SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
                       THE SECURITIES EXCHANGE ACT OF 1934

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

                   For the fiscal year ended December 31, 1998
                                       OR

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

            For the transition period from _______________ to ______
                         Commission file number 0-20897


                        PACIFICAMERICA MONEY CENTER, INC.
             (Exact name of Registrant as specified in its charter)


           Delaware                           6162                  95-4465729
       (State or other                 (Primary Standard        (I.R.S. Employer
       jurisdiction of                     Industrial            Identification
incorporation or organization)     Classification Code Number)        Number)

                             21031 Ventura Boulevard
                        Woodland Hills, California 91364
                                 (818) 992-8999
          (Address, including zip code, and telephone number, including
            area code, of registrant's principal executive offices)

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


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

     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. YES _X_ NO ___.

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

     The number of shares of common stock of the  Registrant  outstanding  as of
March 15, 1999: 5,168,395 shares.

     The  aggregate  market  value  of  the  outstanding  common  stock  of  the
Registrant held by non-affiliates  of the Registrant,  based on the market price
at March 15, 1999 was approximately $2,342,521.



<PAGE>

                        PACIFICAMERICA MONEY CENTER, INC.


     Except for  historical  information  contained  herein,  statements in this
report  are   forward-looking   statements   that  involve   certain  risks  and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Such risks include, among others,  concentration
of interest-only  strips  receivable,  risk of loss on the  interest-only  strip
receivables resulting from differences between actual and assumed prepayments or
loss experience; risk of further changes in accounting methods for gains on sale
of loans for securitization;  loan delinquencies and defaults;  possible decline
of  collateral  values for loans;  fluctuations  in  interest  rates;  increased
competition  in the lending  industry  resulting in lower  lending  rates and/or
reduced loan  originations;  and  possible  regulatory  enforcement  actions and
legislative  action.  See  "Item 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF
FINANCIAL  CONDITION AND RESULTS OF OPERATIONS - Risk Factors"  below for a more
complete description of these factors.

                                     PART I

Item 1.  Business

General

     PacificAmerica  Money Center,  Inc. (the  "Company") is a mortgage  banking
company  primarily  engaged,  through  its  subsidiaries,  in  the  business  of
originating  and selling home equity  mortgage  loans  secured by single  family
residences.  The Company has,  since its formation in 1981,  specialized in home
equity loans for borrowers  whose credit  histories or other factors limit their
access to credit  from  traditional  mortgage  lenders.  The  Company  currently
originates fixed and adjustable rate residential  mortgage loans to borrowers of
all credit  grades.  Borrowers  generally  obtain loans from the Company for the
purpose of financing a purchase of the related property, refinancing an existing
mortgage loan on more  favorable  terms,  consolidating  debt or obtaining  cash
proceeds for personal use by the borrowers.

     In the third  quarter of 1998, a chain  reaction of events  occurred  which
caused  significant  and sudden changes in the subprime  lending  industry,  and
significantly  and adversely  affected the Company's  business for the third and
fourth  quarters of 1998.  These events began with the Asia economic  crisis and
the substantial  losses incurred by several large U.S. hedge funds. These losses
led to a  general  stock  market  decline  in  September  1998 as  institutional
investors  decreased  their holdings of a variety of securities in favor of U.S.
Treasury  securities,  along with a sharp  drop in buyers  for the  subordinated
interests in mortgage  securitization  pools. Since mortgage prices are based on
comparable maturity  Treasuries,  yields on mortgages plummeted to lows not seen
in decades,  causing an  increase in  prepayments  on existing  mortgage  loans.
Simultaneously,  the lack of  buyers  for  subordinated  interests  in  mortgage
securitization  pools caused a reduction in the number of  securitization  pools
completed in the third quarter of 1998. As a result of both the reduced value of
existing  securitization pools caused by increased prepayments and the inability
to complete  new  securitizations,  Wall  Street  investment  banks,  one of the
primary  sources of funding to subprime  lenders,  made margin calls on loans to
subprime lenders and reduced warehouse loan funding availability.  This caused a
number of asset-backed and mortgage-backed  securitization sponsors in September
1998,   particularly  subprime  lenders,  to  experience  significant  liquidity
shortages  due to their  reduced  ability  to  obtain  financing  on  loans  and
interest-only strips receivable.  In order to relieve the liquidity shortages, a
number of subprime  lenders  announced that they would begin selling their loans
on a cash basis, creating an increase in supply of mortgage loans being sold for
cash. These factors led to an oversupply of loans for sale in the secondary loan
market, which has continued into the fourth quarter of 1998.

     As a result of these  significant  adverse changes in the subprime  lending
industry,  the Company  experienced  a sudden loss of ready  purchasers  for its
loans, as well as a substantial reduction in loan sale prices,  beginning in the
third  quarter  of 1998.  Loan  sale  prices  available  to the  Company  in the
secondary loan market were reduced from approximately 105% to 106% of par value,
the price at which the Company sold loans in September  1998, to 101% to 102% of
par  value.  The  Company,  along  with many other  subprime  lenders,  found it
necessary  to  substantially  reduce  its loan  origination  volume and its loan
origination  costs,  which it did by  discontinuing  its wholesale loan division
effective as of October 28,  1998.  The Company  notes that several  other large
subprime  lenders took similar  actions to close or reduce their  wholesale loan
production  units as a result of the  reduction  in loan sale  prices.  Over the
first  nine  months  of  1998,   the   wholesale   loan  division  had  produced
approximately 75% of the Company's lending volume,  and the retail loan division
had produced the remaining  approximately 25% of the lending volume. The closure
of the

                                        2

<PAGE>



wholesale  loan division  therefore had the effect of reducing by  approximately
75% the total loans the Company  expected to originate during the fourth quarter
of 1998.

     Since  October  27,  1998,  the  Company has  continued  originating  loans
exclusively  through its retail loan division,  where origination  costs, net of
fees,  are  approximately  23% lower than  origination  costs of wholesale  loan
origination.  The retail  division is able to offset  costs of loan  origination
against loan fees charged to  borrowers,  which are retained by the Company upon
sale of loans,  and may be taken into income  immediately upon sale of loans. In
order to further reduce operating costs,  between November 1, 1998 and March 18,
1999, the retail division has closed 7 of its 47 offices which were in operation
at October 27, 1998, and the Company now has 40 retail  offices  operating in 21
states and the District of Columbia.

     Loan sale prices have partially  recovered since the third quarter,  as the
Company's  February and March loan sales have been at prices ranging from 102.5%
to 103.5%. In addition, the Company has experienced an increase in the number of
potential  purchasers for its loans,  and has sold loans to six different  third
party purchasers during the first quarter of 1999.  However,  neither prices nor
demand levels have  stabilized as of March 31, 1999. The Company has operated at
a loss for the first three months of 1999,  primarily because it has been unable
to sell a sufficient amount of loans at currently  available prices to cover its
operating expenses.

     Management believes that the Company may return to profitable operations at
current loan sale price levels, provided that it increases the monthly volume of
loans  originated by  approximately  $2 million and the monthly  volume of loans
sold by  approximately  $5 million from levels reached in the first three months
of 1999.  The Company is devoting all of its efforts  towards  these  goals.  In
addition,  the Company is  continuing to seek  strategic  partners and strategic
opportunities to improve its financial condition and its operations.  During the
second and third  quarters of 1998,  the Company held  discussions  with several
potential purchasers of the Company, but the severe adverse conditions affecting
the  subprime  lending  industry  in the  third  quarter  caused  the  potential
purchasers  to terminate  discussions  with the Company.  As  conditions  in the
industry improve,  the Company believes that more strategic  opportunities  will
become  available,  although  there can be no assurance that the Company will be
able to complete a transaction with a strategic partner.

     The Company sells  substantially  all of its loans on a servicing  released
basis,  so that the  purchasers of the loans acquire all servicing  rights.  The
Company is named as master  servicer  on three  securitization  pools  which the
Company securitized in 1997 and 1998, but the actual servicing is performed by a
subservicer.  The Company  retains a small  servicing  department to service its
loans held for sale and a small amount of loans held for investment.

     The Company's  principal  operating  subsidiary is Pacific  Thrift and Loan
Company, a California  corporation  ("Pacific Thrift") and a California licensed
thrift  and loan  formed  in 1988.  Pacific  Thrift  originates  loans for sale,
services the Company's loans held for sale and  investment,  and issues deposits
insured by the Federal  Deposit  Insurance  Corporation  (the  "FDIC").  Pacific
Thrift is subject to regulation by both the FDIC and the  California  Department
of Financial  Institutions  (the "DFI"). In the fourth quarter of 1998, the FDIC
and the DFI  issued  regulatory  orders  requiring  Pacific  Thrift to limit its
lending volume to an amount which could readily be sold, to cease securitization
of  loans  and  to  raise   additional   capital,   among  other  things.   (See
"--Supervision and Regulation -- Regulatory Orders.")

     The Company also conducts  business through  PacificAmerica  Money Centers,
Inc.  ("PAMC"),  a Delaware  corporation which currently  originates loans under
appropriate state licenses in four states in which Pacific Thrift cannot operate
under state laws.

     Until  December  31,  1996,  the  Company  also  engaged  in the trust deed
foreclosure   services   business  through  three   subsidiaries:   Consolidated
Reconveyance  Company ("CRC"),  Lenders Posting and Publishing  Company ("LPPC")
and  Consolidated   Reconveyance   Corporation   ("CRCWA").   The  Company  sold
substantially all of the assets of CRC and LPPC and all of the stock of CRCWA as
part of the  Company's  strategy to  concentrate  all of its financial and human
resources on its primary business of residential lending for securitization.

     The Company's main offices are located at 21031 Ventura Boulevard, Woodland
Hills, California 91364. Its telephone number is (818) 992-8999.


                                        3

<PAGE>


1997 Stock Split Effected by Means of a Stock Dividend

     On August 13, 1997,  the Company paid a one-for-one  stock  dividend to all
stockholders  of record on July 31,  1997,  having the  effect of a  two-for-one
stock  split.  All  share  and per  share  data  reported  herein  reflects  the
one-for-one stock dividend.

1996 Corporate Restructuring

     The  Company  commenced  its  operations  in 1981 as a  California  limited
partnership under the name Presidential Mortgage Company (the "Partnership"). On
June 27, 1996, the Company and the Partnership  completed a  restructuring  plan
(the  "Restructuring"),  pursuant to which all of the assets and  liabilities of
the Partnership were transferred to the Company in exchange for shares of Common
Stock of the  Company.  As a result of the  Restructuring,  1,206,468  shares of
Common Stock were issued to partners of the  Partnership  for their interests in
the  Partnership  and $2,855,600 was paid by the Company to partners  electing a
"cash out option." As part of the Restructuring,  the Company also sold warrants
to the general partner of the Partnership (the "General Partner Warrants"), each
exercisable  until  December  27,  1997,  for one  share of  Common  Stock at an
exercise price of $7.50 per share. Concurrently with the solicitation of consent
of the partners for the Restructuring, the Company made a rights offering to the
partners of the Partnership and certain other related persons of the Partnership
(the  "Rights  Offering"),  pursuant  to which a total of  649,256  shares  were
subscribed for and issued at $5.00 per share and 129,850  warrants  ("Subscriber
Warrants") were issued to the subscribers, each exercisable until June 27, 1998,
for one  share  of  Common  Stock at an  exercise  price  of  $6.25  per  share.
Concurrently with the Restructuring,  the Company completed a public offering of
an additional  1,756,420  shares of Common Stock at $5.00 per share (the "Public
Offering").

Revised Business Strategy

     Because of the sudden and severe changes in the secondary loan market which
occurred in the third and fourth quarters of 1998 and the continued  instability
of the market  through the first quarter of 1999,  the Company has been required
to substantially alter its business strategy from that followed prior to October
1998. The Company believes that borrower demand for subprime  residential  loans
remains strong, and that the secondary loan market will eventually  stabilize at
prices higher than were generally available in the first quarter of 1999. During
the current period of uncertainty,  however,  it is necessary to reduce expenses
to  the  greatest  extent  possible  without  sacrificing  loan  quality  or the
franchise value of the existing retail operations.  The Company has succeeded in
reducing expenses over 48%, by closing five wholesale loan offices and 15 retail
loan offices and reducing the number of its employees  from 599 at September 30,
1998 to 215 at March  31,  1999.  The  Company  now seeks to  maximize  its loan
origination  volume using its  remaining 40 loan  offices,  through more focused
direct mailing and  telemarketing  and renewed emphasis on  self-generated  loan
originations through its existing loan representatives. In addition, the Company
seeks to increase its revenues by increasing fee income on loans  originated for
sale.

     The Company  believes that the value of its operations is enhanced  because
of its ability to operate through Pacific Thrift.  As an FDIC insured  financial
institution,  Pacific Thrift can generate funds for lending  activity by issuing
FDIC-insured deposits and take advantage of favorable federal laws in the states
in which it operates.  However,  because of the adverse changes in the secondary
loan market, the Company has been unable to meet the capital requirements of the
FDIC  for  "adequately  capitalized"  institutions,  and is  required  to  raise
additional  capital  under the terms of a Cease and Desist  Order  issued by the
FDIC on  December  14,  1998  (the  "1998  Order").  (See  Item 1.  Business  --
Supervision  and Regulation -- Regulatory  Actions.) Under the terms of the 1998
Order, the Company has agreed to raise  approximately $20 million,  which is the
amount of  additional  capital  necessary  for  Pacific  Thrift to become  "well
capitalized"  by June 30, 1999.  The Company is  currently  seeking to raise the
additional  capital  necessary to meet the  requirements of the Order, but there
can be no assurance  that the Company will be successful  in raising  additional
capital. The 1998 Order also limits Pacific Thrift's lending volume to an amount
which may readily be sold and  prohibits  securitization  of loans,  among other
things.

     The  Company  is  also  continuing  to work  with  its  financial  adviser,
Friedman,  Billings,  Ramsey & Co.,  Inc.,  to assist it in  locating  strategic
partners  or  other  opportunities.  The  Company  intends  to  actively  pursue
strategic opportunities in 1999. There can be no assurance that any transactions
will be  completed  by the  Company  either  as a result  of its  engagement  of
Friedman,  Billings, Ramsey & Co., Inc. or any other efforts to raise additional
capital or enter into agreements with strategic partners.


                                        4

<PAGE>



Mortgage Loan Production

     General

     The Company has  specialized  in  residential  mortgage  loans to borrowers
underserved by traditional  financial  institutions since its formation in 1981.
Until the Company  began  selling  loans for  securitization  in late 1993,  the
Company  generally  originated  loans  to  hold  and  service  in its  own  loan
portfolio.  From 1994 through 1996, the Company steadily increased the volume of
loans originated for sale and  securitization  and decreased the volume of loans
originated  for  portfolio  investment.  In  1996,  the  Company  determined  to
discontinue  the  origination  of  portfolio  loans and  concentrate  all of its
resources  on  increasing   the  volume  of  loans   originated   for  sale  and
securitization.  In the  third  quarter  of  1998,  the  Company  substantially
discontinued loan securitization, and a majority of its loans have been sold for
cash only since that time.

     The Company  historically  originated the substantial majority of its loans
through independent loan brokers. In 1996, the Company began developing a retail
division, which had expanded to 47 offices by October 1998. Since closing of the
wholesale division in October 1998, substantially all loans have been originated
through  the  retail  division.  The retail  division  has  averaged  total loan
originations of approximately  $25 million per month since November 1, 1998. The
following  table sets forth the  combined  loan  originations  by  category  and
purchases, sales and repayments for the past two years:

                                          At or         At or          At or
                                         For the       for the        for the
                                        Year Ended    Year Ended    Year Ended
                                       December 31,   December 31,  December 31,
                                          1998           1997           1996
                                       -----------    -----------    -----------
                                               (Dollars in Thousands)

Beginning Balance                      $    55,909    $    51,662   $    56,485
         Loans Originated for Sale .  
              Wholesale ............       662,006        584,527       292,116
              Retail ...............       273,084        183,699        43,355
         Junior loans ..............        21,651            -0-           -0-

         Portfolio Loans originated            -0-            -0-        37,987
         Loans purchased ...........           -0-            -0-           -0-
                                       -----------    -----------   -----------
         Total (1)..................     1,012,650        819,888       429,943
Less:          
  Principal repayments .............        (2,326)        (1,053)      (12,388)
  Sales of loans originated for sale      (917,318)      (742,776)     (337,563)
  Sales of portfolio loans .........        (8,530)       (17,063)      (26,176)
  Transfers of REO net of reserves .          (904)        (2,936)       (3,945)
  Other net changes(2) .............        (1,314)          (151)        1,791
                                       -----------    -----------   -----------
         Total loans(1) ............   $    82,258    $    55,909   $    51,662
                                       ===========    ===========   ===========

(1)  Includes loans held for sale.

(2)  Other net changes includes  changes in allowance for loan losses,  deferred
     loan fees, loans in process and unamortized premiums and discounts.

     Geographic Diversity

     Prior to 1994,  the Company  conducted  lending  operations  exclusively in
California.  For  the  last  four  years,  the  Company  has  steadily  expanded
operations throughout the United States. At March 15, 1998, the Company operated
40 retail loan offices in 21 states and the District of Columbia, including 6 in
California;  8 in  the  western  states  of  Colorado,  Nevada,  Arizona,  Utah,
Washington  and  Minnesota;  12 in  the  mid-Atlantic  states  of  Pennsylvania,
Maryland, Virginia,

                                        5

<PAGE>



Delaware,  New Jersey and the District of Columbia; 3 in the northeastern states
of New York, Connecticut and New Hampshire;  and 11 in the mid-western states of
Ohio, Michigan, Wisconsin, Kentucky, Illinois and Indiana.

     Underwriting

     The  following  is a  description  of the current  underwriting  guidelines
customarily  employed by the Company  with  respect to the  origination  of home
equity mortgage  loans.  The Company's  underwriting  guidelines may change from
time to time as management of the Company deems appropriate.

     The  Company  views its  underwriting  process as one that  begins with the
marketing of its products and  includes  each  function  involved in the lending
activity through the ultimate loan funding. As an integral part of this process,
the  Company  trains  its  telemarketing  representatives,  account  executives,
account  managers,  loan  processors,  and  underwriters  to evaluate  each loan
request  relative to the Company's  underwriting  guidelines and overall lending
philosophy.  Such philosophy is to evaluate the merits of each loan  application
on  a  case-by-case   basis  in  accordance  with  the  Company's   underwriting
guidelines.  On occasion, such an evaluation leads the Company to approve a loan
application  that  does not  completely  meet the  guidelines.  Conversely,  the
Company occasionally rejects a loan application that does meet the guidelines.

     The Company  believes that its underwriting  guidelines  (which are revised
from time to time) are  consistent  with those  generally used by lenders in the
business of making subprime mortgage loans. The underwriting process is intended
to assess both the prospective  borrower's  ability to repay and the adequacy of
the real property as collateral for the loan. The Company's  guidelines  require
an analysis of the value of and equity in the collateral, the property type, the
payment history of the borrower and the borrower's ability to repay debt.



                                        6

<PAGE>

As  presented  in the  following  table,  the  Company's  guidelines  permit the
origination of mortgage loans with multi-tiered credit characteristics  tailored
to individual credit profiles.

<TABLE>
<CAPTION>
Credit
Classification                             A                           A-                           B
--------------                -------------------------------------------------------------------------------------
*Maximum LTV                      Owner       Non-Owner       Owner       Non-Owner       Owner       Non-Owner
                                Occupied      Occupied       Occupied     Occupied       Occupied      Occupied
<S>                                <C>           <C>           <C>           <C>           <C>           <C>
Full Doc
SFR                                90%           80%           90%           80%           85%           75%
Condo/PUD                          90%           80%           90%           80%           85%           75%
2/3-4 Unit                         90%           80%           90%           80%           85%           75%
Alt Doc
SFR                                85%           75%           85%           75%           80%           70%
Condo/PUD                          85%           75%           85%           75%           80%           70%
2/3-4 Unit                         85%           75%           85%           75%           80%           70%
No Doc
(1003 Stated Income)(4)            80%           70%           80%           70%           80%           70%
--------------------

Maximum (2) Debt Ratio                    45%                         50%                          50%
----------------------
12 Month Mortgage Rating            0x30 0x60 0x90               2x30 0x60 0x90             2x30 1x60 0x90 or
------------------------
                                                                                            4x30 0.60 0x90 or
                                                                                            3x30 1x60(3) 0x90
Consumer Credit
---------------
General                        24 mos. excellent credit.      24 mos. good credit.     24 mos. satisfactory credit.
-------                         Minimum of 3 accounts       Minimum of 3 accounts        12 mo. "B" or better
                               open/active for 6 months.   open/active for 6 months.    Rental or Mtg. Rating but
                                                                                        no consumer credit (less
                                                                                           than 3 open/active
                                                                                               accounts).

Credit Items                   less than 25% of Credit      less than 35% of Credit      less than 40% of Credit
------------                     items derogatory. No         items derogatory. No           items derogatory.
(Accounts with no activity in  60 day derogatory credit.   90 day derogatory credit.
the last 24 months are not to
be considered.)

Bankruptcy                      2 yrs. since discharge/     2 yrs. since discharge/       1 yr since discharge/
----------                     dismissal with a minimum     dismissal with a minimum    dismissal with 3 "B" re-
                                of 3"A" re-established      of 3 "A-" re-established      established accounts
                              accounts (open/active for    accounts (open/active for   (open/active for at least
                                 at least 6 months).          at least 6 months).       6 mos.) or 18 mos. since
                                                                                       discharge/dismissal with no
                                                                                         re-established credit.

<CAPTION>
Credit
Classification                              C                         C-                         D
--------------                -------------------------------------------------------------------------------
*Maximum LTV                      Owner        Non-Owner      Owner      Non-Owner      Owner       Non-Owner
                                 Occupied      Occupied     Occupied      Occupied    Occupied      Occupied
<S>                                <C>            <C>          <C>          <C>          <C>          <C>
Full Doc
SFR                                80%            70%          70%          65%          65%          60%#
Condo/PUD                          80%            70%          70%          65%          65%          60%#
2/3-4 Unit                         80%            70%          70%          65%          65%          60%#
Alt Doc
SFR                               75%(5)          70%          70%          65%          65%          60%#
Condo/PUD                          75%            70%          70%          65%          65%          60%#
2/3-4 Unit                         75%            70%          70%          65%          65%          60%#
No Doc
(1003 Stated Income)(4)          75-%(5)          65%          N/A          N/A          N/A           N/A
--------------------

Maximum (2) Debt Ratio                     55%                        55%                       60%
----------------------
12 Month Mortgage Rating              2x60 or 1x90                   1x120                 1x150 or more
------------------------


Consumer Credit
---------------
General                          24 mos. fair credit. No   24 mos. poor credit with   24 mos. poor credit. The
-------                          Consumer Credit (Less         some currently         majority of the credit is
                                   than 3 open/active        delinquent accounts.           derogatory.
                                       accounts).


Credit Items                     less than 50% of Credit   less than 60% of Credit       % of Credit items
------------                        items derogatory.          items derogatory.      derogatory not a factor.
(Accounts with no activity in
the last 24 months are not to
be considered.)

Bankruptcy                      BK filed at least 12 mos.   BK filed within last 12   Currently in BK. Must be
----------                      ago & discharged prior to   months but discharged/     paid through the loan.
                                 applying for loan. Open     dismissed prior to
                                BK 13 if filed at least 24   application for loan.
                                   mos. ago & evidence
                                provided that plan & mtg.
                                 paid as agreed. BK must
                                 be paid off thru loan.
</TABLE>

Charge-offs,  Collections and Judgments. Collections,  Charge-offs and Judgments
under $500 are not to be  considered.  All  judgments  that  appear as a lien of
record  against the subject  property must be paid through the loan. The date of
the original occurrence of the collection is to be used in all credit.

--------------------
(1)  Loan cannot be upgraded to receive maximum LTV.
(2)  Will allow 5% increase in D/R (not to exceed  60%) for a  corresponding  5%
     reduction in LTV.
(3)  Max LTV is 90%.
(4)  Not available for "fixed"  income  borrowers or wage earners with less than
     "B" final grade.
*    For 2nd homes & vacation  properties reduce maximum LTV by 5%. Maximum CLTV
     for second mortgages may not exceed 85%.

                                        7
<PAGE>

     The final grade for a loan is  determined  by blending the mortgage  credit
grade and the consumer  credit grade using a credit blending table. In addition,
a final grade of B or C (as determined by the credit blending table) is eligible
for a one credit class upgrade through the Company's upgrade matrix. The upgrade
matrix  takes into  account  such  compensating  factors as property  condition,
length of employment and length of property ownership.

     The Company's guidelines permit the origination of fixed or adjustable rate
loans that generally  amortize over a period not to exceed 30 years. In addition
to adjustable  rate loans with interest  rates that adjust on a quarterly  basis
throughout the term of the loans,  the Company offers loans with fixed rates for
the first two or three years,  which  automatically  convert to adjustable rates
after the initial fixed rate period.  These loans are  generally  referred to as
2/28 or 3/27 loans.  Loan amounts generally range from a minimum of $20,000 to a
maximum of $350,000  unless a higher amount is  specifically  approved by senior
management of the Company. The average loan size of loans originated during 1998
was approximately $98,000.

     The  collateral  securing  the  loans  may  be  either   owner-occupied  or
non-owner-occupied  one-to-four family dwellings,  which includes  condominiums,
townhouses,  manufactured  housing,  and occasionally second and vacation homes.
Substantially  all of the loans  secured  by first  mortgages  are  limited to a
maximum  loan-to-value  ratio of 90%, and substantially all of the loans secured
by second  mortgages are limited to a combined  maximum  loan-to-value  ratio of
85%.

     In order to  determine  the  loan-to-value  ratio,  all home  equity  loans
require at least one recent  written  appraisal  on a current  Federal  National
Mortgage   Association  ("FNMA")  or  Federal  Home  Loan  Mortgage  Corporation
("FHLMC") form with certain supporting  information (e.g.,  location maps, legal
descriptions,  sale and listing histories,  floor plans, and photographs) from a
state licensed  appraiser.  Properties with higher appraised values ($650,000 in
California  and Hawaii,  $500,000  elsewhere)  require a second  appraisal.  All
appraisals  are  required to contain at least  three  recently  closed  sales of
comparable properties located near the subject property. The Company's appraisal
review  department  reviews each  appraisal  for  reasonableness,  completeness,
conformity with the Company's  guidelines and acceptable property condition.  If
the internal review  department  believes there is  insufficient  information or
data to  perform  the review  internally,  the  appraisal  is  outsourced  to an
independent review appraisal company. The Company intends to continually monitor
the quality of both its internal and external  appraisal  reviews with follow-up
additional   reviews  on  a  percentage  of  loan   appraisals.   The  Company's
underwriting  guidelines  require  that any major  deferred  maintenance  on any
property  securing a loan be cured either by the applicant prior to loan closing
or the amount to cure will be withheld  from the proceeds of the loan until such
deferred maintenance is completed.

     A credit report combining  information from two separate independent credit
reporting  agencies is  required  reflecting  the  applicant's  complete  credit
history.  If the report is obtained more than 60 days prior to the loan closing,
the Company will obtain an updated credit report to determine whether or not the
reported  information  has changed in a materially  negative  way, in which case
such loan will be reunderwritten.

     The Company's underwriting  guidelines provide for the origination of loans
under three general income documentation programs: (i) full documentation,  (ii)
alternate  documentation,  and (iii) stated income. Under the full documentation
program the Company obtains one of the following: (i) Verification of Employment
signed by the  employer and the most recent  paycheck  stub showing year to date
income;  (ii)  IRS Form W-2 for the most  recent  two-year  period  and the most
recent paycheck stub showing  year-to-date  income; (iii) individual tax returns
for the  most  recent  two  years  and the most  recent  paycheck  stub  showing
year-to-date  income;  or (iv)  personal  bank  statements  for the most  recent
24-month period and the most recent paycheck stub showing  year-to-date  income.
For each of the above, the Company obtains telephone verification of employment.
If the applicant is  self-employed,  the two most recent years'  applicable  tax
returns (Form 1040,  1120,  1120S or 1065) are required.  Under the  alternative
documentation program,  applicants are required to submit six months of personal
bank  statements,  a recent  paycheck stub showing  year-to-date  income and the
Company  obtains  telephone   verification  of  employment.   For  self-employed
borrowers,  proof that the business has been in existence  for at least one year
is  required.  Under  the  stated  income  program,  income  is  taken  from the
application  as stated by the applicant  and  employment or business is verified
telephonically.

     Exceptions to the Company's underwriting guidelines can only be approved by
senior  underwriters,  managers  or  higher  level of senior  management.  Where
exceptions are made on loan-to-value or debt-to-income  ratios,  such exceptions
are generally limited to no more than 2%.


                                        8
<PAGE>

     The Company's  guidelines  require title  insurance  coverage  issued by an
approved  title  insurance  company on each mortgage  loan.  The Company and its
assignees are named as the insured.  Title insurance policies guarantee the lien
position of the loan and protect the insured  against  loss if the title or lien
position is not as indicated.

     The  following  table  sets forth  selected  information  relating  to loan
originations for sale and  securitization  during the three years ended December
31, 1998  (portfolio  loans  which are not  originated  for sale and  "piggyback
loans" which are held for sale are not included):

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                            ------------------------
                                                      1998             1997            1996
                                                      ----             ----            ----
<S>                                             <C>              <C>              <C>
Principal balance of loans                      $938,276,000     $768,226,000     $335,471,000

Average principal balance per loan                   $98,074          $93,867          $91,993

Percent of first mortgage loans (based on              96.1%            95.6%            95.1%
principal dollar amount of all loans
originated)

Weighted average interest rate                        10.62%           11.08%           11.57%

Weighted average initial loan-to value                78.37%           76.65%           66.92%
ratio
</TABLE>

     Quality Control

     The Company's  quality  control  program  monitors and improves the overall
quality of loan production. Sample loan files are reviewed on a regular basis to
assure the accuracy of all credit  information,  the  compliance  with appraisal
standards,  the compliance with employment and income verification  requirements
and the  accuracy of legal  documents.  Any  inaccuracies  or  inadequacies  are
corrected,  and the  internal  audit  department  reports its findings to senior
management of the Company on a quarterly basis.

Loan Sales and Securitizations

     Since 1995,  the Company has originated  mortgage loans  primarily for sale
and  securitization.  Prior to the fourth  quarter  of 1996,  the  Company  sold
substantially all of its loans for a cash premium,  with no continuing  interest
in the loans  after  sale.  In the fourth  quarter of 1996,  the  Company  began
retaining an  interest-only  strip  receivable in the  securitization  trusts to
which its loans were sold,  under  agreements  with  Aames  Capital  Corporation
("Aames") and Advanta Mortgage Conduit Services, Inc. ("Advanta"). In the fourth
quarter of 1997 and the first and second quarters of 1998, the Company sponsored
three of its own securitizations  through Merrill Lynch, Pierce,  Fenner & Smith
("Merrill").  In the third  quarter of 1998,  the Company  determined  to resume
selling loans for cash only. In the later half of 1998, the Company has sold all
loans  for cash  except  for  approximately  $60  million  of loans  which  were
securitized under the Company's  existing  agreement with Advanta in October and
November 1998. In the aggregate,  the Company  securitized $551 million of loans
and sold $366  million of loans for cash in 1998,  compared  to $727  million of
loans  securitized and $16.0 million sold for cash in 1997.Gain on sale of loans
was $32.8 million, $81.7 million and $29.2 million for 1998, 1997 and 1996.

     As of March 31, 1999, the Company held  interest-only  strips receivable in
thirteen  securitization  trusts (the  "Securitization  Trusts"),  including one
formed by Aames in the fourth  quarter of 1996,  nine formed by Advanta in 1997,
1998 and the first quarter of 1999 and three sponsored by the Company (the "PAMM
Trusts") in 1997 and 1998.  Securities issued by each  Securitization  Trust are
credit enhanced either through an insurance policy issued by a monoline


                                        9
<PAGE>

insurer or through over-collateralization. The securities issued to investors in
each of the Securitization  Trusts were rated "AAA" by Standard & Poor's Ratings
Group and "AAA" by Moody's Investor Service,  Inc. Each of the Aames and Advanta
Securitization  Trusts  holds  loans  sold  by the  Company  as  well  as  loans
originated   or  purchased  by  Aames  or  Advanta.   However,   the   Company's
interest-only  strip  receivable  in  each of  these  Securitization  Trusts  is
dependent  primarily upon the performance of the loans originated by the Company
and held by each of  these  Securitization  Trust.  All  loans  sold for cash or
securitization  have been sold on a nonrecourse basis, except for the obligation
to repurchase any loan which does not meet certain customary representations and
warranties,  and the obligation to repurchase  loans  adversely  affected by any
breach of general representations and warranties. The Company is named as master
servicer  for loans held by the PAMM  Trusts,  and  Advanta  has been  appointed
Sub-Servicer.  Advanta provides substantially all servicing related to the loans
in the PAMM  Trusts.  Aames and  Advanta are the  servicers  of the loans in the
Securitization Trusts each of them has sponsored.

     To the extent that the Company or one of its subsidiaries  originates loans
for sale,  it bears an interest rate risk between the loan approval date and the
date that  each loan is sold.  However,  loans are  generally  sold on a monthly
basis,  which  reduces the risk of interest rate  fluctuations.  Loans which are
held for sale during the period prior to sale are  accounted for at the lower of
cost or market value of such loans.

     In 1998 and 1997  the  Company  adjusted  the fair  value of  interest-only
strips  receivable  down by $38,300,000  and $2,306,000 (see Note 6 to Financial
Statements included under Item 14 of Part IV).

Loan Portfolio

     Until Pacific  Thrift began  originating  loans for sale in 1994,  both the
Partnership  and Pacific Thrift  originated  loans  primarily for their own loan
portfolios,  and  generally  held and  serviced  those  loans  until  payoff  or
refinancing.  In 1995, the Company  stopped all portfolio  lending.  The Company
does  currently  originate  small  second  trust deed  loans made to  facilitate
marketing of loans  originated  for sale  (referred to as  "piggy-back  loans").
While a majority of these loans are sold in bulk loan sales,  a portion of these
loans are held and  serviced  by the  Company.  As of  December  31,  1998,  the
aggregate  balance of all portfolio loans held by the Company was  approximately
$9.4  million,  net of loan loss  reserves.  All  portfolio  loans  are  secured
primarily  by  one-to-four  family  residential,  multi-family  residential  and
commercial real property.  The  characteristics of the Company's  remaining loan
portfolio at December 31, 1998, are described below.

     Geographic  Concentration.   At  December  31,  1998,  the  Company's  loan
portfolio  included loans  geographically  distributed,  based on principal loan
balances,  approximately 81% in Southern  California (south of San Luis Obispo),
13% in Northern  California  and the  remaining  6% in other  states,  primarily
Washington  and Oregon.  The  Company's  portfolio  loan policy limits the total
dollar  amount of loans and total  number of loans made in each zip code area to
no more than 5% of its total outstanding loans.

     Collateral.  At each of the dates set forth below, the gross loan portfolio
of the Company  (net of reserves  for loan  losses)  was  collateralized  by the
following types of real property:


                                       10
<PAGE>

                              PORTFOLIO COLLATERAL

<TABLE>
<CAPTION>
                                                Dec. 31, 1998                      Dec. 31, 1997                      Dec. 31, 1996
                               Dec. 31, 1998    Percentage of    Dec. 31, 1997     Percentage of    Dec. 31, 1996     Percentage of
                               Loan Balances   Total Portfolio   Loan Balances    Total Portfolio   Loan Balances    Total Portfolio
<S>                              <C>                <C>            <C>                 <C>            <C>                <C>
One-to-four family
residential property
     1st TDs                     $ 2,738,000         26.07%        $ 2,539,000          11.39%        $ 2,629,000          7.19%
     2nd TDs                       1,199,000         11.41           3,037,000          13.62          11,148,000         30.48
     3rd TDs                         101,000          0.96             452,000           2.03             701,000          1.92
 Home Imp. Loans                     827,000          7.88           1,090,000           4.89           1,322,000          3.61
                                 -----------        ------         -----------         ------         -----------        ------
TOTAL                              4,865,000         46.32           7,118,000          31.93          15,800,000         43.20
                                 ===========        ======         ===========         ======         ===========        ======
Five and Over
Multi-Family
residential property
     1st TDs                       1,679,000         15.98           5,425,000          24.34           8,468,000         23.15
     2nd TDs                          90,000          0.86             747,000           3.35             840,000          2.30
     3rd TDs                             -0-           -0-                 -0-            -0-                 -0-           -0-
                                 -----------        ------         -----------         ------         -----------        ------
TOTAL                              1,769,000         16.84           6,172,000          27.69           9,308,000         25.45
                                 ===========        ======         ===========         ======         ===========        ======
Commercial
Property
     1st TDs                       3,850,000         36.65           8,528,000          38.26           9,761,000         26.69
     2nd TDs                          20,000          0.19             445,000           2.00             869,000          2.38
     3rd TDs                             -0-           -0-              28,000           0.12             102,000          0.28
                                 -----------        ------         -----------         ------         -----------        ------
TOTAL                              3,870,000         36.84           9,001,000          40.38          10,732,000         29.35
                                 ===========        ======         ===========         ======         ===========        ======
Undeveloped
Property
     1st TDs                             -0-           -0-                 -0-            -0-             733,000          2.00
     2nd TDs                             -0-           -0-                 -0-            -0-                 -0-           -0-
     3rd TDs                             -0-           -0-                 -0-            -0-                 -0-           -0-
                                 -----------        ------         -----------         ------         -----------        ------
TOTAL                                    -0-           -0-                 -0-            -0-             733,000          2.00
                                 ===========        ======         ===========         ======         ===========        ======
TOTAL
PORTFOLIO
     1st TDs                       8,267,000         78.70          16,492,000          73.99          21,591,000         59.04
     2nd TDs                       1,309,000         12.46           4,229,000          18.97          12,857,000         35.16
     3rd TDs                         101,000          0.96             480,000           2.15             803,000          2.19
 Home Imp. Loans                     827,000          7.88           1,090,000           4.89           1,322,000          3.61
                                 -----------        ------         -----------         ------         -----------        ------
TOTAL                            $10,504,000        100.00%        $22,291,000         100.00%        $36,573,000        100.00%
                                 ===========        ======         ===========         ======         ===========        ======
</TABLE>


                                       11
<PAGE>

     Loan Origination and Underwriting. Each portfolio loan made by the Company,
other than  "piggyback"  loans as described  below,  was analyzed at origination
based on the loan applicant's  credit history and repayment  ability,  using the
Company's  then existing  underwriting  guidelines.  Portfolio  loans  generally
required credit histories from independent credit reporting companies,  proof of
income and independent appraisal reports of the value of the mortgaged property.

     Piggyback loans meet the same credit and documentation  requirements as the
companion senior loans originated for sale, except that loan-to-value ratios are
usually 5% higher than the loan-to-value  ratios allowed by the purchaser of the
senior loans.  To compensate for the higher  loan-to-value  ratios,  the Company
provides  higher general  reserves for piggyback  loans.  From time to time, the
Company  sells  piggyback  loans to third party  purchasers.  During  1998,  the
Company sold $28 million of piggyback loans at 79.4% of par value.  During 1997,
the Company sold $5.7 million of piggyback loans at par value.  During 1996, the
Company sold $5.5 million of  piggyback  loans,  of which $3.8 million were sold
for a discount of  approximately  1% of par value and $1.7  million were sold at
par value. As of December 31, 1998, the Company held 604 piggyback  loans,  with
an aggregate principal balance of $4.3 million.

     Maturities and Rate  Sensitivities  of Loan Portfolio.  The following table
sets forth the  contractual  maturities  of the loan  portfolio  at December 31,
1998.


                            PORTFOLIO LOAN MATURITIES

<TABLE>
<CAPTION>
                                                                           At December 31, 1998
                             -------------------------------------------------------------------------------------------------------
                                                                                                 More
                                                 More             More            More          than 10         More
                                 One             than             than           than 5          years          than
                                 Year          1 year to         3 years        years to         to 20           20           Total
                               or Less          3 years        to 5 years       10 years         years          years         Loans
                             -------------  ---------------  ---------------  --------------  ------------  ------------   ---------
                                                                             (In thousands)
<S>                              <C>            <C>                <C>           <C>           <C>           <C>           <C>
One- to four-family..........    $474             $392              $96            $576          $989        $1,511         $4,038
Multi-family.................      --               --              136           1,280           176           177          1,769
Commercial...................     247              902              383           2,169           130            39          3,870
Home improvement.............      15               33                5             759            15           --             827
                                 ----             ----             ----            ----          ----          ----          -----

Total amount due.............    $736           $1,327             $620          $4,784        $1,310        $1,727        $10,504
                                 ====           ======             ====          ======        ======        ======        =======
</TABLE>

     The following table sets forth, as of December 31, 1998, the dollar amounts
of loans  receivable (not including loans held for sale) that are  contractually
due after  December  31,  1999 and whether  such loans have fixed or  adjustable
interest rates:


                                       12
<PAGE>

                                 PORTFOLIO LOANS

                                                 Due after December 31, 1999
                                            ------------------------------------
                                            Fixed        Adjustable        Total
                                            ------------------------------------
                                                      (In thousands)
One- to four-family ...............         $1,292         $2,272         $3,564
Multi-family ......................             --          1,769          1,769
Commercial ........................            884          2,739          3,623
Home improvement ..................            812            -0-            812
                                            ------         ------         ------
         Total loans
         receivable ...............         $2,988         $6,780         $9,768
                                            ======         ======         ======

     The Company generally rewrites a portfolio loan at maturity if the borrower
makes a new loan  application.  In  cases  where  the  loan-to-value  ratio  has
declined on an existing  loan and no longer meets the  applicable  loan-to-value
guidelines, the Company will generally rewrite the loan.

     A substantial portion of the Company's loan portfolio is repriced, pays off
or matures approximately every year. Of the 28% of all loans bearing fixed rates
at December 31, 1998,  1% were due in one year or less.  Based upon these facts,
over 72% of the loan  portfolio  at  December  31,  1998,  consisted  of  either
variable rate loans or fixed rate loans which mature within one year. Management
therefore expects that within one year,  approximately 72% of the loan portfolio
will be paid off or  reprice at the rate in effect on the  existing  loan at the
time the loan is  repriced  or the then  applicable  rate for new or  refinanced
loans.

     The initial interest rate on variable rate portfolio loans is set as of the
date of origination of each loan based upon the then  prevailing  reference rate
established by Bank of America.  The rate may increase by not less than .125% in
any  three-month  period,  but may not  increase  by more  than five (10 in some
cases) percentage points in the aggregate.  Such increases (or decreases, as the
case may be) occur at three-month intervals as the result of changes in the Bank
of America  reference rate.  Although the interest rate may decrease,  it cannot
decrease below the original interest rate set for each loan.

Classified Assets and Loan Losses

     The Company's general policy is to discontinue accrual of interest and make
a provision for anticipated  loss on a loan when: (i) it is two or more payments
contractually past due and the current estimated  loan-to-value  ratio is 80% or
more;  or  (ii)  the  loan  exhibits  the  characteristics  of  an  in-substance
foreclosure, generally including any loan as to which the borrower does not have
the ability,  willingness or motivation to repay the loan. The current estimated
loan-to-value ratios of substantially all delinquent loans are determined by new
independent appraisal or broker price opinions,  unless an independent appraisal
was  obtained no more than  twelve  months  prior to the monthly  review of each
delinquent loan. When a loan is reclassified from accrual to nonaccrual  status,
all previously accrued interest is reversed. Interest income on nonaccrual loans
is   subsequently   recognized   when  the  loan  resumes   payment  or  becomes
contractually current as appropriate.  Loans which are deemed fully or partially
uncollectible  by management are generally fully reserved or charged off for the
amount that exceeds the estimated net realizable value (net of selling costs) of
the underlying real estate collateral. Gains on the sale of real estate acquired
in settlement of loans ("REO") are not recognized until the close of escrow.

     Unless an  extension,  modification  or rewritten  loan is  obtained,  or a
bankruptcy  is filed,  the  Company's  policy is to  commence  procedures  for a
non-judicial  trustee's sale within 30 to 60 days of a payment  delinquency on a
loan under the power of sale provisions of the trust deed securing such loan, as
regulated  by  applicable  law.  A  delinquent  loan will only be  rewritten  or
extended if it can be determined  that the borrower has the ability to repay the
loan on the modified terms. The initiation of foreclosure  proceedings against a
borrower  does not suggest that the recovery of the loan is dependent  solely on
the underlying  collateral.  In fact, many borrowers  bring payments  current or
undertake other remedies so that a foreclosure sale is not required.

     The determination of the adequacy of the allowance for loan losses is based
on a variety of factors,  including loan  classifications  and  underlying  loan
collateral values, and the level of nonaccrual loans. Therefore,  changes in the
amount of  nonaccrual  loans will not  necessarily  result in  increases  in the
allowance for loan losses. The ratio of nonaccrual portfolio loans


                                       13
<PAGE>

past due 90 days or more to total  portfolio  loans was 21.83% at  December  31,
1998,  4.96% at December 31, 1997,  and 3.81% at December 31, 1996. The ratio of
the allowance  for loan losses to nonaccrual  loans past due 90 days or more was
37.68% at  December  31,  1998,  130.14% at  December  31,  1997 and  176.76% at
December 31, 1996.

     The  following  table sets forth the number and  remaining  balances of all
loans in the Company's loan portfolio (net of specific reserves for loan losses)
that were more than 30 days delinquent at December 31, 1998, 1997 and 1996.

                                 PORTFOLIO LOAN
                                  Delinquencies

<TABLE>
<CAPTION>
                              AT DECEMBER 31, 1998              AT DECEMBER 31, 1997                AT DECEMBER 31, 1996
                           -------------------------        ----------------------------       -----------------------------
           Loan               Loans       Percent of           Loans          Percent of         Loans           Percent of
       Delinquencies        Delinquent   Total Loans        Delinquent       Total Loans       Delinquent        Total Loans
       -------------       -----------   -----------        ----------       -----------       ----------        -----------
<S>                        <C>              <C>             <C>               <C>              <C>                 <C>
       30 to 59 days       $ 1,782,000      16.96%          $  150,000           .67%          $1,428,000           3.91%
       60 to 89 days           870,000       8.28%             321,000          1.44%           1,431,000           3.91%
      90 days or more        2,705,000      25.75%           1,913,000          8.58%           3,019,000           8.25%
                            ----------     -------          ----------         ------          ----------          ------
           TOTAL           $ 5,357,000      50.99%          $2,384,000         10.69%          $5,878,000          16.07%
                           ===========     =======          ==========         ======          ==========          ======
</TABLE>

     Nonaccrual  and  Restructured  Loans.  The  following  table sets forth the
aggregate  amount of loans at December  31,  1998,  1997 and 1996 which were (i)
accounted for on a nonaccrual basis; (ii) accruing loans which are contractually
past  due 90 days or more as to  principal  and  interest  payments;  and  (iii)
troubled debt restructurings,  which are defined in SFAS 15 as loans modified to
reduce interest rates below market rates, to reduce amounts due at maturity,  to
reduce accrued interest or to loan additional funds.

                                 PORTFOLIO LOAN
                         Non Accruals and Restructurings

<TABLE>
<CAPTION>
                                    Accruing Loans       Nonaccruing Loans
                                       Past Due          Past Due 90 Days      Troubled Debt
                                   90 Days or More            or More          Restructurings         Total
                                   ---------------            -------          --------------         -----
                                                               (Dollars in Thousands)
<S>                                     <C>                    <C>                  <C>              <C>
At December 31, 1998                      $412                 $2,293                  0             $2,705
At December 31, 1997                      $808                 $1,105                  0             $1,913
At December 31, 1996                    $1,625                 $1,394               $357             $3,376
</TABLE>



                                       14
<PAGE>

     The following table sets forth information concerning interest accruals and
interest on nonaccrual  loans past due 90 days as of December 31, 1998, 1997 and
1996.


                             PORTFOLIO LOAN INTEREST
                             Due on Delinquent Loans

<TABLE>
<CAPTION>
                                        Interest                                Interest Not
                                      Contractually                             Recognized on
                                      Due on Loans        Interest Accrued        Nonaccrual
                                        Past Due          on Loans Past Due     Loans Past Due
                                    90 Days or More        90 Days or More      90 Days or More
                                    ---------------        ---------------      ---------------
                                                       (Dollars in Thousands)
<S>                                       <C>                    <C>                 <C>
At December 31, 1998                      $299                   $ 30                $269
At December 31, 1997                      $323                   $119                $204
At December 31, 1996                      $886                   $133                $753
</TABLE>

     Upon request of a borrower,  the Company  generally grants one to two month
extensions  of  payments  during  the term of a loan.  In 1998,  one loan with a
principal balance of approximately $60,000 was extended for a term not exceeding
six months,  and two loans with an aggregate  principal balance of approximately
$300,000 were modified.  There were no delinquent loans  rewritten.  The Company
applies the same  documentation  standards on a rewritten loan as on an original
loan,  and makes  these  accommodations  only if it can be  determined  that the
borrower  has the ability to repay the loan on the modified  terms.  In general,
this determination is made based upon a review of the borrower's current income,
current debt to income ratio, or anticipated sale of the collateral.

     At December  31, 1998,  the Company held REO (net of specific  reserves) of
approximately  $200,000.  In accordance with the policy for  recognizing  losses
upon acquisition of REO, the Company charges off or posts specific  reserves for
those  portions of the loans with respect to which REO has been  acquired to the
extent of the difference between the loan amount and the estimated fair value of
the REO.  Included in REO at December  31, 1998 were two  commercial  properties
with an aggregate net book value of approximately  $200,000.  For the year ended
December 31, 1998, total expenses on operation,  including valuation allowances,
and  losses  on sale of REO were $0.3  million  and gains on sale of REO and REO
income were $0.2 million,  for a total expense of $0.1 million.  There can be no
assurance  that net  losses  on the sale of REO will not be  experienced  in the
future.

     Allowance for Loan Losses. The following is a summary of the changes in the
consolidated  allowance  for loan  losses of the  Company  for each of the years
ended December 31, 1998, 1997 and 1996:


                                 PORTFOLIO LOANS
                             Reserve for Loan Losses

                                        At or for the Years Ended December 31,
                                       ----------------------------------------
                                          1998            1997            1996
                                                     (In thousands)
                                       ----------------------------------------
Balance at beginning of period........   $1,438        $  2,464        $  4,229
Provision for loan losses.............    1,314           3,087           1,151
Transferred to loans held for sale....      -0-          (1,902)            -0-
Chargeoffs............................   (1,888)         (2,211)         (3,187)
Recoveries............................      -0-             -0-             271
                                       --------        ---------      ---------
Balance at end of period.............. $    864        $  1,438        $  2,464
                                       ========        ========        ========

     Pacific Thrift uses an asset classification  system pursuant to which every
delinquent  loan  and  every   performing  loan  which  exhibits   certain  risk
characteristics is graded monthly,  and a general reserve percentage is assigned
to each classification


                                       15
<PAGE>

level. Management of the Company also reviews every delinquent loan on a monthly
basis and reviews  the  current  estimated  fair  market  value of the  property
securing that loan. To the extent that the amount of the delinquent loan exceeds
the estimated fair market value of the property, an additional reserve provision
is made for that loan.

     Pacific Thrift's current policy is to maintain an allowance for loan losses
equal to the amount  determined  necessary  based upon  Pacific  Thrift's  asset
classification  policy,  which is  written to conform  with  generally  accepted
accounting  principles  and FDIC  requirements.  PacificAmerica  Money  Center's
current  policy is to  maintain  an  allowance  for loan  losses  determined  in
accordance with generally accepted accounting principles.

     Management utilizes its best judgment in providing for possible loan losses
and  establishing  the allowance for loan losses.  However,  the allowance is an
estimate  which is  inherently  uncertain  and  depends on the outcome of future
events.  In  addition,  regulatory  agencies,  as  an  integral  part  of  their
examination  process,  periodically  review Pacific Thrift's  allowance for loan
losses.   Such  agencies  could  require  Pacific  Thrift,  just  as  any  other
FDIC-insured  institution,  to post additions to the allowance  based upon their
judgment of the information available to them at the time of their examination.

