UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

DELAWARE
    95-4561623(State or other jurisdiction of
      incorporation or organization)
    (I.R.S. Employer I.D. No.)




Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes XNo .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 the Form 10-K
or any amendment to this Form 10-K. XThe aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant, i.e., persons other than
the directors and executive officers of the registrant, was $304,260,405, based
upon the last sales price as quoted on the Nasdaq National Market for June 22,
2001.The number of shares of common stock outstanding as of
June 22, 2001: 13,257,534

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 September 19, 2001 are incorporated by
reference in Part III hereof.

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EXPLANATORY NOTE



INDEXPART I
    PAGEItem 1.
    Description of Business
    3Item 2.
    Properties
    39Item 3.
    Legal Proceedings
    39Item 4.
    Submission of Matters to a Vote of Security Holders
    39PART IIItem 5.
    Market for Registrant's Common Equity and Related
      Stockholders' Matters
    40Item 6.
    Selected Financial Data
    41Item 7.
    Management's Discussion and Analysis of Financial
      Condition and Results of Operations
    44Item 7A.
    Quantitative and Qualitative Disclosures About Market Risk
    56Item 8.
    Financial Statements and Supplementary Data
    57Item 9.
    Changes in and Disagreements with Accountants
      on Accounting and Financial Disclosure
    101PART IIIItem 10.
    Directors and Executive Officers of the Registrant
    101Item 11.
    Executive Compensation
    101Item 12.
    Security Ownership of Certain Beneficial Owners
      and Management
    101Item 13.
    Certain Relationships and Related Transactions
    101PART IVItem 14.
    Exhibits, Financial Statement Schedules and Reports
      on Form 8-K
    102


2

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PART I

Forward-Looking StatementsExcept for historical information contained herein,
the matters discussed in this report contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of
1934 (the "Exchange Act"), that involve substantial risks and
uncertainties. When used in this report, or in the documents incorporated by
reference herein, the words "anticipate," "believe,"
"estimate," "may," "intend," "expect"
and similar expressions identify certain of such forward-looking statements.
Actual results of PFF Bancorp, Inc. (the "Bancorp") and PFF Bank &
Trust (the "Bank"), (collectively referred to as the
"Company") could differ materially from such forward-looking
statements contained herein. Factors that could cause future results to vary
from current expectations include, but are not limited to, the following:
changes in economic conditions (both generally and more specifically in the
markets in which the Company operates); changes in interest rates, deposit
flows, loan demand, real estate values and competition; changes in accounting
principles, policies or guidelines and in government legislation and regulation
(which change from time to time and over which the Company has no control);
other factors affecting the Company's operations, markets, products and
services; and other risks detailed in this Form 10-K and in the Company's
other Securities and Exchange Commission filings. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof.Item 1. Description of Business.GeneralThe Bancorp completed its initial public offering of 19,837,500 shares of
common stock on March 28, 1996, in connection with the conversion of Pomona
First Federal Savings and Loan Association (the "Association") from
the mutual to stock form of ownership (the "conversion") and the
change of the Association's name to PFF Bank & Trust. The Bancorp received
$198.4 million from this initial public offering before offering expenses of
$4.5 million. The Bancorp utilized $105.0 million of the net proceeds of the
initial public offering to acquire all of the issued and outstanding stock of
the Bank. The Bancorp is headquartered in Pomona, California and its principal
business currently consists of the operations of its wholly owned subsidiary,
the Bank. The Bancorp had no operations prior to March 28, 1996, and
accordingly, the results of operations prior to that date reflect only those of
the Bank and its subsidiary. At March 31, 2001, on a consolidated basis, the
Company had total assets of $2.89 billion, total deposits of $2.02 billion and
total stockholders' equity of $258.0 million. The Bancorp, as a unitary
savings and loan holding company, and the Bank, as a federal savings bank, are
subject to regulation by the Office of Thrift Supervision (the "OTS"),
the Federal Deposit Insurance Corporation (the "FDIC") and the
Securities and Exchange Commission (the "SEC").Prior to the conversion, the Bank's historical focus had been on attracting
retail deposits from the general public in the areas surrounding its branch
offices and investing those deposits, together with funds generated from
operations and borrowings, primarily in one-to-four family residential mortgage
loans. To a lesser extent, the Bank engaged and continues to engage in secondary
market activities, the origination of multi-family mortgage loans and investment
in mortgage-backed securities ("MBS"), collateralized mortgage
obligations ("CMO") and other investment securities (collectively
"securities"). The Bank's current asset generation emphasis is on
originating commercial, construction and land (primarily tract construction),
commercial real estate and consumer loans (collectively the
"Four-Cs"). The Bank's revenues are derived principally from
interest on its loans, and to a lesser extent, interest and dividends on
investment securities. The Bank's primary sources of funds are deposits and
Federal Home Loan Bank ("FHLB") advances and other borrowings,
principal and interest payments on loans and investment securities. Scheduled
payments on loans and investment securities are a relatively stable source of
funds, while prepayments on loans and investment securities and deposit flows
are subject to significant fluctuation. The Bank engages in trust activities
through its trust department and offers certain annuity and mutual fund
non-deposit investment products through its subsidiary.

3

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Market Area and Competition
The Bank is a community-oriented savings institution whose lending, deposit
gathering and trust activities are concentrated in eastern Los Angeles, San
Bernardino, Riverside and northern Orange counties. The Bank also originates
loans on a wholesale basis throughout Southern California and has expanded its
lending markets outside of Southern California on a limited basis. The Bank's
deposit gathering is concentrated in the communities surrounding its offices.
The Bank's primary market area is highly competitive for financial services
and the Bank faces significant competition both in making loans and in
attracting deposits. The Bank faces direct competition from a significant number
of financial institutions operating in its market area, many with a state-wide,
regional or national presence. Many of these financial institutions are
significantly larger and have greater financial resources than the Bank. The
Bank's competition for loans comes principally from savings and loan
associations, mortgage banking companies, commercial banks, credit unions and
insurance companies. Its most direct competition for deposits has historically
come from savings and loan associations and commercial banks. In addition, the
Bank faces increasing competition for deposits and other financial products from
non-bank institutions such as brokerage firms and insurance companies in such
areas as short-term money market funds, mutual funds and annuities. Competition
may also increase as a result of the lifting of restrictions on the interstate
operations of financial institutions. Additionally, the Bank's operations are
significantly influenced by general economic conditions, the monetary and fiscal
policies of the federal government and the regulatory policies of governmental
authorities. Deposit flows and the costs of interest-bearing liabilities to the
Bank are influenced by interest rates on competing investments and general
market interest rates. Similarly, the Bank's loan volume and yield on loans
and securities and the level of prepayments on loans and securities are affected
by market interest rates, as well as additional factors affecting the supply of,
and demand for, housing and the availability of funds.Trust Activities
In January 1995, the Company acquired the trust operations of another bank for
$3.5 million. As a result of the acquisition, the Company now has additional
fiduciary responsibilities acting as trustee, executor, administrator, guardian,
custodian, record keeper, agent, registrar, advisor and manager. The trust
assets are not the assets of the Company and are not included in the balance
sheet of the Company. Trust fee income for the years ended March 31, 2001 and
2000 was $1.8 million and $2.1 million, respectively. See "Notes to
Consolidated Financial Statements - Note 19: Trust Operations."

4

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Lending Activities

5

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The following table sets forth the composition of the Bank's loan portfolio
in dollar amounts and as a percentage of the portfolio at the dates indicated.

At March 31,2001
    2000
    1999
    1998
    1997Amount
    Percent
      of
      Total
    Amount
    Percent
      of
      Total
    Amount
    Percent
      of
      Total
    Amount
    Percent
      of
      Total
    Amount
    Percent
      of
      Total(Dollars in thousands)Real estate: (1)Residential:One-to-four family
    $ 1,338,940
    52.5%
    $ 1,537,233
    60.1%
    $ 1,482,839
    66.8%
    $ 1,467,857
    75.3%
    $ 1,499,858
    79.4%Multi-family
    87,321
    3.4
    85,169
    3.3
    87,856
    4.0
    97,350
    5.0
    108,896
    5.8Commercial real estate
    233,953
    9.2
    169,010
    6.6
    156,474
    7.0
    144,035
    7.4
    137,169
    7.2Construction and land
    597,083
    23.4
    517,659
    20.2
    349,119
    15.7
    185,225
    9.5
    113,188
    6.0Commercial
    133,564
    5.2
    122,095
    4.8
    74,451
    3.3
    12,468
    0.6
    3,100
    0.2Consumer
    160,987
    6.3
    126,424
    5.0
    70,686
    3.2
    42,826
    2.2
    26,931
    1.4Total loans, gross
    2,551,848
    100.0%
    2,557,590
    100.0%
    2,221,425
    100.0%
    1,949,761
    100.0%
    1,889,142
    100.0%Undisbursed loan funds
    (237,547)
    
    (198,656)
    
    (167,042)
    
    (95,457)
    
    (38,485)Net premiums on loans
    818
    
    1,215
    
    1,665
    
    1,114
    
    (1,629)Deferred loan origination fees, net
    1,793
    
    1,753
    
    (276)
    
    (1,101)
    
    (1,362)Allowance for loan losses
    (31,022)
    
    (27,838)
    
    (26,160)
    
    (26,002)
    
    (27,721)Total loans, net
    2,285,890
    
    2,334,064
    
    2,029,612
    
    1,828,315
    
    1,819,945Less: Loans held for sale
    (583)
    
    (7,362)
    
    (3,531)
    
    (701)
    
    (736)Loans receivable, net
    $ 2,285,307
    
    $ 2,326,702
    
    $ 2,026,081
    
    $ 1,827,614
    
    $ 1,819,209(1) Includes loans held for sale.


6

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Loan Maturity.

At March 31, 2001One-to-
      Four
      Family
    Multi-
      Family
    Commercial
      Real Estate
    Construction and Land
    Commercial
    Consumer
    Total
      Loans
      Receivable(Dollars in thousands)Amounts due:One year or less
    $ 6,090
    131
    9,130
    504,147
    58,229
    13,497
    591,224After one year:More than one year to three years
    1,146
    9,982
    20,872
    82,595
    35,307
    543
    150,445More than three years to five years
    3,312
    4,452
    25,843
    366
    37,643
    729
    72,345More than five years to ten years
    13,824
    12,182
    113,367
    9,256
    2,385
    6,902
    157,916More than ten years to twenty years
    150,900
    43,728
    61,781
    -
    -
    130,320
    386,729More than twenty years
    1,163,668
    16,846
    2,960
    719
    -
    8,996
    1,193,189Total due after March 31, 2002
    1,332,850
    87,190
    224,823
    92,936
    75,335
    147,490
    1,960,624Total amount due
    1,338,940
    87,321
    233,953
    597,083
    133,564
    160,987
    2,551,848Less:Undisbursed loan funds
    -
    -
    -
    (237,547)
    -
    -
    (237,547)Net premiums on loans
    785
    18
    15
    -
    -
    -
    818Deferred loan origination fees, net
    3,959
    (284)
    (819)
    (2,547)
    25
    1,459
    1,793Allowance for loan losses
    (1,549)
    (228)
    (891)
    (17,835)
    (5,334)
    (5,185)
    (31,022)Total loans, net
    1,342,135
    86,827
    232,258
    339,154
    128,255
    157,261
    2,285,890Loans held for sale
    (583)
    -
    -
    -
    -
    -
    (583)Loans receivable, net
    $ 1,341,552
    86,827
    232,258
    339,154
    128,255
    157,261
    2,285,307


7

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The following table sets forth at March 31, 2001, the dollar
amount of total gross loans receivable contractually due after March 31, 2002,
and whether such loans have fixed or adjustable interest rates.

Due after March 31, 2002Fixed
    Adjustable
    Total(Dollars in thousands)Real estate loans: (1)Residential:One-to-four family
    $ 110,558
    1,222,292
    1,332,850Multi-family
    2,764
    84,426
    87,190Commercial real estate
    2,088
    222,735
    224,823Construction and land
    2,545
    90,391
    92,936Commercial
    52,100
    23,235
    75,335Consumer
    96,852
    50,638
    147,490Total gross loans receivable
    $ 266,907
    1,693,717
    1,960,624(1) Includes loans held for sale.


Origination, Sale, Servicing and Purchase of Loans. The Bank's lending
activities are conducted primarily by loan representatives through its 24
banking branches, its loan origination center in Rancho Cucamonga, California, a
satellite loan office in Redding, California and up until March 2000 wholesale
brokers approved by the Bank. During March 2000, in connection with its strategy
of de-emphasizing one-to-four family residential lending in favor of a greater
focus on the Four-Cs, the Bank discontinued one-to-four family first trust deed
residential mortgage originations through wholesale brokers. The Bank continues
to originate one-to-four family first trust deed residential mortgages through
internal sources. The Bank continues to originate equity-based consumer loans
through wholesale brokers. All loans originated by the Bank, either through
internal sources or through wholesale brokers, are underwritten by the Bank
pursuant to the Bank's policies and procedures. The Bank originates both
adjustable-rate and fixed-rate loans. The Bank's ability to originate loans is
influenced by general economic conditions affecting housing, business and
consumer activities as well as the relative customer demand for fixed-rate or
adjustable-rate loans, which is affected by the current and expected future
levels of interest rates.
Loan originations were $1.05 billion for fiscal 2001 compared to $1.27 billion
for fiscal 2000. Beginning during fiscal 1997, the Bank began reducing its
emphasis on the origination of one-to-four family residential mortgage loans
with a corresponding increased emphasis on the origination of the Four-Cs as a
means of enhancing the Bank's yield on interest-earning assets. Originations
of the Four-Cs aggregated $969.3 million or 92% of total originations for fiscal
2001 compared to $833.0 million or 66% of total originations for fiscal 2000.
The weighted average initial contract rate on total originations was 10.07% for
fiscal 2001, compared to 8.25% for fiscal 2000.
It is the general policy of the Bank to sell substantially all of the 15 and
30-year fixed-rate mortgage loans that it originates and retain substantially
all of the adjustable-rate mortgage loans that it originates. The Bank generally
utilizes 10-day Federal National Mortgage Association ("FNMA") forward
commitments in connection with the origination and funding of fixed-rate loans
held for sale. The Bank generally retains servicing of the loans sold. At March
31, 2001, the Bank was servicing $256.5 million of loans for others. See
"Loan Servicing." When loans are sold on a servicing retained basis,
the Company records gains or losses from the sale based on the difference
between the net sales proceeds and the allocated basis of the loans sold. The
Company capitalizes mortgage servicing rights ("MSR") through the sale
of mortgage loans which are sold with servicing rights retained. The total cost
of the mortgage loans designated for sale is allocated to the MSR and the
mortgage loans without the MSR based on their relative fair values. MSR are
included in the financial statements in the category "other assets."
The Bank had $1.1 million of MSR as of March 31, 2001 and 2000. Impairment
losses are recognized through a valuation allowance, with any associated
provision recorded as a component of loan servicing fees. At March 31, 2001,
there were $583,000 of mortgage loans categorized as held for sale consisting of
fixed-rate one-to-four family residential mortgage loans.

8

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To supplement loan production, based upon the Bank's investment needs and
market opportunities, the Bank engages in secondary marketing activities,
including the purchase of whole or participating interests in loans originated
by other institutions. The Bank intends to continue to purchase various types of
loans originated by other institutions both in its primary market area and, to a
limited extent, other geographic areas throughout the country depending on
market opportunities. The Bank generally purchases loans with servicing retained
by the seller.
The following tables set forth the Bank's loan originations, purchases, sales
and principal repayments for the periods indicated.

For the Years Ended March 31,2001
    2000
    1999(Dollars in thousands)Beginning balance (1)
    $ 2,334,064
    2,029,612
    1,828,315Loans originated:One-to-four family
    70,019
    432,497
    406,445Multi-family
    10,255
    2,865
    3,371Commercial real estate
    103,454
    29,370
    27,465Construction and land
    566,101
    567,360
    384,991Commercial
    173,454
    140,558
    89,852Consumer
    126,252
    95,674
    75,480Total loans originated
    1,049,535
    1,268,324
    987,604Loans purchased
    18,892
    1,560
    168,395Sub-total
    3,402,491
    3,299,496
    2,984,314Less:Principal payments
    (1,049,029)
    (902,923)
    (831,468)Sales of loans
    (23,305)
    (25,253)
    (38,829)Transfer to foreclosed real estate owned (REO)
    (2,011)
    (5,793)
    (14,038)Change in undisbursed loan
      funds
    (38,891)
    (31,614)
    (71,585)Change in allowance for loan
      losses
    (3,184)
    (1,678)
    (158)Other (2)
    (181)
    1,829
    1,376Total loans
    2,285,890
    2,334,064
    2,029,612Loans held for sale, net
    (583)
    (7,362)
    (3,531)Ending balance loans receivable,
      net
    $ 2,285,307
    2,326,702
    2,026,081(1) Includes loans held for sale.(2) Includes net capitalization of fees and amortization of premium or accretion
of discount on loans.


