WILSHIRE FINANCIAL SERVICES GROUP INC, S-1/A, 1998-01-14

WILSHIRE FINANCIAL SERVICES GROUP INC
S-1/A, 1998-01-14
FINANCE SERVICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1998.

REGISTRATION NO. 333-42779

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------

AMENDMENT NO. 1

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)

<TABLE>
<CAPTION>
DELAWARE 6719 93-1223879
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

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 LLP GIBSON, DUNN & CRUTCHER LLP
1585 BROADWAY 4 PARK PLAZA
NEW YORK, NEW YORK 10036-8299 IRVINE, CALIFORNIA 92614-8577
(212) 969-3000 (714) 451-3800

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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 statement 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. [_]

---------------
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>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 AN 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 JANUARY 13, 1998

PROSPECTUS
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3,500,000 Shares

[LOGO OF WILSHIRE FINANCIAL SERVICES GROUP]

Common Stock
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All of the 3,500,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by Wilshire
Financial Services Group Inc. ("WFSG").

The Common Stock is included for quotation in The Nasdaq Stock Market's
National Market (the "Nasdaq National Market") under the symbol "WFSG." On
January 12, 1998, the last reported sales price for the Common Stock on the
Nasdaq National Market was $26.00. See "Price Range of Common Stock." Upon
completion of the Offering, certain executive officers and directors of the
Company will beneficially own approximately 54.9% of the combined voting power
of all outstanding shares of the Common Stock. See "Principal and Selling
Shareholders."

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
ON PAGES 11 TO 18 FOR A DISCUSSION OF THE MATERIAL FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.

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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.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE FDIC, THE OFFICE OF THRIFT SUPERVISION ("OTS") OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION,
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>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Share.................... $ $ $
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Total(3)..................... $ $ $
</TABLE>
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(1) The Company and certain shareholders of the Company (the "Selling
Shareholders") have agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$2,500,000.
(3) The Selling Shareholders have granted the several Underwriters a 30-day
over-allotment option to purchase up to 525,000 additional shares of
Common Stock on the same terms and conditions as set forth above. If all
such additional shares are purchased by the Underwriters, the total Price
to Public will be $ , the total Underwriting Discounts and Commissions
will be $ , the total Proceeds to Company will be $ and the total
proceeds to the Selling Shareholders will be $ . See "Underwriting."

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The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and
to withdrawal, cancellation or modification of the offer without notice.
Delivery of the shares to the Underwriters is expected to be made through the
facilities of The Depository Trust Company, New York, New York, on or about
February , 1998.

PRUDENTIAL SECURITIES INCORPORATED

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

BLACK & COMPANY, INC.

February , 1998
<PAGE>

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS, IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

i
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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,
loans and other financial assets held by the Company are presented at the
amounts at which those loans or other financial assets are carried on the
Company's balance sheet at that date. Unless otherwise indicated, the
information contained in this Prospectus assumes that the Underwriters' over-
allotment option will not be exercised and no outstanding stock options are
exercised. Unless otherwise indicated, the information contained in this
Prospectus also assumes that the Wilshire REIT (as defined) has been formed but
has not acquired any assets from the Company.

THE COMPANY

Wilshire Financial Services Group Inc. ("WFSG" and together with its
subsidiaries, the "Company"), is primarily engaged in the acquisition of pools
of performing, sub-performing and non-performing residential and commercial
mortgage loans, as well as foreclosed real estate and mortgage-backed
securities. The Company also acquires newly originated residential mortgage and
manufactured housing loans through correspondents and operates a merchant
bankcard processing business. At September 30, 1997, the Company had total
assets of approximately $1.4 billion, including approximately $791.0 million of
loans, approximately $146.5 million of foreclosed real estate and approximately
$256.3 million of mortgage-backed and U.S. government securities. For the nine
months ended September 30, 1997, the Company had net income of approximately
$12.2 million.

Since the late 1980s, a significant market for the purchase of pools of non-
performing and sub-performing mortgage loans has developed in the United
States. This market initially consisted largely of sales of pools of loans by
governmental agencies such as the Federal Deposit Insurance Corporation (the
"FDIC") and the Resolution Trust Corporation (the "RTC") in connection with the
savings and loan crisis. Today, this market is comprised primarily of pools of
loans sold by banks, savings institutions, mortgage companies and insurance
companies. Management believes that private financial institutions, in order to
reduce their servicing costs and more effectively employ their capital, are
increasingly outsourcing the resolution of loans, particularly those that are
sub-performing and non-performing, to specialized companies with the experience
and infrastructure to most efficiently manage those loans.

The Company acquires pools of loans that, at the time of acquisition, consist
primarily of either (a) non- performing loans that, because of their delinquent
status, are available for purchase at prices that reflect a significant
discount from their unpaid principal balances ("Discounted Loans") or (b)
performing and sub- performing loans that are available for purchase at prices
that more closely approximate their unpaid principal balances ("Non-Discounted
Loans"). At September 30, 1997, the Company held approximately $350.4 million
of Discounted Loans and approximately $440.6 million of Non-Discounted Loans.
The Company is willing to acquire smaller pools of loans (those with an
aggregate unpaid principal balance of less than $20.0 million) for which there
is currently less competitive demand. The Company believes that its willingness
to purchase smaller pools of loans enhances its acquisition opportunities and
allows the Company to develop long-term relationships and repeat business with
financial institutions.

From 1991 through December 31, 1997, the Company's principal shareholders
have overseen the purchase and servicing by the Company and its affiliates of
over 450 pools of loans for an aggregate purchase price of approximately $2.7
billion. The volume of loan pool acquisitions overseen by the Company's
principal shareholders has accelerated significantly, growing from 41 pools
that were acquired in 1996 for an aggregate purchase price of approximately
$578.7 million to 79 pools that were acquired in the first nine months of 1997
for an aggregate purchase price of approximately $873.2 million. Comprehensive
criteria and procedures have been established by the Company for evaluating the
risks associated with mortgage loans and the real estate

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securing those loans. In reviewing a pool of loans for possible acquisition,
management develops a detailed model from which it estimates the costs of
servicing the loans in that pool and the amount and timing of cash flows that
can be expected to be generated from the loans to establish a purchase price.
In order to maximize the returns on its investment in a pool of loans, the
Company generally funds from 90% to 95% of the purchase price with borrowed
funds, including deposits at its savings bank subsidiaries. As a result, the
Company's asset base is, and following the Offering will continue to be, highly
leveraged. See "Risk Factors--Extensive Use of Financial Leverage."

The Company, through Wilshire Credit Corporation, an affiliate of the Company
(the "U.S. Servicer"), actively services each acquired loan and property to
maximize cash flow, using specialized procedures and proprietary software.
Discounted Loans generally are resolved within one to two years after
acquisition, through foreclosure, compromise, a discounted payoff or
reinstatement. Non-Discounted Loans are actively serviced to ensure timely and
accurate payments over their remaining lives. At September 30, 1997, the U.S.
Servicer was servicing approximately $2.6 billion of assets, including (i)
approximately $1.2 billion aggregate principal amount of loans for the Company;
(ii) approximately $1.3 billion aggregate principal amount of loans for third
parties (including approximately $645.2 million of loans previously securitized
by the Company and its affiliates); and (iii) approximately $93.5 million
aggregate principal amount of loans owned by the U.S. Servicer.

The Company also acquires, through the U.S. Servicer, mortgage and
manufactured housing loans originated by correspondents pursuant to guidelines
established by the Company under its mortgage loan origination program.
Mortgage products offered under this program currently are targeted to higher
credit borrowers. From the commencement of its mortgage loan origination
program through September 30, 1997, the Company has purchased loans totaling
approximately $80.2 million in principal amount.

The Company also conducts a merchant bankcard processing business that
generates revenues from merchant discounts and processing fees for VISA(R) and
MasterCard(R) credit card transactions, principally mail order, telephone order
and audio-text transactions, where the lack of a customer's physical presence
at the time of a transaction creates a higher risk of chargebacks. The Company
focuses on these market niches because management believes they offer higher
risk-adjusted returns. The Company attempts to manage its risks through the
pricing of its services and managing merchant cash reserves through a software
system developed by the Company. During the nine months ended September 30,
1997, net revenues from these operations totaled approximately $1.6 million.

THE WILSHIRE REIT

In October 1997, the Company established Wilshire Real Estate Investment
Trust Inc. (the "Wilshire REIT"), which intends to qualify and will elect to be
taxed as a Real Estate Investment Trust ("REIT"). The Wilshire REIT has filed a
registration statement with the Securities and Exchange Commission in
connection with a proposed underwritten public offering of its common stock.
The Company currently owns 100% of the Wilshire REIT and expects to retain a
minority interest (currently expected to be approximately 9.9%, with options to
acquire an additional 10%) in the Wilshire REIT following the Wilshire REIT's
proposed initial public offering. There can be no assurance as to when or if
the Wilshire REIT's proposed initial public offering will be completed.

The Company formed the Wilshire REIT in connection with the Company's
strategy of focusing its acquisition activities on domestic residential and
domestic Non-Discounted commercial mortgage loans and expanding fee-based
income. The Wilshire REIT will conduct certain business activities that
management believes are more efficiently operated in a REIT tax advantaged
format. The Wilshire REIT intends to concentrate on the acquisition of
Discounted U.S. commercial mortgage loans and U.S. commercial properties ("U.S.
Commercial Investments"), mortgage-backed securities primarily comprised of
interests in residential mortgage loans ("MBS Investments") and international
Discounted and Non-Discounted Loans and properties ("International
Investments"). The Company intends to grant a right of first refusal to the
Wilshire REIT with

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respect to U.S. Commercial Investments, MBS Investments and International
Investments. The following table sets forth the expected primary revenue
sources for the Company and the Wilshire REIT:

<TABLE>
<CAPTION>
THE COMPANY WILSHIRE REIT
----------- -------------
<S> <C>
Loan Pool and Property Acquisi-
tions: Loan Pool and Property Acquisitions:
--U.S. Residential Performing --U.S. Commercial Non-Performing
--U.S. Residential Non-Performing --International Performing
--U.S. Commercial Performing --International Non-Performing
MBS Investments* MBS Investments
Fee Based Income:
--Specialty Servicing
--Management of the Wilshire REIT
</TABLE>
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* Subject to the Wilshire REIT's right of first refusal.

Upon the consummation of the proposed initial public offering of the Wilshire
REIT, the Company or its affiliates intend to sell to the Wilshire REIT (i)
U.S. Commercial Investments for approximately $42.9 million, (ii) MBS
Investments for approximately $98.1 million, and (iii) International
Investments in the United Kingdom for approximately $5.3 million (the "Initial
Investments"). See "The Wilshire REIT-Initial Investments." The Company expects
to realize a book gain as a result of the sale of the Initial Investments. The
Company intends to grant the Wilshire REIT an option to purchase all or a
portion of the Company's interest in two portfolios of International
Investments in France for a purchase price of up to $110.0 million (including
approximately $40.9 million held on the Company's balance sheet at September
30, 1997). The Wilshire REIT is currently evaluating the suitability of such
investments under U.S. tax and French law.

Wilshire Realty Services Corporation ("WRSC"), a wholly-owned subsidiary of
the Company, intends to enter into a management agreement with the Wilshire
REIT, pursuant to which WRSC will manage the Wilshire REIT for a management fee
and an incentive fee. The Wilshire REIT intends to grant WRSC and certain of
the Wilshire REIT's directors options to purchase up to 10% of the common stock
of the Wilshire REIT or units of limited partnership interest in the Wilshire
REIT's operating partnership. The Company intends to enter into a servicing
agreement with the Wilshire REIT pursuant to which the Company will act as
servicer for the Wilshire REIT and provide loan and real property management
services in France and the United Kingdom. In addition, the Wilshire REIT
intends to enter into a servicing agreement with the U.S. Servicer pursuant to
which the U.S. Servicer will act as servicer for the Wilshire REIT and provide
loan and real property management services, including billing, portfolio
administration and collection services for the Wilshire REIT's U.S. assets.

CORPORATE HISTORY AND STRUCTURE OF THE COMPANY

Until December 1996, the Company's principal shareholders, Andrew A.
Wiederhorn and Lawrence A. Mendelsohn (the "Principal Shareholders") engaged in
the loan acquisition and servicing business through 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"), which they acquired in 1993 and
1994, respectively, and through the U.S. Servicer, which was founded in 1987.
WFSG was formed to succeed to the ownership of the Savings Banks and to
conduct, through subsidiaries, the loan acquisition business previously
conducted by the Principal Shareholders through the U.S. Servicer. The Company
completed an initial public offering of its Common Stock in December 1996. The
U.S. Servicer and certain of its non-public affiliates (the "Wilshire Private
Companies") were not acquired by WFSG at the time of its initial public
offering but agreed to cease all further loan

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acquisition activities. In addition, the U.S. Servicer entered into a loan
servicing agreement with the Company pursuant to which the U.S. Servicer acts
as a sub-servicer for the Company and provides loan portfolio management
services, including billing, portfolio administration and collection services
for the Company's pools of loans. The Company pays the U.S. Servicer a
servicing fee at or below prevailing market rates for each pool of loans that
the U.S. Servicer is servicing for the Company. The Company has the option at
any time after November 15, 1998 to acquire the U.S. Servicer's servicing
operations (the "Servicing Transfer"), provided the Company or one of its
subsidiaries has obtained the appropriate regulatory approvals and licenses to
service loans. The Company also may request that the Servicing Transfer occur
on an earlier date, provided the foregoing conditions are met, but the U.S.
Servicer has no obligation to effect the Servicing Transfer prior to November
15, 1998. The Servicing Transfer will occur automatically on November 15, 1999,
provided the foregoing conditions are met.

The Wilshire Private Companies are primarily engaged in the specialty loan
servicing and resolution business. At September 30, 1997, the Wilshire Private
Companies had approximately 235 employees, principally engaged in servicing
operations. At September 30, 1997, the Wilshire Private Companies were
servicing approximately $2.6 billion of assets, including approximately $1.2
billion aggregate principal amount of loans for the Company. For the nine
months ended September 30, 1997, the Wilshire Private Companies had a net loss
of approximately $7.6 million. At September 30, 1997, the Wilshire Private
Companies had total assets of approximately $144.3 million and had total
liabilities of $213.7 million, including outstanding indebtedness of
approximately $124.3 million (approximately $105.6 million, net of securities
pledged to secure its outstanding indebtedness). Substantially all of the
Wilshire Private Companies' indebtedness is recourse debt that is secured by
pledges of its servicing rights and is personally guaranteed by the Principal
Shareholders. Upon the redemption of the PIK Preferred Stock with the proceeds
of this Offering, the Wilshire Private Companies will repay approximately $31.6
million (plus an amount equal to accrued dividends on the PIK Preferred Stock)
of such indebtedness. At September 30, 1997, the Wilshire Private Companies had
a negative net worth of approximately $69.4 million. Substantially all of the
Wilshire Private Companies' servicing rights have not been capitalized and
therefore are not reflected as assets nor included in the net worth of the
Wilshire Private Companies.

The Company is considering acquiring the Wilshire Private Companies prior to
the Servicing Transfer but, at this time, no decision has been made to proceed
with the acquisition. The Company believes that the acquisition of the Wilshire
Private Companies would (i) integrate servicing operations and eliminate
servicing fees being paid to the Wilshire Private Companies, (ii) increase fee
based revenues through servicing for unaffiliated third parties and the
Wilshire REIT, (iii) reduce potential regulatory concerns regarding the
relationship between the Savings Banks and the Wilshire Private Companies, (iv)
eliminate conflicts of interest between the Company and the Wilshire Private
Companies, and (v) enable the Company to acquire assets of distressed sub-prime
mortgage lenders and other specialty finance companies where the ability to
perform specialty servicing is an important consideration in realizing the
value of such acquisitions.

In September 1997, the Company appointed a special committee composed of two
independent directors of the Company and engaged Prudential Securities
Incorporated to review the potential acquisition of the Wilshire Private
Companies and to furnish any required fairness opinion. There can be no
assurances as to when or if such acquisition will occur or the form such an
acquisition might take. No proceeds from this Offering will be used to acquire
the Wilshire Private Companies. In addition, the acquisition of the Wilshire
Private Companies would be subject to a number of conditions, including
shareholder approval, approval of the Company's Board of Directors and
compliance with the indentures relating to the Company's 13% Notes due 2004
(the "Notes") and 13% Series A Notes due 2004 (the "Series A Notes"). The
indentures, among other things, contain restrictions on the incurrence of debt
and transactions with affiliates. If the Company acquires the Wilshire Private
Companies, it is likely that any such acquisition will reduce the Company's net
worth, given the significant negative net worth of the Wilshire Private
Companies at September 30, 1997.

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After giving effect to the formation of the Wilshire REIT, the organizational
structure of the Company will be as follows:

[ORGANIZATIONAL STRUCTURE FLOWCHART]

- --------
* Entities formed or to be formed for financings and to complete
securitizations.
** Formed to manage the Wilshire REIT.
*** Following the consummation of the Wilshire REIT's proposed initial public
offering, WFSG expects to retain approximately 9.9% of the Wilshire REIT
with options to acquire an additional 10%.

**** Girard Savings Bank, F.S.B. merged with First Bank of Beverly Hills,
F.S.B. in December 1997. See "Recent Developments."

BUSINESS STRATEGY

The Company believes that its success depends upon its ability to (i)
properly evaluate credit risk, (ii) efficiently service pools of loans and
(iii) fund acquisitions on a cost effective basis. The Company's objective is
to expand in markets where it can capitalize on its core competence in these
three areas through a strategy consisting of the following key elements:

. Growth of Acquisitions of Loan Pools. The Company plans to expand its
acquisition of pools of U.S. residential Discounted and Non-Discounted
Loans and U.S. commercial Non-Discounted Loans by more actively marketing
its services, with a view to adding new customers and developing more
repeat business. The Company intends to grant a right of first refusal to
the Wilshire REIT with respect to U.S. Commercial Investments, MBS
Investments and International Investments.

. Expansion of Fee Based Income.

. International Third Party Specialty Servicing. The Company intends to
continue to expand its third party specialty servicing operations in
Western Europe and to develop and acquire servicing operations in
Latin America.

. Management of the Wilshire REIT. The Company will act as the manager
and operator of the Wilshire REIT for a management fee and an
incentive fee.

. Expansion of Mortgage Loan Origination Network and Products. The Company
plans to further expand its mortgage loan origination program through
acquisitions of loan originators, by increasing the number of authorized
correspondents and developing new products targeted to those market
niches in the mortgage lending market where the Company believes its core
competencies give it a competitive advantage.

. Opportunistic Acquisitions from Specialty Finance Companies. The Company
intends to acquire mortgage loans, properties and mortgage-backed
securities from distressed sub-prime mortgage lenders and other specialty
finance companies. The Company believes that the high levels of debt
coupled with the negative cash flow characteristics of many of these
businesses and the Company's specialty servicing abilities may present
favorable opportunities for the Company.

. Growth of Merchant Bankcard Processing Operations. The Company plans to
continue development of its merchant bankcard processing operations
through increased marketing and acquisitions of merchant portfolios and
other bankcard processors.

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<PAGE>

RECENT DEVELOPMENTS

In October 1997, the Savings Banks entered into amended Cease and Desist
Orders (the "Orders") with the Office of Thrift Supervision (the "OTS") which
modified certain provisions of the original Cease and Desist Orders. See
"Regulation--Recent Regulatory Examinations." The Savings Banks continue to
remain subject to growth restrictions. In December 1997, Girard merged with
First Bank. See "Regulation--Activities Limitation."

The Company entered into a letter of intent to acquire certain assets of a
mortgage loan originator located in California for a purchase price of
approximately $2.8 million. The Company also entered into a letter of intent to
acquire a manufactured housing loan originator located in California for a
purchase price of approximately $5.7 million. There can be no assurance as to
when or if such acquisitions will be completed.

In December 1997, the Company completed a securitization of approximately
$131 million of unpaid principal balance of loans resulting in a gain of
approximately $7.5 million. At the sale date the Company allocated
approximately $2.3 million of original cost basis to retained servicing rights.

In the quarter ended December 31, 1997, the Company acquired or committed to
acquire 22 pools of loans and properties for an aggregate purchase price of
approximately $613.2 million. In such quarter, the Company acquired or
committed to acquire international assets for approximately $153.9 million,
U.S. Non-Discounted Loans for approximately $342.9 million, and U.S. Discounted
Loans for approximately $116.4 million. In the quarter ended December 31, 1997,
the Company acquired or committed to acquire 13 mortgage-backed securities for
a purchase price of approximately $43.7 million.

In January 1998, the Company acquired approximately $3.9 million of residual
securities and the related servicing rights and obtained the right to acquire
an additional $23.4 million of residual securities and the related servicing
rights. There can be no assurance as to when or if the Company will acquire the
additional residual securities and the related servicing rights.

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<PAGE>

THE OFFERING

Common Stock Offered Hereby........... 3,500,000 shares (1)

Common Stock to be Outstanding after
the Offering......................... 11,070,000 shares (2)

Use of Proceeds....................... The net proceeds from the Offering are
expected to be used to (i) redeem $27.5
million of PIK Preferred Stock, plus
accrued dividends and (ii) provide the
capital (or equity) portion of the
Company's investment in future
leveraged acquisitions of pools of
loans and other investments. Pending
such uses, the Company intends to
reduce short-term debt. The Principal
Shareholders will not receive any of
the net proceeds from the 3,500,000
shares offered hereby; however, if the
Underwriters' over-allotment option is
exercised the Principal Shareholders
will receive all of the net proceeds
from the sale of the shares subject to
the Underwriters' over-allotment
option.

Nasdaq National Market Symbol......... WFSG
- --------
(1) Does not include up to 525,000 shares that may be offered by the Selling
Shareholders, subject to the Underwriters' over-allotment option.
(2) Does not include options to purchase 1,367,318 shares of Common Stock.

RISK FACTORS

Investors should consider the material risk factors involved in connection
with an investment in the Common Stock and the impact to investors from various
events that could adversely affect the Company's business. See "Risk Factors."

7
<PAGE>

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY

The following tables present summary historical consolidated financial
information for the Company at the dates and for the periods indicated. The
historical income statement data for the years ended December 31, 1996, 1995
and 1994 and balance sheet data as of December 31, 1996 and 1995 have been
derived from the audited consolidated financial statements of the Company
included elsewhere in this Prospectus (the "Audited Financial Statements"). The
historical income statement data presented for the nine month periods ended
September 30, 1997 and 1996 and balance sheet data presented as of September
30, 1997 have been derived from audited consolidated financial statements (the
"Audited Interim Financial Statements" and, together with the Audited Financial
Statements, the "Consolidated Financial Statements"). Operating results for the
nine month period ended September 30, 1997 are not necessarily indicative of
the results that may be expected for any other interim period or the entire
year ending December 31, 1997. The summary historical 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. Because certain predecessors of the
Company 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. Financial information as of December 31,
1996 and 1995 and for the years then ended is presented on a consolidated
basis. For convenience, all the accompanying financial statements are referred
to as "consolidated." See Note 1 to the Consolidated Financial Statements of
the Company.

8
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1997 1996 1995 1994
------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 77,993 $152,298 $ 4,482 $ 8,830
Portfolio assets:
Discounted Loans, net............... 350,460(3) 219,630 31,354 2,094
Non-Discounted Loans, net........... 440,559(3) 191,962 259,417 179,377
Mortgage-backed and other securi-
ties............................... 256,297(3) 84,964 28,672 29,887
Foreclosed real estate, net......... 146,464(3) 78,200 4,964 1,208
---------- -------- -------- --------
Total portfolio assets............. $1,193,780 $574,756 $324,407 $212,566
Total assets......................... 1,369,761 753,849 340,695 230,636
Deposits............................. 407,768 501,614 303,524 196,289
Short-term debt...................... 658,042(3) 97,624 13,000 21,500
Long-term debt....................... 184,245 75,000 11,000 --
Stockholders' equity(4).............. 99,769 61,022 7,039 6,793
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- --------------------
1997 1996 1996 1995 1994
------ ------ ----- ----- ------
(ANNUALIZED)
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
Return on average assets............. 1.42% (.22)% 0.95% 0.24% (0.92)%
Return on average equity............. 23.08% (3.09)% 13.68% 8.65% (31.08)%
Average interest yield on total
loans............................... 9.42% 9.39 % 9.41% 10.02% 7.96 %
Net interest spread(5)(6)............ 1.99% 3.15 % 3.07% 3.44% 3.08 %
Net interest margin(6)(7)............ 2.06% 3.88 % 3.63% 3.87% 3.14 %
Ratio of earnings to fixed
charges(8):
Including interest on deposits...... 1.36 -- 1.17 1.04 -- (9)
Excluding interest on deposits...... 1.54 -- 2.19 2.19 -- (9)
Long-term debt to total capitaliza-
tion(10)............................ 0.65 -- 0.55 0.61 --
Total financial liabilities to equi-
ty.................................. 12.73 14.43 11.35 47.40 32.95
Average equity to average assets..... 6.15% 7.24 % 6.90% 2.72% 2.96 %
Non-Performing Loans to total Non-
Discounted Loans at end of
period(11)(12)...................... 16.82% 9.11 % 23.69% 4.46% 5.95 %
Allowance for loan losses to total
Non-Discounted Loans at end of
period.............................. 10.96% 9.20 % 13.88% 3.60% 3.72 %
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------
1997 1996 1995 1994
------------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Number of pools of loans ac-
quired........................... 79 41 33 38
Investments and originations:
Discounted Loans and foreclosed
real estate..................... $ 316,931 $ 324,159 $ 29,224 $ 2,538
Non-Discounted Loans(13)......... 556,231 254,517 157,671 39,023
Mortgage originations............ 50,962 2,280 8,748 4,345
Mortgage-backed and other securi-
ties............................ 184,393 67,604 2,965 14,469
---------- --------- -------- --------
Total........................... $1,108,517 $ 648,560 $198,608 $ 60,375
Recoveries and repayments......... (136,316) (66,160) (61,135) (21,824)
Loan sales and securitizations.... (344,710) (301,411) (16,031) --
Net change in portfolio assets.... 619,024 250,349 111,841 106,580
</TABLE>
- --------
(1) Approximately $8.6 million of the increase in the provisions from 1995 to
1996 related to certain sub-prime auto loans and $4.8 million of the 1996
provision related to the loans inherited by the Company upon the
acquisition of the Savings Banks. See "Business--Allowances for Losses."
(2) The increase in cash in 1996 reflects the receipt of cash from the
Company's sale of Common Stock and its Notes and the decrease in cash for
the nine months ended September 30, 1997 reflects the subsequent
investment of that cash in interest earning assets which was partially
offset by the proceeds of the Company's Series A Notes and a
securitization.

9
<PAGE>

(3) The Company or its affiliates intend to sell to the Wilshire REIT (i) U.S.
Commercial Investments for approximately $42.9 million, (ii) MBS
Investments for approximately $98.1 million, and (iii) International
Investments in the United Kingdom for approximately $5.3 million. This
will reduce the corresponding amount on the Company's balance sheet for
such assets, decrease short-term debt and increase cash. In addition, the
Company intends to grant the Wilshire REIT an option to purchase all or a
portion of the Company's interest in two portfolios of International
Investments in France, for a purchase price of up to $110.0 million
(including approximately $40.9 million held on the Company's balance sheet
at September 30, 1997). See "The Wilshire REIT." The Wilshire REIT is
currently evaluating the suitability of such investments under U.S. tax
and French law.
(4) Effective January 1, 1996, $11.0 million of Common Stock was issued in
exchange for subordinated debt. Prior to the Company's initial public
offering, an additional $17.8 million of Common Stock was issued for cash.
In December 1996, the Company completed its initial public offering, which
resulted in $20.9 million of new capital. Effective July 31, 1997, the
Company issued to the Wilshire Private Companies 27,500 shares of PIK
Preferred Stock having an aggregate liquidation value of $27.5 million in
exchange for the cancellation of certain accounts payable to the Wilshire
Private Companies aggregating approximately $27.1 million and cash in the
amount of approximately $400,000, resulting in an increase in
stockholders' equity of $27.5 million.
(5) Net interest spread represents average yield on interest-earning assets
minus average rate paid on interest-bearing liabilities.

(6) The reduction in net interest margin and net interest spread in the nine
months ended September 30, 1997 primarily reflects the significant
increase in the Company's holdings of Discounted Loans during the nine
months then ended. The acquisition of a pool of Discounted Loans tends to
reduce net interest margin and net interest spread, because the interest
cost of the debt used to fund the acquisition is not offset by a
corresponding increase in interest income. Relatively little cash flow
from a pool of Discounted Loans is generally received during the first two
quarters following the acquisition of a pool of Discounted Loans and the
Company only recognizes interest and discount on Discounted Loans when
those loans result in the receipt of cash. In addition, a significant
portion of the income associated with Discounted Loans generally results
from gains on sales of foreclosed real estate, which are not reflected in
interest income. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Accounting Matters." The reduction
also reflected three quarters of interest expense on the $84.2 million of
Notes and part of the most recent quarter of interest expense on
approximately $100.0 million of Series A Notes, the proceeds of which were
held for part of such periods in a lower-yielding liquid investment prior
to their use by the Company to fund acquisitions.
(7) Net interest margin represents net interest income divided by total
average earning assets.
(8) 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.
(9) Earnings for the year ended December 31, 1994 were inadequate to cover
fixed charges by $1.8 million.
(10) Total capitalization equals long-term debt plus equity.
(11) It is the Company's policy to establish an allowance for uncollectible
interest on Non-Discounted Loans that are past due more than 90 days or at
such earlier time when, in the judgment of management, the probability of
collection of interest is deemed to be insufficient to warrant further
accrual, at which time those loans are placed on nonaccrual status and
deemed non-performing.
(12) The Company classifies loans as discounted or non-discounted on a pool
basis. Each pool is designated as discounted or non-discounted based on
whether that pool consists primarily of Discounted or Non-Discounted Loans
at the time of acquisition. For example, a pool of Non-Discounted Loans
may contain non-performing loans at the time of acquisition as long as the
non-performing loans were not the primary component of the pool at that
time. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Accounting Matters."
(13) Excludes purchases of newly originated mortgage and manufactured housing
loans, which are shown as mortgage originations. During the quarter ended
September 30, 1997, the Company completed the securitization of
approximately $146.0 million of fixed and adjustable loans secured by
mortgages or residential properties resulting in a gain of approximately
$11.9 million, a decrease in Non-Discounted Loans and an increase in cash.

10
<PAGE>

RISK FACTORS

An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors in connection with an investment in the Common Stock offered hereby.

This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act. All of the statements contained in this
Prospectus, other than statements of historical fact, should be considered
forward-looking statements, including, but not limited to, those concerning
(i) the Company's strategies, objectives and plans for expansion of its
operations, products and services and growth of its portfolio of acquired
loans, (ii) the Company's beliefs and expectations regarding actions that may
be taken by regulatory authorities having oversight of the operations of
certain of its subsidiaries and (iii) the Company's beliefs as to the adequacy
of its existing and anticipated cash and funding resources. Although the
Company believes the expectations reflected in those forward-looking
statements are reasonable, it can give no assurance that those expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed in this Prospectus, including, without limitation,
under "Risk Factors." All subsequent written and oral forward-looking
statements by or attributable to the Company or persons acting on its behalf
are expressly qualified in their entirety by such Cautionary Statements.
Prospective investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof and are not
intended to give any assurance as to future results. The Company undertakes no
obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

EXTENSIVE USE OF FINANCIAL LEVERAGE. The Company is highly leveraged and
following the Offering, will continue to be highly leveraged. At September 30,
1997, the Company's outstanding indebtedness for borrowed money aggregated
approximately $842.3 million, of which approximately $658.0 million was short-
term debt secured by the Company's loans and other financial assets. In
addition, at that date the Savings Banks had outstanding deposits aggregating
approximately $407.8 million. The Company's ability to make payments of
principal or interest on or to refinance its indebtedness depends on its
future operating performance and its ability to effect additional debt and/or
equity financing, which is subject to economic, financial, competitive and
other factors beyond its control, including restrictions on the Company's
ability to obtain additional debt financing contained in the indentures
relating to the Notes and the Series A Notes.

The Company finances its acquisitions of pools of loans with secured
borrowings, which generally represent 95% of the purchase price for pools of
U.S. Non-Discounted Loans and 90% of the purchase price for pools of U.S.
Discounted Loans. While the highly leveraged nature of the Company's pools of
loans and other financial assets offers the opportunity for increased rates of
return on the Company's invested capital, it involves a greater degree of
risk. A relatively small decline in the value of a pool of loans can reduce or
eliminate the Company's capital invested in that pool of loans. In addition,
in the case of indebtedness incurred pursuant to repurchase agreements, such a
decline can result in margin calls (i.e., demands by the Company's lenders for
additional cash or assets as security for their loans), which can have an
adverse impact on the Company's liquidity and capital resources. This high
degree of leverage also makes the Company more vulnerable to a downturn in
real estate values or the economy generally. Although management generally
expects to repay any indebtedness incurred in connection with an acquisition
from the proceeds of the acquired pool of loans, a downturn in the economy or
real estate market could reduce those proceeds. An increase in market interest
rates or a decline in the value of the collateral securing the acquired pool
of loans could adversely effect the ability of the Company to repay its
borrowings and could have a material adverse effect on the Company's results
of operations and financial condition.

NEED FOR ADDITIONAL FINANCING. The Company's expansion strategy will result
in the need for additional debt and/or equity financing in the future, and
there can be no assurance that the Company will be able to obtain such
financing on acceptable terms. In addition, the indentures relating to the
Company's Notes and Series A Notes restrict the Company's ability to obtain
additional debt financing. The Company's high degree of leverage may make it
more difficult for the Company to obtain additional financing for future
working capital, capital

11
<PAGE>

expenditures, acquisitions, general corporate purposes or other purposes and
may cause the Company to dedicate a substantial portion of its cash flow from
operations to the payment of principal and interest on indebtedness, thereby
reducing the funds available for operations and future business opportunities.
To the extent the Company is unable to extend or replace existing facilities,
securitize its loans or increase deposits at the Savings Banks, the Company
may have to curtail its acquisition of pools of loans and newly-originated
mortgage and manufactured housing loans, which could have a material adverse
effect on its financial position and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

The Company is dependent upon third-party financing. The Company's financing
sources include warehouse and repurchase facilities with investment banking
firms, secured term loans, brokered and wholesale deposits at the Savings
Banks, funds from securitizations, proceeds from sales of debt and equity
securities and internally generated funds. At September 30, 1997, the Company
had warehouse and repurchase financing facilities totaling approximately $1.1
billion, of which approximately $456.8 million was available. Approximately
60% in principal amount of the Company's warehouse and repurchase financing
facilities are committed for specified periods of time, generally six months
to three years, and the balance may be withdrawn at any time.

From time to time, the Company securitizes pools of loans and uses the
proceeds to repay borrowings on its warehouse and repurchase facilities,
thereby increasing its ability to purchase additional pools of loans. Any
substantial reduction in the size or availability of the securitization market
or other accounting, tax or regulatory changes adversely affecting the
securitization of loans could make the Company more dependent upon its other
funding sources, if available, and adversely affect the Company's ability to
acquire pools of loans.

In the past, the Company has relied on the ability of the Savings Banks to
use brokered and wholesale deposits as a significant source of funds. The
Savings Banks' funding strategy had been to offer deposit rates above those
customarily offered by other banks and savings institutions. 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 an investor to
competing investments. Pursuant to the Orders issued by the OTS, the Savings
Banks are currently prohibited from increasing total assets above specified
levels and are required to implement certain procedural and administrative
changes that may increase the expenses they incur in acquiring additional
financial assets. See "--Regulation of the Savings Banks."

RISKS RELATED TO ACQUIRED POOLS OF LOANS. In determining the purchase price
for pools of loans, management makes certain assumptions regarding, among
other things, the real estate market and the Company's ability to successfully
resolve loans and to dispose of any foreclosed real estate. To the extent that
the Company's underlying assumptions prove to be inaccurate or the basis for
those assumptions change (for example, an unanticipated decline in the real
estate market), the price paid by the Company for a pool of loans may prove to
have been excessive, resulting in a lower yield or a loss to the Company.
Therefore, the success of the Company is highly dependent on its pricing of
pools of loans as well as general economic conditions in the geographic areas
in which the foreclosed real estate or properties underlying the loans are
located. At September 30, 1997, approximately 58.8% of the Company's
Discounted Loan portfolio was concentrated in New York, New Jersey and
Connecticut and approximately 64.9% of the Company's foreclosed real estate
was located in such states. In addition, approximately 37.9% of the Company's
Non-Discounted Loan portfolio and approximately 10.4% of the Company's
foreclosed real estate was located in California at September 30, 1997.
Adverse changes in national economic conditions or in the economic conditions
in regions in which the Company acquires pools of loans could impair its
ability to successfully resolve loans and have an adverse effect on the value
of those pools of loans. In addition, because non-performing loans do not make
regular cash payments, the return to the Company is significantly influenced
by the time it takes to resolve the loan, which varies based on, among other
things, state consumer protection and foreclosure laws, both of which are
subject to change. If, and to the extent the Company expands its operations to
include the acquisition of pools of loans of a type or from a geographic
market with respect to which management does not have substantial prior
experience, such operations may involve a higher risk of loss.

12
<PAGE>

SUBSTANTIAL VARIATIONS IN QUARTERLY RESULTS. The Company's operating results
and cash flow fluctuate from quarter to quarter as a result of the volume of
the Company's acquisitions of pools of loans and newly originated mortgage and
manufactured housing loans, the prices paid by the Company for pools of loans,
the volume of loans resolved, the differences between the Company's cost of
funds and the average interest rates of the acquired loans, the timing and
size of provisions for loan losses, variations in the effectiveness of the
Company's hedging strategies, the interest rate for senior classes of
mortgage-backed securities issued in securitizations, and the timing and size
of securitizations or other loan dispositions. The Company's operating results
also could fluctuate significantly based on the timing of the receipt of cash
flow from the resolution of Discounted Loans. Relatively little cash flow from
a pool of Discounted Loans is generally received during the first two quarters
following the acquisition of that pool and the Company only recognizes
interest and discount on Discounted Loans as income when those loans result in
the receipt of cash. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Accounting Matters." In addition,
fluctuations in quarterly results and cash flows could have a negative effect
on the Company's ability to service its indebtedness.

ABILITY TO MANAGE GROWTH. The Company has undergone rapid and significant
growth and is continuing to pursue a policy of rapid growth, including growth
in foreign countries. The Company's rapid growth has imposed a significant
strain on its management resources and there can be no assurance that the
Company will be able to attract and retain the necessary personnel to manage
its operations effectively, in which event its business, operating results and
financial condition could be materially and adversely affected.

INVESTMENT LIMITATIONS AS A RESULT OF THE FORMATION OF THE WILSHIRE
REIT. The Company will grant a right of first refusal to the Wilshire REIT
with respect to U.S. Commercial Investments, MBS Investments and International
Investments. As a consequence, the opportunity for the Company to invest in
such assets would be limited to the extent the Wilshire REIT takes advantage
of such investment opportunities. In deciding whether to invest in any assets,
the Wilshire REIT may consider, among other factors, whether the assets are
well-suited for the Wilshire REIT and whether the Wilshire REIT is financially
or strategically able to take advantage of the investment opportunity. The
Company or its affiliates intend to sell the following assets to the Wilshire
REIT: (i) U.S. Commercial Investments for approximately $42.9 million; (ii)
MBS Investments for approximately $98.1 million; and (iii) International
Investments in the United Kingdom for approximately $5.3 million. The Company
expects to realize a book gain as a result of this sale.

COMPETITION. The Company faces competition in purchasing pools of loans from
several other companies that specialize in this business, some of which have
greater resources than the Company. For large pools of loans (over $20.0
million), the Company's competitors also include several investment banks and
investor consortiums. The current level of return realized by the Company and
its competitors in purchasing pools of loans and foreclosed real estate could
attract additional competitors to these markets. Heightened competition would
likely result in higher prices for pools of loans and correspondingly lower
yields on the Company's investment in those pools.

RISKS RELATED TO INTERNATIONAL SERVICING OPERATIONS. The Company recently
established servicing operations in the United Kingdom and France. The
Company's loan servicing operations in Western Europe utilize the U.S.
Servicer's servicing system, which has been adapted for servicing loans in
Western Europe. It is not anticipated that these servicing operations will be
profitable in 1998.

The Company's international servicing operations are subject to most of the
same risks associated with its U.S. operations as well as additional risks,
such as fluctuations in foreign currency exchange rates, 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. In addition, the
Company's management has only limited experience in servicing loans in foreign
countries. Accordingly, there can be no assurance that one or more of these
factors will not have a materially adverse effect on the Company's operations.

13
<PAGE>

DEPENDENCE ON THE U.S. SERVICER. The Company currently relies on the U.S.
Servicer to service its pools of loans and is expected to continue to rely on
the U.S. Servicer until the Servicing Transfer. In addition, the Company's
mortgage loan origination program is conducted through the U.S. Servicer to
comply with certain licensing requirements, and the U.S. Servicer provides
certain administrative services to the Company. The U.S. Servicer is
significantly leveraged and its servicing rights are pledged to secure those
borrowings. Until such time as the Company commences servicing for its own
account, the loss of the services of the U.S. Servicer for any reason could
have a material adverse impact on the Company. At September 30, 1997, the
Company had only become licensed to service loans in one state. In its review
of the U.S. Servicer's servicing of loans for the Savings Banks, the OTS has
expressed criticism of certain aspects of the U.S. Servicer's loan servicing
operations.

DEPENDENCE ON AND CONTROL BY PRINCIPAL SHAREHOLDERS. The Company's growth
and development to date have been highly dependent upon the services of its
Principal Shareholders: Andrew A. Wiederhorn, the Company's Chief Executive
Officer and Lawrence A. Mendelsohn, the Company's President. The loss of the
services of either Mr. Wiederhorn or Mr. Mendelsohn for any reason could have
a material adverse effect on the Company. The Company is party to employment
agreements with each of Messrs. Wiederhorn and Mendelsohn. See "Management--
Employment Agreements." The Company also maintains "key man" life insurance on
the lives of Messrs. Wiederhorn and Mendelsohn.

Following the Offering, the Principal Shareholders will continue to
beneficially own in the aggregate approximately 49.1% of the combined voting
power of all outstanding shares of Common Stock (55.9% if the Principal
Shareholders exercise all of their outstanding stock options). As a result,
acting together, they may be able to effectively control the election of the
entire Board of Directors of the Company and all matters requiring approval by
stockholders. This voting control may have the effect of discouraging offers
by third parties to acquire the Company because the consummation of any such
acquisition would require the consent of the Principal Shareholders.

REGULATION OF THE SAVINGS BANKS. Following examinations of the Savings Banks
and Wilshire Acquisitions Corporation, the holding company for the Savings
Banks ("WAC"), by the OTS in each of 1994, 1995, 1996 and 1997, the OTS issued
Reports of Examination that were critical of the Savings Banks and WAC in a
number of significant 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 and (vi) loan purchases; (b) enhance
record keeping; (c) develop requirements to ensure that the servicing of loans
by the Wilshire Private Companies 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 OTS.

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 and the quality of the assets
acquired by the Savings Banks. 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 issued
a Cease and Desist Order to Girard similar to the Cease and Desist 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. In October 1997, the Savings Banks entered into amended Orders
with the OTS which modified certain provisions of the original Cease and
Desist Orders, effective October 28, 1997.

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

14
<PAGE>

deposit liabilities. The Company does not expect to be able to grow the
Savings Banks until and unless the Orders are lifted or modified. The Orders
also prohibit the Savings Banks from purchasing (i) any loans or real estate,
without the approval of the OTS, until certain acquisition and servicing
deficiencies identified by the OTS have been corrected, and (ii) any non-
performing assets or foreclosed real estate until such time as the Savings
Banks are rated a composite "3" rating according to the Uniform Financial
Institutions Rating System with continued compliance with required capital
ratios.

