 6.28% for the current  period from 6.49% for the same period a year ago
as well as due to a decrease  in the  average  balance to $31.9  million for the
current  period  versus $33.1  million for the same period a year ago. The total
yield on total  interest-earning  assets  decreased  to 7.42% for the six months
ended  December 31, 1998 as compared to 7.46% for the six months ended  December
31, 1997.


Interest Expense
----------------

      Total  interest  expense for the three months ended  December 31, 1998 was
$5.0  million,  an increase of $192,000  from $4.8  million for the three months
ended December 31, 1997.  The increase in interest  expense was primarily due to
the increase in the average  balance of  interest-bearing  liabilities to $406.6
million for the three months ended December 31, 1998 from $368.5 million for the
three months ended December 31, 1997. This increase was substantially  offset by
the 30 basis point decline in the average cost of  interest-bearing  liabilities
to 4.95% for the three months ended  December 31, 1998 compared to 5.25% for the
three months  ended  December 31,  1997.  Interest  expense on  interest-bearing
savings  accounts  decreased to $3.4 million for the three months ended December
31,  1998 from $3.6  million  for the same  period a year ago.  The  decrease in
interest  expense on  interest-bearing  savings accounts was due to the 29 basis
points  decline in the  average  cost of funds to 4.65% for the  current  period
versus  4.94%  for the same  period a year  ago,  partially  offset  by the $7.8
million  increase in average savings  accounts to $296.1 million for the current
period versus $288.3  million for the same period a year ago. The decline in the
average  cost of funds on savings  accounts was due to the lower  interest  rate
environment  and to the shift in deposit mix to a higher  concentration  of core
savings accounts (comprised of money market, checking and savings accounts). The
average  balance of core savings  accounts  increased by $26.8  million to $93.8
million for the three months ended  December 31, 1998 from $67.0 million for the
same period a year ago. Conversely,  the Company's dependence on certificates of
deposit declined as the average balance of certificates of deposit  decreased by
$19.0 million to $202.3 million for the current period versus $221.3 million for
the same period a year ago. The interest expense on borrowings increased to $1.6
million for the three months  ended  December 31, 1998 from $1.3 million for the
three months ended  December 31,  1997.  The increase was  primarily  due to the
increase in the average  balance of 


                                       10

<PAGE> 13


borrowings to $110.6 million for the current period versus $80.2 million for the
same period a year ago,  partially  offset by the decline in the average cost of
borrowings  to 5.75% for the current  period  versus 6.39% for the same period a
year ago. The decline in the average cost of borrowings  was due to the addition
of new borrowings at substantially  lower rates and the maturity during the past
twelve months of approximately $23 million in borrowings with an average rate in
excess of 6.20%.

      Total interest  expense was  relatively  unchanged at $9.7 million for the
six months ended  December  31, 1998 and for the six months  ended  December 31,
1997.  Although the interest  expense was unchanged  from period to period,  the
average balance of interest-bearing  liabilities increased to $389.0 million for
the six months ended December 31, 1998 as compared to $368.2 million for the six
months  ended  December  31,  1997.  The  increase  in the  average  balance  of
interest-bearing  liabilities  was offset by the decrease in the average cost of
interest-bearing liabilities to 4.99% for the six months ended December 31, 1998
as compared to 5.25% for the same period a year ago. Interest expense on savings
accounts  decreased to $6.8  million for the six months ended  December 31, 1998
from $7.0  million  for the same  period a year ago.  The  decrease  in interest
expense was due to the decline in the average cost of savings  accounts to 4.68%
for the  current  period  from 4.92% for the same  period a year ago,  partially
offset by the  increase  in the  average  balance of savings  accounts to $292.1
million  for the current  period from $368.2  million for the same period a year
ago. As stated  above,  the decline in the average  cost of funds was due to the
lower  interest  environment  and  the  change  in  composition  of the  savings
portfolio  to a higher  concentration  of core  savings  accounts.  The interest
expense  on  borrowings  increased  to $2.9  million  for the six  months  ended
December 31, 1998 from $2.6 million for the six months ended  December 31, 1997.
The increase in interest  expense on  borrowings  was due to the increase in the
average balance of borrowings to $97.0 million for the current period from $82.4
million for the same period a year ago,  partially offset by the decrease in the
average cost of borrowings to 5.91% for the current  period versus 6.37% for the
same period a year ago.