     Implicit in lending  activities is the fact that losses will be experienced
and that the amount of such losses will vary from time to time,  depending  upon
the risk  characteristics  of the  portfolio.  The  allowance for loan losses is
increased by the provision for loan losses  charged to expense.  The  conclusion
that a loan may  become  uncollectible,  in whole  or in  part,  is a matter  of
judgment.

Investment Activities

     Pacific Thrift  maintains an investment  portfolio  which is used primarily
for liquidity purposes and secondarily for investment  income.  Pacific Thrift's
policy is to invest cash in  short-term  U.S.  government  securities or federal
funds sold due in less than 30 days. Overnight federal funds sold are limited to
no more than 100% of total capital at any single  financial  institution that is
either adequately or well capitalized.  If the financial  institution is neither
adequately nor well capitalized, the limit is $100,000. As of December 31, 1998,
Pacific  Thrift  held $38  million  in federal  funds  sold due in an  overnight
federal reserve account and approximately $3.6 million in deposits with a bank.

Sources of Funds
Deposits 

     Pacific Thrift's major source of funds is FDIC-insured deposits,  including
passbook  savings  accounts,  money market accounts and investment  certificates
(similar to certificates of deposit).  Pacific Thrift attracts customers for its
deposits by offering rates that are slightly  higher than rates offered by large
commercial banks and savings and loans.  Pacific Thrift had no brokered deposits
as of December  31,  1998.  Management  believes  its  deposits are a stable and
reliable  funding source.  At December 31, 1998,  Pacific Thrift had outstanding
3,373 deposit accounts of approximately $162 million.

     The following table sets forth the average  balances and average rates paid
on each category of Pacific Thrift's deposits for the three years ended December
31, 1998.

                                Deposit Analysis

<TABLE>
<CAPTION>
                                    Averages for 1998          Averages for 1997             Averages for 1996
                                    -----------------          -----------------             -----------------
                                  (Dollars in Thousands)     (Dollars in Thousands)        (Dollars in Thousands)

                                  Average        Average     Average         Average       Average        Average
                                  Balance         Rate       Balance          Rate         Balance         Rate
<S>                              <C>              <C>       <C>               <C>         <C>              <C>
Passbook/Money Market            $ 22,738         5.31%     $ 21,516          5.11%       $ 31,300         5.20%
Investment Certificates           116,058         5.93%       74,184          5.87%         47,582         5.86%
under $100,000
Investment Certificates             2,115         6.00%          823          6.08%            -0-           -0-
over $100,000                    --------         ----      --------          ----        --------         ----
</TABLE>


                                       16
<PAGE>

<TABLE>
<S>                              <C>              <C>       <C>               <C>         <C>              <C>
Total                            $140,911         5.83%     $ 96,523          5.71%       $ 78,882         5.60%
                                 ========         ====      ========          ====        ========         ====
</TABLE>


     The following schedule sets forth the time remaining until maturity for all
certificates at December 31, 1998, 1997 and 1996.

                               Deposit Maturities

<TABLE>
<CAPTION>
                                             At                  At                    At
                                        December 31,        December 31,          December 31,
                                            1998                1997                  1996
                                        (Dollars in         (Dollars in           (Dollars in
                                         Thousands)          Thousands)            Thousands)
<S>                                       <C>                 <C>                   <C>
Passbook/Money Market                     $ 29,692            $ 18,793              $ 24,659
                                          --------            --------              --------

Accounts under $100,000
  3 months or less                        $ 19,560            $ 20,588              $ 14,451
  Over 3 months through 6 months            35,852              32,649                19,745
  Over 6 months through 12 months           71,967              56,219                22,147
  Over 12 months                             4,741                  95                   -0-
                                          --------            --------              --------

                  Total                   $132,120            $109,551              $ 56,343
                                          --------            --------              --------

Accounts over $100,000
  3 months or less                             -0-            $    400              $    -0-
  Over 3 months through 6 months               -0-                 -0-                   -0-
  Over 6 months through 12 months              498               3,780                   -0-
  Over 12 months                               -0-                 -0-                   -0-
                                          --------            --------              --------

                  Total                   $    498            $  4,180              $    -0-
                                          --------            --------              --------

Total Deposits                            $162,310            $132,524              $ 81,002
                                          ========            ========              ========
</TABLE>

Other Borrowings

     The  Company  has in the  past  utilized  lines  of  credit  and  warehouse
financing to finance its lending operations. In 1996 and the first part of 1997,
the  Company  completed  the final pay off of a bank  credit  line which in 1990
reached a peak  borrowing of $82 million.  In October  1997,  the Company  began
using warehouse  financing  provided by Merrill Lynch pending  securitization of
loans by the Company  through Merrill Lynch.  This warehouse  financing was paid
off by December  31,  1998,  and the Company is not  currently  using  warehouse
financing.

     The  Company has also  obtained  advances  from Aames,  Advanta and Merrill
Lynch on the interest-only  strips receivable held by the Company in each of the
Securitization Trusts, as further described below.

     The  Company  obtained  an  advance  from Aames  secured  by the  Company's
interest in the Aames 1996- D Trust. The advance is repaid from cash flow on the
Company's interest-only strips receivable.  As of December 31, 1998, the Company
owed a balance of  approximately  $1.9 million on the advance from Aames,  which
bears interest at 12.5% per annum. The loan is due in December 1999. The Company
currently  anticipates  that a portion of the  advance  will be repaid with cash
flow from the Aames 1996-D Trust by the maturity  date of the advance,  but that
additional  cash flow  anticipated  in 2000 will be necessary to fully repay the
advance.  No  arrangements  have yet been made with Aames for  extension  of the
maturity date. (See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Certain Accounting Considerations.").


                                       17
<PAGE>

Until the advance is fully  repaid,  the Company will not be entitled to receive
cash flow for its interest in the Aames 1996-D Trust.

     The Company  obtained  advances  from  Advanta on each of the nine  Advanta
Trusts. All of these advances are non-recourse, and are payable solely from cash
flow on the  Company's  interests  in each of the Advanta  Trusts.  Cash flow is
applied  to repay  advances  from  Advanta  in  accordance  with the terms of an
amortization schedule of between 36 and 48 months, as applicable to each Advanta
Trust.  As of December  31,  1998,  the  Company  owed an  aggregate  balance of
approximately $30 million (excluding  accrued interest of $2.5 million),  on the
advances from Advanta, which bear interest at rates of between LIBOR plus 1% and
LIBOR plus 2% per annum.  Any advance  which has not been fully  repaid after 48
months from cash flow on the applicable Advanta Trust may be paid from cash flow
from any other Advanta Trust.

     The Company obtained warehouse  financing for loans sold to the PAMM Trusts
in 1997 and 1998 under a Master Repurchase  Agreement with affiliates of Merrill
Lynch.  The full remaining  balance owed by the Company under this agreement was
repaid  as of  December  31,  1998.  Because  of the  reduction  of its  lending
activities in the third quarter of 1998,  the Company  currently has no need for
warehouse loan financing.

     The Company obtained  advances from Merrill Lynch on each of the three PAMM
Trusts  under the terms of a Master  Assignment  Agreement  with an affiliate of
Merrill Lynch. The advances are secured by the Company's interest-only strips in
the PAMM Trusts.  At December 31, 1998,  the Company owed a principal  amount of
$18.4 million under this agreement,  bearing interest at a weighted average rate
of approximately  7.5% (LIBOR plus 2.5% as of that date). Under the terms of the
Master  Assignment  Agreement,  each advance is due in one year unless  extended
pursuant to the mutual  agreement of the Company and Merrill Lynch. In addition,
the  Company  is  required  to  make  mandatory  prepayments  under  the  Master
Assignment  Agreement  in the event that the  interest-only  strips  assigned to
Merrill Lynch  experience a decline in value from the levels  established at the
time of the advance. Merrill Lynch requested the Company to make a payment of $2
million in October  1998 on the total  amount  owed under the Master  Assignment
Agreement.  The initial  advance of $4.8 million under the agreement  matured in
December 1998, $6.1 million matured in March 1999, and $7.5 million is scheduled
to mature in June 1999. The Company notified Merrill Lynch in November 1998 that
it would be unable to make  principal  or interest  payments as they became due,
and proposed a debt repayment  schedule,  with payments derived from anticipated
cash flow on the Company's  interest-only  strips receivable in the PAMM Trusts.
This plan was based on  anticipated  cash flows  beginning  in January  1999 and
continuing without  interruption.  Merrill Lynch advised the Company in December
1998 that it did not at that time  intend to  exercise  any of its rights  other
than to require that cash flow payments on the PAMM Trust  interest-only  strips
receivable be made directly to Merrill Lynch. Merrill Lynch further indicated at
that time a general  willingness to discuss a repayment plan;  however, in March
1999,  the Company and Merrill Lynch were advised that cash flow payments  would
be suspended on the one PAMM Trust which had begun  distributions  of cash flow,
because loan  delinquencies  had exceeded certain trigger levels provided for in
the indenture  agreement for that PAMM Trust.  Until the loan delinquency levels
on that PAMM Trust are reduced,  all distributions  that would otherwise be made
on the interest-only strip receivable will be deposited into the reserve account
for that PAMM  Trust.  As a  result,  no cash flow is  currently  being  paid to
Merrill Lynch.  The Company and Merrill Lynch are currently  reviewing  possible
actions to reduce the  delinquency  level on the PAMM  1997-1  Trust which would
allow a resumption of cash flow  distributions  to Merrill Lynch.  Until Merrill
Lynch and the Company have some  assurance as to the level of cash flow that can
be  expected  over the near term,  it is  doubtful  that a  mutually  acceptable
payment plan can be agreed to between the parties.  The Company has not received
any further  indication from Merrill Lynch of its intended course of action with
respect to the debt owed,  but there can be no assurance that Merrill Lynch will
not  exercise one or more of its rights,  including a sale of the  interest-only
strips in the PAMM  Trusts,  unless an  agreement  can be reached on a repayment
plan and  distributions  of cash  flow on the  interest-only  strips in the PAMM
Trusts are resumed as a source of payment to Merrill Lynch.

     In October 1998,  while the Company was engaged in acquisition  discussions
with  Fremont  General  Corporation  ("Fremont"),  the  Company  received a $3.0
million loan from  Fremont.  The proceeds of the loan were used to repay Merrill
Lynch $2.0 million under the Master Assignment Agreement and $1.0 million to pay
operating and other  expenses of the Company.  The loan was  originally  due and
payable six months after


                                       18
<PAGE>

termination  of merger  discussions  with Fremont,  but Fremont has extended the
loan maturity  until January 8, 2000. The loan is secured by a pledge of 100% of
the stock of Pacific Thrift.

Competition

     The Company faces  significant  competition for the origination and selling
of home equity mortgage loans from consumer finance companies,  mortgage banking
companies and other subprime lenders.  Many of these companies are substantially
larger  and  have  considerably  greater  financial,   technical  and  marketing
resources  than  the  Company.  In  addition,   many  other  financial  services
organizations  have formed  national  loan  origination  networks  offering loan
products that are substantially similar to the Company's loan programs.  Factors
influencing  consumer  decisions  to choose  one  lender  over  another  include
convenience,  customer service,  marketing and distribution channels, amount and
term of the  loan,  loan  origination  fees and  interest  rates.  Increases  in
competition  may result in lower rates charged to  borrowers,  which could lower
gain on future loan sales and securitizations.  Fluctuations  interest rates and
general economic  conditions may also affect competition in the consumer finance
industry.  During periods of rising rates,  competitors  that have locked in low
borrowing  costs may have a competitive  advantage.  During periods of declining
rates, competitors may solicit the Company's customers to refinance their loans.

     The Company also faces competition in connection with the sale of its loans
in the secondary  loan market.  Prior to the third quarter of 1998,  the Company
had not experienced  difficulty in selling its loans,  but recent market changes
has reduced the number of loan purchasers,  as well as a reduction in the prices
offered for loans sold.  Many of the companies  selling loans are  substantially
larger and have  greater  financial  resources  than the  Company.  The  Company
believes  that its record of loan  quality is a  positive  factor in  attracting
purchasers of its loans. However, the adverse conditions currently affecting the
Company,  including  regulatory  actions and the status of its loan with Merrill
Lynch, have had an adverse effect on the Company's ability to sell loans to some
purchasers.

     Pacific Thrift faces  competition for  depositors'  funds from other thrift
and loans, banks,  savings and loans and credit unions.  Pacific Thrift does not
offer checking accounts,  travelers' checks or safe deposit boxes and thus has a
competitive  disadvantage  to  commercial  banks  and  savings  associations  in
attracting  depositors  seeking these  services.  Pacific  Thrift's lower costs,
however,  enable it to  compensate  for the lack of a full array of  services by
offering  slightly  higher interest rates for deposits than most large banks and
savings and loans, which are not, however, higher than prevailing rates at other
small savings and loan associations and thrift and loans.

Employees

     During  1998,  the  Company  and  its  subsidiaries  reached  a peak of 640
full-time employees,  including 261 commission-based loan representatives.  As a
result of the  closure  of the  wholesale  loan  division  in  October  1998 and
additional layoffs, as of December 31, 1998 the Company and its subsidiaries had
234 full-time employees, including 83 commission-based loan representatives.

Supervision and Regulation

     Financial and lending  institutions  are  extensively  regulated under both
federal and state law. Set forth below is a summary description of the principal
laws which relate to the regulation of Pacific Thrift and PAMC. The  description
does not purport to be complete and is qualified in its entirety by reference to
the applicable laws and regulations.

Consumer Protection Laws

     Pacific Thrift and PAMC are subject to numerous  federal and state consumer
protection laws, including the Federal  Truth-In-Lending  Act, the Federal Equal
Credit  Opportunity  Act, the Fair Credit  Reporting  Act, the Federal Fair Debt
Collection  Practices Act and the Federal Reserve  Board's  Regulations B and Z.
These laws and regulations,  among other things,  limit certain finance charges,
fees and other charges on loans, require


                                       19
<PAGE>

certain  disclosures  be made to  borrowers  and loan  applicants,  regulate the
credit  application and evaluation  process and regulate  certain  servicing and
collection practices.  These laws and regulations impose specific liability upon
lenders who fail to comply with their  provisions,  and may give rise to defense
to payment of a borrower's  obligation  in the event of a failure to comply with
certain  applicable laws.  Pacific Thrift and PAMC believe they are currently in
compliance in all material  respects with all applicable  laws, but there can be
no  assurance  that  they or any  other  financial  institution  will be able to
maintain  such  compliance.   The  failure  to  comply  with  such  laws,  or  a
determination by a court that their  interpretation of law was erroneous,  could
have a material adverse effect on Pacific Thrift or PAMC.

State Law

     PAMC

     PAMC is currently a licensed lender in 11 states, and currently operates in
four  states.  The lending  laws of some states have  certain  interest  and fee
limitations, disclosure and loan document requirements and penalties for failure
to meet these  requirements.  PAMC reviews the  applicable  lending laws of each
state prior to  commencement  of business  in the state and  regularly  monitors
changes in the lending laws of all states in which it conducts business.

     Pacific Thrift

     Pacific Thrift is subject to regulation,  supervision and examination under
its  California   thrift  and  loan  license  by  the  Department  of  Financial
Institutions  ("DFI") which regulates all banks,  savings and loans,  thrift and
loans,  and credit unions  chartered by the State of California.  The California
Industrial Loan Law and the rules and  regulations of the DFI regulate  interest
rates,  fees,  collateral  requirements,  payment  terms and  maturities  of the
various  types of loans  that are  permitted  to be made by  California-licensed
thrift and loan companies. The majority of these limitations,  however, apply to
loans under $10,000.

     A thrift and loan generally may not make any loan to, or hold an obligation
of, any of its directors, officers or any shareholder holding 10% or more of its
shares, or any director or officer or any shareholder holding 10% or more of the
shares of its  holding  company or  affiliates,  except in  specified  cases and
subject to regulation by the DFI. A thrift and loan may not make any loan to, or
hold an obligation of, any of its shareholders or any shareholder or its holding
company or affiliates.  There are currently no outstanding loans made by Pacific
Thrift to any officers or directors of the Company or any of its affiliates. Any
person who wishes to acquire  10% or more of the capital  stock of a  California
thrift  and loan  company or 10% or more of the  voting  capital  stock or other
securities  giving control over management of its parent company must obtain the
prior written approval of the DFI.

     A thrift and loan is subject to certain leverage  limitations which are not
generally  applicable to commercial banks or savings and loan  associations.  In
particular,  thrift and loans may not have  outstanding  at any time  investment
certificates  that exceed 20 times paid-up and  unimpaired  capital and surplus.
Under  California  law,  thrift and loans that desire to increase their leverage
must meet specified minimum standards for liquidity  reserves in cash, loan loss
reserves,  minimum capital stock levels and minimum  unimpaired  paid-in surplus
levels.  As approved by the DFI,  Pacific  Thrift can  currently  operate with a
ratio of deposits to unimpaired capital and unimpaired surplus of up to 15:1. At
December 31, 1998, Pacific Thrift's deposit ratio was 12.7:1.

     Thrift and loan  companies are not permitted to borrow,  except by the sale
of investment or thrift  certificates,  in an amount  exceeding 300% of tangible
net worth,  surplus and undivided profits,  without the DFI's prior consent. All
sums  borrowed in excess of 150% of tangible  net worth,  surplus and  undivided
profits must be unsecured borrowings or, if secured,  approved in advance by the
DFI,  and be included  as  investment  or thrift  certificates  for  purposes of
computing  the  maximum  amount of  certificates  a thrift  and loan may  issue.
However,  collateralized  Federal Home Loan Bank  advances are excluded for this
test of secured  borrowings and are not specifically  limited by California law.
Pacific Thrift had no borrowed funds (other than deposits) at December 31, 1998.


                                       20
<PAGE>

     Under  California law,  thrift and loan companies are generally  limited to
investments,  other than loans, that are legal investments for commercial banks.
A thrift and loan  company may acquire real  property  only in  satisfaction  of
debts previously contracted,  pursuant to certain foreclosure transactions or as
may be  necessary  for the  transaction  of its  business,  in which  case  such
investment,  combined with all investments in personal  property,  is limited to
one-third of a thrift and loan's paid-in capital stock and surplus not available
for dividends.

     Although  investment  authority and other activities that may be engaged in
by Pacific Thrift generally are prescribed under the California  Industrial Loan
Law, certain provisions of Federal Deposit Insurance Corporation Improvement Act
of 1991  ("FDICIA")  may limit  Pacific  Thrift's  ability  to engage in certain
activities  that otherwise are authorized  under the California  Industrial Loan
Law.

Federal Law

     Pacific  Thrift's  deposits  are  insured  by the FDIC to the  full  extent
permissible  by law. As an insurer of  deposits,  the FDIC  issues  regulations,
conducts  examinations,  requires the filing of reports and generally supervises
the operations of institutions  for which it provides deposit  insurance.  Among
the  numerous  applicable  regulations  are those  issued  under  the  Community
Reinvestment  Act of 1977 ("CRA") to encourage  insured state  nonmember  banks,
such as Pacific Thrift, to meet the credit needs of local communities, including
low and moderate income neighborhoods, consistent with safety and soundness, and
a rating system to measure  performance.  Inadequacies of performance may result
in regulatory action by the FDIC. Pacific Thrift received a satisfactory  rating
with  respect  to  its  CRA  compliance  in  its  most  recent  FDIC  compliance
examination completed in November 1995.

     Pacific  Thrift is subject to the rules and  regulations of the FDIC to the
same extent as all other state banks that are not members of the Federal Reserve
System. The approval of the FDIC is required prior to any merger,  consolidation
or change in control, or the establishment or relocation of any branch office of
Pacific Thrift.  This  supervision and regulation is intended  primarily for the
protection of the deposit insurance funds.

     Under provisions of FDICIA and regulations  issued by the FDIC,  additional
limitations have been imposed with respect to depository institutions' authority
to accept, renew or rollover brokered deposits. Pacific Thrift does not have any
brokered deposits as of the date hereof.

     Pacific Thrift is subject to certain capital adequacy  guidelines issued by
the FDIC. See "Federal Law --Capital Adequacy Guidelines" under this heading.

Regulatory Actions

     On April 1, 1996, Pacific Thrift entered into a Memorandum of Understanding
("MOU")  with the FDIC and DOC. The 1996 MOU  provided  that Pacific  Thrift was
required to (i) maintain Tier I capital of not less than 8% of total assets (ii)
maintain an adequate reserve for loan losses (iii) eliminate  assets  classified
"loss" as of September 30, 1995,  reduce assets  classified  "substandard" as of
September 30, 1995 to not more than  $4,000,000  within 180 days, and reduce all
assets classified substandard,  doubtful and loss to no more than 50% of capital
and reserves by September  30, 1996;  (iv) obtain FDIC approval  before  opening
additional  offices;  (v) develop strategies to stabilize net interest margin on
portfolio loans and develop  procedures to implement those strategies;  and (vi)
furnish written quarterly progress reports.

     On March 9, 1998, the 1996 MOU was replaced with a new MOU (the "1998 MOU")
between Pacific Thrift and the FDIC. The 1998 MOU required  Pacific Thrift:  (i)
continue to maintain Tier 1 capital of not less than 8.0% of total assets;  (ii)
by July 7, 1998,  have and thereafter  maintain  risk-based  capital of not less
than 10.0% of total  assets;  (iii)  maintain a fully funded loan loss  reserve;
(iv) by March 19, 1998,  eliminate assets classified "loss" as of June 30, 1997,
and by September 5, 1998, reduce assets classified  "substandard" to $4 million;
(v) by June 7, 1998, reduce and thereafter  maintain the amount of interest-only
strip  receivables,  net of tax  liabilities,  to no more  than  100%  of  total
capital;  (vi) by June 7, 1998, obtain an independent valuation of interest-only
strip receivables, and


                                       21
<PAGE>

thereafter obtain an annual independent valuation of such receivables until they
represent  no more  than  50% of Tier 1  capital;  (vii)  by June 7,  1998,  and
thereafter  quarterly,   perform  valuations  and  cash  flow  analyses  on  the
interest-only strip receivables; (viii) by May 8, 1998, eliminate and/or correct
certain transactions between the Company and Pacific Thrift and develop,  adopt,
and implement a written policy governing the relationship  between the Company &
Pacific  Thrift  (ix) by June 7, 1998,  revise,  adopt and  implement  a written
asset/liability  management  policy to include risk tolerance  levels for income
and annual  independent  audits of Pacific Thrift's  interest rate risk process;
(x) pay no cash  dividends  without  prior  written FDIC  approval;  (xi) pay no
executive or director bonuses without prior written FDIC approval; (xii) by June
7,  1998,  submit a  strategic  plan  covering  the  period  1998  through  2000
reflecting  restricted growth of the interest-only strip receivable;  and (xiii)
by May 15, 1998,  and  thereafter  at the end of each quarter,  furnish  written
progress reports.

     On November 6, 1998,  Pacific Thrift entered into a stipulation and consent
to an order issued by the California  Department of Financial  Institutions (the
"DFI"),  under  which  Pacific  Thrift  agreed:  (i) that it will not issue loan
commitments without having a clearly identified and reasonably assured source of
funds, such as deposits, loan sale commitments or other financing, with which to
fund its loans; (ii) that it will not make any shareholder  distributions except
with the prior written  approval of the DFI; and (iii) that it will  discontinue
selling loans under conduit loan sale  arrangements  through its parent company.
The DFI Order is  currently  in effect,  and  management  believes  that Pacific
Thrift is currently in compliance with all of the terms of the DFI order.

     On November 23, 1998, the Federal Deposit  Insurance  Corporation  ("FDIC")
issued a prompt  corrective  action  directive  against Pacific Thrift (the "PCA
Directive").  The PCA Directive  required  that:  (i) Pacific Thrift sell enough
voting  shares or  obligations  on or before  December 31, 1998 to be adequately
capitalized  after the  sale;  (ii) that  Pacific  Thrift  accept an offer to be
acquired by a depository  institution holding company or to combine with another
insured  depository  institution  if notified in writing by the FDIC that one or
more grounds exist for appointing a conservator or receiver for Pacific  Thrift;
(iii) that Pacific  Thrift  restrict the interest rates that it pays on deposits
to the  prevailing  rates of  interest on  deposits  of  comparable  amounts and
maturities;  (iv) that  Pacific  Thrift  comply with  Section 23A of the Federal
Reserve Act as if  subsection  (d) (1) of that  section did not apply;  (v) that
Pacific  Thrift not commit to fund any loan until such time as Pacific Thrift or
its parent has in place a formal written  committed loan production  warehousing
line of credit; (vi) that Pacific Thrift not permit its average total assets, or
its average  total  deposits,  during any  calendar  month to exceed its average
total assets,  or its average  total  deposits,  during the  preceding  calendar
month;  (vii) that  Pacific  Thrift  shall not  establish  or operate any branch
without FDIC approval or any loan  production  office  without prior approval of
the DFI; (viii) that Pacific Thrift not make any  distributions to its parent or
any affiliate or pay any bonuses or increase the compensation of any director or
officer of Pacific  Thrift.  Certain  provisions  of the PCA  Directive  are not
consistent  with the 1998 Order (as described  below),  but the FDIC has advised
that it does not intend to seek  enforcement of the PCA Directive as long as the
provisions of the 1998 Order are complied with.

     On December 14, 1998, Pacific Thrift entered into a stipulation and consent
to an order issued by the FDIC (the "1998 Order")  which  replaced the 1998 MOU.
Under  the 1998  Order,  Pacific  Thrift  has  agreed:  (i) to have  and  retain
qualified  management to operate its  regulated  business;  (ii) to achieve,  by
January 31, 1999, and thereafter maintain,  Tier 1 capital equal to or in excess
of 8.0  percent of its total  assets,  and to  achieve,  by June 30,  1999,  and
thereafter  maintain,  Tier 1 risk-based capital of no less than 6.0 percent and
total  risk-based  capital of no less than 10.0  percent;  (iii) to  maintain an
adequate allowance for loan losses; (iv) to take the following steps with regard
to its interest-only strips receivables: (a) by June 30, 1999, reduce the amount
of the receivable as a percentage of total capital to no more than 100%; (b) not
acquire or book any  additional  interest-only  strips  receivable  without  the
consent of the FDIC; and (c) obtain quarterly and annual independent  valuations
of the existing  interest-only  strips  receivable;  (v) to prepare and submit a
written  two-year  business/strategic  plan;  (vi) to discontinue  selling loans
under conduit loan sale arrangements through its parent company and, by February
27, 1999,  to develop a plan for Pacific  Thrift to directly  achieve all of the
benefits of prior  intercompany  conduit loan sales; (vii) by February 27, 1999,
to develop a revised  written  asset/liability  management  policy  specifically
addressing  interest rate risks associated with the mortgage  banking  business;
(viii) not to pay cash  dividends  or  distributions  without the prior  written
consent of the FDIC;  (ix) not to enter into any executive  compensation  and/or
bonus agreements without prior approval of the FDIC; (x) to develop and


                                       22
<PAGE>

implement a written policy for all  intercompany  transactions  with affiliates;
(xi) to  furnish a  description  of the Order to its  shareholder;  and (xii) to
furnish written  quarterly  progress reports  detailing  actions taken to comply
with the Order.  The 1998 Order is  currently in effect,  and Pacific  Thrift is
taking action to comply with the terms of the Order by the dates specified.

     On March 1, 1999,  Pacific Thrift entered into a stipulation and consent to
an order  issued by the FDIC  related  to Year 2000  readiness  (the  "Year 2000
Order").  Under the Year 2000 Order, Pacific Thrift has agreed: (i) to designate
an executive  officer as the  institution's  Year 2000  Officer,  who shall have
authority to engage the services of a consultant  who possesses  the  experience
and  qualifications  necessary  to achieve Year 2000  readiness  and prepare the
institution for contingencies  that may arise relating to the Year 2000; (ii) by
March 26,  1999,  develop and adopt a plan for  achieving  Year 2000  readiness;
(iii) by April 15, 1999,  develop and implement a remediation  contingency  plan
setting  forth  the  institution's  alternative  plans to assure  continuity  of
operations in the event the institution must retain Year 2000 ready  replacement
mission-critical systems,  suppliers,  hardware or software from other alternate
sources;  (iv) by June 30, 1999, develop a business resumption  contingency plan
setting forth the  institution's  plans to mitigate  risks  associated  with the
failure of its systems at critical  dates;  (v) by no later than June 30,  1999,
have in place  mission-critical  systems  that are Year 2000 ready,  including a
written determination by the institution that the mission-critical  systems have
been tested successfully; (vi) for as long as the order is in effect, acquire or
contract for the use of  electronic  information  systems,  hardware,  operating
systems, and applications software only if such hardware,  systems, and software
have  been  successfully  tested  for Year  2000  readiness  prior to use by the
institution; (vii) by April 10, 1999, perform due diligence reviews to determine
whether the Year 2000 readiness procedures of its service providers and software
vendors,  and the  time  frames  for  implementation  of those  procedures,  are
adequate and by March 31, 1999,  implement an internal  testing or  verification
process,  and complete such testing by June 30, 1999;  (viii) by March 21, 1999,
amend the institution's internal and external audit policies to require periodic
audits of the institution's Year 2000 Plan and its implementation;  (ix) provide
monthly  status  reports to the Board of Directors  and the FDIC  detailing  the
institution's progress in implementing the Year 2000 Plan.

     Restrictions on Transfers of Funds to Affiliates by Pacific Thrift

     There are statutory and  regulatory  limitations on the amount of dividends
which may be paid to the  Company by Pacific  Thrift.  Under  California  law, a
thrift and loan is not  permitted  to declare  dividends  on its  capital  stock
unless it has at least $750,000 of unimpaired capital plus additional capital of
$50,000 for each branch  office  maintained.  In addition,  no  distribution  of
dividends is permitted unless: (i) such distribution would not exceed a thrift's
retained  earnings;  or, (ii) in the  alternative,  after  giving  effect to the
distribution,  (a) the sum of a thrift's  assets (net of  goodwill,  capitalized
research and development  expenses and deferred  charges) would be not less than
125% of its liabilities  (net of deferred taxes,  income and other credits),  or
(b) current assets would be not less than current  liabilities (except that if a
thrift's average earnings before taxes for the last two years had been less than
average interest expenses,  current assets must not be less than 125% of current
liabilities).

     In addition,  a thrift and loan is prohibited  from paying  dividends  from
that portion of capital which its board of directors has declared restricted for
dividend  payment  purposes.  The amount of restricted  capital  maintained by a
thrift and loan  provides the basis of  establishing  the maximum  amount that a
thrift may lend to a single  borrower and  determines the amount of capital that
may be counted by the thrift for purposes of  calculating  the thrift to capital
ratio. Pacific Thrift has, in the past,  restricted as much capital as necessary
to support its level of assets.  The board of  directors  of Pacific  Thrift may
unrestrict  all or any portion of its equity in the future for  dividends to the
Company, provided that Pacific Thrift remains adequately capitalized.

     The FDIC also has  authority to prohibit  thrift and loans from engaging in
what,  in the  FDIC's  opinion,  constitutes  an unsafe or unsound  practice  in
conducting its business. It is possible,  depending upon the financial condition
of the bank in question and other  factors,  that the FDIC could assert that the
payment of dividends or other payments might, under some circumstances,  be such
an unsafe or unsound practice. Further, the FDIC has established guidelines with
respect to the maintenance of appropriate levels of capital by banks under their
jurisdiction. Compliance with the standards set forth in such guidelines and the
restrictions that are or may be


                                       23
<PAGE>

imposed under the prompt  corrective action provisions of the FDICIA could limit
the  amount of  dividends  which  Pacific  Thrift  may pay to the  Company.  See
"Capital  Standards"  under this  heading for a discussion  of these  additional
restrictions on capital distributions.

     Thrift and loans are subject to certain restrictions imposed by federal law
on any  extensions  of credit to, or the  issuance of a  guarantee  or letter of
credit on behalf  of,  the  Company  or other  affiliates,  the  purchase  of or
investments in stock or other securities thereof,  the taking of such securities
as  collateral  for loans and the  purchase  of assets of the  Company  or other
affiliates.  Such  restrictions  prevent the Company and other  affiliates  from
borrowing  from  Pacific  Thrift  unless  the loans are  secured  by  marketable
obligations of designated amounts.  Further,  such secured loans and investments
by  Pacific  Thrift  to or in the  Company  or to or in any other  affiliate  is
limited to 10% of Pacific  Thrift's  capital  and surplus (as defined by federal
regulations)  and  such  secured  loans  and  investments  are  limited,  in the
aggregate, to 20% of Pacific Thrift's capital and surplus (as defined by federal
regulations).  In addition,  any transaction with an affiliate of Pacific Thrift
must be on terms and under  circumstances  that are  substantially the same as a
comparable  transaction  with  a  non-affiliate.   Additional   restrictions  on
transactions  with  affiliates  may be imposed  on thrift  and loans,  under the
prompt corrective action provisions of FDICIA.

     Capital Standards

     The Federal  Reserve  Board and the FDIC have  adopted  risk-based  minimum
capital  guidelines  intended to provide a measure of capital that  reflects the
degree of risk  associated with a depository  institution's  operations for both
transactions  reported on the balance sheet as assets and transactions,  such as
letters of credit and recourse  arrangements,  which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent  amounts of off balance sheet items are  multiplied by one of several
risk  adjustment  percentages,  which  range from 0% for assets  with low credit
risk,  such as  certain  U.S.  Treasury  securities,  to 100%  for  assets  with
relatively high credit risk, such as business loans.

     A  depository  institution's  risk-based  capital  ratios are  obtained  by
dividing  its  qualifying  capital  by  its  total  risk  adjusted  assets.  The
regulators measure risk-adjusted assets, which includes off balance sheet items,
against  both total  qualifying  capital  (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists primarily
of common stock,  retained  earnings,  noncumulative  perpetual  preferred stock
(cumulative  perpetual  preferred stock for bank holding companies) and minority
interests in certain  subsidiaries,  less most intangible assets. Tier 2 capital
may consist of a limited  amount of the  allowance  for possible  loan and lease
losses,  cumulative  preferred stock,  long term preferred stock,  eligible term
subordinated  debt and certain other  instruments with some  characteristics  of
equity.  The inclusion of elements of Tier 2 capital is subject to certain other
requirements  and  limitations  of the  federal  banking  agencies.  The federal
banking  agencies  require  a  minimum  ratio of  qualifying  total  capital  to
risk-adjusted   assets  of  8%  and  a  minimum  ratio  of  Tier  1  capital  to
risk-adjusted assets of 4%.

     In  addition  to the  risk-based  guidelines,  federal  banking  regulators
require  depository  institutions to maintain a minimum amount of Tier 1 capital
to total assets, referred to as the leverage ratio. For a depository institution
rated  in the  highest  of the  five  categories  used  by  regulators  to  rate
depository  institutions,  the minimum leverage ratio of Tier 1 capital to total
assets is 3%. For all depository institutions not rated in the highest category,
the minimum leverage ratio must be at least 100 to 200 basis points above the 3%
minimum, or 4% to 5%. In addition to these uniform risk-based capital guidelines
and leverage  ratios that apply across the  industry,  the  regulators  have the
discretion  to  set  individual   minimum  capital   requirements  for  specific
institutions at rates significantly above the minimum guidelines and ratios.

     In January 1995, the federal banking  agencies issued a final rule relating
to capital  standards and the risks arising from the concentration of credit and
nontraditional activities.  Institutions which have significant amounts of their
assets concentrated in high risk loans or nontraditional  banking activities and
who fail to adequately manage these risks, will be required to set aside capital
in excess of the  regulatory  minimums.  The federal  banking  agencies have not
imposed  any  quantitative  assessment  for  determining  when  these  risks are
significant,  but have  identified  these issues as important  factors they will
review in assessing an individual bank's capital adequacy.


                                       24
<PAGE>

     The federal banking agencies  interagency policy statement on the allowance
for loan and lease  losses  establishes  certain  benchmark  ratios of loan loss
reserves to classified  assets. The benchmark set forth by such policy statement
is the sum of (a) assets classified loss; (b) 50% of assets classified doubtful;
(c) 15% of assets  classified  substandard;  and (d) estimated  credit losses on
other assets over the upcoming 12 months.

     Federally  supervised banks and savings associations are currently required
to report  deferred  tax assets in  accordance  with SFAS No.  109.  The federal
banking  agencies  limit the amount of deferred tax assets that are allowable in
computing an institution's  regulatory capital.  Deferred tax assets that can be
realized for taxes paid in prior  carryback  years and from future  reversals of
existing taxable temporary  differences are generally not limited.  Deferred tax
assets that can only be realized through future taxable earnings are limited for
regulatory capital purposes to the lesser of (i) the amount that can be realized
within one year of the  quarter-end  report date, or (ii) 10% of Tier 1 Capital.
The amount of any  deferred  tax in excess of this limit would be excluded  from
Tier 1 Capital and total assets and regulatory capital calculations.  Management
believes that Pacific Thrift is in compliance with these requirements.

     The following table presents the capital ratios for Pacific  Thrift,  as of
December  31,  1998,  compared  to  the  regulatory  capital   requirements  for
adequately capitalized and well capitalized institutions.

                                              December 31, 1998
                                    ---------------------------------------
                                                                   Well
                                    Actual       Adequately     Capitalized
                                    Ratio       Capitalized     Requirement
                                    -----       -----------     -----------
Leverage ratio................       6.9%           4.0%           5.0%(1)
Tier 1 risk-based ratio.......       3.2%           4.0%           6.0%
Total risk-based ratio........       3.6%           8.0%          10.0%(1)

     (1)  Pursuant to the 1998 Order,  Pacific  Thrift is required to maintain a
          minimum  8.0%  leverage  ratio  and by June 30,  1999,  to  reach  and
          thereafter maintain a 10.0% total risk-based capital ratio.

     Prompt Corrective Action and Other Enforcement Mechanisms

     Federal law requires each federal banking agency to take prompt  corrective
action to resolve the problems of insured depository institutions, including but
not  limited  to those that fall below one or more  prescribed  minimum  capital
ratios.  The law required each federal banking agency to promulgate  regulations
defining  the  following  five   categories  in  which  an  insured   depository
institution  will be  placed,  based on the level of its  capital  ratios:  well
capitalized,    adequately    capitalized,    undercapitalized,    significantly
undercapitalized and critically undercapitalized.

     In September  1992,  the federal  banking  agencies  issued  uniform  final
regulations implementing the prompt corrective action provisions of federal law.
An insured depository  institution generally will be classified in the following
categories based on capital measures indicated below:

     "Well capitalized"                     "Adequately capitalized"
     ------------------                     ------------------------
     Total risk-based capital of 10%;       Total risk-based capital of 8%;
     Tier 1 risk-based capital of 6%; and   Tier 1 risk-based capital of 4%; and
     Leverage ratio of 5%.                  Leverage ratio of 4% (3% if the
                                            institution receives the highest
                                            rating from its primary regulator)

     "Undercapitalized"                     "Significantly undercapitalized"
     ------------------                     --------------------------------
     Total risk-based capital less          Total risk-based capital less
     than 8%;                               than 6%;
     Tier 1 risk-based capital less         Tier 1 risk-based capital less
     than 4%; or                            than 3%;
     Leverage  ratio less than 4% (3% if    or Leverage ratio less than 3%.
     the institution receives the highest
     rating from its primary regulator)


                                       25
<PAGE>

     "Critically undercapitalized"
     -----------------------------
     Tangible equity to total assets less than 2%.

     An institution  that, based upon its capital levels, is classified as "well
capitalized,"  "adequately  capitalized" or "undercapitalized" may be treated as
though it were in the next lower  capital  category if the  appropriate  federal
banking agency,  after notice and  opportunity  for hearing,  determines that an
unsafe or unsound  condition  or an unsafe or  unsound  practice  warrants  such
treatment.  At each successive  lower capital  category,  an insured  depository
institution  is subject to more  restrictions.  The  federal  banking  agencies,
however,  may not treat an institution as "critically  undercapitalized"  unless
its leverage capital ratio actually warrants such treatment.

     The law prohibits  insured  depository  institutions from paying management
fees to any  controlling  persons or, with certain  limited  exceptions,  making
capital  distributions  if  after  such  transaction  the  institution  would be
undercapitalized.  If an insured depository institution is undercapitalized,  it
will be closely monitored by the appropriate federal banking agency,  subject to
asset growth  restrictions and required to obtain prior regulatory  approval for
acquisitions,   branching   and   engaging  in  new  lines  of   business.   Any
undercapitalized  depository  institution  must  submit  an  acceptable  capital
restoration  plan to the  appropriate  federal  banking  agency  45  days  after
becoming undercapitalized.  The appropriate federal banking agency cannot accept
a capital plan  unless,  among other  things,  it  determines  that the plan (i)
specifies the steps the institution will take to become adequately  capitalized,
(ii) is based on  realistic  assumptions  and  (iii) is  likely  to  succeed  in
restoring  the  depository  institution's  capital.  In  addition,  each company
controlling an undercapitalized  depository  institution must guarantee that the
institution  will comply with the capital plan until the depository  institution
has  been  adequately  capitalized  on an  average  basis  during  each  of four
consecutive  calendar quarters and must otherwise provide adequate assurances of
performance.  The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at the
time  the  institution  became  undercapitalized  or (b)  the  amount  which  is
necessary to bring the institution  into  compliance with all capital  standards
applicable to such  institution as of the time the  institution  fails to comply
with its capital  restoration  plan.  Finally,  the appropriate  federal banking
agency may impose any of the  additional  restrictions  or sanctions that it may
impose on significantly undercapitalized institutions if it determines that such
action will further the purpose of the prompt correction action provisions.

     An insured depository  institution that is significantly  undercapitalized,
or is  undercapitalized  and  fails  to  submit,  or in a  material  respect  to
implement,  an  acceptable  capital  restoration  plan, is subject to additional
restrictions and sanctions. These include, among other things: (i) a forced sale
of voting  shares to raise  capital or, if grounds  exist for  appointment  of a
receiver or conservator, a forced merger; (ii) restrictions on transactions with
affiliates;  (iii) further limitations on interest rates paid on deposits;  (iv)
further  restrictions  on growth or  required  shrinkage;  (v)  modification  or
termination of specified activities; (vi) replacement of directors and/or senior
executive  officers;   (vii)  prohibitions  on  the  receipt  of  deposits  from
correspondent institutions;  (viii) restrictions on capital distributions by the
holding   companies  of  such   institutions;   (ix)  required   divestiture  of
subsidiaries by the institution;  or (x) other restrictions as determined by the
appropriate  federal  banking agency.  Although the appropriate  federal banking
agency has  discretion  to  determine  which of the  foregoing  restrictions  or
sanctions  it will  seek to  impose,  it is  required  to force a sale of voting
shares or merger,  impose  restrictions  on  affiliate  transactions  and impose
restrictions  on rates paid on deposits  unless it determines  that such actions
would not further the purpose of the prompt  corrective  action  provisions.  In
addition,  without the prior written approval of the appropriate federal banking
agency,  a significantly  undercapitalized  institution may not pay any bonus to
its senior executive  officers or provide  compensation to any of them at a rate
that exceeds such  officer's  average  rate of base  compensation  during the 12
calendar   months   preceding  the  month  in  which  the   institution   became
undercapitalized.

     Further  restrictions  and  sanctions are required to be imposed on insured
depository  institutions that are critically  undercapitalized.  For example,  a
critically  undercapitalized  institution  generally  would be  prohibited  from
engaging  in any  material  transaction  other  than in the  ordinary  course of
business  without  prior  regulatory   approval  and  could  not,  with  certain
exceptions,  make any payment of principal or interest on its subordinated  debt
beginning 60 days after becoming critically undercapitalized.  Most importantly,
however,  except under limited  circumstances,  the appropriate  federal banking
agency, not later than 90 days after an insured depository


                                       26
<PAGE>

institution  becomes  critically  undercapitalized,  is  required  to  appoint a
conservator  or  receiver  for the  institution.  The board of  directors  of an
insured  depository  institution  would  not  be  liable  to  the  institution's
shareholders  or creditors for consenting in good faith to the  appointment of a
receiver  or  conservator  or to an  acquisition  or merger as  required  by the
regulator.

     In  addition  to  measures  taken  under  the  prompt   corrective   action
provisions,  commercial  depository  institutions  may be subject  to  potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting  their  businesses or for violations of any law, rule,  regulation or
any condition imposed in writing by the agency or any written agreement with the
agency.  Enforcement  actions may include the  imposition  of a  conservator  or
receiver,  the  issuance  of a cease and  desist  order  that can be  judicially
enforced,  the termination of insurance of deposits (in the case of a depository
institution),   the  imposition  of  civil  money  penalties,  the  issuance  of
directives to increase capital,  the issuance of formal and informal agreements,
the issuance of removal and  prohibition  orders against  institution-affiliated
parties and the enforcement of such actions  through  injunctions or restraining
orders  based upon a judicial  determination  that the agency would be harmed if
such equitable relief was not granted.

     Safety and Soundness Standards

     In July  1995,  the  federal  banking  agencies  adopted  final  guidelines
establishing  standards  for safety and  soundness,  as required by FDICIA.  The
guidelines set forth operational and managerial  standards  relating to internal
controls,  information  systems and internal audit systems,  loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation, fees
and  benefits.  Guidelines  for asset  quality and  earnings  standards  will be
adopted in the  future.  The  guidelines  establish  the  safety  and  soundness
standards that the agencies will use to identify and address problems at insured
depository institutions before capital becomes impaired. If an institution fails
to comply with a safety and soundness standard,  the appropriate federal banking
agency may require  the  institution  to submit a  compliance  plan.  Failure to
submit  a  compliance  plan or to  implement  an  accepted  plan may  result  in
enforcement action.

     The  regulations  of  the  federal  banking  agencies   prescribe   uniform
guidelines for real estate lending.  The regulations  require insured depository
institutions to adopt written policies establishing  standards,  consistent with
such guidelines,  for extensions of credit secured by real estate.  The policies
must address loan portfolio management, underwriting standards and loan to value
limits that do not exceed the supervisory limits prescribed by the regulations.

     Appraisals  for  "real  estate  related  financial  transactions"  must  be
conducted  by  either  state   certified  or  state   licensed   appraisers  for
transactions  in excess of  certain  amounts.  State  certified  appraisers  are
required for all  transactions  with a transaction  value of $1,000,000 or more;
for  all  nonresidential  transactions  valued  at  $250,000  or  more;  and for
"complex"  1-4  family  residential  properties  of  $250,000  or more.  A state
licensed  appraiser is required for all other  appraisals.  However,  appraisals
performed in connection with "federally  related  transactions"  must now comply
with the agencies' appraisal  standards.  Federally related transactions include
the sale,  lease,  purchase,  investment  in, or exchange  of, real  property or
interests in real property,  the financing or refinancing of real property,  and
the use of real property or interests in real property as security for a loan or
investment, including mortgage-backed securities.

     Premiums for Deposit Insurance

     Pacific Thrift's deposit accounts are insured by the FDIC generally up to a
maximum of $100,000 per separately insured depositor,  and Pacific Thrift,  like
all FDIC-insured institutions, is subject to FDIC deposit insurance assessments.
Pursuant to FDICIA, the FDIC adopted a risk-based system for determining deposit
insurance  assessments under which all insured institutions were placed into one
of nine categories and assessed annual insurance  premiums,  ranging from $2,000
to 0.27% of insured deposits,  based upon their level of capital and supervisory
evaluation.  Because the FDIC sets the assessment  rates based upon the level of
assets in the insurance fund, premium rates rise and fall as the number and size
of bank  failures  increases  and  decreases,  respectively.  Under the  system,
institutions  are assigned to one of three capital  groups which is based solely
on the  level of an  institution's  capital  - "well  capitalized,"  "adequately
capitalized" and "undercapitalized" - which


                                       27
<PAGE>

are  defined  in the same  manner as the  regulations  establishing  the  prompt
corrective  action  system under Section 38 of FDIA, as discussed in "-- Capital
Standards."  These three  groups are then  divided  into three  subgroups  which
reflect varying levels of supervisory  concern,  from those which are considered
to be of minimal  supervisory  concern to those  which are  considered  to be of
substantial supervisory concern.


     Community Reinvestment Act and Fair Lending Developments

     Pacific Thrift, just as all other federally regulated banking institutions,
is  subject to certain  fair  lending  requirements  and  reporting  obligations
involving  home  mortgage  lending  operations  and Community  Reinvestment  Act
("CRA")  activities.  The CRA generally requires the federal banking agencies to
evaluate  the record of a financial  institution  in meeting the credit needs of
their local  communities,  including low and moderate income  neighborhoods.  In
addition to substantial  penalties and corrective  measures that may be required
for a violation of certain fair lending laws, the federal  banking  agencies may
take  compliance  with  such  laws  and CRA into  account  when  regulating  and
supervising  other activities.  The FDIC rated Pacific Thrift  "satisfactory" in
complying  with its CRA  obligations as of the most recent  examination  date of
November 1995.

     Potential Enforcement Actions

     Insured  depository  institutions,   such  as  Pacific  Thrift,  and  their
institution-affiliated  parties,  which  include the Company,  may be subject to
potential  enforcement  actions  by the FDIC and the DFI for  unsafe or  unsound
practices in conducting  their  businesses or for  violations of any law,  rule,
regulation or any  condition  imposed in writing by either agency or any written
agreement with either agency.  Enforcement actions may include the imposition of
a conservator or receiver,  the issuance of a cease-and-desist order that can be
judicially  enforced,  the termination of insurance of deposits and with respect
to Pacific  Thrift and the Company,  could also include the  imposition of civil
money penalties, the issuance of directives to increase capital, the issuance of
formal and informal  agreements,  the issuance of removal and prohibition orders
against  institution-affiliated  parties and the imposition of restrictions  and
sanctions under the prompt corrective action provisions of FDICIA.

Item 2.  Properties

     The  Company's   corporate   headquarters  are  located  at  21031  Ventura
Boulevard,   Woodland  Hills,   California  91364,   where  the  Company  leases
approximately  20,000 square feet of office space. The lease expires on July 31,
2003. The Company also leases  approximately  22,000 square feet of office space
in Walnut Creek,  California,  where its Wholesale  Division was  headquartered,
under leases which expire between July 1998 and November 2000,  with the largest
lease,  for 14,000 square feet,  expiring  November 14, 2000.  In addition,  the
Company  leases  approximately  28,000  square  feet of office  space in Irvine,
California, where the Company's Retail Loan operations are headquartered,  under
a lease which expires on January 31, 2004.  The Company also leases  offices for
its 40 current  and 11 former  retail  branch  offices  which are  located in 24
states.  The average size of these retail branch  offices is  approximately  750
square  feet,  with  an  annual  average  base  rent of  approximately  $16,800,
generally   with  terms  of  18  months  or  less.  The  Company  has  subleased
approximately  12,500  square feet of office space in its Walnut Creek  facility
and is seeking to sublease an  additional  9,500 square feet of the Walnut Creek
facility,  approximately  14,000  square feet of the Irvine  facility and the 11
offices that it has closed since  October 1998 as a result of the closing of the
Wholesale  Lending division and additional cost reduction  actions.  The Company
believes  its  existing  facilities  are  sufficient  to support its current and
planned levels of operations.

Item 3.  Legal Proceedings

     Except as  described  below,  the  Company is not  currently a party to any
litigation other than legal proceedings  related to collection  actions on loans
receivable.   The  Company  and  its  subsidiaries  are  regularly  involved  in
collection  actions  incidental to the lending  business.  Some of these actions
seek unspecified damages or substantial monetary damages in the form of punitive
damages. The ultimate outcome of such litigation cannot presently be determined.
Management,   after  review  and  consultation  with  counsel,  and  based  upon
historical  experience  with prior actions,  has determined  that it is unlikely
that the outcome of any proceedings currently


                                       28
<PAGE>

pending  against  the  Company  would  have a  material  adverse  impact  on the
Company's business, financial condition, results of operations or cash flows.

