LIFE FINANCIAL CORP, DEF 14A, 1998-04-27

LIFE FINANCIAL CORP
DEF 14A, 1998-04-27
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

LIFE FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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Notes:

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LIFE FINANCIAL CORPORATION
10540 Magnolia Avenue, Suite B
Riverside, California 92505
(909) 637-4000

April 27, 1998

Fellow Stockholders:

You are cordially invited to attend the first annual meeting of
stockholders (the "Annual Meeting") of LIFE Financial Corporation (the
"Company"), which will be held on May 28, 1998, at 10:00 a.m., Pacific Time, at
the Arrowhead Country Club, 3433 Parkside Drive, San Bernardino, California.

The attached Notice of the Annual Meeting and the Proxy Statement describe
the formal business to be transacted at the Annual Meeting. Directors and
officers of the Company, as well as a representative of Deloitte & Touche, LLP,
the Company's independent auditors, will be present at the Annual Meeting to
respond to any questions that our stockholders may have regarding the business
to be transacted.

The Board of Directors of the Company has determined that the matters to be
considered at the Annual Meeting are in the best interests of the Company and
its stockholders. For the reasons set forth in the Proxy Statement, the Board
unanimously recommends that you vote "FOR" the nominee as director specified
under Proposal 1 and "FOR" Proposals 2 and 3.

Please sign and return the enclosed proxy card promptly. Your cooperation
is appreciated since a majority of the common stock must be represented, either
in person or by proxy, to constitute a quorum for the conduct of business.

On behalf of the Board of Directors and all of the employees of the
Company, we thank you for your continued interest and support.

Best Regards,

/s/ DANIEL L. PERL
- ----------------------------------
Daniel L. Perl
President, Chief Executive Officer
and Director
<PAGE>

LIFE FINANCIAL CORPORATION
10540 Magnolia Avenue
Riverside, California 92505
(909) 637-4000

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 28, 1998

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

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual
Meeting") of LIFE Financial Corporation (the "Company") will be held on May 28,
1998, at 10:00 a.m., Pacific Time, at the Arrowhead Country Club, 3433 Parkside
Drive, San Bernardino, California.

The purpose of the Annual Meeting is to consider and vote upon the
following matters:

1. The election of one director for a term of three years or until his
successor is elected and qualified;

2. The approval of the Life Financial Corp. 1997 Stock Option Plan;

3. The ratification of the appointment of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending
December 31, 1998; and

4. Such other matters as may properly come before the meeting and at any
adjournments thereof, including whether or not to adjourn the meeting.

The Board of Directors has established April 20, 1998, as the record date
for the determination of stockholders entitled to receive notice of and to vote
at the Annual Meeting and at any adjournments thereof. Only recordholders of
the Common Stock of the Company as of the close of business on such record date
will be entitled to vote at the Annual Meeting or any adjournments thereof. In
the event there are not sufficient votes for a quorum or to approve or ratify
any of the foregoing proposals at the time of the Annual Meeting, the Annual
Meeting may be adjourned in order to permit further solicitation of proxies by
the Company. A list of stockholders entitled to vote at the Annual Meeting will
be available at the administrative offices of the Company, 10540 Magnolia
Avenue, Riverside, California 92505, for a period of ten days prior to the
Annual Meeting and will also be available at the Annual Meeting itself.

By Order of the Board of Directors

/s/ JEFFREY BLAKE
-------------------
Jeffrey Blake
Corporate Secretary
Vice President

Riverside, California
April 27, 1998
<PAGE>

LIFE FINANCIAL CORPORATION

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

PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 28, 1998

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

Solicitation and Voting of Proxies

This Proxy Statement is being furnished to stockholders of LIFE Financial
Corporation (the "Company") in connection with the solicitation by the Board of
Directors ("Board of Directors" or "Board") of proxies to be used at the first
annual meeting of stockholders (the "Annual Meeting"), to be held on May 28,
1998 at 10:00 a.m., Pacific Time, at the Arrowhead Country Club, 3433 Parkside
Drive, San Bernardino, California and at any adjournments thereof. The 1998
Annual Report to Stockholders, including consolidated financial statements for
the fiscal year ended December 31, 1997, accompanies this Proxy Statement, which
is first being mailed to recordholders on or about April 27, 1998.

Regardless of the number of shares of Common Stock owned, it is important
that recordholders of a majority of the shares be represented by proxy or
present in person at the Annual Meeting. Stockholders are requested to vote by
completing the enclosed proxy card and returning it signed and dated in the
enclosed postage-paid envelope. Stockholders are urged to indicate their vote
in the spaces provided on the proxy card. Proxies solicited by the Board of
Directors of the Company will be voted in accordance with the directions given
therein. Where no instructions are indicated, signed proxy cards will be voted
FOR the election of the nominee for director named in this proxy statement, FOR
the approval of the Life Financial Corp. 1997 Stock Option Plan and FOR the
ratification of the appointment of Deloitte & Touche LLP as independent auditors
of the Company for the fiscal year ended December 31, 1998.

Other than the matters set forth on the attached Notice of Annual Meeting
of Stockholders, the Board of Directors knows of no additional matters that will
be presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting and at any adjournments
thereof, including whether or not to adjourn the Annual Meeting.

A proxy may be revoked at any time prior to its exercise by filing a
written notice of revocation with the Secretary of the Company, by delivering to
the Company a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person. However, if you are a stockholder whose
shares are not registered in your own name, you will need appropriate
documentation from your recordholder to vote personally at the Annual Meeting.

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The cost of solicitation of proxies on behalf of management will be borne
by the Company. In addition to the solicitation of proxies by mail, ChaseMellon
Shareholder Services, L.L.C., a proxy solicitation firm, will assist the Company
in soliciting proxies for the Annual Meeting and will be paid a fee of $3,500,
plus out-of-pocket expenses. Proxies may also be solicited personally or by
telephone by directors, officers and other employees of the Company and its
subsidiary, Life Bank (the "Bank"), without additional compensation therefor.
The Company will also request persons, firms and corporations holding shares in
their names, or in the name of their nominees, which are beneficially owned by
others, to send proxy material to and obtain proxies from such beneficial
owners, and will reimburse such holders for their reasonable expenses in doing
so.

Voting Securities

The securities which may be voted at the Annual Meeting consist of shares
of common stock of the Company ("Common Stock"), with each share entitling its
owner to one vote on all matters to be voted on at the Annual Meeting, except as
described below. There is no cumulative voting for the election of directors.

The close of business on April 20, 1998 has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders of record entitled to notice of and to vote at the Annual Meeting
and at any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 6,546,716 shares.

As provided in the Company's Certificate of Incorporation, recordholders of
Common Stock who beneficially own in excess of 10% of the outstanding shares of
Common Stock (the "Limit") are not entitled to any vote in respect of the shares
held in excess of the Limit. A person or entity is deemed to beneficially own
shares owned by an affiliate of, as well as, by persons acting in concert with,
such person or entity. The Company's Certificate of Incorporation authorizes
the Board of Directors (i) to make all determinations necessary to implement and
apply the Limit, including determining whether persons or entities are acting in
concert, and (ii) to demand that any person who is reasonably believed to
beneficially own stock in excess of the Limit to supply information to the
Company to enable the Board of Directors to implement and apply the Limit.

The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of Common Stock entitled to vote (after
subtracting any shares in excess of the Limit pursuant to the Company's
Certificate of Incorporation) is necessary to constitute a quorum at the Annual
Meeting. In the event there are not sufficient votes for a quorum or to approve
or ratify any proposal at the time of the Annual Meeting, the Annual Meeting may
be adjourned in order to permit the further solicitation of proxies.

As to the election of the director set forth in Proposal 1, the proxy card
being provided by the Board of Directors enables a stockholder to vote "FOR" the
election of the nominee proposed by the Board of Directors, or to "WITHHOLD"
authority to vote for the nominee being proposed. Under Delaware law and the
Company's bylaws, directors are elected by a plurality of

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votes cast, without regard to either (i) broker non-votes, or (ii) proxies as to
which authority to vote for the nominee being proposed is withheld.

As to the approval of the Life Financial Corp. 1997 Stock Option Plan
("1997 Stock Option Plan") set forth in Proposal 2 and other matters that may
properly come before the Meeting, by checking the appropriate box, a shareholder
may: (i) vote "FOR" the item; (ii) vote "AGAINST" the item; or (iii) "ABSTAIN"
from voting on such item. Under Delaware law, and affirmative vote of the
holders of a majority of the shares of Common Stock present in person or by
proxy at the annual Meeting at which a quorum is present and entitled to vote on
the Proposal is required to constitute shareholder approval of the proposal.
Shares as to which the "ABSTAIN" box has been selected on the proxy card with
respect to the Proposal will be counted as present and entitled to vote and
shall have the effect of a vote against the matter for which the "ABSTAIN" box
has been selected. In contrast, shares underlying broker non-votes are not
counted as present and entitled to vote on the Proposal and have no effect on
the vote on the Proposal.

As to the ratification of the appointment of Deloitte & Touche LLP as
independent auditors of the Company set forth in Proposal 3, and all other
matters that may properly come before the Annual Meeting, by checking the
appropriate box, you may: (i) vote "FOR" the item; (ii) vote "AGAINST" the
item; or (iii) "ABSTAIN" with respect to the item. Under the Company's bylaws,
unless otherwise required by law, all such matters shall be determined by a
majority of the votes cast, without regard to either (a) broker non-votes, or
(b) proxies marked "ABSTAIN" as to that matter.

Proxies solicited hereby will be returned to the Company's transfer agent,
ChaseMellon Shareholder Services, L.L.C., and will be tabulated by inspectors of
election designated by the Board of Directors, who will not be employed by, or
be a director of, the Company or any of its affiliates. After the final
adjournment of the Annual Meeting, the proxies will be returned to the Company
for safekeeping.

Security Ownership of Certain Beneficial Owners

The following table sets forth information as to those persons believed by
management to be beneficial owners of more than 5% of the Company's outstanding
shares of Common Stock on the Record Date or as disclosed in certain reports
regarding such ownership filed by such persons with the Company and with the
Securities and Exchange Commission ("SEC"), in accordance with Sections 13(d)
and 13(g) of the Securities Exchange Act of 1934, as amended ("Exchange

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Act"). Other than those persons listed below, the Company is not aware of any
person, as such term is defined in the Exchange Act, that owns more than 5% of
the Company's Common Stock as of the Record Date.