9

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One-to-Four Family Residential Mortgage Lending. The Bank offers both
fixed-rate and adjustable-rate mortgage loans secured by one-to-four family
residences substantially all of which are located in the Bank's primary market
area. Loan originations are obtained from the Bank's loan representatives and
their contacts with the local real estate industry, existing or past customers
and members of the local communities. Prior to March 2000, adjustable rate loans
were offered with maturities up to 40 years. Effective during March 2000, in
response to interest rate risk considerations, the Bank discontinued offering 40
year maturities. The Bank is presently giving consideration to resuming the
origination of 40 year maturity mortgages.
At March 31, 2001, the Bank's one-to-four family residential mortgage loans
totaled $1.34 billion or 53% of total loans. Of the $1.34 billion, 28% were
classified as loans secured by non-owner-occupied properties of which 81% were
second homes. Non-owner-occupied properties are generally considered to involve
a higher degree of credit risk than loans secured by owner-occupied properties
because repayment is generally dependent upon the property producing sufficient
cash flow to cover debt service and other operating expenses. Of the one-to-four
family residential mortgage loans outstanding at March 31, 2001, 92% were
adjustable-rate loans. The Bank's one-to-four family residential
adjustable-rate mortgage loans have historically been primarily indexed to COFI.
The Bank has been increasing the origination of adjustable-rate mortgage loans
tied to other indices, primarily the one-year CMT index. The Bank currently
offers a number of adjustable-rate mortgage loan programs with interest rates
that adjust monthly, semi-annually or annually. A portion of the Bank's
adjustable-rate mortgage loans have introductory terms below the fully indexed
rate. In underwriting such loans, the Bank qualifies the borrowers based upon
the fully indexed rate. At the end of the introductory period, such loans will
adjust either monthly, semi-annually or annually according to their terms. The
Bank's adjustable-rate mortgage loans generally provide for periodic and
overall caps on the increase or decrease in interest rate at any adjustment date
and over the life of the loan.
The Bank currently has a number of mortgage loan programs that may be subject to
negative amortization. At March 31, 2001, the outstanding principal balances of
these loans totaled $426.5 million, (including $37.0 million of loans serviced
by others in which the Bank has purchased a participating interest) or 32% of
total one-to-four family residential mortgage loans. At March 31, 2001, the
total outstanding negative amortization on these loans (excluding the $37.0
million of loans serviced by others) was $3.6 million. The negative amortization
is generally capped at up to 110% of the original loan amount. Negative
amortization involves a greater risk to the Bank because during a period of
higher interest rates the loan principal may increase above the amount
originally advanced, which may increase the risk of default. However, the Bank
believes that the risk of default is reduced by negative amortization caps,
underwriting criteria and the stability provided by payment schedules.
The Bank's policy is to originate one-to-four family residential mortgage
loans in amounts up to 89% of the lower of the appraised value or the selling
price of the property securing the loan and up to 95% of the appraised value or
selling price if private mortgage insurance is obtained. Mortgage loans
originated by the Bank generally include due-on-sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property without the Bank's
consent. Due-on-sale clauses are an important means of adjusting the rates on
the Bank's fixed-rate mortgage loan portfolio and the Bank has generally
exercised its rights under these clauses when it has been advantageous for the
Bank to do so.Multi-Family Lending. The Bank originates multi-family mortgage loans
generally secured by properties located in Southern California. In reaching its
decision on whether to make a multi-family loan, the Bank considers a number of
factors including: the net operating income of the mortgaged premises before
debt service and depreciation; the debt service ratio (the ratio of net
operating income to debt service); and the ratio of loan amount to appraised
value. Pursuant to the Bank's current underwriting policies, a multi-family
mortgage loan may only be made in an amount up to 80% of the appraised value of
the underlying property. In addition, the Bank generally requires a debt service
ratio of at least 110%. Properties securing these loans are appraised and title
insurance is required on all loans. Declines in the real estate values in the
Bank's primary market area as a result of adverse economic conditions during
the mid 1990's resulted in an increase in the loan-to-value ratios on some
mortgage loans subsequent to origination. However, most segments of the Bank's
primary market area have subsequently experienced strong economic conditions and
real estate value appreciation.

10

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When evaluating a multi-family loan, the Bank also considers the financial
resources and income level of the borrower, the borrower's experience in
owning or managing similar properties, and the Bank's lending experience with
the borrower. The Bank's underwriting policies require that the borrower be
able to demonstrate strong management skills and the ability to maintain the
property from current rental income. The borrower is required to present
evidence of the ability to repay the mortgage and a history of making mortgage
payments on a timely basis. In making its assessment of the creditworthiness of
the borrower, the Bank generally reviews the financial statements, employment
and credit history of the borrower, as well as other related documentation.
Loans secured by multi-family residential properties generally involve a greater
degree of risk than one-to-four family residential mortgage loans. Because
payments on loans secured by multi-family properties are often dependent on
successful operation or management of the properties, repayment of such loans
may be subject to a greater extent to adverse conditions in the real estate
market or the economy. The Bank seeks to minimize these risks through its
underwriting policies, which require such loans to be qualified at origination
on the basis of the property's income and debt service ratio.
The Bank's multi-family loan portfolio at March 31, 2001 totaled $87.3 million
or 3% of total gross loans. At March 31, 2001, 70% of the Bank's multi-family
loans were adjustable-rate indexed to COFI. The Bank's largest multi-family
loan at March 31, 2001, had an outstanding balance of $6.0 million and is
secured by a 124 unit apartment complex.Commercial Real Estate Lending. The Bank originates commercial real
estate loans that are generally secured by properties such as small office
buildings or retail facilities located in Southern California. The Bank's
underwriting policies provide that commercial real estate loans may be made in
amounts up to 75% of the appraised value of the property. Thirty-six percent of
these loans are indexed to COFI and 51% are indexed to the one-year CMT.
Competitive market factors have also prompted the Bank to originate such loans
with fixed rates of interest. Terms on commercial real estate loans are
generally 5 to 7 years with 25 to 30 year amortization, although these loans may
be made with terms up to 30 years. The Bank's underwriting standards and
procedures are similar to those applicable to its multi-family loans, whereby
the Bank considers the net operating income of the property and the borrower's
expertise, credit history and profitability. The Bank has generally required
that the properties securing commercial real estate loans have debt service
ratios of at least 120%. The largest commercial real estate loan in the Bank's
portfolio at March 31, 2001 was $9.0 million and is secured by a 77,100 square
foot office building. At March 31, 2001, the Bank's commercial real estate
loan portfolio was $234.0 million, or 9% of total gross loans.
Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than one-to-four family residential mortgage
loans. Because payments on loans secured by commercial real estate properties
are often dependent upon the successful operation and management of the
properties, repayment of such loans may be influenced to a great extent by
conditions in the real estate market or the economy. The Bank seeks to minimize
these risks through its underwriting standards, which require such loans to be
qualified on the basis of the property's income and debt service ratio.

11

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Construction and Land Lending. The Company generally originates
construction loans to real estate developers and individuals in Southern
California. The Bank has expanded, on a selective basis, construction lending to
western states other than California. Such expansion has been undertaken with
developers with whom the Bank has had long-term lending relationships. As of
March 31, 2001, the Bank had construction loans outstanding for development of
residential properties located in Nevada, Utah, Arizona and Oregon totaling
$19.1 million, $14.6 million of which was disbursed. As of March 31, 2001, the
remainder of the Bank's construction loans were for development of real estate
located in California. The Company's construction loans primarily are made to
finance tract construction of one-to-four family residential properties. These
loans are generally indexed to Prime, have maturities of two years or less and
generally include extension options of six to eighteen months upon payment of an
additional fee. The Company's policies provide that construction loans may be
made in amounts up to 75% of the appraised value of the property for
construction of commercial properties, up to 80% for multi-family properties and
up to 85% for one-to-four family residences. The Company requires an independent
appraisal of the property and generally requires personal guaranties. Loan
proceeds are disbursed as construction progresses and as inspections warrant.
The Company's inspectors generally visit projects twice a month to monitor the
progress of construction. At March 31, 2001, the Bank had $78.1 million of land
loans on which construction is not scheduled to begin within six months. All
such land is planned for residential developments. The largest such land loan is
for $14.6 million. The largest credit exposure in the construction loan
portfolio as of March 31, 2001 consists of $39.0 million of loans for the
development of 296 finished lots located in northern Los Angeles County
(Castaic). The aggregate disbursed balance of these loans at March 31, 2001 was
$30.3 million. At March 31, 2001 and 2000, the balance of the Bancorp's loan
on this project was $3.0 million and $3.9 million, respectively. This loan is
subordinated to $36.0 million in development and phased construction loans made
by the Bank on the project. Prior to April 2000, the Bancorp was accounting for
its loan as a direct investment in real estate and as such was deferring all
profit in excess of its cost of capital until its principal was paid down by
funds received from third party buyers of finished lots or homes. Pursuant to an
OTS interpretation of regulations regarding transactions with affiliates, during
April 2000 the Bancorp restructured the loan on the project to Prime + 4.0%.
Repayment is to come from the release of lots into phased construction loans.
See "Delinquencies and Classified Assets" and "Non-Accrual and
Past Due Loans." The second largest credit exposure in the Bank's
construction loan portfolio at March 31, 2001 had a balance of $15.9 million,
for a multi-phase residential development of 53 homes. Repayment is to come from
home sales to individual home buyers. At March 31, 2001, the Company's
construction and land loan portfolio was $597.1 million (23% of total gross
loans), $359.5 million of which was disbursed. At March 31, 2001 the aggregate
balance of loans for the construction of properties other than one-to-four
family residences was $67.3 million, $45.4 million of which was disbursed.
Construction financing is generally considered to involve a higher degree of
credit risk than long-term financing on improved, owner-occupied real estate.
Mitigation of risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development compared to the estimated cost (including interest)
of construction. If the estimate of value proves to be inaccurate, the Company
may be confronted with a project, when completed, having a value which is
insufficient to assure full repayment of the Company's loan. Land loans are
underwritten on an individual basis, but generally do not exceed 65% of the
actual cost or current appraised value of the property, whichever is less.Consumer and Other Lending. The Bank's consumer loans consist primarily
of home equity lines of credit ($56.2 million) and secured and unsecured
personal loans and lines of credit ($104.7 million). At March 31, 2001, the Bank's
total consumer loan portfolio was $161.0 million or 6% of total gross loans.Commercial Lending. The Bank has expanded its operations to include
commercial business lending to small- and medium-sized businesses. The year
ended March 31, 1997 was the Bank's first full year of originating commercial
business loans. Total term and revolving line of credit loans in the portfolio
as of March 31, 2001 were $196.0 million, $133.6 million of which was
outstanding. The largest loan in the commercial portfolio is a $20.0 million
term loan to an equipment leasing company. This loan is secured by the
assignment of underlying leases and equipment as well as inventory and accounts
receivable. The second largest loan is a $15.4 million commitment to another
equipment leasing company specializing in the dental industry. This loan is also
secured by the assignment of underlying leases and equipment as well as
inventory and accounts receivable. Repayment of both loans is expected to come
from underlying cash flows. The size of the equipment leases supporting these
loans is generally in the $50,000 to $500,000 range.
Commercial business lending is generally considered to involve a higher degree
of credit risk than the forms of secured real estate lending in which the Bank
has traditionally engaged. Commercial business loans may be originated on an
unsecured basis or may be secured by collateral that is not readily marketable.
The Bank generally requires personal guaranties on its commercial business
loans. The risk of default by a commercial business borrower may be influenced
by numerous factors which may include the strength of the worldwide, regional or
local economies or sectors thereof, changes in technology or demand for
particular goods and services and the ongoing ability of the commercial business
borrower to successfully manage the business. Because of these risks, the Bank
monitors the performance of its commercial business loans and the underlying
businesses and individuals with a different focus than is typical of traditional
one-to-four family residential mortgage lending. The monitoring of commercial
business loans typically involves the periodic review of the financial
statements and on-site visits to the businesses to which credit has been
extended.

12

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Loan Approval Procedures and Authority. The Board of Directors
establishes the lending policies of the Bank and delegates lending authority and
responsibility to the Loan Origination and Asset Review Committee ("LOARC"),
the Management Loan Committee and specified officers of the Bank. The LOARC
includes four of the six outside Directors of the Bank as well as selected
senior management staff. All loans must be approved by a majority of a quorum of
the designated committee, group of officers or by the designated individual. The
following committees, groups of officers and individual officers are granted the
authority to approve and commit the Bank to the funding of the following
categories of loans: mortgage loans and consumer loans in amounts up to $299,999
may be approved by the Bank's staff underwriters; mortgage loans and consumer
loans in excess of $299,999 and up to $599,999 may be approved by certain
department managers; commercial business loans up to $499,999 may be approved by
the Commercial Credit Administrator or Chief Lending Officer; mortgage loans and
consumer loans in excess of $599,999 and up to $999,999 may be approved by the
Major Loan Manager, the Senior Executive Vice President or Chief Lending
Officer; mortgage loans in excess of $999,999 and up to $9,999,999, and
commercial business loans in excess of $499,999 and up to $4,999,999 must be
approved by the Management Loan Committee; and mortgage loans of $10.0 million
or more, consumer loans in excess of $999,999 and commercial business loans of
$5.0 million or more require the approval of the LOARC. The LOARC presently
reviews commercial business loans in excess of $4,999,999, post funding, for
consistency with the Bank's goals and objectives. Since March 31, 1998 the
Bank has also contracted with an independent credit review firm for the post
funding review of all commercial business loans in excess of $500,000 and
selected smaller loans. This credit review firm is comprised of experienced
former federal bank examiners. The Bank will not make loans-to-one borrower that
are in excess of regulatory limits. Pursuant to OTS regulations, loans-to-one
borrower cannot exceed 15% of the Bank's unimpaired capital and surplus. At
March 31, 2001 the Bank's limit on loans-to-one borrower was $39.4 million.Loan Servicing. The Bank also services mortgage loans for others. Loan
servicing includes collecting and remitting loan payments, accounting for
principal and interest, making inspections of mortgaged premises as required,
contacting delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults, making certain borrower
insurance and tax payments are made and generally administering the loans. All
of the loans currently being serviced for others are loans that have been sold
by the Bank. At March 31, 2001, the Bank was servicing $256.5 million of loans
for others. The Bank currently does not purchase servicing rights related to
mortgage loans originated by other institutions.

