UNIONFED FINANCIAL CORP, 10-K, 1994-09-28

UNIONFED FINANCIAL CORP
10-K, 1994-09-28
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 1994

COMMISSION FILE NUMBER 1-9594

UNIONFED FINANCIAL CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 95-4074126
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

330 EAST LAMBERT ROAD 92621
BREA, CALIFORNIA (Zip Code)
(Address of principal executive offices)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 255-8100

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<S> <C>
Name of each exchange
Title of each class on which registered
------------------- -----------------------
Common Stock, $.01 par value New York Stock Exchange
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

NONE

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

[x] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [x]

The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing sale price of its Common Stock on
September 26, 1994, on the New York Stock Exchange was $17,001,246.

At September 26, 1994, 27,201,993 shares of the registrant's Common
Stock, $.01 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Annual Meeting of
Stockholders to be held November 16, 1994 are incorporated by reference in Part
III hereof.

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<PAGE> 2
PART I
ITEM 1. BUSINESS

GENERAL

UnionFed Financial Corporation ("UnionFed" or the "Company") was
incorporated in Delaware in 1986 and is a financial services holding company
engaged primarily in the savings and loan business through its wholly-owned
subsidiary, Union Federal Bank, a federal savings bank (the "Bank"). The Bank
is a federally-chartered stock savings bank which began operations in 1927.
The Company became the holding company for the Bank on June 25, 1987 in a
transaction approved by the Bank's stockholders and the Federal Home Loan Bank
Board (the "FHLBB"), the predecessor of the Office of Thrift Supervision
("OTS"). Unless otherwise indicated, references to "the Company" include the
Bank and other subsidiaries of the Bank, including Uni-Cal Financial
Corporation ("Uni- Cal"), a wholly-owned real estate subsidiary of the Bank.

The Bank has experienced significant losses since 1990 as a result of
its real estate development activities and its commercial and land development
lending activities, which have required significant charge-offs and provisions
for loan and real estate losses. The Bank's loan and real estate portfolios
have been negatively impacted by the deterioration of real estate markets,
particularly for commercial and land development projects, in Southern
California and in the other regions of the United States where the Bank
previously conducted loan and real estate development activities. In mid-1990,
the Company ceased undertaking any new real estate investment and development
projects.

In 1991, the OTS required the Board of Directors to strengthen the
Company's management team in connection with the approval of the Bank's prior
capital plan. Since April 1991, the new management team brought in by the
Board of Directors with the approval of the OTS has directed the Bank's efforts
to manage and aggressively dispose of real estate and nonperforming assets and
to develop and implement a new strategic direction for the Bank. Nonperforming
assets, including nonaccrual loans, real estate acquired in settlement of loans
and in-substance foreclosures (REO), have declined from a high of $191.1
million at September 30, 1991 to $61.4 million at June 30, 1994 as a result of
real estate sales, significant levels of loan restructurings and write-downs of
assets during the period. Assets classified as substandard or doubtful
(including problem loans, REO before general valuation allowance, and the
Bank's investment in Uni-Cal Financial Corporation) remain high relative to
peer institutions in California, aggregating $213.0 million at June 30, 1994,
or 23.6% of the Bank's assets. Loss assets have been fully provided for by
specific valuation allowances; therefore, they are not included in the total
classified assets amount. Restructured loans have decreased to $113.7 million
at June 30, 1994 from $162.5 million at June 30, 1993, but increased from $82.0
million at June 30, 1992 and $23.2 million at June 30, 1991 as a result of the
Bank's efforts to aggressively manage and work out problem assets.

In late September, 1993 the Company completed a recapitalization
equity offering to investors, management and stockholders (the "Offering") and
received net proceeds of approximately $44.1 million. Receipt of this capital
resulted in the Bank achieving capital levels in excess of the 4% leverage
(core), 4% Tier 1 risk-based and 8% total risk-based capital ratios required by
OTS "Prompt Corrective Action" regulations and by a directive issued by the OTS
to the Bank under such regulations (the "Directive"). At such levels, the Bank
became an "adequately capitalized" institution under OTS rules. After the
recapitalization, the Company had approximately 27.2 million shares outstanding
and had issued warrants entitling certain investors to purchase an additional
6.9 million shares at $2.33 per share up to five years after the closing.

In the fiscal year ended June 30, 1994, the Bank experienced
additional losses of $26.5 million primarily due to loan loss provisions and to
continued losses from real estate operations. As a result, at June 30, 1994,
two of the Bank's regulatory capital ratios, the leverage (core) capital ratio
of 3.80% and risk-based capital ratio of 6.99%, were less than the respective
required minimum ratios of 4.00% and 8.00%. At June 30, 1994, the Bank's
capital was approximately $6 million below the level to be adequately
capitalized. The Bank's Tier 1 risk-based capital ratio at June 30, 1994 of
5.74% exceeded the 4.00% minimum requirement. Nonetheless, because

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the Bank's leverage (core) and Tier 1 risk-based ratios were below regulatory
minimums, the Bank was required to file a capital restoration plan with the
OTS, and is subject to various regulatory restrictions. See "Regulation and
Supervision--FDICIA Prompt Corrective Action Requirements." The Bank filed a
capital restoration plan (the "Capital Restoration Plan") with the OTS on
September 15, 1994 setting forth the Bank's strategy for achieving regulatory
capital compliance by March 31, 1995. See "Capital Restoration Plan" below.

The Bank conducts its business of attracting deposits and originating
mortgage loans through its executive offices in Brea, California and 14 full
service branches located in the Southern California counties of Los Angeles,
Orange and Ventura. The Bank's strategic core business plan concentrates on
enhancing its retail banking network in selected communities and on developing
its wholesale mortgage banking business. As part of its plan to consolidate
and reduce its branch system to enhance its financial results and
competitiveness, the Bank sold 11 branches during fiscal 1993 and 1994,
representing approximately $309.1 million in deposits.

Consolidated assets of the Company at June 30, 1994 were $904 million,
down from $1.2 billion at June 30, 1993. The net loss for the fiscal year
ended June 30, 1994 of $26.5 million reduced stockholders' equity to $34.7
million, compared to stockholders' equity of $17.0 million at June 30, 1993.
The Company's ratio of stockholders' equity to assets was 3.84% at June 30,
1994. The net loss for fiscal 1994 primarily resulted from additional
provisions for estimated loan and real estate losses totaling $27.1 million.
Approximately $10.6 million of such losses related to five large commercial
real estate properties, $5.8 million to five multifamily properties, and $3.7
million to residential and other consumer loans and foreclosed properties.
These losses resulted from continued deterioration in the Company's real estate
loan and real estate investment portfolios and include write- downs of
foreclosed properties to reflect current fair values based on sales offers
and/or recent appraisals. See "Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A)."

The executive offices of the Company are located at 330 East Lambert
Road, Brea, California 92621 and its telephone number is (714) 255-8100.

CAPITAL RESTORATION PLAN

Since 1990, the Bank has been the subject of significant regulatory
oversight and review by the OTS and the Federal Deposit Insurance Corporation
("FDIC"). On August 1, 1994, when the Bank filed its regular quarterly
financial report to the OTS and the report indicated that the Bank's leverage
(core) and risk-based capital ratios at June 30, 1994 had fallen below 4% and
8%, respectively, the Bank became an "undercapitalized" institution under OTS
rules. As a result, the Bank was required to file a capital restoration plan
with the OTS by September 15, 1994. As submitted to the OTS on September 15,
the Capital Restoration Plan contemplates that the Bank will pursue all
feasible alternatives for raising capital, including a sale or merger of the
Bank or the Bank's branch network or a recapitalization of the Bank through one
or more equity or debt offerings. The OTS must act on the Capital Restoration
Plan expeditiously, and generally not later than 60 days after the September 15
submission date. The OTS may approve the Capital Restoration Plan only if the
OTS determines that the Plan is likely to succeed in restoring the
institution's capital and will not appreciably increase the risks to which the
institution is exposed. There can be no assurance that the OTS will approve
the Capital Restoration Plan as submitted by the Bank, or that the Bank will be
able to achieve the objectives of the Capital Restoration Plan as submitted or
as such plan may be revised from time to time.

The Company's business plan, as described in the Capital Restoration
Plan, includes the following key elements:

o By March 31, 1995, the consumation of a sale or merger of the
Bank or of its deposit franchise or a recapitalization of the
Bank through one or more equity or debt offerings (which could
include a rights offering).

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<PAGE> 4
o Reduction of the Bank's risk profile in order to enhance the
prospects for a successful sale or merger or recapitalization
transaction, primarily through disposition of the Bank's
classified assets, which may include a bulk sale of such
assets. However, the Company and the Bank do not intend to
implement a bulk sale of classified assets in the absence of a
sale or merger of the Bank or of a recapitalization
transaction. In addition, the Bank will explore the extent to
which a sale or merger transaction or recapitalization can be
completed without a bulk sale of classified assets. The Bank
has engaged a real estate consulting firm to provide valuation
services and, if requested, assist in locating a buyer or
buyers for both performing and non-performing assets of the
Bank.

o If an equity or debt recapitalization is pursued, raising
sufficient capital to permit the Bank to become "well
capitalized" upon completion of such infusion, with an initial
leverage (core) ratio of 5% or greater, tier 1 risk- based
capital ratio of 5% or greater and an initial total risk-based
capital ratio of at least 10%. If an equity recapitalization
is pursued together with a bulk sale or sales of loans and
real estate assets, the Bank estimates that it would need an
additional $28 million of capital, net of expenses, to become
"adequately capitalized" and an additional $37 million, net of
expenses, to become "well capitalized" at March 31, 1995.

The Bank intends to pursue a sale or merger of the Bank and all
feasible alternatives for maximizing value to the Company's stockholders,
including the raising of additional required capital. The nature of any sale or
merger transaction or the form of any recapitalization transaction may not be
determined for several months. A sale or merger transaction may involve cash
consideration or securities of the acquiror, depending upon market interest. A
recapitalization could be accomplished through a private offering, through a
public offering, through a public offering incorporating a rights offering with
or without stand-by purchasers, or through a combination of transactions. Based
on investor acceptance, the securities involved in a recapitalization could
include common or preferred stock, warrants and debt securities. The
securities could be issued by either the Company or the Bank. The Bank may
retain one or more investment banking firms in connection with the proposed
sale/merger or recapitalization activities.

There can be no assurance that the OTS will approve the Capital
Restoration Plan as submitted or as may be amended by the Bank in the future.
As a prerequisite to the OTS's approval of the Capital Restoration Plan, the
Bank's performance under the plan must be guaranteed by the Company, up to the
lesser of (a) 5% of the institution's total assets at the time the institution
became undercapitalized, or (b) the amount necessary to bring the institution
into compliance with all capital standards as of the time the institution fails
to comply with its capital restoration plan. Such guarantee must remain in
effect until the institution has been adequately capitalized for four
consecutive quarters, and the Company must provide the OTS with appropriate
assurances of its ability to perform the guarantee.

If the OTS does not approve the Capital Restoration Plan, or if the
plan is approved and the Bank does not comply with its terms, the OTS is
required to impose certain operating restrictions and may impose additional
restrictions if it deems such actions necessary. See "Regulation and
Supervision--FDICIA Prompt Corrective Action Requirements" below. The OTS or
the FDIC may appoint a receiver or conservator for an institution if the
institution is undercapitalized and (i) has no reasonable prospect of becoming
adequately capitalized, (ii) fails to submit a capital restoration plan within
the required time period, or (iii) materially fails to implement its capital
restoration plan.

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<PAGE> 5
thereafter unless the OTS and FDIC determine that taking other action would
better serve the purposes of prompt corrective action. Such determinations are
required to be reviewed at 90-day intervals, and if the Bank remains critically
undercapitalized for more than 270 days, the decision not to appoint a receiver
would require certain affirmative findings by the OTS and FDIC regarding the
viability of the institution. An institution is treated as critically
undercapitalized if its ratio of "tangible equity" (core capital plus
cumulative preferred stock minus intangible assets other than supervisory
goodwill and purchased mortgage servicing rights) to total assets is equal to
or less than 2%. At June 30, 1994, the Bank's "tangible equity" ratio was
3.5%.

LENDING ACTIVITIES

In the past, the Company's lending activities have emphasized
origination of first mortgage loans secured by residential property, as well as
real estate loans secured by properties under construction or income producing
properties. Since April 1991, the Company has focused on the origination and
sale of conventional first mortgage loans secured by residential property. The
Company does not plan to engage in any new multifamily (generally apartment
projects) or commercial lending activities or undertake construction lending
(either for residential or income property projects) in the near future except
where necessary to facilitate the sale of real estate or to accomplish loan
restructurings. In addition, the Company intends to maintain the existing
proportion of one-to-four family adjustable-rate mortgages ("ARMs") and
mortgage-backed securities to total loans and mortgage-backed securities by
reinvesting proceeds from loan repayments and REO dispositions into
mortgage-backed securities and by retention for the Bank's portfolio of a
portion of current originations of ARMs. See "Mortgage Banking and Loan
Servicing Activities."

Loan and Mortgage-Backed Securities Portfolio Composition

The Company's net loan and mortgage-backed securities portfolio
totaled approximately $724.7 million at June 30, 1994, representing 80.17% of
the Company's assets at that date. As a federally-chartered savings
institution, the Bank has authority to make loans secured by real estate
located throughout the United States. At June 30, 1994, approximately 93.0% of
the Company's real estate loans were secured by real estate located in
California. See "Financial Statements and Supplementary Data - Note 4."

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The following table sets forth the composition of the Bank's loan and
mortgage-backed securities portfolio by type of loan at the dates indicated.

<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate loans:
One-to-four units . . . . . $198,046 $370,187 $ 394,946 $ 541,191 $ 719,505
Five or more units . . . . . 166,779 199,638 221,329 235,269 234,326
Construction . . . . . . . . 6,924 15,922 71,515 204,628 305,196
Commercial and land . . . . 202,017 278,731 324,572 312,940 330,364
Acquisition, development
and construction . . . . . --- 1,330 4,749 11,585 21,655
Equity trust deed . . . . . 6,279 7,480 11,504 19,576 27,219
-------- -------- ---------- ---------- ----------
Total real estate loans . . 580,045 873,288 1,028,615 1,325,189 1,638,265
Other loans(1) . . . . . . . . 14,090 17,270 23,341 38,797 44,031
-------- -------- ---------- ---------- ----------
Total loans receivable . . 594,135 890,558 1,051,956 1,363,986 1,682,296
Less:
Unearned fees, premiums
and discounts . . . . . . 2,051 2,479 4,148 6,931 8,566
Loans in process . . . . . . 166 3,324 8,998 35,418 87,215
Allowance for estimated
losses . . . . . . . . . . 24,963 20,573 17,824 31,064 14,077
-------- -------- ---------- ---------- ----------
Net loans receivable. . . 566,955 864,182 1,020,986 1,290,573 1,572,438
Mortgage-backed securities 158,305 88,039 62,473 394,985 385,164
Less unearned (discounts)
premiums . . . . . . . . .
(522) 2,669 (764) 542 (901)
-------- -------- ---------- ---------- ----------
Total net loans
receivable and
mortgage-backed
securities . . . . . . . $724,738 $954,890 $1,082,695 $1,686,100 $1,956,701
======== ======== ========== ========== ==========
</TABLE>
- - - - ------------
(1) Includes passbook loans, mobile home loans, overdraft loans and other
unsecured loans.

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The table below sets forth the origination, purchase and sale activity
relating to loans and mortgage-backed securities of the Bank during the periods
indicated.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate loans originated:
One-to-four units ............ $ 201,648 $ 233,208 $ 188,652 $ 213,620 $ 301,306
Five or more units ........... 10,905 2,814 7,819 14,208 29,502
Construction ................. -- 750 -- 6,824 113,652
Commercial and land .......... 22,041 17,024 12,176 37,070 49,205
Equity trust deed ............ 102 660 1,627 5,093 10,342
Other loans originated (1) ..... (2,270) (2,625) (3,736) 2,523 6,599
--------- --------- --------- --------- ---------
Total loans originated ... 232,426 251,831 206,538 279,338 510,606
Real estate loans purchased .... 0 44,872 13,231 15,053 36,262
--------- --------- --------- --------- ---------
Total loans originated
and purchased .......... 232,426 296,703 219,769 294,391 546,868
Total loans sold ............... (227,638) (84,104) (121,194) (63,375) (39,441)
Loans exchanged for
mortgage-backed securities ... (133,253) (159,555) (134,850) (239,684) (237,772)
Total loan repayments .......... (112,556) (176,015) (232,099) (263,552) (400,767)
Other net changes(2) ........... (56,206) (33,833) (1,213) (9,645) (9,422)
--------- --------- --------- --------- ---------
Net increase (decrease) in
loans receivable ............. (297,227) (156,804) (269,587) (281,865) (140,534)
Mortgage-backed securities:
Received in exchange
for loans .................. 133,253 159,555 134,850 239,684 237,772
Purchased .................... 188,157 169,082 7,502 16,433 31,982
Sold ......................... (233,232) (283,871) (402,520) (161,807) (80,003)
Repayments ................... (21,106) (16,215) (73,634) (83,113) (98,366)
Other net changes(2) ......... 3 448 (16) 67 (241)
--------- --------- --------- --------- ---------
Net (decrease) increase
in mortgage-backed
securities ................. 67,075 28,999 (333,818) 11,264 91,144
--------- --------- --------- --------- ---------
Net (decrease) increase
in loans and mortgage-
backed securities .......... $(230,152) $(127,805) $(603,405) $(270,601) $ (49,390)
========= ========= ========= ========= =========
</TABLE>

____________

(1) Amount represents the net change in passbook loans, mobile home loans,
overdraft loans and other unsecured loans.

(2) Includes in-substance foreclosures, changes in loans in process,
deferred income and/or other changes.

Residential Real Estate Lending

The Bank's primary lending activity is the origination of mortgage
loans secured by single family residential structures consisting of one to four
units located in California. During fiscal years 1994 and 1993, approximately
72% and 92%, respectively, of the Bank's one-to-four unit residential real
estate loans were originated by retail loan representatives or other employees
of the Bank. Retail loan representatives are employees of the Bank who
generally are compensated on a commission basis and typically receive loan
referrals from real estate brokers, builders, depositors and walk-in customers.
The remainder of the Bank's one-to-four

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unit residential real estate loans were originated by outside sources such as
builders, other financial institutions and mortgage brokers. The Bank will
verify credit information supplied to these sources by loan applicants and
obtain their underwriting information for review prior to loan approval and
funding. The appraisal review requirements described below also apply to loans
originated from outside sources. Compensation for the services performed by
such outside sources consists of a percentage of the loan balance or the fees
charged to a borrower in connection with a loan origination, which percentage
is determined by negotiation between such sources and the Bank. These loan
sources do not operate from the Bank's offices and are not employees of the
Bank.

Prior to fiscal 1992, the Bank sold its current production of fixed
rate one-to-four unit residential loans (principally after securitizing such
loans into mortgage-backed securities), and retained its ARM production. In
fiscal 1992, 1993 and 1994, in concert with the asset shrinkage policy included
in the prior capital plans, the Bank began selling virtually all of its current
production of one-to-four unit residential loans, including ARM loans, with the
exception of a small amount of ARM loans retained in portfolio as part of the
Bank's asset/liability management. In addition, during fiscal 1992, 1993 and
1994, the Bank adopted a corollary strategy to sell the related loan servicing
rights generated from sales of current production of such loans in order to
accelerate the earnings cycle and realize the full economic value of loan
production activity.

In addition to the sale of the current production of loans, in fiscal
1991 through 1994 the Bank sold certain loans and mortgage-backed securities in
connection with the sale of branches and as a means of achieving interim
capital targets specified in the Bank's prior capital plan. See "MD&A -
Capital Resources and Liquidity" for a discussion of loan sales and branch
sales.

The Bank's ARMs generally begin with an interest rate set below the
fully indexed rate ("starting rate"). The starting rate adjusts to a rate
equal to the index value plus a margin after the first three, six or twelve
months. The Bank's ARMs generally provide that the maximum rate that can be
charged cannot exceed the initial rate by more than 5.00 to 10.20 percentage
points, depending on the type of loan and the initial rate offered. The
periodic interest rate cap on the Bank's ARMs which adjust annually generally
is 200 basis points. The periodic interest rate cap on the Bank's ARMs which
adjust semi-annually generally is 100 basis points. With respect to ARMs that
adjust monthly, there is a lifetime interest rate cap, but no specified
periodic interest rate cap. Instead, monthly adjustment ARMs have an annual
periodic cap on changes in required monthly payments. This schedule allows for
negative amortization on monthly ARMs (that is, the addition to loan principal
of accrued interest that exceeds the interest component of the borrower's
monthly loan payments). In the event that a loan incurs significant negative
amortization, there is an increased risk that the market value of the
underlying collateral on the loan would be insufficient to satisfy fully the
outstanding principal and interest. There is a cap on the amount of negative
amortization, such that the principal plus the added amount cannot exceed 110%
of the original loan amount. At June 30, 1994, the amount of negative
amortization on the Bank's ARMs was insignificant. The Bank permits ARMs to be
assumed by qualified borrowers. At June 30, 1994, ARMs constituted 63% of the
loan and mortgage-backed securities portfolio.

The Bank funds conventional loans with loan-to-value ratios not
exceeding 80% of the appraised value of the real property securing a loan. In
addition, the Bank will make conventional loans with loan-to-value ratios not
exceeding 95% of the value of the property if the borrower secures private
mortgage insurance for the portion of the loan in excess of 80% of the value of
the property. The ratio of the principal amount of the loan to the appraised
value at origination of the property securing the loan is referred to as the
"loan-to-value ratio."

In the approval process for loans it originates or purchases, the Bank
assesses both the value of the property securing the loan and the applicant's
ability to repay the loan. Loan underwriters analyze the loan application and
the property involved and qualified staff appraisers or outside fee appraisers
inspect and appraise the property. All appraisers are subject to approval by
the Chief Appraiser. Appraisals performed by approved appraisers are
selectively reviewed by senior staff appraisers or approved fee review
appraisers. All appraisals for major loans, REO properties, condominiums, 2-4
units, loans of $350,000 or more and loans submitted by wholesale brokers are
reviewed (except for purchases with loan to value ratios of 60% or less up to
$500,000 for single family residences or up to $350,000 if the loan is
submitted by a wholesale broker and the property is

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<PAGE> 9
located outside Southern California. The Bank also obtains information
concerning the income, financial condition, employment and credit history of
the applicant. On its ARMs, the Bank generally qualifies applicants using a
reduced rate lower than the fully- indexed rate in conformity with investor
guidelines and OTS requirements, except for loans where the loan to value ratio
would exceed 80%. In this case the fully indexed rate is used. In addition,
the Bank requires that residential real estate loans be approved at various
levels of management, depending upon the amount of the loan. All loans require
the approval of at least one person designated by the Bank with loan
underwriting authority. Loans in excess of $250,000 must be reviewed and
approved by at least two persons with loan underwriting authority. Loans in
excess of $350,000 must be reviewed and approved by at least three persons with
loan underwriting authority. Loans in excess of $750,000 (or $500,000 in the
event the loan will be held in the Bank's portfolio) and second trust deeds in
excess of $150,000 must be approved by the Bank's Loan Committee.

The Bank typically gives a commitment to the applicant, subject to
loan approval, to fund the loan at a stipulated rate at any time during a
45-day period if it is a fixed rate loan or a 60-day period if it is an ARM. A
15-day rate commitment period is also available on fixed rate and adjustable
rate products. The loan typically is funded within ten days after documents
are drawn, at a rate of interest and on other terms based on market conditions
as of the date of the commitment.

Mortgage Banking and Loan Servicing Activities

As part of its mortgage banking activities, the Company originates
one-to-four unit residential real estate loans with fixed rates with an intent
of selling such loans in the secondary market. Accordingly, such loans are
classified as held for sale and are carried at the lower of cost or market on
the Company's financial statements. These loans are secured by first liens on
one-to-four unit residential properties and have 15 to 30-year maturities or
30-year amortization periods with balloon payments in 5 years, 7 years or other
lengths of time. Fixed-rate originations decreased to 63% of originations in
1994 from 70% in 1993, and 88% in 1992. Since 1992, the Company also has sold
the majority of its adjustable rate one-to-four unit residential loan
production as part of its asset shrinkage strategy. In general the Company
sells loans on a non-recourse basis for cash with servicing retained by the
Company. For additional information regarding loans held for investment and
for sale, see Notes 1 and 4 of Notes to Consolidated Financial Statements.

The Bank records gains or losses from the sale of loans that it
continues to service by computing the present value of the difference between
the yield on the loans sold and the yield to be paid to the buyer, after
deducting a normal servicing fee and less any fees paid over the estimated
remaining life of the loans. The present value gain or loss is based upon
market prepayment and discount rate assumptions. An asset (capitalized excess
servicing) equal to the present value gain is recorded at the time a loan is
sold and is included in the category of "other assets" in the Consolidated
Statements of Financial Condition of the Company.

In transactions involving an exchange with government agencies of
loans for mortgage-backed securities, loan servicing fees are collected and
retained by the Bank at a rate which is set by the government agency. However,
no gain or loss on the exchange is recorded until the securities are sold to a
third party. During fiscal 1994, 1993 and 1992, the Bank sold loans to the
Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal National
Mortgage Association ("FNMA") and received in exchange securities issued by
FHLMC and FNMA backed by such loans. The securities so received can be used by
the Bank to collateralize various types of borrowings at rates which frequently
are more favorable than rates on other types of liabilities.

The Bank historically maintained a large portfolio of loans serviced
for others, averaging 80% of total loans and mortgage- backed securities for
the five years ending June 30, 1991, as part of its asset/liability management
strategy. Such servicing portfolio provided the Bank with recurring revenues
from collection of loan servicing fees and related ancillary income. However,
in response to increased capital requirements for loan servicing assets and in
order to reduce the risk associated with high prepayments induced by declining
interest rates, the Bank subsequently sold loan servicing rights in amounts of
$511.8 million in fiscal 1994, and $177.1 million in fiscal 1993, generating
gains of $928 thousand in fiscal 1994, and $2.1 million in fiscal 1993. The

8
<PAGE> 10
Bank also sells the loan servicing generated from current loan production on a
quarterly basis in order to extract currently the full economic value for its
loan origination activity.

The Bank's loan servicing portfolio decreased to $131.6 million at
June 30, 1994 from $545.8 million and $718.2 million at June 30, 1993 and 1992,
respectively. Total capitalized loan servicing assets also decreased
accordingly to $118 thousand at June 30, 1994 from $3.4 million and $5.1
million at June 30, 1993 and 1992, respectively. The balance of $118 thousand
at June 30, 1994 primarily consists of loan servicing generated from 1994 loan
production.

Multifamily and Commercial Real Estate Lending

In the past, the Bank has originated permanent loans secured by
multifamily properties and commercial and industrial properties, including
office buildings, retail centers, hotels/motels, land and other properties with
income producing capabilities ("commercial real estate loans"). In the past,
commercial real estate loans were originated by the Bank for its portfolio and,
to a limited extent, for sale to others. During the fiscal years ended June
30, 1994 and 1993, the Bank originated commercial real estate loans only for
the purpose of restructuring existing loans and to facilitate the sale of real
estate owned by the Bank or by its real estate subsidiary, Uni-Cal.
Originations of loans secured by multifamily properties totaled $10.9 million
in fiscal 1994 compared to $3.0 million in fiscal 1993. Originations of
commercial real estate loans totaled $22.0 million in fiscal 1994 compared to
$17.0 million in fiscal 1993.

Multifamily and commercial real estate loans generally entail
significant additional risks as compared to single family residential mortgage
lending. Each loan, including loans to restructure existing loans and to
facilitate the sale of real estate owned, is subject to the Bank's underwriting
standards, which generally include an evaluation of the creditworthiness and
reputation of the borrower, the amount of the borrower's equity in the project
as determined on the basis of appraisal, sales and leasing information on the
property and cash flow projections. Effective June 1991, all originations,
modifications, renewals or other extensions of credit of multifamily and
commercial real estate loans were required to be approved by the Bank's Loan
Committee.

Construction Lending

The Bank has in the past provided construction loan financing for
residential (both single family and multifamily) and commercial real estate
projects. The Bank's current construction lending activities are limited to
monitoring and servicing its existing construction loans.

Construction loans involve risks different from completed project
lending because loan funds are advanced upon the security of the project under
construction, and if the loan goes into default, additional funds may have to
be advanced to complete the project before it can be sold. Moreover,
construction projects are subject to the uncertainties inherent in estimating
construction costs, potential delays in construction time, market demand and
the accuracy of the estimate of value upon completion.

Loans-to-One-Borrower Limitations

With certain limited exceptions, the maximum amount that a savings
institution may lend to one borrower (including certain related entities of
such borrower) is an amount equal to 15% of the savings institution's
unimpaired capital and unimpaired surplus, plus an additional 10% of such
capital and surplus for loans fully secured by readily marketable collateral.
Real estate is not included within the definition of "readily marketable
collateral." These limits apply to loans made after August 8, 1989. Prior to
the enactment of the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA"), a savings institution generally could lend to one
borrower an amount equal to its entire federal regulatory capital. At June 30,
1994, the maximum amount which the Bank could have loaned to any one borrower
(and related entities) under the limit imposed by FIRREA was $7.1 million,
compared to $4.7 million at June 30, 1993 and $8.9 million at June 30, 1992.

9
<PAGE> 11

The following is a table of the Bank's borrowing relationships in
excess of $10 million at June 30, 1994:

<TABLE>
<CAPTION>
TOTAL NUMBER OF NONPERFORMING
BORROWINGS LOANS RESTRUCTURED (2) (1)(2)
---------- --------- ---------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
$ 31,137 7 $29,760 $ --
21,788 3 16,716 --
19,337 9 -- 9,376
18,974 5 -- 1,484
17,586 1 -- --
16,248 1 -- 15,559
13,320 2 -- 2,449
12,300 1 12,300 --
11,994 8 -- --
11,651 4 -- --
10,808 1 10,638 --
10,475 5 10,267 --
-------- -- ------- -------
$195,618 47 $79,681 $28,868
======== == ======= =======
</TABLE>
- - - - ----------------
(1) Includes in-substance foreclosures totaling $15.6 million.

(2) Net of the principal amount contingently forgiven, charged off or
specifically reserved by the Bank totaling $13.7 million.

In July and August of 1994, the Bank took title through foreclosure or
a deed in lieu of foreclosure of $18 million of these assets. The Bank
continues to closely monitor the performance of all of the loans in a
relationship where the borrower has one or more loans nonperforming or
restructured. In addition, the Bank is continually evaluating scenarios to
reduce the large borrowing relationships of the Bank.

SPECIAL ASSETS DIVISION

In April 1991, the Bank formed the Special Assets Division to oversee
all aspects of the Bank's real estate operations, including the monitoring of
all loans not secured by single family residences. The Division currently
includes five experienced asset managers who are assigned responsibility for
preparing business plans for and monitoring assets assigned to them. Depending
on the complexity of the project, the Bank may also employ outside asset
managers and brokers and anticipates paying market commissions. The Special
Assets Division is supported by the Risk Management Department, which includes
the Credit group and the Appraisal Department. In addition, the monitoring of
problem loans is completed in conjunction with the Internal Asset Review
Department ("IAR").

The Special Assets Division has three goals: (1) monitor all credit
exposures in excess of $500 thousand for classification, valuation and
potential delinquency by obtaining current operating data and performing
property inspections; (2) reduce the level of nonperforming assets either
through sale or restructure as quickly as possible while minimizing the loss on
these assets; and (3) sell the remaining assets of Uni-Cal, which are carried
at the lower of cost or fair value, and monitor the performance and
winding-down of the construction loan portfolio. In the continuing process of
achieving these goals, the Company may be faced with additional losses. In
addition, the Company may be required to finance the sales of properties at or
below market rates.

10
<PAGE> 12

At June 30, 1994, assets under management by the Special Assets
Division totaled $419 million, down from $554 million at June 30, 1993. These
decreases are attributable to the sales of real estate owned, the restructuring
of loans involving principal forgiveness, loan payoffs and the resolution of
several real estate investments. The Bank plans to continue its efforts to
decrease assets in the Special Assets Division during fiscal year 1995 through
continued restructures and sales of assets. As nonperforming asset levels have
been reduced, the number of asset managers required by the Special Assets
Division was reduced in fiscal 1994. See "MD&A -- Nonperforming Assets."

REAL ESTATE INVESTMENTS

Real estate development and joint venture operations of the Company
have been conducted principally through Uni-Cal. In light of the increased
capital requirements imposed under FIRREA, management has determined that the
Company will not continue to engage in real estate development activities,
other than in connection with the completion or sale of existing projects. At
June 30, 1994, Uni-Cal's net investment in real estate totaled $235 thousand,
down from $1.23 million at June 30, 1993.

Real estate investments entail risks similar to those presented by the
Company's former construction and commercial lending activities. In addition,
California courts have imposed warranty-like responsibility upon developers of
new housing for defects in structure and the housing site, including soil
conditions, which responsibility is not necessarily dependent upon a finding
that the developer was negligent. Owners of real property also may incur
liabilities with respect to environmental matters, including financial
responsibility for clean-up of hazardous waste or other conditions, under
various federal and state laws.

CLASSIFICATION OF ASSETS

The Bank's Internal Asset Review Department ("IAR") conducts
independent reviews of the risk and quality of all credit exposures of the Bank
in excess of $500,000. Additionally, IAR is responsible for performing an
independent evaluation of the adequacy of valuation allowances established by
the Bank. IAR reports at least quarterly to the Board of Directors regarding
overall asset quality, the adequacy of valuation allowances and the Bank's
adherence to policies and procedures regarding asset classification and
valuation.

The Bank has established a monitoring system for its loan and real
estate portfolios to identify potential problem loans and to assess the
adequacy of the allowance for losses in a timely manner. The loan portfolio
consists mainly of the following categories: 1-4 unit residential and
mortgage-backed securities, construction loans, multifamily loans and
commercial real estate loans secured by land or income producing property. The
Bank's 1-4 unit residential loans are considered a homogeneous population.
These loans are reviewed by analyzing the portfolio's performance and the
composition of the underlying collateral as a whole. Specifically, the Bank
analyzes delinquency trends, foreclosure losses, borrower's ability to repay
and the geographic composition of the portfolio. Multifamily, commercial real
estate and construction loans are evaluated on an individual basis. Although
the Bank has worked to reduce the level of nonperforming loans, these efforts
have been hampered by the distressed real estate market and overall poor
economic condition of the country, in particular the State of California, which
have led to a significant increase in restructured loans.

In its continued effort to identify and monitor problem loans and
comply with current regulatory requirements, the Bank's current asset
monitoring process includes the use of asset classifications to segregate the
assets, largely loans and real estate, into various risk categories. The Bank
currently uses a seven grade system to classify its assets. The current grades
are Pass-1, Pass-2, Pass-3, Special Mention, Substandard, Doubtful and Loss.
The OTS has stated that classified assets (comprised of Substandard, Doubtful
and Loss assets) will be the standard measure used in expressing the quality of
a financial institution's loan portfolio and other assets. A brief description
of these classifications follows:

11
<PAGE> 13

The three Pass classifications represent various levels of credit
quality, all of which are considered of sufficient quality not to warrant a
Special Mention or more adverse classification. A Pass asset is well supported
by the paying capacity of the borrower and the value of the collateral.

Special Mention assets are those assets having a potential weakness
that deserve management's close attention. If left uncorrected, these
potential weaknesses may result in deterioration of the repayment prospects for
the asset or in the institution's credit position at some future date.

A Substandard asset is inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets have a well defined weakness or weaknesses. They are
characterized by the distinct possibility that the Bank will sustain some loss
if the deficiencies are not corrected.

An asset classified Doubtful has all the weaknesses inherent in those
classified Substandard with the added characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts,
conditions and values, highly questionable and improbable. The Bank considers
Doubtful to be a temporary classification and will only classify an asset, or
portion of an asset, Doubtful when information is not available to more clearly
define the potential for loss.

That portion of an asset classified Loss is considered uncollectible
and of such little value that its continuance as an asset, without
establishment of a specific valuation allowance, is not warranted. A Loss
classification does not mean that an asset has absolutely no recovery or
salvage value, but rather it is not practical or desirable to defer writing-off
a basically worthless asset or portion of an asset even though partial recovery
may be effected in the future. For a loan in which proceeds for repayment can
be expected to come only from the operation and sale of the collateral (a
"troubled, collateral-dependent loan") where, based on current information and
events, it is probable that the lender will be unable to collect all amounts
due (both principal and interest), any excess of the recorded investment in the
loan over its "value" is classified as Loss, and the remainder generally is
classified as Substandard. For a troubled collateral-dependent loan, the
"value" is one of the following: (1) the present value of the expected future
cash flows, discounted at the loan's effective interest rate, based on original
contractual terms ("loan-rate present value"); (2) the loan's observable market
price; or (3) the fair value of the collateral.

INVESTMENT ACTIVITIES

Federal regulations require the Bank to maintain a specified minimum
amount of liquid assets which may be invested in certain short-term securities.
The Bank is also permitted to make certain other securities investments.
Investment decisions are made by authorized officers of the Bank within
guidelines established by the Bank's Board of Directors. Such investments are
managed in an effort to produce the highest yield consistent with maintaining
safety of principal and compliance with regulations governing savings
institutions.

At June 30, 1994, the Bank's investment securities portfolio totaled
$70.5 million and consisted entirely of government and government agency
securities, overnight funds and FHLB stock, all of which had maturities or were
redeemable by the Bank within ten years or less.

12
<PAGE> 14

The following table sets forth the composition of the Bank's
investment securities portfolio at the dates indicated.

<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Overnight funds . . . . . . . . . . . . . . . $3,000 $3,000 $10,000 $7,000 $44,100
Certificates of deposit, bankers'
acceptances and corporate
obligations . . . . . . . . . . . . . . . -- -- -- 11,554 9,385
United States government and
government agency securities . . . . . . 62,119 62,736 318,841 106,880 89,618
FHLMC and FHLB stock . . . . . . . . . . . . 5,420 6,643 27,983 26,650 24,704
------- ------- -------- -------- --------
Total . . . . . . . . . . . . . . . . $70,539 $72,379 $356,824 $152,084 $167,807
======= ======= ======== ======== ========
</TABLE>

As of June 30, 1994, the maturities of the Bank's investment
securities and the weighted average yields of those securities were as follows:

<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
ONE YEAR OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS
------------------- -------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ------- ------ ------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Overnight funds . . . . . . . $3,000 4.25% $ -- --% $ -- --%
U.S. Government and
government agency securities $6,215 8.44% $50,938 5.89% $4,966 6.63%
FHLB stock (1) . . . . . . . $5,419 4.12% -- --% $ -- --%
</TABLE>

____________

(1) The weighted average yield on FHLB stock has been estimated based upon
recent dividends received.

SOURCES OF FUNDS

Retail Bank

The retail operations of the Bank (the "Retail Bank") provide deposit
services for the communities in which the Bank has offices. The Retail Bank's
primary goals are to provide the Bank with a stable, low-cost source of funds
and to generate fee income and mortgage loan originations. The Retail Bank's
strategic plan is to create a series of community banks whose market share,
relative size and strong commitment to the communities and customers they serve
allow them to compete successfully with other financial institutions. The aim
of the Retail Bank is to provide customers with a consistent, well-designed set
of high quality retail banking products and services at a reasonable cost.

During fiscal 1992, the Bank completed a comprehensive review of its
branch network. The financial results, competitive influences, and demographic
features of each branch office were evaluated and compared with the market
potential of each branch office area. Based on this study, the Bank formulated
a retail branch network restructuring plan. The Bank's goal is for each branch
office to enhance the Bank's overall "Community Consumer Bank" image, including
having a strong local deposit market share.

13
<PAGE> 15

As a result of the comprehensive review, the Bank decided to
consolidate and reduce its branch system during 1993 and 1992. Seven branches
were sold in fiscal 1993, representing $142.9 million in deposits. In
addition, four branches were sold in the first quarter of fiscal 1994 ended
September 30, 1993, representing approximately $166.2 million in deposits. The
branch sales have largely been funded by the sale of loans previously
classified as held for sale. In addition to branch sales, the Bank may
exchange certain branches not deemed a strategic part of the Bank's retail plan
with other financial institutions, or to consolidate branches within the Bank's
network of branches as opportunities arise in order to enhance efficiency and
reduce costs.

To enhance its customer services and generate fee income, the Bank
began offering, in July 1992, alternative investment services through a third
party. In addition, the Bank has contracted with a third party to underwrite,
process and service consumer loans generated by the retail branch system. This
allows the Bank to serve the consumer credit needs of the communities it
services without the credit risks associated with this type of lending. During
fiscal 1994, the Bank generated $452 thousand in net fees from these services,
compared to $257 thousand during fiscal 1993.

Deposits

The Bank prefers to use deposits as the principal source of funds for
supporting its lending and investment activities, since the cost of these funds
generally is less than that of borrowings or other funding sources with
comparable maturities. Deposits totaled $848.0 million, $1.0 billion and $1.3
billion at June 30, 1994, 1993 and 1992, respectively.

Deposit flows are affected by general economic conditions. Funds may
flow from depository institutions such as savings banks into direct vehicles
such as government and corporate securities or other financial intermediaries.
The ability of the Bank to attract and keep deposits will continue to be
affected by money market conditions, prevailing interest rates and other
factors.

The Bank's savings deposits traditionally have been obtained primarily
from the areas in Southern California surrounding its branch offices. However,
in the past, the Bank also obtained deposits from outside its primary market
area through the use of national securities firms ("brokered deposits"). Such
deposits acquired by the Bank generally had longer maturities, but with higher
rates, than were typically available through retail branches. An institution
that fails to meet its minimum capital requirements, such as the Bank, is
prohibited from accepting or renewing brokered deposits. Total brokered
deposits were $5.1 million at June 30, 1994, or 0.6% of total deposits, and
carried a weighted average interest rate of 11.8%. At June 30, 1993, such
amount was $23.0 million, or 2.3% of total deposits, and at June 30, 1992, such
amount was $55.9 million, or 4.3% of total deposits. The Bank intends to
continue to phase out its brokered deposits at the respective scheduled
maturity date.

14
<PAGE> 16

The following table sets forth the amounts of savings deposits in
various types of savings programs at the dates indicated.

<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------------
1994 1993 1992 1991 1990
-------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Passbook . . . . . . . . . $ 58,303 $ 61,224 $ 69,051 $ 60,761 $ 50,995
Money market passbook . . . 92,183 144,782 213,095 167,630 140,293
Market access checking . . 74,135 86,480 98,169 93,776 104,929
Premium market access
checking . . . . . . . . . 12,648 14,330 15,844 20,918 18,828
Jumbo certificates(1) . . . 20,913 58,659 79,840 151,052 167,540
2-8 month certificates . . 80,696 118,136 231,471 324,266 366,595
9-12 month certificates . . 123,883 162,712 210,865 303,517 434,360
13-29 month certificates . 301,017 298,640 269,474 372,790 348,550
30-120 month certificates . 82,591 73,911 108,219 68,493 62,512
All other fixed rate
certificates . . . . . . . 1,588 3,172 2,339 2,108 2,455
-------- ---------- ---------- ---------- ----------
Total deposits . . . . . . $847,957 $1,022,046 $1,298,367 $1,565,311 $1,697,057
======== ========== ========== ========== ==========

</TABLE>

(1) At June 30, 1994, jumbo certificates (deposit certificates of $100,000 or
more) ranged in maturity from 30 days to 5 years.

15
<PAGE> 17
The following table sets forth the composition of the Bank's deposits at
June 30, 1994, by type of deposit and date of maturity. Such amounts are also
expressed as a percentage of total savings deposits. In addition, the weighted
average nominal interest rates on the accounts maturing in each period are
shown.

DEPOSIT MATURITIES AT JUNE 30, 1994

CERTIFICATES BY ORIGINAL MATURITY (2)

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
9-12 13-29
TOTAL 2-8 MONTH MONTH MONTH
DEPOSITS VARIABLE CERTIFICATES CERTIFICATES CERTIFICATES
-------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Classification of accounts:
Passbook.................. $ 58,303 $ 58,303 $ -- $ -- $ --
Money market passbook..... 92,183 92,183 -- -- --
Money access checking..... 74,135 74,135 -- -- --
Premium market access
checking................ 12,648 12,648 -- -- --

Certificates maturing in:
Quarter Ending:
September 30, 1994...... 204,400 -- 54,889 42,410 87,333
December 31, 1994....... 114,054 -- 25,175 53,163 25,511
March 31, 1995.......... 62,422 -- 631 16,660 40,211
June 30, 1995........... 58,115 -- -- 11,650 42,464

Period Ending:
June 30, 1996........... 125,937 -- -- -- 105,498
June 30, 1997........... 26,736 -- -- -- --
June 30, 1998........... 14,594 -- -- -- --
June 30, 1999........... 3,245 -- -- -- --
Thereafter.............. 1,185 -- -- -- --
-------- -------- ------- -------- --------
Totals................ $847,957 $237,269 $80,695 $123,883 $301,017
======== ======== ======= ======== ========
Percentage of deposits...... 100.00% 27.98% 9.52% 14.61% 35.50%
Weighted average nominal
rate(1)................... 3.65% 1.81% 3.14% 3.75% 4.24%
</TABLE>

- - - - --------------
(1) Average nominal rate is the weighted average interest rate after giving
effect to amortization of broker fees paid.

(2) Includes brokered deposits of $5.1 million.

16
<PAGE> 18
The following table sets forth the composition of the Bank's deposits at
June 30, 1994, by type of deposit and date of maturity. Such amounts are also
expressed as a percentage of total savings deposits. In addition, the weighted
average nominal interest rates on the accounts maturing in each period are
shown.

DEPOSIT MATURITIES AT JUNE 30, 1994

CERTIFICATES BY ORIGINAL MATURITY (2)

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
WEIGHTED
30-120 PERCENT AVERAGE
MONTH ALL JUMBO OTHER OF NOMINAL
CERTIFICATES CERTIFICATES CERTIFICATES DEPOSITS RATE(1)
------------ ------------ ------------ -------- -------
<S> <C> <C> <C> <C>
Classification of accounts:
Passbook.................. $ -- $ -- $ -- 6.88% 2.00%
Money market passbook..... -- -- -- 10.87% 2.38%
Money access checking..... -- -- -- 8.74% 0.95%
Premium market access
checking................ -- -- -- 1.49% 1.86%

Certificates maturing in:
Quarter Ending:
September 30, 1994...... 11,028 8,548 192 24.11% 4.11%
December 31, 1994....... 5,386 4,700 119 13.45% 3.85%
March 31, 1995.......... 3,711 1,167 42 7.36% 3.93%
June 30, 1995........... 3,853 100 48 6.86% 4.23%

Period Ending:
June 30, 1996........... 18,996 963 480 14.85% 4.77%
June 30, 1997........... 20,931 5,235 570 3.15% 6.68%
June 30, 1998........... 14,405 100 89 1.72% 5.61%
June 30, 1999........... 3,098 100 47 0.38% 6.30%
Thereafter.............. 1,183 -- 2 0.14% 6.18%
------- ------- ------ ------ ----
Totals................ $82,591 $20,913 $1,589 100.00% 3.65%
======= ======= ====== ====== ====
Percentage of deposits...... 9.74% 2.46% 0.19%
Weighted average nominal
rate(1)................... 6.59% 5.32% 7.48%
</TABLE>

- - - - ---------------
(1) Average nominal rate is the weighted average interest rate after giving
effect to amortization of broker fees paid.

(2) Includes brokered deposits of $5.1 million.

16
<PAGE> 19
Borrowings

The Bank has traditionally utilized borrowings from the FHLB of San
Francisco as a significant source of funds. At June 30, 1994, the Bank had
outstanding FHLB advances of $13.0 million (as compared with $100.0 million at
June 30, 1993 and $250.0 million at June 30, 1992) with a weighted average
interest rate of 4.0% and a weighted average remaining maturity of two months.
Such advances were made pursuant to several different credit programs offered
from time to time by the FHLB of San Francisco. At June 30, 1994, the Bank's
outstanding FHLB borrowings totaled 1.44% of total assets. During 1988, the
Bank entered into a floating rate medium-term note program. The notes matured
and were paid off at March 31, 1993.

The Bank from time to time has employed reverse repurchase agreements
as a source of additional funds. There were no reverse repurchase agreements
outstanding at June 30, 1994 and 1993. Such borrowings are among the Bank's
lowest cost sources of funds, and the Bank may utilize such secured financings
as a source of funding in the future. See Note 9 of Notes to Consolidated
Financial Statements.

The following table sets forth information concerning the Bank's FHLB
advances and other borrowings at the dates indicated.

<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------
1994 1993 1992 1991 1990
------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)

<S> <C> <C> <C> <C> <C>
FHLB advances . . . . . . . . . . . $13,000 $100,000 $250,000 $350,000 $119,000
Medium-term notes . . . . . . . . . -- -- 7,000 7,000 192,000
Other borrowings:
Reverse repurchase agreements . . -- -- -- 85,461 253,248
Mortgage-backed bonds . . . . . . 1,933 3,538 5,104 6,254 6,958
Real estate loans . . . . . . . . 4 741 6,435 16,648 22,162
Other . . . . . . . . . . . . . . 527 544 1,654 1,000 4,036
------- --------- -------- -------- --------
Total borrowings $15,464 $104,823 $270,193 $466,363 $597,404
======= ========= ======== ======== ========

Weighted average rate on borrowings
during the period 5.94% 8.20% 8.56% 8.46% 8.99%
Total borrowings as a percentage of
total deposits 1.82% 10.26% 20.81% 29.79% 35.20%
Total borrowings as a percentage of
total assets 1.71% 9.02% 16.45% 21.66% 24.07%
</TABLE>

17
<PAGE> 20
The following table sets forth certain information with respect to the
Bank's short-term borrowings.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1994 1993 1992
------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB advances with original maturities less than one year:
Average balance outstanding during the period . . . . . . . $29,583 $ 19,643 $ -
Maximum amount outstanding at any month-end during the
period . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 100,000 -

Weighted average interest rate on maximum amount
outstanding at any month-end during the period . . . . . 3.71% 3.71% -

Securities sold under agreements to repurchase:
Average balance outstanding during the period . . . . . . . $ 6,989 $ 1,848 $21,704
Maximum amount outstanding at any month-end during
the period . . . . . . . . . . . . . . . . . . . . . . . 59,095 - 85,461
Weighted average interest rate on maximum amount
outstanding at any month-end during the period . . . . . 3.29% N/A 6.21%

Total other short-term borrowings:
Average balance outstanding during the period . . . . . . . $ 101 $ 4,023 $12,443
Maximum amount outstanding at any month-end during
period . . . . . . . . . . . . . . . . . . . . . . . . . 406 6,653 16,827
Weighted average interest rate on maximum amount
outstanding during the period . . . . . . . . . . . . . . 11.00% 7.35% 9.80%
</TABLE>
SUBSIDIARY ACTIVITIES

Federal savings institutions may make limited investments in the
capital stock, obligations or other securities of certain types of subsidiaries
(referred to as "service corporations") and may make loans (subject to
limitations) to such corporations and joint ventures in which they participate.
At June 30, 1994, the Bank's maximum permitted investment in service
corporations was approximately $27.1 million and the Bank's aggregate
investment at that date, including loans to joint ventures of the service
corporation, was $276.7 thousand.