<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- -------------- ------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock Wellington Management 916,400(1) 14.0%
Company, LLP
75 State Street
Boston, Massachusetts 02109

Common Stock Financial Stocks, Inc. 621,500(2) 9.5%
507 Carew Tower
Cincinnati, Ohio 45208

Common Stock Franklin Mutual Advisors, Inc. 442,600(3) 6.8%
51 John F. Kennedy Parkway
Short Hills, NJ 07078

Common Stock FMR Corp. 369,600(4) 5.7%
82 Devonshire Street
Boston, MA 02109
</TABLE>

________________________
(1) As disclosed on a Schedule 13G Amendment No. 1 filed on February 10, 1998.
(2) As disclosed on a Schedule 13D Amendment No. 3 filed on March 16, 1998.
Financial Stocks, Inc. is general partner of Financial Stocks Limited
Partnership and the discretionary investment advisor of Rising Stars
Offshore Fund. Of the 621,500 shares, 586,425 shares are owned of record by
Financial Stocks Limited Partnership and 35,075 shares are owned by Rising
Stars Offshore Fund.
(3) As disclosed on a Schedule 13G filed on February 5, 1998.
(4) As disclosed on a Schedule 13G filed on February 10, 1998.

Interest of Certain Persons in Matters to be Acted Upon

All persons standing for election as director were unanimously nominated by
the Nominating Committee of the Board of Directors. No person being nominated as
a director is being proposed for election pursuant to any agreement or
understanding between any such person and the Company.

PROPOSALS TO BE VOTED ON AT THE MEETING

PROPOSAL 1. ELECTION OF DIRECTORS

The Board of Directors of the Company currently consists of five (5)
directors and is divided into three classes. With the exception of Robert K.
Riley, each of the five members of

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the Board of Directors of the Company also presently serves as a director of the
Bank. Directors are elected for staggered terms of three years each, with the
term of office of only one of the three classes of directors expiring each year.
Directors serve until their successors are elected and qualified.

The nominee proposed for election at this Annual Meeting is Milton E.
Johnson.

In the event that the nominee is unable to serve or declines to serve for
any reason, it is intended that the proxies will be voted for the election of
such other person as may be designated by the present Board of Directors. The
Board of Directors has no reason to believe that the person named will be unable
or unwilling to serve. Unless authority to vote for the nominee is withheld, it
is intended that the shares represented by the enclosed proxy card, if executed
and returned, will be voted FOR the election of the nominee proposed by the
Board of Directors.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE
NOMINEE NAMED IN THIS PROXY STATEMENT.

Information with Respect to the Nominee and Continuing Directors

The following table sets forth, as of the Record Date, the names of the
nominee, continuing directors and Named Executive Officers (as defined herein)
as well as their ages, a brief description of their recent business experience,
including present occupations and employment, certain directorships held by
each, the year in which each director became a director of the Bank, the year in
which their terms (or in the case of the nominee, his proposed term) as director
of the Company expire. The table also sets forth the amount of Common Stock and
the percent thereof beneficially owned by each director and Named Executive
Officer and all directors and executive officers as a group as of the Record
Date.

<TABLE>
<CAPTION>
Shares of
Name and Principal Expiration Common Stock
Occupation at Present Director of Term as Beneficially Percent of
and for Past Five Years Age Since(1) Director Owned(2)(3) Class(4)
- ------------------------- --- -------- ---------- ------------ ----------

<S> <C> <C> <C> <C> <C>
NOMINEE

Milton E. Johnson 60 1983 2001 114,526 1.7%
Mr. Johnson has been the
President of Home Lumber
Company, a building
materials supplier, since
1960. He has been a
partner in Central Nevada
Hay Company since 1987.
</TABLE>

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<S> <C> <C> <C> <C> <C>
CONTINUING DIRECTORS

John D. Goddard 58 1988 2000 174,276 2.7
Mr. Goddard has been
President of Goddard
Accounting Corporation
since 1962.

Robert K. Riley 37 1997 2000 - -
Mr. Riley is co-founder
and the former Chief
Executive Officer of
Millenium Asset
Management, L.L.C., an
SEC-registered investment
advisory firm. From 1992
to 1996, Mr. Riley worked
for the Millenium Group,
a financial consulting
firm. Mr. Riley is
currently Managing
Director of Life Capital
Markets.

Ronald G. Skipper 57 1983 1999 165,000 2.5
Chairman of the Board of
the Company. Mr. Skipper
is a self-employed
attorney and has been
practicing law for 32
years.

Daniel L. Perl 49 1996 1999 95,422 1.5
President and Chief
Executive Officer of the
Company and the Bank.
Mr. Perl joined the Bank
in 1994 as Senior Vice
President and Chief Loan
Officer and was named to
his current position in
1996. From 1991 to 1993,
Mr. Perl was a Senior
Vice President with WCP
Trading Corporation.

NAMED EXECUTIVE OFFICERS

Joseph R.L. Passerino 43 - - 5,301 *
Senior Vice President of
the Company and the Bank
since 1996. Prior to
joining the Bank in 1994,
Mr. Passerino was in
charge of loan production
for St. Thomas Capital
Corp.
</TABLE>

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<S> <C> <C> <C> <C> <C>
Mary E. Darter 37 - - 500 *
Executive Vice President
of the Company and the
Bank. Prior to joining
the Bank in 1994, Ms.
Darter was in charge of
the warehouse line of
credit division and bulk
acquisitions of Imperial
Credit Industries/Southern
Pacific Thrift and Loan.

Stock Ownership of all - - - 555,025 8.5%
Directors and Executive
Officers as a Group
(7 persons)
</TABLE>
________________________
* Does not exceed 1.0% of the Company's voting securities.
(1) Includes years of service as a director of the Bank.
(2) Each person effectively exercises sole (or shares with spouse or other
immediate family member) voting or dispositive power as to shares
reported herein (except as noted).
(3) Does not include any shares issuable pursuant to outstanding options,
none of which may be exercised until November 21, 1999.
(4) As of the Record Date, there were 6,546,716 shares of Common Stock
outstanding.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company's officers (as
defined in regulations promulgated by the SEC thereunder) and directors, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership with
the SEC. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

Based solely on a review of copies of such reports of ownership
furnished to the Company, or written representations that no forms were
necessary, the Company believes that during the past fiscal year all filing
requirements applicable to its officers, directors and greater than ten percent
beneficial owners were complied with except that one transaction by Mr. Goddard
was not reported on a timely basis on a Form 4. In addition, a Form 3 reporting
Mr. Riley's initial ownership upon becoming a director of the Company was not
filed on a timely basis. The appropriate forms were subsequently filed.

Meetings of the Board of Directors and Committees of the Board of Directors of
the Company

The Board of Directors of the Company conducts its business through
meetings of the Board of Directors and through activities of its committees. The
Board of Directors of the

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Company meets monthly and may have additional special meetings upon the request
of the Chairman of the Board. During the year ended December 31, 1997, the Board
of Directors of the Company held eleven meetings. All of the directors of the
Company attended at least 75% of the total number of the Company's Board
meetings held and committee meetings on which such directors served during 1997.
The Board of Directors of the Company maintains committees, the nature and
composition of which are described below:

Audit Committee. The Audit Committee of the Company consists of Messrs.
Skipper and Goddard. The Audit Committee is responsible for reporting to the
Board on the general financial condition of the Company and the results of the
annual audit, and is responsible for ensuring that the Company's activities are
being conducted in accordance with applicable laws and regulations. The Audit
Committee of the Company met two times during 1997.

Nominating Committee. The Board of Directors acted as Nominating Committee
for the 1998 Annual Meeting. The Board of Directors considered and recommended
the nominee for director to stand for election at the Company's annual meeting
of shareholders. The Company's Certificate of Incorporation and Bylaws provide
for stockholder nominations of directors. These provisions require such
nominations to be made pursuant to timely notice in writing to the Secretary of
the Company. The stockholder's notice of nomination must contain all
information relating to the nominee which is required to be disclosed by the
Company's Bylaws and by the Exchange Act.

Personnel/Compensation Committee. The Personnel/Compensation Committee of
the Company consists of Messrs. Goddard and Johnson. The committee meets to
establish compensation and benefits for the executive officers and to review the
incentive compensation programs when necessary. The committee is also
responsible for all matters regarding compensation and benefits, hiring,
termination and affirmative action issues for other officers and employees of
the Company and the Bank. The Personnel/Compensation Committee met two times in
1997.

Directors' Compensation

Directors' Fees. Currently, all outside directors of the Company receive a
monthly retainer of $1,500, while the Chairman of the Board of the Company
receives a retainer of $2,000. In addition, each outside director of the
Company received fees for each month preceding the holding company
reorganization of the Bank starting with February 1997 for services performed on
behalf of the Company. Outside directors of the Bank receive a retainer of $950
per month for serving on the Bank's Board of Directors, except the Chairman of
the Board, who receives $1,200 per month.

Option Plans. On May 21, 1997, stockholders of the Bank approved the Life
Savings Bank, Federal Savings Bank 1996 Stock Option Plan (the "1996 Option
Plan"), under which all directors who are not also employers of the Company or
the Bank are eligible to receive options to purchase Common Stock. Under the
1996 Option Plan, each outside director was granted non-statutory options to
purchase 9,180 shares of Common Stock at an exercise price of $3.33,

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which was the fair market value of the shares on the effective date of the
grant. Options become exercisable in three (3) equal annual installments
commencing on November 21, 1999.

The Company has established the 1997 Stock Option Plan, under which all
directors who are not also employees of the Company are eligible to receive
options to purchase Common Stock. Under the 1997 Option Plan, each outside
director was granted non-statutory options to purchase 17,500 shares of Common
Stock at an exercise price of $11.00, which was the fair market price on the
date of the grant. Options become exercisable in three equal annual
installments commencing on June 30, 2000. In addition, upon joining the Board
of Directors of the Company, Mr. Riley was granted on July 22, 1997, options to
purchase 3,500 shares of Common Stock under the 1997 Stock Option Plan, at an
exercise price of $18.50 per share, which such options become exercisable in
three equal annual installments commencing on July 22, 2000.

