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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               -------------------

                                    FORM 10-K

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

        FOR THE FISCAL YEAR ENDED:                     COMMISSION FILE:
             December 31, 2001                             0-23131

                               -------------------

                     PEOPLE'S PREFERRED CAPITAL CORPORATION
             (Exact name of registrant as specified in its Charter)

         MARYLAND                                       95-4642529
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

                               -------------------

             221 S. FIGUEROA STREET, LOS ANGELES, CALIFORNIA, 90012
          (Address of principal executive offices, including zip code)

                                 (213) 443-1400
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
           9.75% NONCUMULATIVE EXCHANGEABLE PREFERRED STOCK, SERIES A

                               -------------------

      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
filing requirements for the past 90 days. Yes |X| No |_|.

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

      All 10,000 shares of Common Stock were held by California National Bank at
December 31, 2001; therefore, no Common Stock is held by non affiliates.

   Documents incorporated by reference                     Part of Form 10 K
            in this Form 10 K                              which incorporated
                  None                                             --

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

<Page>
                                     PART I

                                                                            PAGE
                                                                            ----

Item 1  Business ............................................................  3
        -     General  ......................................................  3
        -     General Description of Mortgage Assets and Other Authorized
        -     Investments; Investment Policy.................................  6
        -     Management Policies and Programs...............................  7
        -     Servicing...................................................... 12
        -     Federal Income Tax Considerations.............................. 16
        -     Taxation of the Company........................................ 16
        -     Taxation of United States Stockholders......................... 17
        -     Taxation of Foreign Stockholders............................... 18
        -     Information Reporting Requirements and Backup Withholding Tax.. 19
        -     Other Tax Consequences......................................... 20
Item 2  Properties........................................................... 20
Item 3  Legal Proceedings.................................................... 20
Item 4  Submission of Matters to a Vote of Security Holders.................. 20

                                    PART II

Item 5  Market for Registrant's Common Equity and Related Stockholder
        Matters.............................................................. 21
Item 6  Selected Financial Data.............................................. 22
Item 7  Management's Discussion and Analysis of Financial Condition and
          Results of Operations.............................................. 23
        -     Description of Portfolio....................................... 23
        -     Financial Condition............................................ 27
        -     Results of Operations.......................................... 27
        -     Allowance for Loan Losses...................................... 28
        -     Liquidity Risk Management...................................... 28

Item 7A Quantitative and Qualitative Disclosures About Market Risk........... 29
Item 8  Financial Statements and Supplementary Data.......................... 30
Item 9  Changes in/Disagreements with Accountants on Accounting and
          Financial Disclosure............................................... 42

                                    PART III

Item 10 Directors and Executive Officers of the Corporation.................. 43
Item 11 Executive Compensation............................................... 44
Item 12 Security Ownership of Certain Beneficial Owners and Management....... 45
Item 13 Certain Relationships and Related Transactions....................... 45

                                     PART IV

Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8 K.....  47


                                       2
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION

                                     PART I

ITEM 1: BUSINESS

GENERAL

      GENERAL. People's Preferred Capital Corporation (the "Company") was
originally a real estate investment trust ("REIT") formed in June 1997 to
acquire, hold and manage mortgage assets and other authorized investments. The
Company is a wholly owned subsidiary of California National Bank (the "Bank").
We expect that all of the mortgage assets will be acquired from the Bank or
purchased from other companies not affiliated with us.

      MERGER AGREEMENT WITH FBOP CORPORATION. On December 8, 2000, PBOC
Holdings, Inc. ("PBOC"), the sole stockholder and holding company of People's
Bank of California, agreed to merge with FBOP Corporation ("FBOP"), a closely
held bank and savings institution holding company that owns banks in California,
Illinois and Texas. The terms of the Agreement and Plan of Merger by and among
PBOC, FBOP and FBOP Acquisition Company ("Acquisition"), dated as of December 8,
2000 and amended as of March 5, 2001, provided for the merger of Acquisition, a
Delaware corporation and wholly-owned subsidiary of FBOP, with and into PBOC,
with PBOC continuing as the surviving corporation and a wholly-owned subsidiary
of FBOP. At a special meeting of PBOC's shareholders held on April 19, 2001, its
stockholders approved, by the requisite vote required by law, the Agreement and
Plan of Merger, as amended, between PBOC, FBOP and FBOP Acquisition Company. The
merger was consummated on April 30, 2001. FBOP subsequently merged People's Bank
of California and its subsidiaries, including the Company, into its wholly owned
subsidiary California National Bank as of November 13, 2001.

      WE HAVE FAILED TO CONTINUE TO QUALIFY AS A REIT. By virtue of the
Acquisition, we have determined that we have failed to qualify for taxation as a
REIT, retroactive to the start of the year. Because FBOP is a privately-owned
corporation, we no longer satisfy the "five or fewer" test which requires that
no more than 50% in value of our outstanding stock be owned, directly or
indirectly, by five or fewer individuals at any time during the last half of
each taxable year. Prior to the consummation of the Acquisition, we were able to
attribute ownership indirectly to PBOC's public stockholders.

      By failing to qualify for taxation as a REIT, we are subject to tax
(including any applicable alternative minimum tax) on our taxable income at
regular corporate rates, which reduces income that would otherwise be available
to our stockholders. The provision for income taxes was $2,431,000 for the year
ended December 31, 2001. Distributions to stockholders are not deductible by us
nor are they required to be made. In such event, all distributions to
stockholders, to the extent of current and accumulated earnings and profits, are
taxable as ordinary income and, subject to certain limitations of the Internal
Revenue Code of 1986 as amended (the "Code"), corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statute, we are disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost and we are
not permitted to requalify unless we distribute any earnings and profits
attributable to the period during which we failed to qualify.

      FBOP COULD REDEEM THE SERIES A PREFERRED SHARES. Under our Articles of
Incorporation, the Acquisition constitutes a "change in control," which permits
FBOP to redeem the Series A Preferred Shares earlier than would otherwise be
permitted. Upon a change in control, the Series A Preferred Shares become


                                       3
<Page>

redeemable prior to October 15, 2002, in whole, but not in part, at a redemption
price per share equal to (i) $25.00 or (ii) an amount equal to all authorized,
declared and unpaid dividends, if any, to the date fixed for redemption, without
interest, and without duplication, an additional amount equal to the amount of
dividends that would be payable on the Series A Preferred Shares in respect of
the period from the first day of the dividend period in which the date fixed for
redemption occurs to the date fixed for redemption (assuming all such dividends
were to be authorized and declared) plus (iii) the Applicable Premium, as
defined in our Articles of Incorporation. We cannot offer an opinion or
assurance on what FBOP will do with respect to the Series A Preferred Shares in
the future.

      The Company commenced its operations in October 1997 upon consummation of
a public offering of 1,426,000 shares of its 9.75% Noncumulative Exchangeable
Preferred Stock, Series A (the "Series A Preferred Shares"), at an offering
price of $25.00 per share. All shares of common stock are owned by the Bank. The
Series A Preferred Shares are traded on the NASDAQ National Market under the
symbol "PPCCP." Our Board of Directors, including a majority of the independent
directors, authorized the filing of a Registration Statement with the Securities
and Exchange Commission ("SEC") for the issuance of Series B Preferred Shares,
which to the extent issued, will be parity stock with respect to the Series A
shares. The Registration Statement was filed on August 9, 1999. To date, the
Company has not issued any Series B Preferred Shares and, due to market
conditions, the Company has no immediate plans with respect to the issuance of
such securities.

      DESCRIPTION OF THE BUSINESS. The Company's principal business objective is
to acquire, hold and manage Mortgage Assets and Other Authorized Investments (as
defined herein) that will generate net earnings for distribution to
stockholders. At December 31, 2001, we had total assets of $75.3 million, total
liabilities of $3.4 million and stockholders' equity of $72.0 million. As of
that date, $71.2 million of our assets, or 95%, were comprised of mortgage
loans, net of the allowance for loan losses. The loan portfolio contained 2
residential mortgage loans, representing 1% of the unpaid principal balance of
our total portfolio, and 76 commercial mortgage loans, representing
approximately 99% of the unpaid principal balance of our total portfolio.

      All of the Company's Mortgage Assets may be acquired from the Bank or
purchased from unaffiliated third parties as whole loans secured by first
mortgages or deeds of trust ("Mortgage Loans") on single-family (1-4 unit)
residential real estate properties ("Residential Mortgage Loans") or by
multi-family residential and commercial properties (collectively, "Commercial
Mortgage Loans"). Although the Company has the authority to acquire an unlimited
number of Residential Mortgage Loans and Commercial Mortgage Loans from
unaffiliated third parties such as other financial institutions and mortgage
banks, all of the Company's Mortgage Assets through December 31, 2001 were
acquired from the Bank. The Company has no present plans or expectations with
respect to purchases from unaffiliated third parties. During 2001, the Company
acquired additional multi-family and commercial mortgage loans originated by the
Bank with an aggregate principal balance of $69.6 million. During the same
period, the Bank repurchased 2 residential mortgage loans with an aggregate
principal balance of $316,000 from us. During 2001, we sold $60 million of
residential mortgage loans to an unaffiliated third party.

      DIVIDEND POLICY. Dividends are authorized and declared at the discretion
of the Board of Directors after considering the Company's distributable funds,
financial requirements, tax considerations and other factors. Because (i) the
Mortgage Assets and Other Authorized Investments are interest bearing, (ii) the
Series A Preferred Shares represent only approximately 50% of the Company's
capitalization and (iii) the Company does not anticipate incurring any
indebtedness, the Company currently expects that both its cash available for
distribution and its net income will be approximately equal to the amount needed
to pay dividends on the Series A Preferred Shares. Accordingly, the Company does
not expect to pay dividends to


                                       4
<Page>

the holder of its Common Stock unless and until net income is in excess of the
amount needed to pay dividends on the Series A Preferred Shares. The Company
declared $700,000 of dividends on the Common Stock in 2001.

      When the Company declares a Common Stock dividend, there are limitations
on the Company's ability to pay such dividends. First, no cash dividends or
other distributions may be paid on the Common Stock unless and until (i) the
Company has paid full dividends on the Series A Preferred Shares for the four
most recent Dividend Periods (or the lesser number of Dividend Periods during
which the Series A Preferred Shares have been outstanding) and has declared a
cash dividend on the Series A Preferred Shares at the annual dividend rate for
the current Dividend Period, and (ii) the terms of all other stock of the
Company ranking senior to the Common Stock have been complied with. Second, the
Maryland General Corporation law ("MGCL") provides that dividends and other
distributions may not be paid by a corporation if, after giving effect to the
distribution (i) the corporation would not be able to pay its indebtedness as it
becomes due in the usual course of business or (ii) the corporation's total
assets would be less than the sum of the corporation's total liabilities plus
the amount needed to satisfy the preferential rights on dissolution, if the
corporation were to be dissolved at the time of distribution, of stockholders
whose preferential rights on dissolution are superior to those receiving the
distribution, unless the articles of incorporation of the corporation permit
otherwise. The Articles of Incorporation of the Company do not permit otherwise.
The Company has complied with the above requirements.

      The Office of the Comptroller of the Currency ("OCC") is the primary
regulator of the Bank. Under the prompt corrective action regulations no
financial institution may make a capital distribution unless it is at least
"adequately capitalized" and the capital distribution would not cause it to be
less than "adequately capitalized". Currently, an institution is considered
"adequately capitalized" if it has a total risk-based capital ratio of at least
8.0%, a Tier 1 risk-based capital ratio of at least 4.0% and a leverage (or core
capital) ratio of at least 4.0%. At December 31, 2001, the Bank's total
risk-based capital ratio was 11.65%, its Tier 1 risk-based capital ratio was
10.40% and core capital (or leverage) ratio was 8.64%. The Bank currently
intends to maintain its capital ratios in excess of the "well-capitalized"
levels under the prompt corrective action regulations. However, there can be no
assurance that the Bank will be able to maintain such capital levels.

      Each Series A Preferred Share will be exchanged automatically (the
"Automatic Exchange") for one newly issued Series A preferred share (the "Bank
Preferred Shares") of the Bank, if the appropriate federal regulatory agency
directs in writing that an exchange of the Series A Preferred Shares for Bank
Preferred Shares occur because (i) the Bank becomes "undercapitalized" under the
prompt corrective action regulations established pursuant to the Federal Deposit
Insurance Corporation Improvement Act of 1991, as amended ("FDICIA"), (ii) the
Bank is placed into conservatorship or receivership or (iii) the appropriate
federal regulatory agency, in its sole discretion, anticipates the Bank becoming
"undercapitalized" in the near term (an "Exchange Event"). In the event of the
Automatic Exchange, the Bank Preferred Shares would constitute a new series of
preferred shares of the Bank, would have the same dividend rights, liquidation
preference, redemption options and other attributes as the Series A Preferred
Shares, except that (i) the Bank Preferred Shares would not be redeemable upon
the occurrence of a Tax Event and (ii) the Bank Preferred Shares would not be
listed on a national stock exchange or national quotation system, and would rank
on an equal basis in terms of cash dividend payments and liquidation preference
with any shares of preferred stock of the Bank outstanding at the time of the
Automatic Exchange.

      If the Automatic Exchange were to occur, then the Bank would likely be
prohibited from paying dividends on the Bank Preferred Shares. In all
circumstances following the Automatic Exchange, the Bank's ability to pay
dividends would be subject to various restrictions under OCC regulations. In
addition,


                                       5
<Page>

in the event of a liquidation of the Bank, the claims of the Bank's depositors
and of its creditors would be entitled to a priority of payment over the
dividend and other claims of holders of equity interests such as the Bank
Preferred Shares issued pursuant to an Automatic Exchange.

      Under certain circumstances, including any determination that the Bank's
relationship to the Company results in an unsafe and unsound banking practice,
federal regulatory authorities will have the authority to issue an order that
restricts the ability of the Company to make dividend payments to its
stockholders.

GENERAL DESCRIPTION OF MORTGAGE ASSETS AND OTHER AUTHORIZED INVESTMENTS;
INVESTMENT POLICY

      RESIDENTIAL MORTGAGE LOANS. The Company may from time to time acquire both
conforming and nonconforming Residential Mortgage Loans. Conforming Residential
Mortgage Loans comply with the requirements for inclusion in a loan guarantee
program sponsored by either the Federal Home Loan Mortgage Corporation ("FHLMC")
or Federal National Mortgage Association ("FNMA"). Under current regulations,
the maximum principal balance allowed on conforming Residential Mortgage Loans
ranges from $300,700 for one-unit residential loans to $578,150 for four-unit
residential loans. Nonconforming Residential Mortgage Loans are Residential
Mortgage Loans that do not qualify in one or more respects for purchase by FNMA
or FHLMC under their standard programs. The nonconforming Residential Mortgage
Loans acquired by the Company to date are nonconforming because they have
original principal balances which exceed the requirements for FHLMC or FNMA
programs or because they vary in certain other respects from the requirements of
such programs other than the requirements relating to the creditworthiness of
the mortgagors. The Company's nonconforming Residential Mortgage Loans are
expected to meet the requirements for sale to national private mortgage conduit
programs or other investors in the secondary mortgage market.

