WILSHIRE FINANCIAL SERVICES GROUP INC, S-1/A, 1996-11-27

WILSHIRE FINANCIAL SERVICES GROUP INC
S-1/A, 1996-11-27
FINANCE SERVICES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1996
REGISTRATION NO. 333-15263
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
WILSHIRE FINANCIAL SERVICES GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 6719
93-1223879
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION) 1776 SW MADISON ST.
PORTLAND, OR 97205
(503) 223-5600

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

LAWRENCE A. MENDELSOHN
PRESIDENT
1776 SW MADISON ST.
PORTLAND, OR 97205
(503) 223-5600

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
JAMES M. WADDINGTON, ESQ. ROBERT E. DEAN, ESQ.
PROSKAUER ROSE GOETZ & MENDELSOHN LLP GIBSON, DUNN & CRUTCHER LLP
1585 BROADWAY 4 PARK PLAZA
NEW YORK, NEW YORK 10036-8299 IRVINE, CALIFORNIA 92614-8557
(212) 969-3000 (714) 451-3800

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERINGPRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE OR NOTE(3) PRICE(3) FEE(4)
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<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per
share.......................... 1,725,000 shares(1) $12.00 $20,700,000 $6,272.73
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Notes due 2003.................. $86,250,000(2) 100% $86,250,000 $26,136.36
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Total....................... $106,950,000 $32,409.09
</TABLE>
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(1) Includes 225,000 shares of Common Stock which the Common Stock
Underwriters have an option to purchase to cover over-allotments, if any.

(2) Includes $11,250,000 of Notes which the Notes Underwriter has an option to
purchase to cover over-allotments, if any.
(3) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee.

(4)Includes $27,181.82 previously paid.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

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<PAGE>

EXPLANATORY NOTE

This Registration Statement is being filed with respect to (i) 1,500,000
shares of common stock, par value $.01 per share (the "Common Stock"), of
Wilshire Financial Services Group Inc. (and an additional 225,000 shares of
Common Stock issuable upon exercise of the Common Stock Underwriters' over-
allotment option), and (ii) $75 million principal amount of % Notes due 2003
(the "Notes") of Wilshire Financial Services Group Inc. (and an additional
$11,250,000 of Notes issuable upon exercise of the Notes Underwriter's over-
allotment option).

This Registration Statement contains two forms of Prospectus. The first
Prospectus relates to the offering of the Common Stock and the second
Prospectus relates to the offering of the Notes.
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED NOVEMBER 27, 1996

PROSPECTUS
------------------------
WILSHIRE
------------------------
FINANCIAL SERVICES GROUP

1,500,000 SHARES OF COMMON STOCK

This Prospectus relates to the offering by Wilshire Financial Services Group
Inc., a Delaware corporation ("WFSG" and together with its subsidiaries, the
"Company"), of 1,500,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock") of WFSG (the "Common Stock Offering"). Prior to the Common
Stock Offering, there has been no public market for the Common Stock. It is
currently estimated that the initial public offering price for the shares of
Common Stock offered hereby will be between $10.00 and $12.00 per share. See
"Underwriting" for information relating to the factors considered in
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on the Nasdaq National Market ("Nasdaq") under
the symbol "WFSG." Upon completion of the Common Stock Offering and assuming
the Underwriters' over-allotment option is not exercised, certain executive
officers and directors of the Company will have approximately 78% of the
combined voting power of all outstanding shares of the Common Stock.

The Underwriters have reserved 4.2% of the shares of Common Stock offered
hereby for sale at the initial public offering price to directors, officers and
employees of the Company and to certain other persons.

In addition, WFSG is concurrently offering $75 million aggregate principal
amount of % Notes due 2003 (the "Notes") of WFSG (the "Notes Offering"). See
"Description of Notes Offering." The Common Stock Offering and the Notes
Offering are each conditioned on the completion of the other offering.

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING AT PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS OF THE COMMON STOCK OFFERED
HEREBY.

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THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS
AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC"), ANY OTHER GOVERNMENTAL AGENCY OR OTHERWISE.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE FDIC, THE OFFICE OF THRIFT SUPERVISION
("OTS") OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, FDIC, OTS OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) THE COMPANY(2)
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<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
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(1) See "Underwriting" for information relating to the indemnification of the
Underwriters.
(2) Before deducting expenses payable by the Company estimated to be $ .
(3) WFSG has granted the Common Stock Underwriters an option, exercisable
within 30 days of the date hereof, to purchase from WFSG up to 225,000
additional shares of Common Stock solely to cover over-allotments, if any.
To the extent the option is exercised, the Underwriters will offer the
additional shares of Common Stock at the Price to Public shown above. If
the option is exercised in full, the total Price to Public, Underwriting
Discounts and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."

The shares of Common Stock are offered subject to receipt and acceptance by
the Underwriters, to prior sale and to the Underwriters' right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the shares of Common Stock will be made
at the offices of Friedman, Billings, Ramsey & Co., Inc., Arlington, Virginia,
the representative of the several Underwriters (the "Representative"), or in
book-entry form through the facilities of The Depository Trust Company on or
about , 1996.

-----------

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

The date of this Prospectus is , 1996.
<PAGE>

IN CONNECTION WITH THE COMMON STOCK OFFERING AND THE NOTES OFFERING, THE
UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN
THE MARKET PRICE OF SUCH SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NASDAQ NATIONAL MARKET, IN THE OVER THE COUNTER MARKET, OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

AVAILABLE INFORMATION

WFSG has filed with the Securities and Exchange Commission (the
"Commission") via the Electronic Data Gathering Analysis and Retrieval System
("EDGAR") a Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Securities Act") with respect to the Common Stock
Offering and the Notes Offering. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance where such contract or other
document is an exhibit to the Registration Statement, reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each statement being qualified in all respects by such
reference. As a result of the filing of the Registration Statement with the
Commission, WFSG will become subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file reports and other information
with the Commission. WFSG intends to furnish its stockholders annual reports
containing audited financial statements and an opinion thereon expressed by
WFSG's independent auditors as well as quarterly reports for the first three
quarters of each fiscal year containing unaudited financial statements. Copies
of the Registration Statement, including all exhibits thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60601 upon payment of prescribed rates. The
Commission also maintains a web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants, including WFSG. The Company has applied for quotation of the
Common Stock on Nasdaq. If the Common Stock is quoted on Nasdaq, reports,
proxy and information statements and other information regarding the Company
will be available for inspection at the National Association of Securities
Dealers, Inc. (the "NASD"), 1735 K Street, N.W., Washington, D.C. 20006.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
the information contained in this Prospectus assumes no exercise of the
Underwriters' over-allotment option to purchase additional shares of Common
Stock. Unless the context otherwise requires, all references to the Company
herein shall be deemed to include the Company and its subsidiaries. Unless
otherwise indicated, all information in this Prospectus assumes that no
outstanding stock options are exercised. The information contained in this
Prospectus gives effect to certain transactions to be consummated prior to or
simultaneously with the closing of the Common Stock Offering and the Notes
Offering.

THE COMPANY

GENERAL

Wilshire Financial Services Group Inc. ("WFSG" and, together with its
subsidiaries, the "Company") is a newly formed financial services holding
company for certain companies and businesses previously held as a part of, and
operated by, the Wilshire group of companies (the "Private Companies") pursuant
to a reorganization of the Private Companies (the "Reorganization"). The
Company will engage in a wide variety of financial activities, including the
acquisition, origination, ownership and securitization of loan portfolios
("Loan Portfolios"), banking and non-traditional bankcard processing.

HISTORICAL STRUCTURE

Prior to the Reorganization, the Private Companies operated principally
through two separate companies: (i) Wilshire Credit Corporation ("WCC"), which
conducted a substantial portion of the loan acquisition activities of and all
of the loan servicing for the Private Companies; and (ii) Wilshire Acquisitions
Corporation ("WAC"), the holding company for two federally-chartered savings
banks, First Bank of Beverly Hills, F.S.B. ("First Bank"), and Girard Savings
Bank, F.S.B. ("Girard" and together with First Bank, the "Savings Banks"). WCC
commenced Loan Portfolio acquisitions in 1990 funded primarily by lines of
credit and joint ventures with institutional partners. Through October 21,
1996, the Private Companies had purchased or committed to purchase
approximately 409 Loan Portfolios, aggregating $2.4 billion in principal
amount. In addition, at September 30, 1996 WCC serviced $1.4 billion of loans.
WCC's income has been principally derived from ownership and servicing of, and
profit participations in, Loan Portfolios.

In the early 1990's, WCC acquired loans primarily from the Federal Deposit
Insurance Corporation ("FDIC") and the Resolution Trust Corporation (the
"RTC"), generally in auctions of pools of loans acquired from financial
institutions which failed during the late 1980's and early 1990's. Although
governmental agencies such as the FDIC and the Department of Housing and Urban
Development ("HUD") continue to be potential sources of loans, the amount of
loans sold by such agencies has substantially declined. In recent years, the
Private Companies purchased loans primarily from various private sector
sellers, such as banks, savings institutions, mortgage companies and insurance
companies.

Andrew A. Wiederhorn and Lawrence A. Mendelsohn, the principal owners of the
Private Companies (the "Principals"), purchased First Bank and Girard through
WAC in October 1993 and November 1994, respectively, using funds loaned to them
by WCC (the "Shareholder Loans"). The Savings Banks were acquired to provide a
deposit-based funding source for the loan purchase activities of the Private
Companies. Both Savings Banks were acquired at substantial discounts to their
respective book values, reflecting the poor quality of their assets and, in the
case of First Bank, an expected imminent regulatory takeover. WAC has increased
assets from $230.6 million at December 31, 1994 to $533.1 million at September
30, 1996 primarily through the acquisition of Loan Portfolios.

3
<PAGE>

The Principals have injected approximately $30 million into WAC since the
acquisition of the Savings Banks to fund substantial asset growth and to
maintain required capital levels given the substantial reserves taken on loans
acquired as part of the acquisition of the Savings Banks (the "Inherited
Loans") and approximately $24.5 million of sub-prime auto loans acquired in the
fourth quarter of 1995 and the first quarter of 1996 (the "Sub-Prime Auto
Loans"). As a result of the high level of loan loss reserves required in 1996,
and other regulatory concerns regarding the management of the Savings Banks and
other matters, the Office of Thrift Supervision (the "OTS"), on October 31,
1996 increased the level of regulatory supervision and imposed cease-and-desist
orders (the "Orders") on and restricted further growth of assets at both
Savings Banks. The Company recently has hired additional management for the
Savings Banks and taken other steps to address these regulatory concerns, but
the Company will not be able to use the Savings Banks for growth until the
Orders are lifted or modified. See "Risk Factors--Results of Regulatory
Examinations; Imposition of Cease and Desist Orders."

REORGANIZED STRUCTURE

Following the Reorganization, WFSG will be the holding company for WAC, the
Savings Banks, Wilshire Funding Corporation, a company formed to pursue loan
acquisition and loan origination businesses similar to WCC following the Common
Stock Offering and the Notes Offering ("WFC"), and Wilshire Servicing
Corporation, a company formed to engage in the loan servicing business
following the receipt of necessary licenses ("WSC"). The Company intends to
build on the expertise of the Private Companies and aggressively pursue the
acquisition of Loan Portfolios. The Company evaluates Loan Portfolios based on
anticipated future cash flows, available funding sources and minimum expected
returns on equity. The Company will seek to identify niche areas primarily
within the real estate loan market where it believes its funding flexibility,
experienced personnel and its proprietary software and U.S. mortgage loan
database give it a competitive advantage in pricing and purchasing Loan
Portfolios. The aggregate principal amount of the loans acquired by the Private
Companies during the nine months ended September 30, 1996 and the years ended
December 31, 1995, 1994 and 1993 was approximately $501.4 million, $337.4
million, $388.5 million and $333.8 million, respectively. As of September 30,
1996, the Company had $533.1 million of assets and stockholders' equity of
$34.6 million.

After giving effect to the Reorganization, the organizational structure of
the Company will be as follows:

Wilshire Financial Services Group Inc.

Wilshire Funding Corporation
European Operations
Special Purpose Entities**

Wilshire Servicing Corporation*

Wilshire Acquisitions Corporation
First Bank of Beverly Hills, F.S.B.
Girard Savings Bank, F.S.B.

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*Expected to commence servicing activities in 2-3 years following receipt of
necessary licenses.
**Entities to be formed for financings and to complete securitizations.

4
<PAGE>

In the Reorganization, WCC will not become a subsidiary of WFSG or transfer
any assets or liabilities to the Company. WCC is not being included in the new
public entity due to certain tax considerations and to allow WCC to retain
sufficient assets and servicing rights to retire the Shareholder Loans. See
"The Company--The Reorganization." WCC will cease to acquire new product or
servicing for its own account, but will continue to service and liquidate its
existing portfolio. New loan acquisitions and originations will be conducted by
WFC. For a period of two to three years after the closing of the Common Stock
Offering and Notes Offering while WSC is in the process of obtaining the
relevant licensing approvals for its servicing activities, WCC will continue to
service loans for the Company at a market rate. Following such period, WSC will
commence servicing loans for the Company and WCC. See "Certain Relationships
and Related Transactions." In addition, WCC and the Principals have agreed not
to compete with the Company with respect to the acquisition of Loan Portfolios.

BUSINESS ACTIVITIES

Business Strategy. The Company's strategy is to aggressively pursue Loan
Portfolio acquisitions where it believes it can receive acceptable rates of
return on invested capital and effectively utilize leverage. Key elements of
this strategy include:

. Significant Growth in Loan Portfolio Investments. During the last four
years, the Private Companies have developed expertise in the business of
acquiring Loan Portfolios, including residential mortgage loans,
manufactured housing loans, second lien loans, commercial real estate
loans, multi-family residential loans, commercial and business loans,
boat loans and other consumer loans, and Subordinate Securities (as
defined herein). The Company expects to utilize its available funding
sources to aggressively pursue Loan Portfolio acquisitions in the United
States and Western Europe, a substantial portion of which are expected
to be non-performing Loan Portfolios purchased at a discount
("Discounted Loans"). In addition, the Company expects to increase its
purchases of commercial real estate loans.

. Utilization of Varied Funding Sources. The Company, in addition to
deposits at the Savings Banks, will have extensive funding sources
available for investment and lending activities from investment banking
firms and institutional investors, including secured term loans,
warehouse lines of credit, and repurchase facilities. As of the closing
of the Common Stock Offering and the Notes Offering, certain existing
undrawn lines of credit ($413.3 million as of September 30, 1996) of the
Private Companies will be transferred to the Company. Amounts currently
drawn under such lines of credit by the Private Companies ($86.7 million
as of September 30, 1996) will be transferred to the Company once such
amounts are repaid by the Private Companies. Substantially all of the
Company's Loan Portfolio investments are expected to utilize borrowed
funds, minimizing the Company's equity investment to the extent
possible. Since the Private Companies' initial use of securitization in
1995 through September 30, 1996, the Private Companies have issued
$368.7 million of securities through two publicly underwritten and three
privately placed securitizations, including securitizations of non-
performing and sub-performing mortgage loans, manufactured housing
loans, consumer loans and conventional and non-conforming mortgage
loans. The Company expects to securitize its Loan Portfolios when
advantageous.

. Expansion into European Markets. The Company recently decided to expand
its loan acquisition and servicing activities to encompass the United
Kingdom and France with a view towards future expansion in Western
Europe. Management is in discussions with a major U.S. investment
banking company regarding the formation of a joint venture for
conducting servicing activities in the United Kingdom. The Company is
also considering either establishing its own servicing operation,
acquiring an already existing entity or entering into a joint venture
with a company already active in France. Management believes that
conditions in the French real estate market and, to a lesser degree, in
the United Kingdom real estate market are similar to conditions in the
United States real estate market in

5
<PAGE>

the late 1980's and early 1990's and that there may be opportunities to
acquire Loan Portfolios at favorable prices. In addition, management
believes that there is a demand in the European market for U.S.-style
servicing with its automated systems, detailed investor reporting and
aggressive servicing and work-out approaches.

. Capitalize on Servicing Expertise. The Company believes that WCC's loan
servicing experience, its highly trained servicing personnel and its
investment in proprietary software have allowed the Private Companies to
effectively value and price Loan Portfolios. As of September 30, 1996,
WCC was servicing more than $1.4 billion principal amount of loans,
including $502.0 million for the Savings Banks. For a period of two to
three years after the closing of the Common Stock Offering and the Notes
Offering, while the Company is in the process of obtaining the relevant
licensing approvals for its servicing activities, WCC will continue to
service loans for the Company generally at a market rate. Accordingly,
the Company does not expect any significant servicing income until it
commences servicing loans for its own account in two to three years.

. Growth of Non-Traditional Bankcard Processing Operations. The Company
plans to continue development of its non-traditional bankcard processing
operations, which generate revenues through merchant discounts and
processing fees for Visa (R) and Mastercard (R) transactions. The
Company's bankcard processing operations focus on certain high-risk
market niches, principally mail order/telephone order and audio-text
where the Company believes it obtains higher returns on processing
transactions. Revenues from the bankcard operation, which was commenced
in the third quarter of 1994, have demonstrated strong growth increasing
from $0.6 million in 1994 to $4.7 million in 1995 and to $5.1 million
during the nine months ended September 30, 1996. Management believes
that there are opportunities to expand this business using the Company's
existing infrastructure.

. Development of Wholesale Origination Network. In late 1995, the Private
Companies launched a mortgage conduit program for the purchase of newly-
originated residential mortgage and manufactured housing loans on a
nationwide basis through correspondents. Originations to date have been
modest. While the Company is obtaining necessary licensing, WCC will
continue to originate residential mortgage loans for the Company's
account through its correspondent relationships and will then transfer
the newly originated loans at acquisition cost to the Company.
Currently, this program focuses on the origination of in park
manufactured housing loans and conforming and non-conforming first and
second lien mortgage loans. The Company is in the process of launching
two new programs for loans to good-credit borrowers.

6
<PAGE>

THE COMMON STOCK OFFERING

Common Stock Offered.... 1,500,000 shares (plus up to 225,000 shares subject
to the Underwriters' over-allotment option).

Common Stock
outstanding (after the
Common Stock
Offering)............... 7,000,000 shares (plus up to 225,000 shares subject
to the Underwriters' over-allotment option).

Dividend Policy......... The Company intends to retain its earnings to support
its future growth strategy and does not anticipate
paying cash dividends on the Common Stock in the
foreseeable future. See "Dividend Policy."

Reserved Nasdaq WFSG.
symbol..................

Use of Proceeds......... The net proceeds from the Common Stock Offering and
the Notes Offering are expected to be used by the
Company to support leveraged acquisitions of Loan
Portfolios and for other general corporate purposes,
including expansion into Western Europe.

THE NOTES OFFERING

Concurrently with the Common Stock Offering, the Company is separately
offering $75 million principal amount of Notes (plus up to $11.25 million of
Notes subject to the Notes Underwriters' over-allotment option), which will
mature on , 2003. The Notes will be general unsecured obligations of the
Company. Interest on the Notes will accrue at the rate of % per annum and
will be payable semi-annually in arrears on and of each year commencing
on , 1997. For information regarding the anticipated use of proceeds from
the Notes Offering by the Company and the Notes generally, see "Use of
Proceeds" and "Description of Notes Offering."

RISK FACTORS

See "Risk Factors" for a discussion of certain factors that should be
considered carefully by prospective investors of the Common Stock offered
hereby.

7
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following tables present Summary Consolidated Financial Information for
the Company at the dates and for the periods indicated. The historical income
statement and balance sheet data at and for the nine month period ended
September 30, 1996 and the years ended December 31, 1995 and 1994 have been
derived from the audited consolidated financial statements of the Company
included elsewhere in this Prospectus (the "Audited Financial Statements").

On October 7, 1993, WAC acquired 94.9% of the common stock of First Bank in a
purchase accounting transaction. On November 9, 1994, a newly-formed entity
with ownership and management common to WAC-Wilshire Acquisitions Corporation
II ("WACII") acquired 94.9% of the common stock of Girard in a purchase
accounting transactions.

Because WAC and WACII were under common control, the accompanying financial
statements are presented on a combined basis as of December 31, 1994 and for
the period from November 9 through December 31, 1994. On December 27, 1995, WAC
and WACII were merged and WAC was named as the surviving entity. Financial
information as of September 30, 1996 and December 31, 1995 and for the nine
months and year then ended, respectively, is presented on a consolidated basis
and includes the accounts of WAC, First Bank, and Girard. With respect to all
consolidated and combined financial information, intercompany transactions and
balances have been eliminated. For convenience, all the accompanying financial
statements are referred to as "consolidated".

The historical income statement and data presented for the nine months ended
September 30, 1995 has been derived from unaudited consolidated financial
statements (the "Unaudited Financial Statements" and, together with the Audited
Financial Statements, the "Consolidated Financial Statements") and include all
adjustments, consisting only of normal recurring accruals, which the Company
considers necessary for a fair presentation of the Company's results of
operations for these periods. Operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for any other interim period of the entire year ending December 31,
1996. The Summary Consolidated Financial Information should be read in
conjunction with, and is qualified in its entirety by reference to, the
Consolidated Financial Statements and related notes as set forth elsewhere
herein.

8
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
---------------- -----------------
1996 1995 1995 1994
------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income........ $34,137 $17,052 $24,381 $ 9,569
Total interest expense....... 19,592 10,411 14,481 5,457
------- ------- ------- --------
Net interest income.......... 14,545 6,641 9,900 4,112
Provision for estimated
losses on loans............. 15,751 3,221 4,266 2,173
------- ------- ------- --------
Net interest income (loss)
after provision for esti-
mated losses on loans....... (1,206) 3,420 5,634 1,939
Other income (loss):
Bankcard income(1)........... 5,078 3,202 4,694 635
Bankcard processing expense.. (3,865) (2,408) (3,462) (274)
Other, net................... 5,164 1,940 1,875 866
------- ------- ------- --------
Total other income (loss).. 6,377 2,734 3,107 1,227
Other expenses:
Other general and administra-
tive expenses............... 10,905 5,247 8,102 4,944
------- ------- ------- --------
(Loss) income before income
tax provision............... (5,734) 907 639 (1,778)
Income tax (benefit) provi-
sion........................ (4,652) 68 47 (526)
------- ------- ------- --------
Net (loss) income ........... $(1,082) $ 839 $ 592 $ (1,252)
======= ======= ======= ========
(Loss) earnings per share.... $(14.05) $ 35.56 $ 25.09 $(135.43)
======= ======= ======= ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
1996 1995 1994
------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.............................. $ 533,109 $ 341,454 $ 230,636
Loan portfolio, net(2).................... 177,280 258,827 179,377
Discounted loan portfolio:
Total loans.............................. 10,767 20,210 2,995
Unaccreted discount...................... (1,632) (3,008) (470)
Allowance for loan losses................ (5,716) (3,855) (431)
Discounted loans, net.................... 3,419 13,347 2,094
Loans held for sale, net, at lower of cost
or market(3)............................. 260,804 18,597 --
Real estate owned, net.................... 2,514 4,964 1,208
Deposits, net............................. 487,535 303,524 196,289
Borrowings................................ -- 13,000 21,500
Stockholders' equity(4)................... 34,554 7,039 6,793
</TABLE>
- --------
(1) The Company began its bankcard operations in 1994.
(2) Does not include Discounted Loans.
(3) Loans held for sale increased due to the Company's intent to sell
approximately $277.5 million of single-family residential loans in the
fourth quarter of 1996.
(4) Effective January 1, 1996, $11.0 million of Common Stock was issued in
exchange for Subordinated Debt. Subsequently, an additional $17.8 million
of Common Stock was issued for cash.

9
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ---------------
1996 1995 1994
------------- ------- ------
<S> <C> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
Return on average assets..................... (.22)% .24% (.92)%
Return on average equity..................... (3.09)% 8.65% (31.03)%
Average interest rate on total loans......... 9.39% 9.57% 7.65%
Average equity to average assets............. 7.24% 2.72% 2.96%
Net interest spread(5)....................... 3.15% 3.08% 2.85%
Net interest margin(6)....................... 3.88% 3.72% 3.04%
Ratio of earnings to fixed charges(7):
Including interest on deposits.............. .71 1.04 .67
Excluding interest on deposits.............. (1.67) 2.19 (3.04)
Non-performing loans to loans at end of
period(2)................................... 9.11% 4.46% 5.95%
Allowance for loan losses to total loans at
end of period............................... 9.2% 7.6% 3.9%
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ---------------
1996 1995 1994
------------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
LOAN ORIGINATIONS(8)......................... $ 2,280 $ 8,748 $4,345
LOAN ACQUISITION DATA(8):
Loans:
Single-family residential................... 221,581(9) 121,883 36,462
Multi-family residential.................... -- -- 61,247
Commercial and other mortgage loans......... -- 2,126 31,091
Consumer and other loans(10)................ 18,742 11,012 10,847
Discounted Loans............................. -- (11) 55,995 3,624
LOANS SOLD(8)................................ 27,965(9) 16,673 --
</TABLE>
- --------
(5) Net interest spread represents average yield on interest-earning assets
minus average rate paid on interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by total average
earnings assets.
(7) The ratios of earnings to fixed charges were computed by dividing (x)
income from continuing operations before income taxes, extraordinary gains
and cumulative effect of a change in accounting principle plus fixed
charges by (y) fixed charges. Fixed charges represent total interest
expense, including and excluding interest on deposits, as applicable, as
well as the interest component of rental expense. Earnings for the nine
months ended September 30, 1996 and the year ended December 31, 1994 were
inadequate to cover fixed charges by $5,734 and $1,778, respectively.
(8) Unpaid principal balances.
(9) The Company currently expects that Girard will sell certain single-family
residential loans to WFC which in turn is expected to securitize such
loans. See "Recent Developments."
(10) Includes $24.5 million of Sub-Prime Auto Loans acquired in late 1995 and
early 1996.
(11) Girard recently purchased or committed to purchase approximately $272
million unpaid principal amount of discounted residential mortgage loans.
See "Recent Developments."

10
<PAGE>

RISK FACTORS

Prospective investors should carefully consider the following factors, as
well as the other information contained in this Prospectus, before deciding to
make an investment in shares of Common Stock.

RECENT LOSSES; NO ASSURANCE AS TO CONSISTENCY OF RESULTS OF OPERATIONS

Recent Losses. The Company reported a net loss of approximately $1.1 million
for the nine months ended September 30, 1996, principally due to provisions
for estimated losses on the Sub-Prime Auto Loans ($8.6 million) and the
Inherited Loans ($4.8 million). A $1.4 million charge for the Savings
Association Insurance Fund (the "SAIF") special assessment also contributed to
the year-to-date loss. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Regulation--The Savings Banks--
Recapitalization of SAIF."

Consistency of Results of Operations. The results of operations of the
Company may be significantly affected by required provisions for estimated
loan losses, the timing and size of such provisions, variations in the volume
of the Company's loan acquisitions, the volume of loans resolved, the
differences between the Company's cost of funds and the average interest rates
of the acquired loans, the effectiveness of the Company's hedging strategies,
the interest rate for Senior Securities (as defined herein) issued in
securitizations, and the timing and size of securitizations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Since the Company is not acquiring the assets and liabilities of WCC nor its
servicing income, its result of operations in the short term following the
closing of the Common Stock Offering in the Reorganization and the Notes
Offering principally will be determined by the results of operations of the
Savings Banks. Additionally, it is expected that the management of the Company
will take approximately six months or more to fully utilize (through leverage)
the proceeds of the Common Stock Offering and the Notes Offering.

RESULTS OF REGULATORY EXAMINATIONS; IMPOSITION OF CEASE-AND-DESIST ORDERS

Recent Regulatory Examinations. Following examinations of the Savings Banks
and WAC by the OTS in 1994, 1995 and 1996, the OTS issued Reports of
Examination that were critical of the Savings Banks and WAC in a number of
respects. These regulatory concerns initially resulted in the OTS requiring
First Bank to enter into a Supervisory Agreement on June 8, 1995. The
Supervisory Agreement required First Bank to take actions to achieve
compliance with certain laws and regulations and safe and sound practices and
to (a) develop plans and procedures concerning (i) reduction of non-performing
assets, (ii) internal asset review, (iii) asset monitoring, (iv) appraisals,
(v) loan underwriting, (vi) loan purchases; (b) enhance recordkeeping; (c)
develop requirements to ensure that the servicing of loans by WCC is
satisfactory; and (d) maintain its separate corporate existence. In addition,
the Supervisory Agreement required First Bank to maintain certain minimum
capital ratios and prohibited First Bank from increasing total assets beyond
specified levels and acquiring non-performing assets without the prior written
consent of the Assistant Regional Director of the OTS-West Region.

Imposition of Cease-and-Desist Orders. In July 1996, the OTS advised First
Bank that it had not fully complied with the terms of the Supervisory
Agreement and that both Savings Banks had failed in a number of respects to
address regulatory concerns raised in the 1994 and 1995 examination reports.
The OTS also expressed continuing concerns regarding the adequacy of
management of First Bank in light of its business activities. As a result of
these issues, the OTS replaced the Supervisory Agreement with a Cease and
Desist Order, effective October 31, 1996. Given the similar nature of Girard's
business activities, the OTS has also issued a Cease and Desist Order to
Girard similar to the Order issued to First Bank. The issuance of a cease and
desist order is generally evidence of an increased level of regulatory concern
regarding the subject institution.

11
<PAGE>

(b) develop plans to augment the depth and expertise of the management teams;
(c) revise business plans; (d) modify certain policies concerning the
accounting for loan discounts; (e) improve monitoring of (i) interest rate
risk, (ii) asset classifications (e.g., as held for sale versus held to
maturity) and (iii) compliance with laws and regulations concerning
transactions with affiliates; (f) ensure compliance with the proper servicing
of adjustable-rate mortgages and escrow accounts; (g) ensure servicer
correction of OTS-identified deficiencies in information systems; and (h)
enhance recordkeeping. In addition, First Bank is required to correct OTS-
identified deficiencies in its merchant bankcard processing operations. These
requirements are accompanied by related requirements that the Savings Banks
submit to the OTS, by certain specified dates, various policies, plans and
reports on other actions to comply with the Orders. In some cases, OTS
approval of such information is required.

Management believes that the Savings Banks are complying with those
requirements of the Orders that have taken effect immediately. In addition,
the Savings Banks have implemented several actions to address the other
requirements of the Orders, including (i) hiring a new chief executive officer
for the Savings Banks, (ii) engaging a "big six" accounting firm to review
management's implementation of corrective actions required by the OTS, (iii)
increasing the size of the internal asset review department, and (iv) revising
internal asset review policies. The Company is also in the process of hiring a
manager to complete the development and implementation of an effective asset
review system.

The Orders are enforceable by the OTS as written agreements under the
Federal Deposit Insurance Act. Therefore, failure to comply with the
requirements of the Orders could subject the Savings Banks and their directors
and officers to further enforcement actions, including termination of FDIC
insurance or civil money penalties. There can be no assurances that the OTS
will approve the required submissions by the Savings Banks without
modifications. Additionally there can be no assurances that the OTS will not
impose further restrictions on the Savings Banks.

AGGRESSIVE EXPANSION STRATEGY; IMPACT OF OTS GROWTH RESTRICTIONS

Significant Growth in Recent Periods. The Company, primarily through Girard,
has had rapid growth during 1995 and the first nine months of 1996. The
Savings Banks' deposits increased from $196.3 million at December 31, 1994 to
$487.5 million at September 30, 1996. More than 73% of Girard's total loan
portfolio was acquired in the five quarters ended September 30, 1996.

Impact of OTS Growth Restrictions. Since June 30, 1995, First Bank has had
limited ability to increase deposits due to the provisions of an OTS
Supervisory Agreement which prohibited First Bank from increasing assets above
specified levels. Accordingly, the Company's asset growth has principally been
financed through the raising of deposits at Girard. However, due to the
issuance of the Orders, the Company will not be able to utilize the Savings
Banks as vehicles for growth until and unless the Orders are lifted or
modified. The Orders prohibit First Bank and Girard from increasing their
total assets, as measured at the end of each calendar quarter, in excess of
$145 million and $408 million, respectively, plus total net interest credited
on deposit liabilities.

No Assurances of Expansion. A substantial amount of the net proceeds from
the Common Stock Offering and the Notes Offering will be invested by the
Company to support future expansion and growth of its lending activities and
loan acquisition and servicing activities. There can be no assurance that the
Company will be able to increase these activities in a manner which is
consistent with management's business strategy and objectives or otherwise
successfully expand its operations.

Impact of Growth on Asset Quality. Part of the Company's business strategy
is to aggressively pursue the acquisition of Loan Portfolios, a substantial
portion of which are expected to be Loan Portfolios purchased at a discount.
Additionally, the Company may decide to purchase loans with respect to which
the Company does not have any prior loan acquisition experience. A substantial
increase in the Company's total loan portfolio or the purchase of new
categories of loans may increase the risk of loss on acquired loans and could
have an adverse affect on the Company's results of operations.

12
<PAGE>

RISK OF ADDITIONAL PROVISIONS FOR ESTIMATED LOSSES ON LOANS

Inherited Loans. In connection with the Company's acquisition of First Bank
in 1993 and Girard in 1994 the Company acquired a substantial volume of
impaired loans which required the Savings Banks to establish allowances for
loan losses. For the nine months ended September 30, 1996 and for each of the
years ended December 31, 1995, 1994, and 1993 First Bank was required to
increase its allowances for loan losses with respect to the Inherited Loans by
$2.2 million, $2.6 million, $1.1 million and $1.1 million, respectively. For
the nine months ended September 30, 1996 and for each of the years ended
December 31, 1995 and 1994, Girard was required to increase its allowances for
loan losses with respect to the Inherited Loans by $2.6 million, $0.9 million,
$1.1 million, respectively.

Sub-Prime Auto Loan Portfolio. In the fourth quarter of 1995 and the first
quarter of 1996, the Savings Banks acquired approximately $24.5 million of
Sub-Prime Auto Loans. Under OTS regulations, the Savings Banks have been
required to write off as a loss all auto loans in excess of 120 days
delinquent, notwithstanding that the Savings Banks retain rights in the cars
as collateral. The aggregate portfolio of Sub-Prime Auto Loans purchased is
approximately 3,000 loans, approximately 50.7% of which have become greater
than 30 days delinquent. The Savings Banks established reserves aggregating
$8.6 million during the nine months ended September 30, 1996, including a 10%
reserve on such loans which are current. As a result of the repossession of
the collateral securing the loans, the Savings Banks now hold approximately
317 cars as assets, which they plan to sell as soon as practicable. The cars
are not carried as assets on the Company's balance sheet since the loans were
written off in full.

Future Provisions; OTS Review. Although the Company believes its allowances
for loan losses are now adequate, no assurance can be given that future events
will not require significant additional provisions for loan losses, for the
Inherited Loans, Sub-Prime Auto Loans or otherwise at the Savings Banks.
Future additions to these allowances may be required by the OTS, which
periodically reviews the Savings Banks' allowances for losses and the carrying
value of assets. Increases in the Company's or the Savings Banks' provisions
for losses on loans would adversely affect the Company's results of operations
and could result in losses in future periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

MAINTENANCE OF CAPITAL AT SAVINGS BANKS

The Orders require both Savings Banks to maintain "well-capitalized" status
as measured at the end of each calendar quarter commencing December 31, 1996.
The Principals have injected approximately $30 million into WAC since the
acquisitions of the Savings Banks to fund the substantial asset growth and to
maintain required capital levels given reserves taken on the Inherited Loans
and the Sub-Prime Auto Loans.

Failure to comply with the Orders could have significant adverse
consequences to the Savings Banks. To the extent that either or both of the
Savings Banks incur future losses, including losses as a result of required
additional loan loss provisions, the Company may be required to inject
additional capital into the Savings Banks to maintain compliance with the
Orders, whether or not such capital can more effectively be utilized for other
operations of the Company. Such additional capital contributions may have the
effect of reducing or eliminating the Company's overall net income or
requiring the Company to obtain additional debt or equity capital.

OTS regulations permit the OTS to impose higher capital requirements on a
savings bank if it determines that the capital level is or may become
inadequate in view of such bank's circumstances. In making such determination,
the OTS can take into account a number of factors, including the savings
bank's loan portfolio quality, recent operating losses or anticipated losses,
the condition of its holding company and whether the savings bank is receiving
special supervisory attention, among other matters. Should the OTS impose an
individual minimum capital requirement on either of the Savings Banks, the
Company would be required to inject additional capital into such Savings Bank,
whether or not such usage of capital is optimal for the Company.

13
<PAGE>

EXTENSIVE USE OF FINANCIAL LEVERAGE

The Company's acquisitions of Loan Portfolios through WFC are expected to be
highly leveraged with full recourse to the Company. Performing Loan Portfolios
acquired by WCC were generally financed approximately 95% with borrowed funds
and non-performing Loan Portfolios generally were financed approximately 90%
with borrowed funds. While the highly leveraged nature of the Company's Loan
Portfolios can offer the opportunity for increased rates of return on equity,
it involves a greater degree of risk and relatively smaller declines in the
value of a Loan Portfolio can reduce or eliminate the Company's capital
invested in such Loan Portfolio. In addition, such declines can result in
margin calls (i.e., demands by the Company's lenders for additional cash or
assets as security for their lending) which can have an adverse impact on the
Company's liquidity and capital resources. The high degree of leverage on the
Company's Loan Portfolios also may make the Company more vulnerable to a
downturn in business, real estate values or the economy generally. An increase
in market interest rates or a decline in the value of the collateral may have
an adverse effect on the ability of the Company to satisfy its loan
obligations and could therefore have a material adverse effect on the
Company's results of operations. The Company's aggressive expansion strategy
may result in the need for additional debt and/or equity financing in the
future. Any additional debt financing could increase the Company's leverage
over current levels.

DISCOUNTED LOAN ACQUISITION ACTIVITIES

Since 1993, WCC has aggressively sought to increase its discounted loan
portfolio. As of September 30, 1996, WCC's discounted loan portfolio included
$490.8 million gross unpaid principal balances of Discounted Loans. The
Company currently expects to continue to aggressively acquire non-performing
loan portfolios. Although management of the Company has been actively involved
in the acquisition of loans since 1991, the acquisition of non-performing
("discounted loans") and under-performing loans involves uncertainties and
risks, including without limitation the risk that the discount on the loans
acquired may not be sufficient to profitably resolve the loans and the risk
concerning the ability to continue to acquire the desired amount and type of
discounted loans. Any Discounted Loans become real estate owned when the
Company forecloses on the collateral properties. The value of real estate
owned properties can be significantly affected by the economies and markets
for real estate in which they are located and require the establishment of
provisions for losses to ensure that they are carried at the lower of cost or
fair value, less estimated costs to dispose of the properties. In addition,
there can be no assurance that in the future the Company's real estate owned
will not have environmental problems which could materially adversely affect
the Company's financial condition or operations. See "Business--Asset
Quality--Real Estate Owned."

DEPENDENCE ON WILSHIRE CREDIT CORPORATION

Following the closing of the Common Stock Offering and the Notes Offering,
the Company will not have the necessary licenses to conduct loan origination
and loan servicing activities directly. Until necessary licenses are obtained,
the Company will rely upon WCC to conduct loan origination and loan servicing
activities for the Company pursuant to certain agreements with WCC. See
"Certain Relationships and Related Transactions."

DEPENDENCE ON KEY PERSONNEL; MANAGEMENT GROWTH

The Company's growth and development to date have been largely dependent
upon the services of Andrew A. Wiederhorn, Chief Executive Officer of the
Company and Lawrence A. Mendelsohn, President of the Company. Although the
Company has been able to attract and retain other qualified management
personnel, the loss of either Andrew Wiederhorn's or Lawrence Mendelsohn's
services for any reason could have a material adverse effect on the Company.
The Company has entered into employment agreements with each of Messrs.
Wiederhorn and Mendelsohn, which contain non-competition agreements. See
"Management-- Employment Agreements." The Company also maintains "key man"
life insurance on the lives of Messrs. Wiederhorn and Mendelsohn.

14
<PAGE>

business objectives. If the Company is unable to manage its growth
effectively, the Company's business, operating results and financial condition
could be materially and adversely affected.

RISKS RELATED TO FUNDING SOURCES

General. The Company will fund the loans that it originates or purchases
through borrowings under warehouse and repurchase financing facilities with
certain national investment banking firms, brokered and wholesale deposits,
secured term loans and internally generated funds. To the extent that the
Company is not successful in maintaining or replacing its existing financing
sources, it would have to curtail its loan acquisition activities or sell
loans, which may have an adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

Risks Related to Reliance on Wholesale and Brokered Deposits. Though the
Company as a whole has other sources of funding, the Savings Banks currently
use brokered and wholesale deposits as a significant source of funds. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Funding Sources."
The Savings Banks' funding strategy has been to offer deposit rates above
those customarily offered by banks and savings and loans in its market.
Because the Savings Banks compete for deposits primarily on the basis of
rates, the Savings Banks could experience difficulties in attracting deposits
to fund their operations if they could not continue to offer deposit rates at
levels above those of other banks and savings institutions. In addition, such
funding sources, when compared to retail deposits attracted through a branch
network, are generally more sensitive to changes in interest rates and
volatility in the capital markets and are more likely to be compared by the
investor to competing investments.

NO PRIOR EXPERIENCE WITH INTERNATIONAL OPERATIONS; START-UP PERIOD

The Company is expanding its activities internationally. Neither the Company
nor the Private Companies has previously conducted operations outside the
United States. Risks inherent in the Company's international business
activities generally include unexpected changes in regulatory requirements,
heightened risks of political and economic instability, difficulties in
managing international operations, potentially adverse tax consequences,
enhanced accounting and control expenses and the burden of complying with a
wide variety of foreign laws. There can be no assurance that one or more of
these factors will not have a materially adverse effect on the Company's
European operations. Since the Company's financial statements are stated in
U.S. Dollars, and since not all the Company's expenses are incurred in U.S.
Dollars, the Company's operations may be affected by fluctuations in currency
exchange rates.

The Company's international expansion will require significant capital which
will initially result in losses for such operations. As a result, the Company
does not expect its European operations to make a significant contribution to
revenues or income in the near term.

HIGH-RISK NON-TRADITIONAL BANKCARD PROCESSING ACTIVITIES

There is a higher risk of consumer charge-backs associated with non-
traditional mail order, telephone order and audiotext bankcard processing
activities because the consumer is not physically present at the time of the
transaction. Management attempts to minimize this risk through due diligence
and merchant reserves.

RISKS RELATED TO CHANGING ECONOMIC CONDITIONS AND CHANGES IN INTEREST RATES

Effect of Changing Economic Conditions. The success of the Company is
dependent to a certain extent upon the general economic conditions in the
geographic areas in which it conducts substantial business activities. Adverse
changes in national economic conditions or in the economic conditions of
regions in which the Company conducts substantial business or their real
estate markets likely would impair the ability of the Company to collect loans
and would otherwise have an adverse effect on its business, including the
demand for new loans, the ability of customers to repay loans and the value of
its collateral. Moreover, earthquakes and other natural disasters could have
similar effects.

15
<PAGE>

Effects of Changes in Interest Rates. The Company's operating results depend
to a large extent on its net interest income, which is the difference between
the interest income earned on interest-earning assets plus accreted purchase
discount and the interest expense incurred in connection with its interest-
bearing liabilities. Changes in the general level of interest rates can affect
the Company's net interest income by affecting the spread between the
Company's interest-earning assets and interest-bearing liabilities, as well
as, among other things, the ability of the Company to originate and purchase
loans; the value of the Company's interest-earning assets and its ability to
realize gains from the sale of such assets; the average life of the Company's
interest-earning assets; and the Savings Banks' ability to obtain deposits in
competition with other available investment alternatives. Interest rates are
highly sensitive to many factors, including governmental monetary policies,
domestic and international economic and political conditions and other factors
beyond the control of the Company. The Company actively monitors its assets
and liabilities and employs a hedging strategy which seeks to limit the
effects of changes in interest rates on its operations. An effective hedging
strategy is complex and no hedging strategy can completely insulate the
Company from interest rate risks. The nature and timing of and the counter-
party to a hedging transaction may impact the effectiveness of hedging
strategies. Poorly designed strategies or improperly executed transactions may
increase rather than mitigate the risk. In addition, hedging involves
transaction and other costs, and such costs could increase as the period
covered by the hedging protection increases or in periods of rising or
fluctuating interest rates. Therefore, the Company may be prevented from
effectively hedging its interest rate risks, which could have a material
adverse effect on the Company's results of operations.

CONCENTRATION IN THE STATE OF CALIFORNIA

At September 30, 1996, approximately 54.9% of the Company's total loan
portfolio was in the state of California, which from time to time, including
recently, has experienced adverse economic conditions, including a decline in
real estate values. These factors have adversely affected borrowers' ability
to repay loans. Additional declines in the local economy, rising interest
rates and regulatory requirements could have a material adverse effect on the
Company's result of operations. The concentration of the Company's total loan
portfolio is expected to change in the near future. See "Recent Developments."

REGULATION

General. The Company, as a savings and loan holding company, and the Savings
Banks, as federally-chartered savings associations, are subject to extensive
regulation and supervision, which is intended primarily for the protection of
depositors. See "Regulation." The OTS is the primary federal banking regulator
of the Company and the Savings Banks. The Savings Banks are also subject to
supervision by the FDIC, and the FDIC has "back up" authority to take
enforcement action against the Savings Banks if the OTS fails to take such
action after a recommendation by the FDIC.

Activities Limitations. The Company is currently classified as a multiple
savings and loan holding company under applicable law as a result of its
ownership of the two Savings Banks, First Bank and Girard. A savings and loan
holding company which has only one insured financial institution subsidiary
(known as a "unitary" savings and loan holding company) and which subsidiary
qualifies as a qualified thrift lender (as defined herein) generally has the
broadest authority to engage in various types of business activities with
little to no restrictions on its activities, except that historically savings
and loan holding companies have not been permitted to acquire or be acquired
by an entity engaged in securities underwriting or market making. Multiple
savings and loan holding companies are subject to activities limitations. In
general, a multiple savings and loan holding company (or subsidiary thereof
that is not an insured institution) may not commence or continue for more than
a limited period of time after becoming a multiple savings and loan holding
company (or a subsidiary thereof), any business activity other than (i)
furnishing or performing management services for a subsidiary insured
institution; (ii) conducting an insurance agency or an escrow business; (iii)
holding, managing or liquidating assets owned by or acquired from a subsidiary
insured institution; (iv) holding or managing properties used or occupied by a
subsidiary insured institution; (v) acting as trustee under deeds of trust;
(vi) those activities previously directly authorized by the OTS by regulation
as of March 5, 1987 to be engaged in by multiple

16
<PAGE>

savings and loan holding companies; or (vii) subject to prior approval of the
OTS, those activities authorized by the Federal Reserve Board (the "FRB") as
permissible investment for bank holding companies. The Company is currently
unable to merge First Bank and Girard, thereby becoming a unitary savings and
loan holding company subject to fewer activities restrictions, until certain
regulatory concerns regarding the Savings Banks are resolved. There can be no
assurance that the Company will be able to merge the Savings Banks.

LIMITATIONS ON STOCK OWNERSHIP

With certain limited exceptions, federal regulations prohibit a person or
company or a group of persons deemed to be acting in concert from, directly or
indirectly, acquiring more than 10% of any class of voting stock of the
Company or obtaining the ability to control in any manner the election of the
directors or otherwise direct the management or policies of a savings and loan
holding company or a savings institution, without prior notice or application
to and approval of the OTS.

COMPETITION

The businesses in which the Company is engaged generally are highly
competitive. Many of the Company's competitors are significantly larger than
the Company and have access to greater capital and other resources. The
acquisition of loans is particularly capital-intensive and is typically based
on competitive bidding.

CONTROL OF CURRENT STOCKHOLDERS

Upon completion of the Common Stock Offering and assuming the Underwriters'
over-allotment option is not exercised, certain executive officers and
directors of the Company will have approximately 78% of the combined voting
power of all outstanding shares of Common Stock of the Company. As a result,
these stockholders, acting together, would be able to effectively control
virtually all matters requiring approval by the stockholders of the Company.
This voting control may have the effect of discouraging offers to acquire the
Company because the consummation of any such acquisition would require the
consent of Andrew A. Wiederhorn and Lawrence A. Mendelsohn.

ABSENCE OF A PRIOR MARKET FOR THE COMMON STOCK

Prior to the Common Stock Offering, there has been no public market for the
Common Stock. The Company has applied for quotation of the Common Stock on
Nasdaq under the symbol "WFSG." Any approval of such application will be
subject to the Company's compliance with certain requirements of the NASD,
including, among other requirements, a requirement that there be at least two
market makers for the Common Stock and at least 400 stockholders of record.
Although the Company will use its best efforts to encourage and assist market
makers in establishing and maintaining a market for the Common Stock in the
over-the-counter market, there can be no assurance that there will be one or
more other market makers for the Common Stock, or that the Company will be
able to comply with the number of stockholders and other requirements of the
NASD for quotation of the Common Stock on the Nasdaq National Market.
Moreover, even if such requirements are met, there can be no assurance that an
established and liquid trading market will develop or that, if developed, it
will be sustained, especially given the small size of the Common Stock
Offering.

The initial public offering price of the Common Stock offered hereby will be
determined by negotiations among the Company and the Representative and may
not be indicative of the prices at which the Common Stock will trade after the
Common Stock Offering. See "Underwriting." Moreover, there may be significant
volatility in the market price for the Common Stock after the Common Stock
Offering. Quarterly operating results of the Company, changes in conditions in
the economy or the financial services industry or other developments affecting
the Company could cause the market price of the Common Stock to fluctuate
substantially.

SHARES ELIGIBLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, that future sales of the
Common Stock or the availability of the Common Stock for future sales, will
have on the market price of the Common Stock prevailing from time

17
<PAGE>

to time. Upon completion of the Common Stock Offering, 7,000,000 shares of
Common Stock will be issued and outstanding and 1,081,225 shares of Common
Stock (assuming the Underwriter's overallotment option is not exercised) will
be issuable upon the exercise of stock options that the Company has granted or
agreed to grant. Of such oustanding shares, 5,500,000 shares of Common Stock
will be "restricted" shares as defined in Rule 144 ("Rule 144") promulgated
under the Securities Act. Accordingly, such shares of Common Stock may not be
sold unless they are registered under the Securities Act or are sold pursuant
to an exemption from registration, including an exemption contained in Rule
144. Under Rule 144, if at least three years have elapsed since the
acquisition of restricted shares from the Company or an affiliate of the
Company (whichever is later), a holder of such restricted shares that has not
been an affiliate of the Company for the three months preceding the sale will
in general be entitled to sell such shares in the public market, without
restriction under the Securities Act. The shares of Common Stock held by
affiliates of the Company as well as any restricted shares as to which the
three-year period has not yet elapsed, will be eligible for sale under Rule
144 if the minimum two-year holding period thereunder for such shares has
elapsed, subject to volume and other restrictions. The Commission is
considering shortening these periods.

All officers and directors of the Company holding an aggregate of 5,447,927
shares have agreed not to offer, sell, or otherwise dispose of any shares of
Common Stock without the prior written consent of the Representative for a
period of 180 days after the date of this Prospectus. Sales of substantial
amounts of the Common Stock, or the perception that such sales could occur,
may affect the market price of the Common Stock prevailing from time to time.
See "Underwriting" and "Shares Eligible for Future Sale." As of the date
hereof, the Company had granted or agreed to grant options to purchase an
aggregate of approximately 1,081,225 shares of Common Stock, none of which are
currently exercisable. Such outstanding options will become exercisable 60
days after the closing of the Common Stock Offering and the Notes Offering.
Shortly after the date of this Prospectus, the Company intends to file a
registration statement on Form S-8 under the Securities Act registering
approximately 1,750,000 shares of Common Stock issuable upon the exercise of
options granted under the Company's Stock Incentive Plan pursuant to which the
Company has granted or agreed to grant options to purchase an aggregate of
1,050,000 shares of Common Stock, assuming the Underwriters' overallotment
option is not exercised. Upon effectiveness of the registration statement,
shares issued to nonaffiliates upon the exercise of the options generally will
be freely tradeable without restriction or further registration under the
Securities Act.

DILUTION

Purchasers of the Common Stock offered hereby will experience immediate
dilution in net tangible book value per share of Common Stock from the initial
public offering price. The initial public offering price is substantially
greater than the effective price at which the Company's existing stockholders
purchased their shares and the effective exercise price of the Company's
outstanding stock options. See "Dilution."

18
<PAGE>

THE COMPANY

GENERAL

WFSG was recently formed as a financial services holding company for a group
of companies previously held as a part of, and operated by, the Private
Companies. The Company will engage in a wide variety of financial activities,
including the acquisition, origination, ownership and securitization of Loan
Portfolios, banking and non-traditional bankcard processing. The Company, as a
savings and loan holding company, is subject to regulation by the OTS.

Prior to the Reorganization, the Private Companies operated principally
through two separate companies: (i) WCC, which conducted the servicing and a
portion of the loan acquisition activities; and (ii) WAC, the holding company
for the Savings Banks. The Savings Banks are subject to regulation by the OTS,
as their chartering authority, and by the FDIC as a result of their membership
in the SAIF, which insures the Savings Banks' deposits up to the maximum
extent permitted by law. The Savings Banks are also members of the Federal
Home Loan Bank ("FHLB") of San Francisco, one of 12 regional banks which
comprise the FHLB system.

The Private Companies began in 1987 as an equipment leasing company
primarily involved in leasing cellular phones. WCC was formed in May 1989 to
manage the Private Companies' activities in the loan and lease servicing
business and to service a third party's heavy industrial equipment leasing
portfolio which consisted of leases of containers, railroad cars and other
similar equipment. During the early 1990s, the Private Companies sought to
take advantage of the general decline in asset quality of financial
institutions in many areas of the country and the large number of failed
savings institutions during this period by acquiring Loan Portfolios from the
RTC, the FDIC and private sellers such as banks, thrifts, finance companies
and leasing companies and selling participations in such Loan Portfolios to
institutional investors while retaining the servicing rights and a
participation in the overall return on such Loan Portfolios. The Principals
purchased First Bank and Girard through WAC in October 1993 and November 1994,
respectively, using funds loaned to them by WCC. The Savings Banks were
acquired to provide a deposit-based funding source for the loan purchase
activities of the Private Companies. Both of the Savings Banks were acquired
at substantial discounts to their respective book values, reflecting the poor
quality of their assets and, in the case of First Bank, an expected imminent
regulatory takeover. More recently, the Company decided to expand its loan
acquisitions and servicing activities to encompass the United Kingdom and
France with a view towards future expansion in Western Europe. See "Business--
European Operations."

THE REORGANIZATION

Following the Reorganization, the Company will be the holding company for
WAC and the Savings Banks and its other subsidiaries will include WFC, a
company formed to continue the loan acquisition and loan origination
businesses of the Private Companies following the Common Stock Offering and
the Notes Offering, and WSC, a company formed to continue the loan servicing
business of the Private Companies following the receipt of necessary licenses.
In the Reorganization, WCC will not become a subsidiary of the Company or
transfer any assets or liabilities to the Company. WCC is not being included
in the new public entity due to certain tax considerations and to allow WCC to
retain sufficient assets and servicing rights to retire the Shareholder Loans.
WCC will cease to acquire new product or servicing for its own account, but
will continue to service and liquidate its existing portfolio. New loan
acquisitions and originations will be conducted by WFC. For a period of two to
three years after the closing of the Common Stock Offering and the Notes
Offering, while WSC is in the process of obtaining the relevant licensing
approvals for its servicing activities, WCC will continue to service loans for
the Company at market rates. Following such period, WSC will commence
servicing loans for the Company and WCC. See "Certain Relationships and
Related Transactions." In addition, WCC and the Principals have agreed not to
compete with the Company with respect to the acquisition of Loan Portfolios.

The Company's executive offices are located at 1776 SW Madison St.,
Portland, Oregon 97205, and the telephone number of its executive offices is
(503) 223-5600 and its facsimile number is (503) 223-8799.

19
<PAGE>

RECENT DEVELOPMENTS

LOAN ACQUISITIONS

During October 1996, the Private Companies have acquired or committed to
acquire four Loan Portfolios aggregating $311.0 million principal amount, all
of which were or will be acquired by the Savings Banks.

In October 1996, Girard committed to purchase approximately $240.8 million
unpaid principal amount of discounted residential mortgage loans offered by
Citicorp North America Inc. and Citibank N.A. in a sealed bid auction (the
"Citicorp Portfolio"). Such transaction settled on November 1, 1996 (the
"Settlement Date"). Girard made a concurrent sale of approximately $38.8
million unpaid principal amount of the Citicorp Portfolio to an unaffiliated
third party on the Settlement Date resulting in a gain. The remainder of the
purchase price to Citicorp was financed by Girard under a master repurchase
agreement with Bear Stearns Mortgage Capital Corporation ("BSMCC") pursuant to
which BSMCC has purchased certain performing and non-performing mortgage loans
and Girard has simultaneously agreed to repurchase such loans on a specified
date. The Company currently expects that Girard will repay such financing by
selling certain performing residential mortgage loans to WFC, which in turn is
expected to securitize such loans.

In October 1996, Girard acquired approximately $38.2 million in unpaid
principal amount of discounted residential mortgage loans from a successful
bidder in an auction conducted by HUD. Girard also agreed to acquire in
December 1996 approximately $31.9 million in unpaid principal amount of
discounted residential mortgage loans to be sold by a successful bidder in an
auction conducted by HUD.

As a result, on completion of such series of transactions, Girard will have
purchased approximately $272 million of unpaid principal balance discounted
residential mortgage loans and sold an equivalent market value of performing
residential mortgage loans. Although the Orders prohibit Girard from
increasing its total assets above $408 million, the amount of total assets is
only measured on a quarterly basis. Therefore, Girard may increase its assets
so long as at the end of a quarter the assets are not in excess of the amount
specified by the OTS.

WFC has also agreed to acquire approximately $106 million unpaid principal
amount of home equity loans, second lien mortgages, consumer loans and
Subordinate Securities (the "Institutional Portfolio") from a major
institutional investor (the "Institutional Investor") at a discount. The
settlement of this transaction is expected to occur in the first quarter of
1997. WCC receives a small percentage of the initial cash flow and a portion
of the profits as a servicing fee, which servicing fee will be assigned by WCC
to WSC prior to the sale of the Institutional Portfolio to WFC.

ACQUISITION OF SERVICING RIGHTS

In October 1996, Girard committed to acquire the servicing rights to a
portfolio of approximately $292 million unpaid principal amount of residential
mortgage loans offered by Merrill Lynch Credit Corporation through a
competitive bid (the "Merrill Portfolio") and the servicing transfer is
expected to be completed in the fourth quarter of 1996. Girard is expected to
retain WCC as a subservicer of the Merrill Portfolio at below-market rates.

EUROPEAN EXPANSION

The Company has agreed in principal with a major U.S. investment bank (the
"J.V. Partner") to form a joint venture to service residential mortgage loans
in the United Kingdom. Under the preliminary terms of the proposed joint
venture, the Company would acquire a 50% interest in a United Kingdom
servicing company (the "U.K. Servicer") for a nominal amount. The Company and
the J.V. Partner would each appoint three directors, and the Company would
manage the day-to-day operations of the U.K. Servicer. Each of the Company and
the J.V. Partner are expected to agree to use the U.K. Servicer to service any
U.K. residential mortgage loans acquired by such party or mortgage loans
included in securitizations placed by the J.V. Partner to the extent that
seller of such loans does not retain servicing. At September 30, 1996, the
U.K. Servicer serviced approximately (Pounds)500 million principal amount of
loans (or approximately 9,000 loans). The Company is currently negotiating the
definitive terms of the joint venture with the J.V. Partner and expects that
definitive documents will be executed in the fourth quarter of 1996 or the
first quarter of 1997. There can be no assurance, however, that this joint
venture will be completed, or as to the terms on which it may be completed.

20
<PAGE>

WILSHIRE CREDIT CORPORATION

WCC'S LOAN ACTIVITY

Since the Company has and will be engaged in the loan acquisition and
origination businesses similar to those conducted by WCC, this section
contains certain information with respect to loans serviced, acquired or
originated by WCC to assist investors in evaluating the Company's ability to
engage in these activities on an ongoing basis. These loans (including
servicing rights) are not owned by the Company and investors in the Common
Stock or the Notes will have no right or claim to such assets. The financial
statements of WCC are included as an appendix since the Company will carry on
certain similar business operations with some of the same management as WCC.
However, the Company does not believe that the historical results of
operations of WCC are representative of future results of operations of the
Company or WFC. In addition, there can be no assurance that the results of
operations of WCC will be indicative of future performance or that the Company
will be able to acquire, originate and service mortgage loans to the same
extent as WCC.

ACTIVITY IN WCC'S TOTAL LOAN PORTFOLIO

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------
1996 1995 1994 1993
------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
LOAN ACQUISITION AND ORIGINATION
DATA:
Loan purchases and originations:
Single-family residential.......... $ 143,581 $ 5,742 $ 57,832 $ 1,059
Multi-family residential........... -- 983 667 --
Commercial and other mortgage
loans............................. 3,915 2,671 39,002 1,964
Consumer and other................. 45 14,223 101,890 39,330
---------- -------- -------- --------
Total............................ 147,541 23,619 199,391 42,353
Discounted loan purchases:
Single-family residential.......... 92,444 36,653 26,342 95
Multi-family residential........... 1,158 4,773 1,392 191
Commercial and other mortgage
loans............................. 16,598 22,252 8,087 4,322
Consumer and other................. 1,030 50,345 5,669 284,663
---------- -------- -------- --------
Total............................ 111,230 114,023 41,490 289,271
---------- -------- -------- --------
Total loan acquisitions and
originations........................ $ 258,771 $137,642 $240,881 $331,624
========== ======== ======== ========
LOANS SOLD........................... $ 138,429 $133,500 $ 9,000 $ --
LOANS SERVICED-END OF PERIOD......... $1,418,507 $894,649 $889,585 $606,122
</TABLE>

21
<PAGE>

The following table sets forth the composition of WCC's total gross loan
portfolio at the end of the periods indicated.

COMPOSITION OF WCC'S TOTAL LOAN PORTFOLIO

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------------------------
1996 1995 1994 1993
------------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loan Portfolio:
Single-family residential...... $ 72,425 $ 60,951 $ 138,063 $ 197
Multi-family residential....... 1,838 2,196 721 --
Commercial and other mortgage
loans......................... 26,079 25,277 36,276 242
Consumer and other............. 30,841 51,848 96,980 50,563
--------- --------- --------- --------
Loan Portfolio............... 131,183 140,272 272,040 51,002
Discounted Loan Portfolio:
Single-family residential...... 112,972 79,636 19,939 68
Multi-family residential....... 6,265 8,835 699 135
Commercial and other mortgage
loans......................... 58,027 60,736 8,905 2,008
Consumer and other............. 313,496 261,880 324,358 453,693
--------- --------- --------- --------
Discounted Loan Portfolio.... 490,760 411,087 353,901 455,904
Accrued Interest................. 266,617 238,021 210,050 210,667
Unaccreted discount (1).......... (601,840) (615,341) (583,870) (658,946)
--------- --------- --------- --------
Total Loan Portfolio, net ....... $ 286,720 $ 174,039 $ 252,121 $ 58,627
========= ========= ========= ========
</TABLE>
- --------
(1) Includes unaccreted discount for principal and accrued interest.

WCC'S FINANCIAL INFORMATION

General. The following tables present Summary Combined Financial Information
for WCC and affiliates at the dates and for the periods indicated. The
historical income statement and balance sheet data at and for the nine months
ended September 30, 1996 and the years ended December 31, 1995, 1994 and 1993
have been derived from the audited combined financial statements of WCC and
affiliates included elsewhere in this Prospectus (the "WCC Audited Financial
Statements").

Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for any other
interim period or the entire year ending December 31, 1996. The Summary
Consolidated Financial Information should be read in conjunction with, and is
qualified in its entirety by reference to, the WCC Financial Statements and
related notes as set forth elsewhere herein.

Management believes that WCC's historical financial information is not
directly relevant in evaluating the Company's current business or results of
operations because (i) the servicing revenues of WCC--its primary source of
revenues--are significantly different from the servicing revenues that the
Company may generate in the future, (ii) the public investors will acquire no
interest in the historical assets or liabilities of WCC and the earnings on
such assets are substantially different from that which might be expected for
the Company, and (iii) the Company is not expected to generate significant
servicing revenues for at least two years.

22
<PAGE>

Significant Differences in Servicing Revenues. The servicing revenues
expected to be derived by the Company in the future are expected to be a fixed
rate per performing loan on the principal amount of such loan or a specified
dollar amount per month and a fixed rate as a percentage of the principal
amount or cash flow for a non-performing loan, in each case consistent with
standard industry practice. Servicing revenues generated by WCC in the past
are very different from those expected to be generated by the Company since a
substantial percentage of loans owned and serviced by WCC were participated
out to third party investors pursuant to participation agreements. These
participation agreements provided that WCC would generally receive 5-10% of
cash flow from each asset until the investors had received their capital and
thereafter WCC was generally entitled to receive 15-35% of the cash flow.
Accordingly, WCC's servicing revenues included an element of profit
participation which is not expected to be present in a typical servicing
arrangement for the Company and WCC's servicing revenues would be expected to
be higher than the servicing revenues expected to be generated by the Company
in the future.

No Transfer of Historical Assets and Liabilities. As part of the
Reorganization, the public investors will acquire no interest in the
historical assets or liabilities of WCC, nor in any income to be derived from
those assets or expense associated with those liabilities. As mentioned above,
the most significant assets on the WCC balance sheet are the loans subject to
participation agreements, which agreements have a significant impact on WCC's
rights to such assets and the income stream generated by such assets. It is
currently anticipated that the Company will seek to acquire assets outright
and not engage in participation agreements (in order to obtain all of the
benefit (and risk) of such assets).

Timing of Servicing Revenues. Following the completion of the Common Stock
Offering and the Notes Offering, WCC would service at market rates any loans
acquired by the Company for at least two years following the offering and
possibly longer (up to three years). Accordingly, the Company would have a
servicing expense (the fee payable to WCC) during such period and WCC would
generate the profits associated with such servicing (the servicing fee less
the cost of servicing).

<TABLE>
<CAPTION>
NINE MONTHS
ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------
WCC SELECTED FINANCIAL 1996 1995 1994 1993
INFORMATION ------------- -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Servicing fees.................. $ 6,041 $ 9,739 $ 3,339 $1,356
Interest and dividend income.... 6,718 5,124 1,667 560
Other revenues.................. 1,542 668 657 4,509
Compensation and other general
and administrative expenses.... (9,278) (11,029) (5,964) (4,509)
Interest expense................ (9,116) (3,789) (894) (339)
Other........................... 72 (194) 133 --
-------- -------- -------- ------
Net income (loss)............... $ (4,021) $ 519 $ (1,062) $1,577
======== ======== ======== ======
BALANCE SHEET DATA:
Total assets.................... $353,168 $206,373 $288,004
Loan portfolio, net............. -- 121,420 125,942
Discounted Loan portfolio, net.. 4,824 19,352 17,188
Loans held for sale, at lower of
cost or market................. 281,896 33,267 108,991
Participation liabilities....... 143,424 150,298 205,331
Borrowings...................... 243,239 70,165 60,941
Stockholders' equity (deficit).. (50,963) (23,801) (11,099)
</TABLE>

23
<PAGE>

Servicing Fees and Income from Investments in Loans and Securities. WCC's
servicing fees decreased by $1.7 million, and income from investments in loans
and securities increased by $3.8 million, during the nine months ended
September 30, 1996 (annualized basis) compared to the year ended December 31,
1995. These changes are related to a shift between mid-1995 and mid-1996 to a
strategy of acquiring more loan portfolios for WCC's own account rather than
acquiring loans with participation funding. Participation arrangements entail
greater servicing income, whereas direct ownership in loans entails more
interest income.