                                       11

<PAGE> 14

Analysis of Net Interest Income
-------------------------------

      The  following  table sets forth average  interest  rates on the Company's
interest-earning assets and interest-bearing liabilities for the three month and
six month periods ended  December 31, 1998 and December 31, 1997 (dollars are in
thousands and average  balances are primarily based on month-end  amounts except
in certain  situations  where a daily  average is necessary to properly  reflect
average balances):
<TABLE>
<CAPTION>
                                           Three Months Ended December 31,         Six Months Ended December 31,
                                           -------------------------------      -----------------------------------
                                               1998              1997                 1998                1997
                                               ----              ----                 ----                ----
                                           Average  Yield    Average Yield       Average   Yield      Average    Yield
                                           Balance   Rate    Balance  Rate       Balance    Rate      Balance    Rate
                                           --------------    -------------       ---------------     -----------------
<S>                                       <C>       <C>     <C>       <C>       <C>        <C>       <C>         <C>  
ASSETS:
 Interest-earning assets:
  Loans receivable                        $345,125  7.79%   $309,957  7.72%     $326,667   7.75%     $298,555    7.68%
  Mortgage-backed securities                63,924  6.13      57,057  6.91        63,360   6.33        64,890    6.94
  Investment securities and other           29,886  5.74      30,468  6.49        31,931   6.28        33,052    6.49
                                          --------          --------            --------             --------
         Total interest-earning assets     438,935  7.41%    397,482  7.51%      421,958   7.42%      396,497    7.46%
Noninterest-earning assets                  14,296            13,269             13,848               13,288
                                          --------          --------            --------             --------    
         Total assets                     $453,231          $410,751            $435,806             $409,785
                                          ========          ========            ========             ========

LIABILITIES AND EQUITY:
Interest-bearing liabilities:
  Savings accounts                        $296,091  4.65%   $288,287  4.94%     $292,063   4.68%     $285,773    4.92%
  Borrowings                               110,553  5.75      80,194  6.39        96,967   5.91        82,377    6.37
                                          --------          --------            --------             --------
     Total interest-bearing liabilities    406,644  4.95%    368,481  5.25%      389,030   4.99%      368,150    5.25%
Noninterest-bearing liabilities             15,497           11,678               15,335               11,255
Stockholders' equity                        31,090           30,592               31,441               30,380
                                          --------          --------            --------             --------    
     Total liabilities and equity         $453,231          $410,751            $435,806             $409,785
                                          ========          ========            ========             ========
Net interest rate spread                            2.46%              2.26%               2.43%                 2.21%
Net interest margin                                 2.82%              2.64%               2.82%                 2.59%
Ratio of interest-earning assets
 to interest-bearing liabilities            107.94%           107.87%            108.46%              107.70%
</TABLE>


      The Company's average net interest spread increased to 2.46% for the three
months ended  December  31, 1998 from 2.26% for the three months ended  December
31, 1997.  The increase in the average net interest  spread was primarily due to
the decrease in the average cost of  interest-bearing  liabilities  to 4.95% for
the three months  ended  December 31, 1998 from 5.25% for the three months ended
December  31, 1997  partially  offset by the  decrease  in the average  yield on
interest-earning  assets to 7.41% for the current period from 7.51% for the same
period a year ago. In regards to the six months ended  December  31,  1998,  the
average net interest spread increased by 22 basis points to 2.43% from 2.21% for
the six months ended December 31, 1997. The increase in the average net interest
spread for current period was due primarily to the 26 basis point decline in the
average cost of funds to 4.99% for the six months ended December 31, 1998 versus
5.25% for the same period a year ago.

      The Company's  yield on its  interest-earning  assets declined by 10 basis
points to 7.41% for the three months ended  December 31, 1998 from 7.51% for the
three months  ended  December 31,  1997.  The decline was  primarily  due to the
substantial decline in the yield for mortgage-backed  securities which decreased
by 78 basis points to 6.13% for the three  months 


                                       12


<PAGE> 15


ended  December  31,  1998 from 6.91% for the same  period a year ago. As stated
above,  the  decline in yield was  primarily  the result of the  increase in the
prepayment  speeds  resulting  from the lower  interest  rate  environment.  The
increase in prepayment  speeds required the Company to increase the amortization
of the premiums on purchased  securities  producing lower overall yields.  Also,
the yield on investment  income and other securities  declined  substantially to
5.74% for the three  months  ended  December  31,  1998 from  6.49% for the same
period a year ago due primarily to lower interest  rates.  The average yield for
loans  receivable  reflects an  increase  in the average  yield to 7.79% for the
three months ended  December 31, 1998 as compared to 7.72% for the same period a
year ago due primarily to the purchase of loans with higher yields.  The average
yield on  interest-earning  assets  declined  to 7.42% for the six months  ended
December  31, 1998 from 7.46% for the six months ended  December  31, 1997.  The
decline in the average yield was due to the same overall issues  discussed above
with  the  primary  decrease  being  the  result  of  the  lower  yields  on the
mortgage-backed  securities  portfolio and the  investment  securities and other
securities portfolio,  partially offset by the increase in the improved yield on
the loans receivable portfolio.