13

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For commercial business loans, management conducts an ongoing review of
all loans 15 or more days delinquent. The procedures undertaken by the Company
with respect to delinquencies may vary depending on the nature of the loan, the
period of delinquency, and the quality of collateral or guaranties. The Company
generally sends the borrower a notice of non-payment within 15 days after the
due date and subsequent notices thereafter. In the event that payment is not
then received, the responsible loan officer contacts the borrower directly and
may notify guarantors and grantors of collateral that the loan is delinquent.
The loan officer may review the loan documentation and secure additional
collateral or sources of repayment. Delinquent loans may be classified as other
than a "pass" credit, in order to provide management visibility,
periodic reporting, and appropriate reserves. Legal recourse is considered and
promptly undertaken if alternate repayment sources cannot be identified. At 90
days past due, the loan will be placed on a non-accrual status.Federal regulations and the Bank's Internal Asset Review Policy require that
the Bank utilize an internal asset classification system as a means of reporting
problem and potential problem assets. The Bank has incorporated the OTS internal
asset classifications as a part of its credit monitoring system. The Bank
currently classifies problem and potential problem assets as
"Substandard," "Doubtful," or "Loss." An asset is
considered Substandard if it is inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct
possibility" that the Bank will sustain "some loss" if the
deficiencies are not corrected. Assets classified as Doubtful have all of the
weaknesses inherent in those classified Substandard with the added
characteristic that the weaknesses present make "collection or liquidation
in full," on the basis of currently existing facts, conditions, and values,
"highly questionable and improbable." Assets classified as Loss are
those considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss allowance is
not warranted. Assets which do not currently expose the Bank to sufficient risk
to warrant classification in one of the aforementioned categories but possess
weaknesses are required to be designated "Special Mention."
When the Bank classifies one or more assets, or portions thereof, as Substandard
or Doubtful, under current OTS policy, the Bank is required to consider
establishing a valuation allowance in an amount deemed prudent by management to
recognize the inherent credit risk associated with the asset. When the Bank
classifies one or more assets, or portions thereof, as Loss, it is required
either to establish a valuation allowance equal to 100% of the amount of the
asset so classified or to charge off such amount. The Bank has adopted a policy
of charging off all amounts classified as Loss.
The Bank's determination as to the classification of its assets and the amount
of its valuation allowances is subject to review by the OTS who can order the
establishment of additional loss allowances. The OTS, in conjunction with the
other federal banking agencies, has adopted an interagency policy statement on
the allowance for loan and lease losses. The policy statement provides guidance
for financial institutions on both the responsibilities of management for the
assessment and establishment of adequate allowances and guidance for banking
agency examiners to use in determining the adequacy of valuation allowances.
Generally, the policy statement recommends that institutions have effective
systems and controls to identify, monitor and address asset quality problems;
that management analyze all significant factors that affect the collectibility
of the portfolio in a reasonable manner; and that management establish
acceptable allowance evaluation processes that meet the objectives set forth in
the policy statement. As a result of the declines in local and regional real
estate market values and the significant losses experienced by many financial
institutions in the past, there has been a greater level of scrutiny by
regulatory authorities of the loan portfolios of financial institutions
undertaken as part of the examination of institutions by the OTS and the FDIC.
While the Bank believes that it has established an adequate allowance for loan
losses, there can be no assurance that regulators, in reviewing the Bank's
loan portfolio, will not request the Bank to materially increase its allowance
for loan losses, thereby negatively affecting the Bank's financial condition
and earnings. Although management believes that an adequate allowance for loan
losses has been established, further additions to the level of allowance for
loan losses may become necessary.
Management reviews and classifies the Bank's assets monthly and reports the
results of its review to the Board of Directors. The Bank classifies assets in
accordance with the management guidelines described above. REO is classified as
Substandard. The Bank utilizes an internal appraisal staff and Board approved
independent appraisers to conduct appraisals at the time of foreclosure and
subsequent appraisals on REO on a periodic basis. Qualified staff appraisers are
also utilized for annual property inspections on all income producing properties
with a loan balance over $1.0 million and other specified properties. Property
inspections are intended to provide updated information concerning occupancy,
maintenance, current rent levels, and changes in market conditions.

14

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At March 31, 2001 and 2000 the Bank had $24.5 million and $15.9 million,
respectively of assets classified as Special Mention, on which there were no
allowances. The main components of assets classified as Special Mention at March
31, 2001 were: 12 loans totaling $1.1 million secured by one-to-four family
residences; and 13 non-homogeneous loans (defined as loans with unpaid principal
balances in excess of $500,000). The composition of the non-homogeneous loans is
as follows: two commercial property loans totaling $3.4 million; one 27 unit
residential property loan for $613,000; two 16 unit residential property loans
totaling $1.1 million; six commercial credit loans totaling $15.2 million; and
two construction loans totaling $1.9 million. At March 31, 2001, the Company had
$59.8 million of assets, net of specific allowances of $5.3 million classified
as Substandard, compared to $36.3 million, net of specific allowances of $1.0
million classified as Substandard at March 31, 2000. Included in the Substandard
total are construction loans for a 296 home development in Castaic with a
disbursed balance reported as a classified asset of $30.3 million. These loans
were classified Substandard during fiscal 2000 due to delays in construction and
increased costs caused by grading problems. See "Non-Accrual and Past-Due
Loans." Commercial real estate loans classified as Substandard changed from
2 loans totaling $3.5 million, before specific allowances at March 31, 2000 to 3
loans totaling $3.0 million, before specific allowances at March 31, 2001.
The Bank's present policy is generally to continue to classify a troubled-debt
restructured ("TDR") loan as Substandard until the asset has performed
at normal contract terms for a period of six to twelve months. Where there has
been a forgiveness of principal or interest or a submarket interest rate
granted, the loan is generally considered a TDR. Although the economy, in
general, improved during fiscal 2001, the Bank continued to utilize early
intervention and flexibility in restructuring some troubled loans with borrowers
rather than foreclosing on the underlying properties. See "Non-Accrual and
Past-Due Loans."
At March 31, 2001 there were no assets classified as Loss and seven assets
totaling $707,000 classified as Doubtful compared to no assets classified as
loss and two assets totaling $300,000 classified as Doubtful at March 31, 2000.
The composition of assets classified Substandard at March 31, 2001 and 2000 is
set forth on the following page.

15

---





At March 31, 2001Loans
    REO
    Total Substandard AssetsGross
      Balance
    Net
      Balance(1)
    Number
      of Loans
    Gross
      Balance
    Net
      Balance(1)
    Number
      of Loans
    Gross
      Balance
    Net
      Balance(1)
    Number
      of Loans(Dollars in thousands)Real estate:Residential:One-to-four family
    $ 14,385
    $ 14,168
    112
    $ 400
    $ 351
    4
    $ 14,785
    $ 14,519
    116Multi-family
    1,188
    1,188
    1
    -
    -
    -
    1,188
    1,188
    1Commercial real estate
    2,951
    2,741
    3
    -
    -
    -
    2,951
    2,741
    3Construction and land
    41,359
    36,777
    9
    -
    -
    -
    41,359
    36,777
    9Sub-total
    59,883
    54,874
    125
    400
    351
    4
    60,283
    55,225
    129Commercial
    4,830
    4,566
    10
    -
    -
    -
    4,830
    4,566
    10Total
    $ 64,713
    $ 59,440
    135
    $ 400
    $ 351
    4
    $ 65,113
    $ 59,791
    139At March 31, 2000Loans
    REO
    Total Substandard AssetsGross
      Balance
    Net
      Balance(1)
    Number
      of Loans
    Gross
      Balance
    Net
      Balance(1)
    Number
      of Loans
    Gross
      Balance
    Net
      Balance(1)
    Number
      of Loans(Dollars in thousands)Real Estate:Residential:One-to-four family
    $ 7,935
    $ 7,618
    70
    $1,522
    $1,466
    15
    $ 9,457
    $ 9,084
    85Multi-family
    2,071
    1,713
    4
    -
    -
    -
    2,071
    1,713
    4Commercial real estate
    3,493
    3,148
    2
    -
    -
    -
    3,493
    3,148
    2Construction and land
    20,430
    20,430
    2
    -
    -
    -
    20,430
    20,430
    2Sub-total
    33,929
    32,909
    78
    1,522
    1,466
    15
    35,451
    34,375
    93Commercial
    1,959
    1,959
    3
    -
    -
    -
    1,959
    1,959
    3Total
    $35,888
    $34,868
    81
    $1,522
    $1,466
    15
    $37,410
    $36,334
    96(1) Net balances are reduced for specific loss allowances established against
Substandard loans and REO.


16

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Non-Accrual and Past-Due Loans. The following table sets forth
information regarding non-accrual loans, REO and TDR loans. There was one TDR
loan and four REO properties at March 31, 2001. It is the policy of the Company
to cease accruing and establish an allowance for all previously accrued but
unpaid interest on loans 90 days or more past due. For the years ended March 31,
2001, 2000, 1999, 1998 and 1997, the amount of interest income that would have
been recognized on non-accrual loans, if such loans had continued to perform in
accordance with their contractual terms, was $733,000, $466,000, $1.1 million,
$1.7 million and $2.2 million, respectively, none of which was recognized. For
the same period, the amount of interest income that would have been recognized
on TDR loans, if such loans had continued to perform in accordance with their
contractual terms, was $86,000, $499,000, $1.0 million, $1.2 million and $1.3
million, respectively; zero, $369,000, $887,000, $779,000 and $942,000, of which
was recognized on a cash basis. The Company has a total of $30.3 million in
loans outstanding on a 296 home residential development project in Castaic with
an aggregate commitment of $39.0 million. The project incurred cost overruns and
construction delays which caused the Bancorp to determine that its one loan in
the amount of $3.0 million is impaired. Management has determined that given the
current status of the project and the structure of this loan it is doubtful that
the Bancorp will collect all principal and interest due in accordance with the
contractual terms of this loan. Therefore, during the quarter ended December 31,
2000, the Bancorp placed this loan on non-accrual status and considered the
effect of its impairment in determining the allowance for loan losses as of
December 31, 2000 and March 31, 2001. The Company has determined that it is
still probable that it will collect all amounts contractually due on the
remaining $27.3 million of loans outstanding on this project. The Company has
taken an assignment of interest on two projects, on which the Company has no
other indebtedness, from the borrower of the Castaic project, which will enhance
the overall collateral position of the Company. Management is continuing to
closely monitor the status of these loans. The status of this project as of
March 31, 2001 was as follows: 125 of the 296 homes have been sold and closed
and 19 homes are in escrow. Construction of 56 homes is anticipated to be
started during the quarter ending June 30, 2001. Construction and sale of all
homes is expected to be completed in late calendar 2002 or early 2003. During
the year ended March 31, 2001 and 2000, the Company's average investment in
impaired loans was $26.3 million and $13.8 million, respectively and interest
income recorded during these periods was $47,000 and $381,000, respectively of
which zero and $369,000, respectively was recorded utilizing the cash basis
method of accounting.

17

---



At March 31,2001
    2000
    1999
    1998
    1997(Dollars in thousands)Non-accrual loans:Residential real estate:One-to-four family
    $ 5,420
    4,415
    10,061
    13,834
    19,258Multi-family
    -
    -
    122
    467
    790Commercial real estate
    -
    -
    -
    2,717
    1,331Construction and land (4)
    4,572
    -
    647
    131
    1,447Commercial
    437
    243
    -
    -
    -Consumer
    1,052
    769
    182
    40
    524Total
    11,481
    5,427
    11,012
    17,189
    23,350REO, net (1)
    351
    1,466
    5,318
    7,595
    7,745Non-performing assets
    $ 11,832
    6,893
    16,330
    24,784
    31,095TDR loans (4)
    $ 3,012
    1,950
    11,291
    12,505
    14,559Classified assets, gross
    $ 62,102
    37,354
    39,058
    46,758
    56,462Allowance for loan losses as a
      percent of gross loans receivable (2)
    1.22%
    1.09
    1.18
    1.33
    1.47Allowance for loan losses as a
      percent of total non-performing
      loans (3)
    270.20
    512.96
    237.56
    151.27
    118.72Non-performing loans as a percent
      of gross loans receivable (2) (3)
    0.45
    0.21
    0.50
    0.88
    1.24Non-performing assets as a percent
      of total assets (3)
    0.51
    0.23
    0.56
    0.88
    1.23(1) REO balances are shown net of related loss allowances.(2) Gross loans include loans receivable held for investment and loans
receivable held for sale.(3) Non-performing assets consist of non-performing loans and
      REO. Non-performing
loans consist of all loans 90 days or more past due and all other non-accrual
loans.(4)At March 31, 2001 the Bancorp's $3.0 million loan for the Castaic development
is included in non-accrual and TDR loans.


18

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The following table sets forth delinquencies in the Bank's loan portfolio
as of the dates indicated.



At March 31, 2001
    At March 31, 200060-89 Days
    90 Days or More(1)
    60-89 Days
    90 Days or More(1)Number
      of Loans
    Principal
      Balance
      of Loans
    Number
      of Loans
    Principal
      Balance
      of Loans
    Number
      of Loans
    Principal
      Balance
      of Loans
    Number
      of Loans
    Principal
      Balance
      of Loans(Dollars in thousands)One-to-four family
    18
    $ 1,847
    43
    $ 5,420
    16
    $ 1,869
    35
    $ 4,415Multi-family
    -
    -
    -
    -
    1
    106
    -
    -Commercial real estate
    1
    242
    -
    -
    -
    -
    -
    -Construction and land
    -
    -
    2
    4,572
    1
    990
    -
    -Commercial
    -
    -
    5
    437
    -
    -
    1
    243Consumer
    8
    256
    27
    1,052
    8
    226
    21
    769Total
    27
    $ 2,345
    77
    $ 11,481
    26
    $ 3,191
    57
    $ 5,427At March 31, 199960-89 Days
    90 Days or More(1)Number
      of Loans
    Principal
      Balance
      of Loans
    Number
      of Loans
    Principal
      Balance
      of Loans(Dollars in thousands)One-to-four family
    22
    $ 1,837
    91
    $ 10,061Multi-family
    -
    -
    1
    122Commercial real estate
    -
    -
    -
    -Construction and land
    -
    -
    -
    -Commercial
    -
    -
    1
    647Consumer
    2
    41
    14
    182Total
    24
    $ 1,878
    107
    $ 11,012(1) Loans 90 days or more past due are included in non-accrual loans. See
"Non-Accrual and Past Due Loans."


19

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Allowance for Loan Losses

For the Year Ended March 31,2001
    2000
    1999
    1998
    1997(Dollars in thousands)Beginning balance
    $ 27,838
    26,160
    26,002
    27,721
    19,741Provision for loan losses
    5,004
    4,000
    4,020
    7,099
    13,661Charge-offs:Real estate:One-to-four family
    (524)
    (1,522)
    (3,361)
    (7,251)
    (4,190)Multi-family
    -
    (319)
    (115)
    (316)
    (134)Commercial real estate
    (216)
    -
    -
    (188)
    (842)Construction and land
    -
    -
    (31)
    (1,012)
    (313)Commercial
    (223)
    -
    -
    -
    -Consumer
    (898)
    (549)
    (372)
    (343)
    (303)Total
    (1,861)
    (2,390)
    (3,879)
    (9,110)
    (5,782)Recoveries
    41
    68
    17
    292
    101Ending balance
    $ 31,022
    27,838
    26,160
    26,002
    27,721Net charge-offs to average gross
      loans outstanding
    0.07%
    0.11
    0.17
    0.47
    0.31


20

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The following tables set forth the amount of the Company's allowance for
loan losses, the percent of allowance for loan losses to total allowance and the
percent of gross loans to total gross loans in each of the categories listed at
the dates indicated.

At March 31,2001
    2000
    1999Amount
    Percent of
      Allowance
      to Total
      Allowance
    Percent of
      Gross Loans
      in each
      Category to
      Total Gross
      Loans
    Amount
    Percent of
      Allowance
      to Total
      Allowance
    Percent of
      Gross Loans
      in each
      Category to
      Total Gross
      Loans
    Amount
    Percent of
      Allowance
      to Total
      Allowance
    Percent of
      Gross Loans
      in each
      Category to
      Total Gross
      Loans(Dollars in thousands)One-to-four family
    $ 1,549
    5.00%
    52.47%
    $ 3,453
    12.40%
    60.10%
    $ 5,721
    21.87%
    66.75%Multi-family
    228
    0.73
    3.42
    783
    2.81
    3.33
    2,026
    7.74
    3.95Commercial real estate
    891
    2.87
    9.17
    1,593
    5.72
    6.61
    2,048
    7.83
    7.04Construction and land
    17,835
    57.50
    23.40
    12,186
    43.78
    20.24
    8,911
    34.06
    15.72Commercial
    5,334
    17.19
    5.23
    6,367
    22.88
    4.94
    2,761
    10.56
    3.36Consumer
    5,185
    16.71
    6.31
    3,455
    12.41
    4.78
    4,690
    17.93
    3.18Unallocated
    -
    -
    -
    1
    -
    -
    3
    0.01
    -Total allowance for
      loan losses
    $ 31,022
    100.00%
    100.00%
    $ 27,838
    100.00%
    100.00%
    $ 26,160
    100.00%
    100.00%At March 31,1998
    1997Amount
    Percent of
      Allowance
      to Total
      Allowance
    Percent of
      Gross Loans
      in each
      Category to
      Total Gross
      Loans
    Amount
    Percent of
      Allowance
      to Total
      Allowance
    Percent of
      Gross Loans
      in each
      Category to
      Total Gross
      Loans(Dollars in thousands)One-to-four family
    $ 10,766
    41.40%
    75.28%
    $ 13,841
    49.93%
    79.39%Multi-family
    3,133
    12.05
    4.99
    3,410
    12.30
    5.77Commercial real estate
    3,898
    14.99
    7.39
    4,648
    16.77
    7.26Construction
    4,454
    17.13
    9.50
    4,103
    14.80
    5.99Commercial
    3,024
    11.63
    0.64
    56
    0.20
    0.16Consumer
    473
    1.82
    2.20
    1,586
    5.72
    1.43Unallocated
    254
    0.98
    -
    77
    0.28
    -Total allowance for
      loan losses
    $ 26,002
    100.00%
    100.00%
    $ 27,721
    100.00%
    100.00%


21

---

Real Estate
At March 31, 2001, the Company had $351,000 of REO, net of allowances, and no
real estate acquired for investment ("REI"). If the Bank acquires any
REO, it is initially recorded at fair value. If there is a further deterioration
in value, the Bank provides for a specific valuation allowance and charges
operations for the diminution in value. It is the policy of the Bank to obtain
an appraisal on all REO at the time of possession.
Prior to fiscal 1999, REI consisted of a former branch facility and land
acquired for a new branch site, which the Bank subsequently decided to not
pursue, and a security interest in 26 lots held for development through the Bank's
service corporation. The former branch facility was disposed of during the year
ended March 31, 1996 and the security interest in the 26 lots paid in full in
February 1999.
The following table sets forth certain information with regard to the Bank's
REO and REI.