The Orders require the Savings Banks to (i) maintain an effective Internal
Asset Review ("IAR") system that provides for adequate internal controls to
ensure that management timely reviews and classifies assets pursuant to their
IAR policies; (ii) fully comply with all policies and procedures submitted to
the OTS pursuant to the previous Cease and Desist Orders; (iii) operate
pursuant to and comply with their business plans; (iv) submit to the OTS, by
no later than November 30, 1997, a written plan to develop or obtain the
internal expertise and resources necessary to measure, monitor and model net
interest income and net portfolio value (the "IRR Plan") (v) review and
analyze, by November 30, 1997, the terms of all existing loan servicing or
other agreements with affiliates, to confirm that such agreements comply with
the Orders and that there are formal written agreements with respect to all
transactions with affiliates; and (vi) compare the results of profitability
models with the performance of purchased assets. The Orders also require the
Savings Banks to submit to the OTS, by November 30, 1997 and after each
calendar quarter, reports (i) detailing their progress in implementing their
Allowance for Loan and Lease Losses policies and the results of their reserve
analysis for the preceding calendar quarter; (ii) detailing any violations of
the policies and procedures submitted to the OTS that occurred during the
preceding quarter, together with an explanation as to what caused or
contributed to the act or practice constituting such violation, and what, if
any, corrective action has been undertaken; (iii) detailing any variances from
the business plans that occurred during the preceding quarter, showing actual
and planned results, and explaining any variances greater than 5 percent; and
(iv) detailing the progress in implementing the IRR Plan during the preceding
quarter. Management believes that the Savings Banks have complied with those
provisions of the Orders that required the Savings Banks to complete certain
actions by November 30, 1997, with the exception of timely documentation of a
reduced loan service arrangement with an affiliate.

The Orders also require the Savings Banks to elect at least two additional
new outside directors with specific financial institution industry experience.
Such outside directors cannot have any association with affiliates of the
Savings Banks, the Company or institution-affiliated parties, except that such
directors can simultaneously serve as a director of each of the Savings Banks.
As of October 31, 1997, the Savings Banks had elected two new directors.

To address regulatory concerns, First Bank submitted to the OTS a bankcard
plan (the "Bankcard Plan") which (i) established a method by which First Bank
will estimate the appropriate level of reserves for its bankcard operations;
(ii) established internal controls; (iii) created an overdraft policy that
requires timely recognition of overdraft losses and identifies employees with
authority to approve overdrafts; and (iv) ensures that First Bank will comply
with all applicable statutes and regulations. After each calendar quarter,
First Bank is required to report to the OTS, in writing, any variances to the
Bankcard Plan.

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.

RISK OF INCREASED CAPITAL REQUIREMENTS. Federally insured savings
associations are required to maintain minimum levels of regulatory capital.
These standards generally are as stringent as the comparable capital
requirements imposed on national banks. The OTS also is authorized to impose
capital requirements in excess of those standards on individual associations
on a case-by-case basis. In making such determination, the OTS can take into
account a number of factors, including the bank's loan portfolio quality,
recent operating losses or anticipated losses, the condition of its holding
company and whether the bank is receiving special supervisory attention, among
other matters. In connection with the 1997 examination, the OTS indicated that
the capital level

15
<PAGE>

of Girard was less than satisfactory and the capital level of First Bank was
not adequate in view of their risk profiles, despite the fact that the Savings
Banks had capital levels that would otherwise have qualified them as "well
capitalized" under OTS regulatory capital requirements. As a result, the
Orders require First Bank and Girard to maintain core capital and risk-based
capital equal to the dollar amount of capital at March 31, 1997 levels, as
measured at the end of each calendar quarter. At September 30, 1997, the
capital levels exceed the capital levels required by the Orders.

The Orders provide that in the event capital falls below the levels required
by the Orders as a result of any determination by the OTS or otherwise that
adversely affects the Savings Banks' financial condition the Savings Banks
would have to raise additional capital. If the OTS were to impose higher
capital requirements on the Savings Banks or additional capital were required
as a result of an adverse determination by the OTS or otherwise, the Company
might inject additional capital into the Savings Banks, whether or not such
usage of capital is optimal for 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. In the event that the Company was unable or refused to inject
capital into the Savings Banks as required by the OTS in the Orders or to meet
higher individual capital requirements imposed by the OTS, significant adverse
consequences could result.

RISKS RELATED TO SECURITIZATION. Under certain circumstances, the Company
may be required to advance funds to securitization trusts, indemnify the
trustee and the underwriters of a securitization and repurchase certain loans
that were securitized. In connection with a securitization, the Company may be
required to agree that, in the event of a breach of any representation or
warranty made by it that materially and adversely affects the value of an
underlying mortgage loan, the Company will repurchase that loan at a price
equal to the then outstanding principal balance of the loan and any accrued
and unpaid interest thereon.

INTEREST RATE SENSITIVITY. A significant portion of the Company's earnings
are derived from its net interest income. Changes in the level of interest
rates generally will affect the Company's net interest income by affecting the
spread between the Company's interest-earning assets and interest-bearing
liabilities and the cost of carry of non-performing loans and foreclosed real
estate. The Company could be subject to a significant decline in earnings in
an increasing interest rate environment due to the cost to carry noninterest-
bearing assets with interest-bearing liabilities. The Company actively
monitors its assets and liabilities and employs a hedging strategy that 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 creditworthiness of the counter parties to hedging transactions may impact
the effectiveness of the Company's hedging strategies. Poorly designed
strategies or improperly executed transactions may increase rather than
mitigate the interest risk. If there is a rise in short-term interest rates,
the Company's borrowing costs likely would rise faster than the yield on the
Company's assets, which would include both fixed and adjustable rate assets.
At the conclusion of its 1997 examination of the Savings Banks, the OTS
indicated that the Company's documentation of its hedging activities at the
Savings Banks was insufficient for regulatory purposes.

IMMEDIATE DILUTION. Purchasers of the Common Stock offered hereby will
experience immediate and substantial dilution of $11.93 in pro forma net
tangible book value per share of Common Stock from the public offering price.
The public offering price is substantially greater than the effective price at
which the Company's shareholders purchased their shares from the Company and
the effective exercise price of the Company's outstanding stock options. See
"Dilution."

ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW
PROVISIONS. Certain provisions of Delaware law and the Company's Certificates
of Incorporation (the "Charter") and By-laws could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third
party from attempting to acquire control of the Company. Certain provisions of
the Company's Charter and By-laws require the Company to have a Board of
Directors comprised of three classes of directors with staggered terms of
office, provide for the issuance of "blank check" preferred stock by the Board
of Directors of the Company without stockholder approval, and impose various
procedural and other requirements that could make it more difficult for
stockholders to effect certain corporate actions. Furthermore, the Company is
subject to the anti-takeover

16
<PAGE>

provisions of Section 203 of the Delaware General Corporation Law, which
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" (defined generally as a person owning more than 15%
of a Company's outstanding voting stock) for a period of three years after the
date of the transaction in which the person first becomes an "interested
stockholder," unless the business combination is approved in a prescribed
manner. The application of Section 203 could also have the effect of delaying
or preventing a change of control of the Company.

LIMITATION ON CHANGE IN CONTROL. If a person or group other than the
Principal Shareholders is or becomes the beneficial owner of more than 40% of
the total voting power of the Company (a "Change in Control Event") the
indentures for the Company's Notes and Series A Notes require the Company to
make an offer to purchase the Notes and Series A Notes at 101% of the
principal amount thereof, plus accrued interest, if any, to the date of the
repurchase. The exercise by the holders of the Notes or Series A Notes of
their right to require the Company to purchase the Notes or Series A Notes, as
the case may be, upon the occurrence of a Change in Control Event may have an
adverse effect on the Company. There can be no assurance that the Company
would have sufficient funds available to repurchase any of the Notes or Series
A Notes that may be tendered upon the occurrence of a Change in Control Event.

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have 11,070,000 shares of Common Stock outstanding, 5,612,095
shares (6,137,095 shares if the Underwriters' over-allotment option is
exercised in full) of which will be freely tradeable without restriction or
requirement of future registration under the Securities Act. All of the
remaining 5,457,905 shares of Common Stock are either "restricted securities"
as defined by Rule 144 ("Rule 144") promulgated under the Securities Act or
are held by persons who may be deemed "affiliates" of the Company.
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 two 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 two-year period has not yet elapsed, will be
eligible for sale under Rule 144 if the minimum one-year holding period
thereunder for such shares has elapsed, subject to volume and other
restrictions.

The Principal Shareholders who will beneficially own, upon completion of the
Offering, in the aggregate 6,530,461 shares of Common Stock (assuming the
Underwriter's over-allotment is not exercised), have agreed that they will not
for a period of 180 days from the date of this Prospectus, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant any option to purchase or other
sale or disposition) of any shares of Common Stock or other capital stock of
the Company or any securities convertible into, or exercisable or exchangeable
for any shares of Common Stock, or other capital stock of the Company without
the prior written consent of Prudential Securities Incorporated, on behalf of
the Underwriters, other than pursuant to the over-allotment option. The
Company also has agreed that it will not, for a period of 180 days from the
date of this Prospectus, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock of the Company or other securities
convertible into, or exercisable or exchangeable for, any shares of Common
Stock, or other capital stock of the Company without the prior written consent
of Prudential Securities Incorporated, on behalf of the Underwriters, except
that such agreement does not prevent the exercise of outstanding options or
the Company from granting additional options under the Company's stock option
plan. Prudential Securities Incorporated may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to lock-up agreements.

Upon the expiration of or release from such lock-up agreements, 5,435,461
shares (plus up to an additional 1,095,000 shares of Common Stock subject to
outstanding vested stock options) may be sold pursuant to an

17
<PAGE>

effective registration statement under the Securities Act and Rule 144,
subject to the timing, volume and manner of sale restrictions of Rule 144.

Sales of such shares in the future could adversely affect the prevailing
market price of the Common Stock. No prediction can be made as to the effect,
if any, that future sales of shares or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock in the public market, or
the perception of the availability of shares for sale could adversely affect
the prevailing market price of the Common Stock and could impair the Company's
ability to raise capital through the sale of equity securities.

18
<PAGE>

THE COMPANY

The Company is primarily engaged in the acquisition of pools of performing,
sub-performing and non-performing residential and commercial mortgage loans,
as well as foreclosed real estate and mortgage-backed securities. The Company
also acquires newly originated residential mortgage and manufactured housing
loans through correspondents and operates a merchant bankcard processing
business. At September 30, 1997, the Company had total assets of approximately
$1.4 billion, including approximately $791.0 million of loans, approximately
$146.5 million of foreclosed real estate and approximately $256.3 million of
mortgage-backed and U.S. government securities. For the nine months ended
September 30, 1997, the Company had net income of approximately $12.2 million.

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>

THE WILSHIRE REIT

GENERAL

In October 1997, the Company established the Wilshire REIT which intends to
qualify and will elect to be taxed as a REIT. The Wilshire REIT has filed a
registration statement with the Securities and Exchange Commission in
connection with a proposed underwritten public offering of its common stock.
The Company currently owns 100% of the Wilshire REIT and expects to retain a
minority interest (currently expected to be approximately 9.9%, with options
to acquire an additional 10%) in the Wilshire REIT following the Wilshire
REIT's proposed initial public offering. There can be no assurance as to when
or if the Wilshire REIT's proposed initial public offering will be completed.

U.S. COMMERCIAL INVESTMENTS:

. Discounted commercial and multi-family mortgage loans secured by
commercial and multi-family real properties located in the United
States; and

. Commercial and multi-family real properties located in the United
States, including foreclosed real estate.

INTERNATIONAL INVESTMENTS:

. Discounted and Non-Discounted commercial, multi-family and residential
mortgage loans secured by real properties located outside the United
States;

. Commercial and residential real properties located outside the United
States, including foreclosed real estate located outside the United
States.

MORTGAGE-BACKED SECURITIES:

. Primarily residential, non-investment grade subordinated interests, and
to a lesser extent, investment-grade, subordinated interests in
mortgage-backed securities.

Although the Wilshire REIT expects to invest primarily in the foregoing
assets, the Wilshire REIT may also acquire or originate other mortgage loans
or real properties such as residential Discounted or Non-Discounted Loans and
commercial Non-Discounted Loans in the United States (collectively, "Other
Real Estate Related Assets"). The Wilshire REIT is expected to take an
opportunistic approach to its investments and, accordingly, the Wilshire REIT
may invest in Other Real Estate Related Assets at any time.

The Company intends to grant a right of first refusal to the Wilshire REIT
with respect to U.S. Commercial Investments, MBS Investments and International
Investments. As a consequence, the opportunity for the Company to invest in
such assets would be limited to the extent the Wilshire REIT takes advantage
of such investment opportunities.

MANAGEMENT AGREEMENT

WRSC intends to enter into a management agreement with the Wilshire REIT
(the "Management Agreement") pursuant to which WRSC, subject to the
supervision of the Wilshire REIT's board of directors, will formulate
operating strategies for the Wilshire REIT, arrange for the acquisition of
assets by the Wilshire REIT, arrange for various types of financing for the
Wilshire REIT, including repurchase agreements, secured term loans, warehouse
lines of credit, mortgage loans and the issuance of mortgage-backed
securities, monitor the performance of the Wilshire REIT's assets and provide
certain administrative and managerial services in

20
<PAGE>

connection with the operation of the Wilshire REIT. For performing these
services, WRSC will receive the following compensation, fees and other
benefits (including reimbursement reasonable of out-of-pocket expenses):

<TABLE>
<CAPTION>
FEE AMOUNT
--- ------
<C> <S>
Base Management Fee........................ Equal to 1% per annum of the first $1.0
billion of average invested assets, 0.75% of
the next $500.0 million of average invested
assets and 0.50% of average invested assets
above $1.5 billion.
Incentive Fee.............................. Twenty-five percent of the amount by which
the Wilshire REIT's funds from operations
plus certain gains (minus certain losses)
exceed the ten year U.S. Treasury rate plus
5% per annum.
Expense Reimbursement Fee.................. Reimbursement of due diligence costs and out-
of-pocket expenses.
</TABLE>

In addition, because WRSC's employees will perform certain due diligence
tasks that purchasers of real estate (including managers of REITs) typically
hire outside consultants to perform, WRSC will be reimbursed for (or charge
the Wilshire REIT directly for) its out-of-pocket costs for performing due
diligence on assets purchased by the Wilshire REIT or considered for purchase
by the Wilshire REIT. The Wilshire REIT does not expect to maintain an office
or employ full-time personnel. Instead, it expects to rely on the facilities
and resources of WRSC to conduct its operations, and it will be required to
pay WRSC's out-of-pocket expenses.

The Wilshire REIT intends to grant WRSC and certain of the Wilshire REIT's
directors options to purchase 2,000,000 shares of common stock of the Wilshire
REIT (2,300,000 shares if the underwriters for the Wilshire REIT's proposed
initial public offering exercise their over-allotment option in full) at a
price per share equal to the initial offering price of the Wilshire REIT's
common stock. One quarter of WRSC's options will become exercisable on each of
the first four anniversaries of the closing of the Wilshire REIT's proposed
initial public offering.

SERVICING AGREEMENT

The Wilshire REIT intends to enter into a loan servicing agreement with the
U.S. Servicer pursuant to which the U.S. Servicer will act as servicer for the
Wilshire REIT and provide loan and real property management services,
including billing, portfolio administration and collection services for the
Wilshire REIT's U.S. Commercial Investments, MBS Investments and Other Real
Estate Related Assets in the United States. The Wilshire REIT also intends to
enter into a servicing agreement with the Company's two European subsidiaries
(the "European Servicers") pursuant to which the European Servicers will act
as servicers for the Wilshire REIT and provide loan and real property
management services in France and the United Kingdom. The Wilshire REIT will
pay the U.S. Servicer and the European Servicers a servicing fee at market
rates for each pool of loans or real estate assets that they service for the
Wilshire REIT and to reimburse them for certain out-of-pocket costs associated
with servicing such assets.

INITIAL INVESTMENTS

The Company or its affiliates intend to sell to the Wilshire REIT, upon the
consummation of the proposed initial public offering of the Wilshire REIT, (i)
U.S. Commercial Investments for approximately $42.9 million, (ii) MBS
Investments for approximately $98.1 million, and (iii) International
Investments in the United Kingdom for approximately $5.3 million. The Company
intends to grant the Wilshire REIT an option to purchase all or a portion of
the Company's interest in two portfolios of International Investments in
France for a purchase price

21
<PAGE>

of up to $110.0 million (including approximately $40.9 million held on the
Company's balance sheet at September 30, 1997). The Wilshire REIT is currently
evaluating the suitability of such investments under U.S. tax and French law.

The Wilshire REIT also intends to acquire certain commercial real estate
from Wilshire Properties 1, Incorporated ("Wilshire Properties 1") and
Wilshire Properties--2 Incorporated ("Wilshire Properties 2") all of the
outstanding shares of which are owned by Messrs. Wiederhorn and Mendelsohn.
The operating partnership of the Wilshire REIT will issue 378,634 units in the
Wilshire REIT's operating partnership ("Units") (which will comprise
approximately 1.8% of the outstanding Units, or 1.6% if the underwriter's for
the Wilshire REIT's proposed initial public offering exercise their over-
allotment option in full) to Wilshire Properties 1 and Wilshire Properties 2
in consideration of the acquisition of the commercial properties. The
commercial properties include the buildings where the Company leases office
space. Upon the consummation of the Wilshire REIT's proposed initial public
offering the Company will pay rent to the Wilshire REIT.

The purchase price for the Initial Investments was derived by considering a
number of factors, including the amount and timing of potential net cash flows
on the Initial Investments, the range of possible returns on such assets and
the risks associated with such assets, including the risk that the ultimate
return will be significantly affected by losses, if any, realized on the
underlying mortgage loans and other factors such as prepayment experience on
the underlying mortgage loans. The number of Units to be issued in connection
with the acquisition of the commercial properties from Wilshire Properties 1
and Wilshire Properties 2 was based on recent appraisals of these properties
and the proposed public offering price of shares of common stock of the
Wilshire REIT.

The Initial Investments will consist of the following:

<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
BALANCE OR PURCHASE
CLASSIFICATION NUMBER APPRAISED VALUE PRICE
- -------------- ------ ------------------- ------------
<S> <C> <C> <C>
U.S. Commercial Investments:
Discounted U.S. Commercial Loans...... 201 $ 53,335,473 $ 29,910,533
U.S. Commercial Properties(1)......... 12 12,988,000 12,988,000
MBS Investments(2)...................... 28 557,903,330(2) 98,387,783
International Investments............... 19 6,246,723 5,323,488
------------
Total............................... $146,609,804
============
</TABLE>
- --------

(1) Includes 4 properties with an appraised value of approximately $11.3
million which the Wilshire REIT intends to acquire from Wilshire
Properties 1 and Wilshire Properties 2.
(2) Includes IO classes of mortgage-backed securities that are entitled to no
(or minimal) distributions of principal.

22
<PAGE>

RECENT DEVELOPMENTS

In October 1997, the Savings Banks entered into amended Orders with the OTS
which modified certain provisions of the Original Cease and Desist Orders. See
"Regulation--Recent Regulatory Examinations." The Savings Banks continue to
remain subject to growth restrictions. In December 1997, Girard merged with
First Bank. See "Recent Developments--Activities Limitation."

The Company entered into a letter of intent to acquire certain assets of a
mortgage loan originator located in California for a purchase price of
approximately $2.8 million. The Company also entered into a letter of intent
to acquire a manufactured housing loan originator located in California for a
purchase price of approximately $5.7 million. There can be no assurance as to
when or if such acquisitions will be completed.

In December 1997, the Company completed a securitization of approximately
$131 million of unpaid principal balance of loans resulting in a gain of
approximately $7.5 million. At the sale date, the Company allocated
approximately $2.3 million of original cost basis to retained servicing
rights.

In the quarter ended December 31, 1997, the Company acquired or committed to
acquire 22 pools of loans and properties for an aggregate purchase price of
approximately $613.2 million. In such quarter, the Company acquired or
committed to acquire international assets for approximately $153.9 million,
U.S. Non-Discounted Loans for approximately $342.9 million, and U.S.
Discounted Loans for approximately $116.4 million. In the quarter ended
December 31, 1997, the Company acquired or committed to acquire 13 mortgage-
backed securities for a purchase price of approximately $43.7 million.

In January 1998, the Company acquired approximately $3.9 million of residual
securities and the related servicing rights and obtained the right to acquire
an additional $23.4 million of residual securities and the related servicing
rights. There can be no assurance as to when or if the Company will acquire
the additional residual securities and the related servicing rights.

23
<PAGE>

USE OF PROCEEDS

Net proceeds to the Company from the Offering currently are estimated to be
$83.5 million after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company. The net proceeds of the
Offering are expected to be used to (i) redeem $27.5 million of PIK Preferred
Stock, plus accrued dividends and (ii) provide the capital (or equity) portion
of the Company's investment in future leveraged acquisitions of pools of loans
and other investments. Pending such uses, the Company intends to reduce short-
term debt. The Principal Shareholders will not receive any of the net proceeds
from the 3,500,000 shares offered hereby. However, if the Underwriters' over-
allotment option is exercised, the Principal Shareholders will receive all of
the net proceeds from the sale of the shares subject to the Underwriters'
over-allotment option.

24
<PAGE>

PRICE RANGE OF COMMON STOCK

The Common Stock of the Company is included for quotation in the Nasdaq
National Market under the symbol "WFSG." The following table sets forth, for
the periods indicated, the high and low sales price per share of the Common
Stock on the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996:
Fourth Quarter (commencing December 24, 1996)................. $16 1/4 $12 3/4
1997:
First Quarter................................................. $18 $14 1/4
Second Quarter................................................ $16 1/4 $13 1/2
Third Quarter................................................. $26 1/4 $15 1/2
Fourth Quarter................................................ $33 1/2 $21 1/8
1998:
First Quarter (through January 12, 1998)...................... $27 1/4 $25 3/4
</TABLE>

On January 12, 1998, the last reported sale price for the Common Stock on
the Nasdaq National Market was $26.00 per share. The Company believes that
there are approximately 786 shareholders of the Common Stock.

25
<PAGE>

DIVIDEND POLICY

The Company currently intends to retain its earnings to support its future
growth strategy and does not anticipate declaring and 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 indentures relating to its Notes and its Series A
Notes. Pursuant to such indentures the Company may not make any Restricted
Payments (which term includes cash dividends on the Common Stock) upon the
occurrence of a Default or Event of Default or the failure of the Company to
comply with certain other covenants. Any determination to declare and 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.

26
<PAGE>

DILUTION

Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the pro forma book value of the Common Stock from the
public offering price. The pro forma net tangible book value of the Company's
Common Stock at September 30, 1997 was $155.8 million or approximately $14.07
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 Offering
and the pro forma net tangible book value per share of Common Stock
immediately after the completion of the Offering. Shares used in the
computation of per share amounts below include 7,570,000 shares outstanding at
September 30, 1997 and 3,500,000 shares of Common Stock issued in the
Offering. After giving effect to the sale by the Company of the 3,500,000
shares of Common Stock to be issued in the Offering and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of September 30, 1997 would have been $155.8 million or $14.07 per
share. This represents an immediate increase in net tangible book value of
$4.52 per share to existing shareholders and an immediate and substantial
dilution in net tangible book value of $11.93 per share to purchasers of
Common Stock in the Offering, as illustrated in the following table:

<TABLE>
<S> <C> <C>
Assumed public offering price per share(1)...................... $26.00
Net tangible book value per share at September 30, 1997(2).... $9.55
Increase per share attributable to new investors.............. 4.52
-----
Pro forma net tangible book value per share(3).................. 14.07
------
Dilution per share to new investors............................. $11.93
======
</TABLE>
- --------
(1) Before deducting underwriting discounts and commissions and estimated
expenses of the Offering payable by the Company.
(2) Actual outstanding shares at September 30, 1997.
(3) Excludes 1,345,621 shares of Common Stock issuable upon the exercise of
options.

The following table summarizes, on a pro forma basis at September 30, 1997,
the number of shares of Common Stock outstanding, the total consideration
paid, and the average price per share paid by current shareholders and by new
investors who purchase Common Stock pursuant to this Offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing sharehold-
ers(1)(2)................ 7,570,000 68.4% $ 55,897 40.1% $ 7.38
New investors............. 3,500,000 31.6 83,500 59.9 26.00
---------- ----- ----------- --------
Total................. 11,070,000 100.0% $ 139,397 100.0%
========== ===== =========== ========
</TABLE>
- --------
(1) Shareholders who purchased shares of Common Stock from the Company.
(2) Excludes 1,345,621 shares of Common Stock issuable upon the exercise of
options.

27
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company at
September 30, 1997 and as adjusted as of that date to give effect to the
Offering at an assumed public offering price of $26.00 and the application of
the net proceeds therefrom as described under "Use of Proceeds." This
information below should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto which are included
elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Warehouse facilities and repurchase agreements....... $ 658,042 $ 658,042
Deposits............................................. 407,768 407,768
---------- ----------
Total short-term debt.............................. $1,065,810 $1,065,810
========== ==========
Long-term debt:
13% Notes due 2004................................... $ 84,245 $ 84,245
13% Series A Notes due 2004.......................... 100,000 100,000
---------- ----------
Total long-term debt............................... $ 184,245 $ 184,245
---------- ----------
Stockholders' equity:
Preferred Stock, par value $0.01 per share;
10,000,000 shares authorized; 27,500 shares issued
and outstanding(1).................................. $ 27,500 $ --
Common Stock, par value $0.01 per share; 50,000,000
shares authorized; 7,570,000 shares issued and
outstanding (actual); 11,070,000 shares issued and
outstanding (as adjusted) for the Offering(2)....... 55,897 139,397
Retained earnings (accumulated deficit).............. 16,812 16,812
Unrealized loss on available for sale securities..... (440) (440)
---------- ----------
Total stockholders' equity......................... 99,769 155,769
---------- ----------
Total capitalization............................... $ 284,014 $ 340,014
========== ==========
</TABLE>
- --------
(1) The Company intends to redeem $27.5 million of PIK Preferred Stock, plus
accrued dividends with a portion of the proceeds from the Offering.
(2) Excludes shares of Common Stock issuable upon the exercise of options.

REGULATORY CAPITAL RATIOS OF THE SAVINGS BANKS

The following table sets forth the regulatory capital ratios of the Savings
Banks at September 30, 1997:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
Regulatory capital ratios of First Bank:
Tangible capital to tangible assets....................... 11.5%
Core capital to tangible assets........................... 11.5%
Total capital to risk-weighted assets (Risk-Based
Capital)................................................. 15.7%
Regulatory capital ratios of Girard:
Tangible capital to tangible assets....................... 9.9%
Core capital to tangible assets........................... 9.9%
Total capital to risk-weighted assets (Risk-Based
Capital)................................................. 13.1%
</TABLE>

At September 30, 1997, the total core capital and total risk-based capital
amounts of the Savings Banks, compared to the OTS requirements contained in
the Orders, was as follows:

<TABLE>
<CAPTION>
GIRARD FIRST BANK
-------------------------- --------------------------
OTS OTS
ACTUAL REQUIREMENT EXCESS ACTUAL REQUIREMENT EXCESS
------- ----------- ------ ------- ----------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Core Capital...... $34,617 $33,146 $1,471 $12,736 $11,872 $864
Total Risk-Based
Capital................ $38,475 $37,610 $ 865 $13,889 $13,179 $710
</TABLE>

None of the proceeds of the Offering are expected to be contributed to the
Savings Banks.

28
<PAGE>

SELECTED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY

The following tables present selected historical consolidated financial
information for the Company at the dates and for the periods indicated. The
historical income statement data for the years ended December 31, 1996, 1995
and 1994 and balance sheet data as of December 31, 1996 and 1995 have been
derived from the Audited Financial Statements. The historical income statement
data presented for the nine month periods ended September 30, 1997 and 1996
and balance sheet data presented as of September 30, 1997 have been derived
from the Interim Audited Financial Statements. Operating results for the nine
month period ended September 30, 1997 are not necessarily indicative of the
results that may be expected for any other interim period of the entire year
ending December 31, 1997. The selected historical 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. Because certain predecessors of the
Company 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. Financial information as of December 31,
1996 and 1995 and for the years then ended is presented on a consolidated
basis. For convenience, all the accompanying financial statements are referred
to as "consolidated." See Note 1 to the Consolidated Financial Statements of
the Company.

29
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- -----------------------------
1997 1996 1996 1995 1994
----------- --------- --------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income... $ 75,456 $ 34,137 $ 48,422 $ 24,381 $ 9,569
Total interest expense.. 59,036 19,592 29,277 14,481 5,457
----------- --------- --------- --------- -------
Net interest income... 16,420 14,545 19,145 9,900 4,112
Provision for loan loss-
es(1).................. 926 15,751 16,549 4,266 2,173
----------- --------- --------- --------- -------
Net interest income
(loss) after provi-
sion for loan loss-
es................... 15,494 (1,206) 2,596 5,634 1,939
----------- --------- --------- --------- -------
Other Income:
Bankcard income(2)..... 4,998 5,078 6,790 4,694 635
Bankcard processing ex-
pense................. (3,419) (3,865) (5,124) (3,462) (274)
Gain on sale of loans.. 31,252 1,983 11,538 642 --
Loan fees and charges.. 662 1,217 1,747 610 43
Trading account--
unrealized gain....... 1,171 1,601 1,833 -- --
Foreclosed real estate,
net................... 4,574 (231) 556 (170) (241)
Servicing revenue...... 3,339 -- -- -- --
Gain on sale of securi-
ties.................. 3,053 -- -- -- --
Other, net............. 1,087 363 602 623 823
----------- --------- --------- --------- -------
Total other income.... 46,717 6,146 17,942 2,937 986
----------- --------- --------- --------- -------
Other Expenses:
Compensation and em-
ployee benefits....... 11,274 2,955 4,464 2,516 1,922
FDIC insurance premi-
ums................... 791 2,066 2,381 721 261
Occupancy.............. 727 218 339 385 319
Professional services.. 2,104 572 700 1,028 507
Data processing and
equipment rentals..... 250 189 229 232 162
Loan service fees and
expenses.............. 19,423 3,522 5,176 1,958 242
Other general and ad-
ministrative ex-
penses................ 6,419 1,152 2,157 1,092 1,290
----------- --------- --------- --------- -------
Total other expenses.. 40,988 10,674 15,446 7,932 4,703
----------- --------- --------- --------- -------
Income (loss) before in-
come taxes............. 21,223 (5,734) 5,092 639 (1,778)
Income tax provision
(benefit).............. 8,981 (4,652) 125 47 (526)
----------- --------- --------- --------- -------
Net income (loss)....... $ 12,242 $ (1,082) $ 4,967 $ 592 $(1,252)
=========== ========= ========= ========= =======
Selected Cash Flow Data:
Cash provided by (used
in) operations
(excluding purchase of
loans held for sale)... $ (95,237) $ (2,687) $ (19,453) $ 1,589 $(1,614)
Proceeds and repayments
from loans and other
assets................. 505,760 76,310 393,392 76,695 22,011
Purchase of loans and
other assets........... (1,060,582) (246,335) (621,934) (190,863) (57,049)
Cash from financing ac-
tivities............... 575,754 188,761 395,811 108,231 42,323
----------- --------- --------- --------- -------
Net increase (decrease)
in cash(3)............ $ (74,305) $ 16,049 $ 147,816 $ (4,348) $ 5,671
=========== ========= ========= ========= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1997 1996 1995 1994
------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 77,993 $152,298 $ 4,482 $ 8,830
Portfolio assets:
Discounted Loans, net............. 350,460(4) 219,630 31,354 2,094
Non-Discounted Loans, net......... 440,559(4) 191,962 259,417 179,377
Mortgage Backed and other securi-
ties............................. 256,297(4) 84,964 28,672 29,887
Foreclosed real estate, net....... 146,464(4) 78,200 4,964 1,208
---------- -------- -------- --------
Total portfolio assets........... $1,193,780 $574,756 $324,407 $212,566
Total assets....................... 1,369,761 753,849 340,695 230,636
Deposits........................... 407,768 501,614 303,524 196,289
Short-term debt.................... 658,042(4) 97,624 13,000 21,500
Long-term debt..................... 184,245 75,000 11,000 --
Stockholders' equity(5)............ 99,769 61,022 7,039 6,793
</TABLE>

30
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ --------------------
1997 1996 1996 1995 1994
-------- -------- ----- ----- ------
(ANNUALIZED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND OTHER DATA:
Return on average assets........ 1.42% (.22)% 0.95% 0.24% (0.92)%
Return on average equity........ 23.08% (3.09)% 13.68% 8.65% (31.08)%
Average interest yield on total
loans.......................... 9.42% 9.39% 9.41% 10.02% 7.96%
Net interest spread(6)(7)....... 1.99% 3.15% 3.07% 3.44% 3.08%
Net interest margin(7)(8)....... 2.06% 3.88% 3.63% 3.87% 3.14%
Ratio of earnings to fixed
charges(9):
Including interest on
deposits...................... 1.36 -- 1.17 1.04 -- (10)
Excluding interest on
deposits...................... 1.54 -- 2.19 2.19 -- (10)
Long-term debt to total
capitalization(11)............. 0.65 -- 0.55 0.61 --
Total financial liabilities to
equity......................... 12.73 14.43 11.35 47.40 32.95
Average equity to average
assets......................... 6.15% 7.24% 6.90% 2.72% 2.96%
Non-Performing loans to Non-
Discounted Loans at end of
period(12)(13)................. 16.82% 9.11% 23.69% 4.46% 5.95%
Allowance for loan losses to
total Non-Discounted Loans at
end of period.................. 10.96% 9.20% 13.88% 3.60% 3.72%
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------
1997 1996 1995 1994
------------- --------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Number of pools of loans acquired.. 79 41 33 38
Investments and originations:
Discounted Loans and foreclosed
real estate...................... $ 316,931 $ 324,159 $ 29,224 $ 2,538
Non-Discounted Loans (12)(14)..... 556,231 254,517 157,671 39,023
Mortgage originations............. 50,962 2,280 8,748 4,345
Mortgage-backed and other securi-
ties............................. 184,393 67,604 2,965 14,469
---------- --------- -------- -------
Total............................. $1,108,517 $ 648,560 $198,608 $60,375
Recoveries and repayments.......... (136,316) (66,160) (61,135) (21,824)
Loan sales and securitizations..... (344,710) (301,411) (16,031) --
Net change in portfolio assets..... 619,024 250,349 111,841 106,580
</TABLE>
- --------
(1) Approximately $8.6 million of the increase in the provisions from 1995 to
1996 related to certain sub-prime auto loans and $4.8 million of the 1996
provision related to the loans inherited by the Company upon the
acquisition of the Savings Banks. See "Business--Allowances for Losses."
(2) The Company began its bankcard operations in 1994.
(3) The increase in cash in 1996 reflects the receipt of cash from the
Company's sale of Common Stock and the Notes and the decrease in cash for
the nine months ended September 30, 1997 reflects the subsequent
investment of that cash in interest earning assets which was partially
offset by the proceeds of the Company's Series A Notes and a
securitization.

(4) The Company or affiliates intend to sell to the Wilshire REIT (i) U.S.
Commercial Investments for approximately $42.9 million, (ii) MBS
Investments for approximately $98.1 million, and (iii) International
Investments in the United Kingdom for approximately $5.3 million. This
will reduce the corresponding amount on the Company's balance sheet for
such assets, decrease short-term debt and increase cash. In addition, the
Company intends to grant the Wilshire REIT an option to purchase all or a
portion of the Company's interest in two portfolios of International
Investments in France, for a purchase price of up to $110.0 million
(including approximately $40.9 million held on the Company's balance
sheet at September 30, 1997). See "The Wilshire REIT." The Wilshire REIT
is currently evaluating the suitability of such investments under U.S.
tax and French law.
(5) Effective January 1, 1996, $11.0 million of Common Stock was issued in
exchange for subordinated debt. Prior to the Company's initial public
offering, an additional $17.8 million of common stock was issued for
cash. In December 1996, the Company completed its initial public
offering, which resulted in $20.9 million of new capital. Effective July
31, 1997, the Company issued to the Wilshire Private Companies 27,500
shares of PIK Preferred Stock having an aggregate liquidation value of
$27.5 million in exchange for the cancellation of certain accounts
payable to the Wilshire Private Companies aggregating approximately $27.1
million and cash in the amount of approximately $400,000, resulting in an
increase in stockholders' equity of approximately $27.5 million.
(6) Net interest spread represents average yield on interest-earning assets
minus average rate paid on interest-bearing liabilities.

(7) The reduction in net interest margin and net interest spread in the nine
months ended September 30, 1997 primarily reflects the significant
increase in the Company's holdings of Discounted Loans during the nine
months then ended. The acquisition of a pool of Discounted Loans tends to
reduce net interest margin and net interest spread, because the interest
cost of the debt used to fund the acquisition is not offset by a
corresponding increase in interest income. Relatively little cash flow
from a pool of Discounted Loans is generally received during the first
two quarters following the acquisition of a pool of Discounted Loans and
the Company only

31
<PAGE>

recognizes interest and discount on Discounted Loans when those loans
result in the receipt of cash. In addition, a significant portion of the
income associated with Discounted Loans generally results from gains on
sales of foreclosed real estate, which are not reflected in interest
income. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Accounting Matters." The reduction also
reflected three quarters of interest expense on the $84.2 million of Notes
and part of the most recent quarter of interest expense on approximately
$100.0 million of Series A Notes, the proceeds of which were held for part
of such periods in a lower-yielding liquid investment prior to their use by
the Company to fund acquisitions.
(8) Net interest margin represents net interest income divided by total
average earning assets.
(9) 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.
(10) Earnings for the year ended December 31, 1994 were inadequate to cover
fixed charges by $1.8 million.
(11) Total capitalization equals long-term debt plus equity.
(12) It is the Company's policy to establish an allowance for uncollectible
interest on Non-Discounted Loans that are past due more than 90 days or
at such earlier time when, in the judgment of management, the probability
of collection of interest is deemed to be insufficient to warrant further
accrual at which time those loans are placed on non-accrual status and
deemed non-performing.
(13) The Company classifies loans as discounted or non-discounted on a pool
basis. Each pool is designated as discounted or non-discounted based on
whether that pool consists primarily of Discounted or Non-Discounted
Loans at the time of acquisition. For example, a pool of Non-Discounted
Loans may contain non-performing loans at the time of acquisition as long
as the non-performing loans were not the primary component of the pool at
that time. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Accounting Matters."
(14) Excludes purchases of newly originated mortgage and manufactured housing
loans, which are shown as mortgage originations. During the quarter ended
September 30, 1997, the Company completed the securitization of
approximately $146.0 million of fixed and adjustable loans secured by
mortgages or residential properties resulting in a gain of approximately
$11.9 million, a decrease in Non-Discounted Loans and increase in cash.

32
<PAGE>

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

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

ACCOUNTING MATTERS

The Company classifies loans as discounted or non-discounted on a pool
basis. Each pool is designated as discounted or non-discounted based on
whether that pool consists primarily of Discounted or Non-Discounted Loans at
the time of acquisition. For example, a pool of Non-Discounted Loans may
contain non-performing loans at the time of acquisition as long as the non-
performing loans were not the primary component of the pool at that time. As
used herein, the term "performing loan" means a loan as to which payments have
been and are being made substantially in accordance with its contractual
terms, the term "sub-performing loan" means a loan as to which payments are
delinquent for 90 days or less or have a history of delinquencies, and the
term "non-performing loan" means a loan as to which payments are generally 91
or more days delinquent.

Discounted Loans are presented in the Consolidated Financial Statements net
of unamortized discount and an allowance for loan losses established for those
loans. Discounts are allocated into (a) valuation allowances for estimated
losses against face value on specific loans ("specific valuation allowances")
and (b) portions of the discounts regarded as yield adjustments. In addition,
for discounted loans purchased by the Savings Banks, the initial discounts are
further segregated into a valuation allowance for the inherent risk of losses
in the loan portfolio that have yet to be specifically identified ("general
valuation allowance") as required by OTS regulations. The allocated specific
and general valuation allowances are included in the allowance for loan
losses. The allowance for loan losses is increased by additional provisions
for losses that are recorded in current operations. The portion of purchase
discounts regarded as yield adjustment is accreted into income generally on a
cash basis.

The acquisition of a pool of Discounted Loans tends to reduce net interest
margin and net interest spread, because the interest cost of the debt used to
fund the acquisition is not offset by a corresponding increase in interest
income. Relatively little cash flow from a pool of Discounted Loans is
generally received during the first two quarters following an acquisition of a
pool of Discounted Loans and the Company only recognizes interest and discount
on Discounted Loans in income when those loans result in the receipt of cash.
The Company is considering modifying its methodology for accreting income on
the portion of purchase discounts regarded as yield adjustments to take
account the payment characteristics of Discounted Loans and more closely
approximate a "level-yield" method. If management had adopted these changes in
methodology during the nine months ended September 30, 1997, it would have
resulted in higher earnings for the nine month period. No final decision has
been made by the Company as to the proposed modification and a number of
issues remain to be resolved, including the review by the OTS of the impact of
the proposed modification on the Savings Banks. Therefore, no assurance can be
given as to when or if such modified methodology will be implemented.

Non-Discounted Loans are presented in the Consolidated Financial Statements
in substantially the same manner as Discounted Loans, except that interest
income is recognized on an accrual basis.

Gains or losses on loans sold through securitization transactions are based
on the difference between the cash proceeds received from the sale of the
senior classes of mortgage-backed securities to outside investors and the
Company's cost basis allocated to the senior classes of mortgage-backed
securities. The Company's cost basis in loans sold is allocated between the
senior classes of mortgage-backed securities and the subordinate classes of
mortgage-backed 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 classes of
mortgage-backed

33
<PAGE>

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. In cases where the Company has
financed the holding of subordinate classes with a lender under a repurchase
agreement, the Company uses such lender's determination of market value for
purposes of potential margin calls in determining fair value. In other cases,
the Company determines the fair value of the subordinate classes of mortgage-
backed securities utilizing prepayment and credit loss assumptions it deems
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.

For accounting purposes, the Company's mortgage-backed and other securities
are classified as "held to maturity," "trading account securities" 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 an historical cost basis, adjusted for the amortization of
premiums and accretion of discounts using a method that approximates the
interest method. Trading account securities include subordinate classes of
mortgage-backed securities issued in loan securitization transactions
initiated by the Company. Such securities are carried at estimated fair value
as described above, 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.

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 the 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.

Prior to the adoption of SFAS No. 122, "Accounting for Mortgage Servicing
Rights", the Company did not record on its balance sheet the servicing rights
to loans sold in securitizations, which would have had the effect of
increasing other income and total assets. The Company now capitalizes
servicing rights it purchases from third parties and on loans it purchases or
originates and sells on a servicing retained basis. At September 30, 1997, the
Company had capitalized approximately $6.7 million of servicing rights.

INTEREST INCOME

A significant portion of the Company's earnings come from net interest
income, which is the difference between the interest income received plus
accreted or received purchase discount on its financial assets and the
interest expense paid on its outstanding 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, the percentage of Discounted Loans included in the portfolio and
the timing of receipt or accretion of purchase discount. In addition, net
interest income reflects the full interest cost of funding the acquisition of
Discounted Loans and foreclosed real estate but does not reflect any accretion
of purchase discount on those assets until cash is collected (which generally
occurs later in the life of a pool of Discounted Loans) and does not reflect
any gain on sales of foreclosed real estate.

The following table sets forth, for the periods indicated, information
regarding the total amount of income from the Company's 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.