      The  improvement  in the net  interest  margins for both the three and six
month periods ended December 31, 1998 as compared to the same periods a year ago
were primarily due to the reduction in the respective  average cost of funds. As
stated above,  the Company has increased the percentage of core savings accounts
during  the past  year  with a  corresponding  reduction  in the  percentage  of
certificates of deposits.  The increase in core deposits to approximately 39% of
total savings accounts at December 31, 1998 from  approximately  27% at December
31, 1997 combined with the renewal of maturing  certificates of deposit at lower
interest  rates have  produced the  substantial  decrease in the average cost of
savings  accounts  for the three  and six  months  ended  December  31,  1998 in
comparison  to the same  periods a year ago.  The result of this  process  was a
decline in the average cost of savings accounts to 4.65% and 4.68% for the three
and six months ended  December 31, 1998,  respectively  from 4.94% and 4.92% for
the three and six months ended  December 31, 1997,  respectively.  In regards to
the  Company's  borrowings,  the cost of  borrowings  for both the three and six
month periods ended  December 31, 1998 have reflected  significant  decreases in
comparison  to the same  periods a year ago. For the three months and six months
ended  December 31, 1998,  the average cost of borrowings  declined to 5.75% and
5.91%,  respectively,  from 6.39% and 6.37% for the three and six  months  ended
December 31, 1997, respectively.  The decline for both periods was primarily due
to the  Company  borrowing  $41.5  million  from the  Federal  Home Loan Bank in
September  1998  with  an  average  rate  below  5.0%  and an  average  term  of
approximately 39 months. This new borrowing coupled with the maturity of several
individual  borrowings  with rates in excess of 6% contributed to the decline in
the average cost of borrowings.

Provision for Estimated Loan Losses
-----------------------------------

      The  provision  for  estimated  loan  losses  for the three  months  ended
December 31, 1998 was $210,000 compared with $268,000 for the three months ended
December 31, 1997.  The decrease in the provision for estimated  loan losses was
due primarily to the decrease in loan charge-offs  during the three months ended
December 31, 1998 to approximately  $100,000 from approximately $200,000 for the
three months ended  December  31,  1997.  For the six months ended  December 31,
1998, the provision for estimated  loan losses  totaled  $479,000 as compared to
$343,000  for the  same  period a year  ago.  The  increase  was due to a slight
increase in fair value 

                                       13


<PAGE> 16



writedowns and line of credit  charge-offs  during the six months ended December
31, 1998 as compared to the same period a year ago. See "Financial Condition."

Other Income
------------

      Other income increased to $483,000 for the three months ended December 31,
1998 from  $252,000 for the three months ended  December 31, 1997.  This was due
primarily  to an  increase  in  commissions  earned  on the sale of  non-insured
products such as tax-deferred  annuities of approximately  $78,000 for the three
months ended  December 31, 1998 compared to virtually none for the same period a
year  ago.  Also,  the  Company  increased  its net  gain on loan  sales  to the
secondary  market to  $40,000  for the three  months  ended  December  31,  1998
compared to $14,000 for the same period a year ago. The  Company's net losses on
real estate owned activities declined to $10,000 for the current period compared
to a net loss of  $75,000  for the same  period a year ago.  For the six  months
ended  December 31, 1998,  other income  increased to $1.0 million from $591,000
primarily as a result of the $125,000 increase in commissions earned on the sale
of non-insured  products, a net gain on real estate owned activities of $135,000
for the period as  compared to a $63,000 net loss for the same period a year ago
and a  slight  increase  in  fee  income  on  deposit  account  activities.  See
"Financial Condition."

General and Administrative Expenses
-----------------------------------

      For the three months ended December 31, 1998,  general and  administrative
expenses  increased to $2.3 million from $2.2 million for the three months ended
December 31, 1997.  The increase was due primarily to an increase in commissions
paid resulting from the increase in sales of non-insured  products,  the initial
costs of commencing the Company's  debit card program and expenses  incurred for
Year 2000 matters.  For the six months ended  December 31, 1998, the general and
administrative expenses increased to $4.5 million from $4.4 million for the same
period a year ago.