At March 31,2001
    2000
    1999
    1998
    1997(Dollars in thousands)REOProperties acquired in
      settlement of loans
    $ 400
    1,466
    5,763
    8,198
    8,074Allowance for losses
    (49)
    -
    (445)
    (603)
    (329)Total REO, net
    351
    1,466
    5,318
    7,595
    7,745REIProperties wholly owned
    -
    558
    558
    731
    1,113Mezzanine real estate
      financing
    -
    4,370
    5,813
    -
    -Allowance for losses
    -
    -
    -
    -
    -Total REI, net
    -
    4,928
    6,371
    731
    1,113Total real estate, net
    $ 351
    6,394
    11,689
    8,326
    8,858


Investment Activities

Federally chartered savings institutions have the authority to invest in various
types of liquid assets, including United States Treasury obligations, securities
of various federal agencies, certificates of deposit of insured banks and
savings institutions, bankers' acceptances, repurchase agreements and federal
funds. Subject to various restrictions, federally chartered savings institutions
may also invest their assets in commercial paper, investment-grade corporate
debt securities and mutual funds whose assets conform to the investments that a
federally chartered savings institution is otherwise authorized to make
directly. Additionally, the Bank must maintain minimum levels of investments
that qualify as liquid assets under OTS regulations. See "Regulation and
Supervision - Federal Savings Institution Regulation - Liquidity."
Historically, the Bank has maintained liquid assets above the minimum OTS
requirements and at a level considered to be adequate to meet its normal daily
activities.
The investment policy of the Bank, as established by the Board of Directors,
attempts to provide and maintain liquidity, generate a favorable return on
investments without incurring undue interest rate or credit risk, and complement
the Bank's lending activities. Specifically, the Bank's policies generally
limit investments to government and federal agency-backed securities and other
non-government guaranteed securities, including corporate debt obligations, that
are investment grade. On November 4, 1998 the OTS issued Thrift Bulletin 73
("TB73") "Trust Preferred Securities" which, among other
things, limits the aggregate investment in investment grade trust preferred
securities for OTS supervised institutions to 15 percent of total capital. At
the time TB73 was issued, the Bank's aggregate investment in such securities
of $52.4 million, exceeded the OTS limitation by $23.0 million. The Bank applied
for and was granted a waiver by the OTS permitting the Bank to continue to hold
its trust preferred securities. At March 31, 2001, the Bank's aggregate
investment in trust preferred securities is $46.9 million which represents 20%
of the Bank's total capital.

22

---

The investment powers of the Bancorp are substantially broader than those
permitted for the Bank. The investment policy of the Bancorp, as established by
its Board of Directors, while generally consistent with that of the Bank,
permits the investment by the Bancorp in equity securities and non-rated
corporate debt obligations. At March 31, 2001, the Bancorp had direct equity
investments of $7.3 million, investments in equity mutual funds of $2.4 million
and investments in non-rated corporate debt obligations (trust preferred debt
securities) of $5.0 million. Given the non-rated nature of the Bancorp's
investments in trust preferred debt securities along with the longer-term
(typically 30 years) structure of the obligations, the Bancorp undertakes a
review of the historical and current financial condition and operating results
of the issuer prior to making an investment. These reviews are updated
periodically during the holding periods for the investments.A portion of the Bancorp's direct equity investments are managed by the Bank's
trust department on a no fee basis. The Bancorp's equity mutual fund
investments are placed with fund managers with whom the Bancorp's Senior
Management is familiar. The performance of the Bancorp's direct and mutual
fund equity investments is reviewed no less frequently than monthly by the
Bancorp's Senior Management and no less frequently than quarterly by the
Bancorp's Board of Directors.
Unlike the securities comprising the Bank's investment portfolio, which by
their nature present little to no risk of loss of principal or interest, the
trust preferred debt securities and equity investments of the Bancorp are
subject to partial or complete diminution in market value upon the occurrence of
adverse economic events affecting the issuers of the securities.
At March 31, 2001, the Company had $61.5 million in investment securities
consisting primarily of investment grade corporate and U.S. agency securities.
The Company's MBS portfolio consists of adjustable-rate securities tied to the
one-year CMT (45% of the portfolio), or six-month LIBOR (1% of the portfolio),
seasoned fixed-rate securities (16% of the portfolio) and five and seven year
balloon securities (38% of the portfolio). At March 31, 2001, the carrying value
of the Company's MBS portfolio totaled $303.0 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Comparison of Financial Condition at March 31, 2001 and March 31, 2000."
All of the Company's MBS were insured or guaranteed by either the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC").
Investments in MBS involve a risk that actual prepayments will vary from the
estimated prepayments over the life of the security. This may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments, thereby changing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities. In addition, the market value of such securities may be adversely
affected by changes in interest rates.
The Company's CMO portfolio consists principally of adjustable rate securities
tied to the one or three month LIBOR or the Prime rate. The adjustment intervals
for these securities are generally monthly. All of the Company's $82.3 million
CMO portfolio is backed by mortgages insured by FNMA or FHLMC. As with MBS, CMO
involve a risk that actual levels of prepayments will require an adjustment to
the amortization of any premium or accretion of any discounts on the security
with an impact on the yield on the security. Additionally, the structure of many
CMO is such that their cash flows exhibit greater sensitivity to changes in
prepayments than do traditional MBS.

23

---

The following table sets forth certain information regarding the carrying and
fair values of the Company's mortgage-backed securities at the dates
indicated.

At March 31,2001
    2000
    1999Carrying
      Value
    Fair
      Value
    Carrying
      Value
    Fair
      Value
    Carrying
      Value
    Fair
      Value(Dollars in thousands)Held-to-maturity:FHLMC
    $ -
    -
    -
    -
    556
    560Total held-to-maturity
    -
    -
    -
    -
    556
    560Available-for-sale:GNMA
    12,221
    12,221
    14,879
    14,879
    19,650
    19,650FHLMC
    83,851
    83,851
    111,830
    111,830
    158,475
    158,475FNMA
    206,892
    206,892
    254,568
    254,568
    347,435
    347,435Total available-for-sale
    302,964
    302,964
    381,277
    381,277
    525,560
    525,560Total
    $ 302,964
    302,964
    381,277
    381,277
    526,116
    526,120


The following table sets forth certain information regarding the carrying and
fair values of the Company's investment securities at the dates indicated.

At March 31,2001
    2000
    1999Carrying
      Value
    Fair
      Value
    Carrying
      Value
    Fair
      Value
    Carrying
      Value
    Fair
      Value(Dollars in thousands)Held-to-maturity:U.S. government and
      federal agency obligations
    $ 702
    772
    701
    719
    709
    716Total held-to-maturity
    702
    772
    701
    719
    709
    716Available-for-sale:Corporate debt securities
    51,808
    51,808
    48,315
    48,315
    57,765
    57,765Equity securities:
      Direct
    4,900
    4,900
    3,770
    3,770
    5,370
    5,370Mutual funds
    2,429
    2,429
    1,663
    1,663
    1,780
    1,780U.S. government and
      federal agency obligations
    -
    -
    34,062
    34,062
    17,472
    17,472Total available-for-sale
    59,137
    59,137
    87,810
    87,810
    82,387
    82,387Total
    $ 59,839
    59,909
    88,511
    88,529
    83,096
    83,103


24

---

The following table sets forth certain information regarding the carrying and
fair values of the Company's collateralized mortgage obligations at the dates
indicated.

At March 31,2001
    2000
    1999Carrying
      Value
    Fair
      Value
    Carrying
      Value
    Fair
      Value
    Carrying
      Value
    Fair
      Value(Dollars in thousands)Available-for-sale:Collateralized mortgage
      obligations:FHLMC
    $ 57,236
    57,236
    58,254
    58,254
    70,359
    70,359FNMA
    25,079
    25,079
    27,399
    27,399
    32,341
    32,341Total
    $ 82,315
    82,315
    85,653
    85,653
    102,700
    102,700


25

---

The table below sets forth certain information regarding the carrying value,
weighted average yields and maturities of the Company's mortgage-backed
securities, investment securities and collateralized mortgage obligations as of
March 31, 2001. The table presented represents stated maturities and does not
reflect scheduled principal payments.

At March 31, 2001One Year or less
    More than One
      Year to Five Years
    More than Five
      Years to Ten Years
    More than Ten
      Years
    TotalCarrying
      Value
    Weighted
      Average
      Yield
    Carrying
      Value
    Weighted
      Average
      Yield
    Carrying
      Value
    Weighted
      Average
      Yield
    Carrying
      Value
    Weighted
      Average
      Yield
    Carrying
      Value
    Weighted
      Average
      Yield(Dollars in thousands)Mortgage-backed securities:Available-for-sale:FHLMC
    $ -
    -%
    $ 68,857
    6.31%
    $ 512
    9.27%
    $ 14,482
    7.65%
    $ 83,851
    6.56%FNMA
    -
    -
    132,255
    6.31
    9,540
    7.11
    65,097
    7.12
    206,892
    6.60GNMA
    -
    -
    49
    9.00
    -
    -
    12,172
    7.58
    12,221
    7.59Total mortgage-backed securities
    $ -
    -%
    $ 201,161
    6.31%
    $ 10,052
    7.22%
    $ 91,751
    7.26%
    $ 302,964
    6.62%Investment securities:Held-to-maturity:U.S. government and Federal agency
      Obligations
    $ -
    -%
    $ -
    -%
    $ 702
    6.80%
    $ -
    -%
    $ 702
    6.80%Total held-to-maturity
    -
    -
    -
    -
    702
    6.80
    -
    -
    702
    6.80Available-for-sale:Corporate debt securities
    -
    -
    10,024
    7.03
    31,832
    6.49
    9,952
    7.33
    51,808
    6.76Equity securities:Direct (1)
    -
    -
    -
    -
    -
    -
    4,900
    16.00
    4,900
    13.22Mutual funds (1)
    -
    -
    -
    -
    -
    -
    2,429
    13.22
    2,429
    -Total available-for-sale
    -
    -
    10,024
    7.03
    31,832
    6.49
    17,281
    10.62
    59,137
    7.79Total investment securities
    $ -
    -%
    $ 10,024
    7.03%
    $ 32,534
    6.49%
    $ 17,281
    10.62%
    $ 59,839
    7.78%Collateralized mortgage obligations:Available-for-sale:FHLMC
    $ -
    -%
    $ -
    -%
    $ -
    -%
    $ 47,081
    6.70%
    $ 47,081
    6.70%FNMA
    -
    -
    -
    -
    -
    -
    35,234
    6.59
    35,234
    6.59Total collateralized mortgage obligations
    $ -
    -%
    $ -
    -%
    $ -
    -%
    $ 82,315
    6.65%
    $ 82,315
    6.65%(1) "Yield" derived from unrealized change
in market value of equity securities is not included in totals for purposes of
the calculation of weighted average yield on the portfolio here or on average
balance sheets in Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations".


26

---

Sources of Funds

For the Year Ended March 31,2001
    2000
    1999(Dollars in thousands)Net deposits (withdrawals)
    $ 22,662
    16,047
    24,561Sale of branch deposits
    -
    (45,859)
    -Interest credited on deposit accounts
    92,065
    92,808
    78,153Total increase in deposit accounts
    $ 114,727
    62,996
    102,714


At March 31, 2001, the Bank had $427.3 million in certificate accounts in
      amounts of $100,000 or more maturing as follows:

Maturity Period
    Amount
    Weighted
      Average Rate(Dollars in thousands)Three months or less
    $ 70,130
    6.34%Over three through six months
    203,256
    6.43Over six through 12 months
    108,163
    6.06Over 12 months
    45,716
    6.41Total
    $ 427,265
    6.32


27

---

The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented.

For the Year Ended March 31,2001
    2000
    1999Average
      Balance
    Percent
      of Total
      Average
      Deposits
    Weighted
      Average
      Yield
    Average
      Balance
    Percent
      of Total
      Average
      Deposits
    Weighted
      Average
      Yield
    Average
      Balance
    Percent
      of Total
      Average
      Deposits
    Weighted
      Average
      Yield(Dollars in thousands)Passbook accounts
    $ 128,955
    6.6%
    2.14%
    $ 141,103
    7.6%
    2.24%
    $ 147,702
    8.3%
    2.31%Money market savings accounts
    385,973
    20.0
    4.84
    401,394
    21.6
    4.39
    290,917
    16.3
    4.51NOW accounts
    155,739
    8.1
    1.25
    141,708
    7.7
    0.96
    133,102
    7.5
    0.96Non-interest bearing accounts
    83,325
    4.3
    -
    71,044
    3.8
    -
    55,028
    3.1
    -Total core deposits
    753,992
    39.0
    3.10
    755,249
    40.7
    2.93
    626,749
    35.2
    2.84Certificate accounts:Variable-rate certificates of deposit
    23,354
    1.2
    5.74
    30,790
    1.6
    4.93
    31,788
    1.8
    4.98Step-up certificates of deposit
    43,453
    2.3
    5.71
    55,206
    3.0
    4.75
    76,681
    4.3
    5.12Less than 6 months
    82,876
    4.3
    5.93
    108,842
    5.9
    5.76
    47,040
    2.7
    4.616 through 11 months
    184,211
    9.5
    5.98
    279,592
    15.0
    5.07
    290,462
    16.3
    5.2212 though 23 months
    665,937
    34.5
    6.22
    458,097
    24.7
    5.08
    533,774
    30.0
    5.4324 months through 47 months
    126,009
    6.5
    5.79
    98,429
    5.3
    5.42
    83,834
    4.7
    5.6748 months or greater
    52,604
    2.7
    5.77
    68,356
    3.7
    5.56
    85,498
    4.8
    5.84Other
    282
    0.0
    6.60
    1,942
    0.1
    6.02
    4,122
    0.2
    6.19Total certificate accounts
    1,178,726
    61.0
    6.07
    1,101,254
    59.3
    5.19
    1,153,199
    64.8
    5.35Total average deposits
    $1,932,718
    100.0%
    4.91%
    $1,856,503
    100.0%
    4.27%
    $1,779,948
    100.0%
    4.47%


28

---

The following table presents, by various rate
categories, the amount of certificate accounts outstanding at the dates
indicated and the periods to maturity of the certificate accounts outstanding at
March 31, 2001.

Period to Maturity from March 31, 2001
    March 31,Less than
      One Year
    One to
      Two Years
    Two to
      Three Years
    Three to
      Four Years
    Four to
      Five Years
    More than
      Five Years
    2001
    
    2000
    1999(Dollars in thousands)0.00 to 4.00%
    $ 2
    -
    -
    -
    -
    -
    2
    
    287
    5014.01 to 5.00%
    74,309
    5,756
    3,298
    1,145
    257
    7
    84,772
    
    212,182
    498,9015.01 to 6.00%
    308,930
    38,203
    6,956
    7,943
    3,988
    226
    366,246
    
    731,502
    571,8446.01 to 7.00%
    683,772
    33,597
    7,394
    3,263
    6,981
    138
    735,145
    
    223,341
    28,6907.01 to 8.00%
    22,369
    8,351
    475
    -
    -
    -
    31,195
    
    27
    1618.01 to 9.00%
    -
    -
    -
    -
    -
    -
    -
    
    -
    -Over 9.01%
    -
    -
    -
    -
    -
    -
    -
    
    -
    127Total
    $1,089,382
    85,907
    18,123
    12,351
    11,226
    371
    1,217,360
    
    1,167,339
    1,100,224


29

---

FHLB Advances and Other Borrowings

30

---

The following table sets forth certain information regarding the Bank's
borrowed funds at or for the periods ended on the dates indicated.