      Each Residential Mortgage Loan is evidenced by a promissory note secured
by a mortgage or deed of trust or other similar security instrument creating a
first lien on single-family (1-4 unit) residential properties. Residential real
estate properties underlying Residential Mortgage Loans consist of individual
dwelling units, individual condominium units, two- to four-family dwelling
units, planned unit developments and townhouses. All of the Residential Mortgage
Loans acquired to date by the Company are fixed rate Mortgage Loans. However,
the Company may from time to time acquire adjustable rate Residential Mortgage
Loans.

      COMMERCIAL MORTGAGE LOANS. The Company may from time to time acquire
Commercial Mortgage Loans secured by multi-family properties of five units or
more, industrial, warehouse and self-storage properties, office buildings,
office and industrial condominiums, retail space and strip shopping centers,
mixed use commercial properties, mobile home parks, nursing homes, hotels and
motels ("Commercial Properties"). Substantially all of the Commercial Mortgage
Loans that the Company has acquired to date are secured by real estate located
in California.

      Unlike Residential Mortgage Loans, Commercial Mortgage Loans generally
lack standardized terms. Commercial Mortgage Loans also may not be fully
amortizing, meaning that they may have a significant principal balance or
"balloon" payment due on maturity. Moreover, commercial properties, particularly
industrial and warehouse properties, generally are subject to relatively greater
environmental risks than non-commercial properties, giving rise to increased
costs of compliance with environmental laws and regulations. There is no
requirement regarding the percentage of any commercial real estate property that
must be leased at the time the Company acquires a Commercial Mortgage Loan
secured by such


                                       6
<Page>

commercial real estate property nor are Commercial Mortgage Loans required to
have third party guarantees.

      The credit quality of a Commercial Mortgage Loan may depend on, among
other factors, the existence and structure of underlying leases, the physical
condition of the property (including whether any maintenance has been deferred),
the creditworthiness of tenants, the historical and anticipated level of
vacancies and rents on the property and on other comparable properties located
in the same region, potential or existing environmental risks, the availability
of credit to refinance the Commercial Mortgage Loan at or prior to maturity and
the local and regional economic climate in general. Foreclosures of defaulted
Commercial Mortgage Loans generally are subject to a number of complicating
factors, including environmental considerations, which are not generally present
in foreclosures of Residential Mortgage Loans.

      MORTGAGE-BACKED SECURITIES. The Company may from time to time acquire
Mortgage-Backed Securities representing interests in or obligations backed by
pools of Mortgage Loans ("Mortgage-Backed Securities"). The Company intends to
acquire only investment grade Mortgage-Backed Securities or those issued or
guaranteed by agencies of the federal government or government-sponsored
agencies. The Mortgage Loans underlying the Mortgage-Backed Securities would be
secured by single-family residential, multi-family or commercial real estate
properties located throughout the United States. The Company does not intend to
acquire any interest-only, principal-only or high-risk Mortgage-Backed
Securities. The Company is not precluded from investing in Mortgage-Backed
Securities when the Bank is the sponsor or issuer. At December 31, 2001, the
Company did not hold any investments in Mortgage-Backed Securities.

      OTHER ASSETS. The Company may invest up to 20% of the total value of its
assets in investments other than Residential Mortgage Loans, Commercial Mortgage
Loans and Mortgage-Backed Securities, cash and cash equivalents, including
receivables, and government securities. At December 31, 2001, the Company did
not hold any such investments.

MANAGEMENT POLICIES

      GENERAL. In administering the Company's Mortgage Assets and Other
Authorized Investments, the Advisor (defined below) has a high degree of
autonomy. The Board of Directors, however, has adopted certain policies to guide
administration of the Company and the Advisor with respect to the acquisition
and disposition of assets, use of capital and leverage, credit risk management
and certain other activities. These policies, which are discussed below, may be
amended or revised from time to time at the discretion of the Board of Directors
(in certain circumstances subject to the approval of a majority of the
Independent Directors) without a vote of the Company's stockholders, including
holders of the Series A Preferred Shares.

      UNDERWRITING STANDARDS. The Bank has represented to the Company that all
of the Residential Mortgage Loans and Commercial Mortgage Loans acquired by the
Company (including those that were originated by unaffiliated third parties)
were originated in accordance with the underwriting policy customarily employed
by the Bank during the period in which the Residential Mortgage Loans and
Commercial Mortgage Loans acquired by the Company were originated.

      The underwriting standards applied at origination of the Residential
Mortgage Loans included in the Company's Portfolio were intended to evaluate the
borrower's credit standing and repayment ability, and the value and adequacy of
the underlying mortgaged property as collateral. Generally, each prospective
borrower was required to provide a loan application and other supporting
documents describing assets and


                                       7
<Page>

liabilities, the borrower's income and expenses, as well as, to the extent
required by applicable state law, an authorization to apply for a credit report
which summarized the borrower's credit history with merchants and lenders and
any record of bankruptcy.

      For any prospective borrower, an employment verification was obtained from
the borrower's employer wherein the employer reported the length of employment
with the employer, the employee's current salary, and whether it was expected
that the borrower would continue such employment in the future or the borrower
submitted such other evidence of employment (such as pay stubs) satisfactory to
the Bank. For a self-employed prospective borrower, the borrower generally was
required to submit copies of personal and business federal income tax returns
for the previous two years. For certain prospective borrowers, the borrower
authorized verification of all deposits at financial institutions at which the
borrower had demand or savings accounts. The underwriting officer considering
the loan application then reviewed the credit report and employment and deposit
verifications and made a determination as to whether the prospective borrower
had sufficient monthly income available to meet (i) the borrower's monthly
obligations on the proposed Residential Mortgage Loan (determined on the basis
of the monthly payments due in the year of origination) and other related
expenses and (ii) other financial obligations and monthly living expenses.

      In determining the adequacy of the property as collateral, an appraisal
was made of each property considered for financing. Each appraiser was selected
in accordance with predetermined guidelines established for appraisers. The
appraiser was required to inspect the property and verify that it was in good
condition and that construction, if new, had been completed. If the appraiser
reported any exceptions to the verification, then the Bank or its agent
determined that such property had been substantially completed to its
satisfaction. The appraisal was based on the appraiser's judgment of value
giving appropriate weight to both the market value of comparable properties and
the cost of replacing the property and other factors as appropriate. The Bank's
underwriting standards also required a search of the public records relating to
a mortgaged property for liens and judgments against such mortgaged property, as
well as customary title insurance.

      The loan underwriting procedures and guidelines utilized by the Bank in
originating Commercial Mortgage Loans acquired by the Company were intended to
assess the value of the related mortgaged property, the ability of such
mortgaged property to be used by the borrower or its agents and the financial
condition of the borrower, including its ability to service the Commercial
Mortgage Loan. The underwriting guidelines took into account such factors as
suitability of the mortgaged property for its proposed use, the availability,
rental rates and relative value of comparable properties in the relevant market
area, the anticipated growth or decline in both the immediate and broader
geographic areas in which the mortgaged property is located, the current or
projected occupancy or leasing ratios, if relevant, the condition and age of the
mortgaged property; the management ability of the borrower, including business
experience and financial soundness and such other economic, demographic and
other factors as, in the Bank's judgment, might affect the value of the
mortgaged property and the ability of the borrower to service the Commercial
Mortgage Loan. Each proposal for a Commercial Mortgage Loan was presented to the
appropriate lending personnel of the Bank, which analyzed the proposed
transaction focusing on economic assumptions and the feasibility of the loan,
identified and evaluated potential risks and made a recommendation to approve or
disapprove the loan.

      The proposed transaction was then presented to the credit committee of the
Bank for approval. After a loan proposal was approved, a loan commitment was
issued by the Bank to the proposed borrower, subject to, among other things, an
appraisal report and, if deemed appropriate or required, environmental
engineering reports. The Bank contracted with approved firms to prepare certain
required reports.


                                       8
<Page>

      ASSET ACQUISITION AND DISPOSITION POLICIES. The Company anticipates that
from time to time it will purchase additional Mortgage Loans from the Bank on a
basis consistent with secondary market standards pursuant to its Mortgage
Purchase Agreements with the Bank, out of proceeds received in connection with
the repayment or disposition of Mortgage Loans or the issuance of additional
shares of Common Stock and Preferred Stock. The Company anticipates that
additional Mortgage Loans purchased from the Bank will be purchased on terms
that are substantially identical to those that could be obtained by the Company
if such additional Mortgage Loans were purchased from third parties unaffiliated
with the Company. The Company has no present plans or intentions to purchase
Mortgage Loans from unaffiliated third parties. The Company currently
anticipates that additional Mortgage Loans acquired by the Company will be of
the types described in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Description of Portfolio,"
although the Company may purchase additional types of Mortgage Loans and is not
limited as to the type or the amount that may be purchased.

      In addition, the Company from time to time may acquire Mortgage-Backed
Securities representing interests in or obligations backed by pools of Mortgage
Loans secured by single-family residential, multi-family or commercial real
estate properties located throughout the United States, as well as a limited
amount of Other Authorized Investments. The Company currently anticipates that
it will not acquire the right to service any Mortgage Loan it acquires in the
future and that the Bank will act as servicer of any such Residential Mortgage
Loans and Commercial Real Estate Loans. The Company anticipates that any
servicing arrangement that it enters into in the future with the Bank will
contain fees and other terms that would be substantially equivalent to those
that would be contained in servicing arrangements entered into with third
parties unaffiliated with the Company. See "Servicing."

      The Company's current policy is not to acquire any single Commercial
Mortgage Loan that constitutes more than 15.0% of the total book value of the
Mortgage Assets of the Company at the time of its acquisition. In addition, the
Company's current policy prohibits the acquisition of any Mortgage Loan or any
interest in a Mortgage Loan (other than an interest resulting from the
acquisition of Mortgage-Backed Securities), which (i) is delinquent in the
payment of principal or interest at the time of proposed acquisition; (ii) is or
was at any time during the preceding 12 months (a) classified, (b) on nonaccrual
status or (c) renegotiated due to financial deterioration of the borrower; or
(iii) has been, more than once during the preceding 12 months, more than 30 days
past due in the payment of principal or interest. Mortgage Loans that are in
"nonaccrual status" are generally loans that are past due 90 days or more in
principal or interest, and "classified" Mortgage Loans are generally troubled
loans that are deemed substandard, doubtful or loss with respect to
collectibility. See "Servicing" for a discussion of the treatment of Mortgage
Loans which become nonperforming or real estate owned ("REO").

      CAPITAL AND LEVERAGE POLICIES. To the extent the Board of Directors
determines that additional funding is required, the Company may raise funds
through additional equity offerings, debt financing or retention of cash flow,
taking into account taxes that would be imposed on undistributed taxable income,
or a combination of these methods.

      The Company had no debt outstanding at December 31, 2001, and the Company
does not currently intend to incur any indebtedness. However, the organizational
documents of the Company do not contain any limitation on the amount or
percentage of debt, funded or otherwise, the Company might incur, except that
the debt for borrowed money the Company incurs in excess of 20% of the Company's
total stockholders' equity will require the approval of a majority of the
independent directors. Any such debt incurred may include intercompany advances
made by the Bank to the Company.


                                       9
<Page>

      The Company also may issue additional series of Preferred Stock. However,
the Company may not issue additional shares of Preferred Stock senior to the
Series A Preferred Shares without first obtaining the consent of holders of at
least two-thirds of the outstanding shares of Series A Preferred Shares, and the
Company may not issue additional shares of Preferred Stock on a parity with the
Series A Preferred Shares without first obtaining the approval of a majority of
the Company's independent directors. The Company does not currently intend to
issue any additional series of Preferred Stock unless it simultaneously receives
additional capital contributions from the Bank equal to the aggregate offering
price of such additional Preferred Stock plus the Company's expenses (including
underwriting commissions or placement fees) in connection with the issuance of
such additional shares of Preferred Stock. Prior to the issuance of additional
shares of Preferred Stock, the Company will take into consideration, among other
things, the Bank's regulatory capital requirements and an assessment of other
available options for raising any necessary capital.

      CREDIT RISK MANAGEMENT POLICIES. The Company expects that each Mortgage
Loan acquired in the future will represent a first lien position and will be
originated by the Bank or an unaffiliated third party in the ordinary course of
its real estate lending activities based on the underwriting standards generally
applied by the Bank (at the time of origination) for its own account. See
"Underwriting Standards." The Company also expects that all Mortgage Loans held
by the Company will be serviced pursuant to the Servicing Agreements described
below, which require servicing in conformity with FNMA and FHLMC guidelines and
procedures, in the case of Residential Mortgage Loans, and with any servicing
guidelines promulgated by the Company with respect to Commercial Mortgage Loans.

      CONFLICT OF INTEREST POLICIES. Because of the nature of the Company's
relationship with the Bank, it is likely that conflicts of interest will arise
with respect to certain transactions, including, without limitation, the
Company's acquisition of Mortgage Loans from, or disposition of Mortgage Loans
to, the Bank, foreclosure on defaulted Commercial Mortgage Loans and the
modification of the Advisory Agreement or the Servicing Agreements. It is the
Company's policy that the terms of any financial dealings with the Bank will be
consistent with those available from third parties in the mortgage lending
industry. In addition, neither the Advisory Agreement nor the Servicing
Agreements may be modified or terminated without the approval of a majority of
the independent directors.

      Conflicts of interest between the Company and the Bank may also arise in
connection with making decisions that bear upon the credit arrangements that the
Bank may have with a mortgagor under a Mortgage Loan. Conflicts also could arise
in connection with actions taken by the Bank as a controlling person in the
Company. It is the intention of the Company and the Bank that any agreements and
transactions between the Company, on the one hand, and the Bank on the other
hand, including without limitation the Mortgage Purchase Agreements and
Servicing Agreements, be fair to all parties and are consistent with market
terms for such types of transactions. The requirement in the Articles of
Incorporation that certain actions of the Company be approved by a majority of
the independent directors also is intended to ensure fair dealings between the
Company and the Bank. There can be no assurance, however, that any such
agreement or transaction will be on terms as favorable to the Company as could
have been obtained from unaffiliated third parties.

      There are no provisions in the Company's Articles of Incorporation
limiting any officer, director, security holder or affiliate of the Company from
having any direct or indirect pecuniary interest in any Mortgage Asset to be
acquired or disposed of by the Company or in any transaction in which the
Company has an interest or from engaging in acquiring, holding and managing
Mortgage Assets. As described herein, the Bank has direct interests in
transactions with the Company (including without limitation the sale of


                                       10
<Page>

Mortgage Assets to the Company); however, no officers or directors of the
Company will have any interests in such Mortgage Assets.