Income Taxes
------------

      The Company  recorded  $437,000 in income taxes for the three months ended
December 31, 1998  compared to $170,000 for the three months ended  December 31,
1997.  The effective tax rates for the three months ended  December 31, 1998 and
December 31, 1997 were approximately 41.2% and 42.1%, respectively.  For the six
months  ended  December  31,  1998,  the income  taxes  recorded was $833,000 as
compared  to  income  taxes of  $414,000  for the same  period a year  ago.  The
increase in taxes for the three  months and six months  ended  December 31, 1998
was due to the improvement in pre-tax income.

FINANCIAL CONDITION
-------------------

      The  Company's  total assets were $461.5  million at December 31, 1998, an
increase of $53.2  million  from the $408.3  million in total assets at June 30,
1998. The Company's  loans  receivable  held for  investment  increased by $51.2
million to $346.9  million at December 31, 1998 as compared to $295.7 million at
June 30, 1998.  The  Company's  mortgage-backed  securities  portfolio  remained
approximately the same with a total investment of approximately $60.4 million at
December 31, 1998 compared to $59.3 million at June 30, 1998.



                                       14


<PAGE> 17



      The Company's  loan  portfolio  increase for the six months ended December
31, 1998 was due primarily to the origination and purchase of approximately $100
million in mortgage loans for the held for investment  portfolio  during the six
month period  ending  December 31, 1998. Of the loans  originated  and purchased
during this period,  approximately $69 million had adjustable rate features. The
loans  originated  and purchased with  adjustable  rate features were indexed to
COFI,  the one year  constant  maturity  index,  LIBOR and the 12 MAT (a lagging
index  based upon the  rolling  average  of the one year  treasury  yield).  The
Company  also  originated  $11.3  million  of  mortgage  loans  for  sale to the
secondary  market and sold  approximately  $10.4  million  during the six months
ended December 31, 1998 for a net gain of $61,000.

      The Company's  non-performing  assets totaled $2.8 million at December 31,
1998 compared to $3.8 million at June 30, 1998.  The decrease in  non-performing
assets was due  primarily to the decrease in the amount of real estate  acquired
through foreclosure to $814,000 at December 31, 1998 compared to $1.9 million at
June 30, 1998. Total loans on non-accrual  increased slightly to $2.0 million at
December 31, 1998 compared to $1.9 million at June 30, 1998.  The overall result
was a decrease in the Company's ratio of  non-performing  assets to total assets
to 0.61% at December 31, 1998 from 0.93% at June 30, 1998.

      The following table sets forth the  non-performing  assets at December 31,
1998 and June 30, 1998:

<TABLE>
<CAPTION>
                                                                December 31, 1998    June 30, 1998
                                                                -----------------    --------------
                                                                      (dollars in thousands)
         <S>                                                       <C>                    <C>   
         Non-accrual loans                                         $2,002                 $1,911
         Real estate acquired through foreclosure                     814                  1,902
                                                                   ------                 ------
                      Non-performing assets                        $2,816                 $3,813
                                                                   ======                 ======
         Non-performing assets as a percent of total
           assets                                                    0.61%                  0.93%
         Non-performing loans as a percent of gross
           loans receivable                                          0.58%                  0.64%
</TABLE>

      The Company considers a loan impaired when it is probable that the Company
will be unable to collect all contractual  principal and interest payments under
the terms of the loan  agreement.  Loans are evaluated for impairment as part of
the Company's  normal  internal asset review  process.  The Company  applies the
measurement  provisions of SFAS No. 114 to all loans in its  portfolio  with the
exception of one- to four-family  residential  mortgage loans and consumer lines
of credit which are evaluated on a collective basis for impairment.  Also, loans
which have  delays in  payments  of less than four  months  are not  necessarily
considered  impaired  unless other  factors  apply to the loans.  The accrual of
interest income on impaired loans is discontinued when, in management's opinion,
the  borrower  may be unable  to meet  payments  as they  become  due.  When the
interest  accrual is  discontinued,  all unpaid  accrued  interest is  reversed.
Interest income is subsequently  recognized only to the extent cash payments are
received. Where impairment is considered temporary, an allowance is established.
Impaired loans which are performing under the contractual  terms are reported as
performing  loans,  and cash payments are allocated to 



                                       15


<PAGE> 18


principal and interest in accordance with the terms of the loan. At December 31,
1998,  the Company  had  classified  $403,000  of its loans as impaired  with no
specific  reserves set aside as of December 31, 1998 as determined in accordance
with  SFAS  No.  114.  In  comparison,  as of June 30,  1998,  the  Company  had
classified $569,000 of its loans as impaired with $100,000 in specific reserves.
In  addition,  as of December  31,  1998,  the Company had $1.6 million in loans
which were  collectively  evaluated  for  impairment  with  $62,000 in  specific
reserves  established  compared to $1.3  million at June 30,  1998  collectively
evaluated  for  impairment  with no  specific  reserves  set aside.  The average
recorded   investment   in  impaired   loans,   inclusive  of  those   evaluated
collectively,  during the six months ended  December 31, 1998, was $2.0 million,
whereas, the average for the twelve months ended June 30, 1998 was $2.9 million.