At or for the Years Ended March 31,2001
    2000
    1999(Dollars in thousands)FHLB advances:Average balance outstanding
    $ 771,869
    792,778
    855,197Maximum amount outstanding at any
      Month-end during the year
    886,000
    884,000
    949,000Balance outstanding at end of year (1)
    575,000
    884,000
    764,000Weighted average interest rate during
      the year
    6.25%
    5.63
    5.57Weighted average interest rate end
      of year
    5.98
    6.02
    5.37Reverse repurchase agreements:Average balance outstanding
    $ -
    43,750
    50,000Maximum amount outstanding at any
      Month-end during the year
    -
    50,000
    50,000Balance outstanding at end of year (1)
    -
    -
    50,000Weighted average interest rate during
      the year
    -%
    5.87
    5.87Weighted average interest rate end
      of year
    -
    -
    5.87(1) Included in the balance of FHLB advances outstanding at March 31,
2001 are putable borrowings of $165.0 million with initial put dates ranging
from April 16, 2001 to February 12, 2003. The weighted average term to maturity
for these putable borrowings is 28 months and the weighted average term to first
put date is 4 months.


Subsidiary ActivitiesPomona Financial Services, Inc.("PFS"), a California
corporation, is a wholly owned subsidiary of the Bank. PFS acts as a holding
company for the service corporations described below and acts as trustee under
deeds of trusts. For the year ended March 31, 2001, PFS had net earnings of
$67,000.PFF Financial Services, Inc. ("PFFFS"), a California
corporation, is a wholly owned subsidiary of PFS. Prior to July 1994, PFFFS
operated as an agency selling various personal and business insurance policies
strictly as an adjunct to the Bank's traditional thrift business. As part of
the Bank's strategy to diversify the products and services it offers and
restructure its balance sheet, a decision was made to expand the role of PFFFS.
In July 1994, PFFFS was authorized to sell fixed annuities to the Bank's
customers through the Bank's branches. In August 1995, PFFFS was further
authorized to offer variable annuities and mutual funds through a relationship
with a third party marketer of annuity and mutual fund non-deposit investment
products. In addition, PFFFS is working with vendors of other insurance
products, such as auto, home and life insurance, to further expand the products
and services offered to the Bank's customers and members of the local
community. For the year ended March 31, 2001, PFFFS had net earnings of $99,000.Diversified Services, Inc. ("DSI"), a California corporation,
is a wholly owned subsidiary of PFS. DSI had historically participated as an
investor in residential real estate projects. DSI may consider additional real
estate activities as market conditions warrant. For the year ended March 31,
2001, DSI had minimal activity and net earnings of $3,000.

31

---

Personnel

REGULATION AND SUPERVISION

GeneralThe Bancorp, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS under the Home Owners' Loan Act, as amended (the "HOLA"). In
addition, the activities of savings institutions, such as the Bank, are governed
by the HOLA and the Federal Deposit Insurance Act ("FDI Act").The Bank is subject to extensive regulation, examination and supervision by the
OTS, as its primary federal regulator, and the FDIC, as the deposit insurer. The
Bank is a member of the Federal Home Loan Bank ("FHLB") System and its
deposit accounts are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") managed by the FDIC. The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other savings
institutions. The OTS and/or the FDIC conduct periodic examinations to test the
Bank's safety and soundness and compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss allowances for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the OTS, the
FDIC or Congress, could have a material adverse impact on the Bancorp, the Bank
and their operations. Certain of the regulatory requirements applicable to the
Bank and to the Bancorp are referred to below or elsewhere herein. The
description of statutory provisions and regulations applicable to savings
institutions and their holding companies set forth in this Form 10-K does not
purport to be a complete description of such statutes and regulations and their
effects on the Bank and the Bancorp.Holding Company Regulation
The Bancorp is a non diversified unitary savings and loan holding company within
the meaning of the HOLA. As a unitary savings and loan holding company, the
Bancorp generally is not restricted under existing laws as to the types of
business activities in which it may engage, provided that the Bank continues to
be a qualified thrift lender ("QTL"). See "Federal Savings
Institution Regulation - QTL Test." Upon any non-supervisory acquisition by
the Bancorp of another savings institution or savings bank that meets the QTL
test and is deemed to be a savings institution by the OTS, the Bancorp would
become a multiple savings and loan holding company (if the acquired institution
is held as a separate subsidiary) and would be subject to extensive limitations
on the types of business activities in which it could engage. The HOLA limits
the activities of a multiple savings and loan holding company and its
non-insured institution subsidiaries primarily to activities permissible for
bank holding companies under Section 4(c)(8) of the Bank Holding Company Act
("BHC Act"), subject to the prior approval of the OTS, and certain
activities authorized by OTS regulation, and no multiple savings and loan
holding company may acquire more than 5% of the voting stock of a company
engaged in impermissible activities.
The HOLA prohibits a savings and loan holding company, directly or indirectly,
or through one or more subsidiaries, from acquiring more than 5% of the voting
stock of another savings institution or holding company thereof, without prior
written approval of the OTS or acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating applications by
holding companies to acquire savings institutions, the OTS must consider the
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the insurance
funds, the convenience and needs of the community and competitive factors.

32

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The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific capital
requirements or specific restrictions on the payment of dividends or other
capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions as described below. The Bank must notify the OTS 30 days
before declaring any dividend to the Bancorp. In addition, the financial impact
of a holding company on its subsidiary institution is a matter that is evaluated
by the OTS and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.Federal Savings Institution RegulationBusiness Activities. The activities of federal savings
institutions are governed by federal law and regulations. These laws and
regulations delineate the nature and extent of the activities in which federal
associations may engage. In particular, many types of lending authority for
federal associations are limited to a specified percentage of the institution's
capital or assets.Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 4% leverage (core) capital ratio (or a 3% leverage (core) capital ratio
for those institutions with the highest rating on the CAMELS financial
institution rating system) and an 8% risk-based capital ratio. In addition, the
prompt corrective action standards discussed below also establish, in effect, a
minimum 2% tangible capital standard, a 4% leverage (core) capital ratio (3% for
institutions receiving the highest rating on the CAMELS financial institution
rating system), and, together with the risk-based capital standard itself, a 4%
Tier I risk-based capital standard. Core capital is defined as common
stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships. The OTS regulations
also require that, in meeting the tangible, leverage (core) and risk-based
capital standards, institutions must generally deduct investments in and loans
to subsidiaries engaged in activities as principal that are not permissible for
a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, as assigned by the OTS capital regulation based on the
risks OTS believes are inherent in the type of asset. The components of Tier I
(core) capital are equivalent to those discussed earlier. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital.

33

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The OTS regulatory capital requirements also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value of its
assets (i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts) that would result from
a hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets. In
calculating its total capital under the risk-based capital rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
institution's assets. The Director of the OTS may waive or defer a savings
institution's interest rate risk component on a case-by-case basis. A savings
institution with assets of less than $300 million and risk-based capital ratios
in excess of 12% is not subject to the interest rate risk component, unless the
OTS determines otherwise. For the present time, the OTS has deferred
implementation of the interest rate risk component. At March 31, 2001, the Bank
met each of its capital requirements and it is anticipated that the Bank would
not be subject to the interest rate risk component.
The following table presents the Bank's capital position at March 31, 2001.

Actual
    Required
    Excess
    Actual
      Percentage
    Required
      Percentage(Dollars in thousands)Tangible
    $ 237,838
    43,076
    194,762
    8.28%
    1.50%Core (Leverage)
    237,838
    114,869
    122,969
    8.28
    4.00Risk-based
    262,994
    165,449
    97,545
    12.72
    8.00


Prompt Corrective Regulatory Action. Under the OTS prompt
corrective action regulations, the OTS is required to take certain supervisory
actions against undercapitalized institutions, the severity of which depends
upon the institution's degree of under capitalization. Generally, a savings
institution is considered "well capitalized" if its ratio of total
capital to risk-weighted assets is at least 10%, its ratio of Tier I (core)
capital to risk-weighted assets is at least 6%, its ratio of core capital to
total assets is at least 5%, and it is not subject to any order or directive by
the OTS to meet a specific capital level. A savings institution generally is
considered "adequately capitalized" if its ratio of total capital to
risk-weighted assets is at least 8%, its ratio of Tier I (core) capital to
risk-weighted assets is at least 4%, and its ratio of core capital to total
assets is at least 4% (3% if the institution receives the highest CAMELS
rating). A savings institution that has a ratio of total capital to risk
weighted assets of less than 8%, a ratio of Tier I (core) capital to
risk-weighted assets of less than 4% or a ratio of core capital to total assets
of less than 4% (3% or less for institutions with the highest CAMELS rating) is
considered to be "undercapitalized." A savings institution that has a
total risk-based capital ratio less than 6%, a capital Tier 1 to risk-weighted
assets ratio of less than 3% or a Tier 1 capital to total assets ratio that is
less than 3% is considered to be "significantly undercapitalized" and
a savings institution that has a Tier 1 capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a
narrow exception, the banking regulator is required to appoint a receiver or
conservator for an institution that is "critically undercapitalized."
The regulation also provides that a capital restoration plan must be filed with
the OTS within 45 days of the date a savings institution receives notice that it
is "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Compliance with the plan must be
guaranteed by any parent holding company. In addition, numerous mandatory
supervisory actions become immediately applicable to an undercapitalized
institution, including, but not limited to, increased monitoring by regulators
and restrictions on growth, capital distributions and expansion. The OTS could
also take any one of a number of discretionary supervisory actions, including
the issuance of a capital directive and the replacement of senior executive
officers and directors.Insurance of Deposit Accounts. Deposits of the Bank are presently
insured by the SAIF. The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon
the categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.

34

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In addition to the assessment for deposit insurance, institutions are required
to pay on bonds issued in the late 1980s by the Federal Financing Corporation to
recapitalize the predecessor to the SAIF (the "FICO Bonds"). During
2000, FICO Bond payments for SAIF members and Bank Insurance Fund
("BIF" - the deposit insurance fund that covers most commercial bank
deposits) members approximated 2.07 basis points. The BIF and SAIF have equal
sharing of FICO Bond payments between the members of both insurance funds.
The Bank's assessment rate for fiscal 2001 ranged from 1.9 to 3.0 basis points
and the premium paid for this period was $661,000 all of which was paid towards
the FICO Bonds. The FDIC has authority to increase insurance assessments. A
significant increase in SAIF insurance premiums would have an adverse effect on
the operating expenses and results of operations of the Bank. Management cannot
predict what the insurance assessment rate will be in the future.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.Thrift Rechartering Legislation.Various proposals to eliminate
the federal savings association charter, create a uniform financial institutions
charter, abolish the OTS and restrict savings and loan holding company
activities have been introduced in Congress. The Bank is unable to predict
whether any of this legislation will be enacted or the extent to which
legislation might restrict or disrupt its operations.Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. Generally, savings institutions may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. An additional amount may be lent, equal to 10% of unimpaired
capital and surplus, if such loan is secured by readily marketable collateral,
which is defined to include certain financial instruments and bullion. At March
31, 2001, the Bank's limit on loans to one borrower was $39.4 million. At
March 31, 2001, the Bank's largest aggregate outstanding balance of loans was
$36.1 million to a single family tract developer.QTL Test. The HOLA requires savings institutions to meet a QTL
test. Under the QTL test, a savings and loan association must either qualify as
a "domestic building and loan association" as defined in the Internal
Revenue Code or maintain at least 65% of its "portfolio assets" (i.e,
total assets less: (i) specified liquid assets up to 20% of total assets; (ii)
intangibles, including goodwill; and (iii) the value of property used to conduct
business) in certain "qualified thrift investments" (primarily
residential mortgages and related investments, including certain mortgage-backed
securities) in at least 9 months out of each 12 month period.
A savings institution that fails the QTL test is subject to certain operating
restrictions and may be required to convert to a bank charter. As of March 31,
2001, the Bank maintained 76.11% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test. Recent legislation has expanded
the extent to which education loans, credit card loans and small business loans
may be considered "qualified thrift investments."

35

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Limitation on Capital Distributions. OTS regulations impose
limitations upon all capital distributions by savings institutions, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger and other distributions
charged against capital. The rule effective in fiscal 1999 established three
tiers of institutions, which are based primarily on an institution's capital
level. An institution that exceeded all fully phased-in capital requirements
before and after a proposed capital distribution ("Tier 1 Bank") and
had not been advised by the OTS that it was in need of more than normal
supervision, could, after prior notice but without obtaining approval of the
OTS, make capital distributions during a calendar year equal to the greater of
(i) 100% of its net earnings to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of the
calendar year or (ii) 75% of its net income for the previous four quarters.
Effective April 1, 1999, the OTS's capital distribution regulation changed.
Under the new regulation, an application to and the prior approval of the OTS is
required before any capital distribution if the institution does not meet the
criteria for "expedited treatment" of applications under OTS
regulations, the total capital distributions for the calendar year exceed net
income for that year plus the amount of retained net income for the preceding
two years, the institution would be undercapitalized following the distribution,
or the distribution would otherwise be contrary to a statute, regulation or
agreement with the OTS. If an application is not required, institutions in a
holding company structure must still give advance notice to the OTS of the
capital distribution. If the Bank's capital fell below its regulatory
requirements or if the OTS notified it that it was in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution,
which would otherwise be permitted by the regulation, if the OTS determined that
the distribution would be an unsafe or unsound practice. At March 31, 2001, the
Bank was a Tier 1 Bank.Liquidity. The Bank is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawal deposit accounts plus short-term
borrowings. This liquidity requirement was 4% at March 31, 2001. Monetary
penalties may be imposed for failure to meet these liquidity requirements. The
Bank's liquidity ratio at March 31, 2001 was 6.25%, which exceeded the
applicable requirement. The Bank has never been subject to monetary penalties
for failure to meet its liquidity requirements. Effective March 14, 2001, the
OTS adopted an interim rule eliminating the statutory liquidity requirement. In
its place, the OTS adopted a policy, consistent with that of the other Federal
banking regulatory agencies that liquidity be maintained at a level which
provides for safe and sound banking practices and financial flexibility.Assessments. Savings institutions are required to pay assessments
to the OTS to fund the agency's operations. The general assessments, paid on a
semi-annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Bank's latest
quarterly thrift financial report. The assessments paid by the Bank for the
fiscal year ended March 31, 2001 totaled $509,000.Branching. OTS regulations permit nationwide branching by
federally chartered savings institutions to the extent allowed by federal
statute. This permits federal savings institutions to establish interstate
networks and to geographically diversify their loan portfolios and lines of
business. The OTS authority preempts any state law purporting to regulate
branching by federal savings institutions.Transactions with Related Parties. The Bank's authority to engage
in transactions with related parties or "affiliates" (e.g., any
company that controls or is under common control with an institution, including
the Bancorp and its non-savings institution subsidiaries) is limited by Sections
23A and 23B of the Federal Reserve Act ("FRA"). Section 23A limits the
aggregate amount of covered transactions with any individual affiliate to 10% of
the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is generally
prohibited. Section 23B generally provides that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary. The Bank's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such
persons control, is governed by Sections 22(g) and 22(h) of the FRA and
Regulation O thereunder. Among other things, such loans are required to be made
on terms substantially the same as those offered to unaffiliated individuals and
to not involve more than the normal risk of repayment. Recent legislation
created an exception for loans made pursuant to a benefit or compensation
program that is widely available to all employees of the institution and does
not give preference to insiders over other employees. Regulation O also places
individual and aggregate limits on the amount of loans the Bank may make to
insiders based, in part, on the Bank's capital position and requires certain
board approval procedures to be followed.