     On March 12, 1999,  Pacific Thrift and Loan was served with a lawsuit filed
by Aames Financial  Corporation in Los Angeles  Superior Court  concerning loans
sold to Aames on a whole loan basis between  December  1993 and September  1996.
The complaint  alleges very  generally,  and without  specific  reference to any
particular  loans,  that the loans sold by Pacific  Thrift did not meet  various
representations and warranties made by Pacific Thrift at the time the loans were
sold. The complaint further alleges that Aames has lost more than $15 million as
a  result  of the  failure  of  these  unspecified  loans  to  meet  unspecified
representations  and warranties.  As of the date of this report,  Pacific Thrift
has not filed a response to the complaint or conducted  any discovery  regarding
the allegations made in the complaint.

     Management  believes that there is no basis for any of the  allegations for
several  reasons.  First, in spite of the provisions of the loan sale agreements
which allow Aames to demand that Pacific Thrift  repurchase  loans which did not
meet representations and warranties, Aames has previously requested that Pacific
Thrift  repurchase only $1.1 million of loans in five years,  which is less than
one-half  of 1% of the total  amount of loans sold to Aames.  Second,  Aames has
never previously identified to Pacific Thrift any problem loans other than those
few loans Aames has previously  requested be repurchased.  Third,  substantially
all of the  loans  sold  to  Aames  were  written  to  Aames'  own  underwriting
guidelines  specifically for sale to Aames. Fourth, Aames reviewed in detail and
approved  every loan file for every loan  originated  for sale to Aames prior to
loan  funding.  Fifth,  Pacific  Thrift  had an  independent  review  appraiser,
selected from a list of appraisers approved by Aames, review every appraisal for
every  loan  originated  for sale to Aames.  For these  reasons,  management  of
Pacific  Thrift  has no  reason  to  believe  that  there  is any  merit  to the
complaint.

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

     No matter was submitted to a vote of stockholders during the fourth quarter
of 1998.


                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

     From June 1996 until February 26, 1999,  the Company's  Common Stock traded
under the  symbol  PAMM on the Nasdaq  National  Market.  The  Common  Stock was
delisted  from the Nasdaq  National  Market on  February  26,  1999  because the
trading  price of the  Common  Stock was less  than $1 per share and the  market
value of public  float was less than $5 million.  The Common  Stock is currently
traded on the OTC Bulletin  Board.  The following  table sets forth the range of
high and low sale  prices.  All share  prices have been  adjusted to reflect the
two-for-one  stock split in the form of a stock dividend  effected on August 13,
1997.

                                               High                Low
                                               ----                ---

             1996
             ----
             Third Quarter                  $ 11.125            $ 6.500

             Fourth Quarter                   16.000             10.875

             1997
             ----
             First Quarter                    17.000             14.000

             Second Quarter                   16.375             12.000

             Third Quarter                    27.250             15.500

             Fourth Quarter                   29.500             15.000


                                       29
<PAGE>

             1998
             ----
             First Quarter                    26.000             16.000

             Second Quarter                   23.000             14.500

             Third Quarter                    14.875              3.500

             Fourth Quarter                    7.500             0.4375


         On March 31, 1999, the closing sale price for the Common Stock reported
on the OTC Bulletin Board was $0.50 per share.

         As of March 22, 1999, there were  approximately  2,150  shareholders of
the Common Stock,  including  beneficial holders whose shares are held of record
by brokerage firms and clearing agencies.

Dividend Policy

         The Company has never paid a cash  dividend  on its Common  Stock.  The
Company's  ability to pay dividends is subject to restrictions  set forth in the
Delaware General  Corporation Law. The Delaware General Corporation Law provides
that  a  Delaware   corporation  may  pay  dividends   either  (i)  out  of  the
corporation's  surplus  (as  defined in  Delaware  law),  or (ii) if there is no
surplus,  out of the  corporation's net profits for the fiscal year in which the
dividend is declared  and/or the  preceding  fiscal year.  However,  pursuant to
Section  2115  of  the  California   General   Corporation  Law,  under  certain
circumstances,  certain provisions of the California General Corporation Law may
be applied to foreign corporations qualified to do business in California, which
may reduce the amount of dividends payable by the Company.

         Since the Company  derives a  substantial  amount of its revenues  from
Pacific Thrift,  a California  corporation,  California law and FDIC regulations
with respect to dividends have a substantial  effect on the Company's ability to
pay dividends.  Under  California  law, a corporation is prohibited  from paying
dividends unless (i) the retained earnings of the corporation  immediately prior
to the distribution  exceed the amount of the  distribution;  (ii) the assets of
the corporation exceed 1-1/4 times its liabilities;  or (iii) the current assets
of the corporation exceed its current liabilities, but if the average pretax net
earnings of the corporation  before interest expense for the two years preceding
the  distribution  was less than the average interest expense of the corporation
for those years,  the current assets of the corporation  must exceed 1-1/4 times
its current liabilities.


                                       30
<PAGE>

Item 6.  Selected Consolidated Financial Data

                              Selected Consolidated Financial and Other Data

         The following tables present selected consolidated  financial and other
data of the Company (or the  Partnership  for periods prior to June 27, 1996) as
of and for each of the years in the five years  ended  December  31,  1998.  The
information  below should be read in  conjunction  with, and is qualified in its
entirety by, the more detailed  information  included  elsewhere in this Report,
including the Consolidated  Financial Statements of the Company and Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
included elsewhere herein.

<TABLE>
<CAPTION>
                                                                                  As of and for the Years Ended
                                                                                           December 31,
                                                                     1998          1997         1996          1995          1994
                                                                                       (Dollars In Thousands)
                                                                  ----------------------------------------------------------------
<S>                                                               <C>           <C>          <C>           <C>           <C>
Statement of Operations Data:
Total interest income .........................................   $  16,660     $  11,730    $  11,502     $   9,577     $  11,404
Total interest expense ........................................      15,214         6,540        4,966         5,199         4,927
  Net interest income .........................................       1,446         5,190        6,536         4,378         6,477
Total noninterest income ......................................      33,788        82,055       29,994         9,440         2,071
Provision for loan losses .....................................       1,314         3,087        1,151         3,289         6,096
Other real estate owned expense ...............................         124           444          681         1,212           732
General and administrative expense ............................      69,274        54,151       28,227        13,099        12,140
Provision (benefit) for income taxes ..........................     (10,990)       12,468        1,658        (1,223)            1
                                                                  ---------     ---------    ---------     ---------     ---------
Income (loss) from continuing operations ......................     (24,488)       17,095        4,813        (2,559)      (10,421)
Income from discontinued operations ...........................         -0-           -0-          387           861           907
Loss on disposal of discontinued operations ...................         -0-           -0-       (1,038)          -0-           -0-
Net income (loss) .............................................   $ (24,488)    $  17,095    $   4,162     $  (1,698)    $  (9,514)
                                                                  ---------     =========    =========     =========     =========
Distributions paid ............................................         -0-           -0-          -0-           -0-           -0-
Basic earnings (loss) per share(1)
   Continuing operations ......................................       (4.82)         4.18         1.53         (1.82)
   Discontinued operations ....................................         -0-           -0-        (0.32)         0.41
   Net income .................................................       (4.82)         4.18         1.21         (1.41)

Diluted earnings (loss) per share(1)
   Continuing operations ......................................       (4.82)         3.48         1.27         (1.82)
   Discontinued operations ....................................         -0-           -0-        (0.26)         0.41
   Net income .................................................       (4.82)         3.48         1.01         (1.41)

Statement of Financial Condition Data:
Total assets ..................................................   $ 250,214     $ 227,866    $ 110,235     $  82,994     $ 103,747
Interest-only strip receivable ................................     116,628        94,424       11,698           -0-           -0-
Loans held for sale ...........................................      72,814        35,280       18,148        12,577        12,011
Portfolio loans(2) ............................................       9,444        20,629       33,515        43,908        53,045
Total deposits ................................................     162,310       132,524       81,002        60,156        69,501
Equity ........................................................      25,281        48,386       21,966         8,727        10,425

Selected Ratios (%)
Return on average assets ......................................      (10.24)%        9.95%        4.21%        (1.82)%       (8.73)%
Return on average equity ......................................      (66.48)%       48.60%       27.12%       (17.73)%      (62.67)%
Net interest margin(3) ........................................         .89%         5.24%        7.46%         5.79%         6.82%
Noninterest expense to average assets .........................       29.03%        31.85%       29.21%        15.33%        11.81%
Efficiency ratio(4) ...........................................      196.96%        62.58%       79.13%       103.57%       150.58%
Efficiency ratio excluding REO expense(4) .....................      196.61%        62.07%       77.27%        94.80%       142.02%
General and administrative expense to average assets ..........       28.98%        31.59%       28.52%        14.03%        11.13%
Average equity to average assets ..............................       15.41%        20.52%       15.51%        10.26%        13.92%
Loan originations .............................................   $ 938,065     $ 768,226    $ 373,457     $ 170,961     $  76,838
</TABLE>


                                       31
<PAGE>

<TABLE>
<CAPTION>
                                                                                  As of and for the Years Ended
                                                                                           December 31,
                                                                     1998          1997         1996          1995          1994
                                                                                       (Dollars In Thousands)
                                                                  ----------------------------------------------------------------
<S>                                                                                <C>          <C>           <C>           <C>
Asset Quality Data:
Nonaccrual loans ..............................................      2,293          1,105       $1,394        $  793        $3,146
REO (net of senior liens) .....................................        219          2,028        2,728         2,545         5,308
Total nonperforming assets ....................................      2,512          3,133        4,122         3,338         8,454
Troubled debt restructurings ..................................       -0-             -0-          357           948           -0-
Allowance for credit losses on portfolio loans ................        864          1,438        2,464         4,229         4,307
Net portfolio loan charge offs ................................      1,888          2,211       $2,916         3,367         4,912

Asset Quality Ratios:
Nonperforming assets to total assets ..........................       1.00%          1.37%        3.59%         4.02%         8.15%
Allowance for credit losses to net portfolio loans ............       9.15%          6.97%        7.35%         9.63%         8.12%
Allowance for credit losses to nonaccrual portfolio loans .....      37.68%        130.14%      176.76%       533.29%       136.94%
Net portfolio loan charge offs to average portfolio loans .....      12.56%          8.17%        7.53%         6.95%         7.16%

====================================================================================================================================
</TABLE>

(1)  Earnings  per common  share for the years ended  December 31, 1996 and 1995
     assumes  the  Restructuring  (Note 1) took  place at the  beginning  of the
     period and the Company was taxed for federal and state  income tax purposes
     as a taxable corporation at a 42% effective tax rate.
(2)  Net of allowances for loan loss and deferred loan fees and costs, including
     loans held for sale.
(3)  Net interest margin represents net interest income divided by total average
     earning assets.
(4)  Efficiency  ratio  represents  noninterest  expense  divided by noninterest
     income and net interest income.


                                       32
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

     The following  discussion  should be read in conjunction with the preceding
Selected  Financial  Data and the Company's  Financial  Statements and the Notes
thereto and the other  financial  data  included  elsewhere in this Report.  The
following  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations contains  forward-looking  statements which always involve
risks and  uncertainties.  The Company's actual results could differ  materially
from  those  anticipated  in these  forward-looking  statements  as a result  of
certain  factors,  including  those set forth below  under the heading  "Forward
Looking Statements."

General

     On June  27,  1996,  the  Company  completed  the  Restructuring  with  the
Partnership,  which was accounted for as a change in legal  organization but not
in the enterprise of the Partnership. Therefore, the financial statements of the
Company  give  effect  to  the  Restructuring  as  a  recapitalization   of  the
Partnership into the Corporation. References to the Company in this Report refer
to the financial  condition and results of  operations of the  Partnership  on a
consolidated basis for all periods prior to June 27, 1996.

     The Company,  through its subsidiaries  Pacific Thrift and PAMC, is engaged
in the business of  originating,  purchasing and selling  mortgage loans secured
primarily by  one-to-four  family  residences.  The Company's  primary source of
revenue is the  recognition of gains upon sale of loans.  Most loans sold by the
Company until the fourth  quarter of 1996 were sold for a cash premium  received
on the date of sale.  Between the fourth  quarter of 1996 and the fourth quarter
of 1998,  the  Company  sold  its  loans  for  securitization  under  agreements
providing  that it  would  retain  an  interest-only  strip  receivable  in each
securitization  pool in  which  the  Company's  loans  were  sold.  The  Company
recognized  gain  from  the  sale of these  loans  as the  present  value of the
interest-only strips receivable. See "Certain Accounting Considerations," below.
Since December 1998, the Company has sold all of its loans on a cash-only, whole
loan sale basis.  The Company  currently  intends to continue  selling loans for
cash only.

     Until  the sale of the  assets of CRC and LPPC and the stock of CRCWA as of
December 31, 1996,  the Company  operated  two business  segments:  the subprime
residential  mortgage lending  business and the trust deed foreclosure  services
business.  See Note 15 in the Notes to Consolidated  Financial  Statements.  The
Company's  primary  business  has  always  been  subprime  residential  mortgage
lending,  and in November 1996, the Company sold CRC, LPPC and CRCWA in order to
devote all of its financial and human resources to its primary lending business.
Since  January 1, 1997,  the  Company has  operated  only its  mortgage  lending
business.

Certain Accounting Considerations

     Between  the fourth  quarter of 1996 and the  fourth  quarter of 1998,  the
Company sold loans for consideration  consisting partly of interest-only  strips
receivable  in  securitization  trusts.   Interest-only  strips  receivable  are
recorded at their estimated fair value at the time of sale, based on the present
value of the expected future cash flows. The Company estimates future cash flows
from interest-only strips receivable utilizing  assumptions that it believes are
consistent  with those that would be  utilized  by an  unaffiliated  third party
purchaser.  There  is no  active  market  for the sale of  interest-only  strips
receivable, however, and there can be no assurance that the interest-only strips
receivable  could  be  sold to a  third  party  purchaser  for  the  fair  value
determined  by the  Company.  In 1998 and 1997 the  Company  wrote down the fair
value of interest-only strips receivable by $38,300,000 and $2,306,000 (see Note
6 to Financial Statements included under item 14 of Part IV).

     The  fair  value  of  the  Company's  interest-only  strips  receivable  is
determined  by  using  estimated   discounted  future  cash  flows  taking  into
consideration   current  and  estimated  future  prepayment  rates  and  default
experience. Future cash flows are computed as the excess of the weighted average
coupon  on the  loans  sold  over  the sum  of:  (1) the  coupon  on the  senior
interests,  (2) the contracted servicing fee, (3) expected losses to be incurred
on  the   portfolio   of  loans   sold  over  the  lives  of  the   loans,   (4)
overcollateralization  and (5) fees payable to the trustee, the loan servicer or
subservicer  and the  monoline  insurer.  The  present  value  calculation  uses
prepayment and default assumptions that market participants would be expected to
use for similar financial instruments that are subject to prepayment, credit and
interest  rate risk.  The cash flows  expected to be received by the Company are
then  discounted at an interest rate that the Company  believes an  unaffiliated
third-party  purchaser  would  require  as a rate of return on such a  financial
instrument.  The carrying  amount is considered  to be a reasonable  estimate of
fair value.  To the extent that actual  future  excess cash flows are  different
from


                                       33
<PAGE>

estimated  excess  cash  flows,  the fair value of the  Company's  interest-only
strips receivable is adjusted quarterly with  corresponding  adjustments made to
operations in that period.

In September 1998, the Company made a $19.2 million (net of tax benefit of $14.4
million)  adjustment to the valuation of its  interest-only  strips  receivable,
reflecting the adoption of more conservative prepayment assumptions and a higher
discount  rate.  The  adjustment  of the valuation in the  interest-only  strips
receivable in part,  due to the delay in the sale of the Company's  loans during
the third  quarter 1998 was primarily  due, to a chain  reaction of events which
caused significant and sudden changes in the  securitization  market late in the
quarter. See "Item 1 -- Business".

     During  the  third  quarter  of 1998,  there was a  moderate  change in the
performance  of the  Company's  securitization  pools,  affecting  primarily the
Company's  three  oldest  pools  formed  during the last quarter of 1996 and the
first two quarters of 1997. That fact, coupled with the current unsettled nature
of the securitization  markets in general,  led the Company to determine that it
was  necessary  to adopt more  conservative  prepayment  assumptions  and a more
conservative  discount  rate  in  the  valuation  of  its  interest-only  strips
receivable  to reflect the higher risks  perceived by the market for these types
of assets.  At the end of the third quarter of 1998,  the Company  increased its
discount rate from 11% to 15% which it believes to be consistent  with others in
the industry.

     The  fair  value  of  the  Company's  interest-only  strips  receivable  is
calculated using the "cash out" method of estimating  future cash flows from the
various  mortgage  trusts.  The "cash out"  method  assumes  that the cash flows
deposited in the overcollateralization reserve for each securitization trust are
not available until they are actually distributed to the Company.

     In March 1999, the Company obtained an independent  valuation and report of
the  interest-only  strips  receivable as of December 31, 1998, which determined
fair values of the  interest-only  strips  receivable  using the discounted cash
flow method of valuation.  The fair value of the interest-only strips receivable
reflected  on the  Statement  of  Financial  Condition  at December  31, 1998 is
consistent  with the results of that report.  The following  table  compares the
actual constant  prepayment  rates ("CPRs") through December 31, 1998 of each of
the  Company's   Securitization  Trusts  with  the  model  CPRs  used  to  value
interest-only  strips recievable in those pools. Model CPRs are generally ramped
up over a  specified  numeber of months  after  formation  of each  Securization
Trust,  and the later  Trusts have not  reached  their full  ramped-up  CPR rate
assumptions.  The model CPRs astrisked below are the  fully-ramped CPR rates for
those pools which are currently in the ramp-up  phase.  CPR amounts are based on
the models from the independent valuation.

                 COMPARISON OF ACTUAL CONSTANT PREPAYMENT RATES
                      WITH MODEL CONSTANT PREPAYMENT RATES


    Pool                 Securitization       Actual Life-           Model
 Description                  Date            To-Date CPRs           CPR
-------------            --------------       -------------         ------
AAMES    96-4               NOV 96               31.0%                29%

ADVANTA  97-1               FEB 97               25.6%                29%

ADVANTA  97-2               MAY 97               23.7%                30%

ADVANTA  97-3               AUG 97               22.8%                30%

ADVANTA  97-4               NOV 97               22.2%                29%

ADVANTA  98-1               MARCH 98             18.1%                29%

ADVANTA  98-2               JUNE 98              11.7%                29%*

ADVANTA  98-3               SEPT 98              10.2%                29%*

ADVANTA  98-4               NOV 98                N/A                 29%*

ADVANTA  99-1               MARCH 99              N/A                 29%*

PAMM     97-1               DEC 97               18.0%                29%*

PAMM     98-1               MARCH 98             15.3%                29%*

PAMM     98-2               JUNE 98               7.3%                29%*


*    RAMPS TO THESE CPRs

     The following  table  compares the actual  annualized  loan losses  through
December  31,  1998 for each of the  Company's  Securitization  Trusts  with the
annual  loss rate  assumption  used by the  Company  to value its  interest-only
strips receivable in those pools.

                     COMPARISON OF ACTUAL ANNUALIZED LOSSES
                         WITH ANNUAL LOAN LOSS RESERVES

                                                Actual               Annual
   Pool                  Securitization       Annualized            Loan Loss
Description                   Date              Losses               Reserve
-----------              --------------       ----------            ---------
Aames 96-4                  Nov 96               1.15%                1.00%

Advanta 97-1                Feb 97               0.40%                1.00%

Advanta 97-2                May 97               0.20%                1.00%

Advanta 97-3                Aug 97               0.13%                1.00%

Advanta 97-4                Nov 97               0.09%                1.00%

Advanta 98-1                March 98             0.00%                1.00%

Advanta 98-2                June 98              0.00%                1.00%

Advanta 98-3                Sept 98              0.00%                1.00%

Advanta 98-4                Nov 98               0.00%                1.00%

Advanta 99-1                March 99              n/a                 1.00%

PAMM 97-1                   Dec 97               0.05%                1.00%

PAMM 98-1                   March 98             0.02%                1.00%

PAMM 98-2                   June 98              0.00%                0.50%


     It is possible  that the  assumptions  used to determine  fair value of the
Company's  interest-only  strips  receivable could change in the future,  due to
changes  required by future  accounting  pronouncements,  the  general  economy,
adverse changes in the securitization  market, and actual prepayment and default
experience which vary from the assumed rates, which would require adjustments in
the reported fair value of the interest-only strip  receivable.  As a result the
actual cash flows  received by the Company could differ  significantly  from the
modeled cash flows using current  assumptions.  The estimated  fair value of the
Company's  interest-only  strips receivable are reviewed quarterly with required
adjustments, if necessary, made to earnings in that period. The Company  intends
to  obtain  a  quarterly  third  party  valuation  of its  interest-only  strips
receivable as further assurance regarding the Company's valuation methodology.



                                       34
<PAGE>


     The  interest-only  strips receivable held by the Company are accounted for
under SFAS 115 "Accounting for Investments in Certain Debt and Equity Marketable
Securities."  As an  interest-only  strip  receivable is subject to  significant
prepayment  risk, and therefore has an undetermined  maturity date, it cannot be
classified  as  held to  maturity.  The  Company  has  chosen  to  classify  its
interest-only   strips   receivable  as  trading   securities.   Based  on  this
classification,  the Company is required to mark these  securities  to estimated
fair value with the  accompanying  increases  or  decreases  in fair value being
recorded  as a component  of gain on sale of loans.  The  determination  of fair
value  is based  on the  previously  mentioned  valuation  methodology,  and the
Company assesses fair value quarterly.

     As the gain recognized in the year of sale discounts anticipated cash flows
to determine the present value of the interest-only  strips  receivable,  if the
prepayment  and loss rate  assumptions  prove to be  accurate  (which  cannot be
predicted with certainty), the cash flow actually received over the lives of the
loans would exceed the gain on sale  recognized at the time the loans were sold.
Any  additional  unrealized  gain on sale of loans would be recognized  over the
life of the loans securitized.

     There can be no assurance that future  performance of the above  identified
Securitization Trusts will be consistent relative to the Company's assumptions.

Financial Condition

At December 31, 1998 compared with December 31, 1997.

     Total consolidated  assets of the Company increased $22.3 million (9.8%) to
$250.2  million at December  31, 1998 from $227.9  million at December 31, 1997.
The  increase  resulted  primarily  from the  increase in  interest-only  strips
receivable  and loans held for sale,  partially  offset by decreases in cash and
cash equivalents,  loans receivable and REO.  Interest-only  strips  receivable,
after a $34 million  valuation  writedown in fair value  during 1998,  increased
$22.2  million  (23.55%),  to $116.6  million at December 31,  1998,  from $94.4
million at  December  31,  1997,  reflecting  securitization  transactions  done
primarily  in the first half of 1998.  The  valuation  adjustment  reflects  the
adoption of a more  conservative  prepayment  assumption  and a higher  discount
rate.  See  "Business -- Lending  Activities - Loan Sales and  Securitizations."
Loans  held for sale  increased  $37.5  million  (106.4%),  to $72.8  million at
December  31,  1998,  from $35.3  million at December  31,  1997.  Cash and cash
equivalents  decreased  $24.1  million  (36.6%) to $41.8 million at December 31,
1998,  from $65.9 million at December 31, 1997, due primarily to the increase in
loans held for sale.  Loans  receivable  decreased $11.2 million (54.2%) to $9.4
million from $20.6  million,  due to the Company's  decision to continue to sell
portfolio  loans  throughout  1998. REO decreased  $1.8 million  (89.2%) to $0.2
million at December 31, 1997, from $2.0 million at December 31, 1997, due to the
reduction in the Company's loan portfolio and sales of REO held during 1998.

     Total  liabilities  increased  $45.4 million  (25.37%) to $224.9 million at
December  31,  1998,  from $179.5  million at December  31,  1997.  The increase
resulted  from an  increase  in total  thrift  certificates  payable  and  notes
payable,  partially  offset  by a  decrease  in  the  net  deferred  income  tax
liability. Total thrift certificates payable increased $29.8 million (22.5%), to
$162.3  million from $132.5  million,  reflecting  increased  issuance of thrift
certificates  to  fund  Pacific  Thrift's  lending  operations.   Notes  payable
increased $24.8 million (87.6%) to $53.1 million at December 31, 1998 from $28.3
million at December 31,  1997,  reflecting  advances  received by the Company on
interest-only  strips  receivable  under  arrangements  with Advanta and Merrill
Lynch,  and a  $3.0  million  loan  from  Fremont  Financial  Corporation.  (See
"BUSINESS -- Lending Activities - Loan Sales and Securitizations.  and "-- Other
Borrowings.")  The net deferred income tax liability  decreased by $10.9 million
to $1.2 million at December 31, 1998,  from $12.1  million at December 31, 1997,
primarily from the deferred  income tax effect of the $34 million  interest-only
strips receivable valuation writedown.

     Total  stockholders'  equity  decreased $23.1 million,  to $25.3 million at
December  31,  1998,  from  $48.4  million  at  December  31,  1997,  due to the
consolidated  net loss of $24.5 million in 1998 partially offset by the issuance
of additional common stock of $1.4 million.

At December 31, 1997 compared with December 31, 1996

     Total consolidated  assets of the Company increased $117.7 million (106.8%)
to $227.9 million at December 31, 1997 from $110.2 million at December 31, 1996.
The  increase  resulted  primarily  from the  increase in  interest-only  strips
receivable,  cash and cash equivalents and loans held for sale, partially offset
by decreases in receivable  for mortgage loans shipped,  loans  receivable,  and
REO.  Interest-only strips receivable increased $82.7 million (706.8%), to $94.4
million


                                       35
<PAGE>


at December 31,  1997,  from $11.7  million at December  31, 1996,  reflecting a
substantially  higher volume of loans sold for securitization in 1997 and a full
year of  securitization  transactions  in which the  Company  retained  residual
interests.   See   "Business   --   Lending   Activities   -  Loan   Sales   and
Securitizations."  Cash and cash equivalents increased $57.5 million (668.6%) to
$66.1 million at December 31, 1997,  from $8.6 million at December 31, 1996, due
to timing of payments  for loan sales in  December of each year.  Loans held for
sale  increased  $17.2 million  (95.0%),  to $35.3 million at December 31, 1997,
from $18.1 million at December 31, 1996. A receivable for mortgage loan sales of
$24.3 million was held at December 31, 1996 for a pool of loans sold to Advanta,
which was paid in January  1997;  no  similar  item was held at the end of 1997.
Loans  receivable  decreased  $12.9  million  (38.5%) to 20.6 million from $33.5
million,  due to the Company's  strategic decision to cease portfolio lending in
1996 and sell portfolio loans to raise additional funds for its mortgage banking
business.  REO  decreased  $2.3 million  (53.5%) to $2.0 million at December 31,
1997,  from $4.3  million at December  31,  1996,  due to the  reduction  in the
Company's loan portfolio and sales of REO held during 1997.

     Total  liabilities  increased  $91.2 million  (103.3%) to $179.5 million at
December  31,  1997,  from $88.3  million at December  31,  1996.  The  increase
resulted from an increase in total thrift  certificates  payable,  notes payable
and deferred income tax liability.  Total thrift certificates  payable increased
$51.5  million  (63.6%),  to  $132.5  million  from  $81.0  million,  reflecting
increased  issuance of thrift  certificates  to fund  Pacific  Thrift's  lending
operations.  Notes payable  increased $25.0 million (757.6%) to $28.3 million at
December 31, 1997 from $3.3 million at December  31, 1996,  reflecting  advances
received by the Company on interest-only  strips  receivable under  arrangements
with Advanta and Merrill Lynch. See "BUSINESS -- Lending Activities - Loan Sales
and  Securitizations."  The  deferred  income tax  liability  increased by $12.1
million to $12.1  million at December 31, 1997,  from $0 million at December 31,
1996, reflecting the deferral of the gains on sale. Accounts payable and accrued
expenses increased $3.9 million (177.3%), to $6.1 million from $2.2 million, due
primarily to the accrual of executive bonuses of $2.5 million,  the Supplemental
Employee  Retirement  Plan  accrual of $.6 million  and accrued  interest on the
residual financing note payable of $.7 million.

     Total  stockholders'  equity  increased $26.4 million,  to $48.4 million at
December 31, 1997,  from $22.0 million at December 31, 1996, due to consolidated
net income of $17.1  million in 1997 and net proceeds  from  exercise of General
Partner and Subscriber Warrants of $9.3 million.

Results of Operations

     Year Ended December 31, 1998 compared with Year Ended December 31, 1997

     General

     The Company  reported a consolidated  net loss of $24.5 million for 1998, a
decrease of $41.6 million (243.3%) from net income of $17.1 million in 1997. The
decrease  from net  income in 1997 to a net loss in 1998 is due  primarily  to a
substantial  decrease  in gain on sale of loans in  1998,  resulting  from a $34
million  writedown in  interest-only  strips  receivable in the third quarter of
1998.

     Interest Income and Expense

     Net interest income before provision for loan losses decreased $3.8 million
(73.1%),  to $1.4  million for 1998 from $5.2 million for 1997.  Total  interest
income  increased  $4.6 million  (38.0%),  to $16.7  million for 1998 from $12.1
million for 1997.  Interest expense  increased $8.3 million  (120.3%),  to $15.2
million  for 1998 from  $6.9 for 1997,  due to  increases  in total  outstanding
thrift certificates and notes payable.

     Provision for Loan Losses

     The  provision  for loan losses  decreased  $1.8 million  (57.4%),  to $1.3
million for 1998 from $3.1  million  for 1997.  The  decrease  in the  provision
reflected the decrease in loans receivable.

     The  calculation  of the adequacy of the allowance for loan losses is based
on a variety of factors,  including loan  classifications  and  underlying  loan
collateral   values,   and  is  not  directly   proportional  to  the  level  of
nonperforming loans. See "BUSINESS -- Classified Assets and Loan Losses."


                                       36
<PAGE>

     Noninterest Income and Expense

     Total noninterest income decreased $48.3 million (58.8%),  to $33.8 million
for 1998 from $82.1  million for 1997,  reflecting a decrease in gain on sale of
loans.  Gain on sale of loans  decreased  $48.9 million (59.9%) to $32.8 million
for 1998 from  $81.7  million  for 1997 due to a  substantial  write down in the
interest-only  strips  receivable at the end of the third quarter of 1998. Total
noninterest  expense  increased  $14.8 million (27.1%) to $69.4 million for 1998
from $54.6 million for 1997. Salary and related benefits  increased $4.7 million
(15.9%) to $34.2  million in 1998 from $29.5  million in 1997,  and  general and
administrative expenses increased $5.3 million (23.7%), to $27.7 million in 1998
from $22.4 million in 1997,  because of expanded mortgage banking  activities in
the first three  quarters of 1998.  In the fourth  quarter of 1998,  the Company
also incurred a  restructuring  charge of $3.5 million due to the closure of the
wholesale loan division  resulting in a workforce  reduction of approxmately 300
employees and the impairment of certain  long-lived  assets.  Occupancy  expense
increased $1.2 million (70.6%) to $2.9 million in 1998 from $1.7 million in 1997
due to increase in the number of wholesale and retail offices opened in 1998.

     Income Taxes (Benefit)

     Income tax benefit from  continuing  operations was $11.0 million for 1998,
compared  to a tax  expense of $12.5  million  for 1997,  as a result of the $65
million  decrease in income before income taxes,  to a loss of $35.5 million for
1998 from income of $29.5 million for 1997.

     Year Ended December 31, 1997 compared to Year ended December 31, 1996

     General

     The Company  reported net income of $17.1  million for 1997, an increase of
$12.9 million  (307.1%)  from $4.2 million in 1996,  compared with a net loss of
$1.7  million  for  1995.  The  increase  in net  income is due  primarily  to a
substantial  increase  in gain  on  sale of  loans  in  1997,  resulting  from a
substantial increase in loan originations in 1997.

     Interest Income and Expense

     Net interest income before provision for loan losses decreased $1.3 million
(20.0%),  to $5.2  million for 1997 from $6.5 million for 1996.  Total  interest
income  increased  $.2  million  (1.7%),  to $11.7  million  for 1997 from $11.5
million for 1996.  Interest  expense  increased  $1.5 million  (30.0%),  to $6.5
million  for 1997 from  $5.0 for 1996,  due to  increases  in total  outstanding
thrift certificates and notes payable.

     Provision for Loan Losses

     The  provision for loan losses  increased  $1.9 million  (158.3%),  to $3.1
million for 1997 from $1.2 million for 1996.  The increase in the  provision was
made to reflect an increase in the reserve for $8.4 million of  piggyback  loans
reclassified  as held for sale in  December  1997 and sold in January  1998 at a
discount of  approximately  24%. As this discount was fully reserved at December
31, 1997, the effect was that the sale resulted in a nominal gain.

     The  calculation  of the adequacy of the allowance for loan losses is based
on a variety of factors,  including loan  classifications  and  underlying  loan
collateral   values,   and  is  not  directly   proportional  to  the  level  of
nonperforming loans. See "BUSINESS -- Classified Assets and Loan Losses."

     Noninterest Income and Expense

     Total noninterest income increased $52.1 million (173.7%), to $82.1 million
for 1997 from $30.0 million for 1996,  reflecting an increase in gain on sale of
loans.  Gain on sale of loans increased $52.5 million  (179.8%) to $81.7 million
for 1997 from $29.2 million for 1996. Total noninterest  expense increased $25.7
million  (88.9%) to $54.6 million for 1997 from $28.9  million for 1996,  due to
expansion  of the  Company's  mortgage  banking  business,  which  required  the
addition  of more  employees  and  office  space.  Salary and  related  benefits
increased $14.9 million  (102.1%) to $29.5 million in 1997 from $14.6 million in
1996, and general and administrative  expenses increased $12.1 million (100.8%),
to $24.1  million  in 1997 from  $12.0  million  in 1996,  because  of  expanded
mortgage banking activities.


                                       37
<PAGE>

     Income Taxes (Benefit)

     Income tax expense from  continuing  operations was $12.5 million for 1997,
compared to $1.7 million for 1996, as a result of the $23.1 million  increase in
income  before  income  taxes,  to $29.6  million for 1997 from $6.5 million for
1996.


Net Interest Income Analysis

     The  following  table sets forth  certain  information  concerning  average
interest-earning  assets  and  interest-bearing  liabilities  and the yields and
rates  thereon.  Average  balances  are  calculated  on a  quarterly  basis  and
nonaccrual  loans  have  been  included  in  interest-earning   assets  for  the
computations.  Fee  income  on loans  included  in  interest  income  and in the
calculation  of average  yields was 0, $.2 million and $.3 million for the years
ended December 31, 1998, 1997 and 1996, respectively.


                                       38
<PAGE>

  Yields and Rates on Interest-earning Assets and Interest-bearing Liabilities

<TABLE>
<CAPTION>
                                                     Year Ended                                     Year Ended
                                                  December 31, 1998                             December 31, 1997
                                                  -----------------                             -----------------
                                         Average                     Yield/          Average                         Yield/
                                         Balance       Interest       Rate           Balance         Interest         Rate
                                         -----------------------------------------------------------------------------------
                                                                                             (Dollars in Thousands)
<S>                                      <C>            <C>          <C>             <C>             <C>             <C>
               Assets
Interest-earning assets:
  Loans                                 $147,895       $16,039       10.84%          $90,958         $11,332         12.46%
  Interest-bearing deposits in
  other financial institutions
  and securities purchased under
  agreements to sell                      14,201           621        4.37%            8,026             398          4.96%
                                         -------        ------       ------           ------          ------         ------
    Total interest-earning assets        162,096        16,660       10.28%           98,984          11,730         11.85%
                                         =======        ======       ======           ------          ======         ======

Noninterest-earning assets:
  Cash and due from banks                  6,574                                       7,864
  Premises & equipment, net                4,783                                       2,868
  Real estate acquired in settlement
  of loans                                 1,091                                       3,173
  Other Assets                           157,224                                      62,714
                                         -------                                     -------
    Total noninterest-earning assets     169,672                                      76,619
                                         -------                                     -------
Less allowance for loan losses             1,922           -0-                         2,001             -0-
                                         -------        ------                       -------          ------
                                         329,846        16,660                       173,602          11,730
                                         =======        ======                       =======          ======
   Liabilities & Stockholders'
   Equity/Partners' Capital
   Interest-bearing liabilities:
     Borrowings                          101,786         6,996        6.87%           20,495           1,033          5.04%
     Savings deposits                     22,738         1,209        5.31%           21,516           1,099          5.11%
     Time CDs                            118,173         7,009        5.93%           75,007           4,408          5.88%
                                         -------         -----        -----           ------           -----          -----
  Total interest-bearing liabilities     242,697        15,214        6.27%          117,018           6,540          5.59%
                                         =======        ======        =====          =======           =====          =====
Noninterest-bearing liabilities:
  Accounts payable & accrued
  expenses                                18,904                                      14,923
                                                                                      ------
Total liabilities
Stockholders' Equity/Partners'
Capital                                   46,576                                      32,554          ______
                                         -------                                      ------
                                         308,177        15,214                       164,495           6,540
                                         =======       =======                       =======          ======
Net interest income/spread                               1,446        4.01%                           5,190          6.26%
                                                       =======        =====                           ======          =====
Net interest margin                                                    .89%                                           5.24%
Net Income (loss)                                      (24,488)                                       17,095
                                                       =======                                        ======
Average interest earning assets to
average interest bearing liabilities                                   .67                                             .85
</TABLE>


                                       39
<PAGE>

     Interest income and interest  expense can fluctuate widely based on changes
in the level of  interest  rates in the  economy.  Pacific  Thrift  attempts  to
minimize the effect of interest  rate  fluctuations  on net interest  margins by
matching as nearly as possible interest  sensitive assets and interest sensitive
liabilities.  See "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION
AND RESULTS OF OPERATIONS -- Asset/Liability Management."

     Net interest  income can also be affected by a change in the composition of
assets  and  liabilities,  such as when  higher  yielding  loans  replace  lower
yielding loans. Net interest income is affected by changes in volume and changes
in rates.  Volume  changes  are  caused by  differences  in the level of earning
assets and interest-bearing liabilities. Rate changes result from differences in
yields earned on assets and rates paid on liabilities.

     The  following  table  presents  the dollar  amount of changes in  interest
income and interest expense for major components of interest-earning  assets and
interest-bearing  liabilities due to changes in volume and interest  rates.  For
each  category  of  interest-earning  assets and  interest-bearing  liabilities,
information is provided on changes attributable to (i) changes in volume; (i.e.,
changes in volume multiplied by new rate) and (ii) changes in rate (i.e. changes
in  rate  multiplied  by old  volume).  For  purposes  of  this  table,  changes
attributable  to both rate and  volume  which  cannot be  segregated,  have been
allocated proportionately to changes due to volume and changes due to rate.

<TABLE>
<CAPTION>
                                                                                 Rate Volume Analysis
                                                                                 --------------------
                                                                                (Dollars in Thousands)

                                                           1998 compared to 1997                       1997 compared to 1996

                                                            Increase (decrease)                         Increase (decrease)
                                                             due to change in                            due to change in
                                                  ------------------------------------         -------------------------------------
                                                                  Yield/          Net                          Yield/           Net
                                                  Volume           Rate         Change         Volume           Rate          Change
<S>                                                <C>           <C>             <C>            <C>           <C>            <C>
Interest-earning assets:
Loans                                            $ 6,174        $(1,467)        $4,707         $1,179        $(1,021)       $   158
Interest-bearing deposits
in other financial
institutions and securities
purchased under
agreements to sell                                   270            (47)           223             93            (23)            70
                                                 -------        -------        -------         ------        -------        -------
Total interest-earning
assets                                             6,444         (1,514)         4,930          1,272         (1,044)           228
                                                 =======        =======        =======         ======        =======        =======

Interest-bearing liabilities:
Borrowings                                         5,587            376          5,963            840           (360)           480
Savings deposits                                      65             45            110           (500)           (28)          (528)
Time CDs                                           2,560             41          2,601          1,612              9          1,621
                                                 -------        -------        -------         ------        -------        -------
Total interest-bearing
liabilities                                        8,212            462          8,674          1,952           (379)         1,573
                                                 =======        =======        =======         ======        =======        =======
Change in net interest
income                                           $(1,768)       $(1,976)       $(3,744)        $ (680)        $ (665)       $(1,345)
                                                 =======        =======        =======         ======        =======        =======
</TABLE>

Liquidity and Capital Resources

     The Company's primary  operating cash  requirements  include the funding or
payment of: (i) loan originations; (ii) fees and expenses incurred in connection
with loan sales;  (iii) income taxes; (iv) capital  expenditures;  and (v) other
operating and administrative expenses. The Company generates cash flow from loan
sales, and loans sold for


                                       40
<PAGE>

securitization,  advances on interest-only strips receivable, deposits issued by
Pacific Thrift used to fund its lending operations,  whole loan sales, principal
payments and interest income on portfolio loans, and sale of REO.

     The Company obtained advances on interest-only strips receivable from Aames
and  Advanta as part of the  securitization  transactions  with those  entities,
which are payable from the cash flow payments made on the  interest-only  strips
receivable.  The Company has also  obtained  advances  on  interest-only  strips
receivable in the PAMM Trusts under a Master Assignment  Agreement.  The Company
is currently in default under the Master Assignment Agreement.  In addition, the
Company obtained a $3.0 million loan from Fremont Financial Corporation in April
1998,  secured by all of the stock of Pacific Thrift, the maturity date of which
has  been  extended  to  January  8,  2000.  (See  "Item  1.  Business   --Other
Borrowings.")

     Certificates  of deposit  which are scheduled to mature in one year or less
from December 31, 1998 totaled $127.9 million. Based upon historical experience,
management  believes that a significant portion of such deposits will be renewed
to the extent  deemed  desirable  by  management.  In general,  depositors  have
historically  tended  to renew  deposits  when the rates  paid on such  deposits
remain competitive with rates offered by comparable financial institutions. From
time to time in the past,  management of Pacific Thrift intentionally took steps
to reduce  deposit  renewals  in order to reduce the total  amount of  deposits.
These steps included  reducing the interest rates offered on maturing  deposits,
declining to renew certain large deposits and redeeming certificates of deposit.

     Pacific Thrift maintains  minimum levels of liquid assets as required under
the liquidity  policy adopted by the board of directors of Pacific  Thrift.  The
relationship between short-term liquid assets and total deposits at December 31,
1998 was 70.1%,  which  exceeded the 10% minimum  established  by the Board.  At
December  31,  1997  and  1996,  the  liquidity   ratio  was  68.0%  and  49.8%,
respectively.

     The  Company  incurred  a net loss of  $24,488,000  during  the year  ended
December 31, 1998 and has an  accumulated  deficit of $3,231,000 at December 31,
1998.  Management  believes these losses were  reflective of the rapid change in
marketplace  demand for the purchase of sub-prime paper by the secondary  market
during the latter half of 1998. At December 31, 1998,  the Company is in default
of the repayment terms of its obligations  related to its  interest-only  strips
receivable (Note 8c to the financial  statements included under item 14 for Part
IV). In addition,  Pacific Thrift was not "adequately capitalized" at the end of
1998 or by March 22, 1999 and became subject to certain regulatory  mandates and
sanctions (Note 13 to the financial  statements  included under item 14 for Part
IV). Pacific Thrift also has additional  regulatory mandates imposed relating to
its Year 2000 readiness and the related Bank  information  systems (Notes 13 and
15 to the financial  statements  included under item 14 for Part IV). Failure to
implement  the  regulatory  mandates  would  expose  Pacific  Thrift to  various
regulatory actions, including the risk of regulatory takeover.

     The Company's  independent  certified  public  accountants have included an
explanatory  paragraph in their report which  indicates that these matters raise
substantial  doubt  about the  ability  of the  Company to  continue  as a going
concern. Management's plans regarding these matters are as follows:

     Management  has taken and  continues to take steps to return the Company to
profitability and improve its financial condition, including such actions as the
closure of  Pacific  Thrift's  wholesale  operations  (Note 2Q to the  financial
statements  included  under item 14 for Part IV),  an  emphasis  on  originating
residential  real estate loans for sale under whole loan sale  agreements  for a
cash premium through its retail division, a reduction in portfolio lending until
targeted capital ratios are achieved,  and reducing overhead  expenses.  Pacific
Thrift has hired a  consultant  and  submitted  a revised  Year 2000 plan to the
regulators  and  believes  it will be able to meet the  guidelines  of the order
regarding Year 2000 (Note 13 to the financial  statements included under item 14
for Part IV).

     Management  expects that Pacific Thrift will be profitable in 1999 and will
comply to the greatest extent possible with the regulatory mandates.  Management
has  submitted a Capital  Restoration  Plan (the Plan) which was approved by the
FDIC. In addition to a revised  business plan,  the Plan includes  restructuring
debt to provide  capital  contributions  to Pacific  Thrift and raising  capital
through private or public offerings of debt or equity securities.  Management is
negotiating  a  restructuring  of its  obligations  in default  relating  to its
interest-only  strips receivable.  There is no assurance that management's plans
can be achieved.  The  financial  statements  do not include any  provisions  or
adjustments that might result from the outcome of these uncertainties.

     Pacific  Thrift is subject  to  certain  leverage  and  risk-based  capital
adequacy  standards  applicable to  FDIC-insured  institutions.  At December 31,
1998,   Pacific   Thrift   was   classified   by  the  FDIC  as   "significantly
undercapitalized."  Pacific  Thrift  has  filed a  capital  plan  which has been
approved  by the FDIC,  under the terms of which  Pacific  Thrift or the Company
will  seek to  raise  approximately  $20  million  in new  capital,  the  amount
necessary for Pacific Thrift to meet the capital requirements of the 1998 Order.
See "SUPERVISION AND REGULATION -- Federal Law -- Capital Adequacy Guidelines."

     The Company used $91.9  million net cash in operating  activities  in 1998,
compared  to $46.5  million in 1997 and $22.9  million in 1996,  reflecting  the
funding of loans for  securitization in 1998 and 1997. The increase in cash used
in  operating  activities  in 1998  reflects  primarily  the net  loss of  $24.5
million,  nets increase in interest-only  strips receivable of $22.9 million and
an increase of loan originations  over loan sales of $39.4 million.  The Company
used net cash from  investing  activities of $11.8  million in 1998,  reflecting
primarily  sales of $8.5 million in portfolio loans and $2.7 million in sales of
REO. The Company realized net cash from investing activities of $17.2 million in
1997,  reflecting  primarily a sale of $17.1 million in portfolio loans in 1997.
The Company  used net cash from  investing  activities  of $1.8 million in 1996,
primarily  due to an  increase  in loan  receivables  in 1996 before the Company
determined to discontinue  portfolio lending. The Company realized $56.0 million
net cash from  financing  activities in 1998  reflecting a net increase of $29.8
million  in  thrift  certificates  and a $25.4  million  net  increase  in notes
payable.  The Company realized $85.9 million net cash from financing  activities
in 1997,  reflecting  a net  increase of $51.6  million in thrift  certificates,
$26.2  million in advances on  interest-only  strips and $9.3  million  from the
issuance  of common  stock upon  exercise  of  General  Partner  and  Subscriber
Warrants and stock  options.  The Company  realized  $22.8 million net cash from
financing  activities  in 1996,  reflecting  primarily  a net  increase of $20.8
million in thrift  certificates,  and $10.8  million in proceeds from the Public
Offering and Rights Offering.

     At  December  31, 1998 the Company had  deferred  tax  liabilities  of $1.2
million, primarily related to the interest-only strips receivable. Over the next
few years,  the  Company  expects to  generate  future  taxable  income from the
interest-only strips receivable. Management believes that it is more likely than
not that such future taxable  income will be sufficient  for  realization of the
deferred tax assets.


                                       41
<PAGE>

Asset/Liability Management

     The matching of assets and  liabilities  may be analyzed by  examining  the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring  an  institution's  "interest  rate  sensitivity  gap."  An  asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of  interest-earning  assets
anticipated,  based upon  certain  assumptions,  to mature or  reprice  within a
specific time period and the amount of interest-bearing liabilities anticipated,
based  upon  certain  assumptions,  to mature or reprice  within  that same time
period. A gap is considered  positive when the amount of interest rate sensitive
assets  exceeds  the amount of interest  rate  sensitive  liabilities.  A gap is
considered  negative  when the amount of  interest  rate  sensitive  liabilities
exceeds the amount of interest rate sensitive assets.  During a period of rising
interest  rates,  a negative gap would  generally  tend to adversely  affect net
interest  income  while a  positive  gap  would  generally  tend to result in an
increase in net interest income.  During a period of declining interest rates, a
negative gap would  generally  tend to result in increased  net interest  income
while a positive  gap would  generally  tend to  adversely  affect net  interest
income.  At December 31, 1998, total  interest-bearing  liabilities  maturing or
repricing during each period exceeded total interest-earning  assets maturing or
repricing  in the  same  periods  by  $37.3  million,  representing  a  negative
cumulative interest rate sensitivity gap ratio of 30%. However, because interest
rates  for  different  asset  and  liability   products  offered  by  depository
institutions  respond  differently to changes in the interest rate  environment,
the gap is only a general indicator of interest rate sensitivity.

     Pacific  Thrift  actively  monitors  its interest  rate risk.  The Board of
Directors of Pacific Thrift reviews its interest rate risk position no less than
quarterly.

     To the extent consistent with its interest rate spread objectives,  Pacific
Thrift attempts to reduce its interest rate risk and has taken a number of steps
to match its interest sensitive assets and liabilities to minimize the potential
negative impact of changing interest rates. Pacific Thrift has focused on making
adjustable rate loans, virtually all of which adjust quarterly,  and focuses its
investment  activity  on  short-term  obligations  of banks and U.S.  government
securities.

     The  following  table sets forth the interest rate  sensitivity  of Pacific
Thrift's  assets and  liabilities  at December  31, 1998 on the basis of certain
assumptions. Except as stated below, the amounts of assets and liabilities shown
which reprice or mature during a particular period were determined in accordance
with the earlier of the  repricing  timing or  contractual  term of the asset or
liability.  Pacific  Thrift has  assumed  that its  savings  accounts  (passbook
accounts and money market accounts), which totaled $29.7 million at December 31,
1998  reprice  immediately.  Certificates  of deposit are  included in the table
below at their dates of maturity.

     Certain  shortcomings  are inherent in the method of analysis  presented in
the following table.  For example,  interest rate floors on some adjustable rate
loans can have the effect of  increasing  the net  interest  income as  interest
rates  decline or,  conversely,  limiting  increases in net  interest  income as
interest rates rise. Also, loan prepayments and early withdrawal of certificates
of deposit could cause the interest  sensitivities  to vary from what appears in
the table.  Finally,  the ability of many borrowers to service their  adjustable
rate debt may be adversely affected by an interest rate increase.


                                       42
<PAGE>

              INTEREST RATE SENSITIVITY GAP AS OF DECEMBER 31, 1998
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                                               After
  Assets or Liabilities Which                           1 Day      3 Months      Six Months      1-5             5
       Mature or Reprice                             to 3 Months  to 6 Months    to 1 Year      Years          Years         Total
                                                      --------     --------      --------      --------      --------      --------
<S>                                                     <C>          <C>          <C>           <C>           <C>           <C>
Cash and Investments ............................       41,766           --            --            --            --        41,766
Variable Rate Loans Receivable ..................        7,487           --            --            --            --         7,487
Fixed Rate Loans Receivable .....................           15           --            --           457         2,517         2,989
Loans Held for Sale (1) .........................       72,814           --            --            --            --        72,814
                                                      --------     --------      --------      --------      --------      --------
  Interest-earning assets .......................      122,082           --            --           457         2,517       125,056
                                                      --------     --------      --------      --------      --------      --------
Certificates of deposit .........................       19,560       35,852        72,465         4,741            --       132,618
Savings accounts ................................       29,692           --            --            --            --        29,692
                                                      --------     --------      --------      --------      --------      --------
  Interest-bearing liabilities ..................       49,252       35,852        72,465         4,741            --       162,310
                                                      --------     --------      --------      --------      --------      --------
Interest rate sensitivity gap ...................       72,830      (35,852)      (72,465)       (4,284)         2517       (37,254)
Cumulative interest rate sensitivity ............       72,830       36,978       (35,487)      (39,771)      (37,254)      (37,254)
gap
Interest rate sensitivity ratio (2) .............         2.47           --            --           .10            --           .77
Cumulative interest rate sensitivity ............          .60          .30          (.29)         (.32)         (.30)         (.30)
  gap ratio (3) .................................
</TABLE>

(1)  Includes  loans  sold by each  month  end,  for which cash has not yet been
     received.