34
<PAGE>

INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------------------------------------------------
1997 1996 1995
---------------------------------- -------------------------------- --------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE(1) BALANCE INTEREST YIELD/RATE(1) BALANCE INTEREST YIELD/RATE(1)
---------- -------- ------------- -------- -------- ------------- -------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ASSETS:
Mortgage-backed
securities...... $ 150,360 $12,484 11.07% $ 29,241 $ 1,797 6.15% $ 24,054 $ 1,359 5.65%
Loan portfolio
net of
unaccreted
discounts(2).... 848,247 59,950 9.42 470,654 44,294 9.41 217,716 21,821 10.02
Investment
securities and
other........... 64,034 3,022 6.29 27,446 2,331 8.49 14,216 1,201 8.45
---------- ------- -------- ------- -------- -------
Total interest-
earning assets.. 1,062,641 75,456 9.47 527,341 48,422 9.18 255,986 24,381 9.52
Non-interest
earning cash.... 2,163 6,019 1,868
Allowance for
loan losses..... (71,641) (39,675) (21,591)
Other assets.... 157,367 32,061 15,277
---------- ------- -------- ------- -------- -------
Total assets.... $1,150,530 $75,456 $525,746 $48,422 $251,540 $24,381
========== ======= ======== ======= ======== =======
AVERAGE
LIABILITIES AND
STOCKHOLDERS'
EQUITY:
Interest-bearing
deposits........ $ 447,731 $20,008 5.96% $423,011 $25,270 5.97% $232,510 $14,111 6.07%
FHLB advances... 641 27 5.62 2,420 159 6.57 1,381 104 7.53
Short-term
borrowings and
other interest
bearing
obligations..... 503,016 28,521 7.56 51,316 3,531 6.88 4,122 232 5.62
Long-term debt.. 100,912 10,480 13.85 2,292 317 13.85 306 34 11.00
---------- ------- -------- ------- -------- -------
Total interest-
bearing
liabilities..... 1,052,300 59,036 7.48 479,039 29,277 6.11 238,319 14,481 6.08
Non-interest
bearing
deposits........ 5,696 2,822 2,196
Escrow
deposits........ 276 257 106
Other
liabilities..... 21,532 7,330 4,077
---------- ------- -------- ------- -------- -------
Total
liabilities..... 1,079,804 59,036 489,448 29,277 244,698 14,481
Stockholders'
equity.......... 70,726 36,298 6,842
---------- ------- -------- ------- -------- -------
Total
liabilities and
stockholders'
equity.......... $1,150,530 $59,036 $525,746 $29,277 $251,540 $14,481
========== ======= ======== ======= ======== =======
Net interest
income.......... $16,420 $19,145 $ 9,900
Net interest
spread(3)(4).... 1.99% 3.07% 3.44%
Net interest
margin(4)....... 2.06 3.63 3.87
Ratio of average
interest-earning
assets to
average
interest-bearing
liabilities..... 100.98% 110.1% 107.4%

YEAR ENDED DECEMBER 31,
-----------------------------
1994
-----------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
AVERAGE ASSETS:
Mortgage-backed
securities...... $ 23,515 $1,361 5.79%
Loan portfolio
net of
unaccreted
discounts(2).... 99,497 7,923 7.96
Investment
securities and
other........... 7,969 285 3.58
-------- ------
Total interest-
earning assets.. 130,981 9,569 7.31
Non-interest
earning cash.... 2,053
Allowance for
loan losses..... (4,509)
Other assets.... 7,646
-------- ------
Total assets.... $136,171 $9,569
======== ======
AVERAGE
LIABILITIES AND
STOCKHOLDERS'
EQUITY:
Interest-bearing
deposits........ $118,277 $5,017 4.24%
FHLB advances... 5,916 228 3.85
Short-term
borrowings and
other interest
bearing
obligations..... 4,757 212 4.46
Long-term debt..
-------- ------
Total interest-
bearing
liabilities..... 128,950 5,457 4.23
Non-interest
bearing
deposits........ 1,537
Escrow
deposits........ 74
Other
liabilities..... 1,582
-------- ------
Total
liabilities..... 132,143 5,457
Stockholders'
equity.......... 4,028
-------- ------
Total
liabilities and
stockholders'
equity.......... $136,171 $5,457
======== ======
Net interest
income.......... $4,112
Net interest
spread(3)(4).... 3.08%
Net interest
margin(4)....... 3.14
Ratio of average
interest-earning
assets to
average
interest-bearing
liabilities..... 101.6%

</TABLE>
- ----
(1) Presented on an annualized basis.
(2) The average balances of the loan portfolio include Discounted Loans,
interest on which is recognized on a cash basis.
(3) Net interest spread represents average yield on interest-earning assets
minus average rate paid on interest-bearing liabilities.

(4) The reduction in net interest margin and net interest spread in the nine
months ended September 30, 1997 primarily reflects the significant
increase in the Company's holdings of Discounted Loans during the nine
months then ended. The acquisition of a pool of Discounted Loans tends to
reduce net interest margin and net interest spread, because the interest
cost of the debt used to fund the acquisition is not offset by a
corresponding increase in interest income. Relatively little cash flow
from a pool of Discounted Loans is generally received during the first two
quarters following the acquisition of a pool of Discounted Loans and the
Company only recognizes interest and discount on Discounted Loans when
those loans result in the receipt of cash. In addition, a significant
portion of the income associated with Discounted Loans generally results
from gains on sales of foreclosed real estate, which are not reflected in
interest income. See "--Accounting Matters." The reduction also reflected
three quarters of interest expense on the $84.2 million of Notes and part
of the most recent quarter of interest expense on approximately $100.0
million of Series A Notes, the proceeds of which were held for part of the
quarter in a lower-yielding liquid investment prior to their use by the
Company to fund acquisitions.

35
<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, 1997
VS. NINE MONTHS ENDED
SEPTEMBER 30, 1996
----------------------------
INCREASE (DECREASE) DUE TO
----------------------------
RATE VOLUME TOTAL
-------- --------- --------
<S> <C> <C> <C>
Interest-Earning
Assets:
Mortgage-backed
securities...... $ 1,936 $ 9,268 $ 11,204
Loan portfolio.. (1,067) 29,331 28,264
Investment
securities and
other........... (142) 1,993 1,851
-------- -------- --------
Total interest-
earning assets.. 727 40,592 41,319
-------- -------- --------
Interest-Bearing
Liabilities:
Interest-bearing
deposits........ 694 1,866 2,560
FHLB advances... (24) (54) (78)
Short-term
borrowings and
other interest-
bearing
obligations..... (213) 26,695 26,482
Long term-debt.. -- 10,480 10,480
-------- -------- --------
Total interest-
bearing
liabilities...... 457 38,987 39,444
-------- -------- --------
Increase
(decrease) in net
interest income.. $ 270 $ 1,605 $ 1,875
======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1996 V. 1995 1995 V. 1994 1994 V. 1993
--------------------------- ------------------------------- ----------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
--------------------------- ------------------------------- ----------------------------
RATE VOLUME TOTAL RATE VOLUME TOTAL RATE VOLUME TOTAL
--------- -------- -------- --------- ---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning
Assets:
Mortgage-backed
securities...... $ 127 $ 311 $ 438 $ (52) $ 50 $ (2) $ 168 $ 975 $1,143
Loan portfolio.. (1,246) 23,719 22,473 2,485 11,413 13,898 708 5,832 6,540
Investment
securities and
other........... 6 1,124 1,130 582 334 916 (112) 344 232
--------- -------- -------- --------- ---------- ---------- --------- --------- --------
Total interest-
earning assets.. (1,113) 25,154 24,041 3,015 11,797 14,812 764 7,151 7,915
--------- -------- -------- --------- ---------- ---------- --------- --------- --------
Interest-Bearing
Liabilities:
Interest-bearing
deposits........ (218) 11,377 11,159 2,806 6,288 9,094 1,368 2,885 4,253
FHLB advances... (11) 66 55 (631) 507 (124) -- 228 228
Short-term
borrowings and
other interest-
bearing
obligations..... 63 3,236 3,299 40 (20) 20 146 (19) 127
Long term-debt.. 10 273 283 -- 34 34 -- -- --
--------- -------- -------- --------- ---------- ---------- --------- --------- --------
Total interest-
bearing
liabilities...... (156) 14,952 14,796 2,215 6,809 9,024 1,514 3,094 4,608
--------- -------- -------- --------- ---------- ---------- --------- --------- --------
Increase
(decrease) in net
interest income.. $ (957) $ 10,202 $ 9,245 $ 800 $ 4,988 $ 5,788 $ (750) $ 4,057 $ 3,307
========= ======== ======== ========= ========== ========== ========= ========= ========
</TABLE>

36
<PAGE>

RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996

NET INCOME

The Company's net income was approximately $12.2 million for the nine months
ended September 30, 1997 compared to a net loss of approximately $1.1 million
for the nine months ended September 30, 1996.

NET INTEREST INCOME

The Company's net interest income was approximately $16.4 million for the
nine months ended September 30, 1997 compared to approximately $14.5 million
for the nine months ended September 30, 1996, an increase of 12.9%. The
Company's asset base was significantly larger in the 1997 period as a result
of the Company's initial public offering in December 1996 and significantly
higher levels of borrowing and investment opportunities.

Interest Income

The Company's interest income was approximately $75.5 million for the nine
months ended September 30, 1997 compared to approximately $34.1 million for
the nine months ended September 30, 1996, an increase of 121.0%. The increase
in the Company's interest income was due primarily to an increase in the
Company's interest earning assets from approximately $508.3 million at
September 30, 1996 to approximately $1.1 billion at September 30, 1997.

Interest Expense

The Company's interest expense was approximately $59.0 million for the nine
months ended September 30, 1997 compared with approximately $19.6 million for
the nine months ended September 30, 1996, an increase of 201.3%. The increase
in interest expense resulted from an increase in interest-bearing liabilities
to approximately $1.3 billion at September 30, 1997 from approximately $487.5
million at September 30, 1996 and includes the issuance in the fourth quarter
of 1996 and early 1997 of $84.2 million of the Company's Notes and the
issuance in the third quarter of 1997 of $100 million of the Company's Series
A Notes.

In addition, the Company's weighted average cost of funds increased from
5.81% at September 30, 1996 to 7.68% at September 30, 1997 principally
reflecting the issuance of the Notes and the Series A Notes.

PROVISION FOR ESTIMATED LOSSES ON LOANS

Provision for estimated losses on loans for the first nine months of 1997
was a net provision of approximately $0.9 million resulting from additional
provision of approximately $3.4 million, which was partially offset by the
reversal of approximately $2.5 million of excess reserves on loans previously
sold. This compares with a provision for estimated losses on loans of
approximately $15.8 million for the first nine months of 1996 from reserves
established primarily for certain sub-prime auto loans and loans held by the
Savings Banks at the time they were acquired.

37
<PAGE>

OTHER INCOME

The Company's other income was approximately $46.7 million for the nine
months ended September 30, 1997 compared with approximately $6.1 million for
the nine months ended September 30, 1996, an increase of 660.1%. The
components of the Company's non-interest income are reflected in the following
table:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Other income:
Bankcard income.................................. $ 4,998 $ 5,078
Bankcard processing expense...................... (3,419) (3,865)
Gain on sale of loans............................ 31,252 1,983
Loan fees and charges............................ 662 1,217
Trading account-unrealized gain.................. 1,171 1,601
Real estate owned, net........................... 4,574 (231)
Servicing revenue................................ 3,339 --
Gain on sale of securities....................... 3,053 --
Other, net....................................... 1,087 363
----------- -----------
Total other income............................. $ 46,717 $ 6,146
=========== ===========
</TABLE>

The increase in other income for the nine months ended September 30, 1997 is
primarily attributable to (i) sales of loans, which resulted in gains of
approximately $31.3 million, (ii) the sale of securities, which resulted in a
gain of approximately $3.1 million, (iii) income from real estate owned, net,
resulting from the ongoing disposition of assets from a $72.3 million pool of
properties acquired in the fourth quarter of 1996 and from disposition of real
estate relating to discounted loans, and (iv) an increase in servicing fees
paid by unaffiliated third parties.

Gain on Sale of Loans

The gain on sale of loans for the nine months ended September 30, 1997 is
the result of the sale of loans with a book value of approximately $347.8
million, of which approximately $201.8 million were sold through whole loan
sales and approximately $146 million were sold through securitizations. For
the nine months ended September 30, 1997, gain on the sale of whole loans
totaled approximately $19.3 million and gains from securitizations totaled
approximately $11.9 million. Gains or losses on loan portfolios sold as whole
loans or through securitization transactions are based on the difference
between the cash proceeds received on the loans sold to outside investors and
the Company's cost basis allocated to the loans.

Gain on the Sale of Securities

The gain on the sale of securities for the nine months ended September 30,
1997 is a result of the sale of approximately $9.1 million of mortgage-backed
securities which resulted in a gain of approximately $3.1 million. This gain
reflects the Company's strategy of investing in subordinate classes of
mortgage-backed securities which the Company believes are likely to experience
a ratings upgrade as a result of payment history, prepayment or default
experience or otherwise. The Company believes that its experience in acquiring
pools of loans allows it to more effectively evaluate the risks associated
with a pool of loans that supports an issue of mortgage-backed securities
being considered for purchase and price those securities.

Real Estate Owned, net

The increase in income from real estate owned, net is primarily due to gains
on the disposition of real estate acquired through foreclosure or deed in lieu
thereof from the Company's discounted loan portfolio or from the properties
acquired in the fourth quarter of 1996.

38
<PAGE>

Servicing Revenue

The increase in servicing revenue of approximately $3.3 million in the nine
months ended September 30, 1997 was primarily the result of contracting for
servicing rights on loan portfolios owned by unaffiliated third parties and
arranging for such loan portfolios to be serviced by the U.S. Servicer at a
rate which is lower than the rate received by the Company.

OTHER EXPENSE

The Company's other expenses totaled approximately $41.0 million for the
nine months ended September 30, 1997 compared with approximately $10.7 million
for the nine months ended September 30, 1996, an increase of 284.0% which
reflects the significant growth of the Company's asset base and operations.

Loan Service Fees and Expenses Paid to Affiliate

The largest component of other expenses was loan service fees and expenses,
which includes servicing fees paid to the U.S. Servicer and collection-related
expenses incurred directly by the U.S. Servicer and reimbursed by the Company.
Loan service fees and expenses paid to affiliate were approximately $19.4
million for the nine months ended September 30, 1997 compared to approximately
$3.5 million for the nine months ended September 30, 1996, an increase of
approximately 451.5%. The increase in loan servicing fees and expenses paid to
affiliate was primarily the result of the increase in the unpaid principal
balance of loans being serviced by the U.S. Servicer on behalf of the Company
to approximately $1.2 billion at September 30, 1997 from approximately $502.0
million at September 30, 1996 and an increase in sub-servicing fees of
approximately $2.7 million. Also, collection-related expenses increased from
the nine months ended September 30, 1996 to the comparable period in 1997 due
to the substantial increase in Discounted Loans, most of which were acquired
at the end of 1996 and the first nine months of 1997. Discounted Loans
generally require more significant expenditures than performing and sub-
performing loans.

Compensation and Employee Benefits

Compensation and employee benefits was approximately $11.3 million for the
nine months ended September 30, 1997, compared to approximately $3.0 million
for the nine months ended September 30, 1996, an increase of 281.5%. The
increase was primarily due to an increase in the number of full-time
equivalent employees from 46 at September 30, 1996 to 205 at September 30,
1997, reflecting the expansion of business activities, particularly loan
acquisition activities and the growth of activities at the non-bank
subsidiaries.

Other general and administrative expenses increased from approximately $1.2
million for the nine months ended September 30, 1996 to approximately $6.4
million for the nine months ended September 30, 1997 due primarily to the
expansion of business activities at the non-bank subsidiaries, particularly
loan acquisition activities such as due diligence costs.

INCOME TAX PROVISION (BENEFIT)

Income tax provision amounted to an expense of approximately $9.0 million
during the nine months ended September 30, 1997 compared with a benefit of
approximately $4.7 million during the nine months ended September 30, 1996.
The change was primarily due to the utilization of net operating loss
deductions in 1996 and a normalized tax provision in 1997.

39
<PAGE>

RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1996 COMPARED TO 1995

NET INTEREST INCOME

The Company's net interest income increased by approximately $9.2 million or
93.4% during year 1996, as compared to the same period in the prior year. This
increase resulted from an approximately $24.0 million or 98.6% increase to
interest income due to an approximately $278.3 million or 104.5% increase in
average interest-earning assets from period to period. The increase in
interest income was offset in part by an approximately $14.8 million or 102.2%
increase in interest expense due to an approximately $240.7 million or 101.0%
increase in average interest-bearing liabilities, primarily certificates of
deposit, and, to a lesser extent, a 10 basis point increase in the weighted
average rate paid on interest-bearing liabilities. The increase in interest
income during 1996, as compared to the same period in the prior year, reflects
substantial increases in the average balances of the Company's loans.

PROVISIONS FOR LOAN LOSSES

Provisions for loan losses are charged to operations to maintain an
allowance for losses at a level that management considers adequate based upon
an evaluation of known and inherent risks, 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 Savings Banks recorded provisions for losses on loans totaling
approximately $16.5 million for 1996, as compared to approximately $4.3
million for the prior year, an increase of 287.9%. The following table sets
forth the Savings Banks' provision for loan losses for the year ended December
31, 1996:

<TABLE>
<CAPTION>
PROVISION % OF TOTAL
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Inherited Loans.................................... $ 4,845 29.3%
Sub-Prime Auto Loans............................... 8,583 51.8%
Other Purchased Loans.............................. 3,121 18.9%
------------ ----------
Total provision for loan losses................ $ 16,549 100.0%
============ ==========
</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 increased the provision by approximately $4.8 million in 1996
related to the Inherited Loans owned by First Bank or Girard at the time the
Savings Banks were acquired by the Company.

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 Savings Bank's allowances for losses on Non-Discounted Loans and
Discounted Loans and may require adjustments to the Savings Banks' allowances
for loan losses.

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

The Company's net interest income after provision for loan losses decreased
53.9% to approximately $2.6 million for 1996 from income of approximately $5.6
million for 1995. This decrease was due to the substantial increase in
provisions for estimated losses on loans.

40
<PAGE>

OTHER INCOME

The Company's other income was approximately $17.9 million for 1996 compared
to approximately $2.9 million for 1995, an increase of 510.9%. This increase
was primarily attributable to gains on 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,
------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Other income:
Bankcard income...................................... $ 6,790 $ 4,694
Bankcard processing expense.......................... (5,124) (3,462)
Gain on sale of loans................................ 11,538 642
Loan fees and charges................................ 1,747 610
Amortization of deferred credits..................... 461 460
Trading account-unrealized gain...................... 1,833 --
Foreclosed real estate, net.......................... 556 (170)
Other, net........................................... 141 163
----------- ----------
Total other income................................. $ 17,942 $ 2,937
=========== ==========
</TABLE>

Bankcard Income and Processing Expense

The increase in other income for 1996 was due in part to an increase of
approximately $2.1 million in bankcard income, from approximately $4.7 million
for 1995 to approximately $6.8 million for 1996. The large increase in income
from the Company's merchant bankcard operations was primarily due to the
development of new accounts. Bankcard processing expense increased by
approximately $1.6 million from approximately $3.5 million for 1995 to
approximately $5.1 million for 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 due primarily to an increase of
approximately $10.9 million in gains on sales of loans, from approximately
$0.6 million for 1995 to approximately $11.5 million for 1996. This increase
was due to gains from the sale of approximately $287.8 million of loans. For
the year ended December 31, 1996, gain on sale of whole loans totaled $5.4
million and gains from securitizations totaled approximately $6.1 million.

Other income also includes loan fees and charges (e.g., late fees,
commitment fees). Loan fees and charges increased approximately $1.1 million,
from approximately $0.6 million for 1995 to approximately $1.7 million for
1996. The increase was primarily due to an increase in loan volume.

OTHER EXPENSE

The Company's other expense totaled approximately $15.4 million for 1996
compared to approximately $7.9 million for 1995, an increase of 94.7%.

Loan Service Fees and Expenses

The largest component of other expense in 1996 was loan service fees and
expense which increased by approximately $3.2 million from approximately $2.0
million for 1995 to approximately $5.2 million for 1996. Loan servicing fees
and expenses are paid to the Wilshire Private Companies and include (a)
servicing fees and (b) collection-related expenses incurred directly by the
Wilshire Private Companies and reimbursed by the Company. Servicing fees for
Discounted Loans have been based on a percentage of cash flows collected.

41
<PAGE>

Therefore, when Discounted Loans are sold, servicing fees increase
substantially. The volume of loans, particularly Discounted Loans, being
serviced for the Company by the Wilshire Private Companies increased
substantially during 1996 compared to 1995 due to the substantial growth in
the Company's loan pool acquisition activity. In addition, 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 the Wilshire Private Companies in the first quarter of that
year.

Compensation and Employee Benefits

Other expense relating to compensation and employee benefits also increased
from approximately $2.5 million for 1995 to approximately $4.5 million for
1996, an increase of approximately $2.0 million (or 77.4%). 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 1995 to 54 for 1996, reflecting the expansion of
business activities, particularly loan acquisition activities and the growth
of merchant bankcard activities. In addition, the Savings Banks'
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 $0.7 million for 1995
to approximately $2.4 million for 1996, an increase of approximately $1.7
million (or 230.2%), as a result of growth in deposits outstanding and the
SAIF special assessment.

INCOME TAXES

Income taxes amounted to approximately $0.1 million during 1996 compared to
a provision of less than $0.1 million during 1995. This increase was due
primarily to assessment of the valuation allowances against deferred tax
assets. The Company's effective tax rate amounted to 2.5% and 7.4% during 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% during 1996 and 1995.

RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1995 COMPARED TO 1994

NET INTEREST INCOME

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

Interest Income

The Company's interest income was approximately $24.4 million for 1995
compared to approximately $9.6 million for 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 a 69.9% increase in the gross principal amount of the Company's holdings of
performing loans from approximately $198.6 million in 1994 to approximately
$337.5 million in 1995. The Savings Banks made substantial acquisitions of
Discounted Loans in June 1995 and Non-Discounted 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.

42
<PAGE>

Interest Expense

The Company's interest expense was approximately $14.5 million for 1995
compared to approximately $5.5 million in 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
95.8%), which occurred in order to fund the growth of the Company's loan pool
acquisition activity. 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 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 LOAN LOSSES

In connection with its provision for loan losses the Company recorded an
expense totaling approximately $4.3 million for 1995 compared to approximately
$2.2 million for 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 LOAN LOSSES

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

OTHER INCOME

The Company's other income was approximately $2.9 million for 1995 compared
to approximately $1.0 million for 1994, an increase of 197.9%. 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
Amortization of deferred credits.................... 460 388
Foreclosed real estate, net......................... (170) (241)
Other, net.......................................... 163 435
------------ ----------
Total other income................................ $ 2,937 $ 986
============ ==========
</TABLE>

The increase in other income in 1995 was due primarily to an increase of
approximately $4.1 million in income from merchant bankcard operations, from
approximately $0.6 million for 1994 to approximately $4.7 million for 1995.
Merchant bankcard processing expense increased by approximately $3.2 million
from approximately $0.3 million for 1994 to approximately $3.5 million for
1995. These increases reflect a full year of merchant bankcard operations in
1995 compared to a partial year of operations in 1994. The increase in other
income in 1995 was also due in part to approximately $0.6 million in gains on
sales of loans in 1995 from no

43
<PAGE>

gains on sales of loans for 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 a 120% increase in the
Company's holdings of loans from approximately $103.6 million in 1994 to
approximately $228.0 million in 1995.

OTHER EXPENSE

The Company's other expense totaled approximately $7.9 million for 1995
compared to approximately $4.7 million for 1994, an increase of 68.7%. 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
1994 to $2.0 million in 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 pool 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 foreclosed real estate (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 37 in
1995 (including an entire year's compensation expenses for Girard in 1995).

FDIC insurance premiums increased from approximately $0.3 million in 1994 to
approximately $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 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 foreclosed real estate (net). Other expenses related to
foreclosed real estate (net) were approximately $0.2 million in 1994 and $0.2
million in 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 TAXES

Income taxes 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 of the Company.

CHANGES IN FINANCIAL CONDITION

Mortgage-Backed Securities and Other Securities

The Company intends to sell to the Wilshire REIT a portion of its mortgage-
backed securities for approximately $98.1 million. In addition, the Company
intends to grant the Wilshire REIT a right of first refusal

44
<PAGE>

with respect to MBS Investments. As a consequence, the opportunity for the
Company to invest in such assets would be limited to the extent the Wilshire
REIT takes advantage of such investment opportunities.

The Company's holdings of mortgage-backed securities and other securities
increased approximately $171.3 million during the nine months ended September
30, 1997 primarily as a result of purchasing certain subordinated securities.
For accounting purposes, the Company's mortgage-backed and other securities
are classified as available for sale, trading account securities and held to
maturity. At September 30, 1997, securities classified as available for sale
consisted primarily of subordinate classes of mortgage-backed securities
issued by unaffiliated third parties and certain mortgage-backed securities
originated by the Wilshire Private Companies. Securities classified as trading
account securities consisted primarily of Retained Securities (as defined). At
September 30, 1997, securities classified as held to maturity consisted
primarily of Government Securities (as defined) that were acquired for
liquidity purposes. The following table sets forth the Company's mortgage-
backed and other securities available for sale and held to maturity at the
dates indicated:

MORTGAGE-BACKED AND OTHER SECURITIES

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
1997 1996 1995 1994
------------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities.............. $201,325 $31,270 $ 9,083 $10,943
Trading account securities:
Mortgage-backed securities.............. 28,163 24,541 -- --
Held to maturity:
U.S. Government and other securities.... 7,442 7,429 6,470 4,505
Mortgage-backed securities.............. 19,367 21,724 13,119 14,439
-------- ------- ------- -------
Total................................. 26,809 29,153 19,589 18,944
-------- ------- ------- -------
Total investment securities........... $256,297(1) $84,964 $28,672 $29,887
======== ======= ======= =======
</TABLE>
- --------
(1) The Company intends to sell to the Wilshire REIT certain of its mortgage-
backed securities which at September 30, 1997 had a book value of $30.2
million.

Loans Net

The Company or its affiliates intend to sell to the Wilshire REIT (i) U.S.
Commercial Investments for approximately $42.9 million and (ii) International
Investments in the United Kingdom for approximately $5.3 million. In addition,
the Company intends to grant the Wilshire REIT a right of first refusal with
respect to U.S. Commercial Investments and International Investments. As a
consequence, the opportunity for the Company to invest in such assets would be
limited to the extent the Wilshire REIT takes advantage of such investment
opportunities.

Since January 1, 1994, the Company has substantially increased the level of
its acquisition of pools of Non- Discounted Loans and Discounted Loans. As a
result, the average balance of the Company's portfolio of Non- Discounted
Loans and Discounted Loans has increased significantly as illustrated by the
following table:

45
<PAGE>

AVERAGE UNPAID PRINCIPAL BALANCE OF THE PORTFOLIO OF NON-DISCOUNTED LOANS AND
DISCOUNTED LOANS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------
1997 1996 1995 1994
------------- -------- -------- --------
<S> <C> <C> <C> <C>
Single-family residential........ $ 686,636 $327,014 $ 93,350 $ 31,414
Multifamily residential.......... 91,011(1) 73,470 70,631 36,089
Commercial and other mortgage
loans........................... 144,019(1) 58,227 53,852 33,163
Consumer and other............... 191,184(2) 29,110 10,137 2,917
--------- -------- -------- --------
Total loans.................. 1,112,850 487,821 227,970 103,583
Unaccreted discount.............. (264,603) (17,167) (10,254) (4,086)
Allowance for loan losses........ (71,641) (39,675) (21,591) (4,509)
--------- -------- -------- --------
Total........................ $ 776,606 $430,979 $196,125 $ 94,988
========= ======== ======== ========
</TABLE>
- --------

(1) The Company or its affiliates intend to sell to the Wilshire REIT U.S.
Commercial Investments with an aggregate principal balance of
approximately $66.3 million.
(2) In the first quarter of 1997, the Company acquired approximately $174.2
million of consumer loans for less than 1.1% of their face amount.
Accordingly, the amount shown for "Consumer and other" increased
substantially.

The Company's portfolio of Non-Discounted Loans and Discounted Loans, net of
discounts and allowances, increased by approximately $379.4 million during the
nine months ended September 30, 1997 primarily as a result of the Company's
business strategy of aggressively acquiring Discounted Loans and other
mortgage loans.

Foreclosed Real Estate, Net

Foreclosed real estate consists of properties acquired by foreclosure or
deed-in-lieu thereof on loans held by the Company or properties that were
purchased directly. Foreclosed real estate increased by approximately $68.3
million during the nine months ended September 30, 1997 primarily as a result
of the foreclosure of certain Discounted Loans acquired in the fourth quarter
of 1996 and the first nine months of 1997. The Company actively manages its
portfolio of foreclosed real estate with a view to accelerating and maximizing
the realization of cash from the disposition of that real estate.

Due from Affiliate, net

Due from affiliate, net of approximately $47.4 million at September 30, 1997
was primarily attributable to payments received in the normal course of
servicing operations by U.S. Servicer, which had not yet been remitted to the
Company.

Deposits

Deposits decreased by approximately $93.8 million or 18.7% during the nine
months ended September 30, 1997. Pursuant to the Orders, First Bank and Girard
are prohibited 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 by the Orders in prior quarters. The Savings Banks have complied
with these requirements. Accordingly, the Savings Banks have allowed deposits
to pay off to the extent not necessary to fund asset growth.

Notes Payable

In the fourth quarter of 1996 and the first quarter of 1997, the Company
issued $84.2 million of Notes. In the third quarter of 1997, the Company
issued $100.0 million of Series A Notes.

46
<PAGE>

Short-Term Borrowings

Short-term borrowings increased by approximately $560.4 million during the
nine months ended September 30, 1997, resulting from increased use of
repurchase agreements and warehouse financing instead of deposits to fund the
purchases of loans and securities.

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
manage 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 pools of loans 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, Government Securities, interest rate futures contracts or interest
rate swap agreements. 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 pool of loans and decides whether to hedge
the interest rate exposure of a particular pool of loans. In general, the
Company tends to hedge pools of loans that have fixed rates. 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. To date, the Company has not
experienced any significant costs in hedging pools of loans. In general, when
a pool of loans is acquired, the Company will determine whether or not to
hedge and, with respect to any sale or financing of any pool of loans through
securitization, the Company will determine whether or not to discontinue its
duration-matched hedging activities with respect to the relevant loans.

The Company will seek to purchase IOs to hedge against maturity extension
risk in the Company's loan and securities portfolio in the event that the
Company encounters slower than anticipated prepayments while still
anticipating an acceptable return on the purchase of such IOs. Accordingly, if
the underlying mortgage collateral prepays (including prepayments as a result
of default and repurchases by the seller) at a rate faster than anticipated,
the weighted average life of the IO will be reduced, and the yield to maturity
adversely affected. Conversely, if the underlying mortgage collateral prepays
at a rate slower than anticipated, the weighted average life of the IO will be
extended, with the consequent positive effect on the anticipated yield to
maturity.

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 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 $214.4 million notional principal amount of interest rate swap

47
<PAGE>

agreements outstanding at September 30, 1997, which had the effect of
decreasing the Company's net interest income by approximately $0.2 million
during the nine months ended September 30, 1997.

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. At September 30, 1997, management estimates based upon
the MVPE analysis prepared by the OTS that the 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 7%
decrease or 3% increase, respectively. The following table highlights the
interest rate sensitivity of the OTS's models of MVPE of a change in rates
from 0 to 400 basis points ("bp") as of September 30, 1997:

INTEREST RATE SENSITIVITY OF THE SAVINGS BANKS' NET PORTFOLIO VALUE

<TABLE>
<CAPTION>
NET PORTFOLIO VALUE
--------------------------
AMOUNT $ CHANGE % CHANGE
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
+400bp............................................... $44,781 $(13,435) (23)%
+300bp............................................... 49,774 (8,442) (15)%
+200bp............................................... 54,057 (4,159) (7)%
+100bp............................................... 56,733 (1,483) (3)%
0bp............................................... 58,216 -- --
- -100bp............................................... 59,144 928 2 %
- -200bp............................................... 59,793 1,577 3 %
- -300bp............................................... 60,547 2,331 4 %
- -400bp............................................... 61,692 3,476 6 %
</TABLE>

Management of the Savings Banks believes that the assumptions (including
prepayment assumptions) used by it to evaluate the vulnerability of the
Savings Banks' operations to changes in interest rates approximate actual
experience and considers them reasonable; however, the interest rate
sensitivity of the Savings Banks' assets and liabilities and the estimated
effects of changes in interest rates on the Savings Banks' 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.
Additionally, the OTS's model does not incorporate all of the terms and
features of the hedging instruments.

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 pools of loans, and newly originated mortgage and
manufactured housing loans, and for general business purposes. The Company's
sources of cash flow include certificates of deposit, securitizations, net
interest income, borrowings under its warehouse and repurchase financing
facilities from institutional investors and other lenders and public and
private debt offerings, including the Notes and the Series A Notes. In certain
limited circumstances, the Company also has borrowed money from the Wilshire
Private Companies in order to fund the acquisition of loans. The Company
repaid such borrowings with the PIK Preferred Stock on July 31, 1997. In
addition, the Savings Banks obtain funding through FHLB advances. The
Company's liquidity is actively managed on a daily basis and reviewed
periodically by the Board of Directors of the Company. 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.

Sources of liquidity for the Savings Banks include wholesale and brokered
certificates of deposit. At September 30, 1997, the Savings Banks had
approximately $400.4 million of certificates of deposit. At

48
<PAGE>

September 30, 1997, scheduled maturities of certificates of deposit during the
12 months ending September 30, 1998 and thereafter amounted to approximately
$370.4 million and approximately $30.0 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 Savings Banks believe that the Savings Banks will be able to
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.

At September 30, 1997, the Company's sources of borrowing included (i)
uncommitted 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, (ii) a committed $150 million warehouse lending agreement
with Prudential Securities Credit Corporation, and (iii) certain repurchase
arrangements with major investment banks, including $350 million (committed)
under a repurchase agreement with Credit Suisse First Boston Mortgage Capital
LLC, $34.9 million (committed) under a repurchase agreement with Salomon
Brothers Realty Corp. and $57.8 million (committed) under a repurchase
agreement with Salomon Brothers Realty Corp. See "Business--Funding Sources."
Sources of borrowings also include FHLB advances, which are required to be
secured by eligible securities collateral, and reverse repurchase agreements.
At September 30, 1997, the Savings Banks had no FHLB advances outstanding, and
were eligible to borrow up to an aggregate of $5.4 million from the FHLB of
San Francisco and had approximately $5.4 million of unencumbered mortgage-
backed and related securities that could be pledged to secure such borrowings.

The Company's uses of cash include the funding of purchases of U.S.
residential Discounted Loans and Non-Discounted Loans, U.S. commercial Non-
Discounted Loans, mortgage-backed securities and newly originated mortgage and
manufactured housing loans, payment of interest expenses, repayment of loans,
funding of initial over-collateralization requirements for securitizations,
operating and administrative expenses, income taxes and capital expenditures.
The Company's purchases of pools of loans and other assets are expected to
utilize secured borrowings and be highly leveraged. The actual dollar amount
of secured borrowings incurred by the Company will vary depending on a number
of factors, including the amount of leverage lenders are willing to make
available (which will be affected by market conditions), and management's
determination as to the appropriate amount of leverage. With respect to pools
of U.S. Discounted Loans and U.S. Non-Discounted Loans, the Company generally
seeks to fund 90% and 95%, respectively, of the purchase price of such pools
of loans with borrowed money. The Company draws on a number of sources to
obtain such funds including certificates of deposit and repurchase
arrangements with major investment banks. Capital expenditures by the Company
have not been material.

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." 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 pools of loans, mortgage-backed
securities and newly originated mortgage and manufactured housing loans. The
Company believes that cash flow from operations, 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 current operating needs, commitments and capital expenditures in the near
term.

Given the Company's rapid growth and assuming that the Company continues to
experience such growth, management believes that additional debt and/or equity
financing may be required to sustain this level of growth

49
<PAGE>

once a substantial portion of the proceeds of this Offering are invested. The
Notes and the Series A Notes contain certain limitations on indebtedness which
may restrict the ability of the Company to issue additional indebtedness in
the future and the Company may be obligated to seek equity financing. There
can be no assurance that any such debt or equity financing will be available
to the Company on financially attractive terms in the future.

The Company is required to maintain funds sufficient to meet two semiannual
interest payments on the Notes and the Series A Notes in liquid assets. In
addition, 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 4% 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. The Company and the Savings Banks have complied with these
requirements.

REGULATORY CAPITAL REQUIREMENTS

Federally-insured savings associations such as the Savings Banks are
required to maintain minimum levels of regulatory capital. These standards
generally are 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.
In connection with the 1997 examination, the OTS indicated that the capital
level of Girard was less than satisfactory and the capital level of First Bank
was not adequate in view of their risk profiles, despite the fact that the
Savings Banks had capital levels that would otherwise have qualified them as
"well capitalized" under OTS regulatory capital requirements. The OTS also
indicated that the Savings Banks' current capital requirements may not be
appropriate given the deficiencies noted in the examination. As a result, the
Orders require First Bank and Girard to maintain core capital and risk-based
capital equal to the dollar amount of capital at March 31, 1997, as measured
at the end of each calendar quarter. The Orders provide that in the event
capital falls below the levels required by the Orders as a result of any
determination by the OTS or otherwise that adversely affects the Savings
Banks' financial condition, the Savings Banks would have to raise additional
capital. If the OTS were to impose higher capital requirements on the Savings
Banks or additional capital were required as a result of an adverse
determination by the OTS or otherwise, the Company might inject additional
capital into the Savings Banks, whether or not such usage of capital is
optimal for the Company.

At September 30, 1997, the total core capital and total risk-based capital
amounts of the Savings Banks, compared to the OTS requirements contained in
the Orders was as follows:

<TABLE>
<CAPTION>
GIRARD FIRST BANK
-------------------------- --------------------------
OTS OTS
ACTUAL REQUIREMENT EXCESS ACTUAL REQUIREMENT EXCESS
------- ----------- ------ ------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Core Capital...... $34,617 $33,146 $1,471 $12,736 $11,872 $864
Total Risk-Based
Capital................ $38,475 $37,610 $ 865 $13,889 $13,179 $710
</TABLE>

50
<PAGE>

The following table sets forth the regulatory capital ratios of the Savings
Banks at September 30, 1997:

REGULATORY CAPITAL RATIOS OF THE SAVINGS BANKS

<TABLE>
<CAPTION>
TO BE
CATEGORIZED AS
"WELL CAPITALIZED"
FOR CAPITAL UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES(1) ACTION PROVISIONS
------------- ------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk- Greater Greater
Weighted Assets than or than or
(Risk-Based Capital): equal to equal to
First Bank............... $13,889 15.7% $ 7,073 8.0% $ 8,841 10.0%
Greater Greater
than or than or
equal to equal to
Girard................... 38,475 13.1% 23,555 8.0% 29,444 10.0%
Tier 1 Capital to Risk-
Weighted Assets:
First Bank............... 12,736 14.4% 3,536 4.0% 5,305 6.0%
Greater Greater
than or than or
equal to equal to
Girard................... 34,617 11.8% 11,778 4.0% 17,666 6.0%
Core Capital to Tangible
Assets:
Greater Greater
than or than or
equal to equal to
First Bank............... 12,736 11.5% 4,417 4.0% 5,521 5.0%
Greater Greater
than or than or
equal to equal to
Girard................... 34,617 9.9% 13,925 4.0% 17,406 5.0%
Tangible Capital to
Tangible Assets:
Greater Greater
than or than or
equal to equal to
First Bank............... 12,736 11.5% 1,656 1.5% Not applicable
Greater Greater
than or than or
equal to equal to
Girard................... 34,617 9.9% 5,222 1.5% Not applicable
</TABLE>
- --------
(1) These capital adequacy ratios represent the requirements for all savings
institutions. The Savings Banks' minimum capital requirements are the
ratios specified in the Orders and those in the column containing the
"well-capitalized" requirements as well as the capital amounts indicated in
the preceding table.

51
<PAGE>

BUSINESS

GENERAL

The Company primarily acquires pools of performing, sub-performing and non-
performing residential and commercial mortgage loans, as well as foreclosed
real estate and mortgage-backed securities. The Company also acquires newly
originated residential mortgage and manufactured housing loans through
correspondents and operates a merchant bankcard processing business. At
September 30, 1997, the Company had total assets of approximately $1.4
billion, including approximately $791.0 million of loans, approximately $146.5
million of foreclosed real estate and approximately $256.3 million of
mortgage-backed and U.S. government securities. For the nine months ended
September 30, 1997, the Company had net income of approximately $12.2 million.

The Company acquires pools of loans that, at the time of acquisition,
consist primarily of either Discounted Loans or Non-Discounted Loans. At
September 30, 1997, the Company held approximately $350.5 million of
Discounted Loans and approximately $440.5 million of Non-Discounted Loans. The
Company generally seeks to acquire smaller pools of loans (those with an
aggregate unpaid principal balance of less than $20.0 million) for which there
is currently less competitive demand. The Company believes that its
willingness to purchase smaller pools of loans enhances its acquisition
opportunities and allows the Company to develop long-term relationships and
repeat business with financial institutions.

From 1991 through December 31, 1997, the Company's principal shareholders
have overseen the purchase and servicing by the Company and its affiliates of
over 450 pools of loans and/or foreclosed real estate for an aggregate
purchase price of approximately $2.7 billion. The volume of loan pool
acquisitions overseen by the Company's Principal Shareholders has accelerated
significantly, growing from 41 pools that were acquired in 1996 for an
aggregate purchase price of approximately $578.7 million to 79 pools that were
acquired in the first nine months of 1997 for an aggregate purchase price of
approximately $873.2 million. Comprehensive criteria and procedures have been
established by the Company for evaluating the risks associated with mortgage
loans and the real estate securing those loans. In reviewing a pool of loans
for possible acquisition, management develops a detailed model from which it
estimates the costs of servicing the loans in that pool and the amount and
timing of cash flows that can be expected to be generated from the loans to
establish an appropriate purchase price. In order to maximize the returns on
its investment in a pool of loans, the Company generally funds from 90% to 95%
of the purchase price with borrowed funds, including deposits at the Savings
Banks. As a result, the Company's asset base is, and following the Offering
will continue to be, highly leveraged. See "Risk Factors--Extensive Use of
Financial Leverage."

The Company, through the U.S. Servicer, actively services each acquired loan
and property to maximize cash flow, using specialized procedures and
proprietary software. Discounted loans generally are resolved within one to
two years after acquisition, through foreclosure, compromise, a discounted
payoff or reinstatement.Non-Discounted Loans are actively serviced to ensure
timely and accurate payments over their remaining lives. At September 30,
1997, the U.S. Servicer was servicing approximately $2.6 billion of assets,
including (i) approximately $1.2 billion aggregate principal amount of loans
for the Company; (ii) approximately $1.3 billion aggregate principal amount of
loans for third parties (including approximately $645.2 million of loans
previously securitized by the Company and its affiliates); and (iii)
approximately $93.5 million aggregate principal amount of the U.S. Servicer's
loans.

The Company also acquires, through the U.S. Servicer, mortgage and
manufactured housing loans originated by correspondents pursuant to guidelines
established by the Company under its mortgage loan origination program.
Mortgage products offered under this program currently are targeted to higher
credit borrowers. From the commencement of its loan origination program
through September 30, 1997, the Company has purchased loans totaling
approximately $80.2 million in principal amount.