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Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. Under the FDI Act, the FDIC has the authority to recommend to the
Director of the OTS enforcement action to be taken with respect to a particular
savings institution. If action is not taken by the Director, the FDIC has
authority to take such action under certain circumstances. Federal law also
establishes criminal penalties for certain violations.Standards for Safety and Soundness. The federal banking agencies
have adopted Interagency Guidelines Prescribing Standards for Safety and
Soundness ("Guidelines") and a final rule to implement safety and
soundness standards required under the FDI Act. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The standards set forth in the Guidelines address internal controls
and information systems; internal audit system; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; asset quality;
earnings; and compensation, fees and benefits. If the appropriate federal
banking agency determines that an institution fails to meet any standard
prescribed by the Guidelines, the agency may require the institution to submit
to the agency an acceptable plan to achieve compliance with the standard, as
required by the FDI Act. The final rule establishes deadlines for the submission
and review of such safety and soundness compliance plans when such plans are
required.Recent Developments. On November 12, 1999, the Gramm-Leach-Bliley
Financial Modernization Act of 1999 became law. The Modernization Act contains
new financial privacy provisions that will generally prohibit financial
institutions, including the Company and the Bank, from disclosing nonpublic
personal financial information to third parties unless customers have the
opportunity to "opt out" of the disclosure. The Modernization Act also
allows, among other things, for bank holding companies meeting certain
management, capital and CRA standards to engage in a substantially broader range
of nonbanking activities than were previously permissible, including insurance
underwriting and making merchant banking investments in commercial and financial
companies. The Modernization Act further allows insurers and other financial
services companies to acquire banks; removes various restrictions that currently
apply to bank holding company ownership of securities firms and mutual fund
advisory companies; and establishes the overall regulatory structure applicable
to bank holding companies that also engage in insurance and securities
operations.
Because the Modernization Act permits banks, securities firms and insurers to
combine and to offer a wide variety of financial products and services, many of
these resulting companies will be larger and have more resources than the
Company. Should these companies choose to compete directly with the Company in
its target markets, the Company's results of operations could be adversely
impacted.Federal Reserve System

37

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FEDERAL AND STATE TAXATION

Federal TaxationGeneral. The Company reports its income on a fiscal year basis using the
accrual method of accounting and is subject to federal income taxation in the
same manner as other corporations with some exceptions, including particularly
the Bank's reserve for bad debts discussed below. The Company files federal
income tax returns on a consolidated basis. The Bank has been audited by the IRS
through the 1990 tax year and the California Franchise Tax Board through the
1985 tax year and for the 1993 tax year. The statute of limitations has closed
for all tax years for both IRS and California Franchise Tax Board purposes
through the 1994 tax year. The following discussion of tax matters is intended
only as a summary and does not purport to be a comprehensive description of the
tax rules applicable to the Company.Tax Bad Debt Reserve. Formerly, savings institutions such as the
Bank which met certain definitional tests primarily relating to their assets and
the nature of their business ("qualifying thrifts") were permitted to
establish a reserve for bad debts and to make annual additions , which additions
could, within specified formula limits, be deducted in arriving at taxable
income. The Bank's deduction with respect to "qualifying loans," (
generally loans secured by certain interests in real property), could be
computed using a percentage based on the Bank's actual loss experience, (the
"experience method"), or a percentage equal to eight percent of the
Bank's taxable income before such deduction (the "percentage of taxable
income method"). Each year the Bank selected the more favorable way to
calculate the deduction attributable to an addition to the bad debt reserve.
Pursuant to the Small Business Job Protection Act of 1996 (the "Act"),
Congress repealed the reserve method of accounting for bad debts for savings
institutions, effective for taxable years beginning after 1995. The Bank changed
its method of accounting for bad debts from the reserve method formerly
permitted under section 593 of the Internal Revenue Code of 1986, as amended
(the "Code") to the "specific charge-off" method. Under the
specific charge-off method, which is governed by section 166 of the Code and the
regulations thereunder, tax deductions may be taken for bad debts only if loans
become wholly or partially worthless. Although the Act requires that qualifying
thrifts recapture (i.e., include in taxable income) over a six-year period a
portion of their existing bad debt reserves equal to their "applicable
excess reserves," the Bank does not have applicable excess reserves subject
to recapture. However, the Bank's tax bad debt reserve balance of
approximately $25.3 million (as of March 31, 2001) will, in future years, be
subject to recapture in whole or in part upon the occurrence of certain events,
such as a distribution to shareholders in excess of the Bank's current and
accumulated earnings and profits, a redemption of shares, or upon a partial or
complete liquidation of the Bank. The Bank does not intend to make distributions
to shareholders that would result in recapture of any portion of its bad debt
reserves. These reserves would also be subject to recapture if the Bank fails to
qualify as a "bank" for federal income tax purposes.Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as
amended (the "Code") imposes a tax on alternative minimum taxable
income ("AMTI") at a rate of 20%. The excess of the bad debt reserve
deduction using the percentage of taxable income method over the deduction that
would have been allowable under the experience method is treated as a preference
item for purposes of computing the AMTI. Only 90% of AMTI can be offset by net
operating loss carryovers of which the Company currently has none. AMTI is
increased by an amount equal to 75% of the amount by which the Company's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). In addition, for
taxable years beginning after December 31, 1996 and before January 1, 1996, an
environmental tax of .12% of the excess of AMTI (with certain modifications)
over $2.0 million is imposed on corporations, including the Company, whether or
not an Alternative Minimum Tax ("AMT") is paid. The Company does not
expect to be subject to the AMT, but may be subject to the environmental tax
liability.

38

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Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company will not file a consolidated tax return, except that if
the Company owns more than 20% of the stock of a corporation distributing a
dividend then 80% of any dividends received may be deducted.State and Local Taxation

State of California. The California franchise tax rate applicable to the
Company equals the franchise tax rate applicable to corporations generally, plus
an "in lieu" rate approximately equal to personal property taxes and
business license taxes paid by such corporations (but not generally paid by
banks or financial corporations such as the Company); however, the total tax
rate cannot exceed 10.84%. Under California regulations, bad debt deductions are
available in computing California franchise taxes using a three or six-year
weighted average loss experience method. The Bancorp and its California
subsidiary file California state franchise tax returns on a combined basis.
Assuming that the holding company form of organization is continued to be
utilized, the Bancorp, as a savings and loan holding company commercially
domiciled in California, will generally be treated as a financial corporation
and subject to the general corporate tax rate plus the "in lieu" rate
as discussed previously.Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Bancorp is exempted from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.Item 2. Properties.
As of March 31, 2001, PFF Bank & Trust was conducting its business through
24 banking branches, two trust offices (one of which is domiciled in one of the
Bank's branch banking buildings), a regional loan center, a satellite loan
office, a human resources and training center, plus one executive administrative
building and one records center.
The executive offices for the Bank and the Bancorp are located at 350 South
Garey Avenue, Pomona, California.
Of the 24 banking branches, 17 of the buildings and the land on which they are
located are owned, one building is owned on leased land, and six buildings and
the land on which they are located are leased. The separate trust office, the
administrative office and land on which they are located are leased. The
regional loan center and the land on which it is located are owned and the
satellite loan office is leased. The human resources and training center and the
records center and land occupied by them are owned.
As of March 31, 2001, the net book value of owned real estate including the
branch located on leased land totaled $18.3 million. The net book value of
leased offices was $2.0 million. The net book value of furniture, fixtures and
electronic data processing equipment was $4.6 million.Item 3. Legal Proceedings.The Bancorp and subsidiaries have been named as defendants in various lawsuits
arising in the normal course of business. The outcome of these lawsuits cannot
be predicted, but the Bancorp intends to vigorously defend the actions and is of
the opinion that the lawsuits will not have a material effect on the Bancorp.Item 4. Submission of Matters to a Vote of Security Holders.None.

39

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The common stock of PFF Bancorp, Inc. is traded over-the-counter on the Nasdaq
National Market under the symbol "PFFB." The stock began trading on
March 29, 1996. The table below sets forth for the periods indicated the high,
low and closing sale prices of PFF Bancorp, Inc. common stock. As of March 31,
2001, there were approximately 4800 holders of the common stock of the Company,
which includes the approximate number of shares held in street name.

High
    Low
    ClosingYear Ended March 31, 2001First Quarter
    $18.25
    12.25
    18.25Second Quarter
    22.50
    16.63
    21.75Third Quarter
    23.75
    15.75
    20.88Fourth Quarter
    25.00
    19.25
    22.94Year Ended March 31, 2000First Quarter
    $19.75
    15.38
    18.75Second Quarter
    21.38
    18.81
    20.63Third Quarter
    23.75
    19.25
    19.38Fourth Quarter
    19.75
    13.50
    15.50


The Company initiated a cash dividend program on its common stock during the
fiscal year ended March 31, 2000. Dividend activity during the fiscal year ended
March 31, 2001 was as follows:

AmountRecord Date
    Payment Date
    Per shareJune 15, 2000
    June 30, 2000
    $.06September 15, 2000
    September 29, 2000
    $.06December 15, 2000
    December 29, 2000
    $.06March 15, 2001
    March 30, 2001
    $.06


The Company neither paid nor declared any dividends prior to September 1999.

40

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Item 6. Selected Financial Data.

The selected consolidated financial and other data of the Company set forth
below is derived in part from, and should be read in conjunction with, the
consolidated financial statements of the Company and notes thereto - See
"Item 8. Financial Statements and Supplementary Data."

At March 31,2001
    2000
    1999
    1998
    1997(Dollars in thousands)Selected Balance Sheet Data:Total assets
    $2,886,431
    3,034,023
    2,935,980
    2,812,384
    2,535,767Investment securities held-to-maturity
  702
    701
    709
    714
    15,718Investment securities available-for-sale
  59,137
    87,810
    82,387
    92,908
    63,210Mortgage-backed securities held-to-maturity
  -
    -
    556
    1,373
    5,490Mortgage-backed securities available-for-sale
  302,964
    381,277
    525,560
    481,620
    486,009Collateralized mortgage obligations available-for-sale
  82,315
    85,653
    102,700
    223,502
    24,909Trading securities
    2,375
    4,318
    4,271
    -
    -Investment in real estate
    -
    4,928
    6,371
    731
    1,113Loans held for sale
    583
    7,362
    3,531
    701
    736Loans receivable, net(1)
    2,285,307
    2,326,702
    2,026,081
    1,827,614
    1,819,209Deposits
    2,021,261
    1,906,534
    1,843,538
    1,740,824
    1,711,049FHLB advances and other borrowings
  575,000
    884,000
    814,000
    785,886
    530,000Stockholders' equity, substantially restricted
257,998
    221,831
    242,665
    254,278
    265,526(continued on next page)


41

---



For the Year Ended March 31,2001
    2000
    1999
    1998
    1997(Dollars in thousands, except per share amounts)Selected Operating Data:Interest income
    $ 240,356
    215,328
    206,955
    191,368
    168,515Interest expense
    143,471
    126,539
    130,356
    118,517
    99,306Net interest income
    96,885
    88,789
    76,599
    72,851
    69,209Provision for loan losses
    5,004
    4,000
    4,020
    7,099
    13,661Net interest income after provision for loan losses
  91,881
    84,789
    72,579
    65,752
    55,548Non-interest income
    13,912
    17,252
    15,548
    14,280
    10,227Non-interest expense:General and administrative expense
  57,066
    55,506
    54,960
    51,560
    49,381SAIF recapitalization assessment
    -
    -
    -
    -
    10,900Foreclosed real estate operations, net
  (324)
    (278)
    (45)
    473
    (325)Total non-interest expense
    56,742
    55,228
    54,915
    52,033
    59,956Earnings before income taxes
    49,051
    46,813
    33,212
    27,999
    5,819Income taxes
    20,791
    20,215
    14,208
    12,019
    3,087Net earnings
    $ 28,260
    26,598
    19,004
    15,980
    2,732Basic earnings per share (as restated) (2)
  $ 2.32
    2.13
    1.35
    0.99
    0.15Diluted earnings per share (as restated) (2)
  $ 2.24
    2.05
    1.30
    0.95
    0.15(continued on next page)


42

---



At or for the Year Ended March 31,2001
    2000
    1999
    1998
    1997(Dollars in thousands)Performance Ratios (3):Return on average assets
    0.95%
    0.90
    0.64
    0.60
    0.12Return on average equity
    11.81
    11.91
    7.92
    6.07
    0.96Average equity to average assets
  8.04
    7.54
    8.08
    9.87
    12.10Equity to total assets at end of period
  8.94
    7.31
    8.27
    9.04
    10.47Net interest spread (4)
    2.94
    2.83
    2.47
    2.41
    2.52Effective interest spread (5)
    3.32
    3.10
    2.71
    2.82
    3.05Average interest-earning assets to average interest-bearing liabilities
  107.72
    106.22
    105.16
    108.98
    112.04Core efficiency ratio (6)
  50.82
    53.43
    60.01
    59.18
    62.16General and administrative expense to average assets
  1.92
    1.87
    1.85
    1.93
    2.10Regulatory Capital Ratios (3)(7):Tangible capital
    8.28
    6.77
    6.95
    7.10
    8.46Core capital
    8.28
    6.77
    6.95
    7.10
    8.46Risk-based capital
    12.72
    11.00
    12.52
    14.17
    16.54Asset Quality Ratios (3):Non-performing loans as a percent of gross loans receivable (8)(9)
  0.45
    0.21
    0.50
    0.88
    1.24Non-performing assets as a percent of total assets (9)
  0.41
    0.23
    0.56
    0.88
    1.23Allowance for loan losses as a percent of gross loans receivable (8)
  1.22
    1.09
    1.18
    1.33
    1.47Allowance for loan losses as a percent of non-performing loans (9)
  270.20
    512.96
    237.56
    151.27
    118.72Number of full-service customer facilities
  24
    23
    24
    23
    23Loan originations
    $1,049,535
    1,268,324
    987,604
    557,428
    499,667(1) The allowances for loan losses at March 31, 2001, 2000, 1999, 1998, and 1997
were $31.0 million $27.8 million, $26.2 million, $26.0 million, and $27.7
million, respectively.(2) See Note 24 of the accompanying Notes to the Consolidated Financial Statements
regarding the restatement of the earnings per share data.(3) Asset Quality Ratios and Regulatory Capital Ratios are end of period ratios.
Performance Ratios are based on average daily balances during the indicated
periods.(4) Net interest spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.(5) Effective interest spread represents net interest income as a percent of
average interest-earning assets.(6) Core efficiency ratio represents general and administrative expense as a
percent of net interest income plus core non-interest income. Core non-interest
income excludes trading securities activity, fiscal 2000 gain on branch sale and
fiscal 2000 marketable equity security impairment writedown.(7) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation - Federal Savings Institution
Regulation - Capital Requirements."(8) Gross loans receivable includes loans receivable held for investment and
loans held for sale.(9) Non-performing assets consist of non-performing loans and REO.
Non-performing loans consist of all loans 90 days or more past due and all other
non-accrual loans. It is the Bank's policy to cease accruing interest on loans
90 days or more past due. See "Business of the Bank - Non-Accrual and
Past Due Loans" and "Real Estate."


43

---

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

44

---



March 31, 20013 Months
      or Less
    More than 3
      Months to 6
      Months
    More than 6
      Months to 12
      Months
    More than 12
      Months to 3
      Years
    More than 3
      Years to 5
      Years
    More than 5
      Years
    Total
    Fair
      Value(Dollars in thousands)Interest-earning assets:Cash, investment securities, collateralized mortgage obligations and FHLB stock (1)
    $ 189,925
    -
    -
    -
    -
    52,251
    242,176
    242,241Loans and mortgage-backed
      securities: (1)Mortgage-backed securities
    64,908
    51,976
    82,519
    83,018
    16,703
    3,840
    302,964
    302,964Loans receivable, net
    1,168,567
    338,956
    255,543
    292,424
    174,032
    56,368
    2,285,890
    2,297,168Total loans and mortgage-backed
      securities
    1,233,475
    390,932
    338,062
    375,442
    190,735
    60,208
    2,588,854
    2,599,550Total interest-earning assets
    1,423,400
    390,932
    338,062
    375,442
    190,735
    112,459
    2,831,030
    2,842,373Non-interest earning assets
    -
    -
    -
    -
    -
    55,401
    55,401
    55,401Total assets
    $ 1,423,400
    390,932
    338,062
    375,442
    190,735
    167,860
    2,886,431
    2,897,774Interest-bearing liabilities:Fixed maturity deposits
    $ 397,098
    398,857
    293,429
    104,030
    23,578
    368
    1,217,360
    1,228,086Core deposits (2)
    201,781
    201,782
    400,338
    -
    -
    -
    803,901
    803,898Total deposits
    598,879
    600,639
    693,767
    104,030
    23,578
    368
    2,021,261
    2,031,984Borrowings (3)
    305,000
    105,000
    140,000
    25,000
    -
    -
    575,000
    575,465Total interest-bearing liabilities
    903,879
    705,639
    833,767
    129,030
    23,578
    368
    2,596,261
    2,607,449Non-interest bearing liabilities
    -
    -
    -
    -
    -
    32,172
    32,172
    32,172Equity
    -
    -
    -
    -
    -
    257,998
    257,998
    257,998Total liabilities and stockholders' equity
    $ 903,879
    705,639
    833,767
    129,030
    23,578
    290,538
    2,886,431
    2,897,619Interest sensitivity gap
    $ 519,521
    (314,707)
    (495,705)
    246,412
    167,157
    (122,678)
    -Cumulative interest sensitivity gap
    519,521
    204,814
    (290,891)
    (44,479)
    122,678
    -
    -Cumulative interest sensitivity gap as a
      percentage of total assets
    18.00%
    7.10
    (10.08)
    (1.54)
    4.25
    0.00Cumulative interest-earning assets as a percentage of cumulative interest-bearing liabilities
    157.48
    112.73
    88.09
    98.27
    104.73
    109.04(1) Based upon contractual maturities, repricing date and
forecasted principal payments assuming normal amortization and, where applicable
prepayments.(2) Assumes annual decay rates ranging from 20%-33%.(3) Putable borrowings are presented based upon their first put date.