Other Revenues. Other revenues are derived from various sources including
rental income from commercial properties and gains on sales of loans. Total
other revenues increased during the first nine months of 1996 compared to the
year ended December 31, 1995 due to the sale of loans which resulted in a gain
of approximately $0.9 million.

General and Administrative Expense. WCC's general and administrative expense
increased by approximately $1.3 million during the nine months ended September
30, 1996 (annualized basis) compared to the year ended December 31, 1995 as a
result of the increased cost in acquiring and servicing a greater number of
loan portfolios.

Interest Expense. WCC's interest expense increased by approximately $8.4
million during the nine months ended September 30, 1996 (annualized basis)
compared to the year ended December 31, 1995 as a result of increased
borrowings to acquire loan portfolios and to fund shareholder loans to
capitalize the Savings Banks.

Performing and Discounted Loans. WCC's loans increased by approximately
$112.7 million during the nine months ended September 30, 1996 as a result of
the Company's business strategy of aggressively acquiring loan portfolios of
discounted loans and performing mortgage loans.

Participations. Participations decreased by approximately $6.9 million
during the nine months ended September 30, 1996 primarily as a result of
securitization of portfolios or the resolution of outstanding loans and
decreased reliance on participation funding for acquiring loan portfolios.

Borrowings. Borrowings increased by approximately $173.1 million during the
nine months ended September 30, 1996 as a result of WCC securitizing certain
loans (accounted for as a financing), acquiring more loan portfolios for WCC's
own account rather than acquiring loans with participation funding, and
distributions to shareholders.

Stockholders' Equity. Stockholders' equity decreased by approximately $27.2
million during the nine months ended September 30, 1996 primarily as a result
of distributions to shareholders, primarily for the purpose of adding capital
to affiliated banks to fund growth and for other purposes.

24
<PAGE>

USE OF PROCEEDS

Net proceeds to be received by the Company from the Common Stock Offering
currently are estimated to be $ million after deducting the underwriting
discount and estimated offering expenses payable by the Company ($
million, if the Common Stock Underwriters' over-allotment option is exercised
in full). Net proceeds to be received by the Company from the Notes Offering
currently are estimated to be $ million after deducting the underwriting
discount and estimated offering expenses payable by the Company ($ million,
if the Notes Underwriters' over-allotment is exercised in full).

Net proceeds will be available for leveraged acquisitions of Loan Portfolios
and for general corporate purposes, including expansion into Western Europe.
Such net proceeds will give the Company increased flexibility in conducting
the businesses in which it is engaged, including the acquisition and
resolution of Discounted Loans and other loans.

DIVIDEND POLICY

The Company currently intends to retain its earnings to support its future
growth strategy and does not anticipate paying any dividends on the Common
Stock in the foreseeable future. As a holding company, the ability of the
Company to pay dividends is dependent upon the receipt of dividends or other
payments from its subsidiaries. There are various regulatory restrictions on
the ability of the Savings Banks to pay dividends or make other distributions
to the Company. See "Regulation--The Savings Banks--Restrictions on Capital
Distributions" and "--Affiliate Transactions." In addition, the Company is
subject to certain restrictions on distributions to stockholders under the
indenture relating to the Notes. Any determination to pay dividends in the
future will be at the discretion of the Company's Board of Directors and will
be dependent upon the Company's results of operations, financial condition,
contractual restrictions, and other factors deemed relevant at that time by
the Company's Board of Directors.

25
<PAGE>

DILUTION

The net book value of the Company's Common Stock as of September 30, 1996
was $34.6 million or approximately $6.28 per share. Net tangible book value
per share represents the amount of the Company's stockholders' equity, less
intangible assets, divided by shares of Common Stock outstanding.

Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Common
Stock Offering and the pro forma net tangible book value per share of Common
Stock immediately after the completion of the Common Stock Offering. Shares
used in the computation of per share amounts below include 5,500,000 shares
outstanding as of September 30, 1996 and 1,500,000 shares of Common Stock
issued in the Common Stock Offering. After giving effect to the sale by the
Company of 1,500,000 shares of Common Stock in the Common Stock Offering and
$75 million principal amount of Notes in the Notes Offering and the
application of the estimated net proceeds therefrom, the pro forma net
tangible book value of the Company as of September 30, 1996 would have been
$50.7 million or $7.24 per share. This represents an immediate increase in net
tangible book value of $.96 per share to existing stockholders and an
immediate dilution in net tangible book value of $4.76 per share to purchasers
of Common Stock in the Common Stock Offering, as illustrated in the following
table:

<TABLE>
<S> <C>
Assumed Common Stock Offering price per share(1)....................... $12.00
Pro-forma net tangible book value per share as of September 30,
1996(2)............................................................. $ 6.28
Increase per share attributable to new investors..................... $ .96
Pro forma net tangible book value per share after the Common Stock Of-
fering and Notes Offering(3).......................................... $ 7.24
Dilution per share to new investors.................................... $ 4.76
</TABLE>
- --------
(1) Before deducting estimated underwriting discounts and estimated expenses
of the Common Stock Offering payable by the Company.
(2) Outstanding shares as of September 30, 1996 are based on Common Stock
issued, at the date when WFSG was formed, to existing shareholders of WAC
and the Savings Banks in exchange for their Common Stock of those
entities. WFSG was actually formed subsequent to September 30, 1996.
(3) Excludes 1,050,000 shares of Common Stock issuable upon the exercise of
options to be granted at the Closing of the Common Stock Offering and
Notes Offering pursuant to the Incentive Stock Plan and 31,225 shares of
Common Stock issuable upon the exercise of options. See "Management--
Incentive Stock Plan--Options to be Granted at Closing."

The following table summarizes on a pro forma as adjusted basis as of
September 30, 1996, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share of the Common Stock paid by the existing stockholders and the new
investors in the Common Stock Offering.

<TABLE>
<CAPTION>
SHARES OWNED
AFTER THE PUBLIC
OFFERING TOTAL CONSIDERATION AVERAGE
----------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1).... 5,500,000 78.57% 34,554 65.75% $ 6.28
New Investors............... 1,500,000 21.43% 18,000 34.25% $12.00
--------- ----- ---------- --------- ------
Total..................... 7,000,000 100% 52,554 100%
</TABLE>
- --------
(1) Excludes shares of Common Stock issuable upon the exercise of options. See
"Management--Incentive Stock Plan--Options to be Granted at Closing."

26
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company at
September 30, 1996 and as adjusted as of that date to give effect to (i) the
Common Stock Offering and the Notes Offering and the application of the net
proceeds therefrom as described under "Use of Proceeds"; (ii) no exercise of
any over-allotment option; and (iii) the Reorganization pursuant to which
certain of companies in the Private Companies became subsidiaries of the
Company. This information below should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto which are included
elsewhere herein. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Use of Proceeds" and "Management--
Executive Compensation" and "--Incentive Stock Plan."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Repurchase agreements.............................. $ -- $ --
Long-term debt:
% Notes due 2003.................................. -- 75,000
---------- -----------
Total.......................................... -- 75,000
---------- -----------
Stockholders' equity:
Preferred Stock, par value $0.01 per share;
10,000,000 shares authorized; no shares outstand-
ing............................................... -- --
Common Stock, par value $0.01 per share; 50,000,000
shares authorized; 5,500,000 shares issued and
outstanding (actual); 7,000,000 shares issued and
outstanding (as adjusted) for the Common Stock Of-
fering(1)......................................... 35,550 50,690
Retained earnings (accumulated deficit)............ (827) (827)
Unrealized gain on available for sale securities... (169) (169)
---------- -----------
Total stockholders' equity..................... 34,554 50,694
---------- -----------
Total capitalization........................... $ 34,554 $ 125,694
========== ===========
Savings Banks' Regulatory Capital:
Regulatory capital ratios of First Bank
Tangible capital................................. 6.0% 6.0%
Core capital..................................... 5.9% 5.9%
Total capital to risk-weighted assets............ 10.0% 10.0%
Regulatory capital ratios of Girard
Tangible capital................................. 6.8% 6.8%
Core capital..................................... 7.0% 7.0%
Total capital to risk-weighted assets............ 11.0% 11.0%
</TABLE>
- --------
(1) Excludes shares of Common Stock issuable upon the exercise of options. See
"Management--Incentive Stock Plan--Options to be Granted at Closing."

27
<PAGE>

SELECTED FINANCIAL INFORMATION

The following tables present Selected Financial Information for the Company
at the dates and for the periods indicated. The historical income statement
and balance sheet data at and for the nine months ended September 30, 1996 and
the years ended December 31, 1995 and 1994 have been derived from the Audited
Consolidated Financial Statements included elsewhere in this Prospectus.

On October 7, 1993, WAC acquired 94.9% of the common stock of First Bank in
a purchase accounting transaction. On November 9, 1994, a newly-formed entity
with ownership and management common to WAC, Wilshire Acquisitions Corporation
II ("WACII") acquired 94.9% of the common stock of Girard in a purchase
accounting transaction.

Because WAC and WACII were under common control, the accompanying financial
statements are presented on a combined basis as of December 31, 1994 and for
the period from November 9 through December 31, 1994. On December 27, 1995,
WAC and WACII were merged and WAC was named as the surviving entity. Financial
information as of September 30, 1996 and December 31, 1995 and for the nine
months and year then ended, respectively, is presented on a consolidated basis
and includes the accounts of WAC, First Bank, and Girard. With respect to all
consolidated and combined financial information, intercompany transactions and
balances have been eliminated. For convenience, all the accompanying financial
statements are referred to as "consolidated".

The historical income statement and data presented for the nine months ended
September 30, 1995 has been derived from unaudited consolidated financial
statements (the "Unaudited Financial Statements" and, together with the
Audited Financial Statements, the "Consolidated Financial Statements") and
include all adjustments, consisting only of normal recurring accruals, which
the Company considers necessary for a fair presentations to the Company's
results of operations for these periods. Operating results for the nine months
ended September 30, 1996 are not necessarily indicative of the results that
may be expected for any other interim period or the entire year ending
December 31, 1996. The Summary Consolidated Financial Information should be
read in conjunction with, and is qualified in its entirety by reference to,
the Consolidated Financial Statements and related notes as set forth elsewhere
herein.

28
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ ------------------
1996 1995 1995 1994
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest Income:
Loans..................... $ 31,686 $ 15,224 $ 21,821 $ 7,923
Mortgage-backed
securities............... 1,280 1,099 1,359 1,361
Investments and federal
funds sold............... 1,171 729 1,201 285
-------- -------- -------- --------
Total interest income..... 34,137 17,052 24,381 9,569
-------- -------- -------- --------
Interest expense:
Deposits.................. 17,448 9,979 13,944 5,017
Borrowings................ 2,144 432 537 440
-------- -------- -------- --------
Total interest expense.... 19,592 10,411 14,481 5,457
-------- -------- -------- --------
Net interest income........ 14,545 6,641 9,900 4,112
Provision for estimated
losses on loans........... 15,751 3,221 4,266 2,173
-------- -------- -------- --------
Net interest (loss) income
after provision for
estimated losses on
loans..................... (1,206) 3,420 5,634 1,939
-------- -------- -------- --------
Other Income:
Bankcard income(1)........ 5,078 3,202 4,694 635
Bankcard processing
expense.................. (3,865) (2,408) (3,462) (274)
Gain on sale of loans..... 1,983 981 642 --
Loan fees and charges..... 1,217 522 610 43
Trading account--
unrealized gain.......... 1,601 -- -- --
Gain on sale of mortgage-
backed securities
available for sale....... -- -- 14 54
Amortization of deferred
credits.................. 346 346 460 388
Other, net................ 17 91 149 381
-------- -------- -------- --------
Total other income........ 6,377 2,734 3,107 1,227
-------- -------- -------- --------
Other Expenses:
Compensation and employee
benefits................. 2,955 1,716 2,516 1,922
FDIC insurance premiums... 2,066 444 721 261
Occupancy................. 218 221 385 319
Professional services..... 572 461 1,028 507
Data processing and
equipment rentals........ 189 146 232 162
Real estate owned, net.... 231 46 170 241
Loan service fees and
expenses................. 3,522 1,015 1,958 242
Other general and
administrative expenses.. 1,152 1,198 1,092 1,290
-------- -------- -------- --------
Total other expenses...... 10,905 5,247 8,102 4,944
-------- -------- -------- --------
(Loss) income before income
tax (benefit) provision... (5,734) 907 639 (1,778)
Income tax (benefit)
provision................. (4,652) 68 47 (526)
-------- -------- -------- --------
Net (loss) income.......... $ (1,082) $ 839 $ 592 $ (1,252)
======== ======== ======== ========
(Loss) earnings per
share(2).................. $ (14.05) $ 35.56 $ 25.09 $(135.43)
======== ======== ======== ========
</TABLE>

29
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
1996 1995 1994
------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................. $533,109 $341,454 $230,636
Cash and due from banks...................... 11,231 3,382 4,880
Federal funds sold........................... 9,300 1,100 3,950
Trading account securities................... 7,092 -- --
Investment securities held to maturity, at
amortized cost.............................. 7,425 6,470 4,505
Mortgage-backed securities available for
sale, at fair value......................... 6,483 9,083 10,943
Mortgage-backed securities held to maturity,
at amortized cost........................... 22,380 13,119 14,439
Loan portfolio, net(3)....................... 177,280 258,827 179,377
Discounted loan portfolio:
Total loans................................. 10,767 20,210 2,995
Unaccreted discount......................... (1,632) (3,008) (470)
Allowance for loan losses................... (5,716) (3,855) (431)
Discounted loans, net....................... 3,419 13,347 2,094
Loans held for sale, net, at lower of cost or
market...................................... 260,804 18,597 --
Stock in FHLB of San Francisco, at cost...... 2,911 1,421 1,612
Real estate owned, net....................... 2,514 4,964 1,208
Leasehold improvements and equipment......... 336 275 167
Due from affiliate(4)........................ 8,357 4,514 4,062
Accrued interest receivable.................. 4,268 3,042 1,599
Prepaid expenses and other assets............ 3,887 1,724 1,026
Income taxes receivable, net................. 5,422 1,589 774
Deposits..................................... 487,535 303,524 196,289
Borrowings................................... -- 13,000 21,500
Due to affiliates(5)......................... 2,286 759 652
Deferred credits(6).......................... 832 1,134 1,772
Subordinated debt(7)......................... -- 11,000 --
Minority interest............................ 277 600 574
Preferred stock in subsidiary held by oth-
ers......................................... -- -- 1,000
Accounts payable and other liabilities....... 7,625 4,398 2,056
Stockholders' equity(7)...................... 34,554 7,039 6,793
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
NINE MONTHS
ENDED
SEPTEMBER 30,
1996 1995 1994
------------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
Return on average assets....................... (.22)% .24% (.92)%
Return on average equity....................... (3.09)% 8.65% (31.03)%
Average interest rate on total loans........... 9.39 % 9.57% 7.65 %
Average equity to average assets............... 7.24 % 2.72% 2.96 %
Net interest spread(8)......................... 3.15 % 3.08% 2.85 %
Net interest margin(9)......................... 3.88 % 3.72% 3.04 %
Ratio of earnings to fixed charges(10)(11):
Including interest on deposits................ .71 1.04 .67
Excluding interest on deposits................ (1.67) 2.19 (3.04)
Non-performing loans to loans at end of
period(3)..................................... 9.11 % 4.46% 5.95 %
Allowance for loan losses to total loans at end
of period..................................... 9.2 % 7.6% 3.9 %
</TABLE>

30
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ---------------
1996 1995 1994
------------- ------- -------
<S> <C> <C> <C>
LOAN ORIGINATIONS............................... $ 2,280 $ 8,748 $ 4,345
LOAN ACQUISITION DATA:
Loan Portfolio:
Single-family residential...................... 221,581(12) 121,883 36,462
Multi-family residential....................... -- -- 61,247
Commercial and other mortgage loans............ -- 2,126 31,091
Consumer and other loans(13)................... 18,742 11,012 10,847
Discounted Loans:
Single-family residential...................... -- (14) 49,662 1,542
Multi-family residential....................... -- (14) 96 --
Commercial and other mortgage loans............ -- 869 1,843
Consumer and other loans....................... -- 5,368 239
LOANS SOLD...................................... 27,965 16,673 --
</TABLE>
- --------
(1) The Company began its bankcard operations in 1994.
(2) (Loss) earnings per share amounts are based on weighted average number of
shares outstanding of WAC during the applicable periods. See Note 1 in
the Company's Consolidated Financial Statements. The capital structure of
WAC is substantially different from that of WFSG, which did not exist at
or prior to September 30, 1996. There were no dividend payments on common
stock by WAC during any periods presented.
(3) This item does not include Discounted Loans.
(4) Due from affiliate consists of amounts received by WCC from mortgagors on
loans it is servicing for the Company and has not yet transferred to the
Company.
(5) Due to affiliates primarily consists of amounts owed to WCC for WAC
operating expenses paid by WCC.
(6) Deferred credits represent negative goodwill--the excess of the net fair
values of the Savings Banks' assets and liabilities over the purchases
prices paid by WAC for the Savings Banks.
(7) Effective January 1, 1996, $11.0 million of Common Stock was issued in
exchange for subordinated debt. Subsequently, an additional $17.8 million
of Common Stock was issued for cash.
(8) Net interest spread represents average yield on interest-earning assets
minus average rate paid on interest-bearing liabilities.
(9) Net interest margin represents net interest income divided by total
average earning assets.
(10) The ratios of earnings to fixed charges were computed by dividing (x)
income from continuing operations before income taxes, extraordinary
gains and cumulative effect of a change in accounting principle plus
fixed charges by (y) fixed charges. Fixed charges represent total
interest expense, including and excluding interest on deposits, as
applicable, as well as the interest component of rental expense. Earnings
for the nine months ended September 30, 1996 and the year ended December
31, 1994 were inadequate to cover fixed charges by $5,734 and $1,778,
respectively.

(11) Pro forma ratio of earnings to fixed charges for the nine months ended
September 30, 1996 and the year ended December 31, 1995 were .66 and .85,
respectively.
(12) The Company currently expects that Girard will sell certain single-family
residential loans to WFC which in turn is expected to securitize such
loans. See "Recent Developments."
(13) Includes $24.5 million of Sub-Prime Auto Loans acquired in late 1995 and
early 1996.
(14) Girard has purchased or committed to purchase approximately $272 million
unpaid principal amount of discounted residential mortgage loans. See
"Recent Developments."

31
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with Selected
Financial Information and the Consolidated Financial Statements of the Company
and the notes thereto included elsewhere in this Prospectus.

OVERVIEW

The Company's net interest income has increased substantially during the
last three years primarily due to the growth in the Company's total loan
portfolio resulting from the Company's strategy of aggressively acquiring Loan
Portfolios and by the acquisition of First Bank in 1993 and Girard in 1994.
The Company's total loan portfolio, net as of September 30, 1996 and December
31, 1995 and 1994 was $441.5 million, $290.8 million and $181.5 million,
respectively. Net interest income for the nine month period ended September
30, 1996 and for the years ended December 31, 1995 and 1994 was $14.5 million,
$9.9 million and $4.1 million, respectively.

The Company has reported net losses and reduced net income in recent periods
primarily as a result of significant additions to the Company's provision for
estimated losses on loans, primarily Inherited Loans and Sub-Prime Auto Loans.
The Company reported a net loss of approximately $1.1 million for the nine
months ended September 30, 1996, compared to net income in the similar prior
year period of $0.8 million. The Company reported net income of $0.6 million
for the fiscal year ended December 31, 1995 compared to a loss in calendar
1994 of $1.3 million.

The Company's net losses during the first nine months of fiscal year 1996
and the fiscal year 1994 and lower net income in fiscal year 1995 resulted
primarily from provisions for losses on loans. Provisions for loan losses
totaled approximately $15.8 million in the first nine months of 1996, $4.3
million for the year ended December 31, 1995 and $2.2 million in 1994. These
loss provisions resulted primarily from deterioration in the Company's
Inherited Loans and Sub-Prime Auto Loans. These loss provisions reflect the
poor quality of the assets of the Savings Banks at the time they were acquired
by the Company and loan loss provisions taken with respect to Sub-Prime Auto
Loans. Following the addition of approximately $4.5 million of reserves taken
in the third quarter of 1996, allowances for Sub-Prime Auto Loans as a
percentage of the unpaid principal balances were 52.3% at September 30, 1996.

PRINCIPAL SOURCES OF REVENUE

The principal component of the Company's revenues is interest income, with
lesser contributions from gains on securitizations and income from bankcard
processing operations. The following table sets forth the components of the
Company's revenues for the periods indicated:

SOURCES OF REVENUE

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- ---------------
1996 1995 1995 1994
-------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income.......................... $34,137 $17,052 $24,381 $ 9,569
Gains on sale of loans................... 1,983 981 642 --
Bankcard income.......................... 5,078 3,202 4,694 635
Other, net(1)............................ 3,181 959 1,233 866
-------- -------- ------- -------
Total revenue.......................... $44,379 $22,194 $30,950 $11,070
======== ======== ======= =======
</TABLE>
- --------
(1) Other consists primarily of loan fees and charges, the amortization of
negative goodwill and unrealized gain on trading securities.

Net Interest Income. The operations of the Company are substantially
dependent on its net interest income, which is the difference between the
interest income received plus accreted purchase discount from its assets and

32
<PAGE>

the interest expense paid on its interest-bearing liabilities. Net interest
income is affected by the relative amount of interest-earning assets and
interest-bearing liabilities, the degree of mismatch in the maturity and
repricing characteristics of its interest-earning assets and interest-bearing
liabilities and timing of receipt of purchased principal discount. With
respect to the Company's Discounted Loan portfolio, the Company treats
accreted discount on Discounted Loans as interest for accounting purposes.

The following table sets forth, for the periods indicated, information
regarding the total amount of income from interest-earning assets and the
resultant average yields, the interest expense associated with interest-
bearing liabilities, expressed in dollars and rates, and the net interest
spread and net interest margin. Information is based on quarterly balances
during the indicated periods.

INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -----------------------------------------------------------
SEPTEMBER 30, 1996 1995 1994
-------------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE(1) BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
-------- -------- ------------- -------- -------- ---------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Assets:
Mortgage-backed
securities............. $ 28,934 $ 1,280 5.90% $ 24,054 $ 1,359 5.65% $ 23,515 $1,361 5.79%
Loan portfolio(2)....... 449,947 31,686 9.39 227,970 21,821 9.57 103,583 7,923 7.65
Investment securities
and other.............. 21,242 1,171 7.35 14,216 1,201 8.45 7,969 285 3.58
-------- ------- -------- ------- -------- ------
Total interest-earning
assets, interest
income................. 500,123 34,137 9.10 266,240 24,381 9.16 135,067 9,569 7.08
Non-interest earning
cash................... 5,218 -- -- 1,868 -- -- 2,053 -- --
Allowance for loan
losses and unaccreted
discount............... (50,732) -- -- (31,845) -- -- (8,595) -- --
Other assets............ 29,225 -- -- 15,277 -- -- 7,646 -- --
-------- ------- -------- ------- -------- ------
Total assets........... $483,834 $34,137 $251,540 $24,381 $136,171 $9,569
======== ======= ======== ======= ======== ======
Average Liabilities and
Stockholders' Equity:
Interest-bearing
deposits............... $405,549 $17,448 5.74 $231,555 $13,944 6.02 $118,277 $5,017 4.24
FHLB advances........... 1,778 105 7.87 1,381 104 7.53 5,916 228 3.85
Subordinated debentures
and other interest-
bearing obligations.... 31,697 2,039 8.58 5,383 433 8.04 4,757 212 4.46
-------- ------- -------- ------- -------- ------
Total interest-bearing
liabilities, interest
expense............... 439,024 19,592 5.95 238,319 14,481 6.08 128,950 5,457 4.23
Non-interest bearing
deposits............... 2,202 -- -- 2,196 -- -- 1,537 -- --
Escrow deposits......... 225 -- -- 106 -- -- 74 -- --
Other liabilities....... 7,364 -- -- 4,077 -- -- 1,582 -- --
-------- ------- -------- ------- -------- ------
Total liabilities...... 448,815 19,592 244,698 14,481 132,143 5,457
Stockholders' equity.... 35,019 -- -- 6,842 -- -- 4,028 -- --
-------- ------- -------- ------- -------- ------
Total liabilities and
stockholders' equity.. $483,834 $19,592 $251,540 $14,481 $136,171 $5,457
======== ======= ======== ======= ======== ======
Net interest income..... $14,545 $ 9,900 $4,112
Net interest spread..... 3.15 3.08 2.85
Net interest margin..... 3.88 3.72 3.04
Ratio of average
interest-earning assets
to average interest-
bearing liabilities.... 113.9% 111.7% 104.7%
======== ======== ========
</TABLE>
- --------
(1) Presented on an annualized basis.
(2) The average balances of the loan portfolio include Discounted Loans and
non-performing loans, interest on which is recognized on a cash basis.

33
<PAGE>

The following table describes 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 interest income and expense during the
periods indicated. For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to (i)
changes in volume (change in volume multiplied by prior rate), (ii) changes in
rate (change in rate multiplied by prior volume) and (iii) total change in
rate and volume. Changes attributable to both volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.

CHANGES IN NET INTEREST INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996 VS. YEAR ENDED DECEMBER 31,
YEAR ENDED ------------------------------------------------
DECEMBER 31, 1995 1995 VS. 1994 1994 VS. 1993
------------------------- ----------------------- -----------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO DUE TO
------------------------- ----------------------- -----------------------
RATE VOLUME TOTAL RATE VOLUME TOTAL RATE VOLUME TOTAL
------ -------- ------- ------ ------- ------- ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Mortgage-backed
securities............ $ (14) $ (65) $ (79) $ (37) $ 35 $ (2) $ 168 $ 975 $1,143
Loan portfolio......... (197) 10,062 9,865 2,405 11,493 13,898 60 6,480 6,540
Investment securities
and other............. 11 (41) (30) 581 335 916 (112) 344 232
------ -------- ------- ------ ------- ------- ------- ------ ------
Total interest-earning
assets................ (200) 9,956 9,756 2,949 11,863 14,812 116 7,799 7,915
Interest-Bearing Liabil-
ities:
Interest-bearing depos-
its................... (236) 3,740 3,504 2,723 6,204 8,927 1,368 2,885 4,253
FHLB advances.......... -- 1 1 (626) 502 (124) -- 228 228
Other interest-bearing
obligations........... 22 1,584 1,606 191 30 221 146 (19) 127
------ -------- ------- ------ ------- ------- ------- ------ ------
Total interest-bearing
liabilities........... (214) 5,325 5,111 2,288 6,736 9,024 1,514 3,094 4,608
------ -------- ------- ------ ------- ------- ------- ------ ------
Increase (decrease) in
net interest income.... $ 14 $ 4,631 $ 4,645 $ 661 $ 5,127 $ 5,788 $(1,398) $4,705 $3,307
====== ======== ======= ====== ======= ======= ======= ====== ======
</TABLE>

RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1996
VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1995

NET INTEREST INCOME

The Company's net interest income increased by approximately $7.9 million or
118.9% during the nine months ended September 30, 1996, as compared to the
same period in the prior year. This increase resulted from an approximately
$17.1 million or 100.2% increase to interest income due to an approximately
$239.1 million or 91.6% increase in average interest-earning assets from
period to period. The increase in interest income was offset in part by an
approximately $9.2 million or 88.2% increase in interest expense due to an
approximately $216.8 million or 97.6% increase in average interest-bearing
liabilities, primarily certificates of deposit, and, to a lesser extent, a 21
basis point increase in the weighted average rate paid on interest-bearing
liabilities.

The increase in interest income during the nine months ended September 30,
1996, as compared to the same period in the prior year, reflects substantial
increases in the average balances of the loan portfolio. The Company's
business strategy currently contemplates continued strong growth in its total
loan portfolio, with a particular emphasis on increasing its Discounted Loan
portfolio. For information on the growth in the Company's total loan
portfolio, including its Discounted Loan portfolio, see "--Changes in
Financial Condition" below.

The average balance of the Company's interest-bearing liabilities increased
$216.8 million or 97.6% during the nine months ended September 30, 1996, as
compared to the same period in the prior year, as a result of the Savings
Banks' financing of growth of interest-bearing assets. As of the closing of
the Common Stock Offering, the Company will have extensive funding sources
available for investment and lending activities. See "Business--Funding
Sources."

34
<PAGE>

PROVISIONS FOR ESTIMATED LOSSES ON LOANS

Provisions for losses on loans are charged to operations to maintain an
allowance for losses on each of the loan portfolio and the Discounted Loan
portfolio at a level which management considers adequate based upon an
evaluation of known and inherent risks in such loan portfolio and the
Discounted Loan portfolio, historical loss experience, current economic
conditions and other relevant factors. See "Business--Asset Quality--
Allowances for Loan Losses" for a discussion of management's methods of
estimating loan loss provisions.

The Company recorded provisions for estimated losses on loans totalling
approximately $15.8 million for the nine months ended September 30, 1996, as
compared to approximately $3.2 million for the comparable period in the prior
year, an increase of 389.0%. The following table sets forth the Company's
provision for estimated losses on loans for the nine months ended September
30, 1996:

<TABLE>
<CAPTION>
% OF
PROVISIONS TOTAL
---------- ------
(IN THOUSANDS)
<S> <C> <C>
Inherited Loans.......................................... $ 4,774 30.3%
Sub-Prime Auto Loans..................................... 8,583 54.5%
Other Purchased Loans.................................... 2,394 15.2%
------- ------
Total provision for estimated losses on loans............ $15,751 100.0%
======= ======
</TABLE>

Approximately $6.1 million of the increase in the provisions from 1995 to
1996 was made after discussions between the OTS and the Savings Banks
concerning the appropriate provision for the Sub-Prime Auto Loans acquired by
the Savings Banks in the fourth quarter of 1995 and the first quarter of 1996.

The Company also made a provision of approximately $4.8 million in the nine
months ended September 30, 1996 related to Inherited Loans owned by First Bank
or Girard at the time the Savings Banks were acquired by the Company. Both
Savings Banks were acquired at substantial discounts to their respective book
values, reflecting the poor quality of their assets.

Although management attempts to utilize its best judgment in providing for
possible loan losses, changing economic and business conditions, fluctuations
in local markets for real estate, future changes in non-performing asset
trends, large movements in market interest rates or other factors could affect
the Company's future provisions for loan losses. In addition, the OTS, as an
integral part of its examination process, periodically reviews the adequacy of
the Bank's allowances for losses on loans and Discounted Loans and such agency
may require the Company to recognize changes to such allowances for losses
based on its judgment about information available to it at the time of
examination.

NET INTEREST INCOME AFTER PROVISION FOR ESTIMATED LOSSES ON LOANS

The Company's net interest income (loss) after provision for estimated
losses on loans decreased 135.3% to a loss of approximately $(1.2) million for
the nine months ended September 30, 1996 from income of approximately $3.4
million for the same period in 1995. This decrease was due to the substantial
increase in provisions for estimated losses on loans.

35
<PAGE>

OTHER INCOME

The Company's other income was approximately $6.4 million for the nine
months ended September 30, 1996 compared to approximately $2.7 million for the
same period in the prior year, an increase of 133.3%. This increase was
primarily attributable to revenue growth in the Company's bankcard operation
and from gains on the sale of loans. The components of the Company's non-
interest income are reflected in the following table:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Other income:
Bankcard income................................ $ 5,078 $ 3,202
Bankcard processing expense.................... (3,865) (2,408)
Gain on sale of loans.......................... 1,983 981
Loan fees and charges.......................... 1,217 522
Amortization of deferred credits............... 346 346
Trading account-unrealized gain................ 1,601 --
Other, net..................................... 17 91
----------- -----------
Total other income........................... $ 6,377 $ 2,734
=========== ===========
</TABLE>

Bankcard Income and Processing Expense. The increase in other income for the
nine months ended September 30, 1996 was due in part to an increase of
approximately $1.9 million in bankcard income, from approximately $3.2 million
for the nine months ended September 30, 1995 to approximately $5.1 million for
the nine months ended September 30, 1996. The large increase in income from
the Company's bankcard operations was primarily due to the development of a
number of new accounts. Bankcard processing expense increased by approximately
$1.5 million from approximately $2.4 million for the nine months ended
September 30, 1995 to approximately $3.9 million for the nine months ended
September 30, 1996. This increase resulted primarily from an increase in
bankcard processing due to growth in merchant transactions evidenced by the
growth in bankcard income.

Gains on Sale of Loans. The increase in other income in 1996 was also due in
part to an increase of approximately $1.0 million in gains on sales of loans,
from $1.0 million for the nine months ended September 30, 1995 to
approximately $2.0 million for the nine months ended September 30, 1996. This
increase was due to gains from the securitization of approximately $33.1
million of non-performing and sub-performing mortgage loans and real estate
owned.

Gains or losses on Loan Portfolios sold through securitization transactions
are based on the difference between the cash proceeds received on the
certificates sold to outside investors (the "Senior Securities") and the
Company's cost basis allocated to the Senior Securities. The Company's cost
basis in Loan Portfolios sold is allocated between the Senior Securities and
the Subordinate Securities retained by the Company based on the relative fair
values of the two types of securities. The cost basis of the loans securitized
is determined by their acquisition cost (for purchased loans) or net carrying
value (for originated loans). The Company carries Subordinate Securities at
fair value. As such, the carrying value of these securities is impacted by
changes in market interest rates and prepayment and loss experiences of these
and similar securities. The Company determines the fair value of the
Subordinate Securities utilizing prepayment and credit loss assumptions
appropriate for each particular securitization. The range of values
attributable to the factors used in determining fair value is broad.
Accordingly, the Company's estimate of fair value is subjective.

Other income also includes loan fees and charges (e.g. late fees, commitment
fees). Loan fees and charges increased approximately $0.7 million, from
approximately $0.5 million for the nine months ended September 30, 1995 to
approximately $1.2 million for the nine months ended September 30, 1996. The
increase was primarily due to an increase in loan volume.

36
<PAGE>

OTHER EXPENSE

The Company's other expenses totalled approximately $10.9 million for the
nine months ended September 30, 1996 compared to approximately $5.2 million
for the nine months ended September 30, 1995, an increase of 107.8%.

Loan Service Fees and Expenses. The largest component of other expenses in
1996 was loan service fees and expense which increased by approximately $2.5
million from approximately $1.0 million for the nine months ended September
30, 1995 to approximately $3.5 million for the nine months ended September 30,
1996. Loan servicing fees and charges are paid to WCC and include (a) "normal"
servicing fees, and (b) collection-related expenses incurred directly by WCC
and reimbursed by the Company. Servicing fees for Discounted Loans have been
based on a percentage of cash flows collected. Therefore, when Discounted
Loans are sold, servicing fees increase substantially. The Savings Banks'
volume of loans being serviced by WCC, and particularly the volume of
Discounted Loans, increased substantially during 1996 compared to 1995
resulting from substantial growth in the Savings Banks' total loan portfolio.
Also, due to a securitization of non-performing loans (primarily Discounted
Loans) in March 1996, higher fees associated with the accelerated cash flows
to the Savings Banks were paid to WCC in the first quarter. These factors
accounted for the increase in servicing fees and charges in the nine months
ended September 30, 1996 compared to the same period in 1995.

Compensation and Employee Benefits. Other expense relating to compensation
and employee benefits also increased from approximately $1.7 million for the
nine months ended September 30, 1995 to approximately $3.0 million for the
nine months ended September 30, 1996, an increase of approximately $1.3
million (or 72.2%). The increase in compensation and employee benefits during
this period reflected normal salary adjustments and an increase in the average
number of full-time equivalent employees from 37 for the nine months ended
September 30, 1995 to 48 for the nine months ended September 30, 1996,
reflecting the expansion of business activities, particularly loan acquisition
activities and the growth of non-traditional bankcard activities. In addition,
the Bank's administrative offices were relocated to Portland, Oregon in August
1996 which resulted in approximately $0.7 million of additional employee
compensation.

FDIC Insurance Premiums. FDIC insurance premiums increased from
approximately $0.4 million for the nine months ended September 30, 1995 to
approximately $2.1 million for the nine months ended September 30, 1996, an
increase of approximately $1.7 million (or 365.3%), as a result of growth in
deposits outstanding and the SAIF special assessment.

INCOME TAX PROVISION (BENEFIT)

Income tax provision (benefit) amounted to a benefit of approximately $4.7
million during the nine months ended September 30, 1996 compared to a
provision of less than $0.1 million during the nine months ended September 30,
1995. This increase was due primarily to assessment of the valuation
allowances against deferred tax assets. The Company's effective tax rate
amounted to (81.1%) and 7.5% during the nine months ended September 30, 1996
and 1995, respectively. Differences in the Company's effective tax rates in
recent periods compared to combined Federal and State statutory rates were
primarily attributable to changes in assessments of the realization of
deferred tax assets. Exclusive of such amounts, the Company's effective tax
rate amounted to (41%) and 41% during the nine months ended September 30, 1996
and 1995, respectively.

37
<PAGE>

RESULTS OF OPERATIONS--1995 COMPARED TO 1994

NET INTEREST INCOME

The Company's net interest income was $9.9 million for fiscal year 1995
compared to $4.1 million for the fiscal year 1994, an increase of 140.8%. The
components of the Company's net interest income for these fiscal years are
discussed below.

Interest Income. The Company's interest income was approximately $24.4
million for fiscal year 1995 compared to $9.6 million for fiscal year 1994, an
increase of 154.8%. The increase in the Company's interest income from 1994 to
1995 was due primarily to an increase in interest received on loans from $7.9
million in 1994 to $21.8 million in 1995. The increase in interest received on
loans was a result of an increase in the gross principal amount of the
Company's total loan portfolio from $198.6 million in 1994 to $337.5 million
in 1995, an increase of 69.9%. The Savings Banks made substantial acquisitions
of Discounted Loans in June 1995 and performing single-family loans in the
fourth quarter of 1995. In addition, the Company acquired Girard in November
1994 and, as a result, the Company's 1994 results of operations only reflect
two months of Girard's operations while 1995 results reflect a full year of
operations by Girard. In addition, the average rate earned by the Company on
its interest-bearing assets increased from 7.08% in 1994 to 9.16% in 1995.

Interest Expense. The Company's interest expense was approximately $14.5
million for fiscal year 1995 compared to approximately $5.5 million in fiscal
year 1994, an increase of 165.4%. The increase in interest expense from 1994
to 1995 was due primarily to an increase in average certificates of deposit
outstanding from approximately $118.3 million in 1994 to approximately $231.6
million in 1995 (an increase of 104.4%), which occurred in order to fund the
growth of the loan portfolio noted above. In addition, interest expense
increased due to the inclusion of Girard's results of operations for the full
year ending December 31, 1995, compared to fiscal year 1994 which only
reflected two months of Girard's operations. In addition, the average interest
rate on the Company's borrowings increased from 4.23% to 6.08% from 1994 to
1995.

PROVISIONS FOR ESTIMATED LOSSES ON LOANS

In connection with its provision for estimated losses on loans the Company
recorded an expense totalling approximately $4.3 million for fiscal year 1995
compared to approximately $2.2 million for fiscal year 1994, an increase of
96.3%.

The increase in the provisions from 1994 to 1995 was primarily attributable
to higher provisions related to the Inherited Loans and having a full year of
Girard's operations presented in 1995. The increase in the provisions from
1994 to 1995 was also to a lesser degree attributable to the earthquake in
Southern California in January 1994, which affected delinquency and collateral
values in 1995. For a discussion of the Company's methods for establishing
provisions for loan losses, see "Business--Asset Quality--Allowances for Loan
Losses."

NET INTEREST INCOME AFTER PROVISION FOR ESTIMATED LOSSES ON LOANS

The Company's net interest income after provision for estimated losses on
loans increased 190.6% to approximately $5.6 million for fiscal year 1995 from
approximately $1.9 million for fiscal year 1994.

38
<PAGE>

OTHER INCOME

The Company's other income was approximately $3.1 million for fiscal year
1995 compared to approximately $1.2 million for fiscal year 1994, an increase
of 153.2%. This increase was primarily attributable to growth in the Company's
bankcard operation and gains from the sale of loans. The components of the
Company's non-interest income are reflected in the following table:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Other Income:
Bankcard income.................................... $ 4,694 $ 635
Bankcard processing expense........................ (3,462) (274)
Gain on sale of loans.............................. 642 --
Loan fees and charges.............................. 610 43
Gain on sale of mortgage-backed securities avail-
able for sale..................................... 14 54
Amortization of deferred credits................... 460 388
Other, net......................................... 149 381
----------- -----------
Total other income............................... $ 3,107 $ 1,227
=========== ===========
</TABLE>

The increase in other income in 1995 was due primarily to an increase of
approximately $4.1 million in bankcard income, from approximately $0.6 million
for fiscal year 1994 to approximately $4.7 million for fiscal year 1995. The
large increase in income from the Company's bankcard operations reflects a
full year of bankcard operations in 1995 compared to a partial year for 1994,
since bankcard operations commenced in mid-1994. Bankcard processing expense
increased by approximately $3.2 million from approximately $0.3 million for
fiscal year 1994 to approximately $3.5 million for fiscal year 1995. The
increase in bankcard processing expense was primarily the result of the same
factors. The increase in other income in 1995 was also due in part to
approximately $0.6 million in gains on sales of loans in fiscal year 1995 from
no gains on sales of loans for fiscal 1994. This increase was due to gains
from the 1995 sale of approximately $7.9 million of mortgage loans into a
securitization. The increase in other income in 1995 was also due in part to
an increase of approximately $0.6 million in loan fees and charges, from less
than $0.1 million in 1994 to approximately $0.6 million in 1995. The increases
in loan fees and charges are primarily attributable to an increase in the
average Loan Portfolio from $103.6 million in 1994 to $228.0 million in 1995,
an increase of 120.1%.

OTHER EXPENSE

The Company's other expense totalled approximately $8.1 million for fiscal
year 1995 compared to approximately $4.9 million for fiscal year 1994, an
increase of 63.9%. The largest component of other expense was loan service
fees and expenses which increased by approximately $1.8 million from
approximately $0.2 million in fiscal year 1994 to $2.0 million in fiscal year
1995. This increase resulted from the substantially higher volume of loans
being serviced in 1995, including a full year of operations of Girard, and the
purchase of a portfolio of Discounted Loans in June 1995 which was serviced at
higher fees. All of the key items of other expense (including loan service
fees and expenses, compensation and employee benefits, FDIC insurance premiums
and professional services) showed an increase from 1994 to 1995 except for
real estate owned (net) and other general and administrative expenses. This
increase was primarily attributable to growth in the Savings Banks.

Other expense relating to compensation and employee benefits increased from
approximately $1.9 million in 1994 to approximately $2.5 million in 1995, an
increase of $0.6 million (or 30.9%), primarily as a result of an increase in
the average number of full-time equivalent employees from 31 in 1994 to 44 in
1995 (including an entire year's compensation expenses for Girard in 1995).

FDIC insurance premiums increased from $0.3 million in 1994 to $0.7 million
in 1995, an increase of approximately $0.4 million (or 176.2%), as a result of
growth in certificates of deposit outstanding. Other

39
<PAGE>

expense relating to professional services also increased from approximately
$0.5 million in 1994 to approximately $1.0 million in 1995 primarily as a
result of legal and accounting expenses incurred in connection with a proposed
acquisition of another savings bank in 1995, which was not completed due to a
failure of the principals ultimately to agree on terms.

These increases in other expense were partially offset by a small decrease
in expenses related to real estate owned (net). Other expenses related to real
estate owned (net) were approximately $0.2 million in fiscal year 1994 and
$0.2 million in fiscal year 1995. Other general and administrative expenses
decreased from approximately $1.3 million in 1994 to approximately $1.1
million in 1995, a decrease of 15.3%.

INCOME TAX PROVISION (BENEFIT)

Income tax provision (benefit) amounted to an expense of less than $0.1
million in 1995 compared to a benefit of approximately $0.5 million for 1994.
The Company's effective tax rate amounted to 7.4% and (29.6)% during 1995 and
1994, respectively. Differences in the Company's effective tax rates in recent
periods compared to combined Federal and State statutory rates were primarily
attributable to changes in assessments of the realization of deferred tax
assets. Exclusive of such amounts, the Company's effective tax rate amounted
to 41% and (41)% during 1995 and 1994, respectively. For additional
information regarding the Company's income tax provisions and tax rates and
information regarding net operating loss carryforwards of the Company, see
Note 8 to the Consolidated Financial Statements.

40
<PAGE>

CHANGES IN FINANCIAL CONDITION

The following table sets forth certain information relating to the Company's
assets and liabilities at the dates indicated.

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1996 1995 1994
------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents..................... $ 20,531 $ 4,482 $ 8,830
Trading account securities.................... 7,092 -- --
Securities held to maturity, at amortized
cost......................................... 7,425 6,470 4,505
Mortgage-backed securities available for sale,
at fair value................................ 6,483 9,083 10,943
Mortgage-backed securities held to maturity,
at amortized cost............................ 22,380 13,119 14,439
Loans receivable, net......................... 177,280 258,827 181,471
Discounted loans net.......................... 3,419 13,347 --
Loans held for sale, at lower of cost or mar-
ket.......................................... 260,804 18,597 --
Stock in Federal Home Loan Bank of San Fran-
cisco, at cost............................... 2,911 1,421 1,612
Real estate owned, net........................ 2,514 4,964 1,208
Leasehold improvements and equipment, net..... 336 275 167
Due from affiliate............................ 8,357 4,514 4,062
Accrued interest receivable................... 4,268 3,042 1,599
Prepaid expenses and other assets............. 3,887 1,724 1,026
Income taxes receivable, net.................. 5,422 1,589 774
-------- -------- --------
Total Assets................................ $533,109 $341,454 $230,636
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits...................................... $487,535 $303,524 $196,289
Borrowings.................................... -- 13,000 21,500
Accounts payable and other liabilities........ 7,625 4,398 2,056
Subordinated debt............................. -- 11,000 --
Preferred stock in subsidiary held by others.. -- -- 1,000
Deferred credits.............................. 832 1,134 1,772
Minority interest in subsidiaries............. 277 600 574
Due from affiliates........................... 2,286 759 652
-------- -------- --------
Total liabilities........................... 498,555 334,415 223,843
Stockholders' Equity.......................... 34,554 7,039 6,793
-------- -------- --------
Total Liabilities and Stockholders' Equity.. $533,109 $341,454 $230,636
======== ======== ========
</TABLE>

Mortgage-Backed and Other Securities. The Company's mortgage-backed
securities available for sale and trading account securities increased $4.4
million during the nine months ended September 30, 1996 primarily as a result
of purchasing certain subordinated bonds associated with the sale of
Discounted Loans. Investment securities and mortgage-backed securities held to
maturity increased by approximately $1.0 million and $9.3 million,
respectively, during the nine months ended September 30, 1996. United States
Treasury securities are generally held for the purpose of meeting regulatory
liquidity requirements. As the amount of deposits and borrowings increases,
the regulatory liquidity requirement increases proportionately. The increase
in mortgage-backed securities held to maturity resulted primarily from
purchases of GNMA adjustable-rate mortgage securities to secure certain
representations and warranties under a mortgage loan securitization and for
collateral securing an interest-rate swap contract.

41
<PAGE>

Loans Receivable, Net. Since 1994, the Company has emphasized the
acquisition of traditional performing mortgage loans as well as under-
performing and non-performing loans which generally are purchased at a
discount to both unpaid principal amount of the loan and the estimated value
of the property securing the loan. As a result, the average balance of the
Company's Total Loan Portfolio has increased significantly since 1993 as
illustrated by the following table:

AVERAGE BALANCE OF THE COMPANY'S TOTAL LOAN PORTFOLIO

<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, ---------------------------
1996 1995 1994 1993
----------------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loan Portfolio:
Single-family residen-
tial..................... $288,243 $ 93,350 $ 31,414 $20,254
Multi-family residential.. 74,131 70,631 36,089 25,567
Commercial and other mort-
gage loans............... 57,899 53,852 33,163 26,396
Consumer and other........ 29,675 10,137 2,917 383
-------- -------- -------- -------
Total loans............. 449,947 227,970 103,583 72,600
Unaccreted discount....... (17,281) (10,254) (4,086) (988)
Allowance for loan loss-
es....................... (33,451) (21,591) (4,509) (4,314)
-------- -------- -------- -------
$399,215 $196,125 $ 94,988 $67,298
======== ======== ======== =======
</TABLE>

The Company's total loan portfolio, net of discounts and allowances,
increased by approximately $150.7 million during the nine months ended
September 30, 1996 primarily as a result of the Company's business strategy of
aggressively acquiring loan portfolios of Discounted Loans and other mortgage
loans. The Company's total loan portfolio, net of discounts and allowances,
increased by approximately $109.3 million during 1995 primarily as a result of
the Company's loan purchase strategy. Included in the amount of increases in
the Company's total loan portfolio in the nine months ended September 30, 1996
and the year ended December 31, 1995 are a decrease of $26.2 million and an
increase of $29.3 million, respectively, in the net carrying amount of
Discounted Loans. The increase in 1995 reflected the initial implementation of
the Discounted Loan acquisition strategy. The decrease in the first six months
of 1996 reflected paydowns and other resolutions of some of the loans, and the
sale of most of the Discounted Loans in a securitization transaction completed
in March 1996.

Loans Held For Sale. The Company's loans held for sale increased by $243.3
million during the nine months ended September 30,1996 due to the Company's
intent to sell approximately $277.5 million of single-family residential loans
in the fourth quarter of 1996.

Real Estate Owned, Net. Real estate owned, net consists almost entirely of
properties acquired by foreclosure or deed-in-lieu thereof on loans in the
Company's total loan portfolio. Real estate owned decreased by approximately
$2.5 million or 49.4% during the nine months ended September 30, 1996 as a
result of the securitization of certain real estate owned and other resolution
activities. The approximately $3.8 million increase in the Company's net real
estate owned during 1995 primarily reflects increases in real estate owned
related to the Company's Discounted Loan portfolio, which reflects the growth
in the Company's Discounted Loan acquisition and resolution activities in
recent periods.

The Company actively manages its real estate owned. During the nine months
ended September 30, 1996, the Company sold 57 properties of real estate owned
related to its total loan portfolio with a carrying value of approximately
$6.6 million. During 1995, the Company sold 17 properties of real estate owned
related to its total loan portfolio with a carrying value of approximately
$5.5 million, as compared to the sale of properties of real estate owned
related to its total loan portfolio with carrying values of approximately $3.3
million during 1994.

42
<PAGE>

Due from Affiliate. Due from affiliate increased by approximately $3.8
million or 85.1% during the nine months ended September 30, 1996 primarily as
a result of growth in loan portfolios. The balance in the account as of any
month-end reflects the lag between receipts of loan payments by WCC, as
servicer, and payment to the Company. Due from affiliate increased by
approximately $0.5 million during 1995 for the same reason.

Deposits. Deposits increased by approximately $184.0 million or 60.6% during
the nine months ended September 30, 1996 primarily as a result of the
Company's strategy to increase deposits to permit the Savings Banks to acquire
loan portfolios. Deposits increased by approximately $107.2 million during
1995 primarily for the same reason.

Borrowings. Borrowings decreased by approximately $13.0 million during 1996
as a result of replacing short-term borrowings with longer term deposits.

Subordinated Debt. Subordinated debt decreased by approximately $11.0
million during the nine months ended September 30, 1996 because on January 1,
1996, the subordinated debt was exchanged for common stock.

Stockholders' Equity. Stockholders' equity increased by $27.5 million during
the nine months ended September 30, 1996 primarily as a result of the exchange
of $11.0 million of outstanding subordinated debt for common stock and the
infusion of approximately $17.8 million to support growth and maintain
required regulatory capital ratios at the Savings Banks. Stockholders' equity
increased during 1995 primarily as a result of the Company's net income during
the period.

ASSET AND LIABILITY MANAGEMENT

Asset and liability management is concerned with the timing and magnitude of
the repricing of assets and liabilities. It is the objective of the Company to
attempt to control risks associated with interest rate movements. In general,
management's strategy is to limit the Company's exposure to earnings
variations and variations in the value of assets and liabilities as interest
rates change over time. The Company's asset and liability management strategy
is formulated and monitored by the asset and liability committees for the
Company and the Savings Banks (the "Asset and Liability Committees") which
meet regularly to review, among other things, the sensitivity of the Company's
assets and liabilities to interest rate changes the book and market values of
assets and liabilities, unrealized gains and losses, including those
attributable to hedging transactions, purchase and securitization activity,
and maturities of investments and borrowings. The Asset and Liability
Committees coordinate with the Savings Banks' boards of directors and the
Company's investment committees with respect to overall asset and liability
composition.

Since most of the Company's assets and liabilities reprice relatively
frequently, the Company's gap tends to be relatively easy to manage and the
Company's interest rate risk analysis focuses less on managing the overall gap
and more on ensuring that individual Loan Portfolios are properly hedged. In
hedging the interest rate exposure of a fixed-rate or lagging-index asset that
is held for sale, the Company creates a hedge which matches the principal
amortization of such asset against the maturity of the Company's liabilities
generally by entering into short sales or forward sales of U.S. Treasury
securities, U.S. agency mortgage-backed securities or interest rate futures
contracts. This results in market gains or losses on hedging instruments, in
response to interest rate increases or decreases, respectively, which
approximate the amount of the corresponding market losses or gains,
respectively, on loans being hedged. The Company evaluates the interest rate
sensitivity of each Loan Portfolio and decides whether to hedge the interest
rate exposure of a particular portfolio. In general, the Company tends to
hedge its fixed-rate Loan Portfolios. The Company generally does not hedge the
interest rate risk associated with holding non-lagging index adjustable-rate
mortgages pending their sale or securitization due to the decreased
significance of such risk.

The Asset and Liability Committees are authorized to utilize a wide variety
of off-balance sheet financial techniques to assist them in the management of
interest rate risk. These techniques include interest rate swap agreements,
pursuant to which the parties exchange the difference between fixed-rate and
floating-rate interest

43
<PAGE>

payments on a specified principal amount (referred to as the "notional
amount") for a specified period without the exchange of the underlying
principal amount. Interest rate swap agreements are utilized by the Company to
protect against the narrowing of the interest spread between fixed rate loans
and associated liabilities funding those loans. The Company had approximately
$65.6 million notional principal amount of interest rate swap agreements
outstanding at September 30, 1996, which had the effect of decreasing the
Company's net interest income by approximately $0.1 million during the nine
months ended September 30, 1996. For additional information see Note 7 to the
Consolidated Financial Statements. There was no significant hedging activity
in 1995.

In addition, as required by OTS regulations, the Asset and Liability
Committees also regularly review interest rate risk by forecasting the impact
of alternative interest rate environments on net interest income and market
value of portfolio equity ("MVPE"), which is defined as the net present value
of an institution's existing assets, liabilities and off-balance sheet
instruments, and evaluating such impacts against the maximum potential changes
in net interest income and MVPE that is authorized by the Boards of Directors
of the Savings Banks. In addition, at June 30, 1996, management estimates
based upon the MVPE analysis prepared by the OTS that the estimated percentage
change in the Company's MVPE over the ensuing four-quarter period as a result
of a 200 basis point increase or decrease in interest rates would be an
approximate 15% decrease or 6% increase, respectively. The following table
highlights the interest rate sensitivity of MVPE of a change in rates from 0
to 400 basis points ("bp").

INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE
AT JUNE 30, 1996

Net Portfolio Value
Change in --------------------------
Rates Amount $ Change % Change
+400bp $42,628 $(22,944) -35%
+300bp 49,563 (16,009) -24%
+200bp 55,986 (9,586) -15%
+100bp 61,464 (4,108) -6%
0bp 65,572 --
-100bp 68,312 2,740 4%
-200bp 69,521 3,949 6%
-300bp 69,923 4,351 7%
-400bp 70,738 5,166 8%

Management of the Company believes that the assumptions (including pre-
payment assumptions) used by it to evaluate the vulnerability of the Company's
operations to changes in interest rates approximate actual experience and
considers them reasonable; however, the interest rate sensitivity of the
Company's assets and liabilities and the estimated effects of changes in
interest rates on the Company's net interest income and MVPE could vary
substantially if different assumptions were used or actual experience differs
from the historical experience on which they are based.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the measurement of the Company's ability to meet potential cash
requirements, including ongoing commitments to repay borrowings, fund
investments, purchase loans, purchase Discounted Loans, fund lending
activities and for general business purposes. The Company's sources of cash
flow include certificates of deposit, securitizations, net interest income and
borrowings under its warehouse and repurchase financing facilities and from
institutional investors and other lenders. In addition, the Savings Banks
obtain funding through FHLB advances.

The Company's liquidity is actively managed on a daily basis, monitored
regularly by the Asset and Liability Committees and reviewed periodically by
the Board of Directors. This process is intended to ensure the maintenance of
sufficient funds to meet the needs of the Company, including adequate cash
flows for off-balance sheet instruments.

44
<PAGE>

Sources of liquidity include wholesale and brokered certificates of deposit.
As of September 30, 1996, the Company had approximately $480.3 million of
certificates of deposit. As of September 30, 1996, scheduled maturities of
certificates of deposit during the 15 months ending December 31, 1997 and
thereafter amounted to approximately $381.4 million and approximately $98.9
million, respectively. Brokered and other wholesale deposits generally are
more responsive to changes in interest rates than core deposits and, thus, are
more likely to be withdrawn by the investor upon maturity as changes in
interest rates and other factors are perceived by investors to make other
investments more attractive. However, management of the Company believes that
it can adjust the rates paid on certificates of deposit to retain deposits in
changing interest rate environments and that brokered and other wholesale
deposits can be both a relatively cost-effective and stable source of funds.

As of September 30, 1996, the Company's sources of borrowing included Master
Repurchase Agreements between each of the Savings Banks and Bear Stearns
Mortgage Capital Corporation as to which the parties have orally agreed that
approximately $210 million in aggregate would be available for the purchase of
loans. On closing of the Common Stock Offering and Notes Offering, the amounts
available to the Private Companies under a $100 million warehouse lending
agreement (the "Warehouse Financing Facility") with Prudential Securities
Realty Funding Corp. and certain repurchase arrangements will be made
available to the Company or one of its subsidiaries, including $150 million
under a repurchase agreement with First Boston Mortgage Capital Corporation.
Such Repurchase Agreement will be increased to $250 million upon transfer to
WFC. See "Business--Funding Sources."

Sources of borrowings also include FHLB advances, which are required to be
secured by single-family and/or multi-family residential loans or other
acceptable collateral, and reverse repurchase agreements. As of September 30,
1996, the Company had no FHLB advances outstanding, and was eligible to borrow
up to an aggregate of $11.6 million from the FHLB of San Francisco and had
$2.0 million of single-family residential loans, approximately $16.6 million
of multi-family residential loans and $2.6 million of commercial loans which
were pledged as security for such advances. At the same date, the Company had
a contractual relationship with the FHLB of San Francisco pursuant to which it
could obtain funds from reverse repurchase agreements and had $7.6 million of
unencumbered investment securities and mortgage-backed and related securities
which could be used to secure such borrowings.

The Company's uses of cash include the funding of loan purchases and
origination, payment of interest expenses, repayment of loans, funding of
initial over-collateralization requirements for securitizations, operating and
administrative expenses, income taxes and capital expenditures. Capital
expenditures were immaterial for the nine months ended September 30, 1996 and
the years ended December 31, 1995, and 1994. In addition to commitments to
extend credit, the Company is party to various off-balance sheet financial
instruments in the normal course of business to manage its interest rate risk.
See "--Asset and Liability Management" above and Note 7 to the Consolidated
Financial Statements.

The Company conducts business with a variety of financial institutions and
other companies in the normal course of business, including counterparties to
its off-balance sheet financial instruments. The Company is subject to
potential financial loss if the counterparty is unable to complete an agreed
upon transaction. The Company seeks to limit counterparty risk through
financial analysis and other monitoring procedures.

Adequate credit facilities and other sources of funding, including the
ability of the Company to securitize loans, are essential to the continuation
of the Company's ability to purchase and originate loans, and acquire
Subordinate Securities. During the first nine months of 1996, and fiscal years
1995 and 1994, the Company used cash in the approximate amounts of $227.6
million, $186.9 million, and $41.6 million, respectively, for new loan
purchases. During the first nine months of 1996 and fiscal year 1995, the
Company received cash from the securitization of loans of approximately, $26.3
million and $16.7 million, respectively.

After utilizing available working capital, deposits and any securitization
proceeds, the Company borrows money to fund its loan purchases and
originations. During the first nine months of 1996, and fiscal years 1995 and
1994, the Company used borrowings under various repurchase arrangements and
FHLB advances in the

45
<PAGE>

approximate amounts of $308.1 million, $77.4 million and $41.7 million,
respectively, for new loan purchases and origination. The Company's business
plan generally calls for using a high degree of leverage in acquiring Loan
Portfolios. With respect to Loan Portfolios of Discounted Loans and performing
loans, the Company generally seeks to fund 90% and 95%, respectively, of the
market value of such Loan Portfolios with borrowed money. See "Risk Factors--
Extensive Use of Financial Leverage." The Company draws on a number of sources
to obtain such funds including certificates of deposit and repurchase
arrangements with Wall Street investment banks. As of the closing of the
Common Stock Offering and the Notes Offering, certain existing lines of credit
will be transferred to the Company. See "Business--Funding Sources."

The Company believes that cash flow from operations, the net proceeds of the
Common Stock Offering and the Notes Offering, the proceeds of certificates of
deposit, the availability under the warehouse financing facility and other
borrowings, and the net proceeds from securitizations will be sufficient to
fund operating needs, commitments and capital expenditures.

The Savings Banks are required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of U.S.
Government, federal agency and other investments having maturities of five
years or less. Current OTS regulations require that a savings association
maintain liquid assets of not less than 5% of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less, of
which short-term liquid assets must consist of not less than 1%. Monetary
penalties may be imposed for failure to meet applicable liquidity
requirements. First Bank's liquidity, as measured for regulatory purposes,
amounted to 9.0% as of September 30, 1996 and averaged 11.4%, 9.1%, and 8.0%
during the nine months ended September 30, 1996 and the years ended December
31, 1995 and 1994, respectively. Girard's liquidity, as measured for
regulatory purposes, amounted to 6.4% as of September 30, 1996 and averaged
6.4%, 11.2%, and 8.5% during the nine months ended September 30, 1996, the
year ended December 31, 1995, and the quarter ended December 31, 1994,
respectively.

REGULATORY CAPITAL REQUIREMENTS

Federally-insured savings associations such as the Banks are required to
maintain minimum levels of regulatory capital. These standards generally must
be as stringent as the comparable capital requirements imposed on national
banks. The OTS also is authorized to impose capital requirements in excess of
these standards on individual associations on a case-by-case basis. Under the
Orders, the Savings Banks are required to be "well-capitalized" as of December
31, 1996. See "Regulation--Imposition of Cease and Desist Orders."

46
<PAGE>

The following table sets forth the regulatory capital ratios of the Savings
Banks at September 30, 1996.

REGULATORY CAPITAL RATIOS

<TABLE>
<CAPTION>
TO BE
CATEGORIZED
AS "WELL
CAPITALIZED"
OTS MINIMUM UNDER OTS
ACTUAL REQUIREMENTS EXCESS REGULATIONS EXCESS
------------- ------------ ------------- ------------ ------------
AMOUNT RATIO RATIO AMOUNT RATIO RATIO AMOUNT RATIO
------- ----- ------------ ------- ----- ------------ ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible Capital:
First Bank............. $ 8,434 6.0% 1.5% $ 6,314 4.5% N.A. N.A. N.A.
Girard................. 26,739 6.8% 1.5% 20,884 5.3% N.A. N.A. N.A.
Tier 1 Capital to Aver-
age Assets:
First Bank............. 8,434 5.9% 4.0% 2,728 1.9% 5.0% $1,302 0.9%
Girard................. 26,739 7.0% 4.0% 11,419 3.0% 5.0% 7,589 2.0%
Tier 1 Capital to Risk-
Weighted Assets:
First Bank............. 8,434 8.7% N.A. N.A. N.A. 6.0% 2,614 2.7%
Girard................. 26,739 9.7% N.A. N.A. N.A. 6.0% 10,231 3.7%
Total Risk-Based Capital
to Risk-Weighted As-
sets:
First Bank............. 9,711 10.0% 8.0% 1,951 2.0% 10% 10 0.0%
Girard................. 30,297 11.0% 8.0% 8,287 3.0% 10% 2,784 1.0%
</TABLE>

In August 1993, the OTS promulgated regulations which incorporate an
interest rate risk component into the OTS' risk-based capital requirements,
and in August 1995 the OTS postponed the effectiveness of this regulation
after having previously deferred the effective date several times. Because
only institutions whose measured interest rate risk exceeds certain parameters
will be subject to the interest rate risk capital requirement, management of
the Company does not believe that this regulation will increase the Savings
Banks' risk-based regulatory capital requirement if it becomes effective in
its current form. For additional information relating to regulatory capital
requirements, see "Regulation--The Savings Banks--Regulatory Capital
Requirements" and Note 10 to the Consolidated Financial Statements.

47
<PAGE>

BUSINESS

This Prospectus contains certain information with respect to loans serviced,
acquired or originated by WCC to assist investors in evaluating the Company's
ability to engage in these activities on an ongoing basis. These loans are not
owned by the Company and investors in the Common Stock or the Notes will have
no right or claim to such assets. In addition, there can be no assurance that
the Company will be able to acquire, originate and service mortgage loans to
the same extent as WCC.

GENERAL

WFSG is a newly formed financial services holding company for certain
companies and businesses previously held as part of, and operated by, the
Private Companies. The Company will engage in a wide variety of financial
activities, including the acquisition, origination, ownership and
securitization of Loan Portfolios, banking and non-traditional merchant credit
card processing.

BUSINESS ACTIVITIES

. significant growth in Loan Portfolio investments;

. utilize varied funding sources;

. expansion into European markets;

. utilize servicing expertise;

. growth of non-traditional bankcard processing operations; and

. develop wholesale origination network.

LOAN ACQUISITIONS

General. During the last four years, the Private Companies have developed
expertise in the business of acquiring Loan Portfolios, including residential
mortgage loans, manufactured housing loans, second lien loans, commercial real
estate loans, multi-family residential loans, commercial and business loans,
boat loans, other consumer loans and Subordinate Securities. The aggregate
principal amount of the loans acquired by the Private Companies during the
nine months ended September 30, 1996 and the years ended December 31, 1995,
1994 and 1993 was $501.4 million, $337.4 million, $388.5 million and $333.8
million, respectively, including $242.6 million, $191.0 million, $143.3
million, and $2.2 million, respectively, by the Savings Banks.

In the early 1990's, WCC acquired loans primarily from the FDIC and the RTC,
primarily in auctions of pools of loans acquired from financial institutions
which failed during the late 1980s and early 1990s. Although governmental
agencies, such as the FDIC and HUD, continue to be potential sources of loans,
the amount of loans sold by such agencies has substantially declined. In
recent years, the Private Companies purchased loans from various private
sector sellers, such as banks, savings institutions, mortgage companies and
insurance companies. Whether because a financial institution desires to reduce
overhead costs, is not staffed to handle large volumes of Loan Portfolios or
simply does not want to distract management and personnel with the intensive
and time-consuming job of servicing Loan Portfolios, many financial
institutions now recognize that outside contractors often are better staffed
to manage and service Loan Portfolios. These financial institutions include
multi-national, money center, super-regional and regional banking institutions
as well as mortgage companies and insurance companies. Moreover, many
financial institutions have embraced the concept of packaging and selling Loan
Portfolios to investors as a means of disposing of non-performing and under-
performing loans and improving a financial institution's balance sheet.
Consolidations within the banking industry have reinforced this

48
<PAGE>

trend. Additionally, management believes that there is a market for management
and resolution services for delinquent, sub-performing and non-performing
loans.

