<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             _____________________


                                   FORM 10-Q



       [X]   QUARTERLY Report Pursuant to Section 13 or 15(d) of The
                        Securities Exchange Act of 1934

                 For the quarterly period ended June 30, 1999

                                      OR

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

   For the transition period from ____________________ to __________________

                        Commission file number: 0-29668


                            HIGHLAND BANCORP, INC.
            (Exact name of Registrant as specified in its charter)


             Delaware                                 95-4654552
             (State or other jurisdiction of          (I.R.S. Employer
             incorporation or organization)           Identification Number)


             601 South Glenoaks Boulevard
             Burbank, California                      91502
             (Address of principal executive office)  (Zip Code)


      Registrant's telephone number, including area code: (818) 848-4265

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     .
                                       ---     ----

At August 6, 1999, 4,427,835 shares of the Registrant's common stock were
outstanding.
<PAGE>

                        PART 1.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

HIGHLAND BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollar amounts in thousands, except share data)

<TABLE>
<CAPTION>
                                                                            June 30,                 December 31,
                                                                              1999                       1998
                                                                         --------------             ---------------
<S>                                                                      <C>                        <C>
                     ASSETS
Cash and cash equivalents                                                $       33,172                      28,776
Securities available for sale                                                    69,544                      53,374
Securities held to maturity (fair value of $9,902 in 1999
  and $11,877 in 1998)                                                           10,091                      11,926
Loans receivable, net                                                           505,281                     483,694
Real estate acquired through foreclosure, net                                       468                         630
Federal Home Loan Bank stock - at cost                                            7,744                       7,545
Accrued interest receivable                                                       4,169                       4,205
Premises and equipment, net                                                       2,208                       2,300
Deferred income taxes, net                                                        4,826                       4,409
Other assets                                                                      7,959                       7,944
                                                                         ---------------            ----------------
                                                                         $      645,462                     604,803
                                                                         ===============            ================


          LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Deposits                                                               $      428,780                     388,047
  Federal Home Loan Bank advances                                               149,900                     150,900
  Securities sold under agreements to repurchase                                 10,000                      10,000
  Accounts payable and other liabilities                                          9,735                      10,416
  Income taxes payable                                                                -                       2,001
                                                                         ---------------            ----------------
         Total liabilities                                                      598,415                     561,364
                                                                         ---------------            ----------------

Shareholders' equity:
  Preferred stock - authorized 1,000,000 shares of $.01
    stated value; no shares issued                                                    -                           -
  Common stock - authorized 8,000,000 shares of $.01
    stated value, issued 4,662,348 shares in 1999 and
    2,331,174 shares in 1998                                                         47                          23
  Additional paid-in capital                                                     15,504                      16,279
  Retained earnings                                                              36,841                      32,952
  Treasury shares - 234,513 shares in 1999 and
    150,000 shares in 1998, at cost                                              (4,520)                     (5,800)
  Accumulated other comprehensive loss-unrealized
    losses on securities available-for-sale:                                       (825)                        (15)
                                                                         ---------------            ----------------
         Total shareholders' equity                                              47,047                      43,439
                                                                         ---------------            ----------------
                                                                         $      645,462                     604,803
                                                                         ===============            ================
</TABLE>

                                                                               2
<PAGE>

HIGHLAND BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                           Three months ended               Six months ended
                                                                June 30,                        June 30,
                                                        -------------------------      ---------------------------
                                                            1999           1998            1999            1998
                                                        ---------      ----------      ----------       ----------
<S>                                                     <C>            <C>             <C>              <C>
Interest income:
  Loans                                                 $  12,436          11,296          24,893           22,300
  Securities                                                1,164           1,236           2,300            2,473
                                                        ---------      ----------      ----------      -----------
         Total interest income                             13,600          12,532          27,193           24,773
                                                        ---------      ----------      ----------       ----------

Interest expense:
  Deposits                                                  4,618           4,731           9,153            9,312
  FHLB advances and other borrowings                        2,187           1,940           4,334            3,887
                                                        ---------      ----------      ----------      -----------
         Total interest expense                             6,805           6,671          13,487           13,199
                                                        ---------      ----------      ----------      -----------

         Net interest income                                6,795           5,861          13,706           11,574

Provision for losses on loans                                 600             860           1,318            1,800
                                                        ---------      ----------      ----------       ----------
         Net interest income after provision for
            losses on loans                                 6,195           5,001          12,388            9,774

Noninterest income:
  Gain on the sale of loans                                   169               -             169              276
  Gain on the sale of securities available for
     sale                                                       -               -               -               13
  Other                                                       498             483             967              973
                                                        ---------      ----------      ----------       ----------
         Total noninterest income                             667             483           1,136            1,262