(2)  The interest rate sensitivity gap ratio  represents total  interest-earning
     assets divided by total interest-bearing liabilities.

(3)  The  cumulative   interest  rate   sensitivity  gap  ratio  represents  the
     cumulative interest rate sensitivity gap divided by total  interest-earning
     assets.


Impact of Inflation and Changing Prices

     The  financial  statements  and notes  thereto  presented  herein have been
prepared in accordance  with generally  accepted  accounting  principles,  which
require the measurement of financial  position and operating results in terms of
historical  dollars without  considering  the change in the relative  purchasing
power of money over time due to inflation.  The impact of inflation is reflected
in the increased  cost of operations of the Company and its  subsidiaries.  Like
most mortgage companies and industrial loan companies, nearly all the assets and
liabilities  of the  Company  and  Pacific  Thrift  are  monetary.  As a result,
interest rates have a greater impact on the Company's  consolidated  performance
than do the  effects  of  general  levels of  inflation.  Interest  rates do not
necessarily  move in the same  direction  or to the same  extent as the price of
goods and services.


Effect of New Accounting Pronouncements

     In February 1998, the Financial Accounting Standards Board issued Statement
of  Financial  Accounting  Standards  No.  132  ("SFAS  No.  132"),   Employers'
Disclosures  about  Pensions  and other  Post-retirement  Benefits,  which  stan
dardizes  the  disclosure  requirements  for pension  and other  post-retirement
benefits.  The adoption of SFAS No. 132 did not materially  impact the Company's
current disclosures.

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No.  133  ("SFAS  No.  133"),  Accounting  for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires


                                       43
<PAGE>

companies to recognize all derivative  contracts as either assets or liabilities
in the balance  sheet and to measure them at fair value.  If certain  conditions
are met, a derivative may be specifically  designated as a hedge,  the objective
of which is to match  the  timing  of gain or loss  recognition  on the  hedging
derivative  with the  recognition  of (i) the  changes  in the fair value of the
hedged asset or liability that are  attributable  to the hedged risk or (ii) the
earnings  effect of the hedged  forecasted  transaction.  For a  derivative  not
designated as a hedging instrument,  the gain or loss is recognized as income in
the  period of change.  SFAS No. 133 is  effective  for all fiscal  quarters  of
fiscal years  beginning  after June 15,  1999.  Based on its current and planned
future activities relative to derivative instruments,  the Company believes that
the  adoption  of SFAS No. 133 on  January  1, 2000 will not have a  significant
effect on its financial statements.

     In October 1998, the Financial  Accounting Standards Board issued Statement
of Financial  Accounting  Standards  No. 134 ("SFAS No.  134"),  Accounting  for
Mortgage-Backed  Securities  Retained After the Securitization of Mortgage Loans
Held for Sale by a  Mortgage  Banking  Enterprise.  This  statement  effectively
changes the way mortgage banking firms account for certain  securities and other
interests they retain after securitizing mortgage loans that were held for sale.
The  adoption of SFAS No. 134 is not  expected to have a material  impact on the
Company's financial position.

     In February 1999 the Financial  Accounting Standards Board issued Statement
of  Financial  Accounting  Standards  No. 135 ("SFAS No.  135"),  Rescission  of
Financial  Accounting  Standards  Board  No. 75 ("SFAS  No.  75") and  Technical
Corrections. SFAS No. 135 rescinds SFAS No. 75 and amends Statement of Financial
Accounting  Standards  Board No. 35.  SFAS No. 135 also  amends  other  existing
authoritative   literature  to  make  various  technical  corrections,   clarify
meanings,  or describe  applicability under changed conditions.  SFAS No. 135 is
effective for financial statements issued for fiscal years ending after February
15, 1999. The Company believes that the adoption of SFAS No. 135 will not have a
significant effect on its financial statements.

Year 2000 Compliance Information

     Pacific Thrift has prepared a Year 2000 Project Plan which will be used for
all  computer-related  systems of the Company as a whole.  The Plan provides for
four phases of implementation:  assessment,  renovation, testing and contingency
planning.  The Company has completed the assessment phase of the Plan, including
an analysis of mission critical and non-mission critical systems. The renovation
phase of the Company's software systems has also been  substantially  completed.
The Company's core operating  systems have all been upgraded to vendor  provided
Year 2000 compliant  versions and are running on Year 2000  compliant  hardware.
The testing  phase of the Year 2000 Project Plan has been  partially  completed,
with the completion of tests of the most critical systems, including the deposit
system,  the loan servicing  system,  the loan processing system and the general
ledger  system as of March 31, 1999.  The  remaining  mission  critical  systems
should be tested and validated by April 30, 1999. The contingency planning phase
will consist of the creation and validation of a business resumption contingency
plan to  address  all  actions  to be taken in the event  that any aspect of the
Company's mission critical systems fails to operate properly on or after January
1, 2000. The contingency planning phase should be completed by June 30, 1999.

     An  independent  audit  report of the Year 2000  project is  expected to be
completed by April 22, 1999 and the Company expects to be Year 2000 compliant by
June 30, 1999.

     The  Company  has  budgeted a total of $50,000  to  complete  its Year 2000
Project Plan,  and does not anticipate  that total expenses  necessary to become
Year 2000 compliant will be material.

     On March 1, 1999,  Pacific Thrift entered into a stipulation and consent to
an order  issued by the FDIC  related  to Year 2000  readiness  (the  "Year 2000
Order"),  the terms of which are  described  under the heading Item 1.  Business
--Supervision  and Regulation -- Regulatory  Actions.  The Company believes that
Pacific Thrift has taken actions required


                                       44
<PAGE>

to be in compliance  with the Year 2000 Order as of this date,  but the FDIC has
not verified such compliance as of this date.

Seasonality

     The Company's  results of operations have not been  materially  affected by
seasonality.

Risk Factors

     The discussion in this Report contains certain  forward-looking  statements
relating to anticipated financial  performance,  business prospects and business
plans.  The Private  Securities  Litigation  Reform Act of 1995  provides a safe
harbor for forward-looking  statements. In order to comply with the terms of the
safe  harbor,  the  Company  notes  that  actual  future  results  could  differ
materially from those described in the forward-looking statements as a result of
a variety of factors,  including those specifically discussed below. The Company
cautions  the  reader,  however,  that these  lists of risk  factors  may not be
exhaustive. The Company undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.

     The  Company  incurred  a net loss of  $24,488,000  during  the year  ended
December 31, 1998 and has an  accumulated  deficit of $3,231,000 at December 31,
1998.  Management  believes these losses were  reflective of the rapid change in
marketplace  demand for the purchase of sub-prime paper by the secondary  market
during the latter half of 1998. At December 31, 1998,  the Company is in default
of the repayment terms of its obligations  related to its  interest-only  strips
receivable (Note 8c to the financial  statements included under item 14 for Part
IV). In addition,  Pacific Thrift was not "adequately capitalized" at the end of
1998 or by March 22, 1999 and became subject to certain regulatory  mandates and
sanctions (Note 13 to the financial  statements  included under item 14 for Part
IV). Pacific Thrift also has additional  regulatory mandates imposed relating to
its Year 2000 readiness and the related Bank  information  systems (Notes 13 and
15 to the financial  statements  included under item 14 for Part IV). Failure to
implement  the  regulatory  mandates  would  expose  Pacific  Thrift to  various
regulatory actions, including the risk of regulatory takeover.

     The Company's  independent  certified  public  accountants have included an
explanatory  paragraph in their report which  indicates that these matters raise
substantial  doubt  about the  ability  of the  Company to  continue  as a going
concern. Management's plans regarding these matters are as follows:

     Management  has taken and  continues to take steps to return the Company to
profitability and improve its financial condition, including such actions as the
closure of  Pacific  Thrift's  wholesale  operations  (Note 2Q to the  financial
statements  included  under item 14 for Part IV),  an  emphasis  on  originating
residential  real estate loans for sale under whole loan sale  agreements  for a
cash premium through its retail division, a reduction in portfolio lending until
targeted capital ratios are achieved,  and reducing overhead  expenses.  Pacific
Thrift has hired a  consultant  and  submitted  a revised  Year 2000 plan to the
regulators  and  believes  it will be able to meet the  guidelines  of the order
regarding Year 2000 (Note 13 to the financial  statements included under item 14
for Part IV).

     Management  expects that Pacific Thrift will be profitable in 1999 and will
comply to the greatest extent possible with the regulatory mandates.  Management
has  submitted a Capital  Restoration  Plan (the Plan) which was approved by the
FDIC. In addition to a revised  business plan,  the Plan includes  restructuring
debt to provide  capital  contributions  to Pacific  Thrift and raising  capital
through private or public offerings of debt or equity securities.  Management is
negotiating  a  restructuring  of its  obligations  in default  relating  to its
interest-only  strips receivable.  There is no assurance that management's plans
can be achieved.  The  financial  statements  do not include any  provisions  or
adjustments that might result from the outcome of these uncertainties.

     Reliance on Secondary  Loan Market.  The Company relies upon its ability to
originate loans for immediate  resale in the secondary loan market.  The Company
does not have the  resources  to hold a  significant  amount of loans,  and must
therefore  be able to sell  existing  loans in order  to have  the  capacity  to
originate new loans. The secondary loan market experienced  substantial  adverse
changes  in the third and fourth  quarters  of 1998,  the  effects of which have
continued  into 1999.  As a result of these  events,  the Company  believes that
there are fewer  loan  purchasers  in the  secondary  loan  market,  that  these
purchasers  are buying fewer  loans,  and that this has reduced the prices which
buyers are willing to pay for loans. Although there has been some improvement in
the  secondary  loan market in the first  quarter of 1999,  as evidenced by some
increase in loan sale prices and sales of loans by Pacific Thrift to several new
loan purchasers, there can be no assurance that either general market factors or
specific  factors  related to Pacific  Thrift will not reduce  Pacific  Thrift's
ability to sell loans in the future. Any further  deterioration in the secondary
loan market could have a substantial negative impact upon the Company.

     Need for Additional  Capital at Pacific Thrift. The terms of the 1998 Order
issued by the FDIC require Pacific Thrift to raise sufficient additional capital
to become "well  capitalized"  as defined by FDIC  regulations by June 30, 1999.
Pacific  Thrift  currently  estimates  that  this  would  require  it  to  raise
approximately $20 million in additional capital.  There can be no assurance that
Pacific Thrift or the Company will have the ability to raise sufficient  capital
to meet the  terms  of the  1998  Order,  particularly  in light of the  current
adverse  conditions  in the  secondary  loan  market and the  Company's  current
financial condition.

     Risk of Additional  Regulatory Action.  Pacific Thrift is currently subject
to regulatory  orders issued by the FDIC and the DFI  concerning  the raising of
additional  capital,  the limitation of lending  activities,  the restriction on
asset  growth  and  new  offices,  and the  reduction  of  interest-only  strips
receivable as a percentage of capital, among other provisions. Pacific Thrift is
also  subject  to a  regulatory  order  issued  by the FDIC  concerning  actions
required to be taken to become  Year 2000  compliant.  (See Item 1.  Business --
Supervision and Regulation -- Regulatory Action.) There can be no assurance that
Pacific  Thrift  will have the  ability to meet all of the  requirements  of the
existing  regulatory  orders,  or that additional  regulatory orders will not be
issued  further  restricting  Pacific  Thrift's  business.  If Pacific Thrift is
unable  to  comply  with  the  terms  of the  orders,  the FDIC and the DFI have
authority  to take a number  of  enforcement  actions,  including  appointing  a
receiver for Pacific Thrift,  withdrawing  FDIC  insurance,  requiring a sale of
Pacific Thrift, or imposing civil money penalties.  There can be no assurance of
what action, if any, the FDIC and/or the DFI would deem appropriate in the event
that Pacific Thrift were unable to meet the terms of the existing  orders or any
new regulatory orders.

     Risk of  Inability  to Repay  Existing  Indebtedness  to Merrill  Lynch and
Fremont.  The Company is currently  in default on an $18.4  million loan made by
Merrill Lynch under a Master  Assignment  Agreement.  See Item 7.  "Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  --
Sources of Funds -- Other  Borrowings."  The Company had  anticipated  that cash
flow from the PAMM Trusts would be used to repay this loan,


                                       45
<PAGE>

but cash flow payments have been interrupted due to the delinquency level of one
of the PAMM Trusts.  Although  Merrill Lynch  indicated in December 1998 that it
did not  intend  to take any  action  other  than to  direct  that all cash flow
payments  be paid  directly  to it,  because  of the  interruption  in cash flow
payments,  the Company is  uncertain  whether  Merrill  Lynch will take  further
action  to  collect  the  loan,  including  a sale of the  interest-only  strips
receivable held by the Company in the PAMM Trusts.  In the event of such a sale,
the Company may not receive the full carrying value of those assets, which could
result in a substantial  loss to the Company.  It is also uncertain at this time
whether the Company  will have the ability to repay a $3.0  million loan owed to
Fremont  which  matures on January 8,  2000.  The  Fremont  loan is secured by a
pledge of 100% of the stock of Pacific Thrift,  and Fremont would have the right
to sell the  stock if the  Company  cannot  repay the loan to  Fremont  upon its
maturity.

     Risks  of  Holding  Interest-Only  Strips  Receivable.  The  Company  has a
significant  investment in  interest-only  strips  receivable from loans sold in
1996 through  1998.  While a market does exist for these  assets,  it is not the
type of market that results in active bid/ask levels, but is a negotiated market
in which interests trade based upon the availability and exchange of information
regarding the asset as well as the purchaser's  knowledge of similar assets. The
adverse events in the subprime  lending industry which occurred in the third and
fourth  quarters  of 1998 have also had a  negative  impact  on the  market  for
interest-only  strips  receivable.  This has  reduced the  Company's  ability to
obtain financing using these  receivables as collateral,  which could be used as
additional  capital  at  Pacific  Thrift  or  to  refinance  the  Merrill  Lynch
indebtedness.  In addition, if the Company were to attempt to sell all or a part
of  these  receivables,  there  can  be no  assurance  that a  purchaser  of the
receivables would be willing to pay the amount which the Company estimates to be
their present value, based upon a discounted cash flow analysis. In addition, as
the Company continues to hold the receivables, it is also subject to the risk of
valuation adjustments based upon performance of the loans in each Securitization
Trust,  particularly  with respect to  voluntary  and  involuntary  prepayments.
Actual prepayment and loss rates on each Securitization  Trust are affected by a
variety of factors which cannot be predicted with certainty. Therefore, there is
a risk that the value of interest-only strips receivable will require adjustment
to reflect future events. See "Certain  Accounting  Considerations"  above for a
detailed   discussion  of  the  various   factors  which  impact   valuation  of
interest-only strips receivable.

     Delinquencies and Losses in Securitization Trusts;  Negative Impact on Cash
Flow. Each of the  Securitization  Trusts in which the Company holds an interest
contains  specified limits on  delinquencies  and losses that may be incurred in
each Trust. If, at any measuring date, the  delinquencies or losses with respect
to any Securitization  Trust were to exceed the limits applicable to such Trust,
provisions of the agreements  require  increased  overcollateralization  reserve
levels,  thereby  deferring the Company's receipt of cash flow by diverting cash
flow from the Company to the reserve.  When and if delinquency  levels fall back
to acceptable levels, the Company has a right to receive the cash flow which has
been deposited in the reserve in accordance with the terms of the Securitization
Trust  documents.   Higher   delinquency  levels  leading  to  higher  loss  and
involuntary  prepayment  levels  than  those  estimated  by the  Company  in its
valuation  models also adversely  influence the Company's  anticipated cash flow
from and the valuation of the interest-only strips receivable.

     Risks of Contracted Servicing.  The Company contracts with third parties to
service all of its loans sold for  securitization.  Aames  services all loans in
the Aames  Trust  and  Advanta  services  all loans in the  Advanta  Trusts  and
subservicers  all loans in the PAMM  Trusts.  The  Company  is  subject to risks
associated with inadequate or untimely  service rendered by these loan servicers
with respect to the cash flow it expects to receive on its interest-only  strips
receivable.  In addition,  as master servicer of the PAMM Trusts, the Company is
also liable for any failure to provide adequate  servicing by Advanta,  which is
the subservicer  for the PAMM Trusts.  Many of the Company's  borrowers  require
notices and reminders to keep their loans  current and to prevent  delinquencies
and  foreclosures.  Any  failure by a servicer  to  provide  adequate  or timely
service could result in higher  delinquency rates and foreclosure losses on loan
pools,  which  could  have an  adverse  impact  on the  value  of the  Company's
interest-only strip receivables in those pools.

     Risk of Changes in  Interest  Rate  Environment.  A  substantial  sustained
increase in long-term  interest  rates could,  among other things,  decrease the
demand for  consumer  credit and  thereby  adversely  affect the  ability of the
Company to  originate  loans.  Conversely,  a  significant  decline in long-term
interest  rates  could cause an  increase  in loan  prepayments  on loans in the
Securitization  Trusts,  thereby  reducing the cash flow to the Company from its
interest-only strips receivable.  In addition,  changes in interest rates affect
Pacific Thrift's interests costs on deposits.


                                       46
<PAGE>

     Changes in Economic  Conditions.  The risks  associated  with the Company's
business become more acute in any economic  slowdown or recession,  particularly
when  accompanied by declining real estate values.  Any material decline in real
estate  values  reduces the ability of  borrowers  to use home equity to support
borrowings  and increases  the risk of loss on  outstanding  loans.  A sustained
period of increased  delinquencies and losses or increased costs could adversely
affect the Company's ability to securitize or sell loans in the secondary market
and/or decrease the profitability of the Company's loan securitization business.

     Year 2000  Risks.  The  Company  believes  that it will  achieve  Year 2000
compliance in advance of January 1, 2000,  and that its major service  providers
will  also  achieve  compliance.  However,  there  can be no  assurance  that an
unforeseen  problem will not develop which could cause losses to the Company and
disruption to its operations. (See "Year 2000 Compliance Information".)

     Government  Regulation.  The Company's  lending  operations  are subject to
extensive  regulation,  supervision  and  licensing by federal,  state and local
governmental  authorities  and are  subject to  various  laws and  judicial  and
administrative  decisions imposing  requirements and restrictions on its lending
business.  The Company's  consumer lending activities are subject to the Federal
Truth-in-Lending  Act and  Regulation Z (including the Home Ownership and Equity
Protection Act of 1994),  the Federal Equal Credit  Opportunity Act, as amended,
the Federal Real Estate  Settlement  Procedures  Act and  Regulation X, the Home
Mortgage  Disclosure  Act, the Federal  Debt  Collection  Practices  Act and the
National  Housing Act of 1934, as well as other  federal and state  statutes and
regulations affecting the Company's  activities.  The Company is also subject to
the rules and regulations of, and examinations by, state regulatory  authorities
with respect to its lending  business.  Pacific  Thrift is subject to additional
extensive governmental  supervision,  regulation and control by the FDIC and the
California  DFI,  as well as various  other  agencies  of the states in which it
conducts  its  lending  business.  (See "Item 1.  BUSINESS  --  Supervision  and
Regulation.")

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

     The Company carries interest-sensitive assets on its balance sheet that are
financed by interest-sensitive liabilities. Since the interval for re-pricing of
the  assets  and  liabilities  is  not  matched,   the  Company  is  subject  to
interest-rate  risk. A sudden,  sustained increase or decrease in interest rates
would impact the Company's net interest income, as well as the fair value of its
residual  interests in  securitizations  and interest-only  strips.

     The  following  table  illustrates  the  timing  of the  re-pricing  of the
Company's  interest-sensitive  assets and  liabilities  as of December 31, 1998.
Management has made certain  assumptions in determining  the timing of repricing
of such assets and liabilities.  One of the more significant assumptions is that
all of the Company's  loans  receivable  held for sale will be sold in the first
six months of 1999.  In addition,  the timing of  re-pricing  or maturity of the
Company's  residual  interests in securitizations is based on certain prepayment
and loss  assumptions  (See  "Management's  Discussion and Analysis of Financial
Condition  and  Results  of   Operations--Results  of  Operations"  for  further
details).
<TABLE>
<CAPTION>
                                              INTEREST RATE SENSITIVITY AS OF DECEMBER 31,1998
                                                           (DOLLARS IN THOUSANDS)

                                      1 DAY TO      6 MOS.            1 TO 5        AFTER 5
  DESCRIPTION                         6 MOS.       TO 1 YR.           YEARS          YEARS        TOTAL
-------------                        -------------------------------------------------------------------
<S>                                  <C>             <C>             <C>          <C>          <C>
INTEREST-SENSITIVE
ASSETS:
Cash and Investments                 $ 41,811        $     0         $     0      $     0      $  41,811
Loans Receivable                        7,494              0             414         2,394        10,302
Loans Held For Sale                    74,998              0               0             0        74,998
Interest-Only Strips Receivable         5,969         13,355          83,577        13,727       116,628
                                     -------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
 ASSETS                               130,272         13,355          83,991        16,121       243,739
                                     -------------------------------------------------------------------
INTEREST-SENSITIVE
LIABILITIES:
Certificates Of Deposit                55,297         72,246           4,785             0       132,328
Savihgs Accounts                       29,692              0             --              0        29,692
Notes Payable                           4,028         12,313          36,234           557        53,132
                                     -------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
LIABILITIES                            89,017         84,559          41,019           557       215,152
                                     -------------------------------------------------------------------
EXCESS OF INTEREST-
SENSITIVE ASSETS OVER
INTEREST-SENSITIVE
LIABILITIES                           41,255         (71,204)         42,972        15,564        28,587
                                     -------------------------------------------------------------------
CUMULATIVE NET INTEREST
SENSITIVE GAP                         41,255         (29,949)         13,023        28,587        28,587
                                     -------------------------------------------------------------------
</TABLE>

Significant assumptions are as follows:

     Loans  Receivable:  all  variable  rate loans are when they reprice and all
     fixed rate loans are when they mature.
     Loans Held For Sale are assumed to be sold within six months.
     Interest-Only Strips Receivable are included based on the present values of
     the modeled cash flows.
     Certificates of Deposit are included based on when they mature.
     Notes Payable related to the  Interest-Only  Strips Receivable are included
     based on the present values of the modeled cash flows.  Other notes payable
     are based on scheduled maturity.

     See  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations - Net Interest Income  Analysis" and "-Certain  Accounting
Considerations." [GET ADDITIONAL INFORMATION FROM BDO]

Item 8.  Financial Statements and Supplementary Data

     See Item 14(a) 1-2.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

     None.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

Directors

     Mr. Joel R. Schultz, age 62, is Chairman of the Board,  President and Chief
Executive  Officer of the Company and was Chief Managing Officer of Presidential
Mortgage  Company,  a California  limited  partnership,  which was the Company's
predecessor.  Since 1989,  Mr.  Schultz  has been the  Chairman of the Board and
Chief  Executive  Officer of Pacific  Thrift.  He also  served as  President  of
Pacific  Thrift  from 1988 to  November  1993.  He also is  President  and Chief
Executive  Officer of PAMC. Mr.  Schultz is an attorney  admitted to practice in
California, a certified public accountant, and a California licensed real estate
broker.

     Mr. James C.  Neuhauser,  age 40, has been a  non-employee  director of the
Company since June 1996 and a  non-employee  director of Pacific Thrift and Loan
Company,  a wholly owned  subsidiary of the Company  ("Pacific  Thrift"),  since
August 1996.  Since March 1993, he has been employed  with  Friedman,  Billings,
Ramsey & Company,  Inc., an investment  banking firm headquartered in Arlington,
Virginia, where he is currently a Managing Director. He was


                                       47
<PAGE>

formerly employed with Trident Financial Corporation from 1986 to 1993, where he
last held the position of Senior Vice  President.  Mr.  Neuhauser is a Chartered
Financial Analyst.

     Mr. Paul D. Weiser, age 62, has been a non-employee director of the Company
and PAMC since June 1996 and a  non-employee  director of Pacific  Thrift  since
August 1996. Since 1968, he has been employed with Dataproducts  Corporation,  a
manufacturer and seller of computer printers and related products,  currently as
its Senior Vice  President,  Secretary  and General  Counsel.  Mr.  Weiser is an
attorney  admitted  to  practice  in  California  and  former  chairman  of  the
Securities  and  Exchange   Commission's   Advisory   Committee  on  Shareholder
Communications.

     Mr. Alan J. Siebler,  age 68, was appointed as a director of the Company on
April 21, 1997. Mr. Siebler is also a non-employee  director of Pacific  Thrift,
on which Board he has served since June 1992. He was a Human Resource Manager of
the Van Nuys,  California  Plant of General Motors  Corporation from August 1956
until  September  1992.  Mr.  Siebler also served as Chairman of the  California
Joint  Apprenticeship  State  Advisory  Committee for Single Plant Industry from
1986 to 1989; and Member of the Committee for Industrial  Training Curriculum of
Pierce College.

     The terms of Joel R.  Schultz  and Paul D.  Weiser  will expire at the 1999
annual  meeting  of  stockholders,  or when their  successors  are  elected  and
qualified. The term of Alan J. Siebler will expire at the 2000 annual meeting of
stockholders,  or when his successor is elected and qualified. The term of James
C. Neuhauser will expire at the 2001 annual meeting of stockholders, or when his
successor is elected and qualified. Mr. Richard D. Young resigned from the Board
on January 11, 1999,  and the Board reduced the number of directors from five to
four on February 24, 1999. The Board of Directors may fill interim  vacancies of
directors. Each officer is elected by and serves at the discretion of, the Board
of Directors, subject to the terms of any employment agreement.

Executive Officers

     The following table sets forth certain information concerning the Company's
executive officers.

<TABLE>
<CAPTION>
                                                              Principal Occupation or Employment and
       Name                              Age                    Occupation for the Past Five Years
       ----                              ---                    ----------------------------------
<S>                                       <C>     <C>
Joel R. Schultz                           62      Chairman of the Board, President, Chief Executive Officer and
                                                  Chief Operating Officer of the Company; Chief Managing Officer of
                                                  the Partnership from 1981 to June 1996; Chairman of the Board of
                                                  Pacific Thrift since 1988; Chief Executive Officer of Pacific
                                                  Thrift from 1988 to April 12, 1999; President of Pacific Thrift
                                                  from 1988 to December 1993; Chairman of the Board, President and
                                                  Chief Executive Officer of PAMC; California licensed
                                                  attorney-at-law; Certified Public Accountant; California licensed
                                                  real estate broker.

Michael A. Iachelli                       48      President and Chief Executive Officer, Pacific Thrift and Loan Company
                                                  (subject to approval of FDIC) commencing April 12, 1999; various
                                                  positions at Bay View Credit, formerly California Thrift & Loan from
                                                  July 1977 until April 7, 1999, including President and Chief Executive
                                                  Officer of Bay View Credit from June 1998 to April 7, 1999; President
                                                  and Chief Operating Officer of Bay View Credit from June 1996 to
                                                  June 1998; Executive Vice President, Real Estate Lending and
                                                  Commercial Leasing from January 1993 to June 1996.

Charles J. Siegel                         49      Chief Financial and Administrative Officer and Assistant Secretary of the
                                                  Company; Chief Financial and Administrative Officer and Assistant
                                                  Secretary of Pacific Thrift from December 1993 to present; Chief
                                                  Financial Officer of PAMC from June 1996 to present; Chief Financial
                                                  Officer of the Partnership from May 1994 to June 1996; Chief Financial
                                                  Officer of Topa Thrift and Loan from 1983 to 1993; Certified Public
                                                  Accountant.
</TABLE>


                                       48
<PAGE>

<TABLE>
<CAPTION>
                                                              Principal Occupation or Employment and
       Name                              Age                    Occupation for the Past Five Years
       ----                              ---                    ----------------------------------
<S>                                       <C>     <C>
Norman A. Markiewicz                      52      Executive Vice President of the Company; Chief Operating Officer of the
                                                  Partnership from 1981 to May 1994; Chief Operating Officer of Pacific
                                                  Thrift from 1988 to September 1993; Executive Vice President of Pacific
                                                  Thrift from 1993 to present; director of Pacific Thrift from 1988 to
                                                  present; Executive Vice President and director of PAMC.

Richard B. Fremed                         56      Executive Vice President, Human Resources and Investor Relations and
                                                  Secretary of the Company; Chief Financial Officer of the Partnership
                                                  from 1981 to April 1994; Chief Financial Officer of Pacific Thrift
                                                  from 1988 to December 1993; Secretary of Pacific Thrift from December
                                                  1988 to present; Treasurer of Pacific Thrift from December 1993 to
                                                  present; director of Pacific Thrift from 1988 to present; Secretary
                                                  and director of PAMC; Certified Management Accountant and California
                                                  licensed real estate sales person.
</TABLE>

Item 11.  Executive Compensation

Executive Compensation

     Summary of Cash and Certain Other Compensation.  The Company is a successor
to the Partnership.  On June 27, 1996, the Company and the Partnership completed
the Restructuring, as a result of which all of the assets and liabilities of the
Partnership were  transferred to the Company.  Prior to the  Restructuring,  the
executive  officers of the Company received  compensation  from the Partnership,
Presidential  Management  Company,  the general partner of the Partnership  (the
"General Partner") and/or Pacific Thrift,  under various arrangements with those
entities.  The following table sets forth certain summary information concerning
compensation  paid or accrued  by the  Company,  the  Partnership,  the  General
Partner and Pacific  Thrift to or on behalf of the Chief  Executive  Officer and
each of the Named Executives for the fiscal years ended December 31, 1998, 1997,
and 1996:


                                       49
<PAGE>

                           Actual Annual Compensation

<TABLE>
<CAPTION>
                                                                                      Securities
                                                                                      Underlying         All Other
Name and Principal Position            Year          Salary($)(1)     Bonus($)       Options(#)(2)      Compensation
---------------------------            ----          ------------     --------      -------------       ------------
<S>                                    <C>               <C>         <C>                <C>                <C>
Joel R. Schultz (3)                    1998              $511,834      $133,950         100,000              -0-
Chief Executive Officer of             1997              $235,000    $1,633,728          30,000            $4,750
the Company and Pacific Thrift         1996              $450,704      $222,750          96,000            $4,500

Richard D. Young (4)                   1998              $443,509      $133,950            -0-               -0-
(Former) President and Chief           1997              $235,000    $1,478,050           6,000            $4,750
Operating Officer of Pacific           1996              $247,583      $354,750         100,000            $4,500
Thrift, and Senior Executive
Vice President of the Company

Frank Landini (5)                      1998              $546,133      $318,504            -0-               -0-
(Former) Executive Vice                1997              $163,200      $637,008            -0-             $4,750
President - Wholesale                  1996              $184,600      $207,112          36,000            $4,190
Lending Division of
 Pacific Thrift

Charles J. Siegel,                     1998              $214,422        -0-               -0-               -0-
Chief Financial Officer of             1997              $201,798      $125,000          15,000            $4,750
the Company and Pacific Thrift         1996              $163,577       $51,667          26,000            $4,500

Norman A. Markiewicz                   1998              $155,072        -0-               -0-               -0-
Executive Vice President               1997              $146,707        -0-               -0-             $4,147
of the Company and Pacific             1996              $172,500        -0-             18,000            $4,500
Thrift
</TABLE>

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

(1)  The amounts  specified above include  automobile  allowances and directors'
     fees, but do not include life insurance or medical  insurance  premiums for
     benefits in excess of group benefits  provided to employees,  the aggregate
     amount of which do not exceed  the  lesser of either  $50,000 or 10% of the
     total  annual  salary  and  bonus  reported  for  each of the  above  named
     executives in each reported year.

(2)  All options  shown in this column are  exercisable  at a price equal to the
     fair market value of the options on the date of grant.

(3)  Salary amounts for 1996 include payments prior to the effective date of the
     Restructuring for providing legal services in connection with loan accounts
     prior to June 27, 1996.  Bonus amount for 1997 includes the value of 10,007
     shares of Common Stock paid by the Company in lieu of a portion of the cash
     bonus earned under an employment  agreement  based on the fair market value
     of the  shares  on the date  paid.  See  "--Employment  Agreements."  Bonus
     amounts  for each of 1996  and 1997  include  amounts  earned  for the year
     reported but paid in the following year.

(4)  Mr.  Richard Young  resigned his positions  with the Company and all of its
     subsidiaries on January 11, 1999.  Bonus amount for 1997 includes the value
     of 22,766  shares of Common  Stock paid by the Company in lieu of a portion
     of the cash bonus earned under an employment  agreement,  based on the fair
     market  value of the  shares on the date paid,  plus a $174,102  promissory
     note payable in two semi-annual  installments six months and one year after
     issuance,  bearing  interest  at  the  Bank  of  America  prime  rate.  See
     "--Employment  Agreements." Bonus amounts for each of 1996 and 1997 include
     amounts earned for the year reported but paid in the following year.  Bonus
     amount for 1996 consists of a bonus of $107,000 paid in 1996 for the period
     prior to the Restructuring,  a special  discretionary bonus of $25,000 paid
     after


                                       50
<PAGE>

     the  Restructuring  and a bonus of  $222,750  accrued  for in 1996 under an
     employment  agreement  entered into effective as of the closing date of the
     Restructuring Date and paid in 1997.

(5)  Mr. Landini  resigned his position with Pacific Thrift on October 27, 1998.
     His salary  included a  severance  payment of  $200,000,  representing  six
     months  salary.  Bonus  amount for 1997  consisted  of a bonus of  $637,008
     accrued for 1997,  of which 75% was paid in January  1998 and 25% is due to
     be paid in January 2000 under his  employment  agreement.  Bonus amount for
     1996  consists  of a bonus of $182,112  accrued for 1996,  of which 75% was
     paid in January  1997 and 25% is due to be paid in  January  1999 under his
     employment  agreement,  and a special  discretionary  bonus of $25,000 paid
     after the Restructuring. See "-- Employment Agreements."

     Options

     Option Grants  During 1998.  The Named  Executives of the Company  received
grants of Incentive  Stock Options  during the year ended  December 31, 1998 for
the following amounts of shares of Common Stock.


<TABLE>
<CAPTION>
                                              Option Grants in 1998 Fiscal Year

                                              Individual Grants
                                                                                                    Potential Realizable Value
                                Number of        % of Total                                          at Assumed Annual Rates
                               Securities          Options                                          of Stock Price Appreciation
                               Underlying        Granted to        Exercise or                            for Option Term
                                 Options        Employees in       Base Price      Expiration       ---------------------------
           Name                Granted (#)       Fiscal Year         ($/Sh)           Date            5% ($)           10% ($)
           ----                -----------     --------------     -------------   ------------        ------           -------
<S>                              <C>               <C>               <C>            <C>                <C>              <C>
Joel R. Schultz                  100,000           69.83             17.75          6/12/08            -0-              -0-
Richard D. Young                   -0-               --                --              --              -0-              -0-
Frank P. Landini                   -0-               --                --              --              -0-              -0-
Charles J. Siegel                  -0-               --                --              --              -0-              -0-
Norman A. Markiewicz               -0-               --                --              --              -0-              -0-
</TABLE>



     Option Exercises in 1998 and Current Option Values..

     The  following  table  provides  certain  information   concerning  options
exercised in 1998 and  unexercised  options held as of December 31, 1998, by the
executive officers who held options at the end of 1998:


                                       51
<PAGE>

                 Aggregate Option Exercises in 1998 Fiscal Year
                           and Fiscal Year End Values

<TABLE>
<CAPTION>
                                                                                                   Value of Unexercised
                                                                Number of Unexercised              In-the-Money Options
                           Shares                              Options at 12/31/98 (#)              at 12/31/98 ($) (1)
                        Acquired on        Value               -----------------------              -------------------
                        Exercise (#)     Realized ($)       Exercisable      Unexercisable      Exercisable     Unexercisable
                        ------------     ------------       -----------      -------------      -----------     -------------
<S>                        <C>             <C>                 <C>                <C>                  <C>              <C>
Joel R. Schultz            19,200          -0-                 100,532            67,868               -0-              -0-
Richard D. Young           40,000          -0-                     -0-            66,000               -0-              -0-
Frank P. Landini              -0-          -0-                  18,000               -0-               -0-              -0-
Charles J. Siegel             -0-          -0-                  16,750            24,250               -0-              -0-
Norman A.                     -0-          -0-                  10,800             7,200               -0-              -0-
Markiewicz
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Value of unexercised  "in-the-money"  options is the difference between the
     market price of the Common  Stock at December 31, 1998  ($0.4375 per share)
     and the exercise  price of the option,  multiplied  by the number of shares
     subject to the option.


   Employment Agreements

     The  Company  entered  into  employment  agreements  with Joel R.  Schultz,
Richard D. Young,  Norman A.  Markiewicz and Richard B. Fremed,  effective as of
June 27, 1996, the closing date of the  Restructuring  (the "Closing Date").  In
addition,  Pacific  Thrift  entered into an employment  agreement  with Frank P.
Landini which became  effective as of January 1, 1996.  On January 1, 1997,  the
Company  entered an  employment  agreement  with Charles J. Siegel.  On April 9,
1999, the Pacific Thrift entered into a new employment agreement with Michael A.
Iachelli, subject to approval of the FDIC.

     The employment agreements of Mr. Schultz and Mr. Young were superseded with
new employment  agreements  dated as of January 1, 1998,  which were approved by
the stockholders at the 1998 annual meeting of stockholders.  Mr. Young resigned
his positions with the Company and its subsidiaries  effective January 11, 1999.
The Company and Mr.  Young have  executed a  Separation  Agreement,  and Pacific
Thrift and Mr. Young have  executed a six-month  Consulting  Agreement,  both of
which  agreements  are subject to approval of the FDIC,  which  approval has not
been obtained as of the date of this report.

     The new  employment  agreements  with Mr. Schultz is for an initial term of
three years,  beginning  effective  January 1, 1998 and expiring on December 31,
2000.  The agreement is subject to automatic  extension for  successive one year
terms  unless,  at least six  months  prior to the end of the term,  either  the
Company or the executive gives notice of intent not to renew.

     Under the new  agreement,  Mr.  Schultz  receives  an annual base salary of
$425,000 per year,  adjusted  annually to reflect any  increases in the consumer
price index. In addition,  Mr. Schultz is entitled to receive an annual bonus if
the Company earns net after-tax profits for any calendar year during the term of
the  agreement.  Mr.  Schultz  did not earn an annual  bonus for the year  ended
December 31, 1998 due to the net  after-tax  loss  reported by the Company.  The
amount of any  annual  bonus  that may be earned in any  future  year  under the
agreement  would be equal to 2-1/2% of the  annual  net  pre-tax  profits of the
Company (before  deduction of bonuses paid to Mr. Schultz referred to as "annual
bonuses") if the Company earns annual net after-tax  profits  (after  payment of
annual  bonuses) equal to a minimum annual return on equity in excess of 10%, or
5% of the annual net pre-tax  profits of the Company if the Company earns annual
net after-tax  profits  equal to a minimum  annual return on equity in excess of
20%. Return on equity is determined as net after-tax  profits as a percentage of
stockholder  equity at January 1 of each year. The annual bonuses are payable in
quarterly  installments  during the year earned,  determined by annualizing  the
quarterly net pre-tax profits, net after-tax


                                       52
<PAGE>

profits and return on equity for each of the first  three  quarters of the year,
with a final  determination  of the total annual bonus following  release of the
Company's audited consolidated financial statements for the year.

     Each  installment of any annual bonus is paid 50% in cash and 50% in Common
Stock.  The Common  Stock  portion of the annual bonus will be held in escrow by
the Company unless and until either of the following  forfeiture  conditions are
met:  (a)  pre-tax net income for the year  following  the bonus year must be at
least 12.5% higher than the bonus year (i.e.,  for any 1999 bonus,  2000 pre-tax
net income  must  exceed  1999  pre-tax  net income by 12.5%);  or (b) return on
equity  (after  payment  of  annual  bonuses)  must be at least 25% for the year
following the bonus year (i.e.,  for the 1999 bonus,  2000 return on equity must
be at least 25%).  (The  forfeiture  conditions are only applicable for the year
2000  bonus year if the  executive  is  employed  under an  employment  contract
through the end of the year 2001.) The amount of Common  Stock issued in payment
of quarterly  installments  of the annual bonus is  determined as the highest of
(x) the closing price on the last trading day of the applicable quarter; (y) the
average closing price for the 10 trading days prior to the end of the applicable
quarter; or (z) $10 per share. The Company will use its best efforts to register
with the  Securities  and Exchange  Commission  for resale by the  executive the
Common Stock issued in payment of the annual bonus.

     Any amount paid as a quarterly  installment  of the annual bonus is subject
to repayment if the Company determines that the amount paid was in excess of the
amount of the annual  bonus  earned for the year.  To the extent  that the total
quarterly  annual bonus payments exceed the total annual bonus determined at the
end of the year, the excess will be repaid first from the Common Stock issued to
the executive during the year, using the average weighted price per share of the
Common Stock issued in payment of the annual bonus during the year,  and then in
cash or,  at the  executive's  option,  in shares  of  Common  Stock  previously
purchased by him. For 1998, Mr. Schultz  received a quarterly bonus  installment
of $133,950 in the first  quarter of 1998,  which Mr.  Schultz  intends to repay
with the return of 6,159 shares of Common Stock previously  purchased by him, at
$21.75 per share, which was the average weighted price per share of Common Stock
issued in payment of the bonus  installments  during 1998 as provided for in Mr.
Schultz's employment agreement.

     Mr. Schultz is also entitled to receive a special cash bonus equal to 1% of
the annual  pre-tax net income of the Company  calculated  before payment of the
special  bonus  but  after  payment  of the  annual  bonuses,  if the  following
conditions  are met: (a)  comparing  the special bonus year with the prior year,
the pre-tax  net income for the  special  bonus year is at least 25% higher than
the prior year or the return on equity  for the  special  bonus year is at least
25%; and (b)  comparing  the special  bonus year with the  following  year,  the
pre-tax net income for the year following the special bonus year is at least 25%
higher  than  the  special  bonus  year or the  return  on  equity  for the year
following  the special  bonus year is at least 25%.  (For the year 2000  special
bonus,  the performance  conditions for the year 2001 are only applicable if the
executive is employed under an employment  contract  through the end of the year
2001.)

     Mr.  Schultz also received a stock option for 100,000  shares upon approval
by the stockholders of the new employment agreement,  at an exercise price equal
to $17.75 per share, which was 100% of the fair market value of the Common Stock
on the date of grant. The option is exercisable at any time beginning six months
after grant for a term of 10 years.

     Mr. Schultz is also entitled to participate in benefit plans  maintained by
the Company for its executive  officers,  including  insurance,  pension,  stock
option  plans and stock  purchase  plans,  and to  receive  perquisite  benefits
including an  automobile  allowance  and expense  allowance.  In  addition,  Mr.
Schultz is entitled to receive the  insurance  benefits  made  available  to all
executives of the Company.

     Upon a termination of the employment  agreement as a result of the death or
disability of the executive,  he or his personal  representative  is entitled to
receive any unpaid annual and special bonuses for any prior year and through the
last full quarter prior to termination, including cash and Common Stock, free of
any forfeiture or other conditions otherwise applicable to such bonuses,  plus a
lump sum  payment  equal to the sum of the full annual  bonus and special  bonus
earned in the prior year,  plus payments of the base salary and all benefits for
one year.  If, at the end of the year of such a  termination,  it is  determined
that the annual bonus that would have been earned in the year of  termination is
higher than the annual bonus for the prior year,  the  executive or his personal
representative  is entitled to an  additional  payment  equal to the  difference
between the annual bonus that would have been earned and the annual bonus amount
paid upon termination.


                                       53
<PAGE>

     The Company may terminate Mr.  Schultz'  employment  agreement "for cause,"
which is defined to include: (i) theft or embezzlement; (ii) fraud or other acts
of dishonesty in the conduct of the Company's business; (iii) conviction or plea
of nolo  contendere to any felony or crime of moral  turpitude;  (iv) any action
willfully  and knowingly  taken which is injurious to the Company's  business or
reputation.  Upon a termination for cause,  the Company is only obligated to pay
the  amount  of  base  salary  and  annual  bonus  earned  through  the  date of
termination.  Any Common Stock held in escrow upon termination for cause will be
released to the executive if and when the conditions are met in accordance  with
the terms of his employment agreement.  In addition, the Company is obligated to
pay any special bonus to the  executive  for each year that he was employed,  to
the extent the  performance  targets are met in accordance with the terms of the
employment agreement.

     If Mr. Schultz  terminates  his  employment  agreement for any reason other
than a "corporate  change" (as defined below), he is entitled to his base salary
through the date of  termination  and his annual bonus earned through the end of
the last full quarter prior to termination. Any Common Stock held in escrow upon
such a termination  by Mr. Schultz will be released to the executive if and when
the conditions are met in accordance with the terms of his employment agreement.
In addition,  the Company is  obligated  to pay any special  bonus for each year
that Mr. Schultz was employed,  to the extent the performance targets are met in
accordance with the terms of his employment agreement.

     If the Company  terminates the employment  agreement of Mr. Schultz without
cause, he is entitled to benefits for one year, plus a lump sum payment equal to
one year's  base  salary and the annual  bonus  earned for the prior  year.  Mr.
Schultz is also entitled to any special bonus for the year prior to  termination
if the performance targets were met for the year prior to termination,  plus the
cash value of all  vacation,  holiday and sick days which have accrued and would
have accrued for one year following  termination.  If, at the end of the year of
termination,  it is determined  that the annual or special bonus that would have
been earned by Mr.  Schultz in the year of termination is higher than the annual
or special  bonus for the prior year,  Mr.  Schultz is entitled to an additional
payment equal to the  difference  between the annual  and/or  special bonus that
would  have been  earned  and the annual and  special  bonus  amounts  paid upon
termination.  In addition,  all Common Stock then held in escrow for Mr. Schultz
is required to be released immediately.

     If, at any time within one year of a "corporate change" (as defined below),
the Company or Mr.  Schultz  terminates his employment for any reason other than
"for  cause," Mr.  Schultz is entitled to receive  full  benefits  for 18 months
after  termination  and the cash value of all  vacation,  holiday  and sick days
which would have accrued for 18 months following  termination.  In addition, Mr.
Schultz is also  entitled to receive any earned and unpaid  installments  of his
annual bonus through the last full quarter of his employment,  and an additional
lump sum equal to the sum of two times his  annual  base  salary,  two times his
annual bonus earned in the prior year,  the special  bonus amount earned for the
year prior to termination,  plus an additional "in lieu of special bonus" amount
equal to 1% of the  annualized  pre-tax net income for the year of  termination.
If, at the end of the year of  termination,  it is determined that two times the
annual  bonus or the  special  bonus that would have been  earned in the year of
termination  is higher than the two times the annual bonus or the special  bonus
amount paid upon termination,  Mr. Schultz is entitled to an additional  payment
equal to the difference between two times the annual bonus and the special bonus
actually paid and two time the amount that would have been earned in the year of
termination,  in addition to a payment equal to the  difference  between the "in
lieu of special bonus" amount paid and the amount that would have been paid as a
special  bonus in the year of  termination.  In addition,  all Common Stock then
held in escrow for Mr. Schultz is required to be released.

     The employment  agreement with Mr. Siegel provides for a term of two years,
which is automatically  extended for additional one year terms thereafter unless
either party gives at least six months  written  notice of its or his  intention
not to renew the  agreement.  The Company has given notice to Mr. Siegel that it
does not intend to renew his contract after its expiration  date of December 31,
1999 at which time, Mr. Siegel will become an "at-will"  employee.  Mr. Siegel's
annual  salary was  $160,000 per year until May 1997,  when it was  increased to
$175,000  per year,  as adjusted  annually  for  increases in the cost of living
index.  Mr.  Siegel is also eligible to  participate  in the employee cash bonus
pool of the Company.  Upon certain  events  constituting  a change of control (a
Corporate  Change," as further defined below), Mr. Siegel is entitled to receive
two times his annual salary and three times his last annual bonus.

     The employment  agreements with Mr. Markiewicz and Mr. Fremed provide for a
term of one year, which is automatically  extended for additional one year terms
thereafter  unless either party gives at least six months  written notice of its
or his  intention  not to renew the  agreement.  The  Company has  notified  Mr.
Markiewicz and Mr. Fremed that their  employment  agreements will not be renewed
after  expiration on June 26, 1999 at which time Mr.  Markiewicz  and Mr. Fremed
will become "at-will" employees. Mr. Markiewicz' annual salary is


                                       54
<PAGE>

$135,000 per year, and Mr.  Fremed's annual salary is $125,000 per year, in each
case as adjusted  annually for  increases in the cost of living  index,  and Mr.
Markiewicz  and Mr. Fremed are also eligible to participate in the employee cash
bonus pool of the  Company.  Upon a Corporate  Change,  Mr.  Markiewicz  and Mr.
Fremed are each entitled to receive one-half his annual salary.

     As described above, the employment agreements of Messrs.  Schultz,  Siegel,
Markiewicz and Fremed contain  special  termination  provisions upon a Corporate
Change.  Corporate  Change is defined in each of the  employment  agreements  to
include any one (or more) of the following events:  (i) any person,  including a
group as defined in Section 13(d)(3) of the Securities  Exchange Act of 1934, as
amended (the  "Exchange  Act"),  becomes the  beneficial  owner of shares of the
Company with respect to which twenty  percent  (20%) or more of the total number
of votes for the  election of the Board may be cast;  (ii) as a result of, or in
connection with, any cash tender offer, exchange offer, merger or other business
combination,  sale of assets, or contested  election for the Board of Directors,
or combination of the foregoing,  persons who were directors of the Company just
prior to such event(s) shall cease to constitute a majority of the Board;  (iii)
a  transaction  in which the Company  will cease to be an  independent  publicly
owned  corporation  that is required to file  quarterly and annual reports under
the Exchange Act, or a sale or other disposition of all or substantially all the
assets of the  Company  (including  but not  limited  to the  assets or stock of
Company's subsidiaries that results in all or substantially all of the assets or
stock of Company on a  consolidated  basis being  sold);  (iv) a tender offer or
exchange offer is made for shares of the Company's  Common Stock (other than one
made by the Company) and shares of Common Stock are acquired thereunder; (v) the
stockholders of the Company cause a change in the majority of the members of the
Board of Directors within a twelve (12) month period;  provided,  however,  that
the election of one or more new directors  shall not be deemed to be a change in
the  membership of the Board of Directors if the nomination of the newly elected
directors was approved by the vote of  three-fourths of the directors then still
in office who were  directors at the beginning of such twelve (12) month period;
(vi) with respect to Joel Schultz only, a change in his duties or a reduction in
compensation;  or (vii) with  respect to Mr.  Siegel only, a change in the Chief
Executive Officer and Senior Executive Vice President of the Company.

     The Company retains the right to terminate any of the employment agreements
in the event of an employee's  physical or mental  disability  which renders him
unable to perform  under the  agreement for any period of one hundred and twenty
(120)  consecutive  days or for an  aggregate  period of one  hundred and twenty
(120) or more  days  during  any  twelve  (12)  month  period.  In the  event of
termination  due to  disability,  an  employee  would be  entitled to receive as
disability  compensation  a lump sum payment equal to the annual bonus earned by
employee  during the fiscal year preceding the year of  termination,  one year's
annual salary,  payable not less  frequently  than monthly and  continuation  of
certain  benefits for the greater of one year or the remainder of the term under
the agreement.  In the event of death, an employee's personal  representative is
entitled to receive as a death benefit,  in addition to any other payments which
he may be entitled to receive under any of the Company's benefit plans,  payment
of one year's salary, payable not less frequently than monthly.

     From  January 1, 1996 until  October 28,  1998,  the date of closing of the
wholesale loan division, Mr. Frank Landini was employed under written employment
agreements  with Pacific Thrift.  Upon his termination in October 1998,  Pacific
Thrift  paid Mr.  Landini  a  termination  payment  of  $200,000.  The  original
employment  agreement of Mr.  Landini with Pacific  Thrift was for a term of two
years, with automatic extensions for additional one year terms thereafter unless
either party gave at least six (6) months written notice of its or his intention
not to renew the  agreement.  Mr.  Landini  received  an annual  base  salary of
$150,000,  as adjusted  annually for increases in the cost of living index.  Mr.
Landini  also  received  an  annual  bonus  equal  to the sum of (a) 1.5% of the
pre-tax net profits of the Pacific Thrift Wholesale  Division up to $10 million;
(b) 1.875% of the pre-tax profits between $10 and $20 million;  and (c) 2.25% of
all pre-tax profits in excess of $20 million,  less the amount of Mr.  Landini's
salary. For purposes of the bonus calculation, Mr. Landini's salary was deducted
from the calculation of pre-tax net profits.