52
<PAGE>

of a transaction creates a higher risk of chargebacks. The Company focuses on
these market niches because management believes they offer higher risk-
adjusted returns. The Company attempts to manage its risks through the pricing
of its services and managing merchant cash reserves through a software system
developed by the Company. During the nine months ended September 30, 1997, net
revenues from these operations totaled $1.6 million.

. Growth of Acquisitions of Loan Pools. The Company plans to expand its
acquisition of pools of U.S. residential Discounted and Non-Discounted
Loans and U.S. commercial Non-Discounted Loans by more actively marketing
its services, with a view to adding new customers and developing more
repeat business. The Company has granted a right of first refusal to the
Wilshire REIT with respect to U.S. Commercial Investments, MBS
Investments and International Investments.

. Expansion of Fee-Based Income.

. Management of the Wilshire REIT. The Company will act as the manager
and operator of the Wilshire REIT for a management fee and an
incentive fee.

ACQUISITIONS OF POOLS OF LOANS

General

Since the late 1980s, a significant market for the purchase of pools of non-
performing and sub-performing mortgage loans has developed in the United
States. This market initially consisted largely of sales of pools of loans by
governmental agencies such as the FDIC and the RTC in connection with the
savings and loan crisis. Today, this market is comprised primarily of pools of
loans sold by banks, savings institutions, mortgage companies and insurance
companies. Management believes that private financial institutions, in order
to reduce their servicing costs and more effectively employ their capital, are
increasingly outsourcing the resolution of loans, particularly those that are
sub-performing and non-performing, to specialized companies with the
experience and infrastructure to most efficiently manage those loans.

The Company acquires pools of loans from a wide variety of sources,
including banks, savings institutions, finance companies, leasing companies,
mortgage companies, insurance companies and governmental agencies. The Company
generally obtains information on available pools of loans from several
sources, including referrals

53
<PAGE>

from sellers with whom the Company has transacted business in the past. The
Company recently began to actively market its services with the intent of
developing a larger customer base from which the Company may purchase pools of
loans and to develop more repeat business. Pools of loans generally are
acquired in auctions through competitive bids or in negotiated transactions.
The competition for larger pools of loans generally is more intense and often
involves competitive bids. Unlike some of its competitors, the Company is
willing to purchase smaller pools of loans (those with an aggregate unpaid
principal balance of less than $20.0 million) in negotiated transactions and
auctions for which there is currently less competitive demand.

Prior to making an offer to purchase a pool of loans, the Company conducts
an extensive investigation and evaluation of the individual loans comprising
the pool of loans and/or the separate parcels of real estate in the pool. This
examination typically consists of an analysis of the information provided by
the seller (generally, the credit and collateral files for the loans), other
relevant material that may be available (including tax records) and the
underlying collateral. The Company compares this data with its own mortgage
loan database, which contains, among other things, listings of property values
and loan loss experience in local markets for similar assets, obtains value
opinions from third parties and, in some cases, conducts site inspections. In
addition, for Discounted Loans, the Company generally obtains a broker price
opinion ("BPO") on each parcel of real property. The Company also reviews
information on the local economy and real estate markets including the amount
of time generally required to complete foreclosure on real property in the
jurisdiction in which the property is located.

The Company's senior acquisition personnel, who conduct the due diligence
review of each pool of loans being considered for purchase, recommend to
management the price to be offered for the pool by using a proprietary
modeling system that focuses on, among other things, the anticipated future
cash flow from each component loan or property. In evaluating anticipated cash
flow, the Company makes a number of assumptions concerning the overall pool of
loans based on its review of each loan or property, including assumptions as
to the percentage of loans to be foreclosed, the timing of the receipt of
payments and the expenses associated with servicing the loans. The Company's
investment committee, which consists of senior management and the senior
acquisition personnel who conduct the due diligence review, makes a final
determination as to the offering price. Loan acquisition decisions at First
Bank and Girard are made by their respective boards of directors. If an offer
is accepted by the seller, the Company and the seller generally enter into a
loan sale agreement, which generally contains representations and warranties
by the seller concerning the loans being sold and an agreement by the seller
to repurchase any loan found to be in breach of those representations and
warranties.

The Company, through the U.S. Servicer, actively services each acquired loan
and property to maximize cash flow. Upon acquisition of a pool of loans,
servicing personnel begin servicing each loan or property within the pool
based on a preliminary servicing plan or a revised servicing plan and employ
specialized procedures and proprietary software designed to efficiently
service performing loans, non-performing loans and foreclosed real estate.

Discounted Loans

Discounted Loans consist primarily of non-performing residential mortgage
loans that are purchased at significant discounts to their unpaid principal
balances. After a pool of Discounted Loans is acquired, the Company, through
the U.S. Servicer, seeks to resolve the Discounted Loans as expeditiously as
possible, generally within one to two years. Discounted Loans require more
intensive servicing than Non-Discounted Loans. The servicing plan for
Discounted Loans generally consists of foreclosure, compromise, a discounted
payoff or, in some cases, reinstatement. Discounted Loans become foreclosed
real estate on the Company's balance sheet when the Company obtains title to
the underlying properties through foreclosure or otherwise as part of its
resolution of those loans.

The Company is willing to purchase smaller pools of Discounted Loans for
which there is currently less competitive demand. The Company believes that
its willingness to purchase smaller pools of loans enhances its acquisition
opportunities and allows the Company to develop long-term relationships and
repeat business with

54
<PAGE>

private financial institutions. The following table sets forth the number and
aggregate purchase price of pools of Discounted Loans of various sizes
acquired during the periods indicated:

ACQUIRED POOLS OF DISCOUNTED LOANS BASED ON POOL SIZE

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TOTAL
----------------------------------- ----------------
NINE MONTHS
ENDED SINCE
SEPTEMBER 30, 1997 1996 1995 1994 JANUARY 1, 1994
------------------ ------------ ----------- ---------- ----------------
NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT
------------------ --- -------- --- ------- --- ------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pool Size:
Less than $5 million... 29 $ 52,700 4 $ 1,892 6 $ 2,620 1 $2,538 40 $ 59,750
Over $5 million to $10
million............... 8 52,993 1 6,588 -- -- -- -- 9 59,581
Over $10 million to $20
million............... 2 33,370 -- -- -- -- -- -- 2 33,370
Over $20 million to $50
million............... 4 109,205 2 54,583 1 26,604 -- -- 7 190,392
Over $50 million....... 1 68,663 4 261,096 -- -- -- -- 5 329,759
------ ----------- --- -------- --- ------- --- ------ ----- ----------
Total................. 44 $ 316,931 11 $324,159 7 $29,224 1 $2,538 63 $ 672,852
====== =========== === ======== === ======= === ====== ===== ==========
</TABLE>

At September 30, 1997, the unpaid principal balance of the Company's
portfolio of Discounted Loans, net of unaccreted discount and valuation
allowance, aggregated approximately $350.5 million or 25.6% of the Company's
total assets. The following table sets forth the composition of the Company's
portfolio of Discounted Loans by type at the dates indicated:

COMPOSITION OF DISCOUNTED LOANS

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1997 1996 1995 1994
------------- -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Discounted Loans:
Single-family residential......... $ 397,177 $276,759 $ 50,937 $ 348
Multifamily residential........... 12,876 317 -- --
Commercial real estate............ 57,224 4,919 1,523 432
Consumer and other(2)............. 187,835 1,342 979 2,215
--------- -------- -------- ------
Total Discounted Loans.............. 655,112 283,337 53,439 2,995
Unaccreted discount and deferred
fees(2)............................ (270,509) (58,088) (6,671) (470)
Valuation allowance(3).............. (34,143) (5,619) (15,414) (431)
--------- -------- -------- ------
Total Discounted Loans, net......... $ 350,460 $219,630 $ 31,354 $2,094
========= ======== ======== ======
</TABLE>
- --------

(1) The Company or its affiliates intend to sell to the Wilshire REIT certain
U.S. Commercial Investments having an aggregate principal balance of
approximately $66.3 million.
(2) In the first quarter of 1997, the Company acquired approximately $174.2
million of consumer loans for less than 1.1% of their face amount.
Accordingly, the amounts shown for "Consumer and other" and "Unaccreted
discount and deferred fees" increased substantially.
(3) For discussion of the valuation allowance allocation for purchase
discount, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Accounting Matters."

55
<PAGE>

The real properties that secure the Company's Discounted Loans are located
throughout the United States. The following table sets forth the states with
the greatest concentration of those properties at September 30, 1997:

GEOGRAPHIC CONCENTRATION OF DISCOUNTED LOANS

<TABLE>
<CAPTION>
SINGLE-FAMILY MULTIFAMILY COMMERCIAL REAL
RESIDENTIAL RESIDENTIAL ESTATE TOTAL
---------------- --------------- --------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ANNUAL PERCENT
-------- ------- ------- ------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York............................................... $127,889 32.2% $ 379 2.9% $ 8,875 15.5% $137,143 29.3%
New Jersey............................................. 82,575 20.8 2,042 15.9 5,226 9.1 89,843 19.2
Connecticut............................................ 28,876 7.3 3,476 27.0 15,928 27.8 48,280 10.3
California............................................. 26,165 6.6 5,586 43.4 13,801 24.1 45,552 9.7
Pennsylvania........................................... 22,935 5.8 0 0.0 474 0.8 23,409 5.0
Other.................................................. 108,737 27.3 1,393 10.8 12,920 22.7 123,050 26.5
-------- ----- ------- ----- ------- ----- -------- -----
Total................................................ $397,177 100.0% $12,876 100.0% $57,224 100.0% $467,277 100.0%
======== ===== ======= ===== ======= ===== ======== =====
</TABLE>

Non-Discounted Loans

Non-Discounted Loans consist primarily of performing and sub-performing
residential mortgage loans that are purchased at or near their unpaid
principal balances. Non-Discounted Loans on the Company's balance sheet
include acquired pools of Non-Discounted Loans and newly originated mortgage
and manufactured housing loans purchased by the Company pursuant to its
mortgage loan origination program. See "--Mortgage Loan Origination." The
Company generally holds Non-Discounted Loans as interest earning assets until
they are repaid or sold through a securitization, whole loan sale or
otherwise. Non-Discounted Loans are actively serviced, through the U.S.
Servicer, to ensure timely and accurate payments. The servicing activities
generally involve extensive customer contact for sub-performing loans to
ensure that loans are reinstated and remain current and far less customer
contact for performing loans so long as the obligor remains current with
respect to contractual payments. If a Non-Discounted Loan becomes delinquent
for an extended period, the Company, through the U.S. Servicer, generally
seeks to resolve the loan as quickly as possible through foreclosure,
compromise, a discounted payoff or, in some cases, reinstatement, among other
options.

The following table sets forth the number and aggregate purchase price of
pools of Non-Discounted Loans of various sizes acquired during the periods
indicated:

ACQUIRED POOLS OF NON-DISCOUNTED LOANS BASED ON POOL SIZE

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TOTAL
------------------------------------- ----------------
NINE MONTHS
ENDED SINCE
SEPTEMBER 30, 1997 1996 1995 1994 JANUARY 1, 1994
------------------ ------------ ------------ ----------- ----------------
NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT
------------------ --- -------- --- -------- --- ------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pool Size:
Less than $5 million......................... 21 $ 45,432 25 $ 40,267 22 $ 80,319 35 $22,201 103 $ 188,219
Over $5 million to $10 million............... 6 40,156 -- -- 3 26,642 1 5,295 10 72,093
Over $10 million to $20 million.............. 2 24,139 3 41,418 -- -- 1 11,527 6 77,084
Over $20 million to $50 million.............. 3 96,752 1 45,263 -- -- -- -- 4 142,015
Over $50 million............................. 3 349,752 1 127,569 1 50,710 -- -- 5 528,031
------ ----------- --- -------- --- -------- --- ------- ---- -----------
Total........................................ 35 $ 556,231 30 $254,517 26 $157,671 37 $39,023 128 $ 1,007,442
====== =========== === ======== === ======== === ======= ==== ===========
</TABLE>

56
<PAGE>

At September 30, 1997, the unpaid principal balance of the Company's
portfolio of Non-Discounted Loans, net of unaccreted discount and valuation
allowance, aggregated approximately $440.6 million or 32.2% of the Company's
total assets. The following table sets forth the composition of the Company's
portfolio of Non-Discounted Loans by type at the dates indicated:

COMPOSITION OF NON-DISCOUNTED LOANS

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------
1997 1996 1995 1994
------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-Discounted Loans:
Single-family residential....... $277,231 $ 74,895 $139,566 $ 53,095
Multifamily residential......... 78,806 69,044 71,239 77,884
Commercial real estate.......... 108,414 63,374 53,458 57,881
Consumer and other.............. 50,747 22,817 19,753 6,733
-------- -------- -------- --------
Total Non-Discounted loans........ 515,198 230,130 284,016 195,593
Unaccreted discount and deferred
fees............................. (18,151) (6,232) (14,362) (8,946)
Valuation allowance(1)............ (56,488) (31,936) (10,237) (7,270)
-------- -------- -------- --------
Total Non-Discounted Loans,
net............................ $440,559 $191,962 $259,417 $179,377
======== ======== ======== ========
</TABLE>
- --------
(1) For a discussion of the valuation allowance allocation for purchase
discount, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Accounting Matters."

The real properties that secure the Company's Non-Discounted Loans are
located throughout the United States. The following table sets forth the
states with the greatest concentration of those properties at
September 30, 1997:

GEOGRAPHIC CONCENTRATION OF NON-DISCOUNTED LOANS

<TABLE>
<CAPTION>
SINGLE-FAMILY MULTIFAMILY COMMERCIAL
RESIDENTIAL RESIDENTIAL REAL ESTATE TOTAL
---------------- --------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- ------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California............................................ $ 75,772 27.3% $49,964 63.4% $ 50,397 46.5% $176,133 37.9%
New York.............................................. 33,093 11.9 9,194 11.7 16,598 15.3 58,885 12.7
New Jersey............................................ 36,870 13.3 918 1.2 5,850 5.4 43,638 9.4
Massachusetts......................................... 15,431 5.6 555 0.7 882 0.8 16,868 3.6
Pennsylvania.......................................... 15,218 5.5 -- 0.0 358 0.3 15,576 3.4
Other................................................. 100,847 36.4 18,175 23.0 34,329 31.7 153,351 33.0
-------- ----- ------- ----- -------- ----- -------- -----
Total............................................... $277,231 100.0% $78,806 100.0% $108,414 100.0% $464,451 100.0%
======== ===== ======= ===== ======== ===== ======== =====
</TABLE>

The following table sets forth certain information at September 30, 1997
regarding the dollar amount for Non-Discounted Loans maturing based on their
contractual terms to maturity and includes scheduled payments but not
potential prepayments, as well as the respective dollar amounts of those loans
which have fixed or adjustable interest rates. No information is shown with
respect to Discounted Loans because those loans, by definition, are in default
and unlikely to mature in accordance with their stated amortization schedules.
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.

57
<PAGE>

MATURITY OF NON-DISCOUNTED LOANS

<TABLE>
<CAPTION>
MATURING IN
---------------------------------------------
AFTER ONE AFTER FIVE
ONE YEAR YEAR THROUGH YEARS THROUGH AFTER TEN
OR LESS FIVE YEARS TEN YEARS YEARS
-------- ------------ ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Single-family residential....... $5,950 $ 8,672 $10,177 $252,432
Multifamily residential......... 16,978 17,166 22,015 22,647
Commercial and other mortgage
loans.......................... 27,580 35,749 17,370 27,715
Consumer and other.............. 20,060 15,220 4,418 11,049
Interest rate terms on amounts
due after one year.............
Fixed......................... -- 40,771 26,150 257,619
Adjustable.................... -- 36,036 27,830 56,224
</TABLE>

Scheduled contractual principal repayments are not necessarily predictive of
the actual maturities of Non-Discounted 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
prevailing mortgage loan rates are substantially higher than rates on existing
mortgage loans and, conversely, decrease when rates on existing mortgages are
substantially higher than prevailing mortgage loan rates.

Discounted Loan and Non-Discounted Loan Activity

The following table sets forth the activity in the Company's portfolio of
Discounted Loans and Non-Discounted Loans (excluding originations, which are
shown separately) during the periods indicated. The amounts shown in the
following table represent the unpaid principal balance of the loans.

LOAN PORTFOLIO ACTIVITY

58
<PAGE>

- --------

(1) The Company or its affiliates intend to sell to the Wilshire REIT certain
U.S. Commercial Investments with an aggregate principal balance of
approximately $66.3 million and International Investments in the United
Kingdom with an aggregate principal balance of approximately $14.9
million.
(2) In the first quarter of 1997, the Company acquired a pool of charged-off
consumer obligations for less than 5% of their face amount. Accordingly,
the amount shown for "Consumer and other loans" increased substantially.
(3) Excludes originations.

International Assets and Operations

The Company intends to sell to the Wilshire REIT a participation interest in
two pools of loans in the United Kingdom: (i) a pool of Discounted Loans with
an aggregate outstanding principal balance of approximately $12.3 million, and
(ii) a pool of Non-Discounted Loans with an aggregate outstanding principal
balance of approximately $2.6 million. The purchase price for these pools of
loans will be approximately $5.3 million.

The Company intends to grant the Wilshire REIT an option to purchase all or
a portion of the Company's interest in two portfolios of International
Investments in France for a purchase price of up to $110.0 million (including
approximately $25.3 million held on the Company's balance sheet at
September 30, 1997). The Wilshire REIT is currently evaluating the suitability
of such investments under U.S. tax and French law.

The Company intends to grant a right of first refusal to the Wilshire REIT
with respect to International Investments. As a consequence, the opportunity
for the Company to invest in such assets would be limited to the extent the
Wilshire REIT takes advantage of such investment opportunities.

The Company in the fourth quarter of 1996 expanded its loan acquisition
activities to the United Kingdom and France. At September 30, 1997, the
Company had established offices in London and Paris and had 38 full time
employees at those locations, including the former head of Securum Holdings
N.V., a Swedish company responsible for the resolution of impaired real estate
loans made by Swedish banks throughout Europe. The Company also established
loan servicing operations in the United Kingdom and France to service loans
for itself and third parties. The Company believes that there is a demand in
the European market for U.S.-style loan servicing, with its automated systems
and detailed investor reporting and aggressive workout approaches. Most
purchasers of distressed loans in the United Kingdom and France are U.S. based
and have utilized U.S.-style servicing and investor reporting in connection
with the purchase of distressed loans in the United States. With the exception
of recently originated loans, the prevailing loan servicing and reporting
systems in the United Kingdom and France are less technologically developed
and more labor intensive than those in the United States. The Company's loan
servicing operations in Western Europe utilize the U.S. Servicer's servicing
system, which has been adapted for servicing loans in Western Europe.

From the commencement of operations in Western Europe in September 1996
until September 30, 1997, the Company has acquired one pool of Discounted
Loans and one pool of Non-Discounted Loans in the United Kingdom with
aggregate outstanding principal amounts of approximately $12.3 million and
$2.6 million, respectively, and has purchased a French company which owns two
portfolios of Non-Discounted Loans and two portfolios of Discounted Loans and
foreclosed real estate in France for an aggregate purchase price of
approximately $50 million. In September 1997, the Company committed, along
with an internationally recognized investment bank, to acquire from a major
European insurance company its portfolio of commercial Discounted and Non-
Discounted Loans and residential Discounted Loans in France for an aggregate
purchase price of approximately $150.0 million (for which the Company would be
responsible for half).

Foreign currencies have been translated based on exchange rates at September
30, 1997 in the United Kingdom at (Pounds)0.6156 and in France at 5.8898
French Francs to the U.S. Dollar, respectively.

59
<PAGE>

Mortgage-Backed Securities

The Company intends to sell to the Wilshire REIT a portion of its mortgage-
backed securities for approximately $98.1 million. In addition, the Company
intends to grant a right of first refusal to the Wilshire REIT with respect to
MBS Investments. As a consequence, the opportunity for the Company to invest
in MBS Investments would be limited to the extent the Wilshire REIT takes
advantage of such investment opportunities.

The Company has acquired mortgage-backed securities, consisting primarily of
subordinate interests in private-label securities backed by loans that were
originated by and are being serviced by unaffiliated third parties ("Private-
Label Securities"), as well as certain governmental agency and other
securities ("Government Securities") held for liquidity purposes. In addition,
the Company retains or, in certain cases, acquires in the secondary market
subordinate and other classes of mortgage-backed securities backed by loans
that were previously held in the portfolio of the Company or the Wilshire
Private Companies and for which the Company is continuing to act as servicer
("Retained Securities"). The Company acquires mortgage-backed securities,
consisting primarily of Private-Label Securities and Government Securities
held for liquidity purposes. Management believes that its experience in
acquiring pools of loans allows it to more effectively evaluate the risks
associated with a pool of loans that supports an issue of mortgage-backed
securities being considered for purchase and price those securities.
Management also believes that the size and liquidity of the market for
subordinate classes of mortgage-backed securities and the relatively small
size of those classes may from time to time result in the underpricing of
these securities in the market, providing the Company with attractive
acquisition opportunities. The Company's strategy is to invest in subordinate
classes of mortgage-backed securities which the Company believes are likely to
experience a ratings upgrade as a result of payment history, prepayment or
default experience or otherwise. The following table sets forth the Company's
holdings of mortgage-backed and other government securities at the dates
indicated:

MORTGAGE-BACKED SECURITIES AND GOVERNMENT SECURITIES

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
1997 1996 1995 1994
------------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Private-Label Securities............. $145,827(1)(2) $21,382 $ -- $ --
Retained Securities.................. 71,003(1) 28,239 -- --
Government Securities................ 39,467 35,343 28,672 29,887
-------- ------- ------- -------
Total.............................. $256,297 $84,964 $28,672 $29,887
======== ======= ======= =======
</TABLE>
- --------

(1) The Company intends to sell to the Wilshire REIT certain Private-Label
Securities with a carrying value of approximately $47.2 million and
certain Retained Securities with a carrying value of approximately
$30.2 million.

(2) Includes $37.6 million of purchased IOs.

The Company may invest in IOs, which are entitled to no (or only nominal)
payments of principal, but only to payments of interest. The holder of an IO
may be entitled to receive a stated rate of interest on a notional principal
balance equal to the principal balance of the mortgage collateral, that
portion that bears interest in excess of a certain rate on one or more classes
of mortgage-backed securities (such as where the mortgage collateral (or
portion thereof) carries an 8.5% interest rate after servicing costs, and the
holders of the other classes are entitled to receive 8.0% interest, leaving
0.5% for the holder of the IO). Alternatively, the holder of an IO may be
entitled to a variable rate of interest on a nominal principal balance that
adjusts based upon adjustment in the interest rate of the underlying mortgage
collateral.

60
<PAGE>

anticipated, the weighted average life of the IO will be reduced, and the
yield to maturity adversely affected. Conversely, if the underlying mortgage
collateral prepays at a rate slower than anticipated, the weighted average
life of the IO will be extended, with the consequent positive effect on the
anticipated yield to maturity.

Prior to making an offer to purchase a pool of Private-Label Securities, the
Company conducts an extensive investigation and evaluation of the underlying
pool of loans. This examination typically includes an analysis of the
information provided by the seller, other relevant material that may be
available (including tax records) and, in some cases, the underlying
collateral. The Company compares this data with its own mortgage loan
database, which contains among other things, listings of property values and
loan loss experience in local markets for similar assets, and, in some cases,
conducts site inspections. In addition, the Company obtains BPOs on a sample
of the real properties underlying the loans. The Company generally obtains
BPOs for larger loans, particularly if such loans have large balances, are
non-owner occupied, are for second homes or are located in unusual places. The
Company also evaluates the servicer and reviews information on the local
economy and real estate markets in which the properties are located. In
determining the purchase price for the mortgage-backed securities, the Company
prepares a model which focuses on different prepayment speeds in conjunction
with various default and loss assumptions.

At September 30, 1997, the Company's two largest holdings of Private-Label
Securities were First Plus Home Loan Owner Trust, Series 1997-3 CL B2 and
Salomon Brothers Mortgage Securities VII Inc. Mortgage Pass Through
Certificates Series 1997-LB1 CE, which represented 15.6% and 12.9% of the
Company's portfolio. The following table sets forth the Company's holdings of
Private-Label Securities at September 30, 1997:

PRIVATE-LABEL SECURITIES

<TABLE>
<CAPTION>
PERCENT TO
NUMBER OF CARRYING BE SOLD TO
RATING CATEGORY(1) INVESTMENTS VALUE THE WILSHIRE REIT
- ------------------ ------------ ------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
AAA/Aaa1 to A-/A3.............. 1 $ 1,992 0.0%
BBB+/Baa1 to BBB-/Baa3......... 7 48,536 17.1
BB+/Ba1 to BB-/Ba3............. 13 25,301 27.2
B+/B1 to B-/B3................. 4 6,810 2.6
Unrated........................ 15 63,188 50.4
-------- -------------
Total........................ 40 $ 145,827(2)
======== =============
</TABLE>
- --------

(1) Rating by independent rating agency at September 30, 1997.

(2) The Company intends to sell to the Wilshire REIT certain Private-Label
Securities with a carrying value of approximately $47.2 million.

61
<PAGE>

The Company generally retains or, in certain cases, acquires Retained
Securities issued in connection with the securitization of its loans. The
following table sets forth information regarding the Company's Retained
Securities:

RETAINED SECURITIES

<TABLE>
<CAPTION>
CARRYING VALUE
--------------------------
PERCENT TO
SEPTEMBER 30, BE SOLD TO
ISSUE NAME CLASS RATING COLLATERAL TYPE INITIAL 1997 THE WILSHIRE REIT
---------- ----- ------ --------------- ----------- -------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
WFC 1996-3 AIO AAA Residential Loans $ 2,697 $ 2,522 100.0%
WFC 1996-3 B1 BB Residential Loans 5,412 5,260 50.0
WFC 1996-3 B2 B Residential Loans 3,528 3,397 50.0
WFC 1996-3 B3 NR Residential Loans 4,563 4,302 50.0
WFC 1996-3 FIO AAA Residential Loans 1,119 782 100.0
Wilshire Cons. 95A B NR Miscellaneous Consumer 14,054 17,638 50.0
Wilshire Mtg 95A B NR Manufacturing Housing 5,115 3,905 100.0
Wilshire Mtg 95-MA1 B NR Home Equity 3,882 5,746 100.0
Wilshire Mtg 95-MF1 B NR Home Equity 1,526 2,259 100.0
Wilshire Mtg 1996-2 B NR Residential Loans 11,507 10,284 0.0
Wilshire Mtg 1996-4 B NR Residential Loans 585 1,274 0.0
Wilshire Mtg 1996-4 C NR Residential Loans 3,113 2,371 0.0
WFC1-1997 B1 BB Residential Loans 8,849 8,849 0.0
WFC1-1997 B2 B Residential Loans 1,063 1,063 0.0
WFC1-1997 B3 NR Residential Loans 1,351 1,351 0.0
----------- -----------
Total $ 68,364 $ 71,003(1)
=========== ===========
</TABLE>
- --------
(1) The Company intends to sell certain Retained Securities to the Wilshire
REIT with a carrying value of approximately $30.2 million.

MORTGAGE LOAN ORIGINATION

The Company, through the U.S. Servicer, operates a mortgage loan origination
program for the origination, through correspondents, of related first and
second lien mortgage loans and manufactured housing loans. The U.S. Servicer
originates residential mortgage loans in accordance with the Company's
guidelines through its correspondent relationships and transfers the newly
originated mortgage loans to the Company, which simultaneously provides the
funding for those loans. The U.S. Servicer is reimbursed for fees and expenses
incurred in connection with their origination activities but do not receive
any compensation. The Company does not seek to compete broadly with other
mortgage and secured loan originators but, instead, targets market niches
where management believes its experience in evaluating credit risk and
servicing nonconforming loans gives it a competitive advantage. For example,
the Company has developed loan products that permit first time home buyers,
who are otherwise qualified according to federal agency guidelines but who do
not have sufficient funds for a down payment, to purchase a home using 100%
financing. The Company recently launched two new products: a 100% financed
mortgage loan, financing up to 100% of the appraised value of the related
property with mortgage insurance or loan pool insurance covering in excess of
67% of the appraised value; and a 95% financed, no-income verification
mortgage loan, financing up to 95% of the appraised value of the related
property with mortgage insurance or loan pool insurance covering in excess of
67% of the appraised value. To date, the Company has targeted higher credit
quality borrowers for its mortgage loan origination program. The Company's
borrowers generally conform to Federal Home Loan Mortgage Corporation
("Freddie Mac") credit underwriting guidelines.

62
<PAGE>

to acquire a manufactured housing loan originator located in California for a
purchase price of approximately $5.7 million. There can be no assurance as to
when or if such acquisitions will be completed.

All borrowers and collateral must meet the Company's credit underwriting
guidelines. The Company believes that the higher risk generally associated
with nonconforming loans is offset by the Company's strong credit underwriting
guidelines and the higher pricing associated with these loans. The Company
intends to expand this business by developing new products, increasing
correspondent relationships and targeting homebuilders and manufactured
housing companies that concentrate on first-time buyers.

At September 30, 1997, the U.S. Servicer had approximately 125 approved
correspondents, each of which has been subject to a thorough due diligence and
approval process to better provide quality and integrity, as a source of new
business. The agreement with each correspondent requires, among other things,
specified minimum levels of experience in origination of nonconforming
mortgage loans and representations and warranties from the correspondent and
buy-back provisions identical to those required of the Company for the
securitization of loans. Correspondents originate loans based on guidelines
provided by the Company and sell the loans to the U.S. Servicer on a
servicing-released basis.

The Company's guidelines set forth the specific lending requirements as they
relate to the processing, underwriting, property appraisal, closing, funding
and delivery of loans to borrowers. Once a correspondent has completed its
underwriting process, it will submit the initial loan application to the
Company's underwriting department, which reviews the application and performs
its own underwriting analysis. Evaluations of initial loan applications are
conducted by 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, which are similar to Freddie
Mac credit underwriting guidelines, focus on debt-to-income ratios, loan-to-
value ratios, current credit reports on potential borrowers, property
appraisals and a potential borrower's employment 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 that do not conform to the Company's guidelines
are rejected and returned to the correspondent. Variations from the Company's
underwriting guidelines must be approved by an appropriate officer of the
Company.

From the commencement of its mortgage loan origination program through
September 30, 1997, the Company has purchased loans totaling approximately
$80.2 million in principal amount. At September 30, 1997, the unpaid principal
balance of the outstanding loans purchased by the Company under this program
was approximately $75.1 million and the weighted average interest rate and
maturity of those loans were 11.7% and 278 months, respectively. The weighted
average principal balance of those loans at origination was approximately
$47,347. Approximately 30.84%, 13.91%, 6.58%, 4.14% and 4.03% of the original
principal amount of those loans were originated in California, Oregon, Texas,
Washington and Virginia, respectively.

From the commencement of its mortgage loan origination program through
September 30, 1997, the Company has foreclosed on one property. The following
table sets forth, as of September 30, 1997, information with respect to the
delinquency of loans originated under the Company's mortgage loan origination
program:

DELINQUENCY STATUS OF MORTGAGE ORIGINATION PORTFOLIO
(AT SEPTEMBER 30, 1997)

<TABLE>
<CAPTION>
NO. OF PRINCIPAL PERCENT OF
LOANS BALANCE PORTFOLIO
------ --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Period of Delinquency:
31-60 days...................................... 63 $1,578 1.96%
61-90 days...................................... 60 3,279 4.08
91 days or more................................. 46 2,686 3.35
--- ------ ----
Total......................................... 169 $7,543 9.39%
=== ====== ====
</TABLE>

63
<PAGE>

MERCHANT BANKCARD PROCESSING OPERATIONS

The Company is continuing to develop its merchant 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 transactions, where the Company believes
it obtains higher returns. These market niches present higher risk of charge-
backs because the consumer is not physically present at the time of the credit
card transaction. The Company has no control over charge-backs as VISA and
MasterCard have absolute authority to decide if a charge-back will be allowed.
The Company attempts to minimize the effects of charge-backs through the
pricing of its services and managing merchant cash reserves. The Company
believes that the most significant risk is from fraud by merchants, which the
Company seeks to minimize through the management of its accounts. Bankcard
revenues, net of processing expense have increased from approximately $0.4
million in 1994 to approximately $1.6 million in 1996 and totaled
approximately $1.6 million during the nine months ended September 30, 1997. A
substantial portion of such revenues are derived from four customers.
Management believes that there are opportunities to expand this business using
its existing infrastructure and through acquisitions of merchant portfolios
and other bankcard processors.

The Company's bankcard processing operations are regulated and subject to
examination by the OTS. To address regulatory concerns, First Bank submitted
to the OTS a Bankcard Plan which (i) established a method by which First Bank
will estimate the appropriate level of reserves for its bankcard operations;
(ii) established internal controls; (iii) created an overdraft policy that
requires timely recognition of overdraft losses and identifies employees with
authority to approve overdrafts; and (iv) ensures that First Bank will comply
with all applicable statutes and regulations. After each calendar quarter,
First Bank is required to report to the OTS in writing any variances to the
Bankcard Plan.

SERVICING

General

The U.S. Servicer has developed specialized procedures and proprietary
software designed to effectively service performing, non-performing, sub-
performing loans and foreclosed real estate. The U.S. Servicer designs a
servicing plan for each underlying loan and property in a pool of loans that
it has been requested to service and as part of the acquisition analysis on a
pool that is intended to maximize the cash flow from that loan or property.
Discounted Loans are generally resolved within one to two years through
foreclosure, compromise, a discounted payoff or reinstatement. Non-Discounted
Loans are actively serviced to ensure timely and accurate payments over their
remaining lives.

At September 30, 1997, the U.S. Servicer was servicing approximately $2.6
billion of assets, including (i) approximately $1.2 billion aggregate
principal amount of loans for the Company; (ii) approximately $1.3 billion
aggregate principal amount of loans for third parties (including approximately
$645.2 million of loans previously securitized by the Company and its
affiliates); and (iii) approximately $93.5 million aggregate principal amount
of loans owned by the U.S. Servicer. The Company's management believes that
the U.S. Servicer's servicing operations are adequate for the current volume
of loans being serviced and expected to be serviced in the immediate future.
However, as the volume of loans grows, the Company believes that the
U.S. Servicer will need to hire additional personnel and expand their computer
systems.

Servicing Agreements

The Company is party to a loan servicing agreement with the U.S. Servicer
pursuant to which the U.S. Servicer acts as sub-servicer for the Company and
provides loan portfolio management services, including billing, portfolio
administration and collection services for the Company's pools of loans. The
Company pays the U.S. Servicer a servicing fee at or below prevailing market
rates for each pool of loans that the U.S. Servicer is servicing for the
Company. The Company has the option at any time after November 15, 1998 to
acquire the

64
<PAGE>

U.S. Servicer's servicing operations (the "Servicing Transfer"), provided that
the Company or one of its subsidiaries has obtained the appropriate regulatory
approvals and licenses to service loans. The Company also may request that the
Servicing Transfer occur on an earlier date, provided that the foregoing
conditions are met, but the U.S. Servicer has no obligation to effect the
Servicing Transfer prior to November 15, 1998. The Servicing Transfer will
occur automatically on November 15, 1999, provided the foregoing conditions
are met. Upon the effectiveness of the Servicing Transfer, the Company will
service loans directly for its own account, as well as for the accounts of the
U.S. Servicer and unaffiliated third parties. The Company is considering
acquiring the Wilshire Private Companies prior to the Servicing Transfer but,
as at this time, no decision has been made to proceed with the potential
acquisition of the Wilshire Private Companies. See "--The U.S. Servicer."

Each of the Savings Banks is party to a loan servicing agreement with the
U.S. Servicer pursuant to which the U.S. Servicer provides loan portfolio
management services, including billing, portfolio administration and
collection services for all loans owned, acquired or made by the Savings
Banks. It is anticipated that the Savings Banks will terminate their
agreements with the U.S. Servicer upon the effectiveness of the Servicing
Transfer, at which time the Savings Banks will enter into an agreement with
the Company pursuant to which the Company will provide similar services to the
Savings Banks.

The Company

In the fourth quarter of 1996, the Company established loan servicing
operations in the United Kingdom and France to service loans for itself and
third parties. The Company believes that there is demand in the European
market for U.S.-style loan servicing, with its automated systems and detailed
investor reporting and aggressive workout approaches. Most purchasers of
distressed loans in the United Kingdom and France are U.S. based and have
utilized U.S.-style servicing and investor reporting in connection with the
purchase of distressed loans in the United States. With the exception of
recently originated loans, management believes that the prevailing loan
servicing and reporting systems in the United Kingdom and France are less
technologically developed and more labor intensive than those in the United
States. The Company's loan servicing operations in Western Europe utilize the
U.S. Servicer's servicing system, which has been adapted for servicing loans
in Western Europe.

The U.S. Servicer

The U.S. Servicer is based in Portland, Oregon, is wholly-owned by the
Principal Shareholders and was formed in 1987 to manage the activities of a
group of affiliated companies owned by the Principal Shareholders in the loan
and lease servicing business. At September 30, 1997, the Wilshire Private
Companies had approximately 235 employees, principally engaged in servicing
operations. For the nine months ended September 30, 1997 the Wilshire Private
Companies had a net loss of approximately $7.6 million. At September 30, 1997,
the Wilshire Private Companies had total assets of approximately $144.3
million and had total liabilities of $213.7 million, including outstanding
indebtedness of approximately $124.3 million (approximately $106.6 million net
of government securities pledged to secure its outstanding indebtedness).
Loans made to the U.S. Servicer prior to October 1, 1995 have maturities
beginning in July 1998. Such loans can be extended at the U.S. Servicer's
option for three additional two-year periods and one additional one-year
period. Loans made to the U.S. Servicer between October 1, 1995 and May 15,
1996 have five year terms and can be extended at the U.S. Servicer's option
for one additional five-year period. Loans made after May 15, 1996 have two
year terms and can be extended at the U.S. Servicer's option for four
additional two-year periods. Substantially all the Wilshire Private Companies'
indebtedness is recourse debt that is secured by pledges of its servicing
rights and is personally guaranteed by the Principal Shareholders. Upon the
redemption of the PIK Preferred Stock with the proceeds of this Offering, the
Wilshire Private Companies will repay approximately $31.6 million (plus an
amount equal to accrued dividends on the PIK Preferred Stock) of such
indebtedness with the proceeds received by the Wilshire Private Companies upon
the redemption of the PIK Preferred Stock. At September 30, 1997, the Wilshire
Private Companies had a negative net worth of approximately $69.4 million.
Substantially all of the Wilshire Private Companies' servicing rights have not
been capitalized and therefore are not reflected as assets nor included in the
net worth of the Wilshire Private Companies.

65
<PAGE>

The Company is considering acquiring the Wilshire Private Companies prior to
the Servicing Transfer but, at this time, no decision has been made to proceed
with the acquisition. The Company believes that the acquisition of the
Wilshire Private Companies would (i) integrate servicing operations and
eliminate servicing fees being paid to the Wilshire Private Companies, (ii)
increase fee based revenues through servicing for unaffiliated third parties
and the Wilshire REIT, (iii) reduce potential regulatory concerns regarding
the relationship between the Savings Banks and the Wilshire Private Companies,
(iv) eliminate conflicts of interest between the Company and the Wilshire
Private Companies, and (v) enable the Company to acquire assets of distressed
sub-prime mortgage lenders and other specialty finance companies where the
ability to perform specialty servicing is an important consideration in
realizing the value of such acquisitions.

In September 1997, the Company appointed a special committee composed of two
independent directors of the Company and engaged Prudential Securities
Incorporated to review the potential acquisition of the Wilshire Private
Companies and to furnish any required fairness opinion. There can be no
assurances as to when or if such acquisition will occur or the form such an
acquisition might take. No proceeds from this Offering will be used to acquire
the Wilshire Private Companies. In addition, the acquisition of the Wilshire
Private Companies would be subject to a number of conditions, including
shareholder approval, approval of the Company's Board of Directors and
compliance with the indentures relating to the Company's Notes and Series A
Notes. The indentures, among other things, contain restrictions on the
incurrence of debt and transactions with affiliates. If the Company acquires
the Wilshire Private Companies, it is likely that any such acquisition will
reduce the Company's net worth, given the significant negative net worth of
the Wilshire Private Companies at September 30, 1997.

FUNDING SOURCES

General

In order to maximize the return on its investment in acquired loans, the
Company funds acquisitions with third party debt financing so that the
Company's invested capital is generally 10% or less of the purchase price for
the loans. The three principal sources for such funding are warehouse and
repurchase agreements with major investment banks, deposits at the Savings
Banks and the securitization of loans. In addition, the Company publicly sold
its Notes in December 1996 and January 1997 and privately sold its Series A
Notes in August 1997. In certain limited circumstances, the Company has also
borrowed money from the Wilshire Private Companies in order to fund the
acquisition of loans. The Company repaid such borrowings with its PIK
Preferred Stock on July 31, 1997. Management of the Company closely monitors
rates and terms of competing sources of funds on a regular basis and generally
utilizes the funding source deemed most cost effective at the time.

The following table sets forth information relating to the Company's secured
borrowings and other interest- bearing obligations at the dates indicated:

THE COMPANY'S BORROWINGS

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1997 1996 1995 1994
------------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLB Advances......................... $ -- $ -- $ -- $ 13,000
Deposits at the Savings Banks......... 407,768 501,614 303,524 196,289
Warehouse and Repurchase Agreements... 658,042 97,624 13,000 8,500
Notes Payable and Subordinated Debt... 184,245 75,000 11,000 --
---------- -------- -------- --------
Total............................... $1,250,055 $674,238 $327,524 $217,789
========== ======== ======== ========
</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

66
<PAGE>

each reported period, FHLB advances and repurchase agreements are the only
categories for borrowings meeting this criteria. Averages were determined by
utilizing month-end balances.

SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS
ENDED AT OR FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
---------------- -----------------------------
1997 1996 1996 1995 1994
-------- ------ --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FHLB advances:
Average amount outstanding
during the period........... $ 641 $2,396 $ 2,420 $ 1,381 $ 5,916
Maximum month-end balance
outstanding during
the period.................. 8,000 11,000 11,000 8,000 13,000
Weighted average rate:
During the period.......... 5.62% 5.80% 6.88% 5.62% 3.85%
At end of period........... -- -- -- -- 4.33%
Warehouse and repurchase
agreements:
Average amount outstanding
during the period........... 503,016 35,721 51,316 4,122 4,757
Maximum month-end balance
outstanding during
the period.................. 790,882 97,000 154,000 14,950 11,377
Weighted average rate:
During the period.......... 7.56% 6.83% 6.88% 5.62% 4.46%
At end of period........... 7.41% -- 7.88% 6.70% 5.81%
</TABLE>

Warehouse Credit Facilities and Repurchase Agreements

The following table sets forth information with respect to the warehouse
credit facilities and repurchase agreements of the Company (excluding the
Savings Banks) at September 30, 1997:

<TABLE>
<CAPTION>
AMOUNT
LENDER EXPIRATION DATES AVAILABLE UTILIZED
------ ---------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Committed Facilities:
Credit Suisse First Boston
Mortgage Capital LLC........ November 28, 1998 $ 350,000(1) $ 241,268(2)
Prudential Securities Credit
Corporation................. March 31, 1998 150,000 129,991(3)
Salomon Brothers Realty
Corp........................ May 16, 2000 34,978 34,978
Salomon Brothers Realty
Corp........................ May 15, 2000 57,809 57,809
----------- -----------
Total Committed Amounts.... 592,787 464,046
----------- -----------
Uncommitted Facilities:(4)
Bear, Stearns International
Limited..................... (5) 100,000 65,080
CS First Boston (Hong Kong)
Limited..................... (5) 100,000 68,463
Salomon Brothers Realty
Corp........................ (5) 100,000 49,436
Other repurchase agreements.. (5) 11,017 11,017
----------- -----------
Total Uncommitted Amounts.. 311,017 193,996
----------- -----------
Total Amount(6)............ $ 903,804 $ 658,042
=========== ===========
</TABLE>
- -------
(1) The Company and Credit Suisse First Boston Mortgage Capital LLC have
agreed in principle to increase the amount of the facility to $425
million.