      The Company,  in consideration  of the current local economic  environment
and the condition of the loan portfolio,  maintained the allowance for estimated
loan losses at December 31, 1998 at $1.6 million.  Although loans on non-accrual
status have  increased  slightly to $2.0  million at December 31, 1998 from $1.9
million at June 30, 1998,  the allowance for estimated loan losses is maintained
at an amount  management  considers  adequate to cover estimated losses in loans
receivable which are deemed probable and estimable.  The allowance is based upon
a  number  of  factors,  including  current  economic  conditions,  actual  loss
experience and industry trends. The Company's non-performing loans are primarily
made up of one- to four-family  residential  mortgage loans. The following table
sets forth the activity in the Company's allowance for estimated loan losses for
the six months ended December 31, 1998:

<TABLE>
<CAPTION>
                                                                     Activity for the six months ended
                                                                           December 31, 1998
                                                                           -----------------

         <S>                                                                   <C>
         Balance at June 30, 1998                                              $1,425,000
         Add:
                Provision for estimated loan losses                               479,000
                Recoveries of previous charge-offs                                   -
         Less:
                Charge-offs of consumer loans                                     172,000
                Charge-offs of real estate loans                                  169,000
                                                                               ----------
         Balance at December 31, 1998                                          $1,563,000
                                                                               ==========
</TABLE>

      The Company's  total  liabilities  increased to $430.4 million at December
31, 1998 from $376.1 million at June 30, 1998. Total deposit accounts  increased
$22.3 million to $317.6 million at December 31, 1998 from $295.3 million at June
30, 1998 due  primarily to the growth in the  Company's  core savings  accounts.
Core  savings  accounts,  comprised  of  money  market,  checking  and  passbook
accounts,  increased to  approximately  $122.7 million at December 31, 1998 from
approximately  $95.8  million at June 30, 1998.  The growth in core deposits was
partially  offset by the $4.6  million  decrease in  certificates  of deposit to
$194.9  million at December 31, 1998 from $199.5  million at June 30, 1998. As a
result of the increase in core savings accounts,  the percentage of core savings
accounts represents 38.6% of total deposits as of December 31, 1998. The Company
increased its borrowings during the six months ended December 31, 1998 to $104.0
million from $70.5 million at June 30, 1998. The increase in borrowings was part
of the funding  strategy of the overall  growth in total  assets.  In  September
1998,  the Company  borrowed  approximately  $41.5 million from the Federal Home
Loan Bank with an  average  rate  slightly  


                                       16


<PAGE> 19



below 5.0% and an average term of approximately 39 months. The Company continues
to utilize FHLB advances and securities  sold under  agreements to repurchase as
part of its asset and liability management strategy.

      The Company's  stockholders' equity decreased to $31.1 million at December
31, 1998 from $32.2 million at June 30, 1998 due primarily to the  repurchase of
166,745  shares of the  Company's  common stock at a total cost of $2.5 million.
This reduction in stockholders'  equity was partially offset by the $1.2 million
in net earnings from operations.

LIQUIDITY
---------

      The  Company's  primary  sources  of funds  are  deposits,  principal  and
interest  payments  on loans  and  mortgage-backed  securities,  FHLB  advances,
securities sold under agreements to repurchase,  increases in deposits and, to a
lesser extent, proceeds from the sale of loans and investments. While maturities
and scheduled  amortization of loans are predictable  sources of funds,  deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.

      The  Association,  by regulation,  must maintain its liquidity ratio at no
less than 4.0% of deposits and short-term borrowings.  Liquidity represents cash
and  certain  investments  which  are  not  committed  or  pledged  to  specific
liabilities. The Association's average liquidity ratio for December 31, 1998 and
December 31, 1997 was 15.56% and 8.18%, respectively.

COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------

      At December  31,  1998,  there were no material  changes to the  Company's
commitments  or  contingent  liabilities  from the period ended June 30, 1998 as
discussed  in the  Company's  notes  to the  consolidated  financial  statements
reflected in the audited consolidated financial statements of SGV Bancorp, Inc.,
for the year ended June 30, 1998  included in the Annual Report on Form 10-K for
the year ended June 30, 1998. At December 31, 1998, the Company had  outstanding
commitments to originate or purchase  mortgage loans of $5.0 million as compared
to $3.0 million at June 30, 1998.