The Company intends to build on the expertise of the Private Companies and
aggressively pursue Loan Portfolio acquisitions in the United States and
Europe, a substantial portion of which are expected to be Discounted Loans. In
addition, the Company expects to increase its purchases of commercial real
estate loans above existing levels. The Company believes it can significantly
increase its acquisition activities without a commensurate increase in
operating costs.

The Company will seek to identify niche areas primarily within the real
estate loan market where it believes its funding flexibility, experienced
personnel and its proprietary software and U.S. mortgage loan database give it
a competitive advantage in pricing and purchasing Loan Portfolios. Areas in
which the Company views itself as having a competitive advantage include (i)
under-performing, non-performing and charged-off loans which generally are
purchased at substantial discount to both the unpaid principal amount of the
loan and the estimated value of the properties securing the loans; (ii) single
family and multi-family loan portfolios which do not comply with Federal
National Mortgage Association (the "FNMA") or Federal Home Loan Mortgage
Corporation (the "FHLMC") guidelines or may not meet preset securitization
guidelines for certain mortgage loan conduit programs; (iii) manufactured
housing loans; (iv) home equity or second lien loans; and (v) to a lesser
degree, consumer and other loans.

Loan Acquisition Procedures. Loans generally are acquired in pools ("Loan
Portfolios") from a wide variety of sources, including private sellers such as
banks, thrifts, finance companies, leasing companies, mortgage companies and
governmental agencies. The Company expects to obtain information on available
Loan Portfolios from several sources, such as referrals from Loan Portfolio
sellers with whom the Private Companies have transacted business in the past
and from co-investors who seek the Company's participation in Loan Portfolio
purchases. Management of the Company has developed relationships with banks,
finance companies, mortgage companies and institutional investment banks which
management believes will be a continuing source of information on available
Loan Portfolios.

Loan Portfolios generally are acquired through competitive bids in which
there is often substantial competition or negotiated transactions. The
competition for larger Loan Portfolios is generally more intense. In addition
to bidding on and often acquiring large Loan Portfolios, the Company and the
Private Companies have often acquired small Loan Portfolios where competition
is less. The average size of the Loan Portfolios acquired by the Company was
$9.3 million for the first nine months of 1996 and $3.8 million for the year
ended December 31, 1995. The Company believes that its funding flexibility,
experienced personnel, proprietary software and mortgage loan database provide
the Company with a competitive advantage in pricing and ultimately purchasing
Loan Portfolios.

Prior to making an offer to purchase a Loan Portfolio, the Company's
employees who specialize in the analysis of loans will conduct an extensive
investigation and evaluation of the individual loans in the Loan Portfolio.
This examination typically consists of analyzing the information made
available by the Loan Portfolio seller (generally, the respective credit and
collateral files for the loans), reviewing other relevant material that may be
available (including tax records), and analyzing the underlying collateral
(including consulting the Company's United States mortgage loan database which
contains among other things, listings of property values and loan loss
experience in local markets for similar assets, obtaining value opinions from
third parties and, in some cases, conducting site inspections). The Company
also will review information on the local economy and real estate markets
(including the amount of time required to foreclose on real property) in the
area in which the loan collateral is located.

The Company's senior acquisition personnel who conduct the due diligence on
the Loan Portfolio will determine the amount to be offered by the Company to
acquire the Loan Portfolio by using a proprietary modeling system which
focuses on, among other things, the anticipated recovery amount, timing, type
and quality of the servicing transfer and cost of the resolution of the loans.
With respect to Discounted Loans and

49
<PAGE>

with certain other loans as well, the amount that will be offered by the
Company will generally be at a discount from both the stated value of the loan
and the value of the underlying collateral which the Company estimates is
sufficient to generate an acceptable return on its investment. The Company's
Investment Committee which consists of senior management and the senior
acquisition personnel that conducted the due diligence on the Loan Portfolio
will review the due diligence file and make a final determination as to the
amount of the offer. Loan acquisition decisions at the Savings Banks are made
by their respective boards of directors.

The Private Companies originally funded their acquisitions of loans by
selling participations in the Loan Portfolios to institutional investors while
retaining the servicing rights and a participation in the overall return on
such portfolios. In 1994 and 1995, the Private Companies began acquiring loans
for their own portfolio. Such acquisitions were funded either by warehouse or
repurchase financing facilities, certificates of deposit, other borrowings, or
internal cash flow. The Private Companies' securitizations of loans in the
secondary market provided an additional source of funds for such acquisitions.

LOAN PORTFOLIO

General. The Company's total loan portfolio currently includes residential
mortgage loans, multi-family residential loans, commercial real estate loans,
manufactured housing loans, commercial and business loans, auto loans, boat
loans and other consumer loans. As of September 30, 1996, the Company's total
loan portfolio, net of unaccreted discount and allowance for loan losses
amounted to $441.5 million. The Company expects to utilize its available
funding sources to continue to aggressively expand its loan portfolio through
the acquisition of Loan Portfolios from government agencies and private sector
entities and through its mortgage conduit program. As part of the
Reorganization, WCC will continue to originate mortgage loans for the Company,
during the period of time that the Company is obtaining the necessary licenses
to conduct the mortgage conduit program. See "--Loan Origination."

The Company expects to securitize its Loan Portfolios when advantageous. The
Company may also from time to time engage in whole loan sales or determine to
hold loans until maturity. Loans not presented as held for sale in the Audited
Consolidated Financial Statements are expected to be held to maturity.

50
<PAGE>

Activity in the Company's Loan Portfolio.

The following table sets forth the activity in the gross principal amount of
the Company's total loan portfolio during the periods indicated, excluding
activity in the allowance for loan losses, deferred fees and unaccreted
discount on purchased loans.

ACTIVITY IN THE COMPANY'S TOTAL LOAN PORTFOLIO

<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, ------------------
1996 1995 1994(1)
---------------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period..... $337,455 $198,588 $ 74,045
Originations:
Single-family residential........ 1,906 3,508 1,478
Multi-family residential......... 374 1,180 252
Commercial and other mortgage
loans........................... -- 4,060 2,615
Consumer and other loans......... -- -- --
-------- -------- --------
Total loans originated......... 2,280 8,748 4,345
Loan Purchases(3):
Single-family residential........ 221,581 121,883 36,462
Multi-family residential......... -- -- 61,247
Commercial and other mortgage
loans........................... -- 2,126 31,091
Consumer and other loans(2)...... 18,742 11,012 10,847
-------- -------- --------
Total loans purchased.......... 240,323 135,021 139,647
Discounted Loan Purchases:
Single-family residential........ -- 49,662 1,542
Multi-family residential......... -- 96 --
Commercial and other mortgage
loans........................... -- 869 1,843
Consumer and other loans......... -- 5,368 239
-------- -------- --------
Total Discounted Loans pur-
chased........................ -- 55,995 3,624
Sales.............................. (27,965) (16,673) --
Principal repayments, net of capi-
talized interest.................. (37,789) (27,464) (14,813)
Transfer to real estate owned and
other............................. (12,350) (16,760) (8,260)
-------- -------- --------
Net increase (decrease) in loans... 164,499 138,867 124,543
-------- -------- --------
Balance at end of period........... $501,954 $337,455 $198,588
======== ======== ========
</TABLE>
- --------
(1) Includes as purchases $90.6 million aggregate principal amount of loans
held by Girard on the date that it was acquired by WACII.
(2) Includes $24.5 million of Sub-Prime Auto Loans acquired in late 1995 and
early 1996.
(3) Excludes Discounted Loans.

51
<PAGE>

Composition of Total Loan Portfolio. As of September 30, 1996, the Company's
total loan portfolio, net of unaccreted discount, deferred fees and allowance
for loan losses, amounted to $441.5 million or 83.6% of the Company's total
assets. The following table sets forth the composition of the Company's total
loan portfolio by type of loan at the dates indicated.

COMPOSITION OF THE COMPANY'S TOTAL LOAN PORTFOLIO

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------
1996 1995 1994 1993
------------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
LOAN PORTFOLIO:
Single-family residential....... $324,910(2) $139,566 $ 53,095 $20,657
Multi-family residential........ 72,717 71,239 77,884 26,076
Commercial real estate.......... 61,235 53,458 57,881 26,921
Consumer and other.............. 30,698 19,753 6,733 391
-------- -------- -------- -------
Loan portfolio.................... 489,560 284,016 195,593 74,045
Unaccreted discount and deferred
fees............................. (12,400) (14,362) (8,946) (988)
Valuation allowance............... (40,086) (10,237) (7,270) (4,314)
-------- -------- -------- -------
Loan portfolio, net............... $437,074 $259,417 $179,377 $68,743
======== ======== ======== =======
DISCOUNTED LOAN PORTFOLIO:
Single-family residential....... $ 11,188(3) $ 50,937 $ 348 $ --
Multi-family residential........ -- (3) -- -- --
Commercial real estate.......... 482 1,523 432 --
Consumer and other.............. 724 979 2,215 --
-------- -------- -------- -------
Discounted Loan portfolio......... 12,394 53,439 2,995 --
Unaccreted discount and deferred
fees............................. (1,747) (6,671) (470) --
Valuation allowance(1)............ (6,218) (15,414) (431) --
-------- -------- -------- -------
Discounted Loan portfolio, net.... $ 4,429 $ 31,354 $ 2,094 $ --
======== ======== ======== =======
</TABLE>
- --------
(1) For discussion of the valuation allowance allocation for purchase
discount, see "--Asset Quality--Allowances for Losses."
(2) The Company currently expects that Girard will sell certain single-family
residential loans to WFC which in turn is expected to securitize such
loans. See "Recent Developments."
(3) Girard has purchased or committed to purchase approximately $272 million
unpaid principal amount of discounted residential mortgage loans. See
"Recent Developments."

The real properties which secure the Company's mortgage loans are located
throughout the United States. As of September 30, 1996, the five states with
the greatest concentration of properties securing the Company's loans were
California, New York, New Jersey, Florida and Texas, which had $274.2 million,
$32.8 million, $21.9 million, $17.4 million and $10.8 million principal amount
of loans, respectively. The real properties which secure the Company's
Discounted Loans are located throughout the United States. As of September 30,
1996, the five states with the greatest concentration of properties securing
the Company's Discounted Loans were Massachusetts, Connecticut, California,
Texas and New Jersey, which had $3.8 million, $3.1 million, $1.2 million, $1.1
million and $.9 million principal amount of loans, respectively. The Company
believes that the broad distribution of the real property in its Discounted
Loan portfolio reduces the risks associated with concentrating such loans in
limited geographic areas. The geographic concentration of the Company's
Discounted Loan portfolio is expected to change with the acquisition of the
Citicorp Portfolio, which is concentrated in New York and New Jersey. See
"Recent Developments."

52
<PAGE>

Contractual Principal Repayments. The following table sets forth certain
information as of September 30, 1996 regarding the dollar amount of loans
maturing in the Company's loan portfolio (excluding Discounted Loans) based on
their contractual terms to maturity and includes scheduled payments but not
potential prepayments, as well as the dollar amount of loans which have fixed
or adjustable interest rates. Demand loans, loans having no stated schedule of
repayments and no stated maturity and overdrafts are reported as due in one
year or less. Loan balances have not been reduced for undisbursed loan
proceeds, unearned discounts and the allowance for loan losses.

MATURITY OF THE COMPANY'S LOAN PORTFOLIO(1)

<TABLE>
<CAPTION>
MATURING IN
-------------------------------------------------------
ONE YEAR AFTER ONE YEAR AFTER FIVE YEARS AFTER
OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS TEN YEARS
-------- ------------------ ----------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Single-family residen-
tial................... $ 6,999 $23,385 $15,681 $278,845
Multi-family residen-
tial................... 16,226 26,205 15,943 14,343
Commercial and other
mortgage loans......... 18,025 25,288 14,130 3,792
Consumer and other
loans.................. 6,019 23,589 370 720
Interest rate terms on
amounts due after one
year:
Fixed................. -- 47,317 12,415 98,277
Adjustable............ -- 51,150 33,709 199,423
</TABLE>
- --------
(1) Excludes Discounted Loans.

Scheduled contractual principal repayments do not reflect the actual
maturities of loans because of prepayments and, in the case of conventional
mortgage loans, due-on-sale clauses. The average life of mortgage loans,
particularly fixed-rate loans, tends to increase when current mortgage loan
rates are substantially higher than rates on existing mortgage loans and,
conversely, decrease when rates on existing mortgages are substantially higher
than current mortgage loan rates.

LOAN ORIGINATION

General. In late 1995, the Private Companies launched a mortgage conduit
program for the purchase of newly-originated residential mortgage loans on a
nationwide basis through correspondents. From the launch of the program in the
fourth quarter of 1995 through September 30, 1996, the Private Companies
purchased or committed to purchase under its mortgage conduit program
approximately $5.9 million principal amount of manufactured housing loans and
$18.0 million principal amount of first and second lien mortgage loans. While
the Company is obtaining necessary regulatory approvals, WCC will continue to
originate residential mortgage loans for the Company's account through its
correspondent relationships and will then transfer the newly originated loans
to the Company. The Company will simultaneously provide the funding for the
newly originated residential mortgage loans. Although WCC will be originating
mortgage loans for the Company's account while the Company obtains necessary
licenses, the mortgage conduit program will be conducted by the Company.

The mortgage conduit program currently focuses on the origination of
manufactured housing loans, and conforming and non-conforming first and
related second lien mortgage loans. All borrowers and the collateral must meet
the Company's credit underwriting guidelines. The Company believes that the
higher risk generally associated with non-agency borrowers is partially offset
by the Company's strong credit underwriting guidelines and the better pricing
associated with these loans. The Company is in the process of launching two
new programs for loans to good credit borrowers. The Company expects to
further expand the mortgage conduit program as it identifies market niches in
the mortgage lending market where the Company believes it has a competitive
advantage.

53
<PAGE>

The Company expects to securitize loans that it originates when
advantageous. The Company may also from time to time sell whole loans or
determine to hold loans until maturity. Loans not presented as held for sale
in the Audited Consolidated Financial Statements are expected to be held to
maturity.

Correspondent Relationships. Mortgage loans are currently acquired by WCC
through its correspondent relationships with mortgage banking firms and other
financial services companies. WCC has entered into mortgage loan purchase
agreements with each such correspondent which require specified minimum levels
of experience in origination of non-conventional mortgage loans and provide
representations, warranties and buy-back provisions identical to the
representations and warranties required of the Private Companies for the
securitization of their own loans. Correspondent institutions originate loans
based on guidelines provided by the Company and currently sell the loans to
WCC on a servicing-released basis. As of October 1996, WCC had approximately
seventy-eight approved correspondents. The Company's current strategy is to
continue to solidify and expand the correspondent relationships, which are
subject to a thorough due diligence and approval process to ensure quality
sources of new business.

Underwriting. The Company has adopted guidelines that set forth the specific
lending requirements of the Company as they relate to the processing,
underwriting, property appraisal, closing, funding and delivery of loans to
borrowers. While the Company is in the process of obtaining necessary
licenses, WCC will conduct the underwriting process for the Company. Once a
correspondent has completed its underwriting process it will submit the
initial loan application to WCC. Upon receipt of an application, WCC's
underwriting department will review the application and perform its own
underwriting. Evaluations of initial loan applications will be conducted by
WCC's employees who specialize in the analysis of loans, often with further
specialization based on geographic or collateral specific factors. Initial
loan applications are reviewed for completeness, accuracy, and compliance with
the Company's underwriting criteria and governmental regulations. The
Company's underwriting criteria focuses on debt-to-income ratios, loan-to-
value ratios, current credit reports of potential borrowers, property
appraisals and a potential borrower's job history. As part of the underwriting
process the Company requires an additional field review appraisal of the
collateral to be conducted by an approved third party at the correspondent's
expense.

Loans which clearly conform to the Company's underwriting guidelines are
approved by the underwriting department. Loans which clearly do not conform
are rejected and returned to the correspondent. Loans that present certain
underwriting issues may be returned to correspondents requesting changes or
may be forward to underwriting managers for approval. Variations from the
Company's underwriting guidelines must be approved by an appropriate officer
of the Company.

EUROPEAN OPERATIONS

The Company recently decided to expand its loan acquisition and servicing
activities to encompass the United Kingdom and France with a view towards
future expansion in Western Europe. The Company's expansion strategy involves
understanding each new market's regulatory requirements and tailoring the
Company's acquisitions and servicing to comply with such requirements and
identifying and training management and employees to run the Company's
European operations. Management is in discussions with a major U.S. investment
banking company regarding the formation of a joint venture for continuing and
expanding the servicing activities of a company located in the United Kingdom.
See "Recent Developments." The Company is also considering either establishing
its own servicing operation, acquiring an already existing entity or entering
into a joint venture with a company already active in France. Management
believes that conditions in the French real estate market and, to a lesser
degree, in the United Kingdom real estate market are similar to conditions in
the United States real estate market in the late 1980's and early 1990's and
there may be opportunities to acquire Loan Portfolios at favorable prices. In
addition, management believes that there is a demand in the European market
for U.S.-style servicing with its automated systems and detailed investor
reporting and aggressive servicing and work-out approaches.

54
<PAGE>

FUNDING SOURCES

General. The Company, in addition to deposits at the Savings Bank, will have
extensive funding sources available for investment and lending activities from
investment banking firms and institutional investors, including secured term
loans, warehouse lines of credit, repurchase facilities and sales of
participation interests in Loan Portfolios. Substantially all of the Company's
Loan Portfolio investments are expected to utilize borrowed funds, minimizing
the Company's equity investment to the extent possible. Management of the
Company closely monitors rates and terms of competing sources of funds on a
regular basis and generally utilizes the source which is the most cost
effective. Following the Common Stock Offering and Notes Offering, the Company
will continue to rely on these sources of capital, in addition to the proceeds
of the Common Stock Offering and Notes Offering, to finance its operations. As
of the closing of the Common Stock Offering and Notes Offering, certain
existing undrawn lines of credit ($413.3 million as of September 30, 1996)
will be transferred to the Company. Amounts currently drawn under the lines of
credit by the Private Companies ($86.7 million as of September 30, 1996) will
be transferred to the Company as such amounts are repaid by the Private
Companies.

Deposits. The primary source of deposits for the Savings Banks currently is
"wholesale" certificates of deposit. To a lesser extent the Savings Banks
obtain brokered certificates of deposit from national investment banking firms
which pursuant to agreements with the Savings Banks, solicit funds from their
customers for deposit with the banks. As of September 30, 1996, $154.6 million
or 31% of the Savings Banks' total deposits were brokered and $325.6 million
or 67% were wholesale deposits. Wholesale deposits generally are obtained on
more economically attractive terms to the Savings Banks than brokered
deposits.

The Savings Banks' funding strategy has been to offer deposit rates above
those customarily offered by banks and savings and loans in its markets. The
Savings Banks have been able to pursue this strategy because the general and
administrative costs associated with operating the Savings Banks is
significantly lower than traditional banks and savings institutions with
branch office networks. The Savings Banks have generally accumulated deposits
by participating in deposit rate surveys which list the Savings Banks among
the higher rate paying insured institutions, and periodically advertising in
various local market newspapers and other media. However, because the Savings
Banks compete for deposits primarily on the basis of rates, the Savings Banks
could experience difficulties in attracting deposits if they could not
continue to offer deposit rates at levels above those of other banks and
savings institutions. The Orders issued by the OTS currently prohibit the
Savings Banks from increasing their total assets above specified levels. See
"Risk Factors--Results of Regulatory Examinations--Imposition of Cease and
Desist Orders."

55
<PAGE>

The following table sets forth information relating to the Company's
deposits at the dates indicated.

THE COMPANY'S DEPOSITS

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------ ------------------ -----------------
AMOUNT AVG. RATE AMOUNT AVG. RATE AMOUNT AVG. RATE AMOUNT AVG. RATE
-------- --------- -------- --------- -------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
checking accounts...... $ 5,192 0.00% $ 3,532 0.00% $ 3,045 0.00% $ -- -- %
NOW and money market
checking accounts...... 1,706 1.82 2,846 2.99 3,170 3.28 3,633 2.96
Saving accounts......... 371 2.10 304 2.38 215 2.25 194 2.50
Certificates of depos-
it..................... 480,266 5.89 296,842 6.15 189,859 5.48 80,994 3.86
-------- ---- -------- ---- -------- ---- ------- ----
Total deposits......... $487,535 5.81% $303,524 6.04% $196,298 5.35% $84,821 3.83%
======== ==== ======== ==== ======== ==== ======= ====
</TABLE>

The following table sets forth by various interest rate categories the
certificates of deposit in the Company at September 30, 1996.

INTEREST RATE CATEGORIES FOR THE COMPANY'S CERTIFICATES OF DEPOSIT

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
3.50% or less...................................... $ 1,070
3.51-4.50.......................................... 46
4.51-5.50.......................................... 50,126
5.51-6.50.......................................... 409,925
6.51-7.50.......................................... 16,232
7.51-8.50.......................................... 2,867
--------
Total............................................ $480,266
========
</TABLE>

The following table sets forth the amount and maturities of the certificates
of deposit in the Company as of September 30, 1996.

MATURITIES OF THE COMPANY'S CERTIFICATES OF DEPOSIT

<TABLE>
<CAPTION>
ORIGINAL MATURITY IN MONTHS
-------------------------------
12 OR LESS 13 TO 26 37 OR MORE
---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balances Maturing in 3
Months or Less.......... $145,202 $ 6,394 $ 0
Weighted Avg............ 5.74% 6.57% 0.0%
Balances Maturing in 4 to
12 Months............... $236,176 $36,866 $446
Weighted Avg............ 5.89% 6.32% 6.67%
Balances Maturing in 13
to 36 Months............ -- $54,637 $497
Weighted Avg............ 6.07% 6.98%
Balances Maturing in 37
or More Months.......... -- -- $ 48
Weighted Avg............ 2.76%
</TABLE>

As of September 30, 1996, the Company had $13.2 million of certificates of
deposit in amounts greater than $100,000 maturing as follows: $4.6 million
within three months; $2.5 million over three months through six months; $4.1
million over six months through 12 months; and $2.0 million thereafter.

56
<PAGE>

Borrowings. The following table sets forth information relating to the
Company's borrowings and other interest-bearing obligations at the dates
indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------
1996 1995 1994 1993
------------- ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLB Advances............................. $ 0 $ -- $13,000 $ --
Reverse Repurchase Agreements............. 0 13,000 8,500 6,608
--- ------- ------- ------
Total................................... $0 $13,000 $21,500 $6,608
=== ======= ======= ======
</TABLE>

The following table sets forth certain information related to the Company's
short-term borrowings having average balances during the period of greater
than 30% of stockholders' equity at the end of the period. During each
reported period, FHLB advances and repurchase agreements are the only
categories for borrowings meeting this criteria. Averages determined by
utilizing month-end balances.
SHORT-TERM BORROWINGS OF THE COMPANY
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED
AT OR FOR THE DECEMBER 31,
NINE MONTHS ENDED ------------------------
SEPTEMBER 30, 1996 1995 1994 1993
------------------ ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLB advances:....................
Average amount outstanding dur-
ing the period................. $ 2,396 $ 1,381 $ 5,916 $ --
Maximum month-end balance out-
standing during the period..... $11,000 $ 8,000 $13,000 $ --
Weighted average rate:
During the period............. 5.80% 7.53% 3.85% --
At end of period.............. -- -- 4.33% --
Repurchase agreements:
Average amount outstanding dur-
ing the period................. $35,721 $ 4,122 $ 4,757 $4,507
Maximum month-end balance out-
standing during the period..... $97,000 $14,950 $11,377 $6,654
Weighted average rate:
During the period............. 6.83% 5.62% 4.44% 7.54%
At end of period.............. 0.0% 6.70% 5.81% 3.35%
</TABLE>

The Company, in addition to deposits at the Savings Banks, will have
extensive funding sources available for investment and lending activities. The
following table sets forth the Company's post-Reorganization lending
arrangements and amounts utilized by the Company and the Private Companies as
of September 30, 1996.
<TABLE>
<CAPTION>
CURRENT BORROWER AFTER
LENDER BORROWER REORGANIZATION AMOUNT UTILIZED(2)
------ -------------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
COMMITTED FACILITIES:
CS First Boston
Mortgage Capital
Corporation........... Private Companies(1) WFC $250 million(5) $67,012
Prudential Securities
Realty Funding
Corp. ................ Private Companies(1) WFC(4) $100 million $12,374
UNCOMMITTED FACILI-
TIES(3):
Bear Stearns Mortgage
Capital Corporation... First Bank First Bank $ 10 million --
Bear Stearns Mortgage
Capital
Corporation........... Girard Girard $200 million --
Bear, Stearns Interna- Private Companies(1) WFC(4) $100 million $ 1,673
tional (U.K.).........
CS First Boston Corpo-
ration
(Hong Kong) Limited... Private Companies(1) WFC(4) $ 50 million $ 2,912
------------
TOTAL AMOUNT............ $710 million
============
</TABLE>

57
<PAGE>

- --------
(1) On the closing of the Common Stock Offering and the Notes Offering,
existing lines of credit will be transferred to the Company or a wholly
owned Subsidiary of the Company.
(2) Amounts currently drawn under the lines of credit by the Private Companies
will be transferred to the Company as they become available.
(3) Though agreements governing such commitments do not specify a minimum or
maximum amount available, the parties have agreed that such agreements may
be used up to the specified amount. Any such agreement may be modified at
any time.
(4) These facilities will be transferred to a wholly owned subsidiary of WFC.
(5) Amount will be increased to $250 million upon transfer to WFC.

Repurchase Facilities. Each of First Bank and Girard entered into a Master
Repurchase Agreement with Bear Stearns Mortgage Capital Corporation ("BSMCC").
Pursuant to these agreements, the parties may enter into transactions in which
First Bank or Girard agrees to transfer to BSMCC mortgage loans or other
financial instruments against the transfer of funds by BSMCC, with a
simultaneous agreement by BSMCC to retransfer such assets at a date certain or
on demand, against the transfer of the borrowed funds by First Bank and
Girard, as the case may be. Though such master repurchase agreements do not
specify a maximum amount available under such agreements, the parties have
currently agreed that such agreement may be used for up to $210 million of
acquisitions in the aggregate. These agreements enable First Bank and/or
Girard to purchase Loan Portfolios with immediate financing from BSMCC which
can then be repaid as First Bank and/or Girard increases its deposits. See "--
Deposits" for a discussion of certain limitations on the ability of the
Savings Banks to increase deposits.

In 1996, the Private Companies entered into a master repurchase agreement
with CS First Boston Mortgage Capital Corporation ("FBMCC") pursuant to which
FBMCC has agreed to lend up to $150 million to the Private Companies for the
purchase of portfolios of performing and non-performing mortgage loans.
Pursuant to the agreement, The First Boston Corporation may generally
participate in the securitization of any loans acquired with any funds lent by
FBMCC and will be repaid out of the proceeds of any such structured
transaction. This facility will be increased to $250 million as part of the
transfer to WFC.

In 1996, the Private Companies entered into a master repurchase agreement
with an affiliate of Bear, Stearns & Co., Inc. pursuant to which such
affiliate may lend money to the Private Companies for the purchase of
portfolios of Subordinate Securities. Though such master repurchase agreement
does not specify a maximum amount available under such agreement, the parties
have currently agreed that such agreement may be used for up to $100 million
of acquisitions. Pursuant to the agreement, Bear, Stearns & Co., Inc. may
generally participate in the securitization of any portfolio of Subordinate
Securities acquired with any funds lent by such affiliate and will be repaid
out of the proceeds of any such structured transaction.

In 1996, the Private Companies entered into a master repurchase agreement
with CS First Boston (Hong Kong) Limited pursuant to which such affiliate may
lend money to the Private Companies for the purchase of portfolios of
Subordinate Securities. Though such master repurchase agreement does not
specify a maximum amount available under such agreement, the parties have
currently agreed that such agreement may be used for up to $50 million of
acquisitions. Pursuant to the agreement, The First Boston Corporation may
generally participate in the securitization of any portfolio of Subordinate
Securities acquired with any funds lent by CS First Boston (Hong Kong) Limited
and will be repaid out of the proceeds of any such structured transaction.

Warehouse Facilities. The Private Companies have a secured warehouse
financing facility (the "Warehouse Financing Facility") with Prudential
Securities Realty Funding Corp. ("Prudential Securities") of up to $100
million for the origination or purchase of residential first and second lien
mortgage loans. Pursuant to the agreement, Prudential Securities may generally
participate in the securitization of the mortgage loans acquired with any
funds lent by Prudential Securities and will be repaid out of the proceeds of
any such structured transaction.

FHLB Advances. The Savings Banks obtain advances from the FHLB of San
Francisco upon the security of certain of its assets, including FHLB stock,
provided certain standards related to the creditworthiness of the Savings
Banks have been met. FHLB advances are available to member financial
institutions such as the Savings Banks for investment and lending activities
and other general business purposes. FHLB advances are made

58
<PAGE>

pursuant to several different credit programs, each of which has its own
interest rate, which may be fixed or adjustable, and a range of maturities.

Securitizations. Since the Private Companies's initial use of securitization
in 1995 through September 1996, the Private Companies have issued $368.7
million of securities through two publicly underwritten and three privately
placed securitizations, including non-performing and sub-performing mortgage
loans, manufactured housing loans, consumer loans and conventional and non-
conforming loans. Securitizations are expected to allow the Company to
increase its loan acquisition and origination volume, reduce the risks
associated with interest rate fluctuations and provide access to longer term
funding sources. The Company currently intends to complete securitizations
either through private placements or in public offerings when advantageous.
The Company is currently in the process of securitizing a pool of consumer
receivables and expects to securitize a portfolio of non-performing and under-
performing assets in the near future.

In a securitization, a company will generally transfer a pool of loans to a
separate entity (a "Special Purpose Entity") in exchange for subordinate
securities ("Subordinate Securities") in the Special Purpose Entity and cash,
which constitutes the proceeds of Senior Securities issued by the Special
Purpose Entity. The cash generally will be used to repay borrowings used to
finance the pool of loans that were acquired by the company. Generally, the
holders of the Senior Securities are entitled to receive scheduled principal
collected on the pool of securitized loans and interest at the pass-through
interest rate on the certificate balance. The Subordinate Securities represent
the subordinated right to receive cash flows from the pool of securitized
loans after payment of the required amounts to the holders of the Senior
Securities and the costs associated with the securitization.

The Company may arrange for credit enhancement for a transaction to achieve
an improved credit rating on the Senior Securities issued if this improves the
level of profitability for such transaction. This credit enhancement may take
the form of an insurance and indemnity policy, insuring the holders of the
Senior Securities of timely payment of the scheduled pass-through interest and
principal. In addition, the pooling and servicing agreements that govern the
distribution of cash flows from the loan pool included in the transaction
typically require over-collateralization as an additional means of credit
enhancement. Over-collateralization may in some cases also require an initial
deposit, the sale of loans at less than par or retention in the Special
Purpose Entity of collections from the pool until a specified over-
collateralization amount has been attained. This retention of excess cash flow
creates a faster amortization of the scheduled balance of the Senior
Securities than the amortization of the principal balance of the securitized
loan pool. The purpose of the over-collateralization is to provide a source of
payment in the event of higher than anticipated credit losses. Losses
resulting from defaults by borrowers on the payment of principal or interest
on the loans in a securitized loan pool will reduce the over-collateralization
to the extent that funds are available and may result in a reduction in the
value of the Subordinate Securities.

The Company intends to retain the servicing rights to the loans it
securitizes and WCC will initially service such loans on the Company's behalf.
See "--Servicing Relationships." In addition, the Company may, in the future,
consider using Subordinated Securities that it purchases or acquires pursuant
to a securitization in a structured transaction, including a securitization.

SERVICING RELATIONSHIPS

The Company believes that WCC's loan servicing experience, its highly
trained servicing personnel and its proprietary software and U.S. mortgage
loan database has allowed the Private Companies to more effectively value and
price Loan Portfolios. As of September 30, 1996, WCC was servicing
approximately $1.4 billion principal amount of loans, including approximately
$502.0 million for the Savings Banks.

The Company, WFC and WCC will enter into a loan servicing agreement (the
"Loan Servicing Agreement") pursuant to which WCC will provide loan portfolio
management services, including billing, portfolio administration and
collection services for all loans owned, acquired or made by the Company or
its affiliates (including new third party servicing) (the "Loans"). Pursuant
to the Loan Servicing Agreement, the Company shall be required to pay a
servicing fee equal to a market rate. WCC has also agreed to license its

59
<PAGE>

proprietary computer software to the Company and WFC. WCC has agreed not to
compete with or be engaged in the same business as currently conducted by the
Company.

After the second anniversary of the closing of the Common Stock Offering,
the Company will have the option to begin servicing its Loan Portfolios and
WCC's loans and assume certain assets and liabilities of WCC relating thereto
(the "Servicing Transfer"), provided that, the Company or one of its
subsidiaries has obtained the appropriate regulatory approvals.
Notwithstanding the foregoing, the Company may request that the Servicing
Transfer occur on an earlier date, provided that the foregoing conditions are
met. WCC, in its sole discretion may refuse to effect the Servicing Transfer
prior to the end of the second year. The Servicing Transfer will occur
automatically on the third anniversary of the closing of the Common Stock
Offering, unless prohibited by applicable law. After the Servicing Transfer
WCC will permit the Company, subject to certain conditions, to have access to
its books, records and forms to ensure the orderly transfer of the servicing.
The fees and costs to be paid by WCC for the servicing of its loans shall be
the Company's average costs for such collection as specified in the Loan
Servicing Agreement.

Girard and First Bank have each entered into loan servicing agreements for
performing loans with WCC pursuant to which WCC provides loan portfolio
management services, including billing, portfolio administration and
collection services for all loans owned, acquired or made by the Savings
Banks. WCC receives a fee equal to ten dollars per month for each performing
loan serviced (which the Company believes is a below-market rate). The loan
servicing agreements are year-to-year and may be terminated by the Savings
Banks or WCC by giving notice at least sixty days prior to renewal date. It is
anticipated that the Savings Banks will terminate their agreements with WCC
once WCC's servicing operations have been transferred to WSC. At such time the
Savings Banks would enter into an agreement with WSC pursuant to which WSC
would service the mortgage loans and other assets of the Savings Banks.

The Savings Banks and WCC have also entered into loan servicing agreements
with respect to specific Discounted Loan portfolios. Pursuant to these loan
servicing agreements WCC provides loan portfolio management services,
including billing, portfolio administration and collection services for the
loans in the specified Discounted Loan portfolios. To date each of these loan
servicing agreements provides that WCC shall be entitled to an amount equal to
(i) all costs and expenses incurred by WCC for providing loan portfolio
management services, and (ii) an amount equal to twenty-five percent of the
amount collected on the specified Discounted Loan portfolios (other than
escrow payments, if any) which is excess of the initial payments made by the
Savings Banks to acquire the Discounted Loan portfolios. Due to the OTS
requirements, servicing fees for new Discounted Loan portfolios will be chosen
by the board of directors of the Savings Banks based upon fees charged by WCC
in any other appropriate third party servicing agreement on a portfolio basis.

WCC's servicing staff has extensive experience in servicing all types of
financial assets and over the years the Private Companies have developed clear
cut servicing procedures designed to effectively service and if necessary
liquidate a loan. The system, which is able to service a variety of loans,
provides WCC with, among other things, payment-processing, cashiering,
collection and reporting functions.

In addition, the servicing system and procedures are structured to deal
specifically with problem assets and discounted loans and to maximize in a
timely manner cash recovery on each loan in a Loan Portfolio. If a loan
becomes delinquent or once a non-performing loan is acquired, WCC enters
information with respect to each loan that is acquired in its computer system.
WCC then attempts to resolve each loan in accordance with specified procedures
as expeditiously as possible. The various resolution alternatives generally
include the following: (i) the borrower brings the loan current in accordance
with original or modified terms, (ii) the borrower repays the loan or a
negotiated amount of the loan, (iii) the borrower agrees to deed the property
to WCC in lieu of foreclosure, and (iv) WCC forecloses on the loan and the
property is acquired at the foreclosure sale either by a third party or by the
WCC. The general goal of WCC's asset resolution process is to maximize in a
timely manner cash recovery on each loan.

Under the Orders, the Savings Banks can terminate WCC's servicing agreement
if WCC fails to complete a comprehensive audit of the Savings Banks'
adjustable rate mortgages serviced by WCC, fails to correct certain
information system items, or fails to deliver certain statements to borrowers.

60
<PAGE>

NON-TRADITIONAL BANKCARD PROCESSING OPERATIONS

The Company plans to continue development of its non-traditional bankcard
processing operations, which generate revenues through merchant discounts and
processing fees for Visa and Mastercard transactions. The Company's bankcard
processing operations focus on certain high-risk market niches, principally
mail order/telephone order and audio-text where the Company believes it
obtains higher returns on processing transactions. Revenues from the bankcard
operation which commenced in the third quarter have demonstrated strong growth
increasing from $0.6 million in 1994 to $4.7 million in 1995 and to $5.1
million during the nine months ended September 30, 1996. Management believes
that there are opportunities to expand this business using its existing
infrastructure.

ASSET QUALITY

The Company, like all financial institutions, is exposed to certain credit
risks related to the value of the collateral that secures its loans and the
ability of borrowers to repay their loans. Management of the Company closely
monitors the Company's loan and investment portfolios and the Company's real
estate owned for potential problems on a periodic basis and reports to the
Board of Directors at regularly scheduled meetings.

Non-Performing Loans. It is the Company's policy to establish an allowance
for uncollectible interest on loans in its loan portfolio (excluding
discounted loans) which are past due 90 days or more and to place such loans
on non-accrual status. The Company does not accrue interest on Discounted
Loans (unless such loan later becomes performing). Loans also may be placed on
non-accrual status when, in the judgment of management, the probability of
collection of interest is deemed to be insufficient to warrant further
accrual. When a loan is placed on non-accrual status, previously accrued but
unpaid interest is reversed by a charge to interest income.

The following table sets forth certain information relating to the Company's
non-performing loans in its loan portfolio at the dates indicated.

NON-PERFORMING LOANS IN THE COMPANY'S LOAN PORTFOLIO(1)

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1996 1995 1994 1993
------------- ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-performing loans:
Single-family residential........... $31,112 $10,996 $ 5,554 $1,285
Multi-family residential............ 1,583 270 1,471 379
Commercial real estate and land..... 7,301 910 4,207 5,354
Consumer and other loans............ 4,586 503 400 175
------- ------- ------- ------
Total............................. $44,582 $12,679 $11,632 $7,193
======= ======= ======= ======
Non-performing loans as a percentage
of:
Total loans(2)...................... 9.11% 4.46% 5.95% 9.71%
Total assets........................ 8.36% 3.71% 5.04% 7.27%
Allowance for loan losses as a per-
centage of:
Total loans(2)...................... 8.19% 3.60% 3.72% 5.83%
Non-performing loans................ 89.92% 80.74% 62.50% 59.97%
</TABLE>
- --------
(1) This table does not include Discounted Loans although a substantial
portion of such loans are non-performing.
(2) Total loans is exclusive of Discounted Loans, undisbursed loan proceeds,
unaccreted discount and allowance for loan losses. For information
relating to the Company's Discounted Loan portfolio, see "--Loan
Portfolio."

Real Estate Owned. Properties acquired through foreclosure or by deed-in-
lieu thereof are valued at the lower of cost or fair value. Properties
included in the Company's real estate owned are periodically re-evaluated to
determine that they are being carried at the lower of cost or fair value less
estimated costs to sell. Holding and

61
<PAGE>

maintenance costs related to properties are recorded as expenses in the period
incurred. Deficiencies resulting from valuation adjustments to real estate
owned subsequent to acquisition are recognized as a valuation allowance.
Subsequent increases related to the valuation of real estate owned are
reflected as a reduction in the valuation allowance, but not below zero.
Increases and decreases in the valuation allowance are charged or credited to
income, respectively.

The following table sets forth certain information relating to the Company's
real estate owned (by source of acquisition) at the dates indicated.

REAL ESTATE OWNED BY THE COMPANY

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
1996 1995 1994 1993
------------- ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Discounted loan portfolio:
Single-family residential.............. $ 663(1) $ 3,226 $ -- $ --
Multi-family residential............... -- -- -- --
Commercial and other mortgage loans.... 290 66 -- --
------ ------- ------ ------
Total................................ 953 3,292 -- --
Loan portfolio:
Singe-family residential............... 787 1,676 613 764
Multi-family residential............... 275 611 254 --
Commercial and other mortgage loans.... 855 578 464 328
------ ------- ------ ------
Total Portfolio...................... 1,917 2,865 1,331 1,092
Total................................ 2,870 6,157 1,331 1.092
Allowance for total losses............... (356) (1,193) (123) (55)
------ ------- ------ ------
Real estate owned, net................... $2,514 $ 4,964 $1,208 $1,037
====== ======= ====== ======
</TABLE>
- --------
(1) The differences between the balance at December 31, 1995 and September 30,
1996 reflects the securitization of certain single-family residential
loans and properties.

The following table sets forth certain geographical information as of
September 30, 1996 related to the Company's real estate owned attributable to
the Company's total loan portfolio.

REAL ESTATE OWNED ATTRIBUTABLE TO THE COMPANY'S TOTAL LOAN PORTFOLIO

<TABLE>
<CAPTION>
MULTI-FAMILY
RESIDENTIAL AND
SINGLE FAMILY RESIDENTIAL COMMERCIAL REAL ESTATE
----------------------------- --------------------------
NO. OF NO. OF
AMOUNT PROPERTIES AMOUNT PROPERTIES
-------------- -------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
California............. $399 10 $1,130 4
Connecticut............ 366 5 91 1
Texas.................. 325 10 29 5
New Jersey............. -- -- 170 1
New York............... 101 1 -- --
Other.................. 259 18 -- --
-------------- ----------- ------------ ---------
Total................ $1,450 44 $1,420 11
============== =========== ============ =========
</TABLE>

62
<PAGE>

Classified Assets. OTS regulations require that each insured savings
association classify its assets on a regular basis. In addition, in connection
with examinations of insured associations, OTS examiners have authority to
identify problem assets and, if appropriate, require them to be classified.
There are three classifications for problem assets: "substandard," "doubtful"
and "loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that
the weaknesses make collection or liquidation in full on the basis of
currently existing facts, conditions and values questionable, and there is a
high possibility of loss. An asset classified loss is considered uncollectible
and of such little value that continuance as an asset of the institution is
not warranted. Another category designated "special mention" also must be
established and maintained for assets which do not currently expose an insured
institution to a sufficient degree of risk to warrant classification as
substandard, doubtful or loss but do possess credit deficiencies or potential
weaknesses deserving management's close attention. Assets classified as
substandard or doubtful require the institution to establish general
allowances for loan losses. If an asset or portion thereof is classified loss,
the insured institution must either establish specific allowances for loan
losses in the amount of 100% of the portion of the asset classified loss or
charge off such amount. General loss allowances established to cover possible
losses related to assets classified substandard or doubtful may be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses do not qualify as regulatory capital.

Excluding assets which have been classified loss and fully reserved by the
Savings Banks, the Savings Banks' classified assets as of September 30, 1996
consisted of $63.5 million of assets classified as substandard and $3.1
million of assets classified as doubtful. The substandard and doubtful asset
classifications include $2.8 million and $3.1 million of Discounted Loans,
respectively. In addition, at the same date, $41.6 million of assets were
designated as special mention, which includes $10.9 million of Sub-Prime Auto
Loans.

Allowances for Losses. The Company maintains an allowance for loan losses at
a level believed adequate by management to absorb potential losses in the loan
portfolio. The allowance is increased by provisions for loan losses charged
against operations, recoveries of previously charged off credits, and
allocations of discounts on purchased loans, and is decreased by charge-offs.
Loans are charged off when they are deemed to be uncollectible, or in the case
of automobile and other consumer loans, when payments are delinquent by more
than 120 days.

The Company uses its internal asset review system to identify and evaluate
impaired loans and to classify loans as special mention, substandard,
doubtful, loss. These terms correspond to varying degrees of risk that the
loans will not be collected in part or in full. The Company's policy is to
evaluate smaller-balance, homogenous pools of loans for impairment on a pooled
basis. These are primarily single-family residential and automobile and other
consumer loans. All other loans, whether Discounted Loans or other loans, are
evaluated for impairment on a loan-by-loan basis. All loans are subject to
potential classification as special mention, substandard, doubtful, or loss.
The frequency at which a specific loan is subjected to internal asset review
depends on the type and size of the loan and the presence or absence of other
risk factors, such as delinquency and changes in collateral values.

The allowance for loan losses comprises specific valuation allowances
established for impaired loans and for certain other classified loans, and
general valuation allowances. Specific valuation allowances are based on the
estimated fair value of the collateral for impaired or troubled collateral
dependent loans, in most cases. General valuation allowances are based on
management's periodic analyses of the composition of the loan portfolio,
delinquencies, loan classifications, historical loss experience, peer group
data, OTS guidelines, economic factors and other relevant information. These
estimation techniques apply to allowances established for both loans and
Discounted Loans.

When the Company increases the allowance for loan losses related to loans
other than Discounted Loans, it records a corresponding increase to the
provision for loan losses in the statement of operations. For Discounted
Loans, increases to the allowance for loan losses are recorded shortly after
each acquisition of a pool by

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<PAGE>

allocating a portion of the purchase discount deemed to be associated with
measurable credit risk. The allocation is based on the analyses of specific
and general valuation allowances discussed above. Amounts allocated to the
allowance for loan losses from purchase discounts do not increase the
provision for loan losses recorded in the statement of operations; rather they
decrease the amounts of the purchase discounts that are accreted into the
interest income over the lives of the loans. If, after the initial allocation
of the purchase discount to the allowance for loan losses, management
subsequently identifies the need for additional allowances against Discounted
Loans, the additional allowances are established through charges to the
provision for loan losses.

Accretion of purchase discounts (excluding amounts allocated to the
allowance for loan losses) and interest income on Discounted Loans are
recorded based on cash receipts. The same income recognition policies apply to
loans other than Discounted Loans when they are deemed to be non-performing,
generally when they are 90 days or more delinquent.

The Private Companies acquired the Savings Banks at substantial discounts to
their respective book values, reflecting the poor quality of their assets and
in the case of First Bank, an expected imminent regulatory takeover. As part
of the acquisition, the Company acquired a substantial volume of impaired
loans, which required the Savings Banks to establish allowances for loan
losses. In addition, the OTS, as part of its examination process, periodically
reviews the Savings Banks' allowances for losses and the carrying values of
assets.

First Bank and Girard increased their allowances for loan losses with
respect to the Inherited Loans by $4.8 million through September 30, 1996. In
the fourth quarter of 1995 and the first quarter of 1996, the Savings Banks
acquired approximately $24.5 million of Sub-Prime Auto Loans. Under OTS
regulations the Savings Banks have been required to write-off all auto loans
in excess of 120 days delinquent, notwithstanding that the Savings Banks
retain the cars as collateral. The aggregate portfolio of Sub-Prime Auto Loans
purchased is approximately 3,000 loans, approximately 65.9% of which have
become delinquent. The Savings Banks have established reserves aggregating
$8.6 million through the third quarter of 1996, including a 10% reserve on
such loans which are current.

In the third quarter of 1996, the Company established $4.5 million of
reserves for the Sub-Prime Auto Loans so that as of September 30, 1996
reserves have been provided for all loans in excess of 60 days delinquent.
Although the Company believes its allowances for loan losses are now adequate,
future additions to these allowances, in the form of provisions for losses on
loans, may be necessary due to changes in economic conditions, increases in
the size of the Company's loan portfolio and the performance of the loan
portfolio. The following table sets forth the Company's provision for
estimated losses on loans, net of recoveries, for the nine months ended
September 30, 1996.

<TABLE>
<CAPTION>
% OF
PROVISIONS TOTAL
------------- ----------
(DOLLARS IN THOUSANDS)
------------------------
<S> <C> <C>
Inherited Loans.................................. $ 4,774 30.3%
Sub-Prime Auto Loans............................. 8,583 54.5%
Other Purchased Loans............................ 2,394 15.2%
----------- ----------
Total provision for estimated losses on loans.... $ 15,751 100.0%
=========== ==========
</TABLE>

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<PAGE>

The following table sets forth the breakdown of the Company's allowances for
losses on the Company's loan portfolio and Discounted Loan portfolio by
category of loan and the percentage of loans in each category to total loans
in the respective portfolios at the dates indicated. The Company's allowances
for losses includes purchased discount.

COMPANY'S TOTAL ALLOWANCES FOR LOSSES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------
1996 1995 1994
------------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loan portfolio:
Real estate.......................... $34,824 $ 9,830 $ 6,883
Non-real estate...................... 5,261 407 322
Discounted Loan portfolio............ 6,219(1) 15,414 496
------- ------------ -----------
Total Allowances................... $46,304 $ 25,651 $ 7,701
======= ============ ===========
</TABLE>
- --------
(1)The difference between the balance at December 31, 1995 and September 30,
1996 reflects a securitization.

The following table sets forth an analysis of activity in the allowance for
losses relating to the Company's total loan portfolio during the periods
indicated.

ACTIVITY IN COMPANY'S ALLOWANCES FOR LOSSES

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------
1996 1995 1994
------------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of period... $25,651 $ 7,701 $ 4,314
Provision for loan losses...... 15,751 4,266 2,173
Allocation from purchased loan
discounts..................... 15,972 19,007 2,809
Charge-offs:
Real estate.................. 10,394 5,096 1,620
Non-real estate.............. 2,100 308 46
------- ------------ -----------
Total charge-offs............ 12,494 5,404 1,666
Recoveries:
Real estate.................. 1,361 81 71
Non-real estate.............. 63 -- --
------- ------------ -----------
Total Recoveries............. 1,424 81 71
------- ------------ -----------
Net (charge-offs) recoveries... (11,070) (5,323) (1,595)
------- ------------ -----------
Balance, end of period......... $46,304 $ 25,651 $ 7,701
======= ============ ===========
Net (charge-offs) recoveries as
a percentage of average loan
portfolio..................... (2.5)% (2.2)% (1.4)%
</TABLE>

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<PAGE>

Delinquency. The table below sets forth the delinquency status of the
Company's loan portfolio (excluding Discounted Loans) at each of the dates
indicated.

DELINQUENCY IN THE COMPANY'S LOAN PORTFOLIO(1)

<TABLE>
<CAPTION>
DECEMBER 31,
NINE MONTHS ENDED -------------------------------------
SEPTEMBER 30, 1996 1995 1994
------------------ ------------------ ------------------
PERCENT OF PERCENT OF PERCENT OF
BALANCE PORTFOLIO BALANCE PORTFOLIO BALANCE PORTFOLIO
------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Period of Delinquency:
30-59 days............ $17,956 3.7% $ 3,726 1.3% $ 4,513 2.4%
60-89 days............ 10,577 2.2 3,037 1.1 2,202 1.1
90 days or more(2).... 44,582 9.1 12,679 4.5 11,632 6.1
------- ---- ------- --- ------- ---
Total loans delin-
quent.............. $73,115 15.0% $19,442 6.9% $18,347 9.6%
======= ======= =======
</TABLE>
- --------
(1) This table excludes Discounted Loans.
(2) All loans delinquent 90 days or more were on nonaccrual status.
(3) Increase is primarily due to Inherited Loans, Sub-Prime Auto Loans and
purchased sub-performing residential loans.

INVESTMENT ACTIVITIES

Investment Securities. Investment securities consist primarily of U.S.
Government securities and required investment in FHLB stock.

The following table sets forth the Company's investment securities available
for sale and held for investment at the dates indicated:

THE COMPANY'S INVESTMENT SECURITIES

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, DECEMBER 31,
------------- -----------------------
1996 1995 1994 1993
------------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities.......... $ 6,483 $ 9,083 $10,943 $ 6,632
Held to maturity
U.S. Government securities.......... 7,425 6,470 4,505 --
Mortgage-backed securities.......... 22,380 13,119 14,439 14,787
FHLB stock(1)....................... 2,911 1,421 1,612 564
------- ------- ------- -------
Total............................. 32,716 21,010 20,556 15,351
------- ------- ------- -------
Total investment securities......... $39,199 $30,093 $31,499 $21,983
======= ======= ======= =======
</TABLE>
- --------
(1) As a member of the FHLB of San Francisco, the Savings Banks are required
to purchase and maintain stock in the FHLB of San Francisco in an amount
equal to at least 1% of its aggregate unpaid residential mortgage loans,
home purchase contracts and similar obligations at the beginning of each
year or 3% of borrowings, whichever is greater.

PROPERTIES

The Company's corporate headquarters are located in Portland, Oregon, where
the Company leases approximately 5,000 square feet of office space from a
corporation which is beneficially owned by Andrew A. Wiederhorn and Lawrence
A. Mendelsohn. See "Certain Relationships and Related Transactions." The
Savings Banks also rent approximately 8,000 sq. ft. of office space in two
locations in Portland, Oregon from a corporation which is beneficially owned
by Messrs. Wiederhorn and Mendelsohn. See "Certain Relationships and Related
Transactions." Girard leases its branch office in La Jolla, California
pursuant to a lease expiring May 31, 1997. First Bank leases its branch office
in Beverly Hills, California and office space for its merchant bankcard
operations in Calabasas, California pursuant to leases expiring February 29,
2000 and November 30,

66
<PAGE>

1999, respectively. The Company also leases office space in London, England
pursuant to a month-to-month lease. The Company believes its facilities are
both suitable and adequate for its current business purposes.

COMPUTER SYSTEMS AND OTHER EQUIPMENT

The Company believes that its use of information technology is a key factor
in achieving a competitive advantage in acquiring Loan Portfolios, minimizing
operating costs and increasing overall profitability. The Company uses
proprietary software which was developed over a period of years by the Private
Companies. In addition to standard industry software applications, the Private
Companies have internally developed fully integrated proprietary applications
designed to provide decision support and automation of portfolio tracking and
reporting. The Company's systems have significant additional capacity for
expansion without commensurate cost increases.

The proprietary software packages developed for asset resolution use
advanced financial models to support the resolution strategy, as well as track
performance against specified timeliness for each procedure. The system
permits immediate access to pertinent loan information and the automatic
preparation of letters and notices to borrowers. The Company also maintains a
centralized data warehouse.

EMPLOYEES

As of September 30, 1996, the Savings Banks had 46 employees. As of the
closing of the Common Stock Offering and the Notes Offering the Company and
its subsidiaries are expected to have approximately 80 full-time and shared
employees in the United States and 6 employees in the United Kingdom. The
employees are not represented by a collective bargaining agreement, and
management believes that it has good relations with its employees.

LEGAL PROCEEDINGS

The Company is involved in various legal proceedings occurring in the
ordinary course of business which management of the Company believes will not
have a material adverse effect on the financial condition or operations of the
Company.

ENVIRONMENTAL MATTERS

To date, the Company has not been required to perform any investigation or
clean-up activities, nor has it been subject to any environmental claims.
There can be no assurance, however, that this will remain the case in the
future.

In the course of its business, the Company has acquired and may acquire in
the future, properties securing loans that are in default. Although to date
the Company primarily lends to owners of and purchases loans secured by
residential properties, there is a risk that the Company could be required to
investigate and clean-up hazardous or toxic substances or chemical releases at
such properties after acquisition by the Company, and may be held liable to a
governmental entity or to third parties for property damage, personal injury
and investigation and clean-up costs incurred by such parties in connection
with the contamination. In addition, the owner or former owners of a
contaminated site may be subject to common law claims by third parties based
on damages and costs resulting from environmental contamination emanating from
such property.

COMPETITION

The Company's competition in the financial services business includes
mortgage banking companies, mortgage brokers, commercial banks, credit unions,
thrift institutions, credit card issuers and finance companies. Many of these
competitors are substantially larger and have considerably greater financial,
technical and marketing resources than the Company. Competition in loan
markets can take many forms including convenience in obtaining a loan,
customer service, marketing and distribution channels, amount and term of the
loan, loan origination fees, and interest rates. The Company believes that it
is able to compete on the basis of providing

67
<PAGE>

prompt and responsive service and its ability to analyze and purchase
performing, sub-performing and discounted loans secured by varied collateral.

The Company also faces competition in its discounted loan acquisition
activities. Discounted loans are generally acquired in auctions or competitive
bid circumstances. Although many of the Company's competitors have access to
greater capital and have other advantages, the Company believes that it has a
competitive advantage relative to many of its competitors as a result of its
experience in servicing and resolving troubled loans, its large investment in
proprietary software, technology and other resources which are necessary to
conduct its business, and the strategic relationships and contacts which it
has developed in connection with these activities.

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<PAGE>

REGULATION

Financial institutions and their holding companies are extensively regulated
under federal and state laws. As a result, the business, financial condition
and prospects of the Savings Banks and the Company can be materially affected
not only by management decisions and general economic conditions, but also by
applicable statutes and regulations and other regulatory pronouncements and
policies promulgated by regulatory agencies with jurisdiction over the Savings
Banks and the Company, such as the OTS and the FDIC. The effect of such
statutes, regulations and other pronouncements and policies can be
significant, cannot be predicted with a high degree of certainty and can
change over time. Moreover, such statutes, regulations and other
pronouncements and policies are intended to protect depositors and the
insurance funds administered by the FDIC, and not stockholders or holders of
indebtedness which is not insured by the FDIC.

The enforcement powers available to federal banking regulators is
substantial and includes, among other things, the ability to assess civil
monetary penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions against banking organizations and institution-
affiliated parties, as defined. In general, these enforcement actions must be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with regulatory
authorities.

The following discussion and other references to and descriptions of the
regulation of financial institutions contained herein constitute brief
summaries thereof as in effect on the date of this Prospectus. This discussion
is not intended to constitute and does not purport to be a complete statement
of all legal restrictions and requirements applicable to the Company and the
Savings Banks and all such descriptions are qualified in their entirety by
reference to applicable statutes, regulations and other regulatory
pronouncements.

Recent Regulatory Examinations. Following examinations of the Savings Banks
and WAC by the OTS in 1994, 1995 and 1996, the OTS issued Reports of
Examination that were critical of the Savings Banks and WAC in a number of
respects. These regulatory concerns initially resulted in the OTS requiring
First Bank to enter into a Supervisory Agreement on June 8, 1995. The
Supervisory Agreement required First Bank to (a) develop plans and procedures
concerning (i) reduction of non-performing assets, (ii) internal asset review,
(iii) asset monitoring, (iv) appraisals, (v) loan underwriting, (vi) loan
purchases; (b) enhance recordkeeping; (c) develop requirements to ensure that
the servicing of loans by WCC is satisfactory; and (d) maintain its separate
corporate existence. In addition, the Supervisory Agreement required First
Bank to maintain certain minimum capital ratios and prohibited First Bank from
increasing total assets beyond specified levels and acquiring non-performing
assets without the prior written consent of the Assistant Regional Director of
the OTS--West Region.

Imposition of Cease-and-Desist Orders. In July 1996, the OTS advised First
Bank that it had not fully complied with the terms of the Supervisory
Agreement and that both Savings Banks had failed in a number of respects to
address regulatory concerns raised in the 1994 and 1995 examination reports.
The OTS also expressed continuing concerns regarding the adequacy of
management of First Bank in light of its business activities. As a result of
these issues, the OTS replaced the Supervisory Agreement with a Cease and
Desist Order, effective October 31, 1996. Given the similar nature of Girard's
business activities, the OTS has also issued a Cease and Desist Order to
Girard similar to the Order issued to First Bank, also effective October 31,
1996. The issuance of a cease and desist order is generally evidence of an
increased level of regulatory concern regarding the subject institution.

The Orders require that both Savings Banks not engage in unsafe and unsound
practices and that they maintain minimum capital ratios as of December 31,
1996 required of institutions to be deemed "well- capitalized" under OTS
regulations. The Orders further require that the Savings Banks appropriately
risk-weight their assets and off-balance sheet items pursuant to OTS
regulations and establish and thereafter maintain internal controls sufficient
to ensure the accuracy and integrity of the calculation of their regulatory
capital ratios. The Orders also require the Savings Banks to: (a) revise
policies and procedures concerning (i) internal asset reviews, (ii) the
allowances for loan and lease losses, (iii) loan purchases, (iv) internal
audits and (v) hedging transactions;

69
<PAGE>

(b) develop plans to augment the depth and expertise of the management teams;
(c) revise business plans; (d) modify certain policies concerning the
accounting for loan discounts; (e) improve monitoring of (i) interest rate
risk, (ii) asset classifications (e.g., as held for sale versus held to
maturity) and (iii) compliance with laws and regulations concerning
transactions with affiliates; (f) ensure compliance with the proper servicing
of adjustable-rate mortgages and escrow accounts; (g) ensure servicer
correction of OTS-identified deficiencies in information systems; and
(h) enhance recordkeeping. In addition, First Bank is required to correct OTS-
identified deficiencies in its merchant bankcard processing operations. These
requirements are accompanied by related requirements that the Savings Banks
submit to the OTS, by certain specified dates, various policies, plans and
reports on other actions to comply with the Orders. In some cases, OTS
approval of such information is required.

Specifically, among other things, the Orders require that the Savings Banks
revise and submit to the OTS their internal asset review policies and
procedures (the "IAR Policies") to provide guidance on identifying and
classifying troubled, collateral dependent loans under OTS regulatory guidance
and, for purposes of ensuring the independence of the internal asset review
process, to require that loan underwriting, servicing and purchasing functions
be generally segregated from the credit review function. In addition, the
Orders require the Savings Banks to develop, implement and maintain an
effective internal asset review system that provides for adequate internal
controls to ensure that management timely reviews and classifies assets under
the IAR Policies.

The Orders also require the Savings Banks to revise and submit to the OTS
their policies and procedures for allowances for loan and lease losses (the
"ALLL Policies") regarding the factors considered in setting loan loss
allowances and to provide adequate internal controls to ensure that management
and the Savings Banks comply with the revised ALLL Policies. Under the Orders,
when the Savings Banks report quarterly to the OTS on their progress in
implementing the ALLL Policies, the Savings Banks must also submit their
reserve analyses for the preceding calendar quarter.

The Orders also require that the Savings Banks revise and submit to the OTS
their loan purchase policies and procedures (the "Loan Purchase Policies") to
provide specific guidance on due diligence scope and sampling, assign
personnel to oversee due diligence activities and require such personnel to
ensure that all diligence is completed in accordance with the Loan Purchase
Policies and to provide specific guidance regarding the use and reliance on
broker price opinions. Under the Orders, the Savings Banks are directed to
establish and maintain sufficient internal controls to confirm that loan data
for all purchased loans meet certain minimum standards set by the Savings
Banks and to identify loan documentation deficiencies prior to purchase.

The Orders require that the Savings Banks submit to the OTS an amended
accounting policy that requires management to establish and adhere to
appropriate guidance and procedures for the amortization of discounts on
Discounted Loans, to establish appropriate reserves on Discounted Loans prior
to recognizing the yield adjustment on such loans into income and to
demonstrate the accuracy of the yield adjustment component of the discount.

In connection with the requirements of the Orders regarding asset liability
management, the Savings Banks are required to submit to the OTS a hedging
policy that fully complies with relevant accounting guidance and that
establishes written guidelines to ensure the Savings Banks document their
hedging strategy. In addition, the Savings Banks are required to submit to the
OTS a plan to develop or obtain internal expertise and resources necessary to
measure, monitor and model the Savings Banks' interest rate risk.

The Orders provide that the Savings Banks must submit a plan detailing how
WCC will complete a comprehensive audit of certain of its servicing activities
for the Savings Banks and take such action to ensure that WCC fully implements
the results of such audit. Further, the Orders require that the Savings Banks
take corrective actions specified, and adhere to the controls developed, in
the audit.

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<PAGE>

Management believes that the Savings Banks are complying with those
requirements of the Orders that have taken effect immediately. In addition,
the Savings Banks have implemented several actions to address the other
requirements of the Orders, including (i) hiring a new chief executive officer
for the Savings Banks, (ii) engaging Arthur Andersen LLP to review
management's implementation of corrective actions required by the OTS,
(iii) increasing the size of the internal asset review department, and (iv)
revising the internal asset review policy. The Company is also in the process
of hiring a manager to complete the development and implementation of an
effective internal asset review system.

The Orders are enforceable by the OTS as written agreements under the
Federal Deposit Insurance Act. Therefore, failure to comply with the
requirements of the Orders could subject the Savings Banks and their directors
and officers to further enforcement actions, including termination of FDIC
insurance or civil money penalties. There can be no assurances that the OTS
will approve the required submissions by the Savings Banks without further
modification or will not impose further restrictions on the Savings Banks.

OTS Growth Restrictions. Since June 30, 1995, First Bank has had limited
ability to increase deposits due to the provisions of an OTS Supervisory
Agreement which prohibited First Bank from increasing assets above specified
levels. Accordingly, the Company's asset growth has principally been financed
through the raising of deposits at Girard. However, due to the issuance of the
Orders, the Company will not be able to utilize the Savings Banks as vehicles
for growth until and unless the Orders are lifted or modified. The Orders
prohibit First Bank and Girard from increasing their total assets, as measured
at the end of each calendar quarter, above $145 million and $408 million,
respectively, unless such increase is an amount that represents the total net
interest credited on deposit liabilities earned during that quarter plus any
increase permitted under the Orders in prior quarters.

SAVINGS AND LOAN HOLDING COMPANIES

The Company is a savings and loan holding company that is regulated and
subject to examination by the OTS. The activities of savings and loan holding
companies are governed by the provisions of the Home Owners' Loan Act, as
amended (the "HOLA"). Pursuant to the HOLA, a savings and loan holding company
may not (i) acquire control of a savings association or savings and loan
holding company without prior OTS approval; (ii) acquire, except with prior
OTS approval, by process of merger, consolidation, or purchase of assets of
another savings association or savings and loan holding company, all or
substantially all of the assets of any such association or holding company; or
(iii) acquire, by purchase or otherwise, more than 5% of the voting shares of
a savings association that is not a subsidiary, or of a savings and loan
holding company that is not a subsidiary. In considering whether to grant
approval for any such transaction, the OTS will take into consideration a
number of factors, including the competitive effects of the transaction, the
financial and managerial resources and future prospects of the holding company
and the institution involved, and the compliance records of such subsidiaries
with the Community Reinvestment Act ("CRA").

Federal law empowers the Director of the OTS to take substantive action when
he determines that there is reasonable cause to believe that the continuation
by a savings and loan holding company of any particular activity constitutes a
serious risk to the financial safety, soundness or stability of a savings and
loan holding company's subsidiary savings institutions. In addition, the
Director of the OTS has oversight authority with respect to all holding
company affiliates. Specifically, the Director of the OTS may, as necessary
(i) limit the payment of dividends by the savings institutions; (ii) limit
transactions between the savings institutions, the holding company and the
subsidiaries or affiliates of either; or (iii) limit any activities of the
savings institutions that might create a serious risk that the liabilities of
the holding company and its affiliates may be imposed on the savings
institutions. Any such limits would be issued in the form of a directive
having the legal effect of a cease and desist order.