Commencing July 1994 or, if the OTS grants an extension, July 1996,
FIRREA prohibits, with certain limited exceptions, a savings institution from
including in regulatory capital its investments in, and extensions of credit
to, any service corporation which is engaged in any activity other than those
permitted to national banks. The OTS has granted an extension to the Bank. As
a result, prior to July 1996, the Bank may include in regulatory capital a
declining percentage (75% through July 1, 1994, then 60% through June 30, 1995,
then 40% through June 30, 1996) of its investment in Uni-Cal.

Uni-Cal is the Bank's only wholly-owned active service corporation
subsidiary. Uni-Cal has three wholly-owned active subsidiaries, Uni-Cal
Insurance Services, Inc. ("Uni-Cal Insurance"), Superior Title Service, Inc.
("Superior Title") and Harbour Place Development, Inc. The activities of these
subsidiaries are described below.

Uni-Cal Insurance Services, Inc. Uni-Cal Insurance is a California
corporation engaged in the business of selling mortgage life insurance,
homeowners' disability insurance and comprehensive homeowners' insurance to
customers of the Bank. Uni-Cal Insurance does not underwrite insurance
policies that it sells. The Company started selling alternative investment
products through a third party not affiliated with the Bank in July 1992 which
subleases space from Uni-Cal Insurance at certain of the Bank's branch offices.
At June 30, 1994, Uni-Cal Insurance had assets of $1.7 million. For fiscal
1994, it had net income of $481 thousand.

Superior Title Service, Inc. Superior Title is a California
corporation engaged in the business of acting as trustee under deeds of trust
on properties securing loans made by the Bank. At June 30, 1994, Superior
Title had assets of $1.6 million. For fiscal 1994, it had net income of $32
thousand.

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Harbour Place Development Inc. Harbour Place Development Inc. is a
Florida corporation formed for the purpose of developing a condominium project
in Key West, Florida, referred to as Harbour Place. For fiscal 1994, it had a
net loss of $82 thousand. As of June 30, 1994, all units had been sold.

COMPETITION

The Bank faces strong competition both in attracting deposits and in
making real estate and other loans. Its most direct competition for deposits
has historically come from other savings institutions and from commercial banks
located in its principal market areas, including many large financial
institutions based in other parts of the country or their subsidiaries.
However, during times of low interest rates, the Bank has in the past faced
additional significant competition for investors' funds from alternative
investments such as mutual funds and other corporate and government securities.
The Bank has engaged a third party provider of alternative investments to
provide such products to its customers in response to this competition. The
ability of the Bank to attract and retain savings deposits depends on its
ability generally to provide a rate of return, liquidity and risk comparable to
that offered by competing investment opportunities.

The Bank experiences strong competition for real estate loans
principally from other savings institutions, commercial banks, mortgage banking
companies and insurance companies. The Bank competes for loans principally
through the interest rates and loan fees it charges and the efficiency and
quality of services it provides borrowers.

FIRREA established a mechanism for providing funding for the
Resolution Trust Corporation ("RTC") and, as amended to date, authorizes the
RTC to act as receiver to liquidate savings institutions placed in
receivership. The activities of the RTC have contributed to a significant
reduction in the size of the thrift industry and increased concentration of the
business of depository institutions in the hands of large depository
institutions and holding companies. The RTC's activities also have had, and
may continue to have, an adverse impact upon market values of real estate in
certain areas.

EMPLOYEES

At June 30, 1994, the Company had 254 full-time employees. The
Company provides its employees with a comprehensive benefit program, including
basic and major medical insurance, life insurance, accident insurance, sick
leave and a 401(k) plan. Employees are not represented by any union or
collective bargaining group, and the Company considers its employee relations
to be good.

TAXATION

Federal. Under applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code"), a savings institution that meets certain
definitional tests relating to the composition of its assets and the sources of
its income (a "qualifying savings institution") is permitted to establish
reserves for bad debts. A qualifying savings institution may make annual
additions to such reserves based upon the institution's actual loss experience
(the "experience method"). Alternatively, a qualifying savings institution may
elect, on an annual basis, to use the percentage of taxable income method to
compute its allowable addition to its bad debt reserve on qualifying real
property loans (generally, loans secured by an interest in improved real
estate).

The availability of the bad debt reserve deduction computed under the
percentage of taxable income method (the "percentage bad debt deduction") has
permitted qualifying savings institutions to be taxed at a lower effective
federal income tax rate than that applicable to corporations generally. The
percentage of taxable income that may be deducted under the percentage of
taxable income method is currently 8% and the maximum corporate tax rate is
35%. Accordingly, a qualifying savings institution that is able to use the
percentage bad debt deduction with respect to 100% of its taxable income
(assuming $10 million in taxable income) would be subject to a maximum
effective federal income tax rate of approximately 32.2%.

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<PAGE> 22
Qualifying savings institutions that file federal income tax returns
as part of a consolidated group, are required by applicable Treasury
regulations, in effect, to reduce proportionately their bad debt reserve
deduction (if computed under the percentage of taxable income method) for tax
losses attributable to the activities of the non-savings institution members of
the consolidated group that are functionally related to the activities of the
savings institution member. Under applicable law, the bad debt reserves of a
qualifying savings institution also may not exceed certain specified limits
based upon the amount of outstanding qualifying real property loans and the
relative size of the institution's withdrawable deposit accounts.

Under applicable provisions of the Code, a savings institution
organized in stock form whose accumulated reserve for losses on qualifying real
property loans exceeds the reserve as calculated under the experience method
may be subject to recapture taxes on such reserve if it makes certain types of
distributions to its stockholders. Dividends may be paid out of retained
earnings without the imposition of any recapture tax on the savings institution
to the extent that the amounts paid as dividends do not exceed the savings
institution's current or post-1951 accumulated earnings and profits as
calculated for federal income tax purposes. Stock redemptions, dividends paid
in excess of the savings institution's current or post-1951 accumulated
earnings and profits as calculated for tax purposes, and other distributions
made with respect to the savings institution's stock (and the taxes deemed to
be attributable thereto), however, are deemed under applicable sections of the
Code to be made from the savings institution's tax bad debt reserves to the
extent that such reserves exceed the amount that could have been accumulated
under the experience method. Thus, certain distributions to stockholders that
are treated as having been paid from the reserve for losses on qualifying real
property loans could result in a federal recapture tax.

A savings institution with assets in excess of $500,000,000 (a "large
savings institution") that fails to satisfy the applicable definitional tests
for treatment as a qualifying savings institution is not permitted to use a
reserve method in accounting for bad debts and is instead required to use the
specific charge-off method in reporting deductions for bad debts. Furthermore,
a large savings institution that ceases to be a qualifying savings institution
is required to recapture (i.e., report as income) an amount equal to its
reserve for bad debts existing at the close of the tax year preceding the year
in which the savings institution ceased to be a qualifying savings institution.
Under special provisions of the Code, however, such an institution generally
will be eligible to carryback net operating losses attributable to the specific
charge-off of bad debts during taxable years beginning after December 31, 1986
and before January 1, 1994 to the 10 years preceding the loss. The Bank is a
large savings institution as defined above. Until the tax year ended September
30, 1992, the Bank qualified as a qualifying savings institution. For the tax
year ended September 30, 1992, the Bank did not qualify as a qualifying savings
institution. As a result, the tax loss incurred in 1992 was carried back 10
years. The tax bad debt reserve of $8.6 million is being recognized as taxable
income over the six-year period beginning October 1, 1992. However, for the
tax year ended September 30, 1993, the Company requalified as a thrift and is
therefore eligible to use the reserve method of accounting for claiming bad
debt deductions.

As a result of the amendments to the Code made by the Tax Reform Act
of 1986, the Company was required to adopt the accrual method of accounting
beginning October 1, 1987. As permitted under the Code, the Company is
amortizing over four years the increase in its income for its taxable year
ended September 30, 1988 that resulted from the adoption of the accrual method
of accounting.

In addition to the regular corporate income tax, corporations,
including savings institutions, are subject to an alternative minimum tax.
This 20% tax is computed with respect to the Company's regular taxable income
(with certain adjustments), as increased by tax preference items ("alternative
minimum taxable income"), and will apply if it exceeds the Company's regular
tax liability. One tax preference item common to savings institutions such as
the Bank is the excess, if any, of its annual tax bad debt deduction over the
deduction that would have been available under the experience method. In
addition, in computing the Company's alternative minimum taxable income, the
Company's regular taxable income is required to be increased by 75% of the
excess of the Company's current earnings and profits (subject to certain
adjustments) over the Company's alternative minimum taxable income determined
prior to this adjustment and without regard to the alternative tax net
operating loss deduction.

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<PAGE> 23

The Company uses a tax year ending September 30. The Company's tax
returns have been audited by the Internal Revenue Service ("IRS") through
September 30, 1984. Refund claims by the Company for the tax years ended
September 30, 1970 through September 30, 1986 have not been acted upon by the
IRS.

State. The California franchise tax applicable to the Company is a
variable rate tax, computed under a formula which results in a rate higher than
the rate applicable to nonfinancial corporations because it reflects an amount
"in lieu" of local personal property and business license taxes paid by such
corporations (but not generally paid by banks or financial corporations such as
the Company). The variable tax rate for the taxable year 1993 was
approximately 11.01%. The Company and its subsidiaries file California
franchise tax returns on a combined reporting basis.

The Company's tax returns have been audited by the California
Franchise Tax Board through September 30, 1988. For the tax years September
30, 1983 and September 30, 1985 through September 30, 1988, the Franchise Tax
Board has raised issues which are being protested by the Company. The Company
has made provisions for the potential liability arising out of the issues being
protested and does not expect any additional liability resulting from these
issues.

REGULATION AND SUPERVISION

General

The Company is a savings and loan holding company subject to
regulation by the OTS. The Bank is a federally-chartered savings bank, a
member of the Federal Home Loan Bank of San Francisco, and is subject to
regulation by the OTS and the FDIC. The Bank's deposits are insured by the
FDIC through the Savings Association Insurance Fund ("SAIF"). As described in
more detail below, statutes and regulations applicable to the Company govern
such matters as changes of control of the Company and transactions between the
Bank and the Company. Statutes and regulations applicable to the Bank govern
such matters as the amount of capital the Bank must hold, dividends payable by
the Bank, mergers and changes of control, establishment and closing of branch
offices, and the investments and activities in which the Bank can engage.

The Company and the Bank are subject to the examination, supervision
and reporting requirements of the OTS, their primary federal regulator. The
Director of the OTS imposes assessments on the Bank to fund OTS operations,
including the cost of examinations. The FDIC may also examine the Bank
separately from the OTS, and the FDIC has "back-up" authority to take
enforcement action against the Bank if the OTS fails to take such action after
a recommendation by the FDIC. The FDIC may impose assessments on the Bank to
cover the cost of FDIC examinations, but currently covers such costs using
other resources. The Bank must undergo at least one full scope, on-site
examination by the OTS or FDIC every twelve months. Beginning in 1996, the
FDIC will no longer be able to conduct separate examinations of the Bank except
in exigent circumstances. In addition to being subject to supervision by the
OTS and the FDIC, the Bank is subject to regulation by the Board of Governors
of the Federal Reserve System ("FRB") with respect to certain aspects of its
business.

FIRREA Capital Requirements

The OTS's capital regulations, as required by FIRREA, include three
separate minimum capital requirements -- a "tangible capital requirement," a
"leverage limit" (core capital) and a "risk-based capital requirement." These
capital standards must be no less stringent than the capital standards
applicable to national banks. The OTS also has the authority, after giving the
affected institution notice and an opportunity to respond, to establish
individual minimum capital requirements ("IMCR") for a savings institution
which are higher than the industry minimum requirements, upon a determination
that an IMCR is necessary or appropriate in light of the institution's
particular circumstances.

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<PAGE> 24
The industry minimum capital requirements are as follows:

Tangible capital of at least 1.5% of adjusted total assets. Tangible
capital is composed of (1) an institution's common stock, perpetual
non-cumulative preferred stock, and related earnings or surplus (including
unrealized gains and losses on securities classified as available-for-sale),
and (2) the amount, if any, of equity investment by others in the institution's
subsidiaries, after deducting (a) the institution's investments in and
extensions of credit to subsidiaries engaged as principal in activities not
permissible for national banks, net of any reserves established against such
investments, and subject to a phase-out rather than a deduction for the amount
of investments made or committed to be made prior to April 12, 1989, (b)
intangible assets other than purchased mortgage servicing rights, and (c) any
purchased mortgage servicing rights that exceed 50% of the institution's core
capital. Deferred tax assets whose realization depends on the institution's
future taxable income or on the institution's tax planning strategies must also
be deducted from tangible capital to the extent that such assets exceed the
lesser of (1) 10% of core capital, or (2) the amount of such assets that can be
realized within one year, unless such assets were reportable as of December 31,
1992, in which case no deduction is required.

In general, adjusted total assets equal the institution's consolidated
total assets, minus any assets that are deducted in calculating the amount of
capital.

Core capital of at least 3% of adjusted total assets. Core capital
consists of tangible capital plus (1) goodwill resulting from pre-April 12,
1989 acquisitions of troubled savings institutions, subject to a phase-out by
December 31, 1994; (2) purchased credit card relationships, as long as they do
not exceed 25% of core capital and, when aggregated with purchased mortgage
servicing rights, do not exceed 50% of core capital; and (3) any core deposit
premium in existence on March 4, 1994 whose inclusion in core capital is
grandfathered by the OTS. At June 30, 1994, the Bank included $2.5 million of
core deposit premium grandfathered by the OTS in calculating its core capital.

Total capital of at least 8% of risk-weighted assets. Total capital
includes both core capital and "supplementary" capital items deemed less
permanent than core capital, such as subordinated debt and general loan loss
allowances (subject to certain limits). However, equity investments (with the
exception of investments in subsidiaries and investments permissible for
national banks) and portions of certain high-risk land loans and nonresidential
construction loans must be deducted from total capital, subject to a phase-out
rather than a deduction until July 1, 1994. At least half of total capital
must consist of core capital.

Risk-weighted assets are determined by multiplying each category of an
institution's assets, including off balance sheet asset equivalents, by an
assigned risk weight based on the credit risk associated with those assets, and
adding the resulting sums. The four risk weight categories range from zero
percent for cash and government securities to 100% for assets (including
past-due loans and Real Estate Owned) that do not qualify for preferential
risk-weighting.

The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires the OTS and the federal bank regulatory agencies to revise
their risk-based capital standards to ensure that those standards take adequate
account of interest-rate risk, concentration of credit risk, and risks of
nontraditional activities. The OTS has implemented a final regulation that,
effective September 30, 1994, will require a deduction from total capital by
any savings institution that is projected to experience a two percent decline
in net portfolio value in the event interest rates were to increase or decrease
immediately by two percentage points. Net portfolio value is defined as the
net present value of the expected cash flows from the institution's assets,
liabilities and off balance sheet contracts. The amount of the deduction from
the total capital would be one-half of the amount by which the decline in net
portfolio value exceeds two percent of the present value of the institution's
assets. If this interest- rate risk component had been in effect at June 30,
1994, the Bank would not have had to take any deduction from total capital.

At June 30, 1994, the Bank had a tangible capital ratio of 3.5%, a
leverage (core) capital ratio of 3.8%, and a risk-based capital ratio of 6.99.
Accordingly, the Bank did not meet the industry minimum capital

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<PAGE> 25
requirements, which require a risk-based capital ratio of 8%. As a result, the
Bank is subject to a number of sanctions similar to but less restrictive than
the sanctions under the Prompt Corrective Action system, described below, and
to a requirement that the OTS be notified of any changes in the Bank's
directors or senior executive officers.

FDICIA PROMPT CORRECTIVE ACTION REQUIREMENTS

FDICIA requires the OTS to implement a system requiring regulatory
sanctions against institutions that are not adequately capitalized, with the
sanctions growing more severe the lower the institution's capital. The OTS
must establish specific capital ratios for five separate capital categories:
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."

Under the OTS regulations implementing FDICIA, an institution is
treated as well capitalized if its risk-based capital ratio is at least 10.0%,
its ratio of core capital to risk-weighted assets (the "Tier 1 risk-based
capital ratio") is at least 6.0%, its leverage (core) capital ratio is at least
5.0%, and it is not subject to any order or directive by the OTS to meet a
specific capital level. An institution will be adequately capitalized if its
risk-based capital ratio is at least 8.0%, its Tier 1 risk-based capital ratio
is at least 4.0%, and its leverage (core) capital ratio is at least 4.0% (3.0%
if the institution receives the highest rating on the CAMEL financial
institutions rating system). An institution whose capital does not meet the
amounts required in order to be adequately capitalized will be treated as
undercapitalized. The OTS has stated that it intends to lower the core capital
ratio necessary to be classified as "adequately capitalized" to 3.0% after
September 30, 1994, when the interest rate risk component of its capital
regulations goes into effect. The OTS's reduction of the core capital ratio
requirement may depend on obtaining agreement of the other federal banking
agencies to such a reduction, and no assurances can be given that the reduction
will occur.

Under the OTS regulations, an institution will be treated as
significantly undercapitalized if the above capital ratios are less than 6.0%,
3.0%, or 3.0% respectively. An institution will be treated as critically
undercapitalized if its ratio of "tangible equity" (core capital plus
cumulative preferred stock minus intangible assets other than supervisory
goodwill and purchased mortgage servicing rights) to total assets is equal to
or less than 2.0%.

An institution's capital category is based on its capital levels as of
the most recent of the following dates: (1) the date the institution's most
recent quarterly Thrift Financial Report ("TFR") was required to be filed with
the OTS; (2) the date the institution received from the OTS its most recent
final report of examination; or (3) the date the institution received written
notice from the OTS of the institution's capital category. If subsequent to
the most recent TFR or report of examination a material event has occurred that
would cause the institution to be placed in a lower capital category, the
institution must provide written notice to the OTS within 15 days of such
event, and the OTS shall determine whether to change the association's capital
category. By letter to the Bank dated September 23, 1993, the OTS notified the
Bank that, based on a review of the Bank's capital ratios, following the
receipt of approximately $44.1 million from the Company's equity offering, the
Bank was classified as an "adequately capitalized" institution for purposes of
the prompt corrective action system. However, as a result of the Bank's TFR
for the quarter ended June 30, 1994, which was required to be filed on August
1, 1994, and which reported the Bank's leverage (core) capital ratio at 3.80%
and its risk-based capital ratio at 6.99%, the Bank is considered to be
undercapitalized as of August 1, 1994, and is subject to the sanctions
applicable to undercapitalized institutions (described below).

Mandatory Sanctions Tied to Prompt Corrective Action Capital
Categories.

Capital Restoration Plan. An institution that is undercapitalized
must submit a capital restoration plan to the OTS within 45 days after becoming
undercapitalized. The capital restoration plan must specify the steps the
institution will take to become adequately capitalized, the levels of capital
the institution will attain while the plan is in effect, the types and levels
of activities the institution will conduct, and such other information as the
OTS may require. The Bank has submitted such a plan to the OTS. See "Capital
Restoration Plan" above. The OTS

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<PAGE> 26
must act on the capital restoration plan expeditiously, and generally not later
than 60 days after the plan is submitted.

The OTS may approve a capital restoration plan only if the OTS
determines that the plan is likely to succeed in restoring the institution's
capital and will not appreciably increase the risks to which the institution is
exposed. In addition, the OTS may approve a capital restoration plan only if
the institution's performance under the plan is guaranteed by every company
that controls the institution, up to the lesser of (a) 5% of the institution's
total assets at the time the institution became undercapitalized, or (b) the
amount necessary to bring the institution into compliance with all capital
standards as of the time the institution fails to comply with its capital
restoration plan. Such guarantee must remain in effect until the institution
has been adequately capitalized for four consecutive quarters, and the
controlling company must provide the OTS with appropriate assurances of its
ability to perform the guarantee.

Limits on Expansion. An institution that is undercapitalized, even if
its capital restoration plan has been approved, may not acquire an interest in
any company, open a new branch office, or engage in a new line of business
unless the OTS determines that such action would further the implementation of
the institution's capital plan or the FDIC approves the action. An
undercapitalized institution also may not increase its average total assets
during any quarter except in accordance with an approved capital restoration
plan.

Capital Distributions. An undercapitalized savings institution may
not pay any dividends or other capital distributions, with the exception of
repurchases or redemptions of the institution's shares that are made in
connection with the issuance of additional shares to improve the institution's
financial condition and that are approved by the OTS after consultation with
the FDIC. Undercapitalized institutions also may not pay management fees to
any company or person that controls the institution.

Brokered Deposits and Benefit Plan Deposits. An undercapitalized
savings institution cannot accept, renew, or rollover deposits obtained through
a deposit broker, and may not solicit deposits by offering interest rates that
are more than 75 basis points higher than market rates. Savings institutions
that are adequately capitalized but not well capitalized must obtain a waiver
from the FDIC in order to accept, renew, or rollover brokered deposits, and
even if a waiver is granted may not solicit deposits, through a broker or
otherwise, by offering interest rates that exceed market rates by more than 75
basis points.

Institutions that are ineligible to accept brokered deposits can only
offer FDIC insurance coverage for employee benefit plan deposits up to $100,000
per plan, rather than $100,000 per plan participant, unless, at the time such
deposits are accepted, the institution meets all applicable capital standards
and certifies to the benefit plan depositor that its deposits are eligible for
coverage on a per-participant basis.

Restrictions on Significantly and Critically Undercapitalized
Institutions. In addition to the above mandatory restrictions which apply to
all undercapitalized savings institutions, institutions that are significantly
undercapitalized may not without the OTS's prior approval (a) pay a bonus to
any senior executive officer, or (b) increase any senior executive officer's
compensation over the average rate of compensation (excluding bonuses, options
and profit-sharing) during the 12 months preceding the month in which the
institution became undercapitalized. The same restriction applies to
undercapitalized institutions that fail to submit or implement an acceptable
capital restoration plan.

If a savings institution is critically undercapitalized, the
institution is also prohibited from making payments of principal or interest on
subordinated debt beginning sixty days after the institution becomes critically
undercapitalized, unless the FDIC permits such payments or the subordinated
debt was outstanding on July 15, 1991 and has not subsequently been extended or
renegotiated. In addition, the institution cannot without prior FDIC approval
(a) enter into any material transaction outside the ordinary course of
business, (b) extend credit for any highly leveraged transaction, (c) amend its
charter or bylaws, (d) make any material change in accounting methods, (e) make
any loan to an affiliate, purchase the assets of an affiliate, or issue a
guarantee or letter of credit for the benefit of an affiliate, (f) pay
excessive compensation or bonuses, or (g) pay interest on its liabilities

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<PAGE> 27
(including deposits) at a rate that would increase the institution's average
cost of funds to a rate significantly exceeding the prevailing rates of
interest.

Critically undercapitalized savings institutions must be placed in
receivership or conservatorship within 90 days of becoming critically
undercapitalized unless the OTS, with the concurrence of the FDIC, determines
that some other action would better resolve the problems of the institution at
the least possible long-term loss to the insurance fund, and documents the
reasons for its determination. A determination by the OTS not to place a
critically undercapitalized institution in conservatorship or receivership must
be reviewed every 90 days and the OTS must either make a new determination or
appoint a conservator or receiver. If the institution remains critically
undercapitalized on average during the calendar quarter beginning 270 days
after it became critically undercapitalized, the OTS must appoint a receiver
unless (a) the OTS determines, with the concurrence of the FDIC, that the
institution (i) has positive net worth, (ii) has been in substantial compliance
with an approved capital restoration plan requiring consistent improvement in
the institution's capital, (iii) the institution is profitable or has an upward
trend in earnings which the OTS determines is sustainable, and (iv) the
institution is reducing its ratio of nonperforming loans to total loans, and
(b) the Director of the OTS and the Chairperson of the FDIC both certify that
the institution is viable and not expected to fail.

Discretionary Sanctions Tied to Prompt Corrective Action Capital
Categories. Operating Restrictions. With respect to an undercapitalized
institution, the OTS, if it deems such actions necessary to resolve the
institution's problems at the least possible loss to the insurance fund, has
the explicit authority to:

(a) order the institution to recapitalize by selling shares of capital
stock or other securities,

(b) order the institution to agree to be acquired by another
depository institution holding company or combine with another depository
institution,

(d) restrict the interest rates paid by the institution on new
deposits to the prevailing rates of interest in the region where the
institution is located,

(e) require reduction of the institution's assets,

(f) restrict any activities that the OTS determines pose excessive
risk to the institution,

(g) order a new election of directors,

(h) order the institution to dismiss any director or senior executive
officer who held office for more than 180 days before the institution became
undercapitalized, subject to the director's or officer's right to obtain
administrative review of the dismissal,

(i) order the institution to employ qualified senior executive
officers subject to the OTS's approval,

(j) prohibit the acceptance of deposits from correspondent depository
institutions,

(k) require the institution to divest any subsidiary or the
institution's holding company to divest the institution or any other
subsidiary, or

(l) take any other action that the OTS determines will better resolve
the institution's problems at the least possible loss to the deposit insurance
fund.

If an institution is significantly undercapitalized, or if it is
undercapitalized and its capital restoration plan is not approved or
implemented within the required time periods, the OTS shall take one or more of
the

25
<PAGE> 28
above actions, and must take the actions described in clauses (a) or (b), (c)
and (d) above unless it finds that such actions would not resolve the
institution's problems at the least possible loss to the deposit insurance
fund. The OTS also may prohibit the institution from making payments on any
outstanding subordinated debt or entering into material transactions outside
the ordinary course of business without the OTS's prior approval.

The OTS's determination to order one or more of the above
discretionary actions will be evidenced by a written directive to the
institution, and the OTS will generally issue a directive only after giving the
institution prior notice and an opportunity to respond. The period for
response shall be at least 14 days unless the OTS determines that a shorter
period is appropriate based on the circumstances. The OTS, however, may issue
a directive without providing any prior notice if the OTS determines that such
action is necessary to resolve the institution's problems at the least possible
loss to the deposit insurance fund. In such a case, the directive will be
effective immediately, but the institution may appeal the directive to the OTS
within 14 days.

Receivership or Conservatorship. In addition to the mandatory
appointment of a conservator or receiver for critically undercapitalized
institutions, described above, the OTS or FDIC may appoint a receiver or
conservator for an institution if the institution is undercapitalized and (i)
has no reasonable prospect of becoming adequately capitalized, (ii) fails to
submit a capital restoration plan within the required time period, or (iii)
materially fails to implement its capital restoration plan.

EXPANDED REGULATORY AUTHORITY UNDER FDICIA

In addition to the prompt corrective action provisions discussed above
based on an institution's regulatory capital ratios, FDICIA contains several
measures intended to promote early identification of management problems at
depository institutions and to ensure that regulators intervene promptly to
require corrective action by institutions with inadequate operational and
managerial standards.

Minimum Acceptable Standards. FDICIA requires the OTS to prescribe
minimum acceptable operational and managerial standards, and standards for
asset quality, earnings, and valuation of publicly-traded shares, for
depository institutions. Such standards were to be effective no later than
December 1, 1993, but have not yet been finalized. The operational standards
must cover internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth, and employee compensation.

Any institution that fails to meet these standards must submit a plan
for corrective action within 30 days. If a savings institution fails to submit
or implement an acceptable plan, the OTS must order it to correct the safety
and soundness deficiency, and may restrict its rate of asset growth, prohibit
asset growth entirely, require the institution to increase its ratio of
tangible equity to assets, restrict the interest rate paid on deposits to the
prevailing rates of interest on deposits comparable amounts and maturities, or
require the institution to take any other action that the OTS determines will
better carry out the purpose of prompt corrective action. Imposition of these
sanctions is within the discretion of the OTS in most cases but is mandatory if
the savings institution commenced operations or experienced a change in control
during the 24 months preceding the institution's failure to meet the safety and
soundness standards, or underwent extraordinary growth during the preceding 18
months.

The FRB, the Office of the Comptroller of the Currency, the FDIC and
the OTS have jointly published a proposed regulation prescribing the required
safety and soundness standards. The proposed regulation's asset quality
standards specify that the ratio of a depository institution's classified
assets to the sum of its total capital and any allowances for loan losses not
included in total capital should not exceed 100%. Minimum earnings standards
would require that institutions be able to demonstrate pro forma compliance
with capital requirements if net earnings or losses over the preceding four
quarters continue over the next four quarters.

The operational controls standards of the proposed regulation require
institutions to closely monitor regulatory compliance and establish procedures
to ensure effective risk assessment and asset management. These internal
controls and information systems must be reviewed by independent, qualified and
objective persons and institutions must document the audits and actions taken
to correct deficiencies. Also, the auditors must,

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<PAGE> 29
themselves, be reviewed by the institution's board of directors or audit
committee. The proposal also requires that loan documentation and credit
underwriting procedures enable the institution to make informed decisions on
risk, monitor loans, borrowers and the source of payments, and ensure the
legality of loans as well as the enforceability of claims against a borrower.
They must also take account of credit and interest rate risk and engage only in
transactions appropriate to the size of the institution and the nature and
scope of its activities. Asset growth must reflect consideration of the source
of funds that support growth as well as the effect of the growth on credit
risk, interest rate risk and the institution's capital. The proposed
regulation also requires that institutions make no payments of compensation,
fees or benefits that are excessive or could lead to material financial loss.

The Bank believes that it is currently in compliance with the proposed
operational standards, but it is not in compliance with the proposed asset
quality or minimum earnings standards.

Expanded Requirements Relating to Internal Controls. In fiscal years
that begin after December 31, 1992, each depository institution with assets
above a specified threshold (which the FDIC has set at $500 million) must
prepare an annual report, signed by the chief executive officer and chief
financial officer, on the effectiveness of the institution's internal control
structures and procedures for financial reporting, and on the institution's
compliance with laws and regulations relating to safety and soundness. The
institution's independent public accountant must attest to, and report
separately on, management's assertions in the annual report. The report and
the attestation, along with financial statements and such other disclosure
requirements as the FDIC and the OTS may prescribe, must be submitted to the
FDIC and OTS and will be available to the public.

Every institution with assets above the $500 million threshold must
also have an audit committee of its Board of Directors made up entirely of
directors who are independent of the management of the institution. The Bank
is in compliance with this requirement. Audit committees of "large"
institutions (defined by the FDIC as an institution with more than $3 billion
in assets, which would not include the Bank) must include members with banking
or financial management expertise, may not include members who are large
customers of the institution, and must have access to independent counsel.

ACTIVITIES RESTRICTIONS NOT RELATED TO CAPITAL COMPLIANCE

Qualified Thrift Lender Test. The qualified thrift lender ("QTL")
test requires that, in at least nine out of every twelve months, at least 65%
of a savings bank's "portfolio assets" must be invested in a limited list of
qualified thrift investments, primarily investments related to housing loans.
If the Bank fails to satisfy the QTL test and does not requalify as a QTL
within one year, the Company must register and be regulated as a bank holding
company, and the Bank must either convert to a commercial bank charter or
become subject to restrictions on branching, business activities and dividends
as if it were a national bank.

Portfolio assets consist of tangible assets minus (a) assets used to
satisfy liquidity requirements, and (b) property used by the institution to
conduct its business. Assets that may be counted as qualified thrift
investments without limit include residential mortgage and construction loans;
home improvement and repair loans; mortgage-backed securities; home equity
loans; Federal Savings and Loan Insurance Corporation ("FSLIC") Resolution
Funding Corporation, FDIC and RTC obligations; and Federal Home Loan Bank
("FHLB") stock.

Assets includible subject to an aggregate maximum of 20% of portfolio
assets include FNMA and FHLMC stock; investments in residential
housing-oriented subsidiaries; consumer and education loans up to a maximum of
10% of portfolio assets; 200% of loans for development of low-income housing;
200% of certain community development loans; loans to construct, purchase or
maintain churches, schools, nursing homes and hospitals; and 50% of any
residential mortgage loans originated by the institution and sold during the
month for which the QTL calculation is made, if such loans were sold within 90
days of origination. At June 30, 1994, 80.3% of the Bank's portfolio assets
constituted qualified thrift investments.

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<PAGE> 30
Investments and Loans. In general, federal savings associations such
as the Bank may not invest directly in equity securities, debt securities that
are not rated investment grade, or real estate, other than real estate used for
the institution's offices and related facilities. Indirect equity investment
in real estate through a subsidiary is permissible, but subject to limitations
based on the amount of the institution's assets, and the institution's
investment in such a subsidiary must be deducted from regulatory capital in
full or (for certain subsidiaries owned by the institution prior to April 12,
1989) phased out of capital by no later than July 1, 1996. Loans to a single
borrower are generally limited to 15% of the institution's capital. Aggregate
loans secured by nonresidential real property are generally limited to 400% of
the institution's total capital.

Activities of Subsidiaries. A savings institution seeking to establish
a new subsidiary, acquire control of an existing company or conduct a new
activity through an existing subsidiary must provide 30 days prior notice to
the FDIC and OTS. A subsidiary of the Bank can engage in activities that are
not permissible for the Bank directly, if the OTS determines that such
activities are reasonably related to the Bank's business, but the Bank may be
required to deduct its investment in such a subsidiary from capital. The OTS
has the power to require a savings institution to divest any subsidiary or
terminate any activity conducted by a subsidiary that the OTS determines to be
a serious threat to the financial safety, soundness or stability of such
savings institution or to be otherwise inconsistent with sound banking
practices.

Real Estate Lending Standards. The OTS and the other federal banking
agencies have adopted regulations which require institutions to adopt and at
least annually review written real estate lending policies. The lending
policies must include diversification standards, underwriting standards
(including loan-to-value limits), loan administration procedures, and
procedures for monitoring compliance with the policies. The policies must
reflect consideration of guidelines adopted by the banking agencies. Among the
guidelines adopted by the agencies are maximum loan-to-value ratios for land
loans (65%); development loans (75%); construction loans (80%-85%); loans on
owner-occupied 1-4 family property, including home equity loans (no limit, but
loans at or above 90% require private mortgage insurance); and loans on other
improved property (85%).

The guidelines permit institutions to make loans in excess of the
supervisory loan-to-value limits if such loans are supported by other credit
factors, but the aggregate of such nonconforming loans should not exceed the
institution's risk-based capital, and the aggregate of nonconforming loans
secured by real estate other than 1-4 family property should not exceed 30% of
risk-based capital. The Bank does not believe that the regulation will have a
materially adverse effect on its operations because the guidelines are
consistent with its current lending policies and practices.

DEPOSIT INSURANCE

General. The Bank's deposits are insured by the FDIC to a maximum of
$100,000 for each insured depositor. Under the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), the FDIC administers two
separate deposit insurance funds: The Bank Insurance Fund (the "BIF") which
insures the deposits of institutions that were insured by the FDIC prior to
FIRREA, and the SAIF which maintains a fund to insure the deposits of
institutions, such as the Bank, that were insured by the FSLIC prior to FIRREA.

Insurance Premium Assessments. FDICIA requires the FDIC to implement a
risk-based assessment system, under which an institution's assessment will be
based on the probability that the deposit insurance fund will incur a loss with
respect to the institution, the likely amount of any such loss, and the revenue
needs of the deposit insurance fund. The average assessment rate under the
risk-based system may not be less than 0.18% of deposits until January 1, 1997.
The FDIC may impose higher assessments as it deems appropriate based on the
reserves of the SAIF. The FDIC has adopted a regulation that implements the
risk-based assessment system effective January 1, 1993.

Under the risk-based assessment system, a SAIF-insured savings
institution will be categorized into one of three capital categories (well
capitalized, adequately capitalized, and undercapitalized) and one of three
categories based on supervisory evaluations by the OTS (financially sound with
only a few minor weaknesses

28
<PAGE> 31
(Group A), demonstrates weaknesses that could result in significant
deterioration (Group B), and poses a substantial probability of loss to the
SAIF (Group C)). The capital ratios used by the FDIC to define
well-capitalized, adequately capitalized, and undercapitalized are the same as
in the prompt corrective action regulation. Assessments are set at the
following percentages of deposits:

<TABLE>
<CAPTION>
Group A Group B Group C
------- ------- -------
<S> <C> <C> <C>
Well
Capitalized 23 26 29

Adequately
Capitalized 26 29 30

Undercapitalized 29 30 31
</TABLE>

The same system is also in place for BIF member institutions. The
FDIC may change the assessment rates, or the parity of BIF and SAIF rates,
based on the reserves in the BIF and the SAIF.

Under current law, the SAIF has three major obligations: beginning in
1995, to fund losses associated with the failure of institutions with
SAIF-insured deposits; to increase its reserves to 1.25% of insured deposits
over a reasonable period of time; and to make interest payments on debt
incurred to provide funds to the former FSLIC ("FICO debt"). The reserves of
the SAIF are currently lower than the reserves of the BIF, and the BIF does not
have an obligation to pay interest on FICO debt. The United States Treasury is
authorized to provide up to $8 billion to the SAIF, but use of such funds would
require Congressional action, and the funds could be used only to fund losses
associated with the failure of institutions. Therefore, in the future premiums
assessed on deposits insured by the SAIF may be higher than premiums on
deposits insured by the BIF. Such a premium structure could provide
institutions whose deposits are exclusively or primarily BIF-insured (such as
almost all commercial banks) certain competitive advantages over institutions
whose deposits are exclusively or primarily SAIF-insured (such as the Bank),
including in the pricing of loans and deposits and in lower operating costs.
Such a competitive advantages could have an adverse effect on the Bank's
results of operations.

Termination of Deposit Insurance. The FDIC may initiate a proceeding
to terminate an institution's deposit insurance if, among other things, the
institution is in an unsafe or unsound condition to continue operations. It is
the policy of the FDIC to deem an insured institution to be in an unsafe or
unsound condition if its ratio of Tier 1 capital to total assets is less than
2%. Tier 1 capital is similar to core capital but includes certain investments
in and extensions of credit to subsidiaries engaged in activities not permitted
for national banks.

ENFORCEMENT

FIRREA's enforcement provisions are applicable to all depository
institutions, not just savings institutions. FIRREA introduces the new term
"institution-affiliated party" to encompass those who are subject to agency
enforcement authority. The term includes: (i) directors, officers, employees,
agents, and controlling stockholders; (ii) persons required to file a
change-in-control notice; (iii) any person who participates in the affairs of
the savings institution (including shareholders, consultants, and joint venture
partners); and (iv) independent contractors (including attorneys, appraisers,
and accountants) who knowingly or recklessly cause or participate in a
violation, breach of duty or unsafe practice likely to cause a loss to the
institution.

FIRREA authorized significantly increased penalties for violations of
regulations or cease-and-desist orders. The requirements for the issuance of
such orders are eased, and the agencies are specifically authorized to order
institution-affiliated parties to take affirmative action such as restitution
to remedy losses experienced by a

29
<PAGE> 32
depository institution as a result of the parties' participation in violations
of law, breaches of duty or unsafe or unsound practices.

A new three-tier system of penalties against institutions and their
institution-affiliated parties applies to violations of laws, regulations,
orders and written agreements with regulators. Simple violations may result in
a maximum daily penalty of $5,000, while violations, breaches of duty, or
reckless practices that are part of a pattern or are likely to cause more than
minimal loss (or result in gain to the wrongdoer) are subject to a $25,000
daily penalty. Knowing violations, practices or breaches that cause a
substantial loss to the institution or substantial gain to the wrongdoer are
subject to a $1,000,000 daily penalty for an institution-affiliated party or
the lesser of $1,000,000 or 1% of assets per day for an institution.

Subsequent to the enactment of FIRREA, the Crime Control Act of 1990
supplemented the agencies' power to seek civil money penalties or
cease-and-desist orders requiring restitution by giving the agencies the
ability to seek prejudgment attachment of the assets of institution-affiliated
parties. The Crime Control Act also expanded agency investigative powers and
created the crime of "corruptly obstructing" an examination.

Even when a savings institution is in full compliance with capital and
other requirements, the OTS has adopted a policy of intervening with regulatory
enforcement actions to correct deficiencies perceived by the OTS before they
result in significant problems or threaten the viability or safety and
soundness of the institution. Among the enforcement actions which the OTS is
prepared to take in such situations are supervisory agreements, cease and
desist orders and capital directives.

SAVINGS AND LOAN HOLDING COMPANY REGULATION

Affiliate and Insider Transactions. The ability of the Company and
its non-depository subsidiaries to deal with the Bank is limited by the
affiliate transaction rules, including Sections 23A and 23B of the Federal
Reserve Act which also govern BIF-insured banks. With very limited
exceptions, these rules require that all transactions between the Bank and an
affiliate (which term generally does not include the Bank's subsidiaries) be on
arms' length terms.

Under Section 23A specific restrictions apply to transactions in which
the Bank provides funding to its affiliates: the Bank may not purchase the
securities of an affiliate, make a loan to any affiliate that is engaged in
activities not permissible for a bank holding company, or acquire from an
affiliate any asset that has been classified, is in nonaccrual status, has been
restructured, or is more than 30 days past due. As to affiliates engaged in
bank holding company-permissible activities, the aggregate of (a) loans,
guarantees, and letters of credit provided by the savings bank for the benefit
of any one affiliate, and (b) purchases of assets by the savings bank from the
affiliate, may not exceed 10% of the savings bank's capital (20% for the
aggregate of permissible transactions with all affiliates). All loans to
affiliates must be secured by collateral equal to at least 100% of the amount
of the loan (130% if the collateral consists of equity securities, leases or
real property).

On July 25, 1991, the OTS published a final regulation on affiliate
transactions that, among other things, requires savings institutions to retain
records of their affiliate transactions that reflect such transactions in
reasonable detail. In addition, if a savings institution has been the subject
of a change of control application or notice within the preceding two-year
period, does not meet its minimum capital requirements, has entered into a
supervisory agreement, is subject to a formal enforcement proceeding, or is
determined by the OTS to be the subject of supervisory concern, the institution
may be required to provide the OTS with 30 days prior notice of any affiliate
transaction.

Loans by the Bank to directors, executive officers, and individual 10%
shareholders of the Bank, the Company, or the Company's subsidiaries
(collectively, "insiders"), are subject to separate limits on loans to insiders
and their related interests. A related interest includes a corporation or
partnership that is at least 10% owned by an insider. All loans to insiders
and their related interests must be underwritten and made on non-preferential
terms, loans in excess of $500,000 must be approved in advance by the Bank's
Board of Directors,

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<PAGE> 33
and the Bank's total of such loans may not exceed 100% of the Bank's capital.
Loans by the Bank to its executive officers are subject to even more stringent
limits.

Payment of Dividends and Other Capital Distributions. The payment of
dividends, stock repurchases, and other capital distributions by the Bank to
the Company is subject to regulation by the OTS. Currently, 30 days prior
notice to the OTS of any capital distribution is required. The OTS has
promulgated a regulation that measures a savings institution's ability to make
a capital distribution according to the institution's capital position.

The rule establishes "safe-harbor" amounts of capital distributions
that institutions can make after providing notice to the OTS, but without
needing prior approval. Institutions can distribute amounts in excess of the
safe harbor only with the prior approval of the OTS. Savings institutions that
are undercapitalized, such as the Bank, have no "safe harbor" and may not make
any capital distributions, with the exception of repurchases or redemptions of
the institution's shares that are made in connection with the issuance of
additional shares to improve the institution's financial condition, and that
are approved by the OTS after consultation with the FDIC. Undercapitalized
institutions also may not pay management fees to any company or person that
controls the institution.

Enforcement. Whenever the OTS has reasonable cause to believe that the
continuation by a savings and loan holding company of any activity or of
ownership or control of any non FDIC-insured subsidiary constitutes a serious
risk to the financial safety, soundness, or stability of a savings and loan
holding company's subsidiary savings association and is inconsistent with the
sound operation of the savings association, the OTS may order the holding
company, after notice and opportunity for a hearing, to terminate such
activities or to divest such noninsured subsidiary. FIRREA also empowers the
OTS, in such a situation, to issue a directive without any notice or
opportunity for a hearing, which directive may (i) limit the payment of
dividends by the savings association, (ii) limit transactions between the
savings association and its holding company or its affiliates, and (iii) limit
any activity of the association that creates a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings association.

In addition, FIRREA includes savings and loan holding companies within
the category of person designated as "institution-affiliated parties." An
institution-affiliated party may be subject to significant penalties and/or
loss of voting rights in the event such party took any action for or toward
causing, bringing about, participating in, counseling, or aiding and abetting a
violation of law or unsafe or unsound practice by a savings association.

Limits on Change of Control. Subject to certain limited exceptions,
control of the Bank or the Company may only be obtained with the approval (or
in the case of an acquisition of control by an individual, the nondisapproval)
of the OTS, after a public comment and application review process. Under OTS
regulations defining "control," a rebuttable presumption of control arises if
an acquiring party acquires more than 10% of any class of voting stock of the
Bank or the Company (or more than 25% of any class of stock, whether voting or
non-voting) and is subject to any "control factors" as defined in the
regulation. Control is conclusively deemed to exist if an acquirer holds more
than 25% of any class of voting stock of the Bank or the Company, or has the
power to control in any manner the election of a majority of directors.

Any company acquiring control of the Bank or the Company becomes a
savings and loan holding company, must register and file periodic reports with
the OTS, and is subject to OTS examination. With limited exceptions, a savings
and loan holding company such as the Company may not directly or indirectly
acquire more than 5% of the voting stock of another savings and loan holding
company or savings institution unless it acquires control of such company or
institution, after obtaining prior OTS approval.

Notification of New Officers and Directors. A savings and loan
holding company that has undergone a change in control in the preceding two
years, is subject to a supervisory agreement with the OTS, or is deemed to be
in "troubled condition" by the OTS, must give the OTS 30 days' notice of any
change to its Board of Directors or its senior executive officers. The OTS
must disapprove such change if the competence, experience or integrity

31
<PAGE> 34
of the affected individual indicates that it would not be in the best interests
of the public to permit his appointment.

CLASSIFICATION OF ASSETS

Savings institutions are required to classify their assets on a
regular basis, to establish appropriate allowances for losses and report the
results of such classification quarterly to the OTS. A savings institution is
also required to set aside adequate valuation allowances to the extent that an
affiliate possesses assets posing a risk to the institution, and to establish
liabilities for off-balance sheet items, such as letters of credit, when loss
becomes probable and estimable. The OTS has the authority to review the
institution's classification of its assets and to determine whether and to what
extent (a) additional assets must be classified, and (b) the institution's
valuation allowances must be increased.

Troubled assets are classified into one of three categories as follows:

Substandard Assets. Prudent general valuation allowances
("GVAs") are required to be established for such assets.

Doubtful Assets. Prudent GVAs are required to be established
for such assets.

Loss Assets. 100% of the amount classified as loss must be
charged off, or a specific allowance of 100% of the amount classified as loss
must be established. The OTS has proposed a regulation that would require the
use of charge-offs rather than specific allowances for all amounts classified
loss, but has postponed action on its proposal.

In addition to classified assets, the Bank monitors Special Mention
assets which have been identified to include potential weaknesses that deserve
management's close attention. According to OTS guidelines, Special Mention
assets are those assets having a potential weakness or financial risk that, if
not corrected, could weaken the assets and increase the risk of financial loss
in the future.

In August 1993, the OTS issued Regulatory Bulletin 31 (RB31) which
amends Section 260 of the Thrift Activities Regulatory Handbook, which deals
with the classification of assets. This bulletin sets criteria for
determining, valuing and classifying troubled collateral-dependent loans. RB31
defines a troubled collateral-dependent loan as a loan in which proceeds for
repayment can be expected to come only from the operation and sale of the
collateral.

Troubled collateral-dependent loans are required to be carried at one
of the following: (1) the present value of the expected future cash flows,
discounted at the loan's effective interest rate, based on the original
contractual terms, (2) the loan's observable market price, or (3) the fair
value of the collateral. Management believes that RB31 will not have a
material effect on the consolidated financial statements of the Company.

GVAs for loan and lease losses are included within regulatory capital
for certain purposes and up to certain limits, while specific allowances and
GVAs held against assets other than loans and leases are not included at all.

The OTS and the other federal banking agencies have adopted a
statement of policy regarding the appropriate levels of GVAs for loan and lease
losses that institutions should maintain. Under the policy statement,
examiners will generally accept management's evaluation of the adequacy of GVAs
if the institution has maintained effective systems and controls for
identifying and addressing asset quality problems, analyzed in a reasonable
manner all significant factors that affect the collectability of the portfolio,
and established an acceptable process for evaluating the adequacy of GVAs.
However, the policy statement also provides that OTS examiners will review
management's analysis more closely if GVAs for loan and lease losses do not
equal at least the sum of (a) 15% of assets classified as substandard, (b) 50%
of asset classified as doubtful, and (c) for the portfolio of

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<PAGE> 35
unclassified loans and leases, an estimate of credit losses over the following
twelve months based on the institution's average rate of net charge-offs over
the previous two or three years on similar loans, adjusted for current trends
and conditions. The Company does not anticipate that the GVA policy statement
will have a material impact on the Bank's results of operations or financial
condition.

COMMUNITY REINVESTMENT ACT

The Community Reinvestment Act ("CRA") requires each savings
institution, as well as other lenders, to identify the communities served by
the institution's offices and to identify the types of credit the institution
is prepared to extend within such communities. The CRA also requires the OTS
to assess the performance of the institution in meeting the credit needs of its
community and to take such assessment into consideration in reviewing
applications for mergers, acquisitions, and other transactions. An
unsatisfactory CRA rating may be the basis for denying such an application.

In connection with its assessment of CRA performance, the OTS assigns
a rating of "outstanding," "satisfactory," "needs to improve," or "substantial
noncompliance." Based on an examination conducted during February 1993, the
Bank was rated satisfactory. The OTS and the other federal banking agencies
have jointly proposed amendments to their CRA regulations that would replace
the current assessment system, which is based on the adequacy of the processes
that an institution has established to comply with the CRA, with a new system
based on the institution's performance in making loans and investments and
maintaining branches in low- and moderate-income areas within the communities
that it serves.

FEDERAL HOME LOAN BANK SYSTEM

The Federal Home Loan Banks provide a credit facility for member
institutions. As a member of the FHLB of San Francisco, the Bank is required
to own capital stock in the FHLB of San Francisco in an amount at least equal
to the greater of 1% of the aggregate principal amount of its unpaid home
loans, home purchase contracts and similar obligations at the end of each
calendar year, assuming for such purposes that at least 30% of its assets were
home mortgage loans, or 5% of its advances from the FHLB of San Francisco. At
June 30, 1994 the Bank was in compliance with this requirement with an
investment in the stock of the FHLB of San Francisco of $5.4 million.
Long-term FHLB advances may be obtained only for the purpose of providing funds
for residential housing finance and all FHLB advances must be secured by
specific types of collateral.

REQUIRED LIQUIDITY

OTS regulations require savings institutions to maintain, for each
calendar month, an average daily balance of liquid assets (including cash,
certain time deposits, bankers' acceptances and specified United States
government, state and federal agency obligations) equal to at least 5% of the
average daily balance of its net withdrawable accounts plus short-term
borrowings during the preceding calendar month. The OTS may change this
liquidity requirement from time to time to an amount within a range of 4% to
10% of such accounts and borrowings depending upon economic conditions and the
deposit flows of member institutions, and may exclude from the definition of
liquid assets any item other than cash and the balances maintained in
satisfaction of FRB reserve requirements, described below.

