<PAGE>   1


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

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

                   For The Fiscal Year Ended December 31, 1998
                                       OR

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

                         Commission file number 0-19391

                              NAB ASSET CORPORATION
             (Exact name of registrant as specified in its charter)

                           Texas                   76-0332056
                      (State or other           (I.R.S. Employer
                      jurisdiction of          Identification No.)
                     incorporation or
                       organization)

                  23361 Madero, Suite 200             92679
                     Mission Viejo, CA             (Zip Code)
                   (Address of principal
                    executive offices)

       Registrant's telephone number, including area code: (949) 465-0244

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.10 Par Value
                                (Title of Class)

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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 22, 1999 was $5,410,000 based upon the closing price as
of such date.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>

              Title of Class                    Outstanding at March 22, 1999
              --------------                    -----------------------------
<S>                                             <C>      
              Common Stock...................             5,091,300
</TABLE>

DOCUMENTS INCORPORATED BY REFERENCE


The information called for by Part III, Items 10, 11, 12 and 13, will be
included in a definitive proxy statement to be filed on or before April 30, 1999
pursuant to Regulation 14A and is incorporated herein by reference.



                                       1
<PAGE>   2



                                     PART 1


ITEM 1. BUSINESS

THE COMPANY

         NAB Asset Corporation, (the "Company" or "NAB") is a financial services
company primarily engaged in the residential lending business. The Company
commenced operations in July 1991 following its acquisition and assumption of
substantially all the assets and liabilities of National Asset Bank (a bank in
liquidation) (the "Bank"). The Bank was formed in 1988 in connection with the
merger of Allied Bancshares, Inc. ("Allied") with a subsidiary of First
Interstate Bancorp ("First Interstate") for the purpose of liquidating various
non-performing loan and real estate assets held by Allied and its subsidiaries
for the benefit of the prior Allied stockholders. Until June 5, 1996, the
Company's business consisted of the acquisition, ownership, management and
disposition of loans and real estate for its own account and the accounts of
others. The Company's business activities were limited to the ownership,
collection and sale of the assets acquired by the Company from the Bank, the
investment in and management of four privately held limited partnerships formed
for the purpose of acquiring non-performing and other troubled loans.

         On June 5, 1996, pursuant to a Plan and Agreement of Merger, CPS
Investing Corp. ("CPS Sub"), a wholly owned subsidiary of Consumer Portfolio
Services, Inc. ("CPS"), was merged with and into NAB (the "Merger"). Under the
terms of the Plan and Agreement of Merger and in exchange for all of the
outstanding shares of NAB $.01 par value common stock, the shareholders of NAB
received on a pro rata basis (i) an aggregate cash distribution of $15.3 million
($3.64 per share), (ii) an undivided interest in a liquidating trust
("Liquidating Trust"), and (iii) 62% of the outstanding shares of common stock,
$.10 par value (the "New Common Stock") of the new combined company which had a
net asset value of $7.5 million as of the merger date. The Liquidating Trust was
established for the benefit of converting the trust assets to cash for the NAB
shareholders. On June 5, 1996 in connection with the Merger, NAB contributed
approximately $3.0 million in cash and all of the remaining non-cash assets of
NAB with a net book value of $3.7 million to the Liquidating Trust. No gain or
loss was recognized by NAB in connection with the merger. In exchange for a $4
million contribution to NAB, CPS received 38% or 1,934,706 shares of the New
Common Stock of NAB.

         Simultaneously with the merger, the Company amended its Articles of
Incorporation and By-laws to remove the previous operating restrictions on NAB
and, in order to preserve the Company's large net operating loss ("NOL") for tax
purposes, to restrict the acquisition of 5% or more of the outstanding shares of
New Common Stock of the Company so as to prevent the occurrence of an ownership
change under Section 382 of the federal income tax laws. Section 382 of the
Internal Revenue Code of 1986 (Section 382), as amended, provides in general
that if a corporation undergoes an ownership change, the amount of taxable
income that the corporation may offset after the date of such ownership change
with NOLs and certain built-in losses existing at the date of such ownership
change will be subject to an annual limitation. The Company's NOL's could become
subject to certain limitations on utilization in the event the Company undergoes
an ownership change within the meaning of Section 382.

         On July 8, 1996 the Company acquired 80% of CARS USA, Inc. ("CARS"),
engaged in retail automobile sales, for a purchase price of $100,000.
Additionally, the Company invested $400,000 in preferred stock of CARS and made
a $1,000,000 subordinated loan to CARS. At the time of acquisition, Charles E.
Bradley, Jr., a director of the Company owned 50% of the outstanding shares of
CARS.

         In June 1997, NAB sold its interest in CARS. The acquirer was a newly
formed company owned by Charles E. Bradley, Sr., the chief executive officer and
chairman of the board of NAB and Charles E. Bradley, Jr., a director of NAB. The
purchase price consisted of a $200,000 cash payment and a note for $1,300,000.

         On July 10, 1996 the Company acquired from CPS 84% of the outstanding
common stock of Mortgage Portfolio Services, Inc. ("MPS") for a purchase price
of $300,000. The Company also acquired 

<PAGE>   3

all of the outstanding shares of MPS preferred stock for $2.25 million, through
conversion of debt to equity, and contributed $249,000 to the additional paid-in
capital of MPS.

         MPS, which was organized in October 1995 and began business operations
in April 1996, is a Dallas, Texas based mortgage lender whose customers are
typically home purchasers and owners who cannot access traditional lending
institutions for financing because of job stability, credit problems or type of
property (sub-prime).

         In January 1997, the Company, through a newly formed 84% owned
subsidiary NAFCO, Inc., ("NAFCO") acquired a portfolio of loans of which the
debtors are the rent-to-own and rental purchase businesses. The principal
balance of the loans totaled $1,966,000 and was purchased for $1,292,000. The
discount of $674,000 is being amortized in proportion to and over the life of
the portfolio.

         On August 31, 1997, MPS acquired the fixed assets and employed the
personnel of the single-family mortgage lending division of Pacific Southwest
Bank ("PSB"); a Dallas based savings and loan. A premium of $200,000 was paid
for the operation. Additionally, amounts of up to $800,000 may be payable over
the two year period to August 31, 1999 depending on mortgage loan origination
volumes. In 1998, the Company incurred additional purchase premiums of $195,000
based on production levels. The division, Pacific American Mortgage Company
("PAMCO") is primarily engaged in mortgage lending through eleven retail
branches in seven states. Substantially all PAMCO mortgage loan originations are
conventional conforming, non-conforming and government insured mortgages
(prime).

         On December 30, 1997 the Company, through a newly formed 86% owned
subsidiary, Construction Portfolio Funding, Inc. ("CPFI") acquired approximately
$53,000,000 in single family construction loans from a Dallas based savings and
loan. A premium of $541,000 was recorded in connection with the acquisition
acquired. Additionally on December 30, 1997, CPFI acquired $2,000,000 in
residential lot loans from NAFCO that were acquired from the savings and loan in
November 1997.


THE BUSINESS

         NAB is a financial services company engaged in residential mortgage
banking, residential construction lending and commercial finance. The
residential mortgage banking business, acquired in July 1996, originates,
acquires and sells prime and sub-prime mortgage loans. The residential
construction lending business, begun in December, 1997, originates and holds for
investment single family residential construction loans to homebuilders and to a
lesser extent lots, model homes and acquisition and development projects for
those homebuilders. The commercial finance operations, begun in January, 1997,
provides financing to operators of rent-to-own or rental purchase retailers.

MORTGAGE BANKING

         Through MPS, the Company originates, acquires, warehouses and sells
residential mortgage loans. MPS originates both conventional and government
insured mortgages (prime originations) and originates non-conforming residential
mortgage loans that are not salable to the government-sponsored entities or the
government agencies. These loans are commonly referred to as sub-prime loans.

         MPS also has a division that services construction loans that are made
to consumers. These loans are originated through the PAMCO retail branches. The
construction loans are originated in conjunction with the customer's permanent
mortgage (one-time closings). Originations of these loans in 1998 totaled $24
million. This amount represents the total commitment of funds not necessarily
the ultimate amount disbursed. Amounts outstanding at December 31, 1998 and 1997
totaled $9,465,000 and $13,091,000, respectively. These amounts are included in
construction loans in the consolidated balance sheets.


                                       2
<PAGE>   4


Origination Strategies

         Retail Originations

                  PAMCO originates loans through eleven branches in seven states
using account executives that solicit loans through real estate agents,
homebuilders and referrals from previous customers. This branch operation
(PAMCO) was acquired August 31, 1997. PAMCO has 64 account executives soliciting
loans in this manner. PAMCO retail originations totaled $549 million in 1998 and
$157 million for the four months in 1997 that PAMCO operated as a division of
MPS. Retail prime originations totaled $534 million in 1998 and $151 million for
the four months ended December 31, 1997. Retail sub-prime originations totaled
$15 million in 1998 and $6 million for the four months ended December 31, 1997.

         In late 1998, MPS began a direct to consumer solicitation program
through the internet. Preliminary applications are completed on-line by
prospective customers. The applications are then processed underwritten and
closed by MPS personnel. Total loan closings for 1998 were $2.4 million and
include both prime and sub-prime loans.

         Wholesale Originations

         MPS originates approximately 70% of its sub-prime mortgage loans using
a network of approved independent mortgage brokers. PAMCO also originates
approximately 10% of its mortgages in the same manner through a branch in
northern California. All loans are underwritten and closed centrally. A fee is
normally paid to the mortgage broker of up to 2% of the loan amount for
sub-prime loans and 3% of the loan amount for prime loans. Wholesale sub-prime
originations totaled $235 million in 1998 and $145 million in 1997. Wholesale
prime originations totaled $63 million in 1998 and $11 million for the four
months ended December 31, 1997.

         Correspondent Originations

         MPS originates approximately 30% of its sub-prime loans by purchasing
closed loans from other mortgage bankers. These loans are underwritten by MPS
prior to purchase. Correspondent sub-prime production was $83 million in 1998
and $60 million in 1997.

Underwriting

         Underwriting guidelines with respect to prime mortgage loans are based
upon the guidelines set forth by the Federal National Mortgage Association
("FNMA") or Federal Home Loan Mortgage Corporation ("FHLMC") for conventional
loans. The guidelines of the Federal Housing Administration ("FHA") and Veterans
Administration ("VA") are utilized for government insured or guaranteed
mortgages. Prime mortgage loans that would be conforming if not for the size of
the loan are underwritten to specific mortgage investor guidelines and are
generally consistent with FNMA or FHLMC guidelines. In most cases PAMCO has been
approved to underwrite the mortgage loan on behalf of the investor. MPS is also
an approved FHLMC seller/servicer.

         Underwriting guidelines for sub-prime mortgages are developed to
generally conform to the guidelines as set forth by mortgage loan investors that
have approved MPS as a seller of mortgage loans. MPS utilizes a grid that, based
upon a borrower's credit history and current financial situation (including debt
to income ratios, employment and cash on hand), assigns a grade, A through D, to
that borrower. The grading of the loan determines the rate charged to the
borrower and the maximum loan based on the appraised value of the collateral.


                                       3
<PAGE>   5



Loan Sales

         Best Efforts Sales

         The Company's originations of conventional and government insured or
guaranteed loans are sold to investors on a loan by loan basis. When the
customer wishes to lock in an interest rate, PAMCO will grant the rate to the
borrower and in turn lock in a price on or about the same date with an investor.
PAMCO represents to the investor that if the loan is closed within the time
allotted by the investor PAMCO will deliver that loan to that investor. If the
loan does not close within the allotted time period PAMCO is under no further
obligation to the investor. If the loan closes and upon receipt of the
appropriate executed legal documentation PAMCO will deliver the legal documents
and credit file to the investor. Upon satisfactory completion of the investor's
review of the documents the investor purchases the loan at the agreed upon
price. All of PAMCO's loans are sold on a servicing released basis, meaning a
portion of the price paid to PAMCO represents the value of the servicing rights
that PAMCO has released to the investor.

         Bulk Sales

         MPS has historically sold its sub-prime mortgage production on a
servicing released basis to investors in pools based on a bidding process.
Monthly, loans would be aggregated and summarized information regarding the
loans would be distributed to potential bidders. A winning bidder would be
selected who would then review the files and purchase the acceptable loans. In
late 1998, a severe liquidity strain in the sub-prime mortgage industry caused
many investors to exit the market for sub-prime mortgage pools. As a result MPS
is not currently selling a significant amount of loans on a bid basis.

         Forward Commitments

         MPS entered into a commitment with an investor in the fourth quarter of
1998 to sell up to $50 million in sub-prime mortgage loans at an agreed to price
assuming certain criteria were met. The commitment also contained formulas that
would allow the investor to pay less than the maximum price if those criteria
were not met. The commitment expired in December 1998 after MPS had delivered
approximately $49.6 million in mortgage loans. MPS has entered into a new
commitment with another investor totaling $100 million effective January 1,
1999. This commitment expires June 30, 1999. It is anticipated that in June upon
expiration of the commitment depending on current market conditions MPS will
either enter in to a new commitment or resume its bulk sales strategy.

         Securitization

         In June 1998 MPS completed its first securitization of approximately
$51,000,000 of sub-prime loans. In a securitization, the owner of loans sells
loans to a trust which in turn issues mortgage loan asset backed securities to
investors. The cash received is then distributed to the owner. The owner also
receives an interest in the excess cash flow generated from the sold loans which
is called a residual interest. The holder of the security then receives the
stated interest on the security and the principal repayments on the underlying
loans. The security that MPS issued was insured by a monoline insurance company
and the underlying mortgages were insured, as to credit losses, up to 5% of the
original principal balance of the loans sold to the trust under a pool policy
issued by a mortgage insurance company. Additionally a portion of the excess
cash flows accruing to MPS monthly are held in trust until certain minimum
levels of cash reserves are achieved.

         MPS recorded a gain on sale of loans equal to the present value of the
cash flows to be received over the life of the securities. This gain was
calculated using prepayment and loss assumptions that effect the future cash
flows to be received. MPS is also the servicer of the loans and as a result
receives a portion of the monthly interest paid by the borrowers as a fee.

         Hedging Activities

         All of the Company's prime mortgage production is sold on a best
efforts basis as described above. The Company incurs no interest rate risk in
its sales strategy and therefore has no hedging activities. 


                                       4
<PAGE>   6

MPS's sub-prime mortgage loans are generally sold within thirty days of
origination and based upon its history, short term fluctuations in interest
rates have had little impact on the prices that have been received for its
mortgage loan production. Additionally, the Company has determined that the cost
of hedging its sub-prime production outweighs any benefit that would be derived
as a result.

Competition and Other Risks

         MPS faces competition from numerous other mortgage bankers, banks,
savings and loans and finance companies. Many of these competitors are larger
and have greater access to capital and other financial resources than MPS.

         MPS's originations have grown substantially since inception and the
company plans to continue its growth strategy. There can be no assurance that
MPS will be able to successfully expand and operate profitably.

         As MPS continues to increase its origination capabilities it will be
required to expand its existing borrowing arrangements with financial
institutions or obtain new lines of credit. There can be no assurance that
additional financing can be obtained or that it can be obtained at favorable
terms.

         In connection with financing MPS's mortgage loans receivable, most
financial institutions will not finance 100% of the loan amount. MPS will
generally be required to contribute, in addition to the normal costs of
operating the origination function, two percent of the principal amount of the
loan. MPS must generate sufficient cash flow from sales of mortgage loans to
fund the negative cash flow associated with the origination of its loans.

         The contractual arrangements associated with the sale of sub-prime
loans require, for a specified period of time, generally one to two years,
indemnification for loans that prepay or default. Additionally MPS represents
and warrants to the investor that at the date of sale no material changes in the
borrowers condition since the origination date has occurred. A significant
increase in prepayments or defaults related to the loans sold would have a
significant negative impact on the liquidity and financial condition of MPS.

          The business of MPS could be negatively affected if there is a
downturn in the economy in the geographic areas served by MPS, which results in
a decline for consumer credit or in real estate values. If originations decline,
sales of mortgage loans, the main source of MPS's revenue will also decline.
Declining real estate values inhibit the borrower's ability to refinance and
obtain cash based on the value of his/her property.

         Fluctuations in interest rates may adversely affect MPS's loan
production. Substantial increases in long term interest rates generally result
in a decline in mortgage originations. A large decline in interest rates may
result in unusually large prepayments which, under the terms of the contracts
governing MPS's sales of mortgage loans, could require MPS to reimburse the
purchasers of such loans for a portion of the servicing release premium paid by
them for such loans. Approximately 66% of MPS's loan production is at a fixed
rate of interest. If short-term interest rates rise, MPS's borrowing cost would
increase, resulting in a decline in the spread (the difference between interest
received on loans and paid on borrowings) MPS earns. Additionally, prices paid
for the Company's loans may be negatively impacted. An increase in short-term
interest rates would also negatively impact the value of MPS's residual interest
in securitization as a portion of the payments made to bondholders adjust based
upon movements in the LIBOR.

         Approximately 37% of the Company's consolidated revenues for 1998
result from the sub-prime mortgage operation. Over the past several months,
conditions affecting cash prices for these loans in the sub-prime mortgage
market have significantly deteriorated. The future profitability of the Company
is highly dependent on its sub-prime operation. It is possible that cost savings
and price increases to borrowers instituted by MPS in response to declines in
sales prices will not offset the revenue shortfall under these conditions. As a
result operating cash flows may be negatively impacted in the future as a
result.

                                       5
<PAGE>   7

         During 1998, approximately $5,619,000 or 13% of the Company's revenues
were as a result of loan sales to one customer.