Activities Limitations--The Company is currently classified as a multiple
savings and loan holding company under applicable law as a result of its
ownership of the two Savings Banks, First Bank and Girard. A savings and loan
holding company which has only one insured institution subsidiary (known as a
"unitary" savings and loan holding company) and which subsidiary qualifies as
a qualified thrift lender ("QTL"), described below,

71
<PAGE>

generally has the broadest authority to engage in various types of business
activities with few restrictions on its activities, except that historically
savings and loan holding companies have not been permitted to acquire or be
acquired by an entity engaged in securities underwriting or market making. A
holding company that owns two or more financial institutions, such as the
Company, or whose sole subsidiary fails to meet the QTL test is subject to the
activities limitations applicable to multiple savings and loan holding
companies. In general, a multiple savings and loan holding company (or
subsidiary thereof that is not an insured institution) may not commence or
continue for more than a limited period of time after becoming a multiple
savings and loan holding company (or a subsidiary thereof), any business
activity other than (i) furnishing or performing management services for a
subsidiary insured institution; (ii) conducting an insurance agency or an
escrow business; (iii) holding, managing or liquidating assets owned by or
acquired from a subsidiary insured institution; (iv) holding or managing
properties used or occupied by a subsidiary insured institution; (v) acting as
trustee under deeds of trust; (vi) those activities previously directly
authorized by the OTS by regulation as of March 5, 1987 to be engaged in by
multiple savings and loan holding companies; or (vii) subject to prior
approval of the OTS, those activities authorized by the FRB as permissible
investment for bank holding companies.

Restrictions on Transactions with the Savings Banks--The Savings Banks are
subject to restrictions in their dealings with the Company and the Company's
non-bank subsidiaries under HOLA and certain provisions of the Federal Reserve
Act ("FRA") that are made applicable to savings institutions by HOLA and OTS
regulations.

A savings institution's transactions with its affiliates are subject to
limitations set forth in the HOLA and OTS regulations, which incorporate
Sections 23A, 23B, 22(g) and 22(h) of the FRA and Regulation O adopted by the
FRB. Under Section 23A, an "affiliate" of an institution is defined generally
as (i) any company that controls the institution and any other company that is
controlled by the company that controls the institution, (ii) any company that
is controlled by the shareholders who control the institution or any company
that controls the institution or (iii) any company that is determined by
regulation or order to have a relationship with the institution (or any
subsidiary or affiliate of the institution) such that "covered transactions"
with the company may be affected by the relationship to the detriment of the
institution. "Control" is determined to exist if a percentage stock ownership
test is met or if there is control over the election of directors or the
management or policies of the company or institution. "Covered transactions"
generally include loans or extensions of credit to an affiliate, purchases of
securities issued by an affiliate, purchases of assets from an affiliate
(except as may be exempted by order or regulation), and certain other
transactions.

THE SAVINGS BANKS

General. The Savings Banks are federally-chartered savings banks organized
under HOLA. As such, the Savings Banks are subject to regulation, supervision
and examination by the OTS. The deposit accounts of the Savings Banks are
insured up to applicable limits by the FDIC through the SAIF and, as a result,
the Savings Banks also are subject to regulation, supervision and examination
by the FDIC.

The business and affairs of the Savings Banks are regulated in a variety of
ways. Regulations apply to, among other things, insurance of deposit accounts,
capital ratios, payment of dividends, liquidity requirements, the nature and
amount of the investments that the Savings Banks may make, transactions with
affiliates, community and consumer lending laws, internal policies and
controls, reporting by and examination of the Savings Banks and changes in
control of the Savings Banks.

Regulatory Capital Requirements. Federally-insured savings associations are
required to maintain minimum levels of regulatory capital. These standards
generally must be as stringent as the comparable capital requirements imposed
on national banks. The OTS also is authorized to impose capital requirements
in excess of these standards on individual associations on a case-by-case
basis. The Orders require that both Savings Banks maintain minimum capital
ratios required of institutions to be deemed "well-capitalized" commencing
December 31, 1996.

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Federally-insured savings associations are subject to three capital
requirements: a tangible capital requirement, a core or leverage capital
requirement and a risk-based capital requirement. All savings associations
currently are required to maintain tangible capital of at least 1.5% of
adjusted total assets (as defined in the regulations), core capital equal to
3% of adjusted total assets and total capital (a combination of core and
supplementary capital) equal to 8% of risk-weighted assets. For these
purposes, tangible capital is core capital less all intangibles other than
qualifying mortgage servicing rights. Since neither Savings Bank had
intangibles at September 30, 1996, tangible Capital was the same as core
Capital for both Savings Banks. Core capital includes common stockholders'
equity, non-cumulative perpetual preferred stock and related surplus' minority
interests in the equity accounts of fully consolidated subsidiaries and
certain non-withdrawable accounts and pledged deposits.

A savings association is allowed to include both core capital and
supplementary capital in the calculation of its total capital for purposes of
the risk-based capital requirements, provided that the amount of supplementary
capital included does not exceed the savings association's core capital.
Supplementary capital consists of certain capital instruments that do not
qualify as core capital, including subordinated debt which meets specified
requirements, subject to certain limitations, and loan and lease loss general
valuation allowances. General valuation allowances can generally be included
up to 1.25% of risk-weighted assets. In determining the required amount of
risk-based capital, total assets, including certain off-balance sheet items,
are multiplied by a risk weight based on the risks inherent in the type of
assets. The risk weights assigned by the OTS for principal categories of
assets currently range from 0% to 100%, depending on the type of asset.

OTS policy imposes a limitation on the amount of net deferred tax assets
under SFAS No. 109 that may be included in regulatory capital. (Net deferred
tax assets represent deferred tax assets, reduced by any valuation allowances,
in excess of deferred tax liabilities.) Application of the limit depends on
the possible sources of taxable income available to an institution to realize
deferred tax assets. Deferred tax assets that can be realized from the
following generally are not limited to taxes paid in prior carryback years and
future reversals of existing taxable temporary differences. To the extent that
the realization of deferred tax assets depends on an institution's future
taxable income (exclusive of reversing temporary differences and
carryforwards), or its tax-planning strategies, such deferred tax assets are
limited for regulatory capital purposes to the lesser of the amount that can
be realized within one year of the quarter-end report date or 10% of core
capital. The foregoing considerations did not affect the calculation of the
Savings Banks' regulatory capital as of September 30, 1996.

The OTS promulgated a regulation that requires that an interest-rate ("IRR")
risk component be included in the risk-based capital regulation. However, the
effective date of the interest-rate risk component has been delayed. Under the
rule, an institution with a greater than specified level of interest rate risk
is subject to a deduction of its interest rate risk component from total
capital for purposes of calculating the risk-based capital requirement. As a
result, such an institution would be required to maintain additional capital
in order to comply with the risk-based capital requirement. Had the interest-
rate risk component been in effect at June 30, 1996, the Savings Banks'
capital ratios would not have been affected by this rule.

Insurance of Accounts. As an FDIC-insured institution, the Savings Banks are
required to pay deposit insurance premiums to the SAIF as administered by the
FDIC. The SAIF maintains a fund to insure deposits of savings institutions,
including the Savings Banks. The SAIF also maintains a fund to insure the
deposits of institutions, such as the Savings Banks, that were previously
insured by the Federal Savings and Loan Insurance Corporation ("FSLIC"). The
SAIF historically has had three major obligations: to fund losses associated
with the failure of institutions with SAIF-insured deposits; to increase the
SAIF's reserves to 1.25% of insured deposits; and to make interest payments on
debt incurred to provide funds to the FSLIC (the "FICO debt"). Under current
FDIC regulations, institutions are assigned to one of three capital groups
based on the level of an institution's capital, "well-capitalized,"
"adequately capitalized," or "undercapitalized," which are defined in the same
manner as in the regulations establishing the prompt corrective action system,
as discussed below. These three groups are then divided into three subgroups
which are based on supervisory evaluations by the

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institution's primary federal banking regulator, resulting in nine assessment
classifications. Deposit insurance premium assessment rates currently range
from .23% for well capitalized institutions with only a few supervisory
concerns to .31% for undercapitalized institutions with substantial
supervisory concerns.

Recently proposed FDIC regulations would reduce future semi-annual SAIF
assessments for savings institutions such as the Savings Banks. The proposed
reduced assessment schedule would reduce rates to .18% for well capitalized
with only a few minor supervisory concerns to .27% for undercapitalized
institutions with substantial supervisory concerns for the period October 1,
1996 through December 31, 1996 and thereafter to .0% to .27%, respectively. In
addition, savings institutions such as the Savings Banks will pay an
additional .0645% in semi-annual premiums to cover costs of the FICO debt.

Recapitalization of SAIF. The SAIF, due to the large number of failed
savings institutions in the late 1980's and early 1990's, has been unable to
attain the statutorily-required reserve ratio of 1.25% of insured deposits.
Legislation enacted on September 30, 1996, provides for a special assessment
to be collected no later than 60 days after the date of enactment based on
deposits held as of March 31, 1995, at a rate sufficient to provide the SAIF
with reserves equal to 1.25% of total deposits. The FDIC currently estimates
that the special assessment rate will be 65.7 basis points. Based on the
Savings Banks' deposits as of March 31, 1995, the one-time special assessment
at 67.5 basis points resulted in the Savings Banks' incurring a pre-tax charge
of approximately $1.4 million.

The law also provides that the SAIF and the Bank Insurance Fund ("BIF") BIF
shall be merged on January 1, 1999, provided that all savings associations
have converted to banks by that date, but does not provide legislation to
implement such a conversion. The law further provides that between January 1,
1997, and December 31, 1999 (or the date the last savings association ceases
to exist, whichever is earlier), the interest costs for FICO debt will be
shared by SAIF and BIF assessments, with SAIF institutions paying about 60% of
the dollar amount and BIF institutions paying about 40% of the dollar amount.
If the BIF and SAIF have not merged by January 1, 2000, these FICO interest
costs will be assessed pro rata, with all insured institutions paying the same
rate. The law also includes a provision intended to limit "deposit shifting"
from a SAIF-insured institution to a BIF-insured affiliate.

The FDIC may terminate the deposit insurance of any insured depository
institution, including the Savings Banks, if it determines after a hearing
that the institution has engaged or is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, order or any condition imposed by an
agreement with the FDIC. It also may suspend deposit insurance temporarily
during the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If insurance of accounts is terminated,
the accounts at the institution at the time of the termination, less
subsequent withdrawals shall continue to be insured for a period of six months
to two years, as determined by the FDIC. Management is aware of no existing
circumstances which would result in termination of the Savings Banks' deposit
insurance.

Prompt Corrective Action. Federal law provides the federal banking
regulators with broad power to take "prompt corrective action" to resolve the
problems of undercapitalized institutions. The extent of the regulators'
powers depends on whether the institution in question is "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
or "critically undercapitalized." Under regulations adopted by the federal
banking regulators, an institution shall be deemed to be (i) "well
capitalized" if it has a total risk-based capital ratio of 10.0% or more, has
a Tier I risk-based capital ratio of 6.0% or more, has a Tier I leverage
capital ratio of 5.0% or more and is not subject to specified requirements to
meet and maintain a specific capital level for any capital measure; (ii)
"adequately capitalized" if it has a total risk-based capital ratio of 8.0% or
more, a Tier I risk-based capital ratio of 4.0% or more and a Tier I leverage
capital ratio of 4.0% or more (3.0% under certain circumstances) and does not
meet the definition of "well capitalized," (iii)

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"undercapitalized" if it has a total risk-based capital ratio that is less
than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a Tier
I leverage capital ratio that is less than 4.0% (3.0% under certain
circumstances), (iv) "significantly undercapitalized" if it has a total risk-
based capital ratio that is less than 6.0%, a Tier I risk-based capital ratio
that is less than 3.0% or a Tier I leverage capital ratio that is less than
3.00%, and (v) "critically undercapitalized" if it has a ratio of tangible
equity to adjusted total assets that is equal to or less than 2.0.% The
regulations also permit the appropriate federal banking regulator to downgrade
an institution to the next lower category (provided that a significantly
undercapitalized institution may not be downgraded to critically
undercapitalized) if the regulator determines (i) after notice and opportunity
for hearing or response, that the institution is in an unsafe or unsound
condition or (ii) that the institution has received (and not corrected) a
less-than-satisfactory rating for any of the categories of asset quality,
management, earnings or liquidity in its most recent exam. As of September 30,
1996, the Savings Banks were "well capitalized" institutions under the prompt
corrective action regulations of the OTS.

Depending upon the capital category to which an institution is assigned, the
regulators' corrective powers, many of which are mandatory in certain
circumstances, include prohibition on capital distributions; prohibition on
payment of management fees to controlling persons; requiring the submission of
a capital restoration plan; placing limits on asset growth; limiting
acquisitions, branching or new lines of business; requiring the institution to
issue additional capital stock (including additional voting stock) or to be
acquired; restricting transactions with affiliates; restricting the interest
rates that the institution may pay on deposits; ordering a new election of
directors of the institution; requiring that senior executive officers or
directors be dismissed; prohibiting the institution from accepting deposits
from correspondent banks; requiring the institution to divest certain
subsidiaries; prohibiting the payment of principal or interest on subordinated
debt; and, ultimately, appointing a receiver for the institution.

Brokered Deposits. Under applicable laws and regulations, an insured
depository institution may be restricted in obtaining, directly or indirectly,
funds by or through any "deposit broker," as defined, for deposit into one or
more deposit accounts at the institution. The term "deposit broker" generally
includes any person engaged in the business of placing deposits, or
facilitating the placement of deposits, of third parties with insured
depository institutions or the business of placing deposits with insured
depository institutions for the purpose of selling interests in those deposits
to third parties. Under FDIC regulations, well-capitalized institutions are
not subject to any brokered deposit limitations, while adequately capitalized
institutions are able to accept, renew or roll over brokered deposits only (i)
with a waiver from the FDIC and (ii) subject to the limitation that they do
not pay an effective yield on any such deposit which exceeds by more than (a)
75 basis points the effective yield paid on deposits of comparable size and
maturity in such institution's normal market area for deposits accepted in its
normal market area or (b) by 120% for retail deposits and 130% for wholesale
deposits, respectively, of the current yield on comparable maturity U.S.
treasury obligations for deposits accepted outside the institution's normal
market area. Undercapitalized institutions are not permitted to accept
brokered deposits and may not solicit deposits by offering an effective yield
that exceeds by more than 75 basis points the prevailing effective yields on
insured deposits of comparable maturity in the institution's normal market
area or in the market area in which such deposits are being solicited.

Restrictions on Capital Distributions. The OTS has promulgated a regulation
governing capital distributions by savings associations, which include cash
dividends, stock redemptions or repurchases, cash-out mergers, interest
payments on certain convertible debt and other transactions charged to the
capital account of a savings association as a capital distribution. The
regulations establish a tiered system of regulation with the greatest
flexibility being afforded to well-capitalized institutions.

An institution that meets its fully phased-in capital requirements is
permitted to make capital distributions during a calendar year, without prior
OTS approval, of up to the greater of (i) 100% of its net income during the
calendar year, plus the amount that would reduce by not more than one-half its
"surplus capital ratio" at the beginning of the calendar year (the amount by
which the institution's actual capital exceeded its fully phased-in capital
requirement at that date) or (ii) 75% of its net income over the most recent
four-quarter period. An

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institution that meets its current minimum capital requirements but not its
fully phased-in capital requirements may make capital distributions, without
prior OTS approval, of up to 75% of its net income over the most recent four-
quarter period, as reduced by the amounts of any capital distributions
previously made during such period. An institution that does not meet its
minimum regulatory capital requirements prior to, or on a pro forma basis
after giving effect to, a proposed capital distribution, or that the OTS has
notified as needing more than normal supervision, is not authorized to make
any capital distributions unless it receives prior written approval from the
OTS or the distributions are in accordance with the express terms of an
approved capital plan.

The OTS has proposed an amendment to its capital distribution regulation to
conform to its PCA regulations by replacing the current "tiered" approach
summarized above with one that would allow institutions to make capital
distributions that would not result in the institution falling below the PCA
"adequately capitalized" capital category. Under this proposal, an institution
would be able to make a capital distribution (i) without notice or
application, if the institution is not held by a savings and loan holding
company and received a sufficiently favorable regulatory rating of 1 or 2,
(ii) by providing notice to the OTS if, after the capital distribution, the
institution would remain at least "adequately capitalized," or (iii) by
submitting an application to the OTS.

The OTS retains the authority to prohibit any capital distribution otherwise
authorized under its regulations if the OTS determines that the capital
distribution would constitute an unsafe or unsound practice. The regulations
also apply to direct and indirect distributions to affiliates, including those
occurring in connection with corporation reorganizations.

Affiliate Transactions. Under federal law and regulation, transactions
between a savings association and its affiliates are subject to quantitative
and qualitative restrictions. Affiliates of a savings association include,
among other entities, companies that control, are controlled by or are under
common control with the savings association. As a result, the Company and its
non-bank subsidiaries are affiliates of the Savings Banks.

Savings associations are restricted in their ability to engage in "covered
transactions" with their affiliates. In addition, covered transactions between
a savings association and an affiliate, as well as certain other transactions
with or benefiting an affiliate, must be on terms and conditions at least as
favorable to the savings association as those prevailing at the time for
comparable transactions with non-affiliated companies. Savings associations
are required to make and retain detailed records of transactions with
affiliates.

Notwithstanding the foregoing, a savings association is not permitted to
make a loan or extension of credit to any affiliate unless the affiliate is
engaged only in activities the FRB has determined to be permissible for bank
holding companies. Savings associations are prohibited from purchasing or
investing in securities issued by an affiliate, other than shares of a
subsidiary.

Savings associations are also subject to various limitations and reporting
requirements on loans to insiders. These limitations require, among other
things, that all loans or extensions of credit to insiders (generally
executive officers, directors or 10% stockholders of the institution) or their
"related interests" be made on substantially the same terms (including
interest rates and collateral) as, and follow credit underwriting procedures
that are not less stringent than, those prevailing for comparable transactions
with the general public and not involve more than the normal risk of repayment
or present other unfavorable features.

Qualified Thrift Lender Test. All savings associations are required to meet
a QTL Test set forth in the HOLA and regulations of the OTS thereunder to
avoid certain restrictions on their operations. A savings association that
does not meet the QTL Test set forth in the HOLA and implementing regulations
must either convert to a bank charter or comply with the following
restrictions on its operations: (i) the association may not engage in any new
activity or make any new investment, directly or indirectly, unless such
activity or investment is permissible for a national bank; (ii) the branching
powers of the association shall be restricted to those of a national bank;
(iii) the association shall not be eligible to obtain any advances from its
FHLB; and (iv) payment of dividends by the institution shall be subject to the
rules regarding payment of dividends by a national bank.

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Upon the expiration of three years from the date the association ceases to be
a QTL, it must cease any activity and not retain any investment not
permissible for a national bank and immediately repay any outstanding FHLB
advances (subject to safety and soundness considerations).

Historically, the QTL test has required that 65% of an institution's
"portfolio assets" (as defined) consist of certain housing and consumer-
related assets on a monthly basis in at least nine out of every 12 months. As
of September 30, 1996, the qualified thrift investments of the First Bank and
Girard were approximately 83.2% and 85.7%, respectively, of their portfolio
assets. Recently enacted legislation provides that certain education, small
business and consumer loans may be included as qualified thrift investments
for purposes of the QTL test.

Loans-to-One Borrower. Under applicable laws and regulations, the amount of
loans and extensions of credit which may be extended by a savings institution
such as the Savings Banks to any one borrower, including related entities,
generally may not exceed the greater of $500,000 or 15% of the unimpaired
capital and unimpaired surplus of the institution. Loans in an amount equal to
an additional 10% of unimpaired capital and unimpaired surplus also may be
made to a borrower if the loans are fully secured by readily marketable
securities. An institution's "unimpaired capital and unimpaired surplus"
includes, among other things, the amount of its core capital and supplementary
capital included in its total capital under OTS regulations.

As of September 30, 1996, First Bank's and Girard's unimpaired capital and
surplus amounted to $11.1 million and $26.7 million, respectively, resulting
in a general loans-to-one borrower limitation of $1.7 million and $4.0
million, respectively under applicable laws and regulations. See "Business--
Loan Portfolio."

COMMUNITY INVESTMENT AND CONSUMER PROTECTION LAWS

Truth in Lending. The Truth in Lending Act ("TILA") and Regulation Z
promulgated thereunder contain certain disclosure requirements designed to
provide consumers with uniform, understandable information with respect to the
terms and conditions of loans and credit transactions in order to give them
the ability to compare credit terms. TILA also guarantees consumers a three
day right to cancel certain credit transactions including loans of the type
originated by the Company and the Savings Banks. Management of the Company and
the Savings Banks believes that they are in compliance with TILA in all
material respects. If the Company and the Savings Banks were found not to be
in compliance with TILA, aggrieved borrowers could have the right to rescind
their loans and to demand, among other things, the return of finance charges
and fees paid to the Company.

Other Lending Laws. The Company is also required to comply with the Equal
Credit Opportunity Act of 1974, as amended ("ECOA"), which prohibits creditors
from discriminating against applicants on certain prohibited bases, including
race, color, religion, national origin, sex, age or marital status. Regulation
B promulgated under ECOA restricts creditors from obtaining certain types of
information from loan applicants. Among other things, it also requires certain
disclosures by the lender regarding consumer rights and requires lenders to
advise applicants of the reasons for any credit denial. In instances where the
applicant is denied credit or the rate or charge for loans increases as a
result of information obtained from a consumer credit agency, another statute,
the Fair Credit Reporting Act of 1970, as amended, requires lenders to supply
the applicant with the name and address of the reporting agency. In addition,
the Company is subject to the Fair Housing Act and regulations thereunder,
which broadly prohibit certain discriminatory practices in connection with the
Company's business. The Company is also subject to the Real Estate Settlement
Procedures Act of 1974, as amended, and the Home Mortgage Disclosure Act.

In addition, the Company is subject to various other Federal and state laws,
rules and regulations governing, among other things, the licensing of, and
procedures that must be followed by, mortgage lenders and services, and
disclosures that must be made to consumer borrowers. Failure to comply with
such laws, as well as with the laws described above, may result in civil and
criminal liability.

Community Reinvestment Act. Under the CRA, as implemented by OTS
regulations, a savings institution has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit

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needs of its entire community, including low- and moderate- income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings
institutions, to assess the institution's CRA rating and requires that the OTS
provide a written evaluation of an institution's CRA performance utilizing a
four-tiered descriptive rating system. The four ratings are "outstanding
record of meeting community credit needs," "satisfactory record of meeting
community credit needs," "needs to improve record of meeting community credit
needs" and "substantial non-compliance in meeting community credit needs." An
institution's CRA rating is taken into account in determining whether to grant
charters, branches and other deposit facilities, relocations, mergers,
consolidations and acquisitions. Poor CRA performance maybe the basis for
denying an application. First Bank and Girard each received a "needs to
improve record of meeting community credit needs" rating during their
respective most recent OTS examinations.

TAXATION

FEDERAL TAXATION

The Company and its subsidiaries will file a consolidated federal income tax
return based on a calendar year. Consolidated returns have the effect of
eliminating inter-company transactions, including dividends, from the
computation of taxable income.

Savings institutions such as the Savings Banks, which meet certain
definitional tests primarily relating to their assets and the nature of their
businesses, are permitted to establish a reserve for bad debts and to make
annual additions to the reserve. These additions may, within specified formula
limits, be deducted in arriving at the Savings Banks' taxable income. For
purposes of computing the deductible addition to its bad debt reserve, the
Bank's loans are separated into "qualifying real property loans" (i.e.,
generally those loans secured by certain interests in real property) and all
other loans ("non-qualifying loans"). The deduction with respect to non-
qualifying loans must be computed under the experience method, while a
deduction with respect to qualifying loans may be computed using a percentage
based on actual loss experience or a percentage of taxable income.

Under the percentage of taxable income method, the bad debt deduction equals
8% of taxable income determined without regard to that deduction and with
certain adjustments. The availability of the percentage of taxable income
method has permitted a qualifying savings institution to be taxed at a lower
maximum effective federal income tax rate than that applicable to corporations
in general. This resulted generally in a maximum effective marginal federal
income tax rate payable by a qualifying savings institution fully able to use
the maximum deduction permitted under the percentage of taxable income method,
in the absence of other factors affecting taxable income, of 32.2% exclusive
of any minimum tax or environmental tax (as compared to 35% for corporations
generally). Any savings institution at least 60% of whose assets are
qualifying assets, as described in Section 7701(a)(19)(c) of the Code,
generally will be eligible for the full deduction of 8% of taxable income. As
of December 31, 1995, approximately 84.5% of the Girard's and 82.0% of First
Bank's assets were "qualifying assets" described in Section 7701(a)(19)(C) of
the Code. Girard and First Bank anticipate that at least 75% and 80%,
respectively of Girard's and First Bank's assets, respectively will continue
to be qualifying assets in the immediate future. If this ceases to be the
case, the Savings Banks may be required to restore its bad debt reserve to
taxable income in the future.

The amount of the bad debt deduction that a savings association may claim
with respect to additions to its reserve for bad debts under the percentage of
income method is subject to certain limitations. These limitations are not
expected to restrict the Bank from taking maximum advantage of the percentage
of taxable income method in the future, although there can be no assurances in
this regard.

To the extent (i) a savings association's reserve for losses on real
property loans under the percentage of taxable income method exceeds the
amount that would have been allowed under the experience method and (ii)

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a savings association makes distributions to stockholders (including
distributions in redemption, dissolution or liquidation) that are considered
to result in withdrawals from that excess bad debt reserve, the amounts
considered withdrawn will be included in the savings association's taxable
income. The amount that would be deemed withdrawn from such reserves upon such
distribution and which would be subject to taxation at the savings association
level at the normal corporate tax rate would be an amount equal to the amount
distributed plus the amount necessary to pay the corporate income tax with
respect to the withdrawal. Dividends will not be considered to result in
withdrawals from an association's bad debt reserves to the extent of current
or accumulated earnings and profits as calculated for federal income tax
purposes. Dividends in excess of a savings association's current and
accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation will be considered to come
first from its bad debt reserve. The Savings Banks have no intention of paying
dividends or taking any other action which would result in recapture of its
bad debt reserves for tax purposes.

Recently enacted legislation repealed the special bad debt rules applicable
to savings associations for taxable years beginning after December 31, 1995.
Under the new provisions, savings associations will follow the same rules for
purposes of computing allowable bad debt deductions as banks. To the extent
the bad debt reserve of the savings association exceeds the allowable reserve
as computed under the rules applicable to banks, such excess will be subject
to recapture. There is an exception that, in general, grandfathers the balance
of the savings associations reserve balance as of December 31, 1987. Under the
newly enacted law, if a savings association converts to a bank or is merged
into a bank, the associations bad debt reserve will not be automatically
subject to recapture. Recapture of the grandfathered bad debt reserve would
still occur in the event of certain distributions as previously discussed.

In addition to regular income taxes, corporations may be subject to an
alternative minimum tax which is generally equal to 20% of alternative minimum
taxable income (taxable income, increased by tax preference items and adjusted
for certain regular tax items). The preference items generally applicable to
savings associations include (i) 100% of the excess of a savings association's
bad debt deduction computed under the percentage of taxable income method over
the amount that would have been allowable under the experience method and (ii)
an amount equal to 75% of the amount by which a savings association's adjusted
current earnings (alternative minimum taxable income computed without regard
to this preference, adjusted for certain items) exceeds its alternative
minimum taxable income without regard to this preference. Alternative minimum
tax paid can be credited against regular tax due in later years.

STATE TAXATION

For additional information regarding taxation, see Note 8 to the
Consolidated Financial Statements.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the directors
and executive officers of the Company as of October 28, 1996.

<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Andrew A. Wiederhorn....... 30 Chairman of the Board, Chief Executive Officer,
Secretary and Treasurer
Lawrence A. Mendelsohn..... 35 President and Director
Bo G. Aberg................ 48 Senior Vice President, European Operations
Donald J. Berchtold........ 51 Senior Vice President, Administration
Kenneth R. Kepp............ 41 Senior Vice President, Operations
Sheryl Anne Morehead....... 48 Senior Vice President, S&L Group and Chief
Executive Officer of the Savings Banks
Chris Tassos............... 39 Senior Vice President and Chief Financial
Officer
Phillip D. Vincent......... 42 Senior Vice President, Loan Servicing
Don H. Coleman............. 58 Director
Philip G. Forte............ 32 Director
David Dale-Johnson......... 49 Director
</TABLE>

All of the executive officers of the Company were elected at a meeting of
the Board of Directors held in October 1996. Their terms of office continue
until the next annual meeting of the Board of Directors and until their
successors shall have been elected and qualified.

Andrew A. Wiederhorn is the Chairman of the Board of Directors and Chief
Executive Officer of the Company. Mr. Wiederhorn founded the Private Companies
in 1987 and continues to serve as the Chief Executive Officer of the Private
Companies. Mr. Wiederhorn received his B.S. degree in Business Administration
from the University of Southern California.

Lawrence A. Mendelsohn is a director and the President of the Company. Since
February 1993 Mr. Mendelsohn has been the Executive Vice President of the
Private Companies. From January 1992 until February 1993 Mr. Mendelsohn was
Vice President, Principal and Head of Capital Markets for Emerging Markets of
Bankers Trust New York Corporation/BT Securities Corporation. From August 1987
until January 1992 Mr. Mendelsohn was the Vice President, Senior Options
Principal and Head of Proprietary Trading for Equities, Equity Options and
Distressed Debt for JP Morgan and Co./JP Morgan Securities. Mr. Mendelsohn
received an A.B. degree in Economics from the University of Chicago, an M.A.
degree in International Politics from the University of Texas, an M.S. degree
in Business Research from the University of Southern California and is a
Ph.D./ABD in Finance from the University of Southern California.

Bo G. Aberg is the Senior Vice President, European Operations of the
Company. From November 1994 to September 1996, Mr. Aberg was Chief Executive
Officer of Securum Holding B.V., a Kingdom of Sweden owned work-out company in
Europe. From September 1992 to November 1994, Mr. Aberg was Chief Executive
Officer of Securum Real Estate Group, Malmo, Sweden. From January 1982 to
September 1992 Mr. Aberg held several positions within the PK Group (a Swedish
banking group), and from September 1974 to January 1982 he was a Chartered
Accountant for Hagstroms Revisions Byra AB Sweden (now Ernst & Young). Mr.
Aberg received the equivalent of a B.S. degree in Economics (Ekonomexanon) and
an academic degree in Law (Jurkandexamen) both from the University of
Stockholm, Sweden.

Donald J. Berchtold is the Senior Vice President, Administration. From March
1992 until October 1996 Mr. Berchtold was the Senior Vice President,
Administration of the Private Companies. From February 1991

80
<PAGE>

until November 1992 he was a consultant to Entertainment Publications Inc.--
CUC International Inc. Mr. Berchtold received a BSc. degree in
Business/Finance and Marketing from Santa Clara University. Mr. Berchtold is
Mr. Wiederhorn's father-in-law by marriage.

Kenneth R. Kepp is the Senior Vice President, Operations. From November 1991
until October 1996 Mr. Kepp was the Senior Vice President--Operations of the
Private Companies. From June 1990 until November 1991 Mr. Kepp was the
Managing Director of Network Associates International, a consulting company to
the leasing industry. Mr. Kepp received a B.S. degree in Finance from Northern
Illinois University.

Sheryl Anne Morehead is the Senior Vice President, S&L Group of the Company
and Chief Executive Officer of the Savings Banks. From December 1993 until
October 1996, Ms. Morehead was the Chief Credit Officer/Chief Operating
Officer of First Los Angeles Bank/San Paulo Bank Group, a savings bank. From
August 1990 until December 1993, Ms. Morehead was the Chief Credit
Officer/Executive Vice President of First Federal Bank, a savings bank. Ms.
Morehead received a B.S. degree from Boston University and an M.B.A. degree
from Harvard Graduate School of Business.

Chris Tassos is the Senior Vice President and Chief Financial Officer of the
Company. Since August 1995 Mr. Tassos has been the Senior Vice President of
Finance of the Private Companies. From March 1992 until February 1995 he was
the Chief Financial Officer and/or Senior Vice President of Finance of Long
Beach Mortgage Company (formerly Long Beach Bank). Mr. Tassos received a B.A.
degree from California State University, Fullerton. From July 1979 until April
1984 and May 1985 until September 1990 Mr. Tassos was an auditor for Deloitte
& Touche LLP.

Phillip D. Vincent is Senior Vice President, Loan Servicing of the Company.
Mr. Vincent was Senior Vice President and Chief Administrative Officer of The
J.E. Robert Company, Inc., one of the largest real estate and mortgage
investment managers in the U.S. from April 1995 until July 1996, Senior Vice
President and Managing Officer of The J.E. Robert Company Inc. from June 1992
until September 1995. Mr. Vincent is a member of the American Institute of
Certified Public Accountants. Mr. Vincent received a B.S. degree in Finance
from Oklahoma State University.

Don H. Coleman is a director of the Company. Since March 1994 Mr. Coleman
has been the President of International Manufacturing and Licensing, Inc., a
subsidiary of the ICT Group, Inc., a supplier of wireless phone equipment
worldwide. From January 1988 until March 1994, Mr. Coleman was President of
Liquid Spring Corporation, a manufacturer of automobile components. From 1984
to 1986, Mr. Coleman was President of Clarion Corporation of America, a major
supplier of automotive sound systems and electronics. Mr. Coleman is a
director of ICT Group, Inc., and Fabricated Metals, Inc., a materials handling
equipment manufacturer. Mr. Coleman received a B.A. degree in Economics and an
M.B.A. degree from Stanford University.

Philip G. Forte is a director of the Company. Mr. Forte has been the
President of Wilshire Cellular, Inc., a cellular phone leasing company, since
June 1994. Wilshire Cellular, Inc. is not part of the Private Companies, nor
is it an affiliate of the Company. From March 1992 until June 1994, Mr. Forte
was the Vice President, Sales and Marketing of Vinyl Chem International, Inc.,
a textile chemical repair manufacturer. From September 1989 until March 1992
Mr. Forte was the Vice President, Sales and Marketing of Pacific Western
University. Mr. Forte received a B.S. degree in Business Administration from
the University of Southern California.

David Dale-Johnson is a director of the Company. Since 1988 Mr. Dale-Johnson
has been the Director, Program in Real Estate, School of Business
Administration, University of Southern California. Mr. Dale-Johnson is also a
consultant for several public and private companies and government agencies.
Mr. Dale-Johnson received his B.A. degree in Art History from the University
of British Columbia, M. Sc. degree in Business Administration from the
University of British Columbia and a Ph.D. degree in Business Administration
from the University of California, Berkeley.

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<PAGE>

CERTAIN KEY EMPLOYEES

Stuart Adair is the Vice President, European Loan Acquisitions of WFC. Prior
to September 1996 he was the Vice President, Loan Acquisitions of the Private
Companies. Mr. Adair received a B.A. degree from the University of Washington.

Glenn J. Ohl is the Chief Financial Officer of WFC. From August 1995 until
October 1996 Mr. Ohl was the Senior Vice President and Corporate Treasurer of
CWM Mortgage Holdings, Inc., an affiliate of Countrywide Credit Industries
Inc., a residential financing company. From September 1992 until August 1995
Mr. Ohl was the Executive Vice President and Chief Financial Officer of ARCS
Mortgage, Inc., a financing company. Mr. Ohl received a B.A. degree from
Franklin and Marshall College and an M.B.A. degree from New York University.

Peter O'Kane is the Vice President, Loan Acquisitions. From May 1994 until
October 1996 Mr. O'Kane was the Vice President, Loan Acquisitions of the
Private Companies. From September 1992 until April 1994 Mr. O'Kane was an
Asset Manager, Investment Division of J.E. Robert Company, Inc. Mr. O'Kane
received a B.A. degree from the University of Washington.

Richard A. Papworth is the Chief Financial Officer of Girard and First Bank.
From May 1996 until August 1996 Mr. Papworth was the Chief Executive Officer
of Girard. From October 1995 until May 1996 Mr. Papworth was the Director of
Finance for Maintenance Warehouse America Corp., a national building
maintenance supply company. From October 1994 until October 1995 Mr. Papworth
was an Independent Financial Consultant. From July 1993 until October 1994 Mr.
Papworth was the Acting Chief Financial Officer and Treasurer of George Wimpey
Inc. and the Assistant Treasurer from April 1989 until July 1993. Mr. Papworth
received a B.S. degree in Accounting and a M.Acc. degree in Taxation from
Brigham Young University.

R. Scott Stevenson is the President of the Girard and First Bank. From June
1991 until October 1996 he was the President and Chief Executive Officer of
Girard. From January 1986 until June 1991 he held various positions at Girard
including Chief Operating Officer, Chief Financial Officer and a Loan Officer.
Mr. Stevenson received a B.S. degree in Accounting and an M.S. degree in
Taxation from Brigham Young University.

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

Audit Committee. The Audit Committee, which consists of a majority of
independent directors who are not affiliated with the Principals ("Independent
Directors"), makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
and results of the audit engagement, approves professional services provided
by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit
fees and reviews the adequacy of the Company's internal accounting controls.
Messrs. Wiederhorn, Coleman and Dale-Johnson are the members of the Audit
Committee.

ELECTION OF DIRECTORS

Prior to the first annual meeting of the stockholders of the Company, the
Company's Board of Directors will be divided into three classes. Directors of
each class will be elected at the annual meeting of stockholders held in the
year in which the term for such class expires and will serve thereafter for
three years. No determination has been made as to which directors will be
members of each class.

COMPENSATION OF DIRECTORS

The Company intends to pay its directors who are not employees of the
Company a per meeting fee of $1,000 for each Directors' meeting and a per hour
fee for each committee meeting attended which is not on a regularly scheduled
meeting date. Under the Company's Stock Incentive Plan, each non-employee
director has been granted, effective as of the date on which the initial
public offering price is determined, a non-qualified option to purchase at the
initial public offering price a number of shares of Common Stock equal to
6,250 divided

82
<PAGE>

by the initial public offering price, and each new non-employee director upon
the date of his or her election or appointment will be granted a non-qualified
option to purchase at the fair market value on the date of grant a number of
shares of Common Stock equal to 6,250 divided by the fair market value on the
date of grant.

EXECUTIVE COMPENSATION

The following table shows compensation received by the Company's Chief
Executive Officer and the three other most highly paid executive officers for
the fiscal years ended December 31, 1995. There were no other executive
officers of the Company whose total annual salary and bonus exceeded $100,000
in 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
NAME AND
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(1)
------------------ ---- ------------ -----------
<S> <C> <C> <C>
Andrew A. Wiederhorn........................... 1995 51,992(2) --
Chairman of the Board, Chief Executive
Officer, Secretary and Treasurer
Lawrence A. Mendelsohn ........................ 1995 68,293(2) --
President
Donald J. Berchtold ........................... 1995 174,451 44,260
Senior Vice President, Corporate
Development
Kenneth R. Kepp ............................... 1995 150,012 50,000
Senior Vice President, Operations
</TABLE>
- --------
(1) For the year ended December 31, 1995 the Chief Executive Officer and the
three other most highly paid executive officers derived their salaries
from the Private Companies taken as a whole and therefore salaries and
bonuses paid for the year do not necessarily reflect the amount of salary
and bonus attributable to work performed for WAC and the Savings Banks, if
any.
(2) Mr. Wiederhorn and Mr. Mendelsohn elected in the past to receive minimal
compensation to maintain capital in the Company and have received
shareholder loans from the Private Companies to fund their investment in
WAC and certain other expenses.

EMPLOYMENT AGREEMENTS

The Company has entered into substantially similar employment agreements,
effective November 1, 1996, with Andrew A. Wiederhorn ("Mr. Wiederhorn") (as
Chief Executive Officer) and Lawrence A. Mendelsohn ("Mr. Mendelsohn") (as
President) (each individually, an "Executive" and collectively, the
"Executives"). Each agreement provides for an initial three-year term which is
automatically renewable for successive two-year terms (the "Employment Term")
unless either party gives written notice to the other at least ninety days
prior to the expiration of the then Employment Term. During the Employment
Term, each Executive will be obligated to devote a significant portion of his
business time, energy, skill and efforts to the performance of his duties
under the agreement and shall faithfully serve the Company, subject to his
right to serve as an employee and/or board member of certain companies and to
manage his personal financial and legal affairs.

The agreement provides for an annual base salary of $300,000 for Mr.
Wiederhorn and $300,000 for Mr. Mendelsohn (which may be increased, but not
decreased, by the Compensation Committee of the Board of Directors) and an
annual bonus. The bonus payable to Mr. Wiederhorn and Mr. Mendelsohn will be
determined by the Compensation Committee of the Board of Directors and may not
exceed 20% of the pre-tax profits of the Company. Mr. Wiederhorn's and Mr.
Mendelsohn's share of the bonus will be two-thirds and one-third,
respectively. The agreement also provides that Mr. Wiederhorn and Mr.
Mendelsohn may participate in the Company's Incentive Stock Plan. See "--Stock
Incentive Plan."

The agreement also provides that during the Employment Term and thereafter,
the Company will indemnify the Executive to the fullest extent permitted by
law, in connection with any claim against the Executive as a result of the
Executive serving as an officer or director of the Company or in any capacity
at the request of the Company in or with regard to any other entity, employee
benefit plan or enterprise. Following the Executive's

83
<PAGE>

termination of employment, the Company will continue to cover the Executive
even if the Executive has ceased to serve in such capacity.

If any payment to the Executive together with certain other amounts paid to
the Executive, exceeds certain threshold amounts and results from a change in
ownership as defined in Section 280G(b)(2) of the Code, the agreements provide
that the Executive will receive an additional amount to cover the federal
excise tax and any interest, penalties or additions to tax with respect
thereto on a "grossed up" basis.

The agreement may be terminated at any time by the Executive for Good Reason
or with or without Good Reason during the Change in Control Protection Period
(if a Change in Control occurs) or by the Company with or without Cause (as
each capitalized term is defined in the agreement).

If the Executive terminates his employment with the Company for Good Reason,
with or without Good Reason during the Change in Control Protection Period (if
a Change in Control occurs), the Executive is terminated without Cause, or the
Executive's employment terminates as a result of the Company giving notice of
nonextention of the Employment Term, he will receive severance pay (i) in an
amount equal to three times Base Salary in effect at termination and three
times the highest annual bonus paid or payable for any of the previous three
years, (ii) accelerated full vesting under all outstanding equity-based and
long-term incentive plans, (iii) any other amounts or benefits due under then
applicable employee benefit plans of the Company (in accordance with such
plan, policy or practice), (iv) three years of additional service credit that
the Executive would otherwise have been credited under any pension type
qualified or nonqualified pension plan, (v) three years of the maximum Company
contribution under any qualified or nonqualified 401(k) type plan and (vi)
continued medical benefits for three years. The agreement provides that
Executive will have no obligation to mitigate the Company's financial
obligations in the event of his termination due to death, disability,
termination for Good Reason, termination with or without Good Reason during
the Change in Control Protection Period or termination without Cause, and
there will be no offset against the Company's financial obligations for other
amounts earned by the Executive.

If termination is the result of Executive's death, the Company will pay to
the Executive (or his estate), an amount equal (i) any earned but not yet paid
compensation, (ii) a pro-rated bonus, (iii) any other amounts or benefits due
under then applicable employee benefit plans of the Company (in accordance
with such plan, policy or practice), (iv) payment on a monthly basis of 6
months of base salary to Executive's spouse or dependents and (v) continued
medical coverage for the Executive's spouse and dependents for three years. In
addition, the Executive will receive accelerated full vesting under all
outstanding equity-based and long-term incentive plans. If Executive's
employment is terminated by reason of disability, the Executive will be
entitled to receive payments and benefits to which his representatives would
be entitled in the event of his termination by reason of death, provided that
the payment of base salary will be reduced by any long-term disability
payments under any policy maintained by the Company.

INCENTIVE STOCK PLAN

The following is a summary of certain features of the Company's Incentive
Stock Plan (the "Stock Plan"). This summary is qualified by reference to the
Stock Plan itself. A copy of the Stock Plan is an exhibit to the Registration
Statement.

The Company's Board of Directors adopted the Stock Plan on October 28, 1996.
The Company's stockholders approved it on October 28, 1996. The purpose of the
Stock Plan is to enable the Company to attract, retain and motivate key
employees, directors and, on occasion, consultants, by providing them with
equity participation in the Company. Accordingly, the Stock Plan permits the
company to grant incentive stock options ("ISOs"), non-statutory stock options
("NSOs"), restricted stock and stock appreciation rights (collectively
"Awards") to employees, directors and consultants of the Company and
subsidiaries of the Company. The Stock Plan will terminate on October 28, 2006
unless terminated earlier by the Board of Directors.

84
<PAGE>

Administration of the Plan. The Stock Plan will be administered by the
Company's Board of Directors, a committee appointed by the board (the
"Committee") or a combination of the two. References below to the
"Administrator" are to the body that administers the plan. For the present,
the Board of Directors has delegated administration of the Stock Plan to a
committee consisting of David Dale-Johnson and Don Coleman, two of the
Company's non-employee directors.

Securities Subject to the Plan. During the ten-year term of the Stock Plan,
the Company may grant Awards for a maximum of 1,750,000 shares of Common Stock
subject to adjustment in the case of stock splits and similar events. No one
person may receive Awards covering more than a cumulative total of 900,000
shares of Common Stock under the Stock Plan.

Employee Options. Under the Stock Plan, the Company may grant ISOs (under
Section 422 of the Code) and NSOs. The option exercise price of both ISOs and
NSOs may not be less than the fair market value of the shares covered by the
option on the date the option is granted. However, the exercise price of ISOs
granted to holders of more than 10% of the Company's outstanding stock may not
be less than 110% of that fair market value. Options will not be transferable
other than by will or the laws of descent and distribution or, in the case of
NSOs, under qualified domestic relations orders.

The Administrator will select the persons to whom options will be granted,
the number of shares subject to each option and the other terms and conditions
of each option, but in all cases consistent with the Stock Plan. The Option
Agreement evidencing each option will specify whether the option is intended
to be an ISO or an NSO. The Administrator may provide that options will be
exercisable in full at grant or become exercisable over time in accordance
with a vesting schedule. Options must expire no later than ten years after
they are granted (five years in the case of ISOs granted to holders of more
than 10% of the Company's outstanding stock). The exercise price of options
will be payable in cash or, if the Administrator permits, by the optionee's
full recourse promissory note, the surrender of shares of the Common Stock
already owned by the optionee or the "netting" of stock covered by the option
(the surrender of a portion of the option in payment of the exercise price).

Options granted as ISOs will be intended to qualify for special tax status
under Section 422 of the Code. An optionee will not have taxable income upon
the grant or exercise of an ISO (although exercise will result in income for
purposes of the alternative minimum tax), and the Company will receive no
income tax deduction at grant or exercise. The optionee will be entitled to
long-term capital gain treatment upon the sale of the option shares if the
shares are held more than two years after the grant date and more than one
year after the shares are transferred to the optionee. If the shares are sold
within either period, the difference between the exercise price and the market
value at the exercise date (but not more than the actual gain on sale) may be
taxable as ordinary income. Any additional gain would be a capital gain. Any
capital gain would be long-term if the optionee held the shares more than one
year. The Company will receive no deduction in connection with ISOs, except to
the extent an employee recognizes taxable ordinary income upon disposition of
option shares.

Upon the grant of an NSO, an optionee will not recognize taxable income for
federal income tax purposes and the Company will not be entitled to any
federal income tax deduction. Upon the exercise of an NSO, the optionee
generally will recognize ordinary income in an amount equal to the excess of
the fair market value of the shares acquired at the time of exercise over the
exercise price. The Company will be entitled to a corresponding deduction.
Special rules may govern the timing of the recognition of income by optionees
subject to Section 16 of the Exchange Act.

Director Options. On the last trading day of each calendar quarter beginning
March 31, 1997, the Company will automatically grant each director who is not
also an employee of the Company or a subsidiary of the Company (a "non-
employee director") an NSO to purchase that number of shares of Common Stock
that equals $6,250 divided by the fair market value per share of Common Stock
(its market price) on the date of grant. The exercise price of these options
will be that fair market value. Each of these director options will be fully
exercisable beginning six months after the date of grant and will terminate
(unless sooner terminated under

85
<PAGE>

the terms of the Stock Plan) ten years after the date of grant. If such a
director ceases to be a member of the board for any reason other than death or
disability, these options will terminate on the first anniversary of the date
the director ceases to be a board member. If such a director dies or becomes
disabled while a member of the board, these options will terminate on the
second anniversary of the date the director dies or becomes disabled. Under
the Stock Plan, the Company could grant Awards to non-employee directors in
addition to these "automatic" quarterly option grants.

Restricted Stock. Under the Stock Plan, the Administrator may also grant
Awards of restricted shares of Common Stock. Each restricted stock Award would
specify the number of shares of Common Stock to be issued to the recipient,
the date of issuance, any consideration for such shares and the restrictions
imposed on the shares (including the conditions of release or lapse of such
restrictions). In general, shares subject to a restricted stock Award may not
be sold, assigned, transferred or pledged until the restrictions have lapsed
and rights to the shares have vested.

Stock Appreciation Rights. The Administrator may also grant Awards of stock
appreciation rights. A stock appreciation right entitles the holder to receive
from the Company, in cash or (if the Administrator so permits) Common Stock,
at the time of exercise, the excess of the fair market value at the date of
exercise of a share of Common Stock over a specified price fixed by the
Administrator in the Award, multiplied by the number of shares as to which the
right is being exercised. The specified price fixed by the Administrator will
not be less than the fair market value of shares of Common Stock at the date
the stock appreciation right was granted.

Terms and Conditions to Which All Awards Are Subject. If there is a stock
dividend, stock split, reverse stock split or reclassification of Common
Stock, appropriate adjustments will be made in the number and class of shares
of stock subject to the Stock Plan and each outstanding Award, and the
exercise price of each outstanding Award. Each such adjustment will be
determined by the Administrator in its sole discretion.

In addition, new Awards may be substituted for Awards previously granted, or
the Company's obligations respecting outstanding Awards may be assumed by an
employer corporation other than the Company, in connection with any merger,
consolidation or sale of substantial assets (but not a merger or consolidation
in which the Company is the continuing corporation which does not result in
any reclassification or exchange of the Common Stock). Further, in the event
of such a merger, consolidation or sale, the Administrator may decide to pay
cash to plan participants and terminate their Awards, or terminate their
Awards after giving them notice of the merger or other event to give them an
opportunity to exercise their Awards before the event.

Subject to the special rules described previously regarding the options to
be granted quarterly to non-employee directors, the Administrator will
establish the effect of employment termination on vested Awards.

Amendment and Termination. The Board of Directors at any time may amend or
terminate the Stock Plan. However, in general, amendments and termination
would not affect Awards previously granted. Certain amendments would be
subject to stockholder approval.

Initial Awards. As of the date of this preliminary Prospectus, the Company
had not granted any Awards. The day before the Commission declares the
Registration Statement effective, the Company will grant options under the
Stock Plan to Messrs. Wiederhorn and Mendelsohn. If, by that date, the
underwriters have not notified the Company that the underwriters will exercise
their over-allotment option, those options will cover 1,050,000 shares of
Common Stock for Messrs. Wiederhorn and Mendelsohn combined. If the
underwriters by that date have notified the Company that they will exercise
their over-allotment option in full, those options will cover a total of
1,083,750 shares of Common Stock. A partial exercise of the over-allotment
option will result in option amounts between 1,050,000 and 1,083,750 shares. A
portion of these options are intended to be ISOs. The balance will be NSOs.
The exercise price of the ISOs will be $ per share (110% of the initial
offering price to the public in the Common Stock Offering). The exercise price
for a portion of the NSOs will be $ per share (100% of the initial offering
price to the public in the Common Stock Offering). The remainder of the NSOs
will be at an exercise price of $ per share (125% of the initial offering
price to the public in the Common Stock Offering). Approximately 65.6% of the
NSOs will be priced at 100% of the initial offering price. All of these
options will be fully vested by January 2, 1997. The ISOs will have a five-
year term and the NSOs will have a ten-year term. The options will not
terminate earlier if the optionee ceases to be employed by the Company.

86
<PAGE>

The following table sets forth information concerning the options to be
granted to Messrs. Wiederhorn and Mendelsohn before the Registration Statement
becomes effective.

OPTIONS TO BE GRANTED AT CLOSING
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK PRICE
NUMBER OF TOTAL APPRECIATION
SHARES OPTIONS FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM (3)
OPTIONS EMPLOYEES IN PRICES PER EXPIRATION ---------------------
NAME GRANTED FISCAL 1996 SHARE DATES 5% 10%
---- ---------- ------------ ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Andrew A. Wiederhorn.... 700,000(1) 67% $-- (2)
Lawrence A. Mendelsohn.. 350,000(4) 33% -- (2)
</TABLE>
- --------
(1) This figure will be 722,536 if the underwriters notify the Company, before
the Registration Statement becomes effective, that they will exercise
their over-allotment option in full.
(2) Five years after the closing of the Common Stock Offering for the ISOs
( shares for Mr. Wiederhorn and shares for Mr. Mendelsohn) and
ten years for the NSOs ( shares for Mr. Wiederhorn and shares
for Mr. Mendelsohn). If the options are increased as indicated in notes
(1) above and (4) below, the ISO figures become shares for Mr.
Wiederhorn and shares for Mr. Mendelsohn and the NSO figures become
shares for Mr. Wiederhorn and shares for Mr. Mendelsohn.
(3) These amounts represent hypothetical gains that could be achieved for the
options if they are exercised at the end of their terms. The assumed 5%
and 10% rates of stock price appreciation are mandated by rules of the
Commission. They do not represent the Company's estimate or projection of
future prices of the Common Stock.
(4) This figure will be 361,214 if the underwriters notify the Company, before
the Registration Statement becomes effective, that they will exercise
their over-allotment option in full.

The following table contains additional information regarding cumulative
activity under the Stock Plan based on the same assumptions used for the
previous table.

CUMULATIVE OPTION STATUS

<TABLE>
<CAPTION>
TOTAL OPTION VALUES
------------------------------------------------------
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE ---------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrew A. Wiederhorn.... 0 $ 0 700,000(2) 0 $ 0 --
Lawrence A. Mendelsohn.. 0 0 350,000(3) 0 0 --
</TABLE>
- --------
(1) By January 2, 1997.
(2) See note (1) to the previous table.
(3) See note (4) to the previous table.

Deductibility of Executive Compensation. Under Section 162(a) of the Code, a
corporation may deduct "a reasonable allowance for salaries or other
compensation for personal services actually rendered." However, Section 162(m)
generally limits the deduction for compensation paid to the chief executive
officer and certain other officers of a publicly-held corporation to $1
million in any taxable year. The corporation cannot deduct the compensation
paid to a covered officer in excess of $1 million.

In general, the excess of the fair market value of stock received on
exercise of Awards (other than ISOs) over the option exercise price is treated
as compensation for this purpose. Accordingly, the deduction for that excess
may be disallowed. However, this principle does not apply to "qualified
performance-based compensation." In addition, a special rule applies to
compensation paid under a plan that existed before the corporation became
publicly held. Options granted under the Stock Plan for a period of
approximately three and one-half years after the closing of the Common Stock
Offering will be intended to qualify under this special rule. In addition, the
Company may choose to cause options and other Awards granted after the Company
becomes publicly-held and which do not qualify under this special rule to
qualify for exemption from Section 162(m) as "qualified performance-based
compensation." However, there are no assurances that any or all Awards will
not be subject to the limitation of Section 162(m).

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<PAGE>

PRINCIPAL STOCKHOLDERS

The following table presents certain information regarding the beneficial
ownership of Common Stock as of the date of this Prospectus by (a) each
stockholder known by the Company to be the beneficial owner of more than five
percent of the outstanding shares of Common Stock, (b) each director, (c) each
executive officer, and (d) all directors and executive officers as a group.

<TABLE>
<CAPTION>
OWNERSHIP PRIOR TO OFFERING OWNERSHIP AFTER OFFERING
------------------------------ ---------------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF
BENEFICIAL OWNERS(1) OWNERSHIP CLASS OWNERSHIP CLASS(2)
-------------------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Andrew A. Wiederhorn.... 3,617,127 65.77% 3,617,127 51.67%
Lawrence A. Mendelsohn.. 1,808,330 32.88% 1,808,330 25.83%
Bo G. Aberg............. -- -- -- --
Donald J. Berchtold..... -- -- -- --
Sheryl Anne Morehead.... -- -- -- --
Kenneth E. Kepp......... -- -- -- --
Chris Tassos............ -- -- -- --
Phillip D. Vincent...... -- -- -- --
Don H. Coleman.......... 11,222 .2% 11,222 .16%
Philip G. Forte......... -- -- -- --
David Dale-Johnson...... 11,222 .2% 11,222 .16%
All directors and execu-
tive officers as a
group (11 persons)..... 5,447,901 99.05% 5,447,901 77.82%
</TABLE>
- --------
(1) The address for each of the named officers and directors is c/o Wilshire
Financial Services Group Inc., 1776 SW Madison, Portland, Oregon 97205.
(2) Assumes no exercise of the Common Stock Underwriters' over-allotment
option.

Except as noted in the footnotes above (i) none of such shares is known by
the Company to be shares with respect to which such beneficial ownership and
(ii) the Company believes the beneficial holders listed above have sole voting
and investment power regarding the shares shown as being beneficially owned by
them.

88
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

LEASES

The Company leases office space for its corporate headquarters from Wilshire
Properties I, Incorporated, an Oregon corporation ("WPI"). Andrew A.
Wiederhorn and Lawrence A. Mendelsohn are the beneficial owners of WPI. The
lease agreement provides for an aggregate annual rent payment in 1997 of
approximately $90,000 and expires December 31, 2001. In addition to base rent
the Company is required to pay its proportionate share of operating expenses
incurred by WPI in connection with the operations of the building. The Savings
Banks lease approximately 8,000 sq. ft. of office space in two locations
pursuant to lease which provides for an aggregate annual rental payment in
1997 of approximately $96,000 and expires December 31, 1997.

STOCK TRANSACTIONS

Upon the closing of the Common Stock Offering and Notes Offering, certain
executive officers and directors will exchange 5.1% of the capital stock of
Girard, 5.1% of the capital stock of First Bank, and approximately 99% of the
capital stock of WAC (which itself owns 94.9% of the capital stock of Girard
and First Bank), for 5,447,901 shares of Common Stock of WFSG.

LOAN SERVICING AGREEMENT BETWEEN THE COMPANY, WFC AND WCC

The Company, WFC and WCC entered into a loan servicing agreement (the "Loan
Servicing Agreement") pursuant to which WCC will provide loan portfolio
management services, including billing, portfolio administration and
collection services for all Loans. WCC has also agreed to license its
proprietary computer software to the Company and WFC. Pursuant to the Loan
Servicing Agreement, the Company shall be required to pay a servicing fee
equal to market rates. WCC has agreed not to compete with or be engaged in the
same business as currently conducted by the Company.

After the second anniversary of the closing of the Common Stock Offering,
the Company will have the option to begin servicing its Loan Portfolios and
WCC's loans (the "Servicing Transfer"), provided that the Company or one of
its subsidiaries has obtained the appropriate licenses. Notwithstanding the
foregoing, the Company may request that the Servicing Transfer occur on an
earlier date, provided that the foregoing conditions are met. WCC, in its sole
discretion may refuse to effect the Servicing Transfer prior to the end of the
second year. The Servicing Transfer will occur automatically on the third
anniversary of the closing of the Common Stock Offering and Notes Offering.
After the Servicing Transfer WCC will permit the Company, subject to certain
conditions, to have access to its books, records and forms to ensure the
orderly transfer of the servicing. Following the Servicing Transfer, the fees
and costs to be paid by WCC for the servicing of its loans and the loans of
persons other than the Company shall be the Company's average costs for such
collection as specified in the Loan Servicing Agreement.

LOAN SERVICING AGREEMENT BETWEEN THE SAVINGS BANKS AND WCC

The Savings Banks and WCC have also entered into loan servicing agreements
with respect to specific discounted Loan Portfolios. Pursuant to these loan
servicing agreements WCC provides loan portfolio management services,
including billing, portfolio administration and collection services for the
loans in the specified Loan Portfolios. To date, each of these loan servicing
agreements provides that WCC shall be entitled to an amount equal to (i) all
costs and expenses incurred by WCC for providing loan portfolio management
services, and (ii) an amount equal to twenty-five percent of the amount
collected on the specified Discounted

89
<PAGE>

Loan Portfolios (other than escrow payments, if any) which is in excess of the
initial payments made by the Savings Banks to acquire the Discounted Loan
Portfolios. Servicing fees for new Discounted Loan portfolio servicing
agreements will be chosen by the boards of directors of the Savings Banks
based upon fees charged by WCC in any other appropriate third-party servicing
agreement.

ADMINISTRATIVE SERVICES AGREEMENT

Pursuant to the Administrative Services Agreement, WCC and its private
affiliates and the Company have agreed to provide, commencing with the
completion of the Common Stock Offering and the Notes Offering, certain
services to each other, including, among other things, certain financial
reporting functions, legal compliance, banking, risk management and
operational and strategic matters. The Administrative Services Agreement will
provide for the payment of a market rate plus reimbursement of any third party
expenses for any services rendered by one party for another. The initial term
of the Administrative Services Agreement will expire on December 31, 1997; it
will continue for successive one year renewal periods unless terminated by
either of the parties on not less than 90 days notice prior to the end of any
period. The parties to the Administrative Service Agreement have agreed to
indemnify each other against liability arising out of the willful misconduct
or gross negligence of the indemnifying party.

90
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The following description of the Company's capital stock does not purport to
be complete and is qualified in its entirety by reference to (i) applicable
provisions of Delaware law, and (ii) the provisions of the Company's
Certificate of Incorporation and By-Laws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is part.

The authorized capital stock of the Company consists of (i) 10,000,000
shares of Preferred Stock, (ii) 50,000,000 shares of Common Stock. Upon
consummation of the Common Stock Offering and Notes Offering, 7,000,000 shares
of Common Stock and no shares of Preferred Stock will be outstanding. The
issued and outstanding shares of Common Stock assuming no exercise of the
Underwriter's overallotment option have been, and the shares of Common Stock
offered hereby will be, duly authorized, validly issued, fully paid and
nonassessable. In addition, 31,225 shares of Common Stock have been reserved
for issuance upon exercise of outstanding options and an additional 1,750,000
have been reserved for options eligible to be granted under the Stock
Incentive Plan. The following summary description of the Company's capital
stock is qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of the Company, copies of which have been filed as
Exhibits to the Registration Statement of which this Prospectus is a part.

COMMON STOCK

Holders of shares of Common Stock shall be entitled to one vote per share on
all matters to be voted upon by the stockholders of the Company. Holders of
Common Stock casting a plurality of the votes of stockholders entitled to vote
in an election of directors may elect all of the directors. Shares of Common
Stock do not have cumulative voting rights with respect to the election of
directors. Immediately after the Common Stock Offering, certain executive
officers and directors will hold shares of Common Stock constituting
approximately 78% of the voting power of the outstanding Common Stock, which
will allow them to control all actions to be taken by the stockholders,
including the election of all directors to the Board of Directors. While such
executive officers and directors will have the voting power to control the
votes on any matter requiring stockholder approval, the Company intends to
submit all such matters to a vote of all stockholders, and to hold an Annual
Meeting of Stockholders. However, because the Company's Bylaws provide that
any action that can be taken at a meeting of the stockholders may be by
written consent in lieu of the meeting if the Company receives consents signed
by stockholders having a minimum number of votes that would be necessary to
approve the action at a meeting at which all shares entitled to vote on the
matter were present, such executive officers and directors may take all
actions required to be taken by the stockholders without providing the other
stockholders the opportunity to make nominations or raise other matters at a
meeting. See "Principal Stockholders" and "Risk Factors--Control of Current
Stockholders."

Holders of shares of Common Stock are entitled, in the event of liquidation,
dissolution or winding up of the affairs of the Company, to share ratably in
all assets remaining after payment of liabilities and preference applicable to
the Preferred Stock outstanding at the time. Holders of Common Stock do not
have any preemptive rights or rights to subscribe for additional securities of
the Company. Shares of Common Stock are not redeemable and there are no
sinking fund provisions.

Subject to preferences applicable to the Preferred Stock outstanding at the
time, holders of shares of Common stock are entitled to dividends if, when and
as declared by the Board of Directors from funds legally available therefor.
The Company currently intends to retain its earnings to support its future
growth strategy and does not anticipate paying dividends foreseeable future.
See "Dividend Policy." Under the Indenture, dividends on the Common Stock can
be paid only in certain circumstances and up to a maximum amount.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is The Bank of New
York. Its address is 101 Barclay St., New York, NY 10286, attn: Investor
Relations, 11E. Its telephone number is 800-524-4458 and its facsimile number
is 212-815-3201.

91
<PAGE>

UNDESIGNATED PREFERRED STOCK

Pursuant to the Certificate of Incorporation, the Board of Directors is
authorized (subject to any limitations prescribed by law and the Company's
Certificate of Incorporation or by the rules of Nasdaq or any stock exchange
on which the Common Stock may then be listed) to issue the Preferred Stock
from time to time in one or more series, which Preferred Stock shall be
preferred to the Common Stock as to dividends and distributions of assets of
the Company upon the voluntary or involuntary liquidation, dissolution or
winding up of the Company and shall have such designations, preferences,
rights, qualifications, limitations and restrictions as shall be provided by
the Board of Directors.

The issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
an adverse effect on holders of Common Stock, depending upon the rights of
such Preferred Stock, by delaying or preventing a change in control of the
Company, making removal of the present management of the Company more
difficult, or resulting in restrictions upon the payment of dividends or other
distributions to holders of Common Stock.

DESCRIPTION OF NOTES OFFERING

The following summary of the principal terms of the Notes does not purport
to be complete and is qualified in its entirety by reference to all of the
provisions of the Indenture governing the Notes and the Notes, copies of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. Capitalized terms not otherwise defined herein have the
meanings specified in the Indenture.

The Notes will be limited in aggregate principal amount to $75 million
($86.25 million if the Notes Underwriter's over-allotment option is exercised
in full) and will mature on , 2003. The Notes will be unsecured obligations
of the Company. Interest on the Notes will accrue at a rate of % per annum
and will be payable in cash semi-annually in arrears on and of each
year, commencing , 1997.

On and after , 2001, the Notes will be redeemable at any time
at the option of the Company, in whole or in part, at specified redemption
prices together with accrued and unpaid interest to the date of redemption.
The Notes are not otherwise redeemable prior to , 2001 except that until
, 2001, the Company may redeem, at its option, up to 35% of the original
aggregate principal amount of the Notes at a redemption price equal to % of
the principal amount thereof, plus accrued and unpaid interest to the
redemption date, from the net proceeds of one or more private or public sales
of Qualified Capital Stock (as defined) if at least 65% of the original
aggregate principal amount of the Notes remains outstanding after such
redemption. Upon the occurrence of a Change in Control Event (as defined),
holders of the Notes will have the right to require the Company to repurchase
their Notes, in whole or in part, at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any,
to the repurchase date.

The Indenture governing the Notes will contain certain covenants, including
net worth and liquidity maintenance requirements, limitations on the
incurrence of indebtedness, transfers and issuances of stock of the banks, the
making of restricted payments (including restrictions on the payment of
dividends on the Common Stock), the imposition of certain payment restrictions
on subsidiaries, transactions with affiliates, the existence of liens, the
making of guarantees by subsidiaries, and on mergers and sales of assets.

The Common Stock Offering is conditioned upon the consummation of the Notes
Offering.