OTS regulations also require each member institution to maintain, for
each calendar month, an average daily balance of short-term liquid assets
(generally those having maturities of 12 months or less) equal to at least 1%
of the average daily balance of its net withdrawal accounts plus short-term
borrowings during the preceding calendar month. Monetary penalties may be
imposed for failure to meet liquidity ratio requirements. The average
liquidity and average short-term liquidity ratios of the Bank at June 30, 1994
were 11.5% and 4.1%, respectively, which exceeded the applicable requirements.

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<PAGE> 36

FEDERAL RESERVE SYSTEM

The FRB requires savings institutions to maintain reserves against
certain of their transaction accounts (primarily deposit accounts that may be
accessed by writing unlimited checks) and non-personal time deposits. These
reserves do not earn interest. For the calculation period including June 30,
1994, the Bank was required to maintain $1.3 million in non-earning reserves
and was in compliance with this requirement. The balances maintained to meet
the reserve requirements imposed by the FRB may be used to satisfy the Bank's
liquidity requirements discussed above.

As a creditor and a financial institution, the Bank is subject to
certain regulations promulgated by the FRB, including, without limitation,
Regulation B (Equal Credit Opportunity Act), Regulation D (Reserves),
Regulation E (Electronic Funds Transfers Act), Regulation F (limits on exposure
to any one correspondent depository institution), Regulation Z (Truth in
Lending Act), Regulation CC (Expedited Funds Availability Act), and Regulation
DD (Truth in Savings Act). As creditors of loans secured by real property and
as owners of real property, financial institutions, including the Bank, may be
subject to potential liability under various statutes and regulations
applicable to property owners, generally including statutes and regulations
relating to the environmental condition of the property.

ITEM 2. PROPERTIES.

The Company owns its executive offices located at 330 East Lambert
Road, Brea, California, 92621. The Company also operates 14 full service
branches located in California at June 30, 1994. The Company owns the land and
building for five of these branch offices, and leases the land and improvements
for the remaining 9 locations. For additional information regarding the
Company's offices and equipment and minimum future lease payments, see Notes 6
and 14 of Notes to Consolidated Financial Statements in Item 8 hereof.

The net book value of the five owned branches totaled $7.5 million at
June 30, 1994, and the net book value of the leased branch offices totaled $2.6
million at June 30, 1994. The net book value of the Bank's furniture and
fixtures was $1.9 million at June 30, 1994.

ITEM 3. LEGAL PROCEEDINGS.

UnionFed and its subsidiaries are defendants in various legal actions
arising in the ordinary course of business, none of which, in the opinion of
management, is material.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No items were submitted to a vote of security holders during the
fiscal quarter ended June 30, 1994.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth the names, ages and positions of the
executive officers of the Company. Executive officers are elected annually and
serve at the pleasure of the Board of Directors.

34
<PAGE> 37
<TABLE>
<S> <C> <C>
David S. Engelman 56 Chairman of the Board, President and Chief
Executive Officer of UnionFed and the Bank
Stephen J. Austin 55 Senior Vice President, Chief Financial Officer and
Treasurer of UnionFed and the Bank
Ronald M. Griffith 48 Senior Vice President, General Counsel and Corporate
Secretary of UnionFed and the Bank
Ralph E. Lautmann 66 Senior Vice President, Special Assets Division
Janice R. Hamilton 37 Senior Vice President, Retail Banking
Robert J. Medrano 43 First Vice President, Human Resources
Gary Plooster 43 First Vice President, Mortgage Banking Division
Dale J. Schiering 47 First Vice President, Secondary Marketing

</TABLE>
- - - - --------------------------
* Unless otherwise noted, each of the indicated positions ia held at the Bank.

David S. Engelman has been the Chairman of the Board, President and
Chief Executive Officer of the Company and the Bank since April 1991. From
October 1989 to March 1991, Mr. Engelman was a consultant to Portland General
Corporation, a diversified holding company, which includes ownership of
Portland General Electric Co. He was formerly a director and Chairman of the
Executive Committee of Commercial Federal Bank in Omaha, Nebraska.

Ronald M. Griffith has been the Senior Vice President, General Counsel
and Corporate Secretary of the Company and the Bank since February 1987. He was
a partner in the law firm of McKenna, Conner & Cuneo from 1983 until he joined
the Company.

Ralph E. Lautmann has been the Senior Vice President, Special Assets
Division of the Bank since August 1991. From 1984 to 1991 he was the
President, Chief Executive Officer and Founder of Trigon Financial, Inc., a
mortgage banking firm.

Stephen J. Austin has served for the Company and the Bank as the
Senior Vice President, and Chief Financial Officer since October, 1993 and
assumed position of Treasurer in April, 1994; previously he served as the First
Vice President and Chief Financial Officer effective March 1992, and as the
First Vice President, Controller and Chief Accounting Officer effective
September 1991. Prior thereto, he served as Senior Vice President of Valley
National Bank of Arizona in charge of internal accounting and credit
information effective 1988. From 1983 to 1988, he was the Treasurer and Chief
Financial Officer of United Bancorp of Arizona and Senior Vice President of
United Bank of Arizona.

Janice R. Hamilton has been the Senior Vice President, Retail Bank
Division since August 1994 and First Vice President, Retail Banking Division of
the Bank since May 1993. From 1985 she has held various management positions
within the Bank. Prior thereto, she was responsible for Retail Banking
functions as a corporate officer with California Federal Bank.

Robert J. Medrano joined the Bank in March 1994 as the First Vice
President, Director of Human Resources. Prior thereto, he was the Vice
President, Director of Corporate Employee Relations and Community Development
of California Federal Bank since 1984.

Gary Plooster joined the Bank in April 1994 as Director Wholesale
Lending. In August 1994 he became First Vice President, Mortgage Banking
Division. Prior to Union Federal Bank, he was Executive Vice President with
Shearson Lehman Mortgage from 1986 to 1994 as head of the wholesale lending
division.

Dale J. Schiering has been the First Vice President, Secondary
Marketing of the Bank since September 1991. Prior thereto, he served as the
Senior Vice President, Secondary Marketing of the Bank since June 1987.

35
<PAGE> 38
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

The Company's common stock is traded on the New York Stock Exchange
("NYSE") with the trading symbol UFF. At September 1, 1994, the Company had
approximately 853 stockholders of record (not including the number of persons
or entities holding stock in nominee or street name through various brokerage
firms) and 27,201,993 outstanding shares of common stock. The following table
sets forth for the fiscal quarters indicated the range of high and low sale
prices per share of the common stock of UnionFed as reported on the New York
Stock Exchange Composite Tape.

<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1993
-------------------------------------------- --------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High* $1.75 $2.63 $2.25 $3.75 $11.25 $16.25 $8.75 $13.75
Low* $0.75 $1.50 $1.63 $1.50 $ 3.75 $ 5.00 $2.50 $ 3.75
- - - - --------------
</TABLE>

* Price per share is adjusted to give effect to the one-for-ten reverse
stock split effected on August 18, 1993.

UnionFed may pay dividends out of funds legally available therefor at
such times as the Board of Directors determines that dividend payments are
appropriate, after considering UnionFed's net income, capital requirements,
financial condition, alternate investment options, prevailing economic
conditions, industry practices and other factors deemed to be relevant at the
time. UnionFed's principal source of income currently consists of dividends,
if any, from the Bank.

UnionFed's ability to pay dividends is limited by certain restrictions
generally imposed on Delaware corporations. In general, dividends may be paid
only out of a Delaware corporation's surplus, as defined in the Delaware
General Corporation Law, or net profits for the fiscal in which the dividend is
declare and/or the preceding fiscal year. "Surplus" is defined for this
purpose as the amount by which a corporation's net assets (total assets minus
total liabilities) exceed the amount designated by the Board of Directors of
the corporation in accordance with Delaware law as the corporation's capital.
The Board of Directors of UnionFed has designated as UnionFed's capital the
amount equal to the aggregate par value of its outstanding shares of common
stock.

36
<PAGE> 39
ITEM 6. SELECTED FINANCIAL DATA

UNIONFED FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL AND OPERATION DATA

<TABLE>
<CAPTION>
AT OR FOR
YEAR ENDED JUNE 30,
--------------------------------------------------------------
1994 1993 1992 1991 1990
-------- ---------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION AT END OF
YEAR:
Total assets . . . . . . . . . . . . . $903,976 $1,161,945 $1,642,784 $2,152,756 $2,482,000
Loans (excluding mortgage-backed
securities)(1) . . . . . . . . . . . . 581,384 882,133 1,036,571 1,311,342 1,584,954
Mortgage-backed
securities(1) . . . . . . . . . . . . 157,783 90,708 61,709 395,527 384,263
General valuation allowance
for loan losses . . . . . . . . . . . 14,429 17,951 15,585 20,769 12,516

Investments and cash (2) . . . . . . . 65,119 63,736 328,841 125,434 143,146
Total nonperforming
loans (3) . . . . . . . . . . . . . . 22,125 18,978 53,375 66,479 23,947
REO (4) . . . . . . . . . . . . . . . . 39,234 54,962 85,599 89,449 86,275
Total nonperforming
assets (5) . . . . . . . . . . . . . 61,359 73,940 138,974 155,928 110,222
Total restructured loans (6). . . . . . 113,676 162,532 82,032 23,174 37,257
Total classified assets (7) . . . . . . 213,010 266,092 301,343 460,114 316,283
Total loans delinquent 30-89 days . . . 15,772 13,554 43,052 85,344 14,571
Core deposit intangible . . . . . . . . 2,533 3,233 4,892 6,072 6,905
Capitalized loan servicing
assets (8) . . . . . . . . . . . . . 118 3,402 5,137 18,292 21,954
Deposits . . . . . . . . . . . . . . . 847,957 1,022,046 1,298,367 1,565,311 1,697,057
Borrowed funds . . . . . . . . . . . . 15,464 104,823 270,193 466,363 597,404
Stockholders' equity . . . . . . . . . 34,685 17,042 49,126 71,254 136,729
SUMMARY OF OPERATIONS:
Total interest income . . . . . . . . . 64,134 $ 91,772 $ 143,263 $ 206,677 $ 231,769
Less: interest expense . . . . . . . . 36,297 65,973 113,940 170,783 178,088
-------- ---------- ---------- ---------- ----------
Net interest income . . . . . . . . . . 27,837 25,799 29,323 35,894 53,681
Less: provision for estimated loan
losses . . . . . . . . . . . . . . . . 14,350 18,603 6,666 25,127 45,103
-------- ---------- ---------- ---------- ----------
Net interest income after provision
for estimated losses . . . . . . . . 13,487 7,196 22,657 10,767 8,578
-------- ---------- ---------- ---------- ----------
Non-interest income:
Loan servicing fees, net of
amortization . . . . . . . . . . . . 893 230 1,012 3,892 (1,969)
Loan fees . . . . . . . . . . . . . . . 832 1,375 1,918 1,872 1,934
(Loss)/gain on sale of loans,
mortgage-backed securities,
investments and loan servicing . . . (239) 7,655 11,165 2,465 721
Gain on sale of branches . . . . . . . 1,496 1,315 -- -- --
Other, net . . . . . . . . . . . . . . 2,488 3,181 4,421 1,720 6,702
-------- ---------- ---------- ---------- ----------
Total non-interest income . . . . . . . 5,470 13,756 18,516 9,949 7,388
-------- ---------- ---------- ---------- ----------
Non-interest expense:
General and administrative expense 29,006 30,910 36,328 42,053 40,087
Real estate operations, net(9) . . . 15,743 27,277 33,770 66,839 4,429
Amortization of core
deposit intangible . . . . . . . . 662 845 1,181 1,046 889
-------- ---------- ---------- ---------- ----------
Total non-interest expense . . . . . . 45,411 59,032 71,279 109,938 45,405
-------- ---------- ---------- ---------- ----------
Income (loss) before income taxes . . . (26,454) (38,080) (30,106) (89,222) (29,439)
Income tax provision (benefit) . . . . 3 (5,996) (7,978) (24,566) (11,330)
-------- ---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . $(26,457) $ (32,084) $ (22,128) $ (64,656) $ (18,109)
======== ========== ========== ========== ==========
</TABLE>

37
<PAGE> 40
SELECTED FINANCIAL DATA
(CONTINUED)

<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED JUNE 30,
---------------------------------------------------------------
1994 1993 1992 1991 1990
------ ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
PER COMMON SHARE:(10)
Net income (loss) - primary.... $(1.28) $(43.07) $(29.70) $(86.80) $(26.70)
Net income (loss) - fully
diluted....................... (1.28) (43.07) (29.70) (86.80) (26.70)
Book value - primary........... 1.28 22.88 66.00 95.70 183.60
Book value - fully diluted..... 1.28 22.88 66.00 95.70 183.60
Average number of shares
outstanding (In thousands).. 20,674 745 745 745 628
RATIOS:
Return on average assets*...... (2.65%) (2.27)% (1.18)% (2.69)% (0.75)%
Return on average stockholders'
equity*..................... (65.48%) (88.82)% (38.23)% (52.25)% (11.75)%
Interest rate spread during
period...................... 3.39% 2.51% 2.32% 2.18% 2.30%
Net yield on interest-earning
assets during period........ 3.17% 2.09% 1.82% 1.54% 2.19%
Expense Ratios:
Gross(11)*.................. 4.16% 3.29% 2.90% 4.16% 1.58%
Adjusted(12)*............... 2.98% 1.36% 1.11% 1.38% 1.40%
Efficiency Ratios:
Gross(13)*.................. 142.75% 154.37% 154.97% 239.81% 74.35%
Adjusted(14)*............... 93.26% 83.04% 81.55% 94.01% 67.10%
Dividend payout ratio(15) -- -- -- -- --
Stockholders' equity to total
assets...................... 3.84% 1.47% 2.99% 3.31% 5.51%
Tangible capital ratio......... 3.53% 1.09% 2.60% 2.70% 3.70%
Leverage capital ratio......... 3.80% 1.36% 2.90% 3.00% 4.00%
Risk-based capital ratio....... 6.99% 3.08% 5.20% 5.40% 6.10%
General valuation allowance
for loan losses to loans
and mortgage-backed
securities.................. 1.95% 1.85% 1.42% 1.22% 0.64%
General valuation allowance for
loan losses to loans,
excluding mortgage-backed
securities................... 2.48% 2.03% 1.50% 1.58% 0.79%
General valuation allowance for
loan losses to nonperorming
loans........................ 65.22% 94.59% 29.20% 31.24% 52.27%
Nonperforming assets to total
loans, mortgage-backed
securities and REO........... 7.88% 7.19% 11.74% 8.68% 5.36%
Nonperforming assets to total
assets....................... 6.79% 6.36% 8.46% 7.24% 4.44%
Restructured loans and
nonperforming assets to
total assets................ 19.36% 20.35% 13.45% 8.32% 5.94%
Classified assets to total
assets...................... 23.56% 22.90% 18.34% 21.37% 12.74%
Net loan chargeoffs to average
total loans................. 1.45% 1.72% 1.71% 0.52% 2.03%
</TABLE>

38
<PAGE> 41
NOTES TO SELECTED HISTORICAL FINANCIAL DATA:

(1) Includes both held for investment and held for sale and net of
unamortized premiums, unearned income, deferred fees and specific loan
loss allowance.

(2) Investment securities does not include the stock held by the Bank as a
member of the Federal Home Loan Bank of San Francisco.

(3) Nonperforming loans are those loans placed on non-accrual status and
other loans delinquent for 90 days or more.

(4) REO includes real estate acquired in settlement of loans, in-substance
foreclosures, net of general and specific real estate valuation
allowances and excludes real estate held for investment.

(5) Nonperforming assets include nonperforming loans and REO (net of
specific and general reserves).

(6) Restructured loans are loans that have been modified resulting in
concessions from original terms with respect to interest payments,
maturity, or partial forgiveness of principal or interest.

(7) Classified assets include loans classified Substandard or Doubtful,
REO (before general valuation allowance), and the Bank's investment in
Uni-Cal Financial Corporation.

(8) Capitalized loan servicing assets include purchased mortgage servicing
rights and capitalized excess servicing on loans originated by the
Bank. Capitalized excess servicing for a loan is the discounted
present value of any difference between (i) the interest rate received
by the Bank from the borrower and (ii) the interest rate passed
through to the purchaser of the loan, less a "normal servicing fee."
See "MD&A -- Interest Rate Risk" for a discussion of assumptions
regarding prepayment rates.

(9) Real estate operations, net includes net revenues and expenses, of REO
and real estate held for investment, development, or sale.

(10) Per share data is adjusted to give effect to the one-for-ten reverse
stock split effected on August 18, 1993.

(11) The gross expense ratio is the ratio of net non-interest expense to
average total assets. Net non-interest expense is total non-interest
expense minus fee income, gains and losses from sales of loans, MBS,
investments and loan servicing, and other income, net (except for
exclusion in 1992 of the $1.84 million gain on curtailment of pension
plan).

(12) The adjusted expense ratio is equal to total non-interest expense,
less real estate operations, net to average total assets.

(13) The gross efficiency ratio is the ratio of non-interest expense to
total revenue. Total revenue is net interest income plus fee income,
gains from sales of loans, MBS, investments and loan servicing, and
other, net (except for exclusion in 1992 of the $1.84 million gain on
curtailment of pension plan).

(14) The adjusted efficiency ratio is equal to the non-interest expense,
less real estate operations, net to total revenue.

(15) The dividend payout ratio is the ratio of dividends paid (if any)
during the fiscal year to net income.

39
<PAGE> 42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

The Company reported a net loss of $26.5 million, or $1.28 per share,
for the fiscal year ended June 30, 1994 compared to a loss in the prior fiscal
year of $32.1 million, or $43.07 per share. For the fiscal year ended June 30,
1992, the loss was $22.1 million or $29.70 per share. Book value decreased to
$1.28 per share at June 30, 1994 compared to $22.88 per share at June 30, 1993.
All per share amounts are calculated after giving effect to 1 for 10 stock
split in August 1993.

The Company's net losses during the fiscal years 1994, 1993 and 1992
resulted primarily from provisions for losses on loans and real estate.
Provisions for loan losses totaled $14.4 million in 1994, $18.6 million in
1993, and $6.7 million in 1992. Provisions for real estate losses (reported
under the caption "real estate operations, net") totaled $12.8 million in 1994,
$22.1 million in 1993, and $25.3 million in 1992. These loss provisions
resulted from the resolution of troubled real estate loans and real estate
investments, disposition of foreclosed properties, and the write-down of
certain loans and foreclosed properties to fair value to reflect continued
deterioration in market values, primarily in Southern California.

The net loss in 1994 included the cost of resolution of the Company's
largest commercial real estate property, with the execution of a sales contract
under which approximately half of the property was sold in 1994 and the
remaining parcels are scheduled for sale in 1995 and 1996. Additional losses
in 1994 resulted from a loan collateralized by a flood-damaged property in the
Midwest; the restructure, or foreclosure and disposition of, certain troubled
income property loans whose borrowers were unable to continue support due to
the prolonged period of economic stress experienced in California; and a loss
provision, based on a current appraisal, for a major loan collateralized by
marina income property. The rise in interest rates since February, 1994
subsequent to the Federal Reserve Bank's actions to tighten credit was a
contributing factor to the further deterioration in the Company's commercial
and multifamily real estate loan portfolio, and also resulted in the $2.6
million loss on the disposition of the Company's "held for sale" securities
portfolio in the March, 1994 quarter.

FINANCIAL CONDITION

The Company's consolidated assets totaled $904.0 million at June 30,
1994 as compared to $1.2 billion at June 30, 1993. The continued reduction in
total assets from fiscal year 1993 to fiscal year 1994 was primarily achieved
through the sales of loans and mortgage-backed securities ("MBS") held for
sale. The funds from these sales were utilized to reduce brokered deposits,
FHLB advances, other borrowings and to fund disposition of branches. This
decrease is consistent with the Company's strategy of reducing total assets of
the Bank in order to comply with the OTS capital requirements. See "Regulatory
Capital Compliance" below. Stockholders' equity totaled $34.7 million at June
30, 1994 compared to $17.0 million at June 30, 1993. The net change is
attributable to a Common Stock Offering in September of 1993 that resulted in
cash equity capital of $44.1 million, and the net loss of $26.5 million for
fiscal 1994.

CAPITAL RESOURCES AND LIQUIDITY

The Bank's sources of funds include deposits, advances from the FHLB
and other borrowings, proceeds from the sale of real estate, sales of loans and
MBS, sales of loan servicing and repayments of loans and MBS. Prepayments on
loans and MBS and deposit inflows and outflows are affected significantly by
interest rates, real estate sales activity and general economic conditions.
The decline in interest rates during the past two fiscal years, resulted in
substantially higher levels of loan prepayments.

40
<PAGE> 43

The Bank's customer deposit base has been the primary element of the
Bank's ability to maintain its liquidity while converting assets to generate
the funds necessary to reduce brokered deposits and repay FHLB advances. The
Bank repaid $17.9 million of maturing brokered deposits in 1994 and $32.9
million in 1993. At June 30, 1994 brokered deposits were $5.1 million, which
will mature in 1996. The Bank also repaid a net balance of $87.0 million of
FHLB advances in 1994 and an additional $100.0 million in fiscal 1993.

The Bank continued to consolidate and reduce its current branch system
in fiscal 1994. Four branches were sold in fiscal 1994, representing
approximately $166.2 million in deposits. Seven branches were sold during
fiscal 1993, representing approximately $142.9 million in deposits. These
branch sales have largely been funded by the sale of loans and MBS that had
previously been classified as held for sale. In addition, in March 1993 the
Bank consolidated a branch with a neighboring location.

MBS sales in fiscal 1994 and 1993 totaled $233.2 million and $283.9
million, respectively. Loan sales totaled $227.6 million in 1994 and $84.1
million in 1993. The Bank's strategy has been to securitize and sell the
majority of its current loan production. The Bank anticipates that loan
principal repayments will be sufficient to cover possible decreases in retail
deposits and provide funds for mortgage banking activities and for gradual
replenishment of its variable rate loan portfolio.

The principal measure of liquidity in the savings and loan industry is
the regulatory ratio of cash and eligible investments to the sum of
withdrawable savings and borrowings due within one year. The minimum set by
federal regulators is 5%. At June 30, 1994, the Bank's ratio was 11.47%
compared to 6.46% at June 30, 1993. The Bank's high liquidity at June 30, 1994
was due to a reduction in liability measurement base which included
withdrawable savings, attributable to the sale of branches, and a reduction in
short term borrowings made possible by the Company's recapitalization.

The primary source of cash for the Company is dividends from the Bank.
The Bank's Capital Restoration Plan does not permit capital distributions
(including dividends) without the prior written approval of the OTS Regional
Director. As long as the Bank remains "undercapitalized" for regulatory
purposes, the OTS Regional Director cannot approve any capital distributions
except in connection with a capital-raising transaction by the Bank.

REGULATORY CAPITAL COMPLIANCE

FDICIA established three capital standards for savings institutions:
a "leverage (core) limit," a "tier 1 risk-based limit" and a "total risk-based
capital" requirement. See "FDICIA Prompt Corrective Action Requirements."
Certain assets or portions thereof are required to be deducted immediately from
capital, while the inclusion of others in capital under one or all of the
capital standards is subject to various transitional rules or other
limitations. As of June 30, 1994 the Bank did not meet two of the components
of the regulatory capital requirements.

41
<PAGE> 44
The following is a reconciliation of the Bank's stockholder's equity
to federal regulatory capital, and a comparison of such regulatory capital to
the industry minimum requirements of the OTS, as of June 30, 1994:

<TABLE>
<CAPTION>
LEVERAGE TIER 1 TOTAL
(CORE) % RISK-BASED % RISK-BASED %
-------- ----- ---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
GAAP Equity..................... $34,407 $34,407 $34,407
Non-allowable assets:
Investment in Uni-Cal
Financial................... (69) (69) (69)
Additional capital items:
Assets required to be
deducted.................... -- -- (66)
General loan loss reserves.... -- -- 7,568
------- ------- -------
Bank Regulatory Capital......... 34,338 3.80% 34,338 5.74% 41,840 6.99%
Minimum capital requirement..... 36,151 4.00% 23,944 4.00% 47,888 8.00%
------- ----- ------- ----- ------- ------
Capital excess (deficiency)..... ($ 1,813) (-.20%) $10,394 1.74% ($ 6,048) (-1.01%)
======= ===== ======= ===== ======= ======

</TABLE>
In late September, 1993 the Company completed its recapitalization
equity offering to investors, management and stockholders and received net
proceeds of approximately $44.1 million. Receipt of this capital resulted in
the Bank achieving capital levels in excess of 4% leverage (core), 4% Tier 1
risk-based, and 8% total risk-based capital ratios required by the OTS Prompt
Corrective Action Directive. At such levels the Bank became an "adequately
capitalized" institution under the OTS rules implementing FDICIA. However, due
to the net loss of $26.5 million incurred in fiscal 1994, two of the Bank's
regulatory capital ratios were below the minimum requirements at June 30, 1994.
As a result, the Bank became subject to certain regulatory restrictions,
including the requirement to file a capital restoration plan. See "Capital
Restoration Plan" and "FDICIA Prompt Corrective Action Requirements" above.

ASSET/LIABILITY MANAGEMENT

Net Interest Income

The Bank's net interest income is determined by the difference (the
"spread") between the yields earned by the Bank on its loans, mortgage-backed
securities and investment securities ("interest-earning assets") and the
interest rates paid by the Bank on its deposits and borrowings
("interest-bearing liabilities"), as well as the relative amounts of the Bank's
interest-earning assets and interest-bearing liabilities. Savings
institutions, including the Bank, are subject to interest rate risks to the
degree that their interest-bearing liabilities, consisting principally of
customer deposits, FHLB advances and other borrowings, mature or reprice more
rapidly, or on a different basis, than their interest-earning assets, which
consist predominantly of intermediate or long-term real estate loans. While
having liabilities that mature or reprice more frequently on average than
assets may be beneficial in times of declining interest rates, such an
asset/liability structure may result in declining net earnings during periods
of rising interest rates, unless offset by non-interest income.

Net interest income before provision for estimated loan losses
increased 7.80% in fiscal 1994 to $27.8 million compared to $25.8 million in
fiscal 1993. The increase in fiscal 1994 is due primarily to a substantial
reduction in nonperforming assets and improved interest rate spreads. The
during period spread increased to 3.39% in fiscal 1994 compared to 2.51% in
fiscal 1993, largely due to significant decreases in the Bank's cost of funds
in excess of the decline in yields on loans and investments. The difference
between average interest-earning assets and interest-bearing liabilities ("net
average earning balance") improved by $53.7 million between June 30, 1994 and
June 30, 1993 principally due to dispositions of nonearning assets. The net
average earning balance also decreased slightly as a percentage of average
interest-earning assets to (6.27%) during fiscal 1994 compared to (8.80%)
during fiscal 1993. Net interest income before provision for estimated loan
losses declined to

42
<PAGE> 45
$25.8 million in fiscal 1993 from $29.3 million in fiscal 1992 due principally
to a substantial reduction in the volume of earning assets and the reduction of
the Bank's funding base, partially offset by improving interest rate spreads.

A portion of the decline in average interest-earning assets in fiscal
1994 as compared to fiscal 1993 resulted from implementation of a strategy set
forth in the prior Capital Plan to sell the current production of loans, and to
allow the balance sheet to shrink by the application of funds from loan
repayments to repay borrowings. In addition, because the Bank experienced
greater levels of loan and real estate losses than anticipated in the Amended
Capital Plan, the Bank sold loans and MBS as a means of reducing required
capital levels and maintaining compliance with interim capital ratio targets.
Sales and principal reductions of loans and investments accounted for virtually
all of the decrease in average interest-earning assets from fiscal 1993.

The weighted average yield on interest-earning assets was 7.28% in
fiscal 1994, compared to 7.42% during fiscal 1993 and 8.81% during fiscal 1992.
The decrease in yield is primarily due to a lower interest rate environment.
The average cost of interest-bearing liabilities declined to 3.89% in fiscal
1994 compared to 4.91% in fiscal 1993, and 6.49% in fiscal 1992, due to
significant decreases in prevailing interest rates on deposits and borrowings.

43
<PAGE> 46
The following tables present for the periods indicated the total
dollar amount of interest income from average interest- earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities and the resultant costs, expressed both in dollars and rates. The
table also sets forth the net average earning balance for the periods
indicated. Average balances are computed using a daily average balance during
the period.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1994 YEAR ENDED JUNE 30, 1993 YEAR ENDED JUNE 30, 1992
--------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- ---------- -------- ------- ---------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans and mortgage-backed
securities:
Adjustable rate ..................... $448,448 $32,757 7.30% $ 589,286 $47,022 7.98% $ 764,582 $ 70,551 9.23%
Fixed rate........................... 207,535 17,481 8.42 275,617 23,330 8.46 239,942 22,788 9.50
Construction......................... 9,791 785 8.02 26,659 2,092 7.85 125,917 11,862 9.42
Equity trust deed.................... 6,086 491 8.07 11,150 1,005 9.01 18,057 1,856 10.28
Consumer and other................... 14,828 1,345 9.07 19,826 1,942 9.80 31,148 3,168 10.17
Mortgage-backed securities........... 103,321 6,338 6.13 82,257 6,070 7.38 248,567 21,156 8.51
-------- ------- ----- ---------- ------- ----- ---------- -------- -----
Total loans and mortgage-
backed securities (1)............. 790,009 59,197 7.49 1,004,795 81,461 8.11 1,428,213 131,381 9.20
Investments............................ 87,115 4,692 5.39 230,911 10,151 4.40 185,650 10,753 5.79
-------- ------- ----- ---------- ------- ----- ---------- -------- -----
Total interest-earning assets...... 877,124 63,889 7.28 1,235,706 91,612 7.42 1,613,863 142,134 8.81
----- ----- -----
Investments in FHLB stock................ 6,286 245 3.90 15,165 160 1.06 27,497 1,129 4.11
------- ----- ------- ===== -------- -----
Non-interest-earnings assets............. 113,279 165,194 238,431
-------- ---------- ----------
Total assets....................... 996,689 64,134 $1,416,065 $91,772 $1,879,791 $143,263
======== ------- ========== ------- ========== --------
Interest-bearing liabilities:
Savings deposits:
Certificate accounts(2).............. 615,319 27,530 4.47 802,085 40,340 5.03 1,046,773 69,011 6.59
Money market passbook accts.......... 119,183 2,936 2.46 175,116 5,487 3.13 192,649 8,959 4.65
Passbook accounts.................... 56,574 1,215 2.15 63,150 1,741 2.76 63,722 2,709 4.25
Checking accounts.................... 78,538 905 1.15 107,811 2,310 2.14 116,843 4,108 3.52
-------- ------- ----- ---------- ------- ----- ---------- -------- -----
Total deposits..................... 869,614 32,586 3.75 1,148,162 49,878 4.34 1,419,987 84,787 5.97
Borrowings:
Reverse repurchase................... 11,585 327 2.82 -- -- -- 34,147 2,461 7.21
FHLB advances........................ 46,799 2,654 5.67 181,449 14,426 7.95 307,682 26,338 8.56
Medium-term notes.................... -- -- -- 4,864 220 4.52 7,000 585 8.36
Other................................ 4,127 730 17.69 9,911 1,449 14.62 6,795 1,064 15.66
-------- ------- ----- ---------- ------- ----- ---------- -------- -----
Total borrowings................... 62,511 3,711 5.94 196,224 16,095 8.20 355,624 30,448 8.56
-------- ------- ----- ---------- ------- ----- ---------- -------- -----
Total interest-bearing
liabilities....................... 932,125 36,297 3.89 1,344,386 65,973 4.91 1,775,611 115,235 6.49
-----
Capitalized interest............... -- -- -- -- -- -- (1,295)
------- ----- ------- ----- --------
Non-interest bearing liabilities......... 24,162 35,555 46,306
Stockholders' equity..................... 40,402 36,124 57,874
-------- ---------- ----------
Total liabilities and
stockholder's equity.............. 996,689 36,297 $1,416,065 $65,973 $1,879,791 $113,940
======== ======= ========== ======= ========== ========
Net interest income/interest rate
spread.................................. 27,837 3.39% $25,799 2.51% $ 29,323 2.32%
======= ===== ======= ===== ======== =====
Net average earning balance(3)/net
yield on interest earning assets(4)..... $(55,001) 3.17% $ (108,680) 2.09% $ (161,748) 1.82%
======== ===== ========== ===== ========== =====
</TABLE>
___________________________

(1) Nonaccrual loans are included in the average balance column; however,
only collected interest is included in the interest column.
(2) Brokered deposits represented 0.61%, 2.25% and 4.31% of the Bank's
deposits at June 30, 1994, 1993 and 1992, respectively.
(3) The "net average earning balance" equals the difference between the
average balance of interest-earning assets and the average balance
of interest-bearing liabilities.
(4) The net yield in interest earning assets during the periods equals net
interest income divided by average interest-earning assets for the
period.

44
<PAGE> 47
Changes in the Bank's net interest income are a function of both
changes in rates and changes in volumes of interest- earning assets and
interest-bearing liabilities. The following table sets forth information
regarding changes in interest income and expense for the Bank for the periods
indicated. For each category of interest-earning asset and interest-bearing
liability, information is provided on changes attributable to: (i) changes in
rate (changes in rate multiplied by old volume) and (ii) changes in volume
(changes in volume multiplied by old rate). The net change attributable to
changes in both volume and rate, which cannot be segregated, has been allocated
proportionately to the change due to volume and the change due to rate.
Interest-earning asset and interest-bearing liability balances in the
calculations are computed using daily average balances.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
1994 VS. 1993 1993 VS. 1992
----------------------------------- -----------------------------------
INCREASE INCREASE
(DECREASE) (DECREASE)
ATTRIBUTED TO ATTRIBUTED TO
--------------------- ---------------------
VOLUME RATE NET VOLUME RATE NET
-------- ------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income on loans and
mortgage-backed securities . . . . . . . . . $(17,414) $(4,850) $(22,264) $(38,951) $(10,969) $(49,920)
Interest income on investments . . . . . . . . (6,321) 862 (5,459) 2,622 (3,224) (602)
-------- ------- -------- -------- -------- --------
Total interest income on interest-
earning assets . . . . . . . . . . . . (23,735) (3,988) (27,723) (36,329) (14,193) (50,522)
-------- ------- -------- -------- -------- --------
Investments required by law . . . . . . . . . . (94) 179 85 (506) (463) (969)
-------- ------- -------- -------- -------- --------
Interest expense on deposits. . . . . . . . . . (12,101) (5,191) (17,292) (16,231) (18,678) (34,909)
Interest expense on borrowings(1) . . . . . . . (10,968) (1,416) (12,384) (13,647) (706) (14,353)
-------- ------- -------- -------- -------- --------
Total interest expense on
interest-bearing liabilities . . . . . . (23,069) (6,607) (29,676) (29,878) (19,384) (49,262)
-------- ------- -------- -------- -------- --------
Increase (decrease) in net interest
income . . . . . . . . . . . . . . . . . . . . $ (760) $ 2,798 $ 2,038 $ (6,957) $ 4,728 $ (2,229)
======== ======= ======== ======== ======== ========

</TABLE>

____________

(1) Net of capitalized interest on real estate investments

The end of period spread at June 30, 1994 decreased to 3.50% compared
to 3.55% at June 30, 1993 and 2.25% at June 30, 1992. The increase in fiscal
1994 and 1993 is primarily due to the Bank's investments in higher yielding
securities and the Bank's overall lower cost of funds.

The following table sets forth the components of the Bank's net
interest rate spread at the dates indicated:

<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Weighted average yield on:
Loans and mortgage-backed securities . . . . . . . . . . . . 7.28% 7.91% 8.88%
Investments . . . . . . . . . . . . . . . . . . . . . . . . 6.20 5.71 4.47
---- ---- ----
Combined loans and investments . . . . . . . . . . . . . . . . 7.19 7.77 7.85
---- ---- ----
Weighted average cost of:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 3.65 3.96 4.93
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 5.93 6.72 8.85
---- ---- ----
Combined deposits and borrowings . . . . . . . . . . . . . . . 3.69 4.22 5.60
---- ---- ----
Interest spread at end of period . . . . . . . . . . . . . . . 3.50% 3.55% 2.25%
==== ==== =====
</TABLE>

45
<PAGE> 48
Interest Rate Risk

Savings institutions are subject to interest rate risks to the degree
that interest-bearing liabilities reprice or mature more rapidly or on a
different basis than interest-earning assets. A principal objective of the
Bank is to manage the effects of adverse changes in interest rates on the
Bank's interest income, while maintaining asset quality. To improve the rate
sensitivity and maturity balance of its interest-earning assets and
liabilities, the Bank has over the past several years emphasized origination of
loans with adjustable interest rates or relatively short maturities. The
Bank's one-year gap, a measure of exposure to interest rate risk, was 4.27% at
June 30, 1994 compared to 1.0% at June 30, 1993 and negative 15.4% at June 30,
1992. The Bank monitors asset and liability maturities on a regular basis, and
performs various simulations and other analyses as a means of quantifying and
controlling interest rate risk.

The Bank's policy is to maintain its balance sheet gaps for annual
periods close to a tolerance range of zero. The change in the one-year gap is
principally attributable to the increase in the current maturities of MBS and
ARMs, and the decrease in FHLB advances. To reduce its interest rate risk, the
Bank is attempting to target longer term deposit maturities and maintain a high
percentage of adjustable rate loans in the loan portfolio. In addition, the
Bank may purchase interest rate caps as a means of reducing exposure to rising
interest rates. See "Capital Resources and Liquidity."

The Bank continually monitors the composition and amount of its loan
origination activity to determine the amount of loans originated for sale. In
determining the level of loans held for sale at origination, the Bank reviews
its liquidity requirements, asset size, the composition and interest rate
sensitivity of its loan portfolio, expectations concerning interest rates,
capital requirements and other factors. As part of the Bank's capital
compliance strategy in fiscal 1994 and 1993, the Bank began selling virtually
all of its current production of one-to-four unit residential loans.

A principal objective of the Bank is to manage the effects of changes
in interest rates on the Bank's interest income, while maintaining asset
quality and an acceptable interest rate spread. To improve the rate
sensitivity and maturity balance of its interest-earning assets and its
liabilities, the Bank has over the past several years emphasized originations
of loans with adjustable interest rates or relatively short maturities. Loans
with adjustable interest rates have the beneficial effect of allowing the yield
on the Bank's assets to increase during periods of rising interest rates,
although such loans have contractual limitations on the frequency and extent of
interest rate adjustments. See "Business -- Lending Activities." In fiscal
1993, the Bank began selling virtually all of its current production of
one-to-four unit residential loans, including ARM loans. At June 30, 1994, 89%
of the Bank's combined loan and investment portfolios consisted of loans or
investment securities which mature or reprice within five years, compared to
88% and 97% at June 30, 1993 and 1992, respectively.

At June 30, 1994, loans and MBS with adjustable interest rates
represented 63% of the Bank's loan and mortgage-backed securities portfolio,
compared to 58% at June 30, 1993. The Bank's largely adjustable rate loan and
mortgage-backed securities portfolio is funded principally by short-term
deposits and borrowings with original maturities of less than three years.
Adjustable rate loans comprised 34% of loan originations in fiscal 1994
compared to 23% in fiscal 1993.

The following tables set forth the projected maturities, based upon
contractual maturities as adjusted for scheduled repayments, projected
prepayments and "repricing mechanisms" (provisions for changes in the interest
and dividend rates of assets and liabilities) of the Bank's major asset and
liability categories as of June 30, 1994, as well as certain information
regarding the difference between interest-earning assets and interest-bearing
liabilities in future periods. Prepayment rates are assumed in each period on
substantially all of the Bank's loan portfolio based upon its historical loan
prepayment experience and anticipated future prepayments. Repricing mechanisms
on certain of the Bank's assets are subject to limitations, such as caps on the
amount that interest rates and payments on the Bank's loans may adjust, and,
accordingly, such assets do not normally respond as completely or rapidly as
the Bank's liabilities to changes in market interest rates. The interest rate
sensitivity of

46
<PAGE> 49
the Bank's assets and liabilities illustrated in the table would vary
substantially if different assumptions were used or if actual experience
differed from the assumptions set forth.

<TABLE>
ANALYSIS OF REPRICING MECHANISMS AND MATURITIES BASED UPON ESTIMATES AND ASSUMPTIONS

<CAPTION>
AT JUNE 30, 1994
-------------------------------------------------------------------------------------
PERCENT
TOTAL OF WITHIN 3 4-12 2 3 5 OVER 5
BALANCE TOTAL MONTHS MONTHS YEARS YEARS YEARS YEARS
-------- ------ -------- -------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment Securities(1)(2) . . . . $ 70,538 8.87% $ 8,420 $ 11,215 $ 25,163 $ 15,549 $ 10,191 $ --
Mortgage-Backed
Securities(3)(4)(5) . . . . . . . 157,783 19.84% 19,625 65,182 9,645 8,542 13,871 40,918
Loans Receivable:(3)(4)
Real Estate:
Adjustable Rate(5) . . . . . . 424,987 53.44% 261,300 152,588 5,369 1,115 2,011 2,604
Fixed Rate . . . . . . . . . . 129,318 16.26% 313 8,141 20,592 40,592 14,679 45,001
Consumer . . . . . . . . . . . 12,650 1.59% 2,970 735 992 1,010 1,949 4,994
-------- ------ -------- -------- --------- --------- -------- --------
Total Interest-earning Assets . . . $795,276 100.00% $283,151 $237,861 $ 61,761 $ 66,808 $ 42,701 $ 93,517
======== ====== ======== ======== ========= ========= ======== ========
INTEREST-BEARING LIABILITIES:
Customer Accounts:
Passbook Accounts(6) . . . . . . $ 58,303 6.75% $ 1,680 $ 7,015 $ 3,852 $ 7,164 $ 6,161 $ 32,431
Money Market
Accounts . . . . . . . . . . . 178,966 20.73% 10,312 25,530 33,739 21,875 31,972 55,538
Term Certificates(1) . . . . . 605,554 70.13% 204,397 234,591 125,931 21,800 17,705 1,130
Brokered CDs(1) . . . . . . . . 5,134 0.59% -- -- -- 5,134 -- --
Borrowings:
FHLB Advances(1) . . . . . . . 13,000 1.51% -- 13,000 -- -- -- --
Other(7) . . . . . . . . . . . 2,464 0.29% -- -- -- -- -- 2,464
-------- ------ -------- -------- --------- --------- -------- --------
Total Interest-
Bearing Liabilities . . . . $863,421 100.00% $216,389 $280,136 $ 163,522 $ 55,973 $ 55,838 $ 91,563
======== ====== ======== ======== ========= ========= ======== ========
Maturity Gap . . . . . . . . . . . . . . . . . . . . . $ 76,239 $(42,275) $(101,761) $ 10,835 $(13,137) $ 1,954
June 30, 1994 cumulative gap . . . . . . . . . . . . . 76,239 $ 33,964 $ (67,797) $ (56,962) $(70,099) $(68,145)
as a % of interest-earning assets . . . . . . . . . . 9.59% 4.27% -8.52% -7.16% -8.81% -8.57%
June 30, 1993 cumulative gap . . . . . . . . . . . . . $249,371 $ 10,896 (143,914) (139,070) $(92,450) $(78,031)
as a % of interest-earning assets . . . . . . . . . . 23.77% 1.04% -13.72% -13.26% -8.81% -7.44%
</TABLE>
_________________

(1) Based upon the contractual maturities of the instruments.
(2) Includes interest-bearing deposits with other financial institutions.
(3) Based upon the contractual maturities of the loans and mortgage-backed
securities, as adjusted for scheduled principal repayments and
projected average prepayments of principal of 7% per year for loans
and mortgage-backed securities.
(4) Amounts are net of discounts, premiums, deferred loan fees and general
valuation allowance.
(5) The interest rate on adjustable rate loans generally adjusts after an
initial three-month, six-month or twelve-month fixed
interest rate period. Such loans are included in the maturity period
in which the first interest rate adjustment occurs, as adjusted for
anticipated prepayments.
(6) All passbook accounts are assumed to "run off" at the rate of
approximately 17% per year based on the Bank's historical experience.
(7) Includes both fixed and adjustable rate borrowings. Adjustable rate
borrowings are included in the maturity period in which the first
interest rate adjustment occurs.

47
<PAGE> 50
NONPERFORMING ASSETS

Nonperforming assets consist of real estate acquired in settlement of
loans and in-substance foreclosures (collectively, "REO") and nonaccrual loans.
While the Bank experienced a decrease in nonperforming assets during fiscal
year 1994 and from fiscal year 1992 to 1993, total nonperforming assets remain
high as a percentage of assets relative to industry peer averages. The
decrease in fiscal years 1994 and 1993 was primarily attributable to the sale
of and additional write-downs on REO and restructure of loans previously
classified as nonaccrual.

The following table sets forth the amounts of nonperforming assets of
the Bank at the dates indicated:

<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------
1994 1993 1992
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonperforming loans(1)............................... $ 22,125 $ 18,978 $ 53,375
Real estate acquired in settlement of loans(2)....... 23,557 43,621 72,414

In-substance foreclosures, net of undisbursed
funds(2)........................................... 15,677 11,341 13,185
-------- ---------- ----------
Total nonperforming assets..................... $ 61,359 $ 73,940 $ 138,974
======== ========== ==========
Total assets......................................... $903,976 $1,161,945 $1,642,784
======== ========== ==========
Nonperforming assets, net as a percentage of
Total assets................................... 6.79% 6.36% 8.46%
======== ========== ==========
</TABLE>
____________

(1) Net of specific valuation allowances.
(2) Net of specific valuation allowances and pro-rata allocated REO general
valuation allowance.

The following table presents the activity of nonperforming loans and
REO (net of specific valuation allowances and the REO general valuation
allowance) for the periods presented (1):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, 1994 JUNE 30, 1993
-------------------------- ---------------------------
NONPERFORMING NONPERFORMING
LOANS REO LOANS REO
------------- -------- ------------- --------
(DOLLARS IN THOUSANDS)

<S> <C> <C> <C> <C>
Beginning Balance $ 18,978 $ 54,962 $ 53,375 $ 85,599
Additions................................... 47,025 49,872 35,162 27,252
Payoff, cures and sales..................... -- (53,748) (35,338) (36,290)
Restructurings.............................. (1,475) -- (17,358) --
Assets foreclosed upon or designated
as REO.................................... (35,912) -- (8,704) --
Charge-offs and specific valuation allowance
provisions................................ (6,491) (11,852) (8,159) (21,599)
-------- -------- -------- --------
Ending Balance............................. $ 22,125 $ 39,234 $ 18,978 $ 54,962
======== ======== ======== ========
</TABLE>
____________

(1) Single family and consumer loans are reflected in additions or designated
as REO on a net change basis.

48
<PAGE> 51

Nonaccrual Loans

Nonaccrual loans generally represent loans for which interest accruals
have been suspended. At June 30, 1994, nonaccrual loans of $22.1 million had
increased by $3.1 million, or 17%, from $19.0 million at June 30, 1993,
following a decline of $34.4 million, or 64%, from $53.4 million at June 30,
1992.

The Bank's nonaccrual policy provides that, interest accruals
generally cease once a loan is past due as to interest or principal for a
period of 90 days or more. Loans may also be placed on nonaccrual status even
though they are less than 90 days past due if management concludes that there
is little likelihood that the borrower will be able to comply with the
repayment terms of the loan. Nonaccrual loans at June 30, 1994 included $1.4
million of cash flow loans. The Bank recognizes the interest on the cash flow
loans on a cash basis. In some cases, the Bank may continue to accrue interest
on certain loans that are adequately secured and in the process of collection
even though such loans have been past due as to interest or principal payments
for 90 days or more. In addition, if a loan is in the process of being
restructured and the final terms have been agreed upon by both parties, the
loan will be accounted for as a restructured loan and interest due since the
last payment will be written off or accrued as dictated by the terms of the
restructuring.

Nonaccrual loans at June 30, 1994 were primarily commercial loans
(51%) and single family loans (39%). At June 30, 1993, nonaccrual loans
consisted largely of single family loans (68%) and multifamily loans (25%).
The change in mix in nonaccrual loans is primarily attributable to two factors:
the decrease in multifamily loans was due to the restructure and foreclosure of
several loans during the year while the increase in nonaccrual commercial real
estate loans was attributable to the default of several major properties in
late fiscal 1994. The decrease in nonaccrual single family loans is an
indication that the single family real estate market in Southern California has
begun to stabilize.

In the past four years, the national economy has been adversely
affected by negative or low rates of economic growth and high unemployment.
The effects of the economic downturn have been acute in California where
collateral for approximately 93% of the Bank's real estate loan portfolio is
located. The decline in California real estate values first became apparent in
the Bank's loans secured by hotels, land and development projects. Such
segments accounted for significant loan and real estate losses beginning in
fiscal 1990 and continuing throughout fiscal 1994. The Bank believes that real
estate values have declined in the majority of markets in which it operates.
The Bank has noted decreases in net operating income generated in many of its
multifamily, office and retail properties, causing borrowers to have difficulty
in meeting debt service requirements. In light of the current environment the
Bank anticipates that it will continue to follow its pattern of working with
borrowers to restructure the loans when the economic benefit is greater than
foreclosures. Single family delinquencies and foreclosures are expected to
remain high for the near future.

Future levels of nonaccrual loans will continue to be dependent on the
economy. The current estimates of modest post- recessionary growth should tend
to have a favorable impact on the Bank's level of nonaccrual loans, while
deterioration in economic conditions will tend to have the opposite effect.

49
<PAGE> 52
The following table summarizes the distribution of the Bank's
nonaccrual loans by collateral type (1):

<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------------
1994 1993 1992
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1-4 unit residential and mortgage-
backed securities . . . . . . . $ 8,650 $12,875 $ 9,113

Multifamily . . . . . . . . . . . . . 689 4,332 522
Commercial:

Retail . . . . . . . . . . . . . . 2,449 -- --
Hotel/motel . . . . . . . . . . . 5,592 1,154 2,000
Storage facilities . . . . . . . . -- -- 3,670
Office . . . . . . . . . . . . . . -- -- 7,248
Other. . . . . . . . . . . . . . . 3,163 328 600
------- ------- -------
Total commercial . . . . . . 11,204 1,482 13,518
------- ------- -------
Construction-Residential . . . . . . -- -- 29,582
------- ------- -------
Total real estate loans . . . . . . . 20,543 18,689 52,735
Consumer loans (2) . . . . . . . . . 1,582 289 640
------- ------- -------
Total nonaccrual loans . . . . . . . $22,125 $18,978 $53,375
- - - - ------------ ======= ======= =======
</TABLE>

(1) Balances are net of contra, loans in process and specific valuation
allowances.
(2) Consumer loans include mobile home loans.

REO

REO consists of real estate acquired in settlement of loans and loans
accounted for as in-substance foreclosures. When there is an indication that a
borrower will not make all the required payments on a loan; the borrower no
longer has equity in the property collateralizing a loan; it appears doubtful
that equity will be rebuilt in the foreseeable future; or the borrower has
(effectively or actually) abandoned control of the collateral, the property is
considered repossessed in-substance (in-substance foreclosure). Real estate
acquired in settlement of loans is recorded at the lower of the unpaid balance
of the loan at the settlement date or fair value of the collateral, less
estimated selling cost. Subsequently, valuation allowances for estimated
losses are charged to real estate operations expense if the carrying value of
real estate exceeds estimated fair value. The Bank does not accrue interest
income on loans classified as in-substance foreclosures and reported as real
estate acquired in settlement of loans.