REGULATORY CAPITAL
------------------

      The Office of Thrift Supervision (OTS) capital regulations require savings
institutions to meet three minimum capital requirements: a 1.5% tangible capital
ratio, a 3% leverage  (core  capital) ratio and an 8% risk-based  capital ratio.
The core capital  requirement has been  effectively  increased to 4% because the
prompt corrective action  legislation  provides that institutions with less than
4% core capital will be deemed  "undercapitalized".  In addition, the OTS, under
the prompt  corrective  action  regulation  can impose  various  constraints  on
institutions   depending   on  their  level  of   capitalization   ranging  from
well-capitalized  to  critically  undercapitalized.  At December 31,  1998,  the
Association was considered "well-capitalized".

                                       17

<PAGE> 20
<TABLE>
<CAPTION>

      The Association was in compliance with the capital  requirements in effect
as of December 31, 1998. The following  table  reflects the required  ratios and
the actual capital ratios of the Association at December 31, 1998:
                                                                                       CAPITAL
                                                                           --------------------------------
                          ACTUAL          REQUIRED           EXCESS           ACTUAL            REQUIRED
                          CAPITAL          CAPITAL           AMOUNT           PERCENT           PERCENT
                       --------------   --------------    --------------   --------------    --------------
                                      (Dollars in thousands)

<S>                     <C>              <C>               <C>                 <C>                <C>  
Tangible                $  29,416        $   6,921         $  22,495           6.38%              1.50%
 
Core                    $  29,416        $  13,843         $  15,573           6.38%              3.00%

Risk-based              $  30,917        $  18,146         $  12,771          13.63%              8.00%
</TABLE>



PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
--------------------------------------------------------------

      In addition to historical information,  this Form 10-Q may include forward
looking  statements  based on current  management  expectations.  The  Company's
actual  results  could differ  materially  from those  management  expectations.
Factors  that  could  cause  future  results  to vary  from  current  management
expectations  include,  but are not limited  to,  general  economic  conditions,
legislative and regulatory changes,  monetary and fiscal policies of the federal
government, changes in tax policies, rates and regulations of federal, state and
local tax  authorities,  changes in interest rates,  deposit flows,  the cost of
funds,  demand for loan products,  demand for financial  services,  competition,
changes in the  quality or  composition  of the  Company's  loan and  investment
portfolios, changes in accounting principles,  policies or guidelines, and other
economic,  competitive,  governmental and  technological  factors  affecting the
Company's operations, markets products, services and prices. Further description
of the risks and  uncertainties  to the  business of the Company are included in
detail in the Company's Form 10-K for the fiscal year ended June 30, 1998.

YEAR 2000 READINESS DISCLOSURE
------------------------------

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

      Financial institution  regulators have recently increased their focus upon
year 2000 issues,  issuing guidance  concerning the  responsibilities  of senior
management and directors. Year 2000 


                                       18


<PAGE> 21



testing and certification is being addressed as a key safety and soundness issue
in conjunction with regulatory exams.

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

    awareness
    assessment
    renovation
    validation
    implementation

      The  Company  has  completed  the  first  two  phases  of the  plan and is
currently  working  internally  and with  external  vendors  on the final  three
phases.  The Company believes it has significantly  completed the renovation and
validation  phases through the completion of testing and review of the Company's
data  processor's year 2000 readiness.  Because the Company  outsources its data
processing and item processing  operations,  a significant component of the Year
2000 Plan is to work with external  vendors to test and certify their systems as
year 2000  compliant.  The Company  replaced its internal retail branch computer
system and its back  office  computer  systems in 1997 with  personal  computers
which are year 2000 ready. The majority of software used in these systems,  both
purchased and related to our external data processing  vendors,  has been tested
for year 2000 readiness with minimal issues  detected.  Any issues detected have
been  reported  to the  respective  vendor or service  provider  for  corrective
action.  None of the issues noted during the testing,  if not  corrected by year
2000,  are expected to provide any concerns to the  Company.  Also,  the Company
completed  its testing of its primary data  processing  service  bureau for year
2000 readiness.  The Company's primary  third-party service bureau provides data
processing for all of the Company's  savings  accounts,  lending  operations and
general  ledger.  Upon  completion of the review of the tests  results,  the few
issues  detected were forwarded to the data  processor for  corrective  actions.
Again,  none of the issues  detected are expected to have any material impact to
the  Company's  successful  transition  to  year  2000  if they  have  not  been
corrected.  The Company also completed  testing with the Federal Reserve Bank of
San Francisco and detected no issues which woums to the Company at year 2000.