Noninterest expense:
General & administrative expenses
  Compensation and benefits                                 2,578           1,370           4,052            2,754
  Occupancy and equipment                                     303             263             596              529
  FDIC insurance premiums                                      57              56             117              110
  Service bureau and related equipment rental                 180             164             341              294
  Other                                                       423             464             931              888
                                                        ---------      ----------      ----------      -----------
         Total general and administrative
            Expenses                                        3,541           2,317           6,037            4,575

  Income from operation of real estate
    acquired through foreclosure                              (80)           (126)            (83)            (111)
                                                        ---------      ----------      ----------      -----------
         Total noninterest expense                          3,461           2,191           5,954            4,464
                                                        ---------      ----------      ----------      -----------
         Income before income taxes                         3,401           3,293           7,570            6,572
Income taxes                                                1,408           1,365           3,129            2,720
                                                        ---------      ----------      ----------      -----------
         Net income                                         1,993           1,928           4,441            3,852
                                                        ---------      ----------      ----------      -----------
Other comprehensive income:
  Unrealized (losses) gains on securities
    available-for-sale                                     (1,186)            118          (1,226)             178
  Reclassification adjustment for gains (loss)
    included in income                                          -               -               -               11
  Income taxes on other comprehensive income
                                                              400             (41)            416              (65)
                                                        ---------      ----------      ----------      -----------

         Other comprehensive (loss) income, net
           of tax                                            (786)             77            (810)             124
                                                        ---------      ----------      ----------      -----------

Comprehensive income                                    $   1,207           2,005           3,631            3,976
                                                        =========      ==========      ==========      ===========
Basic net earnings per share                            $    0.45      $     0.41      $     1.01      $      0.82
                                                        =========      ==========      ==========      ===========
Diluted net earnings per share                          $    0.44      $     0.39      $     0.98      $      0.79
                                                        =========      ==========      ==========      ===========
</TABLE>

                                                                               3
<PAGE>

HIGHLAND BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
                                                                                Six months ended June 30,
                                                                          ------------------------------------
                                                                              1999                    1998
                                                                          ------------           -------------
<S>                                                                       <C>                    <C>
Net cash flows from operating activities:
    Net income                                                            $     4,441                  3,852
    Adjustments to reconcile net earnings to net cash provided by
     operating activities:
        Gain on sale of loans                                                    (169)                  (276)
        Gain on sale of securities available-for-sale                               -                    (13)
        Amortization of premiums on securities                                    104                    171
        Federal Home Loan Bank stock dividend                                    (199)                  (194)
        Deferred income taxes                                                       -                   (324)
        Gain on sale of real estate acquired through foreclosure, net             (72)                  (209)
        Deferred direct loan origination fees and costs, net                     (492)                  (222)
        Amortization of deferred compensation expense                               -                     64
        Provision for losses on loans                                           1,318                   1800
        Decrease (increase) in accrued interest receivable                         36                   (564)
        Depreciation                                                              233                    340
        Decrease (increase) in other assets                                       (15)                (1,330)
        Decrease in income taxes payable                                       (2,001)                (2,487)
        Increase in accounts payable and other liabilities                       (681)                 1,640
                                                                          -----------            -----------
            Net cash provided by operating activities                           2,503                  2,248
                                                                          -----------            -----------
Cash flows from investing activities:
        Purchases of securities available-for-sale                            (29,815)               (39,464)
        Sales and maturities of securities available-for-sale                  12,351                 16,974
        Principal payments on securities held-to-maturity                       1,798                  1,603
        Net increase in loans receivable                                      (28,930)               (26,227)
        Net costs capitalized on real estate acquired through
         foreclosure                                                              (81)                  (196)
        Proceeds from the sale of loans                                         6,285                  8,544
        Proceeds from the sale of real estate acquired through
         foreclosure                                                              716                  1,304
        Purchases of premises and equipment, net                                 (141)                  (329)
                                                                          -----------            -----------
            Net cash used in investing activities                             (37,817)               (37,791)
                                                                          -----------            -----------
Cash flows from financing activities:
        Net increase in deposits                                               40,733                 22,530
        Common stock options exercised, including tax benefit                   1,165                    197
        Dividends paid on common stock                                           (552)                  (582)
        Repurchase of treasury stock                                             (636)                     -
        Proceeds from FHLB advances                                            22,000                 25,000
        Repayments of FHLB advances                                           (23,000)               (36,500)
        Increase in securities sold under agreements to repurchase                  -                 10,000
                                                                          -----------            -----------
            Net cash provided by financing activities                          39,710                 20,645
                                                                          -----------            -----------
Increase (decrease) in cash and cash equivalents                                4,396                (14,898)
Cash and cash equivalents at beginning of year                                 28,776                 26,420
                                                                          -----------            -----------
Cash and cash equivalents at end of period                                $    33,172                 11,522
                                                                          ===========            ===========
Supplemental disclosures of cash flow information:
        Interest paid                                                     $    14,619                 13,706
        Income taxes paid                                                       5,100                  5,575
                                                                          ===========            ===========
Supplemental disclosure of noncash investing and financing activities:
        Acquisition of real estate in settlement of loans                 $       401                  1,669
        Loans made in conjunction with real estate sales                            -                    746
                                                                          ===========            ===========
</TABLE>