(2) In September 1997, the Company securitized approximately $146.0 million of
loans that had been acquired with funds drawn under the Credit Suisse
First Boston Mortgage Capital LLC facility. The Company repaid
approximately $133.8 million of the indebtedness under the facility with
the proceeds from the securitization.

(3) In December 1997, the Company securitized approximately $131 million of
loans that had been acquired with funds drawn under the Prudential
Securities Credit Corporation facility. The Company repaid approximately
$120.9 million of the indebtedness under the facility with the proceeds
from the securitization.

67
<PAGE>

(4) Although the agreements governing such commitments do not specify a
minimum or maximum amount available, the parties have orally agreed that
such agreements may be used up to the amount specified.
(5) Facility may be terminated at any time.
(6) Excludes uncommitted facilities at the Savings Banks which may be used for
up to $210 million of acquisitions in the aggregate.

The borrower under the warehouse and repurchase agreements is usually a
subsidiary of the Company, and may be a special purpose entity. The agreements
are generally guaranteed by WFSG and are secured by the pools of loans or
securities acquired with any funds received by the Company pursuant to such
agreements. The agreements generally provide that if the value of the
collateral falls below specified levels the lender may make a margin call. The
agreements generally provide the lender with the right to act as underwriter
in connection with the securitization of any loans acquired by the Company
with borrowings from the lender. Certain of the agreements provide for the
repayment of borrowings with the excess cash flow on the acquired assets,
which has the effect of accelerating the repayment and delevering the
Company's investment. The Company's facilities bear interest at rates ranging
from LIBOR plus .25% to LIBOR plus 3% and provide for advances against the
value of the pledged collateral from 75% to 100%.

Securitizations

At September 30, 1997, the Company and its affiliates had securitized
approximately $859.0 million of loans through five publicly offered and three
privately placed securitizations, including performing, non-performing and
sub-performing mortgage loans, manufactured housing loans, consumer loans,
non-conforming loans and foreclosed real estate. The Company retains the
servicing rights to the loans it securitizes. Securitizations allow the
Company to increase its loan acquisition volume, reduce the risks associated
with interest rate fluctuations and provide access to longer term funding
sources.

In a securitization, the Company generally transfers a pool of loans to a
separate entity (a "Special Purpose Entity") in exchange for a subordinate
class of mortgage-backed securities in the Special Purpose Entity and cash,
which constitutes the proceeds of one or more senior classes of mortgage-
backed securities issued by the Special Purpose Entity. The cash generally
will be used to repay borrowings used to finance the acquisition of the pool
of loans being securitized. Generally, the holders of the senior classes of
mortgage-backed securities are entitled to receive scheduled principal
collected on the pool of securitized loans and interest at the pass-through
interest rates on the certificate balances. The subordinate mortgage-backed
securities represent the right to receive cash flows from the pool of
securitized loans after payment of the required amounts to the holders of the
senior classes of mortgage-backed 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 classes of mortgage-backed securities
issued if it would improve 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 classes of mortgage-backed
securities of full and timely payment of the scheduled pass-through interest
and principal. To the extent that the credit enhancement for senior classes of
mortgage-backed securities consists of an insurance and indemnity agreement,
the Company would generally have an obligation to indemnify the insurer for
any losses incurred. In addition, the pooling and servicing agreements that
govern the distribution of cash flows from the pool of securitized loans
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 their principal amount 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
classes of mortgage-backed securities than the amortization of the principal
balance of the pool of securitized loans. The purpose of the over-
collateralization is to provide a source of payment in the event of higher
than anticipated credit losses or lower receipts upon the resolution of a
loan. Losses resulting from defaults by borrowers on the payment of principal
or interest on the loans in a pool of securitized loans will reduce the over-
collateralization to the extent that funds are available and may result in a
reduction in the value of the subordinate mortgage-backed securities retained
by the Company.

68
<PAGE>

The Company generally transfers loans to the Special Purpose Entity without
recourse, except that the Company provides certain representations and
warranties with respect to the loans. The Company may be required to
repurchase a loan at a price equal to the then outstanding principal balance
of the loan and any accrued and unpaid interest thereon if it does not conform
to the Company's representations and warranties. See "Risk Factors--Risks
Related to Securitization."

Funding Sources for the Savings Banks

The Savings Banks were acquired by the Principal Shareholders to provide a
source of funding for loan acquisitions and to manage reinvestment risk
associated with Discounted Loans and securitizations. The primary source of
funds for the Savings Banks is "wholesale" certificates of deposit. To a
lesser extent, Girard obtains brokered certificates of deposit from national
investment banking firms that, pursuant to agreements with Girard, solicit
funds from their customers for deposit with Girard. At September 30, 1997,
approximately $136.0 million, or 33.4%, of the Savings Banks' total deposits
were brokered and approximately $264.4 million, or 64.8%, were wholesale
deposits. Wholesale deposits generally are obtained on terms that are more
economically attractive to the Savings Banks than brokered deposits.

The Orders issued by the OTS 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. See "Regulation--Recent Regulatory
Examinations." The Company does not expect to be able to use the Savings Banks
for growth unless the Orders are lifted or modified.

The Savings Banks' funding strategy has been to offer deposit rates above
those customarily offered by banks and savings institutions in their markets.
The Savings Banks have been able to pursue this strategy because the general
and administrative costs associated with their operations are significantly
lower than those of banks and savings institutions with branch office
networks. The Savings Banks generally have accumulated deposits by
participating in deposit rate surveys that list the Savings Banks among the
higher rate paying insured institutions, and by periodically advertising in
various local market newspapers and other media. However, because the Savings
Banks compete for deposits primarily on the basis of rate, they could
experience difficulties in attracting deposits if they could not continue to
offer rates on their deposits that are above those of other banks and savings
institutions.

The following table sets forth information relating to the Savings Banks'
deposits at the dates indicated:

SAVINGS BANKS' DEPOSITS

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------------------------------------
1997 1996 1995 1994
------------------ ------------------ ------------------ ------------------
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...... $ 5,189 0.00% $ 5,625 0.00% $ 5,111 0.00% $ 3,045 0.00%
NOW and money market
checking accounts...... 1,590 1.43 2,023 1.82 1,267 2.99 3,170 3.22
Saving accounts......... 563 2.43 480 2.15 304 2.38 215 2.25
Certificates of
deposit................ 400,426 6.03 493,486 5.92 296,842 6.15 189,859 5.48
-------- ---- -------- ---- -------- ---- -------- ----
Total deposits......... $407,768 5.83% $501,614 5.84% $303,524 6.03% $196,289 5.35%
======== ==== ======== ==== ======== ==== ======== ====
</TABLE>

69
<PAGE>

The following table sets forth, by various interest rate categories, the
Savings Banks' certificates of deposit at September 30, 1997:

INTEREST RATES FOR THE SAVINGS BANKS' CERTIFICATES OF DEPOSIT

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
3.50% or less............................................ $ 938
3.51-4.50................................................ --
4.51-5.50................................................ 17,036
5.51-6.50................................................ 379,776
6.51-7.50................................................ 1,243
7.51-8.50................................................ 1,433
--------
Total.................................................. $400,426
========
</TABLE>

The following table sets forth the amount and maturities of the Savings
Banks' certificates of deposit as of September 30, 1997:

MATURITIES OF THE SAVINGS BANKS' CERTIFICATES OF DEPOSIT

<TABLE>
<CAPTION>
ORIGINAL MATURITY IN MONTHS
-------------------------------
12 OR LESS 13 TO 36 37 OR MORE
---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balances Maturing in 3 Months or Less........... $65,958 $108,212 $ 149
Weighted Avg.................................. 5.98% 5.98% 7.89%
Balances Maturing in 4 to 12 Months............. $27,918 $166,017 $2,427
Weighted Avg.................................. 5.90% 6.09% 7.36%
Balances Maturing in 13 to 36 Months............ -- $ 27,378 $2,367
Weighted Avg.................................. -- 6.18% 5.97%
Balances Maturing in 37 or More Months.......... -- -- --
Weighted Avg.................................. -- -- --
</TABLE>

At September 30, 1997, the Savings Banks had outstanding an aggregate of
approximately $83.0 million of certificates of deposit in face amounts equal
to or greater than $100,000 maturing as follows: approximately $38.2 million
within three months; approximately $19.4 million over three months through six
months; approximately $20.6 million over six months through twelve months, and
approximately $4.8 million later than twelve months.

In addition to deposits, each of the Savings Banks is party to a master
repurchase agreement with Bear Stearns Mortgage Capital Corporation ("BSMCC").
Though such master repurchase agreements do not specify a maximum amount
available under such agreements, the parties have currently agreed that such
agreements may be used for up to $210 million of acquisitions in the
aggregate. These agreements enable the Savings Banks to purchase pools of
loans with immediate financing from BSMCC, which can then be repaid as
deposits are increased.

Each of the Savings Banks also obtains advances from the FHLB of San
Francisco upon the security of certain of its assets, including FHLB stock,
provided certain standards related to creditworthiness 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 pursuant to various credit programs (each of
which has its own interest rate) which may be fixed or adjustable, and there
are a range of maturities for the various programs.

70
<PAGE>

ASSET QUALITY

The Company is exposed to risks of a decline in the value of the collateral
that secures its loans and the ability of borrowers to repay their loans.
Management closely monitors the Company's loans for potential problems on a
periodic basis and reports to the Board of Directors at regularly scheduled
meetings. The Company does not consider its large holdings of non-performing
and sub-performing loans and foreclosed real estate to be representative of
its actual loss experience or indicative of future losses. The Company
purchases each pool of Discounted Loans at a significant discount from the
unpaid principal balance of the loans and/or the fair market value of the real
estate securing those loans. Management believes that the Wilshire Private
Companies' servicing expertise permits resolution of its Discounted Loans in a
timely and profitable manner.

Non-Performing Non-Discounted Loans

It is the Company's policy to establish an allowance for uncollectible
interest on performing loans that are past due 90 days or more or sooner when,
in the judgment of management, the probability of collection of interest is
deemed to be insufficient to warrant further accrual. Upon such a
determination, those loans are placed on non-accrual status and deemed to be
non-performing. When a performing 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 Non-Discounted Loans at the dates indicated:

NON-PERFORMING NON-DISCOUNTED LOANS(1)

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------
1997 1996 1995 1994
------------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-performing loans:
Single-family residential.......... $47,127 $37,383 $10,996 $ 5,554
Multi-family residential........... 2,929 2,002 270 1,471
Commercial real estate and land.... 18,215 6,760 910 4,207
Consumer and other loans........... 18,378 8,379 503 400
------- ------- ------- -------
Total............................ $86,649 $54,524 $12,679 $11,632
======= ======= ======= =======
Non-performing loans as a percentage
of:
Total Non-Discounted Loans(2)...... 16.82% 23.69% 4.46% 5.95%
Total assets....................... 6.33% 7.23% 3.71% 5.04%
Allowance for loan losses as a
percentage of:
Total Non-Discounted Loans(2)...... 10.96% 13.88% 3.60% 3.72%
Non-performing Non-Discounted
Loans............................. 65.19% 58.57% 80.74% 62.50%
Allowance for loan losses and
discount as a percentage of:
Non-performing Non-Discounted
Loans............................. 86.14% 70.00% 194.01% 139.40%
</TABLE>
- --------
(1) This table does not include Discounted Loans although a substantial
portion of such loans are non-performing.
(2) Total Non-Discounted Loans is exclusive of Discounted Loans, undisbursed
loan proceeds, unaccreted discount and allowance for loan losses.

The relatively high percentage of non-performing loans in the Company's
holdings of Non-Discounted Loans results in part from the accounting treatment
of pools of loans. For accounting purposes, all of the loans in a particular
pool are classified as either Discounted Loans or Non-Discounted Loans,
depending on whether the pool consists primarily of non-performing loans or
primarily of performing and sub-performing loans. See "Management's Discussion
and Analyses of Financial Condition and Results of Operations--Accounting

71
<PAGE>

Matters." Accordingly, a pool of Non-Discounted Loans may contain a
substantial number of sub-performing and non-performing loans, notwithstanding
that it consists primarily of performing loans. Moreover, the percentage of
non-performing Non-Discounted Loans to total Non-Discounted Loans does not
reflect any unaccreted discount (or allowance for loan losses) related to such
non-performing loans.

Foreclosed Real Estate

The Company carries its holdings of foreclosed real estate at the lower of
cost or fair value less estimated costs of sale. Foreclosed real estate held
by the Company is periodically reevaluated to ensure that it is being carried
at the lower of cost or fair value less estimated costs of sale. Holding and
maintenance costs are recorded as expenses in the period incurred.
Deficiencies resulting from valuation adjustments subsequent to acquisition
are recognized as a valuation allowance. Subsequent increases in the value of
foreclosed real estate 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 the aggregate carrying value of the Company's holdings of
foreclosed real estate (categorized by source of acquisition) at the dates
indicated:

FORECLOSED REAL ESTATE BY LOAN TYPE

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
1997 1996 1995 1994
------------- ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Discounted Loans:
Single-family residential............ $ 92,277 $15,274 $ 3,226 $ --
Multifamily residential.............. 3,472 -- -- --
Commercial and other mortgage loans.. 7,522 200 66 --
-------- ------- ------- ------
Total.............................. 103,271 15,474 3,292 --
Non-Discounted Loans:
Single-family residential............ 5,567 2,773 1,676 613
Multifamily residential.............. -- 100 611 254
Commercial and other mortgage loans.. 2,623 124 578 464
-------- ------- ------- ------
Total.............................. 8,190 2,997 2,865 1,331
Foreclosed real estate purchased
directly:
Single-family residential............ 36,222 59,729 -- --
Allowance for total losses............. (1,219) -- (1,193) (123)
-------- ------- ------- ------
Foreclosed real estate, net.......... $146,464 $78,200 $ 4,964 $1,208
======== ======= ======= ======
</TABLE>

72
<PAGE>

The following table sets forth certain geographic information at September
30, 1997 related to the Company's foreclosed real estate holdings:

GEOGRAPHIC DISTRIBUTION OF FORECLOSED REAL ESTATE

<TABLE>
<CAPTION>
MULTI-FAMILY
RESIDENTIAL
SINGLE FAMILY AND COMMERCIAL
RESIDENTIAL REAL ESTATE TOTAL
------------------------- ------------------------ ------------------------
NO. OF NO. OF NO. OF
AMOUNT PROPERTIES % AMOUNT PROPERTIES % AMOUNT PROPERTIES %
-------- ---------- ----- ------- ---------- ----- ------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New York................................. $ 55,895 566 41.7% $ 2,838 28 20.8% 58,733 594 39.8%
New Jersey............................... 24,480 265 18.3% 902 9 6.6% 25,382 274 17.2%
California............................... 10,810 93 8.1% 4,586 20 33.7% 15,396 113 10.4%
Connecticut.............................. 10,159 157 7.6% 1,614 24 11.9% 11,773 181 7.9%
Pennsylvania............................. 5,291 70 3.9% 6 1 0.0% 5,297 71 3.6%
Other.................................... 27,431 242 20.4% 3,671 61 27.0% 31,102 303 21.1%
-------- ----- ----- ------- --- ----- ------- ----- -----
Total.................................... $134,066 1,393 100.0% $13,617 143 100.0% 147,683 1,536 100.0%
======== ===== ===== ======= === ===== ======= ===== =====
</TABLE>

Classified Assets Owned by the Savings Banks

OTS regulations require that each insured savings association classify its
assets on a regular basis. In addition, in connection with examinations of
insured institutions, such as the Savings Banks, 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, 1997
consisted of approximately $253.7 million of assets classified as substandard
and approximately $0.4 million of assets classified as doubtful. The
substandard and doubtful asset classifications include approximately $132.8
million and approximately $0.3 million of Discounted Loans, respectively. In
addition, at the same date, approximately $39.1 million of assets were
designated as special mention.

Allowances for Losses

The Company maintains an allowance for loan losses at a level believed
adequate by management to absorb estimated incurred losses in the loan
portfolios. 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.

73
<PAGE>

The Savings Banks use their internal asset review system to identify and
evaluate impaired loans and to classify loans as special mention, substandard,
doubtful, or 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 are evaluated for impairment on a loan-by-loan
basis. All the Savings Banks' 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 for the Savings Banks' 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.

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 allocating a portion of the purchase discount
deemed to be associated with measurable credit risk. The allocation is based
on a review 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 against earnings.

The OTS, as part of its examination process, periodically reviews the
Savings Banks' allowances for losses and the carrying values of their assets.
There can be no assurance that the OTS will not require substantial reserves
following future examinations. It is likely that the nontraditional nature of
the Savings Banks' activities (in terms of both funding sources and
investments) will cause the Savings Banks to be subject for the foreseeable
future to heightened regulatory scrutiny.

The following table sets forth information with respect to the Company's
allowances for losses by category of loan:

ALLOWANCES FOR LOSSES BY LOAN CATEGORY

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------------------------------------
% OF % OF % OF % OF
1997 TOTAL 1996 TOTAL 1995 TOTAL 1994 TOTAL
------- ----- ------- ----- ------- ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loan Category:
Real estate......... $49,800 54.9% $24,051 64.0% $ 9,830 38.3% $6,948 90.2%
Non-real estate..... 6,688 7.4 7,885 21.0 407 1.6 322 4.2
Discounted Loans.... 34,143 37.7 5,619 15.0 15,414 60.1 431 5.6
------- ----- ------- ----- ------- ----- ------ -----
Total Allowances.... $90,631 100.0% $37,555 100.0% $25,651 100.0% $7,701 100.0%
======= ===== ======= ===== ======= ===== ====== =====
</TABLE>

74
<PAGE>

The following table sets forth the activity in the allowance for loan losses
during the periods indicated:

ACTIVITY IN THE ALLOWANCES FOR LOSSES

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ --------------------------
1997 1996 1996 1995 1994
-------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period.. $ 37,555 $ 25,651 $ 25,651 $ 7,701 $ 4,314
Allocation of purchased loan
discount:
at acquisition.............. 92,751 15,972 10,751 19,007 2,809
at disposition.............. (36,245) (12,494) (17,218) (5,404) (1,666)
Recoveries.................... 982 1,424 1,822 81 71
Provision for loan losses..... 926 15,751 16,549 4,266 2,173
Allowance related to loans
sold......................... (5,338) -- -- -- --
-------- -------- -------- ------- -------
Balance, end of period........ $ 90,631 $ 46,304 $ 37,555 $25,651 $ 7,701
======== ======== ======== ======= =======
</TABLE>

The table below sets forth the delinquency status of the Company's Non-
Discounted Loans at the dates indicated:

DELINQUENCY EXPERIENCE FOR NON-DISCOUNTED LOANS

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------------------
1997 1996 1995 1994
------------------- ------------------ ------------------ ------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
BALANCE PORTFOLIO BALANCE PORTFOLIO BALANCE PORTFOLIO BALANCE PORTFOLIO
-------- ---------- ------- ---------- ------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Period of Delinquency:
31-60 days............ $ 18,302 3.6% $ 7,613 3.3% $ 3,726 1.3% $ 4,513 2.3%
61-90 days............ 21,300 4.1 7,204 3.1 3,037 1.1 2,202 1.1
91 days or
more(1)(2)........... 86,649 16.8 54,524 23.7 12,679 4.5 11,632 6.0
-------- ---- ------- ---- ------- --- ------- ---
Total loans
delinquent......... $126,251 24.5% $69,341 30.1%(3) $19,442 6.9% $18,347 9.4%
======== ==== ======= ==== ======= === ======= ===
</TABLE>
- -------
(1) All loans delinquent 90 days or more were on nonaccrual status.
(2) The increase in 1996 is primarily due to loans that were inherited by the
Company upon the acquisition of the Savings Banks, certain sub-prime auto
loans and purchased sub-performing residential loans. The increase in the
first quarter of 1997 is primarily due to the acquisition of a large
portfolio of Discounted Loans in the fourth quarter of 1996.
(3) Increase in Percent of Portfolio reflects the securitization and sale of
approximately $259.9 million of the Company's performing loans in the
fourth quarter of 1996.

FEE-BASED INCOME

Management of the Wilshire REIT

In October 1997, the Company established the Wilshire REIT which intends to
qualify and will elect to be treated as a REIT. The Company formed the
Wilshire REIT in connection with its strategy of focusing acquisition
activities on domestic residential and domestic performing commercial mortgage
loans and expanding fee-based income. The Wilshire REIT will conduct certain
business activities that management believes are more efficiently operated in
a REIT tax advantaged format. The Wilshire REIT intends to concentrate on the
acquisition of U.S. Commercial Investments, MBS Investments and International
Investments.

WRSC intends to enter into a Management Agreement with the Wilshire REIT for
an initial term expiring on the second anniversary of the closing of the
proposed initial public offering of the Wilshire REIT. Thereafter, the
Management Agreement will automatically renew for successive one-year periods
unless either party delivers a notice of termination at least 120 days prior
to the then current term. The Wilshire REIT may terminate, or decline to
extend the term of, the Management Agreement without cause at any time after
the first two years; provided that a termination fee, equal to the sum of the
base management fee and incentive management fee earned during the twelve
months preceding such termination,

75
<PAGE>

will be due. In addition, the Wilshire REIT will have the right to terminate
the Management Agreement upon the occurrence of certain specified events,
including a material breach by WRSC of any provision contained in the
Management Agreement, without the payment of any termination fee.

Pursuant to the Management Agreement, WRSC, subject to the supervision of
the Wilshire REIT's board of directors, will formulate operating strategies
for the Wilshire REIT, arrange for the acquisition of assets by the Wilshire
REIT, arrange for various types of financing for the Wilshire REIT, including
repurchase agreements, secured term loans and warehouse lines of credit,
mortgage loans and the issuance of collateralized mortgage obligations,
monitor the performance of the Wilshire REIT's assets and provide certain
administrative and managerial services in connection with the operation of the
Wilshire REIT. For performing these services, WRSC will receive (i) a base
management fee in an amount equal to 1% per annum of the first $1.0 billion of
the average invested assets, 0.75% of the next $500.0 million of such average
invested assets and 0.50% of average invested assets above $1.5 billion which
is intended to cover WRSC's costs of providing management services to the
Wilshire REIT, and (ii) a quarterly incentive fee in an amount equal to the
product of (A) 25% of the dollar amount by which (1) (a) funds from operations
(before the incentive fee) of the Wilshire REIT per share of common stock of
the Wilshire REIT (based on the average number of shares outstanding) plus (b)
gains (or minus losses) from debt restructuring on sales of property per share
of common stock of the Wilshire REIT (based on the weighted average number of
shares outstanding), exceed (2) an amount equal to (a) the weighted average of
the price per share at initial offering and the prices per share at any
secondary offerings by the Wilshire REIT multiplied by (b) the ten-year U.S.
treasury rate plus five percent per annum multiplied by (B) the weighted
average number of shares of common stock of the Wilshire REIT outstanding
during such period. The Wilshire REIT's board of directors may adjust the base
management fee in the future if necessary to align the fee more closely with
the actual costs of such services.

In addition, because WRSC'S employees will perform certain due diligence
tasks that purchasers of real estate (including managers of REITs) typically
hire outside consultants to perform, WRSC will be reimbursed for (or charge
the Wilshire REIT directly for) its out-of-pocket costs for performing such
due diligence on assets purchased by the Wilshire REIT or considered for
purchase by the Wilshire REIT. The Wilshire REIT does not expect to maintain
an office or to employ full-time personnel. Instead, it expects to rely on the
facilities and resources of WRSC to conduct its operations.

The following table presents all compensation, fees and other benefits
(including reimbursement of out-of-pocket expenses) that WRSC may earn or
receive under the terms of the Management Agreement:

<TABLE>
<CAPTION>
FEE AMOUNT
- --- ------
<S> <C>
Base.................... Equal to 1% per annum of the first $1.0 billion of av-
erage invested assets, 0.75% of the next $500.0 million
of average invested assets and 0.50% of average in-
vested assets above $1.5 billion.

Incentive............... Twenty-five percent of the amount by which the Wilshire
REIT's funds from operations and certain gains (minus
certain losses) exceed the ten year U.S. Treasury rate
plus 5% per annum.

Expenses................ Reimbursement of due diligence costs and out-of-pocket
expenses.
</TABLE>

The Wilshire REIT intends to grant WRSC and certain of the Wilshire REIT's
directors options to purchase 2,000,000 shares of common stock of the Wilshire
REIT (2,300,000 shares if the underwriters for the Wilshire REIT's proposed
initial public offering exercise their over-allotment option in full) or, at
the option of the Wilshire REIT, at a price per share equal to the initial
offering price of the common stock of the Wilshire REIT. One quarter of WRSC's
options will be exercisable on each of the first four anniversaries of the
closing date of the Wilshire REIT's proposed initial public offering.
Unexercised options will terminate on the tenth anniversary of the closing
date of the Wilshire REIT's proposed initial public offering.

76
<PAGE>

The Management Agreement will not limit or restrict the right of WRSC or any
of its officers, directors, employees or affiliates from engaging in any
business or rendering services of any kind to any other person, including the
purchase of, or rendering advice to others purchasing, assets that meet the
Wilshire REIT's policies and criteria. However, the Company intends to grant
the Wilshire REIT a right of first refusal with respect to U.S. Commercial
Investments, MBS Investments and International Investments.

Servicing

The Company recently established servicing operations in the United Kingdom
and France to service loans for itself and third parties. The Company believes
that there is a demand in the European market for U.S.-style loan servicing,
with its automated systems and detailed investor reporting and aggressive
workout approaches. Most purchasers of distressed loans in the United Kingdom
and France are U.S.-based and have utilized U.S.-style servicing and investor
reporting in connection with the purchase of distressed loans in the United
States. With the exception of recently originated loans, the prevailing loan
servicing and reporting systems in the United Kingdom and France are less
technologically developed and more labor intensive than those in the United
States. The Company's loan servicing operations in Western Europe utilize the
U.S. Servicer's servicing system, which has been adapted for servicing loans
in Western Europe. The Wilshire REIT intends to enter into servicing
agreements with the European Servicers, pursuant to which the European
Servicers will act as servicers for the Wilshire REIT and provide loan and
real property management services in France and the United Kingdom. As the
Wilshire REIT acquires assets in other countries, the Wilshire REIT
anticipates entering into similar servicing arrangements with the Company in
such countries. Under the servicing agreements, the Wilshire REIT will pay the
European Servicers a servicing fee at market rates for each pool of loans or
real estate assets that they service for the Wilshire REIT and reimburse them
for certain out-of-pocket costs associated with servicing such assets.

PROPERTIES

The Company's corporate headquarters are located in Portland, Oregon and
consist of approximately 18,000 square feet of office space leased from a
corporation owned by Messrs. Wiederhorn and Mendelsohn, for an aggregate
annual rental of approximately $276,000 plus a portion of the expenses
incurred by the lessor in connection with the operation of the building. The
lease expires December 31, 2001. The Savings Banks' sublease approximately
8,000 square feet of office space in two locations in Portland, Oregon from
the Company for an aggregate annual rental in 1997 of $4. The term of the
sublease is year to year. Messrs. Wiederhorn and Mendelsohn have indicated
that they intend to sell the properties to the Wilshire REIT.

The Savings Banks lease their branch offices in Beverly Hills, California,
pursuant to a lease expiring February 29, 2000. First Bank leases office space
for its merchant bankcard operations in Calabasas, California pursuant to a
lease expiring November 30, 1999. The Company also leases office space in
London, England and Paris, France.

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 pools of loans, minimizing
operating costs, managing merchant cash reserves and increasing overall
profitability. In addition to standard industry software applications,
management has developed applications designed to provide decision support and
automation of portfolio tracking and reporting.

The Company has formed a "Year 2000 review team" to (i) assess the risks in
the Company's computer systems as the calendar rolls over into the next
century, (ii) develop a Company-wide Year 2000 plan and (iii) implement the
Company-wide Year 2000 plan. The Company estimates that its Year 2000 plan
will be completed by December 31, 1998 and estimates that the total cost for
implementation of the Year 2000 plan will be approximately $200,000.

77
<PAGE>

EMPLOYEES

At September 30, 1997, the Company had 167 employees in the United States
and 38 employees in Europe. The employees are not party to 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, none of which are believed by management to be
material.

ENVIRONMENTAL MATTERS

The Company has acquired and will continue to acquire foreclosed real
estate. Accordingly, there is a risk that the Company could be required to
investigate and cleanup 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 cleanup costs incurred by such parties in connection
with the contamination. To date, the Company has not been required to perform
any investigation or cleanup 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.

COMPETITION

The Company's principal competitors include other companies that specialize
in the acquisition of Discounted Loans, mortgage banking companies, mortgage
brokers, commercial banks, credit unions, thrift institutions, credit card
issuers and finance companies. Many of these institutions are substantially
larger and have considerably greater financial, technical and marketing
resources than the Company. The Company believes that it is able to compete on
the basis of providing prompt and responsive service and its ability to
analyze, effectively price and resolve Discounted and Non-Discounted Loans.

78
<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 are not insured by the FDIC.

The enforcement powers available to federal banking regulators are
substantial and include, 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, 1996 and 1997, 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, and (vi) loan purchases; (b) enhance
recordkeeping; (c) develop requirements to ensure that the servicing of loans
by the Wilshire Private Companies 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 OTS.

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 Cease and Desist Order issued to First Bank,
also effective October 31, 1996. The issuance of a cease and desist order
generally is evidence of an increased level of regulatory concern regarding
the subject institution. Effective October 28, 1997, the Savings Banks entered
into amended Cease and Desist Orders (the "Orders") with the OTS which
modified certain provisions of the original Cease and Desist Orders.

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. The Orders also prohibit the Savings Banks from purchasing (i) any

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loans or real estate, without the approval of the OTS, until certain
acquisition and servicing delinquencies identified by the OTS have been
corrected, and (ii) any non-performing assets or foreclosed real estate until
such time as the Savings Banks are rated a composite "3" rating according to
the Uniform Financial Institutions Rating System with continued compliance
with required capital ratios.

The Orders require the Savings Banks to (i) maintain an effective Internal
Asset Review ("IAR") system that provides for adequate internal controls to
ensure that management timely reviews and classifies assets pursuant to their
IAR policies; (ii) fully comply with all policies and procedures submitted to
the OTS pursuant to the previous cease and desist orders; (iii) operate
pursuant to and comply with their business plans; and (iv) submit to the OTS,
by no later than November 30, 1997, the IRR Plan. The Orders also require the
Savings Banks to submit to the OTS, by November 30, 1997 and after each
calendar quarter, a report (i) detailing their progress in implementing their
Allowance for Loan and Lease Losses policies and the results of their reserve
analysis for the preceding calendar quarter; (ii) detailing any violations of
the policies and procedures submitted to the OTS that occurred during the
preceding quarter, together with an explanation as to what caused or
contributed to the act or practice constituting such violation, and what, if
any, corrective action has been undertaken; (iii) detailing any variances from
the business plan that occurred during the preceding quarter, showing actual
and planned results, and explaining any variances greater than 5 percent; (iv)
detailing their progress in implementing the IRR plan during the preceding
quarter; (v) review and analyze, by November 30, 1997, the terms of all
existing loan servicing or other agreements with affiliates, to confirm that
such agreements comply with the Orders and that there are formal written
agreements with respect to all transactions with affiliates and (vi) comparing
the results of its profitability model with the performance of its purchased
assets. Management believes that the Savings Banks have complied with those
provisions of the Orders that required the Savings Banks to complete certain
actions by November 30, 1997, with the exception of timely documentation of a
reduced loan service arrangement with an affiliate.

The Orders also require each of the Savings Banks to elect at least two
additional new outside directors with specific financial institution industry
experience. Such outside directors cannot have any association with affiliates
of the Savings Banks, their holding company or institution-affiliated parties,
except that such director can simultaneously serve as a director of each of
the Savings Banks. As of October 31, 1997, the Savings Banks had elected two
new directors.

To address regulatory concerns, First Bank submitted to the OTS, a Bankcard
Plan which (i) established a method by which First Bank will estimate the
appropriate level of reserves for its bankcard operations; (ii) established
internal controls; (iii) created an overdraft policy that requires timely
recognition of overdraft losses and identifies employees with authority to
approve overdrafts; and (iv) ensures that First Bank will comply with all
applicable statutes and regulations. After each calendar quarter, First Bank
is required to report to the OTS in writing any variances to the Bankcard
Plan.

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 ("HOLA"). Pursuant to 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

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prospects of the holding company and the institution involved, and the
convenience and need of the community to be served.

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

Until the merger of First Bank and Girard in December 1997, the Company was
classified as a multiple savings and loan holding company under applicable law
as a result of its ownership of First Bank and Girard. A holding company that
owns two or more financial institutions 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
investments for bank holding companies. 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"), 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.

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 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

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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 Savings Association Insurance
Fund ("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 are 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. In making such determination,
the OTS can take into account a number of factors, including a bank's loan
portfolio quality, recent operating losses or anticipated losses, the
condition of its holdings company and whether the bank is receiving any
special supervisory attention. In connection with the 1997 examination, the
OTS indicated that the capital level of Girard was less than satisfactory and
the capital level of First Bank was not adequate in view of their risk
profiles, despite the fact that the Savings Banks had capital levels that
would otherwise have qualified them as "well capitalized" under OTS regulatory
capital requirements. The OTS also indicated that the Savings Banks' current
capital requirements may not be appropriate given the deficiencies noted in
the examination. As a result, the Orders require First Bank and Girard to
maintain core capital and risk-based capital equal to the dollar amount of
capital at March 31, 1997 levels, as measured at the end of each calendar
quarter. Based upon the current level of assets at the Savings Banks, the
capital levels required by the Orders exceed the capital levels that would
enable the Savings Banks to qualify as "well-capitalized." The Orders provide
that in the event capital falls below the levels required by the Orders as a
result of any determination by the OTS or otherwise that adversely affects the
Savings Banks' financial condition, additional capital would have to be
infused into the Savings Banks.

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
4.0% of adjusted total assets (3% for associations classified as CAMEL 1
during their most recent examination) 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, 1997, 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,
certain non-withdrawable accounts and pledged deposits and remaining goodwill
from certain prior regulatory practices.

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

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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.

OTS regulations require that an interest-rate risk component be included in
the risk-based capital regulation. Under the regulation, 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. At September 30, 1997, the
Savings Banks' capital ratios were not affected by the interest-rate risk
component regulations.

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 institution's primary
federal banking regulator, resulting in nine assessment classifications.
Deposit insurance premium assessment rates currently range from .04% 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 semiannual SAIF
assessments for savings institutions such as the Savings Banks. The reduced
assessment schedule would reduce rates to 0.0% for well capitalized with only
a few minor supervisory concerns to .27% for undercapitalized institutions
with substantial supervisory concerns. In addition, savings institutions such
as the Savings Banks will pay an additional amount to be determined from time
to time in semiannual 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
1980s and early 1990s, 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

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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. Based on the
Savings Banks' deposits as of March 31, 1995, the one-time special assessment
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")
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 the 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 depend 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 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 leverage capital ratio of 4.0% or more (3.0% under
certain circumstances) and does not meet the definition of "well capitalized,"
(iii) "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
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 leverage capital ratio that is less than 3.0%, 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, 1997, the Savings Banks had
capital in excess of the amount of capital that would enable the Savings Banks
to be considered "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

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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 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

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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 benefitting 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 nonaffiliated 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 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
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. 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" 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,
1997, the qualified thrift investments of the First Bank and Girard were
approximately 65.6% and 85.1%, 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.

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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.

At September 30, 1997, First Bank's and Girard's unimpaired capital and
surplus amounted to approximately $17.7 million and approximately $52.6
million, respectively, resulting in a general loans-to-one borrower limitation
of approximately $2.7 million and approximately $7.9 million, respectively,
under applicable laws and regulations.

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. 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 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

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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 "satisfactory
record of meeting community credit needs" rating during their most recent OTS
examinations.

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<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the directors
and executive officers of the Company at September 30, 1997:

<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Andrew A. Wiederhorn...... 31 Chairman of the Board, Chief Executive Officer,
Secretary and Treasurer of the Company
Lawrence A. Mendelsohn.... 36 President and Director of the Company
Sheryl Anne Morehead...... 45 Executive Vice President, S&L Group of the
Company and Chief Executive Officer and
President of the Savings Banks
Chris Tassos.............. 40 Executive Vice President and Chief Financial
Officer of the Company
Phillip D. Vincent........ 43 Executive Vice President, Loan Servicing of the
Company
Bo G. Aberg............... 49 Senior Vice President, Europe of the Company
Donald J. Berchtold....... 52 Senior Vice President, Administration of the
Company
Kenneth R. Kepp........... 42 Senior Vice President, Operations of the Company
Glenn J. Ohl.............. 43 Senior Vice President of the Company and Chief
Financial Officer of WFC
Peter O'Kane.............. 31 Senior Vice President, Loan Acquisitions of the
Company
Robert G. Rosen........... 31 Senior Vice President, Asset Securitization of
the Company
R. Scott Stevenson........ 40 Senior Vice President of the Company
Geoffrey B. Davis......... 55 Chief Information Officer of the Company
Don H. Coleman............ 59 Director of the Company
Philip G. Forte........... 33 Director of the Company
David Dale-Johnson........ 50 Director of the Company
</TABLE>

Andrew A. Wiederhorn is the Chairman of the Board of Directors and Chief
Executive Officer of the Company. Mr. Wiederhorn founded the Wilshire Private
Companies and continues to serve as the Chief Executive Officer, Treasurer,
Secretary and sole director of the Wilshire 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. From
February 1993 until October 1996, Mr. Mendelsohn was the Executive Vice
President of the Wilshire 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 J.P. Morgan and Co./J.P.
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 a Ph.D./ABD in Finance from the University of
Southern California.

Sheryl Anne Morehead is Executive Vice President, S&L Group of the Company
and Chief Executive Officer and President of the Savings Banks. Ms. Morehead
was Senior Vice President, S&L Group of the

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<PAGE>

Company and Chief Executive Officer of the Savings Banks from November 1996
until June 1997. From December 1993 until October 1996, Ms. Morehead was the
Chief Credit Officer/Chief Operating Officer of First Los Angeles Bank/San
Paoulo Bank Group, a commercial banking institution. From August 1990 until
December 1993, Ms. Morehead was the Chief Credit Officer/Executive Vice
President of First Federal Bank of Santa Monica, 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 Executive Vice President and Chief Financial Officer of the
Company. Mr. Tassos was Senior Vice President and Chief Financial Officer of
the Company from October 1996 until June 1997. From August 1995 until October
1996 Mr. Tassos was the Executive Vice President of the Wilshire 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 Executive Vice President, Loan Servicing of the
Company. Mr. Vincent was Senior Vice President, Loan Servicing of the Company
from October 1996 until June 1997. 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, and Vice President
and Division Manager of The J.E. Robert Company, Inc. from 1991 until May
1992. 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.

Bo G. Aberg is 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 Senior Vice President, Administration. From March
1992 until October 1996, Mr. Berchtold was Senior Vice President of the
Wilshire Private Companies. From February 1991 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.

Kenneth R. Kepp is Senior Vice President, Operations. From November 1991
until October 1996, Mr. Kepp was Senior Vice President of the Wilshire 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.

Glenn J. Ohl is Senior Vice President of the Company and Chief Financial
Officer of WFC. Mr. Ohl was Chief Financial Officer of WFC from November 1996
until June 1997. 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.

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<PAGE>

Peter O'Kane is Senior Vice President, Loan Acquisitions. Mr. O'Kane was
Vice President, Loan Acquisitions from October 1996 until June 1997. From May
1994 until October 1996, Mr. O'Kane was the Vice President, Loan Acquisitions
of the Wilshire Private Companies. From September 1992 until April 1994, Mr.
O'Kane was an Asset Manager, Investment Division of J.E. Robert Company, Inc.
From September 1991 until September 1992, Mr. O'Kane was a staff consultant
with Arthur Andersen & Company. From March 1990 until August 1991, Mr. O'Kane
was an analyst for GranCorp, Inc., a real estate investment company. Mr.
O'Kane received a B.A. degree from the University of Washington.

Robert G. Rosen is Senior Vice President, Asset Securitization of the
Company. Mr. Rosen was the Vice President of Securitization at BTM Capital
Corp., a wholly owned subsidiary of the Bank of Tokyo-Mitsubishi, Ltd. since
March 1997. From January 1995 until March 1997 Mr. Rosen was a Director of
Black Diamond Advisors, Inc., a firm specializing in securitization and
capital markets needs of finance companies. From January 1994 to January 1995
Mr. Rosen was with Kidder, Peabody and Co. in the Asset-Backed Securitization
Group. From 1991 to 1994 Mr. Rosen was the Assistant Vice President and
Manager of Securitization and Commercial Paper within the Corporate Trust
Department at Bankers Trust Company. Mr. Rosen received a B.A. and an M.B.A.
from Union College.

R. Scott Stevenson is Senior Vice President of the Company. Mr. Stevenson
was Vice President of the Company and President of Girard and First Bank from
October 1996 until September 1997. 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 Loan Officer. Mr. Stevenson received a
B.S. degree in Accounting and an M.S. degree in Taxation from Brigham Young
University.

Geoffrey B. Davis is Chief Information Officer of the Company. Since 1970
Mr. Davis has held various senior management positions with Bank of America in
Venezuela, Panama, Spain, Canada, Mexico and Brazil. Prior to 1970, Mr. Davis
spent four years in the Air Force Strategic Air Command. Mr. Davis received an
A.B. degree in International Relations from the University of North Carolina,
Chapel Hill and an M.B.A. degree from the University of California, Los
Angeles. Mr. Davis also completed the Executive Program for Information
Systems, Harvard 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 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 also is
Vice-Chairman and a director of Century Center for Economic Opportunity, Inc.,
a non-profit corporation. 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>

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The Audit Committee, which consists of a majority of independent directors
who are not affiliated with the Principal Shareholders, 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

The Company's Board of Directors is divided into three classes. Directors of
each class are 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. Philip G. Forte's term expires in 2000, Messrs. Wiederhorn's and
Mendelsohn's terms expire in 1999, and Don H. Coleman's and David Dale-
Johnson's terms expire in 1998.

COMPENSATION OF DIRECTORS

The Company pays its nonemployee directors a per meeting fee of $1,000 for
each board meeting and a fee of $100 per hour for each committee meeting
attended which is not on a regularly scheduled meeting date. Under the
Company's Stock Incentive Plan, on the last trading day of each calendar
quarter, the Company automatically grants each non-employee director an option
to purchase shares of common stock equal to $6,250 divided by the fair market
value per share of the Common Stock on the date of grant. In addition,
nonemployee directors are eligible for annual grants of options.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Determinations regarding compensation of the Company's employees are made by
the Compensation Committee of the Board of Directors. David Dale-Johnson and
Don H. Coleman are the members of the Compensation Committee. Neither David
Dale-Johnson nor Don Coleman participated in the compensation decisions
relating to Messrs. Wiederhorn's and Mendelsohn's base salary for fiscal 1996
and 1997. Messrs. Wiederhorn and Mendelsohn actively participated in such
decisions.