As part of the Bank's quarterly internal asset review procedure, loans
are tested for potential in-substance foreclosure status through discounted
cash flow analyses, and evaluation of the borrower's capacity and willingness
to continue to service the debt and control the property. If the Bank expects
that, based on the current terms of the debt and the expected future cash flows
of the property, the borrower will be unable to rebuild equity in the future,
the loan will be evaluated as a candidate for troubled debt restructuring. The
Bank will continue to classify this asset as a loan during the restructure
process and will only transfer it to in-substance foreclosure when it is
determined that a restructure is not feasible. These loans will be carried at
the lower of cost or fair value.

REO decreased to $39.2 million at June 30, 1994, from $55.0 million at
June 30, 1993 and $85.6 million at June 30, 1992. The decrease in fiscal 1994
is attributable to sales of real estate totaling $53.7 million and charge-offs
or write-downs of $11.9 million, partially offset by additions of $49.9
million. During fiscal year 1994, the Bank acquired title to $45.4 million in
assets previously classified as in-substance foreclosures. The Bank plans to
continue its efforts to acquire title to in-substance foreclosed assets and
certain delinquent problem loans when a restructure does not provide a greater
economic benefit. Acquiring title allows the Bank to control the asset and
begin aggressive marketing efforts to dispose of the asset.

50
<PAGE> 53
Single family REO has decreased to $1.3 million at June 30, 1994 from
$3.4 million at June 30, 1993 and $6.3 million at June 30, 1992. The Bank
believes this decrease reflects a gradually stabilizing single family real
estate market in Southern California and expects the level of foreclosure on
single family loans to continue to decrease. The Bank is continually marketing
these properties for sale. The Bank sold $14.6 million of single family REOs
in the fiscal 1994 and $6.3 million in fiscal 1993.

The following table summarizes the distribution of the Bank's REO by
collateral type (1):

<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------------
1994 1993 1992
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1-4 unit residential . . . . . . . . . . $ 1,334 $ 3,433 $ 6,257
Multifamily . . . . . . . . . . . . . . 6,889 5,451 3,406
Commercial:
Retail . . . . . . . . . . . . . . . 14,725 2,445 5,561
Land . . . . . . . . . . . . . . . . 10,333 22,654 25,578
Hotel/motel . . . . . . . . . . . . . -- -- 7,546
Mobile home parks . . . . . . . . . . 82 -- 1,754
Manufacturing/Warehouse . . . . . . . -- 1,377 --
Office . . . . . . . . . . . . . . . 5,137 9,384 3,408
Other . . . . . . . . . . . . . . . . -- 1,239 --
------- ------- -------
Total commercial . . . . . . . . . . . . . 30,277 37,099 43,847
Construction:
Residential . . . . . . . . . . . . . -- 8,979 31,304
Commercial . . . . . . . . . . . . . 681 -- 399
------- ------- -------
Total construction . . . . . . . . . . . . 681 8,979 31,703
------- ------- -------
Total real estate . . . . . . . . . . . 39,181 54,962 85,213
Consumer(2) . . . . . . . . . . . . . . 53 -- 386
------- ------- -------
Total real estate acquired in settlement
of loans . . . . . . . . . . . . . . $39,234 $54,962 $85,599
======= ======= =======

</TABLE>
- - - - ---------------
(1) Balances are net of contra, loans in process, and specific valuation
allowances and the real estate general and specific valuation allowances.

(2) Consumer loans include mobile home loans.

RESTRUCTURED LOANS

The Bank has restructured certain loans in instances where a
determination was made that greater economic value will be realized under new
terms than through foreclosure, liquidation or other disposition. Candidates
for restructure are reviewed based on the quality of the borrower and the
borrower's ability to enhance the value of the property, the collateral and the
economic value of the restructured loan relative to foreclosure and other
options. Restructure allows the borrower more time to regain equity in the
property. Generally the Bank obtains an appraisal at the time of restructure
and updates the valuation quarterly through internally prepared discounted cash
flow analyses. The terms of the restructure generally involve some or all of
the following characteristics: a reduction in the interest rate to reflect a
positive debt coverage ratio, modifying the payments for a period of time to
interest only, an extension of the loan maturity date to allow time for
stabilization of the property income, and partial forgiveness of principal and
interest. In certain circumstances, the Bank also obtains the right to share
in future benefits arising from the upside potential of the collateral. In
addition to the modifications to terms, the Bank generally requires the
borrower to invest new cash equity in the property through principal reduction
or correction of deferred maintenance as part of the restructure agreement.
Once a restructure

51
<PAGE> 54
takes place, the loan is subject to the accounting and disclosure rules
prescribed in the SFAS No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings."

Restructured loans which are performing in accordance with their new
terms and, therefore, are not included in nonaccrual loans, amounted to $113.7
million at June 30, 1994. Of the total restructured loans at June 30, 1994,
87% originated from performing loans or loans less than 90 days delinquent at
the time of restructure. For restructured loans that were previously
performing, the Bank accrues interest based on the terms of restructure. For
nonperforming loans that have been restructured, interest accruals are on a
cash basis until such time as a sustained stream of payments, in accordance
with the restructured terms, has been received. Thereafter, interest accrual
resumes based on the terms of the restructure. At June 30, 1994 the average
current yield on restructured loans was 7.22% and the average debt coverage
ratio was 1.07. Any restructured loans which require payments based solely on
cash flows are reported as nonaccrual loans and not restructured loans. At
June 30, 1994 $1.4 million of nonaccrual loans represent loans with
restructured terms requiring cash flow only payments.

Restructured loans decreased to $113.7 million at June 30, 1994 from
$162.5 million at June 30, 1993, but increased from $82.0 million at June 30,
1992. During fiscal 1993, the Bank restructured $72.8 million of multifamily
loans, of which $29.1 million were loans to one borrower. The restructures
generally involved modifications to payments and interest rate reductions, with
a small amount of principal forgiveness. In fiscal year 1992, 58.3% of the
total restructures involved commercial loans, including $24.5 million that had
previously been classified as in-substance foreclosures. As of June 30, 1993,
one restructured loan was paid off upon the sale of the property. A loan whose
terms have been restructured is no longer disclosed as a restructured loan if,
subsequent to restructuring, its effective interest rate is equal to or greater
than the rate that the Bank is willing to accept for a new loan with comparable
risk and if principal payments, suspended in connection with the restructure,
resume.

The following table summarizes the distribution of the Bank's
restructured loans by collateral type (1):

<TABLE>
<CAPTION>
AT JUNE 30,
-----------------------------------------
1994 1993 1992
-------- -------- -------
(DOLLARS IN THOUSANDS)
S> <C> <C> <C>
Multifamily $ 92,057 $ 90,627 $30,456
Commercial:
Retail 4,733 44,630 23,692
Land -- 3,325 3,848
Hotel/motel 2,783 8,930 14,338
Storage facilities -- 6,733 3,533
Office 5,541 6,587 685
Other 2,270 1,700 1,700
-------- -------- -------
Total commercial 15,327 71,905 47,796
-------- -------- -------
Construction:
Residential construction 6,292 -- 3,780
-------- -------- -------
Total restructured loans $113,676 $162,532 $82,032
- - - - ------------------- ======== ======== =======
</TABLE>

(1) Balances are net of contra, loans in process and specific valuation
allowances.

52
<PAGE> 55
The following table summarizes by collateral type the performance
status immediately preceding restructure of the Bank's portfolio of
restructured loans as of June 30, 1994.

<TABLE>
<CAPTION>
NET BOOK VALUE AT JUNE 30, 1994
----------------------------------------
NONACCRUAL PERFORMING
LOAN LOAN TOTAL
---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Multifamily $ 8,418 $89,930 $ 98,348
Commercial 6,247 9,081 15,328
------- ------- --------
Total $14,665 $99,011 $113,676
======= ======= ========
</TABLE>

TROUBLED, COLLATERAL-DEPENDENT LOANS

Effective September 30, 1993, the OTS issued Regulatory Bulletin 31,
which addresses troubled, collateral-dependent loans. A troubled,
collateral-dependent loan is defined as a loan in which proceeds for repayment
can be expected to come only from the operation and sale of the collateral.

For a troubled collateral-dependent loan, where based on current
information and events, it is probable that the lender will be unable to
collect all amounts due (both principal and interest), any excess of the
recorded investment in the loan over its "value" should be classified as Loss,
and the remainder should generally be classified as Substandard.

For a troubled collateral-dependent loan, the "value" is one of the
following: (1) the present value of the expected future cash flows, discounted
at the loan's effective interest rate, based on original contractual terms
("loan-rate present value"); (2) the loan's observable market price; or (3) the
fair value of the collateral.

The Bank has revised its Policies and Procedures consistent with
Regulatory Bulletin 31 and has addressed troubled collateral-dependent loans.
In addition, the Bank uses various tests to assess whether an asset is a
troubled, collateral-dependent loan. All loans over $500,000 which are not
secured by single family residences are reviewed for the possibility that they
may be troubled, collateral dependent loans.

At June 30, 1994, troubled, collateral-dependent loans totaled $42.8
million. Of those loans which are considered troubled, collateral-dependent,
$31.6 million are performing loans, and $11.2 million are non-performing loans.
Of those performing troubled, collateral-dependent loans, $26.6 million are
restructured loans.

_____________

(1) Net of specific reserves and contras.

POTENTIAL PROBLEM LOANS

Classified Loans

The Bank's Internal Asset Review Department conducts independent
reviews of the risk and quality of all credit exposures of the Bank in excess
of $500 thousand in an effort to identify and monitor problem loans and comply
with OTS regulatory classification requirements. See "Business --
Classification of Assets."

53
<PAGE> 56
In concert with the classification of loans, the Bank monitors the
status of unpaid property taxes of its loan portfolio. The Bank has noted
through historical experience that a property with delinquent property taxes
generally becomes a problem within twelve months of the tax delinquency. At
June 30, 1994, the Bank had $42.0 million of performing loans secured by
properties other than single family residences with delinquent taxes, of which
$25.6 million are classified as substandard and the remaining $16.2 million are
classified as special mention.

The table below presents the Bank's total classified loan portfolio at
the dates indicated (1):

<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Substandard
Residential 1-4................................... $ 8,650 $ 14,268 $ 9,295
Multifamily....................................... 109,289 119,468 92,314
Commercial........................................ 33,030 56,947 50,232
Construction...................................... 5,817 8,074 48,361
Consumer.......................................... 2,082 954 2,991
-------- -------- --------
158,868 199,711 203,193
-------- -------- --------
Doubtful
Multifamily....................................... 261 3,428 --
Commercial........................................ -- 1,272 870
Consumer.......................................... -- 598 --
-------- -------- --------
261 5,298 870
-------- -------- --------
$159,129 $205,009 $204,063
======== ======== ========
Total classified loans as a percentage of
total loans....................................... 28.07% 23.17% 19.64%
======== ======== ========
Total Bank general valuation allowance for loan
losses as a % of total classified loans........... 9.07% 8.76% 7.64%
======== ======== ========
</TABLE>

________________

(1) Loss assets provided for through specific valuation allowance were
$10.5 million, $2.6 million and $2.2 million at June 30, 1994, June
30, 1993 and June 30, 1992, respectively.

54
<PAGE> 57
The following table reflects the classified loans by loan collateral
type to the respective gross loan portfolio, net of loan in process, for the
periods presented.

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1993
----------------------------------------- -----------------------------------------
CLASSIFIED GROSS LOAN % CLASSIFIED GROSS LOAN %
TYPE LOANS PORTFOLIO CLASSIFIED LOANS PORTFOLIO CLASSIFIED
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Residential 1-4 . . . . $ 8,650 $198,046 4.37% $ 14,268 $370,187 3.85%
Multifamily . . . . . . 105,770 166,779 63.42% 119,085 200,637 59.35%
Commercial . . . . . . 33,030 202,017 16.35% 58,219 278,731 20.89%
Construction . . . . . 5,817 6,924 84.01% 8,074 16,253 49.67%
Equity . . . . . . . . 3,780 6,279 60.20% 3,811 7,480 50.94%
Consumer . . . . . . . 2,082 14,090 14.78% 1,552 17,270 8.99%
-------- -------- ----- -------- -------- -----
Total . . . . . . $159,129 $594,135 26.78% $205,009 $890,558 23.02%
======== ======== ===== ======== ======== =====
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
1992
---------------------------------------------
CLASSIFIED GROSS LOAN %
TYPE LOANS PORTFOLIO CLASSIFIED
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Residential 1-4 . . . . . $ 9,295 $ 394,946 2.35%
Multifamily . . . . . . . 87,447 224,878 38.89%
Commercial . . . . . . . 50,465 324,572 15.55%
Construction . . . . . . 48,361 72,715 66.51%
Equity . . . . . . . . . 5,504 11,504 47.84%
Consumer . . . . . . . . 2,991 23,341 12.81%
-------- ---------- -----
Total . . . . . . . $204,063 $1,051,956 19.40%
======== ========== =====
</TABLE>

The table below summarizes the Bank's classified loans by performance
status at June 30, 1994:

PERFORMANCE STATUS CLASSIFIED LOANS
------------------------------------------------------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C>
Nonaccrual . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,125
Restructured-performing . . . . . . . . . . . . . . . . . . . 108,593
Other classified loans currently performing . . . . . . . . . 28,411
--------
Total classified loans . . . . . . . . . . . . . . . . . . $159,129
========
</TABLE>
In addition to classified loans, the Bank monitors Special Mention
loans which have been identified to include potential weaknesses that deserve
management's close attention. According to OTS guidelines, Special Mention
loans are not adversely classified and do not expose an institution to
sufficient risk to warrant adverse classification. At June 30, 1994, $95.9
million of loans were categorized as Special Mention, compared to $85.5 million
at June 30, 1993 and $200.8 million at June 30, 1992.

55
<PAGE> 58
On an annual basis the Bank, through the Special Assets division,
reviews all loans in excess of $500,000 not secured by single family residences
to evaluate the risks inherent in the credit, determine the classification and
evaluate the collateral value of the loan. All criticized loans (classified
Special Mention, Substandard, Doubtful and Loss) are reviewed on a quarterly
basis. The Internal Asset Review department performs an independent review of
these assets to ensure that the classifications and valuations are consistent
with the Bank's policies and the regulatory guidelines. The quarterly and
annual reviews include an analysis of the operating income, occupancy levels,
market performance and physical condition of the property. In addition, an
evaluation is performed regarding the borrower's financial condition,
collateral value and cash flow potential. In addition, the Internal Asset
Review division reviews loans for collectibility in determining whether
continued interest accrual is proper. In the event that the collateral is less
than the carrying value then a specific valuation allowance is recorded for the
deficiency, resulting in a loss classification on such performing loans.

Delinquent Loans

When a borrower fails to make required payments on a loan and does not
cure the delinquency within 90 days or within 10 days if other than a
one-to-four unit loan, the Bank normally records a notice of default, subject
to any required prior notice to the borrower, and commences foreclosure
proceedings. If either the loan is not reinstated within the time permitted by
law for reinstatement, which is normally five business days prior to the date
set for the non-judicial trustee's sale, or the property is not redeemed prior
to such sale, the property may then be sold at the non-judicial trustee's sale.
If the Bank has elected to pursue a non-judicial foreclosure, the Bank is not
permitted under applicable California law to obtain a deficiency judgment
against the borrower, even if the security property is insufficient to cover
the balance owed. In trustee sales, the Bank normally acquires title to the
property. The following table indicates the amounts of the Bank's past due
loans as of the dates indicated:

<TABLE>
<CAPTION>
JUNE 30, 1994 JUNE 30, 1993
--------------------------------------- -------------------------------------
30-59 60-89 90+ 30-59 60-89 90+
DAYS DAYS DAYS TOTAL DAYS DAYS DAYS TOTAL
------- ------ ------- ------- ------ ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One to four units . . . . . . $ 4,935 $2,346 $8,650 $15,931 $3,064 $1,321 $12,875 $17,260
Multifamily, commercial
and construction . . . . . 8,342 85 12,261 22,173 1,112 7,771 3,840 12,723
------- ------ ------- ------- ------ ------ ------- -------
Total real estate . . . 13,277 2,431 20,911 38,104 4,176 9,092 16,715 29,983
Consumer Loans . . . . . . . . 38 26 1,582 161 94 192 289 575
------- ------ ------- ------- ------ ------ ------- -------
$13,315 $2,457 $22,493 $38,265 $4,270 $9,284 $17,004 $30,558
======= ====== ======= ======= ====== ====== ======= =======
Percent of loans and
mortgage-backed securities
portfolio . . . . . . . . . . 1.84% 0.34% 3.10% 5.28% 0.45% 0.97% 1.78% 3.20%
======= ====== ======= ======= ====== ====== ======= =======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1992
---------------------------------------
30-59 60-89 90+
DAYS DAYS DAYS TOTAL
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real Estate Loans:
One to four units . . . . . . $ 4,617 $ 1,824 $ 9,050 $15,491
Multifamily, commercial
and construction . . . . . 25,740 10,489 2,539 38,768
------- ------- ------- -------
Total real estate . . . 30,357 12,313 11,589 54,259
Consumer Loans . . . . . . . . 279 103 683 1,065
------- ------- ------- -------
$30,636 $12,416 $12,272 $55,324
======= ======= ======= =======
Percent of loans and
mortgage-backed securities
portfolio . . . . . . . . . . 2.83% 1.15% 1.13% 5.11%
======= ======= ======= =======
</TABLE>
Delinquent loans increased to $38.3 at June 30, 1994 from $30.6
million at June 30, 1993 and decreased from $55.3 million at June 30, 1992.
The significant decrease in fiscal 1993 is due to the payoff of a $25 million

56
<PAGE> 59
construction loan. At June 30, 1994, one loan with a principal balance of $368
thousand was contractually past due over 90 days and continued to accrue
interest. At June 30, 1993 and 1992, no loans over 90 days delinquent
continued to accrue interest.

Both multifamily and commercial delinquencies have remained high as a
percentage of assets for the last three years relative to industry standards.
The Company believes this is attributable to low rents and high vacancies,
which in turn have made it difficult for borrowers to meet the current debt
service requirements despite the drop in interest rates over this period. The
Bank restructured several multifamily and commercial loans during the year that
were previously delinquent.

The current state of the economy, the high unemployment levels and the
depressed real estate market have all led to a continued increase in delinquent
single family loans. The high delinquency levels on residential one-to-four
family loans over the past two years have contributed to an increase in single
family foreclosures and short payoffs. The Bank makes every effort to counsel
the borrowers and work out payment plans to return the loan to a current
status, without modifying the rates or terms of the loan. The Bank experienced
higher levels of losses on one-to-four unit residential loans during fiscal
1994 and as a result increased the related general valuation allowance for loan
losses covering such loans. While losses on single family loans continued in
1994, the overall single family home market has begun to stabilize in certain
areas.

ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES

It is the Company's policy to provide an allowance for estimated
losses on loans and real estate when it is probable that the value of the asset
has been impaired and the loss can be reasonably estimated. Loans are
generally required to be carried at the lower of amortized cost or net
realizable value. Net realizable value is the present value of the future cash
flows, including the costs of holding, refurbishment and selling, discounted at
the combined cost of debt and equity for the Bank. REO is carried at the lower
of cost or fair value, less selling costs. To comply with this policy the
Company has established a monitoring system that requires at least an annual
review of all loans in excess of $500 thousand, and a quarterly review of all
loans considered adversely classified or criticized. The monitoring system
requires a review of operating statements, evaluation of the properties'
current and past performance, and evaluation of the borrower's ability to
repay. When deterioration is anticipated or certain other risks are
identified, the completion of a discounted cash flow analysis is also required.
Based on the results of the review, a new appraisal may be required.

The following table sets forth the Bank's general and specific
valuation allowances for loan and real estate losses at the dates indicated.

<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loan general valuation
allowance . . . . . . . $14,429 $17,951 $15,585 $20,769 $12,516
Loan specific valuation
allowances . . . . . . 10,534 2,622 2,239 10,295 1,561
------- ------- ------- ------- -------
Total loan valuation
allowance . . . . . . . $24,963 $20,573 $17,824 $31,064 $14,077
======= ======= ======= ======= =======
Real estate general
valuation allowance. . . $ 2,221 $ 2,774 $ 4,453 $34,182 $ 6,311
Real estate specific
valuation allowances . . 17,811 22,604 25,803 34,625 3,471
------- ------- ------- ------- -------
Total real estate
valuation allowance. . . $20,032 $25,378 $30,256 $68,807 $ 9,782
======= ======= ======= ======= =======
Total valuation
allowances . . . . . . $44,995 $45,951 $48,080 $99,871 $23,859
======= ======= ======= ======= =======
</TABLE>

57
<PAGE> 60
The loan general valuation allowance as a percentage of the net loans
receivable and MBS balance increased to 1.99% at June 30, 1994 from 1.88% at
June 30, 1993 and 1.44% at June 30, 1992. The Bank uses the various asset
classifications and asset type as a means of measuring risk for determining the
general valuation allowances at a point in time. In determining the General
Valuation Allowance risk factors the Bank analyzes various factors including
economic trends, portfolio mix, trends in non- performing assets, classified
assets and restructured assets, fair value exposure and historic loss trends.
To analyze historic losses, the Bank utilizes a loss migration model which
tracks losses over ten quarters. These losses are compared historically to
total loans, and loss factors are determined based on the Bank's historic loss
experience. During fiscal year 1994, as a result of this analysis, the General
Valuation Allowance loss factors were adjusted to reflect these historic
losses. As a result of these adjustments, reduction in the loan portfolio, and
improvement in the mix of classified assets the loan General Valuation
Allowance decreased at June 30, 1994 from June 30, 1993.

Based on the current risk factors inherent in the Bank's loan
portfolio and the results of the analyses performed in conjunction with the
Bank's internal asset review system, the following table represents the
allocation of the general valuation allowance for loan losses at the dates
indicated:

<TABLE>
<CAPTION>
JUNE 30, 1994
-------------------------------------------
LOAN PORTFOLIO ALLOWANCE
PRINCIPAL AS A % OF
BALANCE(1) ALLOWANCE(2) PORTFOLIO
-------------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Residential 1-4 . . . . . . . . . . . . . . . . $198,046 $ 574 0.29%
Multifamily . . . . . . . . . . . . . . . . . . 166,779 7,723 4.63%
Commercial . . . . . . . . . . . . . . . . . . 202,017 5,438 2.69%
Construction . . . . . . . . . . . . . . . . . 6,924 213 3.08%
Equity trust deed . . . . . . . . . . . . . . . 6,279 247 3.93%
Consumer and other . . . . . . . . . . . . . . 14,090 219 1.55%
Mortgage-backed securities -- with recourse . . 45,682 15 0.03%
-------- ------- ----
$639,817 $14,429 2.25%
======== ======= ====
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1993 JUNE 30, 1992
---------------------------------------- ------------------------------------------
LOAN LOAN
PORTFOLIO ALLOWANCE AS PORTFOLIO ALLOWANCE AS
PRINCIPAL A % OF PRINCIPAL A % OF
BALANCE(1) ALLOWANCE(2) PORTFOLIO BALANCE(1) ALLOWANCE(2) PORTFOLIO
---------- ------------ ------------ ---------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Residential 1-4 . . . . . $370,187 $ 952 0.26% $ 394,946 $ 832 0.21%
Multifamily . . . . . . . 200,637 8,306 4.14% 224,878 5,901 2.62%
Commercial . . . . . . . 278,731 7,325 2.63% 324,572 8,553 2.63%
Construction . . . . . . 16,253 642 3.95% 72,715 1,907 2.62%
Equity trust deed . . . . 7,480 218 2.91% 11,504 151 1.31%
Consumer and other . . . 17,270 453 2.62% 23,341 475 2.04%
MBS - with recourse . . . 62,765 55 .09% 40,980 6 0.01%
-------- ------- ---- ---------- ------- ----
$953,323 $17,951 1.88% $1,092,936 $17,825 1.63%
======== ======= ==== ========== ======= ====
</TABLE>

58
<PAGE> 61
<TABLE>
<CAPTION>
JUNE 30, 1991 JUNE 30, 1990
------------------------------------------ -------------------------------------------
LOAN LOAN
PORTFOLIO ALLOWANCE AS PORTFOLIO ALLOWANCE AS
PRINCIPAL A % OF PRINCIPAL A % OF
BALANCE(1) ALLOWANCE(2) PORTFOLIO BALANCE(1) ALLOWANCE(2) PORTFOLIO
---------- ------------ ------------ ---------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Residential 1-4 . . . . . . $ 541,191 $ 882 0.16% $ 719,505 $ 950 0.13%
Multifamily . . . . . . . . 235,269 9,088 3.86% 234,326 3,246 1.39%
Commercial . . . . . . . . 312,940 12,088 3.86% 330,364 4,576 1.39%
Construction . . . . . . . 216,213 8,352 3.86% 326,851 4,528 1.39%
Equity trust deed . . . . . 19,576 73 0.37% 27,219 136 0.50%
Consumer and other. . . . . 38,797 371 0.96% 44,031 526 1.19%
MBS - with recourse . . . . 209,607 210 0.10% 88,089 115 0.13%
---------- ------- ---- ---------- ------- ---
$1,573,593 $31,064 1.97% $1,770,385 $14,077 0.80%
========== ======= ==== ========== ======= ====
</TABLE>
- - - - ------------
(1) Gross of deferred fees, loans in process, discounts/premiums and specific
valuation allowances.
(2) Includes the general valuation allowance for off-balance sheet items such
as letters of credit and loans sold with recourse that are not included
in the portfolio balances.

The following table is a summary of activity in the Bank's valuation
allowance for loan losses:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period . . $20,573 $17,824 $31,064 $14,077 $ 4,914
Provision . . . . . . . . . . . . . 14,350 18,603 6,666 25,127 45,103
Charge-offs, net . . . . . . . . . (9,960) (15,854) (20,206) (8,140) (32,469)
Transfer of specific allowances to
real estate . . . . . . . . . . -- -- 300 -- (3,471)
------- ------- ------- ------- -------
Balance at end of period . . . . . $24,963 $20,573 $17,824 $31,064 $14,077
======= ======= ======= ======= =======
</TABLE>

The total loan valuation allowance increased from $20.6 million to
$25.0 million during fiscal year 1994. The increase was due to the increase in
general valuation allowances reserved against higher level of nonperforming
loans and delinquent loans. The major components of the provisions for loan
losses for fiscal 1994 consisted of $4.4 million for commercial and land
properties and $8.3 million for multifamily properties.

The following table is a summary of activity in the Bank's valuation
allowance for real estate losses:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- --------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period . . $25,378 $30,256 $ 68,807 $ 9,782 $ 715
Provision . . . . . . . . . . . . . 12,757 22,089 25,291 65,567 15,560
Charge-offs, net . . . . . . . . . (18,103) (26,967) (63,542) (6,542) (9,964)
Other . . . . . . . . . . . . . . . -- -- (300) -- 3,471
------- ------- --------- ------- -------
Balance at end of period . . . . . $20,032 $25,378 $ 30,256 $68,807 $ 9,782
======= ======= ======== ======= =======
</TABLE>
The allowance for real estate losses decreased from $30.3 million at
June 30, 1992 to $25.4 million at June 30, 1993 and $20.0 million at June 30,
1994, due to charge-offs which occurred at the time of sale for real estate
owned and upon acquisition of title for in-substance foreclosures. The
provisions for real estate losses totaled $12.8 million for the year ended June
30, 1994 compared to $22.1 million and $25.3 million for the years ended June
30, 1993 and 1992, respectively. The provisions in fiscal 1994 and 1993 were
largely due to the writedown of REO to reflect current fair values based on
sales offers and/or recent appraisals. The provisions in

59
<PAGE> 62
fiscal year 1992 were due largely to projects which Uni-Cal sold or from which
Uni-Cal withdrew during the year. Total provisions for losses at Uni-Cal in
fiscal 1992 were $16.4 million, 90% of which was for single family
developments. The Bank's provisions for REO losses in fiscal 1992 totaled $8.9
million. The Bank's real estate provisions were largely made to increase the
specific allowances on several single family development projects acquired
during fiscal 1992.

Combined charge-offs of loans and real estate, net of recoveries and
realized gains and losses on the sales of real estate by type of collateral are
as follows:

<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)

<S> <C> <C> <C> <C> <C>
One-to-four unit residential . . . $ 3,040 $12,916 $ 64 $ 157 $ 145
Multifamily . . . . . . . . . . . . 9,343 6,891 4,486 1,400 2,431
Commercial . . . . . . . . . . . . 14,440 12,657 43,585 10,366 28,685
Construction . . . . . . . . . . . 36 9,604 35,638 1,262 10,136
Equity trust deed . . . . . . . . . 247 (5) -- 9 857
Consumer and other non-mortgage . . 833 1,154 236 617 631
------- ------- ------- ------- -------
$27,939 $43,217 $84,009 $13,811 $42,885
======= ======= ======= ======= =======
Net realized losses and charge-offs
as a % of net loans and mortgage-
backed securities (1) . . . . . 3.86% 4.53% 7.76% 0.82% 2.19%
==== ==== ==== ==== ====
</TABLE>
______________

(1) Recoveries on consumer and other loans have not been segregated in the
accounts of the Bank due to their immateriality. Commercial loan
recoveries totaled $2.8 million for 1994, $137 thousand for 1993 and
$2.4 million for 1992. Construction loan recoveries totaled $350
thousand in 1992. Recoveries on one-to-four unit residential loans
were $42 thousand, $10 thousand, $182 thousand, $65 thousand, and $106
thousand in fiscal years 1994 through 1990, respectively.

In addition to losses charged against the allowance for loan losses,
the Bank has recorded losses on real estate acquired in settlement of loans by
direct write-off to real estate operations as loss on sale.

As the Bank continues to reduce nonperforming assets either through
sale or restructure, additional provisions for loan and real estate losses may
be incurred. The prices at which properties can be disposed are dependent on
the state of the California and national real estate economies, as well as the
availability of credit and financially viable buyers. The Bank's Capital
Restoration Plan provides for the continued disposition or resolution of
problem real estate assets. Under current conditions in the real estate
markets, such efforts will likely result in significant additional real estate
losses which could substantially deplete the existing capital of the Company
and the Bank.

REAL ESTATE HELD FOR INVESTMENT, DEVELOPMENT OR SALE

Real estate held for investment, development or sale at June 30, 1994
and June 30, 1993 is comprised of the real estate remaining from the Bank's
branches that have been sold and Uni-Cal's wholly-owned investments and net
equity in joint ventures. At June 30, 1994, real estate held for investment,
development or sale totaled $713 thousand compared to $1.9 million at June 30,
1993 and $9.5 million at June 30, 1992. The assets transferred to the Bank are
classified as real estate acquired from settlement of loans, as the Bank
previously had loans to the respective joint venture partnerships. Another
factor in the decrease in real estate investments was the decision by the Bank
to discontinue funding two large single family joint ventures in Riverside
County, California. Uni-Cal withdrew from the partnerships due to the internal
evaluation that the Company would not be

60
<PAGE> 63
able to recover its investments without additional capital contributions, and
that additional real estate investments would not be made.

NON-INTEREST INCOME

Non-Interest income consists of loan servicing fees, net of
amortization of capitalized loan servicing assets, loan fees, gains on sales of
loans and mortgage-backed securities, gain on sale of loan servicing, gain on
sales of investment securities held for sale, and other income.

Loan servicing fees, net of amortization of servicing assets, were
$893 thousand in fiscal 1994 as compared to $230 thousand in fiscal 1993 and
$1.0 million in fiscal 1992. The decrease in loan servicing fees in fiscal
1992 and 1993 is due to a higher than anticipated level of prepayments
resulting from the current lower interest rate environment and a lower level of
loans serviced for others as a result of the sale of loan servicing.

Gains on sales of loans and loan servicing assets were $919 thousand
in fiscal 1994 compared to $4.1 million and $6.1 million in 1993 and 1992,
respectively. The significant gain in fiscal 1992 is due to a higher amount of
loans and MBS sold as well as the sale of loan servicing. During the fourth
quarter of fiscal 1992, the Bank sold its portion of securities obtained in
exchange for loans with an investment banking firm at a price of approximately
$103 million for a gain of $1.1 million. During the year, the Bank also sold
loans of $421 million for a gain of $6.7 million. The increased level of real
estate loan and MBS sales is part of the Bank's overall strategy of restricting
asset growth in order to achieve capital compliance and to comply with
regulatory operating restrictions. The level of gains in the future is
dependent upon the competitive environment and the level and direction of
market interest rates. At June 30, 1993, the portfolio of mortgage-backed
securities consisted primarily of securities obtained through exchanges of
loans for mortgage-backed securities ("securitization of loans") with the
Federal National Mortgage Association ("FNMA") and the Government National
Mortgage Association ("GNMA"). By securitizing portions of its loan portfolio,
the Bank has enhanced its funding flexibility, since securitized loans can be
pledged as collateral for lower-cost secured borrowings, such as reverse
repurchase agreements.

The Bank sold servicing totaling $511.8 million and $177.1 million in
fiscal 1994 and 1993, respectively, and generated gains amounting to $928
thousand and $2.1 million in fiscal 1994 and in fiscal 1993, respectively. The
Bank sold a substantial portion of the loan servicing portfolio in September
1993, and has been selling the majority of retained loan servicing generated
from current loan production in order to extract currently the full economic
value for its loan origination activity.

For the year ended June 30, 1994, net losses from sale of investment
securities and mortgage-backed securities held for sale totaled $1.2 million
compared to gains of $3.5 million and $5.0 million for the years ended June 30,
1993 and 1992. In the March 1994 quarter, the Bank incurred a realized loss of
$2.1 million from the sale of securities in the "held for sale" portfolio.
This loss, together with a $400 thousand write-down of additional investment
securities to their fair value at March 31, 1994, followed the change in
direction of interest rates as the Federal Reserve Bank acted to tighten
credit.

Non-interest expense consists of general and administrative expense,
real estate operations, net, and core deposit intangible amortization. General
and administrative expenses, which consist of compensation and related
expenses, premises and occupancy, SAIF insurance premiums, other operating
expense, and other general and administrative expense, decreased to $29.0
million for the fiscal year ended June 30, 1994, from $30.9 million and $36.3
million for the fiscal years ended June 30, 1993 and June 30, 1992,
respectively. The Company commenced an aggressive plan to reduce general and
administrative (G&A) expenses in the spring of 1991. Actions taken by
management to reduce G&A expenses resulted in savings of $1.9 million and $5.4
million in fiscal years 1994 and 1993, respectively. These initial actions
included a salary freeze covering all employees effective in March 1992, and
the curtailment in December, 1991 of the Company's defined benefit pension
plan, which generated annual savings of approximately $300 thousand. In
addition, the Company has reduced its costs under its service bureau contract,
restructured certain facilities leases with lower payments, sublet excess
facilities

61
<PAGE> 64
space and achieved additional price reductions from key suppliers. However,
the continuing high levels of classified assets and costs associated with
working out troubled loans and real estate did not permit reductions in general
and administrative expense to the extent contemplated in the Bank's strategic
plan for 1994. Additional expense reductions have been implemented since June
30, 1994 to reduce current operating expense for mortgage loan origination
activities in response to current and anticipated market conditions.
Management plans to implement further expense reductions in all areas of Bank
operations as opportunities arise. However, this effort may be impaired by the
high cost of real estate asset disposition and regulatory procedural
compliance.

The ratio of general and administrative expenses to average assets was
2.91% in fiscal 1994 compared to 2.18% and 1.93% for fiscal year 1993 and 1992,
respectively. The ratios increased between periods reflect the lower level of
average total assets.

Real estate operations, net, consist of revenues and expenses of REO,
together with real estate held for investment, development or sale. In 1990,
the Company ceased undertaking any new real estate investment and development
projects. Since 1991, the Company has been winding down and disposing of its
real estate investment and development properties, and has incurred substantial
real estate losses. For fiscal year ended June 30, 1994, real estate
operations, net resulted in a loss of $15.7 million, compared to $27.3 million
and $33.8 million for fiscal years 1993 and 1992, respectively. These losses
were due to the provisions for real estate losses and net expenses of the
Bank's REO and in-substance foreclosed properties described above.

INCOME TAX BENEFITS

The Company has utilized net operating losses for income tax purposes
for all periods through September 30, 1992. In December, 1992 the Company
recorded a tax benefit of approximately $6 million upon receipt of refunds of
taxes paid in prior years. No further income tax benefits can be recognized
until operations of the Company result in additional taxable income. The
effective tax rates for tax benefits reflected in the Company's financial
statements give effect to the timing of realization of tax refunds. For the
fiscal years 1994, 1993, and 1992, the respective effective tax rates were
0.01%, (15.7%) and (26.5%).

At June 30, 1994, the Company had unused net operating losses for
federal income tax and California franchise tax purposes of $50 million and $49
million, respectively. On August 5, 1994, the Company incurred an "ownership
change" within the meaning of Section 382 of the Internal Revenue Code
("Section 382"). Section 382 generally provides that if a corporation
undergoes an ownership change, the amount of taxable income that the
corporation may offset after the date of the ownership change (the "change
date") with net operating loss carryforwards and certain built-in losses
existing on the change date will be subject to an annual limitation. In
general, the annual limitation equals the product of (i) the fair market value
of the corporation's equity on the change date (with certain adjustments) and
(ii) a long-term tax exempt bond rate of return published by the Internal
Revenue Service.

The Section 382 limitation will not have a material impact on the
financial statements of the Company as the Company has not utilized any net
operating losses to offset the reversal of taxable temporary differences.
Although the Section 382 limitation will affect the Company's ability to
utilize its net operating loss carryovers and certain recognized built-losses,
any income tax benefits attributable to those net operating loss carryovers and
recognized built-losses will not be available until operations of the Company
result in additional taxable income. The amount of the Section 382 limitation
for the Company has not yet been determined.

62
<PAGE> 65

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . 64

Consolidated Statements of Financial Condition as
of June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 65

Consolidated Statements of Operations for the
three years ended June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . 66

Consolidated Statements of Changes in
Stockholders' Equity for the three years ended
June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Consolidated Statements of Cash Flows for the
three years ended June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . 68

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 70
</TABLE>

<PAGE> 66
The Board of Directors and Stockholders
UnionFed Financial Corporation:

We have audited the accompanying consolidated statements of financial condition
of UnionFed Financial Corporation and subsidiaries (the Company) as of June 30,
1994 and 1993 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended June 30, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on the results of
our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of UnionFed Financial
Corporation and subsidiaries as of June 30, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1994, in conformity with generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 12 to
the consolidated financial statements, the prompt corrective action provisions
of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
place restrictions on any insured depository institution that does not meet
certain requirements, including minimum capital ratios. These restrictions are
based on an institution's FDICIA defined capital category and become
increasingly more severe as an institution's capital category declines. Union
Federal Bank, a federal savings bank (the Bank) and wholly owned subsidiary of
the Company, was deemed "undercapitalized" based upon the Bank's capital
position at June 30, 1994. The Bank has filed a capital restoration plan with
the Office of Thrift Supervision outlining its plans for attaining the required
levels of regulatory capital and that plan has not as yet been approved by the
Office of Thrift Supervision. Because the Bank does not meet the minimum
capital thresholds to be considered "adequately capitalized," it is subject to
certain operating restrictions such as growth limitations, prohibitions on
dividend payments and increased supervisory monitoring by its primary federal
regulator. Failure to increase its capital ratios in accordance with its
capital restoration plan or further declines in its capital ratios as a result
of continued operating losses, such that it becomes "significantly
undercapitalized" or "critically undercapitalized" exposes the Bank to
additional restrictions and regulatory actions, including limitations on
executive compensation, restrictions on deposit interest rates and regulatory
take-over. These matters raise substantial doubt about the Company's ability
to continue as a going concern. The ability of the Company to continue as a
going concern is dependent upon many factors, including regulatory action and
the ability of management to achieve its capital restoration plan.
Management's plans in regard to these matters are described in Note 12 to the
consolidated financial statements. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.

As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes" in
1994.

KPMG PEAT MARWICK LLP

Los Angeles, California
July 29, 1994, except for Notes 11 and 12
to the consolidated financial statements
which are as of August 5, 1994 and
September 15, 1994, respectively.

64
<PAGE> 67

UNIONFED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------
1994 1993
-------- ----------
(DOLLARS IN THOUSANDS EXCEPT
SHARE AND PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash........................................................................... $ 35,091 $ 32,798
Overnight funds sold........................................................... 3,000 3,000
U.S. Government and agency obligations held for sale, at amortized
cost (estimated market value of $54,989 (1993)).......................... -- 54,552
U.S. Government and agency obligations and other securities at
amortized cost (estimated market value of $61,407 (1994) and
$8,522 (1993))........................................................... 62,119 8,184
Mortgage-backed securities, net (estimated market value of $153,733
(1994) and $17,669 (1993)).............................................. 157,783 18,176
Mortgage-backed securities, net, held for sale, at the lower of cost or
market value (estimated market value of $73,030 (1993)).................. -- 72,532
Loans receivable, net of allowance for losses of $24,963 (1994) and
$20,573 (1993)........................................................... 635 690,877
Loans held for sale (estimated market value of $45,320 (1994) and
$173,626 (1993))......................................................... 45,320 173,305
Interest receivable............................................................ 6,524 6,889
Real estate, net............................................................... 39,947 56,887
Investment in Federal Home Loan Bank stock, at cost............................ 5,419 6,643
Premises and equipment, net.................................................... 18,051 21,542
Other assets................................................................... 9,087 16,560
-------- ----------
$903,976 $1,161,945
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Savings deposits......................................................... $847,957 $ 845,882
Savings deposits at retail banking offices held for sale................. -- 176,164
FHLB advances and other borrowings....................................... 15,464 104,823
Accounts payable and accrued liabilities................................. 3,180 15,276
Deferred income taxes.................................................... 2,690 2,758
-------- ----------
Total liabilities............................................... 869,291 1,144,903
-------- ----------
Commitments and contingencies.................................................. -- --
Stockholders' equity
Preferred stock--par value $.01 per share; authorized, 1,000,000
shares, issued and outstanding, none............................... -- --
Common stock--par value $.01 per share; authorized, 60,000,000
shares, issued and outstanding, 27,201,993 shares (1994)
and 755,950 shares (1993).......................................... 272 51
Additional paid-in capital............................................... 107,943 65,490
Accumulated deficit...................................................... (73,530) (47,073)
Treasury stock--at cost, 11,100 shares (1993)............................ -- (1,426)
-------- ----------
Total stockholders' equity...................................... 34,685 17,042
-------- ----------
$903,976 $1,161,945
======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.

65
<PAGE> 68

UNIONFED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Interest on loans . . . . . . . . . . . . . . . . . . . . $ 53,104 $ 75,126 $109,143
Interest on mortgage-backed securities . . . . . . . . . 6,093 6,335 22,238
Interest and dividends on investments . . . . . . . . . . 4,937 10,311 11,882
-------- -------- --------
Total interest income . . . . . . . . . . 64,134 91,772 143,263
-------- -------- --------
Interest on savings deposits . . . . . . . . . . . . . . 32,586 49,878 84,787
Interest on borrowings . . . . . . . . . . . . . . . . . 3,711 16,095 29,153
-------- -------- --------
Total interest expense . . . . . . . . . . 36,297 65,973 113,940
-------- -------- --------
Net interest income before provision for estimated
loan losses . . . . . . . . . . . . . . . . . 27,837 25,799 29,323
Provision for estimated loan losses . . . . . . . . . . . 14,350 18,603 6,666
-------- -------- --------
Net interest income after provision for estimated
loan losses . . . . . . . . . . . . . . . . . 13,487 7,196 22,657
-------- -------- --------
Non-interest income:
Loan servicing fee, net of amortization . . . . . . 893 230 1,012
Loan fees . . . . . . . . . . . . . . . . . . . . . 832 1,375 1,918
(Loss)/gain on sales of loans . . . . . . . . . . . (9) 2,019 2,712
Gain on sales of loan servicing . . . . . . . . . . 928 2,100 3,411
(Loss)/gain on sale and mark-to-market of
investment securities and mortgage-backed
securities . . . . . . . . . . . . . . . . . . (1,158) 3,536 5,042
Interest on income tax refund . . . . . . . . . . . -- -- 519
Gain on curtailment of pension plan . . . . . . . . . -- -- 1,843
Other, net . . . . . . . . . . . . . . . . . . . . . 3,984 4,496 2,059
-------- -------- --------
Total non-interest income . . . . . . . . . 5,470 13,756 18,516
-------- -------- --------
Non-interest expense:
General and administrative expense:
Compensation and related expenses . . . . . . . 12,160 13,363 15,241
Premises and occupancy . . . . . . . . . . . . . 4,251 5,191 5,869
SAIF insurance premium . . . . . . . . . . . . 2,918 2,793 3,513
Office operating expense . . . . . . . . . . . . 6,651 6,534 6,969
Other general and administrative . . . . . . . . 3,026 3,029 4,736
-------- -------- --------
Total general and administrative expense . . 29,006 30,910 36,328
Real estate operations, net . . . . . . . . . . . . . 15,743 27,277 33,770
Core deposit intangible amortization . . . . . . . . 662 845 1,181
-------- -------- --------
Total non-interest expense . . . . . . . . . 45,411 59,032 71,279
-------- -------- --------
Loss before income tax expense/(benefit) . . (26,454) (38,080) (30,106)
Income tax expense/(benefit) . . . . . . . . . . . . . . . 3 (5,996) (7,978)
-------- -------- --------
Net loss . . . . . . . . . . . . . . . . . . $(26,457) $(32,084) $(22,128)
======== ======== ========
Net loss per common share . . . . . . . . . . . . . . . . . $ (1.28) $ (43.07) $ (29.70)
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

66
<PAGE> 69

UNIONFED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
THREE YEARS ENDED JUNE 30, 1994
-------------------------------------------------------------------
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTAL
------ ---------- --------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1991 . . . . . . . . . $ 51 $ 65,490 $ 7,139 $(1,426) $ 71,254
Net loss . . . . . . . . . . . . . . . . . -- -- (22,128) -- (22,128)
---- -------- -------- ------- --------
BALANCE AT JUNE 30, 1992 . . . . . . . . . 51 65,490 (14,989) (1,426) 49,126

Net loss . . . . . . . . . . . . . . . . . -- -- (32,084) -- (32,084)
---- -------- -------- ------- --------
BALANCE AT JUNE 30, 1993 . . . . . . . . . 51 65,490 (47,073) (1,426) 17,042

Issuance of 26,457,143 shares of
Common Stock . . . . . . . . . . . . . 221 43,879 -- -- 44,100

Treasury Stock Retired . . . . . . . . . . -- (1,426) -- 1,426 --

Net Loss . . . . . . . . . . . . . . . . . -- -- (26,457) -- (26,457)
---- -------- -------- ------- --------

BALANCE AT JUNE 30, 1994 . . . . . . . . . $272 $107,943 $(73,530) $ -- $ 34,685
==== ======== ======== ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

67
<PAGE> 70

UNIONFED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1994 1993 1992
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss).................................................. $ (26,457) $ (32,084) $ (22,128)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Net decrease in loan fees and discounts............... (428) (2,018) (2,870)
Depreciation and amortization......................... 2,519 2,972 5,837
Provisions for loan and real estate losses............ 27,107 40,692 31,957
(Gain)/Loss on sale and write-down of
investment securities and mortgage-
backed securities, net........................... 1,158 (3,536) (5,042)
Loss/(Gain) on sales and write-down of Loans.......... 9 (2,019) (2,712)
Gain on sales of loan servicing....................... (928) (2,100) (3,411)
Loss/(Gain) on sales of real estate................... 2,986 (285) 263
Gain on sales of branches............................. (1,496) (1,315) --
Federal Home Loan Bank stock dividends................ (267) (273) (1,333)
Proceeds from sales of investment securities held
for sale........................................... 24,284 170,053 --
Purchases of investment securities held for sale...... -- (118,855) --
Purchases of mortgage-backed securities
held for sale................................... (82,313) (154,427) --
Loans originated and purchased, held for sale......... (206,058) (280,496) (218,194)
Proceeds from sales of mortgage-backed
securities, held for sale.......................... 156,210 285,642 197,077
Proceeds from sales of loans held for sale............ 142,447 30,523 123,906
Proceeds from sale of loan servicing.................. 4,211 5,441 14,646
Purchases of mortgage servicing rights................ -- (1,605) --
Decrease in interest and dividends receivable............... 365 3,413 9,421
(Increase) decrease in income tax refund receivable......... -- 15,726 6,791
(Increase) decrease in prepaid expenses and other assets.... 3,526 1,097 (239)
Decrease in interest payable................................ (354) (2,390) (4,423)
Increase (decrease) in accounts payable and accrued
liabilities.............................................. (11,150) (7,017) (17,352)
Increase (decrease) in deferred income taxes................ (68) 2,758 (2,955)
--------- --------- ---------
Net cash provided by (used in) operating
activities.......................................... 35,303 (50,103) 109,239
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities........... 16,961 207,019 455,562
Purchases of investment securities held for investment...... (40,829) -- (655,573)
Principal reductions on mortgage-backed securities.......... 21,106 16,215 73,634
Principal reduction on loans................................ 112,556 166,957 211,905
Purchases of mortgage-backed securities, held for
investment................................................ (105,844) (14,654) (7,502)
Loans originated, held for investment....................... (26,368) (18,832) (5,484)
Net change in undisbursed loan funds........................ (3,158) (5,251) (19,610)
Proceeds from sales of loans and mortgage-backed
securities, held for investment.......................... -- -- 210,485
Acquisitions of real estate................................. (4,450) (9,809) (5,681)
Proceeds from disposition of real estate.................... 49,671 54,279 76,042
Redemption of FHLB loan stock............................... 1,491 21,613
Branch (sales).............................................. (122) (84,339) --
Other, net.................................................. (894) 6,565 (3,188)
--------- --------- ---------
Net cash provided by investing activities............. 20,120 339,763 330,590
--------- --------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

68
<PAGE> 71

UNIONFED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1994 1993 1992
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits................................... $ (7,871) $(133,373) $(266,944)
Proceeds from short term borrowings........................ 14,525 -- 5,035
Repayment in-short-term borrowings......................... (14,858) (5,653) (90,496)
Repayment of medium-term notes............................. -- (7,000) --
Repayment of long-term borrowings.......................... (2,026) (2,717) (10,709)
Additional FHLB advances................................... 545,000 50,000 --
Proceeds from issuance of common stock..................... 44,100 -- --
Repayments of FHLB advances................................ (632,000) (200,000) (100,000)
--------- --------- ---------
Net cash provided by (used in) financing
activities...................................... (53,130) (298,743) (463,114)
--------- --------- ---------

Net decrease in cash and cash equivalents.................. 2,293 (9,083) (23,285)
Cash and cash equivalents at beginning of period........... 35,798 44,881 68,166
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 38,091 $ 35,798 $ 44,881
========= ========= =========
SALES OF BRANCHES:

Loans and mortgage-backed securities.................... $ 163,719 $ 55,253 $ --
Premises and equipment.................................. 1,471 1,353 --
Excess of cost over net assets acquired................. 38 986 --
Other assets............................................ (36) 117 --
Deposits................................................ (166,218) (142,948) --
Other liabilities....................................... (592) (415) --
Gain on sale............................................ 1,496 1,315 --
--------- --------- ---------
Net cash used by sales of branches, net........... $ (122) $ (84,339) $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid for:
Interest (net of amount capitalized).................... $ 36,651 $ 68,868 $ 126,928
Income taxes............................................ 40 36 51
Non cash investing and financing activities:
Additions to real estate acquired in settlement
of loans.............................................. 45,422 33,833 69,424
Loans exchanged for mortgage-backed securities........... 133,253 159,555 134,850
Loans to facilitate the sale of real estate............. 8,196 10,616 22,113
</TABLE>

See accompanying notes to consolidated financial statements.