                                                                               4
<PAGE>

                     HIGHLAND BANCORP, INC. & SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                                 JUNE 30, 1999

NOTE A - BASIS OF PRESENTATION

The interim consolidated financial statements included herein have been prepared
by Highland Bancorp, Inc. (the "Company" or "Highland"), without audit, pursuant
to the rules and regulations of the Securities Exchange Act of 1934, as amended.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
the unaudited financial statements and notes thereto, reflect all adjustments,
including normal recurring adjustments, necessary for a fair presentation of the
financial condition and net income and comprehensive income and cash flows for
the interim periods presented. The financial condition at June 30, 1999, and net
income and comprehensive income for the three and six months ended June 30, 1999
are not necessarily indicative of income and comprehensive income that may be
expected for the year ending December 31, 1999. These unaudited financial
statements have been prepared in accordance with generally accepted accounting
principles on a basis consistent with the Company's audited financial
statements, and these interim financial statements should be read in conjunction
with the Company's audited financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.

Highland Bancorp, Inc. is the holding corporation for Highland Federal Bank and
its wholly owned subsidiaries, H.F.S. Corporation and Hi-Fed Insurance Agency
(collectively referred to as the "Bank"). The accounting and reporting policies
of the Company and the Bank conform to the prevailing practices within the
savings and loan industry. All significant intercompany balances and
transactions have been eliminated in consolidation.

NOTE B - EARNINGS PER SHARE

The following table reconciles the weighted average shares of common stock
outstanding used in the basic EPS calculation to that used in the diluted EPS
computation, as restated to reflect the 2 for 1 stock split, effected in the
form of a 100% stock dividend, paid on May 14, 1999 to shareholders of record as
of May 3, 1999.

                                                                               5
<PAGE>

<TABLE>
<CAPTION>
                                                       Three months ended                       Six months ended
                                                            June 30,                                June 30,
                                                ---------------------------------       ---------------------------------
                                                     1999              1998                  1999              1998
                                                ---------------------------------       ---------------------------------

<S>                                             <C>               <C>                   <C>               <C>
Basic EPS - weighted average number of
  shares used in computation                          4,403,335         4,655,582             4,393,916         4,648,670

Effect of dilutive securities - incremental
  shares from outstanding stock options                 122,757           232,502               114,935           230,260
                                                ---------------------------------       ---------------------------------
Diluted EPS - weighted average number of
  shares used in computation                          4,526,092         4,888,084             4,508,851         4,878,930
                                                =================================       =================================
</TABLE>


NOTE C - SUBSEQUENT EVENT

On July 19, 1999, the Board of Directors declared a 6.25 cent per share cash
dividend, payable to common stockholders of record as of July 30, 1999, to be
paid on or before August 13, 1999.

                                                                               6
<PAGE>

HIGHLAND BANCORP, INC. & SUBSIDIARIES


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Overview

The Company reported net income for the three and six months ended June 30,
1999, of $2.0 million, or $0.44 diluted earnings per share, and $4.4 million, or
$0.98 diluted earnings per share, respectively, compared to net income of $1.9
million, or $0.39 diluted earnings per share, and $3.9 million, or $0.79 diluted
earnings per share, for the three and six months ended June 30, 1998. Net
interest income for the three months ended June 30, 1999, increased 16% when
compared to the 1998 second quarter, and the six months ended June 30, 1999
recorded a 18% increase over the comparable 1998 period.

The Company reported general and administrative expenses of $3.5 million and
$6.0 million for the three and six months ended June 30, 1999, respectively,
compared to $2.3 million and $4.6 million for the comparable 1998 periods.
General and administrative expense as a percentage of average assets increased
to 2.28% and 1.96% for the three and six months ended June 30, 1999, compared to
1.65% and 1.64% for the comparable 1998 periods.