SHARES ELIGIBLE FOR FUTURE SALE

The Company's Certificate of Incorporation authorizes the issuance of
50,000,000 shares of Common Stock. Upon completion of the Common Stock
Offering, there will be outstanding 7,000,000 shares of Common Stock (assuming
no exercise of the Underwriters' over-allotment option).

92
<PAGE>

The 1,500,000 shares of Common Stock to be sold in the Common Stock Offering
(1,725,000 shares if the Underwriters' over-allotment option is exercised in
full) will be available for resale in the public market without restriction or
further registration under the Securities Act, except for shares purchased by
affiliates of the Company (in general, any person who has a control
relationship with the Company), which shares will be subject to the resale
limitations of Rule 144. 5,500,000 presently outstanding shares of Common
Stock and the 1,081,225 shares of Common Stock issuable upon the exercise of
options that the Company has granted or agreed to grant will be "restricted
securities" within the meaning of Rule 144, and are eligible for sale in the
public market in compliance with Rule 144. Shortly after the date of this
Prospectus, the Company intends to file a registration statement on Form S-8
under the Securities Act registering approximately 1,750,000 shares of Common
Stock issuable upon the exercise of options granted or to be granted pursuant
to the Company's Stock Incentive Plan. Upon effectiveness of the registration
statement, shares issued to nonaffiliates upon the exercise of the options
generally will be freely tradeable without restriction or further registration
under the Securities Act. All officers and directors of the Company have
agreed, subject to certain exceptions, that they will not offer, sell or
otherwise dispose of any shares of Common Stock owned by them for a period of
180 days after the date of this Prospectus without the prior written consent
of the Representative of the Underwriters. The Company has agreed, subject to
certain exceptions, that it will not offer, sell or otherwise dispose of any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representative of the
Underwriters.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act,
is entitled to sell, within any three-month period, a number of restricted
shares as to which at least two years have elapsed from the later of the
acquisition of such shares from the Company or an affiliate of the Company in
an amount that does not exceed the greater of (i) one percent of the then
outstanding shares of Common Stock (70,000 shares based upon 7,000,000 shares
to be outstanding immediately after the Common Stock Offering), or (ii) if the
Common Stock is quoted on Nasdaq or a stock exchange, the average weekly
trading volume of the Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain requirements as to
the manner of sale, notice, and the availability of current public information
about the Company. However, a person who is not deemed to have been an
affiliate of the Company during the 90 days preceding a sale by such person
and who has beneficially owned shares as to which at least three years has
elapsed form the later of the acquisition of such shares form the Company or
an affiliate of the Company is entitled to sell them without regard to the
volume, manner of sale, or notice requirements of Rule 144.

93
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement with
respect to the Common Stock Offering (the "Common Stock Underwriting
Agreement") among the Company and each of the underwriters named below (the
"Common Stock Underwriters"), for whom Friedman, Billings, Ramsey, & Co., Inc.
is acting as representative (the "Representative"), has severally agreed to
purchase from WFSG the aggregate number of shares of Common Stock set forth
opposite its name below.

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc.......................
---------
Total..................................................... 1,500,000
=========
</TABLE>

The Common Stock Underwriting Agreement provides that the obligations of the
Common Stock Underwriters are subject to certain conditions precedent,
including the completion of the Notes Offering, and that the Common Stock
Underwriters will purchase all of the Common Stock offered hereby if any such
Common Stock are purchased.

WFSG has been advised by the Representative that the Common Stock
Underwriters propose initially to offer the Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of $
per share. The Common Stock Underwriters may allow, and such dealers may re-
allow, a discount not in excess of $ per share to certain other dealers.
The offering of the Common Stock is made for delivery when, as and if accepted
by the Common Stock Underwriters and is subject to prior sale and to the
Common Stock Underwriters' right to reject any order in whole or in part and
to withdraw, cancel, or modify the offer without notice. After the initial
public offering of the Common Stock, the offering price and other selling
terms may be changed by the Common Stock Underwriters.

WFSG has granted the Common Stock Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to an
aggregate of 225,000 additional shares of Common Stock at the initial public
offering price, less the underwriting discount, set forth on the cover page of
this Prospectus. The Common Stock Underwriters may exercise such option only
to cover over-allotments, if any, made in connection with the sale of shares
of Common Stock offered hereby. If purchased, the Common Stock Underwriters
will offer such additional shares of Common Stock on the same terms as the
1,500,000 shares of Common Stock are being offered. To the extent that the
Common Stock Underwriters exercise such option, each of the Common Stock
Underwriters will be obligated, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to 1,500,000 and
WFSG will be obligated, pursuant to the option, to sell such shares of Common
Stock to the Common Stock Underwriters.

The Company has agreed to indemnify the Common Stock Underwriters against
certain liabilities including liabilities under the federal securities laws,
or to contribute to payments the Common Stock Underwriters' may be required to
make in respect thereof.

Prior to the Common Stock Offering, there has been no public market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock was determined by negotiations between the Company and the
Representative. Among the factors considered in such negotiations were the
history of, and prospects for the Company and the industry in which it
competes, an assessment of management, the Company's past and present
operations, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the general condition of the
securities markets at the time of the Common Stock Offering and the market
prices of publicly-traded common stocks of comparable companies in recent
periods.

The Common Stock Underwriters do not intend to confirm sales to any accounts
over which they exercise discretionary authority.

94
<PAGE>

LEGAL MATTERS

The validity of the Common Stock offered hereby will is being passed on for
the Company by Proskauer Rose Goetz & Mendelsohn LLP, New York, New York.
Certain legal matters in connection with the Common Stock offered hereby will
be passed upon for the Common Stock Underwriters by Gibson, Dunn & Crutcher
LLP, Orange County, California.

EXPERTS

The audited consolidated financial statements of the Company and its
subsidiaries at and for the nine months ended September 30, 1996, and at
December 31, 1995 and 1994 and for the two years then ended, the audited
consolidated financial statements of Girard Savings Bank, F.S.B. and
Subsidiary for the period from January 1 through November 8, 1994, and the
audited combined financial statements of Wilshire Credit Corporation and
Affiliates at and for the nine months ended September 30, 1996 and at December
31, 1995 and 1994 and for the two years then ended, have been included herein
in reliance upon the reports of Deloitte & Touche LLP, independent auditors,
upon the authority of said firm as experts in auditing and accounting.

95
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-2
Consolidated Financial Statements:
Consolidated Statements of Financial Condition--September 30, 1996 and
December 31, 1995...................................................... F-3
Consolidated Statements of Operations--Nine Months Ended September 30,
1996 and
Years Ended December 31, 1995 and 1994 ................................ F-4
Consolidated Statements of Cash Flows--Nine Months Ended September 30,
1996 and
Years Ended December 31, 1995 and 1994................................. F-5
Consolidated Statements of Stockholders' Equity--Nine Months Ended
September 30, 1996
and Years Ended December 31, 1995 and 1994............................. F-7
Notes to Consolidated Financial Statements.............................. F-8
GIRARD SAVINGS BANK F.S.B. AND SUBSIDIARY
Independent Auditors' Report............................................ F-27
Consolidated Financial Statements:
Consolidated Statements of Operations for the Period from January 1,
1994 through
November 8, 1994....................................................... F-28
Consolidated Statements of Cash Flows for the Period from January 1,
1994 through
November 8, 1994....................................................... F-29
Notes to Consolidated Financial Statements.............................. F-30
WILSHIRE CREDIT CORPORATION AND AFFILIATES
Independent Auditors' Report............................................ F-33
Combined Financial Statements:
Combined Statements of Financial Condition--September 30, 1996 and
December 31, 1995...................................................... F-34
Combined Statements of Operations--Nine Months Ended September 30, 1996
and the
Years Ended December 31, 1995 and 1994 ................................ F-35
Combined Statements of Stockholders' Equity--Nine Months Ended September
30, 1996
and the Years Ended December 31, 1995 and 1994......................... F-36
Combined Statements of Cash Flows--Nine Months Ended September 30, 1996
and
the Years Ended December 31, 1995 and 1994............................. F-37
Notes to Combined Financial Statements.................................. F-39
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Wilshire Financial Services Group Inc. and Subsidiaries

We have audited the accompanying consolidated statements of financial
condition of Wilshire Financial Services Group Inc. and Subsidiaries (the
"Company") as of September 30, 1996 and December 31, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the nine months ended September 30, 1996 and for the years ended December 31,
1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with 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 accompanying financial statements present fairly, in all
material respects, the financial position of Wilshire Financial Services Group
Inc. and Subsidiaries as of September 30, 1996 and December 31, 1995, and the
results of their operations and their cash flows for the nine months ended
September 30, 1996 and for the years ended December 31, 1995 and 1994, in
conformity with generally accepted accounting principles.

As discussed in Note 10 to the consolidated financial statements, the
Company's subsidiaries, First Bank of Beverly Hills, F.S.B. and Girard Savings
Bank, F.S.B., are operating under regulatory agreements with the Office of
Thrift Supervision that require them to meet certain prescribed requirements.

/s/ Deloitte & Touche LLP
November 13, 1996
Los Angeles, California

F-2
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks........................... $ 11,231 $ 3,382
Federal funds sold................................ 9,300 1,100
-------- --------
Total cash and cash equivalents................. 20,531 4,482
Mortgage-backed securities held to maturity, at
amortized cost (fair values: September 30, 1996,
$21,778; December 31, 1995, $12,873)............. 22,380 13,119
Mortgage-backed securities available for sale, at
fair value (amortized cost: September 30, 1996,
$6,652; December 31, 1995, $9,099)............... 6,483 9,083
Securities held to maturity, at amortized cost
(fair values:
September 30, 1996, $7,452; December 31, 1995,
$6,488).......................................... 7,425 6,470
Trading account securities........................ 7,092 --
Loans, net........................................ 177,280 258,827
Discounted loans, net............................. 3,419 13,347
Loans held for sale, net, at lower of cost or
market........................................... 260,804 18,597
Stock in Federal Home Loan Bank of San Francisco,
at cost.......................................... 2,911 1,421
Real estate owned, net............................ 2,514 4,964
Leasehold improvements and equipment, net......... 336 275
Due from affiliate................................ 8,357 4,514
Accrued interest receivable....................... 4,268 3,042
Prepaid expenses and other assets................. 3,887 1,724
Income taxes receivable, net...................... 5,422 1,589
-------- --------
TOTAL............................................... $533,109 $341,454
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits.......................................... $487,535 $303,524
Borrowings........................................ -- 13,000
Accounts payable and other liabilities............ 7,625 4,398
Subordinated debt................................. -- 11,000
Deferred credits.................................. 832 1,134
Minority interest in subsidiaries................. 277 600
Due to affiliates................................. 2,286 759
-------- --------
Total liabilities............................... 498,555 334,415
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock................................... -- --
Common stock...................................... 35,550 6,800
Retained earnings (accumulated deficit)........... (827) 255
Unrealized loss on available-for-sale securities,
net of tax....................................... (169) (16)
-------- --------
Total stockholders' equity...................... 34,554 7,039
-------- --------
TOTAL............................................... $533,109 $341,454
======== ========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, -----------------
1996 1995 1994
------------- ------- --------
(IN THOUSANDS, EXCEPT
PER SHARE INFORMATION)
<S> <C> <C> <C>
INTEREST INCOME:
Loans...................................... $31,686 $21,821 $ 7,923
Mortgage-backed securities................. 1,280 1,359 1,361
Securities and federal funds sold.......... 1,171 1,201 285
------- ------- --------
Total interest income.................... 34,137 24,381 9,569
------- ------- --------
INTEREST EXPENSE:
Deposits................................... 17,448 13,944 5,017
Borrowings................................. 2,144 537 440
------- ------- --------
Total interest expense................... 19,592 14,481 5,457
------- ------- --------
NET INTEREST INCOME.......................... 14,545 9,900 4,112
PROVISION FOR ESTIMATED LOSSES ON LOANS...... 15,751 4,266 2,173
------- ------- --------
NET INTEREST (LOSS) INCOME AFTER PROVISION
FOR ESTIMATED LOSSES ON LOANS............... (1,206) 5,634 1,939
------- ------- --------
OTHER INCOME (LOSS):
Bankcard income............................ 5,078 4,694 635
Bankcard processing expense................ (3,865) (3,462) (274)
Gain on sale of loans...................... 1,983 642 --
Loan fees and charges...................... 1,217 610 43
Trading account--unrealized gain........... 1,601 -- --
Gain on sale of mortgage-backed securities
available for sale........................ -- 14 54
Amortization of deferred credits........... 346 460 388
Other, net................................. 17 149 381
------- ------- --------
Total other income (loss)................ 6,377 3,107 1,227
------- ------- --------
OTHER EXPENSES:
Compensation and employee benefits......... 2,955 2,516 1,922
FDIC insurance premiums.................... 2,066 721 261
Occupancy.................................. 218 385 319
Professional services...................... 572 1,028 507
Data processing and equipment rentals...... 189 232 162
Real estate owned, net..................... 231 170 241
Loan service fees and expenses............. 3,522 1,958 242
Other general and administrative expenses.. 1,152 1,092 1,290
------- ------- --------
Total other expenses..................... 10,905 8,102 4,944
------- ------- --------
(LOSS) INCOME BEFORE INCOME TAX PROVISION.... (5,734) 639 (1,778)
INCOME TAX (BENEFIT) PROVISION............... (4,652) 47 (526)
------- ------- --------
NET (LOSS) INCOME............................ $(1,082) $ 592 $ (1,252)
======= ======= ========
(LOSS) EARNINGS PER SHARE.................... $(14.05) $ 25.09 $(135.43)
======= ======= ========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, -----------------
1996 1995 1994
------------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................... $ (1,082) $ 592 $(1,252)
Reconciliation of net (loss) income to net
cash (used in) provided by operating
activities:
Provision for estimated losses on loans... 15,751 4,266 2,173
Provision for real estate owned losses.... -- 598 100
Depreciation and amortization............. 116 241 121
Loss (gain) on sale of real estate owned.. 164 (97) 406
Gain from sale of mortgage-backed
securities available
for sale ................................ -- (14) (54)
Gain on sale of loans..................... (1,983) (642) --
Amortization of discounts and deferred
fees..................................... (2,126) (1,246) (600)
Amortization of deferred credits.......... (346) (460) (388)
FHLB stock dividend....................... (64) (40) (39)
Change in:
Trading account......................... (6,526) -- 489
Accrued interest receivable............. (1,226) (1,443) (238)
Prepaid expenses and other assets....... (2,163) (698) 483
Due from affiliates..................... (3,843) (452) (2,833)
Due to affiliates....................... 1,527 107 (210)
Current income taxes receivable......... 728 (396) 591
Deferred income taxes................... (4,561) (419) 111
Accounts payable and other liabilities.. 3,227 1,846 (474)
Minority interest....................... (323) 26 --
Other................................... 43 (180) --
-------- -------- -------
Net cash (used in) provided by
operating activities................. (2,687) 1,589 (1,614)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of loans........................... (227,632) (186,895) (41,561)
Loan repayments, net of originations........ 35,521 49,035 16,836
Proceeds from sale of loans................. 26,335 16,673 --
Purchase of mortgage-backed securities
available for sale......................... -- -- (10,655)
Proceeds from maturity of securities held to
maturity................................... 5,000 1,000 --
Purchase of mortgage-backed securities held
to maturity................................ (11,182) -- (4,198)
Repayments of mortgage-backed securities
held to maturity........................... 1,820 824 643
Proceeds from sale of mortgage-backed
securities available for sale.............. -- 1,496 3,963
Repayments of mortgage-backed securities
available for sale......................... 1,871 1,528 --
Purchases of securities and FHLB stock...... (7,344) (2,965) (105)
Proceeds from sale of FHLB stock............ -- 231 --
Proceeds from sale of real estate owned..... 5,763 5,254 569
Purchase of subsidiary net of cash and cash
equivalents................................ -- -- (346)
Purchases of leasehold improvements and
equipment.................................. (177) (349) (184)
-------- -------- -------
Net cash used in investing
activities........................... (170,025) (114,168) (35,038)
</TABLE>

(continued)
See notes to consolidated financial statements.

F-5
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ------------------
1996 1995 1994
------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits...................... $ 184,011 $107,731 $ 26,181
Proceeds from issuance of common stock...... 17,750 -- 3,750
Issuance of subordinated debt............... -- 9,000 --
Proceeds from other borrowings.............. 308,109 77,419 41,677
Repayments of other borrowings.............. (321,109) (85,919) (30,285)
Issuance of preferred stock................. -- -- 1,000
--------- -------- --------
Net cash provided by (used in) financing
activities............................... 188,761 108,231 42,323
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 16,049 (4,348) 5,671
CASH AND CASH EQUIVALENTS:
Beginning of year........................... 4,482 8,830 3,159
--------- -------- --------
End of year................................. $ 20,531 $ 4,482 $ 8,830
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid (received) during the period for:
Interest.................................... $ 18,772 $ 13,833 $ 5,479
Income taxes................................ 216 365 110
NONCASH INVESTING ACTIVITIES:
Additions to real estate owned acquired in
settlement of loans........................ 4,377 9,878 3,122
Loans to facilitate the sale of real estate
owned...................................... -- 367 2,352
NONCASH FINANCING ACTIVITIES:
Exchange of subordinated debt for common
stock...................................... 11,000 -- --
Exchange of preferred stock for subordinated
debt....................................... -- 2,000 --
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNREALIZED
GAIN
(LOSS) ON
RETAINED AVAILABLE-
PREFERRED STOCK COMMON STOCK EARNINGS FOR-SALE
------------------- -------------- (ACCUMULATED SECURITIES
SHARES AMOUNT SHARES AMOUNT DEFICIT) NET OF TAX TOTAL
---------- ------- ------ ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1994................... -- $ -- 6,644 $ 3,050 $ 915 $(159) $ 3,806
Net loss............... (1,252) (1,252)
Unrealized loss on
available-for-sale
securities--net of
tax................... (511) (511)
Issuance of stock...... 1,000,000 1,000 16,952 3,750 4,750
---------- ------- ------ ------- ------- ----- -------
BALANCE, December 31,
1994................... 1,000,000 1,000 23,596 6,800 (337) (670) 6,793
Net income............. 592 592
Unrealized gain on
available-for-sale
securities--net of
tax................... 654 654
Exchange of preferred
stock for
subordinated debt..... (1,000,000) (1,000) (1,000)
---------- ------- ------ ------- ------- ----- -------
BALANCE, December 31,
1995................... 23,596 6,800 255 (16) 7,039
Net loss............... (1,082) (1,082)
Unrealized loss on
available-for-sale
securities--net of tax
...................... (153) (153)
Exchange of
subordinated debt for
common stock.......... 29,142 11,000 11,000
Issuance of common
stock ................ 47,025 17,750 17,750
---------- ------- ------ ------- ------- ----- -------
BALANCE, September 30,
1996................... -- $ -- 99,763 $35,550 $ (827) $(169) $34,554
========== ======= ====== ======= ======= ===== =======
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations--Wilshire Financial Services Group Inc. and
subsidiaries (the "Company") operate two savings banks (the "Banks") located
in Southern California and have administrative headquarters in Portland,
Oregon. The Banks are federally chartered savings institutions regulated by
the Office of Thrift Supervision ("OTS"). The Company's primary sources of
revenue are real estate and consumer loans acquired in purchase transactions,
mortgage-backed securities, loan securitization transactions, and merchant
bankcard operations.

Principles of Consolidation and Combination--Wilshire Financial Services
Group Inc. ("WFSG") was incorporated in 1996 to be the holding company for
Wilshire Acquisitions Corporation ("WAC"), which is the holding company for
the Banks. WFSG has had no historical operations other than those of WAC and
its subsidiaries, but has formed other subsidiaries that will conduct other
operations in the future.

On October 7, 1993, WAC acquired 94.9% of the common stock of First Bank of
Beverly Hills, F.S.B. ("FBBH") in a purchase accounting transaction. On
November 9, 1994, a newly-formed entity with ownership and management common
to WAC-Wilshire Acquisitions Corporation II ("WACII")--acquired 94.9% of the
common stock of Girard Savings Bank, F.S.B. and subsidiary ("GSB") in a
purchase accounting transaction.

Because WAC and WACII were under common control, the accompanying financial
statements are presented on a combined basis as of December 31, 1994 and for
the period from November 9 through December 31, 1994. On December 27, 1995,
WAC and WACII were merged and WAC was named as the surviving entity. Financial
information as of September 30, 1996 and December 31, 1995 and for the nine
months and year then ended, respectively, is presented on a consolidated or
combined basis and includes the accounts of WAC, FBBH and GSB. With respect to
all consolidated and combined financial information, intercompany transactions
and balances have been eliminated. For convenience, all the accompanying
financial statements are referred to as "consolidated".

The purchase prices of the Banks were less than the fair values of the net
assets acquired. As a result, the Company recorded deferred credits, or
negative goodwill, totaling $2,156. These credits are being amortized over
five years on a straight-line basis. The other material purchase accounting
adjustment relates to the carrying value of GSB loans; the difference between
the carrying value and the estimated fair value of the loans at the date of
acquisition is being amortized over the expected lives of the related loans.

Use of Estimates in the Preparation of the Consolidated Financial
Statements--The preparation of the consolidated 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 consolidated financial statements and the reported amount of
income and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates include valuation allowances for
loans and real estate owned, merchant bankcard charge-back reserves and fair
values of certain financial instruments for which there is not an active
market.

Cash and Cash Equivalents--For purposes of reporting cash flows, cash and
cash equivalents include cash and due from banks and federal funds sold.

Securities and Mortgage-Backed Securities--The Company's securities
portfolios consist of mortgage-backed and other securities that are classified
as held-to-maturity, trading account and available-for-sale securities.
Securities are classified as held-to-maturity when management believes the
Company has the ability and the positive intent to hold the securities to
maturity. Securities classified as held-to-maturity are carried on

F-8
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

an historical cost basis, adjusted for the amortization of premiums and
accretion of discounts using a method that approximates the interest method.
Securities classified as trading account securities are residual interests in
loan securitization transactions initiated by the Company. Trading account
securities are carried at estimated fair value, and unrealized gains and
losses are recorded in current operations. Securities are classified as
available-for-sale when the Company intends to hold the securities for an
indefinite period of time, but not necessarily to maturity. Securities
classified as available-for-sale are reported at their fair values. Unrealized
holding gains and losses on securities available-for-sale are reported, net of
tax, as a separate component of stockholders' equity. Realized gains and
losses from the sales of available-for-sale securities are reported separately
in the consolidated statements of operations and are calculated using the
specific identification method.

Loans, Discounted Loans, Loans Held for Sale and Allowance for Loan Losses--
The Company's principal business involves acquiring loans, including loans
that are nonperforming when acquired. Acquired loans are generally purchased
in pools, or portfolios, for prices at or below face value (i.e., unpaid
principal balances plus accrued interest). Nonperforming loans are generally
acquired at deep discounts to face value and are classified as discounted
loans in the consolidated statements of financial condition. Loans that have
been identified as likely to be sold are classified as held-for-sale in the
consolidated statements of financial condition. Loans other than discounted
loans and loans held for sale are classified simply as loans.

Discounted loans are presented in the consolidated statements of financial
condition net of unamortized discount and the portion of the allowance for
loan losses established for those loans. When discounted loans are purchased,
discounts are segregated into (a) valuation allowances for estimated losses on
specific loans ("specific valuation allowances"), (b) valuation allowances for
the inherent risk of losses in the loan portfolio that have yet to be
specifically identified ("general valuation allowances") and (c) portions of
the discounts regarded as yield adjustments. The allocated specific and
general valuation allowances are included in the allowance for loan losses.
The allowance for loan losses is also increased by additional provisions for
losses that are recorded in current operations. The portion of purchase
discounts regarded as yield adjustments is accreted into income in proportion
to cash receipts of principal. Accrued interest on discounted loans is
recognized in income only when collected in cash.

Loans other than discounted loans are presented in the consolidated
statements of financial condition in substantially the same manner as
discounted loans except that discounts associated with purchased loans are
accreted into income using a method approximating the interest method, and
interest income is recognized on an accrual basis. That portion of the total
loan portfolio representing originated loans is carried net of unamortized
deferred origination fees. Deferred fees are recognized in interest income
over the terms of the loans using a method that approximates the interest
method.

Loans held for sale are presented at lower of cost or market value, and cost
is determined as described above depending on whether the loans held for sale
are discounted loans or other loans. If market value is less than cost, a
valuation allowance is recorded to reduce the carrying value. Gains or losses
on loans sold through securitization transactions are based on the difference
between the cash proceeds received on the certificates sold to outside
investors and the Company's cost basis allocated to such interests in the
loans. The percentage allocation of the loan pools' cost basis between the
portions sold and subordinated interests retained is based on the relative
fair values of those portions.

The Company evaluates commercial and multi-family real estate loans (whether
purchased or originated and whether classified as loans or discounted loans)
for impairment under 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. Commercial and multi-family real
estate loans are considered to be impaired, for financial reporting purposes,
when it is probable that the Company will be unable to collect all

F-9
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

principal or interest when due. Specific valuation allowances are established,
either through allocations of purchase discount or through provisions for
losses, as described above, for impaired loans with estimated fair values that
are less than the face value of the loans. Fair values of impaired loans are
estimated based on the fair value of the real estate collateral.

The Company evaluates single-family real estate, consumer and other loans
for impairment on a pooled basis. These loans are considered to be smaller-
balance, homogeneous loans, and are evaluated on a portfolio basis considering
the projected net realizable value of the portfolio compared to the net
carrying value of the portfolio.

All specific and general valuation allowances established for loans and
discounted loans are recorded in the allowance for loan losses. The allowance
is decreased by the amount of loans charged off and is increased by recoveries
of previously charged-off loans. The allowance is maintained at a level
believed adequate by management to absorb potential losses in the total loan
portfolio. Management's determination of the adequacy of the allowance is
based on an evaluation of the portfolio, previous loan loss experience,
current economic conditions, volume, growth and composition of the portfolio
and other relevant factors.

Derivative Financial Instruments--Beginning in 1996, the Company utilizes
interest-rate swaps as a component of its interest-rate risk hedging strategy.
Swaps are matched against fixed-rate loans, effectively converting them to
variable-rate loans. Settlements with the counterparty to the swaps increase
or reduce loan interest income reported in the statements of operations.

Real Estate Owned--Real estate acquired in settlement of loans is originally
recorded at fair value less estimated costs to sell. Loan balances in excess
of fair value of the real estate acquired are charged against the allowance
for loan losses at the date of acquisition. Allowances are recorded to provide
for estimated declines in fair value subsequent to the date of acquisition.
Any subsequent operating expenses or income, as well as gains or losses on
disposition of such properties, are charged to current operations.

Leasehold Improvements and Equipment--Office leasehold improvements and
equipment are stated at cost, less accumulated depreciation and amortization,
computed on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the lives of the respective
leases or the service lives of the improvements, whichever are shorter.

Income Taxes--The Company files consolidated federal income tax returns with
its subsidiaries. Deferred tax assets and liabilities represent the tax
effects, based on current tax law, of future deductible or taxable amounts
attributable to events that have been recognized in the financial statements.
A valuation allowance is recorded against deferred tax assets when there is
not presumptive evidence that it is more likely than not that the deferred tax
assets will be realized.

Bankcard Operations--Bankcard income includes merchant discounts and
transaction fees for processing Visa and Mastercard transactions. Bankcard
expense consists primarily of fees paid to the Company's third-party
processors and interchange fees paid to card-issuing banks. Other direct and
indirect costs of Bankcard operations are included in various other categories
of expenses and are not specifically allocated separately from other operating
expenses of the Company.

Capital Structure--In the accompanying consolidated statements of
stockholders' equity, shares of common stock issued and outstanding are
presented based on the actual number of shares issued by WAC, and the number
of shares issued by WACII adjusted to their WAC equivalents as determined when
the two entities merged in

F-10
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

1995. As of September 30, 1996 and December 31, 1995, WAC has the following
types of authorized shares of stock:
50,000,000 shares of common, $0.01 par value
200,000,000 shares of preferred, $0.01 par value

Of the 200,000,000 shares of preferred stock authorized, 100,000,000 has
been designated as Series A. The Series A preferred stock has a $1 per share
liquidation preference and a dividend rate of $.14 per share per annum,
noncumulative. No cash dividends have been declared or paid on such stock at
any point when it has been outstanding.

Preferred stock issued and outstanding at December 31, 1994 consisted of
Series A preferred stock of WACII, which was exchanged for Series A preferred
stock of WAC in 1995, pursuant to the merger of the two companies. All common
stock of WACII was also exchanged in the merger. The preferred stock of a
subsidiary (FBBH) held by the majority stockholders of WAC as of December 31,
1994 was also exchanged for WAC Series A preferred in 1995. All of the WAC
Series A preferred was then exchanged for subordinated debt issued by the
majority stockholders. Effective January 1, 1996, all subordinated debt was
exchanged for WAC's common stock.

Subsequent to September 30, 1996, all outstanding common stock of WAC was
exchanged by WAC stockholders for common stock of WFSG, and all minority
interests in common stock of FBBH and GSB were exchanged for common stock of
WFSG. Outstanding shares of WFSG, prior to an initial public offering of
common stock (see Note 17), total 5,500,000.

Earnings Per Share is calculated based on the weighted average number of
shares of WAC common stock outstanding during the year giving effect to the
exercise of stock options using the treasury stock method if such effect is
not anti-dilutive. The weighted average number of shares outstanding for the
nine months ended September 30, 1996 and for the years ended 1995 and 1994 was
77,024, 23,596 and 9,245, respectively.

Recent Accounting Standards--In 1996, the Company adopted SFAS Nos. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of, SFAS No. 122, Accounting for Mortgage Servicing Rights, and
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 121 and 122
did not have a material effect on the Company's financial statements.

As permitted by SFAS No. 123, the Company did not adopt the provisions of
that statement relating to the accounting method used for stock options. The
Company will continue to use the intrinsic value method of accounting for its
stock options rather than the fair value method, and will make the disclosures
required by the statement (see Note 12).

SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Financial Liabilities, is generally effective for relevant
transactions occurring after December 31, 1996, and must be applied
prospectively. Earlier application is not permitted. Based on the types of
transactions the Company has engaged in historically, the pronouncement is
expected to be relevant to similar future transactions and may affect both the
accounting for, and disclosures about, such transactions. Transactions
affected may include sales of loans, particularly sales affected through
securitization transactions, and repurchase agreements. The Company does not
currently service financial assets and does not expect to be immediately
affected by the provisions of SFAS No. 125 related to servicing. The Company
does not believe that the pronouncement would have had a material effect on
any transactions reflected in the accompanying financial statements, if its
provisions had been previously adopted.

Reclassifications--Certain amounts in the consolidated financial statements
for 1995 and 1994 have been reclassified to conform to the 1996 presentation.

F-11
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SECURITIES

The amortized cost, fair value and gross unrealized gains and losses on U.S.
Treasury notes and mortgage-backed securities as of September 30, 1996 and
December 31, 1995 are shown below. Fair value estimates were obtained from an
independent pricing service.

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 30, 1996 COST GAINS LOSSES VALUE
------------------ --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Available-for-sale mortgage-backed
securities........................ $ 6,652 $ -- $169 $ 6,483
======= ===== ==== =======
Held-to-maturity:
U.S. Treasury notes.............. 7,425 27 -- 7,452
Mortgage-backed securities....... 22,380 -- 602 21,778
------- ----- ---- -------
Total held-to-maturity......... $29,805 $ 27 $602 $29,230
======= ===== ==== =======
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C> <C> <C> <C>
Available-for-sale mortgage-backed
securities........................ $ 9,099 $ -- $ 16 $ 9,083
======= ===== ==== =======
Held-to-maturity:
U.S. Treasury notes.............. 6,470 22 4 6,488
Mortgage-backed securities....... 13,119 -- 246 12,873
------- ----- ---- -------
Total held-to-maturity......... $19,589 $ 22 $250 $19,361
======= ===== ==== =======
</TABLE>

The amortized cost and estimated fair value of securities held to maturity
other than mortgage-backed securities at September 30, 1996, and December 31,
1995 by contractual maturity, are as follows:

<TABLE>
<CAPTION>
AMORTIZED FAIR
SEPTEMBER 30, 1996 COST VALUE
------------------ --------- ------
<S> <C> <C>
Due in one to five years................................... $7,425 $7,452
====== ======
DECEMBER 31, 1995
-----------------
Due in less than one year.................................. $4,970 $4,966
Due in one to five years................................... 1,500 1,522
------ ------
$6,470 $6,488
====== ======
</TABLE>

The Company receives payments on all mortgage-backed securities over periods
that are considerably shorter than the contractual maturities of the
securities, which range from 6 to 30 years.

At September 30, 1996, mortgage-backed securities with carrying values of
$22,779 and market values of approximately $22,247 were pledged to secure FHLB
borrowings, merchant bankcard transactions, certain guarantees related to a
loan securitization transaction and an interest-rate swap. There were no sales
of securities in the nine months ended September 30, 1996. Gross gains from
the sale of securities available for sale were $14 and $54 in the years ended
December 31, 1995, and 1994, respectively, and there were no gross losses in
these years. Of the total securities pledged, securities with fair values of
approximately $20,110 were delivered to, and are held in custody of, Bankers
Trust and the Federal Reserve Bank.

F-12
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. LOANS, DISCOUNTED LOANS AND LOANS HELD FOR SALE

The Company's loans comprise loans, discounted loans and loans held for
sale. Following is a summary of each loan category by type:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
LOANS
Real estate loans:
One to four units.............................. $ 49,047 $138,547
Over four units................................ 72,717 71,239
Commercial..................................... 58,361 50,749
Land........................................... 2,874 2,709
-------- --------
Total loans secured by real estate........... 182,999 263,244
Other loans...................................... 30,698 19,832
-------- --------
213,697 283,076
Less:
Allowance for loan losses...................... (32,519) (10,016)
Deferred loan fees............................. (196) (245)
Discount on purchased loans not included
in allowance for loan losses.................. (3,702) (13,988)
-------- --------
$177,280 $258,827
======== ========
DISCOUNTED LOANS
Real estate loans:
One to four units.............................. $ 9,561 $ 18,380
Commercial..................................... 482 863
-------- --------
Total loans secured by real estate........... 10,043 19,243
Other loans...................................... 724 967
-------- --------
10,767 20,210
Less:
Allowance for loan losses...................... (5,716) (3,855)
Discount on purchased loans not included in
allowance
for loan losses............................... (1,632) (3,008)
-------- --------
$ 3,419 $ 13,347
======== ========
LOANS HELD FOR SALE
Real estate loans:
One to four units.............................. $277,490 $ 33,497
Commercial..................................... 466
Land........................................... 194
-------- --------
Total loans secured by real estate........... 277,490 34,157
Other loans...................................... 12
-------- --------
277,490 34,169
Less allowances, discounts and deferred fees..... (16,686) (15,572)
-------- --------
$260,804 $ 18,597
======== ========
</TABLE>

F-13
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

As of September 30, 1996 and December 31, 1995, loans with adjustable rates
of interest were $317,087 and $265,702, respectively, and loans with fixed
rates of interest were $184,867 and $71,753, respectively. Adjustable-rate
loans are generally indexed to the FHLB's Eleventh District Cost of Funds
Index, LIBOR or Prime and are subject to limitations on the timing and extent
of adjustment. Most loans adjust within six months of changes in the index.

Activity in the allowance for loan losses is summarized as follows:

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ----------------
1996 1995 1994
------------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year.................. $ 25,651 $ 7,701 $ 4,314
Loans charged off........................... (12,494) (5,404) (1,666)
Recoveries.................................. 1,424 81 71
Provision for loan losses................... 15,751 4,266 2,173
Allocations from purchased loan discounts... 15,972 19,007 2,809
-------- ------- -------
Balance, end of year........................ $ 46,304 $25,651 $ 7,701
======== ======= =======
</TABLE>

At September 30, 1996 and December 31, 1995, the Company had classified
loans totaling $18,811 and $14,241, respectively, as impaired and had recorded
specific valuation allowances to measure the impairments of those loans
totaling $5,445 and $4,155, respectively. At the same dates, the Company had
classified loans totaling $2,499 and $9,593, respectively, as impaired with no
recorded specific valuation allowances. The average unpaid principal balances
of impaired loans during the nine months ended September 30, 1996 and the year
ended December 31, 1995 were $21,254 and $24,204, respectively. Interest
income recognized on impaired loans during the same periods was $1,135 and
$1,631, respectively, based on cash payments. These amounts exclude
consideration of single-family residential and consumer loan pools evaluated
for impairment on a pooled basis.

Management estimates are required to determine the allowance for loan
losses. Estimation is also involved in determining the ultimate recoverability
of purchased loans and, consequently, the pricing of purchased loans and the
adequacy of purchased discounts to provide allowances for credit risk. These
estimates are inherently uncertain and depend on the outcome of future events.
Regulatory authorities have required substantial increases in the allowances
maintained by many banks in recognition of the inherent risk in the existing
economic environment. Although management believes the levels of the allowance
as of September 30, 1996 and December 31, 1995 are adequate to absorb losses
inherent in the loan portfolio, rising interest rates, various other economic
factors and regulatory requirements may result in increasing losses that
cannot reasonably be predicted at this date. Such losses may also result in
unanticipated erosion of the Banks' capital.

The Company has a geographic concentration of mortgage loans in Southern
California, which experienced declines in recent years. Substantially all
loans originated or acquired by FBBH and GSB prior to their acquisition by the
Company were collateralized by Southern California real estate. Performing
mortgage loans acquired subsequently have also been concentrated in Southern
California, but to a lesser degree, and the geographic diversification of the
portfolio is generally widening through loan acquisitions.

F-14
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. REAL ESTATE OWNED

Real estate owned consists of property obtained through foreclosure. In the
accompanying consolidated statements of financial condition, real estate owned
is presented net of allowances for estimated losses. Activity in the allowance
for estimated losses on real estate owned is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
SEPTEMBER 30, ---------------
1996 1995 1994
------------- ------- ------
<S> <C> <C> <C>
Allowance for losses on real estate owned,
beginning of year.......................... $ 1,193 $ 123 $ 55
Charge-offs................................. (1,599) (82) (32)
Allocation of purchase discount............. 762 554
Provision for the year...................... 598 100
------- ------- -----
Allowance for losses on real estate owned,
end of year................................ $ 356 $ 1,193 $ 123
======= ======= =====
</TABLE>

5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT

Leasehold improvements and equipment consist of:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Leasehold improvements............................ $ 258 $ 299
Furniture and equipment........................... 877 718
------ ------
Total cost........................................ 1,135 1,017
Accumulated depreciation and amortization......... (799) (742)
------ ------
$ 336 $ 275
====== ======
</TABLE>

6. DEPOSITS

Deposits consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Passbook accounts................................. $ 371 $ 304
Money market accounts............................. 795 1,267
NOW/checking...................................... 6,103 5,111
Time deposits:
Less than $100.................................. 386,264 247,814
$100 or more.................................... 94,002 49,028
-------- --------
Total deposits.................................. $487,535 $303,524
======== ========
</TABLE>

A summary of time deposits by maturity at September 30, 1996 is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1997 (including fourth quarter of 1996)........................... $381,378
1998.............................................................. 97,897
1999.............................................................. 991
--------
$480,266
========
</TABLE>

F-15
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. BORROWINGS AND SUBORDINATED DEBT

Borrowings at December 31, 1995 are repurchase agreements issued under a
master repurchase agreement with Bear Stearns Mortgage Capital Corp. Proceeds
from the agreements were used to acquire loan pools. The assets purchased by
Bear Stearns include the loans acquired by the Banks with the proceeds as well
as other assets. At December 31, 1995, the outstanding agreements were secured
by loans with unpaid principal balances of $54,210. Loans purchased by Bear
Stearns under the repurchase agreements are held in custody by a third party.

Following is information about borrowings under repurchase agreements:

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, --------------
1996 1995 1994
------------- ------ ------
<S> <C> <C> <C>
Average balance during
the period............. $35,568 $1,000 $2,297
Highest amount outstand-
ing during the period.. 97,000 13,000 8,500
Average interest rate
during the period...... 6.8% 6.7% 5.8%
Average interest rate--
end of period.......... -- 6.7% 5.8%
</TABLE>

WAC's capitalization includes subordinated debt with majority
stockholders in amounts up to $50,000. Subordinated debt pays interest at
14% per annum, compounded quarterly, has no stated maturity, and represents
an unsecured general obligation of the Company. As of December 31, 1995,
borrowings under the subordinated debt agreement were $11,000. As stated in
Note 1, the Company's common stock was exchanged for the subordinated debt
effective January 1, 1996.

8. INCOME TAXES

The provisions for income tax (benefit) consist of the following:

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, --------------
1996 1995 1994
------------- ------ ------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal..................................... $ (93) $ 434 $ (656)
State....................................... 2 32 19
------- ------ ------
(91) 466 (637)
------- ------ ------
Deferred tax expense (benefit):
Federal..................................... (3,081) (250) 90
State....................................... (1,480) (169) 21
------- ------ ------
(4,561) (419) 111
------- ------ ------
Total income tax provision (benefit).......... $(4,652) $ 47 $ (526)
======= ====== ======
</TABLE>

F-16
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The difference between the effective tax rate implicit in the consolidated
financial statements and the statutory federal income tax rate can be
attributed to the following:

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, --------------
1996 1995 1994
------------- ------ ------
<S> <C> <C> <C>
Federal income tax provision at statutory
rate....................................... (34.0)% 35.0% (35.0)%
State taxes (benefit), net of federal tax
effect..................................... (11.1) 4.0
Valuation allowance......................... (29.2) (25.1) 8.8
Change in prior year estimate............... (5.2) (7.8)
Other....................................... (1.6) 1.3 (3.4)
----- ------ ------
Effective income tax rate................... (81.1)% 7.4% (29.6)%
===== ====== ======
</TABLE>

Deferred income taxes receivable (payable), which are included in income
taxes receivable, net in the consolidated statements of financial condition,
are summarized as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Deferred tax assets:
Purchase discounts.............................. $ 2,378 $ 1,349
Purchase accounting............................. 549 629
Depreciation.................................... 82 65
Provision for loan loss......................... 1,232 408
Net operating loss.............................. 2,661 170
Other........................................... 140 10
------- -------
Gross deferred tax assets..................... 7,042 2,631
------- -------
Deferred tax liabilities:
Partnership income.............................. (44) (44)
Deferred loan fees.............................. (207) (351)
FHLB stock dividends............................ (285) (242)
State taxes..................................... (620)
Unrealized gains on securities.................. (694)
Installment sales gain.......................... (344)
Other........................................... (118) (98)
------- -------
Gross deferred tax liability.................. (2,312) (735)
------- -------
Total deferred tax asset.......................... 4,730 1,896
Valuation allowance............................... -- (1,726)
------- -------
Net deferred tax asset............................ $ 4,730 $ 170
======= =======
</TABLE>

At September 30, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $761, $1,391 and $4,758 expiring
in the years 1997, 1998 and 1999, respectively, and net operating loss
carryforwards for state income tax purposes of $1,617 and $1,143 expiring in
2000 and 2001, respectively.

F-17
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET RISK

Profit Sharing Plan--The Banks' employees participate in a defined
contribution profit sharing and 401(k) plan sponsored by companies included in
the Company's "control group." At the discretion of the Banks' Boards of
Directors, the Banks may elect to contribute to the plan based on profits of
the Banks or based on matching participants' contributions. For the year ended
December 31, 1995, the Banks contributed $28 to the plan. There have been no
contributions in 1996.

Lease Commitments--The following is a schedule by year of future minimum
rental payments:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1997 (including fourth quarter of 1996)............................... $281
1998.................................................................. 166
1999.................................................................. 157
2000.................................................................. 52
2001.................................................................. 30
----
Total............................................................... $686
====
</TABLE>

Lease commitments include commitments to an affiliated company which require
annual lease payments of $52 through 2001.

Hedging Activity--In April 1996, the Banks entered into an interest-rate
swap with a $70,000 notional amount with Bear Stearns. The swap effectively
converts $70,000 of purchased fixed-rate loans to variable-rate loans. The
Banks pay 6.25% and receive a variable rate based on the one-month USD LIBOR
plus .225%. The swap matures in April 2001 and has a cancellation trigger when
the two-year constant maturity treasury equals or exceeds 9%. The notional
principal amount amortizes at a rate of 1.2532% each month. At September 30,
1996, the notional principal is $65,614.

Lending Commitments--At December 31, 1995, the Company had commitments to
extend credit of $793. The Company did not have any commitments to extend
credit at September 30, 1996. These commitments expose the Company to credit
risk in excess of amounts reflected in the consolidated financial statements.
The Company receives collateral to support loans and commitments to extend
credit for which collateral is deemed necessary. The most significant category
of collateral is certificates of deposit.

Litigation--The Company is a defendant in legal actions arising from
transactions conducted in the ordinary course of business. Management, after
consultation with legal counsel, believes the ultimate liability, if any,
arising from such actions will not materially affect the Company's financial
position.

Securitization Contingencies--A loan securitization in March 1996 involved
the sale of discounted nonperforming loans with carrying amounts of
approximately $18,600. The Banks are contingently liable for losses, if any,
that could arise if the collectibility of any securitized loan is
unenforceable solely due to the absence of original notes. In addition, the
Banks are contingently liable to pay the interest due on the senior securities
if the liquidation of the assets underlying the securities results in a
shortfall on any due date; any such shortfall paid by the Banks would be
reimbursable if liquidation proceeds were ultimately sufficient to cover the
interest. Management believes that it is not probable that any losses will be
incurred for these or other reasons involving the securitization.

10. REGULATORY MATTERS

Regulatory Agreement--On October 31, 1996, FBBH and GSB consented to
separate but similar Orders to Cease and Desist (the "Orders") issued by the
OTS. The Order issued to FBBH superseded a previously existing Supervisory
Agreement between FBBH and the OTS issued June 8, 1995.

F-18
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Orders require of both Banks that they not engage in unsafe and unsound
practices and that they maintain minimum capital ratios required of
institutions to be deemed "well-capitalized" (as that term is defined under
the regulatory framework for prompt corrective action). In addition, the
Orders require the Banks to (I) revise policies and procedures concerning (i)
internal asset reviews, (ii) the allowances for loan and lease losses, (iii)
loan purchases, (iv) internal audits and (v) hedging transactions; (II)
develop plans to augment the depth and expertise of the management teams;
(III) revise business plans; (IV) modify certain policies concerning the
accounting for loan discounts; (V) improve monitoring of (i) interest rate
risk, (ii) balance sheet classifications of certain assets (e.g., as held for
sale versus held to maturity) and (iii) compliance with laws and regulations
concerning transactions with affiliates; (VI) ensure compliance with the
proper servicing of adjustable rate mortgages and escrow accounts; and (VII)
enhance recordkeeping. In addition, the Banks may not increase their total
assets beyond certain specified levels. Also, FBBH will be required to correct
OTS-identified deficiencies in merchant bankcard operations. These
requirements will be accompanied by related requirements that the Banks submit
to the OTS, by certain specified dates, various policies, plans and reports on
other actions to comply with the Orders. In some cases, OTS approval of such
information will be required. The Banks are currently in process of addressing
these requirements. Management believes that the Banks are complying with
those requirements that have taken effect.

Capital Requirements--The Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain actions by the regulators
that, if undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Banks must meet specific capital
guidelines that involve quantitative measures of the Banks' assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Banks' capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios of total tangible
capital, core capital and total capital to risk-weighted assets as those terms
are defined in OTS regulation. Under the regulatory framework for prompt
corrective action, quantitative and qualitative measures are used by the OTS
to determine whether an institution is categorized as "well capitalized,"
"adequately capitalized," "undercapitalized," or "significantly
undercapitalized." Certain regulatory actions are mandated by law, depending
on an institution's category. Quantitative measures include total capital to
risk-weighted assets, Tier 1 capital to risk-weighted assets, and Tier 1
capital to average assets, as those terms are defined in OTS regulation.

F-19
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Banks' actual and required capital amounts and ratios are as follows:

<TABLE>
<CAPTION>
TO BE
CATEGORIZED AS "WELL-
CAPITALIZED", UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------- ------------------ ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1996
Total Capital to Risk-
Weighted Assets:
FBBH.................. $ 9,711 10.0% $ 7,760 . 8.0% $ 9,701 . 10.0%
GSB................... 30,297 11.0% 22,010 . 8.0% 27,513 . 10.0%
Tier 1 Capital to
Risk-Weighted
Assets:
FBBH.................. 8,434 8.7% Not Applicable 5,820 . 6.0%
GSB................... 26,739 9.7% Not Applicable 16,508 . 6.0%
Tier 1 Capital to
Average
Assets (Core Capital):
FBBH.................. 8,434 5.9% 5,706 . 4.0% 7,132 . 5.0%
GSB................... 26,739 7.0% 15,320 . 4.0% 19,150 . 5.0%
Tangible Capital:
FBBH.................. 8,434 6.0% 2,120 . 1.5% Not Applicable
GSB................... 26,739 6.8% 5,855 . 1.5% Not Applicable
DECEMBER 31, 1995
Total Capital to Risk-
Weighted
Assets:
FBBH.................. $ 9,820 9.8% $ 7,999 . 8.0% $ 9,998 . 10.0%
GSB................... 15,523 10.4% 11,973 . 8.0% 14,967 . 10.0%
Tier 1 Capital to
Risk-Weighted
Assets:
FBBH.................. 8,549 8.6% Not Applicable 5,999 . 6.0%
GSB................... 13,852 9.3% Not Applicable 8,980 . 6.0%
Tier 1 Capital to
Average
Assets (Core Capital):
FBBH.................. 8,549 6.4% 5,326 . 4.0% 6,657 . 5.0%
GSB................... 13,852 10.3% 5,398 . 4.0% 6,748 . 5.0%
Tangible Capital:
FBBH.................. 8,549 6.8% 3,075 . 1.5% Not Applicable
GSB................... 13,852 6.2% 2,066 . 1.5% Not Applicable
</TABLE>

As of September 30, 1996, the Banks' capital ratios were sufficient for them
to be categorized as "well capitalized" based solely on quantitative measures.
However, because of the Orders discussed above, each Bank can be categorized
by the OTS as no higher than "adequately capitalized." Because the Banks have
minimum regulatory capital requirements and the additional requirements under
the Orders discussed above, substantially all retained earnings of the Banks
are restricted as to distribution to stockholders.

At June 30, 1996, as a result of new legislation enacted to recapitalize the
SAIF deposit insurance fund, the Company accrued approximately $1.4 million
for a special assessment to be paid in the fourth quarter.

F-20
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. RELATED PARTY TRANSACTIONS

Substantially all loans are serviced by Wilshire Credit Corporation ("WCC"),
which is affiliated with the Company by common ownership. Management believes
that the terms of the servicing agreement are no less favorable to the Banks
than terms offered by other servicers. Due from affiliate in the accompanying
consolidated statements of financial condition represents the amount of loan
payments collected by WCC but not yet remitted to the Banks at that date. Loan
servicing fees and expenses shown in the consolidated statements of operations
were paid to WCC, and include reimbursements for direct expenses borne by WCC
on behalf of the Banks. Due to affiliates in the consolidated statements of
financial condition primarily comprises amounts owed to WCC for WAC operating
expenses paid by WCC. At September 30, 1996, due to affiliates also includes a
liability to WCC for a servicing fee with deferred payment terms.

12. STOCK OPTIONS

In 1994 and 1995, the Banks issued stock options for the benefit of certain
directors, executives and consultants. FBBH granted 19,447 and 23,161 options
in 1994 and 1995, respectively. GSB granted 69,724 options in 1995. All grants
were made with exercise prices at least equal to the book value of the
relevant bank's shares on the grant dates. Subsequent to September 30, 1996,
these stock options were converted into 31,225 options to purchase the stock
of WFSG. The options are exercisable at prices ranging from $5.58 to $14.90
per share no earlier than 60 days after the effective date of the initial
public offering of WFSG stock discussed in Note 17, and have remaining terms
of from two to three years. Their estimated fair value as of November 1, 1996
was $162; an amount no greater than this would have been reported as
compensation expense during 1994 and 1995 if the fair value method of
accounting discussed in SFAS No. 123 had been used to measure compensation
expense. Assuming that all grants were made in 1995, 1995 net income reported
in the consolidated statements of operations would have been $430 and earnings
per share would have been $18.22 if the fair value method of accounting for
the options had been used.

Pursuant to the initial public offering, the Company adopted a new Stock
Plan on November 1, 1996. Under the Stock Plan, the Company may grant options
and other awards not to exceed 1,750,000 shares of common stock over a ten-
year term. The options may be either incentive stock options or nonstatutory
stock options granted at exercise prices not less than 100% of the fair value
of WFSG common stock at the grant date (110% of fair value for incentive stock
options granted to persons holding over 10% of the Company's shares).
Restricted stock and stock appreciation rights may also be granted under the
Stock Plan.

The initial awards under the new Stock Plan are expected to be granted at
the date of the initial public offering. Options for approximately 1,050,000
to 1,083,750 will be granted to the Company's two largest stockholders. The
Stock Plan also provides that nonemployee Company directors will receive
automatic nonstatutory stock option grants. The number of shares granted to
nonemployee directors each quarter will be determined under a formula ($6
divided by the fair market value per share of WFSG common stock on each grant
date).

13. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is required to interpret market data to develop estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.

F-21
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
Assets:
Cash and due from
banks.................. $ 11,231 $ 11,231
Federal funds sold...... 9,300 9,300
Mortgage-backed
securities held to
maturity............... 22,380 21,778
Mortgage-backed
securities available
for sale............... 6,483 6,483
Securities held to
maturity............... 7,425 7,452
Trading account
securities............. 7,092 7,092
Loans, net.............. 177,280 173,938
Discounted loans, net... 3,419 3,419
Loans held for sale,
net.................... 260,804 264,180
Federal Home Loan Bank
stock.................. 2,911 2,911
Liabilities:
Deposits................ 487,535 487,821
Borrowings.............. -- --
Off-Balance Sheet
Liabilities:
Interest-rate swap...... -- 714
<CAPTION>
DECEMBER 31, 1995
-------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
Assets:
Cash and due from
banks.................. $ 3,382 $ 3,382
Federal funds sold...... 1,100 1,100
Mortgage-backed
securities held to
maturity............... 13,119 12,873
Mortgage-backed
securities available-
for-sale............... 9,083 9,083
Securities held to
maturity............... 6,470 6,488
Loans, discounted loans
and loans held for
sale, net.............. 290,771 295,747
Federal Home Loan Bank
stock.................. 1,421 1,421
Liabilities:
Deposits................ 304,020 307,177
Borrowings.............. 13,000 13,000
Subordinated debt....... 11,000 11,000
</TABLE>

The methods and assumptions used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate that value are
explained below:

Cash and Due From Banks and Federal Funds Sold--The carrying amounts
approximate fair values, due to the short-term nature of these instruments.

Securities and Mortgage-Backed Securities--The fair values of securities
are generally obtained from market bids for similar or identical
securities, or are obtained from independent security brokers or dealers.

Loans, Discounted Loans and Loans Held for Sale--It is not practicable to
estimate the fair value of discounted loans, which are predominately
nonperforming loans, due to uncertainties as to the nature, timing and
extent to which the loans will be either collected according to original
terms, restructured, or foreclosed upon. For other loans, fair values are
estimated for portfolios of loans with similar financial characteristics.
Loans are segregated by type, such as fixed and adjustable rate interest
terms. The fair values of fixed-rate mortgage loans are based on discounted
cash flows utilizing applicable risk-adjusted spreads relative to the
current pricing of similar fixed-rate loans as well as anticipated
prepayment schedules. The fair values of

F-22
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

adjustable-rate mortgage loans are based on discounted cash flows utilizing
discount rates that approximate the pricing of available mortgage-backed
securities having similar rate and repricing characteristics, as well as
anticipated prepayment schedules. No value adjustments have been made for
changes in credit within the loan portfolio. It is management's opinion
that the allowance for estimated loan losses pertaining to loans results in
a fair value adjustment of the credit risk of such loans.

Federal Home Loan Bank Stock--The carrying amounts approximate fair
values because the stock may be sold back to the Federal Home Loan Bank at
carrying value.

Deposits--The fair values of deposits are estimated based on the type of
deposit products. Demand accounts, which include passbook and transaction
accounts, are presumed to have equal book and fair values, since the
interest rates paid on these accounts are based on prevailing market rates.
The estimated fair values of time deposits are determined by discounting
the cash flows of settlements of deposits having similar maturities and
rates, utilizing a yield curve that approximates the prevailing rates
offered to depositors as of the reporting date.

Borrowings--The carrying amounts of repurchase agreements approximates
fair value due to the short-term nature of these instruments.

Subordinated Debt--The fair value of subordinated debt issued to
shareholders by WAC is assumed to be equal to carrying value because the
debt terms were negotiated with related parties and there is no market for
the debt at such terms with unrelated parties.

Off-Balance-Sheet Liabilities--The fair value of an interest-rate swap
(1996 only) is estimated at the net present value of the future payable,
based on the current spread, discounted at a current rate. Fair values of
off-balance sheet commitments to lend (1995 only) are estimated based on
deferred fees associated with such commitments, which are immaterial as of
the reporting date, and are therefore not presented.

The fair value estimates presented herein are based on pertinent information
available to management as of each reporting date. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date, and therefore, current estimates
of fair value may differ significantly from the amounts presented herein.

14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------
SEPTEMBER 30, JUNE 30, MARCH 31,
1996 1996 1996(1)
------------- -------- ---------
<S> <C> <C> <C>
Interest income.......................... $12,186 $12,407 $9,544
Interest expense......................... 7,572 7,046 4,974
Provision for estimated losses on loans.. 4,883 5,483 5,385
------- ------- ------
Net interest loss after provision for es-
timated losses on loans................. (269) (122) (815)
Non-interest income...................... 1,240 917 4,220
Non-interest expense..................... 5,398 2,625 2,882
------- ------- ------
(Loss) income before income taxes........ (4,427) (1,830) 523
Income tax benefit....................... 3,373 805 474
------- ------- ------
Net (loss) income........................ $(1,054) $(1,025) $ 997
======= ======= ======
(Loss) earnings per share................ $(10.57) $(13.05) $18.90
======= ======= ======
</TABLE>

F-23
<PAGE>

<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1995 1995 1995 1995
------------ ------------- -------- ---------
<S> <C> <C> <C> <C>
Interest income............. $ 7,329 $ 6,173 $ 5,776 $5,103
Interest expense............ 4,070 3,704 3,573 3,134
Provision for estimated
losses on loans............ 1,045 1,020 1,028 1,173
------- ------- ------- ------
Net interest income (loss)
after provision for
estimated losses on loans.. 2,215 1,449 1,175 796
Non-interest income......... 373 1,684 556 494
Non-interest expense........ 2,855 2,096 1,664 1,487
------- ------- ------- ------
Income (loss) before income
taxes...................... (268) 1,037 67 (197)
Income tax (expense)
benefit.................... 21 (78) (4) 14
------- ------- ------- ------
Net income (loss)........... $ (247) $ 959 $ 63 $ (183)
======= ======= ======= ======
Earnings (loss) per share... $(10.47) $ 40.66 $ 2.63 $(7.73)
======= ======= ======= ======
<CAPTION>
QUARTERS ENDED
----------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1994 1994 1994 1994
------------ ------------- -------- ---------
<S> <C> <C> <C> <C>
Interest income............. $ 3,861 $ 2,108 $ 1,669 $1,931
Interest expense............ 2,315 1,317 970 855
Provision for estimated
losses on loans............ 2,173 -- -- --
------- ------- ------- ------
Net interest (loss) income
after provision for
estimated losses on loans.. (627) 791 699 1,076
Non-interest income......... 641 336 78 172
Non-interest expense........ 1,929 1,255 1,017 743
------- ------- ------- ------
(Loss) income before income
taxes...................... (1,915) (128) (240) 505
Income tax benefit.......... 566 38 71 (149)
------- ------- ------- ------
Net (loss) income........... $(1,349) $ (90) $ (169) $ 356
======= ======= ======= ======
(Loss) earnings per share... $(79.41) $(13.57) $(25.43) $53.55
======= ======= ======= ======
</TABLE>
- --------
(1) The financial information for the quarter ended March 31, 1996 was
restated to account for residual interests in loans sold as securitization
transactions as trading account securities. The effect on quarterly earnings
was an increase of $1,601 or $30.36 per share.

15. PARENT COMPANY INFORMATION

CONDENSED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash.............................................. $ -- $ 1
Investments in Banks.............................. 35,310 18,777
Prepaid expenses and other assets................. 715 153
------- -------
$36,025 $18,931
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other liabilities............ $ 764 $ 317
Due to affiliates................................. 707 575
Subordinated debt to majority stockholders........ -- 11,000
------- -------
Total liabilities............................... 1,471 11,892
------- -------
Contributed and retained equity................... 34,554 7,039
------- -------
$36,025 $18,931
======= =======
</TABLE>

F-24
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ---------------
1996 1995 1994
------------- ------ -------
<S> <C> <C> <C>
Interest income............................. $ 2 $ 9 $ 24
Interest expense............................ 67 243 31
------- ------ -------
Net interest expense........................ (65) (234) (7)
Noninterest income.......................... 563 1,155 611
Noninterest expense......................... 125 363 156
------- ------ -------
Income before equity in earnings (loss) of
subsidiaries............................... 373 558 448
Equity in (loss) earnings of subsidiaries... (1,455) 34 (1,700)
------- ------ -------
Net (loss) income........................... $(1,082) $ 592 $(1,252)
======= ====== =======
</TABLE>

CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ---------------
1996 1995 1994
------------- ------ -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) income.......................... $(1,082) $ 592 $(1,252)
Adjustments to reconcile net income (loss)
to
net cash (used in) provided by operating
activities:
Amortization of purchase accounting
adjustments.............................. (783) (1,045) (488)
Equity in loss (earnings) of
subsidiaries............................. 1,455 (34) 1,700
Change in:
Prepaid expenses and other assets........ (562) 51 495
Accounts payable and other liabilities... 447 90 (111)
Due to affiliates........................ 132 (71) (29)
Other.................................... -- 33 --
------- ------ -------
Net cash (used in) provided by operating
activities............................. (393) (384) 315
------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net investment in subsidiaries............. (17,358) (9,000) (4,746)
------- ------ -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of capital stock.................. 17,750 -- 4,750
Issuance of subordinated debt.............. -- 9,000 --
Dividends from subsidiary.................. -- 65 --
------- ------ -------
Net cash provided by financing
activities............................. 17,750 9,065 4,750
------- ------ -------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS........................... (1) (319) 319
CASH:
Beginning of year.......................... 1 320 1
------- ------ -------
End of year................................ $ -- $ 1 $ 320
======= ====== =======
NONCASH FINANCING ACTIVITIES:
Conversion of capital stock to subordinated
debt...................................... $2,000
Conversion of subordinated debt to capital
stock..................................... $11,000
</TABLE>

F-25
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

16. PROFORMA INFORMATION CONCERNING ACQUISITIONS

As discussed in Note 1, during 1994 WACII acquired GSB in a purchase
accounting transaction. The results of GSB's operations are included in the
Company's consolidated financial statements subsequent to the date of
acquisition. The following proforma financial information shows the estimated
results of the Company's operations for the year ended December 31, 1994 as
though the GSB purchase had occurred as of the beginning of the year. The
proforma amounts are not necessarily indicative of what would have actually
occurred if the acquisition had occurred as of the beginning of the year.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
Net interest income and non-interest revenue.................... $7,222
Net loss........................................................ (920)
Loss per share.................................................. (38.99)
</TABLE>

17. INITIAL PUBLIC OFFERINGS

WFSG is making initial public offerings (the "IPOs") of common stock and
debt, and has formed certain new subsidiaries to undertake the loan
acquisition and servicing businesses currently being conducted by WCC and
certain other affiliates of the Company. The loan acquisition activity, and
any other business activity, that may be conducted by WFSG's new subsidiaries
will be in addition to the activity already being performed by the Banks and
reflected in these consolidated financial statements on an historical basis.
The Company currently expects that the IPOs will be completed during 1996.
Certain business developments related to the IPOs that may be significant to
the operations of the Company are disclosed in other footnotes to these
consolidated financial statements.

18. SUBSEQUENT EVENTS--LOAN ACQUISITIONS AND SALES

In October and November 1996, GSB acquired approximately $279,000 in unpaid
principal amount of discounted residential mortgage loans, and committed to
acquire approximately $31,900 of additional discounted residential mortgage
loans in December. Management expects to sell, prior to December 31, 1996,
performing residential mortgage loans held for sale with market values
approximately equivalent to the purchase prices of the discounted loans.
Completion of the sales transactions by December 31, 1996 is necessary in
order for GSB to meet the growth restrictions imposed by its Order (see Note
10).

F-26
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Girard Savings Bank F.S.B.
San Diego, California

We have audited the accompanying consolidated statements of operations and
of cash flows of Girard Savings Bank F.S.B. and Subsidiary (the "Bank") for
the period from January 1, 1994 through November 8, 1994, the date of the
Bank's acquisition by Wilshire Acquisitions Corporation II. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, such consolidated statements of operations and of cash flows
present fairly, in all material respects, the results of operations and cash
flows of Girard Savings Bank F.S.B. and Subsidiary for the period from January
1, 1994 through November 8, 1994, in conformity with generally accepted
accounting principles.

/s/ Deloitte & Touche LLP
March 10, 1995
Los Angeles, California

F-27
<PAGE>

GIRARD SAVINGS BANK F.S.B. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 1, 1994 THROUGH NOVEMBER 8, 1994
(IN THOUSANDS)

<TABLE>
<S> <C>
INTEREST INCOME:
Loans................................................................ $5,577
Mortgage-backed securities........................................... 337
------
Total interest income.............................................. 5,914
------
INTEREST EXPENSE:
Deposits............................................................. 3,006
Borrowings........................................................... 292
------
Total interest expense............................................. 3,298
------
NET INTEREST INCOME.................................................... 2,616
PROVISION FOR ESTIMATED LOAN LOSSES.................................... 827
------
NET INTEREST INCOME AFTER PROVISION FOR ESTIMATED LOAN LOSSES.......... 1,789
------
OTHER LOSS, Service charges and other fees............................. (3)
------
OTHER EXPENSES:
Compensation and other employee benefits............................. 512
FDIC insurance premiums.............................................. 262
Depreciation and amortization........................................ 14
Amortization of excess of cost over net assets acquired.............. 993
Occupancy............................................................ 57
Professional services................................................ 338
Data processing...................................................... 54
Real estate owned, net............................................... 194
Other general and administrative..................................... 143
------
Total other expenses............................................... 2,567
------
LOSS BEFORE INCOME TAX PROVISION....................................... (781)
INCOME TAX PROVISION................................................... 156
------
NET LOSS............................................................... $ (937)
======
</TABLE>

See notes to consolidated financial statements.

F-28
<PAGE>

GIRARD SAVINGS BANK F.S.B. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1994 THROUGH NOVEMBER 8, 1994
(IN THOUSANDS)

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (937)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation....................................................... 14
Amortization of excess of cost over net assets acquired............ 993
Amortization of deferred interest and fees......................... (56)
Provision for loan losses.......................................... 827
Provision for real estate losses................................... 97
Change in:
Accrued interest receivable....................................... (109)
Prepaid expenses and other assets................................. (52)
Income taxes receivable........................................... 921
Other liabilities................................................. 468
Deferred taxes.................................................... 212
--------
Net cash provided by operating activities........................ 2,378
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan repayments, net................................................ 5,503
Proceeds from the maturity of investments securities................ 3,497
Purchases of investment securities and FHLB stock................... (2,046)
Investment in real estate........................................... (107)
Proceeds from real estate sold...................................... 2,850
--------
Net cash provided by investing activities........................ 9,697
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits.............................................. (2,402)
Issuance of common stock............................................ 13
Proceeds from FHLB advances......................................... 12,000
Payments of FHLB advances........................................... (21,000)
--------
Net cash used in financing activities............................ (11,389)
--------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................ 686
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................... 2,903
--------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................. $ 3,589
========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Payments during the period for:
Interest........................................................... $ 3,300
NONCASH INVESTING ACTIVITIES:
Loans originated to finance the sale of foreclosed real estate...... 1,190
</TABLE>

See notes to consolidated financial statements.