Executive Compensation

The report of the Compensation Committee and the stock performance graph
shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act,
except as to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.

Compensation Committee Report on Executive Compensation. Under rules
established by the Securities and Exchange Commission ("SEC"), the Company is
required to provide certain data and information in regard to the compensation
and benefits provided to the Company's Chief Executive Officer and other
executive officers of the Company or the Bank. The disclosure requirements for
the Chief Executive Officer and other executive officers include the use of
tables and a report explaining the rationale and considerations that led to
fundamental compensation decisions affecting those individuals. In fulfillment
of this requirement, the Compensation Committee of the Board of Directors of the
Company, at the direction of the Board of Directors, has prepared the following
report for inclusion in this Proxy Statement.

During the 1997 fiscal year, the Compensation Committee of the Board of
Directors of the Company was comprised of Messrs. Skipper, Goddard and Johnson
and the Personnel/Compensation Committee of the Board of Directors of the Bank
was comprised of Messrs. Edgar C. Keller, Johnson, Richard C. Caldwell and
Goddard (together, the "Committees"). The Boards of Directors of the Company
and the Bank delegate to the respective committees the responsibility for
developing and administering policies which govern the total compensation
program for the executive officers of the Company and the Bank. The
Compensation Committee of the Company also administers the Company's stock
option plans.

The goal of the Company's and the Bank's executive compensation programs is
to retain, motivate and reward management through the compensation policies and
awards, while aligning their interests more closely with those of the Company
and its stockholders. In furtherance of this goal, the program consists of
three main components: (1) base salary; (2) bonuses, which are

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either discretionary or based on Company or Bank performance; and (3) stock
options to provide long-term incentives for performance and to align executive
officer and stockholder interests.

Executive Compensation. Base salaries for the executive officers are
established by the Committees based on the recommendations of management which
considers, and applies subjectively as appropriate, individual performance and
achievement, areas of responsibility, position, the extent to which the
officers' skills are in demand and internal and external comparability.

Of the Company's and the Bank's executive officers, three are paid bonuses
based on Company performance under the terms of the Company's cash bonus plan
(the "Bonus Plan"). See "--Cash Bonus Plan." The other executive officer is a
commissioned employee who receives a fixed annual salary and commissions based
on the number of loans he originated. In addition, he is entitled to
discretionary bonuses based on his performance respective to the Company's
performance.

The Committees believe that it is important for key employees to have long-
term incentives through an equity interest in the Company. Accordingly, the
Bank, and the Company, in connection with its initial public offering, have
granted, and will continue to grant, key employees stock options pursuant to the
Option Plans. The Compensation Committee of the Company grants options upon the
recommendations of management. As of December 31, 1997, the Company's and the
Bank's four executive officers held options to acquire 300,580 shares of the
Company's Common Stock.

Cash Bonus Plan. In February 1996, the Bank adopted a cash bonus plan for
employees of the Bank, except for commissioned employees and employees with
employment contracts, which provided for a performance-based cash bonus based on
the Bank's performance. For 1997, it was determined that the Bonus Plan would
pay bonuses in the aggregate of 15% of the after tax profits of the Bank in
excess of a 15% return on average equity (as defined in the Bonus Plan). The
Personnel/Compensation Committee believed that a fifteen percent return was
generally perceived as a good return on equity for a financial services company,
and only performance in excess of a good return on equity should be rewarded
through the performance-based compensation program. Each Bonus Plan participant
was given a Payment Amount based on the participant's contribution to, and
impact upon, the success of the Company and the Bank. For fiscal 1997, the
range in Payment Amounts for plan participants was from $3,660 to $59,768.

Executive Compensation--Chief Executive Officer. In order to ensure
continuity of management during the period prior to the holding company
reorganization of the Bank and the concurrent initial public offering by the
Company, at the recommendation of the Committees, the Bank and the Company
entered into a Letter Agreement with Mr. Perl effective January 1, 1997, which
was replaced by employment agreements between the Company and the Bank and Mr.
Perl upon consummation of the initial public offering on June 30, 1997
(collectively, the "Employment Agreements"). Mr. Perl's compensation during the
first half of fiscal 1997 was determined pursuant to the terms of the Letter
Agreement, which provided that he would receive

10
<PAGE>

a base salary of $400,000 per year, plus a bonus equal to 8.0% of the average
after tax net income of the Company and the Bank in excess of a 10.0% return on
average equity, as defined in the Letter Agreement.

Upon consummation of the reorganization and the initial public offering,
Mr. Perl's compensation was determined according to the terms of the Employment
Agreements. The Bank Employment Agreement provides that Mr. Perl receive a Base
Salary of $150,000 per year, while the Company Employment Agreement provides
that he receive a Base Salary of $250,000 per year, plus a bonus equal to 8.0%
of the after tax net income of the Company in excess of a 10% return on average
equity, as defined in the Employment Agreements. The Committees determined that
the Employment Agreements aligned management and stockholder interest by linking
a substantial portion of Mr. Perl's cash compensation to after-tax earnings,
with the result that Mr. Perl's compensation improved directly in relation to
improved Company profitability.

In addition to the Employment Agreements, Mr. Perl was granted 25,000
options to purchase Common Stock of the Company in connection with the initial
public offering, with an exercise price set at the initial public offering
price. The options granted vest in three equal annual installments beginning on
June 27, 2000. The Compensation Committee believed that the grant of options to
Mr. Perl was necessary to retain his services which the Committee feels are
instrumental to the long-term success of the Company, and the options, in
connection with the vesting period, provide the appropriate level of long-term
incentive to foster continued strong growth in stockholder values. Considering
the compensation arrangements in the Employment Agreements and the number and
vesting period of the stock options granted to Mr. Perl, the Compensation
Committee believes that his compensation is primarily performance based.

Compensation Committee of the Company

Ronald G. Skipper John D. Goddard
Milton E. Johnson

Personnel/Compensation Committee of the Bank

Edgar C. Keller Milton E. Johnson
John D. Goddard

11
<PAGE>

Stock Performance Graph. The following graph shows a comparison of
stockholder return on the Company's Common Stock based on the market price of
Common Stock assuming the reinvestment of dividends, with the cumulative total
returns for the companies on the Nasdaq Stock Market (U.S.) Index and Nasdaq
Financial Stocks Index for the period beginning on June 25, 1997, the first day
of trading in the Company's Common Stock, through March 31, 1998. The data used
to prepare the graph was prepared by the Center for Research in Security Prices
("CRSP") at the University of Chicago Graduate School of Business. The graph was
derived from a very limited period of time, and, as a result, may not be
indicative of possible future performance of the Company's Common Stock.

Comparison of Cumulative Total Returns
Among the Company, Nasdaq Stock Market (U.S.)
Index and Nasdaq Financial Stocks Index

[PERFORMANCE GRAPH APPEARS HERE]

LIFE CRSP Index-- CRSP Index--
Measurement Period Financial Nasdaq Stock Nasdaq Financial
(Fiscal Year Covered) Corporation Market Index Stock Index
- --------------------- ----------- ------------ ----------------
<S> <C> <C> <C>
Measurement Pt-06/25/97 $100.0 $100.0 $100.0
FYE 07/31/97 $138.0 $110.3 $107.6
FYE 08/29/97 $126.9 $110.2 $106.7
FYE 09/30/97 $136.1 $116.7 $117.1
FYE 10/31/97 $131.5 $110.7 $115.1
FYE 11/28/97 $114.8 $111.2 $117.6
FYE 12/31/97 $ 93.5 $109.5 $126.2
FYE 01/30/98 $ 81.5 $112.9 $121.2
FYE 02/27/98 $118.5 $123.6 $128.1
FYE 03/31/98 $148.1 $128.1 $133.6
</TABLE>

Summary
<TABLE>
<CAPTION>

6/25/97 7/31/97 8/29/97 9/30/97 10/31/97 11/28/97 12/31/97 1/30/98 2/27/98 3/31/98
------- ------- ------- ------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE Financial Corporation 100.0 138.0 126.9 136.1 131.5 114.8 93.5 81.5 118.5 148.1
CRSP Index -- Nasdaq Stock
Market Index 100.0 110.3 110.2 116.7 110.7 111.2 109.5 112.9 123.6 128.1
CRSP Index -- Nasdaq
Financial Stock Index 100.0 107.6 106.7 117.1 115.1 117.6 126.2 121.2 128.1 133.6
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the month end, is not a trading day, the
preceding trading day is used.
D. The index level for all series was set to $100.00 on 6/25/97.

12
<PAGE>

Summary Compensation Table. The following table shows, for the years ended
December 31, 1997 and 1996, the cash compensation paid by the Company and the
Bank, as well as certain other compensation paid or accrued for those years, to
the Chief Executive Officer and the other executive officers of the Company who
received compensation in excess of $100,000 ("Named Executive Officers").

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
-----------------------------------
Annual Compensation(1) Awards Payouts
-------------------------------------- ------------------------- -------
Other Restricted Securities All
Annual Stock Underlying LTIP Other
Name and Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Principal Position Year ($) ($) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel L. Perl 1997 $400,000 $ 902,731(7) - - 25,000 - $2,375
President and Chief 1996 75,000 1,464,374(7) - - 192,260 - 2,370
Executive Officer

Joseph R.L. 1997 $ 42,000 $ 327,055(7) - - 15,000 - $2,375
Passerino 1996 29,000 217,199(7) - - 12,540 - 2,300
Senior Vice President

Mary E. Darter 1997 $ 81,265 $ 37,334(7) - - 15,000 - $1,709
Executive Vice 1996 62,100 5,306(7) - - 12,540 - 1,326
President

L. Bruce Mills Jr. 1997 $105,000 $ 59,768(7) - - 15,000 - $ 828
Executive Vice 1996 94,800 6,785(7) - - 12,540 - 1,858
President(8)
</TABLE>

______________________________

(1) Under Annual Compensation, the column titled "Salary" includes amounts
deferred by the Named Executive Officer pursuant to the Bank's 401(k) Plan,
as hereinafter defined.
(2) There were no (a) perquisites over the lesser of $50,000 or 10% of the
individual's total salary and bonus for the last year, (b) payments of
above-market preferential earnings on deferred compensation, (c) payments
of earnings with respect to long-term incentive plans prior to settlement
or maturation, (d) tax payment reimbursements, or (e) preferential
discounts on stock.
(3) For 1997 and 1996, the Company and the Bank had no restricted stock plans
in existence.
(4) Shares subject to options granted to Mr. Perl, Mr. Passerino, Ms. Darter
and Mr. Mills under the Option Plans. See "Option Plans."
(5) For 1997 and 1996, there were no payouts or awards under any long-term
incentive plan.
(6) Includes employer contributions to the Bank's 401(k) Plan.
(7) Includes $1,079,185 earned by Mr. Perl during 1996 which was paid in 1997.
All bonuses earned in 1997 were paid in 1998.
(8) Mr. Mills resigned as Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company and the Bank effective March 31,
1998.