Net Interest Income

Net interest income varies based upon the difference (referred to as the
"interest rate spread") between (i) the yield on the Company's loan portfolio,
mortgage backed securities, investments and other interest-earning assets and
(ii) the rate paid by the Company on its deposits, borrowings and other
interest-bearing liabilities, as well as the relative amounts or volumes of the
Company's interest-earning assets and interest-bearing liabilities.

The following table indicates the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Company's total interest income and expense during the periods
indicated. Information is provided for each major component of interest-earning
assets and interest-bearing liabilities with respect to: (i) changes
attributable to changes in volume (changes in volume multiplied by prior rate);
(ii) changes attributable to rate (changes in rate multiplied by prior volume);
and (iii) the net change. The changes attributable to both volume and rate have
been allocated proportionately to the change due to volume and the change due to
rate.

                                                                               7
<PAGE>

<TABLE>
<CAPTION>
                                                   Three months ended June 30, 1999         Six months ended June 30, 1999
                                                       compared to three months                 compared to six months
                                                          ended June 30, 1998                     ended June 30, 1998
                                                      Increase (Decrease) due to              Increase (Decrease) due to
                                                   ----------------------------------       -------------------------------
                                                            (In thousands)                          (In thousands)
                                                    Volume        Rate          Net          Volume       Rate        Net
                                                   ----------------------------------       -------------------------------
<S>                                                <C>            <C>          <C>           <C>          <C>        <C>
Interest Income:
Loans                                              $  1,688       (548)        1,140          3,302       (709)      2,593
Mortgage-related securities                             161         32           193            353         30         383
Other securities                                       (230)       (35)         (265)          (461)       (95)       (556)
                                                   ----------------------------------       -------------------------------
Total interest income on interest-
  earning assets                                      1,619       (551)        1,068          3,194       (774)      2,420
                                                   ----------------------------------       -------------------------------
Interest Expense:
Deposits                                                 88       (201)         (113)           360       (519)       (159)
FHLB advances and other borrowings                      408       (161)          247            778       (331)        447
                                                   ----------------------------------        ------------------------------
Total interest expense on interest-
  bearing liabilities                                   496       (362)          134          1,138       (850)        288
                                                   ----------------------------------        ------------------------------
Change in net interest income                      $  1,123       (189)          934          2,056         76       2,132
                                                   ==================================        ==============================
</TABLE>


Net interest income for the three months ended June 30, 1999, was $6.8 million
compared to $5.9 million for the second quarter of 1998.  The increase in net
interest income for the three and six month periods ended June 30, 1999, is
almost entirely attributable to increased amounts of net loans receivable
outstanding in the respective 1999 periods compared with 1998.  The ratio of
average interest-earning assets to average interest-bearing liablities increased
to 108% and 106% for the three and six months ended June 30, 1999, compared to
104% and 103% for the comparable 1998 periods.  Additionally, for both 1999 and
1998, the Company has recognized interest income related to the amortization of
a deep discount of a small pool of real estate loans purchased in late 1996.
These loans will all mature in 1999.  Without the discount amortization on this
pool of loans, the yield earned by the Company would have been reduced by
approximately 9 basis points for the six months ended June 30, 1999.  The
Company's net interest margin for the quarter and six months ended June 30,
1999, was 4.64% and 4.60%, respectively, compared with a net interest margin of
4.46% and 4.41% for the same periods of 1998. The increase in the net interest
margin in the 1999 second quarter and six month periods, compared with the net
interest margin for the corresponding 1998 periods, is attributable principally
to decreases in the cost of the Company's interest bearing-liabilities, an
increase in the Company's ratio of interest-earning assets to interest-bearing
liabilities and continued high levels of loan prepayment penalties and
accelerated recognition of net deferred loan origination fees.

The Company's ability to continue to increase the size of its loan portfolio,
which creates a positive volume variance in net interest income, is dependent on
both economic and Bank regulatory issues.  The Bank's ability to make new
commercial real estate loans, which represented 53% of the new loan volume for
the six months ended June 30, 1999, is restricted by a regulatory limit on the
amount of total nonresidential real estate loans which cannot exceed a maximum
of 400% of the Bank's total regulatory capital.  At June 30, 1999, the Bank had
$21.2 million of additional nonresidential real estate lending capacity
available under the 400% of capital test.  The Bank is also subject to the
"Qualified Thrift Lender" ("QTL") test, which it must meet in order to retain
its ability to operate without restrictions as a savings institution, and which
places certain restrictions on the types of loans and investments that can be
held by the Bank.  Under the QTL test, the Bank must maintain a minimum of 65%
of its

                                                                               8
<PAGE>

assets in qualified thrift investments, which consist principally of residential
and small business loans and mortgage-backed securities. At June 30, 1999, the
Bank held 67.7% of its assets in qualified thrift investments.


