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                               ADVISORY AGREEMENT

      THIS AGREEMENT is made this 3rd day of October, 1997 between PEOPLE'S
PREFERRED CAPITAL CORPORATION, a Maryland corporation (the "Company"), and
PEOPLE'S BANK OF CALIFORNIA, a federally chartered savings bank (the "Advisor").
Capitalized terms used herein shall have the meanings set forth in Section 1 of
this Agreement.

      WHEREAS, the Company intends to qualify as a "real estate investment
trust" ("REIT") under the Internal Revenue Code of 1986, as amended (the
"Code"); and

      WHEREAS, the Company desires to avail itself of the experience and
assistance of the Advisor and to have the Advisor undertake, on the Company's
behalf, the duties and responsibilities hereinafter set forth, subject to the
control and supervision of the Board of Directors of the Company (the "Board of
Directors") as provided for herein; and

      WHEREAS, the Advisor desires to render such services for the Company
subject to the control and supervision of the Board of Directors, on the terms
and conditions hereinafter set forth.

      NOW THEREFORE, the parties hereto agree as follows:

      SECTION 1. Definitions. As used herein, the following terms shall have the
respective meanings set forth below:

      "Advisor" has the meaning set forth in the forepart of this Agreement.

      "Advisor Termination Date" means the date on which this Agreement
terminates.

      "Agreement" means this Advisory Agreement, as amended, modified and
supplemented from time to time.

      "Board of Directors" has the meaning set forth in the forepart of this
Agreement.

      "Code" has the meaning set forth in the forepart of this Agreement.

      "Company" has the meaning set forth in the forepart of this Agreement.

      "Gross Mortgage Assets" means for any month the weighted average book
value of the real estate mortgage assets held by the Company, before reserves
for depreciation or bad debts or other similar noncash reserves, computed at the
end of such month.

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      "Independent Directors" means the members of the Board of Directors of the
Company who are either not current officers or employees of the Company or
current directors, officers or employees of the Advisor or any affiliate of the
Advisor.

      "Operating Expenses" for any period means all of the operating expenses of
the Company (with the exception of those expenses to be borne by the Advisor in
accordance with Section 4 hereof), including without limitation the following:

      (a)   interest, taxes and other expenses incurred in connection with the
            mortgage assets of the Company;

      (b)   expenses related to the officers, directors and employees of the
            Company, including without limitation any fees or expenses of the
            directors;

      (c)   fees and expenses payable to accountants, appraisers, auditors,
            consultants, attorneys, collection and paying agents and all other
            Persons who contract with or are retained by the Company or by the
            Advisor on behalf of the Company;

      (d)   legal and other expenses incurred in connection with advice
            concerning, obtaining or maintaining the Company's status as a REIT,
            the determination of the Company's taxable income, any formal or
            informal administrative action or legal proceedings which involve a
            challenge to the REIT status of the Company or any claim that the
            activities of the Company, any member of the Board of Directors or
            any officer were improper;

      (e)   expenses relating to communications and reports to stockholders of
            the Company, including without limitation the costs of preparing,
            printing, duplicating and mailing the certificates for the stock of
            the Company, proxy solicitation materials and reports to
            stockholders, and the costs of arranging meetings of stockholders;

      (f)   the costs of insurance described in Section 2 hereof, including
            directors and officers liability insurance covering the directors
            and officers of the Company;

      (g)   expenses relating to the acquisition, disposition and ownership of
            mortgage assets, including without limitation and to the extent not
            paid by others, legal fees and other expenses for professional
            services and fees;

      (h)   expenses connected with the payments of dividends or interest or
            distributions in cash or any other form made or caused to be made by
            the Board of Directors to the stockholders of the Company;


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      (i)   expenses connected with any office or office facilities maintained
            by the Company separate from the office of the Advisor, including
            without limitation rent, telephone, utilities, office furniture and
            equipment and machinery; and

      (j)   other miscellaneous expenses of the Company which are not expenses
            of the Advisor under Section 4.