The Company leases office space for its corporate headquarters from a
corporation owned by Messrs. Wiederhorn and Mendelsohn. The lease agreement
provides for an aggregate annual rent payment in 1997 of approximately
$276,000 and expires December 31, 2001. In addition to base rent, the Company
is required to pay its proportionate share of operating expenses incurred by
the lessor in connection with the operations of the building. Girard and First
Bank sublease approximately 8,000 sq. ft. of office space in two locations
from the Company for an aggregate annual rental payment in 1997 of $4. The
term of the sublease is year-to-year. Messrs. Wiederhorn and Mendelsohn have
indicated that they intend to sell the property to the Wilshire REIT.

In connection with the formation of WFSG, on December 24, 1996, certain
executive officers and directors exchanged 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 owned 94.9% of the capital stock of Girard and
First Bank), for 5,447,901 shares of Common Stock.

The Company is a party to a loan servicing agreement with the U.S. Servicer
pursuant to which the U.S. Servicer acts as sub-servicer for the Company and
provides loan portfolio management services, including billing, portfolio
administration and collection services for the Company's pools of loans. The
Company pays the U.S. Servicer a servicing fee at or below the prevailing
market rates for each pool of loans that the U.S. Servicer is servicing for
the Company. The Company has the option at any time after November 15, 1998 to
acquire the U.S. Servicer's servicing operations, provided that the Company or
one of its subsidiaries has obtained the appropriate regulatory approvals and
licenses to service loans. The Company also may request that

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<PAGE>

the Servicing Transfer occur on an earlier date, provided that the foregoing
conditions are met, but the U.S. Servicer has no obligation to effect the
Servicing Transfer prior to November 15, 1998. The Servicing Transfer will
occur automatically on November 15, 1999, provided the foregoing conditions
are met. Upon the effectiveness of the Servicing Transfer, the Company is
expected to terminate its servicing arrangement with the U.S. Servicer and
begin servicing loans, through its subsidiary, WSC, for its own account and
for the account of unaffiliated third parties. Since the U.S. Servicer has
pledged certain of the servicing rights owned by it to a third party creditor,
the transfer of the servicing of these loans to the Company on the
effectiveness of the Servicing Transfer may require approval of that creditor.

Each of the Savings Banks is a party to a loan servicing agreement with the
U.S. Servicer pursuant to which the U.S. Servicer provides loan portfolio
management services, including billing, portfolio administration and
collection services, for all loans owned, acquired or made by the Savings
Banks.

While the Company is in the process of obtaining the necessary licensing
approvals for its servicing operations, certain executive officers of the
Company, including Andrew Wiederhorn, Lawrence Mendelsohn, Kenneth Kepp,
Donald Berchtold, Chris Tassos and Phillip Vincent, are continuing to serve as
executive officers of the Wilshire Private Companies and receive minimal
compensation from the Wilshire Private Companies.

While the Company is obtaining necessary regulatory approvals, the U.S.
Servicer is originating residential mortgage loans for the Company's account
through its correspondent relationships and transferring the newly originated
loans to the Company, which simultaneously provides the funding for those
loans.

The Company and the Wilshire Private Companies are parties to an
Administrative Services Agreement pursuant to which the Wilshire Private
Companies and the Company have agreed to provide certain services to each
other, including, among other things, certain financial reporting functions,
legal compliance, banking, risk management and operational and strategic
services. The agreement provides for the payment of a market rate fee plus
reimbursement of any out-of-pocket expenses for any services rendered by one
party to another. The initial term of the agreement expires on December 31,
1997, subject to renewal for successive one-year periods.

In the first quarter of 1997, the U.S. Servicer assigned the servicing
rights to a portfolio of home equity loans, second lien mortgages, consumer
loans and mortgage-backed securities (the "Institutional Portfolio") to the
Company. Thereafter, the Company purchased the Institutional Portfolio from a
major institutional investor at a discount that resulted in the Company's
receipt of a servicing fee of approximately $5.6 million, the recognition of
which is being deferred and amortized over the life of the Institutional
Portfolio.

From January 1, 1997 through March 31, 1997, the Company purchased $128.4
million aggregate principal amount of mortgage and other loans from the U.S.
Servicer. The indentures for the Notes and Series A Notes contain an exception
to the prohibition on transactions with affiliates for purchases on or before
March 31, 1997 of loan portfolios acquired by an affiliate of the Company
after July 31, 1996, where the purchase price does not exceed the lower of two
independent bids for the acquired loan portfolios. Management believes that
the Company's loan purchases were made in compliance with the indentures.

Effective July 31, 1997 the Company issued to the Wilshire Private Companies
27,500 shares of its PIK Preferred Stock having an aggregate liquidation value
of $27.5 million in exchange for the cancellation of certain accounts payable
to the Wilshire Private Companies aggregating approximately $27.1 million and
cash in the amount of approximately $400,000. The holders of the PIK Preferred
Stock have a preference with respect to payment of dividends and distributions
on liquidation. Dividends on the PIK Preferred Stock will be payable in
additional shares of PIK Preferred Stock rather than cash. The Company will
have the option, at any time, to call the PIK Preferred Stock at its
liquidation value subject to certain limitations contained in the indentures
relating to the Notes and the Series A Notes. The Company intends to redeem
$27.5 million of PIK Preferred Stock, plus accrued dividends, with a portion
of the proceeds of the Offering.

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<PAGE>

The Company loaned Kenneth R. Kepp $295,000 which is secured by a mortgage
on Mr. Kepp's principal residence. The Company has a first priority lien on
$235,143.20 of such indebtedness which bears interest at 8.75% per annum and a
second lien on $57,467.34 of such indebtedness which bears interest at 10.0%
per annum.

The Company loaned David Dale-Johnson $75,000 to complete construction of
his principal residence. Such indebtedness bears interest at 10.5% per annum.

EXECUTIVE COMPENSATION

The following table sets forth the total compensation paid or accrued by the
Company for services rendered during the years ended December 31, 1995 and
1996 to the Chief Executive Officer of the Company, and to each of the other
executive officers of the Company (three in total) whose total cash
compensation for the year ended December 31, 1996 exceeded $100,000 (the
"Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------- ----------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS (#) COMPENSATION($)
- --------------------------- ---- --------- -------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Andrew A. Wiederhorn
Chairman, Chief
Executive
Officer, Secretary and
Treasurer............... 1996 65,000(1) -- 730,000 --
1995 51,932
Lawrence A. Mendelsohn
President............... 1996 73,494(1) -- 365,000 --
1995 68,293 -- -- --
David Spahlinger(2)
President, First Bank... 1996 260,401 -- -- --
R. Scott Stevenson
President, Savings
Banks(3)............... 1996 136,801 40,000(4) -- 81,370(5)
</TABLE>
- --------
(1) Represents amounts paid by the Wilshire Private Companies. Mr. Wiederhorn
and Mr. Mendelsohn elected in the past to receive minimal compensation
from the Wilshire Private Companies to maintain capital in the Wilshire
Private Companies and have received Shareholder Distributions from the
Wilshire Private Companies to fund the acquisition and growth of the
Savings Banks and certain other expenses.
(2) Mr. Spahlinger left the employment of First Bank in October 1996.
(3) Mr. Stevenson is currently Senior Vice President of the Company.
(4) Annual discretionary bonus paid by the Savings Banks. The amount of the
annual discretionary bonus was determined by the board of directors of the
Savings Banks.
(5) Includes relocation bonus and sick leave payout.

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<PAGE>

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table provides information concerning stock options granted by
the Company during the year ended December 31, 1996 to each of the Named
Executive Officers.

<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS/SARS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OR OPTION TERM(1)
OPTIONS/SARS YEAR ENDED BASE PRICE EXPIRATION ------------------------------
NAME GRANTED(#) DECEMBER 31, 1996 ($/SH) DATE 5% 10%
- ---- ------------ ----------------- ----------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Andrew A. Wiederhorn.... 730,000 67% 11.43 (2) $ 4,097,000 $ 11,367,000
Lawrence A. Mendelsohn.. 365,000 33% 11.43 (2) $ 2,001,000 $ 5,573,000
David Spahlinger........ -- -- -- -- -- --
R. Scott Stevenson...... -- -- -- -- -- --
</TABLE>
- --------
(1) 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 the rules of the
Securities and Exchange Commission. They do not represent the Company's
estimate or projection of future prices of the Common Stock.
(2) December 24, 2001 for the incentive stock options (19,047 shares for Mr.
Wiederhorn and 19,047 shares for Mr. Mendelsohn) and December 24, 2006 for
the non-qualified stock options (710,953 shares for Mr. Wiederhorn and
345,953 shares for Mr. Mendelsohn).

EMPLOYMENT AGREEMENTS

The Company has entered into substantially similar employment agreements,
effective November 1, 1996, with Mr. Wiederhorn (as Chief Executive Officer)
and 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 to 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.

Each agreement provides for an annual base salary of $300,000, which may be
increased, but not decreased, by the Compensation Committee of the Board of
Directors, and an annual bonus. The bonuses will be determined by the
Compensation Committee of the Board of Directors and may not exceed in the
aggregate 20% of the pre-tax profits of the Company. The Executives share
equally in the first $400,000 of any such bonus and two-thirds and one-third,
respectively, of any additional bonus amount. In addition, the agreements
provide that the Executives may participate in the Company's Incentive Stock
Plan. See "--Incentive Stock Plan."

Each 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 termination of
employment, the Company will continue to indemnify 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.

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Each agreement may be terminated by the Executive for good reason at any
time or with or without good reason during the change in control protection
period (if a change in control occurs) or by the Company at any time with or
without cause. If the Executive terminates his employment with the Company
under these circumstances or if the Executive is terminated without cause or
the Executive's employment terminates as a result of the Company giving notice
of nonextension of the Employment Term, the Executive 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 non-qualified pension plan, (v) three years of the
maximum Company contribution under any qualified or non-qualified 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 the Executive's death, the Company will pay
to the Executive (or his estate), an amount equal to (i) any earned but not
yet paid compensation, (ii) a prorated 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 the 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 the
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 Company's incentive stock plan (the "Stock Plan") is intended 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 of the Company.

Administration of the Plan

The Stock Plan is 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 Stock Plan. The Board of Directors of the Company has delegated
administration of the Stock Plan to a committee consisting of David Dale-
Johnson and Don Coleman, two of the Company's nonemployee directors.

Securities Subject to the Plan

During the ten-year term of the Stock Plan, the Company may grant Awards for
a maximum of 1,825,000 shares of the Company's 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.

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<PAGE>

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 selects 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).

Director Options

On the last trading day of each calendar quarter, 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 the fair market value per
share of Common Stock on the date of grant. Each of these director options
will be fully exercisable beginning six months after the date of grant and
will terminate (unless sooner terminated under 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

97
<PAGE>

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.

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."

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<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

The following table shows as of November 30, 1997 the beneficial ownership
of Common Stock (assuming the Underwriters' over-allotment option is not
exercised) with respect to (i) each person who was known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
director, (iii) each executive officer named in the Summary Compensation Table
that is currently an officer of the Company, (iv) the Selling Shareholders,
and (v) directors and executive officers as a group.

<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF BENEFICIAL PERCENT OF CLASS PERCENT OF CLASS
BENEFICIAL OWNER(1) OWNERSHIP PRIOR TO OFFERING AFTER THE OFFERING
- ------------------- -------------------- ----------------- ------------------
<S> <C> <C> <C>
Andrew A. Wiederhorn.... 4,352,131(2)(4) 52.4% 36.9%
Lawrence A. Mendelsohn.. 2,178,330(3)(4) 27.5 19.0
Bo G. Aberg............. 15,000(5) * *
Donald J. Berchtold..... 16,417(6) * *
Kenneth E. Kepp......... 9,245(7) * *
Sheryl Anne Morehead.... 15,000(5) * *
Chris Tassos............ 64,761(8) * *
Phillip D. Vincent...... 39,285(9) * *
Glenn J. Ohl............ 7,857(10) * *
Peter O'Kane............ 13,333(11) * *
Robert G. Rosen......... 20,000(12) * *
R. Scott Stevenson...... 8,504(13) * *
Don H. Coleman.......... 33,524(14) * *
Philip G. Forte......... 11,019(15) * *
David Dale-Johnson...... 34,476(14) * *
Wellington Management
Company, LLP(16)....... 801,000 10.6 7.2
All executive officers
and directors as a
group (15 persons)..... 6,818,882 76.7% 54.9%
</TABLE>
- --------
(1) The address for each shareholder, other than Wellington Management
Company, LLP is c/o Wilshire Financial Services Group Inc., 1776 SW
Madison Street, Portland, OR 97205. The address for Wellington Management
Company, LLP is 75 State Street, Boston, Massachusetts 02109.
(2) Includes 5,004 shares of Common Stock held by his minor children. Also
includes 730,000 shares of Common Stock which may be acquired upon the
exercise of options.
(3) Includes 200,000 shares of Common Stock held by a partnership controlled
by Mr. Mendelsohn and his spouse. Also includes 365,000 shares of Common
Stock which may be acquired upon the exercise of options.
(4) The Selling Shareholders have granted the Underwriters an over-allotment
option to purchase from the Selling Shareholders up to 525,000 shares of
Common Stock. If the Underwriters' over-allotment option is exercised in
the full, Messrs. Wiederhorn and Mendelsohn will beneficially own 34.0%
and 17.5%, respectively of the outstanding shares of Common Stock. Mr.
Mendelsohn and the partnership controlled by Mr. Mendelsohn and his
spouse have granted the Underwriters an option to purchase 100,000 and
75,000 shares of Common Stock, respectively. Mr. Wiederhorn intends to
transfer certain of his shares of Common Stock to a partnership
controlled by Mr. Wiederhorn. Mr. Wiederhorn and the partnership
controlled by Mr. Wiederhorn have granted the Underwriters an option to
purchase 350,000 shares of Common Stock, in the aggregate.
(5) Includes 15,000 shares of Common Stock which may be acquired upon the
exercise of options.
(6) Includes 2,571 shares of Common Stock held by his spouse and 952 shares
of Common Stock held by his minor children. Also includes 8,133 shares of
Common Stock which may be acquired upon the exercise of options.
(7) Includes 6,845 shares of Common Stock which may be acquired upon the
exercise of options.

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<PAGE>

(8) Includes 4,761 shares of Common Stock held jointly with his spouse and
60,000 shares of Common Stock which may be acquired upon the exercise of
options.
(9) Includes 3,333 shares of Common Stock held jointly with his spouse and
952 shares of Common Stock held by his minor children. Also includes
35,000 shares of Common Stock which may be acquired upon the exercise of
options.
(10) Includes 5,000 shares of Common Stock which may be acquired upon the
exercise of options.
(11) Includes 8,000 shares of Common Stock which may be acquired upon the
exercise of options.
(12) Includes 20,000 shares of Common Stock which may be acquired upon the
exercise of options.
(13) Includes 26 shares of Common Stock held by a trust controlled by Mr.
Stevenson and his spouse. Also includes 8,478 shares of Common Stock
which may be acquired upon the exercise of options.
(14) Includes 22,302 shares of Common Stock which may be acquired upon the
exercise of options.
(15) Includes 10,067 shares of Common Stock which may be acquired upon the
exercise of options.
(16) Based upon information obtained from a Schedule 13G filed with the
Securities and Exchange Commission on or about April 9, 1997.
* less than one percent

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For a discussion of certain relationships and related transactions see
"Compensation Committee Interlocks and Insider Participation."

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.

Prior to the amendment of the Internal Revenue Code by the Small Business
Job Protection Act of 1996 (the "SBJPA"), savings institutions such as the
Savings Banks, which met certain definitional tests primarily relating to
their assets and the nature of their businesses, were permitted to establish a
reserve for bad debts and to make annual additions to the reserve under rules
more favorable than those granted to other financial institutions. These
additions could have, within specified formula limits, been deducted in
arriving at the Savings Banks' taxable income. Generally, under the percentage
of taxable income method of computing the addition to the reserve, the bad
debt deduction was equal to 8% of taxable income determined without regard to
that deduction and with certain adjustments.

Under the SBJPA amendments, effective for taxable years beginning after
December 31, 1995 the Savings Banks are no longer allowed to use the
percentage of taxable income method to determine the amount of additions to
bad debt reserves and are required to follow the same rules for purposes of
computing allowable bad debt deductions as banks. In addition, to the extent
that a savings institution has applicable excess reserves (generally, the
balance of the institution's reserves as of the close of the taxable year
beginning before January 1, 1996 over the institutions pre-1988 reserves) such
excess must be recaptured ratably over the six-taxable year period beginning
with the first taxable year beginning after December 31, 1995. Such amount,
for the Savings Banks, was approximately $5.5 million as of December 31, 1995.
There is an exception that, in general, grandfathers the pre-1988 balance of
the savings associations reserve balance. Recapture of the pre-1988 bad debt
reserve would still occur in the event of certain distributions as discussed
in the paragraph below. Such amount, for the Savings Banks, is approximately
$0.1 million. Under SBJPA, if a savings association converts to a bank or is
merged into a bank, the association's bad debt reserve will not be
automatically subject to recapture.

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<PAGE>

To the extent a savings association (i) has a pre-1988 reserve and (ii)
makes distributions to stockholders (including distributions in redemption,
dissolution or liquidation) that are considered to result in withdrawals from
the pre-1988 reserve, the amounts considered withdrawn will be included in the
savings association's taxable income. The amount that will be deemed withdrawn
from such reserves upon such distribution and which will be subject to
taxation at the savings association level at the normal corporate tax rate
will 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.

In the event that Underwriters fully exercise their over-allotment option, a
change in ownership may be triggered for the Savings Banks for purposes of
Section 382 of the Code. Generally, Section 382 imposes certain limitations on
the use of net operating loss carryforwards and certain built-in loss
following a change in ownership.

Section 382 generally provides that if a corporation undergoes an "ownership
change," the amount of taxable income that the corporation may offset after
the date of the ownership change (the "Change Date") with net operating loss
carryforwards and certain built-in losses existing on the Change Date will be
subject to an annual limitation. In general, the annual limitation equals the
product of (i) the fair market value of the corporation's equity on the Change
Date (with certain adjustments including an adjustment excluding certain
capital contributions made in the two years preceding the Change Date), and
(ii) a long-term tax exempt bond rate of return published monthly by the
Internal Revenue Service.

The Savings Banks do not have net operating loss carryforwards. Certain
built-in losses, if any, of the Savings Banks would be subject to limitation
under Section 382. The Company believes that any such built-in losses are not
material. The built-in losses that may be limited under Section 382 are those
that exist on the Change Date and are recognized within five years after the
Change Date. However, the total amount of recognized built-in losses that are
subject to limitation cannot exceed the corporation's net built-in loss (the
excess of the aggregate tax basis of the corporation's assets over their
aggregate fair market value) on the Change Date. In addition, built-in losses
of a corporation will be subject to limitation under Section 382 only if the
net built-in loss of the corporation exceeds 15% of the fair market value of
the corporation's assets or $10,000,000, whichever is less. Certain deductions
that have accrued economically on the Change Date, but are allowed only after
the Change Date, are treated as built-in losses.

STATE TAXATION

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

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The following description of all material terms 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 and (ii) 50,000,000 shares of Common Stock. Upon
consummation of the Offering, 11,070,000 shares of Common Stock and 27,500
shares of PIK Preferred Stock will be outstanding. The Company intends to
redeem 27,500 shares of PIK Preferred Stock with a portion of the proceeds
from the Offering. The issued and outstanding shares of Common Stock and PIK
Preferred Stock have been, and the shares of Common Stock offered hereby will
be, duly authorized, validly issued, fully paid and nonassessable.

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. Upon consummation of the Offering, certain executive officers and
directors will hold shares of Common Stock constituting approximately 54.9% of
the voting power of the outstanding Common Stock, which will allow them to
control all actions to be taken by the shareholders, including the election of
all directors to the Board of Directors of the Company. 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 shareholders, and to hold an Annual Meeting of
Shareholders. However, because the Company's By-laws provide that any action
that can be taken at a meeting of the shareholders may be by written consent
in lieu of the meeting if the Company receives consents signed by shareholders
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 certain 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 and Selling Shareholders" and "Risk Factors--Dependence on and
Control by Principal Shareholders." Notwithstanding the foregoing, the rules
of the Nasdaq National Market require certain actions to be approved at a
shareholder meeting.

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 preferences 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 in the foreseeable
future. See "Dividend Policy." In addition, under the indentures relating to
the Notes and the Series A Notes, dividends on the Common Stock can be paid
only in certain circumstances and up to a maximum amount.

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<PAGE>

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, New York 10286, attn: Investor
Relations, 11E. Its telephone number is 800-524-4458 and its facsimile number
is 212-815-3201.

PREFERRED STOCK

Pursuant to the Certificate of Incorporation, the Board of Directors of the
Company 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 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 Board of Directors of the Company authorized a series of Preferred Stock
which was designated Cumulative Redeemable Senior PIK Preferred Stock (the
"PIK Preferred Stock"). Dividends on the PIK Preferred Stock are cumulative
from the date of original issuance and are payable semiannually in arrears.
Any dividend accruing in respect of the PIK Preferred Stock shall be paid by
issuing additional shares of PIK Preferred Stock, and the issuance of such
additional shares of PIK Preferred Stock shall constitute full payment of the
dividend. The Company may redeem the PIK Preferred Stock, in whole or in part,
at any time, at a redemption price per share equal to the liquidation value of
the PIK Preferred Stock, plus all dividends accrued and unpaid on the
Preferred Stock as redeemed up to the date fixed for redemption. The Company
intends to redeem $27.5 million of PIK Preferred Stock, plus accrued dividends
with a portion of the proceeds of the Offering.

The issuance of any additional shares 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.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
11,070,000 shares of Common Stock. Of these shares, the 3,500,000 shares
offered hereby (4,025,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. Of the remaining 7,570,000 shares of Common Stock
outstanding upon closing of the Offering, 5,457,905 shares are either
"restricted securities" as that term is defined in Rule 144 or are held by
persons who may be deemed "affiliates" of the Company. Of the remaining
5,457,905 shares, 5,435,461 shares are subject to lock-up agreements.

In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year (including
the holding period of any prior owner except an affiliate from whom such
shares were purchased) is entitled to sell in "brokers' transactions" or to
market makers, within any three-month period commencing 90 days after the date
of this Prospectus, a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding
(approximately 110,070 shares immediately after the completion of the
Offering) or (ii) generally, the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the required filing of a Form
144 with respect to such sale. Sales under Rule 144 are generally subject to
the availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years (including the holding
period of any prior owner other than an affiliate from whom such shares were
purchased), is entitled to sell such shares without having to comply with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.

Pursuant to the lock-up agreements, the Principal Shareholders who will
beneficially own, upon completion of the Offering, in the aggregate, 6,530,461
shares of Common Stock, have executed agreements pursuant to which each has
agreed that, they will not, for a period of 180 days from the date of this
Prospectus, directly or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, pledge, contract of sale, grant of
any option to purchase or other sale or disposition) of any shares of Common
Stock or other capital stock of the Company or any securities convertible
into, or exercisable or exchangeable for, any shares of Common Stock, or other
capital stock of the Company without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters other than pursuant to
the over-allotment option. The Company also has agreed that it will not, for a
period of 180 days from the date of this Prospectus, directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer to
sale, pledge, grant of any option to purchase or other sale or disposition) of
any shares of Common Stock, or other capital stock of the Company without the
prior written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, except that such agreement does not prevent the exercise of
outstanding options or the Company from granting additional options.
Prudential Securities Incorporated may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-
up agreements.

Upon expiration of or the release from such lock-up agreements, 5,435,461
(plus up to an additional 1,095,000 shares of Common Stock subject to
outstanding vested stock options) may be sold pursuant to an effective
registration statement under the Securities Act and Rule 144, subject to
timing, volume and manner of sale restrictions of Rule 144.

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<PAGE>

DESCRIPTION OF CERTAIN INDEBTEDNESS

NOTES

General

The Notes were issued under an indenture dated as of December 24, 1996 among
the Company and Bankers Trust Company, as trustee. The Notes were limited in
aggregate principal amount to $75 million (plus up to $11,250,000 subject to
the underwriter's over-allotment option). The Notes outstanding at September
30, 1997 totaled $84,250,000.

The Notes bear interest at the rate of 13% per annum, payable semi-annually
in arrears on January 1 and July 1 of each year, commencing July 1, 1997, to
the holders of record at the close of business on December 15 or June 15, as
the case may be, next preceding the interest payment date. The Notes mature on
January 1, 2004.

Optional Redemption

The Notes may not be redeemed prior to January 1, 2002 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 of the principal
amount) plus accrued and unpaid interest to (but excluding) the redemption
date, if redeemed during the 12-month period beginning January 1, of the years
indicated below:

<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002..................................................... 106.50%
2003..................................................... 103.25%
</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 January 1, 1999, with the net cash proceeds received by the Company
from one or more public sales of qualified capital stock, at a redemption
price of 113% 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 the Notes must remain outstanding after each
such redemption. No proceeds from the Offering will be used to redeem Notes.

Ranking

The Notes are general unsecured obligations of the Company. Because the
Company is a holding company that currently conducts substantially all of its
operations through its subsidiaries, the right of the Company (and therefore
the right of the Company's creditors and shareholders) to participate in any
distribution of the assets or earnings of any subsidiary is subject to the
prior claims of creditors of the subsidiaries, including any claims of the
Company 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 the Company's subsidiaries.

Certain Covenants

The Notes indenture contains 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 to incur certain indebtedness
(not including secured indebtedness used to acquire or refinance the
acquisition of loans or other 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 the subsidiaries to make dividend and
other payments to the Company. The Notes indenture also restricts the
Company's ability to merge, consolidate or sell all of its assets.

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<PAGE>

Events of Default

In the event of certain payment or other defaults with respect to the Notes,
including defaults with respect to other indebtedness if the total amount of
such indebtedness unpaid or accelerated is equal to or greater than 5% of the
Company's consolidated net worth at the quarter end preceding the end of such
grace period of such acceleration, than the trustees or the holders of not
less than 25% in principal amount of the Notes then outstanding may declare
all of the Notes to be immediately due and payable.

SERIES A NOTES

General

The Series A Notes were issued under an indenture dated as of August 15,
1997 among the Company and Bankers Trust Company, as trustee. The Series A
Notes were limited in aggregate principal amount to $100 million. The Series A
Notes outstanding at September 30, 1997 totaled $100 million.

The Series A Notes bear interest at the rate of 13% per annum, payable semi-
annually in arrears on August 15 and February 15 of each year, commencing
February 15, 1998, to the holders of record at the close of business on August
1 and February 1, as the case may be, next preceding the interest payment
date. The Series A Notes mature on August 15, 2004.

Optional Redemption

The Series A Notes may not be redeemed prior to August 15, 2002 except as
described below. On or after such date, the Series A Notes may be redeemed, in
whole or in part, at the following redemption prices (expressed as a
percentage of the principal amount) plus accrued and unpaid interest to (but
excluding) the redemption date, if redeemed during the 12-month period
beginning August 15, of the years indicated below:

In addition, the Company may redeem, at its option, up to 35% of the
original aggregate principal amount of the Series A Notes at any time and from
time to time until August 15, 2000, with the net cash proceeds received by the
Company from one or more public sales of qualified capital stock, at a
redemption price of 113% of the principal amount of the Series A Notes
redeemed, plus accrued and unpaid interest thereon; provided, however, that at
least 65% of the original aggregate principal amount of the Series A Notes
must remain outstanding after each such redemption. No proceeds from the
Offering will be used to redeem the Series A Notes.

Ranking

The Series A Notes are general unsecured senior obligations of the Company
ranking pari passu in right of payment with all existing and future
unsubordinated indebtedness of the Company, including the Notes. Because the
Company is a holding company that currently conducts substantially all of its
operations through its subsidiaries, the right of the Company (and therefore
the right of the Company'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 the subsidiaries, including any claims of the
Company as a creditor to the extent such claims may be recognized. As a
result, the Series A Notes will be effectively subordinate to the claims of
creditors of the Company's subsidiaries.

Certain Covenants

The Series A Notes indenture contains 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 to incur

106
<PAGE>

certain indebtedness (not including secured indebtedness used to acquire or
refinance the acquisition of loans or other 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 the subsidiaries to make dividend and
other payments to the Company. The Series A Notes indenture also restricts the
Company's ability to merge, consolidate or sell all of its assets.

Events of Default

In the event of certain payment or other defaults with respect to the Series
A Notes, including defaults with respect to other indebtedness if the total
amount of such indebtedness unpaid or accelerated is equal to or greater than
5% of the Company's consolidated net worth at the quarter end preceding the
end of such grace period of such acceleration, than the trustee or the holders
of not less than 25% in principal amount of the Series A Notes then
outstanding may declare all of the Series A Notes to be immediately due and
payable.

107
<PAGE>

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, Friedman, Billings, Ramsey & Co., Inc. and Black &
Company, Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company the number of shares of Common
Stock set forth below opposite their respective names:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated.................................
Friedman, Billings, Ramsey & Co., Inc..............................
Black & Company, Inc...............................................
---
Total..........................................................
===
</TABLE>

The Company is obligated to sell, and the Underwriters are obligated to
purchase, all the shares of Common Stock offered hereby if any are purchased.

The Underwriters, through their Representatives, have advised the Company
that they propose to offer the Common Stock initially at the public offering
price set forth on the cover page of this Prospectus; that the Underwriters
may allow to selected dealers a concession of $ per share; and that such
dealers may re-allow a concession of $ per share to certain other dealers.
After the public offering, the offering price and the concessions may be
changed by the Representatives.

The Selling Shareholders have granted the Underwriters options, exercisable
for 30 days from the date of this Prospectus, to purchase up to 525,000
additional shares of Common Stock at the public offering price, less the
underwriting discounts and commissions, as set forth on the cover page of this
Prospectus. The Underwriters may exercise such options solely for the purpose
of covering over-allotments incurred in the sale of shares of Common Stock
offered hereby. To the extent such options are exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to
3,500,000.

The Company's Principal Shareholders, who in the aggregate will beneficially
own approximately 6,530,461 shares of Common Stock upon the completion of the
Offering and the Company have agreed not to, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any options to purchase
or otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or other capital stock or any
security convertible into, or exercisable or exchangeable for, any shares of
Common Stock or other capital stock of the Company or any right to purchase or
acquire Common Stock or other capital stock of the Company, for a period of
180 days after the date of this Prospectus without the prior written consent
of Prudential Securities Incorporated, on behalf of the Underwriters, other
than pursuant to the Underwriters' over-allotment option, the exercise of
currently outstanding stock options (other than options owned by the Principal
Shareholders) and except for bona fide gifts or transfers effected by such
shareholders other than on any securities exchange or in the over-the-counter
market to donees or transferees that agree to execute and be bound by such
agreements. Prudential Securities Incorporated may, at any time and without
notice, release all or any portion of the shares subject to such agreements.

The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act. In addition to
underwriting discounts and commissions, the Company has agreed to reimburse
the Underwriters for their out-of-pocket expenses in connection with the
Offering, including the reasonable fees and disbursements of its counsel.

108
<PAGE>

In connection with the Offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified market
makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock of the Company on the Nasdaq National Market
in accordance with Rule 103 of Regulation M under the Exchange Act during the
business day prior to the pricing of the Offering before the commencement of
offers and sales of Common Stock. Passive market makers must comply with
applicable volume and price limitations and must be identified as such. In
general, a passive market maker must display its bid at a price in excess of
the highest independent bid for such security; if all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.

In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Common
Stock, the Notes and the Series A Notes. Such transactions may include
stabilization transactions effected in accordance with Rule 104 of Regulation
M, pursuant to which such persons may bid for or purchase Common Stock, the
Notes and the Series A Notes for the purpose of stabilizing their market
price. The Underwriters also may create short positions for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the Offering to cover all or a portion of such short position.
The Underwriters may also cover all or a portion of such short-position, up to
525,000 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, Prudential Securities Incorporated, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or any selling group member participating in the Offering) for the account of
the other Underwriters, the selling concession with respect to Common Stock
that is distributed in the Offering but subsequently purchased for the account
of the Underwriters in the open market. Any of the transactions described in
this paragraph may result in the maintenance of the price of the Common Stock
at a level above that which might otherwise prevail in the open market. None
of the transactions described above are required and, if undertaken, may be
discontinued at any time.

Affiliates of Prudential Securities Incorporated have, from time to time,
engaged in the ordinary course of business in financial transactions
(including a warehouse agreement) with the Company upon customary market
terms. In addition, Prudential Securities Incorporated has acted as Initial
Purchaser in connection with the Company's issuance of its Series A Notes and
as an underwriter in connection with securitizations conducted by the Company
and its affiliates and provided a fairness opinion in connection with the
issuance of the PIK Preferred Stock. Prudential Securities Incorporated also
has been engaged to provide financial advisory services to the Company in
connection with a potential acquisition of the Wilshire Private Companies, and
to provide the required fairness opinion should the Company determine to
proceed with such acquisition. Prudential Securities Incorporated has been
engaged to provide financial advice in connection with an acquisition of
residual securities and related servicing rights and also is acting as an
underwriter in connection with the Wilshire REIT's proposed initial public
offering.

Friedman, Billings, Ramsey & Co., Inc. acted as an underwriter in connection
with the Company's initial public offering and Notes. Friedman, Billings,
Ramsey & Co., Inc. and Black & Company, Inc. are acting as underwriters in
connection with the Wilshire REIT's proposed initial public offering.

109
<PAGE>

LEGAL MATTERS

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

EXPERTS

The consolidated financial statements of the Company as of and for the nine
months ended September 30, 1997 included in this Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report. Such report contains
an explanatory paragraph relating to certain regulatory matters.

The consolidated financial statements of the Company at December 31, 1996
and 1995 and for the years ended December 31, 1996 and the nine months ended
September 30, 1996 included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein
(which report expresses an unqualified opinion and includes an explanatory
paragraph referring to certain subsidiaries of the Company operating under
regulatory agreements) and have been so included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.

On April 13, 1997, the Company replaced Deloitte & Touche LLP as its
independent auditors with Arthur Andersen LLP. The decision to change auditors
was recommended by the Audit Committee of the Board of Directors and approved
by the Board of Directors. The decision was based on Arthur Andersen's work
with the Company in 1996 and early 1997, which included loan sale and
securitization structuring, domestic and international tax consulting,
international expansion planning and assisting the Company's savings and loan
subsidiaries with their regulatory improvement activities. These services
resulted in a significant portion of the fees paid to all public accounting
firms during 1996. It was the Board's view that their appointment to the role
of independent accountants will enhance the cohesiveness and service provided
by one firm as the Company pursues its long-term goals and objectives. Arthur
Andersen LLP's election as the Company's independent accountants was ratified
at the annual meeting of stockholders of the Company held on May 12, 1997.

During the past two years and the interim period from December 31, 1996
until April 13, 1997, there were no disagreements with Deloitte & Touche LLP
regarding any matter of accounting principles or practices, financial
statement disclosure, or auditing or procedure. The Auditors' Report for the
years ended December 31, 1996 and 1995 were unqualified with an emphasis
paragraph highlighting the Company's savings and loan subsidiaries' regulatory
agreements.

110
<PAGE>

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 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.

WFSG is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith is
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 Citicorp 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 Common Stock is traded on the Nasdaq National Market. Reports, proxy
and information statements and other information regarding the Company are
available for inspection at the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.

111
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................................. F-2
Independent Auditors' Report.............................................. F-3
Consolidated Financial Statements:
Consolidated Statements of Financial Condition--September 30, 1997 and
December 31, 1996 and 1995............................................. F-4
Consolidated Statements of Operations--Nine Months Ended September 30,
1997 and 1996 and Years Ended December 31, 1996, 1995 and 1994......... F-5
Consolidated Statements of Cash Flows--Nine Months Ended September 30,
1997 and 1996 and Years Ended December 31, 1996, 1995 and 1994......... F-6
Consolidated Statements of Stockholders' Equity--Nine Months Ended
September 30, 1997 and 1996 and Years ended December 31, 1996, 1995 and
1994................................................................... F-9
Notes to Consolidated Financial Statements.............................. F-10
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Wilshire Financial Services Group Inc. and Subsidiaries

We have audited the accompanying consolidated statement of financial
condition of Wilshire Financial Services Group Inc. and Subsidiaries (the
"Company") as of September 30, 1997, and the related consolidated statements
of operations, stockholders' equity and cash flows for the nine-month period
then ended. 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 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.

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 include, among other things, limitations on asset
growth and asset acquisition activity, requirements to enhance the internal
control environment of the Banks and the maintenance of specific regulatory
capital requirements.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wilshire Financial
Services Group Inc. and Subsidiaries as of September 30, 1997, and the results
of their operations and their cash flows for the nine-month period then ended
in conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP

November 19, 1997
Los Angeles, California

F-2
<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 December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1996, 1995 and 1994 and the nine months ended September 30,
1996. These consolidated 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 consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Wilshire Financial
Services Group Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and cash flows for the years ended
December 31, 1996, 1995 and 1994 and the nine months ended September 30, 1996,
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

March 14, 1997
Los Angeles, California

F-3
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.............. $ 77,993 $152,298 $ 4,482
Mortgage-backed securities available
for sale, at fair value (amortized
cost: September 30, 1997, $202,248;
December 31, 1996, $31,367; December
31, 1995, $9,099)..................... 201,325 31,270 9,083
Mortgage-backed securities held to
maturity, at amortized cost
(fair values: September 30, 1997,
$19,082; December 31, 1996, $21,252;
December 31, 1995 $12,873)............ 19,367 21,724 13,119
Securities held to maturity, at
amortized cost (fair values:
September 30, 1997, $7,562; December
31, 1996, $7,518; December 31, 1995,
$6,488)............................... 7,442 7,429 6,470
Trading account securities............. 28,163 24,541 --
Loans, net............................. 173,524 176,026 258,827
Discounted loans, net.................. 350,460 206,740 13,347
Loans held for sale, net, at lower of
cost or market........................ 267,035 28,826 18,597
Stock in Federal Home Loan Bank of San
Francisco, at cost.................... 4,952 2,958 1,421
Real estate owned, net................. 146,464 78,200 4,964
Leasehold improvements and equipment,
net................................... 1,702 317 275
Due from affiliate..................... 47,359 5,051 3,755
Accrued interest receivable............ 6,382 3,517 3,042
Prepaid expenses and other assets...... 37,593 14,952 3,313
---------- -------- --------
TOTAL.............................. $1,369,761 $753,849 $340,695
========== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits............................. $ 407,768 $501,614 $303,524
Short-term borrowings................ 658,042 97,624 13,000
Notes payable........................ 184,245 75,000 11,000
Accounts payable and other liabili-
ties................................ 19,937 18,589 6,132
---------- -------- --------
Total liabilities.................. 1,269,992 692,827 333,656
---------- -------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock--$.01 par value,
10,000,000 authorized,
27,500 outstanding (at September 30,
1997)............................... 27,500 -- --
Common stock--$.01 par value,
50,000,000 shares
authorized, 7,570,000 outstanding
(1997 and 1996),
1,300,836 outstanding (1995)........ 55,897 55,897 6,800
Retained earnings.................... 16,812 5,222 255
Unrealized loss on securities avail-
able for sale, net.................. (440) (97) (16)
---------- -------- --------
Total stockholders' equity......... 99,769 61,022 7,039
---------- -------- --------
TOTAL.............................. $1,369,761 $753,849 $340,695
========== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- -------------------------------
1997 1996 1996 1995 1994
---------- --------- ---------- ---------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
INFORMATION)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans................. $ 59,950 $ 31,686 $ 44,294 $ 21,821 $ 7,923
Mortgage-backed
securities........... 12,484 1,280 1,797 1,359 1,361
Securities and federal
funds sold........... 3,022 1,171 2,331 1,201 285
5
---------- --------- ---------- ---------- -------
Total interest
income.............. 75,456 34,137 48,422 24,381 9,569
---------- --------- ---------- ---------- -------
INTEREST EXPENSE:
Deposits.............. 20,008 17,448 25,002 13,944 5,017
Borrowings............ 39,028 2,144 4,275 537 440
---------- --------- ---------- ---------- -------
Total interest
expense............ 59,036 19,592 29,277 14,481 5,457
---------- --------- ---------- ---------- -------
NET INTEREST INCOME..... 16,420 14,545 19,145 9,900 4,112
PROVISION FOR ESTIMATED
LOSSES ON LOANS........ 926 15,751 16,549 4,266 2,173
---------- --------- ---------- ---------- -------
NET INTEREST INCOME
(LOSS) AFTER PROVISION
FOR ESTIMATED LOSSES
ON LOANS............... 15,494 (1,206) 2,596 5,634 1,939
---------- --------- ---------- ---------- -------
OTHER INCOME (LOSS):
Bankcard income....... 4,998 5,078 6,790 4,694 635
Bankcard processing
expense.............. (3,419) (3,865) (5,124) (3,462) (274)
Gain on sales of
loans................ 31,252 1,983 11,538 642 --
Trading account--
unrealized gain...... 1,171 1,601 1,833 -- --
Real estate owned,
net.................. 4,574 (231) 556 (170) (241)
Servicing revenue..... 3,339 -- -- -- --
Gain on sale of
securities........... 3,053 -- -- -- --
Other, net............ 1,749 1,580 2,349 1,233 866
---------- --------- ---------- ---------- -------
Total other income.. 46,717 6,146 17,942 2,937 986
---------- --------- ---------- ---------- -------
OTHER EXPENSES:
Compensation and
employee benefits.... 11,274 2,955 4,464 2,516 1,922
FDIC insurance
premiums............. 791 2,066 2,381 721 261
Occupancy............. 727 218 339 385 319
Professional
services............. 2,104 572 700 1,028 507
Loan service fees and
expenses paid to
affiliate............ 19,423 3,522 5,176 1,958 242
Other general and
administrative
expenses............. 6,669 1,341 2,386 1,324 1,452
---------- --------- ---------- ---------- -------
Total other
expenses........... 40,988 10,674 15,446 7,932 4,703
---------- --------- ---------- ---------- -------
INCOME (LOSS) BEFORE
INCOME TAX PROVISION
(BENEFIT).............. 21,223 (5,734) 5,092 639 (1,778)
INCOME TAX PROVISION
(BENEFIT).............. 8,981 (4,652) 125 47 (526)
---------- --------- ---------- ---------- -------
NET INCOME (LOSS) ...... $ 12,242 $ (1,082) $ 4,967 $ 592 $(1,252)
========== ========= ========== ========== =======
EARNINGS (LOSS) PER
SHARE
Primary............... $ 1.47 $ (0.22) $ 1.07 $ 0.46 $ (2.52)
Fully Diluted......... $ 1.41
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Primary............... 7,882,555 4,923,784 4,647,068 1,300,863 496,873
Fully Diluted......... 8,232,281
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- --------------------------
1997 1996 1996 1995 1994
--------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)........... $ 12,242 $ (1,082) $ 4,967 $ 592 $(1,252)
Reconciliation of net income
(loss) to net cash (used
in) provided by operating
activities:
Provision for estimated
loan losses.............. 926 15,751 16,549 4,266 2,173
Provision for real estate
owned losses............. -- -- -- 598 100
Depreciation and
amortization............. 302 116 165 241 121
(Gain) loss on sale of
real estate owned........ (4,275) 164 (623) (97) 406
Purchase of loans held for
sale..................... (556,231) -- (28,826) -- --
Proceeds from sale of
loans held for sale...... 375,565 -- -- -- --
Gain on sale of loans..... (30,855) (1,983) (11,538) (642) --
Gain on sale of
securities............... (3,053) -- -- -- --
Amortization of discounts
and deferred fees........ (26,795) (2,126) (3,324) (1,246) (600)
Amortization of deferred
credits.................. (328) (346) (461) (460) (388)
FHLB stock dividend....... (161) (64) (111) (40) (39)
Change in:
Trading account
securities............... (3,622) (6,526) (24,541) -- 489
Accrued interest
receivable............... (2,865) (1,226) (475) (1,443) (238)
Prepaid expenses and other
assets................... (26,732) (1,435) (7,626) (1,094) 1,074
Due from affiliate........ (15,460) (2,316) (1,296) (345) (3,043)
Deferred tax asset........ 4,091 (4,561) (4,013) (419) 111
Accounts payable and other
liabilities.............. 1,348 3,227 13,474 1,846 (474)
Minority interest......... -- (323) (600) 26 --
Other..................... -- 43 -- (194) (54)
--------- -------- -------- ------- -------
Net cash (used in)
provided by operating
activities............. (275,903) (2,687) (48,279) 1,589 (1,614)
--------- -------- -------- ------- -------
</TABLE>