      The Company  has  contacted  its  primary  vendors and others with whom it
relies on to assure their  systems  will be year 2000 ready.  Of the vendors the
Company considers  critical to its operations,  all have responded that they are
year 2000 ready or are in process of being ready.  Vendors the Company considers
mission  critical  include its  primary  data  processor,  item  processor,  ATM
provider,  the Federal  Reserve Bank and the Federal Home Loan Bank,  as well as
all utility  providers.  As stated above,  completed  year 2000 testing with its
primary  data  processor  and the Federal  Reserve Bank and detected no material
issues  which  would be  expected  to  materially  affect the  Company.  The ATM
provider and ATM network will undergo testing by March 31, 1999. If the critical
vendors the Company is able to test are not


                                       19

<PAGE> 22

compliant  by March 31,  1999,  the Company will seek to switch to a new vendor.
However,  due to the timing  required  to change to another  vendor,  if mission
critical  vendors  are not year 2000  ready  (all have  stated  that they are or
expect  to be  year  2000  ready),  the  Company  may be  unable  to  obtain  an
alternative and therefore may be adversely affected.  Further,  the Company will
be unable to seek  alternative  service  providers with respect to some critical
vendors such as utility providers.  The Company has endeavored to determine such
vendors will be year 2000  compliant  and at this time,  based upon  information
supplied by such vendors, has no information suggesting utility services will be
disrupted.  However, any disruption in utility service would directly affect the
Company's ability to operate.

      In regards to vendors or service providers the Company deems are important
for  the  normal  operations  of  the  Company,  but  not  considered  critical,
approximately  53% have  responded  that they are year 2000 ready or are working
towards readiness.  The Company is performing follow-up work on those vendors or
service  providers who have not responded.  If the Company  believes that one of
these  important  vendors  will not be year  2000  ready by June 30,  1999,  the
Company will review other solutions,  including changing vendors. However, there
can be no assurance  that these systems or other vendors will be year 2000 ready
or that any such failure in readiness by such vendors  would not have an adverse
effect on the Company's  operations.  Another important segment of the Year 2000
Plan is to identify  those loan  customers or deposit  customers  whose possible
lack of year 2000  preparedness  might expose the Company to financial loss. The
Company  completed a risk  analysis  of their  large  dollar fund users and fund
providers  and  determined  that such  customers  are not expected to expose the
Company to any material  impact by a lack of year 2000  preparedness.  Also, the
analysis of fund users  indicates  that the Company  does not expect to have any
material financial exposure in regards to its loan portfolio as the portfolio is
comprised  primarily  of loans  to  individuals  and,  to a  lessor  extent,  to
businesses secured by real estate. In management's estimation,  loans secured by
real estate are less likely to be impacted by any year 2000 issues.  The Company
is participating,  through proxy testing, with its data processor in third party
interfaces for year 2000 readiness.  In March 1999, the Company will participate
with its data  processor in proxy  testing of FHLMC and FNMA,  agencies for whom
the Company services loans.

      The  Company  has  substantially   completed  its  initial  draft  of  its
contingency plan for handling issues which may present concern to the Company if
certain  processes or vendors are unable to provide  services.  The  contingency
plan is  currently  undergoing  a review by an outside  consultant  to determine
areas in which the plan may need  modification.  It is expected  this review and
any subsequent  revisions to the contingency  plan will be completed by February
28, 1999. This plan is expected to be amended throughout 1999 as new information
on the Company's vendors year 2000 readiness becomes available.

      During the  execution of this  project,  the Company  will incur  internal
staff costs as well as consulting  and other  expenses  related to  enhancements
necessary to prepare the systems for the year 2000.  Since the Company  replaced
many of the internal  systems  with year 2000  compliant  personal  computers in
1997, the expenses incurred to bring the Company to year 2000 compliance will be
expensed as incurred,  with the majority of such costs being the reallocation of
current  staff to bring about this  readiness.  As stated  earlier,  the Company
replaced the majority of its  internal  computer  hardware and software in early
1997. The capitalized  costs of this  replacement were in excess of $700,000 and
are being amortized over several years in compliance  


                                       20

<PAGE> 23



with the Company's normal depreciation of such hardware or software.  The future
expenses of the year 2000 project as well as the related potential effect on the
Company's  earnings is not expected to have a material  effect on its  financial
position or results of operations.  Management  does not expect the future costs
of the year 2000 project to exceed $200,000,  which is primarily  related to the
reallocation of internal staff resources.