13
<PAGE>

Employment Agreements

The Bank and the Company have entered into employment agreements
(collectively, the "Employment Agreements") with Mr. Perl. The Employment
Agreements are intended to ensure that the Bank and the Company will be able to
maintain a stable and competent management base. The continued success of the
Bank and the Company depends to a significant degree on the skills and
competence of Mr. Perl.

The Employment Agreements provide for three-year terms for Mr. Perl. The
Bank Employment Agreement provides that, commencing on the first anniversary
date and continuing each anniversary date thereafter, the Board of Directors may
extend the agreement for an additional year so that the remaining term shall be
three years, unless written notice of non-renewal is given by the Board of
Directors after conducting a performance evaluation of Mr. Perl. The term of the
Company Employment Agreement shall be extended on a daily basis unless written
notice of non-renewal is given by the Board of the Company. The Bank and Company
Employment Agreements provide that Mr. Perl's salary will be reviewed annually.
The Bank Employment Agreement provides that Mr. Perl will receive a Base Salary
of $150,000 per year while the Company Employment Agreement provides that he
will receive a Base Salary of $250,000 per year (together, the "Base Salary"),
plus a bonus equal to 8.0% of the average of the after tax net income of the
Company in excess of 10% return on average equity, as defined in the Employment
Agreements ("Bonus"). Such Base Salary is pro rated between the Bank and the
Company depending upon the duties performed for and the obligations to each of
the Bank and the Company, respectively, while the Bonus shall be paid by the
Company. The Bonus for each year shall be payable by the Company no later than
March 15 of the following year. In addition to the Base Salary and Bonus, the
Employment Agreements provide for, among other things, participation in stock
benefits plans and other fringe benefits substantially equivalent to those in
which Mr. Perl was participating or otherwise deriving benefit from immediately
prior to the beginning of the terms of the Employment Agreements. The Employment
Agreements provide for termination by the Bank or the Company for cause as
defined in the Employment Agreements at any time. In the event the Bank or the
Company chooses to terminate Mr. Perl's employment for reasons other than for
cause, or in the event of Mr. Perl's resignation from the Bank or the Company
upon: (i) failure to re-elect Mr. Perl to his current offices; (ii) a material
change in Mr. Perl's functions, duties or responsibilities; (iii) a relocation
of Mr. Perl's principal place of employment by more than 30 miles; (iv) a
material reduction in the benefits or perquisites to Mr. Perl from those being
provided at the effective date of the Employment Agreement, unless consented to
by Mr. Perl or such reduction is part of a nondiscriminatory reduction
applicable to all employees; (v) liquidation or dissolution of the Bank or the
Company; or (vi) a breach of the Employment Agreement by the Bank or the
Company, Mr. Perl or, in the event of death, his beneficiary would be entitled
to receive, pursuant to the Bank Employment Agreement, those payments due to
Mr. Perl for the remaining term of the Employment Agreement or, pursuant to the
Company Employment Agreement, an amount equal to three times his Base Salary
under that Employment Agreement for the preceding year plus two times his Bonus
for the preceding year; provided, however, that in the event that the Boards of
Directors determine that such payment would have a material adverse affect on
the Company's financial condition or results of operations, then the Company and
the Bank shall pay Mr. Perl two times the previous year's Base

14
<PAGE>

Salary under that Employment Agreement, Common Stock of the Company having a
fair market value equal to one times the previous year's Base Salary under that
Employment Agreement and two times the previous year's Bonus. The Bank and the
Company would also continue to pay for Mr. Perl's life, health, dental and
disability coverage for the remaining term of the Employment Agreement. Under
certain circumstances, upon any termination of Mr. Perl, he is subject to a non-
compete and liquidated damages provision and a confidentiality provision
relating to information in his possession regarding the Company or the Bank. In
the event that Mr. Perl thereafter breaches the non-compete provision, the
Employment Agreements provide that he shall pay the Bank and the Company, in the
aggregate, $500,000, as liquidated damages, in which event the non-compete
provision will expire.

Under the Employment Agreements, if voluntary or involuntary termination
follows a change in control of the Bank or the Company, Mr. Perl or, in the
event of his death, his beneficiary, would be entitled to a severance payment
equal to the greater of: (i) the payments due for the remaining terms of the
agreement; or (ii) three times the average of the five preceding taxable years'
annual compensation. The Bank and the Company would also continue Mr. Perl's
life, health, and disability coverage for thirty-six months.

Payments to Mr. Perl under the Bank's Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. In the event the Bank is not in compliance with its minimum capital
requirements or if any payment under the Bank Employment Agreement would cause
the Bank's capital to be reduced below minimum regulatory capital requirements,
such payments shall be deferred until such time as the Bank or Successor thereto
is in capital compliance. Payment under the Company's Employment Agreement would
be made by the Company. All reasonable costs and legal fees paid or incurred by
Mr. Perl pursuant to any dispute or question of interpretation relating to the
Employment Agreements shall be paid by the Bank or Company, respectively, if
Mr. Perl is successful on the merits pursuant to a legal judgment, arbitration
or settlement. The Employment Agreements also provide that the Bank and Company
shall indemnify Mr. Perl to the fullest extent allowable under federal and
Delaware law, respectively. In the event of a change in control of the Bank or
the Company during 1997, the total amount of payments due under the Agreements,
based on Base Salary and Bonus as reported in the Summary Compensation Table
would have been $3.5 million.

Option Plans. The Company maintains the 1996 Stock Option Plan and the
1997 Stock Option Plan, under which all employees of the Company are eligible to
receive options to purchase Common Stock. The Plans provide discretionary
awards to officers and key employees as determined by a committee of non-
employee directors. The following table lists all grants of options under the
1997 Stock Option Plan to the Named Executive Officers for fiscal 1997 and
contains certain information about potential value of those options based upon
certain assumptions as to the appreciation of the Company's stock over the life
of the option.

15
<PAGE>

OPTIONS GRANTS IN LAST FISCAL YEAR

Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Options(1)
- ------------------------------------------------------------------------------ --------------------
Number of
Securities % of Total
Underlying Option/SARs Exercise or
Options/ Granted to Base Price
SARs Granted Employees in Per Expiration
Name (#)(2)(3)(4) Fiscal Year Share Date(5) 5% 10%
- ---------------- ------------ ------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Perl 25,000 21.9% $11.00 6/30/07 $173,250 $427,250

Joseph R.L. Passerino 15,000 13.2% $11.00 6/30/07 $103,950 $262,350

Mary E. Darter 15,000 13.2% $11.00 6/30/07 $103,950 $262,350

L. Bruce Mills, Jr. 15,000 13.2% $11.00 6/30/07 $103,950 $262,350

</TABLE>

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

(1) The amounts represent certain assumed rates of appreciation. Actual gains,
if any, on stock option exercises and Common Stock holdings are dependent
on the future performance of the Common Stock and overall stock market
conditions. There can be no assurance that the amounts reflected in this
table will be realized.
(2) Options granted become exercisable in equal installments at an annual rate
of 33.3% beginning June 30, 2000.
(3) The purchase price may be paid in cash or in Common Stock.
(4) To the extent possible, options will be treated as incentive options.
(5) The option term is ten years.

The following table provides certain information with respect to the number
of shares of Common Stock represented by outstanding options held by the Named
Executive Officers as of December 31, 1997. Also reported are the values for
"in-the-money" options which represent the positive spread between the exercise
price of any such existing stock options and the year end price of the Common
Stock. No stock appreciation rights were granted to Named Executive Officers
during the year ended December 31, 1997.

16
<PAGE>

Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Underlying Unexercised In the Money
Options/SARs at Option/SARs at
Fiscal Year End(#) Fiscal Year End($)
---------------------- ------------------
Name Unexercisable(1) Unexercisable(2)
- ------------------------- ---------------------- ------------------
<S> <C> <C>
Daniel L. Perl........... 217,960 $1,834,188
Joseph R.L. Passerino.... 27,540 140,934
Mary E. Darter........... 27,540 140,934
L. Bruce Mills, Jr....... 27,540 140,934
</TABLE>

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

(1) 192,960 of Mr. Perl's options and 12,540 of Mr. Passerino's, Ms. Darter's
and Mr. Mills's options have an exercise price of $3.33 and become
exercisable at an annual rate of 33.3% beginning November 21, 1999. 25,000
of Mr. Perl's options and 15,000 of Mr. Passerino's, Ms. Darter's and Mr.
Mills's options have an exercise price of $11.00 and become exercisable at
an annual rate of 33.3% beginning on June 30, 2000. The options will expire
ten (10) years from the date of grant.
(2) Based on market value of the underlying stock at the fiscal year end, minus
the exercise price. The market price on December 31, 1997 was $12.625.

Transactions With Certain Related Persons

The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
requires that all loans or extensions of credit to executive officers and
directors must be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
the general public and must not involve more than the normal risk of repayment
or present other unfavorable features. In addition, loans made to a director or
executive officer in excess of the greater of $25,000 or 5% of the Bank's
capital and surplus (up to a maximum of $500,000) must be approved in advance by
a majority of the disinterested members of the Board of Directors.