     In April 1998, Mr. Landini entered a new employment  agreement with Pacific
Thrift under which he was to receive an annual base salary of $400,000.  Also in
April 1998, Mr. Landini entered into a bonus  agreement with the Company,  under
which the Company agreed to assume  responsibility  for payment of Mr. Landini's
annual bonus,  in accordance with the same formula and payment terms provided in
Mr. Landini's prior agreement with Pacific Thrift.

     Mr. Landini's original agreement provided for him to receive up to $100,000
of his bonus earned in 1996 plus  one-half of any bonus earned in 1996 in excess
of $200,000 in January 1997, with any remaining bonus amount earned


                                       55
<PAGE>

in 1996 to be paid 36  months  later.  For years  after  1996,  one-half  of Mr.
Landini's  bonus was to be paid the following  January,  and the remaining  half
paid 36 months  later.  Pursuant to an  amendment to his  agreement  dated as of
January 1, 1997,  75% of the bonus earned in 1996 was paid in January 1997,  and
75% of the bonus payable for future years is payable in the  following  January,
with the remainder of each year's bonus payable three years thereafter. In every
case,  the  deferred  bonus  amount was  subject to  forfeiture  if Mr.  Landini
voluntarily   terminated  his  employment  or  Pacific  Thrift   terminated  his
employment "for cause." As a result of Mr.  Landini's  termination in connection
with the closing of the wholesale loan division in October 1998, the Company has
calculated  that it and its affiliates  owed Mr. Landini a total of $200,000 for
severance pay and benefits and $523,284 for deferred  bonuses earned in 1996 and
1997, of which $200,000 in severance has been paid to date. No arrangements have
been made with Mr. Landini regarding the amounts owed to him and the Company has
informed  Mr.  Landini  that it does not  expect  to pay these  amounts  for the
foreseeable future.

     Effective  January 11, 1999,  Mr.  Richard D. Young Senior  Executive  Vice
President of the Company and  President and Chief  Operating  Officer of Pacific
Thrift  was no longer  employed  by the  Company.  The  Company  entered  into a
Separation  Agreement  with Mr.  Young  dated as of March 9, 1999,  and  Pacific
Thrift  entered into a Consulting  Agreement  with Mr.  Young,  also dated as of
March 9,  1999.  The  Separation  Agreement  provides  for Mr.  Young to receive
payments  from the Company  under a note for  $475,000,  payable  over two years
beginning  January 1, 2002. The Consulting  Agreement  provides for Mr. Young to
provide consulting  services for a period of six months, for a consulting fee of
$10,000 per month.  The Separation  Agreement and the  Consulting  Agreement are
subject to the  approval of the FDIC,  which was applied for on March 11,  1999,
but has not yet been granted.

     On April 9, 1999,  Pacific Thrift  entered into a new employment  agreement
with Mr.  Michael  A.  Iachelli,  subject  to  approval  of the FDIC.  Under the
agreement,  Mr.  Iachelli has been  appointed as President  and Chief  Executive
Officer of Pacific  Thrift for a term of one year,  with  automatic  renewal for
successive  one year terms unless either party  notifies the other of nonrenewal
60 days before  expiration of the current term.  The agreement  provides for Mr.
Iachelli to receive an annual  salary of $200,000,  plus an annual bonus similar
in form and structure to that of Mr. Schultz, as it may be modified from time to
time,  but  excluding  from the  determination  of net pre-tax and net after-tax
income the effect of any changes in valuation of existing  interest-only  strips
receivable held by Pacific  Thrift.  In addition,  Mr.  Iachelli  receives a car
allowance and standard executive benefits. Mr. Iachelli has further been granted
stock options  exercisable  for 100,000 shares of Common Stock of the Company at
$.4375 per share, the closing price of the Common Stock on April 9, 1999, vested
25% annually.  In addition,  Mr.  Iachelli has received a grant of  nonqualified
stock  options  exercisable  for 25,000 shares of Common Stock of the Company at
$2.00  per  share,  vested  100% in one  from the  date of his  commencement  of
employment.  Mr. Iachelli has further received the right,  exercisable within 30
days from the date of commencement of his employment,  to purchase up to 100,000
shares of Common  Stock of the  Company at fair  market  value as of the date of
purchase.  The other  terms of Mr.  Iachelli's  employment  are  similar  to Mr.
Schultz'  employment  agreement,  except  that,  upon a change in control of the
Company,  Mr. Iachelli is entitled to receive a payment equal to one year of his
base salary, plus full vesting of all unvested options.

Plans and Arrangements

     Employees of the Company,  including  executive  officers,  are entitled to
participate in various benefit plans  established by the Company and approved by
the Board of  Directors  and the  Partnership,  as the sole  stockholder  of the
Company, prior to the Restructuring.

1995 Stock Option Plan

     The 1995  PacificAmerica  Money Center,  Inc.  Stock Option Plan (the "1995
Plan") is designed to promote and advance the  interests  of the Company and its
stockholders  by:  (i)  enabling  the  Company  to  attract,  retain  and reward
managerial  and  other  key  employees  and  non-employee  directors;  and  (ii)
strengthening   the  mutuality  of  interests   between   participants  and  the
stockholders of the Company in its long term growth, profitability and financial
success by offering stock  options.  The 1995 Plan empowers the Company to award
or grant options from time to time until  December 31, 2003,  when the 1995 Plan
expires except with respect to options then outstanding, to officers, directors,
key employees and consultants of the Company and its subsidiaries, Incentive and
Non-Qualified Stock Options ("Options") authorized by the Executive Compensation
Committee of the Board of Directors, which administers the 1995 Plan.


                                       56
<PAGE>

     Shares Subject to 1995 Plan. As approved by the  stockholders at the annual
meeting of stockholders  in June 1998, the adjusted  maximum number of shares of
Common  Stock in respect  of which  Options  may be granted  under the Plan (the
"Plan  Maximum")  is 800,000  with an increase of two percent  (2%) of the total
issued  and  outstanding  shares  of the  Common  Stock on the first day of each
subsequent  calendar  year,  up to a maximum  of  1,000,000  shares,  commencing
January 1, 1997. As of February 28, 1999 902,977 options were issuable under the
1995 Plan,  and options for 403,049 shares had been granted under the 1995 Plan,
leaving options for 499,928 shares available for future issuance.

     For the purpose of  computing  the total  number of shares of Common  Stock
available for Options under the 1995 Plan, the above  limitations are reduced by
the  number of shares of Common  Stock  subject to  issuance  upon  exercise  or
settlement  of  Options,  determined  at the date of the grant of such  Options.
However, if any Options are forfeited,  terminated, settled in cash or exchanged
for other Options or expire  unexercised,  the shares of Common Stock previously
subject to such  Options are again  available  for further  Option  grants.  The
shares of Common Stock which may be issued to  participants in the 1995 Plan may
be either authorized and unissued Common Stock or issued Common Stock reacquired
by the Company. No fractional shares may be issued under the 1995 Plan.

     The maximum  number of shares of Common  Stock  issuable  upon  exercise of
Options granted or which may be subject to Options,  as applied to the 1995 Plan
and its several components,  is subject to appropriate  equitable  adjustment in
the event of a  reorganization,  stock split,  stock  dividend,  combination  of
shares,  merger,  consolidation or other  recapitalization  of the Company.  The
number of shares subject to outstanding options and issuable under the 1995 Plan
was adjusted to reflect the one-for-one  stock dividend paid on August 13, 1997,
which had the effect of a two-for-one stock split.

     Administration. The 1995 Plan is administered by the Executive Compensation
Committee of the Board of Directors  (the  "Committee").  The 1995 Plan provides
that the Committee must consist of at least two directors of the Company who are
"non-employee  directors"  within  the  meaning  of Rule  16b-3(b)(3)(i)  of the
Exchange  Act  promulgated  by  the  Securities  and  Exchange  Commission  (the
"Commission").  The Committee  has the sole  authority to construe and interpret
the 1995 Plan, to make rules and procedures  relating to the  implementation  of
the 1995 Plan, to select participants,  to establish the terms and conditions of
Options  and  to  grant   Options,   with  broad   authority   to  delegate  its
responsibilities   to  others,   except  with  respect  to  the   selection  for
participation  of, and the granting of Options to,  persons  subject to Sections
16(a) and 16(b) of the Exchange  Act.  Members of the Committee are not eligible
to receive discretionary Options under the 1995 Plan.

     Eligibility  Conditions.  All officers and key employees of the Company and
its  subsidiaries,  are  eligible  to  receive  Options  under  the  1995  Plan.
Non-employee   directors   and   consultants   are  only   eligible  to  receive
Non-Qualified  Stock Options under the 1995 Plan. Except for Non-Qualified Stock
Options granted to non-employee  directors,  the selection of recipients of, and
the nature and size of, Options granted under the 1995 Plan is wholly within the
discretion  of the  Committee.  The 1995 Plan is  subject  to  specific  formula
provisions  relating  to the grant of options  to  non-employee  directors,  the
exercisability  of Incentive  Stock  Options and the total shares  available for
option  grants.  In  addition,  there is a 50,000  share  limit on the number of
shares of Common Stock in respect of which any type of Options may be granted to
any person in each calendar year.

     Transferability.  No Option  granted  under the 1995 Plan,  and no right or
interest therein,  is assignable or transferable by a participant except by will
or the laws of descent and distribution.

     Term,  Amendment  and  Termination.  The 1995 Plan  currently  provides for
termination  on  December  31,  2003,   except  with  respect  to  Options  then
outstanding.  The Board of Directors may amend or terminate the 1995 Plan at any
time,  except that: (i) to the extent restricted by Rule 16b-3 promulgated under
the Exchange  Act, as amended and in effect from time to time (or any  successor
rule),  the Board of Directors may not,  without approval of the stockholders of
the Company,  make any  amendment  that would:  (a) increase the total number of
shares  available for issuance  (except as permitted by the 1995 Plan to reflect
changes  in  capital   structure);   (b)  materially   change  the   eligibility
requirements;  or (c) materially  increase the benefits accruing to participants
under the 1995 Plan;  and (ii) the  provisions  of the 1995 Plan  governing  the
award of options to  non-employee  directors  may not be amended  more than once
every six months other than to comport with changes to the Internal Revenue Code
of 1986, as amended (the "Code"), the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the regulations promulgated thereunder.


                                       57
<PAGE>

     Change  of  Control.  The 1995 Plan  provides  that the  exercisability  of
outstanding  Options shall be accelerated upon any of the following events:  (i)
any  person,  including a group as defined in Section  13(d)(3) of the  Exchange
Act, becomes the beneficial owner of shares of the Company with respect to which
twenty  percent  (20%) or more of the total  number of votes for the election of
the Board of Directors may be cast; (ii) as a result of, or in connection  with,
any cash tender offer,  exchange  offer,  merger or other business  combination,
sale of assets or  contested  election  for the  Board,  or  combination  of the
foregoing, persons who were directors of the Company just prior to such event(s)
shall  cease  to  constitute  a  majority  of the  Board of  Directors;  (iii) a
transaction in which the Company will cease to be an independent  publicly owned
corporation  that is required to file  quarterly  and annual  reports  under the
Exchange Act, or a sale or other  disposition  of all or  substantially  all the
assets of the Company  (including  but not limited to the assets or stock of the
Company's subsidiaries that results in all or substantially all of the assets or
stock of Company on a  consolidated  basis being  sold);  (iv) a tender offer or
exchange offer is made for shares of the Company's  Common Stock (other than one
made by the Company) and shares of Common Stock are acquired thereunder;  or (v)
the stockholders of the Company cause a change in the majority of the members of
the Board of Directors  within a twelve (12) month  period;  provided,  however,
that the  election  of one or more new  directors  shall  not be  deemed to be a
change in the  membership  of the Board of  Directors if the  nomination  of the
newly  elected  directors  was  approved  by the  vote of  three-fourths  of the
directors  then  still in office who were  directors  at the  beginning  of such
twelve (12) month period (collectively, a "Change of Control").

     Incentive  Stock Options.  Options  designated as Incentive  Stock Options,
within  the  meaning of  Section  422 of the Code,  in respect of up to the Plan
Maximum may be granted under the 1995 Plan. The number of shares of Common Stock
in  respect  of which  Incentive  Stock  Options  are first  exercisable  by any
optionee during any calendar year shall not have a fair market value (determined
at the date of  grant)  in excess of  $100,000  (or such  other  limit as may be
imposed by the Code).  To the  extent  the fair  market  value of the shares for
which  options  are  designated  as  Incentive  Stock  Options  that  are  first
exercisable by any optionee during any calendar year exceed $100,000, the excess
amount shall be treated as Non-Qualified Stock Options.  Incentive Stock Options
shall be  exercisable  for such  period or  periods,  not in excess of ten years
after the date of grant, as shall be determined by the Committee.

     Grant of Incentive  Stock  Options.  As of February 28, 1999,  the Board of
Directors of the Company has granted  Incentive Stock Options to acquire a total
of  499,921  shares of Common  Stock to certain  key  employees,  including  the
executive  officers,  of the Company,  at exercise  prices ranging from $0.50 to
$28.75 per share.  For employees who were employed by the  Partnership  for five
(5) years or more, options become exercisable 20% after the first six (6) months
following  the grant,  and an  additional  20% on the first,  second,  third and
fourth-year  anniversary dates of the grant  thereafter.  For employees who were
employed  by the  Partnership  for less  than  five (5)  years,  options  become
exercisable 25% on each of the first, second, third and fourth-year  anniversary
dates of the grant.

     Non-Qualified Stock Options. Non-Qualified Stock Options may be granted for
such number of shares of Common Stock and will be exercisable for such period or
periods as the Committee shall determine, up to a maximum term of ten years.

     Options to  Non-Employee  Directors.  The 1995 Plan also  provides  for the
grant  of  Options  to  non-employee  directors  of  the  Company  or any of its
subsidiaries,  without any action on the part of the Board of  Directors  or the
Committee,  only upon the terms and  conditions  set forth in the 1995 Plan. The
1995 Plan was amended in June 1997 to provide that non-employee directors of the
Company and its  subsidiaries  would be entitled to receive an initial  grant of
1,000 shares of Common Stock and an annual grant of 1,000 shares of Common Stock
after each  twelve (12) month  period of  continuous  service as a director.  On
April 22, 1998 the Board of Directors  amended the 1995 Plan to clarify that, as
a result of the  August  13,  1997  stock  dividend  which  had the  effect of a
two-for-one  stock split, the amount of each initial and annual grant of options
to non-employee directors of the Company and its subsidiaries would be increased
to 2,000 shares of Common Stock.  Each Option  becomes  exercisable as to 50% of
the shares of Common Stock subject to the Option on the first  anniversary  date
of the grant and 50% on the second  anniversary  date of the grant,  and expires
ten (10) years from the date the Option is granted.  The  exercise  price of all
Options granted non-employee  directors must be equal to 100% of the fair market
value of the  Common  Stock  subject  to the  Option  on the date on which  such
Options are granted.  Each Option is subject to the other provisions of the 1995
Plan.

     As of February 28,  1999,  the  non-employee  directors of the Company have
been granted  Non-Qualified Options to acquire 18,000 shares of Common Stock, at
exercise prices ranging from $5 to $16 per share.


                                       58
<PAGE>

     Option  Exercise  Prices.  The exercise price of an Incentive  Stock Option
must be at least 100% of the fair market  value of the Common  Stock on the date
of grant.  Except for Options to  non-employee  directors,  Non-Qualified  Stock
Options  may be issued at such  option  exercise  price as the  Committee  shall
determine,  but not less than par value per share.  The fair market value of all
Options is  determined  as the closing price of the Common Stock on the date the
Option is granted.

     Exercise  of  Options.  Options are  exercisable  for a maximum  term of 10
years,  but may not be exercised  after three months  following a termination of
employment,  or after one year  following  disability  or death of an  optionee.
Options are exercisable  only upon the payment in full of the applicable  Option
exercise price in cash or, if approved by the Committee, in shares of the Common
Stock (at the fair market value thereof at exercise date) or by concurrent  sale
of the shares  under the  Option  with  instructions  to the  selling  broker to
deliver the proceeds of sale,  up to the  exercise  price,  to the  Company.  No
Incentive  or  Non-Qualified  Stock  Option may be  exercised  within six months
following the date of grant.

Retirement Plan

     The  Company  has a 401(k)  Plan (the  "401(k)  Plan")  which  Plan  allows
employees to invest contributions in Common Stock of the Company.

     All employees  (including officers) of the Company and its subsidiaries are
eligible to  participate  in the  Retirement  Plan and future  employees will be
eligible following the completion of 1,000 hours of service and their first year
of employment.  Subject to certain limitations,  participants in the 401(k) Plan
may make  contributions  from 2% to 15% of their  pretax  compensation,  up to a
maximum of $9,500 per year (in 1997),  subject to certain limitations and annual
adjust ments for inflation. The Company may, in its discretion,  make a matching
contribution  equal  to  a  percentage  of  compensation   contributed  by  each
participant,  not to exceed 6% of  compensation.  The 401(k) Plan is designed to
qualify  under  Section  401(k)  of the  Internal  Revenue  Code  and  therefore
contributions  by the Company and the participants are deductible by the Company
and not  includable  in the income of the  participants  for federal  income tax
purposes.  Participants  will always be fully vested in all of their  individual
contributions  to the  401(k)  Plan  (and in  earnings  on such  contributions).
Participants  will be fully vested in employer  contributions  (and  earnings on
such contributions) to the 401(k) Plan, regardless of years of service, upon the
attainment  of normal  retirement  age (age  65),  such  participant's  death or
permanent and total  disability while employed by the Company or the termination
or complete  discontinuance  of the 401(k)  Plan.  If a  participant  terminates
employment  with the Company  for any reason  other than  retirement,  then such
participant's  interest in employer  contributions to the 401(k) Plan shall vest
20% after one year of service,  and 20% for each year of service thereafter,  so
they will be vested  100%  after five or more years of  service.  An  employee's
service  with the  Partnership,  the General  Partner and former  affiliates  is
counted for purposes of vesting under the 401(k) Plan.

Stock Purchase Plan

     The 1995 Employee Stock Purchase Plan (the "Stock  Purchase Plan") provides
for eligible employees of the Company and its subsidiaries to participate in the
ownership  of the  Company  by  acquiring  the right to  purchase  shares of the
Company's  Common  Stock.  As  approved by the  stockholders  at the 1998 annual
meeting of stockholders the Stock Purchase Plan covers a total of 230,000 shares
of Common Stock.  Shares of Common Stock may be purchased by the Stock  Purchase
Plan in the open market or issued by the Company  from  authorized  and unissued
treasury  stock.  The  purpose  of the Stock  Purchase  Plan is to  promote  the
interests of the Company by providing a method whereby  employees of the Company
may  participate in the ownership of the Company by acquiring an interest in the
Company's growth and productivity.

     The Options.  The Stock Purchase Plan provides that,  during each specified
period  ("Option  Period"),  the Company may grant  options to  participants  to
purchase, at the termination of that Option Period, shares of Common Stock under
the Stock Purchase Plan. The Option Periods coincide with the Company's calendar
year.  The  price at which  each  share  covered  by an  option  under the Stock
Purchase  Plan may be  purchased  is 100% of the fair market value of a share of
Common Stock on the first day of the applicable Option Period.

     Unless terminated,  options granted at the commencement of an Option Period
are exercised  automatically  on the last day of that Option  Period.  An option
terminates upon a voluntary withdrawal from participation in the Stock


                                       59
<PAGE>

Purchase Plan by a participant, which may be effected any time prior to the last
day of the Option Period by completing a notice of  termination  form. An option
also terminates automatically if the participant holding the option ceases to be
employed by the Company or a subsidiary of the Company for any reason (including
death, disability or retirement) prior to the last day of the Option Period.

     An option may not be sold, pledged, assigned, hypothecated,  transferred or
disposed  of in any  manner  other  than by will or by the  laws of  descent  or
distribution, and may be exercised, during the lifetime of the optionee, only by
such optionee.  Optionees do not have rights as stockholders of the Company with
respect to option shares until they exercise their options.

     Eligibility and Participation.  All full-time  employees of the Company and
its  subsidiaries  who have been employed  continuously for at least 30 days and
who work more than 20 hours per week are  eligible to  participate  in the Stock
Purchase Plan at their election.  However,  no employee may be granted an option
if such employee would immediately thereafter own, directly or indirectly, 5% or
more of the combined  voting  power of all classes of stock of the  Company,  as
determined pursuant to Section 424(d) of the Code.

     Eligible employees may enroll as participants in the Stock Purchase Plan by
executing  a form  provided  by the Company  prior to the  commencement  of each
Option Period on which they may  designate  the stated  maximum set forth on the
form, to: (i) the portion of their compensation,  in any amount up to the stated
maximum set forth on the form, to be deducted semi-monthly,  and accumulated for
the purchase of shares of Common Stock; and/or (ii) the amount of funds, if any,
which they will deposit at the  beginning of the Option  Period for the purchase
of shares of Common Stock. Once chosen,  the semi-monthly  contribution for that
Option Period cannot be decreased or increased  without  terminating the option.
The aggregate  maximum dollar amount which may be designated by a participant to
be applied  to the  purchase  of shares  under the Stock  Purchase  Plan may not
exceed the lesser of 15% of base compensation or $25,000 per year.

     Administration  and Amendment.  The Stock Purchase Plan is  administered by
the Executive Compensation  Committee of the Board of Directors.  That committee
is empowered to interpret and construe any provision of the Stock  Purchase Plan
and to adopt such rules and  regulations  for  administering  the Stock Purchase
Plan as it deems necessary.

     The  Board of  Directors  of the  Company  may at any time,  insofar  as is
permitted by law, alter,  amend,  suspend or discontinue the Stock Purchase Plan
with respect to any shares not already  subject to options;  provided,  however,
that without the approval of the stockholders of the Company, no modification or
amendment may increase the number of shares  subject to the Stock Purchase Plan,
extend the term of the Stock  Purchase  Plan,  alter the option  price  formula,
otherwise materially increase the benefits accruing to participants,  materially
modify the  requirements as to eligibility for  participation or amend the Stock
Purchase Plan in any manner that will cause it to fail to meet the  requirements
of an "Employee Stock Purchase Plan" as defined in Section 423 of the Code.

Supplemental Executive Retirement Plan

     The PacificAmerica  Money Center, Inc.  Supplemental  Executive  Retirement
Plan (the  "Supplemental  Plan"),  an unfunded  retirement  plan, is designed to
provide  additional  employer  paid  benefits  to  certain  long-term  executive
officers  of the Company and its  predecessors.  Participants'  years of service
with  the  Partnership  and  its  affiliates  prior  to  the  completion  of the
Restructuring  carry  forward  for vesting and  benefit  accrual  purposes.  The
Supplemental Plan covers the following four employees:  Joel R. Schultz, Richard
B. Fremed, Norman A. Markiewicz and Charles J. Siegel.  Future participants,  if
any,  will be  determined  by the  Board  of  Directors.  Administration  of the
Supplemental Plan is the responsibility of the Executive  Compensation and Stock
Option Committee of the Board of Directors.

     Under the Supplemental Plan, a participant's 65th birthday is deemed his or
her normal retirement date ("Normal Retirement Date"). The yearly benefit that a
participant will receive at his or her Normal  Retirement Date will be 1-2/3% of
his or her  average  compensation  (whether  paid by the  General  Partner,  the
Partnership  or the  Company)  for  his  or her  highest  3  consecutive  years,
multiplied by the actual number of his or her years of service.  However,  in no
event  will any years of  service  in excess of 30 be taken  into  account.  The
participant's  benefits are reduced by his estimated Social Security benefit and
by his estimated  Section  401(k) Plan benefit.  Effective  January 1, 1997, the
maximum  annual   retirement   benefit  payable  under  the  Supplemental   Plan
(determined  after  application of the reductions for a participant's  estimated
Social Security and 401(k)  benefits) is limited to $400,000 for Joel R. Schultz
and $100,000 for all other


                                       60
<PAGE>

participants.  Beginning in 1998,  the benefit cap amounts  described  above are
subject to  cost-of-living  adjustments  during  the  period of a  participant's
employment,  up to a maximum  of 5% per year,  but only if the  increase  in the
applicable  cost-of-living  index  exceeds 5% for any plan year.  The  estimated
401(k)  benefit is  determined  as a straight life annuity that is the actuarial
equivalent   of  the  sum  of  the  elective   deferral  and  company   matching
contributions  made to the 401(k) Plan, based on the assumption that the maximum
elective  deferrals  and  company  match are  contributed  to the 401(k) Plan on
behalf of the  participant  each year and the  participant's  account  yields an
assumed  earnings  rate.  Benefits are payable  monthly  upon the  participant's
retirement.

     A  participant  is  entitled to elect  early  retirement  before his or her
Normal  Retirement  Date,  and still receive  retirement  benefits,  at any time
after: (i) he or she has completed  fifteen (15) years of service;  and (ii) the
sum of his or her age and  years of  service  equals  or  exceeds  seventy  (70)
("Early Retirement Date"). The dollar amount of a participant's early retirement
benefit equals the normal  retirement  benefit reduced 1/4% for each month prior
to his or her 65th birthday.

     If a participant  dies while employed by the Company at any time when he or
she is eligible for early or normal retirement, his or her surviving spouse will
receive the survivor  portion of a benefit  determined as if the participant had
retired on the day before his or her death,  and had  elected to receive  his or
her benefit in the form of a 50% joint and survivor annuity.

     Participants'  benefits  will become  fully vested upon the  attainment  of
their Early  Retirement Date or Normal  Retirement Date;  however,  participants
will forfeit all of their benefits in the event they either:  (i) are terminated
for cause;  or (ii) engage in  competition  with the Company,  either  before or
after retirement, without express written consent of the Company.

     Special  rules  apply  following a Change of Control of the  Company.  If a
participant  terminates his employment  within five (5) years following a Change
of Control:

     (a) the participant will be entitled to receive a benefit even if he or she
voluntarily terminates employment prior to eligibility for retirement,  provided
it is for "good reason," which includes, among other circumstances, reduction in
the participant's  annual base salary, the failure to pay, within seven (7) days
of the due date, any portion of the participant's compensation and the Company's
failure to  effectively  continue  any material  compensation  plan in which the
participant participated immediately before the Change of Control;

     (b) the  participant  will be credited with an additional five (5) years of
service and entitled to receive a lump sum  distribution of the present value of
his or her accrued benefit; and

     (c)  the  participant's  benefit  can  be  forfeited  because  he or she is
terminated  "for cause" only:  (i) if the  termination is because of the willful
and continued  failure by the  participant to  substantially  perform his or her
duties with the Company after a written  demand for  substantial  performance is
delivered  to  the  participant  by the  Board  of  Directors;  or  (ii)  by the
participant's  theft or  embezzlement  from the Company,  fraud or other acts of
dishonesty in the conduct of the Company's business,  conviction or plea of nolo
contendere to any felony or any crime involving moral turpitude,  or willful and
knowing  action which is  materially  injurious to the business or reputation of
the Company.

     A  participant  also has the right to receive a lump sum benefit  under the
Supplemental  Plan in the event of a voluntary  termination of employment within
one year following a Change of Control, based on his actual years of service.

     The  Board  of  Directors  of  the  Company  may  amend  or  terminate  the
Supplemental  Plan at any time,  provided that such amendment or termination may
not cancel or reduce the amount of a participant's  previously  accrued benefits
without the consent of that  participant.  The  termination of the  Supplemental
Plan will not result in immediate vesting of accrued benefits.

     The following table shows the estimated annual retirement benefits,  before
any applicable offset for estimated Social Security benefits or estimated 401(k)
benefits  under the 401(k) Plan and before  application of the benefit cap. Such
benefits  would be payable to  participants  in the  Supplemental  Plan on their
Normal Retirement Date on a straight life


                                       61
<PAGE>

annuity basis.  Offsets for social security and 401(k)  contributions made under
the 401(k) Plan may be substantial for certain participants.

<TABLE>
<CAPTION>
     Average Annual                                                                      Annual Benefit by
       Eligible                                                                 Years of Service at Retirement(1)
     Compensation                                                               ---------------------------------
     ------------
                               10               15                20                  25                 30
                            --------         --------          --------            --------           --------
<S>                         <C>              <C>               <C>                 <C>                <C>
        $100,000             $16,667          $25,000           $33,333             $41,667            $50,000
        $200,000             $33,333          $50,000           $66,667             $83,333           $100,000
        $300,000             $50,000          $75,000          $100,000            $125,000           $150,000
        $400,000             $66,667         $100,000          $133,333            $166,667           $200,000
        $500,000             $83,333         $125,000          $166,667            $208,333           $250,000
        $600,000            $100,000         $150,000          $200,000            $250,000           $300,000
        $700,000            $116,667         $175,000          $233,333            $291,667           $350,000
</TABLE>

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

(1)  Estimated  annual  retirement  benefits,  before any applicable  offset for
     estimated  Social Security  benefits or estimated 401(k) benefits under the
     401(k) Plan and before application of the benefit cap. Effective January 1,
     1997, the maximum annual retirement  benefit payable under the Supplemental
     Plan  (determined  after  application of the reductions for a participant's
     estimated  Social Security and 401(k)  benefits) is limited to $400,000 for
     Joel R. Schultz and $100,000 all other participants - $100,000.

     As of December 31, 1998, all of the Named Executives were  participating in
the  Supplemental  Plan. The average salary of the Named Executives for purposes
of the Supplemental  Plan does not differ  substantially  from that set forth in
the  Actual  Annual  Compensation  table,  except for the  inclusion  of amounts
realized upon exercise or sale of shares of Common Stock  received upon exercise
of stock options, and except for Joel R. Schultz,  whose average annual eligible
compensation  currently  is  $600,769,  which  is  the  average  of  his  annual
compensation for the years 1989, 1990 and 1991. Credited years of service in the
Retirement  Plan by the executives  participating  in the Retirement Plan are as
follows: Joel R. Schultz, 24 years of service;  Charles J. Siegel, five years of
service;  Norman A.  Markiewicz,  24 years of service and Richard B. Fremed,  20
years of  service.  It is  estimated  that Mr.  Schultz  will reach the  maximum
$400,000 in annual  retirement  benefit  payable if his average annual  eligible
compensation exceeds $960,000 and he has 25 or more years of service.

              JOINT REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
                     AND THE EMPLOYEE COMPENSATION COMMITTEE

     The Company's Executive  Compensation  Committee  ("Executive  Compensation
Committee")  and  Employee   Compensation   Committee  ("Employee   Compensation
Committee")  make this joint report on executive  compensation  pursuant to Item
402 of Regulation S-K. Notwithstanding anything to the contrary set forth in any
of the Company's  previous filings under the Securities Act of 1933, as amended,
or the  Securities  Exchange  Act of 1934,  as amended,  that might  incorporate
future filings,  including this Report, in whole or in part, this report and the
performance  graph  which  follows  this  report  shall not be  incorporated  by
reference into any such filings,  and such information  shall be entitled to the
benefits provided in Item 402(a)(9) of Regulation S-K.


                                       62
<PAGE>

Compensation Committee Interlocks and Insider Participation

     During the fiscal year ended December 31, 1998, the Executive  Compensation
Committee  determined  the  salary  and  the  performance-based  bonuses  of the
Company's executive officers under written employment  contracts and appropriate
awards under the 1995 Stock  Option Plan for all  officers and  employees of the
Company and  administered  the Company's 401(k) Plan. None of the members of the
Executive  Compensation  Committee  is  now,  and  none  of the  members  of the
Executive  Compensation  Committee or its predecessor the Executive Compensation
and Stock Option  Committee was, at any time during 1997, an officer or employee
of the Company.

     The  Employee  Compensation  Committee,  consisting  of Joel R. Schultz and
Richard D. Young,  determined  the salary and bonus  structure for all employees
who are not employed  under written  contracts and the annual bonuses of Messrs.
Markiewicz, Fremed and Siegel.

Executive Officer Compensation Policy and Philosophy

     The  Company's   compensation   program  for  executive  officers  consists
primarily of three key elements: a base salary, a performance-based  annual cash
bonus and  periodic  grants of stock  options.  The  Company  believes  that its
compensation  policies  are  designed  to attract,  retain and reward  executive
officers who contribute to the Company's success, to provide economic incentives
for executive officers to achieve the Company's  business  objectives by linking
the executive  officers'  compensation  to the  performance  of the Company,  to
strengthen the relationship  between  executive pay and stockholder value and to
reward individual  performance.  Thus,  compensation for such executive officers
involves a high  proportion  of pay which is at risk:  the variable  annual cash
bonus (which permits individual performance to be recognized on an annual basis,
and which is based,  in significant  part, on an evaluation of the  contribution
made by the officer to the  Company's  overall  performance)  and stock  options
(which  directly  relate  a  significant  portion  of  the  executive  officer's
long-term  remuneration  to stock price  appreciation  realized by the Company's
stockholders).

Components of Compensation

     Base Salary.  Executive  officer  salaries are established in relation to a
range of salaries for comparable  positions in the subprime  residential lending
industry.  For the  purpose of  establishing  base  salary  levels  prior to the
Restructuring,  the Company compared itself to a self-selected group of subprime
lenders of small to medium market  capitalization,  which included approximately
five companies in the comparison group. When the new employment  agreements with
Mr. Schultz and Mr. Young were negotiated in 1998,  increases in the base salary
of each of them were in part  established  with reference to the  performance of
the Company at that time,  and in part based upon certain other changes in those
employment  agreements  to provide for half of each bonus  payment to be made in
Common Stock rather than in cash.

     The  Company  seeks  to  pay  salaries  to  executive   officers  that  are
commensurate  with  the  qualifications,  duties  and  responsibilities  of each
officer and that are competitive in the marketplace. In making its annual salary
recommendations,   the  Executive   Compensation   Committee  and  the  Employee
Compensation  Committee review the Company's financial position and performance,
the  contribution of the individual  executive  officers during the prior fiscal
year in helping to meet the Company's  financial and business objectives as well
as the executive officers' performance of their individual responsibilities.

     Annual  Cash  Bonus.  Executive  officer  cash  bonuses are used to provide
executive officers with financial  incentives to meet annual performance targets
of the  Company.  The  performance  goals of  Messrs.  Schultz  and  Young  were
established in their employment  agreements as specified  returns on stockholder
equity.  The performance goals of Mr. Landini are established as a percentage of
the profits of the wholesale division of Pacific Thrift. The performance targets
and bonus recommendations for executives other than Messrs.  Schultz,  Young and
Landini are  established by the Employee  Compensation  Committee.  The Employee
Compensation  Committee  develops a Company-wide bonus pool following the end of
each  fiscal  year.  The  size of the  bonus  pool is  based  upon a  subjective
assessment  of overall  Company and  individual  business  unit  performance  as
compared to both  budgeted and prior fiscal year  performance  and the extent to
which the Company achieved its overall financial goals of growth in earnings and
return on stockholders' equity. Once the overall size of the bonus pool has been
approved, the Employee Compensation Committee makes


                                       63
<PAGE>

discretionary,  individual bonus  recommendations  for eligible  employees based
upon an evaluation  of their  individual  performance  and  contribution  to the
Company's overall performance

     Stock  Options.  The Board  believes  that equity  ownership  by  executive
officers  provides  incentive to build stockholder value and align the interests
of executive officers with the interests of stockholders.  Upon hiring executive
officers,  the  Executive  Compensation  Committee  of the Board will  typically
recommend  stock option grants to the officers  under the 1995 Plan,  subject to
applicable vesting periods.  Thereafter,  the Executive  Compensation  Committee
will con sider awarding additional grants, usually on an annual basis, under the
1995 Plan. The Executive  Compensation  Committee believes that these additional
annual grants will provide  incentives for executive officers to remain with the
Company.  Options  will be  granted  at the  then  current  market  price of the
Company's Common Stock and,  consequently,  will have value only if the price of
the Company's  Common Stock increases over the exercise  price.  The size of the
initial  grant will usually be  determined  based upon prior grants to executive
officers.  In  determining  the  size  of  the  periodic  grants  the  Executive
Compensation  Committee  will  consider  prior  option  grants to the  executive
officer,  the executive's  performance during the current fiscal year and his or
her expected contributions during the succeeding fiscal year.

     Other Employee Benefit Plans. The Company has certain broad-based  employee
benefit  plans  in  which  all  employees,  including  executive  officers,  are
permitted  to  participate  on  the  same  terms  and  conditions   relating  to
eligibility  and  subject  to  the  same  limitations  on  amounts  that  may be
contributed.  The Company also makes matching contributions for all participants
in the Company's 401(k) Plan.

Compensation of the Principal Executive Officers

     Mr.  Schultz's  1998  Compensation.  The terms of Mr.  Schultz'  employment
agreement,   which  was  approved  by  the   stockholders  at  the  1998  annual
stockholders  meeting,  provide for a base  salary of  $400,000  per annum and a
bonus  determined as a specified  percentage  of the net pre-tax  profits of the
Company if the after-tax net income of the Company results in a specified return
on equity.  Since the Company did not report  after-tax net income for 1998, Mr.
Schultz earned no bonus for 1998. See "EXECUTIVE  COMPENSATION AND OTHER MATTERS
-- Employment Agreements."

     Compensation  of other Executive  Officers and Employees.  The terms of the
1998  compensation  of all of the Company's  executive  officers were determined
based on their  employment  agreements.  See "EXECUTIVE  COMPENSATION  AND OTHER
MATTERS -- Executive Compensation -- Employment  Agreements." The annual bonuses
of Mr. Young and Mr. Landini were  determined  under specific  performance-based
formulas  provided  in their  employment  agreements,  both of which  have  been
terminated.  Since neither the Company nor the wholesale loan division  reported
any after-tax net income for 1998,  neither Mr. Young nor Mr.  Landini  earned a
bonus for 1998.  See  "EXECUTIVE  COMPENSATION  AND OTHER  MATTERS -- Employment
Agreements."  Messrs.  Siegel,  Markiewicz  and Fremed  also  received no annual
bonuses based upon the Company's performance in 1998.

                           Respectfully submitted,

                           Executive Compensation Committee

                           Paul D. Weiser
                           James C. Neuhauser
                           Alan J. Siebler


                           Employee Compensation Committee

                           Joel R. Schultz






                                       64
<PAGE>

                   STOCKHOLDER RETURN PERFORMANCE PRESENTATION

     The graph below compares the  cumulative  total  stockholder  return on the
Company's  Common  Stock with the  cumulative  total  return on the Nasdaq Stock
Market US Index for the period  commencing on June 25, 1996 (the date trading of
the Company's  Common Stock commenced on the Nasdaq National  Market) and ending
on  December  31,  1998.  The data  set  forth  below  assumes  the  value of an
investment  in the  Company's  Common  Stock  and the Index was $100 on June 25,
1996.

                           Comparison of Total Return*
     Since the Initial Public Offering of PacificAmerica Money Center, Inc.
    Among PacificAmerica Money Center, Inc., The Nasdaq Stock Market-US Index
                      and the Nasdaq Financial Stocks Index


[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIALS.]

                                             NASDAQ    NASDAQ
                                             Stock    Financial
                  Date             PAMM      Market    Stocks

                 6/25/96            100       100       100
                 6/28/96            108       101       101
                 9/30/96            176       105       109
                12/31/96            232       110       121
                 3/31/97            240       104       126
                 6/30/97            256       123       147
                 9/30/97            408       144       172
                12/31/97            292       135       185
                 3/31/98            340       158       196
                 6/30/98            246       162       191
                 9/30/98            121       147       159
                12/31/98              8       190       179


     *In  calculating  cumulative  total  stockholder  return,  reinvestment  of
dividends, if any, was assumed.



                                       65
<PAGE>


Item 12.  Security Ownership Of Certain Beneficial Owners and Management

     The  following  tables sets forth the ownership of Common Stock as of March
31,  1999 by (i) those  persons  known by the Company to hold at least 5% of the
total  outstanding  Common Stock of the Company;  (ii) the four directors of the
Company,  (iii) the Chief  Executive  Officer  and the  other  four most  highly
compensated executive officers of the Company for the fiscal year ended December
31, 1998 (the "Named Executives"), and (iv) all executive officers and directors
of the Company,  as a group.  The table  includes  that portion of stock options
granted to the Named Executives  which are exercisable  within the next 60 days,
as described herein under the heading "EXECUTIVE  COMPENSATION AND OTHER MATTERS
-- Plans and Arrangements -- Stock Option Plan."


                                       66
<PAGE>

                                                        Common
                                                         Stock           Percent
Name and Address of                                   Beneficially          of
 Beneficial Owner                                       Owned(1)          Class
 ----------------                                       --------          -----

Joel R. Schultz(2)                                      110,805           2.1%
21031 Ventura Boulevard
Woodland Hills, CA 91364

Richard D. Young (3)                                     44,049             *
5500 Wembly Ave.
Oak Park, CA  91377

Charles J. Siegel(4)                                     38,493             *
21031 Ventura Boulevard
Woodland Hills, CA 91364

Frank P. Landini(5)                                      30,436             *
500 Ygnacio Valley Road
Walnut Creek, CA 94596

Norman A. Markiewicz(6)                                  66,045           1.3%
21031 Ventura Boulevard
Woodland Hills, CA 91364

James C. Neuhauser(7)                                    27,889             *
21031 Ventura Boulevard
Woodland Hills, CA 91364

Paul D. Weiser(8)                                        44,947             *
21031 Ventura Boulevard
Woodland Hills, CA 91364

Alan J. Siebler(9)                                        6,600             *
21031 Ventura Boulevard
Woodland Hills, CA 91364

All Directors and Executive Officers, as a group        385,602           7.4%
(10 persons)(10)

----------
*    Less than 1%.

(1)  Except as otherwise  noted and except as required by  applicable  community
     property  laws,  each  person has sole voting and  disposition  powers with
     respect to the shares.

(2)  Includes  an  aggregate  of 10,007  shares of Common  Stock held by Joel R.
     Schultz,  Toby Schultz,  his spouse, and The Schultz Living Trust, of which
     Joel R.  Schultz  and  Toby  Schultz  are the  co-trustees,  and  currently
     exercisable options for 100,798 shares.

(3)  Includes 44,049 shares of Common Stock and no stock options.

(4)  Includes  19,993 shares of Common Stock and currently  exercisable  options
     for 18,500 shares.


                                       67
<PAGE>

(5)  Includes 30,436 shares of Common Stock and no stock options.

(6)  Includes  55,245 shares of Common Stock and currently  exercisable  options
     for 10,800 shares.

(7)  Includes  24,889 shares of Common Stock and currently  exercisable  options
     for 3,000 shares.

(8)  Includes  41,947 shares of Common Stock and currently  exercisable  options
     for 3,000 shares.

(9)  Includes 4,600 shares of Common Stock and currently exercisable options for
     2,000 shares.

(10) Includes 244,504 shares of Common Stock and currently  exercisable  options
     for 141,098 shares.

     The Company knows of no contractual  arrangements which may at a subsequent
date result in a change in control of the Company.

Item 13.  Certain Relationships and Related Transactions

     In 1998,  the  Company  engaged  Friedman,  Billings,  Ramsey  & Co.,  Inc.
("FBR"), an investment banking firm, to act as the Company's exclusive financial
adviser in connection with an analysis of the Company's strategic opportunities.
James C. Neuhauser,  a director of the Company,  is also a Managing  Director of
FBR.  In the event that the  Company  engages in a purchase or sale of assets or
stock with another company,  or completes a financing  transaction,  the Company
has agreed to pay  commissions to FBR pursuant to either a specified  formula or
to be  negotiated  in  connection  with the  transaction.  If a  transaction  is
completed,  the  amount of  compensation  payable to FBR is  expected  to exceed
$60,000,  but the  amount  cannot be  determined  until the  details of any such
transaction are known.

                                     PART IV

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

     (a)(1) List of Financial Statements

               Financial Statements required to be filed hereunder start on page
               F-1

     (a)(2) List of Financial Statement Schedules

     None.

     (a)(3) List of Exhibits

     The exhibits required to be filed hereunder are indexed on page S-1 hereof.

     (b)  The  Company  filed  no  Reports  on Form  8-K for the  quarter  ended
          December 31, 1998.


                                       68
<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  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,  in the City of Los Angeles,  State of
California, on April 15, 1999.

                                PACIFICAMERICA MONEY CENTER, INC.



                                By: /S/ JOEL R. SCHULTZ
                                    ----------------------------------------
                                    Joel R. Schultz, Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
Registration  Statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.

Signature                              Capacity                       Date
---------                              --------                       ----

/S/ JOEL R. SCHULTZ          Director, Chief Executive Officer    April 15, 1999
-------------------------    and Chairman of the Board
Joel R. Schultz


/S/ CHARLES J. SIEGEL        Chief Financial and Accounting       April 15, 1999
-------------------------    Officer
Charles J. Siegel


/S/ JAMES C. NEUHAUSER       Director                             April 15, 1999
-------------------------
James C. Neuhauser


/S/ PAUL D. WEISER           Director                             April 15, 1999
-------------------------
Paul D. Weiser


/S/ ALAN J. SIEBLER          Director                             April 15, 1999
-------------------------
Alan Siebler


<PAGE>


                                                      PacificAmerica
                                                  Money Center, Inc.
                                                    and Subsidiaries




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

                                               Consolidated Financial Statements
                                    Years Ended December 31, 1998, 1997 and 1996

<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries


                                                                        Contents

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


PacificAmerica Money Center, Inc. and Subsidiaries

     Report of Independent Certified Public Accountants                      F-1

     Consolidated Balance Sheets
         as of December 31, 1998 and 1997                                    F-3

     Consolidated  Statements of Operations
         for the years ended December 31, 1998, 1997 and 1996                F-4

     Consolidated Statements of Changes in Stockholders' Equity/Partners'
         Capital for the years ended December 31, 1998, 1997 and 1996        F-6

     Consolidated Statements of Cash Flows
         for the years ended December 31, 1998, 1997 and 1996                F-7

     Notes to Consolidated Financial Statements
         for the years ended December 31, 1998, 1997 and 1996               F-10

     Supplemental Material

         Schedule I - Consolidated Schedule - Financial Position -
              December 31, 1998                                             F-65
         Schedule II - Consolidating Schedule - Operations -
              year ended December 31, 1998                                  F-67
         Schedule III - Consolidating Schedule - Financial Position -
              December 31, 1997                                             F-69
         Schedule IV - Consolidating Schedule - Operations -
              year ended December 31, 1997                                  F-71
         Schedule V - Consolidating Schedule - Operations -
              year ended December 31, 1996                                  F-73


<PAGE>

Report of Independent Certified Public Accountants


To the Stockholders
PacificAmerica Money Center, Inc.

We have audited the accompanying  consolidated  balance sheets of PacificAmerica
Money Center, Inc. and subsidiaries  (collectively,  the Company) as of December
31, 1998 and 1997 and the related consolidated statements of operations, changes
in stockholders'  equity/partners' capital, and cash flows for each of the three
years in the period  ended  December  31,  1998.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

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

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

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will  continue as a going  concern.  As discussed in Note 1, the Company
incurred a net loss of  $24,488,000  during the year ended December 31, 1998 and
has an  accumulated  deficit of $3,231,000 at December 31, 1998. At December 31,
1998,  the  Company  is in  default of the  repayment  terms of its  obligations
related to its  interest-only  strips  receivable  (Note 9(b)).  At December 31,
1998, the Company's major  subsidiary,  Pacific Thrift & Loan Company  ("Pacific
Thrift"),  did not  meet  the  minimum  capital  requirements  to be  considered
"adequately capitalized" by the Federal Deposit Insurance Corporation (FDIC). As
a result of its capital  designation,  Pacific  Thrift was  required to submit a
capital restoration plan to the FDIC. In addition, Pacific Thrift consented to a
comprehensive Order to Cease and Desist (the 1998 Order) issued by the FDIC. The
1998 Order  requires that Pacific  Thrift take various  actions,  which included
increasing its leverage  capital ratio to 8% by January 31, 1999. As of April 9,
1999 Pacific Thrift did not meet the capital requirements  specified in the 1998
Order.  Failure to implement the capital  restoration  plan and meet the capital
requirements  of the 1998 Order  expose  Pacific  Thrift to  various  regulatory
actions,  including the risk of regulatory takeover. Pacific Thrift entered into
an  additional  Order to Cease and  Desist  (the 1999  Order)  which  relates to
Banking  information  systems.  These matters raise  substantial doubt about the
ability of the  Company  to  continue  as a going  concern.  Management's  plans
regarding  these  matters are  discussed in Note 1. The  accompanying  financial
statements do not include any provisions or adjustments  which might result from
the outcome of the uncertainties discussed above.


                                      F-1
<PAGE>

Our audit was made for the  purpose of  forming  an opinion on the  consolidated
financial  statements  taken  as  a  whole.  The  consolidating  information  in
Schedules  I, II,  III,  IV and V is  presented  for the  purpose of  additional
analysis of the  consolidated  financial  statements  rather than to present the
financial  position and results of operations of the individual  companies.  The
consolidating  information  in Schedules I, II, III, IV and V has been subjected
to the auditing  procedures  applied to the audit of the consolidated  financial
statements  and, in our opinion,  is fairly  stated in all material  respects in
relation to the consolidated financial statements taken as a whole.