45

---

The Company's one year GAP at March 31, 2001, was negative 10.08% (i.e.,
more interest bearing liabilities reprice within one year than interest-earning
assets); this compares with positive 2.96% at March 31, 2000. The change in the
Company's one-year repricing GAP between March 31, 2000 and 2001 is
attributable, in part, to a change in the presentation of core deposits from
decay rates with lives of more than five years to recognition that all core
deposits are subjected to repricing within one year.
Although the table indicates the Company is more exposed to declining interest
rates in the short term, a GAP table is limited to measuring the timing risk and
does not reflect the impact of customer options or basis risk. To better measure
the Company's exposure to these and other components of interest rate risk,
management relies on an internally maintained, externally supported
asset/liability simulation model.
The Company forecasts its net interest income for the next twelve months, and
its NPV, assuming there are no changes in interest rates or the balance sheet
structure from the current period end. Once this "base case" has been
established, the Company subjects its balance sheet to instantaneous and
sustained rate changes of 100 and 200 basis points to the treasury yield curve.
Prepayment speeds and the responsiveness of the various indices are estimated
for each rate change level. The model then re-forecasts net interest income and
NPV. The tables below indicate the results of the Company's internal modeling
of its balance sheet as of March 31, 2001 and 2000. Once again, it should be
noted that the internal calculation of the Company's sensitivity to interest
rate changes would vary substantially if different assumptions were used, or if
the Company's response to changes in interest rates included changes in the
structure of its balance sheet.

March 31, 2001Percentage ChangeChange in Interest Rates
      (in basis points)
    Net Interest Income (1)
    Net Portfolio Value (2)200
    1.10%
    13.27%100
    1.21
    9.16(100)
    (0.58)
    (16.87)(200)
    (0.87)
    (37.06)(1) This percentage change represents the impact to net interest income for the
period from April 1, 2001 through March 31, 2002 assuming the Company does not
change the structure of its balance sheet.(2) This percentage represents the NPV of the Company assuming no changes to the
balance sheet.


The results from the asset/liability simulation model indicate that the Company's
net interest income would benefit, or increase, during periods of rising rates,
and decline during periods of declining rates. This is a direct result of the
success of the Company's strategic concentration on the Four-Cs and core
deposits. The Four-Cs generally have shorter durations, quicker response to rate
changes, and are associated with more responsive indices than traditional single
family loans. Additionally, core deposits have relatively low sensitivity to
movements in market rates compared to CDs.

46

---



March 31, 2000Percentage ChangeChange in Interest Rates
      (in basis points)
    Net Interest Income (1)
    Net Portfolio Value (2)200
    (8.43)%
    (56.43)%100
    (2.06)
    (27.47)(100)
    0.44
    26.71(200)
    0.14
    53.08(1) This percentage change represents the impact to net interest income for the
period from April 1, 2000 through March 31, 2001 assuming the Company does not
change the structure of its balance sheet.(2) This percentage represents the NPV of the Company assuming no changes to the
balance sheet.


Although the GAP table indicates the Company's net interest income should
perform better in a rising rate environment, results from the asset/liability
simulation model indicate that yield compression would occur decreasing net
interest income over the next twelve months. These results reflect the impact
rising rates would have in decreasing prepayments, assets encountering periodic
and lifetime caps and other factors that are not included in the GAP table.
The OTS produces an analysis of the Bank's interest rate risk using its own
model, based upon data submitted on the Bank's quarterly Thrift Financial
Reports. The results of the OTS model may vary from the Bank's internal model
primarily due to differences between assumptions utilized in the Bank's
internal model and the OTS model, including estimated loan market rates,
prepayment rates, reinvestment rates and deposit decay rates. As of March 31,
2001, the Bank's sensitivity measure, as calculated by the OTS, was a negative
1.80%. This represents a decrease in sensitivity of 97 basis points from the
March 31, 2000 results.

47

---

Average Balance SheetsThe following table sets forth certain information
relating to the Company for the years ended March 31, 2001, 2000 and 1999. The
yields and costs are derived by dividing income or expense by the average
balances of assets or liabilities, respectively, for the periods shown. Average
balances are derived from average daily balances. The yields include fees that
are considered adjustments to yields.

Year Ended March 31,2001
    2000
    1999Average
      Balance
    Interest
    Average
      Yield/
      Cost
    Average
      Balance
    Interest
    Average
      Yield/
      Cost
    Average
      Balance
    Interest
    Average
      Yield/
      Cost(Dollars in thousands)Assets:Interest-earning assets:Interest-earning deposits and short-term investments
    $ 32,979
    $ 2,011
    6.10%
    $ 35,688
    $ 1,656
    4.64%
    $ 40,037
    $ 1,921
    4.80%Investment securities, net
    88,290
    6,386
    7.23
    92,208
    5,935
    6.44
    102,626
    6,633
    6.46Mortgage-backed securities, net
    338,956
    22,274
    6.57
    437,549
    27,910
    6.38
    596,185
    37,471
    6.29Collateralized mortgage obligations, net
    86,267
    6,393
    7.41
    92,637
    5,893
    6.36
    167,538
    10,209
    6.09Loans receivable, net
    2,323,919
    199,918
    8.60
    2,162,492
    171,618
    7.94
    1,872,869
    148,013
    7.90FHLB stock
    46,094
    3,374
    7.32
    43,752
    2,316
    5.29
    47,778
    2,708
    5.67Total interest-earning assets
    2,916,505
    240,356
    8.24
    2,864,326
    215,328
    7.52
    2,827,033
    206,955
    7.32Non-interest-earning assets
    59,426
    
    
    98,750
    
    
    139,799Total assets
    $2,975,931
    
    
    $2,963,076
    
    
    $2,966,832Liabilities and Stockholders' Equity:Interest-bearing liabilities:Passbook accounts
    $ 128,955
    2,756
    2.14
    $ 141,103
    3,156
    2.24
    $ 147,702
    3,405
    2.31Money market savings accounts
    385,973
    18,684
    4.84
    401,394
    17,649
    4.40
    290,917
    13,131
    4.51NOW and other demand deposit accounts
    239,064
    1,957
    0.82
    212,752
    1,366
    0.64
    188,130
    1,293
    0.69Certificate accounts
    1,178,726
    71,592
    6.07
    1,101,254
    57,149
    5.19
    1,153,199
    61,705
    5.35Total
    1,932,718
    94,989
    4.91
    1,856,503
    79,320
    4.27
    1,779,948
    79,534
    4.47FHLB advances and other borrowings
    774,750
    48,482
    6.26
    840,091
    47,219
    5.62
    908,298
    50,822
    5.60Total interest-bearing liabilities
    2,707,468
    143,471
    5.30
    2,696,594
    126,539
    4.69
    2,688,246
    130,356
    4.85Non-interest-bearing liabilities
    29,215
    
    
    43,157
    
    
    38,729Total liabilities
    2,736,683
    
    
    2,739,751
    
    
    2,726,975Stockholders' equity
    239,248
    
    
    223,325
    
    
    239,857Total liabilities and stockholders' equity
    $2,975,931
    
    
    $2,963,076
    
    
    $2,966,832Net interest income
    
    $ 96,885
    
    
    $ 88,789
    
    
    $ 76,599Net interest spread
    
    
    2.94
    
    
    2.83
    
    
    2.47Effective interest spread
    
    
    3.32
    
    
    3.10
    
    
    2.71Ratio of interest-earning assets to interest-
      bearing liabilities
    107.72%
    
    
    106.22%
    
    
    105.16%


48

---

Rate/Volume AnalysisThe following table presents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); (iii) changes attributable to changes in
rate volume (change in rate multiplied by change in volume); and (iv) the net
change.

Year Ended March 31, 2001
      Compared to
      Year Ended March 31, 2000
    Year Ended March 31, 2000
      Compared to
      Year Ended March 31, 1999Increase (Decrease)
      Due to
    Increase (Decrease)
      Due toVolume
    Rate
    Rate/
      Volume
    Net
    Volume
    Rate
    Rate/
      Volume
    Net(Dollars in thousands)Interest-earning assets:Interest-earning deposits and short-term investments
    $ (126)
    520
    (39)
    355
    (209)
    (63)
    7
    (265)Investment securities, net
    (252)
    731
    (28)
    451
    (673)
    (27)
    2
    (698)Mortgage-backed securities, net
    (6,290)
    837
    (183)
    (5,636)
    (9,970)
    558
    (149)
    (9,561)Collateralized mortgage obligations, net
    (405)
    973
    (68)
    500
    (4,564)
    449
    (201)
    (4,316)Loans receivable, net
    12,817
    14,329
    1,154
    28,300
    22,889
    620
    96
    23,605FHLB stock
    124
    888
    46
    1,058
    (228)
    (179)
    15
    (392)Total interest-earning assets
    5,868
    18,278
    882
    25,028
    7,245
    1,358
    (230)
    8,373Interest-bearing liabilities:Passbook accounts
    (272)
    (145)
    17
    (400)
    (152)
    (101)
    4
    (249)Money market savings accounts
    (679)
    1,769
    (55)
    1,035
    4,987
    (340)
    (129)
    4,518NOW and other demand deposit accounts
    168
    380
    43
    591
    169
    (85)
    (11)
    73Certificate accounts
    4,021
    9,732
    690
    14,443
    (2,779)
    (1,860)
    83
    (4,556)FHLB advances and other borrowings
    (3,672)
    5,358
    (423)
    1,263
    (3,830)
    268
    (41)
    (3,603)Total interest-bearing liabilities
    (434)
    17,094
    272
    16,932
    (1,605)
    (2,118)
    (94)
    (3,817)Change in net interest income
    $ 6,302
    1,184
    610
    8,096
    8,850
    3,476
    (136)
    12,190


49

---

Comparison of Operating Results for the Years Ended March 31,
2001 and March 31, 2000General

50

---

Interest Expense

51

---

Income Taxes
Income Taxes were $20.8 million for fiscal 2001 compared to $20.2 million for
fiscal 2000. The effective income tax rate was 42.4% for fiscal 2001 compared to
43.2% for fiscal 2000.Comparison of Financial Condition at March 31, 2001 and March 31, 2000Total assets
decreased $147.6 million or 5% from $3.03 billion at March 31, 2000 to $2.89
billion at March 31, 2001. Loans receivable, net decreased $41.4 million from
$2.33 billion at March 31, 2000 to $2.29 billion at March 31, 2001. Loan
originations were $1.05 billion for fiscal 2001 compared to $1.27 billion for
fiscal 2000. The decrease in originations between fiscal 2000 and 2001 reflects
the Bank's de-emphasis on 1-4 family residential mortgage lending. The
weighted average initial contract rate for total loan originations was 10.07%
for fiscal 2001, compared to 8.25% for fiscal 2000. Investment securities (as
defined earlier) decreased $110.3 million from $555.4 million at March 31, 2000
to $445.1 million at March 2001. The $16.4 million increase in cash and cash
equivalents from $35.1 million at March 31, 2000 to $51.5 million at March 31,
2001 reflects the acceleration in cash inflows during the fourth quarter of
fiscal 2001 arising from increased levels of loan and investment security
pre-payments.Total liabilities
decreased $183.8 million or 7% from $2.81 billion March 31, 2000 to $2.63
billion at March 31, 2001. Total deposits increased $114.7 million from $1.91
billion at March 31, 2000 to $2.02 billion at March 31, 2001. Core deposits
increased $64.7 million during fiscal 2001 to $803.9 million or 40 percent of
total deposits at March 31, 2001. FHLB advances and other borrowings decreased
$309.0 million from $884.0 million at March 31, 2000 to $575.0 million at March
31, 2001. The decrease in FHLB advances and other borrowings was facilitated by
the strong deposit activity as well as the Bank's strategy of de-emphasizing
wholesale leverage. In response to the acceleration in cash inflows from loans
and securities, the Bank pre-paid $65.0 million of FHLB advances and other
borrowings during the fourth quarter of fiscal 2001.Total stockholders'
equity increased $36.2 million from $221.8 million at March 31, 2000 to $258.0
million at March 31, 2001. The $36.2 million increase is comprised principally
of a $24.2 million increase in retained earnings, substantially restricted, a
$4.4 million decrease in unearned stock-based compensation and a $7.1 million
decrease in accumulated other comprehensive loss on securities
available-for-sale. The $24.2 million increase in retained earnings,
substantially restricted was attributable to the Company's net earnings of
$28.3 million for fiscal 2001 partially offset by 1) $2.6 million attributable
to the amount paid by the Company to repurchase 145,000 shares of its common
stock in excess of the original issuance price of the stock and 2) $3.2 million
of cash dividends declared during fiscal 2001. The $4.4 million decrease in
unearned stock-based compensation was attributable to the amortization of shares
under the Company's ESOP ($1.8 million) and 1996 Incentive Plan ($2.6
million).

52

---

Comparison of Operating Results for the Years Ended March 31,
2000 and March 31, 1999

53

---

The increase in the average balance of interest-bearing liabilities was
comprised of a $76.6 million increase in the average balance of deposits from
$1.78 billion for fiscal 1999 to $1.86 billion for fiscal 2000, partially offset
by a $68.7 million decrease in the average balance of FHLB advances and other
borrowings from $905.2 million for fiscal 1999 to $836.5 million for fiscal
2000. The $76.6 million increase in the average balance of deposits during
fiscal 2000 is net of $45.9 million of deposits sold during the fiscal year.
The average cost of deposits decreased from 4.47% for fiscal 1999 to 4.27% for
fiscal 2000. Contributing to the decrease in the average cost of deposits was a
$128.5 million increase in the average balance of core deposits from $626.7
million for fiscal 1999 to $755.2 million for fiscal 2000. The average cost of
FHLB advances and other borrowings was 5.64% for fiscal 2000 compared to 5.60%
for fiscal 1999.Provision for Loan Losses
Provision for loan losses was $4.0 million for both fiscal 1999 and 2000. The
consistency in provision for loan losses between fiscal 1999 and 2000 reflects
the relationship between two factors. The Bank is experiencing improvement in
its overall level of asset quality and has assessed an improvement in general
economic conditions and property valuations in its market area. At the same
time, the Bank's emphasis on the Four-Cs is changing the overall risk profile
of the Bank's loan portfolio. Non-performing loans were $5.4 million or 0.21%
of gross loans receivable at March 31, 2000 compared to $11.0 million or 0.50%
of gross loans receivable at March 31, 1999. The allowance for loan losses was
$27.8 million or 1.09% of gross loans receivable at March 31, 2000 compared to
$26.2 million or 1.18% of gross loans receivable at March 31, 1999.Non-Interest Income
Non-interest income was $17.3 million for fiscal 2000 compared to $15.5 million
for fiscal 1999, an increase of $1.7 million or 11%. The increase was
attributable principally to a $1.5 million gain on branch sale during fiscal
2000. Deposit and related fees were $9.1 million for fiscal 2000 compared to
$8.6 million for fiscal 1999. Trust fees were $2.1 million for fiscal 2000
compared to $1.9 million for fiscal 1999. Gain (loss) on sales of assets was
($1.0 million) for fiscal 2000 compared to $698,000 for fiscal 1999. The $1.0
million loss for fiscal 2000 includes a $995,000 writedown of a marketable
equity security deemed to be other than temporarily impaired. The increase in
loan and servicing fees from $2.8 million for fiscal 1999 to $3.5 million for
fiscal 2000 is attributable, in part, to a $445,000 prepayment fee received on a
commercial loan during fiscal 2000. The net gain from trading activity was $1.7
million for fiscal 2000 compared to $569,000 for fiscal 1999.Non-Interest ExpenseNon-interest expense was $55.2 million for fiscal 2000 compared to $54.9
million for fiscal 1999. General and administrative expense increased $546,000
or 1% from $55.0 million or 1.85% of average assets for fiscal 1999 to $55.5
million or 1.87% of average assets for fiscal 2000. Compensation and benefits
expense increased $1.5 million from $28.0 million for fiscal 1999 to $29.5
million for fiscal 2000. Included in compensation and benefits expense are
non-cash charges of $3.1 million and $2.1 million associated with the Bank's
ESOP and 1996 Incentive Plan. Occupancy and equipment expense was $11.7 million
for fiscal 2000 compared to $12.1 million for fiscal 1999. The $408,000 decrease
in occupancy and equipment expense between fiscal 1999 and fiscal 2000 was
attributable principally to a reduction in expenditures and reduced
depreciation. The $930,000 decrease in other non-interest expense from $10.2
million for fiscal 1999 to $9.2 million for fiscal 2000 was due primarily to a
$433,000 reduction in office supplies and expense resulting from renegotiation
and consolidation of telecommunications services.Income Taxes
Income taxes were $20.2 million for fiscal 2000 compared to $14.2 million for
fiscal 1999. The effective income tax rate for fiscal 2000 was 43.2% compared to
an effective tax rate of 42.8% for fiscal 1999.