      OTHER POLICIES. The Company intends to operate in a manner that will not
subject it to regulation under the Investment Company Act. The Company does not
intend to (i) invest in the securities of other issuers for the purpose of
exercising control over such issuers, (ii) underwrite securities of other
issuers, (iii) actively trade in loans or other investments, (iv) offer
securities in exchange for property or (v) make loans to third parties,
including, without limitation, officers, directors or other affiliates of the
Company. The Company may, under certain circumstances, purchase the Series A
Preferred Shares and other shares of its capital stock in the open market or
otherwise. The Company has no present intention to repurchase any shares of its
capital stock, and any such action would be taken only in conformity with
applicable federal and state laws and regulations.

      The Company is conducting its operations so as not to become regulated as
an investment company under the Investment Company Act. The Investment Company
Act exempts entities that, directly or through majority-owned subsidiaries, are
"primarily engaged in the business of purchasing or otherwise acquiring
mortgages and other liens on and interests in real estate" ("Qualifying
Interests"). Under current interpretations by the Staff of the Securities and
Exchange Commission ("SEC"), in order to qualify for this exemption, the
Company, among other things, must maintain at least 55% of its assets in
Qualifying Interests and also may be required to maintain an additional 25% in
Qualifying Interests or other real estate-related assets. Therefore, the assets
that the Company may acquire may be limited by the provisions of the Investment
Company Act. The Company has established a policy of limiting Other Authorized
Investments to no more than 20% of the value of the Company's total assets.

      The Articles of Incorporation provide that the Company shall maintain its
status as a reporting company under the Securities and Exchange Act of 1934, as
amended ("Exchange Act") for so long as any of the Series A Preferred Shares are
outstanding.

      ADVISORY AGREEMENT. The Company entered into an advisory agreement with
the Bank (the "Advisory Agreement") pursuant to which the Bank administers the
day-to-day operations of the Company. The Bank in its role as advisor under the
terms of the Advisory Agreement is hereinafter referred to as the "Advisor." The
Advisor is responsible for, among other things: (i) monitoring the credit
quality of Mortgage Assets and Other Authorized Investments held by the Company;
(ii) advising the Company with respect to the acquisition, management, financing
and disposition of the Company's Mortgage Assets and Other Authorized
Investments; and (iii) representing the Company in its day-to-day dealings with
persons to whom the Company interacts. The Advisor may subcontract all or a
portion of its duties to one or more of its affiliates. The Advisor may, with
the approval of a majority of the Board of Directors, as well as a majority of
the independent directors, subcontract all or a portion of its obligations under
the Advisory Agreement to unrelated third parties. In connection with the
subcontracting of any of its obligations under the Advisory Agreement, the
Advisor will not be discharged or relieved in any respect from its obligations
under the Advisory Agreement. The Advisor and its personnel have substantial
experience in mortgage finance and in the administration of Mortgage Loans and
Other Authorized Investments.

      The Advisory Agreement has an initial term of five years, and will be
renewed automatically for additional five-year periods unless notice of
nonrenewal is delivered to the Advisor by the Company. The Company may terminate
the Advisory Agreement at any time upon 90 days' prior notice. As long as any
Series A Preferred Shares remain outstanding, any decision by the Company either
not to renew the Advisory Agreement or to terminate the Advisory Agreement must
be approved by a majority of the Board of Directors, as well as by a majority of
the independent directors. The Advisor is scheduled to receive an


                                       11
<Page>

annual advisory fee equal to $200,000. Effective June 30, 2001, however, the
Advisor agreed to forego collection of its management fee and expects this
arrangement to continue in the future. The Advisor also agreed that it would not
attempt at any later date to go back and recover any of the foregone fees.

SERVICING

      RESIDENTIAL MORTGAGE LOAN SERVICING. All Residential Mortgage Loans owned
by the Company are serviced by the Bank under the terms of a Residential
Mortgage Loan Servicing Agreement. The Residential Servicing Agreement provides
that the Servicing Agent will receive an annual servicing fee with respect to
each Residential Mortgage Loan serviced for the Company that shall be equal to
the outstanding principal balance of such Residential Mortgage Loans multiplied
by a fee of 0.25% (in the case of fixed rate Residential Mortgage Loans) and
0.375% (in the case of adjustable rate Residential Mortgage Loans).

      The Residential Servicing Agreement requires the Servicing Agent to
service the Company's Residential Mortgage Loans in a manner generally
consistent with servicing guidelines promulgated by the Bank and with FNMA and
FHLMC guidelines and procedures and as otherwise set forth in the Residential
Servicing Agreement. The Servicing Agent will collect and remit principal and
interest payments, administer mortgage, custodial and escrow accounts, submit
and pursue insurance claims and initiate and supervise foreclosure proceedings
on the Residential Mortgage Loans it services. The Servicing Agent also will
provide accounting and reporting services to the Company for such Residential
Mortgage Loans. Additionally the Servicing Agent will assume responsibility for
payment of ground rents, taxes, assessments, water rates, mortgage insurance
premiums, and other charges that are or may become liens upon the mortgaged
property. The Servicing Agent is responsible for any late charges or tax
penalties incurred due to its failure to pay such bills. The Residential
Servicing Agreement requires the Servicing Agent to follow collection procedures
that are consistent with the Servicing Agent's procedures for servicing mortgage
loans comparable to the Residential Mortgage Loans and to exercise the degree of
care required by FNMA and FHLMC.

      The Servicing Agent may waive, modify or vary any term of any Residential
Mortgage Loan or consent to the postponement of compliance with any such term or
in any manner grant indulgence to any borrower if in the Servicing Agent's
reasonable and prudent determination such waiver, modification, postponement or
indulgence is not materially adverse to the Company, except that the Servicing
Agent shall not permit any modification with respect to any Residential Mortgage
Loan that would decrease the mortgage interest rate (other than by adjustments
required by the terms of the mortgage note), defer or forgive the payment
thereof or of any principal or interest payments, reduce the outstanding
principal amount (except for actual payments of principal), make future advances
or extend the final maturity date on such Residential Mortgage Loan without the
Company's prior written consent. However, the Servicing Agent may permit
forbearance or allow for suspension of monthly payments if the borrower is in
default or the Servicing Agent determines in its reasonable discretion that
default is imminent and that granting such forbearance or suspension is in the
best interest of the Company. The Servicing Agent will use its best efforts,
consistent with the procedures the Servicing Agent would use in servicing loans
for its own account, to foreclose upon or otherwise convert the ownership of
properties securing any Residential Mortgage Loans that come into and continue
in default for which no satisfactory agreements can be made for the collection
of delinquent payments.

      The Residential Servicing Agreement requires the Servicing Agent to pay
all customary reasonable and necessary expenses related to the performance of
its duties under such agreements, including, but not limited to, costs
associated with the preservation, restoration and protection of mortgaged
property and

                                       12
<Page>

enforcement of any required judicial proceedings. For advances of reimbursable
out-of-pocket costs and expenses, the Servicing Agent generally will be
reimbursed out of proceeds related to such Residential Mortgage Loan.

      In connection with any foreclosure proceedings that the Servicing Agent
may institute, the Servicing Agent may exercise any power of sale contained in
any mortgage or deed of trust, obtain a deed in lieu of foreclosure or otherwise
acquire title to a mortgaged property underlying a Residential Mortgage Loan by
operation of law or otherwise in accordance with the terms of the Residential
Servicing Agreement. In the event that title to the property securing a
Residential Mortgage Loan is acquired in foreclosure or by deed in lieu of
foreclosure, the deed or certificate of sale shall be taken in the name of the
Company. The Bank will service such REO on behalf of the Company.

      The Company may terminate the Residential Servicing Agreement upon the
occurrence of one or more events specified in such Residential Servicing
Agreement. Such events generally relate to either (i) the Servicer's proper and
timely performance of its duties and obligations under the Residential Servicing
Agreement or (ii) the appointment of a conservator, receiver or liquidator in
any insolvency, bankruptcy or similar proceeding. In addition, the Company may
terminate the Bank Residential Servicing Agreement without cause upon payment of
a termination fee equal to 1.5% of the aggregate outstanding principal balance
of the loans then serviced under the Bank Residential Servicing Agreement. As
long as any Series A Preferred Shares remain outstanding, the Company may not
terminate, or elect not to renew, the Residential Servicing Agreement without
first obtaining the approval of a majority of the independent directors.

      As is customary in the mortgage loan servicing industry, the Servicing
Agent will be entitled to retain any late payment charges, penalties and
assumption fees collected in connection with the Residential Mortgage Loans
serviced by it. In addition, the Servicing Agent will receive any benefit
derived from interest earned on collected principal and interest payments
between the date of collection and the date of remittance to the Company and
from interest earned on tax and insurance impound funds with respect to
Residential Mortgage Loans it services. The Residential Servicing Agreement
requires the Servicing Agent to remit to the Company no later than the 18th day
of each month (or the next business day if the 18th day is not a business day)
all principal and interest collected from borrowers of Residential Mortgage
Loans it services during the immediately preceding month.

      When any mortgaged property underlying a Mortgage Loan is conveyed by a
mortgagor, the Servicing Agent generally will enforce any "due-on-sale" clause
contained in the Residential Mortgage Loan, to the extent permitted under
applicable law and governmental regulations and subject to the Company's prior
approval. The terms of a particular Residential Mortgage Loan or applicable law,
however, may provide that the exercise of the "due-on-sale" clause is prohibited
under certain circumstances. Under such circumstances, the Servicing Agent will
negotiate an assumption agreement with the person to whom the mortgaged property
has been conveyed or is proposed to be conveyed, pursuant to which such person
becomes liable under the mortgage note. When an assumption is allowed, the
Servicing Agent will be authorized to negotiate a substitution of liability
agreement with the person to whom the mortgage property has been conveyed or is
proposed to be conveyed pursuant to which the original mortgagor is released
from liability and such person is substituted as mortgagor and becomes liable
under the related mortgage note. Upon any assumption of a Residential Mortgage
Loan by a transferee, a fee equal to a specified percentage of the outstanding
principal balance of the Residential Mortgage Loan is typically required. The
Servicing Agent will be authorized to collect and retain such assumption fees as
are permitted by the terms of the mortgage loan documents and applicable law as
additional servicing compensation.


                                       13
<Page>

      COMMERCIAL MORTGAGE LOAN SERVICING. The Bank services the Commercial
Mortgage pursuant to the terms of a Commercial Servicing Agreement. The Bank
receives an annual servicing fee with respect to each Commercial Mortgage Loan
serviced for the Company equal to the outstanding principal balance of such
Commercial Mortgage Loans multiplied by a fee of 0.25% to 0.375%.

      The Bank may, from time to time, subject to approval of a majority of the
independent directors, subcontract all or a portion of its obligations under the
Commercial Servicing Agreement. The Bank will not, to the extent it subcontracts
any of its obligations under the Commercial Servicing Agreement, be discharged
or relieved in any respect from its obligations to the Company to perform
thereunder.

      The Commercial Servicing Agreement requires the Bank to service the
Company's Commercial Mortgage Loans in a manner generally consistent with
procedures and practices customarily employed and exercised by the Bank and with
any servicing guidelines promulgated by the Company. The Bank collects and
remits principal and interest payments, administers mortgage, custodial and
escrow accounts, submits and pursues insurance claims and initiates and
supervises foreclosure proceedings on the Commercial Mortgage Loans it services.
The Bank also provides accounting and reporting services required by the Company
for such Commercial Mortgage Loans. Additionally, for all Commercial Mortgage
Loans, the Bank assumes responsibility for payment of taxes and other charges
that are or may become a lien upon the mortgaged property. The Bank also is
responsible for any late charges or tax penalties incurred due to its failure to
pay such bills. The Commercial Servicing Agreement requires the Bank to follow
collection procedures that are consistent with the Bank's procedures for
mortgage loans comparable to the Commercial Mortgage Loans held for its own
account, including contacting delinquent borrowers and supervising foreclosures
and property dispositions in the event of unremedied defaults. The Bank may, in
its discretion, arrange with a defaulting borrower a schedule for the
liquidation of delinquencies. The Bank will use its best efforts, consistent
with the procedures that the Bank would use in servicing loans for its own
account, to foreclose upon or otherwise comparably convert the ownership of
properties securing such of the Commercial Mortgage Loans as come into and
continue in default and as to which no satisfactory agreements can be made for
collection of delinquent payments.

      The Commercial Servicing Agreement requires the Bank to pay all customary,
reasonable and necessary expenses related to the performance of its duties under
the Commercial Servicing Agreement, including, but not limited to, costs
associated with the preservation of mortgaged property and enforcement of any
required judicial proceedings. The Bank generally will be reimbursed prior to
the Company out of proceeds related to such Commercial Mortgage Loans. The Bank
also will be entitled to reimbursement by the Company for expenses incurred by
it in connection with the liquidation of defaulted Commercial Mortgage Loans
serviced by it and in connection with the restoration of mortgaged property.

      If claims are not made or paid under applicable insurance policies or if
coverage thereunder has ceased, the Company will suffer a loss to the extent
that the proceeds from liquidation of the mortgaged property, after
reimbursement of the Bank's expenses in the sale, are less than the outstanding
principal balance of the related Commercial Mortgage Loan. The Bank is
responsible to the Company for any loss suffered as a result of its failure to
make and pursue timely claims or as a result of actions taken or omissions made
by it which cause the policies to be canceled by the insurer.

      In connection with any foreclosure proceedings that the Bank may
institute, the Bank may exercise any power of sale contained in any mortgage or
deed of trust, obtain a deed in lieu of foreclosure or otherwise acquire title
to a mortgaged property underlying a Commercial Mortgage Loan by operation of
law or otherwise in accordance with the terms of the Commercial Servicing
Agreement. The Bank is not


                                       14
<Page>

permitted under the terms of the Commercial Servicing Agreement to acquire title
to any commercial real estate property underlying a Commercial Mortgage Loan or
take any action that would cause the Company to be an "owner" or an "operator"
within the meaning of certain federal environmental laws, unless it has also
previously determined, based on a report prepared by an independent person who
regularly conducts environmental assessments, that (i) the mortgaged property is
in compliance with applicable environmental laws or that it would be in the best
interests of the Company to take such actions as are necessary to cause the
mortgaged property to comply therewith and (ii) there are no circumstances or
conditions present at the mortgaged property relating to the use, management or
disposal of any hazardous substances, hazardous materials, hazardous wastes or
petroleum-based materials for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any federal, state
or local law or regulation, or, if any such materials are present for which such
action could be required, that it would be in the best interest of the Company
to take such actions with respect to the mortgage property.