         MPS's business is subject to extensive regulation, supervision and
licensing by federal, state and local government authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on a substantial portion of its operations. The Company's consumer
lending activities are subject to the Federal Truth-in-Lending Act and
Regulation Z (including the Home Ownership and Equity Protection Act of 1994),
the Federal Equal Credit Opportunity Act and Regulation B, as amended ("ECOA"),
the Fair Credit Reporting Act of 1970, as amended, the Federal Real Estate
Settlement Procedures Act ("RESPA") and Regulation X, the Fair Housing Act, the
Home Mortgage Disclosure Act and the Federal Debt Collection Practices Act, as
well as other federal and state statutes and regulations affecting the Company's
activities. The Company is also subject to the rules and regulations of and
examinations by the Department of Housing and Urban Development ("HUD") and
state regulatory authorities with respect to originating, processing,
underwriting and selling loans. These rules and regulations, among other things,
impose licensing obligations on the Company, establish eligibility criteria for
mortgage loans, prohibit discrimination, provide for inspections and appraisals
of properties, require credit reports on loan applicants, mandate certain
disclosures and notices to borrowers and, in some cases, fix maximum interest
rates, fees and mortgage loan amounts. Failure to comply with these requirements
can lead to loss of approved status, demands for indemnification or mortgage
loan repurchases, certain rights of rescission for mortgage loans, claims by
mortgage borrowers and administrative enforcement actions.

CONSTRUCTION LENDING

         CPFI is engaged in the business of providing financing and servicing to
residential homebuilders for the construction of single family residences and,
to a lesser extent, acquisition and development loans, lot loans and model home
loans to those homebuilders. As a part of the acquisition of loans in 1997 CPFI
acquired construction and lot loans to individuals. CPFI discontinued lending to
individuals in 1998. CPFI's construction loans held for investment totaled
$29,416,000 and $55,711,000 at December 31, 1998 and 1997, respectively. CPFI
originated $149,429,000 in new commitments in 1998.

         Underwriting

         CPFI underwrites each individual homebuilder and determines a guidance
limit under which each homebuilder is limited as to the total commitment from
CPFI for individual construction loans, acquisition and development loans, lot
loans and model home loans. The homebuilder is also generally restricted as to
the amount of speculative or unsold homes that may be financed by CPFI.
Depending on the size of the guidance limit a senior officer and/or a credit
committee consisting of senior officers and members of the board of directors of
CPFI must approve the guidance limits. The specific terms of the guidance
limits, such as interest rates and terms, are determined by the homebuilder's
historical and projected sales volume, historical financial performance,
financial strength, inventory turnover and other qualitative information. At
December 31, 1998 the guidance limits range from $500,000 to $10,000,000.
Substantially all guidance lines provide for a variable interest rate based upon
the prime rate.

         Geographic Distribution

         CPFI currently finances construction loans in eight states, Texas,
Arizona, California, Colorado, Nevada, New Mexico, Oklahoma and Georgia. There
are 27 homebuilder customers in those states.

         Competition and Other Risks

         The competition CPFI faces comes from a number of different financial
institutions, generally local banks and savings and loans and, to a lesser
extent, large publicly held banks, savings and loans, consumer finance companies
and real estate investment trusts. Many of these competitors have a lower cost
of funds, greater financial resources and access to capital and a more developed
and sophisticated operational infrastructure. CPFI intends to compete with these
financial institutions by emphasizing 


                                       6
<PAGE>   8

customer service and providing funds to smaller builders that may not attract
the larger financial institutions.

         CPFI assumes credit risk as a result of its investment in construction
loans. The company seeks to mitigate its risk by instituting strict operating
controls and underwriting guidelines. CPFI also limits its funding of
speculative construction (spec housing), acquisition and development loans and
lot loans depending on the homebuilders financial strength. Also, CPFI evaluates
and monitors its homebuilding customers and establishes allowances for loan
losses based on trends in the portfolio and economic conditions within the
markets in which it lends.

         The earnings of CPFI are dependent on the spread between the interest
it receives on the loan portfolio and what it pays for the financing of the
portfolio. CPFI intends to grow the portfolio and the ability to do so is
dependent upon the expansion of its credit facilities at a reasonable cost.
Additionally, CPFI is required to fund a portion of each loan with its own
available cash. CPFI must generate sufficient cash flow from its operations in
order to fund growth in the portfolio.

         The business of CPFI could be negatively impacted by a downturn in the
local economies of its customers. Typically slowdowns in the economy result in
falling demand for housing which would inhibit the portfolio growth and subject
CPFI to additional credit risk. An increase in long-term interest rates also
reduces demand, as mortgages become more expensive for the homebuyer. A large
increase in short-term interest rates will increase the cost of building homes
which, the builder, may or may not be able to pass through to the homebuyers. If
interest costs cannot be passed through to the homebuyers, the homebuilder's
profit margins suffer and CPFI incurs additional credit risk.

         Most of CPFI's customers are small homebuilders with less capital than
many of their competitors. As a result, the CPFI customer has less pricing
flexibility and financial capability to compete with the large homebuilders. If
larger more financially secure homebuilders enter the local market of a CPFI
customer, CPFI could be subjected to additional credit risk.

COMMERCIAL LENDING

         NAFCO lends to companies in the rent-to-own and rental purchase
business. The loans NAFCO makes are for the purchase of inventory (such as
furniture and electronics) that is in turn rented on a short-term basis to
individuals and corporations.

         The Company is currently reviewing alternatives for NAFCO that may
include a sale of the portfolio to CPFI or a third party. At December 31, 1998
the outstanding principal balance of the portfolio was $6,099,000 and
commitments to lend totaled $9,382,000.

EMPLOYEES

         At December 31, 1998 the Company and its subsidiaries employed 322
persons. Of that total MPS employed 146 persons, PAMCO employed 165 persons,
CPFI employed 5 persons, NAFCO employed 3 persons and NAB employed 3 persons at
the corporate level.

ITEM 2. PROPERTIES

         The Company's executive offices, totaling 2,000 square feet and located
in Mission Viejo, California, are leased at an annual base rent of $33,000. The
lease expires in April of 2001.

         The Company through its subsidiaries also leases 36,000 square feet in
Dallas for administrative and sales functions relating to its mortgage banking,
construction lending and commercial lending operations. MPS leases office space
for its branches in Arizona, California, Colorado, Florida, Georgia, Illinois,
Nevada, Tennessee and Texas. The offices vary in size depending on the
origination volume in each location.

                                       7
<PAGE>   9
        The Company believes that its facilities are adequate for its immediate
needs and that additional space is available at a comparable cost if needed.

ITEM 3. LEGAL PROCEEDINGS

        The Company is subject to lawsuits which arise in the ordinary course of
its business. Management is of the opinion, based in part upon consultation with
its counsel, that the liability of the Company, if any, arising from existing
and threatened lawsuits would not have a material adverse effect on the
Company's financial position and results of operations.

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

        No matters were submitted to a vote of the Company's stockholders during
the fiscal quarter ended December 31, 1998.

                                     PART II

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

        The Company's common stock trades on The Nasdaq Stock Market under the
symbol "NABC". The following table sets forth the quarterly high and low sale
prices for the Common Stock as reported by The Nasdaq Stock Market. 

<TABLE>
<CAPTION>
                                                               PRICE
                                                      -------------------------
                                                        HIGH            LOW
                                                      ----------     ----------
<S>                                                   <C>             <C>
Year ended December 31, 1997
     First Quarter                                      3-9/16         2-7/8
     Second Quarter                                     3-1/8          2
     Third Quarter                                      3-3/16         2-1/2
     Fourth Quarter                                     3-1/8          1-7/8

Year ended December 31, 1998
     First Quarter                                      3-1/4          2-1/8
     Second Quarter                                     4              2-3/8
     Third Quarter                                      2-7/8          1-3/8
     Fourth Quarter                                     2-1/4          1-1/4
</TABLE>

         As of February 28, 1999, there were approximately 7,500 shareholders of
record.

         Prior to June 5, 1996, as the Company had liquidated its loan and real
estate portfolios for cash, periodic distributions to shareholders were made. It
is anticipated that for the foreseeable future, all earnings will be retained to
provide for the future growth of the Company.


                                       8
<PAGE>   10




ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                                     As of and for the year ended December 31,
                                                                   (all amounts in thousands, except share data)
                                                  ------------------------------------------------------------------------
                                                    1998          1997          1996             1995(1)           1994(1)
                                                  --------      --------      --------          --------          --------
<S>                                               <C>           <C>           <C>               <C>               <C>     
STATEMENT OF OPERATIONS:
 Revenues from continuing operations              $ 42,045      $ 16,855      $  1,414          $     --          $     --
 Earnings (loss) from continuing operations            162         1,121          (796)
 Earnings (loss) from discontinued
  Operations, net of income taxes                       --         1,113         2,344              (456)              780
 Net earnings (loss)                                   162         2,234         1,548              (456)              780

 Basic earnings (loss) per share from
   continuing Operations                               .03          0.22         (0.16)               --                --
 Basic earnings (loss) per share                       .03          0.44          0.30             (0.11)             0.19
 Weighted average number common shares
  Outstanding                                        5,091         5,091         5,091             4,209             4,209
BALANCE SHEET:
 Residential mortgage loans                         78,911        45,472        12,648                --                --
 Construction loans                                 38,652        69,052            --                --                --
 Total assets                                      140,799       129,119        17,904            22,720            28,886
 Total debt                                        113,527       112,016        11,819                --                --
 Total liabilities                                 131,581       120,964        12,298               744             7,107
 Shareholders' equity (net assets)                   8,599         7,839         5,605            21,976            21,779
 Distributions                                          --            --        21,883                --             6,313
 Book value per share                                 1.57          1.54          1.10
 Cash distributions per share (2)                       --            --          3.64                --              1.50
 Transfer to liquidating trust per share (2)            --            --          1.56                --                --

</TABLE>

(1)   Amounts relate to discontinued operations.

(2)   Paid on 4,208,835 shares of common stock.

      Reference is made to Item 1. Business, for discussion of the merger
between the Company and CPS Sub and the resulting distribution of cash and other
assets to the shareholders.

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

GENERAL

         NAB is a financial services company engaged in four reportable
segments, sub-prime and prime residential mortgage banking, residential
construction lending and commercial finance. The residential mortgage banking
business, acquired in July 1996, originates, acquires and sells prime and
sub-prime mortgage loans. The residential construction lending business, begun
in December, 1997, originates and holds for investment single family residential
construction loans to homebuilders and to a lesser extent lots, model homes and
acquisition and development projects for those homebuilders. The commercial
finance operations, begun in January, 1997, provides financing to operators of
rent-to-own or rental purchase retailers. As discussed in Item 1. Business, on
June 27, 1997 the Company sold its interest in its retail automobile sales
business. Prior to the Merger on June 5, 1996, the Company's primary operations
consisted of the acquisition, ownership, management and disposition of loans and
real estate for its own account and the account of others.



                                       9
<PAGE>   11



FINANCIAL CONDITION

         MORTGAGE BANKING

         Beginning in September 1998, as a result of a number of factors, cash
prices in the sub-prime mortgage market significantly deteriorated. Prices paid
for the Company's sub-prime production declined in excess of 200 basis points.
The Company, in response, entered into a forward commitment in the fourth
quarter for $50,000,000 of its sub-prime production. The Company also lowered
the prices it paid for its wholesale and correspondent production. As a result
of lowering its prices, the Company's sub-prime loan production declined. The
decline in sales prices and the reduced levels of originations of sub-prime
mortgages resulted in a loss in the fourth quarter.

         In response to market conditions the Company has reduced its workforce
in certain areas and continues to monitor the prices it pays for loans. In order
to protect itself from any continued deterioration in sales prices for its
sub-prime loans the Company has entered into an $100,000,000 forward commitment
with a subsidiary of a major bank beginning in 1999.

         Loans Held For Sale

         The Company's mortgage loan production and its originations of
construction loans to individuals (one-time closings) are financed under a
$120,000,000 line of credit with a federal savings bank. The interest rates
charged on the line of credit vary based on the type of loan, such as prime,
sub-prime and construction. Generally the Company must fund 2% of the mortgage
loan amount and 10% of the outstanding balance of the construction loan. The
interest rate charged the Company is based upon a spread over the Eurodollar
rate ranging from 1.25% to 2.25%.

         At December 31,1998 residential mortgage loans held for sale totaled
$78,911,000. Of this amount $50,828,000 was conventional and government insured
or guaranteed loans (prime) and $28,083,000 was sub-prime loans.

         The prime loans are sold individually to large mortgage bankers or
financial institutions. The Company represents and warrants to the investor that
the loans were underwritten to the appropriate guidelines. The sub-prime loans
held for sale at December 31,1998 are being sold through a forward commitment.
The Company generally represents and warrants to the investor that each
sub-prime loan was underwritten to the Company's guidelines and that the
borrowers financial position is the same at the date of delivery to the investor
as the origination date. The Company also agrees to reimburse the investor a
portion of the purchase premium if the loan pays in full over a period of up to
two years. The Company defers a portion of the purchase premium, which reduces
the gain recorded on each loan sale, to cover the potential liability resulting
from the warranties given to the investor.

         At December 31, 1998, the prepayment liability as a result of the 
warranties given to the purchasers of the Company's loans totaled $830,000.
Additions to the prepayment liability totaled $1,554,000 in 1998 and $651,000
in 1997. Such additions are netted against the gain at the time of the sale.

         Securitization

         In June 1998 the Company, through MPS, securitized approximately
$51,000,000 of sub-prime mortgage loans. MPS retained the servicing
responsibilities for the loans. MPS recorded a net gain of $1,908,000 or 3.74%
of the principal balance of the loans sold, which is the excess of the cash
received and fair value of the assets retained by the Company over the relative
fair value of the loans sold, less transaction costs.




                                       10
<PAGE>   12



         The performance of the loans underlying the security through December
31, 1998 is as follows:
<TABLE>
<CAPTION>

                                            Fixed Rate        Adjustable Rate
                                          -------------       ---------------
<S>                                       <C>                 <C>          
Remaining Principal                       $  26,441,000       $  21,330,000
Annualized prepayment rates                        6.8%               14.1%
Cumulative losses                                    --                  --
Delinquencies (over 30 days)                      11.4%               11.0%
Cumulative principal amount of loans
  Foreclosed or in foreclosure            $     628,000       $     225,000
</TABLE>

         The Company purchased a mortgage pool insurance policy that covers all
losses up to 5% of the initial pool balances. The fee is .52% annually of the
unpaid principal of the loans. No claims have been made against the policy.

         In addition, to facilitate the sale, the Company provided a credit
enhancement for the benefit of the investors in the form of additional
collateral held by the trust. The over-collateralization account is required by
the servicing agreement to be maintained at 2.75% of the fixed rate balance and
4% of the adjustable rate balance of the securities.

         The residual interests in the securitization of loans represents the
sum of 1) the net interest receivable (NIR) which is the present value of the
difference between the contractual interest rates on the loans and the rate paid
to the buyer or bondholder using various prepayment, discount rate and loss
assumptions and 2) the overcollateralization account which is the excess monthly
cash flows, other than servicing revenues, that are required to be maintained
with the trustee until certain overcollateralization levels are met. The
residual interest is accounted for as a trading security and as such is recorded
at its estimated fair value. The Company is not aware of an active market for
the purchase or sale of the residual interests. Accordingly, the Company
determines the estimated fair value of the residual interests by discounting the
expected cash flows released from the trust (the cash out method) using a
discount rate which the Company believes is commensurate with the risks
involved.

         At December 31,1998 the residual interests in the securitization
consisted of the following:
<TABLE>
<CAPTION>

<S>                                <C>       
NIR                                $2,900,000
Overcollateralization account         634,000
                                   ----------
                                   $3,534,000
</TABLE>

         At December 31, 1998 the assumptions used in the valuation of the
residual interests were as follows:
<TABLE>

<S>                                                                             <C>
Discount rate                                                                                  12%
Weighted average life of fixed rate loans                                               4.27 years
Weighted average life of adjustable rate loans                                          3.47 years
Prepayment speeds- fixed rate loans                                             Ramp up to 20% CPR
Prepayment speeds- adjustable rate loans                                        Ramp up to 25% CPR
Cumulative losses, net of losses covered by the pool policy                                    .2%
Delinquencies (over 30 days)                                                                   10%
</TABLE>

CONSTRUCTION LENDING

         Loans receivable

         CPFI's construction lending activities to builders and developers are
financed under a $40,000,000 line of credit with a savings and loan. The
interest rates charged on the line of credit vary based on the underlying
collateral, such as a single family residence, lot loan, acquisition and
development loan or model home. The interest rate is based upon a spread over
the one month LIBOR ranging from 2% to 3.75%. The Company is generally required
to fund 10% of the outstanding balance of the loan with its own operating funds.

                                       11
<PAGE>   13

         At December 31, 1998 the allowance for credit losses totaled $230,000
or .75% of the outstanding loan balances compared to $291,000 or .52% of the
balance at December 31, 1997. There have been no chargeoffs or losses associated
with the construction loan portfolio. At December 31,1998 loans on non-accrual
totaled $727,000 or 2.4% of the outstanding balances. This compares to no loans
on non-accrual at December 31, 1997. At December 31, 1998 and 1997 loans that 
were deemed to be impaired was $727,000 and $0, respectively.

         At December 31, 1998 and 1997 construction loans receivable consisted
of the following:
<TABLE>
<CAPTION>

                                                  1998         1997
                                               -------      -------
<S>                                            <C>          <C>    
Residential Construction Loans                 $21,619      $44,935
Acquisition and Development Loans                4,692        2,526
Construction and lot loans to individuals        1,627        2,415
Model Home Loans                                   742        3,221
Commercial Real Estate Loans                       539           --
Lot Loans to Builders                              197        2,614
                                               -------      -------
Total                                          $29,416      $55,711
                                               =======      =======
</TABLE>

         At December 31, 1998 CPFI's total commitments under these loans, if
fully funded, are $53,745,000. This amount does not necessarily represent the
total amounts that will ultimately be funded by the Company, as it is common
that the loan pays in full prior to the entire loan amount being drawn.