The Bank's current policy provides that all loans made by the Bank to its
executive officers and directors be made in the ordinary course of business, on
substantially the same terms, including collateral, as those prevailing at the
time for comparable transactions with other persons and may not involve more
than the normal risk of collectibility or present other unfavorable features.

It is the policy of the Company that all transactions between the Company
and its executive officers, directors, holders of 10% or more of the shares of
any class of its common stock and affiliates thereof, contain terms no less
favorable to the Company than could have been obtained by it in arm's-length
negotiations with unaffiliated persons and are required to be approved by a
majority of independent outside directors of the Company not having any interest
in the transaction.

17
<PAGE>

PROPOSAL 2. APPROVAL OF THE LIFE FINANCIAL CORP.
1997 STOCK OPTION PLAN

The Board of Directors of the Company is presenting for stockholder
approval the 1997 Stock Option Plan in the form attached hereto as Appendix A.
The purpose of the 1997 Stock Option Plan is to attract and retain qualified
personnel in key positions, provide officers, employees and non-employee
directors ("Outside Directors") with a proprietary interest in the Company as an
incentive to contribute to the success of the Company, promote the attention of
management to other stockholder's concerns and reward employees for outstanding
performance. The following is a summary of the material terms of the 1997 Stock
Option Plan which is qualified in its entirety by the complete provisions of the
1997 Stock Option Plan attached as Appendix A.

General

The 1997 Stock Option Plan authorizes the granting of options to purchase
Commons Stock and option-related awards (collectively, "Awards"). Subject to
certain adjustments to prevent dilution of Awards to participants, the maximum
number of shares reserved for purchase pursuant to the exercise of option and
option-related Awards under the Option Plan is 333,072 shares. All officers,
other employees and Outside Directors of the Company and its affiliates, are
eligible to receive Awards under the under the 1997 Stock Option Plan. The 1997
Stock Option Plan will be administered by a committee (the "Committee").
Authorized but unissued shares or shares previously issued and reacquired by the
Company may be used to satisfy Awards under the Option Plan. The exercise of
options granted under the 1997 Stock Option Plan will result in an increase in
the number of shares outstanding, and may have a dilute effect on the holdings
of existing stockholders. The 1997 Stock Option Plan will be in effect for a
period of ten years from the date of adoption by the Board of Directors.

Types of Awards. The Option Plan authorizes the grant of Awards to
employees and Outside Directors in the form of: (i) options to purchase the
Company's common Stock intended to qualify as incentive stock options under
Section 422 of the Code (options which afford tax benefits to the recipients
upon compliance with certain conditions and which do not result in tax
deductions to the Company), referred to as "Incentive Stock Option"; (ii)
options that do not so qualify (options which do not afford income tax benefits
to recipients, but which may provide tax deductions to the Company), referred to
as "Non-statutory Stock Options"; and (iii) limited rights which are exercisable
only upon a change in control oft he Company (as defined in the Option Plan)
("Limited Rights").

Options. The Board of Directors has granted 201,000 options to employees
(including executive officers) and to Outside Directors under the 1997 Stock
Option Plan. Options for 132,072 shares will be reserved and available under
the 1997 Stock Option Plan for future grants to Outside Director and/or
employees. All options granted to employees will be qualified as Incentive
Stock Options to the extent permitted under Section 422 of the Code. Incentive
Stock Options, at the discretion of the Committee with the concurrence of the
holder, may be converted into Non-Statutory Stock Options. Pursuant to the
Option Plan, the Committee has the authority

18
<PAGE>

to determine the date or dates on which each stock option shall become
exercisable. The exercise price of all Incentive Stock Options must be provided
below. The exercise price may be paid in cash or in Common Stock at the
discretion of the Committee. See "Payout Alternative" and "Alternative Option
Payments."

Incentive Stock Options may only be granted to employees. In order to
qualify as Incentive Stock Options under Section 422 of the Code, the exercise
prive must not be less than 100% of the fair market value on the date of grant
and the term of the option may not exceed ten years from the date of grant and
the exercise price must be at least equal to 110% of the fair market value of
the underlying Common Stock on the date of grant.

Termination of Employment. Options granted under the 1997 Stock Option
Plan may be exercised at such time as the Committee determines, but in no event
shall an option be exercisable more than ten years from the date of grant (or
five years from date of grant in the case of incentive stock options for a 10%
owner). Unless otherwise determined by the Committee, upon termination of an
employee's or Outside Director's services for any reason other than death,
disability, retirement, change in control or termination for cause, the vested
Incentive Stock Options and Non-statutory Stock Options shall be exercisable for
a period of three months following termination. The Committee in its discretion
may determine the time frame in which options may be exercised and may
redesignate Incentive Stock Options as Non-statutory Stock Options.
Notwithstanding the foregoing, in the event of the death or disability or
retirement of the option holder following a change in control of the Company or
the Bank (as defined in the 1997 Stock Option Plan), all options granted to
employees and/or Outside Directors will become fully vested and shall be
exercisable for up to one year thereafter. In the event of termination for
cause, all rights to options expire immediately.

Limited Rights. Limited Rights are related to specific options granted and
become exercisable in the event of a change in control of the Bank or the
Company. Upon exercise, the optionee will be entitled to receive in lieu of
purchasing the stock underlying the option, a limp sum cash payment equal to the
difference between the exercise price of the related option and the fair market
value of the shares of Common Stock subject to the option on the date of
exercise of the right less any applicable tax withholding.

Option Grants. It is currently intended that the Options proposed to be
granted will include Limited Rights and will vest either upon grant or over a
period of time as determined by the Committee in its sole discretion; provided,
however, that all options, whether or not then exercisable, will be immediately
exercisable in the event the optionee's employment or service is terminated due
to death, disability, retirement or a change in control. The exercise price of
all such options will be 100% of the fair market value of the underlying Common
Stock at the time of grant.

As of April 20, 1998, the closing price per share of Common Stock, as
reported on the Nasdaq National Market was $25.375.

19
<PAGE>

Tax Treatment

An optionee will generally not be deemed to have recognized taxable income
upon grant or exercise of any Incentive Stock Option, provided that shares
transferred in connection with the exercise are not disposed of by the optionee
for at least one year after the date the shares are transferred in connection
with the exercise of the option and two years after the date of grant of the
option. If the holding periods are satisfied, upon disposal of the shares, the
aggregate difference between the per share option exercise price and the fair
market value of the Common Stock is recognized as income taxable at long term
capital gains rates. No compensation deduction may be taken by the Company as a
result of the grant or exercise of Incentive Stock Options, assuming these
holding periods are met.

In the case of the exercise of a Non-statutory Stock Option, an optionee
will be deemed to have received ordinary income upon exercise of the stock
option in an amount equal to the aggregate amount by which the per share
exercise price is exceeded by the fair market value of the Common Stock. In the
event shares received through the exercise of an Incentive Stock Option are
disposed of prior to the satisfaction of the holding periods (a "disqualifying
disposition"), the exercise of the option will be treated as the exercise of a
Non-statutory Stock Option, except that the optionee will recognize the ordinary
income for the year in which the disqualifying disposition occurs. The amount
of any ordinary income deemed to have been received by an optionee upon the
exercise of a Non statutory Stock Option or due to a disqualifying disposition
will be a deductible expense of the Company for tax purposes.

In the case of Limited Rights, the option holder would have to include the
amount paid to him upon exercise in his gross income for federal income tax
purpose in the year in which the payment is made and the Company would be
entitled to a deduction for federal income tax purposes of the amount paid.

Payout Alternatives

The Committee has the sole discretion to determine what form of payment it
shall use in distributing payments for all Awards. If the Committee requests
any or all participants to make an election as to form of payment, it shall not
be considered bound by the election. Any shares of Common Stock tendered in
payment of an obligation arising under the 1997 Stock Option Plan or applied to
tax withholding amounts shall be valued at the fair market value of the Common
Stock. The Committee may use treasury stock, authorized but unissued stock or
it may direct the market purchase of shares of Common Stock to satisfy its
obligations under the 1997 Stock Option Plan.

Alternate Option Payments

The Committee also has the sole discretion to determine the form of payment
for the exercise of an option. The Committee may indicate acceptable forms in
the Award Agreement covering such options or may reserve its decision to the
time of exercise. No option is to be considered exercised until payment in full
is accepted by the Committee. The Committee may

20
<PAGE>

permit the following forms of payment for options: (a) in case or by certified
check; (b) through borrowed funds, to the extent permitted by law; or (c) by
tendering previously acquired shares of Common Stock. Any shares of Common Stock
tendered in payment of the exercise price of an option shall by valued at the
Fair Market Value of the Common Stock on the date prior to the date of exercise.

Amendment

The Board of Directors may amend the 1997 Stock Option Plan in any respect,
at any time, provided that no amendment may affect the rights of an Awardholder
without his or her permission.

Adjustments

In the event of any change in the outstanding shares of Common Stock of the
Company be reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Company, or in the event a
capital distribution is made, the Committee may make such adjustments to
previously granted Awards, to prevent dilution, diminution or enlargement of the
rights of the Awardholder. All Awards under this 1997 Stock Option Plan shall
be binding upon any successors or assigns of the Company.

Stockholder Approval

If the 1997 Stock Option Plan does not receive the requisite affirmative
vote of stockholders at this Annual Meeting, the Boar of Directors could
determine to have the 1997 Stock Option Plan become effective immediately. In
the absence of stockholder approval, the option awards under the Option Plan
would not qualify as Incentive Stock Options under the Code, and the Company's
qualification to have its stock traded on the Nasdaq National market could be
adversely affected.

Unless marked to the contrary, the shares represented by the enclosed proxy
card, if executed and returned, will be voted "FOR" the approval of the Life
Financial Corp. 1997 Stock Option Plan.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
LIFE FINANCIAL CORP. 1997 STOCK OPTION PLAN.