F-29
<PAGE>

GIRARD SAVINGS BANK F.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1, 1994 THROUGH NOVEMBER 8, 1994
(IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Girard Savings Bank F.S.B. and
subsidiary (the "Bank") are in accordance with generally accepted accounting
principles and conform to practices within the banking industry. A summary of
the significant accounting policies applied in the preparation of the
accompanying financial statements follows:

Principles of Consolidation--The consolidated financial statements include
the accounts of Girard Savings Bank F.S.B. and its wholly-owned subsidiary,
Girard Financial Corporation. All significant intercompany balances and
transactions have been eliminated in consolidation.

Use of Estimates--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 revenues and expenses
during the reporting periods. Actual results could differ from those
estimates. Significant estimates in the accompanying consolidated financial
statements include provisions for losses on loans and real estate owned.

Investment Securities--As of January 1, 1994, the Bank adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities. This
statement address the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments
in debt securities. Those investments are classified into three categories and
accounted for as follows: (i) debt securities which the enterprise has the
positive intent and ability to hold to maturity are classified as held-to-
maturity securities and reported at amortized cost; (ii) debt and equity
securities that are brought and held principally for the purpose of selling in
the near term are classified as trading securities and reported at fair value
with unrealized gains and losses included in earnings; and (iii) debt and
equity securities not classified as either held-to-maturity securities or
trading securities are classified as available-for-sale securities and
reported at fair value with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity, net of income
taxes. Prior to the adoption of SFAS No. 115, all investment securities were
classified as held for investment and valued at cost, adjusted for the
accretion of discounts and amortization of premiums which were recognized as
an adjustment to income. Subsequent to adoption, the Bank has classified all
of its investment securities as held to maturity and accounts for them in the
same manner.

Loans Receivable--Loans are reported at the principal amounts outstanding,
net of unearned income, net deferred loan origination fees and the allowance
for loan losses. Interest income is calculated using the simple interest
method. The recognition of interest income is discontinued when, in
management's judgment, the collection of interest is deemed to be unlikely.

Nonrefundable fees and direct costs associated with the origination of loans
are deferred and netted against outstanding loan balances. The net deferred
fees and costs recognized in interest income over the term of the loan using a
method that approximates the interest method. When recognized as interest
income, loan origination fees are included in revenues as interest on loans.

Discounts or premiums on acquired loans are accreted or amortized to
operations over the lives of the loans using a method that approximates the
level-yield method unless the loans are nonaccrual loans.

Provision and Allowance for Loan Losses--The allowance for loan losses is
maintained at a level believed adequate by management to absorb potential
losses in the loan portfolio. Management's determination of the adequacy of
the allowance is based on an evaluation of the portfolio, previous loan loss
experience, current economic conditions, volume, growth and composition of the
loan portfolio and other relevant factors. The

F-30
<PAGE>

GIRARD SAVINGS BANK F.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

allowance is increased by provisions for loan losses charged against
operations and recoveries of previously charged off credits.

The accompanying financial statements require the use of management
estimates to calculate the allowance for loan losses. These estimates are
inherently uncertain and depend on the outcome of future events. Regulatory
authorities have required substantial increases in the allowance maintained by
many banks in recognition of the inherent risk in the existing economic
environment. The Bank's lending is concentrated in the Southern California
area and specifically on loans collateralized by income-producing properties
in that area. The area has recently experienced adverse economic conditions,
including declining real estate values. These factors have adversely affected
borrower's ability to repay loans. Additional decline in the local economy
and/or rising interest rates may result in increasing losses that cannot
reasonably be predicted at this date. Such losses may also result in
unanticipated erosion of the Bank's capital.

Real Estate Owned--Real estate acquired in settlement of loans is stated at
the lower of cost of fair value less estimated cost to sell. Loan balances in
excess of fair value of the real estate acquired are charged against the
allowance for loan losses at the date of acquisition. Any subsequent operating
expense or income, reduction in estimated values, and gains or losses on
disposition of such properties are charged to current operations.

Cash and Cash Equivalents--For purposes of reporting cash flows, cash and
cash equivalents include cash and due from banks, federal funds sold and
certificates of deposit with original maturities of three months or less.

2. SUBSEQUENT EVENT

Acquisition and Recapitalization--On November 9, 1994, pursuant to a stock
purchase agreement between Wilshire Acquisitions Corporation II ("WACII"),
Girard Savings Bank F.S.B., (the "Bank"), Girard Financial Corporation, the
stockholders of the Bank, and RT Holdings, Inc., WACII purchased 4,218,210
shares of the Bank's common stock held by the stockholders for $3,559. In
addition, the Bank issued and sold to WACII nonvoting preferred stock for
$1,000. WACII now owns 94.9% of the Bank's outstanding shares of common stock
and 100% of the Bank's outstanding preferred stock.

Prior to acquisition, the Bank wrote off $920 in goodwill associated with a
prior acquisition that otherwise would have been amortized over the next 14
years. Such goodwill was deemed to be impaired due to the cessation of
significant activity of the acquired business and disposition of its assets.
In addition, the Bank incurred additional legal and professional expenses of
approximately $256 related to its sale.

3. INCOME TAX PROVISION

The provision for income taxes consists of the following:

<TABLE>
<S> <C>
Current:
Federal income tax benefit.......................................... $(61)
State income taxes.................................................. 5
----
Total current benefit............................................. (56)
----
Deferred:
Federal income taxes................................................ 212
----
Total income tax provisions....................................... $156
====
</TABLE>

F-31
<PAGE>

GIRARD SAVINGS BANK F.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The principal temporary differences creating deferred taxes are related to
FHLB stock dividends, discounts on purchased loans, the allowance for loan
losses, deferred loan fees, and partnership income, which are taxable or
deductible in different years for tax and financial reporting purposes.

The difference between the effective tax rate implicit in the consolidated
statements of operations and the statutory income tax rate can be attributed
to the following:

<TABLE>
<S> <C>
Federal income tax benefit at statutory rate............................ (35.0%)
Nondeductible goodwill.................................................. 41.2
Valuation allowance..................................................... 7.6
Other................................................................... 6.2
-----
Effective income tax benefit rate....................................... 20.0%
=====
</TABLE>

4. COMMITMENTS AND CONTINGENCIES

Profit Sharing Plan--Subsequent to the acquisition by WACII, the Bank's
employees began to participate in a defined contribution profit sharing and
401(k) plan sponsored by companies in the Wilshire Financial Services Group
"control group". At the discretion of the Bank's Board of Directors, the Bank
may elect to contribute to the plan based on profits of the Bank or based on
matching participants' contributions.

Lease Commitments--At November 8, 1994, there are no operating leases with
initial or remaining noncancellable lease terms in excess of one year.

Total rent expense from an operating lease was approximately $59 in 1994.
The lease provides that the Bank pay taxes, maintenance, insurance and certain
other operating expenses applicable to the leased premises in excess of a
predetermined base, in addition to the minimum monthly payments.

Lending Commitments--At November 8, 1994, the Bank had no outstanding
commitments to fund loans and no obligations under standby letters of credit
or other off-balance-sheet items with credit risk.

Litigation--The Bank is a defendant in legal actions arising from
transactions conducted in the ordinary course of business. Management, after
consultation with legal counsel, believes the ultimate liability, if any,
arising from such actions will not materially affect the Bank's financial
position.

F-32
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
Wilshire Credit Corporation and Affiliates
Portland, Oregon:

We have audited the accompanying combined statements of financial condition
of Wilshire Credit Corporation and Affiliates (the "Corporations") as of
September 30, 1996 and December 31, 1995, and the related combined statements
of operations, stockholders' equity and cash flows for the nine months ended
September 30, 1996 and for the years ended December 31, 1995 and 1994. These
combined financial statements are the responsibility of the Corporations'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of Wilshire Credit
Corporation and Affiliates as of September 30, 1996 and December 31, 1995, and
the combined results of their operations and their cash flows for the nine
months ended September 30, 1996 and for the years ended December 31, 1995 and
1994, in conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP
November 13, 1996
Los Angeles, California

F-33
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS........................... $ 6,638 $ 3,577
SECURITIES:
Trading account................................... 11,818 --
Available for sale, at fair value (cost: $7,039
and $2,486 in 1996
and 1995, respectively).......................... 7,049 2,486
Held to maturity, at amortized cost (fair value:
$12,785 and $4,643 in 1996
and 1995, respectively).......................... 12,771 4,643
LOANS:
Loans, net........................................ -- 121,420
Discounted loans, net............................. 4,824 19,352
Loans held for sale, net, at lower of cost or
market........................................... 112,939 --
Discounted loans held for sale, net, at lower of
cost or market................................... 168,957 33,267
Commercial notes receivable....................... 10,811 9,261
OTHER RECEIVABLES................................... 2,935 1,769
DUE FROM AFFILIATES, Net............................ 2,473 759
PROPERTY, Net....................................... 8,953 6,717
OTHER ASSETS........................................ 3,000 3,122
-------- --------
TOTAL............................................... $353,168 $206,373
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Participating interests in loans and securities... $143,424 $150,298
Borrowings........................................ 243,239 70,165
Capital lease obligations......................... 1,445 1,126
Due to affiliates................................. 8,431 3,698
Accounts payable and accrued liabilities.......... 7,592 4,887
-------- --------
Total liabilities............................... 404,131 230,174
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock...................................... 524 524
Retained earnings (accumulated deficit)........... (3,943) 78
Distributions to stockholders..................... (47,554) (24,403)
Unrealized gains on available-for-sale
securities....................................... 10 --
-------- --------
Total stockholders' equity (deficit)............ (50,963) (23,801)
-------- --------
TOTAL............................................... $353,168 $206,373
======== ========
</TABLE>

See notes to combined financial statements.

F-34
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ----------------
1996 1995 1994
------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Servicing fees............................... $ 6,041 $ 9,739 $ 3,339
Interest and dividend income................. 6,718 5,124 1,667
Gain on sale of loans........................ 935 43 465
Rent and finance lease income................ 607 625 192
Other revenues (expense)..................... 72 (194) 133
------- ------- -------
Total revenues............................. 14,373 15,337 5,796
------- ------- -------
EXPENSES:
Compensation and benefits.................... 5,090 6,605 3,834
Interest expense............................. 9,116 3,789 894
Travel....................................... 1,032 1,233 177
Depreciation and amortization................ 766 504 208
Professional services........................ 537 898 311
Portfolio servicing expense.................. 281 52 32
Rent......................................... 105 254 217
Telephone.................................... 189 349 262
Postage...................................... 120 143 206
Advertising.................................. 150 82 33
Other general and administrative............. 1,008 909 684
------- ------- -------
Total expense.............................. 18,394 14,818 6,858
------- ------- -------
NET (LOSS) INCOME.............................. $(4,021) $ 519 $(1,062)
======= ======= =======
</TABLE>

See notes to combined financial statements.

F-35
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNREALIZED GAINS
ON AVAILABLE-
COMMON RETAINED DISTRIBUTIONS TO FOR-SALE
STOCK EARNINGS SHAREHOLDERS SECURITIES TOTAL
------ -------- ---------------- ---------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1994................... $524 $ 1,599 $ (4,584) $-- $ (2,461)
Net loss.............. -- (1,062) -- -- (1,062)
Distributions to
shareholders......... -- -- (7,576) -- (7,576)
---- ------- -------- ---- --------
BALANCE, DECEMBER 31,
1994................... 524 537 (12,160) -- (11,099)
Net income............ -- 519 -- -- 519
Distributions to
shareholders......... -- -- (12,243) -- (12,243)
Dividends............. -- (978) -- -- (978)
---- ------- -------- ---- --------
BALANCE, DECEMBER 31,
1995................... 524 78 (24,403) -- (23,801)
Net loss.............. -- (4,021) -- -- (4,021)
Distributions to
shareholders......... -- -- (23,151) -- (23,151)
Unrealized gain on se-
curities
available-for-sale... -- -- -- 10 10
---- ------- -------- ---- --------
BALANCE, SEPTEMBER 30,
1996................... $524 $(3,943) $(47,554) $ 10 $(50,963)
==== ======= ======== ==== ========
</TABLE>

See notes to combined financial statements.

F-36
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ------------------
1996 1995 1994
------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ (4,021) $ 519 $ (1,061)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Gain on sale of loans..................... (935) (43) (465)
Valuation adjustment--loans held for
sale..................................... -- -- 254
Interest capitalized on commercial notes.. (1,550) (581) --
Depreciation and amortization............. 524 343 179
Change in:
Trading securities...................... (11,818) -- --
Security purchased under agreement to
resell................................. -- 24,938 (24,938)
Other receivables....................... (1,166) 530 (756)
Due from affiliates..................... (1,714) (386) (373)
Other assets............................ 122 (1,912) (1,126)
Due to affiliates....................... 4,733 185 2,770
Accounts payable and accrued
liabilities............................ 2,705 1,931 1,926
Security sold but not yet purchased..... -- (24,738) 24,738
Other................................... -- 38 --
-------- -------- --------
Net cash provided by (used in)
operating activities................. (13,130) 345 1,148
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity securities.... (8,371) (4,160) (851)
Proceeds from maturities of held-to-maturity
securities................................. 243 368 --
Purchase of available-for-sale securities... (5,377) (2,602) --
Proceeds from maturities of available-for-
sale securities............................ 824 116 --
Acquisitions and originations of loans...... (258,771) (168,558) (240,881)
Proceeds from sale of loans................. 120,707 109,034 8,420
Receipts of principal on loans.............. 26,330 137,642 39,179
Origination of commercial notes receivable.. -- (7,680) (1,000)
Purchase of property........................ (2,248) (5,339) (219)
-------- -------- --------
Net cash provided by (used in)
investing activities................. (126,663) 58,828 (195,352)
-------- -------- --------
</TABLE>

See notes to combined financial statements.

F-37
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS--(CONTINUED)

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, -------------------
1996 1995 1994
------------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from participating interests..... $ -- $ 47,261 $179,938
Payments of principal to participating
interests................................ (6,874) (102,234) (36,564)
Proceeds from borrowings.................. 224,968 73,091 63,278
Principal payments of borrowings.......... (51,894) (63,867) (3,050)
Principal payments on capital leases...... (195) (125) (59)
Cash dividends paid ...................... -- (978) --
Other distributions to stockholders....... (23,151) (12,243) (7,576)
--------- --------- --------
Net cash provided by (used in) financing
activities............................. 142,854 (59,155) 195,967
--------- --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS... 3,061 18 1,763
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR....................................... 3,577 3,559 1,796
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...... $ 6,638 $ 3,577 $ 3,559
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Interest paid............................. $ 8,734 $ 3,121 $ 359
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchases of property through capital
leases................................... $ 514 $ -- $ 101
</TABLE>

See notes to combined financial statements.

F-38
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Combination--The combined financial statements of Wilshire Credit
Corporation and Affiliates (the "Corporations") include the accounts of the
following companies:

<TABLE>
<CAPTION>
COMPANY IDENTIFIER
------- ----------
<S> <C>
Wilshire Credit Corporation....................................... WCC
Wilshire Leasing Limited.......................................... WLL
Wilshire Properties I, Inc. ...................................... WP-I
Wilshire Properties II, Inc. ..................................... WP-II
Portland Servicing Corporation.................................... PSC
Wilshire Securities Corporation................................... WS
Wilshire Funding Corporation 1994-1............................... WF-4-1
Wilshire Funding Corporation 1995-1............................... WF-5-1
Wilshire Funding Corporation 1995-2............................... WF-5-2
Wilshire Funding Corporation 1995-3 .............................. WF-5-3
Wilshire Funding Corporation 1996-1............................... WF-6-1
Wilshire Consumer Receivables Funding Corporation, LLC............ WCRFC
Wilshire Manufactured Housing Funding Company, LLC................ WMHFC
Wilshire Mortgage Funding Company, LLC............................ WMF
WMFC, LLC......................................................... WMFC
Wilshire Funding Company, LLC..................................... WF
</TABLE>

All of the above companies are under common ownership and management. All
significant intercompany balances and transactions have been eliminated in
combination.

Nature of the Business--The Corporations acquire and service performing and
nonperforming (discounted) loan portfolios and mortgage-backed securities.
Funding for loan portfolio and mortgage-backed securities acquisitions is
provided principally by third-party investors who hold participating interests
in cash flows from specified portfolios and securities, generally on a
nonrecourse basis, or who lend to the Corporations with specified portfolios
and securities as collateral.

WLL operates under the name of Portland Cellular, providing cellular
telephone transmission for its customer base. Portland Cellular also provides
phones to certain of its customers under operating leases.

WP-I operates the Corporations' headquarters facilities, which were acquired
under a capital lease with a bargain purchase option.

WP-II owns and manages two commercial real estate properties located in
Oregon.

WS was formed for the purpose of engaging in broker/dealer activities, but
has had no significant activity.

WF-4-1, WF-5-1, WF-5-2, WF-5-3 and WF-6-1 were formed primarily for the
purpose of acquiring and securitizing various loan portfolios.

WCRFC, WMHFC and WMF were formed for the purpose of funding three
securitizations during 1995: a $25,464 consumer loan-backed bond, a $30,757
manufactured housing-backed bond, and a $64,753 mortgage-backed bond,
respectively.

F-39
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

WMFC is the holding company for WF which, was formed for the purpose of
acquiring and originating residential home mortgages.

Cash and Cash Equivalents--The Corporations consider all highly liquid
investments with maturities of three months or less, when purchased, to be
cash equivalents. Cash and cash equivalents consist primarily of cash in
accounts with banks and brokers and in money market funds.

Use of Estimates in the Preparation of the Combined Financial Statements--
The preparation of the combined 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 combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Securities--Securities consist primarily of B-class pass-through mortgage
and other asset-backed securities which were either purchased at discounts or
represent residual interests in loans previously securitized by the
Corporations, and U.S. Treasury securities. Until the third quarter of 1996,
all securities were classified as held-to-maturity based on management's
intent and the Corporations' ability to hold them to maturity, and differences
between cost and fair value of the securities were immaterial. In the third
quarter of 1996, purchases of B-class mortgage-backed securities were
increased significantly. In connection with that activity, management
reevaluated its intentions with respect to the various types of securities
held, and the securities portfolio was segregated into three components, as
follows:

Held-to-Maturity--U.S. Treasury securities are pledged for certain
borrowings and are classified as held-to-maturity based on the ability and
intent to hold them to maturity for that purpose. These securities are
carried at amortized cost.

Trading--B-class and other securities representing retained interests in
loans securitized by the Corporations are classified as trading securities.
These securities are carried at fair value, and changes in unrealized gains
or losses are recorded in the combined statements of operations.

Available-for-Sale--B-class mortgage-backed securities purchased from
third parties are classified as available-for-sale. These securities are
carried at fair value, and changes in unrealized gains or losses are
recorded in a separate stockholders' equity account in the combined balance
sheets. The available-for-sale classification also includes an equity
security-preferred stock of a privately-held company that does not have a
readily determinable fair value, and for which fair value is assumed to
approximate cost.

When the securities held prior to the third quarter of 1996 were transferred
from the held-to-maturity portfolio to the available-for-sale and trading
portfolios during the third quarter, they were transferred at their fair
values, which were not materially different than amortized cost.

Loans--The Corporations' principal business involves acquiring loans, and to
a significantly lesser extent, originating them. Acquired loans are generally
purchased in pools, or portfolios, for prices at or below face value (i.e.,
unpaid principal balances plus accrued interest). Nonperforming and
underperforming loan portfolios are generally acquired at deep discounts to
face value and are classified as discounted loans in the combined statements
of financial condition. Loans that have been identified as likely to be sold
are classified as held-for-sale in the combined statements of financial
condition. Loans other than discounted loans and loans held-for-sale are
classified simply as loans.

Discounted loans are presented in the combined statements of financial
condition inclusive of accrued interest (purchased interest and subsequently
accrued interest) and net of unamortized discount. Discounted loans are
accounted for on a portfolio basis, generally using the cost recovery method.
The full extent of cash that will

F-40
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

ultimately be collected on a specific discounted loan portfolio is subject to
substantial uncertainty. Collections may be realized in various ways, such as
negotiations with debtors resulting in resumption of payments under original
or restructured terms, significant collections on one or a relatively few
loans in a portfolio of many loans, legal judgments against debtors, or
repossession and sale of collateral. Discounts are not accreted into income
until the Corporations' initial net investment in the portfolio is fully
recovered, except in the case of certain portfolios for which collections are
more certain. For most portfolios, accretion is determined in proportion to
cash receipts of principal relative to the total principal in the portfolios.
.

Loans other than discounted loans are presented in the combined statements
of financial condition in the same manner as discounted loans except that
discounts associated with purchased loans are accreted into income using a
method approximating the interest method, and interest is recognized on an
accrual basis.

Loans held-for-sale are presented at lower of cost or market value, and cost
is determined as described above depending on whether the loans held-for-sale
are discounted loans or other loans. If market value is less than cost, a
valuation allowance is recorded to reduce the carrying value.

Commercial notes receivable comprise three originated loans to an
unaffiliated corporation and its operating subsidiary. The loans are presented
at cost, plus accrued compound interest capitalized in accordance with the
terms of the loans. Interest on the loans is collectible in cash based on a
formula relating to the earnings of the borrowers. The loans mature in August
2000.

The Corporations do not evaluate individual loans, except for commercial
notes receivable, for impairment under SFAS No. 114, "Accounting for
Impairment of a Loan," because acquisition decisions and certain other loan
management decisions are made on the basis of the value of each portfolio as a
unit rather than on the basis of the value of specific loans. Also, a
substantial majority of the loans purchased have small balances relative to
the total portfolio and are homogeneous by type within each portfolio.
Impairment is evaluated on a portfolio basis considering the projected net
realizable value of the portfolio compared to the net carrying value of the
portfolio. Credit risk related to each portfolio as a whole is one factor
considered by management in determining the purchase price for the portfolio;
therefore unaccreted discounts are assumed to provide a sufficient valuation
allowance for credit risk unless management's analysis indicates otherwise. As
of September 30, 1996 and December 31, 1995, no allowance for loan losses has
been provided in the financial statements. Specific loans are charged off,
with corresponding charges to loan discounts, when management determines they
are uncollectible. A substantial portion of the total discounted loan
portfolio consists of nonperforming and restructured loans. It is not
practicable to estimate the additional income that might have been recognized
had these loans performed under their original terms.

Interest Income Recognition--Interest is accrued on both loans and
discounted loans in accordance with their legal terms. However, to the extent
there is a participation agreement associated with a loan portfolio, the
liability to the participant is increased by the amount of interest accrued.
To the extent that the Corporations have a nonparticipated interest in a
discounted loan portfolio, interest income recognition is deferred and the
loan discount account is increased by the amount of interest accrued. To the
extent that the Corporations have a nonparticipated interest in commercial
notes receivable and in a loan portfolio other than a discounted loan
portfolio, interest income is recognized as the interest is accrued.

Other Receivables--Other receivables consist primarily of certain direct
costs associated with collections of specific loans. The costs are generally
reimbursable by participants in the loan portfolios, or are charged to the
borrowers.

Due from and Due to Affiliates--Due from affiliates primarily consists of
amounts advanced for certain operating expenses to a savings and loan holding
company affiliated with the Corporations by common ownership and control. At
September 30, 1996, due from affiliates includes servicing fees, for which
payment was deferred, owed to the Corporations from one of the subsidiaries of
the savings and loan holding company.

F-41
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Due to affiliates primarily consists of loan payments collected by the
Corporations as servicer but not yet remitted to the two subsidiaries of the
bank holding company affiliate. These assets and liabilities are reflected at
cost, and do not bear interest.

Rental Income and Finance Lease Income--Rental income and finance lease
income is derived from operating leases on commercial real estate and from
cellular and portable telephone rentals.

Property--Property is stated at cost less accumulated depreciation.
Depreciation is determined using the straight-line method over the estimated
useful lives of the related assets.

Participating Interests in Loans and Securities--Participation liabilities
represent amounts invested by third parties for an interest in cash flows from
loan portfolios and mortgage-backed securities, net of the cash flows already
remitted to the participants. Participants share credit risks and certain
other risks associated with the assets that provide the source of repayment
and potential income to the participants. If cash flows from specific assets
proved to be insufficient to provide participants recovery of their initial
investments or expected income on such investments, the Corporations'
liability would be reduced without recourse. Included in participation
liabilities as of September 30, 1996 and December 31, 1995 are $6,520 and
$5,605, respectively, representing amounts collected from borrowers but not
yet remitted to participants.

Agreements with participants generally provide that, in exchange for the
Corporations' servicing of assets, the Corporations retain a specified portion
of portfolio cash flows allocable to the participants' investment in addition
to cash flows relating to the Corporations' direct investment, if any. The
Corporations' retained portion of cash flows allocable to participants'
interests is recognized when received as servicing fee income. The
Corporations' retained portion generally increases after the point at which
participants have recouped their initial investments.

Financial Instruments--The Corporations enter into transactions involving
financial instruments both for speculative trading purposes and for hedging
purposes.

Premiums received or paid for writing or purchasing puts and calls for
trading purposes are recorded as liabilities or assets representing the market
value of the options. The liabilities or assets are subsequently marked to
market at each balance sheet date, and unrealized as well as realized gains
and losses are recorded in periodic income.

Forward sales and short sales of securities and certain options and futures
contracts are designated as hedges against future fluctuations in the market
value of loans held for sale resulting from changes in interest rates. Changes
in the market value of these instruments are deferred as adjustments to the
cost basis of the hedged loans and thus are recognized in connection with the
ultimate sale of such loans.

Income Taxes--Each of the companies whose operations are reflected in these
combined financial statements are Subchapter S corporations for income tax
purposes. Taxable income of the companies is passed through directly to the
stockholders and is not taxed at the corporate level.

Earnings per Share--Earnings per share data is omitted because each company
in the combined group has an independent capital structure, and varying
numbers of outstanding shares of stock.

Reclassification--Certain amounts in the combined financial statements and
related footnote disclosures for 1995 and 1994 were reclassified to conform to
the 1996 presentation. These reclassifications do not materially affect the
presentation.

F-42
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

2.SECURITIES

Securities consist of the following at September 30, 1996 and December 31,
1995:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
1996
Available-for-sale securities:
Mortgage-backed securities........ $ 4,553 $ 30 $ 20 $ 4,563
Equity securities................. 2,486 -- -- 2,486
------- ---- ---- -------
Total available-for-sale........ $ 7,039 $ 30 $ 20 $ 7,049
======= ==== ==== =======
Held-to-maturity--
U.S. Treasury Securities.......... $12,771 $-- $-- $12,785
======= ==== ==== =======
1995
Available-for-sale--
Equity securities................. $ 2,486 $-- $-- $ 2,486
======= ==== ==== =======
Held-to-maturity--
U.S. Treasury Securities.......... $ 4,643 $-- $-- $ 4,643
======= ==== ==== =======
</TABLE>

The Company receives payments on mortgage-backed securities over periods
that are considerably shorter than the contractual maturities of the
securities, which range from 13 to 30 years. U.S. Treasury maturities held at
September 30, 1996 mature within one year.

There were no sales of securities in the nine months ended September 30,
1996 or the years ended December 31, 1995 and 1994.

At September 30, 1996, all U.S. Treasury securities are pledged for certain
borrowings. Substantially all other securities collateralize other borrowings
and participating interests reflected as liabilities in the combined
statements of financial condition.

3.LOANS

Loans, discounted loans and loans held for sale are as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Loans at amortized cost:
Gross unpaid principal......................... $ 140,272
Gross accrued interest......................... 3,054
Discount....................................... (21,906)
---------
Loans, net..................................... $ 121,420
=========
Discounted loans, at cost:
Gross unpaid principal......................... $ 280,104 $ 341,269
Gross accrued interest......................... 234,562 221,394
Discount....................................... (509,842) (543,311)
--------- ---------
Discounted loans, net.......................... $ 4,824 $ 19,352
========= =========
</TABLE>

F-43
<PAGE>

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Loans held for sale, at cost which is lower than
market:
Gross unpaid principal........................ $131,182
Gross accrued interest........................ 4,719
Discounts and deferred hedging gains, or
losses net of premiums....................... (22,962)
--------
Loans held for sale, net...................... $112,939
========
Discounted loans held for sale, at cost which is
lower than market:
Gross unpaid principal........................ $210,657 $69,818
Gross accrued interest........................ 27,336 13,573
Discount and deferred hedging gains, or losses
net of premiums.............................. (69,036) (50,124)
-------- -------
Discounted loans held for sale, net........... $168,957 $33,267
======== =======
</TABLE>

Loans other than discounted loans consist primarily of loans secured by real
estate, of which approximately 50% are single family residential properties.
Discounted loans and discounted loans held for sale comprised both real estate
secured (approximately 35%) and consumer loans (approximately 65% based on
gross unpaid principal balances at September 30, 1996). Approximately 20% of
loans are to borrowers in the northeastern U.S. and approximately 15% of loans
are to borrowers in California. The remainder are to borrowers in diverse
geographical areas.

Substantially all loans collateralize participating interests and
borrowings.

4.PROPERTY

Property consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Land.............................................. $2,550 $1,763
Buildings......................................... 5,971 4,701
Vehicles.......................................... 48 48
Furniture and equipment........................... 1,223 812
------ ------
Total........................................... 9,792 7,324
Less accumulated depreciation..................... 839 607
------ ------
Property, net..................................... $8,953 $6,717
====== ======
</TABLE>

Land and buildings comprise the Corporations' headquarters, which secure a
capital lease obligation (see Note 6), and two commercial real estate
projects, which collateralize certain borrowings (see Note 5).

The following table summarizes future minimum rental income under
noncancelable operating leases as of September 30, 1996:

<TABLE>
<S> <C>
1996.................................................................... $127
1997.................................................................... 322
1998.................................................................... 110
1999.................................................................... 116
2000.................................................................... 117
Thereafter.............................................................. 25
----
$817
====
</TABLE>

F-44
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

5. BORROWINGS

The Corporations have various borrowing agreements, most of which are
collateralized by loans and securities. These borrowings have either (a)
repayment terms tied to cash receipts of the related collateral or (b)
borrowing bases tied to the relative value of the collateral. Except certain
borrowings (mortgages) secured by investment real estate, the borrowings do
not have fixed repayment schedules. Following is a summary of borrowings by
major type, showing their outstanding balances, interest rates and final
maturity dates. Unless otherwise noted, the borrowings are secured by
substantially all of the Corporations' unparticipated interest in loans and
securities and/or the agreed-upon value of the servicing income to be derived
from participated interests. Interest is payable at least monthly on
substantially all borrowings.

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Reverse repurchase agreements with rates ranging
from 5.6% to LIBOR plus .75-2.5%, maturing
October 1996................................... $ 85,795 $ 5,918
Borrowings with fixed rates of 12-12.5%,
maturing beginning in 1998, renewable at the
Corporations' option until 2005-6.............. 81,085 38,996
Mortgage-backed bonds issued to third parties
with rates ranging from LIBOR plus .5-5.5% (11%
cap), maturing in 2001......................... 50,381
Warehouse line for loan originations at LIBOR
plus 1.5%...................................... 12,374
Borrowings with rates of prime plus 5% and LIBOR
plus 4%, maturing in 1998-1999................. 3,542 13,447
Borrowings due on demand, interest at prime
plus........................................... 3,500 3,500
Other loan-secured borrowings................... 2,750
Borrowings secured by investment real estate
with fixed rates from 9.75-10.63%, payable
monthly and maturing in 1998 and 2005.......... 5,345 4,477
Related-party borrowings........................ 1,217 1,077
-------- -------
Total borrowings................................ $243,239 $70,165
======== =======
</TABLE>

The mortgage-backed bonds shown above were issued in a securitization
involving the Corporations' loans which was accounted for as a financing
transaction rather than as a sale of loans due to the extent of the
Corporations' residual interests in the transaction.

Maturities of long-term borrowings (mortgages on investment real estate) are
as follows:

<TABLE>
<S> <C>
1997 (including fourth quarter of 1996).............................. $ 110
1998................................................................. 80
1999................................................................. 1,195
2000................................................................. 95
2001................................................................. 940
Thereafter........................................................... 2,925
------
$5,345
======
</TABLE>

Following is information about the Corporations' borrowings under reverse
repurchase agreements during the nine months ended September 30, 1996:

<TABLE>
<S> <C>
Average balance outstanding during the period.......................... $19,397
Highest balance outstanding during the period.......................... 85,685
Average interest rate during the period................................ 5,68%
Average interest rate at the end of the period......................... 7.36%
</TABLE>

F-45
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Related party borrowings are borrowings from a trust managed on behalf of
the Corporations' majority stockholder and a relative of the majority
shareholder. During the nine months ended September 30, 1996 and the years
ended December 31, 1995 and 1994, the Corporations recognized interest expense
of $129, $153 and $200, respectively.

As of September 30, 1996, the Corporations have written borrowing
commitments from various third parties totaling $350 million, of which
approximately $82 million has been drawn and is included in borrowings above.
In addition, the Corporations have unwritten commitments totaling an
additional $150 million, of which approximately $5 million has been drawn and
is included in borrowings above. Of the total commitments, $300 million is in
the form of repurchase facilities, $100 million is in the form of a warehouse
facility, and $100 million is in the form of a term loan. Pursuant to a
reorganization of the Corporations and other commonly controlled entities (see
Note 14), management expects that undrawn amounts of these borrowing
commitments will be transferred to subsidiaries of Wilshire Financial Services
Group, Inc. ("WFSG") upon the effective date of WFSG's initial public offering
of common stock and debt.

6. CAPITAL LEASE OBLIGATIONS

The Corporations have purchased various assets, including its headquarters
facility and certain automobiles and equipment, under capital leases. Future
minimum lease payments for capital leases as of September 30, 1996 are as
follows:

<TABLE>
<S> <C>
1996................................................................. $ 962
1997................................................................. 156
1998................................................................. 121
1999................................................................. 113
2000................................................................. 109
Thereafter........................................................... 62
------
Total.............................................................. 1,523
Less amount representing interest.................................. 78
------
Capital lease obligation.......................................... $1,445
======
</TABLE>

7. FINANCIAL INSTRUMENTS

The Corporations are parties to financial instruments with off-balance-sheet
risk in the normal course of business, primarily for the purposes of reducing
exposure to fluctuations in interest rates and changes in the market value of
loans held for sale ("hedging activities") and, prior to 1996, for purposes of
realizing short-term profits ("trading activities"). These financial
instruments include short sales and forward sales of U.S. Treasury securities
and short and long positions in option contracts and interest rate futures
contracts of durations similar to the fixed rate loans held for sale that are
being hedged. These instruments involve, to varying degrees, interest-rate
risk in excess of the amount recognized in the consolidated statements of
financial condition. The contract or notional amounts of these instruments
reflect the extent of the Corporations' involvement in particular classes of
financial instruments. The counterparties to these instruments are well-known
international broker-dealers and the Corporations do not believe there is
significant credit risk associated with the instruments.

Substantially all activities in the aforementioned financial instruments
during the nine months ended September 30, 1996 were hedging activities. At
September 30, 1996, the Corporations had futures and options positions
(primarily short positions) with notional amounts totalling $26,400 and
$12,400, respectively, and net deferred hedging losses totalling $193.

F-46
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Substantially all activities in the aforementioned financial instruments
during the year ended December 31, 1995 were trading activities. At December
31, 1995, the Corporations had futures and options positions (primarily short
positions) with notional amounts totalling $3,122 and $10,603, respectively,
and fair market values of $57. During the year ended December 31, 1995, the
average fair values of these financial instruments were not material. Trading
gains and losses are included in other revenues in the combined statements of
operations

The purchase or sale of options and futures contracts bears a high degree of
market risk, subject to fluctuations in market values, rates or currencies in
the instruments underlying the contracts. The potential market loss on options
and futures are generally substantially in excess of the premium paid or
received. The options and futures transactions entered into by the
Corporations require cash margin deposits with the broker. As of September 30,
1996 and December 31, 1995, such margin requirements were $326 and $96,
respectively.

8. OPERATING LEASES

The Corporations maintain certain noncancelable operating leases on real
property and other assets, which expire through 1999. Future minimum lease
payments on such noncancelable operating leases as of September 30, 1996 are
as follows:

The management fee portion of the annual lease payment for a corporate jet
of $401 is subject to escalation on January 1 of each year based on the
percentage change in the Consumer Price Index during the immediately preceding
year.

9. LOAN SERVICING

Loans serviced for others, except for participated loans acquired in the
name of WCC, are not included in the combined statements of financial
condition. The Corporations perform servicing for two affiliated savings banks
as well as other unrelated parties. The unpaid principal balances of loans
serviced for others are summarized as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Related parties................................... $501,954 $337,455
Others............................................ 13,537 18,417
-------- --------
Total........................................... $515,491 $355,872
======== ========
</TABLE>

At September 30, 1996 and December 31, 1995, WCC, in connection with the
foregoing loan servicing and in connection with WCC-owned and participated
loans, had made escrow payments in excess of amounts collected, which are
included in other receivables.

10. COMMITMENTS AND CONTINGENCIES

Profit-Sharing Plan--The Corporations' employees participate in a defined
contribution profit-sharing and 401(k) plan. At the discretion of the
Corporations' Boards of Directors, they may elect to contribute to the plan

F-47
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

based on profits of the Corporations or based on matching participants'
contributions. During 1996 and 1995, the Corporations contributed $97 and $46,
respectively, to the plan.

Litigation--The Corporations are defendants in legal actions arising from
transactions conducted in the ordinary course of business. Management, after
consultation with legal counsel, believes the ultimate liability, if any,
arising from such actions will not materially affect the Corporations'
financial position.

Loan Purchase Commitments--At September 30, 1996, the Corporations were
committed to purchase $9,323 of loans for $9,323. The Corporations also had a
commitment from a participating investor to provide funding for the purchases.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimates
presented herein are not necessarily indicative of the amounts the
Corporations could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts. The methods and assumptions used to
estimate the fair value of each class of financial instrument for which it is
practicable to estimate that value are explained below:

Cash and Cash Equivalents--The carrying amounts reported in the combined
statements of financial condition for cash and cash equivalents approximate
their fair values.

Securities--Fair values of U.S. Treasury securities included in the held-to-
maturity classification are based on quoted market prices. Fair values of B-
class mortgage-backed securities included in the trading account and the
available-for-sale classification, including both purchased securities and
residual interests in loan securitization transactions initiated by the
Corporations, are estimated by management based on data provided by an
independent pricing service, considering current interest rates, prepayments
and other relevant factors. It is not practicable to estimate the fair value
of preferred stock of a closely-held corporation included in the available-
for-sale classification.

Loans--It is not practicable to estimate the fair value of discounted loans
(including discounted loans held for sale), which are predominantly non
performing loans, due to uncertainties as to the nature, timing and extent to
which the loans will be either collected according to original terms,
restructured, or foreclosed upon. The fair values of loans and loans held for
sale other than discounted loans and commercial notes using applicable risk-
adjusted spreads relative to the current pricing of similar loans as well as
anticipated prepayments. No value adjustments have been made for changes in
credit risk within the loan portfolios. It is management's opinion that the
allowance for estimated loan losses pertaining to loans results in a fair
value adjustment of the credit risk of such loans. It is not practicable to
estimate the fair value of commercial notes receivable. These loans were
extended in a leveraged buyout transaction and bear interest at rates from 15-
20%. The loans are repayable based on formulas tied to the earnings of the
borrower, and mature in 2001.

Participating Interests in Loans and Securities--It is not practicable to
estimate the fair values of participating interests in loans and securities.
These liabilities are payable from the cash flows generated by the related
loans and securities, less the Corporations' retained servicing fees, which
include a profit participation element. The fair values of the liabilities are
therefore linked to the fair values of the related securities and loans,
including discounted loans for which fair values are not reasonably estimable.

Borrowings--Information pertinent to an evaluation of the fair value of
borrowings is included in Note 5. Fair value is assumed to approximate the
face amount outstanding because the principal borrowings have variable
interest rates and generally mature as the loan collateral is collected or are
repayable on demand.

F-48
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Off-Balance-Sheet Items--The fair value of options and futures used for
hedging purposes are based on quoted market prices.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents.............................. $ 6,638 $ 6,638
Securities:
Trading securities................................... 11,818 11,818
Available for sale securities........................ 7,039 7,049
Held to maturity securities.......................... 12,771 12,785
Loans:
Discounted loans, net................................ 4,824 4,824
Loans held for sale, net............................. 112,939 131,763
Discounted loans held for sale, net.................. 168,957 168,957
Commercial notes..................................... 10,811 10,811
Liabilities:
Participating interests in loans and securities........ 143,424 143,424
Borrowings............................................. 243,239 243,239
Off-balance-sheet items:
Options -- (39)
Futures -- (152)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents.............................. $ 3,577 $ 3,577
Securities:
Available for sale securities........................ 2,486 2,486
Held to maturity securities.......................... 4,643 4,643
Loans:
Loans, net........................................... 121,420 121,420
Discounted loans, net................................ 19,352 19,352
Discount loans held for sale, net.................... 33,267 33,267
Commercial notes..................................... 9,261 9,261
Liabilities:
Participating interests in loans and securities........ 150,298 150,298
Borrowings............................................. 70,165 70,165
Off-balance-sheet items:
Options -- 8
Futures -- 46
</TABLE>

12. SUBSEQUENT EVENTS--REORGANIZATION OF THE CORPORATIONS

WFSG is affiliated with the Corporations by common ownership and control,
and owns the two banks for which the Corporations service loans. WFSG is
making an initial public offering ("IPO") of common stock and debt, and has
formed certain new subsidiaries to undertake the loan acquisition and
servicing businesses currently being conducted by the Corporations. At the
effective date of WFSG's IPO, the Corporations will cease to acquire loans or
otherwise to compete with WFSG. The Corporations will continue to hold their
existing assets, and will continue to service loans for their own account and
for WFSG and its subsidiaries for a period of approximately two to three
years, when it is expected that WFSG's servicing subsidiary will have obtained
the necessary licenses to assume the servicing business from the Corporations.

F-49
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Pursuant to the IPO and reorganization of the Corporations, and subsequent
to September 30, 1996, the Corporations will transfer certain rights they have
to future servicing income from a participation agreement with a third party.
The servicing rights, which have no recorded basis in the statements of
financial condition of the Corporations as of September 30, 1996, are the
rights to varying percentages of cash flows from the collection or liquidation
of loans and B-class mortgage-backed securities with principal balances
totalling approximately $269,862 as of September 30, 1996.

Management expects that support for existing commitments of the Corporations
subsequent to the reorganization will be derived from a combination of the
following: continued collection and liquidation of existing loans and
securities; servicing income for the period during which the Corporations
continue to conduct the servicing business; operating income from properties
leased to WFSG and its subsidiaries and to third parties; stockholder loans,
which are indirectly supported by the stockholders' interests in WFSG; and,
potentially, other transactions or businesses that the Corporations might
elect to pursue.

F-50
<PAGE>

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

NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, IMPLY
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFOR-
MATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH
SUCH INFORMATION IS GIVEN.

----------------
TABLE OF CONTENTS
----------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 11
The Company.............................................................. 19
Recent Developments...................................................... 20
Wilshire Credit Corporation.............................................. 21
Use of Proceeds.......................................................... 25
Dividend Policy.......................................................... 25
Dilution................................................................. 26
Capitalization........................................................... 27
Selected Financial Information........................................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 32
Business................................................................. 48
Regulation............................................................... 69
Taxation................................................................. 78
Management............................................................... 80
Principal Stockholders................................................... 88
Certain Relationships and Related Transactions........................... 89
Description of Capital Stock............................................. 91
Description of Notes Offering............................................ 92
Shares Eligible for Future Sale.......................................... 92
Underwriting............................................................. 94
Legal Matters............................................................ 95
Experts.................................................................. 95
Index to Financial Statements............................................ F-1
</TABLE>

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

1,500,000 SHARES OF COMMON STOCK

------------------------
WILSHIRE
------------------------
Financial Services Group

----------------
PROSPECTUS
----------------

FRIEDMAN, BILLINGS, RAMSEY& CO., INC.

, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

SUBJECT TO COMPLETION, DATED NOVEMBER 27, 1996

PROSPECTUS

$75,000,000

------------------------
WILSHIRE
------------------------
FINANCIAL SERVICES GROUP

% NOTES DUE 2003

-----------

This Prospectus relates to the offering by Wilshire Financial Services Group
Inc., a Delaware corporation ("WFSG" and together with its subsidiaries, the
"Company") of $75 million principal amount of its % Notes due 2003 (the
"Notes") of WFSG (the "Notes Offering"). Interest on the Notes will be payable
semiannually in arrears on and of each year, commencing
. On and after , 2001, the Notes will be
redeemable at any time at the option of the Company, in whole or in part, at
the redemption prices set forth herein. The Notes are not otherwise redeemable
prior to , 2001 except that until , 2001, the Company may redeem, at
its option, up to 35% of the original aggregate principal amount of the Notes
at a redemption price equal to % of the principal amount thereof, plus
accrued and unpaid interest to the redemption date, from the net proceeds of
one or more private or public sales of Qualified Capital Stock (as defined
herein) if at least 65% of the original aggregate principal amount of the Notes
remains outstanding after such redemption. Upon the occurrence of a Change in
Control Event (as defined herein), holders of the Notes will have the right to
require the Company to repurchase their Notes, in whole or in part, at a
purchase price equal to % of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the repurchase date. See "Description
of Notes."

The Notes will be general unsecured obligations of WFSG. Because WFSG is a
holding company that currently conducts substantially all of its operations
through its subsidiaries, the Notes will be effectively subordinate to the
claims of creditors of the subsidiaries. There is no established trading market
for the Notes and WFSG does not intend to apply for a listing of the Notes on
any national securities exchange or on Nasdaq.

In addition, WFSG is concurrently offering 1,500,000 shares of common stock,
par value $.01 per share (the "Common Stock") of WFSG (the "Common Stock
Offering"). The Common Stock Offering and the Notes Offering are each
conditioned on the completion of the other offering.

THE NOTES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING AT PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED CAREFULLY BY PROSPECTIVE PURCHASERS OF THE NOTES OFFERED HEREBY.

-----------

THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND
ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC"), ANY OTHER GOVERNMENTAL AGENCY OR OTHERWISE.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), FDIC, THE OFFICE OF THRIFT SUPERVISION ("OTS") OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, FDIC, OTS OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

(4) WFSG has granted the Notes Underwriter an option, exercisable within 30
days of the date hereof, to purchase from WFSG up to $11,250,000 of
additional Notes solely to cover over-allotments, if any. To the extent the
option is exercised, WFSG will offer additional Notes to the public at the
Price to Public shown above. If the option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to the Company will be
$ , $ , and $ , respectively. See "Underwriting."

The Notes are offered subject to receipt and acceptance by the Underwriter,
to prior sale and to the Underwriter's right to reject any order in whole or
in part and to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the Notes will be made at the offices of Friedman,
Billings, Ramsey & Co., Inc., Arlington, Virginia, the Underwriter, or in
book-entry form through the facilities of The Depository Trust Company on or
about , 1996.

-----------

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

The date of this Prospectus is , 1996.
<PAGE>

AVAILABLE INFORMATION

2
<PAGE>

PROSPECTUS SUMMARY

THE COMPANY

GENERAL

HISTORICAL STRUCTURE

3
<PAGE>

REORGANIZED STRUCTURE

After giving effect to the Reorganization, the organizational structure of
the Company will be as follows:

Wilshire Financial Services Group Inc.

Wilshire Funding Corporation
European Operations
Special Purpose Entities**

Wilshire Servicing Corporation*

Wilshire Acquisitions Corporation
First Bank of Beverly Hills, F.S.B.
Girard Savings Bank, F.S.B.

- --------
*Expected to commence servicing activities in 2-3 years following receipt of
necessary licenses.
**Entities to be formed for financings and to complete securitizations.

4
<PAGE>

BUSINESS ACTIVITIES

5
<PAGE>

6
<PAGE>

THE NOTES OFFERING

Amount offered..............
$75 million aggregate principal amount (plus up
to $11.25 million subject to an over-allotment
option).

Maturity date............... , 2003.

Interest payment dates...... and of each year
commencing , 1997.

Optional redemption......... The Notes will be redeemable at the option of
WFSG, in whole or in part, at any time on or
after , 2001 at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, to the redemption date.

Capital stock redemption.... Until , 2001, the Company may redeem, as
its option, up to 35% of the original aggregate
principal amount of the Notes at % of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date, from
the net proceeds of one or more public or private
sales of Qualified Capital Stock (as defined
herein) if at least 65% of the original aggregate
principal amount of the Notes remains outstanding
after such redemption and if such redemption
occurs within 60 days after the closing of any
such public or private sale. See "Description of
Notes--Optional Redemption."

Mandatory redemption........ None.

Ranking..................... The Notes will be general unsecured obligations
of WFSG. Because WFSG is a holding company that
currently conducts substantially all of its
operations through its subsidiaries, including
the Savings Banks, the right of WFSG (and
therefore the right of WFSG's creditors and
stockholders) to participate in any distribution
of the assets or earnings of any subsidiary is
subject to the prior claims of creditors of such
subsidiaries, including any claims of WFSG as a
creditor to the extent such claims may be
recognized. As a result, the Notes will be
effectively subordinate to the claims of
creditors of WFSG's subsidiaries.

Change of control........... Upon a Change of Control Event (as defined
herein), holders of the Notes will have the
option to require the Company to repurchase all
outstanding Notes at 101% of their principal
amount, plus accrued interest to the date of
repurchase. A "Change of Control Event," as
defined in the Indenture pursuant to which the
Notes will be issued, includes the following
events, among others: the acquisition by any
person or group (other than the Existing
Principal Stockholders (as defined) of the
Company) of more than 40% of the Company's voting
stock; a merger, consolidation or other business
combination between the Company and another
person in which more than 40% of the voting stock
of the surviving or transferee company is owned
by persons other than the Existing Principal
Stockholders (as

7
<PAGE>

defined) of the Company or a change in a majority
of the directors on the Board of Directors of the
Company within a two-year period which is not
approved by the incumbent directors. There can be
no assurance that the Company will have the funds
available to repurchase the Notes in the event of
a Change of Control Event.

Certain covenants........... The Indenture pursuant to which the Notes will be
issued will contain certain covenants that, among
other things, require the Company to maintain
certain levels of Consolidated Net Worth and
liquid assets, limit the ability of the Company
and its subsidiaries to incur certain
indebtedness (not including secured indebtedness
used to acquire or refinance the acquisition of
loans or other financial assets), pay dividends
or make other distributions, engage in
transactions with affiliates, dispose of
subsidiaries, create certain liens and guarantees
with respect to pari passu or junior indebtedness
and enter into any arrangement that would impose
certain restrictions on the ability of
subsidiaries to make dividend and other payments
to the Company. The Indenture also will restrict
the Company's ability to merge, consolidate or
sell all of its assets. See "Description of
Notes--Certain Covenants."

Use of proceeds............. The net proceeds from the Notes Offering and the
Common Stock Offering are expected to be used by
the Company to support leveraged acquisitions of
Loan Portfolios and for other general corporate
purposes, including expansion into Western
Europe.

THE COMMON STOCK OFFERING

Concurrently with the Notes Offering, the Company is separately offering an
aggregate of 1,500,000 shares of Common Stock (plus up to 225,000 shares
pursuant to the Common Stock underwriters' over-allotment option) in the Common
Stock Offering. The Notes Offering and the Common Stock Offering are each
conditioned on the completion of the other.

In connection with the Common Stock Offering, the Common Stock has been
approved for listing on the Nasdaq National Market under the symbol "WFSG."

RISK FACTORS

See "Risk Factors" for a discussion of certain factors that should be
considered carefully by prospective purchasers of the Notes offered hereby.

8
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

9
<PAGE>

10
<PAGE>

11
<PAGE>

RISK FACTORS

Prospective investors should carefully consider the following factors, as
well as the other information contained in this Prospectus, before deciding to
make an investment in the Notes.

LIMITED SOURCES FOR PAYMENTS ON NOTES

As a holding company, the ability of the WFSG to make payments of interest
and principal on the Notes will depend primarily on the receipt of dividends
or other distributions from its subsidiaries as well as any cash reserves and
other liquid assets held by WFSG and any proceeds from any subsequent
securities offering or other financing. There are various regulatory
restrictions on the ability of the Savings Banks to pay dividends or make
other distributions. See "Regulations--The Savings Banks--Restrictions on
Capital Distributions" and "Affiliate Transactions." In light of the
foregoing, there can be no assurance that WFSG would have sufficient funds
available to repurchase any Notes that Noteholders may elect to tender upon
the occurrence of a Change of Control Event, or to repay the principal and
accrued interest of the Notes if the maturity of the Notes were to be
accelerated upon the occurrence of an Event of Default under the Indenture.

AMOUNT OF SECURED DEBT; STRUCTURAL SUBORDINATION

The Notes will be unsecured obligations of WFSG and will rank pari passu in
right of payment with all existing and future unsecured indebtedness that is
not by its terms, expressly subordinated in right of payment to the Notes. Any
current and future secured indebtedness of WFSG will have priority over the
Notes with respect to assets pledged as collateral therefor. The Indenture
permits WFSG to grant liens to secure additional indebtedness permitted by the
Indenture so long as such indebtedness is pari passu or junior in right to the
Notes and permits subsidiaries of WFSG to grant liens to secure pari passu or
junior indebtedness of the subsidiaries in certain circumstances. The Company
and its Subsidiaries will be able to grant security interests in Loan
Portfolios to the parties providing financing for such acquisitions. See
"Description of the Notes--Certain Covenants--Limitations on Indebtedness" and
"--Limitations on Liens."

In addition, substantially all of the operations of the Company are
conducted through subsidiaries and therefore the Company is dependent on the
cash flow of its subsidiaries to meet its debt obligations, including its
obligations under the Notes. Because WFSG is a holding company that currently
conducts substantially all of its operations through its subsidiaries, the
right of WFSG to participate in any distribution of assets of the
subsidiaries, including the Savings Banks, upon their liquidation or
reorganization or otherwise (and thus the ability of Holders of the Notes to
benefit indirectly from such distribution) are subject to the prior claims of
creditors of the subsidiaries, including, in the case of the Savings Banks, to
the claims of depositors of the Savings Banks. Claims on WFSG's subsidiaries
by creditors, other than WFSG, include substantial obligations with respect to
deposit liabilities and other borrowings. At September 30, 1996, the Company's
subsidiaries had liabilities aggregating $496.0 million (primarily consisting
of $487.5 million of deposit liabilities), all of which constituted
indebtedness permitted under the Indenture.

ABSENCE OF A PRIOR MARKET FOR THE NOTES

The Company does not intend to apply for listing of the Notes on any
national securities exchange or for quotation of the Notes through Nasdaq.
Although the Underwriter for the Notes Offering has indicated its intention to
make a market in the Notes following consummation of the Notes Offering, it is
not obligated to do so and any market-making activities with respect to the
Notes may be discontinued at any time without prior notice. There can be no
assurance as to liquidity of the trading markets for the Notes or as to the
prices at which the Notes may trade in such market or that an active public
market for the Notes will develop or be maintained.

RECENT LOSSES; NO ASSURANCE AS TO CONSISTENCY OF RESULTS OF OPERATIONS

12
<PAGE>

million) and the Inherited Loans ($4.8 million). A $1.4 million charge for the
Savings Association Insurance Fund (the "SAIF") special assessment also
contributed to the year-to-date loss. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Regulation--
The Savings Banks--Recapitalization of SAIF."

RESULTS OF REGULATORY EXAMINATIONS; IMPOSITION OF CEASE-AND-DESIST ORDERS

The Orders require that both Savings Banks not engage in unsafe and unsound
practices and that they maintain minimum capital ratios as of December 31,
1996 required of institutions to be deemed "well-capitalized" (as that term is
defined under the regulatory framework for prompt corrective action). The
Orders also require the Savings Banks to: (a) revise policies and procedures
concerning (i) internal asset reviews, (ii) the allowances for loan and lease
losses, (iii) loan purchases, (iv) internal audits and (v) hedging
transactions; (b) develop plans to augment the depth and expertise of the
management teams; (c) revise business plans; (d) modify certain policies
concerning the accounting for loan discounts; (e) improve monitoring of (i)
interest rate risk, (ii) asset classifications (e.g., as held for sale versus
held to maturity) and (iii) compliance with laws and regulations concerning
transactions with affiliates; (f) ensure compliance with the proper servicing
of adjustable-rate mortgages and escrow accounts; (g) ensure servicer
correction of OTS-identified deficiencies in information systems; and (h)
enhance recordkeeping. In addition, First Bank is required to correct OTS-
identified deficiencies

13
<PAGE>

in its merchant bankcard processing operations. These requirements are
accompanied by related requirements that the Savings Banks submit to the OTS,
by certain specified dates, various policies, plans and reports on other
actions to comply with the Orders. In some cases, OTS approval of such
information is required.

AGGRESSIVE EXPANSION STRATEGY; IMPACT OF OTS GROWTH RESTRICTIONS

RISK OF ADDITIONAL PROVISIONS FOR ESTIMATED LOSSES ON LOANS

14
<PAGE>

respect to the Inherited Loans by $2.2 million, $2.6 million, $1.1 million and
$1.1 million, respectively. For the nine months ended September 30, 1996 and
for each of the years ended December 31, 1995 and 1994, Girard was required to
increase its allowances for loan losses with respect to the Inherited Loans by
$2.6 million, $0.9 million, $1.1 million, respectively.

MAINTENANCE OF CAPITAL AT SAVINGS BANKS

EXTENSIVE USE OF FINANCIAL LEVERAGE

15
<PAGE>

value of a Loan Portfolio can reduce or eliminate the Company's capital
invested in such Loan Portfolio. In addition, such declines can result in
margin calls (i.e., demands by the Company's lenders for additional cash or
assets as security for their lending) which can have an adverse impact on the
Company's liquidity and capital resources. The high degree of leverage on the
Company's Loan Portfolios also may make the Company more vulnerable to a
downturn in business, real estate values or the economy generally. An increase
in market interest rates or a decline in the value of the collateral may have
an adverse effect on the ability of the Company to satisfy its loan
obligations and could therefore have a material adverse effect on the
Company's results of operations. The Company's aggressive expansion strategy
may result in the need for additional debt and/or equity financing in the
future. Any additional debt financing could increase the Company's leverage
over current levels.

DISCOUNTED LOAN ACQUISITION ACTIVITIES

DEPENDENCE ON WILSHIRE CREDIT CORPORATION

DEPENDENCE ON KEY PERSONNEL; MANAGEMENT GROWTH

The Company has undergone a period of significant growth, and further
expansion may significantly strain the Company's management, financial and
other resources. There is no assurance that the Company can manage its growth
effectively or that the Company will be able to attract and retain the
necessary personnel to meet its business objectives. If the Company is unable
to manage its growth effectively, the Company's business, operating results
and financial condition could be materially and adversely affected.

16
<PAGE>

RISKS RELATED TO FUNDING SOURCES

NO PRIOR EXPERIENCE WITH INTERNATIONAL OPERATIONS; START-UP PERIOD

HIGH-RISK NON-TRADITIONAL BANKCARD PROCESSING ACTIVITIES

RISKS RELATED TO CHANGING ECONOMIC CONDITIONS AND CHANGES IN INTEREST RATES

17
<PAGE>

CONCENTRATION IN THE STATE OF CALIFORNIA

REGULATION

18
<PAGE>

LIMITATIONS ON STOCK OWNERSHIP

COMPETITION

CONTROL OF CURRENT STOCKHOLDERS

19
<PAGE>

THE COMPANY

GENERAL

THE REORGANIZATION

20
<PAGE>

RECENT DEVELOPMENTS

LOAN ACQUISITIONS

ACQUISITION OF SERVICING RIGHTS

EUROPEAN EXPANSION

21
<PAGE>

WILSHIRE CREDIT CORPORATION

WCC'S LOAN ACTIVITY

ACTIVITY IN WCC'S TOTAL LOAN PORTFOLIO

22
<PAGE>

The following table sets forth the composition of WCC's total gross loan
portfolio at the end of the periods indicated.

COMPOSITION OF WCC'S TOTAL LOAN PORTFOLIO

WCC'S FINANCIAL INFORMATION

23
<PAGE>

24
<PAGE>

25
<PAGE>

USE OF PROCEEDS

Net proceeds to be received by the Company from the Notes Offering currently
are estimated to be approximately $ million after deducting the underwriting
discount and estimated offering expenses payable by the Company ($ , if the
Notes Underwriters' overallotment option is exercised in full). Net proceeds
to be received by the Company from the Common Stock Offering currently are
estimated to be $ million after deducting the underwriting discount and
estimated offering expenses payable by the Company ($ , if the Common Stock
Underwriters' over-allotment option is exercised in full).

The portion of such net proceeds retained by the Company will be available
for leveraged acquisitions of Loan Portfolios and for general corporate
purposes, including expansion into Western Europe. Such net proceeds will give
the Company increased flexibility in conducting the business in which it is
engaged, including the acquisition and resolution of Discounted Loans and
other loans.

26
<PAGE>

CAPITALIZATION

27
<PAGE>

SELECTED FINANCIAL INFORMATION

On October 7, 1993, WAC acquired 94.9% of the common stock of First Bank in
a purchase accounting transaction. On November 9, 1994, a newly-formed entity
with ownership and management common to WAC, Wilshire Acquisitions Corporation
II ("WACII") acquired 94.9% of the common stock of Girard in a purchase
accounting transaction.

Because WAC and WACII were under common control, the accompanying financial
statements are presented on a combined basis as of December 31, 1994 and for
the period from November 9 through December 31, 1994. On December 27, 1995,
WAC and WACII were merged and WAC was named as the surviving entity. Financial
information as of September 30, 1996 and December 31, 1995 and for the nine
months and year then ended, respectively, is presented on a consolidated basis
and includes the accounts of WAC, First Bank, and Girard. With respect to all
consolidated and combined financial information, intercompany transactions and
balances have been eliminated. For convenience, all the accompanying financial
statements are referred to as "consolidated".

The historical income statement and data presented for the nine months ended
September 30, 1995 has been derived from unaudited consolidated financial
statements (the "Unaudited Financial Statements" and, together with the
Audited Financial Statements, the "Consolidated Financial Statements") and
include all adjustments, consisting only of normal recurring accruals, which
the Company considers necessary for a fair presentations to the Company's
results of operations for these periods. Operating results for the nine months
ended September 30, 1996 are not necessarily indicative of the results that
may be expected for any other interim period or the entire year ending
December 31, 1996. The Summary Consolidated Financial Information should be
read in conjunction with, and is qualified in its entirety by reference to,
the Consolidated Financial Statements and related notes as set forth elsewhere
herein.

28
<PAGE>

29
<PAGE>

NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, --------------
1996 1995 1994
------------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
Return on average assets....................... (.22)% .24% (.92)%
Return on average equity....................... (3.09)% 8.65% (31.03)%
Average interest rate on total loans........... 9.39 % 9.57% 7.65 %
Average equity to average assets............... 7.24 % 2.72% 2.96 %
Net interest spread(8)......................... 3.15 % 3.08% 2.85 %
Net interest margin(9)......................... 3.88 % 3.72% 3.04 %
Ratio of earnings to fixed charges(10)(11):
Including interest on deposits................ .71 1.04 .67
Excluding interest on deposits................ (1.67) 2.19 (3.04)
Non-performing loans to loans at end of
period(3)..................................... 9.11 % 4.46% 5.95 %
Allowance for loan losses to total loans at end
of period..................................... 9.2 % 7.6% 3.9 %
</TABLE>

30
<PAGE>

31
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

PRINCIPAL SOURCES OF REVENUE

SOURCES OF REVENUE

32
<PAGE>

INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES

33
<PAGE>

CHANGES IN NET INTEREST INCOME

RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1996
VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1995

NET INTEREST INCOME

34
<PAGE>

PROVISIONS FOR ESTIMATED LOSSES ON LOANS

NET INTEREST INCOME AFTER PROVISION FOR ESTIMATED LOSSES ON LOANS

35
<PAGE>

OTHER INCOME

36
<PAGE>

OTHER EXPENSE

INCOME TAX PROVISION (BENEFIT)

37
<PAGE>

RESULTS OF OPERATIONS--1995 COMPARED TO 1994

NET INTEREST INCOME

PROVISIONS FOR ESTIMATED LOSSES ON LOANS

NET INTEREST INCOME AFTER PROVISION FOR ESTIMATED LOSSES ON LOANS

38
<PAGE>

OTHER INCOME

OTHER EXPENSE

39
<PAGE>

INCOME TAX PROVISION (BENEFIT)

40
<PAGE>

CHANGES IN FINANCIAL CONDITION

The following table sets forth certain information relating to the Company's
assets and liabilities at the dates indicated.

41
<PAGE>

AVERAGE BALANCE OF THE COMPANY'S TOTAL LOAN PORTFOLIO

42
<PAGE>

Borrowings. Borrowings decreased by approximately $13.0 million during 1996
as a result of replacing short-term borrowings with longer term deposits.

ASSET AND LIABILITY MANAGEMENT

43
<PAGE>

INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE
AT JUNE 30, 1996

LIQUIDITY AND CAPITAL RESOURCES

44
<PAGE>

45
<PAGE>

REGULATORY CAPITAL REQUIREMENTS

46
<PAGE>

The following table sets forth the regulatory capital ratios of the Savings
Banks at September 30, 1996.

REGULATORY CAPITAL RATIOS

47
<PAGE>

BUSINESS

GENERAL

BUSINESS ACTIVITIES

. significant growth in Loan Portfolio investments;

. utilize varied funding sources;

. expansion into European markets;

. utilize servicing expertise;

. growth of non-traditional bankcard processing operations; and

. develop wholesale origination network.

LOAN ACQUISITIONS

48
<PAGE>

trend. Additionally, management believes that there is a market for management
and resolution services for delinquent, sub-performing and non-performing
loans.

49
<PAGE>

LOAN PORTFOLIO

50
<PAGE>

Activity in the Company's Loan Portfolio.

ACTIVITY IN THE COMPANY'S TOTAL LOAN PORTFOLIO

51
<PAGE>

COMPOSITION OF THE COMPANY'S TOTAL LOAN PORTFOLIO

52
<PAGE>

MATURITY OF THE COMPANY'S LOAN PORTFOLIO(1)

LOAN ORIGINATION

53
<PAGE>

EUROPEAN OPERATIONS

54
<PAGE>

FUNDING SOURCES

55
<PAGE>

The following table sets forth information relating to the Company's
deposits at the dates indicated.

THE COMPANY'S DEPOSITS

The following table sets forth by various interest rate categories the
certificates of deposit in the Company at September 30, 1996.

INTEREST RATE CATEGORIES FOR THE COMPANY'S CERTIFICATES OF DEPOSIT

The following table sets forth the amount and maturities of the certificates
of deposit in the Company as of September 30, 1996.