         The outstanding principal balances by state as of December 31, 1998 are
as follows (in thousands)
:
<TABLE>

<S>                       <C>     
Arizona                   $10,188 
Texas                       8,530 
Nevada                      6,277 
Colorado                    1,825 
California                  1,675 
Georgia                       752 
New Mexico                    119 
Oklahoma                       50 
                          ------- 
Total:                    $29,416 
                          ======= 
</TABLE>

         In November 1998 the Company sold borrower relationships with total
outstanding balances of $28,000,000 to two financial institutions. The price
paid for the loans equaled the outstanding principal balance plus the accrued
interest receivable through the date of closing. The excess proceeds from the
sales after reducing the line of credit and available cash was used to pay down
$4,000,000 of the notes payable to CPS and SFSC. No gain or loss resulted from
the transactions.

         The Company recorded a premium of $541,000 in 1997 in connection with
the acquisition of approximately $55,000,000 in construction loans. The amount
was fully amortized in 1998.

COMMERCIAL LENDING

         Loans receivable

         The Company's commercial loan portfolio is financed under a $6,500,000
line of credit with a bank. Outstanding borrowings bear interest at the prime
rate. The Company is generally required to fund 30% of the outstanding principal
balance of the loans with its operating funds.

         The allowance for credit losses at December 31, 1998 is $107,000 or
1.7% of the outstanding balance as compared to $28,000 or 1.2% at December 31,
1997. There have been no chargeoffs or losses associated with the portfolio. At
December 31,1998 there were no loans past due with respect to interest more than
90 days.

                                       12
<PAGE>   14

         The net outstanding balances of the commercial loans at December 31,
1998 are $6,099,000. The Company's commitments to lend total $9,382,000. The
commitment amounts do not necessarily represent the total amounts that will be
funded by the Company as the borrowers may be limited by financial covenants
contained in the various debt agreements.

         The Company is currently considering alternatives for the portfolio
that may include a sale of the portfolio or contributing the portfolio to CPFI.
The Company no longer intends to pursue this lending activity and has not
entered into any new borrower relationships since August 1998.

         RESULTS OF OPERATIONS

         YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31,
         1997

         For the year ended December 31, 1998 the Company reported earnings of
$162,000 as compared to earnings from continuing operations of $1,121,000 for
the year ended December 31, 1997. In 1997 the Company disposed of its retail
automotive sales segment resulting in a gain of $1,384,000. Prior to the sale
the discontinued operation incurred a loss of $271,000 for the period from
January 1 to June 27, 1997 (the sale date).

         Earnings in 1998 were negatively impacted by principally three factors:

         1) Beginning in September 1998, as a result of a number of factors,
cash prices in the sub-prime mortgage market significantly deteriorated. Prices
received by the Company's for its sub-prime production declined in excess of 200
basis points. The Company, in response, entered into a forward commitment for
$50,000,000 of its production, lowered the prices it paid for its wholesale and
correspondent production and reduced operating expenses in the sub-prime
operation. As a result of lowering its prices, the Company's loan production
declined. The decline in sales prices and the reduced levels of originations of
sub-prime mortgages resulted in a loss in the fourth quarter.

         2) In 1997, the Company entered into agreements with the executives of
MPS that granted options to the executives, exercisable only if certain
conditions are satisfied, to acquire up to 20% of the authorized common shares
of MPS. The number of shares to be issued pursuant to the agreements was
dependent upon several factors, including the future earnings and value of MPS.

         On June 26, 1998 the Company, MPS and the executives entered into a
Restructure Agreement, which terminated the options. In exchange for the
termination of the options the Company entered into a deferred compensation
arrangement with the executives that requires the Company to pay annual
installments of approximately $1,100,000 to the executives over the three year
period beginning June 26, 1999, as long as the executive continues employment
with the Company. If the executive is terminated without cause all remaining
amounts due under the deferred compensation arrangement become immediately due
to the Company.

         The Company also granted loans totaling $3,040,000 to the executives
repayable in three equal annual installments, plus interest at 5.7% per annum,
beginning June 30, 1999. The loans are secured by the stock that each executive
owns, which aggregates approximately 19% of the outstanding shares of MPS. If
the executive terminates for any reason prior to the end of the three year
period, all remaining amounts under the note become immediately payable.

         Included in the Restructure Agreement is an additional provision that
requires the Company to pay to one of the executives $93,334 every six months,
beginning June 30, 1998, over the next three years, contingent upon continued
employment.

         Compensation expense totaling $778,000 was recorded in the 1998
financial statements as a result of these agreements.

                                       13
<PAGE>   15

          3) In April 1998, the board of directors authorized the Company to
make payments to officers and directors in lieu of stock options that were
originally granted under stock option plans that were never presented to
shareholders for approval. The Company recorded a charge to earnings of $636,000
in 1998 as a result.

         The following discussion and analysis presents the significant changes
in financial condition and results of continuing operations of the Company's
operating segments for the years ended December 31, 1998, 1997 and 1996. The
results of operations include acquired operations and businesses since the
acquisition date. A summary of the operating profits and losses by the Company's
operating segments is as follows:


<TABLE>
<CAPTION>

                                                    1998           1997           1996
                                                  --------       --------       --------
<S>                                               <C>            <C>            <C>     
Revenues:
     Residential mortgage banking-sub-prime       $ 15,427       $ 10,856       $  1,349
     Residential mortgage banking-prime             19,634          5,245             --
     Residential construction lending                6,094             29             --
     Commercial lending                                954            644             --
     Corporate and intercompany eliminations           (64)            81             65

                                                  --------       --------       --------
          Total revenues:                           42,045         16,855          1,414

Costs and expenses:
     Residential mortgage banking-sub-prime         15,308          8,475          1,753
     Residential mortgage banking-prime             16,997          4,690             --
     Residential construction lending                5,489             24             --
     Commercial lending                                682            503             --
     Corporate and intercompany eliminations         3,407          2,042            457
                                                  --------       --------       --------
          Total costs and expenses                  41,883         15,734          2,210
                                                  --------       --------       --------
Operating profit:
     Residential mortgage banking-sub-prime            119          2,381           (404)
     Residential mortgage banking-prime              2,637            555             --
     Residential construction lending                  605              5             --
     Commercial lending                                272            141             --
     Corporate and intercompany eliminations        (3,471)        (1,961)          (392)
                                                  --------       --------       --------
Earnings from continuing operations               $    162       $  1,121       $   (796)
                                                  ========       ========       ========
</TABLE>

Residential Mortgage Banking

         The Company operates its mortgage banking activities through its 81%
owned subsidiary MPS. The mortgage banking operations has two primary divisions,
sub-prime and prime. The prime origination function operates as Pacific American
Mortgage Company or PAMCO, which was acquired in August of 1997. MPS and PAMCO
originate loans in 40 states.




                                       14
<PAGE>   16

         Residential mortgage loan production for 1998, 1997 and 1996 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>

                                                 Prime(1)                                     Sub-Prime
                                         --------------------------          --------------------------------------------
                                           1998              1997              1998              1997              1996
                                         --------          --------          --------          --------          --------
<S>                                      <C>               <C>               <C>               <C>               <C>     
Retail:
Originations obtained
from the consumer                        $534,497          $150,621          $ 14,785          $  6,362          $     --

Wholesale:
Loans received from
mortgage brokers and
closed in MPS's name                       63,181            11,096           234,999           145,305            28,752

Correspondent:
Closed loans purchased
from other mortgage originators                --                --            83,144            59,567             6,747
                                         --------          --------          --------          --------          --------
                                         $597,678          $161,717          $332,928          $211,234          $ 35,499
                                         ========          ========          ========          ========          ========
</TABLE>

         Total combined 1998 and 1997 originations by state are as follows (in
thousands):
<TABLE>
<CAPTION>

                                  1998                                        1997
                 ----------------------------------------     --------------------------------------
                 Total Originations   Percent of Total        Total Originations   Percent of Total
                 ------------------   -------------------     ------------------  ------------------

<S>              <C>                  <C>                     <C>                 <C>
Texas                 $365,667                   39%            $136,222                   37%
California             154,631                   16               36,326                   10
Tennessee               98,772                   11               36,953                   10
Colorado                71,072                    8               24,056                    6
All others             240,464                   26              139,394                   37
                      --------             --------             --------             --------
                      $930,606                  100%            $372,951                  100%
                      ========             ========             ========             ========
</TABLE>

         Mortgage banking revenues consist of primarily gains from the sales of
loans, fees collected from the borrower or mortgage broker/banker and interest
earned on mortgage loans held for sale. Expenses consist primarily of
compensation and benefits and interest expense.

         A summary of the major revenue and expense components of the mortgage
banking operation is as follows (in thousands):

<TABLE>
<CAPTION>

                                            1998                 1997                 1996
                                          --------             --------             --------
<S>                                       <C>                  <C>                  <C>     
MPS (principally sub-prime)

Gains on sales of loans
  and other fee income                    $ 11,630             $  8,847             $  1,088
Interest income                              3,797                2,009                  261
Compensation and benefits                    8,609                4,717                1,026
Interest expense                             2,769                1,531                  172
Other expenses                               3,930                2,227                  555

Loans originated                          $318,240             $204,872             $ 35,499
Loans sold                                $305,652             $197,855             $ 24,174
Gains on sales of loans and
Other fee income as a percent
  of loans originated                         3.66%                4.32%                2.99%
Compensation and benefits
  as a percent of originations                2.71%                2.30%                2.89%
Other expenses as a percent
  of originations                             1.23%                1.09%                1.56%
</TABLE>

                                       15
<PAGE>   17

<TABLE>
<S>                                       <C>                  <C>                  <C>     
Net interest income as a
  Percent of originations                         .32%                  .23%                  .25%

PAMCO (principally prime)(1)

Gains on sales of loans
  And other fee income                         $16,459                $4,516                     -
Interest income                                  3,175                   729                     -
Compensation and benefits                       10,520                 2,971                     -
Interest expense                                 3,383                   863                     -
Other expenses                                   3,094                   856                     -

Loans originated                              $612,366              $168,079                     -
Loans sold(2)                                 $595,209              $140,733                     -
Gains on sales of loans and
Other fee income as a percent
  Of loans originated                            2.68%                 2.67%                     -
Compensation and benefits
  As a percent of originations                   1.72%                 1.77%                     -
Other expenses as a percent
  Of originations                                 .51%                  .51%                     -
Net interest expense as a
  Percent of originations                         .03%                  .08%                     -
</TABLE>

(1)      PAMCO operations are shown from date of acquisition, August 31,1997.

(2)      Includes loans totaling $53,911,000 in 1998 and $18,167,000 in 1997
         that were closed in the name of a third party (brokered-out).

MPS operations

         For the year ended December 31, 1998 the MPS mortgage operation earned
$119,000 as compared to $2,381,000 in 1997. Revenues increased $4,571,000 or 42%
over 1997 and expenses increased $6,833,000 or 81% over 1997.

         The decline in earnings resulted from the decline in sales prices in
the fourth quarter of 1998. In that quarter severe turmoil in the credit markets
resulted in a credit crunch for the larger sub-prime lenders. Many of the larger
lenders cut back production or eliminated entirely their loan production
facilities. Additionally, spreads on sub-prime backed securities widened
considerably, reducing the profitability of MPS's larger competitors and many of
the firms that MPS sold loans to. In reaction to the turmoil the firms that
continued to purchase loans reduced the price paid for such loans. The effect of
the price declines negatively impacted MPS's spreads between the prices received
upon the sale of the loans and the price or brokerage premiums paid to acquire
the loans. As a result the net gain on loan sales decline from 4.32% as a
percent of loans sold to 3.66%.

         Compensation expenses as a percent of production increased to 2.71% in
1998 from 2.30% in 1997. The increase is mainly attributable to deferred
compensation expense of $778,000 or .23% of production and increased processing
and underwriting costs as the Company continued to emphasize customer service.
The sub-prime operation was also negatively impacted by a decline in its
production in the fourth quarter.

         Other expenses increased in 1998 to 1.23% from 1.09% of production in
1997. The increase was attributable to an increase in losses on foreclosures
from $12,000 in 1997 to $230,000 in 1998 and the increased processing and
underwriting costs discussed above.

         Net interest spread as a percentage of production increased from .23%
in 1997 to .32% in 1998 as a result of lowered borrowing costs.

                                       16
<PAGE>   18

PAMCO operations

         For the year ended December 31, 1998, MPS's principally prime
production operation, PAMCO, earned $2,637,000. For the four months ended
December 31, 1997 PAMCO earned $555,000. Operating revenues totaled $19,634,000
as compared to $5,245,000 for 1997 and expenses totaled $16,997,000 as compared
to $4,690,000 for 1997.

         Gains on sales of loans and other loan fees as a percent of production
was 2.68% in 1998 as compared to 2.67% in 1997. The Company continues to benefit
from a strong secondary market for PAMCO's products and a favorable interest
rate environment. Compensation expenses as a percent of production declined to
1.72% from 1.77% in 1997 as the PAMCO gained efficiencies from higher average
monthly mortgage production. Other expenses as a percent of originations
remained at .51%.

         Net interest expense as a percent of production was a deficit of .03%
in 1998 as compared to a deficit of .08% in 1997. The deficit narrowed due to
reduced borrowing costs which was offset somewhat by lower interest rates on the
products PAMCO originates.

Construction Lending

         For the year ending December 31,1998 the construction lending operation
(CPFI) earned $605,000. The operation began on December 30, 1997 with the
acquisition of $55,000,000 in construction loans from a Dallas based savings and
loan. There were no material results from operations in 1997.

         Interest income as a percent of average outstanding construction loans
receivable was 8.92%, which included the amortization of the original
capitalized purchase premium of $541,000. Interest expense on the bank debt as a
percent of outstanding borrowings was 8.23%. Interest income totaled $4,978,000
and commitment fee income totaled $1,116,000 in 1998. Interest expense totaled
$4,205,000 including interest expense totaling $436,000 paid to NAB as part of
the capitalization of the CPFI. The note to NAB was paid during 1998. Operating
expenses totaled $1,284,000 consisting of compensation and benefits of $666,000
and other general and administrative expenses of $618,000. Other general and
administrative expenses included $100,000 in charges relating a shared service
agreement with MPS to provide accounting and data processing services and
$97,000 in provisions for loan losses.

         CPFI originated $149,429,000 in new commitments in 1998 and entered
into new guidance lines totaling $18,423,000.

         In November 1998, the Company sold approximately $28,000,000 in
construction loans to two Dallas financial institutions. No gain or loss
resulted from the transactions. The Company used the proceeds to pay down the
warehouse lines of credit and notes payable to affiliates.

Commercial Lending

         The commercial lending operation (NAFCO) earned $272,000 in 1998 as
compared to $141,000 in 1997. Interest income totaled $940,000 in 1998 as
compared to interest income of $611,000 in 1997. Interest expense totaled
$164,000 in 1998 as compared to $-0- in 1997. Operating expenses for 1998 and
1997 totaled $518,000 and $503,000, respectively, consisting primarily of
compensation and benefits of $235,000 and $273,000. Other expenses included
$79,000 and $28,000 in provisions for loan losses for 1998 and 1997 and legal
and professional fees of $109,000 and $69,000, respectively.

         New loan commitments in 1998 totaled $5,400,000 as compared to $750,000
in 1997. The new loan commitments in 1998 represented seven new borrowers.
Increases in existing borrowers lines of credit totaled $1,924,000.

                                       17
<PAGE>   19



Corporate and Intercompany Eliminations

         Corporate revenues and expenses represent interest income and
unallocated compensation, interest expense, minority interest and other general
and administrative expenses.

         Compensation expense totaled $1,316,000 in 1998 as compared to $787,000
in 1997. The increase was attributable to option termination related charges
totaling $636,000. Interest expense totaled $2,289,000 in 1998, an increase of
$1,900,000 over 1997. The increase in interest expense was due to borrowings
attributable to financing CPFI's acquisition of construction loans in December
of 1997 and borrowings to finance other corporate transactions. The borrowings
were obtained from CPS and SFSC.

         YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER
         31,1996

         For the year ended December 31, 1997 the Company reported earnings from
continuing operations of $1,121,000 as compared to a loss of ($796,000) for the
year ended December 31, 1996. In 1997 the Company disposed of its retail
automotive sales segment resulting in a gain of $1,384,000. Prior to the sale
the operation incurred a loss of $271,000 for the period from January 1 to June
27, 1997 (the sale date). The earnings from continuing operations benefited from
a full years operating results of the mortgage banking subsidiary, MPS, and the
earnings from the commercial loan portfolio at NAFCO. The construction lending
operations began December 30, 1997 and as a result did not contribute
significantly to the earnings of the Company.

         Operating income for the period from January 1, 1996 to June 5, 1996
(the discontinued real estate operations) was $3,467,000 due to several
liquidating transactions, including a $1,066,000 net gain on the sale of the
Company's partnerships and a $1,791,000 recovery on the settlement of an
in-substance foreclosure. Additionally, the Company incurred a loss of
($1,123,000) from the discontinued retail automotive sales business.

Sub-prime operations

         For the year ended December 31, 1997 the sub-prime mortgage operation
earned $2,381,000 as compared to a loss of $404,000 in 1997. Revenues increased
$9,507,000 over 1996 and expenses increased $6,722,000 over 1996. The Company
acquired MPS on July 10,1996. The operating results of MPS are included from
date of acquisition.

         Revenues increased from $1,349,000 in 1996 to $10,856,000 in 1997. The
increase is primarily attributable to increased gains on loan sales from
$962,000 in 1996 to $8,379,000 in 1997 resulting from increased loan
originations, and increased interest income as a result of the increased
production. Gains and other fee income as a percentage of loans sold increased
from 2.99% in 1996 to 4.32% in 1997. The increased gains resulted from a larger
base of customers who bid for the Company's loans and a strong demand for MPS's
product.

         Compensation expenses as a percent of originations decreased to 2.30%
in 1997 from 2.89% in 1996. The decrease was attributable to the increase in
originations over 1996 resulting from a full year of operations.
Additionally MPS incurred significant start up costs in 1996.

         Other expenses declined in 1997 to 1.09% from 1.56% of production in
1996. The 1996 costs included start up costs. Net interest spread as a
percentage of production declined slightly from .25% in 1996 to .23% in 1997.