                                                     BDO Seidman, LLP


Los Angeles, CA
April 9, 1999


                                      F-2
<PAGE>

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

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

Assets

Cash and cash equivalents (Note 2C)               $ 41,811,000   $ 65,927,000

Restricted cash (Note 2D)                              582,000        163,000

Receivables                                            132,000      1,532,000

Accrued interest receivable                          1,315,000      1,274,000

Refundable income taxes                                     --        222,000

Receivables from related parties (Note 11)             215,000         83,000

Note receivable                                             --      1,015,000

Loans held for sale, (Notes 2E and 3)               72,814,000     35,280,000

Loans receivable (Notes 2F, 2G and 3)                9,444,000     20,629,000

Other real estate (Notes 2M and 5)                     219,000      2,028,000

Interest-only strips receivable
 (Notes 2H, 2I, 2J, 6 and 9)                       116,628,000     94,424,000

Property and equipment (Notes 2N and 7)              4,421,000      3,596,000

Other assets                                         2,633,000      1,693,000
--------------------------------------------------------------------------------


                                                  $250,214,000   $227,866,000
================================================================================

<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                                     Consolidated Balance Sheets

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

<TABLE>
<CAPTION>
December 31,                                                               1998              1997
-----------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>
Liabilities and Stockholders' Equity

Thrift certificates payable (Note 8)
   Fully-paid certificates                                           $ 132,618,000      $ 113,731,000
   Installment certificates                                             29,692,000         18,793,000
-----------------------------------------------------------------------------------------------------

Total thrift certificates payable                                      162,310,000        132,524,000

Accounts payable and accrued expenses                                    5,003,000          6,121,000

Accrued interest payable                                                 3,303,000            370,000

Notes payable (Note 9)                                                  52,958,000         28,318,000

Note payable - related party (Note 11)                                     174,000                 --

Deferred income taxes, net (Notes 2P and 10)                             1,185,000         12,147,000
-----------------------------------------------------------------------------------------------------

Total liabilities                                                      224,933,000        179,480,000
-----------------------------------------------------------------------------------------------------

Commitments and contingencies (Notes 12, 13, and 17)
-----------------------------------------------------------------------------------------------------

Stockholders' equity (Note 14)
   Preferred stock, $.01 par value, shares authorized 2,000,000;
     none issued and outstanding                                                --                 --
   Common stock, $.01 par value, shares authorized 8,000,000;
     issued and outstanding 5,148,839 and 5,016,391                         52,000             50,000
   Additional paid-in capital                                           28,460,000         27,079,000
   Retained earnings (accumulated deficit)                              (3,231,000)        21,257,000
-----------------------------------------------------------------------------------------------------

Total stockholders' equity                                              25,281,000         48,386,000
-----------------------------------------------------------------------------------------------------

                                                                     $ 250,214,000      $ 227,866,000
=====================================================================================================
</TABLE>


                    See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>


                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                           Consolidated Statements of Operations

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

<TABLE>
<CAPTION>
Years ended December 31,                                       1998            1997            1996
-----------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>             <C>
Interest income
   Loans receivable (Notes 2F, 2G and 4)                  $16,039,000     $11,707,000     $11,174,000
   Cash equivalents (Note 2C)                                 621,000         397,000         328,000
-----------------------------------------------------------------------------------------------------

Total interest income                                      16,660,000      12,104,000      11,502,000
-----------------------------------------------------------------------------------------------------

Interest expense
   Thrift certificates greater than $100,000 (Note 8)         120,000          50,000          23,000
   Other thrift certificates (Note 8)                       8,098,000       5,457,000       4,391,000
   Notes payable and warehouse financing (Note 9)           6,996,000       1,407,000         552,000
-----------------------------------------------------------------------------------------------------

Total interest expense                                     15,214,000       6,914,000       4,966,000
-----------------------------------------------------------------------------------------------------

Net interest income                                         1,446,000       5,190,000       6,536,000

Provision for loan losses (Notes 2G and 4)                  1,314,000       3,087,000       1,151,000
-----------------------------------------------------------------------------------------------------

Net interest income after provision for loan losses           132,000       2,103,000       5,385,000
-----------------------------------------------------------------------------------------------------

Noninterest income
   Other income                                             1,006,000         345,000         777,000
   Gain on sales of loans, including fair value
    writedown of $38,300,000 in 1998 and
    $2,306,000 in 1997 (Notes 2H and 6)                    32,782,000      81,710,000      29,217,000
-----------------------------------------------------------------------------------------------------

Total noninterest income                                   33,788,000      82,055,000      29,994,000
-----------------------------------------------------------------------------------------------------

Noninterest expense
   Salaries and employee benefits (Note 13)                34,166,000      29,457,000      14,622,000
   General and administrative (Note 11)                    27,651,000      22,414,000      10,890,000
   Occupancy expense                                        2,947,000       1,725,000       1,129,000
   Related party fees (Note 11)                                    --              --         872,000
   Operations of other real estate (Notes 2M and 5)           124,000         444,000         681,000
   Depreciation (Note 2N)                                     974,000         555,000         714,000
   Restructuring (Note 2V)                                  3,536,000              --              --
-----------------------------------------------------------------------------------------------------

Total noninterest expense                                  69,398,000      54,595,000      28,908,000
-----------------------------------------------------------------------------------------------------
</TABLE>


                                      F-4
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                           Consolidated Statements of Operations

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

<TABLE>
<CAPTION>
Years ended December 31,                                        1998              1997              1996
------------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>                <C>
Income (loss) before income taxes                          (35,478,000)       29,563,000          6,471,000

Income tax expense (benefit) (Notes 2P and 10)             (10,990,000)       12,468,000          1,658,000
------------------------------------------------------------------------------------------------------------

Income (loss) from continuing operations                   (24,488,000)       17,095,000          4,813,000

Income from discontinued operations (Note 16)                       --                --            387,000

Loss on disposal of discontinued operations (Note 16)               --                --         (1,038,000)
------------------------------------------------------------------------------------------------------------

Net income (loss)                                         $(24,488,000)     $ 17,095,000       $  4,162,000


Basic earnings (loss) per share (Note 2B):
   Continuing operations                                  $      (4.82)             4.18       $       1.53
   Discontinued operations                                          --                --               (.32)
------------------------------------------------------------------------------------------------------------

Net income (loss)                                         $      (4.82)             4.18       $       1.21
============================================================================================================

Diluted earnings (loss) per share (Note 2B):
   Continuing operations                                  $      (4.82)             3.48       $       1.27
   Discontinued operations                                          --                --               (.26)
------------------------------------------------------------------------------------------------------------

Net income (loss)                                         $      (4.82)             3.48       $       1.01
============================================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                           Consolidated Statements of Changes in
                                          Stockholders' Equity/Partners' Capital

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

<TABLE>
<CAPTION>
                                                          Years Ended December 31, 1998, 1997 and 1996
                              ------------------------------------------------------------------------------------------------------

                                                                                                         Retained
                                               Number                     Additional      General        Earnings
                                Partner          of         Common         Paid-In        Partner      (Accumulated
                               Interests       Shares        Stock         Capital        Warrants        Deficit)          Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>             <C>          <C>         <C>             <C>             <C>             <C>
Partners' capital,
   January 1, 1996            $ 8,727,000            --    $     --    $         --    $         --    $         --    $  8,727,000

Partner interest
   converted to stock          (8,727,000)    1,780,000      18,000       8,708,000              --              --              --
Rights offering                        --       649,256       6,000       3,240,000              --              --       3,246,000
Partners cash  out                     --      (571,120)     (6,000)     (2,849,000)             --              --      (2,856,000)
Fractional shares paid                 --        (2,412)         --         (12,000)             --              --         (12,000)
General partner warrants               --            --          --              --         385,000              --         385,000
Public offering, net                   --     1,756,420      18,000       7,603,000              --              --       7,621,000
Warrants exercised                     --        21,916          --         162,000              --              --         162,000
Employee stock purchase                --       106,240       2,000         529,000              --              --         531,000
plan
Net income - 1996                      --            --          --              --              --       4,162,000       4,162,000
------------------------------------------------------------------------------------------------------------------------------------

Stockholders' equity,
   December 31, 1996                   --     3,740,300      38,000      17,381,000         385,000       4,162,000      21,966,000

Subscriber warrants                    --        75,730       1,000         473,000              --              --         474,000
exercised
General partner warrants
   exercised                           --     1,105,078      10,000       8,663,000        (385,000)             --       8,288,000
Stock options exercised                --        95,283       1,000         562,000              --              --         563,000
Net income - 1997                      --            --          --              --              --      17,095,000      17,095,000
------------------------------------------------------------------------------------------------------------------------------------

Stockholders' equity,
   December 31, 1997                   --     5,016,391      50,000      27,079,000              --      21,257,000      48,386,000

Subscriber warrants                    --        50,236       1,000         313,000              --              --         314,000
exercised
Stock options exercised                --        72,205       1,000         360,000              --              --         361,000
Stock bonuses issued                   --        10,007          --         708,000              --              --         708,000
Net loss - 1998                        --            --          --              --              --     (24,488,000)    (24,488,000)
------------------------------------------------------------------------------------------------------------------------------------

Stockholders' equity,
   December 31, 1998          $        --     5,148,839    $ 52,000    $ 28,460,000    $         --    $ (3,231,000)   $ 25,281,000
====================================================================================================================================
</TABLE>


                    See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                           Consolidated Statements of Cash Flows

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

<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash
Equivalents

Years ended December 31,                                                           1998                1997                  1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                  <C>                  <C>
Cash flows from operating activities
   Net income (loss)                                                        $ (24,488,000)       $  17,095,000        $   4,162,000
   Adjustments to reconcile net income (loss) to net
    cash used in operating activities:
     Loss on disposal of discontinued operations                                       --                   --            1,038,000
     Provision for loan losses                                                  1,314,000            3,087,000            1,151,000
     Changes in discontinued operations                                                --                   --            1,034,000
     Provision for losses and other real estate                                   165,000               26,000              337,000
     Net gain on sale of other real estate                                       (170,000)            (181,000)            (224,000)
     Proceeds from sale of loans originated for sale                          917,318,000          742,776,000          337,563,000
     Originations of loans held for sale                                     (956,741,000)        (768,226,000)        (335,471,000)
     Depreciation and amortization                                                974,000              663,000              834,000
     Stock bonuses issued                                                         708,000                   --                   --
     Deferred income taxes, net                                               (10,962,000)          12,443,000              929,000
     Net change in assets and liabilities:
       Restricted cash                                                           (419,000)            (163,000)                  --
       Receivables                                                              2,415,000             (929,000)            (282,000)
       Premium receivable for loans sold                                               --            1,195,000           (1,195,000)
       Accrued interest receivable                                                (41,000)            (130,000)            (241,000)
       Receivable for mortgage loans shipped                                           --           24,310,000          (24,310,000)
       Receivable from related party                                             (132,000)                  --              347,000
       Interest-only strips receivable                                        (61,236,000)         (85,032,000)          (8,973,000)
       Writedown of interest-only strips receivable                            38,300,000            2,306,000                   --
       Refundable income taxes                                                         --              508,000                   --
       Other assets                                                              (718,000)            (319,000)          (1,611,000)
       Payable to related party                                                        --                   --             (881,000)
       Accounts payable and accrued expenses                                    1,677,000            3,886,000                   --
       Accrued interest payable                                                   138,000              185,000            2,854,000
------------------------------------------------------------------------------------------------------------------------------------

Net cash used in operating activities                                         (91,898,000)         (46,500,000)         (22,939,000)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       F-7
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                           Consolidated Statements of Cash Flows

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

<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash
Equivalents

Years ended December 31,                                                           1998                1997                  1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                  <C>                  <C>
Cash flows from investing activities
   Proceeds from sale of portfolio loans                                        8,530,000           17,063,000           26,176,000
   Payments from notes receivable                                                      --              731,000                   --
   Increase in loans receivable                                                 2,326,000           (1,915,000)         (29,697,000)
   Proceeds from sale of other real estate                                      2,718,000            3,824,000            5,652,000
   Proceeds from sale of discontinued operations, net
     assets                                                                            --                   --           (1,180,000)
   Mortgage assumed (repaid) in connection with other
     real estate                                                                       --                   --             (847,000)
   Purchase of property and equipment                                          (1,799,000)          (1,791,000)          (1,791,000)
------------------------------------------------------------------------------------------------------------------------------------

Net cash provided by (used in) investing activities                            11,775,000           17,912,000           (1,687,000)
------------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
   Net increase (decrease) in thrift certificates                              29,786,000           51,522,000           20,846,000
   Borrowings under line of credit                                                     --                   --            3,000,000
   Repayment of line of credit                                                         --                   --           (3,000,000)
   Proceeds from note payable                                                  27,372,000           26,159,000                   --
   Paydowns of note payable                                                    (2,000,000)          (1,131,000)          (6,026,000)
   Proceeds from note payable - related party                                     174,000                   --                   --
   Decrease in participations payable                                                  --                   --           (1,120,000)
   Public offering, net                                                                --                   --            7,621,000
   Rights offering                                                                     --                   --            3,246,000
   Partners cash out                                                                   --                   --           (2,856,000)
   Fractional shares payout                                                            --                   --              (12,000)
   General partner warrants                                                            --            8,288,000              385,000
   Subscriber warrants                                                            314,000              474,000              162,000
   Stock options                                                                  361,000              563,000              531,000
------------------------------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities                                      56,007,000           85,875,000           22,777,000
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-8
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                           Consolidated Statements of Cash Flows

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

<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash
Equivalents

Years ended December 31,                                                           1998                1997                  1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                  <C>                  <C>
Net increase (decrease) in cash and cash equivalents                          (24,116,000)          57,287,000           (1,849,000)

Cash and cash equivalents, at beginning                                        65,927,000            8,640,000           10,489,000
------------------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, at end                                           $  41,811,000        $  65,927,000        $   8,640,000
====================================================================================================================================

Supplemental disclosures of cash flow
information
   Cash paid during the year for:
     Interest                                                               $  12,281,000        $   6,355,000        $   5,054,000
     Income taxes                                                                  17,000               27,000              668,000

Supplemental schedule of noncash investing and
  financing activities
   Loans transferred to other real estate                                         904,000            2,936,000            6,894,000
   Mortgage payable assumed in connection with other real
     estate                                                                            --              278,000            1,793,000
   Loans to facilitate sales of other real estate                                 353,000            2,320,000              311,000
   Stock bonuses issued                                                           708,000                   --                   --
   Stock dividend                                                                      --               19,000                   --
====================================================================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                      F-9
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

1.   General                  Organization

                              On June 27,  1996,  PacificAmerica  Money  Center,
                              Inc. (the "Corporation" or "Company"),  a Delaware
                              Corporation  formed  in  1994  as a  wholly  owned
                              subsidiary of  Presidential  Mortgage  Company,  a
                              California limited partnership (the "Partnership")
                              completed a  Restructuring  Plan dated May 1, 1996
                              (the  "Restructuring"),  whereby all of the assets
                              and   liabilities   of   the   Partnership    were
                              transferred  to the  Corporation  in exchange  for
                              common  stock  of  the  Corporation  (the  "Common
                              Stock").  The Common Stock was  distributed to the
                              partners   of  the   Partnership,   pro   rata  in
                              accordance  with  their  capital  accounts  in the
                              Partnership.  In accordance  with the terms of the
                              Restructuring  Plan,  the consent of a majority of
                              limited  partners  to the  Restructuring  Plan was
                              solicited pursuant to a Proxy Statement/Prospectus
                              dated   May  14,   1996,   and  the   consent   of
                              approximately  75% of  all  limited  partners  was
                              obtained by June 17, 1996,  the  expiration of the
                              solicitation  period.  Every  limited  partner was
                              given the right to elect to  receive  cash in lieu
                              of  shares  of  the  Corporation  (the  "Cash  Out
                              Option"),  in an  amount  equal to $5.00 per share
                              times the  number of shares  that  would have been
                              received by that  partner  based on their  capital
                              account  in  the  Partnership.   Pursuant  to  the
                              Restructuring  Plan,  1,206,468  shares  of Common
                              Stock were issued to  partners of the  Partnership
                              (other  than  partners   accepting  the  cash  out
                              option) for their interests in the Partnership and
                              $2,855,600 was paid by the Corporation to partners
                              electing the Cash Out Option.

                              Also  pursuant  to the terms of the  Restructuring
                              Plan, Presidential Management Company, the general
                              partner of the Partnership (the "General Partner")
                              purchased  1,126,666  warrants  ("General  Partner
                              Warrants") for a purchase  price of $385,000.  The
                              General Partner Warrants were each exercisable for
                              one share of Common  Stock at a purchase  price of
                              $7.50 per share from June 27, 1996 until  December
                              27,  1997.  The  General  Partner   Warrants  were
                              nontransferable, except to and between partners of
                              the General Partner.


                                      F-10
<PAGE>


                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

1.   General                  Organization (Continued)
     (Continued)
                              Concurrently  with  the  solicitation  of  consent
                              pursuant to the Proxy  Statement/Prospectus  dated
                              May 16,  1996,  all  partners of the  Partnership,
                              together with all partners of the General Partner,
                              and all officers,  directors,  proposed  directors
                              and  employees  of  the  Partnership,  all  of its
                              subsidiaries and the  Corporation,  were given the
                              right to  purchase  additional  shares  of  Common
                              Stock (the "Rights  Offering") at a purchase price
                              of $5 per share.  A total of 649,256  shares  were
                              subscribed for and issued in the Rights  Offering.
                              For every ten shares  subscribed for in the Rights
                              Offering,  a subscriber  also received one warrant
                              ("Subscriber   Warrants").   A  total  of  129,850
                              Subscriber Warrants were issued in connection with
                              the Rights  Offering,  each  exercisable from June
                              27,  1996  until June 27,  1998,  for one share of
                              Common  Stock at a  purchase  price  of $6.25  per
                              share.

                              Pursuant to a Prospectus  dated June 24, 1996, the
                              Corporation  also  conducted a public  offering of
                              additional  shares  of  Common  Stock at $5.00 per
                              share  (the   "Public   Offering").   A  total  of
                              1,756,420   shares   were  issued  in  the  Public
                              Offering,  including  220,098 shares in connection
                              with the exercise of an  over-allotment  option by
                              the underwriter of the Public Offering.

                              The Corporation issued a total of 3,612,144 shares
                              of   Common   Stock   in   connection   with   the
                              Restructuring  Plan,  the Rights  Offering and the
                              Public  Offering.  The shares of Common Stock were
                              listed for trading on the Nasdaq  National  Market
                              under  the  symbol  "PAMM."  Trading  in the stock
                              commenced on June 25,  1996.  The Common Stock was
                              delisted  from  the  Nasdaq   National  Market  on
                              February 26, 1999 because the trading price of the
                              Common  Stock  was less  than $1 per share and the
                              market  value of  public  float  was less  than $5
                              million.  The Common Stock is currently  traded on
                              the OTC Bulletin Board.

                              Concurrently    with    the    closing    of   the
                              Restructuring,  the Rights Offering and the Public
                              Offering on June 27, 1996, the  Partnership  filed
                              certificates of dissolution  and liquidation  with
                              the California Secretary of State.


                                      F-11
<PAGE>


                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

1.   General                  Organization (Continued)
     (Continued)
                              The  Restructuring  has  been  accounted  for as a
                              change  in  legal  organization  but  not  in  the
                              enterprise  of  the  Partnership.  Therefore,  the
                              financial   statements  of  the  Corporation  give
                              effect to the Restructuring as a  recapitalization
                              of   the   Partnership   into   the   Corporation.
                              References  to the  Corporation  in the  financial
                              statements  refer to the  financial  condition and
                              results  of  operations  of the  Partnership  on a
                              consolidated  basis for all periods  prior to June
                              27, 1996.

                              In 1988, the Partnership formed Pacific Thrift and
                              Loan Company, a California  corporation  ("Pacific
                              Thrift"), as a wholly owned subsidiary,  to engage
                              in the business of origination,  purchase and sale
                              of real estate  secured  loans under a  California
                              thrift  and  loan  license.  Pacific  Thrift  also
                              issues  deposits  insured by the  Federal  Deposit
                              Insurance Corporation  ("FDIC"),  and is therefore
                              subject  to  regulation  by both  the FDIC and the
                              California  Department of Financial  Institutions.
                              The Company has been primarily engaged in mortgage
                              banking  activities  and as  such  originates  and
                              sells mortgage loans to investors in the secondary
                              markets.  In December  1997,  the Company began to
                              securitize loans into asset-backed securities. The
                              Company's  ability to continue to originate  loans
                              is  dependent,  in part,  upon its ability to sell
                              loans in the secondary market in order to generate
                              cash  proceeds for new  origination.  The value of
                              and market for the  Company's  loans are dependent
                              upon  a  number  of  factors,   including  general
                              economic    conditions,    interest    rates   and
                              governmental regulations.  Adverse changes in such
                              factors may affect the  Company's  ability to sell
                              loans  for  acceptable  prices  within  reasonable
                              periods of time. A prolonged reduction in the size
                              of the secondary  market demand for loans of these
                              types  originated by the Company  could  adversely
                              affect the Company's ability to operate profitably
                              in the future.


                                      F-12
<PAGE>


                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

1.   General                  Organization (Continued)
     (Continued)
                              Pacific  Thrift  specializes  in home equity loans
                              for borrowers whose credit  histories and/or other
                              factors   limit  their   ability  to  qualify  for
                              financing from  conventional  sources.  Such loans
                              are generally  referred to in the lending industry
                              as "sub-prime" or "B"/"C" credit loans.  Borrowers
                              generally  obtain  loans  from  Pacific  Thrift to
                              finance the  purchase of  property,  refinance  an
                              existing   mortgage  on  more   favorable   terms,
                              consolidate debt or obtain cash proceeds for their
                              personal use.

                              In October 1998,  due to a reduction in demand for
                              the  purchase  of loans by the  secondary  market,
                              Pacific Thrift closed its wholesale division which
                              management  felt was no  longer  profitable  (Note
                              2V).   Approximately   75%  of  the  current  loan
                              production came from this division.

                              Pacific  Thrift  continues  to operate  its retail
                              division  because the net loan  origination  costs
                              are lower for retail production and Pacific Thrift
                              believes  it  can  generate  profits  through  the
                              retail  division at loan sale  premiums  currently
                              available  in  the   secondary   market.   Pacific
                              Thrift's retail division originates loans directly
                              with borrowers using primarily  telemarketing  and
                              direct  mail.  The  largest  volume of home equity
                              loan  originations  were in California,  New York,
                              New Jersey,  Washington  and Florida.  The Company
                              issues thrift  certificates  to investors that are
                              redeemable  upon  maturity  at the  option  of the
                              investors, although penalties for early withdrawal
                              may be assessed.  The California  Industrial  Loan
                              Law  maintains  provisions  governing the types of
                              loans  that  may be made,  the  amount  of  thrift
                              certificates that may be issued, and the amount of
                              funds that may be borrowed.

                              PacificAmerica   Money  Centers,   Inc.   ("PAMC")
                              (formerly  PacificAmerica  Lending), was formed in
                              1996 for the  purpose of  engaging  in the lending
                              business  under  a  California   finance  lender's
                              license and other state licenses where  management
                              deems  it  appropriate.   Immediately   after  the
                              restructuring  the Company  contributed net assets
                              of  $2,920,000  to PAMC at book  value.  As of the
                              date hereof,  PAMC has not engaged in  significant
                              loan production,  but it may become more active in
                              the future, depending upon business requirements.

                              The  Company  formed  a  wholly-owned  subsidiary,
                              PacificAmerica Securities,  Inc. (PSI), which is a
                              special purpose entity.  Its purpose is to acquire
                              loans from the Company and use them as  collateral
                              under a  warehousing  agreement  with  an  outside
                              third party.


                                      F-13
<PAGE>


                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

1.   General                  Organization (Continued)
     (Continued)
                              The Partnership  also owned  substantially  all of
                              the interests in three subsidiaries engaged in the
                              trust deed  foreclosure  services  and posting and
                              publishing businesses,  Consolidated  Reconveyance
                              Company ("CRC"), a California limited partnership,
                              Lenders Posting and Publishing Company ("LPPC"), a
                              California limited  partnership,  and Consolidated
                              Reconveyance  Corporation  ("CRCWA"), a Washington
                              corporation.  The Corporation  acquired all of the
                              Partnership's   interests  in  these  entities  in
                              connection  with  the   Restructuring.   Effective
                              December   31,   1996,   all  of  the  assets  and
                              liabilities  of CRC and LPPC and all of the  stock
                              of CRCWA were sold (Note 16).  This is part of the
                              Company's  strategy  to  concentrate  all  of  its
                              financial  and  human  resources  on  its  primary
                              business  of  residential  lending  for  sale  and
                              securitization.

                              The  Partnership's  general partner,  Presidential
                              Management  Company,   was  a  California  limited
                              partnership.   Presidential  Management  Company's
                              general     partner,     Presidential     Services
                              Corporation, was a California corporation owned by
                              Joel R.  Schultz,  John A.  DeRosa  and  Constance
                              DeRosa.

                              The  Partnership's  limited partners  consisted of
                              approximately  2,500  individuals  and entities in
                              classes A, B, C, D, and E. The differences between
                              the  various  classes  primarily  related  to  the
                              different  offering  dates and unit prices as well
                              as profit priorities and percentages. In addition,
                              certain   partners   elected  to  reinvest   their
                              distributions  in Distribution  Reinvestment  Plan
                              (DRP) Units.


                                      F-14
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

1.   General                  Operating Results and Capital Restoration Plan
     (Continued)
                              The  Company  incurred  a net loss of  $24,488,000
                              during the year ended December 31, 1998 and has an
                              accumulated  deficit of $3,231,000 at December 31,
                              1998.   Management   believes  these  losses  were
                              reflective  of the  rapid  change  in  marketplace
                              demand for the purchase of sub-prime  paper by the
                              secondary  market  during the latter half of 1998.
                              In 1998 the fair value of the interest-only strips
                              receivable   were  adjusted  down  by  $38,300,000
                              (Notes  2H and  6).  It is  possible  that  future
                              adjustments may be required. At December 31, 1998,
                              the Company is in default of the  repayment  terms
                              of its  obligations  related to its  interest-only
                              strips receivable (Note 9b). In addition,  Pacific
                              Thrift was not "adequately capitalized" at the end
                              of 1998 or by March 22, 1999 and became subject to
                              certain  regulatory  mandates and sanctions  (Note
                              13). Pacific Thrift also has additional regulatory
                              mandates   imposed   relating  to  its  Year  2000
                              readiness and the related Bank information systems
                              (Notes  13  and  15).  Failure  to  implement  the
                              regulatory mandates would expose Pacific Thrift to
                              various regulatory actions,  including the risk of
                              regulatory takeover.

                              These  matters raise  substantial  doubt about the
                              ability  of the  Company  to  continue  as a going
                              concern.   Management's   plans   regarding  these
                              matters are as follows:

                              Management  has taken and  continues to take steps
                              to return the Company to profitability and improve
                              its financial condition, including such actions as
                              the   closure   of  Pacific   Thrift's   wholesale
                              operations  (Note 2V), an emphasis on  originating
                              residential real estate loans for sale under whole
                              loan sale  agreements  for a cash premium  through
                              its retail  division,  a  reduction  in  portfolio
                              lending   until   targeted   capital   ratios  are
                              achieved, and reducing overhead expenses.  Pacific
                              Thrift  has hired a  consultant  and  submitted  a
                              revised  Year  2000  plan  to the  regulators  and
                              believes it will be able to meet the guidelines of
                              the order regarding Year 2000 (Note 13).


                                      F-15
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

1.   General                  Operating Results and Capital Restoration Plan
     (Continued)              (Continued)

                              Management  expects  that  Pacific  Thrift will be
                              profitable in 1999 and will comply to the greatest
                              extent  possible  with  the  regulatory  mandates.
                              Management  has  submitted  a Capital  Restoration
                              Plan (the Plan) which was approved by the FDIC. In
                              addition  to a  revised  business  plan,  the Plan
                              includes  restructuring  debt to  provide  capital
                              contributions   to  Pacific   Thrift  and  raising
                              capital  through  private or public  offerings  of
                              debt   or   equity   securities.   Management   is
                              negotiating a restructuring  of its obligations in
                              default  relating  to  its  interest-only   strips
                              receivable.  (Note 9) There is no  assurance  that
                              management's   plans   can  be   achieved.   These
                              financial statements do not include any provisions
                              or adjustments  that might result from the outcome
                              of these uncertainties.

2.   Summary of               A.  Consolidation
     Significant
     Accounting               The consolidated  financial statements include the
     Policies                 accounts of the Corporation, Pacific Thrift, PAMC,
                              CRC, LPPC, CRC Washington and PSI. All significant
                              intercompany  balances and transactions  have been
                              eliminated. Consolidating information is presented
                              in Schedules I, II, III, IV and V. On December 31,
                              1996 CRC, LPPC and CRC Washington  were sold (Note
                              16).

                              B.  Earnings Per Share

                              On July 10,  1997,  the Board of  Directors of the
                              Company declared a stock dividend accounted for as
                              a one-for-one  stock split to all  stockholders of
                              record as of July 31, 1997. The stock dividend was
                              paid  on  August   13,   1997.   These   financial
                              statements   reflect   the  effect  of  the  stock
                              dividend  on current and prior  period's  earnings
                              per share and shares outstanding.

                              On December 31, 1997 the Company adopted Statement
                              of Financial  Accounting  Standards  No. 128 (SFAS
                              No. 128),  "Earnings Per Share", which established
                              new  standards  for   calculating  and  disclosing
                              earnings per share.  All prior period earnings per
                              share  data have been  restated  to conform to the
                              provisions of SFAS No. 128.


                                      F-16
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               B.  Earnings Per Share (Continued)
     Significant
     Accounting               Basic  earnings  per share is computed by dividing
     Policies                 net  earnings by the  weighted  average  number of
     (Continued)              shares of Common  Stock  outstanding  during  each
                              year.  Diluted  earnings  per share is computed by
                              dividing  net  earnings  by the  weighted  average
                              number of shares  of  Common  Stock and  potential
                              Common  Stock  outstanding  during each year.  All
                              share and per-share  amounts have been restated to
                              reflect  the  stock  dividend  accounted  for as a
                              one-for-one  stock  split,  in  August  1997.  The
                              following  table  presents  the earnings per share
                              data as required by SFAS No. 128.

                                                                         Pro
                                                  Historical            Forma
                                        ---------------------------   ----------
Year ended December 31,                      1998           1997         1996
--------------------------------------------------------------------------------

Income (numerator)
Income/(loss) before income taxes
   (benefit)                            $(35,478,000)   $29,563,000   $6,471,000

Income taxes (benefit)                   (10,990,000)    12,468,000    2,718,000
--------------------------------------------------------------------------------

Income (loss) from continuing
   operations                           $(24,448,000)   $17,095,000   $3,753,000
================================================================================

Shares (denominator)
Weighted average common shares
   outstanding for basic earnings
   per share                               5,078,325      4,093,274    2,449,454
Effect of dilutive common shares:
   Subscriber warrants                             0         68,025       41,681
   General partner warrants                       --        471,287      317,666
   Options                                         0        281,816      146,877
--------------------------------------------------------------------------------

Diluted common shares                      5,078,325      4,914,402    2,955,678
================================================================================

Basic earnings (loss) per common
   share from continuing operations     $      (4.82)   $      4.18   $     1.53
--------------------------------------------------------------------------------

Diluted earnings (loss) per common
   share from continuing operations     $      (4.82)   $      3.48   $     1.27
================================================================================


                                      F-17
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               B.  Earnings Per Share (Continued)
     Significant
     Accounting               Options to purchase 456,362 shares of common stock
     Policies                 at a range of price from $0.50 to $28.75 per share
     (Continued)              were outstanding at December 31, 1998 but were not
                              included in the  computation of earnings per share
                              because the  options'  exercise  price was greater
                              than the average market price of the common stock.

                              Options to purchase  11,424 shares of common stock
                              at a range of price  from  $23.00  to  $28.75  per
                              share were  outstanding  at December  31, 1997 but
                              were not  included in the  computation  of diluted
                              earnings per share  because the options'  exercise
                              price was greater than the average market price of
                              the common stock.

                              Earnings  per  common  share for the  years  ended
                              December 31, 1996 assumes the restructuring  (Note
                              1) took place at the  beginning  of the period and
                              the Company was taxed for federal and state income
                              tax  purposes  as a taxable  corporation  at a 42%
                              effective tax rate.

                              Earnings   per  share   related  to   discontinued
                              operations   and  net  income  for  1996  includes
                              additional   pro  forma   income  tax  expense  of
                              $126,000  related  to the tax effect of the income
                              from the discontinued operations.

                              C. Cash and Cash Equivalents

                              The  Company  considers  all  highly  liquid  debt
                              instruments  purchased with an initial maturity of
                              three months or less to be cash equivalents.  Cash
                              and cash equivalents at December 31, 1998 includes
                              $38,000,000  on deposit  with the Federal  Reserve
                              and  $3,811,000  on  deposit  with  a  major  well
                              capitalized   bank  which  is  in  excess  of  the
                              federally insured limit of $100,000. Cash and cash
                              equivalents   at  December   31,   1997   includes
                              $50,000,000  on deposit  with the Federal  Reserve
                              and  $15,270,000  on  deposit  with a  major  well
                              capitalized  bank in an account which is in excess
                              of the federally insured limit of $100,000.


                                      F-18
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               D.  Restricted Cash
     Significant
     Accounting               Cash received in connection with certain loan sale
     Policies                 transactions  are held in a trust  account for the
     (Continued)              beneficiary  and is classified as restricted  cash
                              on  the  Company's   balance  sheet.  This  amount
                              represents the monthly timing  difference  between
                              when cash is received and when it is remitted.

                              E. Loans Held for Sale

                              The  Company has  designated  certain of its loans
                              receivable as being held for sale.  Loans held for
                              sale are  recorded  at the lower of cost or market
                              value.  Any  unrealized  losses are  recorded as a
                              reduction   in   income.   Gains  or   losses   on
                              disposition  are based on the net proceeds and the
                              adjusted carrying amount of the assets sold, using
                              the specific identification method.

                              F. Loans Receivable

                              Loans  receivable  are  stated  at  the  principal
                              amount outstanding, less unamortized deferred fees
                              and  costs  and  the  allowance  for  loan  losses
                              (ALLL).  Loans receivable are primarily secured by
                              first and second trust deeds.

                              Interest  income is accrued as earned and is based
                              on  the   principal   balance   outstanding.   The
                              Company's policy is to cease accruing  interest on
                              loans that are more than two monthly payments past
                              due and for which there appears to be insufficient
                              collateral  to  support  collectibility.  In  many
                              cases,  interest,  late  fees,  and other  charges
                              continue to accrue until the time management deems
                              that such amounts are not collectible. When a loan
                              is  placed on a  nonaccrual  status,  the  Company
                              records allowances for all accrued but uncollected
                              interest income.

                              Nonrefundable   loan   fees   and   direct   costs
                              associated  with  the  origination  of  loans  are
                              deferred and are offset against  outstanding  loan
                              balances.  These net  deferred  fees and costs are
                              recognized  in interest  income over the loan term
                              as an adjustment to the yield, using a method that
                              approximates the effective  interest (level yield)
                              method,  or  included  in income  when the loan is
                              sold.


                                      F-19
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               G.  Allowance for Loan Losses
     Significant
     Accounting               Loan losses are charged to the ALLL and recoveries
     Policies                 are credited to the ALLL.  The  provision for loan
     (Continued)              losses charged to expense and added to the ALLL is
                              based upon management's judgment and evaluation of
                              the   known  and   inherent   risks  in  the  loan
                              portfolio.   Management's   judgment   takes  into
                              consideration  such  factors  as  changes  in  the
                              nature  and  volume of the  portfolio,  continuing
                              review  of  delinquent  loans,   current  economic
                              conditions,  risk  characteristics  of the various
                              categories of loans,  and other pertinent  factors
                              that may affect the  borrower's  ability to repay.
                              While  management  uses  available  information to
                              recognize losses on loans, future additions to the
                              allowance  may be  necessary  based on  changes in
                              economic conditions.

                              The  Company   follows   Statement   of  Financial
                              Accounting Standards (SFAS) No. 114, Accounting by
                              Creditors for  Impairment of a Loan (as amended by
                              SFAS  No.  118,   Accounting   by  Creditors   for
                              Impairment  of  a  Loan  Income   Recognition  and
                              Disclosures).  A loan is considered to be impaired
                              when  it is  probable  that  the  Company  will be
                              unable  to  collect  all  principal  and  interest
                              amounts  according to the contractual terms of the
                              loan   agreement.   The  ALLL   related  to  loans
                              identified  as impaired is primarily  based on the
                              excess of the loan's current outstanding principal
                              balance  over the  estimated  fair market value of
                              the  related  collateral.  For a loan  that is not
                              collateral-dependent, the allowance is recorded at
                              the  amount  by which  the  outstanding  principal
                              balance  exceeds the current best  estimate of the
                              future  cash flows on the loan  discounted  at the
                              loan's effective interest rate.

                              For impaired loans that are on non-accrual status,
                              cash payments  received are  generally  applied to
                              reduce the outstanding principal balance. However,
                              all or a portion of a cash  payment  received on a
                              non-accrual  loan may be  recognized  as  interest
                              income to the extent allowed by the loan contract,
                              assuming  management  expects to fully collect the
                              remaining principal balance of the loan.


                                      F-20
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               G.  Allowance for Loan Losses (Continued)
     Significant
     Accounting               A restructuring of a debt is considered a troubled
     Policies                 debt restructuring when the Company,  for economic
     (Continued)              or  legal  reasons   related  to  the   borrower's
                              financial difficulties, grants a concession to the
                              borrower  that  it  would  not  otherwise   grant.
                              Troubled debt  restructuring  may include changing
                              repayment terms, reducing the stated interest rate
                              and  reducing  the  amounts  of  principal  and/or
                              interest  due  or   significantly   extending  the
                              maturity  date.  The  restructuring  of a loan  is
                              intended  to  recover  as  much  of the  Company's
                              investment  as possible and to achieve the highest
                              yield possible.

                              H. Loan Sales Revenue Recognition

                              Gain or loss on the  sale  of  mortgage  loans  to
                              investors is  recognized at the date the loans are
                              sold to the investors, and all title and rights to
                              such loans are legally  conveyed to the  investors
                              pursuant  to  existing  sales  agreements  and the
                              Company has surrendered  control of such financial
                              assets.    Loans   are   generally   sold   on   a
                              servicing-released basis.

                              Gain on sale of loans  represents  the  difference
                              between the gross  proceeds  (including  premiums)
                              from the sale, net of related  transaction  costs,
                              and the  allocated  carrying  amount  of the loans
                              sold. The allocated  carrying amount is determined
                              by allocating the carrying  amount of loan between
                              the  portion  sold  and  any   retained   residual
                              interests (interest-only strips receivable), based
                              on  their  relative  fair  values  at the  date of
                              transfer.  In  addition,  gain  on  sale  includes
                              non-refundable fees on loans sold.

                              Gain on sale of loans includes the  recognition of
                              an unrealized  gain,  which represents the initial
                              difference  between the allocated  carrying amount
                              and the fair value of the interest-only  strips at
                              the date of sale.


                                      F-21
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               H.  Loan Sales Revenue Recognition (Continued)
     Significant
     Accounting               The  fair  value  of  the   interest-only   strips
     Policies                 receivable  is determined by computing the present
     (Continued)              value of the excess interest income to be received
                              by the  Company  over the coupon  interest  to the
                              investor   after  giving   effect  to   prepayment
                              assumptions,   allowance  for   potential   credit
                              losses, and other transaction costs on loans sold.
                              The  interest-only  strips  receivable,  which  is
                              classified  as a trading  security,  is carried at
                              fair  value  and  is  analyzed  quarterly  by  the
                              Company.   Adjustments   to  the  fair  value  are
                              recognized as  unrealized  gains or losses and are
                              included  as  part  of  gain  on  sale  of  loans.
                              Adjustments of $38.3 million and $2.3 million were
                              recorded  as  a  reduction  of  the  interest-only
                              strips receivable fair value in 1998 and 1997.

                              Fair value of the interest-only  strips receivable
                              is  based  on  management's   judgments  regarding
                              expected  future cash flows  taking  into  account
                              estimated  loan   prepayment   speeds,   estimated
                              default  rates and an  appropriate  discount  rate
                              given the risk characteristics associated with the
                              instrument.  It is possible  that these  judgments
                              and estimates could change in the near term due to
                              competitive   pressures,   the  overall   economy,
                              adverse changes in the securitization  market, and
                              actual  prepayment and default  experience  rates.
                              The amounts the Company  will  ultimately  realize
                              could differ  significantly  and could  require an
                              adjustment  to the fair value of this asset in the
                              near term.

                              The premium earned from whole loans originated and
                              subsequently  sold at par plus an upfront premium,
                              with no further  rights to any further  yield,  is
                              included  under  gain  on  sale  of  loans  in the
                              Statements of Operations.


                                      F-22
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               I.  Mortgage Servicing Rights
     Significant
     Accounting               In  1996,  the  Company   adopted  SFAS  No.  122,
     Policies                 "Accounting  for  Mortgage  Servicing  Rights,  an
     (Continued)              amendment of FASB  Statement No. 65." SFAS No. 122
                              requires the  Corporation  to capitalize  mortgage
                              servicing rights on originated mortgage loans when
                              the loans are originated to be sold or securitized
                              and servicing is retained. When a mortgage loan is
                              originated to be sold with servicing retained, the
                              total  cost  of  the  loan  is  allocated  to  the
                              mortgage  servicing  right  and the loan  based on
                              their  relative  fair values.  Under SFAS No. 122,
                              capitalized  servicing  rights  are  assessed  for
                              impairment  based  on  the  fair  value  of  those
                              rights.   In   addition,    capitalized   mortgage
                              servicing  rights must be stratified  based on one
                              or more  predominant risk  characteristics  of the
                              underlying  loans  and  impairment  is  recognized
                              through a valuation  allowance  for each  impaired
                              stratum.

                              The effect of the adoption of SFAS No. 122 was not
                              material  to the  Company,  primarily  because the
                              Company sells  substantially all of its loans on a
                              servicing released basis.

                              J. Transfers and Servicing of Financial Assets and
                              Extinguishment of Liabilities

                              On January 1, 1997, the Company adopted  Statement
                              of   Financial   Accounting   Standard   No.   125
                              "Accounting   for   Transfers   and  Servicing  of
                              Financial    Assets    and    Extinguishment    of
                              Liabilities:  (SFAS 125). This statement  provides
                              guidance for distinguishing transfers of financial
                              assets  that are  sales  from  transfers  that are
                              secured  borrowings.  SFAS 125 supersedes SFAS 76,
                              77 and 122,  while  amending both SFAS 65 and 115.
                              The statement was to be applied  prospectively and
                              earlier  implementation  was  not  permitted.  The
                              adoption  of  SFAS  125 did  not  have a  material
                              effect on the Company's results of operations.


                                      F-23
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               J. Transfers and Servicing of Financial Assets and
     Significant                 Extinguishment of Liabilities (Continued)
     Accounting
     Policies                 A transfer of financial assets in which control is
     (Continued)              surrendered  is  accounted  for as a  sale  to the
                              extent that  consideration  other than  beneficial
                              interests in the transferred assets is received in
                              the exchange. Liabilities and derivatives incurred
                              or obtained by the  transfer of  financial  assets
                              are  required to be  measured  at fair  value,  if
                              practicable.  Also,  servicing  assets  and  other
                              retained  interests in the transferred assets must
                              be measured by  allocating  the previous  carrying
                              value  between  the  asset  sold and the  interest
                              retained,  if any,  based on their  relative  fair
                              values at the date of transfer. For each servicing
                              contract  in  existence  before  January  1, 1997,
                              previously  recognized servicing rights and excess
                              servicing   receivables   that   did  not   exceed
                              contractually   specified   servicing   fees  were
                              required  to be  combined,  net of any  previously
                              recognized   servicing   obligations   under  that
                              contract,  as  a  servicing  asset  or  liability.
                              Previously  recognized servicing  receivables that
                              exceed  contractually   specified  servicing  fees
                              (formerly  known as excess yield  receivable)  are
                              required to be reclassified as interest-only strip
                              receivables and the allowance for credit losses on
                              loans sold  reclassified  as a reduction  of these
                              receivables.

                              SFAS   125  also   requires   an   assessment   of
                              interest-only strips, loans, other receivables and
                              retained  interests in  securitizations.  If these
                              assets can be  contractually  prepaid or otherwise
                              settled  such that the  holder  would not  recover
                              substantially all of its recorded investment,  the
                              assets  will be measured  like  available-for-sale
                              securities or trading  securities  under SFAS 115.
                              This  assessment is required for financial  assets
                              held on or acquired after January 1, 1997.

                              K. Impairment of Long-Lived Assets

                              In  1996,  the  Company   adopted  SFAS  No.  121,
                              "Accounting  for  Impairment of Long-Lived  Assets
                              and for  Long-Lived  Assets  to be  Disposed  of,"
                              which  addresses   accounting  for  impairment  of
                              long-lived assets,  including certain identifiable
                              intangibles, and goodwill related to those assets.
                              SFAS No. 121  requires  that assets to be held and
                              used be reviewed for impairment whenever events or
                              changes  in   circumstances   indicate   that  the
                              carrying   amount   of  an   asset   may   not  be
                              recoverable.  The initial adoption of SFAS No. 121
                              did not have a  material  impact on the  Company's
                              financial condition or results of operations.


                                      F-24
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               L.  Advertising Costs
     Significant
     Accounting               The  Company  generally  charges  to  expense  the
     Policies                 production costs of advertising the first time the
     (Continued)              advertising     takes     place,     except    for
                              direct-response advertising,  which is capitalized
                              and amortized  over the expected  period of future
                              benefits.   Direct-response  advertising  includes
                              mailing   campaigns   relating   to  retail   loan
                              solicitations  which are  mailed  over a period of
                              twelve    weeks.    Capitalized    direct-response
                              advertising included in prepaid expenses and other
                              assets was  $577,818  and $167,012 at December 31,
                              1998 and 1997. Advertising expense was $7,714,000,
                              $4,653,000   and  $689,000  for  the  years  ended
                              December 31, 1998, 1997 and 1996.







                                      F-25
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               M.  Other Real Estate
     Significant
     Accounting               Other  real  estate  is   comprised   of  formally
     Policies                 foreclosed property.  These assets are recorded at
     (Continued)              the lower of the net investment in the loan or the
                              fair  value  of  the  property.  At  the  time  of
                              foreclosure,  any excess of the net  investment in
                              the loan  over its fair  value is  charged  to the
                              allowance  for loan losses.  Selling costs and any
                              subsequent   declines  in  value  are  charged  to
                              operations,   and   a   valuation   allowance   is
                              established.

                              N. Property and Equipment

                              Property  and  equipment  is stated at cost,  less
                              accumulated depreciation. Depreciation of property
                              and  equipment  is based on the asset's  estimated
                              useful life,  ranging from two to eight years, and
                              is  computed  using  the   straight-line   method.
                              Expenditures  that  improve or extend the  service
                              lives  of  assets  are  capitalized.  Repairs  and
                              maintenance are charged to expense as incurred.

                              O. Goodwill

                              Goodwill  represented  the  excess  of  the  total
                              purchase   price   (consisting   of  the   initial
                              consideration and subsequent consideration) of CRC
                              and  LPPC  over the fair  value of  purchased  net
                              assets.   Goodwill   was   amortized   using   the
                              straight-line  method over approximately 20 years.
                              The  Company  sold CRC and LPPC in 1996 and  wrote
                              off the remaining  goodwill,  which is included in
                              loss   from   discontinued   operations   in   the
                              Consolidated Statement of Operations (Note 16).

                              P. Income Taxes

                              The Company uses the asset and liability method of
                              accounting  for income  taxes.  Under this method,
                              deferred  income  taxes  are  recognized  for  tax
                              consequences of temporary  differences by applying
                              enacted statutory tax rates to differences between
                              the financial  statement  carrying  amount and the
                              tax basis of existing assets and liabilities.  The
                              effect on deferred  taxes of a change in tax rates
                              is   recognized  in  income  in  the  period  that
                              includes the enactment date.


                                      F-26
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               P. Income Taxes (Continued)
     Significant
     Accounting               All tax  benefits are recorded and then reduced by
     Policies                 a valuation  allowance  when  management  believes
     (Continued)              there is a greater  likelihood,  the benefit  will
                              not be  realized  than there is of the asset being
                              realized.

                              Partnerships  are  generally not subject to income
                              taxes, accordingly, the Partnership income or loss
                              was  reported  in  the  individual  partners'  tax
                              returns.     However,    Pacific    Thrift,    the
                              Partnership's  wholly owned corporate  subsidiary,
                              has always  been  subject  to  federal  income and
                              state  franchise  taxes.  Since  completion of the
                              restructuring (Note 1) the Company is also subject
                              to federal and state income taxes.

                              Q.  Use  of  Estimates  in  the   Preparation   of
                              Financial Statements

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

                              R. Fair Value of Financial Instruments

                              Statement of Financial  Accounting  Standards  No.
                              107,  Disclosures  about Fair  Value of  Financial
                              Instruments (SFAS 107),  requires that the Company
                              disclose  estimated  fair values for its financial
                              instruments.  Fair value estimates,  methods,  and
                              assumptions  are set forth below for the Company's
                              financial  instruments.  SFAS No. 107 defines fair
                              value as the amount which the instrument  could be
                              exchanged  for in a  current  transaction  between
                              willing  parties,  other than in a forced  sale or
                              liquidation.   Where  possible,  the  Company  has
                              utilized  quoted  market  prices to estimate  fair
                              value.   Since  quoted   market  prices  were  not
                              available  for  a   significant   portion  of  the
                              financial   instruments,   the  fair  values  were
                              approximated    using    discounted    cash   flow
                              techniques.


                                      F-27
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               R. Fair Value of Financial Instruments (Continued)
     Significant
     Accounting               Fair value  estimates are made at a specific point
     Policies                 in  time,  based  on  judgments  regarding  future
     (Continued)              expected   loss   experience,   current   economic
                              conditions,  risk conditions, risk characteristics
                              of  various   financial   instruments   and  other
                              factors.   These  estimates  do  not  reflect  any
                              premium  or  discount   that  could   result  from
                              offering for sale at one time the Company's entire
                              holdings  of a  particular  financial  instrument.
                              These  estimates  are  subjective  in  nature  and
                              involve  uncertainties  and matters of significant
                              judgment and therefore  cannot be determined  with
                              precision.    Changes   in    assumptions    could
                              significantly  affect  the  estimates  in the near
                              term.

                              Fair  value   estimates  were  based  on  existing
                              financial   instruments   without   attempting  to
                              estimate the value of anticipated  future business
                              and the value of assets and  liabilities  that are
                              not considered financial instruments.

                              The  following  presents  the  carrying  value and
                              estimated  fair  value of the  various  classes of
                              financial  instruments  held by the Company.  This
                              information  is  presented  solely for  compliance
                              with SFAS No. 107 and is  subject  to change  over
                              time based on a variety of factors.


                                                       December 31, 1998
                                              ----------------------------------
                                                  Carrying           Estimated
                                                    Value            Fair Value
         -----------------------------------------------------------------------
         Assets
         Cash and cash equivalents            $  41,811,000       $  41,811,000

         Loans receivable                        10,504,000          10,288,000
         Allowance for loan losses               (1,060,000)         (1,046,000)
         -----------------------------------------------------------------------

         Total loans                              9,444,000           9,242,000
         -----------------------------------------------------------------------

         Loans held for sale                     72,814,000          74,998,000
         Interest-only strips receivable        116,628,000         116,628,000

         Liabilities
         Installment certificates                29,692,000          29,692,000
         Fully-paid certificates                132,618,000         132,328,000
         Notes payable                           52,958,000          52,958,000


                                      F-28
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               R. Fair Value of Financial Instruments (Continued)
     Significant
     Accounting
     Policies
     (Continued)                                        December 31, 1997
                                              ----------------------------------
                                                  Carrying           Estimated
                                                    Value            Fair Value
         -----------------------------------------------------------------------
         Assets
         Cash and cash equivalents            $  65,927,000       $  65,927,000

         Loans receivable                        22,067,000          21,981,000
         Allowance for loan losses               (1,438,000)         (1,438,000)
         -----------------------------------------------------------------------

         Total loans                             20,629,000          20,543,000
         -----------------------------------------------------------------------

         Loans held for sale                     35,280,000          37,154,000
         Interest-only strips receivable         94,424,000          94,424,000

         Liabilities
         Fully-paid certificates                113,731,000         113,449,000
         Installment certificates                18,793,000          18,793,000
         Notes payable                           28,318,000          28,318,000


                              Cash, Short  Term-Investments,  Trade Receivables,
                              and Trade Payables

                              The  carrying  amount   approximates   fair  value
                              because   of   the   short   maturity   of   these
                              instruments.

                              Loans

                              Fair values were estimated for portfolios of loans
                              with similar financial characteristics. Loans were
                              segregated by type such as commercial  real estate
                              and residential  mortgage.  Each loan category was
                              further  segmented into fixed and adjustable  rate
                              interest terms and by performing and nonperforming
                              categories.


                                      F-29
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               R. Fair Value of Financial Instruments (Continued)
     Significant
     Accounting               Loans (Continued)
     Policies
     (Continued)              The  fair   value  for   performing   fixed   rate
                              commercial  real  estate  loans was  estimated  by
                              discounting   the  future  cash  flows  using  the
                              current rates at which similar loans would be made
                              to borrowers with similar credit ratings. The fair
                              values for performing commercial real estate loans
                              indexed  to  a  market-lending  rate  with  normal
                              credit  risk were  assumed  to  approximate  their
                              carrying value.  For  residential  mortgage loans,
                              fair value was  estimated by using  quoted  market
                              prices for loans with similar  credit and interest
                              rate risk characteristics.

                              Fair value for significant nonperforming loans was
                              based on  recent  external  appraisals  or  broker
                              price  opinions  adjusted for  anticipated  credit
                              loss   risk,   estimated   time  for   resolution,
                              valuation of the  underlying  collateral and other
                              related  resolution costs. If appraisals or recent
                              broker price opinions are not available, estimated
                              cash   flows   are   discounted   using   a   rate
                              commensurate  with  the risk  associated  with the
                              estimated cash flows. Assumptions regarding credit
                              risk,   cash  flows,   and   discount   rates  are
                              judgmentally  determined  using  available  market
                              information and specific borrower information.

                              Loans Held for Sale

                              The fair values were  estimated  by using  current
                              institutional purchaser yield requirements.