The following table reflects activity in the Company's loan portfolio:


<TABLE>
<CAPTION>
                                                          For the six months ended June 30,
                                                    ------------------------------------------
                (In thousands)                                1999                  1998
                                                    ------------------------------------------
<S>                                                 <C>                           <C>
Net loans at beginning of period                    $       483,694               427,237

Loans originated:
  Real estate loans:
     One-to-four family                                           -                   600
     Multi-family                                            37,311                35,727
     Commercial                                              46,618                25,955
     Construction and land                                    3,774                11,547
     Commercial and consumer                                      -                     8
                                                    ------------------------------------------
            Total loans originated                           87,703                73,837

Less:
  Principal payments (including payoffs)                     58,773                45,565
  Loan sales                                                  6,116                 8,266
  Other, net                                                  1,227                 4,548
                                                    ------------------------------------------
Loans receivable, net                               $       505,281               442,695
                                                    ==========================================
</TABLE>


Provision and Allowance for Loan Losses

For the three and six months ended June 30, 1999, the Company's provision for
loan losses totaled $0.6 million and $1.3 million, respectively, compared to
$0.9 million and $1.8 million for the comparable periods in 1998.  The Company's
decreased provisions for the 1999 second quarter and six months compared with
the comparable 1998 periods reflect the reduced levels of loan charge-offs
during 1999 compared to 1998 and continued low levels of non performing loans as
a percentage of the Company's total loan portfolio, as well as Management's
assessment of risks associated with trends in economic and business conditions
in the Company's market.  At June 30, 1999, the Company's nonperforming assets,
consisting of nonaccrual loans and REO, totaled $3.4 million, compared to $6.1
million at June 30, 1998 and $3.0 million at December 31, 1998.  The Company's
allowance for loan losses as a percentage of gross loans receivable was 2.08% at
June 30, 1999, compared to 2.05% at June 30, 1998 and 2.01% at December 31,
1998.


                                                                               9
<PAGE>

The following table sets forth information regarding the Company's allowance for
loan losses at the dates and the periods indicated (in thousands):


<TABLE>
<CAPTION>

                                                       For the six             For the six              For the year
                                                      months ended            months ended                 ended
                                                      June 30, 1999           June 30, 1998          December 31, 1998
                                                   --------------------    --------------------   ------------------------
<S>                                                <C>                     <C>                     <C>
Balance at beginning of period                     $              9,909                   8,848                      8,848
Provision for loss                                                1,318                   1,800                      3,315
Chargeoffs:
   Real estate loans:
   One-to-four family                                                26                      57                         91
   Multi-family                                                     373                     613                      1,144
   Commercial                                                        30                     616                        968
   Construction and land                                              -                      47                         47
   Consumer                                                           -                       2                          4
                                                   --------------------    --------------------   ------------------------
            Total                                                   429                   1,335                      2,254
Recoveries:
   Multi-family                                                      40                       -                          -
                                                   --------------------    --------------------   ------------------------
Balance at end of period                           $             10,838                   9,313                      9,909
                                                   ====================    ====================   ========================
</TABLE>

While management believes that the allowance for loan losses at June 30, 1999,
was adequate to absorb the known and inherent risks in the loan portfolio, no
assurances can be given that future economic conditions which may adversely
affect the Company's market areas or other circumstances will not result in
increases in problem loans and future loan losses, which may not be covered
completely by the current allowance or may require provisions for loan losses in
excess of past provisions, which would have an adverse effect on the Company's
financial condition and results of operations.


The following table sets forth information regarding nonperforming assets and
certain ratios at the dates indicated (in thousands):


                                                                              10
<PAGE>

<TABLE>
<CAPTION>
                                                                                 As of              As of
                                                                             June 30, 1999    December 31, 1998
                                                                             -------------    -----------------
<S>                                                                          <C>              <C>
Nonaccrual loans:
Real estate:
    One-to-four family                                                       $       1,365                  526
    Multi-family                                                                       318                1,379
    Commercial                                                                       1,243                  423
  Consumer                                                                              37                   37
                                                                             -------------    -----------------
            Total                                                                    2,963                2,365
REO                                                                                    468                  630
                                                                             -------------    -----------------
            Total nonperforming assets                                       $       3,431                2,995
                                                                             =============    =================
Troubled debt restructurings                                                 $       2,938                3,017
                                                                             =============    =================
Allowance for loan losses as a percentage
  of gross loans receivable                                                           2.08%                2.01%
Nonaccrual loans as a percentage of
  gross loans receivable                                                              0.57%                0.48%
Nonperforming assets as a percentage
  of total assets                                                                     0.53%                0.50%
</TABLE>