Prime

         For the four months ended December 31, 1997 PAMCO earned $555,000.
Operating revenues totaled $5,245,000 and expenses totaled $4,690,000. The PAMCO
operation was acquired on August 31, 1997.

                                       18
<PAGE>   20

         Gains on sales of loans and other loan fees as a percent of production
was 2.67%. Compensation expenses as a percent of production was 1.77% and other
expenses as a percent of originations was .51%. Net interest margin as a percent
of mortgage loan production was a deficit of .08%.

Commercial Lending

         In January 1997, NAFCO acquired a portfolio of loans with a remaining
principal balance of $1,966,000. The purchase price was $1,292,000. New
commitments made during 1997 were $750,000.

         NAFCO earned $141,000 in 1997. Interest income totaled $611,000 and
operating expenses totaled $503,000 consisting primarily of compensation and
benefits of $273,000, provisions for loan losses of $28,000, and legal and
professional fees of $69,000. NAFCO had no borrowings in 1997.

Corporate and Intercompany Eliminations

         Compensation expense totaled $787,000 in 1997 as compared to $331,000
in 1996. Revenues and expenses for the period prior to June 6, 1996 are included
in discontinued operations. Interest expense totaled $389,000 in 1997. There
were no borrowings in 1996. Other general and administrative expenses totaled
$768,000 in 1997 as compared to $195,000 in 1996. On an annualized basis,
general and administrative costs increased as a result of legal and accounting
fees.

         LIQUIDITY AND CAPITAL RESOURCES

         As of December 31, 1998, the Company had approximately $6,091,000 in
cash as compared to $7,275,000 at December 31, 1997. Of those amounts $3,952,000
and $3,655,000 as of December 31, 1998 and 1997, respectively, was restricted to
usage for mortgage loan fundings and repayments under the Company's residential
warehouse line of credit.

         Total assets have increased to $140,799,000 at December 31, 1998 from
$129,119,000 at December 31, 1997. The increase is attributable to the growth in
the mortgage loan production at MPS offset by the decline in the construction
loan portfolio at CPFI.

         On June 29, 1998, MPS increased its line of credit with Guaranty
Federal Bank, F.S.B. and other lenders to $120,000,000 from $75,000,000.
Outstanding borrowings bear interest at various spreads (ranging from 1.25% to
2.25%) over the Eurodollar rate. The line of credit matures June 30, 1999. The
mortgage loans receivable of MPS are pledged as collateral for the line of
credit. At December 31, 1998, $74,117,000 was borrowed under the line.

         On December 30, 1998, CPFI reduced its line of credit with Bank United
to $40,000,000 from $75,000,000 due to the sale, as discussed earlier, of
construction loans in November. The line of credit is secured by CPFI's
construction loans receivable. As of December 31, 1998, $23,533,000 was
outstanding under the line bearing interest at various spreads (ranging from
2.00% to 3.75%) over the one month LIBOR depending on the collateral. The line
of credit matures June 30, 1999.

         On October 30, 1998, NAFCO entered into a line of credit totaling
$6,500,000 with a bank. The line bears interest at the prime rate and matures on
October 30, 1999. As of December 31, 1998, $3,000,000 was borrowed.
Substantially all of the assets of NAFCO are pledged as collateral for the line.

         In the fourth quarter of 1998, numerous sub-prime mortgage bankers were
subjected to margin calls on their lines of credit as a result of the
significant decline in the sales premiums paid for loans and the deteriorating
sub-prime mortgage and asset-backed securities markets. Management considers its
relationships with its lenders to be good and is currently in compliance with
all of the covenants contained in its various debt agreements. Additionally
management believes that the debt agreements will be renewed in the ordinary
course of business on substantially the same terms and conditions or alternative
credit facilities are available on acceptable terms.

                                       19
<PAGE>   21

         At December 31, 1998, the Company has borrowed under notes and a line
of credit from Stanwich Financial Services Corp. ("SFSC") and CPS, for a total
of $12,877,000 summarized as follows:
<TABLE>
<CAPTION>

Payee        Type                   Original Date             Maturity           Balance      Rate
-----        ----                ------------------     ------------------     ----------     ----
<S>          <C>                 <C>                    <C>                   <C>             <C>
SFSC         Note                     June 27, 1997          June 30, 1999     $  377,000      14%
SFSC         Note                September 30, 1997     September 30, 2000        900,000      14%
SFSC         Line of Credit         August 28, 1997     September 30, 2000      3,500,000      16%
SFSC         Note                 December 30, 1997          June 30, 1999      4,000,000      13%
SFSC         Note                    March 12, 1998          June 30, 1999        900,000      13%
SFSC         Note                    March 13, 1998          June 30, 1999      1,100,000      13%
CPS          Note                 December 30, 1997         April 30, 1999      2,100,000      13%
</TABLE>

         Proceeds from the borrowings were used to invest in the Company's
subsidiaries. All loans require the payment of interest quarterly with principal
due at maturity. The proceeds from the line of credit executed on August 28,
1997 are limited to usage at MPS. The total commitment is $5,000,000 of which
$3,500,000 has been drawn. Each note may be prepaid, partially or in full,
without penalty at any time. Any partial repayment may not be re-borrowed.
Charles E. Bradley, Sr., who is an officer and director of NAB, and Charles E.
Bradley, Jr., who is a director of NAB together owned a majority interest in
SFSC at December 31, 1997 and 1998. Messrs. Bradley, Sr., Bradley, Jr., are
officers and directors of CPS.

         On August 13, 1998, the Company entered into a Debt Restructure
Agreement with Stanwich Financial Services, Corp. ("SFSC") a corporation owned
42.5% by Charles Bradley, Sr. and 42.5% by Charles Bradley, Jr., in which, among
other things the note due from the sale of CARS was exchanged for a
corresponding reduction in the Company's indebtedness to SFSC and the maturities
of the company's indebtedness were extended.

         In order to maintain its net operating loss carryforwards the Company
is limited under Section 382 of the Internal Revenue Code of 1986 as to issuance
of new common shares in order to raise additional capital. The Company must rely
on additional borrowings to grow its operations. In 1998, NAB relied on SFSC and
CPS to provide funds to support the additional growth of the Company.

         In the next twelve months the Company intends to continue the expansion
of the current operations through its subsidiaries and acquire additional
operations complimentary to its core business lines. The Company anticipates no
additional funding from SFSC or CPS, therefore must rely on internally generated
funds or additional borrowings from third parties. The ability of the Company to
acquire additional compatible operations is dependent upon the availability of
financing. Current credit agreements in place are sufficient to provide the
Company funds to operate its business lines as currently structured.

         On March 29, 1999 NAB entered into a Payment Deferral Agreement with
SFSC in which SFSC agreed to extend the maturity dates on NAB's $6,377,000 in
notes payable to SFSC that were due June 30, 1999 to January 3, 2000.
Additionally, SFSC agreed to defer interest payments on all notes due from NAB
until January 3, 2000. The Company intends to pursue the refinancing of those
notes with a third party. There can be no assurance that such refinancing can be
accomplished and, if no financing is obtainable, that SFSC would agree to a
further extension of the maturity dates.

         As of December 31, 1998 NAB had remaining indebtedness to CPS totaling
$2,100,000. The note originally due December 31, 1998 has been extended to April
30, 1999. Since December 31, 1998 NAB has repaid $1,400,000 and has $700,000
remaining. In order to pay the remaining amount NAB must obtain cash from
operations (which consists primarily of tax sharing payments from subsidiaries),
financing from third parties, sell existing assets, obtain more favorable terms
under its various debt agreements or achieve a combination of the above. The
Company is currently pursuing all of these alternatives and believes that the
remaining amount due will be paid on a timely basis.


                                       20
<PAGE>   22

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk is the risk of loss from adverse changes in market prices
and interest rates. The Company's earnings are materially impacted by net gains
on sales of mortgage loans and net interest margins. The level of gains from
loan sales the Company achieves is dependent on demand for the products
originated. Net interest margins are dependent upon the ability of the Company
to maintain the spread or interest differential between the interest it charges
the customer for loans and the interest the Company is charged for the financing
of those loans.

Loans held for sale and securitization related assets

         The sub-prime loans the Company sells generally are included in asset
backed securities the investor or purchaser issues. These securities are priced
at spreads over the LIBOR or an equivalent term treasury security. These spreads
are determined by demand for the security. Demand is affected by the perception
of credit quality and prepayment risk associated with the loans the Company
originates and sells. Interest rates offered to customers also affect prices
paid for loans. These rates are determined by review of competitors rate
offerings to the public and current prices being paid to the Company for its
products. The Company does not hedge these price risks.

         Prices paid for prime loans are impacted by movements in interest
rates. The Company mitigates this risk by locking in prices with its investors
as the customer locks in the price with the Company, thus allowing the Company
to maintain it margin. Generally, if interest rates rise significantly, home
sales will decline adversely affecting the Company's prime mortgage loan
production.

         The Company's residual interest in securitization represents the
present value of the excess cash flows the Company expects to receive over the
life of the underlying sub-prime mortgage loans. The value is adversely affect
by prepayments, losses and delinquencies. The value would also be negatively
impacted by an increase in short-term interest rates, as a portion of the cash
flows fluctuate monthly based upon the one-month LIBOR.

         In summary, the Company would be negatively impacted by rising interest
rates and declining prices for its sub-prime loans. Rising interest rates would
negatively impact prime mortgage production and the value of the residual
interest in the securitization and declining prices for the Company's sub-prime
loans would adversely effect the levels of gains achieved upon the sale of those
loans. The estimated negative income statement effect for 1999 of a 1% rise in
interest rates and a 1% decline in prices received for its sub-prime loans would
be as follows:

Sub prime operations- $3,172,000
Prime operations- $1,681,000
Residual interest in securitization- $343,000

         Certain shortcomings are inherent in the methodology used in the above
market risk measurement. Modeling changes requires the making of certain
assumptions that may tend to oversimplify the manner in which actual yield and
costs respond to changes in market interest rate. Assumptions are the underlying
factors that drive the interest rate and market risk measurement system which
include asset and liability compositions, changes in pricing of loans, cost
structures and prepayment assumptions. The model also assumes that a particular
change in interest rates is reflected uniformly across the yield curve.
According the model is intended to provide an indication of the Company's market
risk at a particular point in time and is not a forecast of the effect of
changes in market conditions on the results of operations of the Company and
will differ from actual results.

Interest sensitive assets and liabilities

         In order to reduce the Company's exposure to interest rate fluctuations
the Company attempts to originate loans that contain short-term maturities (less
than one year) and bear interest rates that fluctuate based upon the prime rate.



                                       21
<PAGE>   23

         A summary of the fair value of interest earning assets and interest
bearing liabilities, segregated between fixed rate and adjustable rate
instruments, with expected maturity dates (or sales dates in the case of loans
held for sale) are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                     Greater
                                            0-3           3-6            6-12          12-24         than 24
                                           Months        Months         Months         Months         Months
                                          -------        -------        -------        -------        -------
<S>                                       <C>            <C>            <C>            <C>            <C>       
INTEREST EARNING ASSETS

Loans held for sale(1)                    $79,903             --             --             --             --
   Average rate                              8.22%            --             --             --             --

Constructions loans
  Adjustable(2)                           $11,322        $ 8,987        $ 5,273             --             --
    Average rate                             9.19%          9.27%          9.31%            --             --

  Fixed                                   $ 6,573        $ 2,655        $ 3,702        $   140             --
    Average rate                             9.00%         10.89%         11.58%         14.00%            --

Commercial loans
  Adjustable rate(2)                      $   501             --        $   998        $   583        $ 3,862
    Average rate                             9.75%            --          11.22%         12.28%         10.99%

  Fixed rate                              $    74             --             --             --        $    81
    Average rate                            12.00%            --             --             --          14.00%

Residual interest in securitization       $    38        $    46        $    82        $   111        $ 3,257

INTEREST BEARING LIABILITIES

Lines of credit(3)                             --             --             --             --             --
  Residential mortgage loans(4)                --        $74,117             --             --             --
    Eurodollar plus 1.25% to
      2.25%

  Construction loans                                     $23,533             --             --             --
    LIBOR plus 2.00% to 3.75%

  Commercial loans                             --             --        $ 3,000             --             --
    Prime Rate

Notes payable to
  affiliates-fixed rate                        --        $ 8,477             --        $ 4,400             --
    Average rate                               --          13.05%            --          15.59%            --

</TABLE>


(1)      The loans held for sale are shown in the table based upon the expected
         date of sale.

(2)      The adjustable rate construction loans and commercial loans have
         interest rates based upon the prime rate.

(3)      The lines of credit mature in the periods indicated. This does not
         necessarily indicate when the outstanding balances would be paid. The
         lines of credit fund 70% to 98% of the corresponding asset class. If
         the asset balance declines whether through a sale or a payment from the
         borrower, the corresponding liability must be paid.

(4)      Includes borrowings totaling $7,618,000 in which construction loans to
         individuals are pledged as collateral. The outstanding balance of the
         collateral included in Construction Loans above totals $9,465,000.

                                       22
<PAGE>   24

OTHER MATTERS

YEAR 2000

         In order to be year 2000 compliant, the Company has addressed and will
continue to address the year 2000 issue as it relates to the Company's systems
and its business operations. To be year 2000 compliant means that (1)
significant computer systems in use by the Company demonstrate performance and
functionality that is not materially affected by processing dates on or after
January 1, 2000, (2) customers and collateral included in the Company's
portfolio of business are year 2000 compliant, and (3) vendors of services
critical to the Company's business processes are year 2000 compliant.

         The Company has determined that the following actions are necessary to
assess year 2000 compliance:

1)       Identification of each computer area that could be materially affected
         and the proper action necessary to eliminate any material adverse
         effects caused by the turn of the century.

2)       Testing the systems and switching to year 2000 compliance where
         necessary.

3)       Making inquiries of key vendors and customers regarding year 2000
         compliance.

     Progress report

         Identification

         The Company has identified all of its hardware systems and software (IT
systems) critical to the business and whose failure to process transaction and
information in the Year 2000 would have a material impact on the Company. The
Company commenced its current business segments beginning in mid-1996. As a
result substantially all of its hardware and software were Year 2000 compliant
when purchased.

         The Company also identified non-information technology systems (non-IT
systems) critical to the business operation such as telephone and paging
systems. All of these systems were purchased subsequent to mid- 1996 and were
Year 2000 compliant when purchased.

         Testing

         The Company continues to test its IT systems and confirm the Year 2000
compliance of its non-IT systems. The management information systems department
(MIS) expects all critical IT systems to be tested by mid-1999.

         IT and Non-IT Vendor Inquiries

         The Company continues to communicate with customers, vendors, and
others to determine if their applications are year 2000 compliant and assess the
potential impact on the Company. The responses from the Company's major vendors
indicate that they are all expected to be year 2000 compliant within the next
twelve months or are already compliant as it relates to the relevant system the
Company relies on.

         Costs

         The costs incurred to bring the Company's internal systems into year
2000 compliance and the costs of equipment acquisitions are not expected to have
a material impact on the Company's financial position. The Company has incurred
approximately $100,000 in costs to date primarily related to software upgrades.
The Company expects continuing costs related to internal resources to test the
systems and monitor vendor progress towards being Year 2000 compliant. The cost
of these internal resources is estimated to be $75,000. Depending on the results
of the tests, the Company may hire outside third parties to assist in the
project. The amount above does not include those costs.

                                       23
<PAGE>   25

         Contingency Planning

         Based upon the progress of testing the Company's systems and the
responses of its material vendors as to their progress in becoming Year 2000
compliant, the Company will assess the need for contingency plans in the first
half of 1999.

         Risks

         The primary risk to the Company of the Year 2000 issue is that one or
more of the Company's outside vendors is not Year 2000 compliant. The Company
cannot assure that all systems of other companies and government agencies which
reliance is placed upon will be year 2000 compliant on a timely basis,
regardless of the assurances that the company receives from them. The failure of
significant customers and vendors to be year 2000 compliant could possibly have
a material adverse effect on the Company's results of operations and financial
condition.

         RECENT ACCOUNTING PRONOUNCEMENTS

         In April 1998 the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5
provides guidance on the financial reporting of start-up costs and
organizational costs. It requires costs of start-up activities and
organizational costs to be expensed as incurred. The Company has $156,000 in
organizational costs as of December 31, 1998. SOP 98-5 will require the Company
to write off those costs effective January 1, 1999. The amount, net of taxes,
will be reported as a cumulative effect of a change in accounting principle as
described in Accounting Principles Board (APB) Opinion No. 20, Accounting
Changes.

         In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 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. It requires that an entity recognizes all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designed as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. Under SFAS No. 133, an
entity that elects to apply hedge accounting is required to establish at the
inception of the hedge the method it will use for assessing the effectiveness of
the hedging derivative and the measurement approach for determining the
ineffective aspect of the hedge. Those methods must be consistent with the
entity's approach to managing risk.

         SFAS No. 133 supercedes FASB Statements No. 80 "Accounting for Futures
Contracts", No. 105 "Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk," and No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments". It amends FASB Statement No. 107 "Disclosures
about the Fair Value of Financial Instruments" to include in Statement 107 the
disclosure provisions about concentration of credit risk from Statement 105.
This Statement also nullifies or modifies the consensus reached in a number of
issues addressed by the Emerging Issues Task Force. This Statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management is in the process of assessing the future impact of the
implementation of SFAS No. 133.

         In October 1998, the FASB issued Statement of Financial Accounting
Standards No. 134 (SFAS No. 134), "Accounting for Mortgage Backed Securities
alter the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise" SFAS No. 134 amends SFAS No. 65 to require that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify in accordance with the provisions of SFAS No. 115
the resulting mortgage backed securities or other retained interests based on
its ability and intent to sell or hold those investments. However, a mortgage
banking 


                                       24
<PAGE>   26

enterprise must classify as trading any retained mortgage-backed securities that
it commits to sell before or during the securitization process. This Statement
is effective for the first fiscal quarter beginning after December 15, 1998. The
adoption of SFAS 134 is not expected to have a material effect on the Company's
financial condition or results of operations.