                              Interest-only Strips Receivable

                              The fair value was  determined by using  estimated
                              discounted   future   cash   flows   taking   into
                              consideration   current   and   estimated   future
                              prepayment  rates  and  default  experience.   The
                              carrying  amount is  considered to be a reasonable
                              estimate of fair value.


                                      F-30
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               R. Fair Value of Financial Instruments (Continued)
     Significant
     Accounting               Thrift Certificates Payable
     Policies
     (Continued)              Under SFAS 107, the fair value of deposits with no
                              stated maturity,  such as savings and money market
                              accounts,  is  equal  to  the  amount  payable  on
                              demand.  The fair value of certificates of deposit
                              is based on the  discounted  value of  contractual
                              cash flows.  The discount rate is estimated  using
                              the  rates  currently   offered  for  deposits  of
                              similar remaining maturities.

                                                         December 31, 1998
                                                  ------------------------------
                                                     Carrying        Estimated
                                                       Value         Fair Value
          ----------------------------------------------------------------------
          Installment certificates                $ 29,692,000      $ 29,692,000
          ======================================================================
          Fully-paid certificates:
             Maturing in six months or less       $ 55,412,000      $ 55,297,000
             Maturing between six months and
               one year                             72,465,000        72,246,000
             Maturing between one and three
               years                                 4,741,000         4,785,000
          ----------------------------------------------------------------------
          Total fully-paid certificates           $132,618,000      $132,328,000
          ======================================================================


                                                         December 31, 1997
                                                  ------------------------------
                                                     Carrying        Estimated
                                                       Value         Fair Value
          ----------------------------------------------------------------------
          Installment certificates                $ 18,793,000      $ 18,793,000
          ======================================================================

          Fully-paid certificates:
             Maturing in six months or less       $ 53,637,000      $ 53,518,000
             Maturing between six months and
               one year                             59,999,000        59,836,000
             Maturing between one and three
               years                                    95,000            95,000
          ----------------------------------------------------------------------
          Total fully-paid certificates           $113,731,000      $113,449,000
          ======================================================================


                                      F-31
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               R. Fair Value of Financial Instruments (Continued)
     Significant
     Accounting               Thrift Certificates Payable (Continued)
     Policies
     (Continued)              The  remaining   assets  and  liabilities  of  the
                              Company are not considered  financial  instruments
                              and  have  not  been  valued  differently  than is
                              customary under historical cost accounting.  Since
                              assets  and  liabilities  that  are not  financial
                              instruments are excluded,  the difference  between
                              total financial  assets and financial  liabilities
                              does not,  nor is it intended  to,  represent  the
                              market  value  of the  Company.  Furthermore,  the
                              estimated  fair  value   information  may  not  be
                              comparable  between financial  institutions due to
                              the wide range of valuation techniques  permitted,
                              and assumptions necessitated, in the absence of an
                              available trading market.

                              Notes Payable

                              Due to the adjustable rate  characteristics of the
                              notes  payable,  the fair value  approximates  the
                              carrying value.

                              The  remaining   assets  and  liabilities  of  the
                              Company are not considered  financial  instruments
                              and  have  not  been  valued  differently  than is
                              customary under historical cost accounting.  Since
                              assets  and  liabilities  that  are not  financial
                              instruments are excluded,  the difference  between
                              total financial  assets and financial  liabilities
                              does not,  nor is it intended  to,  represent  the
                              market  value  of the  Company.  Furthermore,  the
                              estimated  fair  value   information  may  not  be
                              comparable  between financial  institutions due to
                              the wide range of valuation techniques  permitted,
                              and assumptions necessitated, in the absence of an
                              available trading market.

                              S. Stock-Based Compensation

                              In  1996,   the  Company   adopted  for   footnote
                              disclosure    purposes   only,   SFAS   No.   123,
                              "Accounting for Stock-Based  Compensation,"  which
                              requires  that  companies   measure  the  cost  of
                              stock-based  employee  compensation  at the  grant
                              date based on the value of the award and recognize
                              this cost over the  service  period.  The value of
                              the  stock-based  award is  determined  using  the
                              intrinsic value method whereby  compensation  cost
                              is the excess of the quoted  market  prices of the
                              stock at grant date or other measurement date over
                              the amount an  employee  must pay to  acquire  the
                              stock.


                                      F-32
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               T.  Recently Issued Accounting Pronouncements
     Significant
     Accounting               Reporting Comprehensive Income
     Policies
     (Continued)              In June 1997,  FASB  issued  SFAS 130,  "Reporting
                              Comprehensive   Income"  (SFAS  130").   SFAS  130
                              established  disclosure  standards  for  reporting
                              comprehensive  income  in a full  set  of  general
                              purpose   financial   statements.   SFAS   130  is
                              effective   for  fiscal  years   beginning   after
                              December   15,   1997.    The   Company   had   no
                              comprehensive  income (loss) during the year ended
                              December  31,  1998 and as a result  comprehensive
                              loss  is the  same as the net  loss  for the  year
                              ended December 31, 1998.

                              Segment Reporting

                              In  June  1997,  the  FASB  issued   Statement  of
                              financial    Accounting    Standard    No.    131,
                              "Disclosures  about  Segments of an Enterprise and
                              Related  Information"  (SFAS 131).  This statement
                              establishes  standards  for  the way  that  public
                              business   enterprises  report  information  about
                              operating segments in annual financial  statements
                              and  requires   that  those   enterprises   report
                              selected  information  about  segments  in interim
                              financial reports issued to shareholders.  It also
                              establishes   standards  for  related  disclosures
                              about products and services, geographic areas, and
                              major  customers.  This statement  supersedes FASB
                              Statement  No.  14  "Financial   Reporting  for  a
                              Business Enterprise",  but retains the requirement
                              to report  information  about major customers.  It
                              amends FASB Statement No. 94 "Consolidation of All
                              Majority-Owned Subsidiaries" to remove the special
                              disclosure     requirements     for     previously
                              unconsolidated  subsidiaries.  This statement does
                              not apply to nonpublic business  enterprises or to
                              not-for-profit organizations.


                                      F-33
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               T.  Recently Issued Accounting Pronouncements
     Significant              (Continued)
     Accounting
     Policies                 Segment Reporting (Continued)
     (Continued)
                              SFAS 131 is effective for financial statements for
                              periods  beginning after December 15, 1997. In the
                              initial   year   of    application,    comparative
                              information  for earlier  years is to be restated.
                              This  statement  need not be  applied  to  interim
                              financial   statements  in  the  initial  year  of
                              application,   but  comparative   information  for
                              interim periods in the initial year of application
                              is to be  reported  in  financial  statements  for
                              interim periods in the second year of application.
                              The  adoption  of this  statement  did not  have a
                              material   effect  on  the   Company's   financial
                              statements.

                              The  Company,  through  the branch  network of its
                              subsidiary,  Pacific  Thrift and Loan,  provides a
                              broad  range  of  mortgage  products.   While  the
                              Company's   chief  decision   makers  monitor  the
                              revenue streams through  wholesale and retail loan
                              originations, operations are managed and financial
                              performance  is evaluated on a Company wide basis.
                              Accordingly,  all of the Company's  operations are
                              considered  by  management to be aggregated in one
                              reportable operating segment.

                              Pensions and Other Postretirement Benefits

                              In  February   1998,   the  Financial   Accounting
                              Standards  Board  issued SFAS No. 132,  Employers'
                              Disclosures     about     Pensions    and    other
                              Postretirement   Benefits  ("SFAS  No.  132"),  an
                              amendment of FASB  statements No. 87, 88, and 106.
                              SFAS No. 132 revises employers'  disclosures about
                              pension and other postretirement benefit plans. It
                              does not change the  measurement or recognition of
                              those  plans.  This  statement  is  effective  for
                              fiscal years  beginning  after  December 15, 1997.
                              Restatement  of  disclosures  for earlier  periods
                              provided for comparative purposes is required. The
                              impact  of  the  adoption  of  this  statement  is
                              disclosure related and the adoption did not have a
                              material   impact  on  the  financial   condition,
                              results of operations and cash flows.


                                      F-34
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               T.  Recently Issued Accounting Pronouncements
     Significant              (Continued)
     Accounting
     Policies                 Derivative Instruments and Hedging Activities
     (Continued)
                              In June 1998, the Financial  Accounting  Standards
                              Board issued SFAS 133,  Accounting  for Derivative
                              Instruments  and Hedging  Activities  ("SFAS 133")
                              which   requires   companies  to   recognize   all
                              derivatives   contracts   as   either   assets  or
                              liabilities  in the  balance  sheet and to measure
                              them  at  fair  value.   The  provisions  of  this
                              statement are effective for all fiscal quarters of
                              fiscal years  beginning  after June 15, 1999.  The
                              Company has not  determined  the  effect,  if any,
                              adoption  of the  new  standard  will  have on its
                              financial  condition,  results of  operations  and
                              cash flows.

                              Mortgage Backed Securities

                              In  October   1998,   the   Financial   Accounting
                              Standards  Board  issued  Statement  of  Financial
                              Accounting  Standards  No.  134,  "Accounting  for
                              Mortgage-Backed   Securities  Retained  After  the
                              Securitization  of Mortgage Loans Held for Sale by
                              a Mortgage Banking Enterprise",  which effectively
                              changes the way mortgage banking firms account for
                              certain securities and other interests they retain
                              after  securitizing  mortgage loans that were held
                              for sale.  The  adoption of SFAS 134 had no impact
                              on the Company's financial position.

                              Technical Corrections

                              In  February   1999,   the  Financial   Accounting
                              Standards  Board  issued  Statement  of  Financial
                              Accounting  Standards  No. 135  ("SFAS No.  135"),
                              Rescission of Financial Accounting Standards Board
                              no. 75 ("SFAS No. 75") and Technical  Corrections.
                              SFAS  No.  135  rescinds  SFAS No.  75 and  amends
                              Statement of Financial  Accounting Standards Board
                              No. 35 also amends  other  existing  authoritative
                              literature to make various technical  corrections,
                              clarify meanings, or describe  applicability under
                              changed conditions.  SFAS No. 135 is effective for
                              financial   statements  issued  for  fiscal  years
                              ending  after   February  15,  1999.  The  Company
                              believes  that the  adoption  of SFAS No. 135 will
                              not have a  significant  effect  on its  financial
                              statements.


                                      F-35
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

2.   Summary of               U.  Reclassifications
     Significant
     Accounting               Certain  reclassifications  of balances from prior
     Policies                 years  have been made to  conform  to the  current
     (Continued)              year's reporting format.

                              V. Restructuring Charge

                              In the third quarter of 1998, the Company recorded
                              a restructuring  charge,  including  related asset
                              impairment,  of  approximately  $3.5 million.  The
                              restructuring  initiatives  involve the  Company's
                              closure of its wholesale loan origination activity
                              resulting in workforce reductions of approximately
                              300  employees  and  the   impairment  of  certain
                              long-lived assets.

                              Details of the  restructuring  charge  included on
                              the statement of operations are as follows:

                                                     Utilized        Balance at
                                   Original     ------------------  December 31,
      (In 000's)                   Accrual       Cash      Noncash     1998
      --------------------------------------------------------------------------
      Impairment of long-lived
         assets                     $1,067      $   --      $1,067    $   --

      Employees severance and
         termination benefits        1,951       1,128          --       823

      Other                            518          74          --       444
      --------------------------------------------------------------------------
                                    $3,536      $1,202      $1,067    $1,267
      ==========================================================================

                              The  tangible  assets to be  disposed of have been
                              written down to their  estimated fair value,  less
                              cost of disposal.  All  intangible  asset carrying
                              values  associated  with the  wholesale  operation
                              have been  eliminated.  Management is  negotiating
                              sublease  arrangements  on existing  office  lease
                              commitments and the restructuring  accrual related
                              to these leases has been recorded taking this into
                              account.   Considerable   management  judgment  is
                              necessary  to estimate  fair  value,  accordingly,
                              actual results could vary  significantly from such
                              estimates.    As   part   of   the   restructuring
                              initiative,   approximately   300  employees  have
                              separated  from the  Company  as of  December  31,
                              1998. The restructuring actions were substantially
                              complete by late 1998.


                                      F-36
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

3.   Loans Held               Loans held for sale comprised of real estate
     For Sale                 loans.

                              The  Company  intends to sell the  $72,814,000  of
                              loans  held for sale at  December  31,  1998 under
                              whole loan sale  agreements.  The Company has sold
                              approximately  $46.3  million  of these  loans for
                              cash  premiums  ranging  from 1.1% to 3.5% through
                              April 9, 1999.

                              The Company  entered  into  transactions  with two
                              customers which  accounted  for  more  than 10% of
                              total whole loan sales for the year ended December
                              31, 1998.  Approximately  62.0% and 20.2% of whole
                              loans  sold to these  two  customers  resulted  in
                              whole loan gains on sales of  approximately  89.7%
                              and 10%, of the total gross gains related to whole
                              loan  sales.  During the year ended  December  31,
                              1997, the Company did not have  transactions  with
                              any single customer which  accounted for more than
                              10% of the Company's total whole loan sales.

                              During   1998   and   1997   the   Company    sold
                              approximately $366 million and approximately $15.7
                              million of loans under whole loan sale  agreements
                              and received cash premiums of approximately  $10.2
                              million and $460,000.

                              During 1996,  the Company sold loans  primarily to
                              two  purchasers on a whole loan basis.  On October
                              31, 1996, the Company entered into a new agreement
                              with one of the  Purchasers  (Purchaser).  For all
                              loans sold after  September 30, 1996,  the Company
                              receives  par  value;  interest  payments  less  a
                              servicing fee and warehousing fee from the date of
                              sale  until  the loans  are  securitized;  certain
                              premium    and/or     advance     payments    upon
                              securitization;  and an interest-only strip on the
                              loans sold.  On  December  16,  1996,  the Company
                              entered  into a  similar  agreement  with a Second
                              Purchaser  of loans  effective  for all loans sold
                              after November 30, 1996.


                                      F-37
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

3.   Loans Held               During  1998,  1997 and 1996,  the Company sold an
     For Sale                 aggregate of $221  million,  $643 million and $338
     (Continued)              million of pre-approved securitizable loans to the
                              Purchasers.

                              In 1998 and 1997,  the  Company  securitized  $330
                              million   and   $100   million   of   loans   into
                              Asset-Backed  Securities (ABS),  which are secured
                              primarily  by fixed  and  adjustable  rate  one-to
                              four-family,  first lien home  equity  loans,  and
                              were  issued  by  the   Company   pursuant  to  an
                              indenture  between the  Company and Bankers  Trust
                              Company  of   California,   N.A.,   the  Indenture
                              Trustee.

4.   Loans Receivable         Loans Receivable
     and
     Allowance for Loan       Loans receivable at December 31, 1998 and 1997 are
     Losses                   summarized as follows:

      December 31,                                    1998               1997
      --------------------------------------------------------------------------
      Real estate loans                         $ 22,542,000       $ 43,474,000
      Participations sold                        (12,038,000)       (21,183,000)
      --------------------------------------------------------------------------
      Total real estate loans - net             $ 10,504,000       $ 22,291,000
      ==========================================================================
      Loans receivable held for investment      $ 10,504,000       $ 22,291,000
      Net deferred loan fees and costs              (196,000)          (224,000)
      Allowance for loan losses                     (864,000)        (1,438,000)
      --------------------------------------------------------------------------
                                                $  9,444,000       $ 20,629,000
      ==========================================================================

                              The  components of the loan  portfolio at December
                              31, 1998 and 1997 were as follows:

      December 31,                                    1998               1997
      --------------------------------------------------------------------------
      One-to-four family residential            $  4,038,000       $  6,028,000
      Five-or-more family residential              1,769,000          6,172,000
      Home improvement                               827,000          1,090,000
      Commercial                                   3,870,000          9,001,000
      --------------------------------------------------------------------------
                                                $ 10,504,000       $ 22,291,000
      ==========================================================================

                              During 1998 and 1997,  the Company  sold,  without
                              recourse, approximately $8,530,000 and $17,063,000
                              of portfolio mortgage loans.


                                      F-38
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

4.   Loans Receivable         Allowance for Loan Losses
     and
     Allowance for Loan       Changes in the  allowance  for loan losses for the
     Losses (Continued)       years ended  December 31, 1998,  1997 and 1996 are
                              as follows:

Years ended December 31,                    1998           1997          1996
--------------------------------------------------------------------------------

Balance at beginning                  $ 1,438,000    $ 2,464,000    $ 4,229,000
Provision charged to expense            1,314,000      3,087,000      1,151,000
Transferred to loans held for sale             --     (1,902,000)            --
Loan charge-offs, net of
  recoveries                           (1,888,000)    (2,211,000)    (2,916,000)
--------------------------------------------------------------------------------
Balance at end                        $   864,000    $ 1,438,000    $ 2,464,000
================================================================================

                              At  December  31,  1998 and 1997,  loans with more
                              than  two  monthly   payments   past  due  and  on
                              nonaccrual status totaled $836,000 and $1,395,000.
                              If  interest  on these  loans  had  been  accrued,
                              interest    income   would   have   increased   by
                              approximately  $98,000  and  $175,000  in 1998 and
                              1997.  At December  31, 1998 and 1997,  loans with
                              more  than two  monthly  payments  past due and on
                              accrual  status totaled  $696,000 and  $1,962,000.
                              Interest income  recognized on these loans totaled
                              approximately  $26,000  and  $402,000  in 1998 and
                              1997.

                              The following information relates to the Company's
                              impaired  loans  which   includes   troubled  debt
                              restructuring that meet the definition of impaired
                              loans as of and for the years ended  December  31,
                              1998 and 1997:

       December 31,                                       1998             1997
       -------------------------------------------------------------------------
       Impaired loans with a specific allowance       $  993,000      $  852,000
       Impaired loans with no specific allowance         959,000         813,000
       -------------------------------------------------------------------------

       Total impaired loans                           $1,952,000      $1,665,000

       Total allowance related to impaired loans      $  288,000      $  337,000
       Average balance of impaired loans for the
          period                                      $1,728,000      $2,191,000
       Interest income on impaired loans for the
          period recorded on a cash basis             $   97,000      $  104,000
       =========================================================================


                                      F-39
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

5.   Other Real Estate        Other real estate  consisted  of the  following at
                              December 31, 1998 and 1997:

   December 31,                                        1998              1997
   -----------------------------------------------------------------------------
   Foreclosed real estate                         $   734,000       $ 3,132,000
   Allowance for losses on other real estate         (515,000)       (1,104,000)
   -----------------------------------------------------------------------------
                                                  $   219,000       $ 2,028,000
   =============================================================================

                              Changes in the  allowance for losses on other real
                              estate for the years ended December 31, 1998, 1997
                              and 1996 are as follows:

Years ended December 31,               1998             1997             1996
--------------------------------------------------------------------------------
Balances at beginning             $ 1,104,000      $ 2,285,000      $ 2,434,000
Provision for losses                  165,000           26,000          337,000
Net charge offs                      (754,000)      (1,207,000)        (486,000)
--------------------------------------------------------------------------------
Balance at end                    $   515,000      $ 1,104,000      $ 2,285,000
================================================================================

                              Operations  of other  real  estate  for the  years
                              ended  December 31, 1998,  1997 and 1996 consisted
                              of the following:

Years ended December 31,               1998             1997             1996
--------------------------------------------------------------------------------
Provision for losses              $   165,000      $    26,000      $   337,000
Net gain on sales                    (170,000)        (181,000)        (224,000)
Other expenses                        129,000          599,000          568,000
--------------------------------------------------------------------------------
                                  $   124,000      $   444,000      $   681,000
================================================================================

                              Upon  foreclosure  of a junior  lien,  the Company
                              takes  title  to  the  real  estate,   subject  to
                              existing   senior  liens.   These  mortgage  notes
                              payable totaled $-0- and $-0- at December 31, 1998
                              and 1997.


                                      F-40
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

6.   Interest-Only Strips     Interest-only  strips receivable consist of assets
     Receivables              generated from loan sales and securitization as
                              follows:

            December 31,                                   1998           1997
            --------------------------------------------------------------------
            Interest-only strip, certificated        $ 44,351,000    $13,417,000
            Interest-only strip, non-certificated      72,277,000     81,007,000
            --------------------------------------------------------------------
                                                     $116,628,000    $94,424,000
            ====================================================================

                              Net  unrealized  holding loss  included in gain on
                              sale of loans on the statement of  operations  was
                              $38,300,000  and  $2,306,000  for the years  ended
                              December 31, 1998 and 1997,  and  accordingly  was
                              recorded  as  a  reduction  of  the  interest-only
                              strips receivable in these same years.

                              The  interest-only  strips receivable are recorded
                              as  a   result   of   the   Company's   sale   and
                              securitization   of   real   estate   loans.   The
                              interest-only  strips receivables  classified as a
                              trading security and reported at fair value,  with
                              unrealized  gains and losses included in earnings.
                              The Company  estimates  and values its future cash
                              flows  on  interest-only   strips   receivable  by
                              utilizing   assumptions   that  it  believes   are
                              consistent with those that would be utilized by an
                              unaffiliated   third  party   purchaser.   To  the
                              Company's knowledge, there is no active market for
                              the sale of the interest-only  strips  receivable.
                              The amounts the Company  will  ultimately  realize
                              could differ  significantly  and could  require an
                              adjustment  in the near term to the fair  value of
                              this asset.

                              In December 1998, the FASB issued, in question and
                              answer  format,  "A  Guide  to  Implementation  of
                              Statement  125 on  Accounting  for  Transfers  and
                              Servicing of Financial Assets and  Extinguishments
                              of  Liabilities,  Questions  and  Answers,  Second
                              Edition"  (the  "Special  Report").   The  Special
                              Report  indicates  that two methods have arisen in
                              practice for  accounting  for credit  enhancements
                              relating to securitization.  These methods are the
                              cash-in  method  and  the  cash-out  method.   The
                              cash-in method treats credit enhancements (pledged
                              loans or cash) as  belonging  to the  Company.  As
                              such,  these  assets  are  recorded  at their face
                              value as of the  time  they  are  received  by the
                              trust.   The   cash-out   method   treats   credit
                              enhancements   as  assets  owned  by  the  related
                              securitization  trust.  As such,  these assets are
                              treated  as part of the  interest-only  strips and
                              are recorded at a discounted  value for the period
                              between  when  collected by the trust and released
                              to the Company.  The Special Report indicates that
                              if no true  market  exists for credit  enhancement
                              assets,  the  cash-out  method  should  be used to
                              measure the fair value of credit enhancements. The
                              Company  uses  the  cash-out   method,   which  is
                              consistent with prior periods.


                                      F-41
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

6.   Interest-Only Strips     The  fair  value  of  the   interest-only   strips
     Receivables              receivable  is determined by computing the present
     (Continued)              value  of  the  excess  cash  flows  based  on the
                              weighted average coupon on the loans sold over the
                              sum of: (1) the  coupon on the  senior  interests,
                              (2) the  contracted  servicing  fee,  (3) expected
                              losses to be  incurred on the  portfolio  of loans
                              sold   over   the   lives   of  the   loans,   (4)
                              overcollateralization  and (5) fees payable to the
                              trustee  and the  monoline  insurer.  The  present
                              value  calculation  uses  prepayment  and  default
                              assumptions  that  market  participants  would  be
                              expected to use for similar financial  instruments
                              that  are  subject  to   prepayment,   credit  and
                              interest rate risk.

                              The cash  flows  expected  to be  received  by the
                              Company are then  discounted  at an interest  rate
                              that  the   Company   believes   an   unaffiliated
                              third-party  purchaser  would require as a rate of
                              return  on  such a  financial  instrument.  To the
                              extent  that actual  future  excess cash flows are
                              different  from estimated  excess cash flows,  the
                              fair value of the Company's  interest-only  strips
                              will  be  adjusted  quarterly  with  corresponding
                              adjustments made to earnings in that period.

                              The Company builds  overcollateralization from the
                              excess  cash  flows.  The  current  amount of such
                              overcollateralization  built through cash flows is
                              part of the interest-only strips receivable.

                              In March 1999 the Company  obtained an independent
                              valuation   report   of    interest-only    strips
                              receivable and recorded a writedown of $794,000 at
                              December  31,  1998.  During  1998  the  aggregate
                              writedown was  $38,300,000.  At December 31, 1997,
                              the  Company   adjusted  the  fair  value  of  its
                              interest-only   strip   receivable   downward   by
                              approximately  $2.3  million.  In March 1998,  the
                              Company  obtained an independent  valuation report
                              of  the  interest-only  strips  receivable,  as of
                              December  31,  1997,  which,  using the "cash out"
                              method of  modeling  cash flows,  determined  fair
                              values of the interest-only strips receivable.


                                      F-42
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

6.   Interest-Only Strips     The  fair  values  at  December  31,  1998  can be
     Receivables              calculated    with   constant    prepayment   rate
     (Continued)              assumptions  ranging from 22.5% to 37.8%;  a range
                              of .50% to 1% annual  loss rate  after an  initial
                              six month ramp up period; and an 15% discount rate
                              on estimated cash flows from each of its pools.

                              The  fair  values  at  December  31,  1997  can be
                              calculated    with   constant    prepayment   rate
                              assumptions ranging from 26% to 36%; a .50% annual
                              loss  rate  after an  initial  six  month  ramp-up
                              period; and an 11% discount rate on estimated cash
                              flows from each of its pools.

                              It is possible that these assumptions could change
                              in the near  future,  due to changes  required  by
                              future  accounting  pronouncements,   the  general
                              economy,  adverse  changes  in the  securitization
                              market,   and  actual   prepayment   and   default
                              experience  which  vary  from the  assumed  rates,
                              which would  require  adjustments  in the reported
                              fair value of the interest-only strips receivable.
                              As a result the actual cash flows  received by the
                              Company  could  differ   significantly   from  the
                              modeled cash flows using current assumptions.  The
                              estimated    fair    value   of   the    Company's
                              interest-only   strips   receivable   is  reviewed
                              quarterly with required adjustments, if necessary,
                              made to earnings (loss) in that period.


                                      F-43
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

7.   Property and             Property and equipment  consisted of the following
     Equipment                at December 31, 1998 and 1997:

                   December 31,                          1998             1997
                   -------------------------------------------------------------
                   Computer and office equipment    $ 3,006,000     $ 3,738,000
                   Furniture and fixtures             3,069,000       1,235,000
                   Leasehold improvements               783,000         676,000
                   -------------------------------------------------------------
                                                      6,858,000       5,649,000
                   Accumulated depreciation and
                      amortization                   (2,437,000)     (2,053,000)
                   -------------------------------------------------------------
                                                    $ 4,421,000     $ 3,596,000
                   =============================================================

                              In 1998 the  Company  wrote off  certain  impaired
                              assets after it closed down its wholesale division
                              (Note 2V).

                              At December 31, 1998 the Company subleases certain
                              assets  with a net book value of  $80,000  under a
                              sublease  arrangement which expires on October 31,
                              1999.  The  lease  arrangement   provides  monthly
                              rental income of $4,500.

8.   Thrift Certificates      Thrift  certificates  are fully paid  certificates
     Payable                  and  installment  certificates.   The  approximate
                              weighted  average  interest rate of fully-paid and
                              installment  certificate  accounts at December 31,
                              1998 was 5.65% and 5.05% and at December  31, 1997
                              was 6.11% and 5.01%.  The interest  payable on the
                              thrift certificates totaled $508,000, $370,000 and
                              $185,000 at December 31, 1998, 1997 and 1996.

                              At December 31, 1998 and 1997,  fully-paid  thrift
                              certificates consisted of the following:

     December 31,                                         1998            1997
     ---------------------------------------------------------------------------
     Certificates equal or greater than $100,000    $    498,000    $  4,180,000

     Certificates less than $100,000                 132,120,000     109,551,000
     ---------------------------------------------------------------------------
                                                    $132,618,000    $113,731,000
     ===========================================================================


                                      F-44
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

8.   Thrift Certificates      At December  31,  1998,  scheduled  maturities  of
     Payable (Continued)      fully-paid thrift certificates were as follows:

                                              December 31,               1998
                                              ----------------------------------
                                              Less than 3 months    $ 19,560,000
                                              3 to 6 months           35,852,000
                                              6 to 12 months          72,465,000
                                              1 to 5 years             4,741,000
                                              ----------------------------------
                                                                    $132,618,000
                                              ==================================

9.   Notes Payable            Notes  payable   consisted  of  the  following  at
                              December 31, 1998 and 1997:

                 December 31,                              1998           1997
                 ---------------------------------------------------------------
                 Third party (a)                      $ 3,000,000    $        --
                 Interest-only strips advances (b)     49,958,000     28,318,000
                 ---------------------------------------------------------------
                                                      $52,958,000    $28,318,000
                 ===============================================================

                              (a) The loan  interest  rate is 3-month LIBOR plus
                              5.0%,  which was 10.07% at December 31, 1998.  The
                              stock of the Company's subsidiary,  Pacific Thrift
                              and Loan,  is pledged as  security  for this loan.
                              This  loan  was due in  April  1999.  However,  in
                              February  1999,  the due date was  extended by the
                              third party to January 2000.

                              (b) The interest-only  strip advances are from the
                              Purchasers  (Note  3)  secured  by  the  Company's
                              interest-only strips receivable.  Advances ranging
                              from 3.00% to 4.75% of the par value of loans sold
                              are  made by the  Purchasers  when the  loans  are
                              securitized.  The  advances  are  reduced  by  any
                              monthly   payments   to  be   made   against   the
                              interest-only strips receivable until the advances
                              are  fully  repaid.  The  advances  bear an annual
                              interest  rate  ranging  from  LIBOR plus 1.00% to
                              LIBOR plus 2.0%.


                                      F-45
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

9.   Notes Payable            In connection  with the advances  received under a
     (Continued)              Master Assignment Agreement,  dated as of December
                              18, 1997,  with Merrill  Lynch  Mortgage  Capital,
                              Inc.,  each  advance is due one year from the date
                              of the  advance,  and the  Company is  required to
                              make  mandatory   prepayments   under  the  Master
                              Assignment   Agreement   in  the  event  that  the
                              residual   interests  assigned  to  Merrill  Lynch
                              experience  a  decline  in value  from the  levels
                              established  at  the  time  of  the  advance.   At
                              December  31,  1998,  the Company is in default of
                              the  repayment  terms  of  the  Master  Assignment
                              Agreement    on   $18.4    million   of   advances
                              collateralized  by $44.4  million of interest only
                              strips receivable.

                              In connection with the advances received under the
                              Corporate Finance  Agreement,  dated as of January
                              27, 1997 with Advanta  Mortgage  Corp.  USA,  such
                              advances are due 38 to 46 months after the advance
                              is made. The advances are cross collateralized. At
                              December  31,  1998 $29.6  million of  outstanding
                              advances are  collateralized  by $68.5  million of
                              interest-only strips receivable.

10.  Income Taxes             The  Partnership  was not subject to income taxes.
                              However,  the  Partnership  was still  required to
                              file  partnership  returns  in order to report its
                              income   or   loss  in   total   as  well  as  the
                              distributable  share of  income or loss of each of
                              the partners.  These partnership  returns,  as all
                              tax   returns,    are   potentially   subject   to
                              examination by the taxing authorities.

                              Subsequent  to  the  restructuring  (Note  1)  the
                              Corporation  became  subject to federal income and
                              California  franchise taxes.  Pacific Thrift,  the
                              major operating subsidiary,  was always subject to
                              income  taxes   because  it  has  been  a  taxable
                              corporation   from  its   inception.   Significant
                              components  of  the  provision  for  income  taxes
                              (benefits) from continuing  operations included in
                              the  consolidated  statements of operations are as
                              follows:

                          December 31,      1998            1997           1996
                          ======================================================
                          Current     $     55,000     $    26,000    $  727,000
                          Deferred     (11,045,000)     12,442,000       931,000
                          ------------------------------------------------------
                                      $(10,990,000)    $12,468,000    $1,658,000
                          ======================================================


                                      F-46
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements




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

10.  Income Taxes             The tax effects of temporary differences that give
     (Continued)              rise to the deferred tax assets and liabilities at
                              December 31, 1998 and 1997 are as follows:

     December 31,                                      1998              1997
     ---------------------------------------------------------------------------
     Deferred tax assets
        Net operating loss carryforward           $ 25,402,000     $ 18,321,000
        Accrued expenses                             1,197,000          848,000
        Loans held for sale                            817,000               --
        Reserves                                       703,000        1,157,000
        Capital loss carryforward                      402,000          402,000
        State tax deduction                             19,000        2,050,000
        Alternate minimum tax credit
          carryforward                                      --          196,000
        Other                                          100,000           63,000
     ---------------------------------------------------------------------------

     Total gross deferred tax assets                28,640,000       23,037,000
     ---------------------------------------------------------------------------

     Valuation allowance                            (2,036,000)        (402,000)
     ---------------------------------------------------------------------------

     Deferred tax liabilities
        Interest-only strip receivable             (27,332,000)     (33,628,000)
        Depreciation                                  (299,000)        (198,000)
        Loan loss reserve                              (91,000)              --

        Loans held for sale                                 --         (726,000)
        Deferred loan costs                            (67,000)        (230,000)
     ---------------------------------------------------------------------------

     Total deferred tax liabilities                (27,789,000)     (34,782,000)
     ---------------------------------------------------------------------------

     Total deferred tax asset (liability), net    $ (1,185,000)    $(12,147,000)
     ===========================================================================


                                      F-47
<PAGE>


                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

10.  Income Taxes             Included in the deferred tax asset at December 31,
     (Continued)              1998 and 1997 is a capital  loss  carryforward  of
                              $402,000  which is fully  reserved  (Note 16).  In
                              1998,   the  Company   established  an  additional
                              valuation  reserve of  $1,546,000 on net operating
                              loss carryforwards  because management believes it
                              is more  likely than not that the full amount will
                              not be utilized  before they  expire.

                              At  December  31,   1998,   the  Company  has  net
                              operating  loss  carryforwards  for federal income
                              tax purposes of approximately $71 million that are
                              available to offset future federal taxable income.
                              These federal net  operating  losses expire in the
                              years  2010  through  2013.   Net  operating  loss
                              carryforwards for State franchise tax purposes are
                              approximately    $34    million.    These    State
                              carryforwards  expire in the years  2001 and 2013.
                              Should there occur a 50%  ownership  change of the
                              Company  as  defined  under  Section  382  of  the
                              Internal  Revenue  Code  of  1986,  the  Company's
                              ability to use the net  operating  losses would be
                              restricted to a prescribed annual amount.

                              The following  summarizes the  difference  between
                              the 1998, 1997 and 1996 provision for income taxes
                              (benefit)  from  continuing   operations  and  the
                              federal statutory tax rate:

                                                           1998    1997    1996
                  -------------------------------------------------------------
                  Federal statutory tax rate                34%     35%     34%
                  Valuation allowance                       (8)%    --     (19)
                  Loss of benefit of former partnership
                     losses                                 --      --      11
                  State taxes net of federal benefit         5       7      --
                  -------------------------------------------------------------
                  Effective tax rate (benefit)              31%     42%     26%
                  =============================================================


                                      F-48
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

11.  Related Parties          The   Partnership   had  various   related   party
     and Affiliates           transactions with the following entities:

                              o  Presidential  Management Company - Prior to the
                                 restructuring   (Note  1)  the  former  general
                                 partner  received  specified  fees for services
                                 performed   and   reimbursements   of   certain
                                 expenses.  Under the Partnership Agreement, the
                                 general  partner  received  a base fee of up to
                                 35%  of  the  loan  origination  fees  paid  by
                                 borrowers to the Partnership or Pacific Thrift.
                                 The  general   partner  also  received  a  loan
                                 servicing  fee of 3/8 of 1% per  annum on loans
                                 with terms over three years.

                              Amounts  charged by the former general partner for
                              services performed and  overhead-related  expenses
                              for  the  year  ended  December  31,  1996  was as
                              follows:

                                Years ended December 31,                  1996
                                ------------------------------------------------
                                Base fee                                $834,000
                                Loan servicing fee                       125,000
                                ------------------------------------------------
                                Total fees                              $959,000
                                ================================================
                                Salaries and overhead reimbursements    $100,000
                                ================================================

                              o  In  connection  with an  amendment  to the loan
                                 agreement  with  a bank  lender,  in  1992  the
                                 general partner loaned the Partnership $600,000
                                 in  subordinated  debt,  with  interest  at the
                                 prime rate and only  repayable  upon consent by
                                 the  lender or at such time as the  Partnership
                                 repaid all of its  outstanding  indebtedness to
                                 the lender.  The general  partner was repaid in
                                 1996.


                                      F-49
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

11.  Related Parties          o  Presidential Management Company (Continued)
     and Affiliates
     (Continued)              During  1996,  Pacific  Thrift paid and  allocated
                              certain salaries and overhead for the Partnership,
                              Corporation,  PAMC,  CRC,  LPPC  and  the  general
                              partner  totaling  $159,000,  $753,000,  $212,000,
                              $6,000  and  $174,000  and  was  reimbursed  on  a
                              monthly basis.

                              o  Other - Prior to the Restructuring,  a managing
                                 officer  of  the  Partnership  and  stockholder
                                 provided legal services in connection  with the
                                 loan  accounts of the  Partnership  and Pacific
                                 Thrift,  for  which he  received  $100 from the
                                 fees paid by each  borrower for legal  services
                                 related to each loan origination. Total fees of
                                 $212,000  were paid by the  Partnership  to the
                                 managing  officer for the years ended  December
                                 31, 1996.

                              A  partner  with a law firm  that  provides  legal
                              services  to the Company is a  stockholder  of the
                              Company and formerly a partner of the Partnership.
                              Total  fees  for  the  services  provided  to  the
                              Company   by  the  law  firm  were   approximately
                              $994,000,  $785,000  and  $424,000  for the  years
                              ended December 31, 1998, 1997 and 1996.

                              Receivables from related parties  consisted of the
                              following at December 31, 1998 and 1997:

                                        December 31,           1998        1997
                                        ----------------------------------------
                                        Due from officer     $134,000    $    --
                                        Employee advances      81,000     83,000
                                        ----------------------------------------
                                                             $215,000    $83,000
                                        ========================================

                              The above receivable  of $134,000 at December  31,
                              1998  is due  from  the  Chief  Executive  Officer
                              relating to overpayment of bonus for 1998.


                                      F-50
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

11.  Related Parties          o  Other (Continued)
     and Affiliates
     (Continued)              Loans to employees  at rates  ranging from 6.5% to
                              8.25% totaled  approximately  $151,000 and $88,000
                              at December 31, 1998 and 1997.

                              Thrift   certificates   purchased  by  members  of
                              management totaled  approximately and $160,000 and
                              $34,000 at December  31,  1998 and 1997,  on terms
                              slightly  more   favorable   than  the  terms  for
                              unrelated  parties.   Interest  expense  on  these
                              certificates  totaled   approximately  $1,000  and
                              $2,000 for the years ended  December  31, 1998 and
                              1997.

                              At December 31, 1998, the Company has an unsecured
                              note  payable to the former  president  of Pacific
                              Thrift  & Loan.  The  underlying  interst  rate is
                              prime and the loan was due on March 27, 1999. This
                              was incorporated as part of a negotiated severance
                              agreement (Note 17 "Other Subsequent Events").

12.  Commitments and          At December 31, 1998 the Company had  committed to
     Contingencies            but not yet funded approximately  $622,000 of real
                              estate loans.

                              The Company  conducts its  operations  from leased
                              facilities under non-cancelable  operating leased.
                              Rental  expenses  were  approximately  $2,947,000,
                              $1,725,000  and  $1,129,000  for the  years  ended
                              December 31, 1998, 1997 and 1996 . At December 31,
                              1998, the approximate  minimum rental  commitments
                              under all  noncancelable  operating  leases are as
                              follows:

                                               Year                      Amount
                                               ---------------------------------
                                               1999                   $2,618,000
                                               2000                    2,173,000
                                               2001                    1,587,000
                                               2002                    1,235,000
                                               2003 and thereafter       872,000
                                               ---------------------------------
                                                                      $8,485,000
                                               =================================


                                      F-51
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

12.  Commitments and          On  November 1, 1998 the  Company  entered  into a
     Contingencies            subleasing  arrangement  which expires on November
     (Continued)              1, 1999. The sublease  provides for monthly rental
                              income  of  $26,395.  The  lease  has an option to
                              extend  all or a portion  of the  sublease  for an
                              additional year.

                              At  December  31,  1998 and 1997,  the Company was
                              servicing   Title  I  loans  for  others  totaling
                              approximately   $4,433,000  and   $6,352,000.   In
                              addition,  the Company  had filed  claims with the
                              Federal Housing  Administration  that depleted the
                              insurance on these loans during 1994.

                              The Corporation entered into employment agreements
                              with  five  of its  officers  effective  as of the
                              closing date of the Restructuring on June 27, 1996
                              (Note  1).  One  employment   agreement  with  the
                              President  of CRC,  LPPC and CRCWA was  terminated
                              effective December 31, 1996 upon the sale of those
                              subsidiaries  (Note 15).  On January 1, 1997,  the
                              Corporation  entered into an employment  agreement
                              with its Chief Financial Officer.  In January 1999
                              the  Company  ended  its  relationship   with  the
                              President and Chief  Executive  Officer of Pacific
                              Thrift.  In April 1999 a new  President  and Chief
                              Executive  Officer of Pacific Thrift was appointed
                              (see Note 17- "Other Subsequent Events").

                              The  agreements  provide for initial terms ranging
                              from   one  to   three   years   and  all   extend
                              automatically   for   additional   one-year  terms
                              thereafter  unless either party gives at least six
                              months written  notice of their  intentions not to
                              renew. The agreements  provide for annual salaries
                              adjusted annually to the cost of living index. The
                              agreements also provide for two of the officers to
                              receive  annual  bonuses based on a calculation of
                              net pre-tax profits subject to a minimum return on
                              equity.  In addition,  one of the officers is also
                              entitled to received a special cash bonus equal to
                              1% of the annual pre-tax net income of the Company
                              calculated before payment of the special bonus but
                              after payment of the annual bonuses, under certain
                              conditions.



                                      F-52
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

12.  Commitments and          Litigation
     Contingencies
     (Continued)              On March 9, 1999 the  Company  was  served  with a
                              lawsuit  with  allegations  related to the sale of
                              pools of loans between 1993 and 1995.  The lawsuit
                              is for an amount in  excess  of $15  million  plus
                              costs and unspecified punitive damages. Management
                              believes  that  there is no  basis  for any of the
                              allegations for several  reasons.  First, in spite
                              of the  provisions  of the  loan  sale  agreements
                              which  allow the party to demand  that the Company
                              repurchase    loans    which    did    not    meet
                              representations  and  warranties,  the  party  has
                              requested  that the Company  repurchase  less than
                              0.5% of the  total  amount  of  loans  sold to the
                              party over the  approximately  three  year  period
                              that the loans  were sold.  Second,  the party has
                              never  previously  identified  to the  Company any
                              problem loans other than those few loans the party
                              has previously  requested be  repurchased.  Third,
                              the  Company  believes  substantially  all  of the
                              loans  sold  to  the  party  were  written  to the
                              party's own underwriting  guidelines  specifically
                              for sale to the party.  Fourth, the party reviewed
                              in detail and  approved  every loan file for every
                              loan  originated  for  sale to them  prior to loan
                              funding.  Fifth,  the Company  had an  independent
                              review  appraiser  approved  by the party,  review
                              every appraisal for every loan originated for sale
                              to them.  For  these  reasons,  management  of the
                              Company has no reason to believe that there is any
                              merit to the  complaint and is unable to determine
                              the likelihood of an unfavorable outcome and range
                              of possible loss, if any.

                              The Company and Pacific Thrift and  PacificAmerica
                              Money Centers are involved in certain lawsuits and
                              there are claims  pending  against these  entities
                              which  management  considers  incidental to normal
                              operations. The legal responsibility and financial
                              impact with respect to such  litigation and claims
                              cannot    presently   be   determined.    However,
                              management  considers that any ultimate liability,
                              which would likely  arise from these  lawsuits and
                              claims,  would not materially affect the financial
                              position,  results of  operations or cash flows of
                              the Company.

                              See Note 17 for  Regulatory  Matters  and  Capital
                              Adequacy.


                                      F-53
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

13.  Retirement               The Company  implemented a retirement savings plan
     Plans                    (defined contribution plan) in 1994. All full-time
                              employees who have completed six months of service
                              and reached age 21 are eligible to  participate in
                              the    plan.    Contributions    are   made   from
                              employee-elected  salary  deferrals.  The  Company
                              matches the first 6% of employee  contributions to
                              the plan at the rate of $.50 on the dollar. During
                              the years ended December 31, 1998,  1997 and 1996,
                              the  Company's  contributions  to the plan totaled
                              $-0-, $231,000 and $241,000.

                              The Company implemented an employee severance plan
                              in  1994.  Regular  full-time  and  part-time  (as
                              defined)   employees  receive  severance  benefits
                              based on their period of employment (Note 2V).

                              The PacificAmerica Money Center, Inc. Supplemental
                              Executive Retirement Plan, effective from June 27,
                              1996  forward,  is an  unfunded  plan  to  provide
                              benefits to certain long-term  executives officers
                              of  the  Company.   The  yearly   benefit  that  a
                              participant will receive at normal  retirement (as
                              defined)  is based on a formula  which  takes into
                              account his highest  average  annual  compensation
                              for  three  consecutive  years  multiplied  by the
                              actual  number of years of service  (as  defined),
                              not to exceed 30 years.  Benefits  are  reduced by
                              participants' estimated social security and 401(k)
                              benefits.

                              Net period  pension cost for 1998,  1997, and 1996
                              includes the following components:

<TABLE>
<CAPTION>
                              Years ended December 31,        1998         1997        1996
                              --------------------------------------------------------------
<S>                                                         <C>         <C>         <C>
                              Service cost                  $187,000    $216,000    $ 26,000
                              Interest cost                  221,000     218,000      42,000
                              Prior service cost             146,000     226,000      32,000
                              --------------------------------------------------------------
                                                            $554,000    $660,000    $100,000
                              ==============================================================
</TABLE>

                              The net pension liability at December 31, 1998 and
                              1997 was $1,314,000 and $760,000.

                              Actuarial   assumptions  are  a  weighted  average
                              discount rate of 7% and a salary  progression rate
                              of 3%.


                                      F-54
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

14.  Stockholders'            The  Company  has a 1995 Stock  Option  Plan and a
     Equity/Partners'         1995 Stock Purchase Plan pursuant to which options
     Capital, Stock           to purchase  shares of the Company's  common stock
     Options and              may be granted  to  employees.  The plans  provide
     Warrants                 that the option  price  shall not be less than the
                              fair  market  value of the  shares  on the date of
                              grant.  Under  the 1995  Stock  Option  Plan,  the
                              maximum  number  of  shares  of  Common  Stock  in
                              respect of which  Options may be granted under the
                              Plan  (the  "Plan  Maximum")  is  500,000  with an
                              increase of two percent  (2%) of the total  issued
                              and outstanding  shares of the Common Stock on the
                              first day of each subsequent  calendar year, up to
                              a maximum  660,000 shares,  commencing  January 1,
                              1997.  Under the 1995 Stock  Purchase Plan a total
                              of 100,000  options  may be issued.  Options  vest
                              ratably over four or five year periods as provided
                              for  in  each  employee's  option  agreement.   At
                              December  31,  1996,  there  were  466,800  shares
                              reserved  for  options  to be  granted  under  the
                              plans.  The  following   summarizes  stock  option
                              transactions:

                                                                        Weighted
                                                                        Average
                                                                         Price
                                                             Shares    Per Share
                     -----------------------------------------------------------
                     Outstanding at June 27, 1996                --           --
                         Granted                            480,000       $ 5.51
                         Exercised                               --           --
                         Cancelled                          (13,200)        5.42
                     -----------------------------------------------------------
                     Outstanding at December 31, 1996       466,800         5.52
                         Granted                            119,300        17.55
                         Exercised                          (87,838)        5.18
                         Cancelled                          (25,880)        8.27
                     -----------------------------------------------------------
                     Outstanding at December 31, 1997       472,382         8.45
                         Granted                            143,200         9.65
                         Exercised                          (72,205)        5.11
                         Cancelled                          (87,015)       10.67
                     -----------------------------------------------------------
                     Outstanding at December 31, 1998       456,362       $10.96
                     ===========================================================

                              At December 31, 1996 the Corporation had 1,106,754
                              general   partner   warrants    outstanding   each
                              exercisable  for one share of common  stock at any
                              time until  December 27, 1997 at an exercise price
                              of $7.50 per share. During the year ended December
                              31, 1997,  1,105,078 general partner warrants were
                              exercised.   As  of   December   31,   1997,   all
                              unexercised    general   partner   warrants   were
                              cancelled.


                                      F-55
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

14.  Stockholders'            At December 31, 1998 and 1997 the  Corporation had
     Equity/Partners'         zero and 52,052  subscriber  warrants  outstanding
     Capital, Stock           each  exercisable for one share of common stock at
     Options and              any time until June 27, 1998 at an exercise  price
     Warrants                 of  $6.25  per  share.   During  the  years  ended
     (Continued)              December  31,  1998 and 1997,  50,236  and  75,730
                              subscriber warrants were exercised.

                              Information   relating   to   stock   options   is
                              summarized by exercise price as follows


                                  December 31, 1998
--------------------------------------------------------------------------------
                                Outstanding
                   ------------------------------------       Exercisable
                                   Weighted Average      -----------------------
Exercise Price               --------------------------              Weighted
  Per Share         Shares   Life (Year) Exercise Price   Shares  Exercise Price
--------------------------------------------------------------------------------
$0.50 to $0.50         100      10.0         $ 0.50           --      $   --
$0.53 to $5.00     214,912       7.5         $ 4.94       69,712      $ 5.00
$6.25 to $14.50     68,650       8.0         $11.32       21,182      $ 9.92
$14.63 to $17.50    35,500       8.7         $15.51       12,025      $15.40
$17.75 to $17.75   100,000       9.5         $17.75      100,000      $17.75
$18.00 to $25.50    36,600       8.7         $22.39        2,675      $23.47
$25.75 to $25.75       200       8.8         $25.75           50      $25.75
$26.75 to $26.75       100       8.8         $26.75           25      $26.75
$27.00 to $27.00       125       8.8         $27.00           50      $27.00
$28.75 to $28.75       175       8.8         $28.75          100      $28.75
--------------------------------------------------------------------------------
$0.50 to $28.75    456,362       8.2         $10.96      205,819      $12.57
================================================================================

                              All  stock  options  issued to  employees  have an
                              exercise price not less than the fair market value
                              of the  Company's  common  stock  on the  date  of
                              grant,  and in accordance with accounting for such
                              options utilizing the intrinsic value method there
                              is no related compensation expense recorded in the
                              Company's financial  statements.  Had compensation
                              cost for stock-based  compensation been determined
                              based  on  the  fair  value  at  the  grant  dates
                              consistent  with  the  method  of  SFAS  123,  the
                              Company's  net  income   (loss)  from   continuing
                              operations  and  earnings  (loss)  per share  from
                              continuing  operations for the year ended December
                              31,  1998 and 1997 would have been  reduced to the
                              pro forma amounts presented below:

                                                          1998            1997
                         -------------------------------------------------------
                         Net income
                            As reported             $(24,488,000)    $17,095,000
                            Pro forma                (26,547,000)     16,794,000

                         Earnings per share
                            As reported
                              Basic                 $      (4.82)    $      4.18
                              Diluted                      (4.82)           3.48

                            Pro forma
                              Basic                 $      (5.23)           4.10
                              Diluted                      (5.23)           3.42


                                      F-56
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

14.  Stockholders'            The fair value of option  grants is  estimated  on
     Equity/Partners'         the date of  grants  utilizing  the  Black-Scholes
     Capital, Stock           option-pricing  model with the following  weighted
     Options and              average  assumptions  for grants in 1998 and 1997,
     Warrants                 expected  life  of  options  of 8 years  for  both
     (Continued)              years,  expected   volatility  of  161%  and  50%,
                              risk-free interest rates of 5.50% and 5.74%, and a
                              0%  dividend  yield for both years.  The  weighted
                              average  fair  value at date of grant for  options
                              granted during 1998 and 1997  approximated  $16.65
                              and $9.56 per option.