      The Company may terminate the Commercial Servicing Agreement upon the
occurrence of one or more events specified in such Commercial Servicing
Agreement. Such events relate generally to (i) the Bank's proper and timely
performance of its duties and obligations under the Commercial Servicing
Agreement or (ii) the appointment of a conservator, receiver or liquidator in
any insolvency, bankruptcy or similar proceeding. In addition, the Company may
also terminate the Commercial Servicing Agreement without cause but will be
required to pay a termination fee competitive with those generally payable in
the industry, equal to 1.5% of the aggregate outstanding principal amount of the
loans then serviced under the Commercial Servicing Agreement. As long as any
Series A Preferred Shares remain outstanding, the Company may not terminate or
elect not to renew the Commercial Servicing Agreement without the approval of a
majority of the independent directors.

      The Bank will be entitled to retain any late payment charges, prepayment
fees, penalties and assumption fees collected in connection with the Commercial
Mortgage Loans serviced by it. In addition, the Bank will receive any benefit
derived from interest earned on collected principal and interest payments
between the date of collection and the date of remittance to the Company and
from interest earned on tax and insurance impound funds with respect to
Commercial Mortgage Loans serviced by it. The Commercial Servicing Agreement
requires the Bank to remit to the Company no later than the 18th day of each
month (or the next business day if such 18th day is not a business day) all
principal and interest collected from borrowers of Commercial Mortgage Loans
serviced by it on the last day of the immediately preceding month.

      When any mortgage property underlying a Commercial Mortgage Loan is
conveyed by a mortgagor, the Bank generally will enforce any "due-on-sale"
clause contained in the Commercial Mortgage Loan, including collection of any
mortgage prepayment penalties, to the extent permitted under applicable law,
governmental regulations and the loan documents.

FEDERAL INCOME TAX CONSIDERATIONS

      The following summary of material federal income tax considerations
regarding the Company is based upon current law, is for general information only
and is not tax advice. The discussion below is based on existing federal income
tax law, which is subject to change, with possible retroactive effect. The
discussion below does not address all aspects of taxation that may be relevant
in the particular circumstances of each stockholder or to certain types of
stockholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States, except to the extent discussed)
subject to special treatment under the federal income tax laws.


                                       15
<Page>

TAXATION OF THE COMPANY

      GENERAL. A REIT generally will not be subject to federal corporate income
taxes on that portion of its ordinary income or capital gain that is currently
distributed to stockholders. Such treatment substantially eliminates the federal
"double taxation" of earnings (at the corporate and the stockholder levels) that
generally results from investment in a corporation. As mentioned above, by
virtue of the Acquisition, we have determined that we have failed to qualify for
taxation as a REIT, retroactive to the start of the year. Because FBOP is a
privately-owned corporation, we no longer satisfy the "five or fewer" test which
requires that no more than 50% in value of our outstanding stock be owned,
directly or indirectly, by five or fewer individuals at any time during the last
half of each taxable year. Prior to the consummation of the Acquisition, we were
able to attribute ownership indirectly to PBOC's public stockholders.

      By failing to qualify for taxation as a REIT, we are subject to tax
(including any applicable alternative minimum tax) on our taxable income at
regular corporate rates, which reduces income that would otherwise be available
to our stockholders. The provision for income taxes was $2,431,000 for the year
ended December 31, 2001. Distributions to stockholders are not deductible by us
nor are they required to be made. In such event, all distributions to
stockholders, to the extent of current and accumulated earnings and profits, are
taxable as ordinary income and, subject to certain limitations of the Internal
Revenue Code of 1986 as amended (the "Code"), corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provision, we are disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost
and we are not permitted to requalify unless we distribute any earnings and
profits attributable to the period during which we failed to qualify.

      ORGANIZATIONAL REQUIREMENTS. The Code defines a REIT as a corporation,
trust, or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (iii) that would be taxable as
a domestic corporation, but for the REIT requirements; (iv) that is neither a
financial institution nor an insurance company subject to certain provisions of
the Code; (v) the beneficial ownership of which is held by 100 or more persons;
(vi) not more than 50% in value of the outstanding stock of which is owned,
directly or indirectly, by five or fewer individuals (the "Five or Fewer Test")
(as defined in the Code to include private foundations and certain pension
trusts and other entities) at any time during the last half of each taxable
year; and (vii) meets certain other tests regarding the nature of its income and
assets. The Code provides that conditions (i) through (iv), inclusive, must be
met during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. Conditions (v) and (vi) do not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. For purposes of condition (vi), certain tax-exempt entities described in
Sections 501(C)(17) and 509(a) of the Code or a portion of a trust permanently
set aside oR used for purposes described in Section 642 (c) of the Code, are
generally treated as individuals, stock owned by a corporation is treated as if
owned by the shareholders of the organization, and the beneficiaries of a
pension trust that qualifies under Section 401(a) of the Code and that holds
shares of a REIT will generally be treated as holding shares of the REIT in
proportion to their actuarial interests in the pension trust. See "--Taxation of
United States Stockholders--Treatment of Tax-Exempt Stockholders." In addition,
a corporation may not elect to become a REIT unless its taxable year is the
calendar year. As stated above, the Company no longer satisfies condition (vi)
above, retroactive to January 1, 2001.


                                       16
<Page>

TAXATION OF UNITED STATES STOCKHOLDERS

      DISTRIBUTIONS GENERALLY. For periods in which the Company qualifies as a
REIT, distributions to a United States Stockholder up to the amount of the
Company's current or accumulated earnings and profits (and not designated as
capital gains dividends) will be taken into account as ordinary income and will
not be eligible for the dividends-received deduction for corporations.
Distributions that are designated by the Company as capital gain dividends will
be treated as long-term capital gains for the taxable year (to the extent they
do not exceed the Company's actual net capital gain) without regard to the
period for which the stockholder has held its stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gains
dividends as ordinary income, pursuant to Section 291(d) of the Code. A
distribution in excess of current or accumulated earnings and profits first
would be treated as a tax-free return of capital, reducing the tax basis in the
United States Stockholder's Series A Preferred Shares, and a distribution in
excess of the United States Stockholder's tax basis in its Series A Preferred
Shares will be taxable gain realized from the sale of such shares.

      The tax implications of the Company's failure to qualify as a REIT
retroactive to January 1, 2001 are discussed above under "Taxation of the
Company--General". Dividends declared by the Company in October, November or
December of any year payable to a stockholder of record on a specified date in
any such month shall be treated as both paid by the Company and received by the
stockholder on December 31 of such year, provided that the dividend actually is
paid by the Company during January of the following calendar year. Stockholders
may not claim the benefit of any tax losses of the Company on their own income
tax returns.

      The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed under
"--Taxation of the Company--General" and "--Taxation of the Company--Annual
Distribution Requirements" above. As a result, stockholders may be required to
treat as taxable dividends certain distributions that otherwise would result in
tax-free returns of capital. Moreover, any "deficiency dividend" will be treated
as a "dividend" (ordinary or capital gains dividend, as the case may be),
regardless of the Company's earnings and profits.

      Losses incurred on the sale or exchange of Series A Preferred Shares held
for less than six months will be deemed a long-term capital loss to the extent
of any capital gain dividends received by the selling stockholder with respect
to such stock.

      TAX TREATMENT OF AUTOMATIC EXCHANGE. Upon the occurrence of an Exchange
Event, the outstanding Series A Preferred Shares automatically will be exchanged
on a one-for-one basis for Bank Preferred Shares. The Automatic Exchange will be
taxable and each holder of the Series A Preferred Shares will have a gain or
loss measured by the difference between the basis of such holder in the Series A
Preferred Shares and the fair market value of the Bank Preferred Shares received
in the Automatic Exchange. Provided that such holder's Series A Preferred Shares
were held as capital assets for more than 12 months prior to the Automatic
Exchange, any gain or loss will be long-term capital gain or loss. Long-term
capital losses are deductible, subject to certain limitations. The basis of the
holder in the Bank Preferred Shares will be the shares' fair market value at the
time of the Automatic Exchange.

      TREATMENT OF TAX-EXEMPT STOCKHOLDERS. Distributions from the Company to a
tax-exempt employee pension trust or other domestic tax-exempt stockholder
generally will not constitute "unrelated business taxable income" ("UBTI")
unless the stockholder has borrowed to acquire or carry its Series A Preferred
Shares.


                                       17
<Page>

TAXATION OF FOREIGN STOCKHOLDERS

      The following is a discussion of certain anticipated U.S. federal income
tax consequences of the ownership and disposition of the Company's stock
applicable to Non-U.S. Holders of such stock. The discussion is based on current
law and is for general information only. The discussion addresses only certain
and not all aspects of U.S. federal income taxation.

      ORDINARY DIVIDENDS. The portion of dividends received by Non-United States
Holders payable out of the Company's earnings and profits (which are not
attributable to capital gains of the Company and which are not effectively
connected with a U.S. trade or business of the Non-United States Holder) will be
subject to U.S. withholding tax at the rate of 30% (unless reduced by treaty).
In general, Non-United States Holders will not be considered engaged in a U.S.
trade or business solely as a result of their ownership of stock of the Company.
In cases where the dividend income from a Non-United States Holder's investment
in stock of the Company is (or is treated as) effectively connected with the
Non-United States Holder's conduct of a U.S. trade or business, the Non-United
States Holder generally will be subject to U.S. tax at graduated rates, in the
same manner as a United States Stockholder with respect to such dividends (and
may also be subject to the 30% branch profits tax in the case of a Non-United
States Holder that is a foreign corporation).

      NON-DIVIDEND DISTRIBUTIONS. Distributions by the Company that are not
dividends out of the earnings and profits of the Company will not be subject to
U.S. income or withholding tax. The Company can make an estimate of whether a
dividend is paid out of earnings and profits and is not required to withhold on
dividends not expected to be out of earnings and profits.

      CAPITAL GAIN DIVIDENDS. Under the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"), a distribution made by the Company to a Non-United
States Holder, to the extent attributable to gains from dispositions of United
States Real Property Interests ("USRPIs") will be considered effectively
connected with a U.S. trade or business of the Non-United States Holder and
subject to U.S. income tax at the rate applicable to U.S. individuals or
corporations, without regard to whether such distribution is designated as a
capital gain dividend. Shares of a corporation are treated as USRPIs only if the
fair market value of the USRPIs owned by the corporation equals or exceeds 50%
of the fair market value of its total assets. If at no time during the five
years preceding the sale or exchange of shares in the Company, the Series A
Preferred Shares constituted a USRPI, gain or loss on the sale or exchange will
not be treated as effectively connected with a U.S. trade or business by reason
of FIRPTA. Although ownership of real property in the U.S. is always a USRPI, a
loan secured by a mortgage on U.S. real property does not constitute a USRPI
unless the amounts payable by the borrower are contingent on the income or
receipts of the borrower or the property or otherwise based on the property. The
Company believes that it is unlikely that its shares will be USRPIs or that it
will derive significant gain from USRPIs, although the final determination will
depend on the facts as they ultimately develop. If the shares do constitute
USRPIs, the Company will be required to withhold tax equal to 30% of the amount
of dividends to the extent such dividends constitute USRPI Capital Gains.
Distributions subject to FIRPTA may also be subject to a 30% branch profits tax
in the hands of a foreign corporate stockholder that is not entitled to treaty
exemption.

      DISPOSITION OF STOCK OF THE COMPANY. Unless the Company's stock
constitutes a USRPI, a sale of such stock by a Non-United States Holder
generally will not be subject to U.S. taxation under FIRPTA. The stock will not
constitute a USRPI if the Company is a "domestically controlled REIT." A
domestically


                                       18
<Page>

controlled REIT is a REIT in which, at all times during a specified testing
period, less than 50% in value of its shares is held directly or indirectly by
Non-United States Holders.

      The Company does not qualify for taxation as a REIT retroactive to January
1, 2001. If the Company does not constitute a domestically controlled REIT, a
Non-United States Holder's sale of stock generally will still not be subject to
tax under FIRPTA as a sale of a USRPI provided that (i) the stock is "regularly
traded" (as defined by applicable Treasury regulations) on an established
securities market (e.g., the Series A Preferred Stock is traded on the NASDAQ
exchange) and (ii) the selling Non-United States Holder held 5% or less of the
Company's outstanding stock at all times during a specified testing period.

      If gain on the sale of stock of the Company were subject to taxation under
FIRPTA, the Non-United States Holder would be subject to the same treatment as a
United States Stockholder with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals) and the purchaser of the stock could be required
to withhold 10% of the purchase price and remit such amount to the IRS.

      Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-United States Holder in two cases: (i) if the Non-United
States Holder's investment in the stock of the Company is effectively connected
with a U.S. trade or business conducted by such Non-United States Holder, the
Non-United States Holder will be subject to the same treatment as a United
States Stockholder with respect to such gain, or (ii) if the Non-United States
Holder is a nonresident alien individual who was present in the United States
for 183 days or more during the taxable year and certain other conditions apply,
the nonresident alien individual will be subject to tax on the individual's
capital gain.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX

      The Company will report to its stockholders and the IRS the amount of
dividends paid or deemed paid during each calendar year, and the amount of tax
withheld, if any.

      UNITED STATES STOCKHOLDERS. Under certain circumstances, a United States
Stockholder of Series A Preferred Shares may be subject to backup withholding at
a rate of 31% on payments made with respect to, or cash proceeds of a sale or
exchange of, Series A Preferred Shares. Backup withholding will apply only if
the holder (i) fails to furnish the person required to withhold with its
Taxpayer Identification Number ("TIN") which, for an individual, would be his or
her Social Security Number, (ii) furnishes an incorrect TIN, (iii) is notified
by the IRS that it has failed to properly report payments of interest and
dividends, or (iv) under certain circumstances, fails to certify under penalty
of perjury, that it has furnished a correct TIN and has not been notified by the
IRS that it is subject to backup withholding for failure to report interest and
dividend payments. Backup withholding will not apply to payments made to certain
exempt recipients, such as corporations and tax-exempt organizations. A United
States Stockholder should consult with a tax advisor regarding qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption. Backup withholding is not an additional tax. Rather, the amount of
any backup withholding with respect to a payment to a United States Stockholder
will be allowed as a credit against such United States Stockholder's United
States federal income tax liability and may entitle such United States
Stockholder to a refund, provided that the required information is furnished to
the IRS.

      FOREIGN STOCKHOLDERS. Additional issues may arise pertaining to
information reporting and back up withholding with respect to any such
information reporting and backup withholding requirements. Backup withholding
for a Non-United States Holder is not an additional tax. Rather the amount of
any backup withholding with respect to a payment to a Non-United States Holder
will be allowed as a credit against any


                                       19
<Page>

United States federal income tax liability of such Non-United States Holder. If
withholding results in an overpayment of taxes, a refund may be obtained
provided that the required information is furnished to the IRS.

OTHER TAX CONSEQUENCES

      The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Prospective stockholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the
Company.