21
<PAGE>

NEW PLAN BENEFITS

<TABLE>
<CAPTION>
Stock Option Awards
-----------------------
Dollar Number
Name and Position Value (1) of Units (2)
--------- ------------

<S> <C> <C>
Daniel L. Perl - 25,000
President and Chief Executive Officer of the Company
and the Bank

Joseph R. L. Passerino - 15,000
Senior Vice President of the Company and the Bank

Mary E. Darter - 15,000
Executive Vice President of the Company and the Bank

All current executive officers as a group (3 persons) - 55,000

All other current directors of the Company as a group - 56,000
(4 persons)

Other employees (31 persons) - 95,000
</TABLE>

________________________
(1) The "dollar value" for options to be granted pursuant to the 1997 Stock
Option Plan on the date of grant was zero, as the exercise price for such
options was the fair market value on the date of grant.
(2) 132,072 Stock Option Awards remain unallocated under the 1997 Stock Option
Plan.

PROPOSAL 3. RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS

The Company's independent auditors for the fiscal year ended December 31,
1997 were Deloitte & Touche LLP. The Company's Board of Directors has
reappointed Deloitte & Touche LLP to continue as independent auditors for the
Bank and the Company for the year ending December 31, 1998, subject to
ratification of such appointment by the shareholders.

Representatives of Deloitte & Touche LLP will be present at the Annual
Meeting. They will be given an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions from
stockholders present at the Annual Meeting.

22
<PAGE>

Unless marked to the contrary, the shares represented by the enclosed proxy
card will be voted FOR ratification of the appointment of Deloitte & Touche LLP
as the independent auditors of the Company.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.

ADDITIONAL INFORMATION

Shareholder Proposals

To be considered for inclusion in the Company's proxy statement and form of
proxy relating to the 1999 Annual Meeting of Stockholders, a stockholder
proposal must be received by the Secretary of the Company at the address set
forth on the Notice of Annual Meeting of Stockholders not later than December
23, 1998. If such annual meeting is held on a date more than 30 calendar days
from May 28, 1999, a stockholder proposal must be received by a reasonable time
before the proxy solicitation for such annual meeting is made. Any such
proposal will be subject to 17 C.F.R. (S) 240.14a-8 of the Rules and Regulations
under the Exchange Act.

Notice of Business to be Conducted at an Annual Meeting

The bylaws of the Company provide an advance notice procedure for a
stockholder to properly bring business before an Annual Meeting. The
stockholder must give written advance notice to the Secretary of the Company not
less than ninety (90) days before the date originally fixed for such meeting;
provided, however, that in the event that less than one hundred (100) days
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the date on which the
Company's notice to stockholders of the annual meeting date was mailed or such
public disclosure was made. The advance notice by stockholders must include the
shareholder's name and address, as they appear on the Company's record of
stockholders, a brief description of the proposed business, the reason for
conducting such business at the Annual Meeting, the class and number of shares
of the Company's capital stock that are beneficially owned by such stockholder
and any material interest of such stockholder in the proposed business. In the
case of nominations to the Board of Directors, certain information regarding the
nominee must be provided. Nothing in this paragraph shall be deemed to require
the Company to include in its proxy statement or the proxy relating to an annual
meeting any stockholder proposal which does not meet all of the requirements for
inclusion established by the SEC in effect at the time such proposal is
received.

Other Matters Which May Properly Come Before the Meeting

The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than as stated in the Notice of Annual
Meeting of Stockholders. If, however,

23
<PAGE>

other matters are properly brought before the Annual Meeting, it is the
intention of the persons named in the accompanying proxy to vote the shares
represented thereby on such matters in accordance with their best judgment.

Whether or not you intend to be present at the Annual Meeting, you are
urged to return your proxy card promptly. If you are then present at the Annual
Meeting and wish to vote your shares in person, your original proxy may be
revoked by voting at the Annual Meeting. However, if you are a stockholder
whose shares are not registered in your own name, you will need appropriate
documentation from your recordholder to vote personally at the Annual Meeting.

By Order of the Board of Directors

/s/ JEFFREY BLAKE

Jeffrey Blake
Corporate Secretary
Vice President

Riverside, California
April 27, 1998

YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ACCOMPANYING PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.

24
<PAGE>

LIFE FINANCIAL CORP.
1997 STOCK OPTION PLAN

1. DEFINITIONS.
-----------

(a) "Affiliate" means (i) a member of a controlled group of corporations of
which the Company is a member or (ii) an unincorporated trade or business which
is under common control with the Company as determined in accordance with
Section 414(c) of the Internal Revenue Code of 1986, as amended, (the "Code")
and the regulations issued thereunder. For purposes hereof, a "controlled group
of corporations" shall mean a controlled group of corporations as defined in
Section 1563(a) of the Code determined without regard to Section 1563(a)(4) and
(e)(3)(C).

(b) "Alternate Option Payment Mechanism" refers to one of several methods
available to a Participant to fund the exercise of a stock option set out in
Section 13 hereof. These mechanisms include: broker assisted cashless exercise
and stock for stock exchange.

(c) "Award" means a grant of one or some combination of one or more Non-
statutory Stock Options, Incentive Stock Options and Option related rights under
the provisions of this Plan.

(d) "Bank" means Life Savings Bank, Federal Savings Bank.

(e) "Board of Directors" or "Board" means the board of directors of the
Company.

(f) "Change in Control" means a change in control of the Bank or the
Company of a nature that; (i) would be required to be reported in response to
Item 1 of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); or (ii) results in a Change in Control within the
meaning of the Home Owners' Loan Act of 1933, as amended ("HOLA") and the Rules
and Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency), as in effect on the date hereof (provided, that in applying
the definition of change in control as set forth under such rules and
regulations the Board shall substitute its judgment for that of the OTS); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Company, representing 20% or more of the Bank's or Company's
outstanding securities except for any securities of the Bank purchased by the
Company formed by the Bank for that purpose in connection with the
reorganization of the Bank and any securities purchased by any tax qualified
employee benefit plan of the Bank or Company; or (B) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the

A-1
<PAGE>

Incumbent Board, or whose nomination for election by the Company's stockholders
was approved by the same Nominating Committee serving under an Incumbent Board,
shall be, for purposes of this clause (B), considered as though he were a member
of the Incumbent Board; or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or Company or similar
transaction occurs in which the Bank or Company is not the resulting entity; or
(D) a solicitation of shareholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Bank or Company or similar
transaction with one or more corporations, as a result of which the outstanding
shares of the class of securities then subject to the plan are exchanged for or
converted into cash or property or securities not issued by the Bank or Company;
or (E) a tender offer is made for 20% or more of the voting securities of the
Bank or Company.

(g) "Code" means the Internal Revenue Code of 1986, as amended.

(h) "Committee" means a committee consisting of the entire Board of
Directors or consisting solely of two or more members of the Board of Directors
who are non-employee directors as such term is defined under Rule 16b-3(b)(3)(i)
under the Exchange Act as promulgated by the Securities and Exchange Commission.

(i) "Common Stock" means the Common Stock of the Company, par value, $.01
per share or any stock exchanged for shares of Common Stock pursuant to Section
14 hereof.

(j) "Company" means Life Financial Corp.

(k) "Date of Grant" means the effective date of an Award.

(l) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of a Participant to perform the work
customarily assigned to him, or in the case of a Director, to serve on the
Board. Additionally, a medical doctor selected or approved by the Board of
Directors must advise the Committee that it is either not possible to determine
when such Disability will terminate or that it appears probable that such
Disability will be permanent during the remainder of said Participant's
lifetime.

(m) "Effective Date" means June 30, 1997, the effective date of the Plan.

(n) "Employee" means any person who is currently employed by the Company or
an Affiliate, including officers, but such term shall not include Outside
Directors.

(o) "Employee Participant" means an Employee who holds an outstanding Award
under the terms of the Plan.

(p) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

A-2
<PAGE>

(q) "Exercise Price" means the purchase price per share of Common Stock
deliverable upon the exercise of each Option in order for the option to be
exchanged for shares of Common Stock.

(r) "Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the average of the high and low bid prices of the
Common Stock as reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the New York Stock Exchange ("NYSE") or
the American Stock Exchange ("AMEX") (as published by the Wall Street Journal,
if published) on such date or if the Common Stock was not traded on such date,
on the next preceding day on which the Common Stock was traded thereon or the
last previous date on which a sale is reported. If the Common Stock is not
reported on the NASDAQ, AMEX or the NYSE, the Fair Market Value of the Common
Stock is the value so determined by the Board in good faith.

(s) "Incentive Stock Option" means an Option granted by the Committee to a
Participant, which Option is designated by the Committee as an Incentive Stock
Option pursuant to Section 7 hereof and is intended to be such under Section 422
of the Code.

(t) "Initial Public Offering" means the offering of shares of the
Company's Common Stock concurrently with the Bank's Reorganization.

(u) "Limited Right" means the right to receive an amount of cash based
upon the terms set forth in Section 8 hereof.

(v) "Non-statutory Stock Option" means an Option granted by the Committee
to a Participant pursuant to Section 6 hereof, which is not designated by the
Committee as an Incentive Stock Option or which is redesignated by the Committee
under Section 7 as a Non-Statutory Stock Option.

(w) "Option" means the right to buy a fixed amount of Common Stock at the
Exercise Price within a limited period of time designated as the term of the
option as granted under Section 6 or 7 hereof.

(x) "Outside Director" means a member of the Board of Directors of the
Company or its Affiliates, who is not also an Employee.

(y) "Outside Director Participant" means an Outside Director who holds an
outstanding Award under the terms of the Plan.

(z) "Participant" means any Employee or Outside Director who holds an
outstanding Award under the terms of the Plan.

(aa) "Reorganization" means the formation by the Bank of the Company and
the subsequent reorganization pursuant to which the Bank will be a wholly-owned
subsidiary of the Company.

A-3
<PAGE>

(bb) "Retirement" with respect to an Employee Participant means termination
of employment which constitutes retirement under any tax qualified plan
maintained by the Bank or the Company. However, "Retirement" will not be deemed
to have occurred for purposes of this Plan if a Participant continues to serve
on the Board of Directors of the Company or its Affiliates even if such
Participant is receiving retirement benefits under any retirement plan of the
Bank or the Company. With respect to an Outside Director Participant
"Retirement" means the termination of service from the Board of Directors of the
Company or its Affiliates following written notice to the Board as a whole of
such Outside Director's intention to retire or retirement as determined by the
Bank (or the Company's) bylaws, or by reaching age 65, except that an Outside
Director shall not be deemed to have retired for purposes of the Plan in the
event he continues to serve as a consultant to the Board or as an advisory
director.