Noninterest Income

Noninterest income for the three and six months ended June 30, 1999, was $0.7
million and $1.1 million, respectively, compared to $0.5 million and $1.3
million for the comparable periods of 1998.  The 1999 second quarter and six
months includes a $0.2 million gain on the sale of $6.1 million in loans, while
the 1998 six month period includes $0.3 million gain on sale of $8.3 million of
loans, which was recorded in the first quarter of 1998.  Recurring income for
both the three and six month periods is comparable at $0.5 million and $1.0
million for both years.

Noninterest Expense

General and administrative expense for the three and six months ended June 30,
1999, was $3.5 million and $6.0 million, respectively, compared to $2.3 million
and $4.6 million for the same periods in 1998. The ratio of general and
administrative expense to average assets for the three months ended June 30,
1999, was 2.28%, compared to 1.65% for the like period of 1998. The increase in
general and administrative expense for the second quarter of 1999 was due
primarily to a $1.2 million increase in compensation expense as a result of the
exercise of certain executives' stock options with a tax-offset cash bonus. This
was comprised of $0.3 million in cash bonuses paid and $0.9 million in stock
option compensation expense, representing the difference between the option
exercise price and the stock price on the dates these options were exercised.
The after tax expense of approximately $0.7 million, was offset by the $0.9
million increase to additional paid in capital from the exercise of these stock
options. Excluding these stock option costs, general and administrative expenses
were comparable between all the periods reported.

                                                                              11
<PAGE>

Income from real estate operations was comparable during the 1999 and 1998
periods, as small amounts of income were recorded on sales of real estate
acquired through foreclosure in excess of costs recognized during the periods.


Income Taxes

For the three months and six months ended June 30, 1999, the Company recorded
income taxes of $1.4 million and $3.1 million, compared to income taxes of $1.4
million and $2.7 million for the like periods in 1998.  Changes in the levels of
recorded income taxes are related to changes in the levels of the Company's
earnings before income taxes.

FINANCIAL CONDITION

Comparison of Financial Condition at June 30, 1999 and December 31, 1998

Total assets at June 30, 1999, were $645.5 million, compared to $604.8 million
at December 31, 1998.  The Company's cash and investment securities increased to
$112.8 million at June 30, 1999, from $94.1 million at December 31, 1998.  Loans
receivable increased $21.6 million during the six months ended June 30, 1999 as
a result of $87.7 million of new loan originations, which offset $58.8 million
amortization and prepayment of loans and $6.1 million in loans sold.  Total
liabilities at June 30, 1999 were $598.4 million compared to $561.4 million at
December 31, 1998.  This increase was due to a net increase in deposits of $40.7
million.  Shareholders' equity increased during the six months ended June 30,
1999, to $47.0 million, compared to $43.4 million at December 31, 1998,
reflecting $4.4 million of earnings for the period, and $0.5 million in treasury
stock and stock option-related transactions, offset by a $0.8 million increase
in unrealized loss on securities available for sale (net of tax) and $0.6
million dividends paid to the Company's common shareholders.


Liquidity

Liquidity refers to the Company's ability to maintain cash flow adequate to fund
operations and meet obligations and other commitments on a timely basis,
including the payment of maturing deposits and the origination or purchase of
new loan receivables. Deposits, loan repayments and prepayments, cash flows
generated from operations and Federal Home Loan Bank advances are the primary
sources of Highland's funds for use in lending, investing and for other general
purposes.

For the six months ended June 30, 1999, the growth in the investment and loan
portfolios was funded primarily by a $39.7 million net increase in deposits and
borrowings.

The Bank must, by regulation, maintain minimum levels of liquidity as a
percentage of deposits and short-term borrowings.  Effective November 24, 1998,
the Office of Thrift Supervision (OTS) reduced this requirement from 5% to 4%.
The OTS also excluded deposits with maturities exceeding one year from the
liquidity base, while expanding the types of investments considered to be liquid
assets.  The new rule includes a separate requirement

                                                                              12
<PAGE>

that each institution must maintain sufficient liquidity to ensure its safe and
sound operation. The Bank's average liquidity ratio for the six months ended
June 30, 1999 was 11.33%.