         PRIVATE LITIGATION SECURITIES REFORM ACT OF 1995

         This report contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. The
forward-looking statements are made pursuant to safe harbor provisions of the
Private Litigation Securities Reform Act of 1995. The factors that could cause
actual results to differ materiality include competition, interest rates,
availability of additional or alternative financing and other risks described
elsewhere in the Company's filings with the Securities and Exchange Commission.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




                                       25
<PAGE>   27


                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
NAB Asset Corporation:


We have audited the accompanying consolidated balance sheets of NAB Asset
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NAB Asset
Corporation and subsidiaries as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.

                                                     KPMG LLP

Orange County, California
March 29, 1999



                                       26
<PAGE>   28

                              NAB ASSET CORPORATION
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                            December 31,
                                                                  -----------------------------
Assets                                                                1998              1997
                                                                  -----------       -----------

<S>                                                               <C>               <C>        
Cash and cash equivalents                                         $     2,139       $     3,620
Restricted cash                                                         3,952             3,655
Receivables:
     Construction loans, net                                           38,652            69,052
     Residential mortgage loans held for sale                          78,911            45,472
     Commercial loans, net                                              6,099             3,677
     Loans to officers                                                  3,040                --
     Other receivables                                                  1,449             1,024
Residual interest in securitization of mortgage loans                   3,534                --
Property and equipment, net                                             1,151             1,151
Costs in excess of net assets acquired, net                               641               584
Other assets, net                                                       1,231               884
                                                                  -----------       -----------
                                                                  $   140,799       $   129,119
                                                                  ===========       ===========

          Liabilities and Shareholders' Equity

Liabilities:
Warehouse lines of credit                                         $   100,650       $    95,716
Notes payable to affiliates                                            12,877            16,300
Drafts payable                                                         11,681             5,425
Accounts payable and accrued expenses                                   5,250             2,914
Other liabilities                                                       1,123               609
                                                                  -----------       -----------
          Total Liabilities                                           131,581           120,964


Minority interest                                                         619               316

Shareholders' equity:
Common stock: $.10 par value, 30,000,000
     Authorized shares; 5,091,300 issued and 
       outstanding at December 31, 1998 and 1997                          509               509
Additional paid-in capital                                              7,815             7,217
Retained earnings                                                         275               113
                                                                  -----------       -----------
          Total shareholders' equity
                                                                        8,599             7,839
Commitments and contingencies                                              --                --
                                                                  -----------       -----------
                                                                  $   140,799       $   129,119
                                                                  ===========       ===========
</TABLE>



          See accompanying notes to consolidated financial statements.


                                       27
<PAGE>   29




                              NAB ASSET CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>

                                                                                   For the years ended December 31,
                                                                         ------------------------------------------------
                                                                                1998              1997               1996
                                                                         -----------       -----------        -----------

<S>                                                                      <C>               <C>                <C>        
Revenues:
  Gains on sales of loans                                                $    18,530       $    10,153        $       962
  Interest income                                                             12,926             3,491                323
  Origination and other fee income                                            10,589             3,211                129
                                                                         -----------       -----------        -----------
       Total revenues                                                         42,045            16,855              1,414
                                                                         -----------       -----------        -----------

Costs and expenses:
  Compensation and benefits                                                   21,346             8,750              1,357
  Interest expense                                                            11,813             2,591                104
  General and administrative                                                   8,236             3,983                749
                                                                         -----------       -----------        -----------
       Total costs and expenses                                               41,395            15,324              2,210
                                                                         -----------       -----------        -----------

Earnings (loss) from continuing operations before
   minority interest and income taxes                                            650             1,531               (796)
  Minority interest                                                              303               315                 --
  Income taxes                                                                   185                95                 --
                                                                         -----------       -----------        -----------
Earnings (loss) from continuing operations                                       162             1,121               (796)

Earnings (loss) from discontinued operations, net 
Of income taxes:
  Retail automobile sales                                                         --              (271)            (1,123)
  Real estate services                                                            --                --              3,467
  Gain on disposal of CARS USA                                                    --             1,384                 --
                                                                         -----------       -----------        -----------

Earnings (loss)                                                          $       162       $     2,234        $     1,548
                                                                         ===========       ===========        ===========

Basic earnings (loss) per share from continuing
Operations                                                               $      0.03       $      0.22        $     (0.16)
                                                                         ===========       ===========        ===========

Basic earnings (loss) per share                                          $      0.03       $      0.44        $      0.30
                                                                         ===========       ===========        ===========

Weighted average number of common shares
Outstanding                                                                5,091,300         5,091,300          5,091,300
                                                                         ===========       ===========        ===========
</TABLE>




          See accompanying notes to consolidated financial statements.



                                       28
<PAGE>   30



                              NAB ASSET CORPORATION
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 ( IN THOUSANDS)
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                               UNREALIZED
                                                                                  GAINS
                                               ADDITIONAL        RETAINED     ON SECURITIES
                                  COMMON         PAID-IN         EARNINGS       AVAILABLE        UNEARNED
                                  STOCK          CAPITAL         (DEFICIT)       FOR SALE      COMPENSATION       TOTAL
                                 --------        --------        --------        --------        --------        --------

<S>                              <C>           <C>              <C>             <C>             <C>             <C>     
Balance, December 31, 1995       $     42        $ 25,567        $ (3,669)       $     70        $    (34)       $ 21,976

Amortization of unearned
  Compensation                         --              --              --              --              34              34
Securities valuation
  Allowance, net                       --              --              --             (70)             --             (70)
Refund of small
  shareholder program                  --              22              --              --              --              22
Transfer to NAB
  Liquidating Trust                    --          (6,585)             --              --              --          (6,585)
Distributions                                     (15,320)                                                        (15,320)
Surrender of old stock
  in merger                           (42)             42              --              --              --              --
Issuance of new stock
  in merger-62% to
  shareholders of old NAB             316            (316)             --              --              --              --
Contribution of capital by
   CPS in Merger-38% of
   Common Stock to CPS                193           3,807              --              --              --           4,000
Net earnings                           --              --           1,548              --              --           1,548
                                 --------        --------        --------        --------        --------        --------

Balance, December 31, 1996            509           7,217          (2,121)             --              --           5,605
Net earnings                           --              --           2,234              --              --           2,234
                                 --------        --------        --------        --------        --------        --------

Balance, December 31, 1997            509           7,217             113              --              --           7,839
Issuance of stock of                   --             598              --              --              --             598
subsidiaries
Net earnings                           --              --             162              --              --             162
                                 --------        --------        --------        --------        --------        --------

Balance, December 31, 1998       $    509        $  7,815        $    275        $     --        $     --        $  8,599
                                 ========        ========        ========        ========        ========        ========
</TABLE>


           See accompanying notes to consolidated financial statements


                                       29
<PAGE>   31

                              NAB ASSET CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                         1998             1997             1996
                                                                                      ---------        ---------        ---------

<S>                                                                                   <C>              <C>              <C>       
Cash flows from operating activities:
        Earnings (loss) from continuing operations                                    $     162        $   1,121        $    (796)
        Adjustments to reconcile earnings (loss) from
          Continuing operations to net cash used in operations Cash provided by
        discontinued operations - real estate
          Operations                                                                         --               --            1,657
        Cash used in discontinued operations - retail
          Automotive sales                                                                   --             (176)          (1,500)
        Proceeds from sale of CARS USA                                                       --              200               --
        Non-cash gain on securitization of mortgage loans                                (3,248)              --               --
        Amortization of net interest receivable account                                     348               --               --
        Deposits to overcollateralization account                                          (634)              --               --
        Depreciation and amortization                                                     1,283              434              117
        Minority interest                                                                   303              315               --
        Provision for credit losses                                                         176               28               --
        Net changes in:
          Residential mortgage loans originated, purchased
            And sold                                                                    (33,143)         (32,824)         (11,287)
          Restricted cash                                                                  (297)          (3,655)              --
          Loans to officers                                                              (3,040)              --               --
          Other receivables                                                                (425)            (838)            (709)
          Other liabilities                                                                 514              489              120
          Other assets                                                                   (1,034)            (117)               5
          Drafts payable                                                                  6,256            5,425               --
          Accounts payable and accrued expenses                                           2,229            2,554              205
                                                                                      ---------        ---------        ---------
            Net cash used in operating activities                                       (30,550)         (27,044)         (12,188)
                                                                                      ---------        ---------        ---------
Cash flows from investing activities:
     Loan to Mortgage Portfolio Services, Inc.                                               --               --           (2,499)
     Construction loans funded and purchased                                            (51,420)         (69,052)              --
     Principal collections on and sales of construction loans                            81,427               --               --
     Commercial loans purchased and originated                                           (4,421)          (2,691)              --
     Principal collections on commercial loans                                              320              314               --
     Acquisition of businesses, net of cash acquired                                         --             (725)             684
     Purchases of property and equipment                                                   (546)            (518)            (138)
                                                                                      ---------        ---------        ---------
            Net cash provided by (used in) investing activities                          25,360          (72,672)          (1,953)
                                                                                      ---------        ---------        ---------
Cash flows from financing activities:
     Contribution of capital by CPS in merger                                                --               --            4,000
     Net borrowings under warehouse lines of credit                                       4,934           83,897           11,319
     Borrowings under notes payable to affiliates                                         4,300           16,300               --
     Payments on notes payable to affiliates                                             (6,123)              --               --
     Issuance of stock of subsidiaries                                                      598               --               --
                                                                                      ---------        ---------        ---------
           Net cash provided by financing activities                                      3,709          100,197           15,319
                                                                                      ---------        ---------        ---------
Net increase (decrease) in cash and cash equivalents                                     (1,481)             481            1,178
Cash and cash equivalents at beginning of year                                            3,620            3,139            1,961
                                                                                      ---------        ---------        ---------
Cash and cash equivalents at end of year                                              $   2,139        $   3,620        $   3,139
                                                                                      =========        =========        =========
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       30
<PAGE>   32




                     NAB ASSET CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) DESCRIPTION OF BUSINESS AND DISCONTINUED OPERATIONS

Description of Business

         NAB Asset Corporation, a Texas Corporation ("NAB") and subsidiaries
(the "Company") is primarily engaged in the residential lending business. As
discussed below NAB disposed of its retail automotive sales business in June,
1997. Prior to June 5, 1996 NAB's business consisted of the acquisition,
ownership, management and disposition of loans and real estate for its own
account and the account of others.

         NAB was organized on March 31, 1991, by National Asset Bank (a bank in
liquidation) (the "Bank") as a wholly-owned subsidiary of the Bank for the
purpose of acquiring substantially all of the assets of the Bank through a
series of transactions and agreements intended to effect the final liquidation
of the Bank. NAB acquired substantially all of the assets of the Bank in
consideration of the issuance by the NAB of shares of its common stock, $.01 par
value (the "Common Stock"), and the assumption of all the Bank's liabilities.
Immediately following such acquisition, the Bank distributed the shares of
Common Stock received to the holders of the Bank's common stock, (the "Bank
Common Stock"), on the basis of one share of Common Stock for each ten shares of
the Bank Common Stock held of record as of the close of business on July 17,
1991. Because NAB was formed for the purpose of effecting the acquisition of
substantially all of the Bank's assets, NAB had only limited operating
activities prior to such acquisition.

         On June 5, 1996, pursuant to the Plan and Agreement of Merger, CPS
Investing Corp. ("CPS Sub"), a wholly owned subsidiary of Consumer Portfolio
Services, Inc. ("CPS"), was merged with and into NAB (the "Merger"). Under the
terms of the Plan and Agreement of Merger and in exchange for all of the
outstanding shares of NAB $.01 par value common stock, the shareholders of NAB
received on a pro rata basis (i) an aggregate cash distribution of $15.3 million
($3.64 per share), (ii) an undivided interest in a liquidating trust
("Liquidating Trust"), and (iii) 62% of the outstanding shares of common stock,
$.10 par value (the "New Common Stock") of the new combined company which had a
net asset value of $7.5 million as of the merger date. The Liquidating Trust was
established for the benefit of converting the trust assets to cash for the NAB
shareholders. On June 5, 1996 in connection with the Merger, NAB contributed
approximately $3.0 million in cash and all of the remaining non-cash assets of
NAB with a net book value of $3.7 million to the Liquidating Trust. No gain or
loss was recognized by NAB in connection with the merger. In exchange for a $4
million contribution to NAB, CPS received 38% or 1,934,706 shares of the New
Common Stock of NAB.

Discontinued Real Estate Operations

         Operating results of the discontinued real estate operation is
summarized as follows (in thousands):
<TABLE>
<CAPTION>

                                                                                   For the period from
                                                           For the period from      January 1, 1996 to
                                                             April 24, 1996 to          April 23, 1996
                                                                  June 5, 1996      (measurement date)
                                                                  ------------      ------------------
<S>                                                        <C>                      <C>   
Revenues                                                                $3,013                  $1,995
Expenses                                                                   564                     977
                                                                        ------                  ------
Net earnings (loss)                                                     $2,449                  $1,018
                                                                        ======                  ======

</TABLE>

Revenue for the discontinued real estate operations consisted of gain on sale of
assets and interest income. Expenses consisted primarily of compensation and
benefits.




                                       31
<PAGE>   33

                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Discontinued Retail Automotive Sales Operations

         On July 8, 1996, NAB acquired 80% of CARS USA, Inc. ("CARS") for a
purchase price of $100,000. Additionally, NAB invested $400,000 in preferred
stock of CARS and made a $1,000,000 subordinated loan to CARS. At the time of
acquisition, Charles E. Bradley, Jr., a director of the Company owned 50% of the
outstanding shares of CARS. For the period from July 8, 1996 to December 31,
1996 CARS incurred a net loss of $1,123,000.

         In March 1997, NAB entered into a definitive agreement to sell its
interest in CARS and on June 27, 1997 completed the transaction. The acquirer
was a newly formed company owned by Charles E. Bradley, Sr., the chief executive
officer and chairman of the board of NAB and Charles E. Bradley, Jr., a director
of NAB. The purchase price consisted of a $200,000 cash payment and a note for
$1,300,000. The note was paid in 1998. NAB recorded a $1,384,000 gain as a
result of the sale.

         As a result of NAB's decision to divest its retail automotive sales
operations, all related operating activity has been reported as discontinued
operations for financial reporting purposes.

         Operating results of the discontinued retail automotive sales operation
is summarized as follows (in thousands):
<TABLE>
<CAPTION>

                                                Period from January 1,
                   Period from April 1, 1997     1997 to March 31, 1997   Period from July 8, 1996 to
                       to June 27, 1997            (measurement date)         December 31, 1996
                       ----------------           ------------------          -----------------
<S>                <C>                          <C>                       <C>   
Revenues                    $ 3,185                     $ 2,199                     $ 5,167
Expenses                      3,249                       2,406                       6,290
                            -------                     -------                     -------
Net loss                    $   (64)                    $  (207)                    $(1,123)
                            =======                     =======                     =======
</TABLE>

         Revenue and expenses for the discontinued automotive sales operation
consisted primarily of sales and cost of sales, respectively.

Acquisitions

         On July 10, 1996 NAB acquired from CPS 84% percent of the outstanding
voting common stock of Mortgage Portfolio Services, Inc. ("MPS") for a purchase
price of $300,000. NAB also acquired $2.25 million of MPS preferred stock
through conversion of debt to equity and contributed approximately $249,000 to
the additional paid-in capital of MPS. The MPS preferred stock acquired by NAB
provides cumulative dividends at a rate of 10% per annum and has liquidation
preference over the MPS common stock equal to the purchase price of the MPS
preferred stock plus any accrued and unpaid dividends.

         MPS is a mortgage banking company that specializes in the purchase,
origination, sale and servicing of residential mortgage loans that do not meet
traditional secondary market guidelines due to credit or employment history of
the borrower, debt-to-income ratios, or the nature of the collateral.


         A summary of the assets and liabilities acquired at fair value are as
follows (in thousands):

<TABLE>
<S>                                                       <C>    
Mortgage Loans                                            $ 1,362
Other Assets                                                1,386
Warehouse Line of Credit                                     (500)
Other Liabilities                                          (2,547)
                                                          -------
Net Assets Acquired                                          (299)
Purchase Price Paid                                          (300)
                                                          -------
Costs in excess of Net Assets Acquired                    $  (599)
                                                          =======
</TABLE>



                                       32
<PAGE>   34



                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         Selected unaudited pro forma combined results of operations for the
year ended December 31, 1996, assuming the acquisition of MPS had occurred on
January 1, 1996 are presented as follows (in thousands, except share data):
<TABLE>
<CAPTION>
<S>                                                                <C>    
Net loss from continuing operations                                $   916
                                                                   =======
Basic loss per share from continuing operations                    $  0.18
                                                                   =======
</TABLE>

         The increase in pro forma loss from continuing operations and pro forma
net loss per share from continuing operations gives effect to additional
amortization of cost in excess of net assets acquired totaling $77,000 which
would have been incurred assuming MPS was acquired on January 1, 1996.

         On August 31, 1997, MPS acquired the fixed assets and employed the
personnel of the single family mortgage lending division of Pacific Southwest
Bank ("PSB"), a Dallas based savings and loan. A premium of $200,000 was paid
for the operation. Additionally amounts of up to $800,000 may be payable over
the two year period to August 31, 1999 depending on mortgage loan origination
volumes. During 1998 MPS paid $195,000 under this agreement, which increased the
cost in excess of net assets acquired. The division, Pacific American Mortgage
Company ("PAMCO") is primarily engaged in mortgage lending through ten retail
branches in six states. Substantially all PAMCO mortgage loan originations are
conventional conforming, non-conforming and government insured mortgages.

         A summary of the PAMCO assets and liabilities acquired by MPS at fair
value are as follows (in thousands):

<TABLE>
<S>                                                      <C>  
Property and equipment                                   $ 560
Other assets                                               125
Accounts payable and accrued expenses                     (160)
                                                         -----
     Net assets acquired                                   525
Purchase price paid                                       (725)
                                                         -----
Cost in excess of net assets acquired                    $(200)
                                                         =====
</TABLE>

         Total accumulated amortization of the costs in excess of net assets
acquired related to MPS and PAMCO totaled $336,000 and $187,000 at December 31,
1998 and 1997, respectively.