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

Item 3. Quantitative and Qualitative Disclosure about Market Risk
        ---------------------------------------------------------

MANAGEMENT OF INTEREST RATE RISK
--------------------------------

      The  Company's  profitability  is dependent to a large extent upon its net
interest  income,  which  is the  difference  between  its  interest  income  on
interest-earning assets, such as loans and investments, and its interest expense
on interest-bearing  liabilities, such as deposits and borrowings. To manage its
interest  rate risk,  the Company has utilized  the  following  strategies:  (i)
emphasizing  the  origination  and/or  purchase  of   adjustable-rate   one-  to
four-family  mortgage loans for portfolio;  (ii) selling to the secondary market
substantially all fixed-rate mortgage loans originated;  (iii) holding primarily
short-term  mortgage-backed  and investment  securities;  and (iv) attempting to
reduce the overall  interest rate sensitivity of liabilities by emphasizing core
and  longer-term  deposits,  utilizing FHLB advances and  securities  sold under
agreements to repurchase.

      The Company's interest rate sensitivity is monitored by management through
the use of an interest  rate risk (IRR) model.  Based on internal IRR  modeling,
management  does not  believe  that  there  has been a  material  change  in the
Company's interest rate sensitivity from June 30, 1998 to December 31, 1998. All
methods  used  to  measure  interest  rate   sensitivity   involve  the  use  of
assumptions,  which may tend to  oversimplify  the manner in which actual yields
and costs respond to changes in market  interest rates.  The Company's  interest
rate sensitivity should be reviewed in conjunction with the financial statements
and notes thereto  contained in the Company's  Annual Report for the fiscal year
ended June 30, 1998.


                                       21

<PAGE> 24


PART II. OTHER INFORMATION


Item 1.  Legal Proceedings
         -----------------

     The Company is involved as plaintiff or defendant in various  legal actions
incident to its business, none of which is believed by management to be material
to the financial condition of the Company.

Item 2.  Changes in Securities
         ---------------------
              None.

Item 3.  Defaults in Securities
         ----------------------
              None.

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

     The Company held its Annual Meeting of  Shareholders  on November 19, 1998.
At the Annual Meeting,  the shareholders  elected Irven G. Reynolds and Benjamin
S. Wong to three-year terms.  Directors Royce A. Stutzman,  Barrett G. Andersen,
Thomas A.  Patronite  and John D.  Randall  have terms of office that  continued
after the Annual Meeting.  The shareholders also ratified the SGV Bancorp,  Inc.
1995  Amended  and  Restated   Stock-Based   Incentive  Plan  and  ratified  the
appointment of Deloitte & Touche LLP as independent  auditors of the Company for
the year ending June 30, 1999.

         The vote on each matter was as follows:
<TABLE>
<CAPTION>
1. For Directors:                                                            BROKER
                                          FOR        WITHHELD    ABSTAIN    NON-VOTES
<S>                                    <C>            <C>          <C>      <C>
Irven G. Reynolds                      2,157,947      41,951          --       --
Benjamin S. Wong                       2,157,497      42,401          --       --

2. Other Matters:

Ratification of SGV Bancorp, Inc.
1995 Amended and Restated
Stock-Based Incentive Plan             1,401,823     210,346       9,575    578,154

Ratification of the appointment
of Deloitte & Touche LLP as
independent auditors for the
Company                                2,178,343      16,780       4,775       --

</TABLE>


Item 5.   Other Information
          -----------------
               None.




                                       22


<PAGE> 25



Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------

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

      3.1 Certificate of Incorporation of SGV Bancorp, Inc. *
      3.2 Bylaws of SGV Bancorp, Inc. *
     11.0 Computation of per share earnings (filed herewith). 
     27.0 Financial data schedule (filed herewith).
     (b)  Reports on Form 8-K
               None.

-------------------
*    Incorporated herein by reference from the Exhibits to the Registration 
     Statement on Form  S-1, as  amended,  filed  on March 6, 1995 and declared
     effective on May 9, 1995, Registration No. 33-90018.



                                       23

<PAGE> 26


                                   SIGNATURES


     Pursuant to the  requirements  of the  Securities and Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                           SGV BANCORP, INC.



February 11, 1999                          /s/  Barrett G. Andersen
----------------------------------         -------------------------------------
        Date                               Barrett G. Andersen
                                           President and Chief Executive Officer



February 11, 1999                          /s/ Ronald A. Ott
----------------------------------         -------------------------------------
        Date                               Ronald A. Ott
                                           Executive Vice President
                                           Chief Financial Officer and Treasurer




                                       24