The liquidity of the parent company, Highland Bancorp, Inc., is dependent on
several factors, including the payment of cash dividends by its subsidiary,
Highland Federal Bank, or the ability to obtain borrowings.  Without dividends
from Highland Federal Bank, Highland Bancorp, Inc. must rely solely on existing
cash and cash equivalents, which total $0.9 million at June 30, 1999, or on the
ability to obtain borrowings to pay existing current liabilities and future
operating expenses.  The parent company's liquidity requirements are currently
limited to shareholder dividends when declared, and certain incidental
expenditures related to corporate obligations.  The parent company currently has
no separate operations from the subsidiary Bank.

Regulatory Capital

The OTS capital regulations require certain minimum levels of regulatory capital
for savings institutions subject to OTS supervision.  First, the tangible
capital requirement mandates that the Bank's stockholders' equity less
intangible assets be at least 1.50% of adjusted total assets as defined in the
capital regulations.  Second, the leverage (core) capital requirement currently
mandates core capital (tangible capital plus qualifying supervisory goodwill) be
at least 4.00% of adjusted total assets as defined in the capital regulations.
Third, the risk-based capital requirement presently mandates that core capital
plus supplemental capital as defined by the OTS be at least 8.00% of risk-
weighted assets as prescribed in the capital regulations.  The capital
regulations assign specific risk weightings to all assets and off-balance sheet
items.  The Bank was in compliance with all capital requirements in effect at
June 30, 1999, and meets all standards necessary to be considered "well-
capitalized" for regulatory capital purposes.  The following table sets forth
the Bank's required and actual regulatory capital ratios at June 30, 1999 and
December 31, 1998:

<TABLE>
<CAPTION>
                                                                                                     Minimum to be "Well
                                                      Actual as of          Minimum for               Capitalized" under
                               Actual as of            December 31,       capital adequacy             Prompt Corrective
                               June 30, 1999              1998                purposes                 Action Provisions
                          -------------------------------------------------------------------------------------------------
<S>                            <C>                    <C>                   <C>                      <C>
Tangible capital                        7.25%                 7.01%                   1.50%                          N/A
Leverage Capital                        7.25%                 7.01%                   4.00%                        5.00%
Risk-based Capital                      0.70%                10.38%                   8.00%                       10.00%
</TABLE>


Year 2000 Issues (THIS CONSTITUTES A "YEAR 2000 READINESS DISCLOSURE" UNDER THE
YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT)

The Year 2000 Issue concerns the potential impact of historic computer software
code that only utilizes two digits to represent the calendar year (e.g. "99" for
1999").  Software so developed, and not corrected, could produce inaccurate or
unpredictable results commencing upon January 1, 2000, when current and future
dates present a lower two digit year number than dates in the prior century.
The Company, similar to most financial services providers, is significantly
subject to the potential impact of the Year 2000 Issue due to the nature of
financial information.  Potential impacts to The Company may arise from
software, computer hardware, and other equipment both within Highland's direct
control and outside of Highland's

                                                                              13
<PAGE>

ownership, yet with which The Company electronically or operationally
interfaces. Financial institution regulators have intensively focused upon Year
2000 exposures, issuing guidance concerning the responsibilities of senior
management and directors. Year 2000 testing and certification is being addressed
as a key safety and soundness issue in conjunction with regulatory examinations.

In order to address the Year 2000 Issue, The Company has developed and
implemented a five phase plan divided into the following major components:
 . awareness
 . assessment
 . renovation
 . validation
 . implementation
The Company has completed the all five phases of the plan for all the systems
that have been designated as critical to the operations of the Company.  The
Company is currently working internally and with external vendors on the final
phase for certain systems not designated as critical to the operations of the
Company.  Because The Company outsources its data processing and item processing
operations, a significant component of the Year 2000 plan is to work with
external vendors to test and certify their systems as Year 2000 compliant.
Other important segments of the Year 2000 plan are to identify those loan
customers whose possible lack of Year 2000 preparedness might expose the Bank to
loss, and to highlight any servicers of purchased loans or securities which
might present Year 2000 operating problems.

All of Highland's critical systems have been identified as Year 2000 compliant
as of June 30, 1999, and The Company completed its validation and implementation
of such systems.  This testing included the Company's loan servicing computer
system and wire transfer system and deposits and general ledger service bureau.

Because all Highland's critical computer systems are written and maintained by
outside vendors, the direct costs incurred by The Company for Year 2000 issues
have been less than if The Company had to utilize its own personnel to modify or
rewrite computer software.  The Company spent approximately $58,000 in the first
six months of 1999 and $75,000 in the year ended December 31, 1998, primarily
indirect labor to oversee planning and testing for Year 2000.  The Company
expects to spend a total of $100,000 in 1999 to complete its Year 2000 program.
These costs will be funded from the operations of the Bank.  The Company has
determined that it has little or no exposure to contingencies related to the
Year 2000 Issue for products it has sold.