         In January 1997, NAB, through a newly formed 84% owned subsidiary,
NAFCO, Inc., acquired a $1,966,000 portfolio of loans made to rent-to-own and
rental purchase retail operations. The purchase price for these loans was
$1,292,000, representing a discount of $674,000. The discount is being amortized
over the contractual life of the loans using the interest method. NAFCO, Inc. is
a commercial finance company that specializes in providing financing and
consulting services to small independently owned rent-to-own retailers.

         On December 30, 1997 NAB, through a newly formed 86% owned subsidiary,
Construction Portfolio Funding, Inc. ("CPFI") acquired approximately $53,000,000
in single family construction loans. A cash premium of $250,000 was paid in
addition to the principal balances acquired.

         In connection with the acquisition, NAB recorded a $291,000 allowance
for loan losses based on the seller's loan loss history.

         CPFI is engaged in the business of providing financing to residential
homebuilders for the construction of single family residences and to a lesser
extent acquisition and development loans, lot loans and model home loans to
those homebuilders.



                                       33
<PAGE>   35




                     NAB ASSET CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)

         The Company has four reportable segments, mortgage banking, sub-prime
and prime mortgage lending, construction lending and commercial lending. The sub
prime mortgage banking segment originates residential mortgage loans to
borrowers who are unable to obtain financing from conventional mortgage sources
due to credit problems or income qualification issues. The prime mortgage
banking segment originates conventional and government guaranteed or insured
mortgage loans. The construction lending operation lends to homebuilders for the
construction of single family residences and to a lesser extent for the purchase
of lots and acquisition and development of land for residential construction.
The commercial lending operation lends to operators of rent to own or rental
purchase businesses. All of the business segments operate within the U.S.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The following is a description of significant accounting and financial
reporting policies:

Basis of Presentation

         The consolidated financial statements include the accounts of NAB and
its majority-owned subsidiaries, with all significant inter-company transactions
being eliminated in consolidation.

         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.

Construction Loans Receivable

         Construction loans receivable are carried at the outstanding principal
balance, net of unamortized purchase discounts or premiums and net of allowance
for loan losses. Purchase discounts or premiums are amortized to income over the
contractual life of the loans based upon the interest method.

Residential Mortgage Loans Held for Sale

         Residential mortgage loans are stated at the lower of cost or market in
the aggregate as determined by outstanding commitments from investors or current
investor yield requirements.

Commercial Loans Receivable

         Commercial loans receivable are carried at the outstanding principal
balance, net of unamortized purchase discounts or premiums and net of allowance
for loan losses. Purchase discounts or premiums are amortized to income over the
contractual life of the loans based upon the interest method.

Allowance for Loan Losses

          The Company maintains an allowance for losses at an amount which it
believes is sufficient to provide adequate protection against future losses in
the loan portfolios. The allowance for losses is determined primarily on the
basis of management's judgment of net loss potential, including specific
allowances for known impaired loans and other factors such as changes in the
nature and volume of the portfolio, value of the collateral and current economic
conditions that may affect the borrowers' ability to pay. A loan is impaired
when it is "probable" that a creditor will be unable to collect all amounts due
(i.e., both principal and interest) according to the contractual terms of the
loan agreement. The measurement of



                                       34
<PAGE>   36



                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

impairment may be based on (1) the present value of the expected future cash
flows of the impaired loan discounted at the loan's original effective interest
rate, (2) the observable market price of the impaired loan or (3) the fair value
of the collateral of a collateral-dependent loan. The amount by which the
recorded investment of the loan exceeds the measure of the impaired loan is
recognized by recording a valuation allowance with a corresponding charge to
provision for loan losses.

         Loans are continually evaluated for collectibility and, if appropriate,
the loan may be placed on non-accrual status, generally if 90 days past due, and
previously accrued interest is reversed from income.

Residual Interest in Securitization of Mortgage Loans

         Net gains on securitization of loans represent the excess of the
estimated cash to be received on assets retained by the Company over the
relative fair value of the loans sold, less transaction costs. Various
assumptions are used in the calculation of the gain on the sale of the loans and
the valuation of the residual interest in the securitization of mortgage loans.

         The residual interests in the securitization of loans represent the sum
of (1) the net interest receivable (NIR) which is the present value of the
difference between the contractual interest rates on the loans and the rate paid
to the buyer or bondholder using various assumptions and (2) the
overcollateralization account which is the excess monthly cash flows, other than
servicing revenues, that are required to be maintained with the trustee until
certain overcollateralization levels are met. The residual interest is accounted
for as a trading security and as such is recorded at its estimated fair value.
The Company is not aware of an active market for the purchase or sale of the
residual interests. Accordingly, the Company determines the estimated fair value
of the residual interests by discounting the expected cash flows released from
the trust (the cash out method) using a discount rate which the Company believes
is commensurate with the risks involved.

Property and Equipment, Net

         Property and Equipment are stated at cost, net of accumulated
depreciation. Major renewals and improvements are capitalized and depreciated.
Repairs and maintenance are expensed as incurred. Depreciation is provided on a
straight-line basis over the estimated useful lives of depreciable assets. Cost
and accumulated depreciation applicable to assets retired or sold are eliminated
from the accounts and any resulting gains or losses are recognized at such time.

Real Estate Owned

         Real estate owned is transferred from the loan portfolio at fair market
value. The excess carrying value, if any, of the loan over the estimated fair
value less selling costs is charged to the allowance for loan losses. Any
subsequent impairments in value are recognized through a valuation allowance.

Costs in Excess of Net Assets Acquired

          Costs in excess of net assets acquired which represents the excess of
purchase price over fair value of net assets acquired, is amortized on a
straight-line basis over five years. The Company reviews costs in excess of net
assets acquired for impairment when changes in events or circumstances may
effect the underlying basis of the asset.

Drafts Payable

          The Company issues checks or initiates wire transfers in connection
with the origination of its residential mortgage loans. Drafts payable represent
checks or wire transfers on originated loans which have not been presented for
payment to the bank. Upon presentment, the Company either funds the loans with
operating cash or borrowings under its warehouse line of credit.


                                       35
<PAGE>   37



                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Prepayment Liability

         The Company sells all of its originated and purchased loans to third
party investors for cash. The purchase agreements require the Company to
reimburse the investor a portion of the purchase price paid if the loan pays in
full prior to a stated date, generally one year from origination. The Company
defers a portion of the gain on sold loans which represents management's
estimate of amounts due under the purchase agreements. This estimate is
calculated based on industry data as the Company has limited actual historical
data. The prepayment liability account is reduced based upon the prepayment of
loans, in accordance with the specific terms in the related sale agreement.

Revenue Recognition

         Gains on sales of loans are recognized to the extent the selling price
exceeds the carrying value of the loans sold based on the estimated relative
fair values of the assets transferred, assets obtained and liabilities incurred.
A portion of the sales price on loans sold serviced released is recorded as
deferred income and represents management's estimate of amounts reimbursable to
the purchaser of the loans in the event of a loan prepayment prior to a period
specified in the loan sales agreement, generally one to two years.
Non-refundable fees and direct costs associated with the origination of loans
are deferred and included in the carrying value until the related loan is sold.
Interest is recognized as revenue when earned according to the terms of the
security instruments and when, in the opinion of management, it is collectable.

         The Company's gain on accounting conforms to the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards No. 125 (SFAS
125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities." Under SFAS 125, a transfer of financial assets
in which control is surrendered is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in the exchange. Liabilities and derivatives incurred or obtained by
the transfer of financial assets are required to be measured at fair value, if
practical. Also, servicing assets and other retained interests in the
transferred assets must be measured by allocating the previous carrying value
between the asset sold and the interest retained, if any, based on their
relative fair values at the date of transfer.

         SFAS 125 also requires an assessment of interest-only strips, loans,
other receivables and retained interests in securitization (residuals). If these
assets can be contractually prepaid or otherwise settled such that the holder
would not recover substantially all of its recorded investment, the asset will
be measured like trading securities.

         Construction and commercial related lending revenues consist primarily
of interest income on loans and loan commitment fees. Interest is recognized as
revenue when earned according to the terms of the loan and when, in the opinion
of management, it is collectable. Non-refundable fees and direct costs are
deferred and income is recognized over the life of the loan commitment using the
interest method.

Income Taxes

         Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
base. To the extent that current available evidence about the future raises
doubt about the realization of a deferred tax asset, a valuation allowance is
established. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in earnings in the
period that includes the enactment date.

                                       36
<PAGE>   38

                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Earnings (Loss) Per Share

         Basic earnings (loss) per share is computed based on the weighted
average number of common shares outstanding during the period. Diluted earnings
(loss) per share is computed based on the weighted average number of common
shares and dilutive common share equivalents outstanding during the period. For
the years ended December 31, 1998, 1997 and 1996 there were no dilutive common
share equivalents.

Restricted Cash

         Restricted cash primarily represents amounts required to be used to
fund loans and repay amounts outstanding under the residential mortgage
warehouse line of credit.


Statements of Cash Flows

         For purposes of reporting cash flows, cash and cash equivalents include
cash in banks and interest bearing demand deposits.

Statement of Cash Flows-Supplemental Disclosure (in thousands):
<TABLE>
<CAPTION>

                                                                           December 31,
                                                                   ----------------------------------
                                                                     1998                      1997
                                                                   --------                    ------

<S>                                                                <C>                         <C>   
Interest paid - continuing operations                              $ 11,235                    $1,950
                                                                   ========                    ======

Taxes paid                                                         $    163                    $  116
                                                                   ========                    ======
Non-cash activities:
Loans held for sale transferred to real
  estate owned                                                     $    566                    $   14
                                                                   ========                    ======
Notes receivable exchanged for reduction in
  payable to affiliates                                            $  1,600                    $   --
                                                                   ========                    ======
Reversal of allowance for credit losses against
  purchase premium                                                 $    158                    $   --
                                                                   ========                    ======
Note received from sale of CARS USA                                $     --                    $1,300
                                                                   ========                    ======
</TABLE>

Recent Accounting Pronouncements

         In April 1998 the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5
provides guidance on the financial reporting of start-up costs and
organizational costs. It requires costs of start-up activities and
organizational costs to be expensed as incurred. The Company has $111,991 in
organizational costs as of December 31, 1998. SOP 98-5 will require the Company
to write off those costs effective January 1, 1999. The amount, net of taxes,
will be reported as a cumulative effect of a change in accounting principle as
described in Accounting Principles Board (APB) Opinion No. 20, Accounting
Changes.

         In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 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. It requires that an entity recognizes all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designed as



                                       37
<PAGE>   39





                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(a) a hedge of the exposure to changes in the fair value of a recognized asset
or liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction. Under SFAS No. 133, an entity that elects to
apply hedge accounting is required to establish at the inception of the hedge
the method it will use for assessing the effectiveness of the hedging derivative
and the measurement approach for determining the ineffective aspect of the
hedge. Those methods must be consistent with the entity's approach to managing
risk.

         SFAS No. 133 supercedes FASB Statements No. 80 "Accounting for Futures
Contracts", No. 105 "Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk," and No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments". It amends FASB Statement No. 107 "Disclosures
about the Fair Value of Financial Instruments" to include in Statement 107 the
disclosure provisions about concentration of credit risk from Statement 105.
This Statement also nullifies or modifies the consensus reached in a number of
issues addressed by the Emerging Issues Task Force. This Statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management is in the process of assessing the future impact of the
implementation of SFAS No. 133.

         In October 1998 the FASB issued Statement of Financial Accounting
Standards No. 134 (SFAS No. 134), "Accounting for Mortgage Backed Securities
after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise" SFAS No. 134 amends SFAS No. 65 to require that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify in accordance with the provisions of SFAS No. 115
the resulting mortgage backed securities or other retained interests based on
its ability and intent to sell or hold those investments. However, a mortgage
banking enterprise must classify as trading any retained mortgage-backed
securities that it commits to sell before or during the securitization process.
This Statement is effective for the first fiscal quarter beginning after
December 15, 1998. The adoption of SFAS 134 is not expected to have a material
effect on the Company's financial condition or results of operations.

         In the fourth quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No.131, "Disclosures about Segments of Enterprise
and Related Information" (FASB 131). FASB 131 supercedes FASB 14, "Financial
Reporting for Segments of a Business Enterprise". FASB 131 replaces the
"industry segment" approach with the "management approach". The management
approach designates the segments identified by management within the
organization that are regularly reviewed as to allocation of capital and
operating performance. FASB 131 also requires disclosures about products and
services, geographic areas and major customers. The adoption of FASB 131 did not
affect the Company's financial position or results of operations (see note 14).

Reclassifications

         Certain amounts for the prior periods have been reclassified to conform
to the current presentation.




                                       38
<PAGE>   40




                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(3) CONSTRUCTION AND COMMERCIAL LOANS RECEIVABLE

         Construction and commercial loans consist of the following (in
thousands):
<TABLE>
<CAPTION>

                                                           December 31,                December 31,
                                                               1998                         1997
                                                             --------                     --------
<S>                                                        <C>                          <C>     
Construction loans:
Residential construction loans                               $ 21,619                     $ 44,935
Acquisition and development loans                               4,692                        2,526
Lot loans to builders                                             197                        2,614
Model home loans                                                  742                        3,221
Construction and lot loans to individuals                      11,093                       15,506
Commercial real estate                                            539                           --
                                                             --------                     --------
                                                               38,882                       68,802
Purchase premium                                                   --                          541
Allowance for loan losses                                        (230)                        (291)
                                                             --------                     --------
                                                             $ 38,652                     $ 69,052
                                                             ========                     ========

Commercial loans                                             $  6,244                        3,998
Purchase discount                                                 (38)                        (293)
Allowance for loan losses                                        (107)                         (28)
                                                             --------                     --------
                                                             $  6,099                     $  3,677
                                                             ========                     ========

</TABLE>

         Activity in the allowance for credit losses was as follows (in
thousands):
<TABLE>
<CAPTION>

                                                          DECEMBER 31, 1998             DECEMBER 31, 1997
                                                      --------------------------    -------------------------
                                                      Construction    Commercial    Construction   Commercial
                                                      ------------    ----------    ------------   ----------

<S>                                                   <C>             <C>            <C>            <C>  
Beginning balance                                        $ 291           $  28          $  --          $  --
Provision for credit losses                                 97              79             --             28
Initial reserves                                            --              --            291             --
Reduction of reserves as a                                  --              --             --             --
  result of loan sales                                    (158)             --             --             --
                                                         -----           -----          -----          -----
Ending balance                                           $ 230           $ 107          $ 291          $  28
                                                         =====           =====          =====          =====
</TABLE>

         As of December 31, 1998 loans that were past due with respect to
interest more than 90 days totaled $726,897 and were on non-accrual and deemed
to be impaired. No specific allowance was on these impaired loans at December
31, 1998.

         At December 31, 1998, the Company's total commitments under these
loans, if fully funded, are $81,646,000. Approximately 26%, 24%, 22% and 20%,
respectively of construction loans receivable are secured by properties located
in Arizona, Texas, California and Nevada.

(4) RESIDENTIAL MORTGAGE LOANS HELD FOR SALE

         Residential mortgage loans originated by the Company are fixed-rate or
adjustable-rate, 15 to 30-year fully amortizing loans, secured by first liens on
single-family residential properties. Loans held for sale were comprised of the
following (in thousands):



                                       39
<PAGE>   41





                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>

                            December 31, 1998            December 31, 1997
                        --------------------------   ---------------------------
                                       Weighted                       Weighted
                                        Average                        Average
                           Amount        Rate          Amount          Rate
                        ----------     -----------   ---------        ----------
<S>                     <C>            <C>           <C>              <C>  
Adjustable-rate         $17,178           9.77%      $ 4,577            9.15%
Fixed-rate               60,906           7.78%       40,123            8.47%
                        -------                      -------
                         78,084                       44,700
Deferred loan fees
(net)                       827                          772
                        -------                      -------
                        $78,911                      $45,472
                        =======                      =======
</TABLE>

(5) RESIDUAL INTEREST IN SECURITIZATION

         The Company completed its first mortgage loan securitization on June
29, 1998. The Company retained the servicing responsibilities for the loans. The
Company recorded a net gain at the time of sale of $1,908,000 or 3.74% of the
principal balance of the loans sold, which represents the excess of the cash
received and assets retained by the Company over the relative fair value of the
loans sold, less transaction costs of $1,341,000. The assumptions used in the
calculation of the gain on the sale of the loans and the valuation of the
residual interest in the securitization of mortgage loans were as follows:
<TABLE>
<CAPTION>

                                                  FIXED RATE            ADJUSTABLE RATE
                                             -------------------     ---------------------
<S>                                          <C>                     <C>   
         Cumulative default rates                         8.15%                    10.20%
         Cumulative losses                                5.17%                     5.20%
         Discount rate                                      12%                       12%
         Over-collateralization account        Ramp up to 2.75%          Ramp up to 4.00%
         Weighted average life of loans              4.27 years                3.47 years
         Prepayment speeds                   Ramp up to 20% CPR        Ramp up to 25% CPR
</TABLE>

At December 31,1998 the residual interests in the securitization consisted of
the following (in thousands):
<TABLE>
<CAPTION>

<S>                                           <C>   
        NIR                                   $2,900
        Overcollateralization account            634
                                              -------
                                              $3,534
                                              =======
</TABLE>

     The performance of the loans underlying the security through December 31,
1998 is as follows:
<TABLE>
<CAPTION>

                                                FIXED RATE        ADJUSTABLE RATE
                                                ----------        ---------------
<S>                                             <C>               <C>    
      Remaining principal                         $26,441              $21,330
      Annualized prepayment rates                    6.80%               14.07%
      Cumulative losses                                --                   --
      Delinquencies (over 30 days)                  11.40%               11.00%
      Cumulative principal amount of loans
      foreclosed or in foreclosure                $   628              $   225
</TABLE>

           The Company purchased a mortgage pool insurance policy that will
cover all losses up to 5% of the initial pool balances. The fee is .52% annually
of the unpaid principal of the loans. The net loss assumption used in the
valuation of the residual interest in the securitization of mortgage loans
taking the policy into effect was .17% for the fixed rate loans and .20% for the
adjustable rate loans.