(cc) "Termination for Cause" shall mean, in the case of an Outside
Director, removal from the Board of Directors, or, in the case of an Employee,
termination of employment, in both such cases as determined by the Board of
Directors, because of a material loss to the Company or one of its Affiliates
caused by the Participant's intentional failure to perform stated duties,
personal dishonesty, willful violation of any law, rule, regulation, (other than
traffic violations or similar offenses) or final cease and desist order. No
act, or the failure to act, on Participant's part shall be "willful" unless
done, or omitted to be done, not in good faith and without reasonable belief
that the action or omission was in the best interest of the Bank or one of its
Affiliates.

2. ADMINISTRATION.
--------------

(a) The Plan as regards Awards to employees of the Company or its
Affiliates, shall be granted and administered by the Committee. The Committee
is authorized, subject to the provisions of the Plan, to grant awards to
Employees and Outside Directors and to establish such rules and regulations as
it deems necessary for the proper administration of the Plan and to make
whatever determinations and interpretations in connection with the Plan it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be binding and conclusive on all Participants in the Plan and on
their legal representatives and beneficiaries.

(b) Awards to Outside Directors shall be granted and administered by the
Committee, pursuant to the terms of this Plan.

3. TYPES OF AWARDS AND RELATED RIGHTS.
----------------------------------

The following Awards and related rights as described in Sections 6 through
11 hereof may be granted under the Plan:

(a) Non-statutory Stock Options;
(b) Incentive Stock Options;
(c) Limited Rights

A-4
<PAGE>

4. STOCK SUBJECT TO THE PLAN.
-------------------------

Subject to adjustment as provided in Section 14, the maximum number of
shares reserved for Awards under the Plan is 333,072 shares of the Common Stock.
These shares of Common Stock may be either authorized but unissued shares or
authorized shares previously issued and reacquired by the Company. To the
extent that Awards are granted under the Plan, the shares underlying such Awards
will be unavailable for any other use including future grants under the Plan
except that, to the extent that Awards terminate, expire, are forfeited or are
cancelled without having been exercised (in the case of Limited Rights,
exercised for cash), new Awards may be made with respect to these shares.

5. ELIGIBILITY.
-----------

Subject to the terms herein all Employees and Outside Directors shall be
eligible to receive Awards under the Plan.

6. NON-STATUTORY STOCK OPTIONS.
---------------------------

The Committee may, subject to the limitations of the Plan and the
availability of shares reserved but unawarded in the Plan, from time to time,
grant Non-statutory Stock Options to Employees and Outside Directors and, upon
such terms and conditions as the Committee may determine, grant Non-statutory
Stock Options in exchange for and upon surrender of previously granted Awards
under this Plan. Non-statutory Stock Options granted under this Plan are
subject to the following terms and conditions:

(a) Exercise Price. The Exercise Price of each Non-statutory Stock Option
--------------
shall be determined by the Committee on the date the option is granted. Such
Exercise Price shall not be less than 100% of the Fair Market Value of the
Common Stock on the Date of Grant. Shares may be purchased only upon full
payment of the Exercise Price or upon operation of an Alternate Option Payment
Mechanism set out in Section 9 hereof.

(b) Terms of Options. The term during which each Non-statutory Stock
----------------
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-statutory Stock Option be exercisable in whole or in part more than
10 years from the Date of Grant. The Committee shall determine the date on
which each Non-statutory Stock Option shall become exercisable. The shares
comprising each installment may be purchased in whole or in part at any time
during the term of such Option after such installment becomes exercisable. The
Committee may, in its sole discretion, accelerate the time at which any Non-
statutory Stock Option may be exercised in whole or in part. The acceleration
of any Non-statutory Stock Option under the authority of this paragraph creates
no right, expectation or reliance on the part of any other Participant or that
certain Participant regarding any other unaccelerated Non-statutory Stock
Options.

A-5
<PAGE>

(c) Termination of Employment or Service. Unless otherwise determined by
------------------------------------
the Committee, upon the termination of a Participant's employment or service for
any reason other than Disability, death or Termination for Cause, a Non-
statutory Stock Option shall be exercisable only as to those shares that were
immediately exercisable by the Participant at the date of termination and only
for a period of one year following termination. Notwithstanding any provisions
set forth herein or contained in any Agreement relating to an award of an
Option, in the event of termination for Disability, death, Retirement or a
Change in Control, all Options shall immediately vest and be exercisable for one
year after such termination, and in the event of Termination for Cause all
rights under the Participant's Non-Statutory Stock Options shall expire
immediately upon termination.

(d) Change in Control. Unless otherwise determined by the Committee, in the
-----------------
event of the termination of the Participant's employment or service following a
Change in Control, all Non-statutory Stock Options held by the Participant,
whether or not exercisable at such time, shall become exercisable by the
Participant or his legal representatives or beneficiaries and remain exercisable
for one year or such longer period as determined by the Committee following the
date of the termination of employment or service, provided that in no event
shall the period extend beyond the expiration of the term of the Non-statutory
Stock Option.

7. INCENTIVE STOCK OPTIONS.
-----------------------

The Committee may, subject to the limitations of the Plan and the
availability of shares reserved but unawarded in the Plan, from time to time,
grant Incentive Stock Options to Employees. Incentive Stock Options granted
pursuant to the Plan shall be subject to the following terms and conditions:

(a) Exercise Price. The Exercise Price of each Incentive Stock Option
--------------
shall be not less than 100% of the Fair Market Value of the Common Stock on the
Date of Grant. However, if at the time an Incentive Stock Option is granted to
a Participant, the Participant owns Common Stock representing more than 10% of
the total combined voting securities of the Bank (or, under Section 424(d) of
the Code, is deemed to own Common Stock representing more than 10% of the total
combined voting power of all classes of stock of the Bank, by reason of the
ownership of such classes of stock, directly or indirectly, by or for any
brother, sister, spouse, ancestor or lineal descendent of such Participant, or
by or for any corporation, partnership, estate or trust of which such
Participant is a shareholder, partner or beneficiary), ("10% Owner"), the
Exercise Price per share of Common Stock deliverable upon the exercise of each
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Date of Grant. Shares may be purchased only upon
payment of the full Exercise Price or upon operation of an Alternate Option
Payment Mechanism set out in Section 9 hereof.

(b) Amounts of Options. Incentive Stock Options may be granted to any
------------------
Employee in such amounts as determined by the Committee; provided that the
amount granted is consistent with the terms of Section 422 of the Code. In the
case of an option intended to qualify as an Incentive Stock Option, the
aggregate Fair Market Value (determined as of the time the Option is granted) of
the Common Stock with respect to which Incentive Stock Options granted are

A-6
<PAGE>

exercisable for the first time by the Participant during any calendar year
(under all plans of the Participant's employer corporation and its parent and
subsidiary corporations) shall not exceed $100,000. The provisions of this
Section 7(b) shall be construed and applied in accordance with Section 422(d) of
the Code and the regulations, if any, promulgated thereunder. To the extent an
award under this Section 7 exceeds this $100,000 limit, the portion of the
Options in excess of such limit shall be deemed a Non-statutory Stock Option.
The Committee shall have discretion to redesignate Options granted as Incentive
Stock Options as Non-Statutory Stock Options. Such redesignation shall not be
deemed to be a new grant or a regrant of such Options. Such Non-statutory Stock
Options shall be subject to Section 6 hereof.

(c) Terms of Options. The term during which each Incentive Stock Option
----------------
may be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If at the time an Incentive Stock Option is granted to
a Participant who is a 10% Owner, the Incentive Stock Option granted to such
Employee Participant shall not be exercisable after the expiration of five years
from the Date of Grant. No Incentive Stock Option granted under this Plan is
transferable except by will or the laws of descent and distribution and is
exercisable in his lifetime only by the Employee Participant to whom it is
granted.

The Committee shall determine the date on which each Incentive Stock Option
shall become exercisable. The shares comprising each installment may be
purchased in whole or in part at any time during the term of such option after
such installment becomes exercisable. The Committee may, in its sole
discretion, accelerate the time at which any Incentive Stock Option may be
exercised in whole or in part. The acceleration of any Incentive Stock Option
under the authority of this paragraph creates no right, expectation or reliance
on the part of any other Participant or that certain Participant regarding any
other unaccelerated Incentive Stock Options.

(d) Termination of Employment. Unless otherwise determined by the
-------------------------
Committee, upon the termination of an Employee Participant's service for any
reason other than Disability, Retirement, death, Change in Control or
Termination for Cause, the Employee Participant's Incentive Stock Options shall
be exercisable only as to those shares that were immediately exercisable by the
Employee Participant at the date of termination and only for a period of three
months following termination. Notwithstanding any provisions set forth herein
or contained in any Agreement relating to an award of an Option, in the event of
termination for Disability, Retirement or death, all Options shall immediately
vest and be exercisable for one year after such termination, (however, in the
event of Retirement, exercising after three months will result in loss of
incentive stock option treatment under the Code) and in the event of Termination
for Cause all rights under the Employee Participant's Incentive Stock Options
shall expire immediately upon termination.

(e) Change in Control. Unless otherwise determined by the Committee, in
-----------------
the event of the termination of the Employee Participant's employment following
a Change in Control, all Incentive Stock Options held by the Participant,
whether or not exercisable at such time, shall become exercisable by the
Participant or his legal representatives or beneficiaries and remain exercisable
for one year or such longer period as determined by the Committee following the

A-7
<PAGE>

date of termination of the Employee Participant's employment, provided however,
that such option shall not be eligible for treatment as an Incentive Stock
Option in the event such option is exercised more than three months following
the date of termination of employment, and provided further, that in no event
shall the period extend beyond the expiration of the term of the Incentive Stock
Option.

(f) Compliance with Code. The Options granted under this Section are
--------------------
intended to qualify as incentive stock options within the meaning of Section 422
of the Code, but the Company makes no warranty as to the qualification of any
option as an incentive stock option within the meaning of Section 422 of the
Code. All Options that do not so quality shall be treated as Non-statutory
Stock Options.