ITEM 2: PROPERTIES

      The Company utilizes office space and conference room facilities located
in Los Angeles at 221 S. Figueroa Street, Los Angeles, California 90012, the
building in which the Bank's principal executive offices are located. The cost
related to this office space is included in the fees paid to the Bank under the
terms of the Advisory Agreement.

ITEM 3: LEGAL PROCEEDINGS

      The Company is not involved in any litigation at December 31, 2001. From
time to time, the Company may be involved in routine litigation arising in the
ordinary course of business.

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

      None.


                                       20
<Page>

                                     PART II

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

      The Company is authorized to issue up to 4,000,000 shares of common stock,
$0.01 par value per share (the "Common Stock") and 4,000,000 shares of Preferred
Stock, $0.01 par value per share (the "Preferred Stock"), of which 1,426,000
shares have been issued as the Series A Preferred Shares. The Bank owns 100% of
the Company's 10,000 shares of Common Stock outstanding at December 31, 2001.
Accordingly, there is no trading market for the Company's Common Stock. In
addition, the Bank intends that, as long as any Series A Preferred Shares are
outstanding, it will maintain direct or indirect ownership of at least a
majority of the outstanding Common Stock of the Company.

      DIVIDENDS. Holders of Common Stock are entitled to receive dividends when,
as and if authorized and declared by the Board of Directors out of assets
legally available for this purpose, provided that, so long as any shares of
Preferred Stock are outstanding, no dividends or other distributions (including
redemptions and purchases) may be made with respect to the Common Stock unless
full dividends on the shares of all series of Preferred Stock, including
accumulations in the case of cumulative Preferred Stock, have been paid and any
other conditions precedent established under the terms of such series of
Preferred Stock have been satisfied. Several limitations exist which may
restrict the Company's ability to pay dividends on the Common Stock. See "Item
1. Business--Dividend Policy."

      VOTING RIGHTS. Subject to the rights, if any, of the holders of any class
or series of Preferred Stock, including the Series A Preferred Shares, all
voting rights are vested in the Common Stock. The holders of Common Stock are
entitled to one vote per share. All of the issued and outstanding shares of
Common Stock are held by the Bank.

      As the holder of all of the outstanding shares of Common Stock of the
Company, the Bank will be able, subject to the terms of the Series A Preferred
Shares and of any other class or series of stock subsequently issued by the
Company, to elect and remove directors, amend the Articles of Incorporation and
approve other actions requiring stockholder approval under the MGCL or
otherwise.

      RIGHTS UPON LIQUIDATION. In the event of the liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, after there have
been paid or set aside for the holders of all series of Preferred Stock the full
preferential amounts to which such holders are entitled, the holders of Common
Stock will be entitled to share equally and ratably in any assets remaining
after the payment of all debts and liabilities.


                                       21
<Page>

ITEM 6: SELECTED FINANCIAL DATA

                                 FINANCIAL DATA

                As of December 31, 2001, 2000, 1999,1998 and 1997
                     For the Years Ended December 31, 2001, 2000, 1999,1998 and
   and for the Period from Inception, June 19, 1997 through December 31, 1997
                             (Dollars in thousands)

<Table>
<Caption>
                                                                                   At or for      At or for    At December 31,
                                                    At or for the   At or for the   the Year       the year    1997 or for the
                                                     Year-ended       Year ended      ended          ended      period 6/19/97
                                                       12/31/01       12/31/00      12/31/99       12/31/98    through 12/31/97
                                                    ---------------------------------------------------------------------------
<S>                                                   <C>            <C>            <C>            <C>            <C>
STATEMENT OF EARNINGS:
Interest income .................................     $    5,724     $    5,694     $    5,621     $    5,780     $    1,476
Other income ....................................            457             --             --             --             --
Operating expenses ..............................            411            504            483            530            109
Income tax expense ..............................          2,431             --             --             --             --
Net earnings ....................................          3,339          5,190          5,138          5,250          1,367

BALANCE SHEET:
Mortgage loans, net .............................     $   71,245     $   71,571     $   70,446     $   69,457     $   70,423
Total assets ....................................     $   75,332         72,847         72,393         72,405         72,597
Total liabilities ...............................          3,366             44             42             42            460
Total stockholders' equity ......................         71,966         72,803         72,351         72,363         72,137

OTHER DATA:
Dividends on preferred stock ....................          3,476          3,476          3,476          3,476            859
Dividends on common stock .......................            700          1,262          1,674          1,548            460
Number of preferred shares outstanding ..........      1,426,000      1,426,000      1,426,000      1,426,000      1,426,000
Number of common shares outstanding(1) ..........         10,000         10,000         10,000         10,000         10,000
</Table>

--------------------------------------------------------------------------------
(1)   Because the Company's Common Stock is wholly owned by the Bank, earnings
      per share data is not presented.


                                       22
<Page>

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

DESCRIPTION OF PORTFOLIO

      Information with respect to the Residential Mortgage Loans and the
Commercial Mortgage Loans acquired by the Company since the commencement of its
operations is presented as of December 31, 2001. References to percentages of
Mortgage Loans acquired by the Company refer in each case to the percentage of
the aggregate outstanding principal balance of the Mortgage Loans in the
Company's portfolio as of December 31, 2001, based on the outstanding principal
balances of such Mortgage Loans as of such date, after giving effect to
scheduled monthly payments received and applied on or prior to such date.

      GENERAL. As of December 31, 2001, the Company owned 2 Residential Mortgage
Loans, representing approximately 1% of the unpaid principal balance of the
Mortgage Loans in the Company's portfolio, and 76 Commercial Mortgage Loans,
representing approximately 99.0% of the unpaid principal balance of the Mortgage
Loans in the Company's portfolio. On December 31, 2001, the Mortgage Loans
included in the Company's portfolio had an aggregate outstanding principal
balance of $71.4 million.

      All of the Residential Mortgage Loans included in the Company's portfolio
were originated or purchased by the Bank in the ordinary course of its real
estate lending activities. Management believes that the Residential Mortgage
Loans included in the Company's portfolio were originated or purchased in a
manner consistent with the underwriting policies of the Bank at the time at
which such Mortgage Loans were originated or purchased.

      All of the Residential Mortgage Loans included in the Company's portfolio
were originated or purchased between June 1973 and December 1999, and had
original terms to stated maturity of 15 or 30 years. As of December 31, 2001,
the average outstanding principal balance of a Residential Mortgage Loan was
$367,610. The weighted average number of months since origination of the
Residential Mortgage Loans included in the Company's portfolio (calculated as of
December 31, 2001) was approximately 42 months and the weighted average expected
remaining maturity was 152 months. The weighted average Loan-to-Value Ratio
(defined below) of the Company's Residential Mortgage Loans was 62.2%.
"Loan-to-Value Ratio" means the ratio (expressed as a percentage) of the
original principal amount of such Mortgage Loan to the lesser of (i) the
appraised value at origination of the underlying mortgaged property or (ii) the
purchase price of the mortgaged property, if the Mortgage Loan was made to
finance the acquisition of property. The mortgage notes with respect to most of
the Mortgage Loans included in the Company's portfolio contain "due-on-sale"
provisions which prevent the assumption of the Mortgage Loan by a proposed
transferee and accelerate the payment of the outstanding principal balance of
the Mortgage Loan.

      Each Commercial Mortgage Loan included in the Company's portfolio was
originated or purchased by the Bank in the ordinary course of its commercial
real estate lending activities. All of the Commercial Mortgage Loans in the
Company's portfolio were originated or purchased between March 1974 and December
2000, and had original terms to stated maturity of between 5 and 30 years. As of
December 31, 2001, the average outstanding principal balance of a Commercial
Mortgage Loan was $930,276. The weighted average number of months since
origination of the Company's Commercial Mortgage Loans (calculated as of
December 31, 2001) was approximately 47 months and the weighted average
expected maturity was 81 months. As of December 31, 2001, the weighted average
Loan-to-Value Ratio of the Commercial Mortgage Loans included in the Company's
portfolio was 57%. In addition, as of


                                       23
<Page>

December 31, 2001, no Commercial Mortgage Loan held by the Company had a
Loan-to-Value Ratio greater than 77%.

      RESIDENTIAL MORTGAGE LOANS. The following table sets forth as of December
31, 2001 certain information with respect to the types of Residential Mortgage
Loans included in the Company's portfolio:

                       TYPE OF RESIDENTIAL MORTGAGE LOANS
                       ----------------------------------
<Table>
<Caption>
                                                Percentage of
                                                 Residential          Weighted            Weighted
                              Aggregate       Mortgage Loans by        Average         Average Expected
                          Principal Balance       Aggregate        Initial Loan to   Remaining Maturity
          Type              (In Thousands)    Principal Balance     Value (LTV)           (in mo.)
----------------------------------------------------------------------------------------------------------
<S>                              <C>              <C>                   <C>                  <C>
30 Year Fixed Rate                  48              6.5%                90.0                 314

Fixed Bi-weekly.......             687             93.5                 73.0                 140
                                 -----            -----
   Total..............           $ 735            100.0%
                                 =====            =====
</Table>

      The Residential Mortgage Loans in the Company's portfolio bear interest at
fixed rates of 7.00% per annum and 8.00% per annum. The weighted average
interest rate of these Residential Mortgage Loans is approximately 7.07% per
annum.

      The following table contains certain additional data with respect to the
interest rates of the Residential Mortgage Loans included in the Company's
portfolio:

              INTEREST RATES OF RESIDENTIAL MORTGAGE LOANS
              --------------------------------------------

<Table>
<Caption>
                                                                                     Percentage of the
                                                         Aggregate Principal        Company's Portfolio
                                      Number of                Balance                 by Aggregate
  Current Interest Rate            Mortgage Loans           (In Thousands)           Principal Balance
---------------------------       ------------------     ---------------------     ----------------------
<S>                                       <C>                   <C>                       <C>
7.000 - 7.999.............                1                     $ 687                     93.5%
8.000 - 8.249.............                1                        48                      6.5
                                  ------------------     ---------------------     ----------------------
     Total................                2                      $735                    100.0%
                                  ==================     =====================     ======================
</Table>

      COMMERCIAL MORTGAGE LOANS. The Commercial Mortgage Loans included in the
Company's portfolio consist of loans secured by the Commercial Properties
located in California. The borrowers of the Commercial Mortgage Loans included
in the Company's portfolio are primarily customers of the Bank to which the Bank
has extended such Commercial Mortgage Loans in the ordinary course of its
commercial real estate lending activities. The outstanding principal balances of
the Commercial Mortgage Loans included in the Company's portfolio ranged from
$3,315 to $9.9 million as of December 31, 2001.


                                       24
<Page>

      The following table sets forth as of December 31, 2001 certain information
with respect to each type of multi-family residential and commercial property
underlying each Commercial Mortgage Loan included in the Company's portfolio:

                        TYPE OF COMMERCIAL MORTGAGE LOANS
                        ---------------------------------

<Table>
<Caption>
                                                            Percentage of
                                                              Commercial         Weighted      Weighted
                                          Aggregate        Mortgage Loans by      Average       Average   Weighted Average
                                      Principal Balance        Aggregate          Initial       Current   Months Remaining
               Type                    (In Thousands)      Principal Balance       LTV(1)       LTV(2)       to Maturity
----------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>              <C>                 <C>          <C>            <C>
Commercial-fixed rate Balloon..                 $52,583          74.4%               60%          58%            80
Commercial ARM balloon.........                  10,888          15.4                57           54             88
Commercial fixed rate..........                   3,078           4.4                62           46             98
Multi-family fixed balloon.....                   2,851           4.0                71           68             63
Multi-family-fixed rate........                   1,302           1.8                73           31             68
                                                -------           ---
  Total........................                 $70,702         100.0%               60           57             81
                                                =======         =====
</Table>

--------------------------------------------------------------------------------
(1)   Represents the ratio of the outstanding principal amount of each
      Commercial Mortgage Loan at the time of loan origination or modification,
      if any, to the value of the property securing such Commercial Mortgage
      Loan at the time of loan origination or modification, if any.

(2)   Represents the ratio of the outstanding principal amount of the Commercial
      Mortgage Loan at December 31, 2001 to the value of the property securing
      such Commercial Mortgage Loan at the time of loan origination or
      modification, if any.

      Of the Commercial Mortgage Loans included in the Company's portfolio,
approximately 57.9% are not fully amortizing and will have significant principal
balances or "balloon" payments due upon maturity.

      The majority of the Company's Commercial Mortgage Loans bear interest at
fixed rates. The interest rates of the fixed rate Commercial Mortgage Loans
included in the Company's portfolio range from 8.25% per annum to 11.00% per
annum. The weighted average interest rate of these Commercial Mortgage Loans is
approximately 8.90% per annum.

      The following table contains certain additional data as of December 31,
2001 with respect to the interest rates of the fixed rate Commercial Mortgage
Loans included in the Company's portfolio:


                                       25
<Page>

                   INTEREST RATES OF COMMERCIAL MORTGAGE LOANS
                   -------------------------------------------

<Table>
<Caption>
                                                                                    Percentage of
                                                              Aggregate          Company's Portfolio
                                      Number of           Principal Balance         by Aggregate
        Interest Rate               Mortgage Loans         (In Thousands)         Principal Balance
------------------------------      ---------------       ------------------    ----------------------
<S>                                            <C>             <C>                      <C>
 8.250 -  8.499%..........                      4              $ 4,309                   6.1%
 8.500 -  8.749...........                     20               34,015                  48.1
 8.750 -  8.999...........                     13               19,811                  28.0
 9.000 -  9.449...........                     12                3,748                   5.3
 9.500 -  9.999...........                     19                4,806                   6.8
10.000 - 10.449...........                      4                1,178                   1.7
10.500 - 10.999...........                      2                2,709                   3.8
11.000   .................                      2                  126                   0.2
                                    ---------------       ------------------    ----------------------
  Total  .................                     76              $70,702                 100.0%
                                    ===============       ==================    ======================
</Table>

      ASSET QUALITY. There were no residential or commercial mortgage loans with
past due principal and interest payments at December 31, 2001. Delinquencies in
prior years were immaterial.

      GEOGRAPHIC DISTRIBUTION. As of December 31, 2001, 100% of the residential
real estate properties underlying the Company's Residential Mortgage Loans
included in the Company's portfolio are located in southern California.
Consequently, these Residential Mortgage Loans may be subject to a greater risk
of default than other comparable Residential Mortgage Loans in the event of
adverse economic, political or business developments and natural hazards in
California (for example, earthquakes, wild fires and mud slides) that may affect
the ability of residential property owners in California to make payments of
principal and interest on the underlying mortgages. Standard hazard insurance
that borrowers are required to maintain with respect to the Residential Mortgage
Loans held by the Company may not protect the Company against losses occurring
from earthquakes and other natural disasters.