      "Person" means and includes individuals, corporations, limited
partnerships, general partnerships, joint stock companies or associations,
limited liability companies, joint ventures, associations, consortia, companies,
trusts, banks, savings institutions, trust companies, land trusts, common law
trusts, business trusts or other entities, governments and agencies and
political subdivisions thereof.

      "REIT" has the meaning set forth in the forepart of this Agreement.

      SECTION 2. Duties of Advisor. The Advisor shall consult with the Board of
Directors and the officers of the Company and shall, at the request of the Board
of Directors or the officers of the Company, furnish advice and recommendations
with respect to all aspects of the business and affairs of the Company. Subject
to the control and discretion and at the request of the Board of Directors, the
Advisor shall:

      (a)   administer the day-to-day operations and affairs of the Company,
            including without limitation the performance or supervision of the
            functions described in this Section 2;

      (b)   monitor the credit quality of the mortgage loans and other real
            estate and other assets held by the Company;

      (c)   advise the Company with respect to the acquisition, management,
            financing and disposition of the Company's mortgage loans and other
            real estate and other assets;

      (d)   represent the Company in its day-to-day dealings with Persons with
            whom the Company interacts, including without limitation
            stockholders of the Company, the transfer agent, consultants,
            accountants, attorneys, servicers of the Company's mortgage loans,
            custodians, insurers and banks;

      (e)   establish and provide necessary services for the Company, including
            executive, administrative, accounting, stockholder relations,
            secretarial, recordkeeping, copying, telephone, mailing and
            distribution facilities;

      (f)   [reserved]

      (g)   arrange, schedule and coordinate the regular and special meetings of
            the Board of Directors required for the conduct of the affairs of
            the Company or for timely action on any


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            matters the Company is required to act upon and implement all
            decisions of the Board of Directors, unless otherwise instructed,
            with regard to the Company and its assets;

      (h)   maintain communications and relations with the stockholders of the
            Company, including, but not limited to, responding to inquiries,
            proxy solicitations, providing reports to stockholders and arranging
            and coordinating all meetings of stockholders;

      (i)   arrange for the investment and management of any short-term
            investments of the Company;

      (j)   arrange for the services of third parties to collect and distribute
            funds of the Company and to perform such functions as the Board of
            Directors shall from time to time require;

      (k)   monitor and supervise the performance of all parties who have
            contracts to perform services for the Company, provided that the
            Advisor shall have no duty to assume the obligations or guarantee
            the performance of such parties under such contracts;

      (l)   establish and maintain such bank accounts in the name of the Company
            as may be required by the Company and approved by the Board of
            Directors and ensure that all funds collected by the Advisor in the
            name or on behalf of the Company shall be held in trust and shall
            not be commingled with the Advisor's own funds or accounts;

      (m)   make payment on behalf of the Company of all Operating Expenses;

      (n)   arrange for the execution and delivery of such documents and
            instruments by the officers of the Company as may be required in
            order to perform the functions herein described and to take any
            other required action;

      (o)   arrange for insurance for the Company including liability insurance,
            errors and omissions policies and officers and directors policies,
            which shall cover and insure the Company, members of the Board of
            Directors and the officers of the Company in amounts and with
            deductibles and insurers approved by the Board of Directors;

      (p)   maintain proper books and records of the Company's affairs and
            furnish or cause to be furnished to the Board of Directors such
            periodic reports and accounting information as may be required from
            time to time by the Board of Directors, including, but not limited
            to quarterly reports of all income and expenses of and distributions
            of the Company;

      (q)   consult and work with legal counsel for the Company in implementing
            Company decisions and undertaking measures consistent with all
            pertinent Federal, state and local laws and rules or regulations of
            governmental or quasi-governmental agencies, including, but not


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            limited to, Federal and state securities laws, the Code, as it
            relates to the Company's qualification as a REIT, and the
            regulations promulgated under each of the foregoing;

      (r)   consult and work with accountants for the Company in connection with
            the preparation of financial statements, annual reports and tax
            returns;

      (s)   arrange for an annual audit of the books and records of the Company
            by the accounting firm designated for such purposes by the Board of
            Directors;

      (t)   prepare and distribute in consultation with the accountants for the
            Company, annual reports to stockholders which will contain audited
            financial statements;

      (u)   furnish reports to the Board of Directors and provide research,
            economical and statistical data in connection with the Company's
            investments; and

      (v)   as reasonably requested by the Company, make reports to the Company
            of its performance of the foregoing services and furnish advice and
            recommendations with respect to other aspects of the business of the
            Company.