8. LIMITED RIGHTS.
--------------

Simultaneously with the grant of any Option to an Employee, the Committee
may grant a Limited Right with respect to all or some of the shares covered by
such Option. Limited Rights granted under this Plan are subject to the
following terms and conditions:

(a) Terms of Rights. In no event shall a Limited Right be exercisable in
---------------
whole or in part before the expiration of six months from the Date of Grant of
the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control.

The Limited Right may be exercised only when the underlying Option is
eligible to be exercised, and only when the Fair Market Value of the underlying
shares on the day of exercise is greater than the Exercise Price of the
underlying Option.

Upon exercise of a Limited Right, the underlying Option shall cease to be
exercisable. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the purchase price and the Fair Market Value of the Common
Stock subject to the underlying option. The Limited Right is transferable only
when the underlying option is transferable and under the same conditions.

(b) Payment. Upon exercise of a Limited Right, the holder shall promptly
-------
receive from the Company an amount of cash or some other payment option found in
Section 12, equal to the difference between the Exercise Price of the underlying
option and the Fair Market Value of the Common Stock subject to the underlying
Option on the date the Limited Right is exercised, multiplied by the number of
shares with respect to which such Limited Right is being exercised. Payments
shall be less an applicable tax withholding as set forth in Section 15.

9. ALTERNATE OPTION PAYMENT MECHANISM.
----------------------------------

The Committee has sole discretion to determine what form of payment it will
accept for the exercise of an Option. The Committee may indicate acceptable
forms in the Award

A-8
<PAGE>

Agreement covering such Options or may reserve its decision to the time of
exercise. No Option is to be considered exercised until payment in full is
accepted by the Committee or its agent.

(a) Cash Payment. The exercise price may be paid in cash or by certified
------------
check.

(b) Borrowed Funds. To the extent permitted by law, the Committee may
--------------
permit all or a portion of the exercise price of an Option to be paid through
borrowed funds.

(i) The Committee may permit payment by the tendering of previously
acquired shares of Common Stock. This includes the use of "pyramiding
transactions" whereby some number of Options are exercised. The shares gained
through the exercise are then tendered back to the Bank as payment for some
other number of Options. This transaction may be repeated as needed to exercise
all of the Options available.

(ii) Any shares of Common Stock tendered in payment of the exercise
price of an Option shall be valued at the Fair Market Value of the Common Stock
on the date prior to the date of exercise.

10. RIGHTS OF A SHAREHOLDER
-----------------------

No Participant shall have any rights as a shareholder with respect to any
shares covered by an Option until the date of issuance of a stock certificate
for such shares. Nothing in this Plan or in any Award granted confers on any
person any right to continue in the employ or service of the Company or its
Affiliates or interferes in any way with the right of the Company or its
Affiliates to terminate a Participant's services as an officer or other employee
at any time.

11. NON-TRANSFERABILITY
-------------------

Except to the extent permitted or restricted by the Code, the rules
promulgated under Section 16(b) of the Exchange Act or any successor statutes or
rules:

(i) The recipient of an Award shall not sell, transfer, assign,
pledge, or otherwise encumber shares subject to the Award until full vesting of
such shares has occurred. For purposes of this section, the separation of
beneficial ownership and legal title through the use of any "swap" transaction
is deemed to be a prohibited encumbrance.

(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic relations order, an
Award is not transferable and may be earned in his lifetime only by the
Participant to whom it is granted. Upon the death of a Participant, an Award is
transferable by will or the laws of intestate succession. The designation of a
beneficiary does not constitute a transfer.

A-9
<PAGE>

(iii) If a recipient of an Award is subject to the provisions of
Section 16 of the Exchange Act, shares of Common Stock subject to such Award may
not, without the written consent of the Committee (which consent may be given in
the Stock Award Agreement), be sold or otherwise disposed of within six months
following the date of grant of the Award.

12. AGREEMENT WITH GRANTEES.
-----------------------

Each Award will be evidenced by a written agreement, executed by the
Participant and the Company or its Affiliates that describes the conditions for
receiving the Awards including the date of Award, the Exercise Price, the terms
or other applicable periods, and other terms and conditions as may be required
or imposed by the Plan, the Committee, the Board of Directors, tax law
considerations or applicable securities law considerations.

13. DESIGNATION OF BENEFICIARY.
--------------------------

A Participant may, with the consent of the Committee, designate a person or
persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by
and delivered to the Company and may be revoked in writing. If a Participant
fails effectively to designate a beneficiary, then the Participant's estate will
be deemed to be the beneficiary.

14. DILUTION AND OTHER ADJUSTMENTS.
------------------------------

In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Company, the Committee will make such
adjustments to previously granted Awards, to prevent dilution or enlargement of
the rights of the Participant including any or all of the following:

(a) adjustments in the aggregate number or kind of shares of Common Stock
that may underlie future Awards under the Plan;

(b) adjustments in the aggregate number or kind of shares of Common Stock
underlying Awards already made under the Plan;

(c) adjustments in the purchase price of outstanding Incentive and/or Non-
statutory Stock Options, or any Limited Rights attached to such
Options.

No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All awards under
this Plan shall be binding upon any successors or assigns of the Company.

A-10
<PAGE>

15. TAX WITHHOLDING.
---------------

Awards under this Plan shall be subject to tax withholding to the extent
required by any governmental authority. Any withholding shall comply with Rule
16b-3, if applicable, or any amendment or successor rule. Shares of Common
Stock withheld to pay for tax withholding amounts shall be valued at their Fair
Market Value on the date the Award is deemed taxable to the Participant.

16. AMENDMENT OF THE PLAN.
---------------------

The Board of Directors may at any time, and from time to time, modify or
amend the Plan in any respect, prospectively or retroactively; provided however,
that provisions governing grants of Incentive Stock Options, unless permitted by
the rules and regulations or staff pronouncements promulgated under the Code,
shall be submitted for shareholder approval to the extent required by such law,
regulation or interpretation.

Failure to ratify or approve amendments or modifications by shareholders
shall be effective only as to the specific amendment or modification requiring
such ratification. Other provisions, sections, and subsections of this Plan
will remain in full force and effect.

No such termination, modification or amendment may affect the rights of a
Participant under an outstanding Award without the written permission of such
Participant.

17. EFFECTIVE DATE OF PLAN.
----------------------

The Effective Date of the Plan shall be the date of its adoption by the
Board of Directors.

18. TERMINATION OF THE PLAN.
-----------------------

The right to grant Awards under the Plan will terminate upon the earlier of
ten (10) years after the Effective Date of the Plan or the exercise of Options,
or related Limited Rights equivalent to the maximum number of shares reserved
under the Plan as set forth in Section 4. The Board of Directors has the right
to suspend or terminate the Plan at any time, provided that no such action will,
without the consent of a Participant or Outside Director Participant, adversely
affect his vested rights under a previously granted Award.

19. APPLICABLE LAW.
--------------

The Plan will be administered in accordance with the laws of the State of
California to the extent not superseded by federal law.

20. SUCCESSORS AND ASSIGNS.
----------------------

All awards under this Plan shall be binding upon any successors or assigns
of the Company including any holding company that may be formed by the Company.

A-11
<PAGE>

21. DELEGATION OF AUTHORITY.
-----------------------

The Committee may delegate all authority for: the determination of forms of
payment to be made by or received by the Plan; the execution of Award
Agreements; the determination of Fair Market Value; the determination of all
other aspects of administration of the Plan to the executive officer(s) of the
Company. The Committee may rely on the descriptions, representations, reports
and estimates provided to it by the management of the Company for determinations
to be made pursuant to the Plan.

IN WITNESS WHEREOF, the Company has established this Plan, to be executed
by its duly authorized executive officer and the corporate seal to be affixed
and duly attested, effective as of the 30th day of June, 1997.

[CORPORATE SEAL] LIFE FINANCIAL CORP.

June 30, 1997 By: /s/ Daniel L. Perl
- -------------------------------- -------------------------------------
Date President and Chief Executive Officer

ADOPTED BY THE BOARD OF DIRECTORS:

June 30, 1997 By: /s/ L. Bruce Mills, Jr.
- -------------------------------- -------------------------------------
Date Secretary

A-12
<PAGE>

REVOCABLE PROXY
LIFE FINANCIAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

MAY 28, 1998
10:00 A.M. PACIFIC TIME

The undersigned hereby appoints the official proxy committee of the Board
of Directors of LIFE Financial Corporation (the "Company"), each with full power
of substitution, to act as attorneys and proxies for the undersigned, and to
vote all shares of Common Stock of the Company which the undersigned is entitled
to vote only at the Annual Meeting of Stockholders, to be held on May 28, 1998
at 10:00 a.m. Pacific Time, at the Arrowhead Country Club, 3433 Parkside Drive,
San Bernardino, California, and at any and all adjournments thereof, as
indicated on the back of this proxy.

THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS
LISTED. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, INCLUDING
WHETHER OR NOT TO ADJOURN THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED
IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF
DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING.

The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders and of a
Proxy Statement dated April 27, 1998 and of the Annual Report to Stockholders.

(CONTINUED ON THE OTHER SIDE - IMPORTANT TO MARK, DATE AND SIGN ON THE OTHER
SIDE)

x FOLD AND DETACH HERE x

<PAGE>

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
Please mark
your votes [X]
as indicated

1. The election as director of the FOR VOTE WITHHELD
nominee listed (except as marked [___] [___]
to the contrary to the right).

Milton E. Johnson

INSTRUCTION: To withhold your
vote for any individual nominee,
write that nominee's name on the
line provided below:

___________________________________

2. The approval of the Life Financial Corp. FOR AGAINST ABSTAIN
1997 Stock Option Plan. [___] [___] [___]

3. The ratification of the appointment of
Deloitte & Touche LLP as independent [___] [___] [___]
auditors of the Company for the fiscal
year ending December 31, 1998.

Please sign exactly as your name appears
on this card. When signing as attorney,
executor, administrator, trustee or
guardian, please give your full title. If
shares are held jointly, each holder may
sign but only one signature is required.

Dated:____________________________________

__________________________________________
SIGNATURE OF STOCKHOLDER

PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.

x FOLD AND DETACH HERE x