      As of December 31, 2001, all of the commercial mortgaged properties
underlying the Company's Commercial Mortgage Loans included in the Company's
portfolio are located in California. Of the Commercial Mortgage Loans included
in the Company's portfolio, approximately 2.6% is secured by real estate located
in Northern California and 97.4% is secured by real estate located in Southern
California. As a result, these Commercial Mortgage Loans may be subject to a
greater risk of default than other comparable Commercial Mortgage Loans in the
event of adverse economic, political or business developments in California that
may affect the ability of businesses in these areas to make payments of
principal and interest on the underlying mortgages. In the event of a natural
disaster, the Company's ability to pay dividends on the Series A Preferred
Shares could be adversely affected as it is the Company's current intention to
not maintain special hazard insurance to protect against such losses.

      LOAN-TO-VALUE RATIOS; INSURANCE. One of the two Residential Mortgage Loans
included in the Company's portfolio as of December 31, 2001 had a Loan-to-Value
Ratio of greater than 80% at the time of origination. This loan is not insured
under a primary mortgage insurance policy. The mortgagor of each Residential
Mortgage Loan is required to maintain a standard hazard insurance policy in an
amount equal to


                                       26
<Page>

the maximum insurable value of the improvements securing such Residential
Mortgage Loan or the principal balance of such Residential Mortgage Loan,
whichever is less. If the residential real estate property underlying a
Residential Mortgage Loan is located in a flood zone, such Residential Mortgage
Loan also may be covered by a flood insurance policy as required by law. No
mortgagor bankruptcy insurance will be maintained by the Company with respect to
the Residential Mortgage Loans in the Company's portfolio, nor will any
Residential, Mortgage Loan be insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. The Company will not maintain any
special hazard insurance policy with respect to any Residential Mortgage Loan
that could mitigate damages caused by any natural disaster.

      The mortgagor of each of the Commercial Mortgage Loans included in the
Company's portfolio is required to maintain a standard hazard insurance policy.
If the commercial real estate property securing a Commercial Mortgage Loan is
located in a flood zone, such Commercial Mortgage Loan may be covered by a flood
insurance policy as required by law. However, as with the Residential Mortgage
Loans in the Company's portfolio, no special hazard insurance or mortgagor
bankruptcy insurance will be maintained by the Company with respect to the
Commercial Mortgage Loans in the Company's portfolio.

FINANCIAL CONDITION

      At December 31, 2001 and 2000, the Company had total assets of $75.3
million and $72.8 million, respectively. As of such dates, $71.2 million or
94.6% and $71.6 million or 98.2% of the Company's assets was comprised of its
loan receivables portfolio, net of discounts on loans and the allowance for loan
losses. The majority of the Company's loans were acquired from the Bank in 2001.
During the years 2001 and 2000, the Company purchased residential mortgage loans
with an aggregate principal balance of $69.6 million and $10.2 million,
respectively, from the Bank. The weighted average interest rate of the total
portfolio at December 31, 2001 and 2000 was 8.76% and 7.60%. At December 31,
2001 and 2000, respectively, due from affiliates aggregated $741,000 and
$610,000, accrued interest amounted to $400,000 and $362,000 and the Company
maintained a general valuation allowance of $253,000. See Note 3 of the Notes to
Financial Statements included in Item 8 below.

      At December 31, 2001 and 2000, the Company's total liabilities amounted to
$3.4 million and $44,000, respectively. Stockholders' equity amounted to $72.0
million and $72.8 million, after taking into consideration earnings of $3.3
million and $5.2 million and aggregate dividend payments on the common stock and
the preferred stock of $4.2 million and $4.7 million during the years 2001 and
2000, respectively.

RESULTS OF OPERATIONS

      The Company reported net earnings of $3.3 million for the year ended
December 31, 2001 as compared to $5.2 million and $5.1 million for the years
ended December 31, 2000 and 1999, respectively. The Company declared $3.5
million in dividends on the Company's preferred stock in each of the years 2001,
2000 and 1999. The Company also declared $0.7 million, $1.3 million and $1.7
million in dividends on the Company's common stock in 2001, 2000 and 1999,
respectively.

      Total revenues for the year ended December 31, 2001 were $6.2 million as
compared to $5.7 million and $5.6 million for periods ended December 31, 2000
and 1999, respectively, primarily attributable to interest earned on the
Company's portfolio of mortgage loans. The Company also earned $275,000, $99,000
and $130,000 of interest on deposit accounts in 2001, 2000 and 1999,
respectively. A gain on the sale of mortgage loans of $457,000 was recorded in
2001.


                                       27
<Page>

      Total expenses for the years ended December 31, 2001, 2000 and 1999
amounted to $411,000, $504,000 and $483,000, respectively. Of this amount,
$100,000, $200,000 and $200,000 was paid to the Bank in 2001, 2000, and 1999 as
a management fee in accordance with the terms of the Advisory Agreement. The
Bank received $134,000, $123,000 and $108,000 in 2001, 2000 and 1999,
respectively, for servicing the Company's mortgage loans. Temple Inland Mortgage
Co., which services a portion of the Company's residential mortgage loans,
received $25,000, $54,000 and $69,000 in 2001, 2000 and 1999, respectively.

ALLOWANCE FOR LOAN LOSSES

      The Company maintains an allowance for loan losses to absorb potential
loan losses from the entire loan portfolio. Management believes that the
allowance for loan losses as of December 31, 2001, is sufficient to absorb any
losses that currently exist in the portfolio. Management will continue to review
the loan portfolio to determine the extent to which any changes in loss
experience may require additional provisions in the future.

LIQUIDITY RISK MANAGEMENT

      The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of the Company's financial commitments and to
capitalize on opportunities for the Company's business expansion. The Company's
principal liquidity needs are to maintain its current portfolio size through the
acquisition of additional Mortgage Loans as Mortgage Loans currently in the
portfolio mature or prepay and to pay dividends on the Series A Preferred
Shares. The acquisition of additional Mortgage Loans is intended to be funded
with the proceeds obtained from repayment of principal balances by mortgagees.
The Company does not have and does not anticipate having any material capital
expenditures.

      To the extent that the Board of Directors determines that additional
funding is required, the Company may raise such funds through additional equity
offerings, debt financing or retention of cash flow or a combination of these
methods. The organizational documents of the Company do not contain any
limitation on the amount or percentage of debt, funded or otherwise, that the
Company might incur. Notwithstanding the foregoing, the Company may not, without
the approval of a majority of the independent directors, incur debt for borrowed
money in excess of 20% of the Company's total stockholders' equity. Any such
debt incurred may include intercompany advances made by the Bank to the Company.

      The Company also may issue additional series of Preferred Stock. However,
the Company may not issue additional shares of Preferred Stock that is or will
be senior to the Series A Preferred Shares without obtaining the prior consent
of holders of at least 66 2/3% of the shares of Preferred Stock outstanding at
that time, including the Series A Preferred Shares, and the Company may not
issue additional shares of Preferred Stock on a parity with the Series A
Preferred Shares without the prior approval of a majority of the Company's
independent directors.


                                       28
<Page>

      INTEREST RATE RISK. The Company's interest rate risk is primarily related
to loan prepayments and payoffs. The average maturity of loans is substantially
less than their average contractual terms because of prepayments and, in the
case of conventional mortgage loans, due-on-sale clauses, which generally give
the Bank the right to declare a loan immediately due and payable in the event,
among other things, that the borrower sells the real property subject to the
mortgage and the loan is not repaid. The average life of mortgage loans tends to
increase when the current mortgage loan rates are substantially higher than
rates on existing mortgage loans and, conversely, decrease when rates on
existing mortgages are substantially lower than current mortgage loan rates (due
to refinancings of adjustable rate and fixed rate loans at lower rates). The
following table summarizes the anticipated maturities or repricing of the
Company's interest-earning assets as of December 31, 2001, based on the
information and assumptions set forth in the notes below.

<Table>
<Caption>
                             Within      Three to     One Year     Three Years      Over
                              Three       Twelve          to           To            Five                   Net Fair
                             Months       Months     Three Years    Five Years      Years        Total       Value
<S>                          <C>          <C>          <C>           <C>           <C>           <C>        <C>
Interest-earning assets
(1):
   Loans receivable (2)
   Single-family loans:
     Fixed                   $   101         $235      $   314       $    85       $    --       $   735    $   735
   Multi-family:
     Fixed rate balloon          188          497          941           569           656         2,851      2,935
     30-year fixed rate          124          333          669           175            --         1,301      1,349
   Commercial R.E.:
     Fixed rate balloon        2,215        6,145       13,272         9,781        21,170        52,583     54,490
     ARM balloon                 458       10,431           --            --            --        10,889     11,086
     30-year fixed rate          186          522        1,180           955           235         3,078      3,140
                             -------      -------      -------       -------       -------       -------    -------

                             $ 3,272      $18,163      $16,376       $11,565       $22,061       $71,437    $73,735
                             -------      -------      -------       -------       -------       -------    -------
</Table>

(1)   Fixed-rate loans are included in periods in which they are scheduled to be
      repaid, based on scheduled amortization, adjusted in each case to take
      into account estimated prepayments based on assumptions used by the OTS in
      assessing interest rate sensitivity.
(2)   Amounts disclosed represent outstanding principal balances as of December
      31, 2001.

ITEM 7A: QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      See "Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations--Interest Rate Risk."


                                       29
<Page>

ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                          INDEX TO FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999

Statements of Financial Condition--December 31, 2001 and 2000...............  32

Statements of Earnings--Years ended December 31, 2001, 2000 and 1999........  33

Statements of Changes in Stockholders' Equity--Years ended December 31,
       2001, 2000 and 1999................................................... 34

Statements of Cash Flows--Years ended December 31, 2001, 2000, and 1999...... 35

Notes to Financial Statements................................................ 36


                                       30
<Page>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
People's Preferred Capital Corporation:

      We have audited the accompanying statements of financial condition of
People's Preferred Capital Corporation as of December 31, 2001 and 2000, and the
related statements of earnings, changes in stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 financial statements referred to above present fairly,
in all material respects, the financial position of People's Preferred Capital
Corporation as of December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States of America.




KPMG LLP




February 25, 2002
Los Angeles, California


                                       31
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                        STATEMENTS OF FINANCIAL CONDITION
                           DECEMBER 31, 2001 AND 2000
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
                                                                     DECEMBER 31, 2001     DECEMBER 31, 2000
                                                                     -----------------     -----------------
<S>                                                                       <C>                   <C>
ASSETS:
    Cash and cash equivalents ......................................      $  2,946              $    304
    Mortgage loans, net (Note 3) ...................................        71,245                71,571
    Due from affiliate (Note 6) ....................................           741                   610
    Accrued interest receivable ....................................           400                   362
                                                                          --------              --------
        Total assets ...............................................      $ 75,332              $ 72,847
                                                                          ========              ========

LIABILITIES AND STOCKHOLDERS' EQUITY:

Accounts payable and accrued liabilities ...........................      $    935              $     44
Accrued taxes payable ..............................................         2,431                    --
                                                                          --------              --------
        Total liabilities ..........................................         3,366                    44

    Commitments and contingencies ..................................            --                    --

Stockholders' equity:
    Preferred stock, par  value $.01 per share, 4,000,000 shares
        authorized: Preferred stock series A, issued and outstanding
        1,426,000 shares, liquidation value $35,650 ................            14                    14
    Common stock, par value $.01 per share, 4,000,000 shares
        authorized: 10,000 shares issued and outstanding ...........            --                    --
    Additional paid-in capital .....................................        72,075                72,075
    (Accumulated deficit)/Retained earnings ........................          (123)                  714
                                                                          --------              --------
    Total stockholders' equity .....................................        71,966                72,803
                                                                          --------              --------
    Total liabilities and stockholders' equity .....................      $ 75,332              $ 72,847
                                                                          ========              ========
</Table>

See accompanying notes to financial statements.


                                       32
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                             STATEMENTS OF EARNINGS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                              2001          2000          1999
                                              ----          ----          ----
<S>                                         <C>           <C>           <C>
Revenues:
Interest on mortgage loans ...........      $  5,449      $  5,595      $  5,491
Interest on deposits .................           275            99           130
Gain on sale of loans ................           457            --            --
                                            --------      --------      --------
Total revenues .......................         6,181         5,694         5,621

Expenses:
Loan servicing fees (Note 6) .........           159           177           177
Advisory fees (Note 7) ...............           100           200           200
Professional fees ....................           112            88            76
Other ................................            40            39            30
                                            --------      --------      --------
      Total expenses .................           411           504           483
                                            --------      --------      --------

Earnings before income taxes .........         5,770         5,190         5,138
 Income taxes (Note 5) ...............         2,431            --            --
                                            --------      --------      --------

      Net earnings ...................      $  3,339      $  5,190      $  5,138
                                            ========      ========      ========
</TABLE>

See accompanying notes to financial statements.


                                       33
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                     No. of
                                     Preferred                 No. of Common                              Retained
                                      Shares       Series A     Shares, par                 Additional    Earnings        Total
                                   Par value .01   Preferred   value .01 per    Common        Paid-in      (Accum.      Stockholder
                                     per share       Stock         share        Stock         Capital      Deficit)       Equity
                                   -------------   ---------   -------------   ---------    ----------    ----------    -----------
<S>                                  <C>             <C>            <C>        <C>           <C>           <C>           <C>
Balance at December 31, 1998         1,426,000       $ 14           10,000     $      --     $  72,075     $     274     $  72,363

Net earnings                                --         --               --            --            --         5,138         5,138
Preferred dividends                         --         --               --            --            --        (3,476)       (3,476)
Common dividends                            --         --               --            --            --        (1,674)       (1,674)
                                     ---------       ----        ---------     ---------     ---------     ---------     ---------
Balance at December 31, 1999         1,426,000         14           10,000            --        72,075           262        72,351
                                     ---------       ----        ---------     ---------     ---------     ---------     ---------
Net earnings                                --         --               --            --            --         5,190         5,190
Preferred dividends                         --         --               --            --            --        (3,476)       (3,476)
Common dividends                            --         --               --            --            --        (1,262)       (1,262)
                                     ---------       ----        ---------     ---------     ---------     ---------     ---------
Balance at December 31, 2000         1,426,000         14           10,000            --        72,075           714        72,803
                                     ---------       ----        ---------     ---------     ---------     ---------     ---------
Net earnings                                --         --               --            --            --         3,339         3,339
Preferred dividends                         --         --               --            --            --        (3,476)       (3,476)
Common dividends                            --         --               --            --            --          (700)         (700)
                                     ---------       ----        ---------     ---------     ---------     ---------     ---------
Balance at December 31, 2001         1,426,000       $ 14           10,000     $      --     $  72,075     ($    123)    $  71,966
                                     =========       ====        =========     =========     =========     =========     =========
</Table>

See accompanying notes to financial statements.