MATURITIES OF THE COMPANY'S CERTIFICATES OF DEPOSIT

<TABLE>
<CAPTION>
ORIGINAL MATURITY IN MONTHS
-------------------------------
12 OR LESS 13 TO 26 37 OR MORE
---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balances Maturing in 3
Months or Less.......... $145,202 $ 6,394 $ 0
Weighted Avg............ 5.74% 6.57% 0.0%
Balances Maturing in 4 to
12 Months............... $236,176 $36,866 $446
Weighted Avg............ 5.89% 6.32% 6.67%
Balances Maturing in 13
to 36 Months............ -- $54,637 $497
Weighted Avg............ 6.07% 6.98%
Balances Maturing in 37
or More Months.......... -- -- $ 48
Weighted Avg............ 2.76%
</TABLE>

56
<PAGE>

57
<PAGE>

58
<PAGE>

pursuant to several different credit programs, each of which has its own
interest rate, which may be fixed or adjustable, and a range of maturities.

SERVICING RELATIONSHIPS

59
<PAGE>

proprietary computer software to the Company and WFC. WCC has agreed not to
compete with or be engaged in the same business as currently conducted by the
Company.

60
<PAGE>

NON-TRADITIONAL BANKCARD PROCESSING OPERATIONS

ASSET QUALITY

The following table sets forth certain information relating to the Company's
non-performing loans in its loan portfolio at the dates indicated.

NON-PERFORMING LOANS IN THE COMPANY'S LOAN PORTFOLIO(1)

61
<PAGE>

The following table sets forth certain information relating to the Company's
real estate owned (by source of acquisition) at the dates indicated.

REAL ESTATE OWNED BY THE COMPANY

The following table sets forth certain geographical information as of
September 30, 1996 related to the Company's real estate owned attributable to
the Company's total loan portfolio.

REAL ESTATE OWNED ATTRIBUTABLE TO THE COMPANY'S TOTAL LOAN PORTFOLIO

62
<PAGE>

63
<PAGE>

64
<PAGE>

COMPANY'S TOTAL ALLOWANCES FOR LOSSES

The following table sets forth an analysis of activity in the allowance for
losses relating to the Company's total loan portfolio during the periods
indicated.

ACTIVITY IN COMPANY'S ALLOWANCES FOR LOSSES

65
<PAGE>

Delinquency. The table below sets forth the delinquency status of the
Company's loan portfolio (excluding Discounted Loans) at each of the dates
indicated.

DELINQUENCY IN THE COMPANY'S LOAN PORTFOLIO(1)

INVESTMENT ACTIVITIES

Investment Securities. Investment securities consist primarily of U.S.
Government securities and required investment in FHLB stock.

The following table sets forth the Company's investment securities available
for sale and held for investment at the dates indicated:

THE COMPANY'S INVESTMENT SECURITIES

PROPERTIES

66
<PAGE>

COMPUTER SYSTEMS AND OTHER EQUIPMENT

EMPLOYEES

LEGAL PROCEEDINGS

ENVIRONMENTAL MATTERS

COMPETITION

67
<PAGE>

prompt and responsive service and its ability to analyze and purchase
performing, sub-performing and discounted loans secured by varied collateral.

68
<PAGE>

REGULATION

Recent Regulatory Examinations. Following examinations of the Savings Banks
and WAC by the OTS in 1994, 1995 and 1996, the OTS issued Reports of
Examination that were critical of the Savings Banks and WAC in a number of
respects. These regulatory concerns initially resulted in the OTS requiring
First Bank to enter into a Supervisory Agreement on June 8, 1995. The
Supervisory Agreement required First Bank to (a) develop plans and procedures
concerning (i) reduction of non-performing assets, (ii) internal asset review,
(iii) asset monitoring, (iv) appraisals, (v) loan underwriting, (vi) loan
purchases; (b) enhance recordkeeping; (c) develop requirements to ensure that
the servicing of loans by WCC is satisfactory; and (d) maintain its separate
corporate existence. In addition, the Supervisory Agreement required First
Bank to maintain certain minimum capital ratios and prohibited First Bank from
increasing total assets beyond specified levels and acquiring non-performing
assets without the prior written consent of the Assistant Regional Director of
the OTS--West Region.

Imposition of Cease-and-Desist Orders. In July 1996, the OTS advised First
Bank that it had not fully complied with the terms of the Supervisory
Agreement and that both Savings Banks had failed in a number of respects to
address regulatory concerns raised in the 1994 and 1995 examination reports.
The OTS also expressed continuing concerns regarding the adequacy of
management of First Bank in light of its business activities. As a result of
these issues, the OTS replaced the Supervisory Agreement with a Cease and
Desist Order, effective October 31, 1996. Given the similar nature of Girard's
business activities, the OTS has also issued a Cease and Desist Order to
Girard similar to the Order issued to First Bank, also effective October 31,
1996. The issuance of a cease and desist order is generally evidence of an
increased level of regulatory concern regarding the subject institution.

The Orders require that both Savings Banks not engage in unsafe and unsound
practices and that they maintain minimum capital ratios as of December 31,
1996 required of institutions to be deemed "well- capitalized" under OTS
regulations. The Orders further require that the Savings Banks appropriately
risk-weight their assets and off-balance sheet items pursuant to OTS
regulations and establish and thereafter maintain internal controls sufficient
to ensure the accuracy and integrity of the calculation of their regulatory
capital ratios. The Orders also require the Savings Banks to: (a) revise
policies and procedures concerning (i) internal asset reviews, (ii) the
allowances for loan and lease losses, (iii) loan purchases, (iv) internal
audits and (v) hedging transactions;

69
<PAGE>

(b) develop plans to augment the depth and expertise of the management teams;
(c) revise business plans; (d) modify certain policies concerning the
accounting for loan discounts; (e) improve monitoring of (i) interest rate
risk, (ii) asset classifications (e.g., as held for sale versus held to
maturity) and (iii) compliance with laws and regulations concerning
transactions with affiliates; (f) ensure compliance with the proper servicing
of adjustable-rate mortgages and escrow accounts; (g) ensure servicer
correction of OTS-identified deficiencies in information systems; and
(h) enhance recordkeeping. In addition, First Bank is required to correct OTS-
identified deficiencies in its merchant bankcard processing operations. These
requirements are accompanied by related requirements that the Savings Banks
submit to the OTS, by certain specified dates, various policies, plans and
reports on other actions to comply with the Orders. In some cases, OTS
approval of such information is required.

70
<PAGE>

Management believes that the Savings Banks are complying with those
requirements of the Orders that have taken effect immediately. In addition,
the Savings Banks have implemented several actions to address the other
requirements of the Orders, including (i) hiring a new chief executive officer
for the Savings Banks, (ii) engaging Arthur Andersen LLP to review
management's implementation of corrective actions required by the OTS,
(iii) increasing the size of the internal asset review department, and (iv)
revising the internal asset review policy. The Company is also in the process
of hiring a manager to complete the development and implementation of an
effective internal asset review system.

The Orders are enforceable by the OTS as written agreements under the
Federal Deposit Insurance Act. Therefore, failure to comply with the
requirements of the Orders could subject the Savings Banks and their directors
and officers to further enforcement actions, including termination of FDIC
insurance or civil money penalties. There can be no assurances that the OTS
will approve the required submissions by the Savings Banks without further
modification or will not impose further restrictions on the Savings Banks.

SAVINGS AND LOAN HOLDING COMPANIES

71
<PAGE>

THE SAVINGS BANKS

72
<PAGE>

73
<PAGE>

74
<PAGE>

75
<PAGE>

76
<PAGE>

COMMUNITY INVESTMENT AND CONSUMER PROTECTION LAWS

77
<PAGE>

TAXATION

FEDERAL TAXATION

78
<PAGE>

STATE TAXATION

For additional information regarding taxation, see Note 8 to the
Consolidated Financial Statements.

79
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the directors
and executive officers of the Company as of October 28, 1996.

80
<PAGE>

81
<PAGE>

CERTAIN KEY EMPLOYEES

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

ELECTION OF DIRECTORS

COMPENSATION OF DIRECTORS

82
<PAGE>

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

EMPLOYMENT AGREEMENTS

83
<PAGE>

termination of employment, the Company will continue to cover the Executive
even if the Executive has ceased to serve in such capacity.

INCENTIVE STOCK PLAN

84
<PAGE>

85
<PAGE>

86
<PAGE>

The following table sets forth information concerning the options to be
granted to Messrs. Wiederhorn and Mendelsohn before the Registration Statement
becomes effective.

The following table contains additional information regarding cumulative
activity under the Stock Plan based on the same assumptions used for the
previous table.

CUMULATIVE OPTION STATUS

87
<PAGE>

PRINCIPAL STOCKHOLDERS

Except as noted in the footnotes above (i) none of such shares is known by
the Company to be shares with respect to which such beneficial ownership and
(ii) the Corporation believes the beneficial holders listed above have sole
voting and investment power regarding the shares shown as being beneficially
owned by them.

88
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

LEASES

STOCK TRANSACTIONS

LOAN SERVICING AGREEMENT BETWEEN THE COMPANY, WFC AND WCC

LOAN SERVICING AGREEMENT BETWEEN THE SAVINGS BANKS AND WCC

89
<PAGE>

ADMINISTRATIVE SERVICES AGREEMENT

90
<PAGE>

DESCRIPTION OF NOTES

GENERAL

The Notes will be issued pursuant to an Indenture (the "Indenture") between
WFSG and Bankers Trust Company N.A., as trustee (the "Trustee"), a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The summary of certain provisions of the Indenture set
forth below do not purport to be complete and are qualified in their entirety
by reference to all of the provisions of the Indenture and the Notes.
Capitalized terms not otherwise defined herein have the meanings specified in
the Indenture. Whenever sections or defined terms of the Indenture are
referred to, such sections or defined terms are hereby incorporated herein by
such reference.

The Notes will be limited in aggregate original principal amount to $75
million (plus up to $11,250,000 subject to the Notes Underwriter's over-
allotment option). The Notes will mature on , 2003 (the "Stated
Maturity"). The Notes will rank pari passu with all other general unsecured
obligations of the Company and will be issued in book-entry form only in
denominations of $1,000 and integral multiples in excess thereof.

The Notes will bear interest from the date of their initial issuance, at the
rate per annum set forth on the cover page of this Prospectus, payable semi-
annually in arrears on and of each year (each an
"Interest Payment Date"), commencing , 1997, to the holders of
record at the close of business on the or
(whether or not a business day), as the case may be, next preceding such
Interest Payment Date (each, a "Regular Record Date"). Interest will be
computed on the basis of a 360-day year of twelve 30-day months.

The Notes are not savings accounts or deposits and are not insured by the
FDIC or by the United States or any agency or fund thereof. The Notes will not
be secured by the assets of WFSG or any of its Subsidiaries, including the
Savings Banks, or otherwise and will not have the benefit of a sinking fund
for the retirement of principal or interest. Because WFSG is a holding company
that currently conducts substantially all of its operations through its
Subsidiaries, the right of WFSG to participate in any distribution of assets
of the Subsidiaries, including the Savings Banks, upon their liquidation or
reorganization or otherwise (and thus the ability of Holders of the Notes to
benefit indirectly from such distribution) are subject to the prior claims of
creditors of the Subsidiaries, including, in the case of the Savings Banks, to
the claims of depositors of the Savings Banks. Claims on WFSG's Subsidiaries
by creditors, other than WFSG, include substantial obligations with respect to
deposit liabilities and other borrowings. Additionally, distributions to WFSG
by the Savings Banks, whether in liquidation, reorganization or otherwise,
will be subject to regulatory restrictions and, under certain circumstances,
may be prohibited. See "Regulation--The Savings Banks--Restrictions on Capital
Distributions" and "--Affiliate Transactions."

GLOBAL NOTES, DELIVERY AND FORM

The Notes offered hereby will be represented by one or more Global Notes
deposited with the Depositary, and will trade in the Depositary's Same-Day
Funds Settlement System ("SDFS System") until maturity. The Notes will not be
exchangeable for certificated notes, except in the circumstances described
below.

The Depository Trust Company, New York, New York ("DTC"), will be the
initial Depositary with respect to the Notes. DTC has advised the Company and
the Underwriters that it is a limited-purpose trust company organized under
the laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. DTC's participants include securities
brokers and dealers (including the Underwriters), banks, trust companies,
clearing corporations and certain other organizations, some of whom

91
<PAGE>

(and/or their representatives) own DTC. Access to DTC's book-entry system is
also available to others, such as banks, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. Persons who are not participants may beneficially own
securities held by DTC only through participants.

Upon the issuance of the Notes represented by the Global Notes, the
Depositary will credit, on its book-entry registration and transfer system,
the principal amount of the Notes represented by the Global Notes to the
accounts of participants. Ownership of beneficial interests in the Global
Notes will be limited to participants or persons that hold interests through
participants. Ownership of beneficial interests in the Notes will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by the Depositary (with respect to interests of participants in the
Depositary), or by participants in the Depositary or persons that may hold
interests through such participants (with respect to persons other than
participants in the Depositary). The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limitations and such laws may impair the ability of
holders of the Notes to transfer beneficial interests in the Global Notes.

So long as the Depositary for the Global Notes, or its nominee, is the
registered owner of the Global Notes, the Depositary or its nominee, as the
case may be, will be considered the sole owner or holder of the Notes
represented by the Global Notes for all purposes under the Indenture. Except
as provided below, owners of beneficial interests in the Notes represented by
the Global Notes will not receive or be entitled to receive physical delivery
of such Notes in definitive form and will not be considered the owners or
holders thereof under the Indenture.

So long as the Notes are represented by a Global Note, payments of principal
and interest on the Notes will be made by the Company through the Trustee to
the Depositary or its nominee, as the case may be, as the registered owner of
the Global Notes representing the Notes. Neither the Company nor the Trustee
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of
such Global Notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. The Company expects that the
Depositary, upon receipt of any payment of principal or interest in respect of
the Global Notes representing the Notes, will credit the accounts of the
related participants with payment in amounts proportionate to their respective
holdings in principal amount of beneficial interests in such Global Notes as
shown on the records of the Depositary. The Company also expects that payments
by participants to owners of beneficial interests in such Global Notes will be
governed by standing customer instructions and customary practices, as is now
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants.

If the Depositary is at any time unwilling, ineligible or unable to continue
as Depositary under the Indenture and a successor Depositary is not appointed
in respect thereof within 90 days, the Company will issue definitive Notes in
exchange for the Notes represented by the Global Notes. In addition, the
Company may at any time and in its sole discretion determine to discontinue
use of the Global Notes and, in such event, will issue definitive securities
in exchange for the securities represented by the Global Notes. Notes so
issued will be issued in registered form only, in denominations of $1,000 and
integral multiples thereof, without coupons.

SAME-DAY SETTLEMENT AND PAYMENT

Settlement for the Notes will be made in immediately available funds. All
payments of principal and interest on the Notes will be made by WFSG in
immediately available funds. The Notes will trade in the Depositary's SDFS
System until maturity, and, therefore, the Depositary will require secondary
trading activity in the Notes to be settled in immediately available funds.

OPTIONAL REDEMPTION

The Notes may not be redeemed prior to , 2001 except as described
below. On or after such date, the Notes may be redeemed, in whole or in part,
at the following redemption prices (expressed as a percentage

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<PAGE>

of the principal amount) plus accrued and unpaid interest to (but excluding)
the redemption date, if redeemed during the 12-month period beginning
, of the years indicated below:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001 %
2002 %
</TABLE>

In addition, the Company may redeem, at its option, up to 35% of the
original aggregate principal amount of the Notes at any time and from time to
time until , 2001, with the Net Cash Proceeds received by the Company
from one or more public or private sales of Qualified Capital Stock at a
redemption price of % of the principal amount of the Notes redeemed,
plus accrued and unpaid interest thereon; provided, however, that at least 65%
of the original aggregate principal amount of Notes must remain outstanding
after each such redemption, and provided further, that such redemption must
occur within 60 days after the closing date of any such public or private sale
of Qualified Capital Stock.

If at any time fewer than all of the Notes then outstanding are to be
redeemed, the Trustee shall select the Notes or portions thereof to be
redeemed pro rata, by lot or by any other method the Trustee shall deem fair
and reasonable. Notes in denominations larger than $1,000 may be redeemed in
part in integral multiples of $1,000. Notice of redemption will be mailed to
each Holder of Notes to be redeemed at such Holder's registered address at
least 30, but not more than 60, days before the redemption date. On or after
the redemption date, interest will cease to accrue on Notes or portions
thereof called for redemption.

In addition to permitted redemptions, the Company may from time to time
purchase the Notes in the open market, in private transactions or otherwise,
as permitted by applicable law.

NO SINKING FUND OR MANDATORY REDEMPTION

The Notes will not be entitled to the benefit of any sinking fund or
mandatory redemption.

CERTAIN COVENANTS

The Indenture will contain, among others, the following covenants:

Net Worth Maintenance. Upon closing of the Common Stock Offering and the
Notes Offering and at all times thereafter, the Company shall maintain
Consolidated Net Worth, determined at the end of each fiscal quarter, equal to
(i) $40 million plus (ii) the cumulative amount equal to twenty-five percent
(25%) of the Consolidated Net Income (but not loss), if any, of the Company
and its Subsidiaries for each fiscal quarter commencing with the quarter
ending March 31, 1997.

Limitations on Indebtedness.

(a) WFSG shall not incur, directly or indirectly, any Indebtedness or
issue any Disqualified Capital Stock; provided, however, that WFSG may
incur Indebtedness or Disqualified Capital Stock if, on the date of such
incurrence and after giving effect thereto, (i) no Default or Event of
Default has occurred and is continuing or would result therefrom and (ii)
the Leverage Ratio does not exceed 2.0 to 1.0.

(b) The Company will not create, incur, issue, assume, guarantee or
otherwise in any manner become directly or indirectly liable for or with
respect to, or otherwise permit to exist, any Junior Indebtedness (other
than Acquired Indebtedness) unless the Stated Maturity of principal (or any
required repurchase, redemption, defeasance or sinking fund payments) of
such Junior Indebtedness is after the final Stated Maturity of principal of
the Notes.

(c) The Savings Banks will not, and will not permit any of their
Subsidiaries to, create or incur any Indebtedness or issue any Preferred
Stock that in either case would qualify as regulatory capital for the

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<PAGE>

Savings Banks under 12 C.F.R. Part 567 or any successor regulation, except
to WFSG or its Subsidiaries or to the extent that after giving effect to
the creation or incurrence of such Indebtedness or the issuance of such
Preferred Stock the total of the Savings Banks' aggregate Indebtedness and
Preferred Stock that qualifies as capital under 12 C.F.R. Part 567 does not
exceed 65% of the Savings Banks' aggregate tangible common equity.

(d) The Indenture will provide that the Company will not permit any
Subsidiary to, directly or indirectly, incur any Indebtedness or issue any
Disqualified Capital Stock.

(e) The foregoing provisions shall not apply to:

(1) Permitted Acquisition Indebtedness of the Company and its
Subsidiaries;

(2) Permitted Repurchase Facilities of the Company and its
Subsidiaries;

(3) Guarantees by the Company of (1) and (2);

(4) Intercompany Indebtedness between the Company and any of its
Subsidiaries;

(5) Incurrence by the Company of its obligations under the Notes;

(6) Non-Recourse Indebtedness of the Company and its Subsidiaries;

(7) Securities issued in a securitization by a Securitization Entity
formed by or on behalf of the Company or its Subsidiaries, regardless
of whether such securities are treated as indebtedness for tax
purposes, provided that neither the Company nor any Subsidiary (other
than the Securitization Entity formed solely for the purpose of such
securitization) is directly or indirectly liable as a guarantor or
otherwise (excluding the provision of Credit Support) for such
securities or obligations of the Securitization Entity;

(8) Deposit liabilities of any insured depository Subsidiary;

(9) Unsecured Indebtedness of the Savings Banks having an initial
term to maturity in excess of one year, provided, however, that such
Indebtedness shall be considered to be Indebtedness of WFSG for the
purpose of the Leverage Ratio;

(10) Unsecured working capital loans of Subsidiaries, not to exceed
$5.0 million in the aggregate, provided, however, that such
Indebtedness shall be considered to be Indebtedness of WFSG for the
purpose of the Leverage Ratio;

(11) Acquired Indebtedness of Subsidiaries, provided, however, that
such Acquired Indebtedness shall be considered to be Indebtedness of
WFSG for the purpose of the Leverage Ratio;

(12) Indebtedness secured by Permitted Liens; or

(13) Hedging Obligations directly related to: (i) Indebtedness
permitted to be incurred by the Company or its Subsidiaries pursuant to
the Indenture; (ii) loans held by the Company or its Subsidiaries
pending sale; or (iii) loans with respect to which the Company or any
Subsidiary has an outstanding purchase offer or commitment, financing
commitment or security interest.

(f) For purposes of determining compliance with the foregoing covenant:
(i) in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described above, the Company, in good
faith, will classify such item of Indebtedness and be required to include
the amount and type of such Indebtedness in one of the above clauses; and
(ii) an item of Indebtedness may be divided and classified in more than one
of the types of Indebtedness described above.

Liquidity Maintenance. WFSG shall, at all times when the Notes are not rated
in an investment grade category by one or more nationally recognized
statistical rating organizations, maintain Liquid Assets with a value equal to
at least 100% of the required interest payments due on the Notes on the next
two succeeding semi-annual Interest Payment Dates. Liquid Assets of a
Subsidiary (other than the Savings Banks or other depository institution
Subsidiary) may be included in such calculation only to the extent that such
Liquid Assets may at such time be distributed to WFSG without restriction or
notice to any Person. Such Liquid Assets shall not be the subject of any
pledge, Lien, encumbrance or charge of any kind and shall not be used as
collateral or security for Indebtedness for borrowed money or otherwise of the
Company or its Subsidiaries nor may such Liquid Assets be used as reserves for
any self-insurance maintained by the Company.

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Limitations on Restricted Payments. The Company will not, and will not
permit any Subsidiary to, directly or indirectly, make any Restricted Payment
if, at the time of such Restricted Payment or after giving effect thereto,

(a) a Default or Event of Default shall have occurred and be continuing; or

(b) either Savings Bank would fail to meet any of the Regulatory Capital
Requirements; or

(c) the Company would fail to maintain sufficient Liquid Assets to comply
with the terms of the covenant described above under "Liquidity Maintenance";
or

(d) the aggregate amount of all Restricted Payments (the amount of such
payments, if other than in cash, having been determined in good faith by the
relevant Board of Directors, whose determination shall be conclusive and
evidenced by a Board resolution filed with the Trustee) declared and made
after the issue date of the Notes would exceed the sum of

(i) 25% of the aggregate Consolidated Net Income (or, if such
Consolidated Net Income is a deficit, 100% of such deficit) of the Company
accrued on a cumulative basis during the period beginning on the first day
of the fiscal quarter during which the issue date of the Notes occurred and
ending on the last day of the Company's last fiscal quarter ending prior to
the date of such proposed Restricted Payment, plus

(ii) the aggregate Net Cash Proceeds received by the Company as capital
contributions (other than from a Subsidiary) after the issue date of the
Notes, plus

(iii) the aggregate Net Cash Proceeds and the Fair Market Value of
property not constituting Net Cash Proceeds received by the Company from
the issuance or sale (other than to a Subsidiary) of Qualified Capital
Stock after the issue date of the Notes; plus

(iv) 100% of the amount of any Indebtedness of the Company or a
Subsidiary that is issued after the issue date of the Notes that is
thereafter converted into or exchanged for Qualified Capital Stock of the
Company; or

(e) the Unsecured Debt Coverage Ratio for the Company for the most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date of such Restricted Payment is less
than 2.00 to 1.00, determined after giving effect to such Restricted Payment;
provided, however, that the foregoing provisions will not prevent (x) the
payment of a dividend within 60 days after the date of its declaration if at
the date of declaration such payment was permitted by the foregoing
provisions, or (y) any Permitted Payment, or (z) tax sharing payments by the
Company or any of its Subsidiaries pursuant to the existing tax sharing
agreement among the Company and its Subsidiaries (or any subsequently adopted
tax sharing agreement the terms of which are not materially less favorable in
the aggregate to the Company than the terms of such existing tax sharing
agreement).

Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its
Subsidiaries (other than a Securitization Entity) to, create, assume or
otherwise cause or suffer to exist or to become effective any consensual
encumbrance or restriction on the ability of any such Subsidiary to

(a) pay any dividends or make any other distribution on its Capital Stock;

(b) make payments in respect of any Indebtedness owed to the Company or any
other Subsidiary; or

(c) make loans or advances to the Company or any Subsidiary or to guarantee
Indebtedness of the Company or any other Subsidiary;

other than, in the case of (a), (b) and (c),

(1) restrictions imposed by applicable law or regulation or by the OTS or
FDIC;

(2) restrictions existing under agreements in effect on the date of the
Indenture;

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(3) consensual encumbrances or restrictions binding upon any Person at
the time such Person becomes a Subsidiary of the Company so long as such
encumbrances or restrictions are not created, incurred or assumed in
contemplation of such Person becoming a Subsidiary;

(4) restrictions with respect to a Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially
all the assets (which term may include the Capital Stock) of such
Subsidiary;

(5) restrictions on the transfer of assets which are subject to Liens;

(6) restrictions existing under agreements evidencing Permitted
Acquisition Indebtedness or Permitted Repurchase Facilities of any
Subsidiary that is formed for the sole purpose of acquiring or holding a
portfolio of assets, if such Indebtedness (i) is made without recourse to,
and with no cross-collateralization (which shall not include Guarantees),
against the assets of, the Company or any other Subsidiary, and (ii) upon
complete or partial liquidation of which the Indebtedness must be
correspondingly repaid in whole or in part, as the case may be; and

(7) restrictions existing under any agreement that refinances or replaces
any of the agreements containing the restrictions in clauses (2), (3) and
(6); provided that the terms and conditions of any such restrictions are
not less favorable to the Holders than those under the agreement evidencing
or relating to the Indebtedness refinanced.

Limitations on Transactions with Affiliates. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into any
transaction or series of related transactions (including without limitation,
the sale, purchase, exchange or lease of assets, property or services) with
any Affiliate of the Company (except that the Company and any of its
Subsidiaries may enter into any transaction or series of related transactions
with any Subsidiary of the Company without limitation under this covenant)
unless: (i) such transactions or series of related transactions is on terms
that are no less favorable to the Company or such Subsidiary, as the case may
be, than would be available in a comparable transaction in an arm's length
dealing with a Person that is not such an Affiliate or, in the absence of such
a comparable transaction, on terms that the relevant Board of Directors
determines in good faith would be offered to a Person that is not an
Affiliate; (ii) with respect to any transaction or series of related
transactions involving aggregate payments in excess of $500,000, the Company
delivers an officers' certificate to the Trustee certifying that such
transaction or series of transactions complies with clause (i) above and has
been approved by a majority of the Disinterested Directors of the relevant
Board of Directors of the Company or such Subsidiary, as the case may be; and
(iii) with respect to any transaction or series of related transaction
involving aggregate payments in excess of $2,500,000, or in the event that no
members of the Board of Directors are Disinterested Directors with respect to
any transaction or series of transactions included in clause (ii), (x) in the
case of a transaction involving real property, the aggregate rental or sale
price of such real property shall be the fair market sale or rental value of
such real property as determined in a written opinion by a nationally
recognized expert with experience in appraising the terms and conditions of
the type of transaction or series of transactions for which approval is
required and (y) in all other cases, the Company delivers to the Trustee a
written opinion of a nationally recognized expert with experience in
appraising the terms and conditions of the type of transaction or series of
transactions for which approval is required to the effect that the transaction
or series of transactions are fair to the Company or such Subsidiary from a
financial point of view. The limitations set forth in this paragraph will not
apply to (i) transactions entered into pursuant to any agreement already in
effect on the date of the Indenture and any renewals or extensions thereof not
involving modifications materially adverse to the Company or any Subsidiary,
(ii) normal banking relationships with an Affiliate on an arms' length basis,
(iii) any employment agreement, stock option, employee benefit,
indemnification, compensation, business expense reimbursement or other
employment-related agreement, arrangement or plan entered into by the Company
or any of its Subsidiaries which agreement, arrangement or plan was adopted by
the Board of Directors of the Company or such Subsidiary (including a majority
of the Disinterested Directors), as the case may be, (iv) residential
mortgage, credit card and other consumer loans to an Affiliate who is an
officer, director or employee of the Company or any of its Subsidiaries and
which comply with the applicable provisions of 12 U.S.C. Section 1468(b) and
any rules and regulations of the OTS thereunder, (v) any Restricted Payment or
Permitted Payment, (vi) any transaction or

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series of transactions in which the total amount involved does not exceed
$125,000, (vii) purchases on or before March 31, 1997 of loan portfolios
acquired by an Affiliate after July 31, 1996 where the purchase price does not
exceed the lower of two current independent bids for the loan portfolios or
(viii) services rendered and obligations incurred by the Company or any of its
Subsidiaries pursuant to existing agreements or agreements between the Company
and/or any of its Subsidiaries and WCC and/or Affiliates of WCC entered into
in connection with the closing of the Common Stock Offering and the Notes
Offering.

Limitations on Liens and Guarantees. WFSG will not create, assume, incur or
suffer to exist any Lien (other than a Permitted Lien) upon any of the
Company's assets (including the Capital Stock of any Subsidiary) as security
for Indebtedness, without effectively providing that the Notes will be equally
and ratably secured with (or prior to) such Indebtedness.

In addition, the Company will not permit any Subsidiary of the Company,
directly or indirectly, to guarantee or assume, or subject any of its assets
to a Lien (other than a Permitted Lien) to secure, any Pari Passu Indebtedness
or Junior Indebtedness unless (i) such Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for a guarantee
of, or pledge of assets to secure, the Notes by such Subsidiary on terms at
least as favorable to the Holders of the Notes as such guarantee or security
interest in such assets is to the holders of such Pari Passu Indebtedness or
Junior Indebtedness, except that in the event of a guarantee or security
interest in such assets with respect to (x) Pari Passu Indebtedness, the
guarantee or security interest in such assets under the supplemental indenture
shall be made pari passu to the guarantee or security interest in such assets
with respect to such Pari Passu Indebtedness or (y) Junior Indebtedness, any
such guarantee or security interest in such assets with respect to such Junior
Indebtedness shall be subordinated to such Subsidiary's guarantee or security
interest in such assets with respect to the Notes to the same extent as such
Junior Indebtedness is subordinated to the Notes and (ii) such Subsidiary
waives and will not in any manner whatsoever claim, or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any
other rights against the Company or any other Subsidiary of the Company as a
result of any payment by such Subsidiary under its guarantees.

Offer to Purchase upon a Change of Control. If a Change of Control Event
shall occur at any time, then each Holder will have the right to require the
Company to repurchase such Holder's Notes (pursuant to an offer made to all
Holders), in whole or in part, in integral multiples of $1,000 at a purchase
price in cash equal to 101% of the principal amount of such Notes, plus
accrued and unpaid interest, if any, to the date of repurchase. There can be
no assurance that the Company will have the funds available to repurchase the
Notes in the event of a Change of Control Event.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the
repurchase of the Notes upon the occurrence of a Change of Control Event. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the Indenture, the Company will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations described in the Indenture by virtue thereof.

Additional Covenants. The Indenture will also contain covenants with respect
to, among other things, the following matters: (i) payment of principal,
premium and interest; (ii) maintenance of corporate existence; (iii) payment
of taxes and other claims; (iv) maintenance of properties; and (v) maintenance
of insurance.

MERGER AND CONSOLIDATION

The Indenture will provide that the Company may not, in a single transaction
or a series of transactions, consolidate with or merge into any other Person
or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its assets to any Person or group of affiliated Persons
unless (a) either (i) the Company shall be the continuing entity, or (ii) the
Person (if other than the Company) formed by such consolidation or into which
the Company is merged or the Person that acquires by sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all
of the assets of the Company (the "Surviving Entity") is organized

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under the laws of the United States or a state thereof or the District of
Columbia and such Surviving Entity assumes by supplemental indenture, executed
and delivered to the Trustee in form reasonably satisfactory to the Trustee,
all obligations of the Company on the Notes and under the Indenture, (b)
immediately after giving effect to such transaction or series of transactions,
no Default or Event of Default shall have occurred and be continuing, (c) the
Company or the Surviving Entity, as applicable, could incur at least $1.00 of
additional Indebtedness without violating the Leverage Ratio described above
under "Limitation on Indebtedness" and (d) the Company or the Surviving
Entity, as applicable, shall have delivered, or caused to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
officers' certificate and an opinion of counsel, each to the effect that such
consolidation, merger, sale, assignment, conveyance, transfer, lease or other
disposition and the supplemental indenture in respect thereto comply with the
Indenture and that all conditions precedent provided for relating to such
transaction have been complied with.

MODIFICATION OF THE INDENTURE; WAIVER OF COVENANTS

Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of greater than 50% in aggregate
principal amount of the Notes then outstanding; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
outstanding Note affected thereby, (i) change the Stated Maturity of the
principal of, or any installment of principal of or interest on, any Note or
reduce the principal amount thereof, premium, if any, or the rate of interest
thereon, or change the coin or currency in which any Note or any premium or
the interest thereon is payable or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof; (ii) reduce
the percentage in principal amount of the outstanding Notes, the consent of
whose Holders is required for any such amendment or modification, or the
consent of whose Holders is required for any waiver; (iii) modify any of the
provisions relating to supplemental indentures requiring the consent of
Holders or relating to the waiver of past defaults or relating to the waiver
of certain covenants, except to increase the percentage in principal amount of
outstanding Notes required for such action or to provide that certain other
provisions of the Indenture may not be modified or waived without the consent
of the Holder of each Note affected thereby; or (iv) waive a default in
payment with respect to any Note (other than a default in payment that is due
solely because of acceleration of the maturity of the Notes).

Notwithstanding the foregoing, without the consent of any Holders of the
Notes, the Company and the Trustee may modify or amend the Indenture (i) to
evidence the succession of another Person to the Company and the assumption by
any such successor of the covenants of the Company in the Indenture and in the
Notes in accordance with the "Merger and Consolidation" provisions of the
Indenture; (ii) to add any additional Events of Default, to add to the
covenants of the Company for the benefit of the Holders of the Notes, or to
surrender any right or power herein conferred upon the Company in the
Indenture or in the Notes; (iii) to cure any ambiguity, to correct or
supplement any provision in the Indenture which may be defective or
inconsistent with any other provision in the Indenture or in the Notes,
provided that any such action shall not adversely affect in any material
respect the interests of any Holder of any Note; (iv) to secure the Notes or
add a guarantor under the Indenture pursuant to the provisions of the covenant
on "Limitations on Liens and Guarantees" described above; (v) to evidence and
provide the acceptance of the appointment of a successor Trustee under the
Indenture; or (vi) to make any other provisions with respect to matters or
questions arising under the Indenture or the Notes, provided that such
provisions shall not adversely affect in any material respect the interests of
any Holder of any Note.

The Holders of greater than 50% in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.

EVENTS OF DEFAULT

An Event of Default will be defined in the Indenture to include:

(i) failure by the Company to pay interest on any Note when due and
payable, if such failure continues for a period of 30 days;

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(ii) failure by the Company to pay the principal on any Note when due and
payable at maturity or upon redemption, acceleration or otherwise;

(iii) failure by the Company to comply with any other agreement or
covenant contained in the Indenture if such failure continues for a period
of 30 days after notice to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 25% in principal amount of the Notes
then outstanding;

(iv) indebtedness of the Company or any Subsidiary of the Company is not
paid within any applicable grace period after final maturity or in the
event that final maturity is accelerated because of a default and, in
either case, the total amount of such indebtedness unpaid or accelerated is
equal to or greater than 5% of the Company's Consolidated Net Worth;

(v) failure by, as the case may be, either or both of the Savings Banks
to comply with any of their Regulatory Capital Requirements; provided, that
an Event of Default under this clause (v) shall not be deemed to have
occurred (a) during the 60 day period following the first day on which
either or both of the Savings Banks, as the case may be, fails or fail to
comply with any of their Regulatory Capital Requirements, if within such 60
day period the Savings Bank or the Savings Banks files or file a capital
plan with the OTS, (b) during the 90 day period following the initial
submission of a capital plan to the OTS by either or both of the Savings
Banks, as the case may be (or, if the OTS notifies the Savings Bank or
Savings Banks in writing that it needs a longer period of time to determine
whether to approve such capital plan or plans, such longer period as is so
specified by the OTS), unless prior to such date the OTS shall have
notified the Savings Bank or Savings Banks of its determination not to
approve such capital plan or plans, or (c) during the period that the
Savings Bank is, or the Savings Banks are, as the case may be, operating in
material compliance with a capital plan or plans approved by the OTS;

(vi) occurrence of certain events of bankruptcy or insolvency of the
Company or either of the Savings Banks; and

(vii) existence of one or more judgments against the Company or either of
the Savings Banks or any of their Subsidiaries in excess of 5% of the
Company's Consolidated Net Worth, either individually or in the aggregate,
which remain undischarged 60 days after all rights to directly review such
judgment, whether by appeal or writ, have been exhausted or have expired.

The Company will covenant in the Indenture to file annually with the Trustee
a statement regarding compliance by the Company with the terms of the
Indenture and specifying any defaults of which the signers may have knowledge.

If an Event of Default occurs and is continuing, the Trustee or the Holders
of not less than 25% in principal amount of the Notes then outstanding may
declare all the Notes to be immediately due and payable by notice to the
Company (and to the Trustee if given by the Holders). Under certain
circumstances, the Holders of a majority in principal amount of the Notes then
outstanding may rescind such a declaration.

PROVISION OF REPORTS

The Company will furnish to the Holders of Notes, upon request, whether or
not required by the rules and regulations of the Commission, (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Form 10-Q and Form 10-K if the Company was
required to file such forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its Subsidiaries, and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants, and (ii) all reports that would be required
to be filed with the Commission on Form 8-K if the Company were required to
file such reports.

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DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURE

The Company may, at its option and at any time, elect to have its
obligations and the obligations of any of its Subsidiaries with respect to the
outstanding Notes discharged ("defeasance"). Such defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due and certain
provisions of the Indenture with respect to the registration and transfer of
the Notes. In addition, the Company may, at its option and at any time, elect
to have its obligations and the obligations of any of its Subsidiaries with
respect to certain covenants described in the Indenture released ("covenant
defeasance") and thereafter any failure to comply with such covenants shall
not constitute a Default or an Event of Default. In the event of a covenant
defeasance, certain other events (not including prepayment, bankruptcy,
receivership or insolvency events) described under "Events of Default" will no
longer constitute a Default or an Event of Default with respect to the Notes.

In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of Notes, cash in United States Dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof
(collectively, the "trust fund"), in such amounts as will be sufficient
(without considering any reinvestment of amounts earned on such U.S.
Government Obligations), in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge interest on the
outstanding Notes as it becomes due and to pay and discharge the principal of
and premium, if any, on the outstanding Notes at redemption or maturity; (ii)
in the case of defeasance, the Company must deliver to the Trustee an opinion
of independent counsel in the United States stating that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel in the United States shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had not
occurred; (iii) in the case of covenant defeasance, the Company must deliver
to the Trustee an opinion of independent counsel in the United States to the
effect that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
covenant defeasance had not occurred; (iv) no Default or Event of Default may
have occurred and be continuing on the date of such deposit and after giving
effect thereto; (v) such defeasance or covenant defeasance may not cause the
Trustee for the Notes to have a conflicting interest with respect to any
securities of the Company; (vi) such defeasance or covenant defeasance may not
result in a breach or violation of, or constitute a Default under, the
Indenture or any material agreement or instrument to which the Company is a
party or by which it is bound; (vii) the Company must deliver to the Trustee
an opinion of independent counsel in the United States to the effect that the
trust fund will not be subject to the effect of any applicable bankruptcy,
insolvency, receivership, conservatorship, reorganization or similar laws
affecting creditors' rights generally (including, without limitation,
fraudulent and avoidable transfers); (viii) the Company must deliver to the
Trustee an officers' certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of the Notes over the other
creditors of the Company or with the intent of defeating, hindering, delaying
or defrauding creditors of the Company; (ix) no event or condition may exist
that would prevent the Company from making payments of the principal of,
premium, if any, and interest on the Notes, on the date of such deposit; and
(x) the Company must deliver to the Trustee an officers' certificate and an
opinion of independent counsel in the United States, each stating that all
conditions precedent relating to either the defeasance or the covenant
defeasance, as the case may be, have been complied with.

SATISFACTION AND DISCHARGE

The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when (i) either (a)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been

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replaced or paid) have been delivered to the Trustee for cancellation or (b)
all Notes not theretofore delivered to the Trustee for cancellation have
become due and payable, or will become due and payable or are to be called for
redemption within one year, and the Company has irrevocably deposited or
caused to be deposited with the Trustee funds in an amount sufficient to pay
and discharge the entire Indebtedness on the Notes not theretofore delivered
to the Trustee for cancellation, for principal of, and premium, if any, and
interest on the Notes to the date of deposit together with irrevocable
instructions to the Trustee from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case may
be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel each stating that all conditions
precedent under the Indenture relating to the satisfaction and discharge of
the Indenture have been complied with.

TRUSTEE

Bankers Trust Company N.A., the Trustee under the Indenture, may from time
to time enter into ordinary correspondent and other banking relationships with
the Company. The address of the principal corporate trust office of the
Trustee is 4 Albany Street, New York, NY 10006.

CERTAIN DEFINITIONS

"Acquired Indebtedness" means Indebtedness of a person (i) existing at the
time such Person becomes a Subsidiary of or is merged with or into any other
Person or (ii) assumed in connection with the acquisition of assets from such
Person, in each case, other than Indebtedness incurred in connection with, or
in contemplation of, such Person becoming a Subsidiary of such other Person or
such acquisition. Acquired Indebtedness shall be deemed to be incurred on the
date of the related acquisition of assets from such Person or the date such
Person becomes a Subsidiary of or is merged with or into such other Person.

"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly Controlling or Controlled by or under direct or
indirect common Control with such specified Person and any legal or beneficial
owner, directly or indirectly, of 20% or more of the Voting Stock of such
specified Person. Notwithstanding the foregoing, no Securitization Entity
shall be deemed an Affiliate of the Company.

"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the
sum of the products of (a) the number of years from the date of determination
to the date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments.

"Capital Lease Obligation" of any Person means any obligations of such
Person under any capital lease for real or personal property which, in
accordance with GAAP, is required to be recorded as a capitalized lease
obligation; and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.

"Capital Stock" in any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents or interests
in (however designated) capital stock in such Person, including, with respect
to a corporation, common stock, Preferred Stock and other corporate stock and,
with respect to a partnership, partnership interests, whether general or
limited, and any rights (other than debt securities convertible into corporate
stock, partnership interests or other capital stock), warrants or options
exchangeable for or convertible into such corporate stock, partnership
interests or other capital stock.

"Change of Control Event" means an event or series of events by which

(a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than the Existing Principal Stockholders,
is or becomes after the date of issuance of the Notes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as in
effect on the date of the Indenture), of more than 40% of the total voting
power of all Voting Stock of the Company then outstanding;

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(b) (1) another corporation merges into the Company or the Company
consolidates with or merges into any other corporation, or

(2) the Company conveys, transfers or leases all or substantially all its
assets to any person or group, in one transaction or a series of
transactions other than any conveyance, transfer or lease between the
Company and a Wholly-Owned Subsidiary of the Company,

in each case, with the effect that a person or group, other than the Existing
Principal Stockholders, is or becomes the beneficial owner of more than 40% of
the total voting power of all Voting Stock of the surviving or transferee
corporation of such transaction or series of transactions;

(c) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Company's Board of Directors, or
whose nomination for election by the Company's shareholders was approved by
a vote of a majority of the Directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved, cease for any reason to constitute
a majority of the Directors then in office; or

(d) the shareholders of the Company shall approve any plan or proposal
for the liquidation or dissolution of the Company.

"Consolidated Depreciation and Amortization Expense" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense of such Person for such period on a consolidated basis and otherwise
determined in accordance with GAAP.

"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income (Loss) of such Person for such period plus (a)
provision for taxes based on income or profits of such Person for such period
deducted in computing Consolidated Net Income (Loss) plus (b) Consolidated
Interest Expense of such Person for such period, plus (c) Consolidated
Depreciation and Amortization Expense of such Person for such period to the
extent such depreciation and amortization were deducted in computing
Consolidated Net Income (Loss), plus (d) without duplication, any other non-
cash charges reducing Consolidated Net Income (Loss) of such Person for such
period less (e) without duplication, non-cash items increasing Consolidated
Net Income (Loss) of such Person for such period in each case, on a
consolidated basis for such Person in accordance with GAAP.

"Consolidated Interest Expense" means, with respect to any period, the sum
of: (a) consolidated interest expense of such Person for such period, other
than interest expense on deposits, Permitted Acquisition Indebtedness and
Permitted Repurchase Facilities, whether paid or accrued (except to the extent
accrued in a prior period), to the extent such expense was deducted in
computing Consolidated Net Income (Loss) (including amortization of original
issue discount, non-cash interest payments and the interest component of
Capitalized Lease Obligations, excluding amortization of deferred financing
fees) and (b) consolidated capitalized interest of such Person for such
period, whether paid or accrued, to the extent such expense was deducted in
computing Consolidated Net Income (Loss).

"Consolidated Net Income (Loss)" of any Person means, for any period, the
consolidated net income (or loss) of such Person and its consolidated
Subsidiaries for such period as determined in accordance with GAAP, adjusted,
to the extent included in calculating such net income (loss), by excluding,
without duplication, (i) the portion of net income (or loss) of any other
Person (other than any of such Person's consolidated Subsidiaries) in which
such Person or any of its Subsidiaries has an ownership interest, except to
the extent of the amount of dividends or other distributions actually paid to
such Person or its consolidated Subsidiaries in cash by such other Person
during such period, (ii) net income (or loss) of any Person combined with such
Person or any of its Subsidiaries on a "pooling of interests" basis
attributable to any period prior to the date of combination, (iii) any gain or
loss, net of taxes, realized upon the termination of any employee pension
benefit plan and (iv) solely for the purpose of determining Consolidated Net
Income (Loss) in connection with the calculation of Restricted Payments
permitted to be made hereunder, the net income of any consolidated Subsidiary
of such Person to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that income is

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not at the time permitted, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulations applicable to that Subsidiary or its
shareholders; provided that, upon the termination or expiration of such
dividend or distribution restrictions, the portion of net income (or loss) of
such consolidated Subsidiary allocable to such Person and previously excluded
shall be added to the Consolidated Net Income (Loss) of such Person to the
extent of the amount of dividends or other distributions available to be paid
to such Person in cash by such Subsidiary.

"Consolidated Net Worth" of any Person and its Subsidiaries mean as of the
date of determination all amounts that would be included under stockholders'
equity on a consolidated balance sheet of such Person and its Subsidiaries
determined in accordance with GAAP.

"Control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through ownership of voting securities (or pledge of voting securities
if the pledgee thereof may on the date of determination exercise or control
the exercise of the voting rights of the owner of such voting securities), by
contract or otherwise; and the terms "to Control," "Controlling" and
"Controlled" have meanings correlative to the foregoing.

"Credit Support" means credit support designed to enhance the likelihood of
payment on securities issued in connection with a securitization of loans or
other assets which are generally funded with the proceeds of such
securitization, including without limitation subordination of certain classes
of securities, insurance policies, representations and warranties, reserve
funds, liquidity reserves, lost- and missing- note reserves and letters of
credit.

"Currency Agreement" means, with respect to any Person, any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.

"Default" means an event or condition the occurrence of which would, with
the lapse of time or the giving of notice or both, become an Event of Default.

"Disqualified Capital Stock" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or exchangeable), or
upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the
option of the holder thereof, in whole or in part on, or prior to, or is
exchangeable for debt securities of the Company or its Subsidiaries prior to,
the final Stated Maturity of principal of the Notes; provided that only the
amount of such Capital Stock that is redeemable prior to the Stated Maturity
of principal of the Notes shall be deemed to be Disqualified Capital Stock.

"Disinterested Director" of any Person means, with respect to any
transaction or series of related transactions, a member of the board of
directors of such Person who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of related
transactions.

"Existing Principal Stockholders" means, individually or collectively,
Andrew A. Wiederhorn and Lawrence A. Mendelsohn and their respective estates,
spouses, heirs, ancestors, lineal descendants and legatees and legal
representatives of any of the foregoing and the trustee of any bona fide trust
of which one or more of the foregoing are the trustees or the majority
beneficiaries, and any entity of which any of the foregoing, individually or
collectively, beneficially owns more than 50% of the Voting Stock thereof.

"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under compulsion to
complete the transaction; provided, however, that the Fair Market Value of any
asset or assets shall be determined by the Board of Directors of the Company,
acting in good faith, and shall be evidenced by a resolution of such Board of
Directors delivered to the Trustee.

"Fixed Charges" means, with respect to any Person for any period, the sum of
(i) Consolidated Interest Expense of such Person for such period, and (ii) the
product of (A) all cash dividend payments on any series of Preferred Stock or
Disqualified Capital Stock of such Person or its Subsidiaries for such period,
and (B) a fraction, the numerator of which is one and the denominator of which
is one minus the then-current combined

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federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case on a consolidated basis and in accordance with GAAP.

"GAAP" means generally accepted accounting principles.

"Guaranteed Indebtedness" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
person through an agreement (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness, (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make
payment of such Indebtedness or to assure the holder of such Indebtedness
against loss, (iii) to supply funds to, or in any other manner invest in, the
debtor (including any agreement to pay for property or services without
requiring that such property be received or such services be rendered), (iv)
to maintain working capital or equity capital of the debtor, or otherwise to
maintain the net worth, solvency or other financial condition of the debtor,
or (v) otherwise to assure a creditor with respect to Indebtedness against
loss; provided that the term shall not include endorsements for collection of
deposit, in either case in the ordinary course of business.

"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.

"Holders" means the registered holders of the Notes.

"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities arising in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of
such Person in connection with any letters of credit issued under letter of
credit facilities, and in connection with any agreement by such Person to
purchase, redeem, exchange, convert or otherwise acquire for value any Capital
Stock of such Person now or hereafter outstanding, (ii) all obligations of
such Person evidenced by bonds, notes, debentures or other similar
instruments, (iii) all indebtedness of such Person created or arising under
any conditional sale or other title retention agreement with respect to
property acquired by such Person, but excluding trade payables arising in the
ordinary course of business, (iv) all obligations under interest rate
agreements of such Person, (v) all Capital Lease Obligations of such Person,
(vi) all Indebtedness referred to in clauses (i) through (v) above of other
Persons and all dividends payable by other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien, upon or with
respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness (the amount of such
obligations being deemed to be the lesser of the value of such property or
asset or the amount of the obligations so secured), (vii) all guarantees by
such Person of Guaranteed Indebtedness, (viii) all Disqualified Capital Stock
(valued at the greater of book value and voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends) of such Person, and
(ix) any amendment, supplement, modification, deferral, renewal, extension,
refunding or refinancing or any liability of the types referred to in clauses
(i) through (viii) above. For purposes hereof, (x) the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital Stock, such fair market
value is to be determined in good faith by the board of directors (or any duly
authorized committee thereof) of the issuer of such Disqualified Capital
Stock, and (y) Indebtedness is deemed to be incurred pursuant to a revolving
credit facility each time an advance is made thereunder.

"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, repurchase agreement, futures contract or other financial
agreement or arrangement designed to protect the Company or any Subsidiary
against fluctuations in interest rates.

"Junior Indebtedness" means any Indebtedness of the Company subordinated in
right of payment of either principal, premium (if any) or interest thereon to
the Notes.

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"Leverage Ratio" as of any date of determination means the ratio of (i) the
aggregate amount of all Indebtedness and Disqualified Capital Stock of the
Company, excluding (A) Indebtedness and Guarantees thereof permitted to be
incurred pursuant to clauses (e) (1), (2), (3), (6) and (7) of "Certain
Covenants--Limitation on Indebtedness," (B) Hedging Obligations permitted to
be incurred pursuant to clause (e)(13) of the covenant described under
"Certain Covenants--Limitation on Indebtedness" and (C) Junior Indebtedness of
the Company to (ii) the Consolidated Net Worth of the Company.

"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.

"Liquid Assets" shall include: (i) cash; (ii) any of the following
instruments that have a remaining term to maturity not in excess of 90 days
from the determination date: (a) repurchase agreements on obligations of, or
are guaranteed as to timely receipt of principal and interest by, the United
States or any agency or instrumentality thereof when such obligations are
backed by the full faith and credit of the United States provided that the
party agreeing to repurchase such obligations is a primary dealer in U.S.
government securities, (b) federal funds and deposit accounts, including but
not limited to certificates of deposit, time deposits and bankers' acceptances
of any U.S. depository institution or trust company incorporated under the
laws of the United States or any state, provided that the debt of such
depository institution or trust company at the date of acquisition thereof has
been rated by Standard & Poor's Corporation in the highest short-term rating
category or has an equivalent rating from another nationally recognized rating
agency, or (c) commercial paper of any corporation incorporated under the laws
of the United States or any state thereof that on the date of acquisition is
rated investment grade by Standard & Poor's Corporation or has an equivalent
rating from another nationally recognized rating agency; (iii) any debt
instrument which is an obligation of, or is guaranteed as to the receipt of
principal and interest by the United States, its agencies or any U.S.
government sponsored enterprise, or (iv) any mortgage-backed or mortgage-
related security issued by the United States, its agencies, or any U.S.
government sponsored enterprise which the payment of principal and interest
from the mortgages underlying such securities will be passed through to the
holder thereof and which such security has a remaining weighted average
maturity of 15 years or less. Notwithstanding the foregoing, Liquid Assets
shall not include any debt instruments, securities or collateralized mortgage
obligations (real estate mortgage investment conduits) that would be
classified as a "High-Risk Mortgage Security" pursuant to the policy statement
adopted by the Federal Financial Institutions Examination Counsel on February
10, 1992, as reflected in Volume I of the Federal Reserve Report Service, Part
3-1562.

"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock, or options, warrants or rights to purchase Capital Stock, or debt
securities or Capital Stock that have been converted into or exchanged for
Capital Stock, or any capital contribution in respect of Capital Stock, as
referred to under "Certain Covenants, Limitation on Restricted Payments," the
proceeds of such issuance or sale or capital contribution in the form of cash
or cash equivalents, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when
disposed for, cash or cash equivalents (except to the extent that such
obligations are financed or sold with recourse to the Company or any
Subsidiary of the Company), net of attorney's fees, accountant's fees and
brokerage, consulting, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale or capital contribution and
net of taxes paid or payable by the Company as a result thereof.

"Non-Recourse Indebtedness" is defined to mean, with respect to any Person,
Indebtedness of such Person for which (i) the sole recourse for collection of
principal and interest on such Indebtedness is against the specific assets
identified in the instruments evidencing or securing such Indebtedness, (ii)
such assets were acquired with the proceeds of such Indebtedness or such
Indebtedness was incurred concurrently with the acquisition of such
assets; and (iii) no other assets (other than Credit Support) of such Person
or of any other Person may be realized upon or in collection of principal or
interest on such Indebtedness.

"Pari Passu Indebtedness" means any Indebtedness of the Company that is pari
passu in right of payment of principal, premium (if any) and interest thereon
to the Notes.

"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have

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been made; (ii) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens imposed by
law and arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made, (iii) Liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, surety and appeal bonds, progress
payments, development obligations, government contracts, performance and
return-of-money bonds and other obligations of a similar nature, in each case
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money or otherwise constituting a liability in accordance
with GAAP); (v) with respect to property of the Company or any Subsidiary,
Liens granted on such property or assets in favor of the Person from whom the
Company or such Subsidiary acquired such property or assets which Liens secure
the payment of a contingent portion of the purchase price of such property so
long as such Liens are granted and such arrangement is entered into in the
ordinary course of business of the Company; (vi) attachment or judgment Liens
not giving rise to a Default or Event of Default and which are being contested
in good faith by appropriate proceedings; (vii) easements, rights-of-way,
restrictions, homeowners association assessments and similar charges or
encumbrances that do not materially interfere with the ordinary course of
business of the Company or any of its Subsidiaries; (viii) zoning
restrictions, licenses, restrictions on the use of real property or minor
irregularities in title thereto, which do not materially impair the use of
such property in the ordinary course of business of the Company or any
Subsidiary or the value of such real property for the purpose of such
business; (ix) Liens in favor of the Company or any Subsidiary that is a
Wholly Owned Subsidiary of the Company; (x) Liens existing on the Closing
Date; (xi) Liens securing Non-Recourse Indebtedness of the Company or a
Subsidiary thereof; (xii) Liens with respect to the property or assets of the
Company or a Subsidiary securing Indebtedness permitted to be incurred
pursuant to clauses (e)(1), (2), (3), (6) and (7) of "Certain Covenants--
Limitations on Indebtedness"; (xiii) Liens granted after the Closing Date on
any assets or Capital Stock of the Company or its Subsidiaries created in
favor of the Holders; (xiv) Liens with respect to the property or assets of a
Subsidiary granted by such Subsidiary to the Company to secure Indebtedness
owing to the Company; (xv) Liens securing Indebtedness which is incurred to
refinance Permitted Indebtedness, provided that such Liens constitute
Permitted Liens under this clause (xv) only to the extent that they do not
extend to or cover any property or assets of the Company or any Subsidiary
other than the property or assets securing the Indebtedness being refinanced;
(xvi) leases or subleases granted to others not materially interfering with
the ordinary course of business of the Company or any of its Subsidiaries;
(xvii) other Liens securing obligations not exceeding $1,000,000; and (xviii)
Liens securing Hedging Obligations of the Company or such Subsidiary so long
as such Hedging Obligations relate to Indebtedness that is, and is permitted
under the Indenture to be, secured by a Lien on the same property securing
such Hedging Obligations.

"Permitted Payment" means, so long as no Default or Event of Default is
continuing,

(a) the purchase, redemption, defeasance or other acquisition or retirement
for value of any Capital Stock of the Company or any Affiliate (other than a
Wholly-Owned Subsidiary, which is unrestricted) of the Company, Junior
Indebtedness or Pari Passu Indebtedness in exchange for (including any such
exchange pursuant to the exercise of a conversion right or privilege where, in
connection therewith, cash is paid in lieu of the issuance of fractional
shares or scrip), or out of the Net Cash Proceeds or Fair Market Value of
property not constituting Net Cash Proceeds of, a substantially concurrent
issue and sale (other than to a Subsidiary of the Company or to an employee
benefit plan of the Company or any of its Subsidiaries) of Qualified Capital
Stock of the Company; provided that the Net Cash Proceeds or Fair Market Value
of such property received by the Company from the issuance of such shares of
Qualified Capital Stock, to the extent so utilized, shall be excluded from
clause (c)(iii) of the covenant described under "Covenants, Limitation on
Restricted Payments" above; and

(b) the repurchase, redemption, defeasance or other acquisition or
retirement for value of any Junior Indebtedness or Pari Passu Indebtedness in
exchange for, or out of the Net Cash Proceeds of, a substantially concurrent
issue and sale (other than to a Subsidiary of the Company) of new Indebtedness
to the Company (such

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a transaction, a "refinancing"); provided, that any such new Indebtedness of
the Company (i) shall be in a principal amount that does not exceed an amount
equal to the sum of (A) the principal amount of the Indebtedness so refinanced
less any discount from the face amount of such Indebtedness to be refinanced
expected to be deducted from the amount payable to the holders of such
Indebtedness in connection with such refinancing, (B) the amount of any
premium expected to be paid in connection with such refinancing pursuant to
the terms of the Junior Indebtedness or Pari Passu Indebtedness refinanced or
the amount of any premium reasonably determined by the Company as necessary to
accomplish such refinancing by means of a tender offer, privately negotiated
repurchase or otherwise and (C) the amount of legal, accounting, printing and
other similar expenses of the Company incurred in connection with such
refinancing; provided, further, that for purposes of this clause (i), the
principal amount of any Indebtedness shall be deemed to mean the principal
amount thereof or, if such Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination; (ii)
(A) if such refinanced Indebtedness has an Average Life to Stated Maturity
shorter than that of the Notes or a final Stated Maturity earlier than the
final Stated Maturity of the Notes, such new Indebtedness shall have an
Average Life to Stated Maturity no shorter than the Average Life to Stated
Maturity of such refinanced Indebtedness and a final Stated Maturity no
earlier than the final Stated Maturity of such refinanced Indebtedness or (B)
in all other cases each Stated Maturity of principal (or any required
repurchase, redemption, defeasance or sinking fund payments) of such new
Indebtedness shall be after the final Stated Maturity of principal of the
Notes; and (iii) is (A) made expressly subordinated to or pari passu with the
Notes to substantially the same extent as the Indebtedness being refinanced or
(B) expressly subordinate to such refinanced Indebtedness.

"Permitted Repurchase Facilities" includes purchase and sale facilities
pursuant to which the Company or a Subsidiary sells loans, real estate owned
or other financial assets to a financial institution or other entity and
agrees to repurchase such loans, real estate owned or financial assets.

"Permitted Acquisition Indebtedness" means any secured funding arrangement
with a financial institution or other lender to the extent (and only to the
extent) funding thereunder is used exclusively to finance or refinance the
purchase or origination of loans, real estate owned or other financial assets
by the Company or a Subsidiary.

"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivisions thereof.

"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary liquidation or dissolution of such Person, over Capital Stock of any
other class in such Person.

"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Capital Stock.

"Regulatory Capital Requirements" means the minimum amount of capital
required to meet each of the industry-wide regulatory capital requirements
applicable to the Savings Banks pursuant to 12 U.S.C. Section 1464(t) and 12
C.F.R. Section 567 (and any amendment to either thereof) or any successor law
or regulation, or such higher amount of capital as either Savings Bank,
respectively, is required to maintain in order to meet any individual minimum
capital standard applicable to the Savings Bank pursuant to 12 U.S.C. Section
1464(s) and 12 C.F.R. Section 567.3 or to comply with any enforcement action,
including but not limited to the Orders, issued pursuant to 12 U.S.C. Section
1818(b) (and any amendment to any of the foregoing) or any successor law or
regulation.

"Restricted Payment" means

(a) the declaration, payment or setting apart of any funds for the payment
of any dividend on, or making of any distribution to holders of, the Capital
Stock of the Company or any Subsidiary of the Company (other than

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(i) dividends or distributions in Qualified Capital Stock of the Company and
(ii) dividends or distributions payable on or in respect of any class or
series of Capital Stock of a Subsidiary of the Company as long as the Company
receives at least its pro rata share of such dividends or distributions in
accordance with its ownership interests in such class or series of Capital
Stock);

(b) the purchase, redemption or other acquisition or retirement for value,
directly or indirectly, of any Capital Stock of the Company or any Affiliate
of the Company (other than a Wholly-Owned Subsidiary, and other than the
purchase from a non-Affiliate of the Company of Capital Stock of any joint
venture or other Person which is an Affiliate of the Company solely because of
the Company's direct or indirect ownership of 20% or more of the Voting Stock
of such joint venture or other Person); or

(c) The making of any principal payments on, or repurchase, redemption,
defeasance, retirement or other acquisition for value, directly or indirectly,
of any Junior Indebtedness or Pari Passu Indebtedness, prior to any Stated
Maturity of principal or scheduled redemption or defeasance of, or any
scheduled sinking fund payment on, such Junior Indebtedness or Pari Passu
Indebtedness.

"Securitization Entity" means any pooling arrangement or entity formed or
originated for the purpose of holding, and/or issuing securities representing
interests in, one or more pools of mortgages, leases, credit card receivables,
home equity loan receivables, automobile loans, leases or installment sales
contracts, other consumer receivables, real estate owned or other financial
assets of the Company or any Subsidiary, and shall include, without
limitation, any partnership, limited liability company, liquidating trust,
grantor trust, owner trust, real estate mortgage investment conduit, real
estate investment trust or collateralized bond obligation.

"Significant Subsidiary" means, with respect to any Person, any consolidated
Subsidiary of such Person for which the net income of such Subsidiary was more
than 25% of the Consolidated Net Income of such Person in both of the two
prior fiscal years.

"Stated Maturity" when used with respect to any Indebtedness (including,
without limitation, the Notes) means the dates specified in the instrument
governing such Indebtedness as the fixed dates on which any principal amount
of such Indebtedness is due and payable (including, without limitation, by
reason of any required redemption, purchase, defeasance or sinking fund
payment) and, when used with respect to any installment of interest on
Indebtedness, means the date on which such installment is due and payable.

"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the voting power of Voting
Stock thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of such Person or a
combination thereof.

"Unsecured Debt Coverage Ratio" means, with respect to any Person for any
period, the ratio of Consolidated EBITDA of such Person for such period to the
Fixed Charges of such Person for such period. In the event that the Company
incurs, assumes, guarantees or redeems any Indebtedness (including any
Indebtedness which constitutes Acquired Indebtedness) subsequent to the
commencement of the period for which the Unsecured Debt Coverage Ratio is
being calculated but prior to the event for which the calculation of the
Unsecured Debt Coverage Ratio is made (the "Calculation Date"), then the
Unsecured Debt Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, guarantee or redemption of Indebtedness, as if
the same had occurred at the beginning of the applicable four-quarter period,
including an assumption of investment returns at the rate equal to the higher
of the six-month Treasury bill rate or six-month LIBOR at the beginning of
such four-quarter period. For purposes of making the computation referred to
above, investments in the equity of, or other acquisitions or dispositions,
which constitute all or substantially all of an operating unit of a business
and discontinued operations (as determined in accordance with GAAP) that have
been made by the Company or any of its Subsidiaries, including all mergers,
consolidations and dispositions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be calculated on a pro forma basis assuming that all such investments,
acquisitions, dispositions, discontinued operations, mergers and
consolidations (and the reduction of any associated fixed charge obligations

108
<PAGE>

and the change in Consolidated EBITDA resulting therefrom) had occurred on the
first day of the four-quarter period. If since the beginning of such period
any Person (that subsequently became a Subsidiary or was merged with or into
the Company or any Subsidiary since the beginning of such period) shall have
made any investment in the equity of, or other acquisition or disposition,
which constitutes all or substantially all of an operating unit of a business,
discontinued operation, merger or consolidation that would have required
adjustment pursuant to this definition, then the Unsecured Debt Coverage Ratio
shall be calculated giving pro forma effect thereto for such period as if such
investment, acquisition, disposition, discontinued operation, merger or
consolidation had occurred at the beginning of the applicable four-quarter
period. For purposes of this definition, whenever pro forma effect is to be
given to a transaction, the pro forma calculations shall be made in good faith
by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate
in effect on the Calculation Date had been the applicable rate for the entire
period. Interest on a Capital Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by a responsible financial or accounting
officer of the Company to be the rate of interest implicit in such Capital
Lease Obligation in accordance with GAAP. Interest on Indebtedness that may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rate, shall be
deemed to have been based upon the rate actually chosen, or, if none, then
based upon such optional rate chosen as the Company may designate.

"Voting Stock" means Capital Stock of the class or classes of which the
holders have (i) in respect of a corporation, the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of such corporation (irrespective of whether or not at
the time Capital Stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency) or (ii) in respect
of a partnership, the general voting power under ordinary circumstances to
elect the board of directors or other governing board of such partnership or
of the Person which is a general partner of such partnership.

"Wholly-Owned Subsidiary" means a Subsidiary all of the Capital Stock of
which (other than directors' qualifying shares) is owned by the Company or
another Wholly-Owned Subsidiary.

109
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement with
respect to the Notes Offering (the "Notes Underwriting Agreement") between
WFSG and Friedman, Billings, Ramsey & Co., Inc. (the "Notes Underwriter"),
WFSG has agreed to sell and the Notes Underwriter has agreed to purchase from
WFSG the aggregate principal amount of Notes offered hereby.

The Notes Underwriting Agreement provides that, subject to the terms and
conditions set forth therein (including the completion of the Common Stock
Offering), the Notes Underwriter will purchase all of the Notes offered hereby
if any such Notes are purchased.