            In addition, to facilitate the sale, the Company provided a credit
enhancement for the benefit of the investors in the form of additional
collateral held by the trust. The over-collateralization account was required by
the servicing agreement to be maintained at the levels shown above.


                                       40
<PAGE>   42





                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

      The residual interests in the securitization of loans represents the
present value of the difference between the contractual interest rates on the
loans and the rate paid to the buyer or bondholder using the assumptions
discussed above. The residual interest is accounted for as a trading security
and as such is recorded at its estimated fair value. The Company is not aware of
an active market for the purchase or sale of the residual interests.
Accordingly, the Company determined the estimated fair value of the residual
interests by discounting the expected cash flows released from the trust (the
cash out method) using a discount rate which the Company believes is
commensurable with the risks involved.

      Upon reaching the required over-collateralization levels, the Company is
entitled to receive the cash flows that represent collections on the mortgage
loans in excess of the amount required to be paid to the bondholders. If the
actual performance of the mortgage loans differs significantly from the original
assumed performance, the cash the Company is entitled to receive will vary from
the NIR calculated using the assumptions above.

      Escrow balances on securitized loans serviced by the Company are not
included in the accompanying consolidated balance sheets and totaled $678,000 at
December 31, 1998.

(6) PROPERTY AND EQUIPMENT, NET

      Property and equipment, stated at cost, consists of the following (in
thousands):

<TABLE>
<CAPTION>

                                               December 31,
                                         -------------------------
                                           1998              1997
                                         -------           -------
<S>                                      <C>               <C>    
Furniture and Equipment                  $ 1,142           $   794
Computer Equipment and Software              829               631
Accumulated Depreciation                    (820)             (274)
                                         -------           -------
                                         $ 1,151           $ 1,151
                                         =======           =======
</TABLE>

(7) WAREHOUSE LINES OF CREDIT

      Warehouse lines of credit were comprised of the following (in thousands):

<TABLE>
<CAPTION>

                                                                                                 December 31,
                                                                                         --------------------------
                                                                                           1998              1997
                                                                                         --------          --------
<S>                                                                                     <C>               <C>     
Warehouse line-of-credit, commitment of $120,000,000, secured by residential
mortgage loans and guaranteed by NAB, interest at a spread above the
Eurodollar, (7.5% and 7.5% at December 31, 1998 and
1997, respectively), expiring June 30, 1999                                              $ 74,117          $ 50,002

Warehouse line-of-credit, commitment of $40,000,000, secured by residential
construction loans and guaranteed by NAB, interest at a spread above libor,
(7.55% and 7.625% at December 31, 1998 and 1997),
expiring December 29, 1999                                                                 23,533            45,714

Warehouse line-of-credit, commitment of $6,500,000, secured by commercial loans
and guaranteed by NAB, interest at a spread above prime, (7.75% at December
31, 1998), expiring October 29, 1999
                                                                                            3,000                --
                                                                                         --------          --------

                                                                                         $100,650          $ 95,716
                                                                                         ========          ========
</TABLE>

At December 31, 1997, NAFCO had a line of credit totaling $5,000,000 with a
savings bank. The line was terminated October 29, 1998.


                                       41
<PAGE>   43




                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         The warehouse lines of credit provide for various financial covenants
including limitations on indebtedness, investments, transactions with
affiliates, minimum levels of net worth and restricts the payment of dividends
and material changes in ownership. At December 31, 1998 and 1997, the Company
complied with these covenants.

         Management believes its warehouse lines of credit will be renewed in
the normal course of business.

(8) NOTES PAYABLE TO AFFILIATES

         Notes payable to affiliates were comprised of the following (in
thousands):
<TABLE>
<CAPTION>

                                                                                            December 31,
                                                                                    ------------------------
                                                                                     1998             1997
                                                                                    -------          -------
<S>                                                                                 <C>              <C>    
Note payable to Stanwich Financial Services, Corp., unsecured, interest
at 13% payable quarterly, principal due June 30, 1999                               $ 4,000          $ 4,000

Line of credit commitment of $5,000 payable to Stanwich Financial Services
Corp., unsecured, interest at 16% payable quarterly, payable
in full on  September 30, 2000                                                        3,500            3,500

Note payable to Stanwich Financial Services Corp., unsecured, interest
at 14% payable quarterly, due September 30, 2000                                        900            2,500

Note payable to Stanwich Financial Services Corp., unsecured, interest
at 13% payable quarterly, due June 30, 1999                                             377              800

Note payable to Stanwich Financial Services Corp., unsecured, interest
at 13% payable quarterly, due June 30, 1999                                             900               --

Note payable to Stanwich Financial Services Corp., unsecured, interest
at 13% payable quarterly, due June 30, 1999                                           1,100               --

Note payable to Consumer Portfolio Services, Inc., unsecured, interest
at 13% payable quarterly, principal due April 30, 1999                                2,100            5,500
                                                                                    -------          -------

                                                                                    $12,877          $16,300
                                                                                    =======          =======
</TABLE>

(9) SHAREHOLDER AND OPTION AGREEMENTS

         In June 1996 the Board of Directors adopted, subject to shareholder
approval, the 1996 Incentive Stock Option Plan (the "Incentive Plan") and the
1996 Non-Employee Director Stock Option Plan (the "Director Plan"). The
Incentive Plan provided for, among other things, the grant to key employees of
the Company options to purchase shares of NAB Common Stock. The Director Plan
provided for, among other things, the grant of options to purchase shares of NAB
Common Stock to directors of the Company who were not also employees of the
Company.

         The Plans were not presented to the shareholders for approval. The
Company currently has no employee or director stock option plans, and there are
no currently outstanding stock options held by any employee or director.

         In April 1998, the board of directors authorized the Company to make
payments to officers and directors in lieu of stock options that were originally
granted under stock option plans that were never presented to shareholders for
approval. The Company recorded a charge of $636,000 in 1998 as a result.


                                       42
<PAGE>   44



                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         In 1997, the Company entered into agreements with the executives of MPS
that granted options to the executives, exercisable only if certain conditions
are satisfied, to acquire up to 20% of the authorized common shares of MPS. The
number of shares to be issued pursuant to the agreements was dependent upon
several factors, including the future earnings and value of MPS.

         On June 26, 1998 the Company, MPS and the executives entered into a
Restructure Agreement which terminated the options. In exchange for the
termination of the options the Company entered into a deferred compensation
arrangement with the executives that requires the Company to pay annual
installments of $1,121,000, $1,101,000 and $1,101,000 in the years 1999, 2000
and 2001, respectively, to the executives, as long as the executive continues
employment with the Company. If the executive is terminated without cause all
remaining amounts due under the deferred compensation arrangement become
immediately payable.

         The Company also granted loans totaling $3,040,000 to the executives
repayable in three equal annual installments, plus interest at 5.7% per annum,
beginning June 30, 1999. The loans are secured by the stock that each executive
owns, which aggregates approximately 19% of the outstanding shares of MPS. If
the executive terminates for any reason prior to the end of the three year
period, all remaining amounts under the note become immediately payable.

         Included in the Restructure Agreement is an additional provision that
requires the Company to pay to one of the executives $93,334 every six months,
beginning June 30, 1998, over the next three years, contingent upon continued
employment. In exchange, the executive agreed to purchase stock in MPS of
$560,000.

         The financial statement impact of these new agreements for the year
ended December 31, 1998 was to record compensation expense totaling $778,036.

(10) INCOME TAXES

         Income taxes are comprised of the following:
<TABLE>
<CAPTION>

                                               Year ended December 31,
                                                ---------------------
                                                 1998            1997
                                                -----           -----

<S>                                             <C>             <C>  
Current
   Federal                                      $  15           $   9
   State                                          271              86

Deferred
   Federal                                        106             536
   State                                          (65)             --
                                                -----           -----
                                                  327             631
Reduction in valuation allowance                 (142)           (536)
                                                -----           -----
                                                $ 185           $  95
                                                =====           =====
</TABLE>



                                       43
<PAGE>   45

                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         The Company's tax expense differs from the amount determined by
applying the statutory Federal rate of 34% to earnings from continuing
operations as follows (in thousands):
<TABLE>
<CAPTION>

                                         Year ended December 31,
                                         ------------------------
                                          1998            1997
                                         -----           -----

<S>                                      <C>             <C>  
Expense at Federal rate                  $ 121           $ 545

State taxes                                206              86

Decrease in valuation allowance           (142)           (536)
                                         -----           -----
                                         $ 185           $  95
                                         =====           =====
</TABLE>

         Net Federal deferred tax assets totaled $63.5 million and $63.6 million
at December 31, 1998 and 1997, respectively with corresponding valuation
allowances of $63.5 million and $63.6 million, respectively. Net deferred tax
assets consist primarily of net operating losses which totals $63 million. The
remaining deferred tax assets of $500,000 consist primarily of deferred income
and allowances for loan losses. No Federal deferred tax assets have been
recognized in the 1998 or 1997 consolidated financial statements due to the fact
that, based on the weight of available evidence, it is more likely than not that
the deferred tax assets will not be realized. A state tax benefit of $36,000 was
recognized in 1998 through a reduction of the state valuation allowance.

         At December 31, 1998, for federal income tax purposes, the Company had
regular tax and alternative minimum tax net operating loss carryforwards of
approximately $185 million expiring as follows (in thousands):

<TABLE>
<CAPTION>
Year                  Amount
----------          --------
<S>                 <C>     
      2004          $ 52,388
      2005            42,120
      2006            28,004
      2007            11,091
Thereafter            51,588
                    --------
                    $185,191
                    ========
</TABLE>

         Simultaneous with the Merger, the Company amended its Articles of
Incorporation and By-laws to restrict the acquisition of 5% or more of the
outstanding shares of New Common Stock of the Company so as to prevent the
occurrence of an ownership change under Section 382 of the federal income tax
laws. Section 382 of the Internal Revenue Code of 1986 (Section 382), as
amended, provides in general that if a corporation undergoes an ownership
change, the amount of taxable income that the corporation may offset after the
date of such ownership change will be subject to an annual limitation. The
Company's NOL's could become subject to certain limitations on utilization in
the event the Company undergoes an ownership change within the meaning of
Section 382.

(11) COMMITMENTS AND CONTINGENCIES

         MPS is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to originate and sell loans and involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated financial statements.



                                       44
<PAGE>   46

                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         Commitments to originate mortgage loans are agreements to provide
financing at a fixed or variable interest rate subject to specific terms and a
customer's creditworthiness on a case-by-case basis. These commitments have
fixed expiration dates and other termination clauses and may require payment of
a fee. At December 31, 1998 and 1997 MPS had commitments to originate mortgage
loans of approximately $29,400,000 and $10,465,000, respectively. These
commitments do not necessarily represent future cash requirements, as some
portion of the commitments will expire without being drawn upon or will be
declined for credit or other reasons. At December 31, 1998 and 1997, MPS had no
outstanding firm commitments to purchase loans. At January 1, 1999 MPS entered
into a $100,000,000 commitment to sell sub-prime loans to an institutional
investor. The commitment expires June 30, 1999. MPS had no commitments to sell
loans at December 31, 1997.

         MPS has entered into loan sale agreements with investors in the normal
course of business which includes standard representations and warranties
customary to the mortgage banking industry. Violations of these representations
and warranties may require MPS to repurchase loans previously sold. As of
December 31, 1998, MPS had no repurchase requests outstanding. In the opinion of
management, the potential exposure related to MPS's loan sale agreements will
not have a material adverse effect on the consolidated financial position and
operating results of the Company.

         At December 31, 1998, the Company's total commitments under commercial
and construction loans, if fully funded, are $81,646,000.

         The Company is subject to lawsuits that arise in the ordinary course of
its business. Management is of the opinion, based in part upon consultation with
its counsel, that the liability of the Company, if any, arising from existing
and threatened lawsuits would not have a material adverse effect on the
Company's financial position and results of operations.

         The Company conducts its business from leased facilities. Rent expense
of approximately $1,136,000, $470,000 and $126,000 have been recorded for the
years ending December 31, 1998, 1997 and 1996, respectively.

         At December 31, 1998, minimum rental commitments under all
noncancelable leases with terms exceeding one year were as follows (in
thousands):
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S>           <C>   
1999          $1,179
2000             822
2001             404
2002             252
2003              --
              ------
              $2,657
              ======
</TABLE>

(12) RELATED PARTY TRANSACTIONS

         As discussed in Note (1), the Company sold its Retail Automotive Sales
Segment in June, 1997 to a company controlled by Charles E. Bradley, Sr., the
Chief Executive Officer and Chairman of NAB and Charles E. Bradley, Jr., a
director of NAB, for $1,500,000. The purchase price consisted of a $200,000 cash
payment and a note for $1,300,000. The note was satisfied in 1998.

         In September 1998 the Company borrowed $500,000 from SFSC pursuant to
an unsecured promissory note. The loan was paid off in 1998.

         In October 1998 the Company borrowed $800,000 from SFSC pursuant to an
unsecured promissory note. The loan was paid off in 1998.


                                       45
<PAGE>   47

                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         In December 1997 the Company borrowed $5,500,000 from CPS pursuant to
an unsecured promissory note. The loan bears interest at 13% per year payable
quarterly. As of December 31, 1998, the principal balance of the note was
$2,100,000. The principal is due April 30, 1999. Messrs. Bradley, Sr. and
Bradley, Jr. are officers and directors of CPS.

         Included in other assets is an unsecured note receivable for $55,000
from an officer of the Company. The note is due on July 1, 1999, bears no
interest and may be prepaid at any time.

(13) FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following disclosure of the estimated fair value of financial
instruments is made using estimated fair value amounts that have been determined
using available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market date
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that could be realized in a
current market exchange. The use of different market assumptions or estimation
methodologies may have a material impact on the estimated fair value amounts.

         The estimated fair value of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>

                                                                           DECEMBER 31,
                                                    ------------------------------------------------------------
                                                             1998                             1997
                                                    -------------------------        ---------------------------
                                                    CARRYING                         CARRYING
                                                      VALUE        FAIR VALUE          VALUE          FAIR VALUE
                                                    --------       ----------        --------         ----------
<S>                                                  <C>           <C>             <C>                <C>   
Financial assets:
   Cash, restricted cash and cash equivalents       $  6,091         $  6,091        $  7,275          $  7,275
   Construction loans                                 38,652           38,652          69,052            69,052
   Residential loans held for sale                    78,911           79,903          45,472            46,707
   Commercial loans                                    6,099            6,099           3,677             3,677
    Residual interest in the securitization of
    Mortgage loans                                     3,534            3,534              --                --
Financial liabilities:
   Notes payable                                     113,527          113,527         112,016           112,016
   Drafts payable                                     11,681           11,681           5,425             5,425
</TABLE>

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

         Cash and cash equivalents: The fair value of cash and cash equivalents
approximates the carrying value reported in the balance sheet.

         Construction loans: The carrying value reported in the balance sheet
approximates fair value as the construction loans are short term and bear
interest at a rate that approximates current market interest rates for similar
types of credit.

         Residential mortgage loans held for sale: The fair value of loans
receivable held for sale is determined in the aggregate based on current
investor yield requirements.

         Commercial loans: The fair value of commercial loans approximates the
carrying value reported in the balance sheet based upon the present value of
estimated cash flows using current interest rates applicable for similar types
of credit.

         Warehouse lines of credit: The carrying value reported in the balance
sheet approximates fair value as the warehouse lines of credit are due upon
demand and bear interest at a rate that approximates current market interest
rates for similar type lines of credit.


                                       46
<PAGE>   48





                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         Notes payable to affiliates: The carrying value reported in the balance
sheet approximates current value based upon current investor yield requirements
for similar instruments.

         Commitments to originate loans: The fair value is based on fees paid by
the borrowers to obtain the loan and is not considered material.

(14) SEGMENT REPORTING

         In the fourth quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No.131, "Disclosures about Segments of Enterprise
and Related Information" (FASB 131). FASB 131 supercedes FASB 14, "Financial
Reporting for Segments of a Business Enterprise". FASB 131 replaces the
"industry segment" approach with the "management approach". The management
approach designates the segments identified by management within the
organization that are regularly reviewed as to allocation of capital and
operating performance. FASB 131 also requires disclosures about products and
services, geographic areas and major customers. The adoption of FASB 131 did not
affect the Company's financial position or results of operations.

         The Company has four reportable segments, mortgage banking, sub-prime
and prime mortgage lending, construction lending and commercial lending. The sub
prime mortgage banking segment originates residential mortgage loans to
borrowers who are unable to obtain financing from conventional mortgage sources
due to credit problems or income qualification issues. The prime mortgage
banking segment originates conventional and government guaranteed or insured
mortgage loans. The construction lending operation lends to homebuilders for the
construction of single family residences and to a lesser extent for the purchase
of lots and acquisition and development of land for residential construction.
The commercial lending operation lends to operators of rent to own or rental
purchase businesses. All of the business segments operate within the U.S.

         The accounting policies of the segments are the same as those described
in the Summary of Significant Accounting Policies. The segment data includes
charges for interest and taxes from the Parent, NAB Asset Corporation.
Allocation between segments represents charges from the sub prime mortgage
banking operation to the prime mortgage operation and the construction lending
operation for administrative services. The charges are based upon an estimate of
actual expenses incurred.

         The sub prime segment was acquired July 10, 1996. The prime mortgage
lending segment was acquired August 31, 1997. The construction lending segment
commenced operations December 30, 1997. The commercial lending operation
commenced operations January 17, 1997.