15.  Quarterly Results        The unaudited  quarterly results of operations for
     of Operations            1998 and 1997 are as follows (in $000's):
     (Unaudited)

                                Mar. 31,   June 30,    Sept. 30,     Dec. 31,
                                   1998        1998         1998         1998
--------------------------------------------------------------------------------

Interest income                 $ 3,222     $ 3,562     $  5,108     $  4,768
Interest expense                  2,116       3,134        3,696        6,268
--------------------------------------------------------------------------------

Net interest income               1,106         428        1,412       (1,500)
Provision for loan losses         1,413       1,840         (531)      (1,408)
Noninterest income               22,805      28,307*     (23,058)**     5,734
Noninterest expense              17,140      18,510       18,175       15,573
Income tax benefit (expense)     (2,250)     (3,563)      16,896          (93)
--------------------------------------------------------------------------------

Net income (loss)               $ 3,108     $ 4,822     $(22,394)    $(10,024)
================================================================================

Net income per share:
    Basic                       $   .62     $   .95     $  (4.35)    $  (1.95)
    Diluted                         .58         .90        (4.35)       (1.95)


                                                 Quarter Ended
                                ------------------------------------------------
                                Mar. 31,   June 30,    Sept. 30,     Dec. 31,
                                   1997        1997         1997         1997
--------------------------------------------------------------------------------

Interest income                 $ 2,742     $ 2,761     $  3,241     $  2,986
Interest expense                  1,073       1,100        2,000        2,367
--------------------------------------------------------------------------------

Net interest income               1,669       1,661        1,241          619
Provision for loan losses           309         738          225        1,815
Noninterest income               13,425      18,308       22,605       27,717***
Noninterest expense               9,561      12,331       14,093       18,610
Income tax benefit (expense)     (2,195)     (2,897)      (4,002)      (3,374)
--------------------------------------------------------------------------------

Net income                      $ 3,029     $ 4,003     $  5,526     $  4,537
================================================================================

Net income per share:
    Basic                       $   .80     $  1.06     $   1.36     $    .96
    Diluted                         .64         .86         1.10          .86


                                      F-57
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

15.  Quarterly Results        *    At June 30,  1998,  the  Company  recorded  a
     of Operations                 prefunding   receivable  of  $52,268,000  for
     (Unaudited)                   loans which were pre-sold as part of the June
     (Continued)                   1998  securitization   which  resulted  in  a
                                   $22,635,000   gain  on  sale  of  loans.  The
                                   prefunding    receivable   was   subsequently
                                   collected in full in August 1998.

                              **   During the quarter  ended  September 30, 1998
                                   the  company   recorded  a  $33,500,000   net
                                   unrealized  holding loss which is included in
                                   gain on sale of loans.

                              ***  In the quarter  ended  December 31, 1997 as a
                                   result   of  a   change   in   estimate   the
                                   interest-only  strip receivable was adjusted.
                                   The Company also  completed  its first direct
                                   securitization   offering   in   the   fourth
                                   quarter.

16.  Discontinued             Effective December 31, 1996, the Company's trustee
     Operations               and foreclosure  services were  discontinued  when
                              the assets and liabilities of CRC and LPPC and all
                              of the stock of CRCWA were sold. Accordingly,  the
                              operations  have been  reclassified to present the
                              trustee and  foreclosure  services as discontinued
                              operations  in the  Statement of  Operations.  The
                              Company recorded a fourth quarter 1996 pre-tax and
                              after-tax  charge of $1,038,000 for disposition of
                              this segment  which  comprises a $926,000  loss on
                              the measurement date plus a loss from discontinued
                              operations  from the  measurement  date  until the
                              disposal  date.  The tax benefit of  approximately
                              $402,000  from the loss on  disposition  was fully
                              reserved for as such loss is capital in nature and
                              the Company is unable to  quantify  the portion of
                              such capital loss benefit  which may be ultimately
                              realizable.

                              Net assets  disposed  of were  $2,674,000  against
                              proceeds  of  $1,748,000  resulting  in a loss  of
                              approximately   $926,000.   The   $1,748,000   was
                              included in accounts  receivable  at December  31,
                              1996 and $450,000  was received by early  February
                              1997.  The  remaining  $1,298,000   represented  a
                              secured  promissory  note and was fully  repaid in
                              February 1998.

                              Prior to sale of these  subsidiaries,  the Company
                              operated  principally  in  two  industries,   real
                              estate secured lending  (including the origination
                              and sale of loans)  and  trustee  and  foreclosure
                              services.


                                   F-58
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

17.     Regulatory Matters    Cease  and  Desist  Order by the  Federal  Deposit
        and Capital           Insurance  Corporation  and California  Department
        Adequacy and          of Corporations
        Subsequent Events
                              On April 1, 1996,  Pacific  Thrift  entered into a
                              Memorandum  of  Understanding  (MOU) with the FDIC
                              and DOC. The 1996 MOU provided that Pacific Thrift
                              was required  to: (i)  maintain  Tier 1 capital of
                              not less than 8.0% of total assets;  (ii) maintain
                              an  adequate   reserve  for  loan  losses;   (iii)
                              eliminate assets classified "loss" as of September
                              30, 1995, reduce assets  classified  "substandard"
                              as of  September  30,  1995 to not more  than $4.0
                              million  within  180 days  and  reduce  all  users
                              classified  substandard,  doubtful  and loss to no
                              more than 50% of capital and reserves by September
                              30, 1996: (iv) obtain FDIC approval before opening
                              additional  offices;  (v)  develop  strategies  to
                              stabilize net interest  margin on portfolio  loans
                              and  develop   procedures   to   implement   those
                              strategies;  and (vi)  furnish  written  quarterly
                              progress reports.

                              On March 9, 1998, the 1996 MOU was replaced with a
                              new MOU (the "1998 MOU")  between  Pacific  Thrift
                              and the FDIC. The 1998 MOU required Pacific Thrift
                              to: (i)  maintain  Tier 1 capital of not less than
                              8.0% of total assets;  (ii) by July 7, 1998, have,
                              and thereafter maintain, risk-based capital of not
                              less than 10.0% of total assets;  (iii) maintain a
                              fully funded loan loss reserve;  (iv) by March 19,
                              1998,  eliminate  assets  classified  "loss" as of
                              June 30, 1997,  and by  September 5, 1998,  reduce
                              assets classified "substandard" to $4 million; (v)
                              by June 7, 1998,  reduce and  thereafter  maintain
                              the amount of interest-only strip receivables, net
                              of tax liabilities,  to no more than 100% of total
                              capital;   (vi)  by  June  7,   1998,   obtain  an
                              independent   valuation  of  interest-only  strips
                              receivable,   and  thereafter   obtain  an  annual
                              independent  valuation of such  receivables  until
                              they represent no more than 50% of Tier 1 capital;
                              (vii) by June 7, 1998, and  thereafter  quarterly,
                              perform  valuations  and cash flow analyses on the
                              interest-only strips receivable;  (viii) by May 8,
                              1998,    eliminate    and/or    correct    certain
                              transactions   between  the  Company  and  Pacific
                              Thrift and develop,  adopt and implement a written
                              policy  governing  the  relationship  between  the
                              Company and Pacific Thrift;  (ix) by June 7, 1998,
                              revise,    adopt   and    implement    a   written
                              asset/liability  management policy to include risk
                              tolerance levels for income and annual independent
                              audits  of  Pacific  Thrift's  interest  rate risk
                              process;  (x) pay no cash dividends  without prior
                              written  FDIC  approval;  (xi) pay no executive or
                              director   bonuses   without  prior  written  FDIC
                              approval;   (xii)  by  June  7,  1998,   submit  a
                              strategic  plan  covering  the period 1998 through
                              2000 reflecting restricted growth of interest-only
                              strips receivable; and (xiii) by May 15, 1998, and
                              thereafter  at the  end of each  quarter,  furnish
                              written progress reports.


                                      F-59
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

17.     Regulatory Matters    Cease  and  Desist  Order by the  Federal  Deposit
        and Capital           Insurance  Corpora-tion and California  Department
        Adequacy and          of Corporations (Continued)
        Subsequent Events
        (continued)           On November 6, 1998, Pacific Thrift entered into a
                              stipulation  and consent to an order issued by the
                              California  Department  of Financial  Institutions
                              (the  "DFI),   which  assumed   jurisdiction  over
                              Pacific  Thrift  from the DOC in July 1998,  under
                              which Pacific Thrift agreed:  (i) that it will not
                              issue loan  commitments  without  having a clearly
                              identified and reasonably assured source of funds,
                              such as deposits,  loan sale  commitments or other
                              source  of  funds,  such as  deposits,  loan  sale
                              commitments or other financing, with which to fund
                              its  loans;   (ii)  that  it  will  not  make  any
                              shareholder  distributions  except  with the prior
                              written  approval  of the DFI;  and (iii)  that it
                              will discontinue  selling loans under conduit loan
                              sale  arrangements.  The DFI Order is currently in
                              effect,  and  management   believes  that  Pacific
                              Thrift  will  be able to  comply  with  all of the
                              terms of the DFI order.

                              On December 14, 1998,  Pacific Thrift entered into
                              a stipulation and consent to an Order to Cease and
                              Desist issued by the FDIC (the "1998 Order") which
                              replaced  the 1998  MOU.  Under  the  1998  Order,
                              Pacific Thrift has agreed:  (i) to have and retain
                              qualified  management  to  operate  its  regulated
                              business;  (ii) to achieve,  by January 31,  1999,
                              and thereafter  maintain,  Tier 1 capital equal to
                              or in excess of 8.0  percent of its total  assets,
                              and to achieve,  by June 30, 1999,  and thereafter
                              maintain,  Tier 1  risk-based  capital  of no less
                              than 6.0 percent and total  risk-based  capital of
                              no less than 10.0  percent;  (iii) to  maintain an
                              adequate  allowance for loan losses;  (iv) to take
                              the   following   steps   with   regard   to   its
                              interest-only strips receivables:  (a) by June 30,
                              1999,  reduce  the amount of the  receivable  as a
                              percentage  of total capital to no more than 100%;
                              (b)   not   acquire   or   book   any   additional
                              interest-only  strips  receivable;  and (c) obtain
                              quarterly and annual independent valuations of the
                              existing  interest-only strips receivable;  (v) to
                              prepare    and    submit   a   written    two-year
                              business/strategic plan; (vi) by February 27, 1999
                              eliminate  and/or  correct  violations of Sections
                              23A and B of the Federal  Reserve Act and Sections
                              18025,   18448  and  18455(b)  of  the  California
                              Financial  Code  relating to certain  transactions
                              between the Company and its  subsidiary;  (vii) by
                              February  27, 1999,  to develop a revised  written
                              asset/liability   management  policy  specifically
                              addressing interest rate risks associated with the
                              mortgage banking business;  (viii) not to pay cash
                              dividends  or  distributions   without  the  prior
                              written consent of the FDIC;


                                      F-60
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

17.  Regulatory Matters       Cease  and  Desist  Order by the  Federal  Deposit
     and Capital              Insurance  Corpora-tion and California  Department
     Adequacy and             of Corporations 
     Subsequent Events
     (continued)              (ix) not to enter into any executive  compensation
                              and/or bonus agreements  without prior approval of
                              the FDIC;  (x) to develop and  implement a written
                              policy  for  all  intercompany  transactions  with
                              affiliates;  (xi) to furnish a description  of the
                              Order to its  shareholder;  and  (xii) to  furnish
                              written   quarterly   progress  reports  detailing
                              actions  taken to comply with the Order.  The 1998
                              Order is currently in effect,  and Pacific  Thrift
                              has taken certain actions to comply with the terms
                              of the Order  including  no longer  selling  loans
                              under a conduit loan sale agreement.

                              In March  1999,  Pacific  Thrift  entered  into an
                              additional  stipulation and consent to an Order to
                              Cease and Desist  (the 1999  order)  issued by the
                              FDIC under  which  Pacific  agreed to: (i) operate
                              with a Board of Directors which provides  adequate
                              supervision  and  direction  with  respect  to the
                              electronic information systems and other automated
                              systems  (Bank  Information  Systems);  (ii)  take
                              appropriate  measures  to  ensure  that  the  Bank
                              Information Systems are Year 2000 compliant and in
                              March 1999,  designate an executive officer as the
                              Year 2000 Officer;  (iii)  authorize the Year 2000
                              Officer to appoint additional  personnel to assist
                              in  complying  with the  provisions  in this order
                              relating to Year 2000  readiness;  (iv) as long as
                              this order remains in effect,  notify the Regional
                              Director of the FDIC's Regional Office  ("Regional
                              Director")  in writing of any  vacancy in the Year
                              2000 position or change in the person  filling the
                              position;  (v)  within 15 days from the  effective
                              date of the  order,  develop  and adopt a plan for
                              achieving Year 2000 readiness  ("Year 2000 Plan");
                              (vi)  the  Year  2000  Plan  to  be  reviewed  and
                              approved by Pacific  Thrift's  Board of  Directors
                              prior to  adoption,  and submit a copy of the plan
                              to the Regional Director; (vii) by April 15, 1999,
                              develop and  implement a  Remediation  Contingency
                              Plan which includes alternate external third party
                              suppliers or ready  replacement  computer hardware
                              or software from alternate sources; (viii) by June
                              30,   1999,   develop   a   Business    Resumption
                              Contingency  Plan;  (ix) by no later than June 30,
                              1999, have in place mission-critical  systems that
                              are Year 2000 ready;  (x) for so long as the order
                              is in effect,  acquire or contract  for the use of
                              electronic information systems hardware, operating
                              systems,  and  applications  software only if this
                              hardware,   systems,   and   software   have  been
                              successfully tested for Year 2000 readiness;  (xi)
                              by April 1999, perform due diligence reviews to


                                      F-61
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

17.  Regulatory Matters       Cease  and  Desist  Order by the  Federal  Deposit
     and Capital              Insurance  Corporation  and California  Department
     Adequacy and             of Corporations 
     Subsequent Events
     (continued)              determine   whether   the  Year   2000   readiness
                              procedures  of its service  providers and software
                              vendors, and the time frames for implementation of
                              those procedures, are adequate; (xii) by March 31,
                              1999,    implement   an   internal    testing   or
                              verification process;  (xiii) in March 1999, amend
                              its  internal  and  external   audit  policies  to
                              require  periodic audits of the Year 2000 Plan and
                              its  implementation;  (xiv) provide monthly status
                              reports to Pacific Thrift's Board of Directors.

                              Noncompliance  with the terms of the 1998 Order or
                              1999  Order  could  result in  various  regulatory
                              actions,  including the  assessment of civil money
                              penalties,  termination of deposit insurance,  and
                              placing  Pacific  Thrift  in   conservatorship  or
                              receivership.   Management  expects  that  Pacific
                              Thrift will  continue  to work toward  substantial
                              compliance with the 1998 Order and the 1999 Order,
                              however there is no assurance  Pacific Thrift will
                              be able to fully comply with these  Orders.  These
                              financial statements do not include any provisions
                              or adjustments  that might result from the outcome
                              of these uncertainties.

                              Capital Adequacy

                              Pacific  Thrift is subject  to various  regulatory
                              capital  requirements  administered  by the  FDIC.
                              Failure to meet minimum capital  requirements  can
                              initiate    certain    mandatory    and   possibly
                              discretionary  -  actions  by the  FDIC  that,  if
                              undertaken, could have a direct material effect on
                              the   Company's    financial    statements.    The
                              regulations   require   Pacific   Thrift  to  meet
                              specific capital adequacy  guidelines that involve
                              quantitative  measures of Pacific Thrift's assets,
                              liabilities,  and certain  off-balance-sheet items
                              as   calculated   under   regulatory    accounting
                              practices. Pacific Thrift's capital classification
                              is also  subject to  qualitative  judgments by the
                              regulators about components,  risk weightings, and
                              other  factors.  At  December  31,  1998,  Pacific
                              Thrift   did  not   meet   the   minimum   capital
                              requirements   to   be   considered    "adequately
                              capitalized" by the FDIC.


                                      F-62
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

17.  Regulatory Matters       Capital Adequacy (Continued)
     and Capital
     Adequacy and             Quantitative measures established by regulation to
     Subsequent Events        ensure capital  adequacy require Pacific Thrift to
     (continued)              maintain  minimum  amounts  and  ratios  of Tier 1
                              capital (as defined in the regulations) to average
                              assets  (as  defined),  and  Tier  1  capital  (as
                              defined) to risk-weighted  assets (as defined) and
                              total capital (as defined) to risk weighted assets
                              (as   defined).   To  be   considered   adequately
                              capitalized as defined under the Prompt Corrective
                              Action  (PCA)  provisions  of the Federal  Deposit
                              Insurance  Corporation  Improvement  Act of  1991,
                              Pacific  Thrift must  maintain  the minimum Tier 1
                              leverage, Tier 1 risk-based,  and total risk-based
                              ratios.

                              According to the following capital ratios, Pacific
                              Thrift   is    categorized    as    "Significantly
                              Undercapitalized"   at   December   31,  1998  and
                              "Undercapitalized"  at December 31, 1997 according
                              to the prompt corrective action provisions of Part
                              325 of Federal Deposit Insurance Corporation Rules
                              and Regulations.

                                             (Dollar Amounts in Thousands)
                                       ----------------------------------------
                                                           For Required Capital
                                            Actual           Adequacy Purposes
                                       -----------------    -------------------
                                       Amount      Ratio     Amount       Ratio
   ----------------------------------------------------------------------------

   As of December 31, 1998

   Total capital (to risk weighted
       assets)                         $14,149      3.6%    $31,403       8.0%
   Tier 1 capital (to risk weighted
       assets)                         $12,773      3.2%    $15,701       4.0%
   Tier 1 capital (to average          $12,733      6.9%    $ 7,403       4.0%
       assets)

   As of December 31, 1997

   Total capital (to risk weighted
       assets)                         $21,697      8.1%    $21,479       8.0%
   Tier 1 capital (to risk weighted
       assets)                         $18,925      7.1%    $10,740       4.0%
   Tier 1 capital (to average          $18,967     12.8%    $ 5,907       4.0%
       assets)
   ============================================================================

                              As of April 9, 1999 Pacific Thrift has not met the
                              capital requirements specified in the 1998 order.

                              Other Subsequent Events

                              In  January  1999,  the  employment  of its Senior
                              Executive   Vice  President  who  also  served  as
                              President and Chief  Operating  Officer of Pacific
                              Thrift was terminated.  The Company entered into a
                              negotiated  separation  agreement with the officer
                              dated as of March 9, 1999 which  provided  for the
                              officer to receive an unsecured  note for $475,000
                              payable over two years beginning  January 1, 2002.
                              Pacific Thrift entered into a consulting agreement
                              with the former  officer dated March 9, 1999 which
                              provides for a consulting fee of $10,000 per month
                              for six  months.  Both  agreements  are subject to
                              approval  of the  FDIC  which  has  not  yet  been
                              received.

                              On April 9, 1999,  Pacific  Thrift entered into an
                              employment  agreement  with its new  President and
                              Chief Executive  Officer.  The agreement  provides
                              for a term of one  year,  with  automatic  renewal
                              successive  one year  terms  unless  either  party
                              notifies  the other of  nonrenewal  60 days before
                              expiration of the current term.  This agreement is
                              subject to approval of the FDIC.




                                      F-63
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                      Notes to Consolidated Financial Statements

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

18.  Business                 The  Company's  loans  held  for  sale  and  loans
     Concentrations and       receivable consist of mortgage loans to borrowers,
     Off Balance Sheet        primarily  secured by first or second  trust deeds
     Risk                     on   California   real   estate.   The  loans  are
                              collateralized   by  the   borrowers   equity   in
                              single-family  residential and other types of real
                              estate.  Loans are expected to be repaid either by
                              cash from the  borrower at maturity or by borrower
                              refinancing. The Company would incur a loss in the
                              amount of the loan balance  plus accrued  interest
                              to the extent of any collateral deficiency.

                              The Company  has a  significant  concentration  in
                              interest-only    strips   receivable   which   are
                              dependant  on   performance   of  the   underlying
                              mortgages held by the securitization trust.

                              During 1998,  the Company's loan  origination  and
                              purchase  volume was  concentrated  in California,
                              Washington, New York, New Jersey and Florida. Upon
                              securitization,  an  estimate  of  credit  loss is
                              computed based on the estimated default rate.

                              The Company currently  contracts for the servicing
                              of all loans it  originates,  purchases  and holds
                              for sale with Advanta. This arrangement allows the
                              Company  to  increase   the  volume  of  loans  it
                              originates  and  purchases  without  incurring the
                              overhead  investment in servicing  operations.  As
                              with any external service provider, the Company is
                              subject to risks  associated  with  inadequate  or
                              untimely  services.  The Company regularly reviews
                              the delinquency of its servicing portfolio.

                              Many of the Company's  borrowers  require  notices
                              and  reminders to keep their loans  current and to
                              prevent   delinquencies   and   foreclosures.    A
                              substantial increase in the Company's  delinquency
                              rate or foreclosure  rate could  adversely  affect
                              its  ability  to  profitably  access  the  capital
                              markets  for its  financing  needs.  Although  the
                              Company  periodically  reviews the cost associated
                              with establishing  servicing operations to service
                              the loans it originates and  purchases,  it has no
                              plans   to   establish   and   perform   servicing
                              operations at this time.


                                      F-64
<PAGE>


                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                                                      Schedule I
                                     Consolidating Schedule - Financial Position
                                                               December 31, 1998

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

<TABLE>
<CAPTION>
                                             Pacific-    Pacific      Pacific-     Pacific-       Reclassifying and
                                             America      Thrift      America      America       Eliminating Entries
                                              Money      and Loan      Money      Securities,  ----------------------
                                             Center      Company   Centers, Inc.     Inc.        Dr          Cr        Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>          <C>        <C>         <C>           <C>
Assets

Cash and cash equivalents                $   304,000   $ 41,312,000   $195,000     $   --     $      --   $        --   $ 41,811,000

Cash - restricted                                 --        454,000    128,000         --            --            --        582,000

Accounts receivables                              --        132,000         --         --            --            --        132,000

Accrued interest receivable                       --      1,315,000         --         --            --            --      1,315,000

Refundable income taxes                           --             --         --         --            --            --             --

Receivable from related parties              134,000         81,000         --      1,000            --         1,000        215,000

Loans held for sale                               --     72,814,000         --         --            --            --     72,814,000

Loans receivable                              14,000      9,430,000         --         --            --            --      9,444,000

Other real estate                                 --        218,000      1,000         --            --            --        219,000

Interest-only strip receivable            67,023,000     49,605,000         --         --            --            --    116,628,000

Property and equipment                        56,000      4,345,000     20,000         --            --            --      4,421,000

Deferred tax asset                         8,429,000             --         --         --            --     8,429,000             --

Other assets                                 466,000      2,089,000     78,000         --            --            --      2,633,000

Investments in subsidiaries               12,922,000             --         --         --            --    12,922,000             --
------------------------------------------------------------------------------------------------------------------------------------
                                         $89,349,000   $181,794,000   $422,000     $1,000     $      --   $21,352,000   $250,214,000
====================================================================================================================================
</TABLE>

See report of independent certified public accountants and notes to consolidated
financial statements.


                                      F-65
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                                                      Schedule I
                                     Consolidating Schedule - Financial Position
                                                               December 31, 1998

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

<TABLE>
<CAPTION>
                                     Pacific-      Pacific         Pacific-      Pacific-       Reclassifying and
                                     America        Thrift         America       America       Eliminating Entries
                                      Money        and Loan         Money       Securities,  ----------------------
                                   Center Inc.     Company      Centers, Inc.      Inc.          Dr            Cr      Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>            <C>             <C>            <C>         <C>          <C>           <C>
Liabilities and Stockholders'
Equity

Thrift certificates payable
   Fully-paid certificates        $        --    $132,618,000    $        --    $      --   $        --  $        --   $132,618,000
   Installment certificates                --      29,692,000             --           --            --           --     29,962,000
------------------------------------------------------------------------------------------------------------------------------------

Total thrift certificates payable          --     162,310,000             --           --            --           --    162,310,000

Accounts payable and accrued        2,464,000       2,307,000        232,000           --            --           --      5,003,000
expenses

Accrued interest payable            2,795,000         508,000             --           --            --           --      3,303,000

Payable to related party               (1,000)             --          1,000           --            --           --             --

Notes payable                      52,958,000              --             --           --            --           --     52,958,000

Notes payable - officer               174,000              --             --           --            --           --        174,000

Deferred income taxes, net          5,678,000       3,936,000             --           --     8,429,000           --      1,185,000
------------------------------------------------------------------------------------------------------------------------------------

Total liabilities                  64,068,000     169,061,000        233,000           --     8,429,000           --    224,933,000
------------------------------------------------------------------------------------------------------------------------------------

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

Stockholders' equity:
   Common stock                        52,000       3,000,000          3,000        1,000     3,004,000           --         52,000
   Additional paid-in capital      28,460,000      10,104,000      3,987,000           --    14,091,000           --     28,460,000
   Retained earnings               (3,231,000)       (371,000)    (3,801,000)          --     7,513,000   11,685,000     (3,231,000)
    (accumulated deficit)
------------------------------------------------------------------------------------------------------------------------------------

Total stockholders' equity         25,281,000      12,733,000        189,000        1,000    24,608,000   11,685,000     25,281,000
------------------------------------------------------------------------------------------------------------------------------------

                                  $89,349,000    $181,794,000    $   422,000    $   1,000   $33,037,000  $11,685,000   $250,214,000
====================================================================================================================================
</TABLE>


See report of independent certified public accountants and notes to consolidated
financial statements.


                                      F-66
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                                                     Schedule II
                                             Consolidating Schedule - Operations
                                                    Year Ended December 31, 1998

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

<TABLE>
<CAPTION>
                                             Pacific-       Pacific      Pacific-    Pacific-      Reclassifying and
                                             America         Thrift      America     America      Eliminating Entries
                                              Money         and Loan      Money     Securities,  ---------------------
                                           Center Inc.      Company    Centers, Inc.    Inc.        Dr           Cr     Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>           <C>          <C>       <C>          <C>          <C>
Interest income
   Loans receivable                       $     37,000    $12,079,000   $  81,000    $    --   $       --   $3,842,000   $16,039,000
   Deposits with financial position                 --        621,000          --         --           --           --       621,000
------------------------------------------------------------------------------------------------------------------------------------

Total interest income                           37,000     12,700,000      81,000         --           --    3,842,000    16,660,000
------------------------------------------------------------------------------------------------------------------------------------

Interest expense
   Thrift certificates greater than $100,000        --        120,000          --         --           --           --       120,000
   Other thrift certificates                        --      8,098,000          --         --           --           --     8,098,000
   Notes payable and warehouse financing     3,154,000             --          --         --    3,842,000           --     6,996,000
------------------------------------------------------------------------------------------------------------------------------------

Total interest expense                       3,154,000      8,218,000          --         --    3,842,000           --    15,214,000
------------------------------------------------------------------------------------------------------------------------------------

Net interest expense                         3,117,000      4,482,000      81,000         --           --           --     1,446,000

Provision for loan losses                      (65,000)     1,536,000    (157,000)        --           --           --     1,314,000
------------------------------------------------------------------------------------------------------------------------------------

Net interest income (loss) after
   provision for loan losses                (3,052,000)     2,946,000     238,000         --   (3,842,000)   3,842,000       132,000
------------------------------------------------------------------------------------------------------------------------------------

Noninterest income
   Other income                                159,000        768,000      79,000         --           --           --     1,006,000
   Gain (loss) on sale of loans            (17,577,000)    50,831,000    (472,000)        --           --           --    32,782,000
   Loan servicing fees                              --         71,000          --         --       71,000           --            --
   Equity in income of subsidiaries         (7,772,000)            --          --         --           --    7,772,000            --
------------------------------------------------------------------------------------------------------------------------------------

Total noninterest income                   (25,190,000)    51,670,000    (393,000)        --       71,000    7,772,000    33,788,000
====================================================================================================================================
</TABLE>

See report of independent certified public accountants and notes to consolidated
financial statements.


                                      F-67
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                                                     Schedule II
                                             Consolidating Schedule - Operations
                                                    Year Ended December 31, 1998
                                                                     (Continued)

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

<TABLE>
<CAPTION>
                                            Pacific-       Pacific        Pacific-    Pacific-    Reclassifying and
                                            America         Thrift        America     America    Eliminating Entries
                                             Money         and Loan        Money     Securities, -------------------
                                          Center Inc.      Company      Centers, Inc.   Inc.       Dr            Cr   Consolidated
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>             <C>           <C>    <C>          <C>         <C>
Noninterest expense
   Salaries and employee benefits          1,194,000      32,597,000        375,000     --           --           --    34,166,000
   General and administrative expenses     2,574,000      24,871,000        277,000     --           --       71,000    27,651,000
   Occupancy expense                         749,000       2,141,000         57,000     --           --           --     2,947,000
   Operations of other real estate                --         153,000        (29,000)    --           --           --       124,000
   Depreciation and amortization              31,000         941,000          2,000     --           --           --       974,000
   Restructuring charge                      896,000       2,576,000         64,000     --           --           --     3,536,000
-----------------------------------------------------------------------------------------------------------------------------------

Total noninterest expense                  5,444,000      63,279,000        746,000     --           --       71,000    69,398,000
-----------------------------------------------------------------------------------------------------------------------------------

Income (loss) before income taxes        (33,686,000)     (8,663,000)      (901,000)    --    3,913,000   11,685,000   (35,478,000)

Income tax expense (benefit)               9,198,000       2,471,000       (679,000)    --           --           --    10,990,000
-----------------------------------------------------------------------------------------------------------------------------------

Net income                              $ 24,488,000   $ (6,192,000)    $(1,580,000)  $ --   $3,913,000  $11,685,000  $(24,488,000)
===================================================================================================================================
</TABLE>

See report of independent certified public accountants and notes to consolidated
financial statements.


                                      F-68
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                                                    Schedule III
                                     Consolidating Schedule - Financial Position
                                                               December 31, 1997

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

<TABLE>
<CAPTION>
                                         Pacific-      Pacific      Pacific-     Pacific-      Reclassifying and
                                         America        Thrift      America      America      Eliminating Entries
                                          Money        and Loan      Money      Securities,  ----------------------
                                       Center Inc.     Company    Centers, Inc.    Inc.          Dr           Cr        Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>            <C>          <C>        <C>           <C>            <C>
Assets

Cash and cash equivalents            $  4,020,000   $ 61,004,000   $  903,000   $     --   $        --   $         --   $ 65,927,000

Cash - restricted                              --        133,000       30,000                                                163,000

Receivables                               140,000      1,305,000      164,000         --            --         77,000      1,532,000

Accrued interest receivable                    --      1,174,000      100,000         --            --             --      1,274,000

Refundable income taxes                        --        222,000           --         --            --             --        222,000

Receivable from related parties           198,000      1,968,000        7,000      1,000            --      2,091,000         83,000

Notes receivable                        1,015,000             --           --         --            --             --      1,015,000

Loans held for sale                            --     35,280,000           --         --            --             --     35,280,000

Loans receivable                          542,000     19,646,000      441,000         --            --             --     20,629,000

Other real estate                              --      1,718,000      310,000         --            --             --      2,028,000

Interest-only strip receivable         61,132,000     33,292,000           --         --            --             --     94,424,000

Property and equipment                     50,000      3,543,000        3,000         --            --             --      3,596,000

Other assets                              481,000      1,150,000       62,000         --            --             --      1,693,000

Investments in subsidiaries            20,610,000             --           --         --            --     20,610,000             --
------------------------------------------------------------------------------------------------------------------------------------

                                     $ 88,188,000   $160,435,000   $2,020,000   $  1,000   $        --   $ 22,778,000   $227,866,000
====================================================================================================================================
</TABLE>

See report of independent certified public accountants and notes to consolidated
financial statements.


                                      F-69
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                                                    Schedule III
                                     Consolidating Schedule - Financial Position
                                                               December 31, 1997

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

<TABLE>
<CAPTION>
                                    Pacific-      Pacific       Pacific-      Pacific-         Reclassifying and
                                    America        Thrift       America       America         Eliminating Entries
                                     Money        and Loan       Money       Securities,   --------------------------
                                  Center Inc.     Company     Centers, Inc.     Inc.            Dr            Cr        Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>            <C>            <C>            <C>           <C>           <C>            <C>
Liabilities and Stockholders'
Equity

Thrift certificates payable
   Fully-paid certificates      $         --   $113,731,000   $        --    $        --   $        --   $         --   $113,731,000
   Installment certificates               --     18,793,000            --             --            --             --     18,793,000
------------------------------------------------------------------------------------------------------------------------------------

Total thrift certificates                 --    132,524,000            --             --            --             --    132,524,000
payable

Accounts payable and accrued       3,309,000      2,237,000       575,000             --            --             --      6,121,000
expenses

Accrued interest payable                  --        370,000            --             --            --             --        370,000

Payable to related party           1,728,000             --       440,000             --     2,168,000             --             --

Notes payable                     28,318,000             --            --             --            --             --     28,318,000

Deferred income taxes, net         6,447,000      6,379,000      (679,000)            --            --             --     12,147,000
------------------------------------------------------------------------------------------------------------------------------------

Total liabilities                 39,802,000    141,510,000       336,000             --     2,168,000             --    179,480,000
------------------------------------------------------------------------------------------------------------------------------------

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

Stockholders' equity:
   Common stock                       50,000      3,000,000     2,920,000          1,000     5,921,000             --         50,000
   Additional paid-in capital     27,079,000     10,104,000            --             --    10,104,000             --     27,079,000
   Retained earnings              21,257,000      5,821,000      (468,000)            --    10,551,000      5,198,000     21,257,000
------------------------------------------------------------------------------------------------------------------------------------

Total stockholders' equity        43,386,000     18,925,000     2,452,000          1,000    26,576,000      5,198,000     48,386,000
------------------------------------------------------------------------------------------------------------------------------------

                                $ 88,188,000   $160,435,000   $ 2,788,000    $     1,000   $28,744,000   $  5,198,000   $227,866,000
====================================================================================================================================
</TABLE>

See report of independent certified public accountants and notes to consolidated
financial statements.


                                      F-70
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                                                     Schedule IV
                                             Consolidating Schedule - Operations
                                                    Year Ended December 31, 1997

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

<TABLE>
<CAPTION>
                                              Pacific-       Pacific      Pacific-      Pacific-     Reclassifying and
                                              America         Thrift      America       America     Eliminating Entries
                                               Money         and Loan      Money       Securities,  -------------------
                                            Center Inc.      Company    Centers, Inc.     Inc.        Dr         Cr     Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>           <C>          <C>       <C>           <C>        <C>
Interest income
   Loans receivable                        $    800,000    $10,165,000   $ 368,000    $    --   $        --   $374,000   $11,707,000
   Deposits with financial position                  --        397,000          --         --            --         --       397,000
------------------------------------------------------------------------------------------------------------------------------------

Total interest income                           800,000     10,562,000     368,000         --            --         --    12,104,000
------------------------------------------------------------------------------------------------------------------------------------

Interest expense
   Thrift certificates greater                       --         50,000          --         --            --         --        50,000
than $100,000
   Other thrift certificates                         --      5,457,000          --         --            --         --     5,457,000
   Notes payable                              1,023,000             --      10,000         --       374,000         --     1,407,000
------------------------------------------------------------------------------------------------------------------------------------

Total interest expense                        1,023,000      5,507,000      10,000         --            --         --     6,914,000
------------------------------------------------------------------------------------------------------------------------------------

Net interest income (expense)                  (223,000)     5,055,000     358,000         --            --         --     5,190,000

Provision for loan losses                        41,000      3,429,000    (383,000)        --            --         --     3,087,000
------------------------------------------------------------------------------------------------------------------------------------

Net interest income (loss) after
   provision for loan losses                   (264,000)     1,626,000     741,000         --            --         --     2,103,000
------------------------------------------------------------------------------------------------------------------------------------

Noninterest income
   Other income                                   7,000        263,000      75,000         --            --         --       345,000
   Gain on sale of loans                     27,726,000     53,984,000          --         --            --         --    81,710,000
   Loan servicing fees                               --        145,000          --         --       145,000         --            --
   Equity in income of subsidiaries          11,052,000             --          --         --    11,052,000         --            --
------------------------------------------------------------------------------------------------------------------------------------

Total noninterest income                     38,785,000     54,392,000      75,000         --    11,197,000         --    82,055,000
====================================================================================================================================
</TABLE>

See report of independent certified public accountants and notes to consolidated
financial statements.


                                      F-71
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                                                     Schedule IV
                                             Consolidating Schedule - Operations
                                                    Year Ended December 31, 1997
                                                                     (Continued)

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

<TABLE>
<CAPTION>
                                              Pacific-       Pacific      Pacific-      Pacific-     Reclassifying and
                                              America         Thrift      America       America     Eliminating Entries
                                               Money         and Loan      Money       Securities,  -------------------
                                            Center Inc.      Company    Centers, Inc.     Inc.        Dr         Cr     Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>            <C>     <C>           <C>          <C>
Noninterest expense
   Salaries and employee benefits            4,022,000    24,303,000     1,132,000       --            --           --    29,457,000
   General and administrative                4,703,000    17,473,000       383,000       --            --      145,000    22,414,000
expenses
   Occupancy expense                           208,000     1,479,000        38,000       --            --           --     1,725,000
   Operations of other real estate                  --       303,000       141,000       --            --           --       444,000
   Depreciation and amortization                25,000       530,000            --       --            --           --       555,000
------------------------------------------------------------------------------------------------------------------------------------

Total noninterest expense                    8,958,000    44,088,000     1,694,000       --            --      145,000    54,595,000
------------------------------------------------------------------------------------------------------------------------------------

Income (loss) before income taxes           29,563,000    11,930,000      (878,000)      --    11,197,000      145,000    29,563,000

Income tax expense (benefit)                12,468,000     5,053,000       (46,000)      --        46,000    5,053,000    12,468,000
------------------------------------------------------------------------------------------------------------------------------------

Net income                                 $17,095,000   $ 6,877,000   $  (832,000)   $  --   $11,243,000   $5,198,000   $17,095,000
====================================================================================================================================
</TABLE>

See report of independent certified public accountants and notes to consolidated
financial statements.


                                      F-72
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                                                      Schedule V
                                             Consolidating Schedule - Operations
                                                    Year Ended December 31, 1996

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

<TABLE>
<CAPTION>
                                            Pacific-      Pacific                    Lenders      Consolidated
                                            America       Thrift     Consolidated   Posting and   Reconveyance    Pacific-
                                             Money       and Loan    Reconveyance   Publishing    Corporation,    America
                                          Center Inc.     Company      Company       Company           WA         Lending
-----------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>           <C>            <C>              <C>         <C>
Interest income
   Loans receivable                       $  614,000   $10,256,000   $       --     $     --         $    --     $ 304,000
   Deposits with financial institutions        4,000       324,000           --           --              --            --
-----------------------------------------------------------------------------------------------------------------------------

Total interest income                        618,000    10,580,000           --           --              --       304,000
-----------------------------------------------------------------------------------------------------------------------------

Interest expense
   Thrift certificates greater than $100,000      --        23,000           --           --              --            --
   Other thrift certificates                      --     4,391,000           --           --              --            --
   Notes payable                             418,000            --           --           --              --       134,000
-----------------------------------------------------------------------------------------------------------------------------

Total interest expense                       418,000     4,414,000           --           --              --       134,000
-----------------------------------------------------------------------------------------------------------------------------

Net interest income                          200,000     6,166,000           --           --              --       170,000

Provision for loan losses                    150,000     1,277,000           --           --              --      (276,000)
-----------------------------------------------------------------------------------------------------------------------------

Net interest income (loss) after
   provision for loan losses                  50,000     4,889,000           --           --              --       446,000
-----------------------------------------------------------------------------------------------------------------------------

Noninterest income
   Trust and reconveyance fees                    --            --    2,844,000           --          11,000            --
   Other income                               63,000       614,000           --      410,000              --       100,000
   Gain on sale of loans                     925,000    28,292,000           --           --              --            --
   Loan servicing fees                            --       199,000           --           --              --            --
   Equity in income of subsidiaries        8,226,000            --           --           --              --            --
-----------------------------------------------------------------------------------------------------------------------------

Total noninterest income                   9,214,000    29,105,000    2,844,000      410,000          11,000       100,000
-----------------------------------------------------------------------------------------------------------------------------


<CAPTION>
                                                Eliminating Entries
                                             -------------------------
                                                  Dr            Cr          Consolidated
----------------------------------------------------------------------------------------
<S>                                          <C>           <C>               <C>
Interest income
   Loans receivable                          $        --   $        --       $11,174,000
   Deposits with financial institutions               --            --           328,000
----------------------------------------------------------------------------------------

Total interest income                                 --            --        11,502,000
----------------------------------------------------------------------------------------

Interest expense
   Thrift certificates greater than $100,000          --            --            23,000
   Other thrift certificates                          --            --         4,391,000
   Notes payable                                      --            --           552,000
----------------------------------------------------------------------------------------

Total interest expense                                --            --         4,966,000
----------------------------------------------------------------------------------------

Net interest income                            6,536,000

Provision for loan losses                             --            --         1,151,000
----------------------------------------------------------------------------------------

Net interest income (loss) after
   provision for loan losses                          --            --         5,385,000
----------------------------------------------------------------------------------------

Noninterest income
   Trust and reconveyance fees                 2,855,000            --                --
   Other income                                  410,000            --           777,000
   Gain on sale of loans                              --            --        29,217,000
   Loan servicing fees                           199,000            --                --
   Equity in income of subsidiaries            8,226,000            --                --
----------------------------------------------------------------------------------------

Total noninterest income                      11,690,000            --        29,994,000
----------------------------------------------------------------------------------------
</TABLE>


                                      F-73
<PAGE>

                                               PacificAmerica Money Center, Inc.
                                                                and Subsidiaries

                                                                      Schedule V
                                             Consolidating Schedule - Operations
                                                    Year Ended December 31, 1996
                                                                     (Continued)

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

<TABLE>
<CAPTION>
                                            Pacific-      Pacific                    Lenders      Consolidated
                                            America       Thrift     Consolidated   Posting and   Reconveyance    Pacific-
                                             Money       and Loan    Reconveyance   Publishing    Corporation,    America
                                          Center Inc.     Company      Company       Company           WA         Lending
---------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>            <C>            <C>             <C>         <C>
Noninterest expense
   Salaries and employee benefits            672,000    13,929,000     1,715,000      151,000             --        21,000
   General and administrative              2,977,000     7,933,000       782,000      142,000          1,000       145,000
   Occupancy expense                          27,000       934,000       165,000           --             --         3,000
   Related party fees                      1,071,000            --            --           --             --            --
   Operations of other real estate           102,000       465,000            --           --             --       114,000
   Depreciation and amortization             339,000       375,000        29,000           --             --            --
   Loss on disposal of business segment      928,000            --            --           --             --            --
---------------------------------------------------------------------------------------------------------------------------

Total noninterest expense                  6,116,000    23,636,000     2,691,000      293,000          1,000       283,000
---------------------------------------------------------------------------------------------------------------------------

Income before income taxes                 3,148,000    10,358,000       153,000      117,000         10,000       263,000

Income tax expense (benefit)              (1,014,000)    3,304,000         2,000        2,000             --      (633,000)
---------------------------------------------------------------------------------------------------------------------------

Income from continuing operations          4,162,000     7,054,000       151,000      115,000         10,000       896,000

Loss from discontinued operations                 --            --            --           --             --            --
---------------------------------------------------------------------------------------------------------------------------

Net income                               $ 4,162,000   $ 7,054,000    $  151,000     $115,000        $10,000     $ 896,000
===========================================================================================================================


<CAPTION>
                                                Eliminating Entries
                                             -------------------------
                                                  Dr            Cr       Consolidated
-------------------------------------------------------------------------------------
<S>                                         <C>            <C>           <C>
Noninterest expense
   Salaries and employee benefits                    --     1,866,000      14,622,000
   General and administrative                        --     1,090,000      10,890,000
   Occupancy expense                                 --            --       1,129,000
   Related party fees                                --       199,000         872,000
   Operations of other real estate                   --            --         681,000
   Depreciation and amortization                     --        29,000         714,000
   Loss on disposal of business segment              --       928,000              --
-------------------------------------------------------------------------------------

Total noninterest expense                            --     4,112,000      28,908,000
-------------------------------------------------------------------------------------

Income before income taxes                   11,690,000     4,112,000       6,471,000

Income tax expense (benefit)                         --         3,000       1,658,000
-------------------------------------------------------------------------------------

Income from continuing operations            11,690,000     4,115,000       4,813,000

Loss from discontinued operations             3,917,000     3,266,000        (651,000)
-------------------------------------------------------------------------------------

Net income                                  $15,607,000    $7,381,000    $  4,162,000
=====================================================================================
</TABLE>

See report of independent certified public accountants and notes to consolidated
financial statements.


                                      F-74
<PAGE>


                                Index of Exhibits


Exhibit
Number         Description

3.1     Certificate of Incorporation  of the Company,  incorporated by reference
        to Exhibit 3.1 of the Company's  Registration  Statement on Form S-4, as
        filed with the Securities and Exchange  Commission on December 22, 1995,
        as amended and  declared  effective  on May 14, 1996 (the  "Registration
        Statement").

3.2     Bylaws of the Company,  incorporated  by reference to the Exhibit 3.2 of
        the Registration Statement.

4.1     Specimen Common Stock Certificate,  incorporated by reference to Exhibit
        4.1 of the Registration Statement.

10.1    Employment  Agreement  by and between  the Company and Joel R.  Schultz,
        dated as of  January 1, 1998 and  approved  by the  stockholders  at the
        Annual Meeting held June 12, 1998.

10.2    Employment   Agreement   by  and  between  the  Company  and  Norman  A.
        Markiewicz,   incorporated   by   reference   to  Exhibit  10.4  of  the
        Registration Statement.

10.3    Employment  Agreement  by and between the Company and Richard B. Fremed,
        incorporated by reference to Exhibit 10.5 of the Registration Statement.

10.4    Employment  Agreement  by and between the Company and Charles J. Siegel,
        incorporated by reference to Exhibit 10.7 of the Company's Annual Report
        on Form 10-K for the year ended December 31, 1996 ("1996 10-K").

10.5    Form of Indemnification Agreement by and between the Company and each of
        its  directors  and  executive  officers,  incorporated  by reference to
        Exhibit 10.7 of the Registration Statement.

10.6    Stock Option Plan of the Company, dated January 1, 1996, incorporated by
        reference to Exhibit 10.8 of the Registration Statement.

10.7    Stock Purchase Plan of the Company, dated January 1, 1996,  incorporated
        by reference to Exhibit 10.9 of the Registration Statement.

10.8    Supplemental  Executive Retirement Plan of the Company, dated January 1,
        1996,  incorporated  by reference to Exhibit  10.10 of the  Registration
        Statement.

10.9    Master Loan  Purchase  Agreement  dated as of October 31,  1996,  by and
        between the  Company  and Aames  Capital  Corporation,  incorporated  by
        reference to Exhibit 10.1 of the  Company's  Report on Form 10-Q for the
        quarter ended September 30, 1996.

10.10   First and Second  Amendments  to Master Loan  Purchase  Agreement by and
        between the  Company  and Aames  Capital  Corporation,  incorporated  by
        reference to Exhibit 10.13 to 1996 10-K.

10.11   Amended and Restated  Corporate Finance  Agreement,  dated as of January
        27, 1997, by and among the Company,  Advanta Mortgage Conduit  Services,
        Inc.  and Advanta  Mortgage  Corp.  USA,  incorporated  by  reference to
        Exhibit 10.14 of the 1996 10-K.

10.12   Asset  and  Stock  Purchase  and  Sale  and  Assumption  of  Liabilities
        Agreement,  Secured Promissory Note and Security Agreement, all dated as
        of December  15,  1996,  among the  Company,  Consolidated  Reconveyance
        Company,   Lenders   Posting  and   Publishing   Company,   Consolidated
        Reconveyance  Corporation,  Consolidated  Reconveyance  Company, LLC and
        Lenders Posting and Publishing Company,  LLC,  incorporated by reference
        to Exhibit  10.1 of the  Company's  Report on Form 8-K for  December 31,
        1996.


                                       S-2

<PAGE>

10.13   Home Equity Loan Purchase  Agreement,  dated as of December 11, 1997, by
        and among the  Company,  Merrill  Lynch  Mortgage  Investors,  Inc.,  as
        depositor,  PacificAmerica  Home Equity  Loan Trust  Series  1997-1,  as
        issuer,  and Bankers  Trust  Company of  California,  N.A., as indenture
        trustee,  incorporated  by reference  to Exhibit  10.1 of the  Company's
        Report on Form 8-K for December 18, 1997 (the "December 1997 8-K").

10.14   Master  Assignment  Agreement,  dated as of December  18,  1997,  by and
        between  the  Company  and  Merrill  Lynch   Mortgage   Capital,   Inc.,
        incorporated by reference to Exhibit 10.2 of the December 1997 8-K.

10.15   Master  Repurchase  Agreement,  dated as of  October  31,  1997,  by and
        between  the  Company,  on the one  hand,  and  Merrill  Lynch  Mortgage
        Capital,  Inc. and Merrill Lynch Credit  Corporation on the other, which
        Agreement  includes,  without  limitation,  the  Supplemental  Terms and
        Conditions  attached  to and  incorporated  into the  Master  Repurchase
        Agreement,  incorporated  by  reference  to Exhibit 10.3 of the December
        1997 8-K.

10.16   Home Equity Loan Purchase Agreement,  dated as of March 19, 1998, by and
        among the Company, Merrill Lynch Mortgage Investors, Inc. ("Depositor"),
        PacificAmerica  Home Equity  Loan Trust  Series  1998-1,  as issuer (the
        "Trust"),  and Bankers Trust  Company of  California,  N.A.  ("Indenture
        Trustee"),  incorporated  by reference to Exhibit 10.1 of the  Company's
        Report on Form 8-K for March 25, 1998 (the "March 1998 8-K").

10.17   Indenture,  dated  as of  March  1,  1998,  between  the  Trust  and the
        Indenture  Trustee,  incorporated  by  reference  to Exhibit 10.2 of the
        March 1998 8-K. .

10.18   Amended and Restated Trust Agreement, dated as of March 1, 1998, between
        the  Depositor  and   Wilmington   Trust  Company   ("Owner   Trustee"),
        incorporated by reference to Exhibit 10.3 of the March 1998 8-K.

10.19   Servicing  Agreement  dated March 1, 1998 by and among the Company,  the
        Indenture  Trustee and the Trust,  incorporated  by reference to Exhibit
        10.3 of the March 1998 8-K.

10.20   Home Equity Loan Purchase  Agreement,  dated as of June 22, 1998, by and
        among the Company, Merrill Lynch Mortgage Investors, Inc. ("Depositor"),
        PacificAmerica  Home Equity Loan Trust  Series  1998-2F,  as issuer (the
        "Trust"),  and Bankers Trust  Company of  California,  N.A.  ("Indenture
        Trustee"),  incorporated  by reference to Exhibit 10.1 of the  Company's
        Report on Form 8-K for June 25, 1998 (the "June 1998 8-K").

10.21   Indenture, dated as of June 1, 1998, between the Trust and the Indenture
        Trustee.

10.22   Amended and Restated Trust Agreement,  dated as of June 1, 1998, between
        the  Depositor  and   Wilmington   Trust  Company   ("Owner   Trustee"),
        incorporated by reference to Exhibit 10.2 of the June 1998 8-K.

10.23   Servicing  Agreement  dated June 1, 1998, by and among the Company,  the
        Indenture  Trustee and the Trust,  incorporated  by reference to Exhibit
        10.3 of the June 1998 8-K.

10.24   Secured  Promissory Note dated September 17, 1998 of the Company payable
        to Fremont Financial  Corporation,  incorporated by reference to Exhibit
        10.1 of the  Company's  Report on Form 8-K for  September  17, 1998 (the
        "September 1998 8-K").

10.25   Stock  Pledge  Agreement  between  the  Company  and  Fremont  Financial
        Corporation,  incorporated by reference to Exhibit 10.2 of the September
        1998 8-K.

21.1    Subsidiaries  of the Company,  incorporated by reference to Exhibit 21.1
        of the Company's 1997 10-K.

27      Financial Data Schedule


                                       S-2