69
<PAGE> 72

UNIONFED FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1994, 1993 AND 1992

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of UnionFed
Financial Corporation and its subsidiaries, (the "Company"), which is a holding
company primarily engaged in the financial services business through Union
Federal Bank, a federal savings bank (the "Bank"). The Company is also engaged
in trustee services, insurance agency operations and, previously, real estate
development, through subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain prior year amounts
have been restated to conform to the current year presentation.

Basis of Financial Statement Presentation

The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the balance sheets and operations for the periods. Actual results could differ
significantly from those estimates.

Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses
and the valuation of real estate. Management believes that the allowances
established for losses on loans and real estate are adequate. While management
uses available information to recognize losses on loans and real estate, future
additions to the allowances may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowances for
losses on loans and real estate. Such agencies may require the Company to
recognize additions to the allowances based on their judgments about
information available to them at the time of their examination.

Cash

The Company is required by the Federal Reserve System to maintain
non-interest earning cash reserves against certain of its transaction and term
deposit accounts. At June 30, 1994, the required reserves totaled $1.3
million.

The cash balances noted on the Consolidated Statements of Financial
Condition include restricted cash in trust accounts of $11.3 million and $17.9
million at June 30, 1994 and 1993, respectively.

U.S. Government and Agency Obligations and Other Securities

The Company has identified those U.S. Government and agency obligations
and other securities which may be sold prior to maturity. These securities
have been classified as held for sale on the accompanying consolidated
statements of financial condition and are recorded at the lower of amortized
cost or market value on an aggregate basis by type of asset.

U.S. Government and agency obligations and other securities held for
investment are carried at cost, net of any unamortized discounts or premiums.
Management has the intent and ability to hold the securities until

70
<PAGE> 73

maturity. Discounts and premiums are amortized to interest income on
investments based on the interest method over the term of the security.

Gain or loss on sale of investments is based on the specific
identification method.

Premises and Equipment

Premises and equipment are amortized on a straight-line basis over the
estimated useful lives of the assets. Leasehold improvements are amortized
over the lives of the respective leases or the useful lives of the
improvements, whichever is shorter.

Loans Receivable and Mortgage-Backed Securities Held for Sale

The Company has identified those loans receivable and mortgage-backed
securities ("MBS") which may be sold prior to maturity. These assets have been
classified as held for sale on the accompanying consolidated statement of
financial condition and are recorded at the lower of amortized cost or market
value on an aggregate basis by type of asset. Net unrealized losses are
recognized in a valuation allowance by charges to income. For loans, market
value is calculated on an aggregate basis as determined by outstanding
commitments from investors, or, in the absence of such commitments, the current
market investor yield requirement. Market values for MBS are determined by
financial market quotations which are generally available.

Gain or loss on sale of loans receivable and mortgage-backed securities is
based on the specific identification method.

Loans Receivable and Mortgage-Backed Securities

Loans receivable and mortgage-backed securities are stated at principal
balances net of unearned discounts and premiums, which are accreted or
amortized to interest income using the interest method over the estimated
remaining lives of the loans and securities.

The Company provides an allowance for accrued interest on loans when the
collection of the interest appears doubtful. The allowance is netted against
accrued interest receivable and interest income for financial statement
purposes. It is the Company's general policy to cease the accrual of interest
on any loan when the payment of interest is 90 or more days delinquent or
earlier if the collection of interest appears doubtful. Interest is
subsequently accrued when such loans are brought current and the Company
believes the interest and principal for the loan is collectible.

A loan is classified as a restructured loan when certain modifications,
such as the reduction of interest rates to below market or forgiveness or
deferral of principal payments, are made to contractual terms due to a
borrower's financial condition. Certain restructured loan agreements call for
additional interest or principal to be paid on a deferred or contingent basis.

The Company has originated acquisition, development, and construction
loans ("AD&C loans") with the following characteristics: (1) the borrower has
title to the property but little or no equity in the underlying security and
(2) the Company participates in the profit on the ultimate sale of the project
(the percentage or term of profit participation varies). The Company
recognizes profit on sales when the project is sold to unrelated third parties,
adequate down payment has been received and the collectibility of the sales
price is reasonably assured and the Company is not obligated to perform
significant activities after the sale. During the construction period of
projects securing AD&C loans, interest in excess of the Company's cost of funds
and fees collected on the loans are deferred and are not recognized in income
until sales occur.

71
<PAGE> 74

Allowance for Loan Losses

It is the Company's policy to provide an allowance for estimated losses
on loans when it is probable that the value of the asset has been impaired and
the loss can be reasonably estimated. Various factors will affect the level of
allowances, including economic conditions, trends and previous loss experience.
While management uses currently available information to provide for losses on
loans, future additions to the allowance may be necessary based on future
economic conditions. In addition, the regulatory agencies periodically review
the allowance for loan losses and such agencies may require the Company to
recognize additions to the allowance based on information and factors not
available to management. Additions to the allowance are made by a charge
against operations. Charge-offs are made when loans are considered
uncollectible or are transferred to real estate owned. Recoveries are credited
to the allowance when received.

Loan Origination Fees and Related Costs

The Company defers loan origination fees and related incremental direct
loan origination costs and recognizes the net fee or cost in income using the
interest method over the contractual life of the loans, adjusted for estimated
prepayments based on historical prepayment experience. The amortization of
deferred fees and costs is discontinued on loans that are contractually 90 days
delinquent.

Real Estate

Real estate consists of real estate held for investment or sale, real
estate acquired in settlement of loans and loans accounted for as in-substance
foreclosures. Real estate held for sale or investment is carried at the lower
of cost or fair value. Real estate acquired in settlement of loans or through
deed-in-lieu of foreclosure is recorded at fair value less estimated selling
costs, as supported by independent appraisals, list prices or broker's opinions
of value. Costs, including interest, of holding real estate in the process of
development or improvement are capitalized, whereas costs relating to holding
other property are expensed. The Company utilizes the equity method of
accounting for investments in non-controlled joint ventures. The Company
defers interest income and loan fees from loans to joint ventures equivalent to
its percentage interest in those joint ventures. The recognition of gains on
sale of real estate is dependent upon various factors relating to the nature of
the property sold, the terms of the sale and the future involvement of the
Company.

When there is indication that a borrower no longer has equity in property
collateralizing a loan and it is doubtful that equity will be rebuilt in the
foreseeable future, the property is considered repossessed in-substance
("in-substance foreclosure"). Both in-substance foreclosure and real estate
acquired in settlement of loans are recorded at the lower of the unpaid balance
of the loan at the settlement date or fair value of the collateral.
Subsequently, valuation allowances for estimated losses are provided against
real estate operations income if the carrying value of real estate exceeds
estimated fair value less estimated selling costs. Legal fees, direct costs,
including estimated foreclosure and other related costs, are expensed as
incurred. While management uses currently available information to provide for
losses on real estate, future additions to the allowance may be necessary based
on future economic conditions. In addition, the regulatory agencies
periodically review the allowance for real estate losses and such agencies may
require the Company to recognize additions to the allowance based on
information and factors not available to management.

Costs in Excess of the Fair Value of Net Assets Acquired

Costs in excess of the fair value of net assets acquired less liabilities
assumed in connection with the purchase of branch facilities are generally
being charged to operations over a ten-year period using the straight-line
method. Branch purchase premiums included in other assets amounted to $2.53
million (1994) and $3.23 million (1993).

72
<PAGE> 75

Gains on Sale of Loans and Mortgage-Backed Securities and
Amortization of Loan Servicing Assets

The Company sells loans and participations in loans for cash proceeds
equal to market value of the loans and participations sold with yield rates to
the investors based upon current market rates. Gain or loss on loans sold is
recognized in an amount equal to the difference between the book value of the
loans sold and the sum of the cash proceeds from the sale (net of discounts,
commitment fees paid, and other loan sale costs), plus any capitalized excess
servicing on the loans sold. Capitalized excess servicing is the present value
of any difference between the interest rate charged to the borrower and the
interest rate paid to the purchaser after deducting a normal servicing fee.
Capitalized excess servicing is amortized against loan servicing income using
the interest method over the estimated life of such loans. Adjustments for
unanticipated prepayments and changes in estimated future prepayments are made
if the estimated future net servicing income, computed on a discounted basis,
is less than the balance of capitalized excess servicing. Capitalized excess
servicing included in other assets amounted to $118 thousand (1994) and $2.37
million (1993).

The Company sells loans with servicing retained ( as described above), and
from time to time, purchases and sells loan servicing rights. Purchased loan
servicing rights are amortized in proportion to future loan servicing revenues,
using market prepayment assumptions. PMSRs included in other assets amounted
to $0 (1994) and $1.04 million (1993).

Income Taxes

On February 10, 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 109. "Accounting for
Income Taxes" (SFAS 109), which changes the method of accounting for income
taxes from the deferred method under Accounting Principles Board Opinion No. 11
(APB 11) to the asset and liability method. Under APB 11, amounts accrued for
Federal and California state income taxes are based on income reported in the
consolidated financial statements at current tax rates. Such amounts generally
include deferred taxes resulting from timing differences in the recognition of
income and expenses. Under SFAS 109, deferred tax liabilities are recognized
on all taxable temporary differences (reversing differences where tax
deductions initially exceed financial statement expense, or income is reported
for financial statement purposes prior to being reported for tax purposes). In
addition, deferred tax assets are recognized on all deductible temporary
differences (reversing differences where financial statement expense initially
exceeds tax deductions, or income is reported for tax purposes prior to being
reported for financial statement purposes) and operating loss and tax credit
carryforwards. Valuation allowances are established to reduced deferred tax
assets if it is determined to be "more likely than not" that all or some
portion of the potential deferred tax assets will not be realized. Other
significant changes made by SFAS 109 include: (i) a deferred tax asset may be
recognized for the financial statement general valuation allowance for loans
and REO, while a deferred tax liability must be recognized for that portion of
the tax bad debt reserve exceeding the "base year" reserves, and (ii) current
tax benefits based upon the future implementation of tax planning strategies
should be net of any expenses or losses, and the underlying strategy must be
prudent and feasible. At July 1, 1993, the Company adopted SFAS 109. The
cumulative effect of the adoption of SFAS 109 was not considered material to
the financial statements.

Net Loss Per Share

Net loss per share is based on net loss divided by the weighted average
number of common shares outstanding, including the dilutive effect of
outstanding stock options. After giving effect to the one-for-ten reverse
stock split effective in August, 1993, and the issuance of 26,457,143 shares in
conjunction with the Company's recapitalization in 1993, the number of shares
used in computing net loss per share was 27,201,993 for 1994 and 744,850 for
1993 and 1992.

73
<PAGE> 76

Current Accounting Pronouncements

In May 1993, the FASB issued Statement of Financial Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). Under the
provisions of SFAS 114, a loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. SFAS 114 requires creditors to measure impairment of a loan based
on the present value of expected future cash flows discounted at the loan's
effective interest rate, except that as a practical expedient, a creditor may
measure impairment based on a loan's observable market price, or the fair value
of the collateral if the loan is collateral dependent. If the measure of the
impaired loan is less than the recorded investment in the loan, a creditor
shall recognize an impairment by creating a valuation allowance with a
corresponding charge to bad debt expense. This statement also applies to
restructured loans and narrows the definition of in-substance foreclosures such
that loans probable of foreclosure are accounted for as loans as opposed to
real estate. SFAS 114 applies to financial statements for fiscal years
beginning after December 15, 1994. The initial adoption of SFAS 114 is
required to be accounted for prospectively. The Company is currently
evaluating the impact of the statement on its results of operations and
financial position.

In May 1993, the FASB issued Statement of Financial Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). SFAS 115 requires that investments be classified as "held to maturity,"
"available for sale" or "trading securities." The statement defines
investments in securities as "held to maturity" based upon a positive intent
and ability to hold those securities to maturity. Investments held to maturity
would be reported at amortized cost. Debt and equity securities that are
bought and held principally for the purpose of selling them in the near term
are classified as "trading securities" and would be reported at fair value,
with unrealized gains and losses included in operations. Equity and debt
securities not classified as "held to maturity" or "trading securities" are
classified as "available for sale" and would be recorded at fair value, with
unrealized gains and losses excluded from operations and reported as a separate
component of stockholders' equity, net of tax effect. SFAS 115 is effective
for fiscal years beginning after December 15, 1993. The adoption of SFAS 115
will not have a material effect on the Company's financial statements. The
initial adoption of SFAS 115 is required to be accounted for prospectively.

74
<PAGE> 77

NOTE 2-U.S. GOVERNMENT AND AGENCY OBLIGATIONS AND OTHER SECURITIES

The amortized cost and estimated market value of U.S. Government and
agency obligations and other securities held for sale and investment at June 30
are summarized as follows:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
1994 (DOLLARS IN THOUSANDS)
- - - - ----
<S> <C> <C> <C> <C>
Held for Investment:
U.S. Government and agency obligations . . . . . $62,119 $ -- $(712) $61,407
======= ==== ===== =======

1993
- - - - ----

Held for Sale:
U.S. Government and agency obligations . . . . . $54,552 $472 $ (35) $54,989
======= ==== ===== =======

Held for Investment:
U.S. Government and agency obligations . . . . . $ 8,184 $338 -- $ 8,522
======= ==== ===== =======
</TABLE>

The contractual maturity of U.S. Government and agency obligations and
other investment securities at June 30, 1994, by amortized cost and estimated
market value, are shown below.

<TABLE>
<CAPTION>
AFTER 1 AFTER 5
WITHIN THROUGH THROUGH
1 YEAR 5 YEARS 10 YEARS TOTAL
------ ------- -------- -------
AMORTIZED COST (DOLLARS IN THOUSANDS)
- - - - --------------
<S> <C> <C> <C> <C>
Held for Investment:
U.S. Government and agency obligations . . . . . $6,215 $50,938 $4,966 $62,119
====== ======= ====== =======

ESTIMATED MARKET VALUE
- - - - ----------------------

Held for Investment:
U.S. Government and agency obligations . . . . . $6,210 $50,438 $4,759 $61,407
====== ======= ====== =======
</TABLE>

Accrued interest receivable for investments amounted to $1.5 million
(1994) and $916 thousand (1993). Proceeds, gross realized gains from sales,
and gross realized losses from sales and mark-to-market write-downs of
investment securities were $41 million, $76 thousand and $277 thousand,
respectively in 1994, $170 million, $2.1 million and $1 thousand, respectively
in 1993, and none in 1992.

75
<PAGE> 78

NOTE 3-MORTGAGE-BACKED SECURITIES

The amortized cost and estimated market value of mortgage-backed
securities held for investment or sale at June 30 are summarized as follows:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1994 COST GAINS LOSSES VALUE
- - - - ---- --------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Held for Investment:
GNMA Certificates............................. $106,772 $ -- $(2,269) $104,503
FNMA Certificates............................. 32,783 -- (874) 31,909
FHLMC Certificates............................ 3,205 -- (94) 3,111
Collateralized mortgage obligations........... 14,993 4 (787) 14,210
Mortgage pass-through securities issued by
the Bank..................................... 30 -- (30) --
-------- ---- ------- --------
Total....................................... $157,783 $ 4 $(4,054) $153,733
======== ==== ======= ========
1993
- - - - ----

Held for Sale:
GNMA Certificates............................. $ 34,619 $370 $ -- $ 34,989
FNMA Certificates............................. 32,397 98 (17) 32,478
FHLMC Certificates............................ 5,516 47 -- 5,563
-------- ---- ------- --------
Total MBS Held for Sale..................... $ 72,532 $515 $ (17) $ 73,030
======== ==== ======= ========
Held for Investment:
Collateralized mortgage obligations........... 18,146 8 (485) 17,669
-------- ---- ------- --------
Mortgage pass-through securities issued by
the Bank..................................... 30 -- (30) --
-------- ---- ------- --------
Total MBS Held for Investment............... $ 18,176 $ 8 $ (515) $ 17,669
======== ==== ======= ========
</TABLE>

The weighted average interest rate at June 30 on mortgage-backed
securities giving effect to amortization of discounts and premiums was 6.61%
(1994) and 6.63% (1993). Eighty-nine percent (89%) of the Company's
mortgage-backed securities included in the held for investment portfolio, at
June 30, 1994 had contractual maturities in excess of ten years.

Proceeds, gross realized gains from sales, and gross realized losses from
sales and mark-to-market write-downs of mortgage-backed securities were $156.2
million, $1.9 million and $2.9 million, respectively, in fiscal 1994, $285.6
million, $2.5 million and $689 thousand, respectively, in fiscal 1993 and
$408.1 million, $5.9 million and $839 thousand, respectively, in fiscal 1992.

Accrued interest receivable on mortgage-backed securities amounted to $818
thousand (1994) and $515 thousand (1993).

76
<PAGE> 79

NOTE 4--LOANS RECEIVABLE

Loans receivable and loans held for sale at June 30 are summarized as
follows:

<TABLE>
<CAPTION>
1994 1993
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Held for Investment:
Real estate loans
First trust deed residential loans
One-to-four units . . . . . . . . . . . . . . . . . . . . . . $152,726 $228,888
Five or more units . . . . . . . . . . . . . . . . . . . . . 166,779 199,638
Other real estate loans
Construction . . . . . . . . . . . . . . . . . . . . . . . . 6,924 15,922
Commercial and land . . . . . . . . . . . . . . . . . . . . . 202,017 246,725
Acquisition, development and construction . . . . . . . . . . -- 1,330
Equity trust deed . . . . . . . . . . . . . . . . . . . . . . 6,279 7,480
-------- --------
534,725 699,983
Consumer and other . . . . . . . . . . . . . . . . . . . . . . . . . 14,090 17,270
-------- --------
548,815 717,253
Less
Deferred fees, premiums and discounts . . . . . . . . . . . . 2,051 2,479
Loans in process . . . . . . . . . . . . . . . . . . . . . . 166 3,324
Allowance for estimated losses . . . . . . . . . . . . . . . 24,963 20,573
-------- --------
Total loans receivable held for investment: . . . . . . . . . . . . . . . $521,635 $690,877
======== ========

Held for sale:
First trust deed residential loans . . . . . . . . . . . . . . . $ 45,320 $141,299
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 32,006
-------- --------
Total loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . $ 45,320 $173,305
======== ========

Weighted average interest rate at June 30 giving effect to
yield adjustments . . . . . . . . . . . . . . . . . . . . . . . . 7.28% 7.91%
===== =====
</TABLE>

The Company serviced loans for others totaling $131.6 million (1994),
$545.8 million (1993), and $718.2 million (1992).

77
<PAGE> 80

The following table summarizes the Company's real estate loan and
mortgage-backed securities portfolios by property type, geographic location and
risk concentration at June 30, 1994 (1):

<TABLE>
<CAPTION>
CALIFORNIA FLORIDA MAINE ARIZONA ALL OTHER TOTAL
---------- ------- ----- ------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1-4 unit residential and
mortgage-backed
securities.................. $353,386 $ -- $ -- $4,374 $ 209 $357,969
Multifamily................... 170,931 -- -- -- -- 170,931
Commercial:
Retail...................... 79,093 16,305 -- -- -- 95,398
Land........................ 10,168 -- 8,402 -- 13 18,583
Hotel/motel................. 21,702 3,060 2,145 2,283 6,278 35,468
Mobile home parks........... -- -- -- -- 8,437 8,437
Storage facilities.......... 31,142 -- -- -- -- 31,142
Office...................... 11,944 -- -- -- -- 11,944
Medical/Hospital............ 1,554 -- -- -- -- 1,554
------- ------ ------ ------ ------ --------
Total commercial.......... 155,603 19,365 10,547 2,283 14,728 202,526
------- ------ ------ ------ ------ --------
Construction:
Residential................... 6,924 -- -- -- -- 6,924
------- ------ ------ ------ ------ --------
Totals June 30, 1994.......... $686,844 $19,365 $10,547 $6,657 $14,937 $738,350
======== ======= ======= ====== ======= ========
% of real estate loans........ 93.02% 2.63% 1.43% 0.90% 2.02% 100.00%
====== ===== ===== ===== ===== =======
Total June 30, 1993........... $884,596 $19,460 $12,521 $5,631 $39,119 $961,327
======== ======= ======= ====== ======= ========
% of real estate loans........ 92.02% 2.02% 1.30% 0.59% 4.07% 100.00%
====== ===== ===== ===== ===== =======
</TABLE>

____________

(1) Principal balances before deduction of loans-in-process, deferred
income, discounts, premiums and allowance for losses.

78
<PAGE> 81

Activity in the allowance for estimated losses on loans for the years
ended June 30, 1992, 1993 and 1994 is as follows:

<TABLE>
<CAPTION>
REAL ESTATE CONSUMER TOTAL
LOANS LOANS LOANS
---------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at June 30, 1991 . . . . . . . . . . . . . . . . $ 30,683 $ 381 $ 31,064
Provision for losses . . . . . . . . . . . . . . . . . . 6,590 76 6,666
Charge-offs . . . . . . . . . . . . . . . . . . . . . . (20,689) (295) (20,984)
Recoveries . . . . . . . . . . . . . . . . . . . . . . . 1,054 24 1,078
-------- ------ --------
Balance at June 30, 1992 . . . . . . . . . . . . . . . . 17,638 186 17,824
Provision for losses . . . . . . . . . . . . . . . . . . 17,559 1,044 18,603
Charge-offs . . . . . . . . . . . . . . . . . . . . . . (15,224) (777) (16,001)
Recoveries . . . . . . . . . . . . . . . . . . . . . . . 147 -- 147
-------- ------ --------
Balance at June 30, 1993 . . . . . . . . . . . . . . . . 20,120 453 20,573
Provision for losses . . . . . . . . . . . . . . . . . . 14,167 183 14,350
Charge-offs . . . . . . . . . . . . . . . . . . . . . . (11,975) (424) (12,399)
Recoveries . . . . . . . . . . . . . . . . . . . . . . . 2,439 -- 2,439
-------- ------ --------
Balance at June 30, 1994 . . . . . . . . . . . . . . . . $ 24,751 $ 212 $ 24,963
======== ====== ========

</TABLE>

The aggregate amount of nonaccrual loans receivable that are contractually
past due 90 days or more as to principal or interest and loans that have been
restructured are as follows:

<TABLE>
<CAPTION>
JUNE 30
------------------------
1994 1993
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual . . . . . . . . . . . . . $ 22,125 $ 18,978
======== ========
Restructured . . . . . . . . . . . . $113,676 $162,532
======== ========

</TABLE>

At the end of the year, interest on nonaccrual loans excluded from
interest income was $1.2 million (1994), $2.4 million (1993), and $809 thousand
(1992). Interest on nonaccrual loans at the end of the year included in
interest income was $467 thousand (1994), $1.1 million (1993), and $4.5 million
(1992).

Under the original terms of the restructured loans, interest earned would
have totaled $11.1 million (1994), $12.1 million (1993), and $5.0 million
(1992). Under the restructured terms of the loans, interest income recorded
amounted to $9.9 million (1994), $10.0 million (1993), and $4.0 million (1992).
The Company charged off $675 thousand (1994), $26.8 million (1993), and $32.9
million (1992) in connection with restructured loans.

During 1990, the Company issued letters of credit, which have not been
drawn upon, amounting to $16.9 million. $14.7 million was issued to guarantee
the repayment of mortgage-revenue bonds. The remaining balance is performance
letters of credit with respect to construction loans. The Bank is in the
process of canceling these letters of credit as the loans have been paid in
full. The bonds are collateralized by $18.4 million of mortgage-backed
securities which have a market value of $17.5 million on June 30, 1994.

Accrued interest receivable at June 30 amounted to $4.2 million (1994) and
$6.0 million (1993).

There were no loans receivable from officers and directors at June 30,
1994.

79
<PAGE> 82

NOTE 5 -- REAL ESTATE, NET

Real estate, net at June 30 includes the following:

<TABLE>
<CAPTION>
1994 1993
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real estate held for sale, development or investment, less
accumulated depreciation of $172 (1994) and (1993) . . . . . . . . . . . . $ 2,630 $ 1,750
Real estate acquired in settlement of loans . . . . . . . . . . . . . . . . . 40,783 62,179
In-substance foreclosures . . . . . . . . . . . . . . . . . . . . . . . . . . 16,566 16,968
Investment in joint ventures, including capitalized interest of
$336 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,663
---------- ---------
59,979 82,560
Less allowance for estimated losses . . . . . . . . . . . . . . . . . . . . . 20,032 25,378
Less undisbursed funds on in-substance foreclosures . . . . . . . . . . . . . -- 295
---------- ---------
$ 39,947 $ 56,887
========== =========

</TABLE>

Income/(loss) from real estate operations for the years ended June 30 is
summarized as follows:

<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating loss from unconsolidated joint ventures . . . . . $ (86) $ (217) $ (2,218)
Net loss on sales of real estate and other income . . . . . (2,900) (4,971) (6,261)
Provision for estimated losses . . . . . . . . . . . . . . (12,757) (22,089) (25,291)
-------- -------- --------
$(15,743) $(27,277) $(33,770)
======== ======== ========
Interest capitalized during development . . . . . . . . . . $ -- $ -- $ 1,296
======== ======== ========
</TABLE>

Activity in the allowance for estimated losses on real estate for the
years ended June 30 are as follows:

<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period . . . . . . . . . . . . . . $ 25,378 $ 30,256 $ 68,807
Provision for estimated losses . . . . . . . . . . . . . . 12,757 22,089 25,291
Loss on real estate charged against the allowance . . . . (18,500) (26,967) (65,709)
Transfer of specific loan loss allowances . . . . . . . . -- -- (300)(1)
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . 397 -- 2,167
-------- -------- --------
Balance at end of period . . . . . . . . . . . . $ 20,032 $ 25,378 $ 30,256
======== ======== ========
</TABLE>

____________
(1) Amount represents the transfer of a specific valuation allowance for a
restructured loan from loans to REO.

80
<PAGE> 83

NOTE 6 -- PREMISES AND EQUIPMENT, NET

Premises and equipment, net, consist of the following at June 30:

<TABLE>
<CAPTION>
1994 1993
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
At cost:
Land . . . . . . . . . . . . . . . . . . . . . . $ 4,130 $ 4,130
Office buildings . . . . . . . . . . . . . . . . 14,090 14,018
Leasehold rights and improvements . . . . . . . 6,184 9,794
Furniture and equipment . . . . . . . . . . . . 9,858 10,452
------- -------
34,262 38,394
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . 16,211 16,852
------- -------
$18,051 $21,542
======= =======
</TABLE>

NOTE 7 -- DEPOSITS
A summary of savings deposits by type at June 30 follows:

<TABLE>
<CAPTION>
1994 1993
-------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Money market accounts (weighted average rates of 1.75% (1994) and
2.25% (1993)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $178,966 $ 4,130
Passbook accounts (weighted average rates of 2.00% (1994) and
2.27% (1993)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,303 61,224
Certificates of deposit less than $100,000 (weighted average rates
of 4.33% (1993) and 4.57% (1993)) . . . . . . . . . . . . . . . . . . 589,775 656,572
Certificates of deposit, $100,000 and greater (weighted average rates of
5.33% (1994) and 5.88% (1993)) . . . . . . . . . . . . . . . . . . . 20,913 58,659
-------- ----------
$847,957 $1,022,046
======== ==========
</TABLE>
Brokered deposits included in certificates of deposit above totaled $5.1
million (1994) and $23.0 million (1993). Since the Bank does not meet all of
its regulatory capital requirements, it is not permitted to renew brokered
deposits without regulatory approval. Included above were deposits domiciled
at retail banking offices identified as held for sale which totaled $176.2
million at June 30, 1993.

The weighted average interest rate at June 30 on savings deposits giving
effect to amortization of fees paid to national securities dealers was 3.66%
(1994) and 3.96% (1993).

81
<PAGE> 84

Certificates of deposit are scheduled to mature as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST RATE AMOUNT
------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Year ending June 30
1995.................................................. 4.03% $438,991
1996.................................................. 4.77% 125,937
1997.................................................. 6.68% 26,736
1998.................................................. 5.61% 14,594
1999.................................................. 6.30% 3,245
Thereafter............................................ 6.18% 1,185
----- --------
4.35% $610,688
===== ========
</TABLE>
Deposits of $185 thousand (1994) and $198 thousand (1993) are obtained
from government agencies within California.

A summary of interest expense by deposit type at June 30, follows:

<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Money market accounts...................................... $ 1,189 $ 2,864 $12,865
Passbook accounts.......................................... 3,761 7,385 2,684
Certificates of deposit.................................... 26,997 37,211 62,406
Certificates of deposit, $100,000 and greater.............. 639 2,418 6,832
------- ------- -------
$32,586 $49,878 $84,787
======= ======= =======
</TABLE>

Accrued interest on deposits, which is included in accounts payable and
accrued liabilities, was $383 thousand (1994) and $703 million (1993).

82
<PAGE> 85

NOTE 8--FHLB ADVANCES AND OTHER BORROWINGS

<TABLE>
<CAPTION>
1994 1993
------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FHLB Advances and other borrowings
at June 30 are summarized as follows:
FHLB Advances, with weighted average interest rates of
3.95% (1994) and 6.20% (1993), secured by
real estate loans with an aggregated unpaid
balance of $55.9 million (1994) and $195.0 million (1993),
due on various dates through 1995 . . . . . . . . . . . . . . . . . $13,000 $100,000
Mortgage-backed bonds, net of discounts of $311 (1994) and
$602 (1993) with weighted average interest rates of 10.38%
(1994) and 10.38% (1993), secured by real estate loans
with an aggregate unpaid balance of $3,290 (1994)
and $5,284 (1993), due on various dates through 2012 . . . . . . . 1,933 3,538
Various borrowings due to banks and others, with weighted
average interest rates of 8.00% (1994) and 8.29% (1993)
principally secured by real estate, due on various dates
through 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . 531 1,285
------- --------
Total FHLB advances and other borrowings . . . . . . . . . . . $15,464 $104,823
======= ========
</TABLE>

The weighted average interest rates on FHLB advances and other borrowings
giving effect to amortization of discounts and issue costs were 5.22% (1994)
and 6.72% (1993).

The FHLB advances are collateralized by real estate loans with a carrying
amount of $55.9 million at June 30, 1994. All FHLB advances at June 30, 1994,
had prepayment penalty provisions.

Interest expense on short term borrowings totaled $1.17 million (1994),
$1.38 million (1993), and $2.95 million (1992).

Borrowings are scheduled to mature as follows:

<TABLE>
<CAPTION>
AMOUNT
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Year ending June 30,
1995 . . . . . . . . . . . . . . . . . . . . . . $13,000
Thereafter beyond 1999 . . . . . . . . . . . . . 2,464
-------
$15,464
=======
</TABLE>

NOTE 9--SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

There were no securities sold under agreements to repurchase at June 30,
1994 and 1993.

During 1994 and 1993, securities sold under agreements to repurchase had
an average balance outstanding of $11.6 million and $1.8 million, respectively.
The maximum outstanding at any month-end during 1994 and 1993 was $59.1 million
and $0, respectively. Interest expense on these borrowings totaled $327
thousand (1994), $60 thousand (1993) and $1.47 million (1992). The securities
that underlie the agreements were under the Company's control.

83
<PAGE> 86

NOTE 10--RETIREMENT PLAN

The Company has a defined benefit pension plan (the "Plan") covering
certain employees. The benefits are based on years of service and the
employee's compensation during the last five years of employment. The Plan was
amended to cease benefit accruals as of December 31, 1991, and the Company
recorded income of $1.8 million resulting from the curtailment of the Plan.
The gain reflects the lower projected benefit obligation and was part of the
Company's general and administrative expense review. In 1993 Plan assets other
than a nominal amount for shares of common stock of the Company were
transferred to an investment fund administered by an insurance company.

The following table sets forth the Plans' funded status and amounts
recognized in the Company's statement of financial condition as of June 30:

<TABLE>
<CAPTION>
1994 1993
------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested accumulated benefits . . . . . . . . . . . . . . . . $3,689 $4,129
Non-vested accumulated benefits . . . . . . . . . . . . . . 39 67
-- --
Total accumulated benefits . . . . . . . . . . . . . . . $3,728 $4,196
====== ======
Projected benefit obligation for service rendered to date . . . $3,728 $4,196
Less: Plan assets at fair value -- 1994 and 1993, general
accounts of an insurance company . . . . . . . . . . . . 4,330 5,109
------ ------
Plan assets greater than projected benefit
obligation . . . . . . . . . . . . . . . . . . . . . . . . . 602 913
Items not yet recognized in earnings:
Unrecognized net (gain) loss . . . . . . . . . . . . . . . . 548 153
------ ------
Pension asset included in statement of financial condition . . $1,150 $1,066
====== ======
</TABLE>

The Company incurred a net gain of $84 thousand from the Plan in 1994 and
$93 thousand in 1993. The total expense for the Plan in 1992 was $241,000.

Net pension cost included the following components for the years ended
June 30:

<TABLE>
<CAPTION>
1994 1993
----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest cost on projected benefit obligation . . . . . . . . . $ 281 $ 342
Actual return on assets . . . . . . . . . . . . . . . . . . . . (329) (497)
Net amortization and deferral . . . . . . . . . . . . . . . . . (36) 62
----- -----
Net periodic pension cost (gain) . . . . . . . . . . . . . . . $ (84) $ (93)
===== =====
</TABLE>

Weighted-average discount rates of 8% in 1994 and 1993 and rates of
increase in future compensation levels of 7% were used in determining actuarial
present value of the projected benefit obligation. The expected long-term rate
of return on assets was 8% for all years.

The Company has a non-qualified plan for its directors upon their
retirement (Directors Plan). The plan calls for a lifetime continuation of a
director's fees after a certain period of service. The amount is based on the
amount of fees received during the final year of service.

84
<PAGE> 87

The Company has a non-qualified defined benefit "Supplemental Executive
Retirement Plan" (SERP) for certain of its key employees, the assets of which
are held in trust. During 1993, 1992 and 1991, no contributions were made to
the trust. There was no expense for this plan in 1993 or 1992. The expense
for this plan was approximately $48,000 in 1991.

The following table sets forth the funded status and amounts recognized in
the Company's statement of financial condition as of June 30, 1994, for the
Directors Plan and the SERP.

<TABLE>
<CAPTION>
DIRECTORS
PLAN SERP TOTAL
--------- ----- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Accumulated benefit obligation . . . . . . . . . . . . . $(688) $(718) $(1,406)
Vested accumulated benefit obligation . . . . . . . . . (624) (718) (1,342)

Projected benefit obligation . . . . . . . . . . . . . (746) (794) (1,540)
Plan assets at fair market value . . . . . . . . . . . -- 755 755
----- ----- -------
Projected benefit obligation in excess of plan assets . (746) (39) (785)
Unrecognized net (gain) or loss . . . . . . . . . . . . 26 -- 26
Unrecognized prior service cost . . . . . . . . . . . . -- 392 392
Unrecognized net transition obligation . . . . . . . . 240 -- 240
----- ----- -------
Prepaid (accrued) pension cost . . . . . . . . . . . . $(480) $ 353 $ (127)

Required minimum liability . . . . . . . . . . . . . . . $(688) $ -- $ (688)

Adjustments to reflect minimum liability
Additional Minimum Liability . . . . . . . . . . . . $ 207 $ -- $ 207
Offsetting Intangible Asset . . . . . . . . . . . . 207 -- 207

</TABLE>

Net Pension Cost included the following components for 1994:

<TABLE>
<CAPTION>
DIRECTORS
PLAN SERP TOTAL
--------- ----- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost component . . . . . . . . . . . . . . . . $ 44 $265 $309
Interest cost component . . . . . . . . . . . . . . . . 56 39 95
Amortization of net loss . . . . . . . . . . . . . . . -- -- --
Amortization of unrecognized net transition obligation . 30 -- 30
Prior Service Cost Component . . . . . . . . . . . . . . -- 98 98
---- ---- ----
Total net pension cost . . . . . . . . . . . . . . . . $130 $402 $532
==== ==== ====
</TABLE>

Weighted-average discount rates of 8% in 1994 and 1993 and rates of
increase in future compensation levels of 7% for the supplemental plan and 3%
for the directors plan in 1994 and 1993 were used in determining actuarial
present value of the projected benefit obligation and the Net Pension Cost for
1994. The expected long-term rate of return on assets was 8% for all years.

Effective February 1, 1989, the Bank established a non-leveraged ESOP and
qualified 401(k) plan, covering substantially all employees. Employee
contributions are voluntary, as the employee elects to defer from two to
sixteen percent of base (qualifying) compensation. Prior to December 31, 1991,
deferrals of up to two percent of qualifying compensation were matched by
corresponding Company contributions. Effective January 1, 1992 the maximum
matching percentage is three percent plus one half of one percent contributed
to all

85
<PAGE> 88

participants to encourage participation in the plan. The expense for the plan
was $209,000 (1994), $235,000 (1993), and $162,000 (1992).

NOTE 11--INCOME TAXES

Income taxes for the year ended June 30, 1994, 1993 and 1992 is comprised
of the following:

<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------- ----- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Year ended June 30, 1994
Current . . . . . . . . . . . . . . . $ -- $ 3 $ 3
Deferred . . . . . . . . . . . . . . -- -- --
------- ---- -------
$ -- $ 3 $ 3
======= ==== =======
Year ended June 30, 1993
Current . . . . . . . . . . . . . . . $(6,000) $ 4 $(5,996)
Deferred . . . . . . . . . . . . . . -- -- --
------- ---- -------
$(6,000) $ 4 $(5,996)
======= ==== =======
Year ended June 30, 1992
Current . . . . . . . . . . . . . . . $(5,023) $ -- $(5,023)
Deferred . . . . . . . . . . . . . . (2,955) -- (2,955)
------- ---- -------
$(7,978) $ -- $(7,978)
======= ==== =======
</TABLE>

A reconciliation from expected federal income taxes to consolidated income
taxes using the statutory Federal rate for the periods indicated follows:

<TABLE>
<CAPTION>
1994 1993 1992
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Expected federal income tax benefit . . . . . $(7,740) $(12,947) $(10,236)
Increases (decreases in computed tax
benefit resulting from:
Unused net operating loss . . . . . $ -- $ 6,951 $ 2,800
Change in valuation allowance . . . 7,736 -- --
Other, net . . . . . . . . . . . . 7 -- (542)
------- -------- --------
$ 3 $ (5,996) $ (7,978)
======= ======== ========
</TABLE>

86
<PAGE> 89

The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1994 are presented below:

<TABLE>
<CAPTION>
1994
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Deferred tax assets (tax effected):
Loan valuation allowances. . . . . . . . . $14,133
Net Operating loss . . . . . . . . . . . . 22,113
Other . . . . . . . . . . . . . . . . . . 1,476
-------
Total gross deferred tax assets. . . . . 37,722
Less valuation allowance . . . . . . . . . 34,577
-------
Net deferred tax assets . . . . . . . . 3,145
-------
Deferred tax liabilities (tax effected):
Loan fees . . . . . . . . . . . . . . . . 2,891
FHLB Stock . . . . . . . . . . . . . . . 1,660
Core deposit intangible . . . . . . . . . 714
Other . . . . . . . . . . . . . . . . . 570
-------
Total gross deferred tax liabilities 5,835
-------
Net deferred tax liability . . . . . . $(2,690)
=======
</TABLE>

Under SFAS 109, deferred tax assets are initially recognized for
differences between the financial statement carrying amount and the tax bases
of assets and liabilities which will result in future deductible amounts and
operating loss and tax credit carryforwards. A valuation allowance is then
established to reduce that deferred tax asset to the level at which it is "more
likely than not" that the tax benefits will be realized. Realization of tax
benefits of deductible temporary differences and operating loss or tax credit
carryforwards depends on having sufficient taxable income of an appropriate
character within the carryback and carryforward periods. Sources of taxable
income that may allow for the realization of tax benefits include (1) taxable
income in the current year or prior years that is available through carryback,
(2) future taxable income that will result from the reversal of existing
taxable temporary differences and (3) future taxable income generated by future
operations. As of June 30, 1994 the valuation allowance against deferred tax
assets amounted to $34.6 million. Deferred tax assets as of June 30, 1994 have
been recognized to the extent of the expected reversal of taxable temporary
differences.

87
<PAGE> 90

Prior to July 1, 1993 the Company accounted for income taxes under APB 11,
accordingly deferred income taxes result from timing differences in the
recognition of income and expense for tax and financial statement purposes.
The sources of these timing differences for the years ended June 30, 1993 and
1992 are as follows:

<TABLE>
<CAPTION>
1993 1992
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loan fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (864) $(2,754)
FHLB dividend income . . . . . . . . . . . . . . . . . . . . . . . (2,621) 533
Accrual to cash basis adjustments . . . . . . . . . . . . . . . . . (23) (956)
Gain on sale of loans and amortization of loan servicing assets . . (158) (779)
Provisions for losses on loans and real estate recognized for
income tax purposes . . . . . . . . . . . . . . . . . . . . . . . 2,148 7,900
Net operating loss . . . . . . . . . . . . . . . . . . . . . . . . 1,960 (6,572)
Retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . -- 366
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (442) (693)
------- -------
$ -- $(2,955)
======= =======
</TABLE>

Savings banks that meet certain definitional tests and other conditions
prescribed by the Internal Revenue Code are allowed to deduct, within
limitations, a bad debt deduction computed as a percentage of taxable income
(percentage method) before such deduction. The deduction percentage is 8% for
the years ended June 30, 1994, 1993 and 1992. Alternately, a qualified savings
bank may compute its bad debt deduction based upon actual loan loss experience
(the "Experience Method").

For the tax year ended September 30, 1992, the Company qualified as a
commercial bank for tax purposes. Under certain circumstances and subject to
certain limitations, commercial banks are allowed to carryback net operating
losses over a 10 year period, whereas institutions qualifying as thrift
institutions for tax purposes generally may carryback net operating losses over
a 3 year period. As a result of qualifying as a commercial bank, the Company
was able to carryback its September 30, 1992 federal net operating loss over a
10 year period and is recapturing its tax bad debt reserve over six years
beginning with the year ended September 30, 1992. For the tax year ended
September 30, 1993, the Company requalified as a thrift and is therefore
eligible to use the reserve method of accounting for claiming bad debt
deductions.

At June 30, 1994, the Company had unused net operating losses for federal
income tax and California franchise tax purposes of $50 million and $49
million, respectively. On August 5, 1994, the Company incurred an "ownership
change" within the meaning of Section 382 of the Internal Revenue Code
("Section 382"). Section 382 generally provides that if a corporation
undergoes an ownership change, the amount of taxable income that the
corporation may offset after the date of the ownership change (the "change
date") with net operating loss carryforwards and certain built-in losses
existing on the change date will be subject to an annual limitation. In
general, the annual limitation equals the product of (i) the fair market value
of the corporation's equity on the change date (with certain adjustments) and
(ii) a long-term tax exempt bond rate of return published by the Internal
Revenue Service.

As of June 30, 1994, the Company has certain deferred tax benefits
(generally, expenses or losses recorded in the financial statements which have
not yet reduced the Company's income tax liability) totaling approximately $38
million, of which approximately $23 million are attributable to net operating
loss carryforwards and alternative minimum tax credits and approximately $15
million are attributable to future deductions. The tax attributes associated
with all of the deferred tax benefits may be reviewed and potentially
disallowed by the Internal Revenue Service (the "Service"). In addition, the
ability of the Company to utilize a

88
<PAGE> 91

substantial portion of these tax attributes to reduce the future tax liability
of the Company following the Section 382 ownership change will be subject to
significant limitations under Section 382.

The Section 382 limitation did not have a material impact on the financial
statements of the Company as the Company has not utilized any net operating
losses to offset the reversal of taxable temporary differences. Although the
Section 382 limitation will affect the Company's ability to utilize its net
operating loss carryovers and certain recognized built-losses, any income tax
benefits attributable to those net operating loss carryovers and recognized
built-losses will not be available until operations of the Company result in
additional taxable income. The amount of the Section 382 limitation for the
Company has not yet been determined.

NOTE 12--STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

Since 1990 the Bank has been the subject of significant regulatory
oversight and review by the Office of Thrift Supervision ("OTS") and the
Federal Deposit Insurance Corporation "FDIC"). The Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") and implementing regulations for
"prompt corrective action" provisions effective in 1992 have resulted in
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting and operations.

The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital categories,
in declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." An institution categorized as "undercapitalized" or worse
is subject to certain restrictions, including the requirement to file a capital
plan with its primary federal regulator, prohibitions on the payment of
dividends and management fees, restrictions on executive compensation, and
increased supervisory monitoring, among other things. Other restrictions may
be imposed on the institution either by its primary federal regulator or by the
FDIC, including requirements to raise additional capital, sell assets, or sell
the entire institution.

To be considered "adequately capitalized," an institution must generally
have a leverage ratio of at least 4%, a Tier 1 risk-based capital ratio of at
least 4%, and a total risk-based capital ratio of at least 8%. An institution
is deemed to be "critically undercapitalized" if it has a tangible equity ratio
of 2% or less.

In July 1993, the Bank, which was then "critically undercapitalized,"
became subject to a Prompt Corrective Action Directive (the "Directive") which
required achieving 4% leverage (core), 4% Tier 1 risk-based, and 8% total
risk-based capital ratios by September 23, 1993, and which was subsequently
extended by the OTS to September 30, 1993. The Company completed a
recapitalization equity offering to investors as of September 30, 1993, and
received net proceeds of approximately $44.1 million. As a result of
recapitalization, the Company has 27,201,993 shares of common stock
outstanding, and warrants outstanding through September 30, 1998 for the
purchase of 6,885,721 shares at $2.33 per share. Contribution of this
additional capital by the Company to the Bank raised the capital level of the
Bank to that of an "adequately capitalized" institution, and the OTS Directive
was subsequently terminated.

As a result of the net loss for the year ended June 30, 1994, the Bank's
leverage (core) and total risk-based capital ratios are below regulatory
requirements and the Bank was deemed to be "undercapitalized" as of August 1,
1994 based upon its capital position at June 30, 1994. At June 30, 1994, the
regulatory capital ratios and levels were leverage (core) ratio 3.80%, Tier 1
risk-based ratio 5.74%, risk-based ratio 6.99% and tangible equity ratio 3.53%,
based on leverage capital of $34.3 million, Tier 1 capital of $34.3 million,
total risk-based capital of $41.8 million, and tangible capital of $31.8
million, as defined.

89
<PAGE> 92

The Bank filed a capital restoration plan with the OTS on September 15,
1994, which contemplates that the Bank will pursue all feasible alternatives
for achieving capital compliance, and that plan has not as yet been approved by
the OTS. Failure to increase its capital ratios in accordance with the plan,
or further declines in the Bank's capital ratios such that it becomes
"significantly undercapitalized" or "critically undercapitalized" expose the
Bank to additional restrictions and regulatory actions, including regulatory
takeover. The ability of the Bank to continue as a going concern is dependent
upon many factors, one of which is regulatory action, including the approval of
the capital restoration plan, and the ability of management to achieve its
plan. The accompanying financial statements do not include any adjustments
that might result from the outcome of these uncertainties.

The capital restoration plan includes the following steps to meet the
regulatory capital requirements:

o Consummation by March 31, 1995 of a sale or merger of the Bank
or of its deposit franchise or a recapitalization of the Bank
through one or more equity offerings (which could include a
rights offering).

o Reduction of the Bank's risk profile in order to enhance the
prospects for a successful merger or recapitalization
transaction, primarily through sales of the Bank's classified
assets, which may include a bulk sale of such assets.
However, the Company and the Bank do not intend to implement a
bulk sale of classified assets in the absence of a sale or
merger of the Bank or of a recapitalization transaction. In
addition, the Bank will explore the extent to which a sale or
merger transaction or recapitalization can be completed
without a bulk sale of classified assets. The Bank has
engaged a real estate consulting firm to provide valuation
services and, if requested, assist in locating a buyer or
buyers for both performing and non-performing assets of the
Bank.

The Bank intends to pursue a sale or merger of the Bank and all feasible
alternatives for maximizing value to the Company's stockholders, including the
raising of additional required capital. The nature of any sale or merger
transaction or the form of any recapitalization transaction may not be
determined for several months. A sale or merger transaction may involve cash
consideration or securities of the acquiror, depending upon market interest. A
recapitalization could be accomplished through a private offering, through a
public offering, through a public offering incorporating a rights offering with
or without stand-by purchasers, or through a combination of transactions. Based
on investor acceptance, the securities involved in a recapitalization could
include common or preferred stock, warrants and debt securities. The
securities could be issued by either the Company or the Bank. The Bank may
retain one or more investment banking firms in connection with the proposed
sale/merger or recapitalization activities.

90
<PAGE> 93

restrictions if it deems such actions necessary. The OTS or the FDIC may
appoint a receiver or conservator for an institution if the institution is
undercapitalized and (i) has no reasonable prospect of becoming adequately
capitalized, (ii) fails to submit a capital restoration plan within the
required time period, or (iii) materially fails to implement its capital
restoration plan.

If the Bank continues to fail to meet its required capital levels, the
operations and future prospects of the Bank will depend principally on
regulatory attitudes and actions at the time, including those of the OTS and
FDIC, within applicable legal constraints. Such failure could result in the
issuance of a cease and desist order or capital directive to the Bank, the
imposition of such operating restrictions as the OTS deems appropriate at the
time, such other actions by the OTS as it may be authorized or required to take
under applicable statutes and regulations and/or the appointment of a
conservator or receiver for the Bank. In the event that the Bank were to
become "critically undercapitalized," it must be placed in receivership or
conservatorship not later than 90 days thereafter unless the OTS and FDIC
determine that taking other action would better serve the purposes of prompt
corrective action. Such determinations are required to be reviewed at 90-day
intervals, and if the Bank remains critically undercapitalized for more than
270 days, the decision not to appoint a receiver would require certain
affirmative findings by the OTS and FDIC regarding the viability of the
institution. An institution is treated as critically undercapitalized if its
ratio of "tangible equity" (core capital plus cumulative preferred stock minus
intangible assets other than supervisory goodwill and purchased mortgage
servicing rights) to total assets is equal to or less than 2%. At June 30,
1994, the Bank's "tangible equity" ratio was 3.53%.

NOTE 13--STOCK OPTION PLAN

In September 1992, the Company established the 1992 Stock Incentive Plan
(the "Incentive Plan"), which has a term of ten years. A total of 1,322,957
shares have been reserved for issuance under the Option Plan. Under the Option
Plan, the Stock Option Committee of the Board of Directors may grant incentive
stock options to persons who provide valuable service to the Company. All
incentive stock options must have an exercise price at least equal to the fair
market value of the Company's common stock at the date of the grant and are
limited to a maximum term of five years. Exercise of options may be subject to
certain conditions as provided in the Option Plan.