                                       47
<PAGE>   49

                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

         Information concerning the operations of the segments is as follows (in
thousands):
<TABLE>
<CAPTION>

                                                Sub Prime      Prime
                                                Mortgage       Mortgage   Construction     Commercial
                                               Lending         Lending       Lending         Lending        Total
                                               --------       --------       --------       --------       --------
<S>                                            <C>            <C>            <C>            <C>            <C>     
Year ended December 31, 1998

Revenues, other than interest                  $ 11,630       $ 16,459       $  1,116       $     14       $ 29,219
Interest income                                   3,797          3,175          4,978            940         12,890
Interest expense                                  2,769          3,383          4,205            164         10,521

Depreciation and amortization                       403            264             76             57            800

Segment profit                                      119          2,637            605            272          3,633

Other non-cash items
  Non-cash gain from
  Securitization of loans                         3,248             --             --             --          3,248
  Discount accretion                                 --             --             --            271            271
  Premium amortization                               --             --            383             --            383

Segment assets(1)                               100,680             --         30,772          8,362        139,814

Expenditures for fixed assets(1)                    413             --            105              5            523
</TABLE>
<TABLE>
<CAPTION>


                                                Sub Prime       Prime
                                                Mortgage       Mortgage     Construction   Commercial
                                                 Lending        Lending        Lending        Lending         Total
                                                --------       --------       --------       --------       --------
<S>                                             <C>            <C>            <C>            <C>            <C>     
Year ended December 31, 1997

Revenues, other than interest                   $  8,847       $  4,516       $     --       $     33       $ 13,396
Interest income                                    2,009            729             29            611          3,378
Interest expense                                   1,531            863             20             --          2,414

Depreciation and amortization                        332             76             --              4            412

Segment profit                                     2,381            555              5            141          3,082

Other non-cash items

Premium amortization                                  --            383             --             --            383
Segment assets(1)                                 66,342             --         56,853          5,140        128,335

Expenditures for fixed assets(1)                     428             --             59             20            507

</TABLE>

<TABLE>
<CAPTION>

                                                Sub Prime        Prime
                                                Mortgage        Mortgage     Construction      Commercial
                                                Lending         Lending        Lending           Lending            Total
                                                --------        --------       ---------       -------------       --------
<S>                                             <C>             <C>          <C>               <C>               <C>     
Year ended December 31, 1996

Revenues, other than interest                   $  1,088        $     --       $      --         $        --       $  1,088
Interest income                                      261              --              --                  --            261
Interest expense                                     172              --              --                  --            172

Depreciation and amortization                         91              --              --                  --             91

Segment profit  (loss)                              (404)             --              --                  --           (404)

Segment assets                                    14,544              --              --                  --         14,544

Expenditures for fixed assets                        138              --              --                  --            138
</TABLE>



                                       48
<PAGE>   50



                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(1) The Company has not disclosed separate asset information for the sub prime
and prime mortgage segments because that information is not produced internally.
The information provided for the sub prime segment includes the prime segment.

         The reconciliation of the segment information above to that as reported
in the Company's Statement of Financial Condition and Statement of Operations is
as follows (in thousands):
<TABLE>
<CAPTION>

                                                     1998            1997            1996
                                                   --------        --------        --------

<S>                                                <C>             <C>             <C>     
Revenues
Total revenues for reportable segments             $ 42,109        $ 16,774        $  1,349
Other revenues                                          178             113              65
Interest paid to segment from corporate                (142)             --              --
Elimination of intersegment revenues                   (100)            (32)             --
                                                   --------        --------        --------

    Total consolidated revenues                    $ 42,045        $ 16,855        $  1,414
                                                   ========        ========        ========


                                                     1998            1997            1996
                                                   --------        --------        --------
Interest Income
Total interest income for reportable
  segments                                         $ 12,890        $  3,378        $    261
Unallocated interest income                             178             113              62
Interest paid to segment from corporate                (142)             --              --
                                                   --------        --------        --------

Total consolidated interest income                 $ 12,926        $  3,491        $    323
                                                   ========        ========        ========

                                                     1998            1997            1996
                                                   --------        --------        --------
Interest Expense
Total interest expense for
  reportable segments                              $ 10,521        $  2,414        $    172
Unallocated interest expense                          2,289             389              --
Net interest paid to corporate from segments           (997)           (212)            (68)
                                                   --------        --------        --------


Total consolidated interest expense                $ 11,813        $  2,591        $    104
                                                   ========        ========        ========

                                                     1998            1997            1996
                                                   --------        --------        --------
Earnings (loss)
Total segment profit (loss)                        $  3,633        $  3,082        $   (404)
Unallocated amounts:
  Interest expense                                   (2,289)           (389)             --
  Corporate income                                      178             113              65
  Corporate expenses                                 (2,357)         (1,897)           (525)
  Net segment interest paid to corporate                997             212              68
                                                   --------        --------        --------

  Earnings (loss) from continuing operations       $    162        $  1,121        $   (796)
                                                   ========        ========        ========
</TABLE>



                                       49
<PAGE>   51




                     NAB ASSET CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>

                                                         1998             1997             1996
                                                      ---------        ---------        ---------
<S>                                                   <C>              <C>              <C>      
Assets
Total assets for reportable segments                  $ 139,814        $ 128,335        $  14,544
Elimination of intersegment assets                           (8)              --               --
Elimination of corporate payables / receivables          (2,572)          (1,500)              --
Net assets of discontinued operation                         --               --              377
Other assets                                              3,565            2,284            2,983
                                                      ---------        ---------        ---------
    Total consolidated assets                         $ 140,799        $ 129,119        $  17,904
                                                      =========        =========        =========
</TABLE>

         During 1998 approximately $5,619,000 or 13% of the Company's revenues
were the result of sub-prime loan sales to one customer. During 1997
approximately $6,236,000 or 37% of the Company's revenues were the result of
sub-prime loan sales to two customers.

(15) SUBSEQUENT EVENTS AND LIQUIDITY

         On March 29, 1999 NAB entered into a Payment Deferral Agreement with
SFSC in which SFSC agreed to extend the maturity dates on NAB's $6,377,000 in
notes payable to SFSC that were due June 30, 1999 to January 3, 2000.
Additionally, SFSC agreed to defer interest payments on all notes due from NAB
until January 3, 2000. The Company intends to pursue the refinancing of those
notes with a third party. There can be no assurance that such refinancing can be
accomplished and, if no financing is obtainable, that SFSC would agree to a 
further extension of the maturity dates.

         As of December 31, 1998 NAB had remaining indebtedness to CPS totaling
$2,100,000. The note originally due December 31, 1998 has been extended to April
30, 1999. Since December 31, 1998 NAB has repaid $1,400,000 and has $700,000
remaining. In order to pay the remaining amount NAB must obtain cash from
operations (which consists primarily of tax sharing payments from its
subsidiaries), financing from third parties, sell existing assets, obtain more
favorable terms under its various debt agreements or achieve a combination of
the above. The Company is currently pursuing all of these alternatives and
believes that the remaining amount due will be paid on a timely basis.




                                       50
<PAGE>   52

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

         None.


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Pursuant to General Instruction G(3) to Form 10-K, information on
executive compensation is incorporated by reference from the Registrant's
definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated by
the Securities and Exchange Commission.

ITEM 11. EXECUTIVE COMPENSATION

         Pursuant to General Instruction G(3) to Form 10-K, information on
executive compensation is incorporated by reference from the Registrant's
definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated by
the Securities and Exchange Commission.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Pursuant to General Instruction G(3) to Form 10-K, information on
security ownership of certain beneficial owners and management is incorporated
by reference from the Registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A promulgated by the Securities and Exchange
Commission.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Pursuant to General Instruction G(3) to Form 10-K, information on
certain relationships and related transactions is incorporated be reference from
the Registrant's definitive Proxy Statement to filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission.

PART IV

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

<TABLE>
<CAPTION>
(a)  1.  INDEX TO FINANCIAL STATEMENTS                                    PAGE      
                                                                          ----      
<S>                                                                       <C>       
         Independent Auditors' Report                                       26      
         Consolidated Balance Sheets as of December 31, 1998 and 1997       27      
         Consolidated Statements of Operations for the years ended                  
                  December 31, 1998, 1997 and 1996                          28      
         Consolidated Statements of Shareholders' Equity for the years              
                  ended December 31, 1998, 1997 and 1996                    29      
         Consolidated Statements of Cash Flows for the years ended                  
                  December 31, 1998, 1997 and 1996                          30      
         Notes to Consolidated Financial Statements                         31      

        FINANCIAL STATEMENT SCHEDULES

        None
</TABLE>

                                       51
<PAGE>   53

     3. EXHIBITS
<TABLE>

<S>      <C>                  
 2.1     Plan and Agreement of Merger dated February 7, 1996, by and among
         Consumer Portfolio Services, Inc., CPS Investing Corp., and Registrant
         (Incorporated by reference to Exhibit 2.1 to Form 8-K dated February
         28, 1996).
 
 3.1     Restated Articles of Incorporation (Incorporated by reference to
         Exhibit A to Appendix A to the Registrant's Proxy Statement dated April
         23, 1996).
 
 3.2     Restated By-laws (Incorporated by reference to Exhibit B to Appendix A
         to the Registrant's Proxy Statement dated April 23, 1996).
 
10.1     Employment Agreement dated December 1, 1996 between Registrant NAB
         Asset and Michael W. Caton (Incorporated by reference to Exhibit 10.8
         to Form 10K dated December 31, 1996).

10.2     Employment Agreement dated December 1, 1996 between James E. Hinton and
         Mortgage Portfolio Services, Inc. (Incorporated by reference to Exhibit
         10.9 to Form 10K dated December 31, 1996).

10.4     $800,000 Promissory Note dated June 27, 1997 issued by Registrant to
         SFSC (Incorporated by reference to Exhibit 10.11 to Form 10Q dated
         September 30, 1997).

10.5     $5,000,000 Credit Line Note dated August 28, 1997 issued by Registrant
         to SFSC. (Incorporated by reference to Exhibit 10.12 to Form 10Q dated
         September 30, 1997).

10.6     $2,500,000 Promissory Note dated September 30, 1997 issued by
         Registrant to SFSC. (Incorporated by reference to Exhibit 10.13 to Form
         10Q dated September 30, 1997).

10.7     Asset Sale and Purchase Agreement dated as of December 23, 1997 between
         Pacific Southwest Bank and Construction Portfolio Funding, Inc.
         (Incorporated by reference to Exhibit 2.1 to Form 8K filed January 14,
         1998).

10.8     Rescission Agreement dated June 3, 1998 (but effective as of March 2,
         1998) among the Registrant, Consumer Portfolio Services, Inc., Charles
         E. Bradley, Sr., Charles E. Bradley, Jr., John Poole and Scott A.
         Junkin (Incorporated by reference to Exhibit 10.23 to Form 8K filed
         June 3, 1998

10.9     Third Restated Credit Agreement between Mortgage Portfolio Services,
         Inc. and Guaranty Federal Bank, F.S.B. dated June 30, 1998
         (Incorporated by reference to Exhibit 10.23 to Form 10Q dated June 30,
         1998)

10.10    $900,000 Promissory Note dated March 12,1998 issued by Registrant to
         SFSC (Incorporated by reference to Exhibit 10.24 to Form 10Q dated
         September 30, 1998)

10.11    $1,100,000 Promissory Note dated March 13,1998 issued by Registrant to
         SFSC (Incorporated by reference to Exhibit 10.25 to Form 10Q dated
         September 30, 1998)

10.12    $3,000,000 Promissory Note dated June 25,1998 issued by Registrant to
         CPS (Incorporated by reference to Exhibit 10.26 to Form 10Q dated
         September 30, 1998)

10.13    Debt Restructure Agreement dated as of August 13, 1998 between the
         Registrant and SFSC (filed herewith)

10.14    $500,000 Promissory Note dated September 25,1998 issued by Registrant
         to SFSC (Incorporated by reference to Exhibit 10.27 to Form 10Q dated
         September 30, 1998)

10.15    $800,000 Promissory Note dated October 23,1998 issued by Registrant to
         SFSC (Filed herewith)

10.16    Third Amendment to Warehousing Credit and Security Agreement dated as 
         of December 15, 1998 between Construction Portfolio Funding, Inc. and 
         Bank United. (Filed herewith)

10.17    Payment Deferral Agreement dated March 26, 1999 between Registrant and
         SFSC (filed herewith)

21.1     Subsidiaries of the registrant.

27       Financial Data Schedule.

</TABLE>


(b).     REPORTS ON FORM 8-K

         A Form 8-K was filed on November 13, 1998 reporting the sale of
approximately $28,000,000 in residential construction loans.


                                       52
<PAGE>   54




                                                    SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                      NAB ASSET CORPORATION


                      By:     /s/  Charles E. Bradley, Sr.
                              ------------------------------------------------
                              Charles E. Bradley, Sr.
                              Chairman of the Board/Chief Executive Officer
                              (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>


                Signature                                 Title                           Date
                ---------                                 -----                           ----
<S>                                        <C>                                      <C>
                                           Chairman of the Board                    March 29, 1999
   /s/  Charles E. Bradley, Sr.            Chief Executive Officer
   ------------------------------------    (Principal Executive Officer)
        Charles E. Bradley, Sr.            

                                           President                                March 29, 1999
   /s/  Michael W. Caton                   Chief Operating Officer and
   ------------------------------------    Director
         Michael W. Caton                  

                                           Senior Vice President                    March 29, 1999
   /s/  Alan Ferree                        Chief Financial Officer
   ------------------------------------    (Principal Financial Officer)
         Alan Ferree                       


   /s/  Timothy G. Hanson                  Controller                               March 29, 1999
   ------------------------------------    (Principal Accounting Officer)
         Timothy G. Hanson                 


   /s/  Charles E. Bradley, Jr.            Director                                 March 29, 1999
   ------------------------------------
         Charles E. Bradley, Jr.


   /s/  James B. Gardner                   Director                                 March 29, 1999
   ------------------------------------
         James B. Gardner


   /s/  Jeffrey W. Kramer                  Director                                 March 29, 1999
   ------------------------------------
         Jeffrey W. Kramer
</TABLE>




                                       53
<PAGE>   55

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>

EXHIBIT
NUMBER                                DESCRIPTION
-------                               -----------
<S>      <C>                  
 2.1     Plan and Agreement of Merger dated February 7, 1996, by and among
         Consumer Portfolio Services, Inc., CPS Investing Corp., and Registrant
         (Incorporated by reference to Exhibit 2.1 to Form 8-K dated February
         28, 1996).
 
 3.1     Restated Articles of Incorporation (Incorporated by reference to
         Exhibit A to Appendix A to the Registrant's Proxy Statement dated April
         23, 1996).
 
 3.2     Restated By-laws (Incorporated by reference to Exhibit B to Appendix A
         to the Registrant's Proxy Statement dated April 23, 1996).
 
10.1     Employment Agreement dated December 1, 1996 between Registrant NAB
         Asset and Michael W. Caton (Incorporated by reference to Exhibit 10.8
         to Form 10K dated December 31, 1996).

10.2     Employment Agreement dated December 1, 1996 between James E. Hinton and
         Mortgage Portfolio Services, Inc. (Incorporated by reference to Exhibit
         10.9 to Form 10K dated December 31, 1996).

10.4     $800,000 Promissory Note dated June 27, 1997 issued by Registrant to
         SFSC (Incorporated by reference to Exhibit 10.11 to Form 10Q dated
         September 30, 1997).

10.5     $5,000,000 Credit Line Note dated August 28, 1997 issued by Registrant
         to SFSC. (Incorporated by reference to Exhibit 10.12 to Form 10Q dated
         September 30, 1997).

10.6     $2,500,000 Promissory Note dated September 30, 1997 issued by
         Registrant to SFSC. (Incorporated by reference to Exhibit 10.13 to Form
         10Q dated September 30, 1997).

10.7     Asset Sale and Purchase Agreement dated as of December 23, 1997 between
         Pacific Southwest Bank and Construction Portfolio Funding, Inc.
         (Incorporated by reference to Exhibit 2.1 to Form 8K filed January 14,
         1998).

10.8     Rescission Agreement dated June 3, 1998 (but effective as of March 2,
         1998) among the Registrant, Consumer Portfolio Services, Inc., Charles
         E. Bradley, Sr., Charles E. Bradley, Jr., John Poole and Scott A.
         Junkin (Incorporated by reference to Exhibit 10.23 to Form 8K filed
         June 3, 1998

10.9     Third Restated Credit Agreement between Mortgage Portfolio Services,
         Inc. and Guaranty Federal Bank, F.S.B. dated June 30, 1998
         (Incorporated by reference to Exhibit 10.23 to Form 10Q dated June 30,
         1998)

10.10    $900,000 Promissory Note dated March 12,1998 issued by Registrant to
         SFSC (Incorporated by reference to Exhibit 10.24 to Form 10Q dated
         September 30, 1998)

10.11    $1,100,000 Promissory Note dated March 13,1998 issued by Registrant to
         SFSC (Incorporated by reference to Exhibit 10.25 to Form 10Q dated
         September 30, 1998)

10.12    $3,000,000 Promissory Note dated June 25,1998 issued by Registrant to
         CPS (Incorporated by reference to Exhibit 10.26 to Form 10Q dated
         September 30, 1998)

10.13    Debt Restructure Agreement dated as of August 13, 1998 between the
         Registrant and SFSC (filed herewith)

10.14    $500,000 Promissory Note dated September 25,1998 issued by Registrant
         to SFSC (Incorporated by reference to Exhibit 10.27 to Form 10Q dated
         September 30, 1998)

10.15    $800,000 Promissory Note dated October 23,1998 issued by Registrant to
         SFSC (Filed herewith)

10.16    Third Amendment to Warehousing Credit and Security Agreement dated as 
         of December 15, 1998 between Construction Portfolio Funding, Inc. and 
         Bank United. (Filed herewith)

10.17    Payment Deferral Agreement dated March 26, 1999 between Registrant and
         SFSC (filed herewith)

21.1     Subsidiaries of the registrant.

27       Financial Data Schedule.

</TABLE>