      SECTION 3. Compensation. The Company shall pay to the Advisor, for
services rendered by the Advisor hereunder, an annual management fee equal to
Two Hundred Thousand Dollars ($200,000), payable in equal quarterly
installments.

      SECTION 4. Expenses of the Advisor.

      (a)   Without regard to the compensation received pursuant to Section 3,
            the Advisor will bear the following expenses:

            (i)   employment expenses of the personnel employed by the Advisor,
                  including without limitation salaries, wages, payroll taxes
                  and the cost of employee benefit plans; and

            (ii)  rent, telephone equipment, utilities, office furniture and
                  equipment and machinery and other office expenses of the
                  Advisor incurred in connection with the maintenance of any
                  office facility of the Advisor.

      (b)   The Company shall reimburse the Advisor within 30 days of a written
            request by the Advisor, for any Operating Expenses paid or incurred
            by the Advisor on behalf of the Company.


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      SECTION 5. Records. The Advisor shall maintain appropriate books of
account and records relating to services performed hereunder, and such books of
account an records shall be accessible for inspection by the Board of Directors
or representatives of the Company at all times.

      SECTION 6. REIT Qualification and Compliance. The Advisor shall consult
and work with the Company's legal and tax counsel in maintaining the Company's
qualification as a REIT. Notwithstanding any other provisions of this Agreement
to the contrary, the Advisor shall refrain from any action which, in its
reasonable judgment or in the judgment of the Board of Directors (of which the
Advisor has received written notice), would adversely affect the qualification
of the Company as a REIT or which would violate any law, rule or regulation of
any governmental body or agency having jurisdiction over the Company or its
securities, or which would otherwise not be permitted by the Articles of
Incorporation or Bylaws of the Company. Furthermore, the Advisor shall take any
action which, in its judgment or the judgment of the Board of Directors (of
which the Advisor has received written notice), may be necessary to maintain the
qualification of the Company as a REIT or prevent the violation of any law or
regulation of any governmental body or agency having jurisdiction over the
Company or its securities.

      SECTION 7. Term; Termination. This Agreement shall be in full force and
effect for a term beginning on the date hereof with an initial term of five
years, and will be renewed automatically for additional five year periods unless
the Company delivers a notice of nonrenewal to the Advisor not less than 90 days
prior to the expiration of the initial term of this Agreement or 90 days prior
to the expiration of any renewal term. Notwithstanding the foregoing, at any
time after the initial term, the Company may terminate this Agreement at any
time upon 90 days' prior notice.

      SECTION 8. Other Activities of the Advisor.

      (a)   Nothing herein contained shall prevent the Advisor, an affiliate of
            the Advisor or an officer, a director, employee or stockholder of
            the Advisor from engaging in any activity, including without
            limitation originating, purchasing and managing mortgage loans and
            other real estate assets, rendering of services and investment
            advice with respect to real estate investment opportunities to any
            other Person (including other REITs) and managing other investments
            (including the investments of the Advisor and its affiliates).

      (b)   Directors, officers, stockholders, employees and agents of the
            Advisor or of the affiliates of the Advisor may serve as directors,
            officers, employees or agents of the Company but shall receive no
            compensation (other than reimbursement for expenses) from the
            Company for such service.

      SECTION 9. Binding Effect; Assignment. This Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
successors and assigns. Neither party may assign this Agreement or any of its
respective rights hereunder (other than an assignment to a successor


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organization which acquires substantially all of the property of such party or,
in the case of the Advisor, to an affiliate of the Advisor) without the prior
written consent of the other party to this Agreement.

      SECTION 10. Subcontracting. The Advisor may at any time subcontract all or
a portion of its obligations under this Agreement to any affiliate of the
Advisor without the consent of the Company or if no affiliate of the Advisor is
engaged in the business of managing mortgage assets to an unaffiliated third
party with the approval of a majority of the Board of Directors as well as a
majority of the Independent Directors. Notwithstanding the foregoing, the
Advisor will not, in connection with subcontracting any of its obligations under
this Agreement, be relieved or discharged in any respect from its obligations
under this Agreement.