See notes to consolidated financial statements.
(Continued)

F-6
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- ------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVEST-
ING ACTIVITIES:
Purchase of loans and
discounted loans..... $(316,931) $(227,632) $(482,506) $(186,895) $(41,561)
Loan repayments, net
of originations...... 66,007 35,521 54,180 49,035 16,836
Proceeds from sale of
loans................ -- 26,335 312,949 16,673 --
Purchase of mortgage-
backed securities
available for sale... (184,393) -- (24,537) -- (10,655)
Repayments of
mortgage-backed
securities available
for sale............. 4,163 1,871 2,226 1,528 --
Proceeds from sale of
mortgage-backed
securities available
for sale............. 12,148 -- -- 2,150 3,452
Proceeds from maturity
of securities held to
maturity............. -- 5,000 5,654 1,000 --
Purchase of mortgage-
backed securities
held to maturity..... -- (11,182) (16,079) -- (4,198)
Repayments of
mortgage-backed
securities held to
maturity............. 3,036 1,820 1,820 824 643
Purchases of
securities and FHLB
stock................ (1,833) (7,344) (2,447) (2,965) (105)
Proceeds from sale of
FHLB stock........... -- -- -- 231 --
Purchases of real
estate owned......... -- -- (67,344) -- --
Proceeds from sale of
real estate owned.... 44,841 5,763 16,482 5,254 569
Purchases of leasehold
improvements and
equipment............ (1,194) (177) (195) (349) (184)
Other, net............ -- -- 81 (654) 165
--------- --------- --------- --------- --------
Net cash used in
investing
activities......... (374,156) (170,025) (199,716) (114,168) (35,038)
--------- --------- --------- --------- --------
</TABLE>

See notes to consolidated financial statements.
(Continued)

F-7
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- -----------------------------
1997 1996 1996 1995 1994
---------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net increase
(decrease) in
deposits............. $ (93,845) $ 184,011 $ 198,090 $107,731 $ 26,181
Issuance of common
stock................ -- 17,750 38,097 -- 3,750
Issuance of
subordinated debt.... -- -- -- 9,000 --
Issuance of preferred
stock................ -- -- -- -- 1,000
Proceeds from short-
term borrowings...... 1,073,009 308,109 618,733 77,419 41,677
Repayments of short-
term borrowings...... (512,587) (321,109) (534,109) (85,919) (30,285)
Repayments of capital
lease obligations.... (68) -- -- -- --
Proceeds from notes
payable.............. 109,245 -- 75,000 -- --
---------- --------- --------- -------- --------
Net cash provided by
financing
activities......... 575,754 188,761 395,811 108,231 42,323
---------- --------- --------- -------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (74,305) 16,049 147,816 (4,348) 5,671
CASH AND CASH
EQUIVALENTS:
Beginning of year..... 152,298 4,482 4,482 8,830 3,159
---------- --------- --------- -------- --------
End of period......... $ 77,993 $ 20,531 $ 152,298 $ 4,482 $ 8,830
========== ========= ========= ======== ========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION--Cash paid
during the year for:
Interest.............. $ 51,577 $ 18,772 $ 21,746 $ 13,833 $ 5,479
Income taxes.......... 6,350 216 216 365 110
NONCASH INVESTING
ACTIVITIES:
Additions to real
estate owned acquired
in settlement of
loans................ 108,831 4,377 21,751 9,878 3,122
Equipment acquired
through capital
lease................ 493 -- -- -- --
Loans to facilitate
the sale of real
estate owned......... -- -- -- 367 2,352
NONCASH FINANCING
ACTIVITIES:
Exchange of notes
payable for common
stock................ -- 11,000 11,000 -- --
Exchange of preferred
stock for notes
payable.............. -- -- -- 1,000 --
Paid in kind preferred
stock dividend....... 652 -- -- -- --
Preferred stock issued
in exchange for
cancellation of
accounts payable..... 27,500 -- -- -- --
</TABLE>

See notes to consolidated financial statements.
(Concluded)

F-8
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNREALIZED
LOSS ON
RETAINED AVAILABLE-
PREFERRED STOCK COMMON STOCK EARNINGS FOR-SALE
------------------- ------------------ (ACCUMULATED SECURITIES
SHARES AMOUNT SHARES AMOUNT DEFICIT) NET OF TAX TOTAL
---------- ------- --------- -------- ------------ ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1994................... -- $ -- 366,288 $ 3,050 $ 915 $(159) $ 3,806
Net loss............... (1,252) (1,252)
Net change in
unrealized loss on
available for sale
securities--net of
tax................... (511) (511)
Issuance of stock...... 1,000,000 1,000 934,575 3,750 4,750
---------- ------- --------- -------- -------- ----- -------
BALANCE, December 31,
1994................... 1,000,000 1,000 1,300,863 6,800 (337) (670) 6,793
Net income............. 592 592
Net change in
unrealized loss 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................... -- -- 1,300,863 6,800 255 (16) 7,039
Net loss............... (1,082) (1,082)
Net change in
unrealized loss on
available for sale
securities--net of
tax................... (153) (153)
Exchange of
subordinated debt for
common stock.......... 1,606,618 11,000 11,000
Issuance of common
stock................. 2,592,519 17,750 17,750
---------- ------- --------- -------- -------- ----- -------
BALANCE, September 31,
1996................... -- -- 5,500,000 35,550 (827) (169) 34,554
Net income............. 6,049 6,049
Net change in
unrealized loss on
available for sale
securities--net of
tax................... 72 72
Issuance of common
stock................. 2,070,000 20,347 20,347
---------- ------- --------- -------- -------- ----- -------
BALANCE, December 31,
1996................... -- -- 7,570,000 55,897 5,222 (97) 61,022
Net income............. 12,242 12,242
Issuance of preferred
stock................. 27,500 27,500 27,500
Preferred stock
dividend.............. (652) (652)
Net change in
unrealized loss on
available for sale
securities-net of
tax................... (343) (343)
---------- ------- --------- -------- -------- ----- -------
BALANCE, September 30,
1997................... 27,500 $27,500 7,570,000 $ 55,897 $ 16,812 $(440) $99,769
========== ======= ========= ======== ======== ===== =======
</TABLE>

See notes to consolidated financial statements.

F-9
<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--The operations of Wilshire Financial Services Group
Inc. ("WFSG") and subsidiaries (collectively, the "Company") are conducted
primarily through a nonbank subsidiary, Wilshire Funding Corporation ("WFC")
and through two second-tier subsidiary savings banks, Girard Savings Bank
F.S.B. ("GSB") and First Bank of Beverly Hills F.S.B. ("FBBH") (collectively,
the "Banks"). The Banks are federally chartered savings institutions regulated
by the Office of Thrift Supervision ("OTS") with two branches and a merchant
bankcard center in Southern California. The Company also has operations in
France, the United Kingdom and Ireland that are not material to the
consolidated statements of financial condition as of September 30, 1997.
Administrative headquarters of the Company, the Banks and WFC are located in
Portland, Oregon.

The Company's primary sources of revenue are from real estate and consumer
loans acquired in purchase transactions, mortgage-backed securities, loan sale
and securitization transactions, and, to a lesser extent, loan origination and
merchant bankcard operations.

PRINCIPLES OF CONSOLIDATION--WFSG was incorporated in 1996 to be the holding
company for Wilshire Acquisitions Corporation ("WAC"), which is the holding
company for the Banks. WFSG formed certain nonbank subsidiaries, including
WFC, and completed an initial public offering of common stock and a public
debt offering in the fourth quarter of 1996. The accompanying consolidated
financial statements include the accounts of WAC and the Banks for periods
prior to the formation of WFSG. Intercompany accounts have been eliminated in
consolidation.

For purposes of presenting information about WFSG's common stock, weighted
average number of shares outstanding and earnings per share, outstanding
shares of common stock of WAC prior to its combination with WFSG have been
retroactively restated to their WFSG equivalents based on the conversion ratio
at the time of the combination discussed above.

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, the
determination of fair values of certain financial instruments for which there
is not an active market, the allocation of basis between assets sold and
retained and the selection of yields utilized to recognize interest income on
certain mortgage-backed securities.

CASH AND CASH EQUIVALENTS--For purposes of reporting financial condition and
cash flows, cash and cash equivalents include cash and due from banks, federal
funds sold, and securities with original maturities less than 90 days.

SECURITIES AND MORTGAGE-BACKED SECURITIES--The Company's securities
portfolios consist of mortgage-backed and other debt 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
at their 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 include subordinated
securities and the residual interests in loan securitization transactions
initiated by the Company. Trading account

F-10
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

securities are carried at estimated fair value, with unrealized gains and
losses reported 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 with unrealized holding
gains and losses on securities 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 performing and non-
performing loan portfolios, for prices generally 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 an allowance for loan losses
established for those loans. Discounts are allocated into (a) valuation
allowances for estimated losses against face value on specific loans
("specific valuation allowances") and (b) portions of the discounts regarded
as yield adjustments. In addition, for discounted loans purchased by the
Banks, the initial discounts are further segregated into a valuation allowance
for the inherent risk of losses in the loan portfolio that have yet to be
specifically identified ("general valuation allowance") as required by the
Office of Thrift Supervision ("OTS") regulations. The allocated specific and
general valuation allowances are included in the allowance for loan losses.
The allowance for loan losses is increased by additional provisions for losses
that are recorded in current operations. The portion of purchase discounts
regarded as yield adjustment is accreted into income on generally a cash
basis.

Loans other than discounted loans are presented in the consolidated
statements of financial condition in substantially the same manner as
discounted loans except that interest income is recognized on an accrual
basis. Originated loans are carried net of unamortized deferred origination
fees and costs. Deferred fees and costs are recognized in interest income over
the terms of the loans using a method that approximates the interest method.

Certain loans and discounted loans are designated as loans held for sale
(including loans originated by the Company) and are presented at the lower of
cost or fair value. Cost is determined as described above. If fair value is
less than cost, a valuation allowance is established to reduce the carrying
value. Gains or losses on loans sold through securitization or other
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
loans' cost basis between the portions sold, subordinated interests and
servicing rights retained, if any, is based on their relative fair values.

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 Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition
and Disclosures". 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 principal or interest when due. Specific
valuation allowances are established, either at acquisition or through
provisions for losses, as described above, for impaired loans based on the
fair value of the underlying real estate collateral.

F-11
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The Company evaluates single-family real estate, consumer and other smaller
balance, homogeneous loans for impairment on a collective basis. Management
evaluates these loans for impairment by comparing management's estimate of
prospective net realizable value 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 the
provision for loan losses and recoveries of previously charged-off loans. The
allowance is maintained at a level believed adequate by management to absorb
inherent 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. Actual losses may
differ from management's estimates.

ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES--The Company adopted SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," on a prospective basis beginning January 1, 1997. The new
Statement establishes criteria based on legal control to determine whether a
transfer of a financial asset is a sale or a secured borrowing. A sale is
recognized when the Company relinquishes control over a financial asset and is
compensated for such asset. The difference between the net proceeds received
and the carrying amount of the financial asset(s) being sold or securitized is
recognized as a gain or loss on sale.

In general, the Company expects that transactions recorded as sales under
prior accounting standards would have continued to qualify for sales
accounting treatment under the new Statement. The adoption of the new
Statement did not have a material impact on the consolidated financial
position or financial results of the Company.

MORTGAGE SERVICING RIGHTS--The Company adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights," on January 1, 1996. This Statement amended the
prior accounting rules by requiring originated mortgage servicing rights
retained to be capitalized where the mortgage loans are either sold or
securitized, based upon the allocation of the cost between the loans sold or
securitized and the servicing rights retained based on their relative fair
values. Servicing assets and liabilities are subsequently amortized in
proportion to and over the period of estimated net servicing income or loss.
The impairment of mortgage servicing rights is evaluated by comparing the
carrying amount to the estimate of fair value. SFAS No. 125 superseded SFAS
No. 122 and in general applies the accounting for mortgage servicing rights
under SFAS No. 122 to servicing rights of all assets.

INTEREST-RATE SWAPS--Interest-rate swap agreements used to manage interest-
rate risk are treated as hedges of specified assets or liabilities for
accounting and tax purposes and are accounted for on a settlement basis. That
is, the periodic net settlement with the counterparties to the swap agreements
of the interest paid/received is recorded as an adjustment to interest income
or expense derived from the hedged assets or liabilities.

INTEREST RATE FUTURES--Interest rate futures contracts are used as hedges
against future fluctuations in the market value of loans held for sale and
available for sale securities resulting from changes in interest rates.
Contracts are designated as a hedge of specific loans or a portfolio of
homogeneous loans and exhibit a high degree of correlation with the assets
being hedged. Changes in the market value of these instruments are deferred as
adjustments to the cost basis of the hedged loans and securities and thus are
amortized as an adjustment to the yield using a method approximating the
interest method or are recognized in connection with the ultimate sale of such
loans.

FOREIGN CURRENCY TRANSLATION--All assets and liabilities are translated at
current exchange rates. Translation adjustments, related hedging results and
applicable income taxes are included, when material, in

F-12
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

accumulated translation adjustment within stockholders' equity. At September
30, 1997, such adjustments were not material to the financial statements.

REAL ESTATE OWNED--Real estate acquired in settlement of loans or purchased
directly is originally recorded at the lower of fair value less estimated
costs to sell, or purchase price, respectively. The excess of net loan cost
basis over the fair value less estimated selling costs of real estate acquired
through foreclosure is charged to the allowance for loan losses. Any
subsequent operating expenses or income, reductions in estimated fair values,
as well as gains or losses on disposition of such properties, are recorded in
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 is shorter.

INCOME TAXES--The Company files consolidated federal income and applicable
state 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.

EARNINGS PER SHARE--Earnings per share for all periods presented are
calculated based upon the weighted average number of shares of 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, and
considering the pay in kind Preferred Stock dividend in determining net income
available to common shareholders. For the years ended December 31, 1996, 1995
and 1994, there is not a significant difference between primary and fully
diluted earnings per share.

In February 1997 the FASB issued SFAS No. 128, "Earnings Per Share", which
simplifies the standards for computing earnings per share ("EPS") previously
found in APB Opinion No. 15, "Earnings per Share". It replaces the
presentation of primary EPS with a presentation of basic EPS. The Company will
be required to present basic and diluted EPS on the face of the income
statement and to reconcile the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.

This Statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. This Statement requires restatement of all prior-period EPS
data presented. Management does not believe that the adoption of this
pronouncement will have a material effect on the presentation of the Company's
earnings per share.

NEW ACCOUNTING PRONOUNCEMENTS--The Financial Accounting Standards Board
recently issued SFAS No. 129, "Disclosure of Information about Capital
Structure," SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information". SFAS No.
129 applies to all entities that issue any securities other than ordinary
common stock and continues the existing

F-13
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

requirements to disclose the pertinent rights and privileges of all
securities. SFAS No. 130 provides guidance for reporting and display of
comprehensive income and its components in the financial statements and SFAS
No. 131 establishes standards for the way that public entities report
information about operating segments in annual financial statements and
requires that those entities report selected information about operating
segments in interim financial reports issued to shareholders. These Statements
are effective for fiscal years beginning after December 15, 1997. The Company
will incorporate these disclosures at the time these pronouncements are
adopted.

RECLASSIFICATIONS--Certain items in the consolidated financial statements
for 1996, 1995 and 1994 were reclassified to conform to the 1997 presentation.

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, 1997 and
December 31, 1996 and 1995 are shown below. Fair value estimates were obtained
from an independent pricing service.

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 30, 1997 COST GAINS LOSSES VALUE
- ------------------ --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for-sale mortgage-backed
securities.......................... $202,248 $4,614 $5,537 $201,325
======== ====== ====== ========
Held-to-maturity:
U.S. Treasury notes................ $ 7,442 $ 120 $ -- $ 7,562
Mortgage-backed securities......... 19,367 4 289 19,082
-------- ------ ------ --------
Total held-to-maturity........... $ 26,809 $ 124 $ 289 $ 26,644
======== ====== ====== ========
DECEMBER 31, 1996
- -----------------
Available-for-sale mortgage-backed
securities.......................... $ 31,367 $ 23 $ 120 $ 31,270
======== ====== ====== ========
Held-to-maturity:
U.S. Treasury notes................ $ 7,429 $ 89 $ -- $ 7,518
Mortgage-backed securities......... 21,724 29 501 21,252
-------- ------ ------ --------
Total held-to-maturity........... $ 29,153 $ 118 $ 501 $ 28,770
======== ====== ====== ========
DECEMBER 31, 1995
- -----------------
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>

F-14
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The amortized cost and estimated fair value of securities held to maturity
other than mortgage-backed securities at September 30, 1997 and December 31,
1996 and 1995, by contractual maturity, are as follows:

<TABLE>
<CAPTION>
AMORTIZED FAIR
1997 COST VALUE
---- --------- ------
<S> <C> <C>
Due in one to five years................................ $7,442 $7,562
====== ======
1996
----
Due in one to five years................................ $7,429 $7,518
====== ======
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, 1997 and December 31, 1996, securities, including trading
account securities, with carrying values of $237,376 and $67,073,
respectively, and market values of approximately $240,569 and $66,909,
respectively, were pledged to secure merchant bankcard transactions, short-
term borrowings and lines of credit (see Note 7), and interest-rate swaps.
There were no securities pledged at December 31, 1995. Of the total securities
pledged, securities with fair values of approximately $254,682 and $59,391,
were held by a third-party custodian as of September 30, 1997 and December 31,
1996, respectively.

Gains from the sale of securities available for sale were $3,053 during the
nine months ended September 30, 1997, and there were no losses during the
period. There were no material gains or losses on sales of securities
available for sale during the nine months ended September 30, 1996 and the
years ended December 31, 1996, 1995 and 1994.

F-15
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

3. LOANS, DISCOUNTED LOANS AND LOANS HELD FOR SALE

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

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
LOANS 1997 1996 1995
----- ------------- --------- --------
<S> <C> <C> <C>
Real estate loans:
One to four units..................... $ 48,069 $ 63,562 $138,547
Over four units....................... 64,231 68,897 71,239
Commercial............................ 69,134 54,013 50,749
Land.................................. 2,273 2,558 2,709
-------- --------- --------
Total loans secured by real estate.... 183,707 189,030 263,244
Other loans............................. 20,830 22,768 19,832
-------- --------- --------
204,537 211,798 283,076
Less:
Allowance for loan losses, deferred
fees, and discount on purchased
loans................................ (31,013) (35,772) (24,249)
-------- --------- --------
$173,524 $ 176,026 $258,827
======== ========= ========
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
DISCOUNTED LOANS 1997 1996 1995
---------------- ------------- --------- --------
<S> <C> <C> <C>
Real Estate loans:
One to four units..................... $397,177 $ 260,672 $ 18,380
Over four units....................... 12,876 -- --
Commercial............................ 48,575 935 863
Land.................................. 8,649 46 --
-------- --------- --------
Total loans secured by real estate.... 467,277 261,653 19,243
Other loans............................. 187,835 946 967
-------- --------- --------
655,112 262,599 20,210
Less:
Allowance for loan losses and discount
on purchased loans................... (304,652) (55,859) (6,863)
-------- --------- --------
$350,460 $ 206,740 $ 13,347
======== ========= ========
<CAPTION>
LOANS HELD FOR SALE
-------------------
<S> <C> <C> <C>
Real estate loans:
One to four units..................... $229,162 $ 27,420 $ 33,497
Over four units....................... 14,575 464 --
Commercial............................ 31,685 9,061 466
Land.................................. 5,322 1,680 194
-------- --------- --------
Total loans secured by real estate.... 280,744 38,625 34,157
Other loans............................. 29,917 445 12
-------- --------- --------
310,661 39,070 34,169
Less:
Allowance for loan losses, deferred
fees, and discount on purchased
loans................................ (43,626) (10,244) (15,572)
-------- --------- --------
$267,035 $ 28,826 $ 18,597
======== ========= ========
</TABLE>

F-16
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

As of September 30, 1997 and December 31, 1996 and 1995, loans with
adjustable rates of interest were $268,313, $230,983 and $265,702,
respectively, and loans with fixed rates of interest were $902,007, $282,484
and $71,753, respectively. Adjustable-rate loans are generally indexed to U.S.
Treasury Bills, 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.

At September 30, 1997, December 31, 1996 and 1995, loans with unpaid
principal balances of approximately $808,538, $43,615 and $0, respectively,
were pledged to secure credit line borrowings and repurchase agreements
included in short-term borrowings (see Note 7).

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

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- --------------------------
1997 1996 1996 1995 1994
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period..................... $ 37,555 $25,651 $ 25,651 $ 7,701 $ 4,314
Allocations of purchased
loan discounts:
at acquisition............ 92,751 15,972 10,751 19,007 2,809
at disposition............ (36,245) (12,494) (17,218) (5,404) (1,666)
Recoveries.................. 982 1,424 1,822 81 71
Provision for loan losses... 926 15,751 16,549 4,266 2,173
Allowance related to loans
sold....................... (5,338) -- -- -- --
-------- ------- -------- ------- -------
$ 90,631 $46,304 $ 37,555 $25,651 $ 7,701
======== ======= ======== ======= =======
</TABLE>

At September 30, 1997 and December 31, 1996 and 1995, the Banks had impaired
loans totaling $24,925, $12,553 and $14,241, respectively, and had recorded
specific valuation allowances to measure the impairments of those loans
totaling $6,290, $4,173 and $4,155, respectively. The Banks had impaired loans
totaling $17,777, $13,711 and $9,593, respectively, with no recorded specific
valuation allowances. At September 30, 1997 and December 31, 1996, the nonbank
subsidiaries had impaired loans with unpaid principal balances of $62,019 and
$4,472, respectively, and a carrying value, net of purchase discount, of
$39,848 and $2,768, respectively, which is below fair value. The average
unpaid principal balances of impaired loans during the periods ended September
30, 1997 and December 31, 1996 and 1995 were $67,729, $25,049 and $24,204,
respectively. Interest income recognized on impaired loans during the same
periods was $3,014, $1,746 and $1,631, respectively, based on cash payments.
These amounts exclude consideration of single-family residential and other
loan pools evaluated for impairment on a pooled basis.

The above amounts do not include impaired discounted loans. Management has
determined that generally all discounted loans meet the criteria for
impairment as defined by SFAS 114 and collectively evaluates these loans for
impairment.

The Company has a geographic concentration of mortgage loans in Southern
California and in the northeastern United States. Substantially all loans
originated or acquired by FBBH and GSB prior to their acquisition by the
Company were collateralized by Southern California real estate.

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. 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, 1997 and December 31, 1996 and 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 levels
of losses.

F-17
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

4. REAL ESTATE OWNED

Real estate owned consists of property that was obtained through foreclosure
or was purchased directly. Activity in the valuation allowance on real estate
owned is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------- --------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C>
Valuation allowance for losses on real
estate owned, beginning of period....... $ -- $1,193 $1,193 $ 123 $ 55
Charge-offs.............................. -- (1,599) (3,322) (82) (32)
Allocation of purchase discount.......... -- 762 2,129 554 --
Provision for the year................... 1,219 -- -- 598 100
------ ------ ------ ------ ----
Valuation allowance for losses on real
estate owned, end of period.............. $1,219 $ 356 $ -- $1,193 $123
====== ====== ====== ====== ====
</TABLE>

Real estate owned purchased directly by WFC with a net carrying value of
$94,232 and $59,729 at September 30, 1997 and December 31, 1996, respectively,
collateralizes credit line borrowings (see Note 7). No real estate owned was
pledged as collateral at December 31, 1995.

5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT

Leasehold improvements and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------
1997 1996 1995
------------- ------ ------
<S> <C> <C> <C>
Leasehold improvements.. $ 453 $ 319 $ 299
Furniture and
equipment............... 2,148 837 718
------ ------ ------
Total cost.............. 2,601 1,156 1,017
Accumulated depreciation
and amortization........ (899) (839) (742)
------ ------ ------
$1,702 $ 317 $ 275
====== ====== ======
</TABLE>

6. DEPOSITS

Deposits consist of:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1997 1996 1995
------------- -------- --------
<S> <C> <C> <C>
Passbook accounts......................... $ 563 $ 480 $ 304
Money market accounts..................... 1,590 2,023 1,267
NOW/checking.............................. 5,189 5,625 5,111
Time deposits:
Less than $100............................ 385,628 382,018 247,814
$100 or more.............................. 14,798 111,468 49,028
-------- -------- --------
Total deposits............................ $407,768 $501,614 $303,524
======== ======== ========
</TABLE>

A summary of time deposits, by maturity, at September 30, 1997 is as
follows:

The interest rate characteristics of certain deposits have been changed
utilizing interest rate swaps. See Note 9 for the specific terms and rates on
instruments outstanding.

F-18
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7. NOTES PAYABLE AND SHORT-TERM BORROWINGS

Notes payable at September 30, 1997 and December 31, 1996 are unsecured,
bear interest at 13% and mature in 2004. The interest rate characteristics of
a portion of these notes have been altered using an interest rate swap. The
terms of this swap are discussed in Note 9. Notes payable at December 31, 1995
are unsecured, bear interest at 14% and had no stated maturity. Short-term
borrowings at September 30, 1997 and December 31, 1996 include repurchase
agreements and line of credit borrowings. Short-term borrowings at December
31, 1995 are repurchase agreements. Proceeds from the various credit
facilities are used primarily for the acquisition of loan pools. Following is
information about short-term borrowings:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- --------------------------
1997 1996 1996 1995 1994
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Average balance during the
period......................... $503,016 $35,721 $ 51,316 $ 4,122 $ 4,757
Highest amount outstanding
during the period............. 790,882 97,000 190,000 14,950 11,377
Average interest rate during
the period..................... 7.6% 6.8% 6.9% 5.6% 4.4%
Average interest rate--end of
period......................... 7.4% -- 7.8% 6.7% 5.8%
</TABLE>

As of September 30, 1997 and December 31, 1996, the Company had committed
lines of credit, including repurchase agreement lines, totaling $592,787 and
$350,000, respectively, and uncommitted lines totaling $521,017 and $360,000,
respectively. $658,042 and $97,624 was drawn on these lines and included in
short-term borrowings at September 30, 1997 and December 31, 1996,
respectively.

8. INCOME TAXES

The domestic and foreign components of income (loss) before domestic and
foreign income and other taxes were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER
SEPTEMBER 30, 31,
----------------- -------------------
1997 1996 1996 1995 1994
------- -------- ------ ---- -------
<S> <C> <C> <C> <C> <C>
Domestic................................. $22,434 $(5,734) $5,092 $639 $(1,778)
Foreign.................................. (1,211) -- -- -- --
------- -------- ------ ---- -------
Total.................................... $21,223 $(5,734) $5,092 $639 $(1,778)
======= ======== ====== ==== =======
</TABLE>

The provision for income tax consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER
ENDED SEPTEMBER 30, 31,
-------------------- ---------------------
1997 1996 1996 1995 1994
--------- ---------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Current tax provision (benefit):
Federal......................... $ 3,450 $ (93) $ 3,208 $ 434 $(656)
State........................... 1,013 2 930 32 19
Foreign......................... 92 -- -- -- --
--------- ---------- ------- ----- -----
4,555 (91) 4,138 466 (637)
--------- ---------- ------- ----- -----
Deferred tax provision (benefit):
Federal......................... 3,154 (3,081) (3,135) (250) 90
State........................... 1,272 (1,480) (878) (169) 21
Foreign......................... -- -- -- -- --
--------- ---------- ------- ----- -----
4,426 (4,561) (4,013) (419) 111
--------- ---------- ------- ----- -----
Total income tax provision
(benefit).................... $ 8,981 $ (4,652) $ 125 $ 47 $(526)
========= ========== ======= ===== =====
</TABLE>

F-19
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------- -------------------
1997 1996 1996 1995 1994
------ ------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Federal income tax provision at
statutory rate........................ 35.0% (34.0)% 35.0% 35.0% (35.0)%
State taxes, net of federal tax
effect................................ 7.0 (11.1)% 8.5 4.0 --
Valuation allowance................... 0.0 (29.2)% (33.9) (25.1) 8.8
Change in prior period estimate....... 0.0 (5.2)% (4.7) (7.8) --
Other................................. 0.3 (1.6)% (2.4) 1.3 (3.4)
------ ------- ----- ----- -----
Effective income tax rate............. 42.3% (81.1)% 2.5% 7.4% (29.6)%
====== ======= ===== ===== =====
</TABLE>

Deferred income tax assets and liabilities are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
1997 1996 1995
------------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Purchase discounts......................... $ 10,187 $ 2,884 $ 1,349
Purchase accounting........................ 287 483 629
Unearned income............................ 2,545 -- --
Depreciation............................... 43 73 65
State taxes................................ 422 -- --
Provision for loan loss.................... -- 2,291 408
Unrealized loss on securities.............. 774 -- --
Pass through income........................ 1,754 -- --
Other...................................... 1,400 -- 180
-------- ------- -------
Gross deferred tax assets................ 17,412 5,731 2,631
-------- ------- -------
Deferred tax liabilities:
Deferred loan fees......................... (256) (217) (351)
FHLB stock dividends....................... (375) (268) (242)
State taxes................................ -- (42) --
Write off of loan basis.................... (16,462) -- --
Unrealized gains on securities............. -- (744) --
Other...................................... (227) (277) (142)
-------- ------- -------
Gross deferred tax liabilities........... (17,320) (1,548) (735)
-------- ------- -------
Total deferred tax asset................... 92 4,183 1,896
Valuation allowance........................ -- -- (1,726)
-------- ------- -------
Net deferred tax asset................... $ 92 $ 4,183 $ 170
======== ======= =======
</TABLE>

Deferred taxes have not been provided on undistributed earnings of foreign
subsidiaries as it is the Company's intention to reinvest such earnings
permanently. The amount held for reinvestment in overseas operations amounted
to $427 at September 30, 1997. Additional U.S. income taxes may be due upon
remittance of those earnings (net of foreign tax credits).

F-20
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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

PROFIT SHARING PLAN--The Company's 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 Company's Board of
Directors, the Company may elect to contribute to the plan based on profits of
the Company or based on matching participants' contributions. For the years
ended December 31, 1996, 1995 and 1994, the Company contributed $43, $28 and
$0, respectively, to the plan. The discretionary contribution for fiscal year
1997 had not been determined as of September 30, 1997.

LEASE COMMITMENTS--The following is a schedule by period of future minimum
rental payments under operating leases:

<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
------------
<S> <C>
1997........................................... $ 123
1998........................................... 466
1999........................................... 484
2000........................................... 413
2001........................................... 327
2002........................................... 39
------
Total......................................... $1,852
======
</TABLE>

Lease commitments include commitments to an affiliated company which require
annual lease payments of $276 through 2001.

EMPLOYMENT AGREEMENTS--The Company has entered into substantially similar
employment agreements, effective November 1, 1996, with its Chief Executive
Officer and its President, who are also the principal shareholders of the
Company. Each agreement provides for an initial three-year term that is
automatically renewable for successive two-year periods unless either party
gives written notice to the other at least ninety days prior to the expiration
of the employment term. Each agreement provides for an annual base salary of
$300, which may be increased, but not decreased, by the Compensation Committee
of the Board of Directors, and an annual bonus. The bonuses may not exceed in
the aggregate 20% of the pre-tax profits of the Company.

FINANCIAL INSTRUMENTS INVOLVING OFF-BALANCE SHEET RISK--In hedging the
interest rate exposure of a fixed-rate or lagging-index asset, the Company may
create a hedge which matches the principal amortization of such an asset
against the maturity of the Company's liabilities generally by entering into
short sales or forward sales of U.S. Treasury securities, Government
Securities, interest rate futures contracts or interest rate swap agreements.
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. At September 30, 1997 and December 31, 1996, the notional
amounts of interest rate swaps related to deposits were $214.4 million and
$234.3 million, respectively. The weighted average fixed payments and
floating-rate receipts of interest were 6.06% and 6.07% and 0.29% and 0.28%
over USD LIBOR, respectively.

The Company also utilizes interest rate swaps to convert certain fixed rate
borrowings to variable rate. The notional amounts of interest rate swaps
related to the 13% Series A Notes were $20.0 million and $0 at September 30,
1997 and December 31, 1996, respectively. The weighted average fixed receipts
and floating rate payments of interest were 13% and 1.25% over USD Libor,
respectively. At September 30, 1997 the Company also had open short positions
on 40 U.S. Treasury Bond, 500 10-year U.S. Treasury Note, 260 5-year U.S.
Treasury Note, and 450 French Franc futures contracts.

F-21
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

PURCHASE COMMITMENTS--From time to time, the Company enters into various
commitments and letters of intent relating to purchases of loans, foreclosed
real estate portfolios and discrete operating companies. There can be no
assurance that any of such transactions will ultimately be consummated. It is
the Company's policy to record such transactions in the financial statements
in the period in which such transactions are closed.

In September 1997, the Company entered into an agreement to acquire a
portfolio of loans from a European insurance company for a purchase price of
approximately $140 million. The Company expects to finance approximately 80%
of the purchase price with an unrelated third party. The Company has granted
the Wilshire REIT (see Note 17) an option to purchase all or a portion of the
Company's 50% interest in such assets.

The Company has entered into an agreement to purchase certain assets of an
unaffiliated mortgage originator for a purchase price of approximately $2.8
million in cash. The Company also entered into an agreement to purchase an
unaffiliated manufactured housing loan originator for a purchase price of
approximately $5.7 million in cash. The total assets which would be acquired
total approximately $50 million. There can be no assurance as to when or if
such transactions will be consummated.

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 results of
operations or financial position.

10. REGULATORY MATTERS

REGULATORY AGREEMENT--On October 28, 1997, FBBH and GSB consented to
separate but similar Orders to Cease and Desist (the "Orders") issued by the
OTS. The Orders superceded previously existing Cease and Desist orders between
FBBH and the OTS issued October 31, 1996.

The Orders prohibit FBBH and GSB 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. The Company does not expect to be able to grow the Banks until
and unless the Orders are lifted or modified. The Orders also prohibit the
Banks from purchasing (i) any loans or real estate, without the approval of
the OTS, until certain acquisition and servicing delinquencies identified by
the OTS have been corrected, and (ii) any non-performing assets or foreclosed
real estate until such time as the Banks are rated a composite "3" rating
according to the Uniform Financial Institutions Rating System.

The Orders require the Banks to (i) maintain an effective internal asset
review system that provides for adequate internal controls to ensure that
management timely reviews and classifies assets pursuant to their policies;
(ii) fully comply with all policies and procedures submitted to the OTS
pursuant to the previous Cease and Desist Orders; (iii) operate pursuant to
and comply with their business plans; and (iv) submit to the OTS, by no later
than November 30, 1997, a written plan to develop or obtain the internal
expertise and resources necessary to measure, monitor and model net interest
income and net portfolio value (the "IRR Plan"); (v) review and analyze, by
November 30, 1997, the terms of all existing loan servicing or other
agreements with affiliates, to confirm that such agreements comply with the
Orders and that there are formal written agreements with respect to all
transactions with affiliates; and (vi) compare the results of profitability
models with the performance of purchased assets. The Orders also require the
Banks to submit to the OTS, by November 30, 1997 and after each calendar
quarter, reports (i) detailing their progress in implementing their Allowance
for Loan Losses policies and the results of their reserve analysis for the
preceding calendar quarter; (ii) detailing any violations of the policies and
procedures submitted to the OTS that occurred during the preceding quarter,
together with an explanation as to what caused or contributed to the act or
practice constituting such violation,

F-22
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

and what, if any, corrective action has been undertaken; (iii) detailing any
variances from the business plans that occurred during the preceding quarter,
showing actual and planned results, and explaining any variances greater than
5 percent; (iv) detailing the progress in implementing the IRR Plan during the
preceding quarter.

The Orders also require FBBH and GSB to elect at least two additional new
outside directors with specific financial institution industry experience.
Such outside directors cannot have any association with affiliates of the
Banks, the Company or institution-affiliated parties, except that such
directors can simultaneously serve as a director of each of the Banks.

To address regulatory concerns, FBBH also is required to submit to the OTS,
by November 30, 1997, a bankcard plan (the "Bankcard Plan") which shall (i)
establish a method by which FBBH will estimate the appropriate level of
reserves for its bankcard operations; (ii) establish internal controls; (iii)
create an overdraft policy that requires timely recognition of overdraft
losses and identifies employees with authority to approve overdrafts; and (iv)
ensure that FBBH complies with all applicable statutes and regulations. After
each calendar quarter, FBBH is required to report to the OTS, in writing, any
variances to the Bankcard Plan.

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 Banks and their directors and
officers to further enforcement actions, including termination of Federal
Deposit Insurance Corporation insurance or civil money penalties.

Management believes the Banks are in substantial compliance with the Orders.

CAPITAL REQUIREMENTS

Federally-insured savings associations such as the Banks are required to
maintain minimum levels of regulatory capital. These standards generally are
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 a case-by-case basis. Under the Orders, the Banks were required
to maintain minimum capital ratios required of institutions to be deemed
"well-capitalized" beginning December 31, 1996. In connection with the 1997
examination, the OTS indicated that the capital level of GSB was less than
satisfactory and the capital level of FBBH was not adequate in view of their
risk profiles, despite the fact that the Banks had capital levels that would
otherwise have qualified them as "well capitalized" under OTS regulatory
capital requirements. The OTS also has indicated that the Banks' current
capital requirements may not be appropriate given the deficiencies noted in
the examination. As a result, the Orders (as modified in October 1997) require
FBBH and GSB to maintain core capital and risk-based capital equal to the
dollar amount of capital at March 31, 1997, as measured at the end of each
calendar quarter. The Orders provide that in the event capital falls below the
levels required by the Orders as a result of any determination by the OTS or
otherwise, the Banks would have to raise additional capital. If the OTS were
to impose higher capital requirements on the Banks or additional capital were
required as a result of an adverse determination by the OTS or otherwise, the
Company might inject additional capital into the Banks, whether or not such
usage of capital is optimal for the Company.

F-23
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

As of September 30, 1997, the total core capital and total risk-based
capital amounts of the Banks, compared to the OTS requirements contained in
the Orders is as follows:

<TABLE>
<CAPTION>
GSB FBBH
-------------------------- --------------------------
OTS OTS
ACTUAL REQUIREMENT EXCESS ACTUAL REQUIREMENT EXCESS
------- ----------- ------ ------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Core Capital...... $34,617 $33,146 $1,417 $12,736 $11,872 $864
Total Risk-Based
Capital................ $38,475 $37,610 $ 865 $13,889 $13,179 $710
</TABLE>

<TABLE>
<CAPTION>
TO BE
CATEGORIZED AS
"WELL
CAPITALIZED"
UNDER
PROMPT
CORRECTIVE
FOR CAPITAL ACTION
ACTUAL ADEQUACY PURPOSES(1) PROVISIONS
------------- ---------------------------- --------------
SEPTEMBER 30, 1997 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------ ------- ----- ----------- --------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk-
Weighted Assets (Risk-
Based Capital):
FBBH..................... $13,889 15.7% $ 7,073 greater than $ 8,841 greater than
or equal to 8.0% or equal to 10.0%
GSB...................... 38,475 13.1% 23,555 greater than 29,444 greater than
or equal to 8.0% or equal to 10.0%
Tier 1 Capital to Risk-
Weighted Assets:
FBBH..................... 12,736 14.4% 3,536 greater than 5,305 greater than
or equal to 4.0% or equal to 6.0%
GSB...................... 34,617 11.8% 11,778 greater than 17,666 greater than
or equal to 4.0% or equal to 6.0%
Core Capital to Tangible
Assets:
FBBH..................... 12,736 11.5% 4,417 greater than 5,521 greater than
or equal to 4.0% or equal to 5.0%
GSB...................... 34,617 9.9% 13,925 greater than 17,406 greater than
or equal to 4.0% or equal to 5.0%
Tangible Capital to
Tangible Assets:
FBBH..................... 12,736 11.5% 1,656 greater than Not applicable
or equal to 1.5%
GSB...................... 34,617 9.9% 5,222 greater than Not applicable
or equal to 1.5%
<CAPTION>
DECEMBER 31, 1996
- -----------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk-
Weighted Assets (Risk-
Based Capital):
FBBH..................... $12,835 11.9% $ 8,643 greater than $10,804 greater than
or equal to 8.0% or equal to 10.0%
GSB...................... 36,726 10.1% 29,081 greater than 36,351 greater than
or equal to 8.0% or equal to 10.0%
Tier 1 Capital to Risk-
Weighted Assets:
FBBH..................... 11,436 10.6% 4,322 greater than 6,482 greater than
or equal to 4.0% or equal to 6.0%
GSB...................... 32,136 8.8% 14,540 greater than 21,810 greater than
or equal to 4.0% or equal to 6.0%
Core Capital to Tangible
Assets:
FBBH..................... 11,436 8.0% 5,751 greater than 7,188 greater than
or equal to 4.0% or equal to 5.0%
GSB...................... 32,136 7.9% 16,271 greater than 20,338 greater than
or equal to 4.0% or equal to 5.0%
Tangible Capital to
Tangible Assets:
FBBH..................... 11,436 8.0% 2,156 greater than Not applicable
or equal to 1.5%
GSB...................... 32,136 7.9% 6,101 greater than Not applicable
or equal to 1.5%
</TABLE>

F-24
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
TO BE
CATEGORIZED AS
"WELL CAPITALIZED"
UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES(1) ACTION PROVISIONS
------------ ---------------------------- -----------------------------
DECEMBER 31, 1995 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ----------------- ------ ----- --------- ---------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk-
Weighted Assets (Risk-
Based Capital):
FBBH.................. $9,820 9.8% $ 7,999 greater than $ 9,998 greater than
or equal to 8.0% or equal to 10.0%
GSB................... 15,523 10.4% 11,973 greater than 14,967 greater than
or equal to 8.0% or equal to 10.0%
Tier 1 Capital to Risk-
Weighted Assets:
FBBH.................. 8,549 8.6% 3,999 greater than 5,999 greater than
or equal to 4.0% or equal to 6.0%
GSB................... 13,852 9.3% 5,987 greater than 8,980 greater than
or equal to 4.0% or equal to 6.0%
Core Capital to Tangible
Assets:
FBBH.................. 8,549 6.2% 5,508 greater than 4,999 greater than
or equal to 4.0% or equal to 5.0%
GSB................... 13,852 6.8% 8,201 greater than 7,483 greater than
or equal to 4.0% or equal to 5.0%
Tangible Capital to
Tangible Assets:
FBBH.................. 8,549 6.2% 2,066 greater than Not applicable
or equal to 1.5%
GSB................... 13,852 6.8% 3,075 greater than Not applicable
or equal to 1.5%
</TABLE>
- --------
(1) These capital adequacy ratios represent the requirements for all savings
institutions. The Bank's minimum capital requirements are the ratios
specified in their Orders and those in the column containing the "well
capitalized" requirements as well as the capital amounts indicated in the
preceding table.

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 WAC and,
ultimately, to WFSG.

SAIF ASSESSMENT--During the fourth quarter of 1996, the Company paid
approximately $1,413 for a special SAIF deposit insurance fund assessment
resulting from legislation enacted to recapitalize the SAIF fund.

BANK MERGER--In December 1997, the OTS approved an application to merge the
two Banks.