The risks to The Company posed by Year 2000 issues are considerable.  Most of
the Company's business involves calculations of interest, which are recognized
over periods of time.  The inability of a critical system to identify the time
that has elapsed for an interest calculation would result in a sharp decrease in
the Company's ability to make these calculations on a timely basis.  The Company
also processes significant volumes of customer deposit, withdrawal and payment
transactions using computer systems.  The failure of a critical system, which
would include deposit servicing or loan servicing, would require considerable
additional personnel costs to make interest calculations, to process customer
transactions, and to convert to a Year 2000 compliant system.  Furthermore, some
services, such as ATM cards and certain transaction type deposit accounts, might
have to be curtailed

                                                                              14
<PAGE>

until new systems were purchased and installed. There would be considerable
potential for lost customers and revenue.

Year 2000 risks not directly related to the Company's computer software and
systems include the risk of large withdrawals by deposit customers as a response
to perceived Year 2000 problems and the risk of adverse business impacts on the
Bank's loan customers.  The Company has made an assessment of the potential
impact of Year 2000 issues on its customers, and does not believe this poses a
significant risk to the Company.  Despite Highland's activities with regard to
the Year 2000 issue, there can be no assurance that partial or total systems
interruptions, or the costs necessary to maintain system availability, will not
have a material adverse impact on Highland's business, financial condition or
results of operations.


ITEM 3.  QUALITATIVE AND QUANTITATIVE DISCLOSURE OF MARKET RISK

The principal objectives of Highland's interest rate risk management function
are to evaluate the interest rate risk included in certain balance sheet
accounts and in the balance sheet as a whole, determine the level of risk
appropriate given Highland's business focus, operating environment, capital and
liquidity requirements and performance objectives, and manage such risk
consistent with Board of Director approved guidelines.  Through such management,
the Company seeks to reduce the vulnerability of its operations to changes in
interest rates.

During 1998 and the first six months of 1999, the Company utilized the following
strategies to manage interest rate risk: (a) originating primarily adjustable-
rate new loans for the portfolio, or attempting to match new fixed rate loans
against longer term FHLB advances, (b) attempting to reduce the overall interest
rate sensitivity of liabilities by emphasizing core and longer-term deposits, in
addition to lengthening the maturity of the Company's FHLB advances and other
borrowings and (c) purchasing an interest rate "swap" contract with the
notational principal amount of $20 million in the second quarter of 1999.

The Company's interest rate sensitivity "gap" and its net portfolio value have
not materially changed since December 31, 1998.  For more detailed information
regarding the definition and measurement of these items, refer to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.

At June 30, 1999, the Company was a party to interest rate swap agreements with
notational principal amounts of $20 million.  These swaps involve the receipt of
floating interest rates based on 6 month LIBOR, and payments of fixed interest
rates on the underlying principal amounts.  These swaps mature in the second
quarter of 2004.  Swap interest income and expense is recorded using the accrual
method and is included (net) in the Company's cost of deposits.  The net cost
incurred through June 30,1999 was approximately $20,000.  Highland did not hold
any derivative financial instruments during 1998.

This discussion and analysis contains certain statements which constitute
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995, relating to, among other things, future cash dividends, and future
earnings levels, which are subject to risks and uncertainties that could cause
actual results, performance, or achievements to differ

                                                                              15
<PAGE>

materially. These risks and uncertainties include economic conditions, interest
rates, changes in government regulation and monetary policy, competition in the
geographic and business areas in which Highland conducts its operations,
fluctuations in interest rates, credit quality and government regulation. For
additional information concerning these factors, see "Item 1. Business-Factors
That May Affect Future Results." in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.



                          PART II. OTHER INFORMATION

ITEMS 1-5.

Item 1.  Not applicable

Item 2.  Not applicable

Item 3.  Not applicable

Item 4.  Not applicable

Item 5.  Not applicable


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
      Exhibit 27 - Financial Data Schedule

(b) Reports on Form 8-K
      On April 27, 1999 the Company filed a Report on Form 8-K reporting under
Item 5 with respect to the issuance of a press release regarding the Company's
results for the first quarter of 1999 and the declaration of cash and stock
dividends.


                                   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.

                                HIGHLAND BANCORP, INC.
                                ----------------------
                                (Registrant)


DATED:  August 9, 1999          by:  /s/ STEPHEN D. COOPER
                                    ----------------------
                                    Vice President and Controller
                                    Principal Accounting Officer