      SECTION 11. Liability and Indemnity of the Advisor. The Advisor assumes no
responsibilities under this Agreement other than to perform the services called
for hereunder in good faith. Neither the Advisor nor any of its affiliates,
stockholders, directors, officers or employees will have any liability to the
Company, or stockholders of the Company, or others except by reason of acts or
omissions constituting gross negligence or willful breach of any of its material
obligations under this Agreement. The Company shall indemnify and reimburse (if
necessary) the Advisor, its stockholders, directors, officers, employees and
agents for any and all expenses (including without limitation attorneys' fees
and expenses), losses, damages, liabilities, demands and charges of any nature
whatsoever in respect of or arising from any acts or omissions by the Advisor
pursuant to this Agreement, provided that the conduct against which the claim is
made was determined by such person, in good faith, to be in the best interest of
the Company and was not the result of gross negligence by such person or willful
breach of any of such person's material obligations by such person. The Advisor
agrees that any such indemnification is recoverable only from the assets of the
Company and not from the stockholders.

      SECTION 12. Action Upon Notice of Non-Renewal or Termination. Forthwith
upon giving of notice of non-renewal of this Agreement by the Company or of
termination of this Agreement by the Company, the Advisor shall not be entitled
to compensation after the Advisor Termination Date for further services under
this Agreement, but shall be paid all compensation accruing to the Advisor
Termination Date and shall be reimbursed for all expenses of the Company paid or
incurred by the Advisor as of the Advisor Termination Date which are
reimbursable by the Company under this Agreement. The Advisor shall promptly
after the Advisor Termination Date:

      (i)   deliver to the Company all assets and documents of the Company then
            in the custody of the Advisor; and

      (ii)  cooperate with the Company and take all reasonable steps requested
            to assist the Board of Directors in making an orderly transfer of
            the administrative functions of the Company.

      SECTION 13. No Joint Venture or Partnership. Nothing in this Agreement
shall be deemed to create a partnership or joint venture between the parties,
whether for purposes of taxation or otherwise.


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      SECTION 14. Notices. Unless expressly provided otherwise herein, all
notices, request, demands and other communications required or permitted under
this Agreement shall be in writing and shall be made by hand delivery, certified
mail, overnight courier service, telex or telecopier. Any notice shall be duly
addressed to the parties as follows:

      If to the Company:

            People's Preferred Capital Corporation
            5900 Wilshire Boulevard
            Los Angeles, California 90036
            Attention: Corporate Secretary

      If to the Advisor:

            People's Bank of California
            5900 Wilshire Boulevard
            Los Angeles, California 90036
            Attention: Corporate Secretary

      Either party may alter the address to which communications or copies are
to be sent by giving notice of such change of address in conformity with the
provisions of this Section 14 for the giving of notice.

      SECTION 15. Severability. If any term or provision of this Agreement or
the application thereof with respect to any Person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Agreement, or the
application of that term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.

      SECTION 16. Governing Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the State
of California.

      SECTION 17. Amendments. This Agreement shall not be amended changed,
modified, terminated or discharged in whole or in part except by an instrument
in writing signed by both parties hereto or their respective successors or
assigns, or otherwise as provided herein.

      SECTION 18. Headings. The section headings herein have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.


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      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the day and year
first above written.

                                        PEOPLE'S PREFERRED CAPITAL CORPORATION

                                        By: /s/ J. Michael Holmes
                                            ------------------------------------
                                            Name: J. Michael Holmes
                                            Title: Executive Vice President /
                                                   Chief Financial Officer


                                        PEOPLE'S BANK OF CALIFORNIA

                                        By: /s/ J. Michael Holmes
                                            ------------------------------------
                                            Name: J. Michael Holmes
                                            Title: Executive Vice President /
                                                   Chief Financial Officer

                                        By: /s/ William W. Flader
                                            ------------------------------------
                                            Name: William W. Flader
                                            Title: Executive Vice President


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