11. SIGNIFICANT TRANSACTIONS

In September 1997, the Company completed a securitization of approximately
$146 million of unpaid principal balance of loans resulting in a gain of
approximately $11.9 million. At the sale date, the Company allocated
approximately $1.7 million of original cost basis to retained servicing
rights. Such amount is included in other assets in the consolidated statement
of financial position as of September 30, 1997.

In June 1997, the Company completed a sale of approximately $175 million of
loans, resulting in a gain of approximately $11.2 million. At the sale date,
the Company allocated $3.5 million and $1.8 million of original cost basis to
retained servicing rights and other participation interests retained in the
loans, respectively, and such amounts are included in other assets, in the
consolidated statement of financial position as of September 30, 1997.

The Company also sold approximately $26.8 million of loans in September 1997
which resulted in a gain of approximately $8.1 million.

F-25
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

In August 1997, the Company purchased a portfolio of loans through the
acquisition of the stock of a French bank for a purchase price of
approximately $45 million in cash. It is anticipated that a significant
portion of the acquisition will be financed.

On August 15, 1997, the Company issued $100.0 million aggregate principal
amount of its 13% Series A Notes due 2004.

12. RELATED PARTY TRANSACTIONS

Substantially all loans are serviced by Wilshire Credit Corporation ("WCC"),
pursuant to a servicing agreement. Management believes that the terms of the
servicing agreement are no less favorable to the Company than terms offered by
other servicers. Due from affiliate in the accompanying consolidated
statements of financial condition substantially represents the amount of
payments collected by WCC but not yet remitted to the Company 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 Company.

On July 31, 1997, the Company issued to an affiliate shares of 14%
cumulative, pay in kind preferred stock with an aggregate liquidation value of
$27.5 million in exchange for the cancellation of certain payables to that
affiliate aggregating approximately $27.1 million and $0.4 million in cash.

Loans with carrying values of $128,389 and mortgage-backed securities with
carrying values of $8,767 were transferred to WFSG from WCC during the nine
months ended September 30, 1997. These assets were transferred at a price
equal to their net book value at the date of transfer. Any gain or loss from
any sale or securitization of such assets by WSFG will be recorded in the
consolidated financial statements of WSFG when any such transaction is
consummated.

In November and December 1996, rights to servicing fees related to loans
held by WCC, including a profit participation element, were transferred to
WFSG at WCC's historical cost basis of $0.

13. STOCK OPTIONS

The Company adopted a new Stock Plan on October 28, 1996. Under the Stock
Plan, the Company may grant options and other awards not to exceed 1,825,000
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 between 100% and 110% of the fair value of WFSG common stock at the
grant date. Restricted stock and stock appreciation rights may also be granted
under the Stock Plan. The initial awards under the new Stock Plan were granted
at the date of the initial public offering. Options for 1,095,000 shares were
granted to the Company's two largest stockholders. The Stock Plan also
provides that nonemployee Company directors receive automatic nonstatutory
stock option grants.

In 1994 and 1995, the Banks issued stock options for the benefit of certain
directors, executives and consultants. All grants were made with exercise
prices at least equal to the book value of the relevant Bank's shares on the
grant dates. In the fourth quarter of 1996, these options were converted into
31,225 options to purchase the stock of WFSG.

F-26
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

A summary of the Company's stock options as of September 30, 1997, December
31, 1996, and 1995 and changes during the periods then ended is presented
below:

<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ---------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 1,126,225 $11.39 31,225 $ 8.80 5,872 $14.90
Granted................. 119,337 18.71 1,095,000 11.46 25,353 7.39
--------- --------- ------
Outstanding at end of
period.................. 1,245,562 12.05 1,126,225 11.39 31,225 8.80
========= ========= ======
</TABLE>

Additional information regarding options outstanding as of September 30,
1997 is as follows:

<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
RANGE OF AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE
PRICES SHARES LIFE PRICE
------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
$5.58.................................... 18,359 2.75 years $ 5.58
$10.50-$11.55............................. 730,000 9.22 10.55
$12.15-$13.13............................. 371,994 9.08 13.11
$14.90................................... 5,872 1.75 14.90
$17.88-$18.70............................. 119,086 9.40 18.69
$24.88................................... 251 10.00 24.88
---------
1,245,562
=========
</TABLE>

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
its Stock Plan. Accordingly, no compensation expense has been recognized for
grants under the Stock Plan. Had compensation expense for the Company's Stock
Plan been determined based on the fair value at the grant date consistent with
the methods of SFAS No. 123, the Company's net income and earnings per share
for the nine months ended September 30, 1997 and the year ended December 31,
1996 would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Net income to common shareholders:
As reported......................... $11,590 $4,967
Pro forma........................... $10,946 $2,775
Net income per common and common
share equivalent:
Primary earnings per share:.......
As reported..................... $ 1.47 $ 1.07
Pro forma....................... $ 1.39 $ 0.60
Fully diluted earnings per share:
As reported..................... $ 1.41 $ 1.07
Pro forma....................... $ 1.33 $ 0.60
</TABLE>

There were no options granted in 1997 with exercise prices equivalent to the
market value of the stock at the grant date. The weighted average fair value
of options granted during 1997 was $644 for options with exercise prices
exceeding the market price of the stock at the grant date. Fair values were
estimated using the

F-27
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Black-Scholes option-pricing model with the following weighted average
assumptions used: no dividend yield, expected volatility of 25%, risk-free
interest rate of 6.6% and expected lives of three to five years.

14. 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.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $ 77,993 $ 77,993
Mortgage-backed securities available for sale............. 201,325 201,325
Mortgage-backed securities held to maturity............... 19,367 19,082
Securities held to maturity............................... 7,442 7,562
Trading account securities................................ 28,163 28,163
Loans, discounted loans, and loans held for sale, net..... 791,019 819,686
Federal Home Loan Bank stock.............................. 4,952 4,952
Liabilities:
Deposits.................................................. 407,768 407,685
Short-term borrowings..................................... 658,042 658,042
Notes payable............................................. 184,245 186,087
Off-balance-sheet liabilities--Interest-rate swaps........ -- 447
--Interest-rate futures...... 1,276 600
--Foreign currency forwards.. 2,174 1,024
<CAPTION>
DECEMBER 31, 1996
-------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $152,298 $152,298
Mortgage-backed securities available for sale............. 31,270 31,270
Mortgage-backed securities held to maturity............... 21,724 21,252
Securities held to maturity............................... 7,429 7,518
Trading account securities................................ 24,541 24,541
Loans, discounted loans, and loans held for sale, net..... 411,592 424,450
Federal Home Loan Bank stock.............................. 2,958 2,958
Liabilities:
Deposits.................................................. 501,614 504,629
Short-term borrowings..................................... 97,624 97,624
Notes payable............................................. 75,000 75,000
Off-balance-sheet liabilities--Interest-rate swaps........ -- (500)
</TABLE>

F-28
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents................................. $ 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.................................................. 303,524 307,177
Borrowings................................................ 13,000 13,000
Notes payable............................................. 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 Cash Equivalents--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--The fair value of
discounted loans, which are predominately nonperforming loans, is more
difficult to estimate 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. Discounted loans fair values were
estimated using the Company's best judgement for these factors in
determining the estimated present value of future net cash flows discounted
at a risk-adjusted market rate of return. 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 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 approximated the prevailing rates
offered to depositors as of the reporting date.

F-29
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Short-Term Borrowings--The carrying amounts of short-term borrowings
approximate fair value due to the short-term nature of these instruments.

Notes Payable--The fair value of notes payable is obtained from market
bids from independent securities dealers.

Off-Balance-Sheet Liabilities--The fair values of interest-rate swaps are
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 are estimated based on deferred fees associated
with such commitments, which are immaterial as of the reporting date.

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.

15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------
SEPTEMBER 30, JUNE 30, MARCH 31,
1997 1997 1997
------------- -------- ---------
<S> <C> <C> <C>
Interest income.............................. $29,947 $27,892 $17,617
Interest expense............................. 24,345 20,717 13,974
Provision (recovery) for loan losses......... 2,350 445 (1,869)
------- ------- -------
Net interest income after provision
(recovery) for loan losses.................. 3,252 6,730 5,512
Noninterest income........................... 28,631 15,585 2,501
Noninterest expense.......................... 19,578 13,502 7,908
------- ------- -------
Income before income taxes................... 12,305 8,813 105
Income tax provision......................... 5,237 3,702 42
------- ------- -------
Net income................................... $ 7,068 $ 5,111 $ 63
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------
JUNE
DECEMBER 31, SEPTEMBER 30, 30, MARCH 31,
1996 1996 1996 1996
------------ ------------- ------- ---------
<S> <C> <C> <C> <C>
Interest income................. $14,285 $12,186 $12,407 $9,544
Interest expense................ 9,685 7,572 7,046 4,974
Provision for loan losses....... 798 4,883 5,483 5,385
------- ------- ------- ------
Net interest income (loss) after
provision for loan losses...... 3,802 (269) (122) (815)
Noninterest income.............. 11,796 1,140 817 4,189
Noninterest expense............. 4,772 5,298 2,525 2,851
------- ------- ------- ------
Income (loss) before income
taxes.......................... 10,826 (4,427) (1,830) 523
Income tax provision (benefit).. 4,777 (3,373) (805) (474)
------- ------- ------- ------
Net income (loss)............... $ 6,049 $(1,054) $(1,025) $ 997
======= ======= ======= ======
</TABLE>

F-30
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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 loan losses....... 1,045 1,020 1,028 1,173
------- ------ ------ ------
Net interest income after
provision for loan losses ..... 2,214 1,449 1,175 796
Noninterest income.............. 353 1,591 526 467
Noninterest expense............. 2,795 2,052 1,629 1,456
------- ------ ------ ------
(Loss) income before income
taxes.......................... (228) 988 72 (193)
Income tax (benefit) provision.. (21) 78 4 (14)
------- ------ ------ ------
Net (loss) income .............. $ (207) $ 910 $ 68 $ (179)
======= ====== ====== ======
<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 loan losses....... 2,173 -- -- --
------- ------ ------ ------
Net interest (loss) income after
provision for loan losses...... (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 (provision).. 566 38 71 (149)
------- ------ ------ ------
Net (loss) income............... $(1,349) $ (90) $ (169) $ 356
======= ====== ====== ======
</TABLE>

F-31
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

16. PARENT COMPANY INFORMATION

CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
1997 1996 1995
------------- -------- -------
<S> <C> <C> <C>
ASSETS
Cash........................................... $ 22,002 $ 65,207 $ 1
Mortgage-backed securities available for sale,
at fair value................................. 53,836 -- --
Intercompany receivable........................ 117,988 22,095 --
Due from affiliate............................. 50,802 -- --
Investment in subsidiaries..................... 64,723 48,065 18,777
Prepaid expenses and other assets.............. 20,707 4,665 153
-------- -------- -------
$330,058 $140,032 $18,931
======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other liabilities......... $ 4,448 $ 4,010 $ 317
Due to affiliates.............................. -- -- 575
Short-term borrowings.......................... 41,596 -- --
Notes payable.................................. 184,245 75,000 11,000
-------- -------- -------
Total liabilities.......................... 230,289 79,010 11,892
Contributed and retained equity................ 99,769 61,022 7,039
-------- -------- -------
$330,058 $140,032 $18,931
======== ======== =======
</TABLE>

CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
---------------- -----------------------
1997 1996 1996 1995 1994
------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Interest income.................... $ 3,853 $ 2 $ 45 $ 9 $ 24
Interest expense................... 11,418 67 421 243 31
------- ------- ------ ------ -------
Net interest expense............... (7,565) (65) (376) (234) (7)
Noninterest income................. -- 563 563 1,155 611
Noninterest expense................ 1,205 125 125 363 156
------- ------- ------ ------ -------
Income (loss) before equity in
earnings of subsidiaries and
income tax benefit................ (8,770) 373 62 558 448
Income tax benefit................. 4,011 -- 131 -- --
Equity in earnings (loss) of
subsidiaries...................... 17,001 (1,455) 4,774 34 (1,700)
------- ------- ------ ------ -------
Net income (loss).................. $12,242 $(1,082) $4,967 $ 592 $(1,252)
======= ======= ====== ====== =======
</TABLE>

F-32
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------
1997 1996 1996 1995 1994
--------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)........... $ 12,242 $ (1,082) $ 4,967 $ 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) (1,045) (488)
Equity in (earnings) loss
of subsidiaries........... (17,782) 1,455 (4,774) (34) 1,700
Change in:
Prepaid expenses and
other assets............ (16,042) (562) (4,512) 51 495
Accounts payable and
other liabilities...... 438 447 4,657 90 (111)
Due from affiliates..... (23,954) -- -- (71) (29)
Due to affiliates....... -- 132 (575) -- --
Intercompany
receivables............. (95,893) -- (22,095) -- --
Other................... -- -- -- 33 --
--------- -------- -------- ------- -------
Net cash (used in)
provided by operating
activities........... (140,991) (393) (23,377) (384) 315
--------- -------- -------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES--
Purchase of Mortgage-backed
Securities available for
sale....................... (57,936) -- -- -- --
Principal repayment of
Mortgage-backed Securities
available for sale......... 3,757 -- -- -- --
Net investment in
subsidiaries................ 1,124 (17,358) (24,514) (9,000) (4,746)
--------- -------- -------- ------- -------
Net cash used in investing
activities................. (53,055) (17,358) (24,514) (9,000) (4,746)
--------- -------- -------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of notes payable... 109,245 -- 75,000 -- --
Proceeds from short term
borrowings.................. 44,177 -- -- -- --
Repayments of short term
borrowings.................. (2,581) -- -- -- --
Issuance of capital stock... -- 17,750 38,097 -- 4,750
Issuance of subordinated
debt........................ -- -- -- 9,000 --
Dividends from subsidiary... -- -- -- 65 --
--------- -------- -------- ------- -------
Net cash provided by
financing
activities........... 150,841 17,750 113,097 9,065 4,750
--------- -------- -------- ------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS.... (43,205) (1) 65,206 (319) 319
CASH:
Beginning of year........... 65,207 1 1 320 1
--------- -------- -------- ------- -------
End of year................. $ 22,002 -- $ 65,207 $ 1 $ 320
========= ======== ======== ======= =======
NONCASH FINANCING ACTIVITIES:
Conversion of capital stock
to notes payable .......... -- -- -- $ 1,000
Exchange of note payable for
common stock................ -- $ 11,000 $ 11,000 --
Issuance of preferred stock
in exchange for
cancellation of certain
payables due to affiliate.. $ 27,500 -- -- --
Paid in kind preferred stock
dividend.................... $ 652 -- -- --
</TABLE>

F-33
<PAGE>

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

17. SUBSEQUENT EVENTS

In October 1997, the Company established the Wilshire REIT, which intends to
qualify and will elect to be taxed as a Real Estate Investment Trust. The
Wilshire REIT has filed a registration statement with the Securities and
Exchange Commission in connection with a proposed underwritten public offering
of its common stock. The Company expects to retain a minority interest
(currently expected to be approximately 9.9%, with options to acquire an
additional 10%) in the Wilshire REIT following the Wilshire REIT's proposed
initial public offering. There can be no assurance as to when or if the
Wilshire REIT's proposed initial public offering will be completed.

In December 1997, WFSG filed a registration statement with the Securities &
Exchange Commission concerning the sale of 3,500,000 shares of its common
stock. The proceeds from this offering are expected to be used to redeem the
$27.5 million of PIK Preferred Stock, plus accrued dividends, and provide the
capital (or equity) portion of the Company's investment in future acquisitions
of pools of loans and other investments. Pending such uses, the Company
intends to reduce short-term debt. There can be no assurance that the
transactions described above will be consummated.

F-34
<PAGE>

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

NO DEALER, SALESPERSON OR ANY PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPEC-
TUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK
OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLIC-
ITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURIS-
DICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 11
The Company.............................................................. 19
The Wilshire REIT........................................................ 20
Recent Developments...................................................... 23
Use of Proceeds.......................................................... 24
Price Range of Common Stock.............................................. 25
Dividend Policy.......................................................... 26
Dilution................................................................. 27
Capitalization........................................................... 28
Regulatory Capital Ratios of the Savings Banks........................... 28
Selected Historical Financial Information of the Company................. 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
Business................................................................. 52
Regulation............................................................... 79
Management............................................................... 89
Principal and Selling Shareholders....................................... 99
Certain Relationships and Related Transactions........................... 100
Taxation................................................................. 100
Description of Capital Stock............................................. 102
Shares Eligible for Future Sale.......................................... 104
Description of Certain Indebtedness...................................... 105
Underwriting............................................................. 108
Legal Matters............................................................ 110
Experts.................................................................. 110
Available Information.................................................... 111
Index to Financial Statements............................................ F-1
</TABLE>

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

3,500,000 Shares

[LOGO OF WILSHIRE FINANCIAL SERVICES GROUP]

Common Stock

-----------

PROSPECTUS

-----------

PRUDENTIAL SECURITIES INCORPORATED

FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

BLACK & COMPANY, INC.

February , 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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............................................. $ 30,574.91
NASD and Nasdaq fees............................................. 10,864.00
Accounting fees and expenses..................................... 1,000,000.00
Legal fees and expenses.......................................... 850,000.00
Printing and engraving expenses.................................. 500,000.00
Miscellaneous expenses........................................... 108,561.09
-------------
Total.......................................................... $2,500,000.00
=============
</TABLE>

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 any
action, suit or proceeding, whether civil, criminal, administrative,
investigative or other (including any 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.

Section 145 of the General Corporation Law of the State of Delaware permits
a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlements
actually and reasonably incurred by them in connection with any action, suit
or proceeding brought by third parties, if such directors or officers acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reason to believe their conduct was unlawful. In a
derivative action, i.e., one by or in the right of the corporation,
indemnification may be made only for expenses actually and reasonably incurred
by directors and officers in connection with the defense or settlement of an
action or suit, and only with respect to a matter as to which they shall have
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interest of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable
to the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the defendant
officers or directors are reasonably entitled to indemnity for such expenses
despite such adjudication of liability.

II-1
<PAGE>

Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit. No such provision shall
eliminate or limit the liability of a director for any act or omission
occurring prior to the date when such provision becomes effective.

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.

Effective July 31, 1997, the Company issued to the Wilshire Private
Companies 27,500 shares of Cumulative Redeemable PIK Preferred Stock having an
aggregate liquidation value of $27.5 million in exchange for the cancellation
of certain accounts payable to the Wilshire Private Companies aggregating
approximately $27.1 million and cash in the amount of approximately $400,000.

II-2
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<C> <S>
** 1.1 Form of Underwriting Agreement
+ 3.1 Certificate of Incorporation
++ 3.2 Certificate of Designation of Cumulative Redeemable PIK Preferred
Stock
+ 3.3 By-laws
***5.1 Opinion of Proskauer Rose 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
+10.5 Master Repurchase Agreement between First Bank of Beverly Hills,
F.S.B. and Bear Stearns Mortgage Capital Corporation dated as of May
22, 1996
+10.6 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
+10.7 Master Repurchase Agreement between Girard Savings Bank FSB and Bear
Stearns Mortgage Capital Corporation dated as of December 22, 1995
+10.8 Master Repurchase Agreement dated as of November 15, 1996 between CS
First Boston Mortgage Capital Corp. and Wilshire Funding Corp.
*10.9 Servicing Agreement among Wilshire Financial Services Group Inc. and
Wilshire Credit Corporation dated November 15, 1996
**10.10 Form of Amended and Restated Interim Warehouse and Security Agreement
by and between Prudential Securities Credit Corporation and WMFC
1997-2, Inc.
***10.11 Cease and Desist Order (First Bank of Beverly Hills, F.S.B.)
***10.12 Cease and Desist Order (Girard Savings Bank, F.S.B.)
***11 Statement regarding earnings per share
***12 Statement regarding the computation of the ratio of earnings to fixed
charges
#16 Letter on Change in Certifying Accountant
*21.1 Subsidiaries
***23.1 Consent of Proskauer Rose LLP (included in Exhibit 5.1)
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of Arthur Andersen LLP
***24 Power of Attorney
***27 Financial Data Schedule
</TABLE>
- --------
* Filed herewith
** To be filed by amendment

*** Previously filed
+ Incorporated by reference to the Company's Registration Statement on Form
S-1 dated December 19, 1996 (Registration No. 333-15263)
x Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
++ Incorporated by reference to the Company's Registration Statement on Form
S-4 dated October 10, 1997 (Registration No. 333-37575)
# Incorporated by reference to the Company's Current Report on Form 8-K dated
April 7, 1997

II-3
<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.

None.

ITEM 17. UNDERTAKINGS

The undersigned Company hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement:

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

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-4
<PAGE>

SIGNATURES AND POWER OF ATTORNEY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AMENDMENT NO. 1
TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON
JANUARY 13, 1998.

SIGNATURE TITLE
--------- -----
<S> <C>

/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

/s/ Donald H. Coleman* Director
- -------------------------------------
DONALD H. COLEMAN

/s/ David Dale-Johnson* Director
- -------------------------------------
DAVID DALE-JOHNSON

/s/ Philip G. Forte* Director
- -------------------------------------
PHILIP G. FORTE

/s/ Chris Tassos* Executive Vice President and Chief
- ------------------------------------- Financial Officer (Principal
CHRIS TASSOS Accounting and Financial Officer)

*By Lawrence A. Mendelsohn
AS ATTORNEY-IN-FACT

/s/ Lawrence A. Mendelsohn
- -------------------------------------
LAWRENCE A. MENDELSOHN
</TABLE>

II-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<C> <S>
** 1.1 Form of Underwriting Agreement
+ 3.1 Certificate of Incorporation
Certificate of Designation of Cumulative Redeemable PIK Preferred
++ 3.2 Stock
+ 3.3 By-laws
***5.1 Opinion of Proskauer Rose 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
+10.5 Master Repurchase Agreement between First Bank of Beverly Hills,
F.S.B. and Bear Stearns Mortgage Capital Corporation dated as of May
22, 1996
+10.6 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
+10.7 Master Repurchase Agreement between Girard Savings Bank FSB and Bear
Stearns Mortgage Capital Corporation dated as of December 22, 1995
+10.8 Master Repurchase Agreement dated as of November 15, 1996 between CS
First Boston Mortgage Capital Corp. and Wilshire Funding Corp.
*10.9 Servicing Agreement among Wilshire Financial Services Group Inc. and
Wilshire Credit Corporation dated November 15, 1996
**10.10 Form of Amended and Restated Interim Warehouse and Security Agreement
by and between Prudential Securities Credit Corporation and WMFC
1997-2, Inc.
***10.11 Cease and Desist Order (First Bank of Beverly Hills, F.S.B.)
***10.12 Cease and Desist Order (Girard Savings Bank, F.S.B.)
***11 Statement regarding earnings per share
Statement regarding the computation of the ratio of earnings to fixed
***12 charges
#16 Letter on Change in Certifying Accountant
*21.1 Subsidiaries
***23.1 Consent of Proskauer Rose LLP (included in Exhibit 5.1)
*23.2 Consent of Deloitte & Touche LLP
*23.3 Consent of Arthur Andersen LLP
***24 Power of Attorney
***27 Financial Data Schedule
</TABLE>
- -------
* Filed herewith
** To be filed by amendment

<PAGE>

EXHIBIT 10.9

LOAN SERVICING AGREEMENT

This Agreement is dated November 15, 1996 among Wilshire Credit
Corporation, a Nevada corporation ("WCC"), Wilshire Funding Corporation, a
Delaware corporation, ("WFC") Wilshire Financial Services Group Inc., a Delaware
corporation ("WFSG") and Wilshire Servicing Corporation, a Delaware corporation
("WSC"). WFC and WFSG are referred to as the "Company".

RECITALS
--------

The Company owns, and intends to acquire and make, loans, accounts, chattel
paper, real estate owned and other financial assets ("loans") during the term of
this Loan Servicing Agreement (the "Agreement"). The Company desires that WCC
service such loans. In addition, future entities that are affiliated with the
Company ("Affiliates") may acquire or make loans. The term Loan or Loans shall
mean all loans now owned by the Company or its Affiliates, acquired or made by
the Company or its Affiliates, or for which the Company or its Affiliate acts as
a master servicer, and including, without limitation, consumer and commercial
loans, secured and unsecured loans, and whether or not evidenced by a promissory
note.

The parties hereby agree as follows:

1. Non-Exclusive Servicing of Loans. At the request of the Company, WCC
--------------------------------
.shall provide loan portfolio management services, including billing, portfolio
administration and collection services ("Services") for all Loans. The Company
agrees that WCC shall not be required to service loans for which WCC may not
have applicable licenses.

2. Manner and Performance of Service. Except as specifically provided
---------------------------------
herein, WCC shall be entitled to exercise its sole discretion in servicing the
Loans. WCC shall devote such time and attention as shall be necessary to
provide the Company with the Services described herein. WCC may service its own
loans and to render services to any other current clients for existing contracts
and amendments thereof, provided that such activities do not interfere with
WCC's performance of the Services. Without limitation, WCC's Services shall
consist of the following:

2.1 WCC's Duties in General. WCC shall administer the Loans with
-----------------------
reasonable care, using that degree of skill and attention that WCC exercises
with respect to comparable Loans that it services for its own account or as a
fiduciary for others. WCC shall take all necessary actions which WCC in good
faith determines are commercially reasonable in regard to each Loan until it is
collected or WCC, in its good faith judgment, determines that it is no longer
commercially reasonable to continue to try to collect the outstanding
indebtedness of the Loan.
<PAGE>

2.2 Compliance. WCC shall use its best efforts to comply throughout the
----------
term of this Agreement with all requirements of applicable federal, state and
local laws and regulations thereunder, including to the extent applicable, any
consumer and debt collection protection laws and any other consumer credit,
equal opportunity and disclosure laws.

2.3 Collection. WCC shall use its reasonable efforts, but not less than
----------
the same efforts it uses with respect to comparable loans that it services for
its own account or for others, to collect all payments due and to become due
under each of the Loans from the party or parties liable thereunder (a
"Borrower").

2.4 Subcontractors. WCC may subcontract services, but no such subcontract
--------------
shall relieve or reduce WCC's obligations to perform services as provided in
this Agreement.

2.5 Indemnity. WCC shall reimburse and indemnify the Company and its
---------
successors and assigns for and against, and hold the Company and its successors
and assigns harmless from and against, any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses and
disbursements, including without limitation reasonable fees and disbursements of
counsel, which may be imposed upon, or incurred by the Company in any way
relating to or arising out of WCC's gross negligence in its performance of its
duties hereunder. The Company shall reimburse and indemnify WCC and its
successors and assigns for and against, and hold WCC and its successors and
assigns harmless from and against, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and
disbursements, including without limitation reasonable fees and disbursements of
counsel, which may be imposed upon, or incurred by WCC in any way relating to or
arising out of the Loans or the servicing thereof prior to the servicing by WCC.

2.6 Modifications, Adjustable Rate, and Payoffs. In connection with its
-------------------------------------------
collection efforts WCC may modify or change the interest rate of any Loan, and
quote to, and accept from, a Borrower a full or partial payoff amount on any
Loan as full settlement.

2.7 Monthly Accounting Reports. For each month during the term of
--------------------------
this Agreement, WCC will furnish the Company with a monthly report regarding the
Loans by the twenty-fifth (25th) day of the following month. WCC shall furnish
at WCC's cost such other information regarding WCC, the Loans and this Agreement
as the Company may from time to time reasonably request, provided, that if the
information or data requested by the Company is something WCC cannot produce
internally from its then existing reporting systems without manual compilation
or production, or reprogramming its computer system, the Company shall reimburse
WCC for its cost for furnishing such information.

2.8 Software License. WCC hereby licenses all present and future
----------------
proprietary computer software to the Company for the term of this Agreement.

3. Term. This Agreement shall be effective as of its original date and
----
will continue in full force and effect until after five (5) years after the
Servicing Transfer as

2
<PAGE>

provided in Section 11 and thereafter for one year renewal periods unless at
least sixty (60) days prior to the beginning of the renewal period either party
notifies the other that the next one-year period will not be renewed.

4. Fees and Costs. The Company shall pay WCC and WCC may retain or
--------------
disburse from any Loan proceeds the following amounts:

4.1 Reimbursement of Costs. All bona fide amounts paid by WCC to third
----------------------
parties in connection with this Agreement, including without limitation,
stationery suppliers, related printing costs, fees for recordings and filings,
mailgrams, repossession agency fees, legal fees, travel, insurance costs, and
payments arising out of acts or omissions of third parties (including persons
from which the Loans are acquired), and WCC's standard photocopy charges.

4.2 Service Fee. WCC shall be entitled to a fee ("WCC's Service Fee") for
-----------
servicing Loans equal to (a) all interest and other earnings paid or accrued on
amounts from time to time on deposit in any accounts in which proceeds of Loans
are deposited plus (b) a monthly fee equal to an amount negotiated by the
parties for each particular Loan portfolio, which monthly fee shall be
comparable to fees charged by other industry participants in arm's length
transactions for servicing comparable loan portfolios at the time of
acquisition.

4.3 Payment. WCC may withdraw from all Loan proceeds all escrow payments,
-------
costs, and WCC's Service Fee. Within twenty-five (25) days after the last day
of each calendar month WCC shall pay to the Company or the Affiliate owning the
Loan the Net Proceeds received in that calendar month less WCC's Service Fee.
The Company or the applicable Affiliate shall pay WCC within fifteen (15) days
after billing for any excess fees and costs. WCC shall receive any ancillary
income, other than late charges, and any float revenue.

5. Independent Contractor. WCC shall provide the Services in the capacity
----------------------
of an independent contractor. Nothing in this Agreement shall be construed as
establishing an employment, partnership or joint venture between the Company and
WCC.

6. Representations of the Company. The Company represents and warrants as
------------------------------
follows:

6.1 The Company has been duly organized and is validly existing and in
good standing under the laws of the jurisdiction of its organization, with power
and authority to own its properties and to conduct its business as such
properties are currently owned and such business is currently conducted.

6.2 The Company has the power and authority to execute and deliver this
Agreement and to carry out its terms; and the execution, delivery, and
performance of this Agreement have been duly authorized by the Company by all
necessary corporate action on the part of the Company.

3
<PAGE>

6.3 This Agreement constitutes a legal, valid and binding obligation
of the Company enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting
enforcement of creditor rights generally.

7. Representations of WCC. WCC represents and warrants as follows:
----------------------

7.1 WCC has been duly organized and is validly existing and in good
standing under the laws of the jurisdiction of its organization, with power and
authority to own its properties and to conduct its business as such properties
are currently owned and such business is currently conducted and has corporate
power, authority and legal right to service the Loans as provided in this
Agreement.

7.2 WCC has the power and authority to execute and deliver this
Agreement and to carry out its terms; and the execution, delivery, and
performance of this Agreement have been duly authorized by WCC by all necessary
corporate action on the part of WCC.

7.3 This Agreement constitutes a legal, valid and binding obligation
of WCC enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting
enforcement of creditor rights generally.

8. Audits and Examinations.
-----------------------

8.1 WCC shall use reasonable efforts to maintain in good order and
condition throughout the term of this Agreement all Loan files and relevant
materials that WCC has received regarding the Loans.

8.2 WCC shall maintain a copy of each Loan file at its office or
elsewhere within its control, provided, that at the Company's request, WCC will
deliver copies of such Loans to the Company or a designee of the Company. WCC
shall make available to the Company or its duly authorized representatives,
attorneys or auditors the Loan files and the related accounts, records and
computer systems maintained by WCC at such times as the Company shall reasonably
request.

8.3 WCC shall permit the Company, and its agents to audit the books and
records of WCC applicable to the Loans at WCC's business premises during WCC's
normal business hours upon reasonable prior notice to WCC. The Company shall
have direct access to WCC's management information system for the Loans or, if
applicable, to any service bureau used by WCC for the Loans.

9. Substitute Servicer; Limited Arbitration.
----------------------------------------

4
<PAGE>

9.1 If at any time during the term of this Agreement WCC shall breach,
or default in the performance of a material obligation of WCC undertaken in this
Agreement, the Company and WCC shall consult for such period of time as the
Company may determine is reasonable under the circumstances to determine a
mutually acceptable resolution. In the event the Company and WCC fail to agree
thereon within such period as the Company may specify, then the Company may, by
written notice to WCC and without limitation of any other right or remedy of the
Company, require that WCC transfer the Loans, and all of WCC's servicing and
related rights and obligations in and with respect to the Loans, to a substitute
servicer to be designated by the Company. Such substitute servicer shall
thereupon perform, pursuant to a servicing contract acceptable to the Company,
all of WCC's duties and obligations under this Agreement. Upon the Company's
designation of such a substitute servicer, WCC shall within a reasonable time
and to the extent it holds possession thereof, deliver to such substitute
servicer all written evidence and documentation of the Loans and WCC thereafter
shall cooperate and follow all instructions of the Company in all reasonable
respects to facilitate such substitute servicer's performance of WCC's duties
and obligations under this Agreement. The fees and expenses of the substitute
servicer shall be paid by the Company. WCC, however, shall continue to be
entitled to WCC's Service Fee with regard to any Loan being serviced under this
section, net of all servicing fees paid by the Company to the substitute
servicer for such Loan.

9.2 If WCC wishes to contest or dispute the Company's appointment of a
substitute servicer, WCC shall so notify the Company in writing within thirty
(30) days after such appointment, specifying in the notice WCC's reasons for
doing so. Such controversy or dispute regarding the Company's appointment of a
substitute servicer shall be settled by arbitration, by one arbitrator in
Portland, Oregon in accordance with the Rules of the American Arbitration
Association ("AAA"), subject to the provisions of Section 9.3 and any other
applicable provisions of this Agreement. The arbitrator, whether appointed by
the parties or pursuant to the Rules of the AAA, shall be impartial and neutral
and shall have experience in the management of operations of an institution
which performs financing and collection services similar to those to be
performed by WCC under this Agreement. The decision of the arbitrator shall be
final, binding and conclusive upon the parties. The arbitrator shall comply
with the privacy restrictions provided in Section 9.7 regarding publication of
any award.

9.3 In no event shall the arbitrator have power or authority to add to
or detract from the agreements of the parties nor to award punitive or
consequential damages. The arbitrator shall be authorized only to render an
award regarding a dispute or controversy concerning the Company's appointment of
a substitute servicer pursuant to Section 9.1 hereof, including an award of
costs and expenses as herein provided, and the arbitrator shall not purport to
determine, or issue an award regarding, any other legal or equitable rights or
remedies of the parties.

9.4 The arbitration hearing will conclude and the arbitrator's award
shall be rendered in writing within 30 days after it commences. The arbitrator
will make every effort

5
<PAGE>

to enforce this requirement strictly, but may extend the time for the hearing
upon a showing that exceptional circumstances require extension to prevent
manifest injustice.

9.5 The parties will share equally the expense of deposits and
advances required by the AAA but either party may advance such amounts, subject
to recovery, thereof as an addition or offset to any award. The arbitrator shall
award to the prevailing party, as determined by the arbitrator, all costs, fees
and expenses related to the arbitration, including reasonable fees and expenses
of attorneys, experts and other professionals incurred by the prevailing party.

9.6 In the event of any legal action relating to the arbitration,
including any action to stay the arbitration, to vacate, modify or correct any
award or otherwise, the prevailing party in such action as determined by the
court shall be entitled to recover from the other party its court costs and
reasonable fees and expenses of attorneys, experts and other professionals
incurred in connection with the action, including such costs, fees and expenses
upon appeal. The institution and maintenance of an action for judicial relief,
or the pursuit of any provisional, ancillary, or judicial remedy by any party,
shall not constitute a waiver of the right of any party, including the plaintiff
in such judicial action, to submit the controversy or claim to arbitration
pursuant to Section 9.2 hereof.

9.7 WCC and the Company acknowledge that the existence, progress and
results of any arbitration held under this Agreement, and any arbitral award,
are to remain private. Each party agrees not to publish or disclose any
information regarding the arbitration or any such award by any means, except as
may be required for enforcement of any arbitral award and further agrees to take
reasonable care, but in no event less care than it takes to protect its own
confidential business information generally, to prevent disclosure and
dissemination of such information.

9.8 The award rendered in any arbitration may be enforced in any court
of competent jurisdiction.

10. Non-Compete. For a period of twenty years from the date of this
-----------
Agreement, WCC will not, without the prior approval of the Company, compete with
or be engaged in the same business in the same areas as currently conducted by
the Company, including the purchase of any Loans that the Company or an
Affiliate are able to purchase under applicable law and including the servicing
of loan portfolios (other than its own loan portfolios and servicing for other
current clients for existing contracts and amendments thereof).

11. Servicing Transfer. On the date that is the later of (a) three years
------------------
from the date of this Agreement and (b) 30 days after WSC notifies WCC in
writing that WSC has substantially all licenses required of it to service the
Loans and loans for other persons, WCC shall transfer to WSC all rights and
obligations for servicing the Loans, loans owned by WCC, and any other loans
being serviced by WCC for which WCC may under its agreement for such servicing,
transfer such servicing ("Servicing Transfer"). If the conditions in clause (b)
has occurred WCC

6
<PAGE>

also shall cause the Servicing Transfer to occur if WSC so requests two years
after the date of this Agreement. If WCC is required to obtain consent from
other owners of loans to transfer such servicing, WCC shall make a good faith
attempt to obtain such consent. Upon such servicing transfer WCC shall assume
the obligations of WCC under the servicing contracts transferred.

11.1 Upon the Servicing Transfer, WSC may purchase, and WCC shall
sell and transfer to WSC, all WCC assets that WSC may desire for the servicing
business, including without limitation, all equipment, books, records, forms,
computer systems and software, real and personal property leases, and contracts
(to the extent they are assignable). As consideration for such assets, WSC shall
as mutually agreed assume all liabilities (including liabilities associated with
employees and employee benefits) related thereto arising after the Servicing
Transfer. In the event that WSC is unable to assume the servicing rights and
obligations for any loans, then WSC shall cooperate with WCC to allow WCC
reasonable access and use of the transferred assets to permit WCC to continue
servicing those loans not transferred to the Company.

11.2 Upon the Servicing Transfer, WSC shall service all loans owned
by WCC and its affiliates (other than the Company and its subsidiaries) on the
same terms and conditions on which WCC is servicing WSC Loans under this
Agreement except that the fees and costs to be paid by WCC for the servicing of
its loans, and the loans of its affiliates shall be WSC's average cost for
servicing comparable loans as the parties shall mutually agree from time to
time.

11.3 Notwithstanding the assignment to WSC of servicing rights
arising from WCC contracts with third persons, any proceeds of such contracts in
excess of the fees and costs to be paid by WCC to WSC hereunder for comparable
loans shall be paid to WCC by WSC unless the parties otherwise agree.

12. General Provisions.
------------------

12.1 Written Notices. Notices under this Agreement must be in
---------------
writing and mailed, U.S. Mail with first class postage prepaid or overnight
mail, or telecopied, to the appropriate address shown above unless the address
has been changed by notice given as provided herein at least three (3) business
days in advance of the effective date of such change. Notice will be effective
three (3) business days after mailing or one business day after telecopy.

Wilshire Credit Corporation
PO Box 8517
Portland, OR 97207
Telephone No.: (503) 223-5600
Telecopy No.: (503) 223-8399

Wilshire Financial Services Group Inc.

7
<PAGE>

PO Box 8517
Portland, OR 97207
Telephone No.: (503) 223-5600
Telecopy No.: (503) 223-8399

Wilshire Funding Corporation
PO Box 8517
Portland, OR 97207
Telephone No.: (503) 223-5600
Telecopy No.: (503) 223-8399

Wilshire Servicing Corporation
PO Box 8517
Portland, OR 97207
Telephone No.: (503) 223-5600
Telecopy No.: (503) 223-8399]

12.2 Attorneys' Fees. If any judicial proceeding is initiated by either
---------------
of the parties arising out of the subject matter of this Agreement, including
without limitation any suit or action arising under state or federal securities
laws, trial, appeal, or bankruptcy, the prevailing party in such proceeding will
be entitled to recover, in addition to any judgment obtained in such proceeding,
reasonable attorneys' fees and court costs incurred.

12.3 Events Beyond the Control of the Parties. Performance by either
----------------------------------------
party hereunder will not be deemed to be in default where the delay or default
is due to events beyond its reasonable control, including without limitation
war, insurrection, strike, lock-outs, riots, floods, earthquakes, fires,
casualties, acts of God, epidemics, quarantine restrictions, governmental
restrictions, inability to secure necessary labor or materials, acts of the
other party or failure to act of any public or governmental agency or entity.

12.4 Further Assurances. Following the execution of this Agreement, WCC
------------------
and the Company, respectively, shall, from time to time at the request of the
other, execute and deliver such other documents and instruments, and shall take
such other actions, as may be reasonably necessary or appropriate to carry out
and perform more effectively the terms and purposes of this Agreement.

12.5 Governing Law. This Agreement will be governed by the laws of the
-------------
state of Oregon. Any dispute arising from or in connection with this Agreement,
other than as provided in Section 9, shall be resolved in the applicable state
or federal court in Portland, Oregon.

8
<PAGE>

12.6 Severability. If any provision herein is deemed unenforceable in
------------
whole or in part, such provision shall be deemed severable solely to the extent
of such enforceability without impacting the remainder of this Agreement.

12.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts. Each signed counterpart shall be deemed an original, but all of
them together constitute one and the same instrument.

12.8 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties as to its subject matter and supersedes all proposals, oral
or written, and all negotiations, conversations or discussions heretofore had
between the parties related to the subject matter of this Agreement. Any
amendment to this Agreement must be in writing signed by the party to be
charged.

Wilshire Financial Services Group Inc. Wilshire Credit Corporation

By: /s/ By: /s/
--------------------------------- ---------------------------------
Its: Its:
--------------------------------- ---------------------------------

Wilshire Funding Corporation

By: /s/
---------------------------------
Its:
--------------------------------

Wilshire Servicing Corporation

By: /s/
---------------------------------
Its:
---------------------------------

<PAGE>

EXHIBIT 21.1

Wilshire Funding Corporation
Wilshire Ventures Corporation
Life Capital, Inc.
WMFC 1997-4 Inc.
WMFC 1997-4 Properties Inc.
WMFC 1997-3 Inc.

WMFC 1997-2 Inc.
WMFC 1997-1 Inc.
Wilshire Mortgage Funding Company IV, Inc.
Wilshire Mortgage Funding Company V, Inc.
WMFC LLC
Wilshire Financing Company, LLC
Wilshire Real Estate Investment Corporation
Wilshire Management Leasing Corporation
Wilshire Servicing Corporation
Wilshire Servicing FBO SRBC
Wilshire Financial Services Group Europe Inc.
WFSG Ireland Limited
Wilshire Servicing Company Ireland Limited

Wilshire Funding Company Ireland Limited
Wilshire Acquisition Company Ireland Limited
Wilshire Servicing Compagnie

Unifina E.F.
Wilshire Financial Services Group UK Limited Company
Wilshire Servicing Company UK Limited
Wilshire Funding Company UK Limited
Wilshire Acquisitions Corporation
First Bank of Beverly Hills, F.S.B.
Wilshire Trust Deed Corporation
Girard Savings Bank, F.S.B.
Girard Financial Corporation

Wilshire Realty Services Corporation

<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 Registration Statement of Wilshire Financial
Services Group Inc. (the "Company") on Amendment #1 to Form S-1 of our report
dated March 14, 1997 (which expresses an unqualified opinion and includes an
explanatory paragraph referring to certain subsidiaries of the Company
operating under regulatory agreements), appearing in the Prospectus, which is
a part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.

Deloitte & Touche LLP

January 13, 1998
Los Angeles, California

<PAGE>

EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement. Such report contains an explanatory paragraph
regarding certain regulatory matters.

/s/ Arthur Andersen LLP

Los Angeles, California

January 12, 1998