                                       34
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>

                                                           2001          2000          1999
                                                           ----          ----          ----
<S>                                                      <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings                                             $  3,339      $  5,190      $  5,138
(Increase)/Decrease in accrued interest receivable            (38)            9           111
(Increase)/Decrease in due from affiliates                   (131)           47           620
Increase in accounts payable and accrued liabilities        2,453             2            --
                                                         --------      --------      --------
Net cash provided by operating activities                   5,623         5,248         5,869
                                                         --------      --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage loans, net of discount               (69,559)       (9,691)      (16,185)
Purchase of accrued interest receivable                      (270)          (40)          (72)
Mortgage loan principal repayments                         10,608         8,566        15,196
Sale of mortgage loans, net of discount                    60,004            --            --
Gain on sale of mortgage loans                               (457)           --            --
                                                         --------      --------      --------
Net cash provided by (used in) investing activities           326        (1,165)       (1,061)
                                                         --------      --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividends paid                             (2,607)       (3,476)       (3,476)
Common stock dividends paid                                  (700)       (1,262)       (1,674)
                                                         --------      --------      --------
Net cash used in financing activities                      (3,307)       (4,738)       (5,150)
                                                         --------      --------      --------

Net increase (decrease) in cash and cash equivalents        2,642          (655)         (342)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                304           959         1,301
                                                         --------      --------      --------

CASH AND CASH EQUIVALENTS AT END OF YEAR                 $  2,946      $    304      $    959
                                                         ========      ========      ========

OTHER NON CASH FINANCING ACTIVITIES
  Dividends declared, not paid                           $    869      $      0      $      0
                                                         ========      ========      ========
</Table>

See accompanying notes to financial statements.


                                       35
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

NOTE 1-ORGANIZATION AND BASIS OF PRESENTATION

      People's Preferred Capital Corporation (the "Company") is a Maryland
corporation incorporated on June 19, 1997 which was created for the purpose of
acquiring, holding and managing mortgage loans secured by real estate assets.
The Company's outstanding common stock is wholly owned by California National
Bank (the "Bank"), a national banking association.

      On December 8, 2000, PBOC Holdings, Inc. ("PBOC"), the sole stockholder
and holding company of People's Bank of California, agreed to merge with FBOP
Corporation ("FBOP"), a closely held bank and savings institution holding
company that owns banks in California, Illinois and Texas. The terms of the
Agreement and Plan of Merger by and among PBOC, FBOP and FBOP Acquisition
Company ("Acquisition"), dated as of December 8, 2000 and amended as of March 5,
2001, provided for the merger of Acquisition, a Delaware corporation and
wholly-owned subsidiary of FBOP, with and into PBOC, with PBOC continuing as the
surviving corporation and a wholly-owned subsidiary of FBOP. At a special
meeting of PBOC's shareholders held on April 19, 2001, its stockholders
approved, by the requisite vote required by law, the Agreement and Plan of
Merger, as amended, between PBOC, FBOP and FBOP Acquisition Company. The merger
was consummated on April 30, 2001. FBOP subsequently merged People's Bank of
California and its subsidiaries, including the Company, into its wholly owned
subsidiary California National Bank as of November 13, 2001.

      The Company commenced its operations on October 3, 1997 with the
consummation of an initial public offering of 1,426,000 shares of Series A
Preferred Shares, $0.01 par value, which raised $33.3 million, net of
underwriting and offering expenses of $2.4 million. The Series A Preferred
Shares are traded on the NASDAQ National Market. Additional expenses incurred
relative to the offering and the formation of the Company were borne by People's
Bank of California. Concurrent with the issuance of the Series A Preferred
Shares, People's Bank of California contributed additional capital to the
Company of $38.8 million after reimbursement for offering expenses of $426,000.

      If the appropriate federal regulatory agency so directs, each Series A
Preferred Share will be exchanged automatically (the "Automatic Exchange") for
one newly issued preferred share of the Bank. The instances in which this might
occur are as follows: (i) the Bank becomes undercapitalized under the prompt
corrective action regulations under the Federal Deposit Insurance Corporation
Improvement Act of 1991, (ii) the Bank is placed into conservatorship or
receivership, or (iii) the appropriate federal agency anticipates the bank
becoming undercapitalized in the near future. In the event of the Automatic
Exchange, the Bank preferred shares would constitute a new series of preferred
shares of the Bank, and would have the same dividend rights, liquidation
preference, redemption options and other attributes as the Series A Preferred
Shares, except that (i) the Bank preferred shares would not be listed on a
national stock exchange or national quotation system, and would rank on an equal
basis in terms of cash dividend payments and liquidation preference with any
shares of preferred stock of the Bank outstanding at the time of the Automatic
Exchange.

      The Series A Preferred Shares are redeemable as a result of the change in
control discussed above. At any time at the option of the Company, the Series A
Preferred Shares may be redeemed for cash, in whole, at the redemption price of
(i) $25.00, plus (ii) an amount equal to any authorized, declared and unpaid
dividends, to the date fixed for redemption, without interest, and the
additional dividends that would be payable for the period from the first day of
the dividend period in which the date fixed for redemption occurs to the date
fixed for redemption plus (iii) an applicable premium. Any redemption of Series
A Preferred Shares is subject to compliance with applicable regulatory and other
restrictions.



                                       36
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

NOTE 1-ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

      The Company has entered into servicing agreements with the Bank to service
the Company's mortgage loan assets.

      As the Company's common stock is wholly owned by the Bank, earnings per
share data is not presented

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)   Residential and Commercial Mortgage Loans:

      Residential and commercial mortgage loans are carried at the principal
      amount outstanding, net of unamortized deferred loan fees and direct
      origination costs and purchase discounts and premiums. Deferred loan fees
      and direct origination costs and discounts or premiums on
      one-to-four-family residential mortgage loans are accreted or amortized to
      income using the interest method over the contractual term of the loans.
      Unaccreted or unamortized discounts or premiums on loans sold or paid in
      full are recognized in income at the time of sale or payoff. The Company
      purchases single-family residential loans from the Bank. It is the
      Company's policy to place a loan on non-accrual status in the event that a
      borrower is 90 days or more delinquent. When a loan is placed on
      non-accrual status, the accrued and unpaid interest receivable is
      reversed. Amortization of premiums, discounts, and deferred fees, net of
      deferred direct origination costs, associated with loans that are on
      non-accrual status are discontinued. Income is subsequently recognized
      only to the extent that cash payments are received. When, in management's
      judgment, the borrower's ability to make periodic interest and principal
      payments resumes, the loan is returned to accrual status.

      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 impairment
      may be based on (i) the present value of the expected future cash flows of
      the impaired loan discounted at the loan's original effective interest
      rate, (ii) the observable market price of the impaired loan, or (iii) the
      fair value of the collateral of a collateral-dependent loan. Interest
      income on impaired loans is recognized on a cash basis if it is determined
      that collection of principal is probable. The Company collectively reviews
      its portfolio of residential mortgage loans for impairment. The Company
      reviews its commercial loans individually for impairment.

      Residential and commercial mortgages consist of fixed rate and adjustable
      rate mortgages. The Company's commercial loan portfolio includes fixed
      rate mortgages which do not fully amortize and have a balloon payment due.

(b)   Allowance for Loan Losses:

      The allowance for loan losses is a general allowance which is increased by
      charges to income and decreased by charge- offs (net of recoveries).
      Management's periodic valuation of the adequacy of the allowance is based
      on such factors as the Bank's and the Company's past loan loss experience,
      delinquency trends, known and inherent risks in the portfolio, potential
      adverse situations that may affect the borrower's ability to repay, the
      estimated value of underlying collateral, and current economic conditions.


                                       37
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)

      Although management believes that its present allowance for loan losses is
      adequate, it will continue to review its loan portfolio to determine the
      extent to which any changes in loss experience may require additional
      provisions in the future.

(c)   Cash and Cash Equivalents:

      For purposes of the statement of cash flows, cash and cash equivalents
      include cash and amounts due from banks, and all other highly liquid debt
      investments with original maturities of three months or less.

(d)   Income Taxes:

      By virtue of the Acquisition, we have determined that we have failed to
      qualify for taxation as a REIT, retroactive to the start of the year.
      Because FBOP is a privately-owned corporation, we no longer satisfy the
      "five or fewer" test which requires that no more than 50% in value of our
      outstanding stock be owned, directly or indirectly, by five or fewer
      individuals at any time during the last half of each taxable year. Prior
      to the consummation of the Acquisition, we were able to attribute
      ownership indirectly to PBOC's public stockholders.

      By failing to qualify for taxation as a REIT, we are subject to tax
      (including any applicable alternative minimum tax) on our taxable income
      at regular corporate rates, which reduces income that would otherwise be
      available to our stockholders. The provision for income taxes was
      $2,431,000 for the year ended December 31, 2001. Distributions to
      stockholders are not deductible by us nor are they required to be made. In
      such event, all distributions to stockholders, to the extent of current
      and accumulated earnings and profits, are taxable as ordinary income and,
      subject to certain limitations of the Internal Revenue Code of 1986 as
      amended (the "Code"), corporate distributees may be eligible for the
      dividends received deduction. Unless entitled to relief under specific
      statute, we are disqualified from taxation as a REIT for the four taxable
      years following the year during which qualification was lost and we are
      not permitted to requalify unless we distribute any earnings and profit
      attributable to the period during which we failed to qualify.

(e)   Use of Estimates:

      Management of the Company has made certain estimates and assumptions
      relating to the reporting of assets and liabilities and reported amounts
      of revenues and expenses and the disclosure of contingent assets and
      liabilities to prepare these financial statements in conformity with
      accounting principles generally accepted in the United States of America.
      Actual results could differ from those estimates.


                                       38
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

NOTE 3-MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES

At December 31, 2001 and 2000, net mortgage loans consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                           DECEMBER 31, 2001   DECEMBER 31, 2000
                                           -----------------   -----------------
<S>                                              <C>                <C>
Single-family mortgage loans ............        $    735           $ 65,159
Multi-family loans ......................           4,153              2,098
Commercial loans ........................          66,549              5,137
                                                 --------           --------
Total loans, gross ......................          71,437             72,394
Discount/premium on loans ...............              61               (570)
Allowance for loan losses ...............            (253)              (253)
                                                 --------           --------
Total loans, net ........................        $ 71,245           $ 71,571
                                                 ========           ========
</TABLE>

      There was no activity in the allowance for loan losses which had a balance
of $253,000 at the beginning and end of each year.

      Non-accrual loans were $0 and $52,000 at December 31, 2001 and 2000,
respectively. If loans which were on non-accrual at December 31, 2001 and 2000
had performed in accordance with the terms for the year, interest income from
these loans would have been $0 and $5,000, respectively. Interest collected on
these loans for these years was $0 and $3,000, respectively.

      The Company's gross impaired loans were $0, $52,000 and $0 as of December
31, 2001, 2000 and 1999, respectively. The average impaired loans for the years
then ended were $0, $13,000, and $15,000. Interest income recognized related to
these loans was $0, $2,000 and $0 for 2001, 2000 and 1999, respectively.

      As of December 31, 2001, all of the real estate properties underlying the
mortgage loans included in the Company's portfolio were located in California.
100% of the residential mortgage loans included in the Company's portfolio as of
December 31, 2001 were secured by real estate located in southern California. Of
the multi-family and commercial loans included in the Company's portfolio,
approximately 2.6% were secured by real estate located in northern California
and 97.4% were secured by real estate located in southern California.

      Consequently, these mortgage loans may be subject to a greater risk of
default than other comparable mortgage loans in the event of adverse economic,
political or business developments and natural hazards (earthquakes, wild fires
and mud slides, for example) in California that may affect the ability of
property owners in California to make payments of principal and interest on the
underlying mortgages. Standard hazard insurance required to be maintained with
respect to mortgage loans held by the Company may not protect the Company
against losses occurring from earthquakes and other natural disasters.

NOTE 4-DIVIDENDS

Holders of Series A Preferred Shares are entitled to receive, if, when and as
authorized and declared by the Board of Directors of the Company out of funds
legally available, noncumulative dividends at a rate of


                                       39
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION

                          NOTES TO FINANCIAL STATEMENTS

NOTE 4-DIVIDENDS (CONTINUED)

9.75% per annum of the initial liquidation preference ($25.00 per share).
Dividends on the Series A Preferred Shares, if authorized and declared, are
payable in arrears on the last day of March, June, September and December.
Dividends for each of the years ended December 31, 2001, 2000 and 1999 to
holders of the Series A Preferred Shares totaled approximately $3.5 million per
year, or $2.44 per share.

      No cash dividends or other distributions may be paid on common stock
unless (i) the Company has paid full dividends on the Series A Preferred Shares
for the four most recent dividend periods (or such lesser number of dividend
periods during which the Series A Preferred Shares have been outstanding) and
has declared a cash dividend on the Series A Preferred Shares at the annual
dividend rate for the current dividend period, and (ii) the Company is in
compliance with the terms of all stock ranking senior to the common stock.

      Dividends on common stock are paid when, as and if authorized and declared
by the Board of Directors out of funds legally available after all preferred
dividends have been paid. There were $0.7 million, $1.3 million and $1.7 million
common dividends paid for the years ended December 31, 2001, 2000 and 1999,
respectively.

NOTE 5-INCOME TAXES

      Income taxes for the year ended December 31, 2001 were as follows (dollars
in thousands):

<TABLE>
<CAPTION>
                                                          2001
<S>                                                      <C>
Current:
Federal                                                  $1,804
State                                                       627
                                                         ------
  Total Current                                          $2,431
                                                         ======
</TABLE>

      The differences between the effective tax rate and the statutory Federal
income tax rate of 35% are summarized below.

<TABLE>
<S>                                                      <C>
Federal income taxes at statutory rate                   $2,019
Items affecting income tax:
    State income taxes                                      408
    Other items, net                                          4
                                                         ------

    Actual income taxes                                  $2,431
                                                         ======
</TABLE>

NOTE 6-RELATED PARTY TRANSACTIONS

The Company entered into servicing agreements with the Bank pursuant to which
the Bank performs the servicing of the commercial and single-family residential
mortgage loans held by the Company in accordance with normal industry practice.
The servicing fee the Bank charges is 0.25% per year of the outstanding
principal balances of the commercial and single-family residential mortgages.


                                       40
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS

NOTE 6-RELATED PARTY TRANSACTIONS (CONTINUED)

Servicing fee expense paid to the Bank totaled $134,000 for the year ended
December 31, 2001 compared to $123,000 and $108,000 for the periods ended
December 31, 2000 and 1999, respectively. Until June 2001, a portion of the
Company's residential mortgage loans was serviced by Temple Inland Mortgage
Corporation through a sub-servicing arrangement at the Bank. The servicing fee
was 0.25% per year of the outstanding principal balances. Servicing fee expense
paid to Temple Inland Mortgage Corporation for the year ended December 31, 2001
was $25,000 compared to $54,000 and $69,000 for the periods ended December 31,
2000 and 1999, respectively.