A summary of changes in stock options granted under the Incentive Plan
follows:

<TABLE>
<CAPTION>
INCENTIVE STOCK OPTIONS
------------------------------
OPTIONS OUTSTANDING SHARES PER SHARE
------------------- --------- ------------
<S> <C> <C>
June 30, 1993 . . . . . . . . . . -- $ --
Granted . . . . . . . . . . . . . 1,296,000 1.75 - 1.88
Cancelled . . . . . . . . . . . . -- --
--------- ------------
June 30, 1994 . . . . . . . . . . 1,296,000 $1.75 - 1.88
========= ============
</TABLE>

At June 30, 1994 no incentive options were exercisable.

Prior to September 30, 1993 the Company had in place the 1984 Stock Option
Plan. This plan was terminated in conjunction with the recapitalization of the
Company in September 1993.

91
<PAGE> 94

NOTE 14--COMMITMENTS AND CONTINGENCIES

Litigation

The Company and its subsidiaries are involved in certain litigation
concerning various transactions entered into during the normal course of
business. Management does not believe that settlement of such litigation will
have a material effect upon the financial condition of the Company.

Lease Commitments

The Company has agreements to lease certain office facilities for varying
periods to the year 2006 with options to renew at negotiable amounts. Certain
of these leases provide for cost of living increases as well as payment of
property taxes, insurance and other items. Minimum rental commitments under
noncancelable leases are as follows:

<TABLE>
<CAPTION>
AMOUNT
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Year ending June 30
1995 . . . . . . . . . . . . . . . . . . . . . . . . $1,649
1996 . . . . . . . . . . . . . . . . . . . . . . . . 1,615
1997 . . . . . . . . . . . . . . . . . . . . . . . . 1,360
1998 . . . . . . . . . . . . . . . . . . . . . . . . 1,179
1999 . . . . . . . . . . . . . . . . . . . . . . . . 1,126
Thereafter . . . . . . . . . . . . . . . . . . . . . 2,068
------
$8,997
======
</TABLE>

Net rental payments for office facilities aggregate $664 thousand (1994),
$1.1 million (1993) and $1.3 million (1992).

Financial Instruments with Off-Balance Sheet risk

The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit in the form of
loans or through letters of credit, interest rate caps, and forward
commitments. Those instruments involve to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the statement of
financial condition. The contract or notional amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.

The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. For interest rate
caps transactions and forward commitments, the contract or notional amounts do
not represent exposure to credit loss. The Company controls the credit risk of
its interest rate swap agreements and forward commitments through credit
approvals, limits, and monitoring procedures.

92
<PAGE> 95

Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with credit risk.

<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNT
------------------------
1994 1993
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Financial Instruments whose contract amounts represent credit risk:
Real estate loan commitments . . . . . . . . . . . . . . . . . . . . . $14,020 $ 9,919
Construction loans in process . . . . . . . . . . . . . . . . . . . . 166 3,324
Consumer credit instruments . . . . . . . . . . . . . . . . . . . . . 1,798 4,530
Letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . 14,400 16,939
Loans sold with recourse . . . . . . . . . . . . . . . . . . . . . . . 45,682 62,765

Financial Instruments whose credit risk is less than the notional or
contract amounts:
Forward commitments . . . . . . . . . . . . . . . . . . . . . . . . . 6,306 29,131
Commitments to buy loans . . . . . . . . . . . . . . . . . . . . . . . -- 720
</TABLE>

Commitments to extend credit are agreements to lend to a customer provided
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since certain of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Company upon extension of credit is based
on management's credit evaluation of the borrower.

The Company receives collateral to support commitments for which
collateral is deemed necessary. The most significant categories of collateral
include real estate properties underlying mortgage loans, liens on personal
property and cash on deposit with the Company. At June 30, 1994, the extent of
collateral supporting mortgage and other loans varied from 0% to 100% of the
maximum credit exposure.

Letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public bond financing under municipal loans to
lender programs. The guarantees extend for more than five years and expire
through the year 2000. The credit risk involved in issuing letters of credit
is essentially the same as that involved in making real estate loans to
customers.

Forward commitments to sell mortgage-backed securities and loans are
contracts which the Company enters into in order to reduce the market risk
associated with originating loans for sale. In order to fulfill a forward
commitment, the Company typically delivers loans or exchanges its current
production of loans for mortgage-backed securities which are then delivered to
purchasers (counterparties), national securities firms, at a future date at
prices or yields as specified by the contracts. Risks may arise from the
possible inability of counterparties to meet the terms of their contracts. In
addition, fluctuations in interest rates may affect the ability of the Company
to acquire loans to fulfill the contracts, in which case the Company would
normally purchase securities in the open market to deliver against the
contract. The Company is normally protected from increases in interest rates
to the extent production is available to fulfill the contract. The Company
considers the risk of incurring adverse market price adjustments on open market
purchases to fulfill forward commitments to be immaterial, due to the
relatively small principal amounts and short duration of such contracts.

In 1986 the Company purchased a London interbank rate-based interest rate
cap in reference to $25 million variable rate deposit liabilities in connection
with implementation of certain adjustable rate loan programs

93
<PAGE> 96

offered to customers. The protection fee paid to the counterparty was
amortized to expense over an 81-month period ending in 1992.

NOTE 15 -- FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS No. 107"), requires the Company to
disclose estimated values for its financial instruments. Fair value estimates
are made at a specific point in time based upon relevant market information and
other information about the financial instrument. The estimates do not
necessarily reflect the price the Company might receive if it were to sell at
one time its entire holding of a particular financial instrument. Because no
active market exists for a significant portion of the Company's financial
instruments, fair value estimates are based upon the following methods and
assumptions, some of which are subjective in nature. Changes in assumptions
could significantly affect the estimates.

Cash, Overnight Funds Sold, Securities Purchased Under Resale Agreements,
and Interest Receivable and Interest Payable

The carrying amounts reported in the balance sheet for these items
approximate fair value.

Investment Securities Including Mortgage-Backed Securities

Fair values are based upon bid prices published in financial newspapers or
bid quotations received from securities dealers.

Loans Receivable

For residential mortgage loans, fair value is estimated based upon market
prices obtained from readily available market quote systems. The remaining
portfolio was segregated into those loans with variable rates of interest and
those with fixed rates of interest. For all other variable rate loans which
reprice frequently, fair values approximate carrying values. For all other
fixed rate loans, fair values are based on discounting future contractual cash
flows using the current rate offered for such loans with similar remaining
maturities and credit risk.

Deposits

The fair value of deposits with no stated maturity such as regular
passbook accounts, money market accounts, and NOW accounts, is defined by SFAS
No. 107 as the carrying amounts reported in the balance sheet. The fair value
of deposits with a stated maturity such as certificates of deposit is based on
discounting future contractual cash flows by the current rate offered for such
deposits with similar remaining maturities.

Borrowings

For short-term borrowings, fair value approximates carrying value. The
fair value of long term borrowings is based on their interest rate
characteristics. For variable rate borrowings, fair values approximate
carrying values. For fixed rate borrowing, fair value is based on discounting
future contractual cash flows by the current rate paid on such borrowings with
similar remaining maturities.

Off Balance Sheet Financial Instruments

The fair values of commitments to extend credit and standby letters of
credit are estimated using the fees currently charged to enter into similar
agreements taking into consideration the remaining terms of the agreements

94
<PAGE> 97

and the creditworthiness of the counterparties. The fair values of loans in
process is determined in the same manner as described for loans receivable.
The fair value of commitments to sell loans and mortgage-backed securities are
based upon bid quotations received from securities dealers. The fair value of
loans sold with recourse represents the amount the Company would be required to
pay an independent entity to assume the recourse obligation. It is determined
by the risks associated with the portfolio.

Based on the above methods and assumptions, the following table presents
the estimated fair value of the Company's financial instruments at June 30,
1994:

<TABLE>
<CAPTION>
Carrying Estimated
ASSETS: Amounts Fair Value
------- ----------
(Dollars in thousands)
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,091 $ 35,091
Overnight funds sold . . . . . . . . . . . . . . . . . . . . . 3,000 3,000
Government and agency obligations and other securities
at amortized cost . . . . . . . . . . . . . . . . . . . . . 62,119 61,407
Mortgage-backed securities, net . . . . . . . . . . . . . . . 157,783 153,733
Loans receivable, net . . . . . . . . . . . . . . . . . . . . 566,955 563,878

LIABILITIES:
Deposits:
Money market accounts . . . . . . . . . . . . . . . . . . . 178,966 178,966
Passbook accounts . . . . . . . . . . . . . . . . . . . . . 58,303 58,303
Certificates of deposit . . . . . . . . . . . . . . . . . . 610,688 613,335
Borrowings:
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . 13,000 13,000
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . 2,464 2,695

OFF BALANCE SHEET INSTRUMENTS:
Real estate loan commitments . . . . . . . . . . . . . . . . . 14,020 14,271
Construction loans in process . . . . . . . . . . . . . . . . 166 166
Consumer credit instruments . . . . . . . . . . . . . . . . . 1,798 1,798
Letters of credit . . . . . . . . . . . . . . . . . . . . . . 14,400 14,400
Loans sold with recourse . . . . . . . . . . . . . . . . . . . 45,682 640
Forward commitments . . . . . . . . . . . . . . . . . . . . . 6,306 6,306
Commitments to buy loans . . . . . . . . . . . . . . . . . . . -- --
</TABLE>

95
<PAGE> 98

NOTE 16--PARENT COMPANY FINANCIAL INFORMATION

This information should be read in conjunction with the other Notes to
Consolidated Financial Statements.

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
JUNE 30
-------------------------
1994 1993
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash.............................................................................. $ 143 $ 321
Investment in subsidiaries........................................................ 34,407 16,724
Other assets...................................................................... 135 --
-------- --------
34,685 $ 17,045
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities................................................................. $ -- $ 3
Common stock...................................................................... 272 51
Additional paid-in capital........................................................ 107,943 65,490
Accumulated deficit............................................................... (73,530) (47,073)
Less treasury stock............................................................... -- (1,426)
-------- --------
34,685 $ 17,045
======== ========
</TABLE>

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30
----------------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income from subsidiary............................ $ -- $ 12 $ 25
Other (income) expense..................................... 40 65 (28)
Income taxes............................................... -- 1 83
-------- -------- --------
Loss before equity in loss of subsidiary................... (40) (54) (30)
Equity in loss of subsidiary............................... (26,417) (32,030) (22,098)
-------- -------- --------
Net loss for the year................................. $(26,457) $(32,084) $(22,128)
======== ======== ========
</TABLE>

96
<PAGE> 99

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30
------------------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Cash Flows from Operating Activities:
Net loss............................................... $(26,457) $(32,084) $(22,128)
Adjustments to reconcile net loss to cash
provided by operating activities:
Equity in net loss of subsidiary....................... 26,417 32,030 22,098
Other.................................................. (138) (274) 214
-------- -------- --------
Net cash provided (used) by operating activities............ (178) (328) 184
-------- -------- --------
Cash Flows from Investing Activities:
Additional investment in subsidiaries.................. (44,100) -- --
(Increase) decrease in other assets.................... -- 6 304
-------- -------- --------
Net cash provided (used) by investing activities............ (44,100) 6 304
-------- -------- --------
Cash Flows from Financing Activities:
Net proceeds from sale of common stock................. 44,100 -- --
-------- -------- --------
Net cash provided by financing activities................... 44,100 -- --
-------- -------- --------
Net increase (decrease) in cash............................. (178) (322) 488
Cash at beginning of period................................. 321 643 155
-------- -------- --------
Cash at end of period....................................... $ 143 $ 321 $ 643
======== ======== ========
</TABLE>

NOTE 17--LOAN SERVICING AND SALE ACTIVITIES
Loan servicing and sale activities are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Financial condition information:
Loans held for sale............... $ 45,320 $173,305 $ 96,973
======== ======== ========
Statement of operations information:
Loan servicing fees............... 1,445 3,488 7,254
Amortization of excess
servicing fees.................. (552) (3,258) (6,242)
-------- ------- --------
Loan servicing fees, net.......... 893 230 1,012
======== ======== ========
(Loss)/gain on sale of loans...... $ (9) $ 2,019 $ 2,712
======== ======== ========
Statement of cash flows information:
Loans originated for sale......... $206,058 $280,496 $218,194
======== ======== ========
Proceeds from sale of loans....... $142,447 $ 30,523 $123,906
======== ======== ========
</TABLE>

The Bank originates mortgage loans, which depending upon whether the loans
meet the Bank's investment objectives may be sold in the secondary market or to
other private investors. The servicing of these loans may or may not be
retained by the Bank. Indirect non-deferrable origination and servicing costs
for loan servicing and sale activities are not presented as these operations
are integrated with and not separable from the origination and servicing of
portfolio loans.

97
<PAGE> 100

NOTE 18--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
JUNE 30, MARCH 31, DEC. 31, SEPT. 30,
1994 1994 1993 1993
------- -------- ------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net interest income................................ $ 5,611 $ 7,604 $ 7,214 $ 7,408
Provision for estimated loan losses................ 2,500 1,986 4,825 5,039
Non-interest income............................... (316) (1,611) 1,710 5,687
Non-interest expense............................... 12,607 9,324 11,337 12,143
Loss before income taxes........................... (9,812) (5,317) (7,238) (4,087)
Income tax (benefit)/expense....................... -- 2 1 --
Net loss........................................... (9,812) (5,319) (7,239) (4,087)
Net loss per share................................. (0.36) (0.20) (0.28) (3.10)
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
JUNE 30, MARCH 31, DEC. 31, SEPT. 30,
1994 1994 1993 1993
------- -------- ------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net interest income................................ $ 7,331 $ 6,763 $ 6,609 $ 5,096
Provision for estimated loan losses................ 2,705 7,938 4,567 3,393
Non-interest income............................... 2,087 4,671 3,263 3,735
Non-interest expense............................... 18,158 12,414 17,071 11,389
Loss before income taxes........................... (11,445) (8,918) (11,766) (5,951)
Income tax (benefit)/expense...................... -- 3 (5,999) --
Net loss........................................... (11,445) (8,921) (5,767) (5,951)
Net loss per share................................. (15.37) (11.97) (7.74) (7.99)
</TABLE>

98
<PAGE> 101

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The registrant intends to file with the SEC a definitive proxy statement
pursuant to Regulation 14A, which will involve the election of directors,
within 120 days of the end of the fiscal year covered by this Form 10-K (the
"Proxy Statement"). Information regarding directors of UnionFed will appear
under the caption "Election of Directors" in the Proxy Statement for the Annual
Meeting of Stockholders to be held on November 16, 1994 and is incorporated
herein by reference. As required by Instruction 3 to Item 401(b) of Regulation
S-K, information regarding executive officers of UnionFed is contained in Part
I of this report under "Item 4A. Executive Officers of the Registrant."

ITEM 11. EXECUTIVE COMPENSATION.

Information regarding executive compensation will appear under the caption
"Executive Compensation" in the Proxy Statement and is incorporated herein by
this reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information to be included under the captions "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" in the Proxy
Statement is incorporated herein by this reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information to be included under the caption "Certain Transactions" in the
Proxy Statement is incorporated herein by this reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) 1. Financial Statements

These documents are listed in the Index to
Consolidated Financial Statements under
Item 8.

2. Financial Statement Schedules

Financial Statement Schedules have been
omitted because they are not applicable or
the required information is shown in the
Consolidated Financial Statements or Notes
thereto.

99
<PAGE> 102

(b) Reports on Form 8-K during the last quarter
of fiscal year 1994.

None.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1 Registrant's Certificate of Incorporation and Bylaws, as amended to date.***

4.1 Copies of instruments defining the rights of holders of long-term debt of the Company or any of its
subsidiaries are, under Item 601(b)(4)(iii)(A) of Regulation S-K, not required to be filed, but
will be filed upon request of the Securities and Exchange Commission.

4.2 Form of Warrant to Purchase Common Stock.***

10.1 Employment Agreement of David S. Engelman dated as of April 1, 1991.**

10.1.1 Amendment to Employment Agreement of David S. Engelman dated as of December 1, 1993.

10.2 1991 Supplemental Retirement Income Plan.**

10.3 David S. Engelman Participation Agreement for 1991 Supplemental Retirement Income Plan dated as of
April 1, 1991.**

10.4 The UnionFed 1992 Stock Incentive Plan, as amended.

10.5.1 The UnionFed Stock Savings Plan.**

10.5.2 First Amendment to the UnionFed Stock Savings Plan dated June 20, 1991.**

10.5.3 Second Amendment to the UnionFed Stock Savings Plan dated September 13, 1991.**

10.6 Split-Dollar Insurance Agreement between the Company and David S. Engelman dated April 6, 1994.

22 Subsidiaries of the Company.***

27 Financial Data Schedule.
</TABLE>
__________

* Exhibit descriptions followed by a parenthetical reference or
asterisks indicate that the exhibit is incorporated herein by
reference from the described document.
** Filed as an exhibit to UnionFed's 1991 Annual Report on Form 10-K.
*** Filed as an exhibit to UnionFed's 1993 Annual Report on Form 10-K.

100
<PAGE> 103

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

UNIONFED FINANCIAL CORPORATION

By: /s/ DAVID S. ENGELMAN
------------------------------------
David S. Engelman
Chairman of the Board, President
and Chief Executive Officer

DATED: September 27, 1994

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID S. ENGELMAN Director, Chairman of the Board, September 27, 1994
- - - - ----------------------------------- President and Chief Executive Officer
David S. Engelman (Principal Executive Officer)

/s/ STEPHEN J. AUSTIN Senior Vice President, Chief September 27, 1994
- - - - ----------------------------------- Financial Officer and Treasurer
Stephen J. Austin (Principal Financial Officer)

/s/ DONALD L. CRISWELL Director September 27, 1994
- - - - -----------------------------------
Donald L. Criswell

/s/ WILLIAM DONOVAN Director September 27, 1994
- - - - -----------------------------------
William Donovan

/s/ J. DAVID KALL Director September 27, 1994
- - - - -----------------------------------
J. David Kall

/s/ THOMAS P. KEMP Director September 27, 1994
- - - - -----------------------------------
Thomas P. Kemp

Director September __, 1994
- - - - -----------------------------------
Wm. S. Martin, Jr.

/s/ DAVID PRIMUTH Director September 27, 1994
- - - - -----------------------------------
David Primuth

/s/ DALE A. WELKE Director September 27, 1994
- - - - -----------------------------------
Dale A. Welke

/s/ JOHN R. WISE Director September 27, 1994
- - - - -----------------------------------
John R. Wise
</TABLE>

101
<PAGE> 104

INDEX TO EXHIBITS*

EXHIBIT SEQUENTIALLY NUMBERED
NUMBER DESCRIPTION PAGE
- - - - ------ ----------- ----
<S> <C>
3.1 Registrant's Certificate of Incorporation and Bylaws, as amended to date.***

4.1 Copies of instruments defining the rights of holders of long-term debt of the
Company or any of its subsidiaries are, under Item 601(b)(4)(iii)(A) of Regulation
S-K, not required to be filed, but will be filed upon request of the Securities and
Exchange Commission.

4.2 Form of Warrant to Purchase Common Stock.***

10.1 Employment Agreement of David S. Engelman dated as of April 1, 1991.**

10.1.1 Amendment to Employment Agreement of David S. Engelman dated as of December 1,
1993.

10.2 1991 Supplemental Retirement Income Plan.**

10.3 David S. Engelman Participation Agreement for 1991 Supplemental Retirement Income
Plan dated as of April 1, 1991.**

10.4 The UnionFed 1992 Stock Incentive Plan, as amended.

10.5.1 The UnionFed Stock Savings Plan.**

10.5.2 First Amendment to the UnionFed Stock Savings Plan dated June 20, 1991.**

10.5.3 Second Amendment to the UnionFed Stock Savings Plan dated September 13, 1991.**

10.6 Split-Dollar Insurance Agreement between the Company and David S. Engelman dated
April 6, 1994.

22 Subsidiaries of the Company.***

27 Financial Data Schedule.

</TABLE>
__________

* Exhibit descriptions followed by a parenthetical reference or
asterisks indicate that the exhibit is incorporated herein by
reference from the described document.

** Filed as an exhibit to UnionFed's 1991 Annual Report on Form 10-K.

*** Filed as an exhibit to UnionFed's 1993 Annual Report on Form 10-K.

<PAGE> 1

EXHIBIT 10.1.1

AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment to Employment Agreement ("Amendment") is entered into
as of December 1, 1993, by and among UNIONFED FINANCIAL CORPORATION, a Delaware
corporation ("UnionFed"), UNION FEDERAL BANK, a federal savings bank ("Union
Federal") and DAVID S. ENGELMAN ("Executive").

WHEREAS, UnionFed and Union Federal desire to continue to have the
benefits of Executive's knowledge and experience as a full-time employee and
consider such employment a vital element to protecting and enhancing the best
interests of UnionFed, Union Federal and their shareholders, and Executive
desires to continue to be employed full-time with UnionFed and Union Federal;
and

WHEREAS, UnionFed, Union Federal and Executive are parties to an
Employment Agreement entered into as of April 1, 1991 (the "Agreement") which
provides for the employment of Executive on the terms provided for therein; and

WHEREAS, UnionFed, Union Federal and Executive desire to amend the
Agreement to extend the term thereof and amend the provisions of the Agreement
in certain respects as provided for herein;

NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties hereto agree as follows:

1. Term. The "Employment Period" provided for in section 1 of
the Agreement shall be and hereby is extended until June 30, 1997. On or
before July 1, 1995, and annually thereafter on or before each July 1, the
Boards of Directors of UnionFed and Union Federal shall review whether the
employment period shall be extended and the terms of any extension.

2. Duties. The last sentence in section 2 in the Agreement is
hereby deleted as inapplicable following Executive's departure from the Board
of Directors of Commercial Federal Bank.

3. Compensation.

(a) Executive's base salary under Section 3(a) of the Agreement
shall be $300,000 for the fiscal year ending June 30, 1994.

(b) Executive's bonus shall be determined on a fiscal year basis
commencing with the fiscal year ending June 30, 1994 and shall be determined in
accordance with section 3(c) of the Agreement. The last sentence of section
3(c) is amended to read in full as follows:

"The level of Executive's annual bonus in excess of the
minimum guaranteed annual bonus, if any, shall be determined by the
Executive Compensation and Stock Option Committee of UnionFed based
upon the achievement of objective targets and goals to be established
by such committee in consultation with Executive."
<PAGE> 2

(c) In order to permit a review of Executive's compensation,
including bonus, on a fiscal year basis, the last paragraph of section 3 of the
Agreement is hereby amended to read in full as follows:

"The Boards of Directors of UnionFed and Union Federal shall
review the compensation of Executive annually during June to determine
whether an increase is indicated in Executive's compensation for the
upcoming fiscal year. Bonuses for each fiscal year shall be
determined and paid prior to September 1 following the end of the
fiscal year (provided that if audited financial statements are not yet
available such date may be extended to not later than October 1). At
no time during the term of this Agreement shall Executive's annual
compensation be less than the amounts the amounts specified in this
Section 3."

4. Employee Benefits.

(a) Section 4(b) of the Agreement shall be amended to insert the
following sentence as the second sentence thereof:

"In addition to the term life insurance provided to Executive
in accordance with such plans, Executive shall be provided with
$500,000 of whole life insurance on a split dollar premium payment
arrangement with an insurance company acceptable to Executive, with
the terms thereof approved by the Executive Compensation and Stock
Option Committee."

(b) Section 4(c) of the Agreement is amended to add the
following language:

"UnionFed and Union Federal acknowledge that Union Federal
has established its 1991 Supplemental Retirement Income Plan
(the "1991 Plan"), guaranteed by UnionFed, and that UnionFed, Union
Federal and Executive have entered into a Participation Agreement
with respect to Executive's participation in the Plan. UnionFed and
Union Federal acknowledge that Executive has exceeded the number of
Minimum Service Months required by the 1991 Plan and the Participation
Agreement and that Executive currently is vested for certain benefits
as provided in the 1991 Plan and the Participation Agreement."

(c) Section 4(d) of the Agreement is hereby amended to provide
that Executive's automobile allowance shall be $1,000 per month, plus
reasonable reimbursement for mileage driven by Executive in the performance of
his duties hereunder (excluding commuting miles). Such allowance shall be
reviewed annually to determine if any increase is appropriate.

(d) The following new section 4(g) is hereby added to the
Agreement:

"(g) UnionFed and Union Federal shall cause Executive to
be provided legal and/or accounting advice, by professional firms
selected by Executive (or reimburse Executive for expenses incurred),
in connection with Executive's tax planning (including without
limitation income tax, estate and gift tax matters) and preparation of
Executive's tax returns, including federal, state and local returns,
if any, provided, however, that the obligation of UnionFed and Union
Federal hereunder shall not exceed $15,000 in any fiscal year
commencing with the fiscal year ending June 30,1994 and provided,
further, that any amount unused in any fiscal year

2
<PAGE> 3
shall accrue and be available for the benefit of Executive in
subsequent fiscal years during the term of this Agreement and
during the 18 months following the termination of this Agreement
or the termination of Executive's employment, whichever is later."

5. Disability. All references to ninety (90) day disability
periods in section 5(b) of the Agreement are hereby amended to be one hundred
and eighty (180) days.

6. Stock Options. Section 8(a) is hereby amended to read in full
as follows:

"(a) Grant of Stock Options. Executive acknowledges that
he has been granted stock options for 255,000 shares of UnionFed
common stock, with an exercise price of $1.75 per share, and for
34,800 shares at an exercise price of $1.875 per share, in each case
subject to a vesting schedule wherein 25% of such options vest on each
September 28 in the years 1995 to 1998. All options granted to
Executive shall have a ten year term and all shares delivered under
the option grants shall be registered with the Securities and Exchange
Commission."

7. Required Provisions. The following sentence is added to the
end of section 9 of the Agreement:

"Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with
12 U.S.C. Section 1828(k), a copy of which is attached as Exhibit C,
and any regulations promulgated thereunder."

8. Effect on Agreement. Except as modified by this Amendment,
the terms and provisions of the Agreement shall remain in full force and effect
throughout the term of the Agreement.

9. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.

UNIONFED FINANCIAL CORPORATION EXECUTIVE

By: RONALD M. GRIFFITH DAVID S. ENGELMAN
------------------------- -----------------------------
Senior Vice President David S. Engelman
General Counsel

UNION FEDERAL BANK,
a federal savings bank

By: RONALD M. GRIFFITH
-------------------------
Senior Vice President
General Counsel

3
<PAGE> 4
BANKS AND BANKING 12 SECTION 1828

(k) Authority to regulate or prohibit certain forms of benefits to
institution-affiliated parties

(1) Golden parachutes and indemnification payments

The Corporation may prohibit or limit by regulation or order, any
golden parachute payment or indemnification payment.

(2) Factors to be taken into account

The Corporation shall prescribe, by regulation, the factors to be
considered by the Corporation in taking any action pursuant to paragraph
(1) which may include such factors as the following:

(A) Whether there is a reasonable basis to believe that the
institution-affiliated party has committed any fraudulent act or
omission, breach of trust or fiduciary duty, or insider abuse with
regard to the depository institution or depository institution holding
company that has had a material effect on the financial condition of
the institution.

(B) Whether there is a reasonable basis to believe that the
institution-affiliated party is substantially responsible for the
insolvency of the depository institution or depository institution
holding company, the appointment of a conservator or receiver for the
depository institution, or the depository institution's troubled
condition (as defined in the regulations prescribed pursuant to section
1831i(f) of this title.

(C) Whether there is a reasonable basis to believe that the
institution-affiliated party has materially violated any applicable
Federal or State banking law or regulation that has had a material
effect on the financial condition of the institution.

(D) Whether there is a reasonable basis to believe that the
institution-affiliated party has violated or conspired to violate--

(i) section 215, 656, 657, 1005, 1006, 1007, 1014, 1032, or
1344 of Title 18; or

(ii) section 1341 or 1343 of such title affecting a federally
insured financial institution.

(E) Whether the institution-affiliated party was in a position of
managerial or fiduciary responsibility.

(F) The length of time the party was affiliated with the insured
depository institution or depository institution holding company and
the degree to which--

(i) the payment reasonably reflects compensation earned over
the period of employment; and

EXHIBIT C
-----------
Page 1 of 3

<PAGE> 1

EXHIBIT 10.4

UNIONFED FINANCIAL CORPORATION

1992 STOCK INCENTIVE PLAN

1. PURPOSES OF THE PLAN

The purposes of this 1992 Stock Incentive Plan ("Plan") of UnionFed
Financial Corporation, a Delaware corporation (the "Company"), are to enable
the Company and its Subsidiaries to attract, retain and motivate their
officers, directors, key employees and consultants with compensatory
arrangements and benefits that make use of or are measured by Company stock so
as to provide for or increase the proprietary interests of such persons in the
Company and to align their interests with those of the Company's stockholders.

2. PLAN AWARDS

To carry out the purposes of the Plan, the Company will from time to
time enter into various arrangements with persons eligible to participate
therein and confer various benefits upon them. The following such arrangements
or benefits are authorized under the Plan if their terms and conditions are not
inconsistent with the provisions of the Plan: Stock Options, Sales of
Securities, Stock Bonuses, Performance Shares and Performance Units. Such
arrangements and benefits pursuant to the Plan are sometimes referred to herein
as "Awards." The authorized categories of benefits for which Awards may be
granted are defined as follows:

Stock Options: A Stock Option is a right granted under the
Plan to purchase a specified number of shares of Common Stock at such
exercise price, at such times, and on such other terms and conditions
as are specified in the Award. A Stock Option may, but need not, (a)
provide for the payment of some or all of the option exercise price in
cash or by promissory note or by delivery of previously owned shares
(including the technique known as "pyramiding") or other property or
by withholding some of the shares which are being purchased; (b)
include arrangements to facilitate the grantee's ability to borrow
funds for payment of the exercise price; or (c) be an Incentive Stock
Option.

Sales of Securities: A Sale of Securities is a sale under the
Plan of unrestricted shares of Common Stock or of debt or other
securities which are convertible into shares of Common Stock upon such
terms and conditions as may be established in the terms of the Award.

Stock Bonuses: A Stock Bonus is the issuance or delivery of
unrestricted or restricted shares of Common Stock under the Plan as a
bonus for services rendered or for any other valid consideration under
applicable law.

Performance Shares: A Performance Share is an Award that
represents a fixed number of shares of Common Stock which vests at a
specified time or over a period of time in accordance with performance
criteria established in connection with the granting of the Award.
Such criteria may measure the performance of the grantee, of the
business unit in which the grantee is employed, or of the Company, or
a combination of any of the foregoing. The vested portion of the
Award is payable to the grantee either in the shares it represents or
in cash in an amount equal to the Fair Market Value of those shares on
the date of vesting, or a combination thereof, as specified in the
Award.

Performance Units: A Performance Unit is an Award that
represents a fixed amount of cash which vests at a specified time or
over a period of time in accordance with performance criteria
established in connection with the granting of the Award. Such
criteria may measure the performance of
<PAGE> 2
the grantee, of the business unit in which the grantee is employed, or
of the Company or a combination of any of the foregoing. The vested
portion of the Award is payable to the grantee either in cash or in
shares valued at their Fair Market Value on the date of vesting, or a
combination thereof, as specified in the Award.

An Award may consist of one such arrangement or benefit or two or more
of them in tandem or in the alternative. Subject to the provisions of the
Plan, any Award granted pursuant to the Plan may contain such additional terms
and provisions as those administering the Plan for the Company may consider
appropriate. Among other things, any such Award may but need not also provide
for (i) the satisfaction of any applicable tax withholding obligation by the
retention of shares to which the grantee would otherwise be entitled or by the
grantee's delivery of previously owned shares or other property and (ii)
acceleration of vesting, lapse of restrictions, cash settlement or other
adjustment to the terms of the Award in the event of a merger, sale of assets
or change of control of the Company.

3. STOCK SUBJECT TO THE PLAN

The kind and maximum number of shares of stock that may be sold or
issued under the Plan, whether upon exercise of Stock Options or in settlement
of other Awards, shall be 2,645,913 shares of Common Stock (subject to the
adjustments set forth hereinbelow). If the outstanding shares of stock of the
class then subject to the Plan are increased or decreased, or are changed into
or are exchanged for a different number or kind of shares or securities or
other forms of consideration, as a result of one or more recapitalizations,
restructurings, reclassifications, stock splits, reverse stock splits, stock
dividends or the like, appropriate adjustments shall be made in the number
and/or kind of shares or securities or other forms of consideration which may
thereafter be sold or issued under the Plan and for which Awards (including
Incentive Stock Options) may thereafter be granted and for which outstanding
Awards previously granted under the Plan may thereafter be exercised or
settled.

If, on or before termination of the Plan, any shares of Common Stock
subject to an Award shall not be issued or transferred and shall cease to be
issuable or transferable for any reason, or if such shares shall have been
reacquired by the Company pursuant to restrictions imposed on such shares under
the Plan or the terms of an Award, the shares not so issued or transferred and
the shares so reacquired shall no longer be charged against the limitation
provided for in this Section 3 and may be again made the subject of Awards
under this Plan, except as necessary to avoid double counting of shares that
would have been issued pursuant to an expiring tandem Award. The shares of
stock sold or issued under the Plan may be obtained from the Company's
authorized but unissued shares, from reacquired or treasury shares, or from
outstanding shares acquired in the market or from private sources.

4. ADMINISTRATION OF THE PLAN

The Plan shall be administered by the Board of Directors of the
Company (the "Board") or, in the discretion of the Board, a committee appointed
thereby (the "Committee"). Subject to the provisions of the Plan, the Board,
or the Committee, shall have full and final authority in its discretion to
select the eligible persons to whom Awards shall be granted hereunder, to grant
such Awards, to determine the terms and provisions of such Awards and the
number of shares to be sold or issued pursuant thereto. The Board (and the
Committee) shall also be empowered with full and final authority to adopt,
amend, and rescind such rules and regulations as, in its opinion, may be
advisable in the administration of the Plan. The Board or the Committee, as
the case may be, may delegate to Company officers or others its authority with
respect to any Awards that may be granted to employees who are not then
officers of the Company or subject to Section 16 of the 1934 Act, subject to
applicable legal requirements. The interpretation and construction by the
Board or the Committee of any term or provision of the Plan or of any Award
granted thereunder shall be final and binding upon all participants in the
Plan.

2
<PAGE> 3
Pursuant to the authority described above, the Board or the Committee
may adopt such amendments to, and rules and regulations governing, the Plan as
may be considered advisable for purposes of compliance with applicable federal
or state securities laws.

5. PERSONS ELIGIBLE TO PARTICIPATE

Directors, officers and key employees of the Company and its
Subsidiaries shall be eligible for the grant of Awards under the Plan at the
discretion of the Board or Committee provided, however, that no Incentive Stock
Options may be granted to any person who is not an employee of the Company.
Non-employee consultants to the Company or its Subsidiaries who are deemed by
the Board or Committee to be of such significance to the Company or its
Subsidiaries that grants of Awards hereunder are appropriate and in the
interest of the Company shall also be eligible on an ad hoc basis for the grant
of Awards hereunder, except that no Incentive Stock Options may be granted to
non-employee consultants.

6. PLAN EFFECTIVENESS AND DURATION

The Plan shall become effective as of the date of its approval by the
Board, and shall continue (unless earlier terminated by the Board) until its
expiration as set forth below; provided, that this Plan shall be submitted for
the approval of each class of capital stock eligible to vote on matters
submitted to a vote of the Company's stockholders as soon as reasonably
practicable; and provided further that any Awards granted prior to such
stockholder approval shall be considered subject to such approval. Unless
previously terminated, the Plan will expire ten years after its effective date,
but such expiration shall not affect any Award previously made or granted which
is then outstanding.

7. SECTION 16 PERSONS

Notwithstanding any other provision herein, any Award granted
hereunder to an officer or director of the Company who is then subject to
Section 16 of the 1934 Act shall be subject to the following limitations:

(a) The Award may provide for the issuance of shares of
Common Stock as a Stock Bonus for no consideration other than services
rendered. In the event of an Award under which shares of Common Stock
are or may in the future be issued for any other type of
consideration, the amount of such consideration shall either (1) be
equal to the amount required to be received by the Company in order to
assure compliance with applicable state law or (2) be equal to or
greater than 50% of the Fair Market Value of such shares on the date
of grant of such Award.

(b) Any derivative security (as defined in the rules and
regulations of the Securities and Exchange Commission with respect to
Section 16 of the 1934 Act) granted under this Plan shall be
transferable by the recipient thereof only to the extent such transfer
is not prohibited by Rule 16b-3 under Section 16 of the 1934 Act.

8. AMENDMENT AND TERMINATION

The Board may amend, suspend or terminate the Plan, provided that no
amendment of the Plan may, unless approved by the stockholders of the Company,
increase the maximum number of shares that may be sold or issued under the
Plan, or alter the class of persons eligible to participate in the Plan. The
Board may in its discretion determine, with respect to any amendments of the
Plan (whether or not requiring stockholder approval under this Plan or
applicable law or governmental regulations), that such amendments shall become
effective upon approval by the stockholders of the Company.

3
<PAGE> 4
9. CERTAIN DEFINITIONS

The authorized categories of benefits for which Awards may be granted
under this Plan are defined in Section 2 above. In addition, the following
terms used in this Plan shall have the following meanings:

"Common Stock" is the Company's common stock, as constituted
on the effective date of this Plan, and as thereafter adjusted as a
result of any one or more events requiring adjustment of outstanding
Awards under Section 3 above.

"Fair Market Value" of shares of stock shall be calculated on
the basis of the closing price of stock of that class on the day in
question (or, if such day is not a trading day in the U.S. securities
markets, on the nearest preceding trading day), as reported with
respect to the principal market (or the composite of the markets, if
more than one) in which such shares are then traded; or, if no such
closing prices are reported, on the basis of the mean between the high
bid and low asked prices that day on the principal market or national
quotation system on which such shares are then quoted; or, if not so
quoted, as furnished by a professional securities dealer making a
market in such shares selected by the Board or the Committee; or if no
such dealer is available, then the Fair Market Value shall be
determined in good faith by the Board.

An "Incentive Stock Option" is a Stock Option that qualifies
as an "incentive stock option" as defined under Section 422 (or any
applicable successor provisions) of the Internal Revenue Code and that
includes an express provision that it is intended to be an Incentive
Stock Option.

A "Subsidiary" of the Company is any corporation, partnership
or other entity in which the Company directly or indirectly owns 50%
or more of the total combined power to cast votes in the election of
directors, trustees, managing partners or similar officials.

The "1934 Act" means the Securities Exchange Act of 1934, as
amended.

_______________________________

(1) Section 3 was amended by Board of Directors on June 14, 1993 and
approved by UnionFed Stockholders at a Special Meeting on July 27,
1993 to increase the number of shares under the Plan from 500,000 to
2,645,913 (10% of shares outstanding after recapitalization (KBW
shares were excluded for this purpose)).

<PAGE> 1

EXHIBIT 10.6

SPLIT-DOLLAR INSURANCE AGREEMENT

THIS AGREEMENT is entered into effective the 6th day of April,
1994, by and between UNION FEDERAL BANK, a federal savings bank (hereinafter
the "Corporation"), UNIONFED FINANCIAL CORPORATION, a Delaware corporation
(hereinafter the "Guarantor"), and DAVID S. ENGELMAN and SHERRY B. ENGELMAN as
Trustees (hereinafter collectively referred to as the "Trustee") under that
certain Declaration of Trust (Engelman Family Trust) dated May 7, 1992, between
DAVID S. ENGELMAN and SHERRY B. ENGELMAN as Trustors (hereinafter the
"Trustors"), and DAVID S. ENGELMAN and SHERRY B. ENGELMAN as Trustees.

WITNESSETH:

WHEREAS, DAVID S. ENGELMAN is a valued employee of the
Corporation and of the Guarantor, and the Corporation and the Guarantor desire
to retain him in that capacity; and

WHEREAS, as an additional inducement to DAVID S. ENGELMAN's
continued employment, the Corporation and the Guarantor desire to assist the
DAVID S. ENGELMAN with his life insurance program by entering into this
Agreement with the Trustee; and

WHEREAS, the Corporation is willing to assist the Trustee in
the payment of premiums on the life insurance policy which the Trustee proposes
to purchase for the benefit of DAVID S. ENGELMAN; in exchange for such premium
assistance, the Trustee is willing to return to the Corporation the amount of
the premiums advanced by the Corporation and certain additional amounts, if
any, as described below.

NOW, THEREFORE, in consideration of the premises, and the
agreements hereinafter set forth, the Corporation, the Guarantor and the
Trustee hereby agree as follows:

1. (a) Trustee has applied to Security Life of
Denver Insurance Company ("Security Life") for a Flexible Premium Adjustable
Life Insurance Policy with an initial death benefit of $516,347. The life
insurance policy with which this Agreement deals is the policy listed on
Exhibit "A" attached hereto and made a part hereof, insuring the life of DAVID
S. ENGELMAN (hereinafter the "Insured") as so designated on Exhibit "A." In
addition to the stated death benefit, the policy provides for the annual
purchase of term insurance riders insuring the life of the Insured, which
riders shall have death benefits in an amount sufficient to ensure that the
Corporation can recover from the Trustee the amount of the premiums paid by the
Corporation under this Agreement. Such policy, including the term insurance
riders, shall hereinafter be referred to as the "Policy."

(b) The parties hereto agree that they will take
any further action which may be necessary to cause the Policy to conform to the
provisions of this Agreement. The parties hereto agree that the Policy shall
be subject to the terms and
<PAGE> 2
conditions of this Agreement and of the collateral assignment filed with
Security Life relating to the Policy.

2. The Trustee shall be the owner of the Policy, and may
exercise all ownership rights granted to the owner thereof by the terms of the
Policy. Notwithstanding any other provision hereof, it is the express
intention of the parties to reserve to the Trustee all rights in and to the
Policy granted to the owner thereof by the terms of the Policy, including, but
not limited to, the right to assign the Trustee's interest in the Policy
subject to the provisions of Section 12, the right to change the beneficiary of
the Policy, the right to exercise settlement options, the right to borrow
against the cash value of the Policy through policy loans subject to the
provisions of Section 11, and the right to surrender or cancel the Policy (in
whole or in part). The Corporation shall not have or exercise any right in or
to the Policy which could, in any way, endanger, defeat or impair any of the
rights of the Trustee in the Policy.

3. (a) On or before the due date of each Policy
premium, or within the grace period provided therein, the Corporation shall pay
the full amount of the Policy premium to Security Life, and shall, upon
request, promptly furnish the Trustee evidence of timely payment of such
premium. The Corporation shall annually furnish Trustors a statement of the
amount of income reportable by Trustors for federal and state income tax
purposes, if any, as a result of its payment of the premium. All amounts paid
by the Corporation toward the premiums on the Policy are hereinafter
collectively referred to as the "Amounts."

(b) Subject to the other provisions of this
Agreement, the Corporation's obligation to pay the premium on the Policy
pursuant to Section 3(a) shall continue until the Policy dividends are
sufficient to pay the full amount of the annual premium on the Policy. At any
time thereafter when the Policy dividends are insufficient to pay said full
amount of the annual premium, the Corporation's obligation to pay said premium
pursuant to Section 3(a) shall recommence. The Corporation's obligation to
make premium payments hereunder shall be limited to an amount of premiums
necessary to maintain the death benefit to the Trustee under the Policy at an
amount equal to Five Hundred Thousand Dollars ($500,000.00) plus the Amounts
paid from time to time.

(c) The Guarantor, as parent of the Corporation,
hereby unconditionally guarantees each and all of the obligations of the
Corporation under this Agreement.

(d) So long as DAVID S. ENGELMAN remains an
employee of the Corporation, the Corporation agrees to pay an annual bonus to
DAVID S. ENGELMAN in the amount necessary to reimburse the Insured for the
federal and state income tax liabilities of DAVID S. ENGELMAN which are
attributable to the premium payments made pursuant to this Section 3 and to the
bonus payments made pursuant to this Section 3(d). Bonus payments made
pursuant to this Section 3(d) shall not be included in the Amounts defined in
Section 3(a). The Corporation's obligation to pay annual bonuses to DAVID S.
ENGELMAN pursuant to this Section 3(d) shall cease upon the termination of
DAVID S. ENGELMAN's employment with the Corporation.

2
<PAGE> 3
4. In exchange for the Corporation's payment of the
Amounts under Section 3 and to secure the repayment of said Amounts, the
Trustee has, contemporaneously herewith, assigned an interest in the Policy to
the Corporation as collateral, under the form of Collateral Assignment
("Assignment") attached hereto as Exhibit "B." Said Assignment gives the
Corporation the limited power to enforce its right to be repaid the Amounts by
realizing on the cash value of the Policy, as therein defined, or on a portion
of the death benefit of the Policy, as the case may be. The interest of the
Corporation in and to the Policy shall be specifically limited to the following
rights in and to the cash value and to a portion of the death benefit:

(a) The right to be repaid the Amounts and any
remaining cash surrender value of the Policy in the event the Policy is totally
surrendered or canceled by the Trustee, or the right to receive the surrender
proceeds, to the extent of the Amounts, in the event the Policy is partially
surrendered or canceled by the Trustee, as provided in Section 6 below.

(b) The right to be repaid the Amounts at such
time as life insurance proceeds become payable under the Policy as a result of
the death of the Insured thereunder, as provided in Section 7 below.

(c) The right to be repaid the Amounts and any
remaining cash surrender value of the Policy or to receive ownership of the
Policy, in the event of the termination of this Agreement, as provided in
Sections 9 and 10 below.

(d) The right to be repaid the Amounts to the
extent a Policy loan made by the Trustee in any year exceeds the premium for
that year, as provided in Section 11.

5. Policy dividends (if any) shall be applied to
purchase paid-up additional insurance protection.

6. The Trustee shall have the sole right to surrender or
cancel the Policy (in whole or in part), and the Corporation shall have no
right to surrender or cancel the Policy (in whole or in part). In the event of
a total surrender or cancellation of the Policy by the Trustee, the Corporation
shall be entitled to receive the Amounts and any remaining cash surrender value
of the Policy. In the event of a partial surrender or cancellation of the
Policy by the Trustee, the Corporation shall be entitled to receive the
surrender proceeds of the Policy, to the extent of the Amounts, which surrender
proceeds shall be applied against the Corporation's Amounts.

7. Upon the death of the Insured under the Policy, the
Trustee shall promptly take all action necessary to obtain the death benefits
under the Policy. The Corporation shall be entitled to receive a portion of
the death benefit provided, if any, as follows:

(a) The Corporation shall first receive a portion
of the death benefit provided, if any, under the Policy equal to the Amounts,
or, if less, the life insurance proceeds then payable as a result of such
death. In the event the death benefit provided under the Policy is less than
the Amounts, neither the Trustee, the

3
<PAGE> 4
Insured nor his heirs or assigns shall be liable to pay the Corporation any
portion of the Amounts which the Corporation has not yet received.

(b) A portion of the death benefit provided, if
any, under the Policy equal to Five Hundred Thousand Dollars ($500,000) shall
be paid directly to the beneficiary or beneficiaries designated by the Trustee,
in the manner and in the amounts provided by the beneficiary designation
endorsed on the Policy.

8. (a) This Agreement may be terminated, subject to
the provisions of Section 9 below, by the Trustee, without consent of the
Corporation, by the Trustee giving written notice of such termination, and
specifying the date of such termination, to the Corporation.

(b) This Agreement shall terminate upon the
termination of DAVID S. ENGELMAN's employment status by the Corporation or the
Guarantor for cause, as defined in Section 5(c) of that certain Employment
Agreement by and between the Corporation, the Guarantor and the Insured dated
as of April 1, 1991, as such Employment Agreement may be amended from time to
time.

9. In the event of termination of this Agreement as
provided in Section 8 above, Trustee shall have the obligation to repay to the
Corporation, within ninety (90) days of the date of termination, the Amounts
and any remaining cash surrender value of the Policy or to transfer Trustee's
entire interest in the Policy to the Corporation.

10. If the Trustee fails to repay to the Corporation the
amount specified in Section 9 above within ninety (90) days of the date of
termination of this Agreement, the Trustee shall execute any and all
instruments that may be required to vest ownership of the Policy in the
Corporation. Thereafter, Trustee shall have no further interest in the Policy
or any rights under this Agreement and the Corporation shall have no further
claims against Trustee under this Agreement.

11. The Trustee shall have the sole right to borrow
against the Policy, and the Corporation shall have no right to obtain loans
against the Policy, directly or indirectly, from the insurer or any other
person, or to pledge or assign the Policy, or the Corporation's rights in the
Policy, as security for any loan; provided, however, the Trustee shall not
borrow from the Policy any amount which would cause in the remaining cash
surrender value of the Policy to be less than the Amounts. If the Trustee in
any policy year borrows from the Policy an amount in excess of the premium for
that year, the Corporation shall be entitled to receive such excess amount, to
the extent of the Amounts, which excess amount shall be applied against the
Amounts. The Trustee shall pay any interest due on any Policy loans it
obtains.

12. Trustee and the Corporation may each transfer or
assign its respective rights in the Policy without the consent of the other.
In the event the Trustee shall transfer all of the Trustee's interest in the
Policy to a transferee, then all of the Trustee's interest in the Policy and in
this Agreement shall be vested in the transferee,

4
<PAGE> 5
who shall be substituted as a party hereunder, and the Trustee shall have no
further interest in the Policy or in this Agreement.

13. (a) The Trustee is hereby designated as the named
fiduciary under this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this Agreement.

(b) The funding policy under this Plan is that
all premiums on the Policy shall be remitted to the Insurer when due.

(c) The Trustee shall make all determinations
concerning rights to benefits under this Agreement. Any decision by the
Trustee denying a claim by a beneficiary for benefits under this Agreement
shall be stated in writing and delivered or mailed to such beneficiary. Such
decision shall set forth the specific reasons for the denial, written to the
best of the Trustee's ability in a manner that may be understood without legal
or actuarial counsel. In addition, the Trustee shall afford a reasonable
opportunity to such beneficiary for a full and fair review of the decision
denying such claims.

(d) The provisions of Section 13(a) and 13(b)
shall not apply to any dispute between the Corporation and the Trustee
regarding their respective rights and duties under this Agreement. In the
event such a dispute arises, the Corporation and the Trustee shall each be
entitled to take whatever measures necessary to resolve such dispute.

14. This Agreement may not be amended, altered or
modified, except by a written instrument signed by each of the parties hereto.

15. This Agreement shall be binding upon and inure to the
benefit of the Corporation and its successors and assigns, and the Trustee, and
their respective successors, assigns, heirs, executors, administrators and
beneficiaries.

16. All notices and other communications hereunder shall
be in writing and shall be delivered personally or mailed postage prepaid by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):

(a) if to the Corporation:

Union Federal Bank
330 East Lambert Road
Brea, CA 92621

(b) if to Insured:

David S. Engelman
P.O. Box 648
Rancho Santa Fe, CA 92067

5
<PAGE> 6
(c) if to Trustee:
David S. Engelman and Sherry B. Engelman
P.O. Box 648
Rancho Santa Fe, CA 92067

(d) if to the Guarantor:
UnionFed Financial Corporation
330 East Lambert Road
Brea, CA 92621

In the case of mailing, any notice shall be deemed given on
the second business day following the date of such mailing.

17. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed pursuant to the laws of the State
of California.

18. It is the intention of all of the parties hereto that
the arrangement established hereunder between the Corporation and the Trustee
shall be considered a "split-dollar" arrangement as such arrangement is defined
and described in Internal Revenue Service Rev. Rul. 64-328. In the event,
however, that this Agreement shall not meet all of the requirements of such a
"split-dollar" arrangement as so described, then the parties hereto agree that
they shall amend this Agreement so as to qualify the arrangement created
hereunder as such a "split-dollar" arrangement.

19. This Agreement does not and shall not be construed to
give the Insured the right to be retained in the employ of the Corporation, nor
shall this Agreement interfere with or be construed to interfere with the
employer-employee relation between the Corporation and the Insured.

IN WITNESS WHEREOF, the parties have executed this Agreement
in duplicate originals as of the day and year first above written.

"CORPORATION"

UNION FEDERAL BANK ATTEST:

By: /s/ RONALD M. GRIFFITH /s/ RHONDA NEWCOMER
----------------------------- --------------------------------
Ronald M. Griffith Rhonda NewComer
Senior Vice President Assistant Secretary
Its Duly Authorized Officer

6
<PAGE> 7
"TRUSTEE"

By: /s/ DAVID S. ENGELMAN By: /s/ SHERRY B. ENGELMAN
-------------------------------- ------------------------------
David S. Engelman, Sherry B. Engelman,
Trustee of the Trustee of the
Engelman Family Trust Engelman Family Trust
U/D/T dated 5/7/92. U/D/T dated 5/7/92.

"GUARANTOR"

UNIONFED FINANCIAL CORPORATION ATTEST:

By: /s/ RONALD M. GRIFFITH /s/ RHONDA NEWcOMER
-------------------------------- ----------------------------------
Ronald M. Griffith Rhonda NewComer
Senior Vice President Assistant Secretary
Its Duly Authorized Officer

I consent to this Agreement and the insurance covering my life.

"INSURED"

/s/ DAVID S. ENGELMAN
----------------------------------
David S. Engelman

7
<PAGE> 8
EXHIBIT "A"

Life Insurance Policy

Security Life of Denver

Flexible Premium Adjustable Life Insurance Policy No. 1532560, attached hereto.

<PAGE> 9

[LOGO]
SECURITY LIFE
DENVER, COLORADO

NAME: DAVID S ENGELMAN
POLICY DATE: APRIL 06, 1994
POLICY NUMBER: 1532560
STATED DEATH BENEFIT: 516347

WE AGREE TO PAY the stated death benefit as a death benefit to the beneficiary
on the death of the insured, subject to the provisions of the policy. The
insured is named in the policy Schedule.

WE AGREE TO PAY the surrender value to you on the maturity date if the insured
is living on that date.

WE ALSO AGREE to provide the other rights and benefits of the policy. These
agreements are subject to the provisions of the policy.

20 DAY RIGHT TO EXAMINE POLICY. You may return the policy within 20 days after
receipt. It may be returned by delivering or mailing it to us or to our agent.
Immediately upon return, it will be deemed void from the start. Any premium
paid will be refunded.

In this policy "you" and "your" refer to the owner of the policy. "We", "us"
and "our" refer to Security Life of Denver Insurance Company.

/s/ E. L. COPELAND /s/ V. S. BEUFELL
Secretary President

This policy is a FLEXIBLE PREMIUM ADJUSTABLE LIFE INSURANCE POLICY

Death benefit payable at death prior to maturity date--Surrender value, if any,
payable on maturity date--Adjustable death benefit--Flexible premiums payable
during lifetime of insured until maturity date--Nonparticipating

Criswell Ins. Ser., Inc.
4275 Executive Sq., #900
La Jolla, CA 92037
(819) 546-8150

SECURITY LIFE OF DENVER INSURANCE COMPANY
A Stock Company
Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699

<PAGE> 10

TABLE OF CONTENTS

This Policy is a legal contract between you and us. READ IT CAREFULLY.

GUIDE TO KEY PROVISIONS

PROVISION PAGE

Additional Interest 8
Age 11
Annual Report 12
Basis of Computations 9
Beneficiaries 12
Change in Existing Insurance Coverage 7
Collateral Assignment 12
Cost of Insurance 8
Death Benefit 6
Deferment 12
Effective Date of Coverage 6
Grace Period 9
Illustration of Benefits and Values 13
Incontestability 12
Interest Rate 8
Misstatement of Age or Sex 12
Monthly Deduction 8
Ownership 12
Payouts Other Than as One Sum 13
Policy Loans 11
Policy Values 8
Premiums 7
Procedures 11
Proceeds 6
Reinstatement 9
Scheduled Premiums 7
Special Continuation Period 9
Suicide Exclusion 12
Surrender and Surrender Value 10
Termination 9
Unscheduled Premiums 7

Additional benefits or riders, if any, will be listed in the Schedule.
The additional provisions will be inserted in the Policy.
<PAGE> 11
Signature instructions:
Please sign on page 5 for
Duplicate Policy or Change of
Ownership Requests.

Check appropriate Insurer: / / SECURITY LIFE OF DENVER INSURANCE COMPANY
/ / MIDWESTERN UNITED LIFE INSURANCE COMPANY

INSURED DAVID S. ENGELMAN POLICY NO. 153 2560
--------------------------- ---------------------------

CLIENT SERVICE APPLICATION
______________________________________________________________________________

/ / LOST POLICY CERTIFICATION AND REQUEST FOR DUPLICATE POLICY OR CERTIFICATE
OF INSURANCE
______________________________________________________________________________

My policy or certificate has been lost or misplaced. Issue a duplicate policy
or certificate of insurance, or grant the benefits under this policy that
have been requested without requiring the surrender of the original policy. If
the original policy is found, I will return the duplicate policy or certificate
of insurance to the Home Office.

SIGN BELOW
______________________________________________________________________________

/X/ CHANGE OF OWNERSHIP OF POLICY OR CERTIFICATE OF INSURANCE*
______________________________________________________________________________

I transfer all my rights, title and interest as owner of the above policy or
certificate to:

SOCIAL SECURITY NUMBER OR
NEW OWNER Name and Address DATE OF BIRTH TAX IDENTIFICATION NUMBER
- - - - ------------------------------------------------------------------------------

David S. Engelman & Sherry B. Engelman or such successor Trustee as may
- - - - ------------------------------------------------------------------------------
be hereafter appointed Trustees of the Engelman Family Trust dated 5-7-92,
- - - - ------------------------------------------------------------------------------
subject to Split Dollar Agreement.
- - - - ------------------------------------------------------------------------------

ABOUT THE NEW OWNERSHIP

If more than one owner is named, the ownership of the policy or certificate
of insurance will be held jointly by them with right of survivorship, unless
elected otherwise. Upon the death of one of the owners, the surviving
owner(s) will own the policy or certificate of insurance. If a contingent owner
is named and if the owner(s) shall predecease the insured, the living contingent
owner(s) shall own the policy or certificate of insurance.

The transfer of ownership is subject to any policy loan, and any assignment on
file at the Home Office.

The new owner(s) may exercise all the rights and receive all the benefits of
this policy during the insured's lifetime. The change of ownership will not
change any beneficiary designation or any method of optional settlement
previously elected.

This change will be effective as of the date the change of ownership is
signed, but it will not apply to any payment made or action taken before this
form is received at the Home Office. The policy may be required to be sent to
the Home Office.

<TABLE>
<S> <C>
MAIL NOTICES TO: DAVID S. ENGELMAN, TRUSTEE P.O. BOX 648 RANCHO SANTA FE CA 92067
-----------------------------------------------------------------------
Name Street City State Zip Code
</TABLE>

PRESENT AND NEW OWNER SIGN BELOW
_____________________________________________________________________________

*If this policy is part of a qualified pension, profit-sharing, or HR-10
plan, we may require additional forms and the law may restrict the form
of distribution.

Signature of
Insured /s/ DAVID S. ENGLEMAN
-------------------------------------
(If below age 15, signature of parent
or guardian required)

Spouse
(If Applicable) /s/ SHERRY B. ENGELMAN
-----------------------------

DATE: 6/10/94 Present Owner (if Not
-------------------- the Insured) /s/ DAVID S. ENGELMAN
--------------------------------

The New Owner DAVID S. ENGLEMAN, TRUSTEE
-------------------------------
SHERRY B. ENGELMAN, TRUSTEE
-------------------------------

WITNESS: /s/ ROBERT D. CRISWELL Assignee (if Applicable) ____________
----------------------------
_____________________________________
AGENT: /s/ ROBERT D. CRISWELL NO.
---------------------- --- _____________________________________

_____________________________________________________________________________

HOME OFFICE USE ONLY

Form Endorsed This Date: ________________ By: ____________________________
Vice President

PLEASE READ REVERSE SIDE

Page 5
<PAGE> 12
S C H E D U L E

MINIMUM ANNUAL PREMIUM $ 6,805.92
SCHEDULED PREMIUM $15,750.00
PAYABLE ANNUALLY

INITIAL UNTIL POLICY INFORMATION
BENEFIT INSUREDS
DESCRIPTION AMOUNT AGE INSURED DAVID S ENGELMAN

AGE AT ISSUE 56

BASIC COVERAGE $258,174 95 POLICY DATE APR 6, 1994
SUPPLEMENTAL COVERAGE $258,173 95
MATURITY DATE APR 6, 2033

MONTHLY ANNIVERSARY DATE 6

POLICY NUMBER 1532560

STATED DEATH
BENEFIT $516,347

OPTION 1 - INCLUDES THE
POLICY VALUE
THE GUARANTEED MINIMUM INTEREST RATE IS
4.00%. THE PREMIUM EXPENSE CHARGE IS 7.00% MINIMUM STATED
OF THE PREMIUM. THE MONTHLY EXPENSE CHARGES DEATH BENEFIT $25,000
ARE $7.00 PER POLICY PER MONTH IN ALL YEARS
AND $0.420 PER $1,000 OF STATED DEATH STANDARD RATE CLASS
BENEFIT PER MONTH DURING THE FIRST FIVE
POLICY YEARS.

THE SPECIAL CONTINUATION PERIOD IS NINE
YEARS. MINIMUM PARTIAL SURRENDER IS $300.
LOAN INTEREST RATE IS 6.0% DURING THE FIRST
NINE POLICY YEARS AND 4.25% THEREAFTER,
PAYABLE IN ARREARS. COVERAGE WILL EXPIRE
PRIOR TO THE MATURITY DATE IF PREMIUMS ARE
INSUFFICIENT TO CONTINUE COVERAGE TO SUCH
DATE. COVERAGE WILL ALSO BE AFFECTED BY
PARTIAL SURRENDERS, POLICY LOANS, AND BY
CHANGES IN THE ACTUAL CREDITED INTEREST
RATES AND CURRENT COST OF INSURANCE RATES.
* SCHEDULE CONTINUED NEXT PAGE*

<PAGE> 13
S C H E D U L E

CONTINUED FROM PRECEDING PAGE

POLICY NUMBER 1532560

INSURED DAVID S ENGELMAN POLICY DATE APR 06, 1994

TABLE OF SURRENDER CHARGES

POLICY YEAR SURRENDER CHARGE

1 11,294.84
2 10,165.24
3 8,908.86
4 7,652.49
5 6,396.11
6 5,139.73
7 3,883.35
8 2,626.97
9 1,370.59
10 .00

A SURRENDER CHARGE WILL NOT APPLY IF THE POLICY HAS BEEN IN FORCE FOR FIVE
YEARS FROM THE LATER OF THE POLICY DATE OR THE DATE OF THE LAST INCREASE IN
COVERAGE AND THE SURRENDER VALUE IS USED TO PROVIDE AN ANNUITY PAYOUT OF NOT
LESS THAN FIVE YEARS THROUGH THE SETTLEMENT PROVISIONS OF THIS POLICY.

<PAGE> 14
TABLE OF GUARANTEED RATES
Guaranteed Maximum Cost of Insurance Rates Per $1,000--Standard Nonsmoker,
Smoker or Juvenile Rate Classification

<TABLE>
<CAPTION>
Monthly Cost of Monthly Cost of Monthly Cost of Monthly Cost of
Insurance Rate Insurance Rate Insurance Rate Insurance Rate
Attained --------------- Attained --------------- Attained ---------------- Attained -------------------
Age Male Female Age Male Female Age Male Female Age Male Female
- - - - -------- ------ ------ -------- ------ ------ -------- ------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 .34845 .24089 25 .14752 .09668 50 .55948 .41350 75 5.37793 3.19685
1 .08917 .07251 26 .14419 .09918 51 .60870 .44270 76 5.91225 3.59370
2 .08251 .06750 27 .14252 .10168 52 .66377 .47523 77 6.46824 4.01942
3 .08167 .06584 28 .14169 .10501 53 .72636 .51276 78 7.04089 4.47410
4 .07917 .06417 29 .14252 .10835 54 .79730 .55114 79 7.64551 4.97042
5 .07501 .06334 30 .14419 .11251 55 .87326 .59118 80 8.30507 5.52957
6 .07167 .06084 31 .14836 .11668 56 .95591 .63123 81 9.03761 6.17118
7 .06667 .06000 32 .15252 .12085 57 1.04192 .66961 82 9.86724 6.91114
8 .06334 .05834 33 .15919 .12502 58 1.13378 .70633 83 10.80381 7.77075
9 .06167 .05750 34 .16669 .13168 59 1.23235 .74556 84 11.82571 8.72632
10 .06084 .05667 35 .17586 .13752 60 1.34180 .78979 85 12.91039 9.76952
11 .06417 .05750 36 .18670 .14669 61 1.46381 .84488 86 14.03509 10.89151
12 .07084 .06000 37 .20004 .15752 62 1.60173 .91417 87 15.18978 12.08770
13 .08251 .06250 38 .21505 .17003 63 1.75809 1.00267 88 16.36948 13.35774
14 .09584 .06667 39 .23255 .18503 64 1.93206 1.10539 89 17.57781 14.70820
15 .11085 .07084 40 .25173 .20171 65 2.12283 1.21731 90 18.82881 16.15259
16 .12585 .07501 41 .27424 .22005 66 2.32623 1.33511 91 20.14619 17.71416
17 .13919 .07917 42 .29675 .23922 67 2.54312 1.45461 92 21.57655 19.43814
18 .14836 .08167 43 .32260 .25757 68 2.77350 1.57247 93 23.20196 21.40786
19 .15502 .08501 44 .34929 .27674 69 3.02328 1.69955 94 25.28174 23.83051
20 .15836 .08751 45 .37931 .29675 70 3.30338 1.84590
21 .15919 .08917 46 .41017 .31677 71 3.62140 2.02325
22 .15752 .09084 47 .44353 .33761 72 3.98666 2.24419
23 .15502 .09251 48 .47856 .36096 73 4.40599 2.51548
24 .15169 .09501 49 .51777 .38598 74 4.87280 2.83552

</TABLE>

The rates shown are for a standard nonsmoker, smoker or juvenile rate
class. If the policy is based on a special rate class (other than standard
nonsmoker, smoker or juvenile), the maximum cost of insurance rates will be
adjusted using the rating factor shown in the Schedule for the special class. If
the special rate class is a stated percentage increase, the maximum cost of
insurance rates will be determined by multiplying the rates for a standard
nonsmoker, smoker or juvenile rate class shown above by the rating factor shown
on the Schedule. If the special rate class is a flat amount per $1,000, the
maximum cost of insurance rates will be determined by adding the flat amount per
$1,000 shown in the Schedule to the rate per $1,000 for the standard nonsmoker,
smoker or juvenile rate class shown above. The rates shown above are based on
the 1980 Commissioners Standard Ordinary Mortality Table, age nearest birthday.

<PAGE> 15

INSURANCE COVERAGE PROVISIONS

EFFECTIVE DATE OF COVERAGE

The policy date shown in the Schedule is the effective date for all coverage
provided in the original application. This is subject to the payment of the
first premium and the acceptance of the policy by you, during the continued
insurability of all persons insured by this policy. The policy date is the
date from which we measure policy months and policy years. A policy month
occurs each month on the same day as the policy date. A monthly anniversary is
the first day of a policy month. A policy anniversary occurs each year on the
same month and day as the policy date. The effective date for increases and
additional benefits is described in the applicable provision or rider.

PROCEEDS

Proceeds means the amount we will pay on the maturity date, upon the surrender
of the policy before the maturity date, or upon the death of the insured.
Proceeds we will pay on the maturity date, or upon surrender of this policy
prior to the maturity date will be the surrender value. The maturity date is
the policy anniversary nearest the insured's 95th birthday. Proceeds we will
pay upon the death of the insured will be the death benefit; plus any amounts
payable from any additional benefits provided by rider; minus any outstanding
policy loan including accrued but unpaid interest; minus any unpaid monthly
deduction prior to the date of death. Any proceeds we pay are subject to
adjustments as provided in the Misstatement of Age & Sex, Suicide Exclusion
and Incontestability provisions of this policy.

We will pay proceeds in one sum unless you request an alternate form of
payment. There are many possible methods of payments. The available
settlement options are described in the Payouts Other Than As One Sum provision
in the policy. Contact us or your agent for additional information. Interest
will be paid on the one sum death proceeds from the date of death to the date
of payment, or until a settlement option is selected. Interest is at the rate
we declare, or any higher rate required by law, but not less than 3 1/2%.

DEATH BENEFIT

The stated death benefit is the sum of the basic coverage and the supplemental
coverage. The stated death benefit and the option that apply to this policy
are shown on the Schedule. Subject to the provisions of the policy, the
insured's death benefit at any time under the policy will be as follows:

Under option 1 (level), the death benefit is the greater of:

(a) the stated death benefit on the date of the insured's death; or

(b) a percentage, as determined below, of the policy value on the date of
death.

Under option 2 (increasing), the death benefit is the greater of:

(a) the stated death benefit plus the policy value on the date of insured's
death; or

(b) a percentage, as determined below, of the policy value on the date of
death.

Under either option the death benefit shall not be less than a percentage, as
determined below, of the policy value on the date of death.

<TABLE>
<CAPTION>
POLICY POLICY POLICY POLICY
ATTAINED VALUE ATTAINED VALUE ATTAINED VALUE ATTAINED VALUE
AGE % AGE % AGE % AGE %
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
49 And
Younger 250 54 157 68 117 82 105

41 243 55 150 69 116 83 105
42 236 56 146 70 115 84 105
43 229 57 142 71 113 85 105
44 222 58 138 72 111 86 105
45 215 59 134 73 109 87 105
46 209 60 130 74 107 88 105
47 203 61 128 75 105 89 105
48 197 62 126 76 105 90 105
49 191 63 124 77 105 91 104
50 185 64 122 78 105 92 103
51 178 65 120 79 105 93 102
52 171 66 119 80 105 94 101
53 164 67 118 81 105 95 100
</TABLE>

This policy is designed to qualify as a life insurance contract under the
Internal Revenue Code. All terms and provisions of the policy shall be
construed in a manner consistent with that design. The amount of insurance in
force at any time under the policy shall not be less than the amount of
insurance necessary to achieve such qualification under the applicable
provisions of the Internal Revenue Code in existence at the time the policy is
issued. We reserve the right to amend the policy and adjust the death benefit
when required. We will send you a copy of any such amendment.

5 & 6

<PAGE> 16

CHANGE IN EXISTING INSURANCE COVERAGE

At any time after the first policy year, you may request that the insurance
coverage be changed. The change may be an increase or decrease in coverage. A
change will be prorated between the basic coverage and the supplemental
coverage so that the ratio of the supplemental coverage to the stated death
benefit will be the same after the change as it was prior to the change. You
may change the coverge only once every policy year. The change in coverage may
not be for an amount less than $5,000. The effective date of the change will be
the monthly anniversary date on or next following the date the written
application is approved by us. Such change is subject to the following
conditions:

(a) The stated death benefit in effect after any change may not be less than
the minimum stated death benefit shown in the Schedule or the amount
required to qualify as a life insurance contract under the Internal Revenue
Code.

(b) Any decrease in the stated death benefit will be prorated against coverage
provided under the original application and any increases. The surrender
charge will be reduced. The surrender charge that remains will be the
surrender charge applicable to the remaining stated death benefit. We will
deduct from your policy value an amount equal to the reduction in the
surrender charge.

(c) For us to approve an increase or a change in the death benefit option from
option 1 to option 2, you must submit evidence satisfactory to us that
the insured is insurable according to our normal rules for this type of
policy. If the stated death benefit is increased, a new surrender charge
will be created for the increase as described in the Surrender and Surrender
Value provision. The existing surrender charges at the time of the increase
will not change.

(d) If the death benefit option is changed from option 1 to option 2, the stated
death benefit after such change will be equal to the stated death benefit
prior to such change less the policy value as of the effective date of
change.

(e) If the death benefit option is changed from option 2 to option 1, the stated
death benefit after such change will be equal to the stated death benefit
prior to such change plus the policy value as of the effective date of the
change.

(f) You may apply for additional insurance on the insured or the life of the
insured's spouse or child. The addition of this insurance is subject to
evidence satisfactory to us that the insured or the insured's spouse or
child is insurable according to our normal rules for this type of policy.
The new insurance will be provided by rider and subject to the terms
provided in the rider. The effective date of this new insurance will be the
monthly anniversary date that falls on or next following the date the
application is approved by us.

PREMIUM PROVISIONS

SCHEDULED PREMIUMS

The scheduled premium may be paid as shown in the Schedule while this policy is
in force, during the insured's life. You may increase or decrease the amount of
the scheduled premium, subject to limits we may set. Under conditions provided
in the Grace Period Provision, you may be required to make payments to keep the
policy in force.

We will send scheduled premium reminder notices to you in the amount and
frequency that you selected. The notice will be sent either annually,
semiannually or quarterly. We will also arrange for payment of such premiums on
a monthly basis, which will be under an authorized special payment facility. All
payment modes are subject to our minimum requirements for the payment mode
selected. Receipts will be furnished upon request.

UNSCHEDULED PREMIUMS

You may make unscheduled premium payments at any time the policy is in force. An
unscheduled premium is an additional premium in excess of the scheduled premium
paid. Unless you tell us otherwise, these premium payments will first be applied
to reduce or pay off any existing policy loan. We may limit the amount of such
unscheduled premiums if the payment would result in an increase in the death
benefit. If the net amount at risk is increased as the result of an unscheduled
premium, we will require evidence of insurability satisfactory to us that the
insured is insurable according to our normal rules for this type of policy.

7
<PAGE> 17

POLICY VALUES PROVISIONS

NET PREMIUM

The net premium equals the premium paid less the percent of premium expense
charge shown in the Schedule.

POLICY VALUE

The policy value on the policy date will be the first net premium for this
policy, less the monthly deduction for the first policy month.

On any monthly anniversary date other than the policy date, the policy value is
equal to:

(a) the policy value on the first day of the previous policy month; plus

(b) one month's interest on item (a); plus

(c) any net premium received since the most recent monthly anniversary date
with interest from the date of receipt to the date of calculation; minus

(d) the monthly deduction for the current month; minus

(e) the amount of any partial surrender on the monthly anniversary date and a
service charge of $25 for such partial surrender.

The policy value on any other day is calculated in a consistent manner.

MONTHLY DEDUCTION

The monthly deduction for a policy month will be the cost of insurance, plus
the monthly expense charges, plus the cost of additional benefits provided by
rider for the policy month. The monthly expense charges are the per policy and
per unit expenses shown in the Schedule.

COST OF INSURANCE

The cost of insurance is determined on a monthly basis. Such cost is the
monthly cost of insurance rate times the net amount of risk plus any additional
charge for the insured's premium class. The net amount of risk is (a) minus
(b) where:

(a) is the death benefit at the beginning of the policy month, divided by
1.00327374; and

(b) is the policy value after the monthly deduction excluding the cost of
insurance on the monthly anniversary date.

The cost of insurance rates will be determined by us from time to time. They
will be based on the sex and age nearest birthday on the effective date of
coverage, the duration since the coverage starts and the premium class. Any
change in rates will apply to all individuals of the same premium class and
whose policies have been in effect for the same length of time. The rates will
never exceed those rates shown in the applicable Table of Guaranteed Rates.

Each time there is an increase in the net amount of risk due to a requested
increase, the net amount of risk will be segregated into the risk prior to the
increase and the amount of the increase. Different rates will apply to each
segment depending upon the premium class, the age nearest birthday on the
effective date of increase and the duration since the increase. To determine
the amount of risk in each segment, the above formula is used with the policy
value being allocated among the original death benefit, and any subsequent
increases in the death benefit.

INTEREST RATE

The guaranteed interest rate applied in the calculation of policy values is
shown in the Schedule. The unborrowed excess interest rate may be applied in
the calculation of policy values at such rates and in such manner as may be
determined by us from time to time. A different excess interest rate will be
credited to any portion of the policy value which is used to secure a loan
balance as may be determined by us from time to time.

ADDITIONAL INTEREST

Your policy will be eligible for "Additional Interest" for each policy month
after the fourth policy anniversary if the excess interest rate on the
unborrowed portion of the policy value has exceeded 1.50% per year for all
prior crediting periods after the policy date.

8
<PAGE> 18
After the fourth policy anniversary, for each month in which the above
condition is met, the excess interest rate for the unborrowed portion will be
increased by the additional interest factor. The additional interest factor is
added to the sum of the excess interest rate and the guaranteed interest rate.
The result is then converted to an effective daily ratio to determine the
enhanced interest rate used to calculate your policy values. The enhanced
interest ratio will apply only to the unborrowed policy values. The additional
interest factor will be .50% per year for all eligible policy months after the
fourth policy year.

BASIS OF COMPUTATIONS

The surrender values and reserves under the policy are not less than the
minimums required on the policy date by the state in which the policy was
delivered. A detailed statement of the method of computation of policy values
under the policy has been filed with the insurance department of the state in
which the policy was delivered. Surrender values are not less than those
required by the Standard Nonforfeiture Law using interest of 4% per year. The
Commissioners 1980 Standard Ordinary Mortality Table will be used for insureds
on an age nearest birthday basis. The above mortality rates will be adjusted
for insureds in a special rate class.

GRACE PERIOD, TERMINATION AND REINSTATEMENT PROVISIONS

GRACE PERIOD

If the following two conditions occur on a monthly anniversary date, the
policy will enter into the 61 day grace period:

(a) The surrender value is zero or less, and;

(b) the policy does not meet the requirements of the Special Continuation
Period provision.

We will give you a 61 day grace period from the premium due date to make
the required payment. The required premium then due must be paid to keep
the policy in force. If this amount is not received in full by the end of this
grace period, the policy will lapse without value.

Notice of the amount of the required premium will be mailed to you or any
assignee at the last known address at least 30 days before the end of the
Grace Period. If the insured dies during the grace period, we will deduct any
overdue monthly deductions from the death proceeds of the policy.

SPECIAL CONTINUATION PERIOD

The policy will not be terminated during the special continuation period
if on a monthly anniversary date: (1) the policy value less any policy
loan is positive; and (2) the sum of the premiums paid, less any policy loan
and less the sum of all partial surrenderers, is not less than the sum of the
minimum monthly premiums applicable on each monthly anniversary date from issue
to and including the current date. The minimum annual premium and special
continuation period are shown on the Schedule. The minimum monthly premium is
one-twelfth of the minimum annual premium. If there is an increase, the special
continuation period will start as of the effective date of the increase and
continue for the period shown on the Schedule. The policy will not lapse during
this new period if on a monthly anniversary date: (1) the policy value less any
policy loan is positive; and (2) the sum of the premium paid, less any policy
loan and less the sum of all partial surrenders is not less than the sum of the
minimum monthly premium applicable on each monthly anniversary date from the
effective date of the increase up to and including the current date.

TERMINATION

All coverage provided by this policy will end on the earliest of: (1) the
date the policy is surrendered; (2) the date of death of the insured; (3) the
maturity date of the policy; and (4) the date the grace period ends without
payment of the required premium.

REINSTATEMENT

The policy may be reinstated within five years after it has lapsed because
sufficient premium was not paid before the end of the grace period. The
reinstatement will be effective on the monthly anniversary date on or next
following the date we approve your written application.

We will reinstate the policy and any riders if the following conditions are met:

(a) You have not surrendered the policy for its surrender value.

9
<PAGE> 19
(b) You submit evidence satisfactory to us that the insured and those insured
under any riders are still insurable according to our normal rules for this
type of policy.

(c) We receive payment of the amount of premium sufficient to keep the policy
and any riders in force from the date of lapse to the date of reinstatement
and for 2 months thereafter. We will let you know at the time you request
reinstatement of the amount of premium needed for this purpose.

We will reinstate any policy loan which existed when coverage ended, with
accrued loan interest.

SURRENDER PROVISION

SURRENDER AND SURRENDER VALUE

The surrender value of the policy on any date will be the policy value, less
any applicable surrender charge and less any policy loan including accrued
but unpaid interest. If the surrender value is less than zero, no payment is
required from policyowner, if the policy is surrendered.

The total surrender charges for this policy consist of: (1) the surrender
charge shown in the Schedule and; (2) an excess interest surrender charge
that applies only if the policy is surrendered in the first nine policy
years. The excess interest surrender charge is the excess interest earned in
the previous twelve policy months. The excess interest earned equals the
interest earned in excess of the guaranteed interest rate plus; any additional
interest earned as described in the Additional Interest provision.

Each time there is a requested increase in the stated death benefit, the
stated death benefit will be divided into the amount prior to the increase
and the amount of the increase. A new surrender charge will apply to each
increase depending upon the age nearest birthday on the effective date of
increase and the duration since the increase. A decrease in the stated death
benefit will reduce the surrender charge. The surrender charge that remains
will be the surrender charge applicable to the remaining stated death benefit.
We will deduct from your policy value an amount equal to the reduction in the
surrender charge.

You may surrender or apply for a partial surrender of the policy on any
monthly anniversary date during the lifetime of the insured and prior to the
maturity date. The amount payable on surrender of the policy will be the
surrender value. If a surrender is requested within 30 days after the policy
anniversary, the surrender value will not be less than the surrender value on
that anniversary, plus any net premiums paid, and less any policy loan or
partial surrenders (including the service charge) made after such anniversary.
No insurance will be in force once we receive a request to surrender.

The minimum partial surrender amount is $300. When a partial surrender is
made, the amount of the partial surrender plus a service fee of $25 will be
deducted from the policy value immediately before the partial surrender is
made. We may limit the number of partial surrenders in a policy year to one.

If the death benefit option is option 1 on the date a partial surrender
is made, the stated death benefit will be reduced by an amount equal to the
excess of the amount of the partial surrender over the special corridor amount.
The special corridor amount is equal to the greater of (1) or (2), where:

(1) is the excess, if any, of (a) over (b) where:

(a) is the policy value immediately before the partial surrender is made; and

(b) is the stated death benefit at that time divided by the "factor" for the
Insured's attained age as follows:

<TABLE>
<CAPTION>
ATTAINED FAC- ATTAINED FAC- ATTAINED FAC- ATTAINED FAC-
AGE TOR AGE TOR AGE TOR AGE TOR
- - - - -------- ---- -------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
40 And
Younger 2.50 54 1.57 68 1.17 82 1.05
41 2.43 55 1.50 69 1.16 83 1.05
42 2.35 56 1.45 70 1.15 84 1.05
43 2.29 57 1.42 71 1.13 85 1.05
44 2.22 58 1.38 72 1.11 86 1.05
45 2.15 59 1.34 73 1.09 87 1.05
46 2.09 60 1.30 74 1.07 88 1.05
47 2.03 61 1.28 75 1.06 89 1.05
48 1.97 62 1.26 76 1.05 90 1.05
49 1.91 63 1.24 77 1.05 91 1.04
50 1.85 64 1.22 78 1.05 92 1.03
51 1.78 65 1.20 79 1.05 93 1.02
52 1.71 66 1.19 80 1.05 94 1.01
53 1.64 67 1.18 81 1.05 95 1.00
</TABLE>

and
10
<PAGE> 20
(2) is either:

(a) 5% of stated death benefit immediately before the partial surrender if:

(i) the date of partial surrender is less than sixteen (16) years after
the policy date; and

(ii) the insured is less than attained age 81; and

(iii) there were no prior partial surrenders in the current policy year;
or

(b) zero (0) if one or more of the conditions set out in (a) are not met.

Any reduction will be prorated between the basic coverage and the supplemental
coverage. Any reduction will occur on the date the partial surrender occurs. No
partial surrender will be allowed if the stated death benefit remaining in
force after any such partial surrender would reduce the stated death benefit
below the minimum stated death benefit shown in the Schedule.

LOAN PROVISIONS

POLICY LOANS

You may obtain a policy loan after the first policy year. The maximum loan
value at any time equals the surrender value less the monthly deduction to the
next policy anniversary. The policy loan is a first lien on your policy.

LOAN INTEREST

The annual policy loan interest rate is shown in the Schedule. If a loan is
made, interest is due in arrears and payable at the end of the current policy
year. Thereafter, interest on the loan amount is due annually at the end of
each policy year until the loan is repaid. If interest is not paid when due, it
is added to the loan.

If the loan balance equals or exceeds the surrender value, premium sufficient
to keep this policy in force must be paid as provided in the Grace Period
Provision.

GENERAL CONTRACT PROVISIONS

THE CONTRACT

The policy, including the original application and any applications for an
increase, riders, endorsements, and any reinstatement applications make up the
entire contract between us. A copy of the original application will be attached
to the policy at issue. A copy of any application for any increase will be
attached or furnished to you for attachment to the policy at the time of any
increase in coverage. In absence of fraud, all statements made in any
application will be considered representations and not warranties. No statement
will be used to deny a claim unless it is in an application.

AGE

The policy is issued at the age shown in the Schedule. This is the insured's
age nearest birthday on the policy date. The insured's attained age is the age
shown in the Schedule increased by the number of computed policy years.

PROCEDURES

We must receive in writing any election, designation, change, assignment or
request you make. It must be on a form acceptable to us. We may require the
policy for any policy change or for its surrender value. We are not liable for
any action we take before we receive and record the written notice.

In the event of an insured's death while the policy is in force, please let us
or our agent know as soon as possible. Claim procedure instructions will be
sent to you immediately. We may require proof of age and a certified copy of a
death certificate. We may require the beneficiary and the insured's next of kin
sign authorizations as part of due proof. These authorization forms allow us to
obtain information about the insured, including, but not limited to, medical
records of physicians and hospitals used by the insured.

<PAGE> 21
OWNERSHIP

The original owner of this policy is the person named as the owner in the
application. You, as the owner, can exercise all rights and receive the
benefits of this policy during the insured's life. This includes the right to
change the owner, beneficiaries, and methods for the payment of proceeds. All
rights of the owner are subject to the rights of any assignee and any
irrevocable beneficiary.

You may name a new owner by written notice to us. The effective date of the
change to the new owner will be the date you sign the notice.

BENEFICIARIES

The primary beneficiary surviving the insured will receive the death proceeds.
Surviving contingent beneficiaries are paid death proceeds only if no primary
beneficiary has survived the insured. If more than one beneficiary in a class
survives the insured, they will share the death proceeds equally, unless your
designation provides otherwise. If there is no designated beneficiary
surviving, you or your estate will be paid the death proceeds. The beneficiary
designation will be on file with us or at a location designated by us. While the
insured is living, you may name a new beneficiary. The effective date of the
change will be the date the request was signed. We will pay proceeds to the
most recent beneficiary designation on file. We will not be subject to multiple
payments.

COLLATERAL ASSIGNMENT

You may assign this policy as collateral security by written notice to us. Once
it is recorded with us, the rights of the owner and beneficiary are subject to
the assignment. It is your responsibility to make sure the assignment is valid.

INCONTESTABILITY

After this policy has been in force during the insured's life for two years
from the policy date, we will not contest the statements in the application
attached at issue.

After this policy has been in force during the insured's life for two years
from the effective date of any increase in any benefit with respect to the
insured, we will not contest the statements in the application for such change.

After this policy has been in force during the insured's life for two years
from the effective date of any reinstatement, we will not contest the
statements in the application for such reinstatement.

MISSTATEMENT OF AGE OR SEX

If the age or sex of the insured has been misstated, the death beneft will be
adjusted. The death benefit will be that which the cost of insurance which was
deducted from the policy value on the last monthly anniversary date prior to
the death of the insured would have purchased for the insured's correct age and
sex.

SUICIDE EXCLUSION

If the insured commits suicide, while sane or insane, within two years of the
policy date, we will make a limited payment to the beneficiary. We will pay in
one sum the amount of all premiums paid to us during that time, less any
outstanding policy loans and partial surrenders. If the insured commits
suicide, while sane or insane, within two years of the effective date of an
increase in the stated death benefit, we will make a limited payment to the
beneficiary for the increase. This payment will equal the cost of insurance and
any applicable monthly expense charges deducted for such increase.

DEFERMENT

Death proceeds are not subject to deferment. As required by law, we may defer
up to six months the payment of surrender proceeds (including partial
surrenders) and policy loans.

ANNUAL REPORT

We will send to you at least once each year a report which shows the current
policy value, surrender value, premiums paid, charges made since the last
report, and any outstanding policy loan, while your policy is in force.

<PAGE> 22
ILLUSTRATION OF BENEFITS AND VALUES

We will send to you upon request in writing, an illustration of future death
benefits and policy values. This illustration will include the information as
required by the laws or regulations where this policy is delivered. If you
request more than one illustration during a policy year, we will charge a
reasonable fee for each additional illustration, not to exceed $25 per report.

NONPARTICIPATING

The policy does not participate in our surplus earnings.

HOME OFFICE

Our home office is at 1290 Broadway, Denver, Colorado, 80203-5699. All
requests and payments should be sent to us at the home office, unless you are
otherwise notified.

PAYOUTS OTHER THAN AS ONE SUM

1. ELECTION. During the insured's lifetime, you may elect that the
beneficiary receive the proceeds other than in one sum. If you have not
made an election, the beneficiary may do so within 60 days after the
insured's death. You may also elect to take the surrender value of the
policy upon its surrender other than in one sum. Satisfactory written
request must be received at our home office or another location as
designated by us in writing before payment can be made. A payee that is
not a natural person may not be named without our consent. The various
methods of settlement are shown below.

2. SETTLEMENT OPTIONS.

OPTION 1. PAYMENTS FOR A DESIGNATED PERIOD. As elected, payments will be made
in 1, 2, 4 or 12 equal installments per year. They may be received for a
designated period not to exceed 30 years. The monthly payment for each $1,000
applied is shown in Settlment Table 1.

OPTION II. LIFE INCOME WITH PAYMENTS GUARANTEED FOR DESIGNATED PERIOD. As
elected, payments will be made in 1, 2, 4 or 12 equal installments per year
throughout the payee's lifetime. If the payee dies before the end of the
period certain elected, payments will be continued to the contingent payee
until the end of the period certain. The period certain, as elected, may be 5,
10, 15 or 20 years. The amopunt of each payment will depend upon the payee's
sex and age nearest birthday at the time the first payment is due. The amount
of each monthly payment for each $1,000 applied is shown in Settlement Table
II. This option is not available for ages not shown in the Table.

OPTION III. HOLD AT INTEREST. Amounts may be left on deposit with us to be
paid upon the death of the payee or at any earlier date elected. Interest on
any unpaid balance will not be less than 3 1/2% a year, compounded annually. As
elected, interest may be accumulated or paid in 1, 2, 4 or 12 installments per
year. Money may not be left on deposit for more than 30 years.

OPTION IV. PAYMENTS OF A DESIGNATED AMOUNT. Payments will be made until
proceeds, together with interest at a rate not less than 3 1/2% a year
compounded annually, are exhausted. As elected, payments will be made in 1, 2,
4 or 12 equal installments per year.

OPTION V. CURRENT ANNUITY. Settlement will be made during the lifetime of the
payee in accordance with any single premium annuity payout which we agree to.
The amount of each payment will be 104% of the payment which the proceeds would
otherwise provide at our annuity rates in use on such dates.

OPTION VI. OTHER. Settlement may be made in any other manner as agreed upon
in writing between you or the beneficiary and us.

3. CHANGE AND WITHDRAWAL. You may change an election at any time before the
death of the insured or maturity of the policy. If you have given the
beneficiary the right to make changes or withdrawals, or if the
beneficiary has elected the option, the beneficiary (as primary payee)
may take the actions below.

a. Changes may be made from Options I, III, and IV to another option.

b. Full withdrawals may be made under Option III or IV. Partial
withdrawals of not less than $300 may be made under Option III.

13
<PAGE> 23
c. Remaining installments under Option I may be commuted at 3 1/2%
interest and received in one sum.

d. Changes in any contingent payee designation may be made.

A written request must be sent to our home office or another location as
designated by us in writing to make a change or withdrawal. We also may
require that you send in the supplemental contract. We may defer payments of
commuted and withdrawable amounts for a period up to 6 months.

4. EXCESS INTEREST. If we declare that settlement options are to be credited
with an interest rate above that guaranteed, it will apply to Options I,
III, and IV. The crediting of excess interest for one period does not
guarantee the higher rate for other periods.

5. MINIMUM AMOUNTS. The minimum amount which may be applied under any option
is $2,000. If the payments to the payee are ever less than $20, we may
change the frequency of payments so as to result in payments of at least
that amount.

6. SUPPLEMENTARY CONTRACT. When an option becomes effective, the policy will
be surrendered in exchange for a supplementary contract. It will provide
for the manner of settlement and rights of the payees. The contract
effective date will be the date of the insured's death or the date of
other settlement. The first payment under Options I, II, and IV will be
payable as of the effective date. The first interest payment under
Option III will be made at the end of the interest payment period elected.
Subsequent payments will be made in accordance with the frequency of
payment elected. The contract may not be assigned or payments made to
another without our consent.

7. INCOME PROTECTION. Unless otherwise provided in the election, a payee does
not have the right to commute, transfer, or encumber amounts held or
installments to become payable. To the extent provided by law, the
proceeds, amount retained, and installments are not subject to any payee's
debts, contracts, or engagements.

8. DEATH OF PRIMARY PAYEE. Upon the primary payee's death, any payments
certain under Option I or II, interest payments under Option III, or
payments under Option IV will be continued to the contingent payee.
Or, amounts may be released in one sum if permitted by the contract.
The final payee will be the estate of the last to die of the primary payee
and any contingent payee.

9. PAYMENTS OTHER THAN MONTHLY. The tables which follow show monthly
installments for Options I and II. To arrive at annual, semiannual, or
quarterly payments, multiply the appropriate figures by 11.813, 5.957, or
2.991, respectively. Factors for other periods certain or for other
options which may be provided by mutual agreement will be provided upon
reasonable request.

14
<PAGE> 24

SETTLEMENT TABLE I
(PER $1,000 OF NET PROCEEDS)

<TABLE>
<CAPTION>
NO. OF YEARS MONTHLY
PAYABLE INSTALLMENTS
------------ ------------
<S> <C>
1 $84.65
2 43.05
3 29.19
4 22.27

5 18.12
6 15.35
7 13.38
8 11.90
9 10.75

10 9.83
11 9.09
12 8.46
13 7.94
14 7.49

15 7.10
16 6.76
17 6.47
18 6.20
19 5.97

20 5.75
21 5.56
22 5.39
23 5.24
24 5.09

25 4.96
26 4.84
27 4.73
28 4.63
29 4.53

30 4.45
</TABLE>

16
<PAGE> 25

SETTLEMENT TABLE II
(PER $1,000 OF NET PROCEEDS)

<TABLE>
<CAPTION>
AGE OF PAYEE AGE OF PAYEE
NEAREST BIRTHDAY NEAREST BIRTHDAY
WHEN FIRST MONTHLY INSTALLMENT WHEN FIRST MONTHLY INSTALLMENT
INSTALLMENT --------------------------------------- INSTALLMENT ----------------------------------------
IS PAYABLE 5 10 15 20 IS PAYABLE 5 10 15 20
------------- YEARS YEARS YEARS YEARS -------------- YEARS YEARS YEARS YEARS
MALE FEMALE CERTAIN CERTAIN CERTAIN CERTAIN MALE FEMALE CERTAIN CERTAIN CERTAIN CERTAIN
---- ------ ------- ------- ------- ------- ---- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 20 3.31 3.31 3.31 3.31 50 55 4.77 4.71 4.62 4.50
16 21 3.33 3.33 3.33 3.32 51 56 4.85 4.79 4.69 4.55
17 22 3.35 3.35 3.34 3.34 52 57 4.94 4.87 4.76 4.61
18 23 3.37 3.37 3.36 3.36 53 58 5.04 4.96 4.84 4.67
19 24 3.39 3.38 3.38 3.38 54 59 5.14 5.05 4.91 4.73

20 25 3.41 3.40 3.40 3.40 55 60 5.24 5.14 4.99 4.79
21 26 3.43 3.43 3.42 3.42 56 61 5.35 5.24 5.07 4.85
22 27 3.45 3.45 3.44 3.44 57 62 5.47 5.34 5.15 4.91
23 28 3.47 3.47 3.47 3.46 58 63 5.59 5.45 5.24 4.97
24 29 3.50 3.49 3.49 3.48 59 64 5.71 5.56 5.33 5.03

25 30 3.52 3.52 3.51 3.51 60 65 5.85 5.68 5.42 5.10
26 31 3.55 3.54 3.54 3.53 61 66 5.99 5.80 5.51 5.16
27 32 3.58 3.57 3.57 3.56 62 67 6.15 5.93 5.61 5.21
28 33 3.60 3.60 3.59 3.58 63 68 6.31 6.07 5.70 5.27
29 34 3.64 3.63 3.62 3.61 64 69 6.48 6.21 5.80 5.33

30 35 3.67 3.66 3.65 3.64 65 70 6.66 6.35 5.90 5.38
31 36 3.70 3.70 3.69 3.67 66 71 6.86 6.50 6.00 5.43
32 37 3.74 3.73 3.72 3.70 67 72 7.07 6.66 6.10 5.48
33 38 3.77 3.77 3.75 3.74 68 73 7.29 6.83 6.19 5.52
34 39 3.81 3.80 3.79 3.77 69 74 7.52 7.00 6.29 5.56

35 40 3.85 3.84 3.83 3.81 70 75 7.77 7.17 6.38 5.60
36 41 3.89 3.88 3.87 3.84 71 76 8.04 7.35 6.47 5.63
37 42 3.94 3.93 3.91 3.88 72 77 8.32 7.53 6.55 5.66
38 43 3.89 3.97 3.95 3.92 73 78 8.62 7.71 6.63 5.68
39 44 4.03 4.02 4.00 3.96 74 79 8.94 7.89 6.71 5.70

40 45 4.09 4.07 4.05 4.00 75 80 9.20 8.07 6.70 5.72
41 46 4.14 4.13 4.09 4.05 76 81 9.63 8.25 6.84 6.73
42 47 4.20 4.18 4.14 4.09 77 82 10.00 8.43 6.89 5.74
43 48 4.26 4.24 4.20 4.14 78 83 10.39 8.60 6.94 5.74
44 49 4.32 4.30 4.25 4.18 79 84 10.80 8.77 6.98 5.75

45 50 4.39 4.36 4.31 4.23 80 85 11.22 8.93 7.01 5.75
46 51 4.46 4.43 4.37 4.28 81 11.66 9.08 7.04 5.75
47 52 4.53 4.49 4.43 4.34 82 12.12 9.21 7.06 5.75
48 53 4.61 4.56 4.49 4.39 83 12.60 9.34 7.07 5.75
49 54 4.69 4.64 4.55 4.44 84 13.09 9.44 7.08 5.75

85 13.59 9.54 7.09 5.75
</TABLE>

17
<PAGE> 26

BENEFIT ADVANCE RIDER

BENEFITS PAID UNDER THIS RIDER MAY BE TAXABLE. IF SO, YOU AND YOUR BENEFICIARY
MAY INCUR A TAX OBLIGATION. AS WITH ALL TAX MATTERS, YOU SHOULD CONSULT YOUR
PERSONAL TAX ADVISOR TO ASSESS THE IMPACT OF THIS BENEFIT.

The rider is a part of the policy to which it is attached. It must be read
with all policy provisions. This rider does not participate in our surplus
earnings. This rider has no loan or surrender value. This rider provides a
benefit with respect to coverage on the person named as the insured under the
basic policy.

BENEFIT

We will allow the owner to convert all or part of the eligible coverage to the
benefit amount if the insured satisfies the benefit conditions of being
terminally ill or being permanently confined to an eligible nursing home. (See
below for definitions of these terms.)

The minimum converted amount must be at least $25,000. We will not convert
more than $500,000. Amounts converted under this rider and any similar rider
covering the insured will count toward the maximum limit. The remaining face
amount (or stated death benefit, if applicable) must be at least $25,000. If
the remaining face amount is less than $25,000, the entire face amount must be
converted.

If all the eligible coverage is converted, your policy will no longer provide
any benefits or value, except for riders on persons other than the insured
under the basic policy. Any other insurance provided by the policy on someone
other than this insured will be processed as if the original policy was
terminated due to the death of the insured. If not all of the eligible
coverage is converted, your policy will continue in force with reduced benefits
and values. The converted amount divided by the eligible coverage is the
conversion percentage. (We reserve the right to refuse to process any request
where any remaining policy would not qualify as a life insurance contract under
the Internal Revenue Code.) (See Effect on Your Policy.)

ELIGIBLE COVERAGE

The eligible coverage is the amount we would pay under the policy, including
any riders, if the insured were to die on the conversion date. If the policy is
in force under an extended term option or reduced paid up option, none of the
coverage is eligible for this conversion.

BENEFIT AMOUNT

To determine the benefit amount, we will discount the converted amount to its
present value with deductions for: (a) the present value of any expected future
premiums; (b) the conversion percentage times any current policy loan and
accrued interest; and (c) a processing charge of up to a maximum of $300. The
present values will be determined according to our rules and assumptions in
effect at the time of the calculations. We may change those rules and
assumptions from time to time.

The benefit amount will be at least the amount of the net surrender value times
the percentage of the eligible coverage that is converted under this rider.

We will pay the benefit amount in one lump sum or any annuity payout offered by
us at the time of conversion.

BENEFIT CONDITIONS

Terminally Ill

To be terminally ill under this rider, you must give us evidence that satisfies
us that the insured's life expectancy is six months or less. Part of that
evidence must be a certification by a licensed physician.

Permanently Confined

To be permanently confined under this rider, you must give us evidence that
satisfies us that: (1) the insured is confined to an eligible nursing home and
has been confined there for all the preceding six months; and (2) the insured is
expected to stay in the nursing home until death. Part of that evidence must
be a certification by a licensed physician.

<PAGE> 27
Under this rider, an eligible nursing home is an institution or special nursing
unit of a hospital which either provides Medicare approved skilled nursing care
service or provides licensed skilled nursing care of intermediate care services
in the state in which it is located. The facility must provide continuous room
and board accommodations to 3 or more persons. It must be under the supervision
of a registered nurse (RN) or licensed practical nurse (LPN). It must regulate
and record all medications distributed and maintain a daily medical record for
each patient.