The Notes Underwriter proposes to offer the Notes directly to the public at
the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of % of the principal amount. The Notes Underwriter may allow, and
such dealers may reallow, a concession not in excess of % of the principal
amount on sales to certain other dealers. The offering of the Notes is made
for delivery when, as and if accepted by the Notes Underwriter and is subject
to prior sale and to withdrawal, cancellation or modification of the offer
without notice. The Notes Underwriter reserves the right to reject any order,
in whole or in part, for the purchase of Notes. After the initial public
offering of the Notes, the offering price and other selling terms may be
changed by the Notes Underwriter.

The Notes Underwriter does not intend to confirm sales to any account over
which it exercises discretionary authority.

The Company has agreed to indemnify the Notes Underwriter against certain
liabilities, including liabilities under the federal securities laws, or to
contribute to payments that the Notes Underwriter may be required to make in
respect thereof.

LEGAL MATTERS

The legality of the Notes offered hereby will is being passed on for the
Company by Proskauer Rose Goetz & Mendelsohn LLP, New York, New York. Certain
legal matters in connection with the Notes offered hereby will be passed upon
for the Notes Underwriter by Gibson, Dunn & Crutcher LLP, Orange County,
California.

EXPERTS

The audited consolidated financial statements of the Company and its
subsidiaries at and for the nine months ended September 30, 1996 and at
December 31, 1995 and 1994, and for the years then ended, the audited
consolidated financial statements of Girard Savings Bank, F.S.B. and
Subsidiary for the period from January 1 through November 8, 1994, and the
audited combined financial statements of Wilshire Credit Corporation and
Affiliates as of December 31, 1995 and 1994 and for the years ended December
31, 1995 and 1994 included herein and elsewhere in the Registration Statement
have been included herein and elsewhere in the Registration Statement in
reliance upon the reports of Deloitte & Touche LLP, independent auditors, upon
the authority of said firm as experts in auditing and accounting.

110
<PAGE>

INDEX TO FINANCIAL STATEMENTS

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Wilshire Financial Services Group Inc. and Subsidiaries

/s/ Deloitte & Touche LLP
November 13, 1996
Los Angeles, California

F-2
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

See notes to consolidated financial statements.

F-3
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to consolidated financial statements.

F-4
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued)
See notes to consolidated financial statements.

F-5
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

See notes to consolidated financial statements.

F-6
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

See notes to consolidated financial statements.

F-7
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Because WAC and WACII were under common control, the accompanying financial
statements are presented on a combined basis as of December 31, 1994 and for
the period from November 9 through December 31, 1994. On December 27, 1995,
WAC and WACII were merged and WAC was named as the surviving entity. Financial
information as of September 30, 1996 and December 31, 1995 and for the nine
months and year then ended, respectively, is presented on a consolidated or
combined basis and includes the accounts of WAC, FBBH and GSB. With respect to
all consolidated and combined financial information, intercompany transactions
and balances have been eliminated. For convenience, all the accompanying
financial statements are referred to as "consolidated".

Cash and Cash Equivalents--For purposes of reporting cash flows, cash and
cash equivalents include cash and due from banks and federal funds sold.

F-8
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

F-9
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

F-10
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Reclassifications--Certain amounts in the consolidated financial statements
for 1995 and 1994 have been reclassified to conform to the 1996 presentation.

F-11
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SECURITIES

The amortized cost and estimated fair value of securities held to maturity
other than mortgage-backed securities at September 30, 1996, and December 31,
1995 by contractual maturity, are as follows:

The Company receives payments on all mortgage-backed securities over periods
that are considerably shorter than the contractual maturities of the
securities, which range from 6 to 30 years.

F-12
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. LOANS, DISCOUNTED LOANS AND LOANS HELD FOR SALE

The Company's loans comprise loans, discounted loans and loans held for
sale. Following is a summary of each loan category by type:

F-13
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Activity in the allowance for loan losses is summarized as follows:

F-14
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. REAL ESTATE OWNED

5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT

Leasehold improvements and equipment consist of:

6. DEPOSITS

A summary of time deposits by maturity at September 30, 1996 is as follows:

F-15
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. BORROWINGS AND SUBORDINATED DEBT

Following is information about borrowings under repurchase agreements:

8. INCOME TAXES

The provisions for income tax (benefit) consist of the following:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
1996 DECEMBER 31,
------------- --------------
1995 1994
------ ------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal..................................... $ (93) $ 434 $ (656)
State....................................... 2 32 19
------- ------ ------
(91) 466 (637)
------- ------ ------
Deferred tax expense (benefit):
Federal..................................... (3,081) (250) 90
State....................................... (1,480) (169) 21
------- ------ ------
(4,561) (419) 111
------- ------ ------
Total income tax provision (benefit).......... $(4,652) $ 47 $ (526)
======= ====== ======
</TABLE>

F-16
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The difference between the effective tax rate implicit in the consolidated
financial statements and the statutory federal income tax rate can be
attributed to the following:

Deferred income taxes receivable (payable), which are included in income
taxes receivable, net in the consolidated statements of financial condition,
are summarized as follows:

F-17
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET RISK

Lease Commitments--The following is a schedule by year of future minimum
rental payments:

Lease commitments include commitments to an affiliated company which require
annual lease payments of $52 through 2001.

10. REGULATORY MATTERS

F-18
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

F-19
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Banks' actual and required capital amounts and ratios are as follows:

<TABLE>
<CAPTION>
TO BE
CATEGORIZED AS "WELL-
CAPITALIZED", UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------- --------------------------------------- ----------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- -------- ---------------------------- -------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1996
Total Capital to Risk-
Weighted Assets:
FBBH.................. $ 9,711 10.0% $ 7,760 greater than or equal to 8.0% $ 9,701 greater than or equal to 10.0%
GSB................... 30,297 11.0% 22,010 greater than or equal to 8.0% 27,513 greater than or equal to 10.0%
Tier 1 Capital to
Risk-Weighted
Assets:
FBBH.................. 8,434 8.7% Not Applicable 5,820 greater than or equal to 6.0%
GSB................... 26,739 9.7% Not Applicable 16,508 greater than or equal to 6.0%
Tier 1 Capital to
Average
Assets (Core Capital):
FBBH.................. 8,434 5.9% 5,706 greater than or equal to 4.0% 7,132 greater than or equal to 5.0%
GSB................... 26,739 7.0% 15,320 greater than or equal to 4.0% 19,150 greater than or equal to 5.0%
Tangible Capital:
FBBH.................. 8,434 6.0% 2,120 greater than or equal to 1.5% Not Applicable
GSB................... 26,739 6.8% 5,855 greater than or equal to 1.5% Not Applicable
DECEMBER 31, 1995
Total Capital to Risk-
Weighted
Assets:
FBBH.................. $ 9,820 9.8% $ 7,999 greater than or equal to 8.0% $ 9,998 greater than or equal to 10.0%
GSB................... 15,523 10.4% 11,973 greater than or equal to 8.0% 14,967 greater than or equal to 10.0%
Tier 1 Capital to
Risk-Weighted
Assets:
FBBH.................. 8,549 8.6% Not Applicable 5,999 greater than or equal to 6.0%
GSB................... 13,852 9.3% Not Applicable 8,980 greater than or equal to 6.0%
Tier 1 Capital to
Average
Assets (Core Capital):
FBBH.................. 8,549 6.4% 5,326 greater than or equal to 4.0% 6,657 greater than or equal to 5.0%
GSB................... 13,852 10.3% 5,398 greater than or equal to 4.0% 6,748 greater than or equal to 5.0%
Tangible Capital:
FBBH.................. 8,549 6.8% 3,075 greater than or equal to 1.5% Not Applicable
GSB................... 13,852 6.2% 2,066 greater than or equal to 1.5% Not Applicable
</TABLE>

F-20
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. RELATED PARTY TRANSACTIONS

12. STOCK OPTIONS

13. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS

F-21
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The methods and assumptions used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate that value are
explained below:

Cash and Due From Banks and Federal Funds Sold--The carrying amounts
approximate fair values, due to the short-term nature of these instruments.

F-22
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Federal Home Loan Bank Stock--The carrying amounts approximate fair
values because the stock may be sold back to the Federal Home Loan Bank at
carrying value.

Borrowings--The carrying amounts of repurchase agreements approximates
fair value due to the short-term nature of these instruments.

14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

F-23
<PAGE>

15. PARENT COMPANY INFORMATION

CONDENSED STATEMENTS OF FINANCIAL CONDITION

F-24
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

F-25
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

16. PROFORMA INFORMATION CONCERNING ACQUISITIONS

17. INITIAL PUBLIC OFFERINGS

18. SUBSEQUENT EVENTS--LOAN ACQUISITIONS AND SALES

F-26
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Girard Savings Bank F.S.B.
San Diego, California

/s/ Deloitte & Touche LLP
March 10, 1995
Los Angeles, California

F-27
<PAGE>

GIRARD SAVINGS BANK F.S.B. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 1, 1994 THROUGH NOVEMBER 8, 1994
(IN THOUSANDS)

See notes to consolidated financial statements.

F-28
<PAGE>

GIRARD SAVINGS BANK F.S.B. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1994 THROUGH NOVEMBER 8, 1994
(IN THOUSANDS)

See notes to consolidated financial statements.

F-29
<PAGE>

GIRARD SAVINGS BANK F.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1, 1994 THROUGH NOVEMBER 8, 1994
(IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

F-30
<PAGE>

GIRARD SAVINGS BANK F.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

allowance is increased by provisions for loan losses charged against
operations and recoveries of previously charged off credits.

2. SUBSEQUENT EVENT

3. INCOME TAX PROVISION

The provision for income taxes consists of the following:

F-31
<PAGE>

GIRARD SAVINGS BANK F.S.B. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The difference between the effective tax rate implicit in the consolidated
statements of operations and the statutory income tax rate can be attributed
to the following:

4. COMMITMENTS AND CONTINGENCIES

Lease Commitments--At November 8, 1994, there are no operating leases with
initial or remaining noncancellable lease terms in excess of one year.

Lending Commitments--At November 8, 1994, the Bank had no outstanding
commitments to fund loans and no obligations under standby letters of credit
or other off-balance-sheet items with credit risk.

F-32
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
Wilshire Credit Corporation and Affiliates
Portland, Oregon:

/s/ Deloitte & Touche LLP
November 13, 1996
Los Angeles, California

F-33
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

STATEMENTS OF FINANCIAL CONDITION

See notes to combined financial statements.

F-34
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

COMBINED STATEMENTS OF OPERATIONS

See notes to combined financial statements.

F-35
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

See notes to combined financial statements.

F-36
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ------------------
1996 1995 1994
------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ (4,021) $ 519 $ (1,061)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Gain on sale of loans..................... (935) (43) (465)
Valuation adjustment--loans held for
sale..................................... -- -- 254
Interest capitalized on commercial notes.. (1,550) (581) --
Depreciation and amortization............. 524 343 179
Change in:
Trading securities...................... (11,818) -- --
Security purchased under agreement to
resell................................. -- 24,938 (24,938)
Other receivables....................... (1,166) 530 (756)
Due from affiliates..................... (1,714) (386) (373)
Other assets............................ 122 (1,912) (1,126)
Due to affiliates....................... 4,733 185 2,770
Accounts payable and accrued
liabilities............................ 2,705 1,931 1,926
Security sold but not yet purchased..... -- (24,738) 24,738
Other................................... -- 38 --
-------- -------- --------
Net cash provided by (used in)
operating activities................. (13,130) 345 1,148
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity securities.... (8,371) (4,160) (851)
Proceeds from maturities of held-to-maturity
securities................................. 243 368 --
Purchase of available-for-sale securities... (5,377) (2,602) --
Proceeds from maturities of available-for-
sale securities............................ 824 116 --
Acquisitions and originations of loans...... (258,771) (168,558) (240,881)
Proceeds from sale of loans................. 120,707 109,034 8,420
Receipts of principal on loans.............. 26,330 137,642 39,179
Origination of commercial notes receivable.. -- (7,680) (1,000)
Purchase of property........................ (2,248) (5,339) (219)
-------- -------- --------
Net cash provided by (used in)
investing activities................. (126,663) 58,828 (195,352)
-------- -------- --------
</TABLE>

See notes to combined financial statements.

F-37
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS--(CONTINUED)

See notes to combined financial statements.

F-38
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Combination--The combined financial statements of Wilshire Credit
Corporation and Affiliates (the "Corporations") include the accounts of the
following companies:

All of the above companies are under common ownership and management. All
significant intercompany balances and transactions have been eliminated in
combination.

WP-I operates the Corporations' headquarters facilities, which were acquired
under a capital lease with a bargain purchase option.

WP-II owns and manages two commercial real estate properties located in
Oregon.

WS was formed for the purpose of engaging in broker/dealer activities, but
has had no significant activity.

WF-4-1, WF-5-1, WF-5-2, WF-5-3 and WF-6-1 were formed primarily for the
purpose of acquiring and securitizing various loan portfolios.

F-39
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

WMFC is the holding company for WF which, was formed for the purpose of
acquiring and originating residential home mortgages.

F-40
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

F-41
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Rental Income and Finance Lease Income--Rental income and finance lease
income is derived from operating leases on commercial real estate and from
cellular and portable telephone rentals.

Property--Property is stated at cost less accumulated depreciation.
Depreciation is determined using the straight-line method over the estimated
useful lives of the related assets.

Financial Instruments--The Corporations enter into transactions involving
financial instruments both for speculative trading purposes and for hedging
purposes.

Earnings per Share--Earnings per share data is omitted because each company
in the combined group has an independent capital structure, and varying
numbers of outstanding shares of stock.

F-42
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

2.SECURITIES

Securities consist of the following at September 30, 1996 and December 31,
1995:

There were no sales of securities in the nine months ended September 30,
1996 or the years ended December 31, 1995 and 1994.

3.LOANS

Loans, discounted loans and loans held for sale are as follows:

F-43
<PAGE>

Substantially all loans collateralize participating interests and
borrowings.

4.PROPERTY

The following table summarizes future minimum rental income under
noncancelable operating leases as of September 30, 1996:

F-44
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

5. BORROWINGS

Maturities of long-term borrowings (mortgages on investment real estate) are
as follows:

Following is information about the Corporations' borrowings under reverse
repurchase agreements during the nine months ended September 30, 1996:

F-45
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

6. CAPITAL LEASE OBLIGATIONS

7. FINANCIAL INSTRUMENTS

F-46
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

8. OPERATING LEASES

9. LOAN SERVICING

10. COMMITMENTS AND CONTINGENCIES

F-47
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

based on profits of the Corporations or based on matching participants'
contributions. During 1996 and 1995, the Corporations contributed $97 and $46,
respectively, to the plan.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash and Cash Equivalents--The carrying amounts reported in the combined
statements of financial condition for cash and cash equivalents approximate
their fair values.

F-48
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Off-Balance-Sheet Items--The fair value of options and futures used for
hedging purposes are based on quoted market prices.

12. SUBSEQUENT EVENTS--REORGANIZATION OF THE CORPORATIONS

F-49
<PAGE>

WILSHIRE CREDIT CORPORATION AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

F-50
<PAGE>

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

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

TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 12
The Company.............................................................. 20
Recent Developments...................................................... 21
Wilshire Credit Corporation.............................................. 22
Use of Proceeds.......................................................... 26
Capitalization........................................................... 27
Selected Financial Information........................................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 32
Business................................................................. 48
Regulation............................................................... 69
Taxation................................................................. 78
Management............................................................... 80
Principal Stockholders................................................... 88
Certain Relationships and Related Transactions........................... 89
Description of Notes..................................................... 91
Underwriting............................................................. 110
Legal Matters............................................................ 110
Experts.................................................................. 110
Index to Financial Statements............................................ F-1
</TABLE>

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES OFFERED HEREBY, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

$75,000,000

$60,000,000

------------------------
WILSHIRE
------------------------
FINANCIAL SERVICES GROUP

% NOTES DUE 2003

---------------
PROSPECTUS
---------------

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LC962980.025
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth an itemized statement of all estimated
expenses in connection with the registration, offering and sale of the
securities being registered hereby other than underwriting discounts and
commissions.

<TABLE>
<S> <C>
SEC registration fee............................................ $ 27,181
NASD and NASDAQ fees............................................ 44,000
Accounting fees and expenses.................................... *
Legal fees and expenses......................................... *
Blue sky fees and expenses (including counsel fees)............. *
Printing and engraving expenses................................. 75,000
Transfer agent's fees........................................... 10,000
Miscellaneous expenses.......................................... 125,000
--------
Total....................................................... $ *
========
</TABLE>
- --------
* To be completed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article NINTH of the Registrant's Certificate of Incorporation provides that
the Registrant shall indemnify to the fullest extent not prohibited by law any
current or former director or officer of the Registrant and may indemnify to
the fullest extent not prohibited by law any current or former employee or
agent of the Registrant who is made, or threatened to be made, a party to an
action, suit or proceeding, whether civil, criminal, administrative,
investigative or other (including and action, suit or proceeding by or in the
right of the Registrant), by reason of the fact that such person is or was a
director, officer, employee or agent of the Registrant or a fiduciary of any
employee benefit plan of the Registrant, or serves or served at the request of
the Registrant as a director, officer, employee or agent, or as a fiduciary of
an employee benefit plan, of another corporation, partnership, joint venture,
trust or other enterprise. The Registrant shall pay for or reimburse the
reasonable expenses incurred by such current of former director or officer and
may pay for or reimburse the reasonable expenses incurred by any such current
of former employee or agent in such proceeding in advance of the final
disposition of the proceeding if the person sets forth in writing (i) the
person's good faith belief that the person is entitled to indemnification and
(ii) the person's agreement to repay all advances if it is ultimately
determined that the person is not entitled to indemnification pursuant to the
Certificate of Incorporation. Article EIGHTH of the Registrant's Certificate
of Incorporation provides that no director of the Registrant shall be liable
for monetary damages for breach of fiduciary duty as a director. The
Registrant also provides its directors and officers coverage under a
director's and officer's liability insurance policy.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In connection with the formation of the Company on October 28, 1996, the
Company sold two shares of Common Stock to Andrew A. Wiederhorn and one share
of Common Stock to Lawrence A. Mendelsohn at a purchase price of $5.00 per
share, pursuant to an exemption from registration under Section 4(2) of the
Securities Act.

II-1
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
*1.1 Form of Underwriting Agreement relating to the Common Stock
*1.2 Form of Underwriting Agreement relating to the Notes
+3.1 Certificate of Incorporation
+3.2 By-laws
*4.2 Form of Indenture, dated as of , 1996 among Wilshire
Financial Services Group Inc. and
*4.3 Form of Notes (included in Exhibit 4.2)
+5.1 Opinion of Proskauer Rose Goetz & Mendelsohn LLP
**10.1 Form of Employment Agreement dated November 15, 1996 among the
Company and Andrew A. Wiederhorn
**10.2 Form of Employment Agreement dated November 15, 1996 among the
Company and Lawrence A. Mendelsohn
+10.3 Incentive Stock Plan
+10.11 Cease and Desist Order
+10.12 Form of Servicing Agreement dated as of November 15, 1996 among
Wilshire Credit Corporation and Wilshire Financial Services
Group
+10.13 Master Repurchase Agreement dated as of July 29, 1996 among
Wilshire Credit Corporation and CS First Boston Capital
Corporation
+10.14 Additional Supplemental Terms to Master Repurchase Agreement,
dated as of July 29, 1996 between CS First Boston Mortgage
Capital Corp. and Wilshire Credit Corporation
+10.15 Interim Warehouse & Security Agreement, dated as of December 1,
1995, between Wilshire Funding Company, L.L.C. and Prudential
Securities Realty Funding Corp
+10.16 Amendment to Interim Warehouse and Security Agreement dated
June 28, 1996 between Wilshire Funding Company, L.L.C. and
Prudential Securities Realty Funding Corp
+10.17 Amendment No. 2 to Interim Warehouse and Security Agreement
dated September 27, 1996 between Wilshire Funding Company,
L.L.C. and Prudential Securities Realty Funding Corp
+10.18 Master Repurchase Agreement between First Bank of Beverly
Hills, F.S.B. and Bear Stearns Mortgage Capital Corporation
dated as of May 22, 1996
+10.19 Supplemental Terms and Conditions dated as of May 22, 1996
among First Bank of Beverly Hills, F.S.B. and Bear Stearns
Mortgage Capital Corporation
+10.20 Master Repurchase Agreement between Girard Savings Bank FSB and
Bear Stearns Mortgage Capital Corporation dated as of December
22, 1995
+10.21 Master Repurchase Agreement dated as of November 15, 1996
between CS First Boston Mortgage Capital Corp. and Wilshire
Funding Corp.
+10.22 Interim Warehouse and Security Agreement by and between
Prudential Securities Credit Corporation and WMFC 1997-2, Inc.
dated as of November 15, 1996
+11 Statement regarding earnings per share
+12 Statement regarding the computation of the ratio of earnings to
fixed charges
+21.1 Subsidiaries
+23.1 Consent of Proskauer Rose Goetz & Mendelsohn LLP (included in
Exhibit 5.1)
**23.2 Consent of Deloitte & Touche LLP
**23.3 Consent of Deloitte & Touche LLP
+23.4 Consent of KPMG Peat Marwick LLP
+24 Power of Attorney (see page II-4)
+25 Form T-1
+27 Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
+Previously filed.
**Refiled herewith.

II-2
<PAGE>

(b) Financial Statement Schedules:

The Financial Statement Schedules have been omitted because the information
required is not applicable or is included in the financial statements or notes
thereto. Columns omitted from schedules filed are omitted because the
information is not applicable.

ITEM 17. UNDERTAKINGS.

The undersigned Company hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance on Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of the securities at the time
shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Portland and the State of Oregon, on
this 27th day of November, 1996.

Wilshire Financial Services Group
Inc.

/s/ Andrew A. Wiederhorn
By: _________________________________
Andrew A. Wiederhorn Chief
Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
2 to the Registration Statement has been signed by the following persons in
their capacities on November 27, 1996.

SIGNATURE TITLE

/s/ Andrew A. Wiederhorn Chairman of the Board, Chief
- ------------------------------------- Executive Officer, Secretary and
ANDREW A. WIEDERHORN Treasurer (Principal Executive
Officer)

/s/ Lawrence A. Mendelsohn President and Director
- -------------------------------------
LAWRENCE A. MENDELSOHN

* Director
- -------------------------------------
DONALD H. COLEMAN

* Director
- -------------------------------------
DAVID DALE-JOHNSON

* Director
- -------------------------------------
PHILIP G. FORTE

Senior Vice President and Chief
* Financial Officer (Principal
- ------------------------------------- Accounting and Financial Officer)
CHRIS TASSOS

/s/ Lawrence A. Mendelsohn
----------------------------------
*By:
LAWRENCE A. MENDELSOHN ATTORNEY-IN-
FACT

II-4
<PAGE>

EXHIBIT INDEX

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<PAGE>

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, dated as of November 15, 1996, by and between
Wilshire Financial Services Group Inc. (the "Company"), with its principal
office at 1776 SW Madison Street, Portland, Oregon 97205 and Andrew A.
Wiederhorn, residing at 4311 SW Greenleaf Drive, Portland, Oregon 97221 (the
"Executive").

W I T N E S S E T H:
-------------------

WHEREAS, Executive is currently employed as the Chief Executive Officer of
the Company and is also a director of the Company; and

WHEREAS, the Company and Executive desire to enter into this agreement (the
"Agreement") to set forth terms of Executive's employment by the Company.

NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:

1. Term of Employment. Except for earlier termination as provided in
------------------
Section 7 hereof, Executive's employment under this Agreement shall be for a
three (3) year term (the "Employment Term") commencing on the closing date for
the Company's initial public offering (the "Commencement Date"). Subject to
Section 7 hereof, the Employment Term shall be automatically extended for
additional terms of successive two (2) year periods unless the Company or
Executive gives written notice of the termination of Executive's employment
hereunder at least ninety (90) days prior to the expiration of the then current
Employment Term.

2. Positions. (a) Executive shall serve as Chief Executive Officer of
---------
the Company. It is the intention of the parties that during the Employment Term,
Executive shall also serve on the Board of Directors of the Company (the
"Board") as Chairman without additional compensation. During the term of this
Agreement, the Company shall recommend the Executive for election as a director.

(b) Executive shall report directly to the Board or other managing body of
the Company and shall have such duties and authority, consistent with his
position as Chief Executive Officer of the Company, as shall be determined from
time to time by the Board, provided that Executive shall have authority
comparable to that of chief executive officers of United States public companies
that are similar in size and business to the Company.

(c) During the Employment Term, Executive shall devote substantially all
of his business time, energy, skill and efforts to the performance of his duties
and responsibilities
<PAGE>

hereunder; provided, however, that Executive shall be allowed to (i) serve as a
director and an employee or consultant of privately held companies (including,
but not limited to, Wilshire Credit Corporation and its privately held
affiliates); (ii) serve as a director of other companies; (iii) engage in
charitable activities; and (iv) manage his personal financial and legal affairs.

3. Base Salary. During the Employment Term, the Company shall pay
-----------
Executive a base salary at the annual rate of not less than $300,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
in February of each year and may be increased, but not decreased, from time to
time upon recommendation of the Compensation Committee of the Board (the
"Committee"). The base salary determined as aforesaid from time to time shall
constitute "Base Salary" for purposes of this Agreement.

4. Incentive Compensation. (a) Bonus. For each fiscal year or portion
---------------------- -----
thereof during the Employment Term, Executive shall be entitled to receive an
annual bonus (the "Bonus") as determined by the Committee from time to time;
provided that such annual bonus will not exceed two-thirds (2/3rds) of 20% of
the Company's pre-tax income (as determined in accordance with generally
accepted accounting principles and reflected in the Company's audited financial
statements) for the relevant calender year; provided that such Bonus shall be
--------
determined prior to subtracting any Bonus payable hereunder. Such annual bonus
shall be payable in January of each year following the year for which the bonus
is payable (based on interim numbers for such year) and, if necessary, shall be
adjusted for any subsequent amendments to the Company's financial statements
following completion of the year end audit. Following any fiscal quarter, the
Company shall, at the request of the Executive, pay an advance on any such
Bonus; provided that any such advance (together with any prior advances during
the relevant calendar year) shall not exceed two-thirds (2/3rds) of 20% of the
Company's pre-tax income from the beginning of the relevant calendar year
through the end of such fiscal quarter (based on the Company's interim
financial statements). In the event that the aggregate amount of advances made
by the Company at the end of the relevant calendar year exceed the amount of the
Bonus as determined by the Committee for such year, the amount in excess of the
Bonus shall be treated as an interest free loan from the Company, which shall be
repaid by the Executive within six (6) months of the determination by the
Committee of such year's Bonus. Following the initial Employment Term, such
Bonus shall be subject to shareholder approval as and to the extent required by
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").

(b) Options. The Executive shall also be entitled to participate in the
-------
Company's Incentive Stock Plan (the "Incentive Stock Plan") and receive
nonqualified, incentive or other options ("Options") to purchase shares of the
Company's common stock (the "Common Stock") under the Incentive Stock Plan as
determined by the Committee from time to time provided that the Incentive Stock
Plan is approved by the shareholders of the Company to the extent required by
Section 162(m) of the Code. Notwithstanding the foregoing, the Company may
recommend to the Committee that the Executive be granted Options under a plan
other than the Incentive Stock Plan provided that such other plan contains terms
and conditions which are substantially similar to the terms and conditions of
the Incentive Stock Plan, and further provided, that such other plan is approved
by the shareholders of the Company to the extent required by Section 162(m) of
the Code.

(c) Other Compensation. The Company may, upon recommendation of the
------------------
Committee, award to the Executive such other bonuses and compensation as it
deems appropriate and reasonable.

5. Employee Benefits and Vacation. (a) During the Employment Term,
------------------------------
Executive shall be entitled to (i) participate in all pension, retirement,
savings, welfare and other employee benefit plans and arrangements, including,
without limitation, any nonqualified deferred compensation plans, maintained by
the Company from time to time for the benefit of the senior

<PAGE>

executives of the Company in accordance with their respective terms as in effect
from time to time, (ii) a luxury automobile reasonably satisfactory to the
Executive and the Company (including, without limitation, reimbursement by the
Company of the costs of maintaining and operating such automobile), (iii)
reasonable use of Company-provided aircraft transportation for business-related
and personal travel, and (iv) the employment of a daycare provider for
Executive's dependents (with the daycare provider's salary paid by the Company
directly to the daycare provider net of any applicable federal or state
employment tax of which such taxes shall be withheld and remitted by the Company
to the appropriate taxing authorities and which salary shall not exceed
comparable salaries for such services). Executive acknowledges that the
aforementioned items will be includible as compensation for income tax purposes
to the extent required by applicable law. To the extent permitted under
applicable law, the Company shall not treat as compensation to Executive fringes
and perquisites provided to Executive or the items under Section 6 below.

(b) During the Employment Term, Executive shall be entitled to vacation
each year in accordance with the Company's policies in effect from time to time,
but in no event less than five (5) weeks paid vacation per calendar year. The
Executive shall also be entitled to such periods of sick leave as is customarily
provided by the Company for its senior executive employees.

6. Business Expenses. The Company shall also reimburse Executive for the
-----------------
travel, entertainment and other business expenses incurred by Executive in the
performance of his duties hereunder, in accordance with the Company's policies
as in effect from time to time.

7. Termination. (a) The employment of Executive under this Agreement
-----------
shall terminate upon the occurrence of any of the following events:

(i) the death of the Executive;

(ii) the termination of the Executive's employment by the
Company due to the Executive's Disability pursuant to Section 7(b)
hereof;

(iii) the termination of the Executive's employment by the
Executive for Good Reason pursuant to Section 7(c) hereof;

(iv) the termination of the Executive's employment by the
Company without Cause;

(v) the termination of employment by the Executive without
Good Reason upon sixty (60) days prior written notice;

(vi) the termination of employment by the Executive for any
reason during the period commencing on the date of a Change in Control
and ending on the day immediately prior to the second anniversary of
the Change in Control (the "Change in Control Protection Period");

3
<PAGE>

(vii) the termination of the Executive's employment by the
Company for Cause pursuant to Section 7(e); or

(viii) the retirement of the Executive by the Company at or
after his sixty-fifth birthday to the extent such termination is
specifically permitted as a stated exception from applicable federal
and state age discrimination laws based on position and retirement
benefits.

(b) Disability. If, by reason of the same or related physical or
----------
mental reasons, Executive is unable to carry out Executive's material duties
pursuant to this Agreement for more than six (6) months in any twelve (12)
consecutive month period (a "Disability"), the Company may terminate Executive's
employment for Disability upon thirty (30) days prior written notice, by a
notice of Disability termination, at any time thereafter during such twelve (12)
month period in which Executive is unable to carry out his duties as a result of
the same or related physical or mental illness. Such termination shall not be
effective if Executive returns to the full time performance of his material
duties within such thirty (30) day notice period.

(c) Termination for Good Reason. A Termination for Good Reason means
---------------------------
a termination by Executive by written notice given within sixty (60) days after
the occurrence of the Good Reason event. For purposes of this Agreement, "Good
Reason" shall mean the occurrence or failure to cause the occurrence, as the
case may be, without Executive's express written consent, of any of the
following circumstances, unless such circumstances are fully corrected prior to
the date of termination specified in the Notice of Termination for Good Reason
(as defined in Section 7(d) hereof): (i) any material diminution of Executive's
positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence), or the assignment to Executive of duties
or responsibilities that are inconsistent with Executive's position as Chief
Executive Officer; (ii) removal of the Executive from, or the non reelection of
the Executive to, the positions with the Company specified herein; (iii) a
relocation of the Company's principal United States executive offices to a
location more than fifty (50) miles from Portland, Oregon, or a relocation of
Executive away from such principal United States executive office; (iv) a
failure by the Company (A) to continue any bonus plan, program or arrangement in
which Executive is entitled to participate (the "Bonus Plans"), provided that
any such Bonus Plans may be modified at the Company's discretion from time to
time but shall be deemed terminated if (x) any such plan does not remain
substantially in the form in effect prior to such modification and (y) if plans
providing Executive with substantially similar benefits are not substituted
therefor ("Substitute Plans"), or (B) to continue Executive as a participant in
the Bonus Plans and Substitute Plans on at least the same basis as to potential
amount of the bonus and substantially the same level of criteria for
achievability thereof as Executive participated in immediately prior to any
change in such plans or awards, in accordance with the Bonus Plans and the
Substitute Plans; (v) any material breach by the Company of any material
provision of this Agreement; (vi) executive's removal from or failure to be
reelected to the Board; (vii) a failure of any successor to the Company to
assume in a writing delivered to Executive upon the assignee becoming such, the
obligations of the Company hereunder; or (viii) a failure of the Committee

4
<PAGE>

to grant the Executive an award of Options in accordance with Sections 4(b)
hereof, unless the applicable circumstances under (i) through (vii) are fully
corrected prior to the date of termination specified in the notice of
termination for Good Reason.

(d) Notice of Termination for Good Reason. A notice of termination
-------------------------------------
for Good Reason shall mean a notice that shall indicate the specific termination
provision in Section 7(c) relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination for Good
Reason. The failure by Executive to set forth in the notice of termination for
Good Reason any facts or circumstances which contribute to the showing of Good
Reason shall not waive any right of Executive hereunder or preclude Executive
from asserting such fact or circumstance in enforcing his rights hereunder. The
notice of termination for Good Reason shall provide for a date of termination
not less than fifteen (15) nor more than sixty (60) days after the date such
notice of termination for Good Reason is given.

(e) Cause. Subject to the notification provisions of Section 7(f)
-----
below, Executive's employment hereunder may be terminated by the Company for
Cause. For purposes of this Agreement, the term "Cause" shall be limited to (i)
willful misconduct by Executive with regard to the Company or its business which
has a material adverse effect on the Company; (ii) the refusal of Executive to
follow the proper written direction of the Board, provided that the foregoing
refusal shall not be "Cause" if Executive in good faith believes that such
direction is illegal, unethical or immoral and promptly so notifies the Board;
(iii) the Executive being convicted of a felony (other than a felony involving a
traffic offense); (iv) the breach by Executive of any fiduciary duty owed by
Executive to the Company which has a material adverse effect on the Company; or
(v) Executive's material fraud with regard to the Company.

(f) Notice of Termination for Cause. A notice of termination for
-------------------------------
Cause shall mean a notice that shall indicate the specific termination provision
in Section 7(e) relied upon and shall set forth in reasonable detail the facts
and circumstances which provide a basis for termination for Cause. Further, a
notice of termination for Cause shall be required to include a copy of a
resolution duly adopted by at least two-thirds of the entire membership of the
Board at a meeting of the Board which was called for the purpose of considering
such termination and which Executive and his representative had the right to
attend and address the Board, finding that, in the good faith opinion of the
Board, Executive engaged in conduct set forth in the definition of Cause herein
and specifying the particulars thereof in reasonable detail. The date of
termination for a termination for Cause shall be the date indicated in the
notice of termination. Any purported termination for Cause which is held by a
court not to have been based on the grounds set forth in this Agreement or not
to have followed the procedures set forth in this Agreement shall be deemed a
termination by the Company without Cause.

8. Consequences of Termination of Employment. (a) Death. If
----------------------------------------- -----
Executive's employment is terminated during the Employment Term by reason of
Executive's death, the employment period under this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement except for: (i) any compensation earned but not yet paid, including
without limitation, any declared but unpaid bonus, any amount of Base Salary or
deferred compensation accrued or earned but unpaid, any accrued vacation pay
payable

5
<PAGE>

pursuant to the Company's policies and any unreimbursed business expenses
payable pursuant to Section 6 which amounts shall be promptly paid in a lump sum
to Executive's estate; (ii) the product of (x) the target annual bonus for the
fiscal year of the Executive's death, multiplied by (y) a fraction, the
numerator of which is the number of days of the current fiscal year during which
the Executive was employed by the Company, and the denominator of which is 365,
which bonus shall be paid when bonuses for such period are paid to the other
executives; (iii) subject to Section 4(b) hereof, full accelerated vesting under
all outstanding equity-based and long-term incentive plans (with options
remaining outstanding as provided under the applicable stock option plan and a
pro rata payment under any long term incentive plans based on actual coverage
under such plans at the time payments normally would be made under such plans);
(iv) subject to Section 10 hereof, any other amounts or benefits owing to
Executive under the then applicable employee benefit plans or policies of the
Company, which shall be paid in accordance with such plans or policies; (v)
payment on a monthly basis of six (6) months of Executive's Base Salary on the
date of death, which shall be paid to Executive's spouse, or if she shall
predecease him, then to Executive's children (or their guardian if one is
appointed) in equal shares; and (vi) payment of the Executive's spouse's and
dependents' COBRA coverage premiums to the extent, and so long as, they remain
eligible for COBRA coverage, but in no event more than three (3) years. Section
12 hereof shall also continue to apply.

(b) Disability. If Executive's employment is terminated by reason of
----------
Executive's Disability, Executive shall be entitled to receive the payments and
benefits to which his representatives would be entitled in the event of a
termination of employment by reason of his death, provided that the payment of
Base Salary shall be reduced by the projected amount Executive would receive
under any long-term disability policy or program maintained by the Company
during the twelve (12) month period during which Base Salary is being paid.
Section 12 hereof shall also continue to apply.

(c) Termination by Executive for Good Reason or for any reason during
-----------------------------------------------------------------
the Change in Control Protection Period or Termination by the Company without
- -----------------------------------------------------------------------------
Cause or Nonextension of the Term by the Company. If (i) outside of the Change
- ------------------------------------------------
in Control Protection Period, Executive terminates his employment hereunder for
Good Reason during the Employment Term, (ii) a Change in Control occurs and
during the Change in Control Protection Period Executive terminates his
employment for any reason, (iii) Executive's employment with the Company is
terminated by the Company without Cause, or (iv) Executive's employment with the
Company terminates as a result of the Company giving notice of nonextension of
the Employment Term pursuant to Section 1 hereof, Executive shall be entitled to
receive: (A) in a lump sum within ten (10) business days after such termination
(i) three (3) times Executive's Base Salary in effect of the date of
termination, (ii) three (3) times the highest annual bonus paid or payable to
Executive for any of the previous three (3) completed fiscal years by the
Company and its predecessors, (iii) any unreimbursed business expenses payable
pursuant to Section 6, and (iv) any Base Salary, Bonus, vacation pay or other
deferred compensation accrued or earned under law or in accordance with the
Company's policies but not yet paid at the date of termination; (B) subject to
Section 4(b) hereof, accelerated full vesting under all outstanding equity-based
and long-term incentive plans with Options remaining outstanding as provided
under the applicable stock option plan and a pro rata payment under any long
term incentive plans

6
<PAGE>

based on actual coverage under such plans payment being made at the time
payments would normally be made under such plans; (C) subject to Section 10
hereof, any other amounts or benefits due Executive under the then applicable
employee benefit plans of the Company as shall be determined and paid in
accordance with such plans, policies and practices; (D) three (3) years of
additional service and compensation credit (at his then compensation level) for
pension purposes under any defined benefit type qualified or nonqualified
pension plan or arrangement of the Company, measured from the date of
termination of employment and not credited to the extent that Executive is
otherwise entitled to such credit during such three (3) year period, which
payments shall be made through and in accordance with the terms of the
nonqualified defined benefit pension arrangement if any then exists, or, if not,
in an actuarially equivalent lump sum (using the actuarial factors then applying
in the Company's defined benefit plan covering Executive); (E) three (3) years
of the maximum Company contribution (assuming Executive deferred the maximum
amount and continued to earn his then current salary) measured from the date of
termination under any type of qualified or nonqualified 401(k) plan (payable at
the end of each such year); and (F) payment by the Company of the premiums for
the Executive (except in the case of death) and his spouse's and dependents'
health coverage for three (3) years under the Company's health plans which cover
the senior executives of the Company or materially similar benefits. Payments
under (F) above may, at the discretion of the Company, be made by continuing
participation of Executive in the plan as a terminee, by paying the applicable
COBRA premium for Executive and his spouse and dependents, or by covering
Executive and his spouse and dependents under substitute arrangements, provided
that, to the extent Executive incurs tax that he would not have incurred as an
active employee as a result of the aforementioned coverage or the benefits
provided thereunder, Executive shall receive from the Company an additional
payment in the amount necessary so that he will have no additional cost for
receiving such items or any additional payment. In the circumstances described
in each of (i) through (iv) above, Section 12 hereof shall also continue to
apply.

(d) Termination for Cause or Voluntary Resignation without Good Reason
------------------------------------------------------------------
or Retirement. If Executive's employment hereunder is terminated: (i) by the
- -------------
Company for Cause, (ii) by Executive without Good Reason outside of the Change
in Control Protection Period, or (iii) by the Company pursuant to Section
7(a)(viii) hereof, the Executive shall be entitled to receive only his Base
Salary through the date of termination, any earned but unpaid bonus, and any
unreimbursed business expenses payable pursuant to Section 6. Subject to
Section 4(b) hereof, all other benefits (including, without limitation, Options)
due Executive following such termination of employment shall be determined in
accordance with the plans, policies and practices of the Company.

9. Non-Competition. (a) Executive acknowledges that the Company
---------------
will suffer substantial damage, which would be difficult to ascertain, if
Executive shall enter into Competition, as defined below, with the Company and
that it is necessary for the Company to be protected by the prohibition against
Competition set forth herein.

(b) During the period of his actual employment by the Company and for
one (1) year thereafter, Executive will not enter into Competition with the
Company or its affiliated entities. Competition shall mean participating
directly in the day-to-day direct supervision or

7
<PAGE>

operations of a U.S. business which competes with, or is engaged, in the same
business as currently conducted by the Company; provided that Competition shall
--------
not include the items referred to in the proviso to Section 2(c).

(c) During Executive's Employment Term with the Company and for one
(1) year thereafter, the Executive shall not, without the express written
authorization of the Company, directly or indirectly (i) recruit, solicit or
induce any nonclerical employees of the Company or its affiliates to terminate
their employment with, or otherwise cease their relationship with, the Company
or its affiliates, or (ii) solicit or assist any third party in soliciting any
clients or customers of the Company or its affiliates.

(d) In the event of a breach or threatened breach of this Section 9,
Executive acknowledges that the Company will be caused irreparable injury and
that money damages may not be an adequate remedy and agree that the Company
shall be entitled to injunctive relief (in addition to its other remedies at
law) to have the provisions of this Section 9 enforced. If any restriction set
forth with regard to Competition is found by any court of competent
jurisdiction, or an arbitrator, to be unenforceable because it extends for too
long a period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend over the maximum period of
time, range of activities or geographic area as to which it may be enforceable.

10. No Mitigation; No Set-Off. In the event of any termination
--- -------------------------
of employment under Section 8, Executive shall be under no obligation to seek
other employment and there shall be no offset against any amounts due Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that Executive may obtain. Any amounts due under Section
8 are in the nature of severance payments, or liquidated damages, or both, and
are not in the nature of a penalty. Such amounts are inclusive, and in lieu of,
any amounts payable under any other salary continuation or cash severance
arrangement of the Company and to the extent paid or provided under any other
such arrangement shall be offset from the amount due hereunder.

11. Change in Control. For purposes of this Agreement, the term
-----------------
"Change in Control" shall mean (i) any "person" as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other than the
Company, any trustee or other fiduciary holding securities under any employee
benefit plan of the Company, or any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of common stock of the Company), becoming the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding securities; (ii) during
any period of two (2) consecutive years, individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii), or (iv) of this paragraph
or a director whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule 14a-11
promulgated under the Act) or other actual or threatened

8
<PAGE>

solicitation of proxies or consents by or on behalf of a person other than a
member of the Board) whose election by the Board or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
two (2) year period or whose election or nomination for election was previously
so approved, cease for any reason to constitute at least a majority of the
Board; (iii) the merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation;
provided, however, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
(other than those covered in the exceptions in (i) above) acquires more than
twenty-five percent (25%) of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control; or (iv)
approval by the shareholders of the Company of a plan of complete liquidation of
the Company or the closing of the sale or disposition by the Company of all or
substantially all of the Company's assets other than the sale of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting securities of the Company
at the time of the sale.

12. Indemnification. (a) The Company agrees that if Executive is
---------------
made a party to or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of the Company as a director,
officer, member, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust, other enterprise or non-profit organization,
including, without limitation, service with respect to employee benefit plans,
whether or not the basis of such Proceeding is alleged action in an official
capacity as a director, officer, member, employee, fiduciary or agent while
serving as a director, officer, member, employee, fiduciary or agent, he shall
be indemnified and held harmless by the applicable company to the fullest extent
authorized by Delaware law, as the same exists or may hereafter be amended,
against all Expenses incurred or suffered by Executive in connection therewith,
and such indemnification shall continue as to Executive even if Executive has
ceased to be an officer, director, member, fiduciary or agent, or is no longer
employed by the company, and shall inure to the benefit of his heirs, executors
and administrators.

(b) As used in this Agreement, the term "Expenses" shall include,
without limitation, damages, losses, judgments, liabilities, fines, penalties,
excise taxes, settlements and costs, attorneys' fees, accountants' fees, and
disbursements and costs of attachment or similar bonds, investigations, and any
expenses of establishing a right to indemnification under this Agreement.

(c) Expenses incurred by Executive in connection with any Proceeding
shall be paid by the Company in advance upon request of Executive and the giving
by the Executive of any undertakings required by applicable law.

9
<PAGE>

(d) Executive shall give the Company notice of any claim made against
him for which indemnity will or could be sought under this Agreement. In
addition, Executive shall give the Company such information and cooperation as
it may reasonably require and as shall be within Executive's power and at such
times and places as are reasonably convenient for Executive.

(e) With respect to any Proceeding as to which Executive notifies the
Company of the commencement thereof:

(i) The Company will be entitled to participate therein at its
own expense; and

(ii) Except as otherwise provided below, to the extent that it
may wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Executive. Executive also shall have the right
to employ his own counsel in such action, suit or proceeding and the fees
and expenses of such counsel shall be at the expense of the Company.

(f) The Company shall not be liable to indemnify Executive under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or claim
in any manner which would impose any penalty or limitation on Executive without
Executive's written consent. Neither the company nor Executive will
unreasonably withhold or delay their consent to any proposed settlement.

(g) The right to indemnification and the payment of expenses incurred
in defending a Proceeding in advance of its final disposition conferred in this
Section 12 shall not be exclusive of any other right which Executive may have or
hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the Company, agreement, vote of stockholders or
disinterested directors or otherwise.

(h) The Company hereunder agrees to obtain officer and director
liability insurance policies covering Executive and shall maintain at all times
following the Commencement Date and during the Employment Term coverage under
such policies in the aggregate with regard to all officers and directors,
including Executive, of an amount not less than $10 million.

13. Special Tax Provision. (a) Anything in this Agreement to the
---------------------
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to Executive by the Company (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a change of ownership or effective control
covered by Code Section 280G(b)(2) or any person affiliated with the Company or
such person) as a result of a change in ownership or effective control of the
Company or a direct or indirect parent thereof (or the assets of any of the
foregoing) covered by Code Section 280G(b)(2)

10
<PAGE>

(collectively, the "Covered Payments") is or becomes subject to the excise tax
imposed by or under Section 4999 of the Code (or any similar tax that may
hereafter be imposed), and/or any interest, penalties or additions to tax, with
respect to such excise tax (such excise tax, together with such interest
penalties and additions to tax, is hereinafter collectively referred to as the
"Excise Tax"), the Company shall pay to Executive an additional amount (the "Tax
Reimbursement Payment") such that after payment by Executive of all taxes
(including, without limitation, any interest or penalties and any Excise Tax
imposed on or attributable to the Tax Reimbursement Payment itself), Executive
retains an amount of the Tax Reimbursement Payment equal to the sum of (i) the
amount of the Excise Tax imposed upon the Covered Payments, and (ii) without
duplication, an amount equal to the product of (A) any deductions disallowed for
federal, state or local income tax purposes because of the inclusion of the Tax
Reimbursement Payment in Executive's adjusted gross income, and (B) the highest
applicable marginal rate of federal, state or local income taxation,
respectively, for the calendar year in which the Tax Reimbursement Payment is
made or is to be made. The intent of this Section 13 is that (a) the Executive,
after paying his federal, state and local income tax and payroll taxes, will be
in the same position as if he was not subject to the Excise Tax under Section
4999 of the Code and did not receive the extra payments pursuant to this Section
13 and this Section 13 shall be interpreted accordingly.

(b) Except as otherwise provided in Section 13(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) such Covered Payments will be treated
as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code)
and such payments in excess of the Code Section 280G(b)(3) "base amount" shall
be treated as subject to the Excise Tax, unless, and except to the extent that,
the Company's independent certified public accountants appointed prior to the
change in ownership covered by Code Section 280G(b)(2) or legal counsel
(reasonably acceptable to Executive) appointed by such public accountants (or,
if the public accountants decline such appointment and decline appointing such
legal counsel, such independent certified public accountants as promptly
mutually agreed on in good faith by the Company and the Executive) (the
"Accountant"), deliver a written opinion to Executive, reasonably satisfactory
to Executive's legal counsel, that Executive has a reasonable basis to claim
that the Covered Payments (in whole or in part) (A) do not constitute "parachute
payments", (B) represent reasonable compensation for services actually rendered
(within the meaning of Section 280G(b)(4) of the Code) in excess of the "base
amount" allocable to such reasonable compensation, or (C) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate legal
authority, detailed analysis and explanation provided therein by the
Accountants); and (ii) the value of any Covered Payments which are non-cash
benefits or deferred payments or benefits shall be determined by the Accountant
in accordance with the principles of Section 280G of the Code.

(c) For purposes of determining the amount of the Tax Reimbursement
Payment, Executive shall be deemed: (i) to pay federal, state and/or local
income taxes at the highest applicable marginal rate of income taxation for the
calendar year in which the Tax Reimbursement Payment is made or is to be made,
and (ii) to have otherwise allowable deductions for federal, state and local
income tax purposes at least equal to those disallowed due to the inclusion of
the Tax Reimbursement Payment in Executive's adjusted gross income.

11
<PAGE>

(d) (i) (A) In the event that prior to the time the Executive has
filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax Reimbursement
Payment to be less than the amount determined at the time the Tax Reimbursement
Payment was made, the Executive shall repay to the Company, at the time that the
amount of such reduction in Tax Reimbursement Payment is determined by the
Accountant, the portion of the prior Tax Reimbursement Payment attributable to
such reduction (including the portion of the Tax Reimbursement Payment
attributable to the Excise Tax and federal, state and local income tax imposed
on the portion of the Tax Reimbursement Payment being repaid by the Executive,
using the assumptions and methodology utilized to calculate the Tax
Reimbursement Payment (unless manifestly erroneous)), plus interest on the
amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code.

(B) In the event that the determination set forth in (A) above is made
by the Accountant after the filing by the Executive of any of his tax returns
for the calendar year in which the change in ownership event covered by Code
Section 280G(b)(2) occurred but prior to one (1) year after the occurrence of
such change in ownership, the Executive shall file at the request of the Company
an amended tax return in accordance with the Accountant's determination, but no
portion of the Tax Reimbursement Payment shall be required to be refunded to the
Company until actual refund or credit of such portion has been made to the
Executive, and interest payable to the Company shall not exceed the interest
received or credited to the Executive by such tax authority for the period it
held such portion (less any tax the Executive must pay on such interest and
which he is unable to deduct as a result of payment of the refund).

(C) In the event the Executive receives a refund pursuant to (B) above
and repays such amount to the Company, the Executive shall thereafter file for
refunds or credits by reason of the repayments to the Company. Executive and
the Company shall mutually agree upon the course of action, if any, to be
pursued (which shall be at the expense of the Company) if Executive's claim for
such refund or credit is denied.

(D) The Executive and the Company shall mutually agree upon the course
of action, if any, to be pursued (which shall be at the expense of the Company)
if the Executive's claim for refund or credit is denied.

(ii) In the event that the Excise Tax is later determined by the
Accountants or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Reimbursement Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Tax Reimbursement Payment), the Company shall make an
additional Tax Reimbursement Payment in respect of such excess (plus any
interest, penalties or additions to tax payable with respect to such excess)
once the amount of such excess is finally determined.

(iii) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) under this Section 13, subject to subpart
(i)(D) above, the Executive

12
<PAGE>

shall permit the Company to control issues related to this Section 13 (at its
expense), provided that such issues do not potentially materially adversely
affect the Executive, but the Executive shall control any other issues. In the
event the issues are interrelated, the Executive and the Company shall in good
faith cooperate so as not to jeopardize resolution of either issue, but if the
parties cannot agree Executive shall make the final determination with regard to
the issues. In the event of any conference with any taxing authority as to the
Excise Tax or associated income taxes, the Executive shall permit the
representative of the Company to accompany him and the Executive and his
representative shall cooperate with the Company and its representative.

(iv) With regard to any initial filing for a refund or any other
action required pursuant to this Section 13 (other than by mutual agreement) or,
if not required, agreed to by the Company and the Executive, the Executive shall
cooperate fully with the Company, provided that the foregoing shall not apply to
actions that are provided herein to be at the sole discretion of the Executive.

(e) The Tax Reimbursement Payment, or any portion thereof, payable by
the Company shall be paid not later than the fifth day following the
determination by the Accountant, and any payment made after such fifth day shall
bear interest at the rate provided in Code Section 1274(b)(2)(B). The Company
shall use its best efforts to cause the Accountant to promptly deliver the
initial determination required hereunder and, if not delivered, within ninety
(90) days after the change in ownership event covered by Section 280G(b)(2) of
the Code, the Company shall pay the Executive the Tax Reimbursement Payment set
forth in an opinion from counsel recognized as knowledgeable in the relevant
areas selected by the Executive, and reasonably acceptable to the Company,
within five (5) days after delivery of such opinion. In accordance with Section
16(g), the Company may withhold from the Tax Reimbursement Payment and deposit
into applicable taxing authorities such amounts as are required to be withheld
by applicable law. To the extent that Executive is required to pay estimated or
other taxes on amounts received by Executive beyond any withheld amounts,
Executive shall promptly make such payments. The amount of such payment shall
be subject to later adjustment in accordance with the determination of the
Accountant as provided herein.

(f) The Company shall be responsible for all charges of the Accountant
and if (e) is applicable the reasonable charges for the opinion given by
Executive's counsel.

(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 13 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 13(d)(i)(D) hereof.

14. Legal and Other Fees and Expenses. In the event that a claim for
---------------------------------
payment or benefits under this Agreement is disputed, the Company shall pay all
reasonable attorney, accountant and other professional fees and reasonable
expenses incurred by Executive in pursuing such claim, unless the claim by the
Executive is found to be frivolous by any court or arbitrator.

13
<PAGE>

15. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration
conducted in the City of Portland in the State of Oregon under the Commercial
Arbitration Rules then prevailing of the American Arbitration Association and
such submission shall request the American Arbitration Association to: (i)
appoint an arbitrator experienced and knowledgeable concerning the matter then
in dispute; (ii) require the testimony to be transcribed; (iii) require the
award to be accompanied by findings of fact and the statement for reasons for
the decision; and (iv) request the matter to be handled by and in accordance
with the expedited procedures provided for in the Commercial Arbitration Rules.
The determination of the arbitrators, which shall be based upon a de novo
interpretation of this Agreement, shall be final and binding and judgment may be
entered on the arbitrators' award in any court having jurisdiction. All costs
of the American Arbitration Association and the arbitrator shall be borne by the
Company.

16. Miscellaneous.
-------------

(a) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Oregon without reference to
principles of conflicts of laws.

(b) Entire Agreement/Amendments. This Agreement and the instruments
---------------------------
contemplated herein, contain the entire understanding of the parties with
respect to the employment of Executive by the Company from and after the
Commencement Date and supersedes any prior agreements, whether written or
otherwise, between the Company and Executive. There are no restrictions,
agreements, promises, warranties, covenants or undertakings between the parties
with respect to the subject matter herein other than those expressly set forth
herein and therein. This Agreement may not be altered, modified, or amended
except by written instrument signed by the parties hereto.

(c) No Waiver. The failure of a party to insist upon strict adherence
---------
to any term of this Agreement on any occasion shall not be considered a waiver
of such party's rights or deprive such party of the right thereafter to insist
upon strict adherence to that term or any other term of this Agreement. Any
such waiver must be in writing and signed by Executive or an authorized officer
of the Company, as the case may be.

(d) Assignment. This Agreement shall not be assignable by Executive.
----------
This Agreement shall be assignable, with the consent of the Executive, by the
Company only to an acquiror of all or substantially all of the assets of the
Company, provided such acquiror promptly assumes all of the obligations
hereunder of the Company in a writing delivered to the Executive and otherwise
complies with the provisions hereof with regard to such assumption.

(e) Successors; Binding Agreement; Third Party Beneficiaries. This
--------------------------------------------------------
Agreement shall inure to the benefit of and be binding upon parties hereto and
their personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees legatees and permitted assignees of the parties
hereto. If the Executive dies while any amount would still be payable hereunder
if the Executive had continued to live, all such amounts, unless otherwise

14
<PAGE>

provided herein, shall be paid in accordance with the terms of the Agreement to
the personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees, legatees and permitted assignees of the parties
hereto.

(f) Communications. For the purpose of this Agreement, notices and
--------------
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given (i) when faxed or delivered, and (ii)
two business days after being mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the initial page of this Agreement, provided that all
notices to the Company shall be directed to the attention of Lawrence Mendelsohn
of the Company, or to such other address as any party may have furnished to the
other in writing in accordance herewith. Notice of change of address shall be
effective only upon receipt.

(g) Withholding Taxes. The Company may withhold from any and all
-----------------
amounts payable under this Agreement such federal, state and local taxes as may
be required to be withheld pursuant to any applicable law or regulation.

(h) Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of Executive's employment.

(i) Counterparts. This Agreement may be signed in counterparts, each
------------
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.

(j) Headings. The headings of the sections contained in this
--------
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.

15
<PAGE>

IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

WILSHIRE FINANCIAL SERVICES GROUP INC.

By:
----------------------------------
Name:
Title:

--------------------------------------
Andrew A. Wiederhorn

<PAGE>

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT, dated as of November 15, 1996, by and between
Wilshire Financial Services Group Inc. (the "Company"), with its principal
office at 1776 SW Madison Street, Portland, Oregon 97205 and Lawrence A.
Mendelsohn, residing at 4428 SW Eleanor Lane, Portland, Oregon 97221 (the
"Executive").

W I T N E S S E T H:
-------------------

WHEREAS, Executive is currently employed as the President of the Company
and is also a director of the Company; and

WHEREAS, the Company and Executive desire to enter into this agreement (the
"Agreement") to set forth terms of Executive's employment by the Company.

NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:

2. Positions. (a) Executive shall serve as President of the Company. It
---------
is the intention of the parties that during the Employment Term, Executive shall
also serve on the Board of Directors of the Company (the "Board") without
additional compensation. During the term of this Agreement, the Company shall
recommend the Executive for election as a director.

(b) Executive shall report directly to the Board or other managing body of
the Company and shall have such duties and authority, consistent with his
position as President of the Company, as shall be determined from time to time
by the Board, provided that Executive shall have authority comparable to that of
chief executive officers of United States public companies that are similar in
size and business to the Company.

(c) During the Employment Term, Executive shall devote substantially all
of his business time, energy, skill and efforts to the performance of his duties
and responsibilities hereunder; provided, however, that Executive shall be
allowed to (i) serve as a director and an employee or
<PAGE>

consultant of privately held companies (including, but not limited to, Wilshire
Credit Corporation and its privately held affiliates); (ii) serve as a director
of other companies; (iii) engage in charitable activities; and (iv) manage his
personal financial and legal affairs.

4. Incentive Compensation. (a) Bonus. For each fiscal year or portion
---------------------- -----
thereof during the Employment Term, Executive shall be entitled to receive an
annual bonus (the "Bonus") as determined by the Committee from time to time;
provided that such annual bonus will not exceed one-third (1/3rd) of 20% of the
Company's pre-tax income (as determined in accordance with generally accepted
accounting principles and reflected in the Company's audited financial
statements) for the relevant calender year; provided that such Bonus shall
--------
be determined prior to subtracting any Bonus payable hereunder. Such annual
bonus shall be payable in January of each year following the year for which the
bonus is payable (based on interim numbers for such year) and, if necessary,
shall be adjusted for any subsequent amendments to the Company's financial
statements following completion of the year end audit. Following any fiscal
quarter, the Company shall, at the request of the Executive, pay an advance on
any such Bonus; provided that any such advance (together with any prior advances
during the relevant calendar year) shall not exceed one-third (1/3rd) of 20% of
the Company's pre-tax income from the beginning of the relevant calendar year
through the end of such fiscal quarter (based on the Company's interim financial
statements). In the event that the aggregate amount of advances made by the
Company at the end of the relevant calendar year exceed the amount of the Bonus
as determined by the Committee for such year, the amount in excess of the Bonus
shall be treated as an interest free loan from the Company, which shall be
repaid by the Executive within six (6) months of the determination by the
Committee of such year's Bonus. Following the initial Employment Term, such
Bonus shall be subject to shareholder approval as and to the extent required by
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").

(c) Other Compensation. The Company may, upon recommendation of the
------------------
Committee, award to the Executive such other bonuses and compensation as it
deems appropriate and reasonable.

2
<PAGE>

time, (ii) a luxury automobile reasonably satisfactory to the Executive and the
Company (including, without limitation, reimbursement by the Company of the
costs of maintaining and operating such automobile), (iii) reasonable use of
Company-provided aircraft transportation for business-related and personal
travel, and (iv) the employment of a daycare provider for Executive's dependents
(with the daycare provider's salary paid by the Company directly to the daycare
provider net of any applicable federal or state employment tax of which such
taxes shall be withheld and remitted by the Company to the appropriate taxing
authorities and which salary shall not exceed comparable salaries for such
services). Executive acknowledges that the aforementioned items will be
includible as compensation for income tax purposes to the extent required by
applicable law. To the extent permitted under applicable law, the Company shall
not treat as compensation to Executive fringes and perquisites provided to
Executive or the items under Section 6 below.

7. Termination. (a) The employment of Executive under this Agreement
-----------
shall terminate upon the occurrence of any of the following events:

(i) the death of the Executive;

(ii) the termination of the Executive's employment by the
Company due to the Executive's Disability pursuant to Section 7(b)
hereof;

(iii) the termination of the Executive's employment by the
Executive for Good Reason pursuant to Section 7(c) hereof;

(iv) the termination of the Executive's employment by the
Company without Cause;

(v) the termination of employment by the Executive without
Good Reason upon sixty (60) days prior written notice;

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(vii) the termination of the Executive's employment by the
Company for Cause pursuant to Section 7(e); or

(c) Termination for Good Reason. A Termination for Good Reason means
---------------------------
a termination by Executive by written notice given within sixty (60) days after
the occurrence of the Good Reason event. For purposes of this Agreement, "Good
Reason" shall mean the occurrence or failure to cause the occurrence, as the
case may be, without Executive's express written consent, of any of the
following circumstances, unless such circumstances are fully corrected prior to
the date of termination specified in the Notice of Termination for Good Reason
(as defined in Section 7(d) hereof): (i) any material diminution of Executive's
positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence), or the assignment to Executive of duties
or responsibilities that are inconsistent with Executive's position as
President; (ii) removal of the Executive from, or the non reelection of the
Executive to, the positions with the Company specified herein; (iii) a
relocation of the Company's principal United States executive offices to a
location more than fifty (50) miles from Portland, Oregon, or a relocation of
Executive away from such principal United States executive office; (iv) a
failure by the Company (A) to continue any bonus plan, program or arrangement in
which Executive is entitled to participate (the "Bonus Plans"), provided that
any such Bonus Plans may be modified at the Company's discretion from time to
time but shall be deemed terminated if (x) any such plan does not remain
substantially in the form in effect prior to such modification and (y) if plans
providing Executive with substantially similar benefits are not substituted
therefor ("Substitute Plans"), or (B) to continue Executive as a participant in
the Bonus Plans and Substitute Plans on at least the same basis as to potential
amount of the bonus and substantially the same level of criteria for
achievability thereof as Executive participated in immediately prior to any
change in such plans or awards, in accordance with the Bonus Plans and the
Substitute Plans; (v) any material breach by the Company of any material
provision of this Agreement; (vi) executive's removal from or failure to be
reelected to the Board; (vii) a failure of any successor to the Company to
assume in a writing delivered to Executive upon the assignee becoming such, the
obligations of the Company hereunder; or (viii) a failure of the Committee to
grant the Executive an award of

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Options in accordance with Sections 4(b) hereof, unless the applicable
circumstances under (i) through (vii) are fully corrected prior to the date of
termination specified in the notice of termination for Good Reason.

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(e) With respect to any Proceeding as to which Executive notifies the
Company of the commencement thereof:

(i) The Company will be entitled to participate therein at its
own expense; and

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(iii) In the event of any controversy with the Internal Revenue
Service (or other taxing authority) under this Section 13, subject to subpart
(i)(D) above, the Executive

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(f) The Company shall be responsible for all charges of the Accountant
and if (e) is applicable the reasonable charges for the opinion given by
Executive's counsel.

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16. Miscellaneous.
-------------

(a) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Oregon without reference to
principles of conflicts of laws.

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(f) Communications. For the purpose of this Agreement, notices and
--------------
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given (i) when faxed or delivered, and (ii)
two business days after being mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the initial page of this Agreement, provided that all
notices to the Company shall be directed to the attention of Andy Wiederhorn of
the Company, or to such other address as any party may have furnished to the
other in writing in accordance herewith. Notice of change of address shall be
effective only upon receipt.

(h) Survivorship. The respective rights and obligations of the
------------
parties hereunder shall survive any termination of Executive's employment.

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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

WILSHIRE FINANCIAL SERVICES GROUP INC.

By:
----------------------------------
Name:
Title:

--------------------------------------
Lawrence A. Mendelsohn

<PAGE>

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

To the Board of Directors and Stockholders

Wilshire Financial Services Group, Inc.

We consent to the use in this Amendment No. 2 to the Registration Statement
of Wilshire Financial Services Group, Inc. and Subsidiaries on Form S-1 for an
offering of Common Stock of our report dated November 13, 1996 (which
expresses an unqualified opinion on the consolidated financial statements of
Wilshire Financial Services Group, Inc. and includes an explanatory paragraph
relating to certain regulatory agreements); our report dated March 10, 1995 on
the consolidated financial statements of Girard Savings Bank F.S.B. and
Subsidiary; and our report dated November 13, 1996 on the combined financial
statements of Wilshire Credit Corporation and Affiliates, which reports appear
in the Prospectus, which is a part of this Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Prospectus
which is part of this Registration Statement.

Deloitte & Touche LLP
November 27, 1996
Los Angeles, California

<PAGE>

EXHIBIT 23.3

INDEPENDENT AUDITORS' CONSENT

To the Board of Directors and Stockholders

Wilshire Financial Services Group, Inc.

We consent to the use in this Amendment No. 2 to the Registration Statement
of Wilshire Financial Services Group, Inc. and Subsidiaries on Form S-1 for an
offering of Notes due 2003 of our report dated November 13, 1996 (which
expresses an unqualified opinion on the consolidated financial statements of
Wilshire Financial Services Group Inc. and includes an explanatory paragraph
relating to certain regulatory agreements); our report dated March 10, 1995 on
the consolidated financial statements of Girard Savings Bank F.S.B. and
Subsidiary; and our report dated November 13, 1996 on the combined financial
statements of Wilshire Credit Corporation and Affiliates, which reports appear
in the Prospectus, which is a part of this Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Prospectus
which is part of this Registration Statement.

Deloitte & Touche LLP

November 27, 1996
Los Angeles, California