      In its capacity as servicer, the Bank holds mortgage loan payments
received on behalf of the Company in custodial accounts. The balance of such
accounts totaled $741,000 and $610,000 at December 31, 2001 and 2000,
respectively, and was recorded as Due From Affiliate. Such payments were passed
through to the Company in January as provided in the servicing agreement.

      As the owner of 100% of the outstanding common stock of the Company, the
Bank is the sole shareholder entitled to receive common dividends.

NOTE 7-MANAGEMENT/ADVISORY FEES

      The Company has an advisory contract with the Bank for an initial term of
five years which will be renewed automatically for additional five-year periods
unless notice of nonrenewal is delivered to the advisor by the Company. The
annual advisory fee is $200,000. As long as any Series A Preferred Shares remain
outstanding, a decision by the Company to terminate the advisory contract must
be approved by a majority of the Board of Directors, as well as by a majority of
the Independent Directors. As of June 2001, the Bank agreed to waive its fees
under the Advisory Agreement. Total advisory fees of $100,000 $200,000 and
$200,000 were paid to the Bank for the three years ended December 31, 2001, 2000
and 1999.

NOTE 8-FAIR VALUE OF FINANCIAL INSTRUMENTS

      The carrying amounts and fair value of the Company's financial instruments
consisted of the following at December 31, 2001 and 2000 (dollars in thousands):

<TABLE>
<CAPTION>
                                         2001                      2000
                                 Carrying       Fair       Carrying       Fair
                                  Value        Value        Value        Value
                                 -----------------------------------------------
<S>                              <C>          <C>          <C>          <C>
FINANCIAL ASSETS:

Cash and cash equivalents ...    $  2,946     $  2,946     $    304     $    304
Mortgage loans, net .........      71,245       73,544       71,571       72,119
Due from Affiliate ..........         741          741          610          610
</TABLE>

      The following methods and assumptions were used to estimate the fair value
of the each type of financial instrument:

      Cash and cash equivalents-The carrying value approximates the fair value
for cash and short-term investments.


                                       41
<Page>

                     PEOPLE'S PREFERRED CAPITAL CORPORATION
                        NOTES TO THE FINANCIAL STATEMENTS

NOTE 8-FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

      Mortgage loans-For residential real estate loans, fair value is estimated
by discounting projected future cash flows at the current market interest rates
for mortgage-backed securities collateralized by loans of similar coupon,
duration and credit risk, adjusted for differences in market interest rates
between loans and securities. The fair value of commercial real estate loans is
estimated by discounting the future cash flows using the current interest rates
at which loans with similar terms would be made on property and to borrowers
with similar credit and other characteristics and with similar remaining terms
to maturity.

      Due from affiliate-The carrying value approximates the fair value for due
from affiliate.

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

      None.


                                       42
<Page>

                                    PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION

      DIRECTORS AND EXECUTIVE OFFICERS. The Company's Board of Directors is
composed of eight members, three of whom are Independent Directors. An
"Independent Director" is a director who is not a current officer or employee of
the Company or a current director, officer or employee of the Bank or any
affiliate of the Bank. These directors will serve until their successors are
duly elected and qualified. There is no current intention to alter the number of
directors comprising the Board of Directors. Certain actions by the Company
require the prior approval of a majority of Independent Directors. Pursuant to
the Articles of Incorporation, the Independent Directors are required to take
into account the interests of the holders of both the Preferred Stock, including
the Series A Preferred Shares, and the Common Stock in assessing the benefit to
the Company of any proposed action requiring their approval. Pursuant to the
Articles of Incorporation, the Independent Directors are required to consider
the interests of the holders of both the Common Stock and the Preferred Stock,
including the Series A Preferred Shares, in determining whether any proposed
action requiring their approval is in the best interests of the Company. The
Company currently has four officers, all of whom are Bank officers. The Company
has no other employees and does not anticipate that it will require additional
employees.

The persons who were directors and executive officers of the Company as of
December 31, 2001 are as follows:

<TABLE>
<CAPTION>
  NAME                      AGE(1)        POSITION AND OFFICES HELD
<S>                           <C>         <C>
Michael Kelly                 56          Chairman and Director
Robert Heskett                54          Director
Gregory Mitchell              45          Chief Executive Officer and Director
Michael Dunning               49          Director
Leona Gleason                 52          Director
Gerald Rogers                 69          Director
Joel Bernick                  63          Director
John Case                     71          Director
</TABLE>

(1) As of December 31, 2001.

      Set forth below is information with respect to the principal occupations
during the last five years of the Company's directors and officers.

      MICHAEL KELLY. Mr. Kelly is FBOP Corporation's Chairman of the Board and
Chief Executive Officer. Mr. Kelly became Chairman and President of FBOP
Corporation in 1981, transforming the once troubled $80 million single bank
holding company into a top performing $10 billion multi-bank holding company
with 74 offices located primarily in four geographic areas. Prior to joining
FBOP Corporation, Mr. Kelly was the Division head of Commercial Lending at
Norwest Bank, Minneapolis.

      ROBERT HESKETT. Mr. Heskett is FBOP Corporation's President and is a
Director of the Corporation. Mr. Heskett joined the FBOP Corporation in 1994
when the organization was $750 million in total assets. Prior to joining FBOP
Corporation, Mr. Heskett was an Executive Vice President of River Forest Bancorp
(now Corus Bancorporation) where he worked for eighteen years.

      GREGORY MITCHELL. Mr. Mitchell joined California National Bank and
People's Preferred Capital Corporation on June 15, 2001 as its President. Prior
to joining California National Bank, Mr. Mitchell was a Principal with Hovde
Financial where he was responsible for the formation and management of its West
Coast investment banking, financial advisory, and fund management practice. Mr.
Mitchell also has a significant regulatory background


                                       43
<Page>

acquired through ten years of service with the Federal Home Loan Bank of San
Francisco and the Office of Thrift Supervision. Mr. Mitchell was an Accredited
Thrift Regulator.

      MICHAEL DUNNING. Mr. Dunning is a Senior Vice President and the Chief
Financial Officer of FBOP Corporation. A twenty-five year banking veteran, Mr.
Dunning joined FBOP Corporation in 1988 when the Corporation was $120 million in
total assets. Prior to the joining the Corporation, Mr. Dunning was a Senior
Vice President for First of America, Kalamazoo, Michigan where he worked for
five years.

      LEONA GLEASON. Ms. Gleason is Senior Vice President - Retail Banking for
FBOP Corporation. Ms. Gleason joined the Corporation in 1996 and has played a
critical role in the successful retail and operational transformation of ten
acquired institutions. Prior to joining FBOP Corporation, Ms. Gleason was the
Senior Vice President of River Forest Bancorp (now Corus Bancorporation) where
she worked for nineteen years.

      GERALD K. ROGERS. Mr. Rogers is a director of the Company since 2001 and a
member of the Audit Committee. Mr. Rogers also serves on the Board of Directors
of Regency Savings Bank, a subsidiary of FBOP Corporation and is a member of the
FBOP Corporation Audit Committee. Mr. Rogers retired in 1991. Prior to his
retirement, Mr. Rogers was the Chief Executive Officer of Regency Savings Bank
for 21 years.

      JOEL S. BERNICK. Mr. Bernick is a director of the Company since 2001 and
is the Chairman of the Audit Committee. Mr. Bernick also serves on the Board of
Directors of First Bank of Oak Park, a subsidiary of FBOP Corporation and is the
Chairman of the FBOP Corporation Audit Committee. Mr. Bernick has been retired
since 1999. Prior to his retirement, Mr. Bernick was the president of CC Shops,
Inc. a 28 store franchisee operation of "The Barbers," Hairstyling for Men and
Women, Inc. Mr. Bernick sold CC Shops, Inc. in 1999 to Regis Corporation, the
world's largest hair cutting company. Mr. Bernick is also a Certified Public
Accountant.

      JOHN J. CASE. Mr. Case, a director of the Company since 2001, is a member
of the Audit Committee. Mr. Case also serves on the Board of Directors of
Regency Savings Bank, a subsidiary of FBOP Corporation. Mr. Case is the
President of Arginetics, Inc. and has served in that capacity since 1972. Mr.
Case is also currently serving as the Chairman of PACE Suburban Bus Board of
Directors and has served in that capacity since 1999. Mr. Case has also served
in various other capacities, including Chairman, of the Dupage County Board of
Directors.

AUDIT COMMITTEE

      The Company has established an audit committee which will review the
engagement and independence of the Company's auditors. The audit committee will
also review the adequacy of the Company's internal accounting controls. The
audit committee currently consists of Messrs. Rogers, Bernick and Case.

ITEM 11: EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS AND OFFICERS

      The Company pays its Independent Directors fees for their services as
directors. The Independent Directors receive a fee of $1,000 for attendance (in
person or by telephone) at each meeting of the Board of Directors or Committee
of the Board. However, multiple fees shall not be paid for two or more meetings
attended on the same day. The Company does not pay any compensation to its
officers or employees or to directors who are not Independent Directors.


                                       44
<Page>

LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS

      The Company's Articles of Incorporation eliminate, to the fullest extent
permitted by the Maryland General Corporation Law ("MGCL"), the personal
liability of a director to the Company or its stockholders for monetary damages
for breach of the director's fiduciary duty. The Articles of Incorporation
empower the Company to indemnify, to the fullest extent permitted by the MGCL,
any of the Company's directors or officers. The Articles of Incorporation also
allow the Company to purchase and maintain insurance to protect any director or
officer against any liability asserted against him or her incurred by him or
her, arising out of his or her status as such.

      The Company's bylaws (the "Bylaws") require indemnification of its
directors and officers and specify that the right to indemnification is a
contract right, setting forth certain procedural and evidentiary standards
applicable to the enforcement of a claim under the Bylaws. The Bylaws also
entitle any director or officer to be reimbursed for the expenses of defending
any claim against him or her arising out of his or status as such. The Bylaws
also provide that the Company may enter into contracts with any director or
officer to further the indemnification provisions contained in the Bylaws and
allow the Company to create a trust fund to ensure payment of amounts
indemnified.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      As of December 31, 2001, there were 10,000 shares of Common Stock of the
Company issued and outstanding, all of which were owned by the Bank. The
following table set forth certain information concerning the ownership of the
Company's outstanding Common Stock as of that date.

<Table>
<Caption>
                              NAME AND ADDRESS                  AMOUNT AND NATURE OF         PERCENT
TITLE OF CLASS                OF BENEFICIAL OWNER               BENEFICIAL OWNERSHIP         OF CLASS
<S>                           <C>                                       <C>                    <C>
Common Stock                  California National Bank                  10,000                 100%
                              221 South Figueroa Street
                              Los Angeles, California 90012
</Table>

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The Company entered into a servicing agreement with the Bank pursuant to
which the Bank performs the actual servicing of the commercial and single-family
residential mortgage loans held by the Company in accordance with normal
industry practice. The servicing fee ranges from 0.25% to 0.375% per year of the
outstanding principal balances. Servicing fee expense paid to the Bank totaled
$134,000 for 2001, $123,000 for 2000 and $108,000 for 1999. See Part 1, Item I -
"Servicing."

      In its capacity as servicer, the Bank holds in custodial accounts at the
Bank mortgage loan payments received on behalf of the Company. The balance of
such accounts totaled $741,000 and $610,000 at December 31, 2001 and December
31, 2000 and was included in Due from Affiliate. Such payments were passed
through to the Company in January as provided in the servicing agreement. As the
owner of 100% of the outstanding common stock of the Company, the Bank is the
sole shareholder entitled to receive common dividends. There were $700,000 of
common dividends paid during the year ended December 31, 2001.


                                       45
<Page>

      The Company has an advisory contract with the Bank for an initial term of
five years which is automatically renewed for additional five-year periods
unless notice of nonrenewal is delivered to the Advisor by the Company. The
annual advisory fee is $200,000. Total advisory fees of $100,000 were paid to
the Bank during 2001. As of June 30, 2001, the Advisor agreed to forego
collection of its management fee and expects this arrangement to continue in the
future. See Part 1, Item I - "Management Policies and Programs-Advisory
Agreement."


                                       46
<Page>

                                     PART IV

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

No Current Reports on Form 8-K were filed during the year of 2001.

EXHIBIT INDEX

EXHIBIT   DESCRIPTION
----------------------

3(a)(i)   Articles of Incorporation of the Company.*

3(a)(ii)  Amended and Restated Articles of Incorporation of the Company.**

3(b)      By-laws of the Company.*

4         Specimen of certificate representing Series A Preferred Shares.*

10(a)     Residential Mortgage Loan Purchase and Warranties Agreement between
          the Company and the Bank.**

10(a)(1)  Amendment to Residential Mortgage Loan Purchase and Warranties
          Agreement between the Company and the Bank.**

10(b)     Commercial Mortgage Loan Purchase and Warranties Agreement between
          the Company and the Bank.**

10(c)     Residential Mortgage Loan Servicing Agreement between the Company
          and the Bank.**

10(d)     Commercial Mortgage Loan Servicing Agreement between the Company and
          the Bank.**

10(e)     Advisory Agreement between the Company and the Bank.**

*     Incorporated by reference from the Registration Statement on Form S-11
      (File No. 333-31501) of People's Preferred Capital Corporation, as filed
      with the Securities and Exchange Commission on July 10, 1997.

**    Incorporated by reference from the Annual Report on Form 10-K of People's
      Preferred Capital Corporation, as filed with the Securities and Exchange
      Commission on March 30, 2000.


                                       47
<Page>

                                   SIGNATURES

      Pursuant to the requirements of the section of 13 and 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.

                                              PEOPLE'S PREFERRED
                                              CAPITAL CORPORATION


Date: March 19, 2002                               By:/s/ Michael Kelly
                                              ------------------------------
                                              Michael Kelly
                                              CHAIRMAN AND DIRECTOR

      Pursuant to the requirements of the Securities Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

             NAME                             TITLE               DATE

/s/ MICHAEL KELLY                   Chairman and Director       March 19, 2002
------------------------
        Michael Kelly

/s/ ROBERT HESKETT                  Director                    March 19, 2002
------------------------
        Robert Heskett

/s/ GREGORY MITCHELL                Chief Executive Officer     March 19, 2002
------------------------            and Director
        Gregory Mitchell

/s/  MICHAEL DUNNING                Director                    March 19, 2002
------------------------
        Michael Dunning

/s/  LEONA GLEASON                  Director                    March 19, 2002
------------------------
        Leona Gleason

/s/ GERALD ROGERS                   Director                    March 19, 2002
------------------------
        Gerald Rogers

/s/ JOEL BERNICK                    Director                    March 19, 2002
------------------------
        Joel Bernick

/s/ JOHN CASE                       Director                    March 19, 2002
------------------------
        John Case


                                       48