EFFECT ON YOUR POLICY

If not all the eligible coverage is converted, the policy will stay in force at
a reduced amount. The face amount (or stated death benefit, if applicable),
policy and surrender values, any policy loan and accrued interest will be
reduced by the percentage of eligible coverage that is converted (the
conversion percentage). Any rider on the insured under the basic policy will
also be reduced in the same manner. For example, if the conversion percentage
is 75%, the new face amount will be 25% of the amount just prior to the
conversion. If you elect to convert all the eligible coverage, all other
benefits under the policy on the insured under the basic policy will terminate.
For any other insurance provided by the policy on someone other than this
insured, we will continue such insurance as if the policy ended due to the
insured's death.

PROCEDURES

To obtain any benefit provided by this rider, we must receive written notice,
in a form acceptable to us, that you want to receive this rider benefit. The
appropriate claim forms and procedures will be forwarded to you immediately. We
will require the policy to be sent to us. If the policy is assigned, the
assignee must consent to any exercise of any rights pursuant to this rider.

You are not eligible for this rider benefit if you are required by law or a
government agency to obtain this benefit due to bankruptcy, creditor claims, or
government benefit qualification.

TERMINATION

This rider will end on the earliest of the following dates:

1. the expiration date shown on the Schedule for this rider;

2. the termination of this policy;

3. the date the benefit under this rider is elected;

4. the monthly anniversary on or next following the receipt of your written
request; or

5. the date the policy is in force under extended term option or a reduced
paid-up option.

SECURITY LIFE OF DENVER INSURANCE COMPANY

/s/ E. L. COPELAND

SECRETARY
<PAGE> 28
SECURITY LIFE OF DENVER INSURANCE COMPANY
Denver, Colorado 80203

REQUIRED PROCEDURE FOR CONSUMER COMPLAINT NOTIFICATION

CALIFORNIA INSURANCE CODE SECTION 510

This notice is to advise you that should any complaints arise regarding this
insurance, you may contact the following:

Department of Insurance
Consumer Services Division
3450 Wilshire Boulevard
Los Angeles, CA 90010
1-800-927-HELP
<PAGE> 29
SECURITY LIFE OF DENVER INSURANCE COMPANY
Denver, Colorado 80203

ENDORSEMENT

This Endorsement is a part of the Policy to which it is attached.

DEATH BENEFIT. of the Insurance Coverage Provisions is changed to read:

1. DEATH BENEFIT. The Stated Death Benefit is the sum of the Basic Coverage
and the Supplemental Coverage. The Stated Death Benefit and the option
that apply to this policy are shown on the Schedule. Subject to the other
provisions of the Policy, the Insured's Death Benefit at any time under
the Policy will be as follows:

Option 1 - If the Stated Death Benefit includes the policy value, as shown in
the Schedule, the Death Benefit will equal the greater of:

a. the Stated Death Benefit on the date of death; or

b. the policy value divided by a net single premium rate for the
Insured's sex, premium classification, and attained age, which
is calculated using the interest rate guaranteed in the Policy and
the mortality rates specified below, in accordance with the Internal
Revenue Code Section 7702(b)(2), in effect at the time this Policy is
issued, and the regulations under it. The net single premium will
remain level during the Policy year and equal the rate at the
beginning of the Policy year. The net single premium will be
calculated assuming a level death benefit endowment at age 95.

Option 2 - If the Stated Death Benefit is in addition to the policy value, as
shown in the Schedule, the Death Benefit will equal the greater of:

a. the Stated Death Benefit plus the policy value on the date of death;
or

b. the policy value divided by a net single premium rate for the
Insured's sex, premium classification, and attained age, which
is calculated using the interest rate guaranteed in the Policy and
mortality rates specified below, in accordance with the Internal
Revenue Code Section 7702(b)(2), in effect at the time this Policy is
issued, and the regulations under it. The net single premium rate will
remain level during the Policy year and equal the rate at the
beginning of the Policy year. The net single premium will be
calculated assuming a level death benefit endowment at age 95.

The Commissioners 1980 Standard Ordinary Mortality Table will be used.

This Policy is designed to qualify as a life insurance contract for
purposes of the Internal Revenue Code. All terms and provisions of the Policy
shall be construed in a manner consistent with that design. The amount of
insurance in force at any time under the Policy shall not be less than the
amount of insurance necessary to achieve such qualification under the
applicable provisions of the Internal Revenue Code in existence at the time
the Policy is issued.

SURRENDER AND SURRENDER VALUE. (1)(b) of the Surrender Provision is changed to
read:

(b) is the Stated Death Benefit at that time multipled by the net
single premium rate for the insured's sex, premium classification, and
attained age. The net single premium will be calculated as described in the
Death Benefit section of the Insurance Coverage Provisions.

SECURITY LIFE OF DENVER INSURANCE COMPANY

/s/ E. L. Copeland

SECRETARY

<PAGE> 30
Security Life of Denver Insurance Company
Denver, Colorado 80203

CALIFORNIA LIFE INSURANCE

GUARANTY ASSOCIATION ACT

NOTICE CONCERNING GENERAL PURPOSES

AND COVERAGE LIMITATIONS

Residents of California who purchase life insurance and annuities should know
that the insurance companies licensed in this state to write these types of
insurance are members of the California Life Insurance Guaranty Association.
The purpose of this association is to assure that policyholders will be
protected, within limits, in the unlikely event that a member insurer becomes
financially unable to meet its obligations. If this should happen, the Guaranty
Association will assess its other member insurance companies for the money to
pay the claims of insured persons who live in this state and, in some cases, to
keep coverage in force. The valuable extra protection provided by those insurers
through the Guaranty Association is not unlimited, however, as noted in the box
below.

THE CALIFORNIA LIFE INSURANCE GUARANTY ASSOCIATION MAY NOT PROVIDE COVERAGE FOR
THIS POLICY. IF COVERAGE IS PROVIDED, IT MAY BE SUBJECT TO SUBSTANTIAL
LIMITATIONS OR EXCLUSIONS, AND REQUIRE CONTINUED RESIDENCY IN CALIFORNIA. YOU
SHOULD NOT RELY ON COVERAGE BY THE CALIFORNIA LIFE INSURANCE GUARANTY
ASSOCIATION IN SELECTING AN INSURANCE COMPANY OR IN SELECTING AN INSURANCE
POLICY.

COVERAGE IS NOT PROVIDED FOR YOUR POLICY OR ANY PORTION OF IT THAT IS
NOT GUARANTEED BY THE INSURER OR FOR WHICH YOU HAVE ASSUMED THE RISK, SUCH AS A
VARIABLE CONTRACT SOLD BY PROSPECTUS.

INSURANCE COMPANIES OR THEIR AGENTS ARE REQUIRED BY LAW TO GIVE OR SEND
YOU THIS NOTICE. HOWEVER, INSURANCE COMPANIES AND THEIR AGENTS ARE PROHIBITED
BY LAW FROM USING THE EXISTENCE OF THE GUARANTY ASSOCIATION TO INDUCE YOU TO
PURCHASE ANY KIND OF INSURANCE POLICY.

POLICYHOLDERS WITH ADDITIONAL QUESTIONS MAY CONTACT:

THE CALIFORNIA LIFE INSURANCE GUARANTY ASSOCIATION
P.O. BOX 70068
LOS ANGELES, CA 90070

CALIFORNIA DEPARTMENT OF INSURANCE
100 VAN NESS AVENUE - 17TH FLOOR
SAN FRANCISCO, CALIFORNIA 94102

(PLEASE TURN TO BACK OF PAGE)

<PAGE> 31
The state law that provides for this safety-net coverage is called the
California Life Insurance Guaranty Association Act. Below is a brief summary of
this law's coverages, exclusions and limits. This summary does not cover all
provisions of the law; nor does it in any way change anyone's rights or
obligations under the act or the rights or obligations of the association.

COVERAGE

Generally, individuals will be protected by the California Life Insurance
Guaranty Association if they live in this state and hold a life insurance
contract, or an annuity, or if they are insured under a group insurance
contract, issued by a member insurer. The beneficiaries, payees or assignees of
insured persons are protected as well, even if they live in another state.

EXCLUSIONS FROM COVERAGE

However, persons holding such policies are not protected by this Association
if:

o they are eligible for protection under the laws of another state (this may
occur when the insolvent insurer was incorporated in another state whose
guaranty association protects insureds who live outside that state);

o the insurer was not authorized to do business in this state;

o their policy was issued by a charitable organization, a fraternal benefit
society, a mandatory state pooling plan, a mutual assessment company, an
insurance exchange, or a grants and annuities society holding a certificate
of authority under Section 11520.

The Association also does not provide coverage for:

o any policy or portion of a policy which is not guaranteed by the insurer or
for which the individual has assumed the risk, such as a variable contract
sold by prospectus;

o any policy of reinsurance (unless an assumption certificate was issued);

o interest rate yields that exceed an average rate;

o dividends;

o credits given in connection with the administration of a policy by a group
contract holder;

o unallocated annuity contracts;

o any plan or program of an employer or association that provides life or
annuity benefits to its employees or members to the extent the plan is
self-funded or uninsured.

LIMITS ON AMOUNT OF COVERAGE

The act also limits the amount the Association is obligated to pay out. The
Association cannot pay more than 80% of what the insurance company would owe
under a policy or contract. Also, for any one insured life, the Association
will pay a maximum of $250,000--no matter how many policies and contracts there
were with the same company, even if they provided different types of coverages.
Within this overall $250,000 limit, the Association will not pay more than
$100,000 in cash surrender values, $100,000 in present value of annuities, or
$250,000 in life insurance death benefits--again, no matter how many policies
and contracts there were with the same company, and no matter how many
different types of coverages.

<PAGE> 32

SECURITY LIFE OF DENVER INSURANCE COMPANY
Security Life Center
1290 Broadway
Denver, Colorado 80203-5699

AMENDMENT TO APPLICATION NO. 23607

This is an amendment to the Application for Policy 1532560, with Policy Date of
04-06-94.

Part I, Section E-3b; Stated Death Benefit is $516,347.00 of which $258,174.00
is Basic Coverage and $258,173.00 is Supplemental Coverage.

I acknowledge that the Policy was delivered to me, the policyowner, on the date
indicated below.

SIGNATURES NEEDED Signature DAVID S. ENGELMAN
--------------------------
David S. Engelman, Ins/Own

Proposed Insured [X] DAVID S. ENGELMAN
--------------------------

Applicant-Owner [ ] DAVID S. ENGELMAN
--------------------------

File No. 1532560/7sdan Date 6/10/91
-------

WHITE COPY TO REMAIN IN POLICY CONTRACT - YELLOW COPY TO BE
RETURNED TO HOME OFFICE
<PAGE> 33

SECURITY LIFE Security Life Center
DENVER, COLORADO 1290 Broadway
Denver, CO 80203-5699
(303) 860-1290

APPLICATION FOR LIFE INSURANCE TO SECURITY LIFE OF DENVER INSURANCE COMPANY

Please Print All Information Using Dark Ink 911532560 ENGLEMAN, DAVID S
___________________________________________ 10/07/37
4/29/94 #276300/236 DIV: 7 CWA:

SECTION A -- GENERAL INFORMATION (Complete for all cases)

A-1 / / Check here if insurance is for PENSION or similar tax qualified ERISA
plan.

A-2 If above statement checked, list plan type _______________________________
(Example: Profit-Sharing;
Defined Contribution; etc.)
<TABLE>
<S> <C>
A-3 / / Exercise Right of Exchange Rider A-4 Employer Sponsored Plans check one:
Name of Insured under Policy to be Exchanged Policy Number Employee Owned? / / Yes / / No
____________________________________________/______________
</TABLE>
_______________________________________________________________________________
SECTION B -- PROPOSED INSURED (Complete for all cases. To apply for additional
insureds complete Section G)

B-1 Name (Print full name, include suffix -- if name to appear differently on
policy, indicate in Section M)

(First, Middle, Last, Suffix)

DAVID S. ENGELMAN
---------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
B-2 Sex B-3 Birthdate B-4 Insurance Age B-5 Birthplace
/X/ Male Month Day Year (Age Nearest Birthday) (State)
/ / Female 10 07 1937 EVANSTON, IL
---- -- ---- ----- -------------

B-6 Social Security Number B-7 Telephone Number B-8 Height
558 - 44 - 8395 714 - 255 - 8100 ------
--- -- ---- --- --- ---- B-9 Weight
-------
</TABLE>

B-10 Address
(Street, Apt. No.)
P.O. BOX 648
-------------------------------------------------------------------------
(City) (State) (Zip Code)
RANCHO SANTA FE CA 92067 -
------------------------------------ -- ----- ----

B-11 Occupation B-12 Describe duties
CHIEF EXECUTIVE OFFICER
------------------------------------ --------------------------------

B-13 Employer Name Month Year
UNION FEDERAL BANK B-14 Employment date: 03 91
------------------------------------ -- --
_______________________________________________________________________________
SECTION C -- OWNER (Complete only if other than Proposed Insured)

C-1 Owner Name (Print full name, include suffix -- if name to appear
differently on policy, indicate in Section M)

(First, Middle, Last, Suffix)
DAVID S. ENGELMAN, SUBJECT TO SPLIT DOLLAR AGREEMENT
--------------------------------------------------------------------------
C-2 Relationship to Proposed Insured C-3 Social Security Number or Tax
I.D. No. (Include any hyphens)
SELF 558 - 44 - 8395
------------------------------- --- -- ----

C-4 Owner Address
(Street, Apt. No.)
P.O. BOX 648
--------------------------------------------------------------------------
(City) (State) (Zip Code)
RANCHO SANTA FE CA 92067 -
------------------------------------ -- ----- ----
_______________________________________________________________________________
SECTION D -- BENEFICIARIES (Complete for all cases)

D-1 Primary Beneficiary(ies) Relationship to Proposed Insured Birthdate
(Print Full Names)
DAVID S. ENGELMAN & SHERRY B. ENGELMAN OR SUCH SUCCESSOR TRUSTEES AS MAY BE
HEREAFTER APPOINTED TRUSTEES OF THE ENGELMAN FAMILY TRUST DTD 5-7-92,
SUBJECT TO SPLIT DOLLAR AGREEMENT
- - - - --------------------------------------------------------------------------------
Contingent Beneficiary(ies) Relationship to Proposed Insured Birthdate
(Print Full Names)

- - - - --------------------------------------------------------------------------------
<PAGE> 34

<TABLE>
<CAPTION>
SECTION E -- PLAN INFORMATION (Complete for all cases)
<S> <C>
E-1 Check type of insurance
/ / Fixed Premium (Complete Question E-2)
/x/ Flexible Premium (Complete Question E-3)

E-2 FIXED PREMIUM POLICY
a. Product Plan Name b. Base Face Amount
______________________________________________________________________ $_______________________

c. Death Benefit Option (If Applicable)
/ / Option 1 / / Option 2 (If no option selected, Option 1 will apply)
d. Plus Units (State type and premium amounts requested)
Type (For example "A," "B," "C") ______ Premium Amount $_________________._____
Type (For example "A," "B," "C") ______ Premium Amount $_________________._____
Type (For example "A," "B," "C") ______ Premium Amount $_________________._____
e. Accumulation Units (State type and premium amounts requested)
Type (For example "A," "B," "C") ______ Premium Amount $_________________._____
Type (For example "A," "B," "C") ______ Premium Amount $_________________._____
Type (For example "A," "B," "C") ______ Premium Amount $_________________._____
f. Lump Sum Pour in $___________________________________________
g. Purchase Lump Sum Death Benefit / / Yes / / No
(If neither option selected, the policy will not include lump sum death benefit)
h. / / Quick Pay at Issue i. / / Quick Pay at First Policy Anniversary
j. Riders
/ / Premium Waiver (any occupation) / / Right to Exchange
/ / Super Premium Waiver (own occupation for Corporate / / Accidental Death $______________________
Owned only) / / Child Insurance Rider # of Units _______
(Complete Section H)
/ / Premium Waiver on Owner's Death/Disability (Juvenile)
/ / Scheduled Term Rider Benefit (Attach Schedule)
/ / Other ___________________________________________________________________________________________________________

E-3 FLEXIBLE PREMIUM POLICY
a. Product Plan Name
__ULTRA UL______________________________________________________________
b. Stated Death Benefit
Basic $ ___516,347______________
Supplemental $__258,173_________________
c. First year Pour-In (if any) $________________________
d. / / Option 1 (Stated Death Benefit. If no option selected, Option 1 will apply)
/ / Option 2 (Stated Death Benefit plus Cash Value.)
e. Scheduled Periodic Premium $ ___________________________________ (If premium varies from year to year attach schedule)
f. Riders
/x/ Term to Age 95 $__0_____________________________ / / Additional Insured $ ____________________________________
(Attach Schedule) SEE SCHEDULE (Complete section G)
/ / Accidental Death $______________________________ / / Children's Insurance Rider (# of Units) _________________
/ / Right to Exchange (Complete section H)
/ / Waiver of Cost of Insurance
/ / Waiver of Specified Premium $______________________________
/ / Other ____________________________________________________________________________________________________________

</TABLE>

<PAGE> 35

_______________________________________________________________________________

SECTION F--SPECIAL DATING REQUESTED (If neither box checked below, policy will
be issued at age nearest birthday as of
issue date.)

F-1 / / Date to Save Age Specify Requested Age / /

Mo Day Year
F-2 / / Specific Date / / / / / / / / / / /
_______________________________________________________________________________

SECTION G--ADDITIONAL INSURED RIDER

G-1 Name of Proposed Additional Insured (If more than one additional insured,
specify details in special
instructions, Section M)
(First, Middle, Last, Suffix)
___________________________________________________________________________

G-2 Relationship to proposed insured___________________________________________

Month Day Year
G-3 Birthdate / / / / / / / / / / / G-4 Height________________

G-5 Weight______________

G-6 Show beneficiary for additional insured if different from
beneficiary named in Section D.

Name: Relationship Birthdate:
__________________________ _______________________ __________________

G-7 Insurance Age (Age nearest birthday) / / /
_______________________________________________________________________________

SECTION H--CHILD RIDER
Birthdate Mo/Day/Yr Height Weight
H-1 Child / / /
---------------------------------------------------------------------------
H-2 Child / / /
---------------------------------------------------------------------------
H-3 Child / / /
---------------------------------------------------------------------------
H-4 Child / / /
_______________________________________________________________________________

SECTION I--PREMIUM INFORMATION
<TABLE>
<S> <C>
I-1 Premium Mode (If no option selected--Premium I-1 Payment Method
mode will be quarterly) /X/ Direct Bill (not available for monthly)
/X/ Annual / / Single Premium
/ / Quarterly / / List Bill Existing List Bill Number___________________
/ / Semi-Annual / / Government Allotment (Complete and attach form)
/ / Monthly (only available for List Bill / / Authorized Withdrawal (Complete Authorized
and Authorized Withdrawal/EFT) Withdrawal/EFT Form)
</TABLE>

I-3 Automatic Premium Loans (if available)
/X/ Yes / / No (If no option selected policy will include automatic
premium loan provision)
I-4 Dividends, if any, are to be used to purchase paid up additions unless
another choice is specified below.
___________________________________________________________________________

I-5 Premium collected with application

NOTE: The agent is not authorized to collect any premium (including
Authorized Withdrawal/EFT Form and Government Allotment forms) before
delivering a policy unless the Binding Limited Life Insurance Coverage
form has been completed and signed by the agent, applicant and proposed
insured and a copy given to the applicant. THERE IS NO COVERAGE BEFORE
DELIVERY OF THE POLICY EXCEPT AS PROVIDED BY THAT FORM.

<TABLE>
<CAPTION>
Yes No
<S> <C> <C>
/ / /X/ a. Has agent collected any premium (including any Authorized Withdrawal/EFT Form or Government Allotment Form) with
this application? If yes, total premium (including any pour-in) collected $______________________

/ / / / b. If answer to (a) is "Yes", has agent complied with the Binding Limited Life Insurance Coverage requirements?

/ / / / c. Has the applicant signed and received a Binding Limited Life Insurance Coverage form in connection with this
application? Attach signed copy of Binding Limited Life Insurance Coverage form.
</TABLE>

<PAGE> 36
________________________________________________________________________________

SECTION J--PERSONAL INFORMATION

J-1 List life insurance policies on all persons proposed for coverage (1) now
in force or (2) applied for within the last 12 months, or (3) pending now.

IF NONE, CHECK THIS BOX [ ]

<TABLE>
<CAPTION>
- - - - ------------------------------------------------------------------------------------------------------
Increase if
Name of In force, Applied
Proposed Year A.D. Business or for, or
Insured Company Issued Amount Amount Personal Pending
- - - - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David S. Engelman Sun Life of Canada 1990 250,000 Personal In Force
- - - - ------------------------------------------------------------------------------------------------------
David S. Engelman North American 1990 250,000 Personal In Force
- - - - ------------------------------------------------------------------------------------------------------

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

- - - - ------------------------------------------------------------------------------------------------------
</TABLE>

J-2 Has any proposed insured ever been declined for insurance
(or reinstatement) or been offered insurance with restricted
benefits or at other than standard rates? (DO NOT ANSWER
THIS QUESTION IF YOU RESIDE IN MISSOURI.) (If "Yes" give
details in Section J-12) [ ] [X]

J-3 Is this insurance to replace, or will it cause any change
in, any insurance or annuity or any person proposed for
coverage? (If "Yes" submit a completed replacement form
with this application.) [ ] [X]

J-4 a. Is this insurance intended to be a tax free exchange--
1035 Exchange? [ ] [X]

b. If "Yes" will any policy loan be carried over? [ ] [ ]

J-5 Has any person proposed for coverage:

a. ever smoked cigarettes? (If "Yes", give name and
details in section J-12) [ ] [X]

b. ever used tobacco in any form other than cigarettes?
(If "Yes" give name and details in section J-12) [ ] [X]

c. ever stopped smoking cigarettes? (If "Yes" give name
and date last smoked in section J-12) [ ] [ ]

d. every stopped using tobacco in any form other than
cigarettes. (If "Yes" give name, type and date last
used in section J-12) [ ] [ ]

J-6 Within the last 3 years or within the next 12 months, has
any person proposed for coverage:

a. flown (or planned to fly) other than as a passenger on
a regularly scheduled airline? (If "Yes" complete
Aviation Supplement.) Not a licensed pilot! Occasionally
fly charter flights or short business trips as passenger.
Not as pilot. [X] [ ]

b. had a drivers license denied, revoked, or suspended;
had three or more moving violations; been convicted
of an alcohol or drug related driving offense; been
involved in two or more auto accidents? (If "Yes" give
details in Section J-12) [ ] [X]

c. participated in (or intend to participate in) vehicle
racing (on land or water), ballooning, bobsledding,
hang-gliding, ultralight aviation, horse racing,
mountaineering, rodeo, scuba/skin diving, skydiving/
parachuting, or bungee cord jumping? (If "Yes" complete
Avocation Supplement) Have participated in recreational
rock climbing and scuba (not in last 5 years). [X] [ ]

J-7 List Driver's License No. here: D 0 0 5 9 6 7 2 State CA
_________________ __

J-8 Does any person proposed for coverage contemplate traveling
or residing outside the U.S.A. or Canada within the next 12
months? (If "Yes" give details in Section J-12) [ ] [X]

J-9 Has any person proposed for coverage been convicted of a
felony within the last 5 years? (If "Yes" give details
in Section J-12) [ ] [X]

J-10 Has any person proposed for coverage:

a. ever had, or now have, any type of heart disease,
cancer, leukemia, or malignant tumor? (If "Yes" give
details in Section J-12) Skin carcinomas excised see
B-1h. explanation. [X] [ ]

b. ever been diagnosed by a licensed member of the medical
profession as having Acquired Immune Deficiency Syndrome
(AIDS) or any immune deficiency or disorder? (DO NOT
ANSWER THIS QUESTION IF YOU RESIDE IN NEVADA.) (If "Yes"
give details in Section J-12) [ ] [X]

</TABLE>

<PAGE> 37

- - - - -------------------------------------------------------------------------------
SECTION J -- PERSONAL INFORMATION (Continued)
Yes No
J-1 Does any person proposed for coverage now participate
in any regular physical exercise program? [X] [ ]

J-2 Details of "YES" Answers to Questions J-2 through J-11

Walking; Tennis, Swimming

- - - - -------------------------------------------------------------------------------
SECTION K -- MEDICAL EXAM CERTIFICATE (Complete when submitting medical
examination of another insurance company.)

K-1 The attached examination is on the life of:

K-2 Name of insurance company for which examination was made and date of
examination:

Company Date of Examination

Yes No
K-3 To the best of the proposed insured's knowledge
and belief, are the statements in the examination
true as of today? (If "No", explain in "REMARKS") [ ] [ ]

K-4 Has the proposed insured consulted a doctor or
other practitioner or received medical or surgical
advice since the date of the examination?
(If "Yes", explain in "REMARKS") [ ] [ ]

Remarks to No. K-3 and K-4

- - - - -------------------------------------------------------------------------------
SECTION L -- FINANCIAL INFORMATION (Must be completed where the face amount
exceeds [1] $200,000 for business insurance, [2] $300,000 for an
insured 65 and under, or [3] $100,000 for an insured over 65.)

L-1 What is the purpose of the insurance applied for? Collateral assignment
split dollar

If the insurance applied for is personal, what is the proposed insured's:

Annual Earned Income $300,000.00 Total Assets $2,181,502

Annual Interest & Total Liabilities $ 444,598
Other Income $130,000.00
Total Net Worth $1,736,904

L-2 If Business Insurance:
Last Year 2 Years Ago
a. Annual net profit (before
taxes, past two years) $ $

b. Business reason for insurance (check at least one box and
furnish details)

[ ] Key Person [ ] Stock Redemption/Buy and Sell

[ ] Other
Yes No
c. If Key Person insurance:

(1) Are all partners or key people to be covered? [ ] [ ]
(If "No", explain)

(2) Does proposed insured have an ownership
interest in the business? [ ] [ ]
If "Yes", what is proposed insured's
percent of ownership? %

(3) What is proposed insured's annual income? $
<PAGE> 38

SECTION L - FINANCIAL INFORMATION-(Continued) (Complete for all cases where the
face amount exceeds (1) $200,000 for business insurance, (2) $300,000 for an
insured 65 and under or (3) $100,000 for an insured over 65)

d. If to fund stock redemption, is there a written agreement?
___ Yes ___ No

(1) What is the book value of the business? $_____________
(2) What is the market value of the business? $_____________
(3) How was the value determined? _________________________

Yes No
L-3 Is this insurance to guarantee a loan? [ ] [X]
a. If "Yes", is the lender requiring this insurance? [ ] [ ]
b. Is the loan finalized? [ ] [ ]
c. What is the term of the loan (Months) _________________________
d. Name of lender: _______________________________________________
e. Amount of loan: _______________________________________________
f. Purpose of loan: ______________________________________________
g. Are others being insured for the same purpose? [ ] [ ]
If Yes, who and for what amount?
_________________________________________ Amount $____________
_________________________________________ Amount $____________

L-4 Additional remarks about purpose of the insurance and how the amount of
insurance was determined.
Remarks to Section L
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________

SECTION M - SPECIAL INSTRUCTIONS
Date policy to sale age 56
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________

<PAGE> 39

Please Print All Information Using Dark Ink

Part II must be completed for each person proposed for coverage unless the
person is medically examined.

SECTION A -PERSONAL PHYSICIANS

A-1 For each person proposed for coverage, give the name and address of
the personal physicians and the date and reason the physician was
last seen.

If NONE, check here ___

Name and Address
Proposed Insured's Name of Physician Date and Reason Last Seen
- - - - --------------------------------------------------------------------------------
David S. Engelman Scripps Clinic 1/27/94 Annual Physical
10666 N. Torrey Pines Rd.
La Jolla, CA 92037
- - - - --------------------------------------------------------------------------------
David S. Engelman M.D.--Dermatology 3/11/94 Treatment For
310 Santa Fe Dr. Keratoses and Fungus
Suite 111 In Right Great Toe
Encinitas, CA 92024
- - - - --------------------------------------------------------------------------------
David S. Engelman Craig Cedarhurst, D.C. 4/15/94 Skoletec
235 W. 5th Ave. Adjustment
Escondido, CA 92023 Routine Maintenance
- - - - --------------------------------------------------------------------------------

SECTION B - MEDICAL INFORMATION (Complete for each person proposed for
coverage). (For all of Section B, circle each specific condition and give
details to all "Yes" answers in the Details Section following question B-11.
Give name of disease, symptoms, etc; the date of onset; the duration; number of
attacks; and name and addresses of medical professional or hospital providing
services.)

B-1 Has any person proposed for coverage, ever been treated for, or been
told, by a member of the medical profession that the person has:
Yes No
a. pain, pressure, or discomfort in the chest or arms; high
blood pressure; heart murmur, irregular heartbeat; or
any other disease or disorder of the heart? [ ] [X]

b. anemia; leukemia; or any other disorder of the blood,
veins or arteries? [ ] [X]

c. asthma; bronchitis; pneumonia; tuberculosis; emphysema;
shortness of breath; chronic cough, or any other disorder
of the lungs or respiratory system? [ ] [X]

d. mental or emotional disorder, nervous breakdown;
epilepsy; convulsions; chronic fatigue; fainting spells;
paralysis; stroke; or any other disorder of the brain
or nervous system? [ ] [X]

e. significant weight loss; ulcer; colitis; diverticulitis;
hepatitis; cirrhosis; persistent diarrhea; or other
disease of the liver, gall bladder, pancreas, stomach
or intestines? [ ] [X]

f. diabetes; thyroid; recurrent enlarged glands; or other
glandular disease or disorder? [ ] [X]

g. arthritis; gout; or any bone, joint, muscle, or
skin disorder? [X] [ ]

h. polyp, tumor or cancer? [X] [ ]

i. disorder of the urinary tract or kidneys; urethritis;
cystitis; sugar, albumin, or blood in the urine? [ ] [X]

j. prostate or testicular disease; venereal disease; herpes;
or disease of the uterus, ovaries or breasts? [ ] [X]

k. any disorder of the eyes; ears; nose; or throat? [ ] [X]

l. any other health impairment or medically or surgically
treated condition within the last 5 years not mentioned
above? [ ] [X]

<PAGE> 40

<TABLE>
<CAPTION>
Yes No
<S> <C> <C> <C>
B-2 Has any person proposed for coverage even been treated
for, or been told, by a licensed member of the medical
profession that the person has Acquired Immune
Deficiency Syndrome (AIDS) or any disorder or deficiency
of the Immune System? (DO NOT ANSWER THIS QUESTION IF
YOU RESIDE IN NEVADA.) [ ] [X]

B-3 Within the past 10 years, has any person proposed for
coverage:

a. tested positive in a test to detect antibodies
to the AIDS virus (Human T-Cell Lymphotrophic
virus type III; HTLV-III, Human Immunodeficiency
Virus (HIV)? (DO NOT ANSWER THIS QUESTION IF
YOU RESIDE IN CONNECTICUT OR MAINE.) [ ] [X]

b. had a blood transfussion? [ ] [X]

B-4 Within the past 5 years, has any person proposed for
coverage been a patient in or had treatment at a
hospital, clinic, sanitarium or other medical facility? [X] [ ]

B-5 Is any person proposed for coverage now under regular
medical observation by, or taking treatment from, a
member of the medical profession? [ ] [X]

B-6 Other than as stated in the answers above, has any
person proposed for coverage, within the last 5 years:

a. had a checkup or consultation with a member of
the medical profession? [X] [ ]

b. had an electrocardiogram, x-ray, blood test or
other test? [X] [ ]

c. been advised by a member of the medical
profession to have any diagnostic test,
hospitalization, or surgery which was not
completed? [ ] [X]

B-7 Does any person proposed for coverage have a deformity
or an amputation? [ ] [X]

B-8 Does any person proposed for coverage now take any
medication prescribed by a member of the medical
profession? [X]

B-9 Except as legally prescribed by a physician, has any
person proposed for coverage ever used narcotics,
cocaine, marijuana, or any hallucinatory or mind
altering substances in the past 10 years? [ ] [X]

B-10 In the last 5 years, has any person proposed for
coverage received treatment for or joined an
organization because of the alcoholism or drug
addiction of that person? [ ] [X]

B-11 Has any parent, brother, or sister of any person
proposed for coverage ever had cancer; diabetes;
high blood pressure; heart or kidney disease;
nervous or mental disorder; tuberculosis; or
hereditary disorder? [ ] [X]
</TABLE>

Details of "Yes" answer to questions B-1 through B-11
<TABLE>
<CAPTION>
- - - - ------------------------------------------------------------------------------
Ques. Name of
No. Proposed Insured Complete Details
- - - - ------------------------------------------------------------------------------
<S> <C> <C>
B-1g David Engelman Lower Back Pain; Craig Warhurst, St D.C.--
Keratoses; H.R. McDonald, M.D., 310 Santa Fe Dr.
Ste. 111, Encinitas, CA 92024
- - - - ------------------------------------------------------------------------------
B-1h David Engelman Admexal Carcinoma (Forehead) Dr. McDonald 1/90
Basil Cell Carcinoma (Forehead) Carson Lewis, M.D.,
La Scela 1985 & 1983--All Excised
- - - - ------------------------------------------------------------------------------
B-4 David Engelman Scrips Clinic LaIella--ER--Stomach Cramps
- - - - ------------------------------------------------------------------------------
B-6 David Engelman Annual Physical--Scrips Clinic, Edmond Keeney, M.D.
- - - - ------------------------------------------------------------------------------
</TABLE>

SECTION C--Family History
<TABLE>
<CAPTION>
- - - - ------------------------------------------------------------------------------
Living Deceased
Family Member Age State of Health Age at Death/Cause
- - - - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Father 91+ Excellent
- - - - ------------------------------------------------------------------------------
Mother 90+
- - - - ------------------------------------------------------------------------------
Brothers None
- - - - ------------------------------------------------------------------------------

- - - - ------------------------------------------------------------------------------
Sisters None
- - - - ------------------------------------------------------------------------------

- - - - ------------------------------------------------------------------------------
</TABLE>

<PAGE> 41
AGREEMENTS

All statements and answers in this application (which includes Part I, Part II,
and supplements and amendments) are true and complete to the best of my
knowledge and belief. I also agree that:

1. The statements and answers in this application will be relied upon and
form the basis of any insurance.

2. No information will be considered as having been given to Security Life
unless it is written in this application. (This paragraph does not apply in
the states of Maine, Maryland, Oregon, South Carolina, and South Dakota.)

3. No agent or any other unauthorized person can make or change any
insurance contract or give up any of Security Life's rights or requirements.
Any change must be in writing and signed by an officer of Security Life.

4. Security Life may amend this application by an appropriate notation in
the space designated "Home Office Corrections" in order to correct errors or
omissions or to conform the application with any policy that may be issued.
The acceptance of the policy consititutes a ratification of such
amendments.

In those states where change in amount, classification, plan, premium,
or benefit requires the written consent of the applicant, no change may be
ratified except by a written acceptance. We reserve the right to make any
changes required by law.

5. Insurance Under Policy Applied For--Except as may be provided in any
Binding Limited Life Insurance Coverage, no policy of insurance will be in
force until (1) the first policy premium is paid and (2) the policy is
delivered while the facts and health condition of the proposed insured(s)
are as represented in this application. When these conditions are satisfied,
the policy as delivered will then take effect.

6. Binding Limited Life Insurance Coverage--Any pre-delivery insurance
coverage is provided in the Binding Limited Life Insurance Coverage form.
That coverage is available only if: a premium is accepted by the agent; the
agent has authority to accept premium as set out in that form; and the form
is completed and signed by the agent, applicant, and proposed insured.

7. If the contract applied for is for a pension, profit-sharing, HR10, or
other tax qualified plan, any policy issued shall not be transferable
other than to the Insurer, except as directed by the Plan Administrator.
Other applicable provisions may be added to the contract.

8. I certify, under penalty of perjury, that my social security/tax
identification number(s) is shown and is correct and that I am not subject
to back up withholding.

AUTHORIZATION TO OBTAIN AND DISCLOSE INFORMATION

Security Life of Denver Insurance Company ("Security Life") may obtain
information about me or my minor children from: any physicians; medical
practitioner; hospital; clinic or other medical facility; employer; other
insurance companies or institutions; consumer reporting agency; or Medical
Information Bureau, Inc. (MIB, Inc.). The purpose is to evaluate my application
for insurance or benefits. Security Life may obtain an investigative consumer
report and any records or other information available as to diagnosis,
treatment and prognosis of any physical or mental condition.

Security Life may obtain any drug, physical and mental health, and
alcohol-related information which may be protected by federal or state laws and
regulations. As it pertains to alcohol and drug information covered by federal
regulation, this authorization may be revoked at any time by written notice to
Security Life. But any action taken before my written revocation is received by
Security Life will not be affected.

Security Life may make a brief report about me or my children to MIB. Inc.
Security Life may disclose information to: its reinsurers; those who perform
services for Security Life on my application for insurance or benefits; or
those companies to which I have applied or may apply for life or health
insurance or benefits. Disclosure may be made when required or permitted by
law.

This is valid for two and one-half years from the date below. An original or
copy may be used by Security Life or its authorized representatives to obtain
information. I have read and received a copy of this authorization. I also have
a copy of the Notice of Information Procedures. It includes the MIB, Inc., and
Fair Credit Reporting Notices.

DAVID A. ENGELMAN 4-26-94
Signature of Proposed Insured ___________________________ Date ________________
(If below age 15, signature of parent or guardian)

RANCHO SANTA FE, CALIF.
Signed at _____________________________________
City State

Signature of Spouse/ _____________________________________
Additional Insured(s)
(If proposed for coverage) _____________________________________

Owner Signature
(If other than proposed insured)
OR (if applicable)
Corporate Owner Signature _____________________________________
(If a firm or corporation is to be owner, the signature and title of an officer
other than the proposed insured is required.)

Except for any medical exam form, I certify that I have asked and recorded
completely and accurately the answers to all questions on this application. I
know of nothing else affecting the risk.

ROBERT D. CRISWELL
Signature of Agent _____________________________________
- - - - --------------------------------------------------------------------------------
HOME OFFICE PART I, SECTION B-4, INSURANCE AGE IS: 56.
CORRECTIONS
(FOR HOME OFFICE
USE ONLY)
- - - - --------------------------------------------------------------------------------

9
<PAGE> 42

911532560 ENGELMAN, DAVID S 10/07/37
4/29/94 #276300/236 DIV:7 CWA:

PART II CONTINUATION OF ALL APPLICATIONS FOR INSURANCE TO:

(Check /X/ SECURITY LIFE OF DENVER INSURANCE COMPANY
Appropriate / / MIDWESTERN UNITED LIFE INSURANCE COMPANY
Insurer)

1. a. Full name of person to be insured ("You"): (Please Print)

DAVID SYDNEY ENGELMAN
---------------------------------------------------------
First Middle Last

b. Birthdate: Month 10 Day 7 Year 37
----- ------ -------

2. FAMILY LIVING DEAD
HISTORY Age State of Health Age Cause of Death
- - - - --------------------------------------------------------------------
Father 91 GOOD
Mother 90 NATURAL CAUSES
- - - - --------------------------------------------------------------------
Brothers
Sisters
- - - - --------------------------------------------------------------------
YES NO
3. Have you ever been treated or been told you had:
a. high blood pressure? ......................................... / / /X/

b. pain, pressure or discomfort in the chest or arms, palpitation,
heart murmur, rheumatic fever or any heart disorder? ......... / / /X/

c. anemia, varicose veins or any disorder of the blood or
blood vessels? ............................................... / / /X/

d. asthma, pleurisy, tuberculosis, shortness of breath, pneumonia,
or any disorder of the lungs or respiratory system? .......... / / /X/

e. epilepsy, convulsions, dizziness, fainting spells, paralysis,
mental illness, nervous breakdown, or any disorder of the brain
or nervous system? ........................................... / / /X/

f. hernia, ulcer, or any disorder of the stomach, gallbladder,
liver, pancreas, spleen, intestines, or rectum? .............. / / /X/

g. diabetes, thyroid, or any glandular disorder? ................ / / /X/

h. arthritis, back trouble, gout, or any disorder of the skin,

bones, or joints? ............................................ /X/ / /

i. a polyp, tumor, or cancer .................................... /X/ / /

j. sugar, albumin, or blood in the urine? ....................... / / /X/

k. cystitis, nephritis, kidney stones, urethritis, or any
disorder of the urinary tract? ............................... / / /X/

l. mastitis, prostatitis, venereal disease, herpes, or any
disorder of the genital or reproductive organs? .............. / / /X/

m. any disorder of eyes, ears, nose, or throat? ................. / / /X/

n. any disease, illness, injury, or impairment within
the last 5 years not mentioned above? ........................ / / /X/

4. Within the last 10 years, have you been treated for, had any
reason to know, or been told that you have a chronic cough,
significant weight loss, recurrent enlarged glands, persistent
diarrhea, or yeast infections of the mouth and throat? .......... / / /X/

5. Have you ever been:

a. Diagnosed by a member of the medical profession as having
AIDS (Acquired Immune Deficiency Syndrome) or ARC (AIDS
Related Complex)? ............................................ / / /X/

b. Treated by a member of the medical profession for AIDS
(Acquired Immune Deficiency Syndrome) or ARC (AIDS Related
Complex)? .................................................... / / /X/

6. Within the last 5 years have you ever had or been advised to have:

a. a surgical operation? ........................................ / / /X/

b. an x-ray, electrocardiogram, or any other test? BLOOD......... /X/ / /

c. a consultation with or an examination by a physician or
medical examiner, or an examination or treatment in a
hospital or medical facility? (Give names of physicians,
dates, and reasons for all exams and consultations)........... /X/ / /

7. Do you have a deformity or amputation? .......................... / / /X/

8. Do you now take any kind of medication? ......................... / / /X/

9. In the last 10 years have you:

a. used alcohol? (If "Yes", how much? How often?) ............... /X/ / /

b. used narcotics, cocaine, marijuana, or any hallucinatory or
mind altering substances not prescribed by a physician? ...... / / /X/

c. received advice about or been treated for use of alcohol
or drugs? .................................................... / / /X/

10. Has any parent, brother, or sister of yours ever had cancer,
diabetes, high blood pressure, heart or kidney disease, nervous
or mental disorder, tuberculosis, or hereditary disorder? ....... / / /X/

11. NAMES AND ADDRESSES OF REGULAR ATTENDING PHYSICIANS:
IF NONE, STATE "NONE"

EDMOND KEENEY, SCRIPPS CLINIC
-----------------------------------------------------------------
10666 N. TORREY PINES RD., LA JOLLA
-----------------------------------------------------------------
JAN. 94
-----------------------------------------------------------------
Date and reason last seen: (See #6B)
---------------------------------------
===============================================================================
FULL DETAILS OF EACH "YES" ANSWER (Include dates, duration, results, and names
and addresses of physicians and hospitals -- Identify answer by its number)
<TABLE>
<S> <C> <C> <C>
(3h) LOWER BACK PAIN SPORADICALLY LAST 17 YEARS CRAIG WARHURST
DUE TO EXERCISING RX -- CHIROPRACTIC CARE 235 WINSON AVE
NO CURRENT PROBLEMS PHYSICAL THERAPY ESCONDIDO, CA 92025

(3i) SKIN CANCERS REMOVED FROM FACE (3) TIMES IN DR. HARRISON MCDONALD
THE LAST 5 TO 10 YEARS. 1087 DEVONSHIRE
ENCINITAS, CA 92024
NO PROBLEMS SINCE 1989

(6b) ANNUAL PHYSICAL EXAM JAN. 94 EKG, X-RAY, BLOOD TEST DR. EDMOND KEENEY
RESULTS ALL NORMAL 10666 N. TORREY PINES RD.
LA JOLLA, CA 92037

(6c) STOMACH DISCOMFORT AUG. 92 RX -- E.R. SCRIPPS CLINIC
DX -- FLU RX -- ANTIBIOTICS FULL RECOVERY 10666 N. TORREY PINES RD.
LA JOLLA, CA 92037
(9a) 1-2 GLASSES BEER OR WINE/WEEK
</TABLE>
============================================================================
I declare all of the above statements and answers are complete and true to the
best of my knowledge and belief. They can be relied upon and form the basis of
any insurance. They will be made part of the application for any insurance
applied for.

<TABLE>
<S> <C>
DAVID S. ENGELMAN
- - - - --------------------------------------------- -------------------------------------------------------------------
Signature of person or insured (If under 15, Signature of Applicant-Owner if other than proposed insured
signature of parent or guardian required) (If firm or corporation, print name and sign as authorized officer)

Witness: EDWARD G. GALT 9190 Date MAY 2 , 1994
------------------------------------ ------------------------------------------- -----
</TABLE>
M/S 110A

<PAGE> 43
FLEXIBLE PREMIUM ADJUSTABLE LIFE INSURANCE POLICY

Death Benefit Payable at Death Prior to Maturity Date -- Surrender Value, if
any, Payable on Maturity Date -- Adjustable Death Benefit -- Flexible Premiums
Payable During Lifetime of Insured Until Maturity Date -- Nonparticipating.

<PAGE> 44

EXHIBIT "B"

COLLATERAL ASSIGNMENT

THIS ASSIGNMENT is made and entered into effective the 6th day
of April, 1994, by the undersigned as owner (the "Owner") of that certain
Flexible Premium Adjustable Life Insurance Policy No. 1532560 issued by
Security Life of Denver Life Insurance Company ("Insurer"), and any
supplementary contracts issued in connection therewith (said Policy and
contracts being herein called the "Policy"), upon the life of DAVID S. ENGELMAN
("Insured") to Union Federal Bank, a federal savings bank (the "Assignee").

WHEREAS, DAVID S. ENGELMAN is an employee of the Assignee, and
Assignee wishes to retain him in such capacity, and

WHEREAS, as an inducement to DAVID S. ENGELMAN continuing in
such capacity and for the benefit of the Assignee, Assignee desires to assist
DAVID S. ENGELMAN with his personal life insurance program by providing the
premiums due on the Policy, as more specifically provided for in that certain
Split-Dollar Insurance Agreement of even date herewith, entered into between
the Owner and the Assignee (the "Agreement"), and

WHEREAS, in consideration of the Assignee making such payments
(all amounts so paid to the Assignee toward the premiums on the Policy being
hereinafter collectively referred to as the "Amounts"), the Owner agrees to
grant the Assignee a security interest in said Policy as collateral security
for the payment of a portion of the Policy proceeds to the Assignee pursuant to
the terms of the Agreement.

NOW, THEREFORE, the undersigned Owner hereby assigns,
transfers and sets over to the Assignee the following specific rights in the
Policy, subject to the following terms and conditions:

1. This Assignment is made, and the Policy is to be
held, as collateral security for all liabilities of the Owner to the Assignee,
either now existing or that may hereafter arise, pursuant to the terms of the
Agreement.

2. The Assignee's rights shall be limited to the right
to pledge or assign the Policy as collateral security to the extent of its
interest in the Policy and to receive from the owner an amount equal to such
interest upon the death of the Insured, and its rights under the Agreement and
the other provisions of this Assignment.

3. The Owner shall retain all incidents of ownership in
the Policy, including, but not limited to, the sole and exclusive rights to:
borrow against the Policy, subject to the limitations set forth in the
Agreement; assign the Owner's interest in the Policy with the consent of the
Assignee; change the beneficiary of the Policy; exercise settlement options;
and surrender or cancel the Policy (in whole or in part). All of such
incidents of ownership shall be exercisable by the Owner unilaterally and
without the consent of any other person, except as provided herein.
<PAGE> 45

4. The Assignee shall, upon request, if the Policy is in
the possession of the Assignee, forward the Policy to the Insurer, without
unreasonable delay, for endorsement of any designation or change of
beneficiary, any election of optional mode of settlement, or the exercise of
any other right reserved by the Owner.

5. The Insurer is hereby authorized to recognize the
Assignee's claims to rights hereunder without investigating the reason for any
action taken by the Assignee, the validity or the amount of any of the
liabilities of the Owner to the Assignee under the Agreement, the existence of
any default therein, the giving of any notice required herein, or the
application to be made by the Assignee of any amounts to be paid to the
Assignee. The receipt of the Assignee for any sums received by it shall be a
full discharge and release therefor to the Insurer.

6. The Insurer shall be fully protected in recognizing a
request made by the Owner for surrender or cancellation of the Policy, in whole
or in part, or in recognizing a request made by the Owner for any loans against
the Policy permitted by the terms of the Policy. In the event of any such
request, the Insurer shall pay the proceeds of such surrender, cancellation, or
loan to the joint order of the Owner and the Assignee, as their interests
appear.

7. Upon the full payment of the liabilities of the Owner
to the Assignee pursuant to the Agreement, the Assignee shall execute an
appropriate release of this Collateral Assignment.

IN WITNESS WHEREOF, the Owner has executed this Assignment
effective the day and year first above written.

OWNER:

By: /s/ DAVID S. ENGELMAN By: /s/ SHERRY B. ENGELMAN
-------------------------------- -------------------------------
David S. Engelman Sherry B. Engelman,
Trustee of the Trustee of the
Engelman Family Trust Engelman Family Trust
U/D/T dated 5/7/92. U/D/T dated 5/7/92.

RECEIVED AND ACCEPTED:

INSURER:

By: ______________________________
Its Duly Authorized Agent

2
<PAGE> 46

7. Upon the full payment of the liabilities of the Owner
to the Assignee pursuant to the Agreement, the Assignee shall execute an
appropriate release of this Collateral Assignment.

IN WITNESS WHEREOF, the Owner has executed this Assignment
effective the day and year first above written.

OWNER:

RECEIVED AND ACCEPTED:

INSURER:

By: ______________________________
Its Duly Authorized Agent

Filed at the Home Office of the Insurer this 20th day of June 1994.
Security Life assumes no responsibility for the validity of this document.

/s/ JUAN C. GALLAGHER

<ARTICLE> 9
<CIK> 0000802223
<NAME> UNION FED FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUL-01-1993
<PERIOD-END> JUN-30-1994
<EXCHANGE-RATE> 1
<CASH> 38,091
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 219,902
<INVESTMENTS-MARKET> 0
<LOANS> 591,918
<ALLOWANCE> 24,963
<TOTAL-ASSETS> 903,976
<DEPOSITS> 847,957
<SHORT-TERM> 15,464
<LIABILITIES-OTHER> 5,870
<LONG-TERM> 0
<COMMON> 272
0
0
<OTHER-SE> 34,413
<TOTAL-LIABILITIES-AND-EQUITY> 903,976
<INTEREST-LOAN> 53,936
<INTEREST-INVEST> 11,030
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 64,966
<INTEREST-DEPOSIT> 32,586
<INTEREST-EXPENSE> 36,297
<INTEREST-INCOME-NET> 28,669
<LOAN-LOSSES> 14,350
<SECURITIES-GAINS> (1,158)
<EXPENSE-OTHER> 45,411
<INCOME-PRETAX> (26,454)
<INCOME-PRE-EXTRAORDINARY> (25,457)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,457)
<EPS-PRIMARY> (1.28)
<EPS-DILUTED> (1.28)
<YIELD-ACTUAL> 63,889
<LOANS-NON> 22,125
<LOANS-PAST> 368
<LOANS-TROUBLED> 113,676
<LOANS-PROBLEM> 159,129
<ALLOWANCE-OPEN> 20,573
<CHARGE-OFFS> 9,960
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 24,963
<ALLOWANCE-DOMESTIC> 24,963
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 14,429

</TABLE>