54

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Liquidity and Capital Resources

55

---

The Company currently has no material contractual obligations or
commitments for capital expenditures. See "Item 1 - Description of Business
- General." At March 31, 2001 the Bank had outstanding commitments to
originate and purchase loans of $124.6 million and zero, respectively, compared
to $87.9 million and zero, respectively, at March 31, 2000. At March 31, 2001
and 2000 the Company had no outstanding commitments to purchase mortgage-backed
securities, collateralized mortgage obligations and other investment securities.
The Company anticipates that it will have sufficient funds available to meet
these commitments. See "Item 1 - Description of Business - General."
Certificate accounts that are scheduled to mature in less than one year from
March 31, 2001 totaled $1.09 billion. The Bank expects that a substantial
portion of the maturing certificate accounts will be retained by the Bank at
maturity.Impact of Inflation
The Consolidated Financial Statements and Notes thereto presented herein have
been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollar amounts
or market value without considering the changes in the relative purchasing power
of money over time due to inflation. The impact of inflation is reflected in the
increased cost of the Company's operations. Unlike industrial companies,
nearly all of the assets and liabilities of the Company are monetary in nature.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price of
goods and services.Segment Reporting
The Company, through the branch network of the Bank, provides a broad range of
financial services to individuals and companies located primarily in Southern
California. These services include demand, time, and savings deposits; real
estate, business and consumer lending; ATM processing; cash management; and
trust services. While the Company's chief decision makers monitor the revenue
streams of the various Company products and services, operations are managed and
financial performance is evaluated on a Company-wide basis. Accordingly, all of
the Company's banking operations are considered by management to be aggregated
in one reportable operating segment.Item 7A. Quantitative and Qualitative Disclosures About Market RiskDisclosure related to market risk is included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Asset/Liability Management" contained in Item 7 of this Form 10-K.

56

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Item 8. Financial Statements and Supplementary Data

Index to Financial Statements
      PAGEConsolidated Balance Sheets - March 31, 2001 and 2000
      58Consolidated Statements of Earnings - Years ended March 31, 2001, 2000 and 1999
      59Consolidated Statements of Comprehensive Earnings - Years ended March 31, 2001,
        2000 and 1999
      60Consolidated Statements of Stockholders' Equity - Years ended March 31, 2001,
2000 and 1999
      61Consolidated Statements of Cash Flows - Years ended March 31, 2001, 2000 and 1999
      62Notes to Consolidated Financial Statements
      64Independent Auditors' Report
      100


57

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PFF BANCORP, INC. AND SUBSIDIARYConsolidated Balance Sheets
(Dollars in thousands)

March 31,2001
    2000AssetsCash and equivalents
    $ 51,526
    35,131Loans held-for-sale (note 20)
    583
    7,362Investment securities held-to-maturity (estimated fair value
      of $772 and $719 at March 31, 2001 and 2000)
      (notes 2, 10 and 12)
    702
    701Investment securities available-for-sale, at fair value
      (notes 2, 10 and 12)
    59,137
    87,810Mortgage-backed securities available-for-sale, at fair value
      (notes 3, 10, 11 and 12)
    302,964
    381,277Collateralized mortgage obligations available-for-sale, at fair value
      (notes 4, 10 and 12)
    82,315
    85,653Trading securities, at fair value
    2,375
    4,318Investment in real estate (note 6)
    -
    4,928Loans receivable, net (notes 5, 7, 10 and 12)
    2,285,307
    2,326,702Federal Home Loan Bank (FHLB) stock, at cost (note 12)
    46,121
    44,550Accrued interest receivable (note 8)
    18,466
    18,584Real estate acquired through foreclosure, net (notes 6 and 7)
    351
    1,466Property and equipment, net (note 9)
    22,946
    22,374Prepaid expenses and other assets (notes 13 and 19)
    13,638
    13,167Total assets
    $ 2,886,431
    3,034,023Liabilities and Stockholders' EquityLiabilities:Deposits (note 10)
    $ 2,021,261
    1,906,534FHLB advances and other borrowings (notes 11 and 12)
    575,000
    884,000Deferred income taxes payable (note 14)
    7,849
    663Accrued expenses and other liabilities (notes 10 and 13)
    24,323
    20,995Total liabilities
    2,628,433
    2,812,192Commitments and contingencies (notes 13, 17, 18, 19 and 20)
    -
    -Stockholders' equity (notes 13, 14, 15, 22 and 23):Preferred stock, $.01 par value. Authorized 2,000,000
      shares; none issued
    -
    -Common stock, $.01 par value. Authorized 59,000,000
      shares; issued 20,082,094 and 20,012,972; outstanding
      13,238,627 and 13,314,505 at March 31, 2001 and 2000,
      respectively
    200
    200Additional paid-in capital
    131,919
    131,370Retained earnings, substantially restricted
    137,703
    113,521Unearned stock-based compensation
    (8,953)
    (13,303)Treasury stock (6,843,467 and 6,698,467 in 2001 and 2000,
      respectively)
    (68)
    (67)Accumulated other comprehensive losses
    (2,803)
    (9,890)Total stockholders' equity
    257,998
    221,831Total liabilities and stockholders' equity
    $ 2,886,431
    3,034,023See accompanying notes to consolidated financial statements.


58

---

PFF BANCORP, INC. AND SUBSIDIARYConsolidated Statements of Earnings
(Dollars in thousands, except per share data)

Year Ended March 31,2001
    2000
    1999Interest income:Mortgage loans
    $ 171,592
    148,720
    133,972Non-mortgage loans
    28,326
    22,898
    14,041Mortgage-backed securities
    22,274
    27,910
    37,471Collateralized mortgage obligations
    6,393
    5,893
    10,209Investment securities and deposits
    11,771
    9,907
    11,262Total interest income
    240,356
    215,328
    206,955Interest on deposits (note 10)
    94,989
    79,320
    79,534Interest on borrowings (note 11)
    48,482
    47,219
    50,822Total interest expense
    143,471
    126,539
    130,356Net interest income
    96,885
    88,789
    76,599Provision for loan losses (note 7)
    5,004
    4,000
    4,020Net interest income after provision for loan losses
    91,881
    84,789
    72,579Non-interest income:Deposit and related fees
    8,969
    9,136
    8,637Trust fees
    1,846
    2,098
    1,891Loan and servicing fees (note 20)
    3,447
    3,471
    2,780Gain (loss) on sale of assets, net (note 20)
    557
    (1,017)
    698Gain (loss) on trading securities, net
    (1,490)
    1,677
    569Gain on sale of branch
    -
    1,468
    -Other non-interest income
    583
    419
    973Total non-interest income
    13,912
    17,252
    15,548Non-interest expense:General and administrative:Compensation and benefits (note 13)
    30,332
    29,475
    27,997Occupancy and equipment
    11,792
    11,690
    12,098Marketing and professional services
    6,310
    5,114
    4,708Other non-interest expense (note 16)
    8,632
    9,227
    10,157Total general and administrative
    57,066
    55,506
    54,960Foreclosed real estate operations, net (note 6)
    (324)
    (278)
    (45)Total non-interest expense
    56,742
    55,228
    54,915Earnings before income taxes
    49,051
    46,813
    33,212Income taxes (note 14)
    20,791
    20,215
    14,208Net earnings
    $ 28,260
    26,598
    19,004Basic earnings per share (as restated) (Note 24)
    $ 2.32
    2.13
    1.35Weighted average shares outstanding for basic
      earnings per share (as restated) (Note 24)
    12,182,855
    12,492,643
    14,124,509Diluted earnings per share (as restated) (Note 24)
    $ 2.24
    2.05
    1.30Weighted average shares outstanding for diluted
      earnings per share (as restated) (Note 24)
    12,640,281
    13,002,791
    14,575,721See accompanying notes to consolidated financial statements.


59

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PFF BANCORP, INC. AND SUBSIDIARY

For the Year Ended
      March 31,2001
    2000
    1999Net earnings
    $ 28,260
    26,598
    19,004Other comprehensive earnings (losses), net
      of income taxes:Unrealized gains (losses) on securities
      available-for-sale:Investment securities available-for-sale, at fair
      value
    1,604
    (1,457)
    (2,840)Collateralized mortgage obligations
      available-for-sale, at fair value
    485
    (588)
    -Mortgage-backed securities available-for-sale,
      at fair value
    4,686
    (5,947)
    (1,040)Reclassification of realized gains (losses) included in earnings
    312
    (221)
    3127,087
    (8,213)
    (3,568)Minimum pension liability adjustment
    -
    (582)
    -Other comprehensive gains (losses)
    7,087
    (8,795)
    (3,568)Comprehensive earnings
    $ 35,347
    17,803
    15,436See
accompanying notes to consolidated financial statements.


60

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PFF BANCORP, INC. AND SUBSIDIARYConsolidated Statements of Stockholders' Equity
(Dollars in thousands)

Number of
        Shares
      Common
        Stock
      Additional
        Paid-in
        Capital
      Retained Earnings Substantially Restricted
      Unearned
        Stock-based
        Compensation
      Treasury
        Stock
      Accumulated Other Comprehensive Earnings (Loss)
      TotalBalance at March 31, 1998
      17,067,099
      $ 199
      $ 165,912
      $ 106,617
      $ (20,895)
      $ (28)
      $ 2,473
      $254,278Net earnings
      -
      -
      -
      19,004
      -
      -
      -
      19,004Purchase of treasury stock
      (1,664,144)
      -
      (16,624)
      (15,458)
      -
      (17)
      -
      (32,099)Change in minimum pension liability
      -
      -
      (313)
      -
      229
      -
      -
      (84)Amortization of shares under stock-based compensation
      plans
    -
    -
    1,106
    -
    3,497
    -
    -
    4,603Stock options exercised
      42,526
      -
      531
      -
      -
      -
      -
      531Changes in unrealized gains on securities
      available-for-sale, net
    -
    -
    -
    -
    -
    -
    (3,568)
    (3,568)Balance at March 31, 1999
      15,445,481
      199
      150,612
      110,163
      (17,169)
      (45)
      (1,095)
      242,665Net earnings
      -
      -
      -
      26,598
      -
      -
      -
      26,598Purchase of treasury stock
      (2,200,000)
      -
      (21,978)
      (20,968)
      -
      (22)
      -
      (42,968)Change in minimum pension liability
      -
      -
      -
      -
      -
      -
      (582)
      (582)Amortization of shares under stock-based compensation
      plans
    -
    -
    2,163
    -
    3,866
    -
    -
    6,029Stock options exercised
      69,024
      1
      573
      -
      -
      -
      -
      574Dividends
      -
      -
      -
      (2,272)
      -
      -
      -
      (2,272)Changes in unrealized gains on securities
      available-for-sale, net
    -
    -
    -
    -
    -
    -
    (8,213)
    (8,213)Balance at March 31, 2000
      13,314,505
      200
      131,370
      113,521
      (13,303)
      (67)
      (9,890)
      221,831Net earnings
      -
      -
      -
      28,260
      -
      -
      -
      28,260Purchase of treasury stock
      (145,000)
      -
      (1,449)
      (1,117)
      -
      (1)
      -
      (2,567)Amortization of shares under stock-based compensation
      plans
    -
    -
    1,403
    -
    4,350
    -
    -
    5,753Stock options exercised
      69,122
      -
      595
      -
      -
      -
      -
      595Dividends
      -
      -
      -
      (2,961)
      -
      -
      -
      (2,961)Changes in unrealized gains on securities
      available-for-sale, net
    -
    -
    -
    -
    -
    -
    7,087
    7,087Balance at March 31, 2001
      13,238,627
      $ 200
      $ 131,919
      $ 137,703
      $ (8,953)
      $ (68)
      $ (2,803)
      $257,998See accompanying notes to consolidated financial
        statements.


61

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PFF BANCORP, INC. AND SUBSIDIARYConsolidated Statements of Cash Flows
(Dollars in thousands)

Year Ended March 31,2001
      2000
      1999Cash flows from operating activities:Net earnings
      $ 28,260
      26,598
      19,004Adjustments to reconcile net earnings to net cash provided by
        operating activities:Amortization of premiums net of discount accretion on loans and
        securities
      1,192
      2,089
      4,560Amortization of deferred loan origination fees
      (276)
      190
      (460)Loan fees collected
      237
      (2,219)
      (2,400)Dividends on FHLB stock
      (3,284)
      (2,441)
      (2,587)Provisions for losses on:Loans
      5,004
      4,000
      4,020Real estate
      49
      -
      41Gains on sales of loans, mortgage-backed securities
        available-for-sale, real estate and property and equipment
      (646)
      (1,679)
      (1,777)Proceeds from sale of trading securities
      466
      1,700
      1,500(Gains) losses on trading securities
      1,490
      (1,677)
      (569)Depreciation and amortization of property and equipment
      3,396
      3,608
      3,855Loans originated for sale
      (16,341)
      (32,799)
      (42,360)Proceeds from sale of loans held-for-sale
      23,439
      25,673
      39,407Amortization of unearned stock-based compensation
      5,753
      6,029
      4,603Increase (decrease) in accrued expenses and other liabilities
      5,640
      (14,119)
      4,381(Increase) decrease in:Accrued interest receivable
      118
      (1,466)
      202Prepaid expenses and other assets
      (471)
      10,173
      23,874Net cash provided by operating activities
      54,026
      23,660
      55,294Cash flows from investing activities:Loans originated for investment
      (1,033,194)
      (1,235,525)
      (945,244)Increase in construction loans in process
      38,891
      31,614
      71,585Purchases of loans held-for-investment
      (18,892)
      (1,560)
      (168,395)Principal payments on loans
      1,049,029
      902,923
      831,468Principal payments on mortgage-backed securities held-to-maturity
      -
      552
      804Principal payments on mortgage-backed securities available-for-sale
      83,794
      137,246
      272,546Principal payments on collateralized mortgage obligations
        available-for-sale
      4,103
      15,895
      118,466Purchases of investment securities available-for-sale
      (5,000)
      (28,066)
      (90,111)Purchases of FHLB stock
      -
      (1,974)
      (8,232)


62

---

PFF BANCORP, INC. AND SUBSIDIARYConsolidated Statements of Cash Flows, Continued
(Dollars in thousands)

Year Ended March 31,2001
      2000
      1999Redemption of FHLB stock
      $ 1,713
      10,188
      -Purchases of mortgage-backed securities available-for-sale
      -
      -
      (317,988)Proceeds from maturities of investment securities available-for-sale
      35,000
      8,886
      27,983Proceeds from sale of investment securities available-for-sale
      1,951
      10,626
      64,668Proceeds from sale of real estate
      2,993
      8,515
      13,611Investment in or proceeds from real estate held for investment
      5,155
      1,443
      (5,704)Purchases of property and equipment
      (3,968)
      (2,345)
      (2,247)Proceeds from sale of property and equipment
      -
      933
      5Net cash provided by (used in) investing activities
      161,575
      (140,649)
      (136,785)Cash flows from financing activities:Proceeds from FHLB advances and other borrowings
      494,800
      884,600
      804,876Repayment of FHLB advances and other borrowings
      (803,800)
      (814,600)
      (776,762)Net change in deposits
      114,727
      62,996
      102,714Proceeds from exercise of stock options
      595
      574
      531Cash dividends
      (2,961)
      (2,272)
      -Purchase of treasury stock
      (2,567)
      (42,968)
      (32,099)Net cash provided by (used in) financing activities
      (199,206)
      88,330
      99,260Net increase (decrease) in cash and cash equivalents
      16,395
      (28,659)
      17,769Cash and cash equivalents, beginning of year
      35,131
      63,790
      46,021Cash and cash equivalents, end of year
      $ 51,526
      35,131
      63,790Supplemental information:Interest paid, including interest credited
      $ 142,689
      128,402
      136,165Income taxes paid
      19,200
      17,000
      10,700Non-cash investing and financing activities:Change in unrealized gain (loss) on securities available-for-sale
      12,242
      (14,161)
      (6,185)Net transfers from loans receivable to real estate acquired through
        foreclosure
      2,011
      5,793
      14,038Net transfers from available-for-sale securities to trading
        securities
      -
      -
      5,419See accompanying
        notes to consolidated financial statements.


63

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PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements
(Dollars in thousands)

(1) Summary of Significant Accounting Policies
Effective March 28, 1996, pursuant to a plan of conversion, Pomona First Federal
Savings and Loan Association (the "Association") reorganized from a
federally chartered mutual savings and loan association to PFF Bank & Trust
(the "Bank"), a federally chartered stock savings bank. PFF Bancorp,
Inc. (the "Bancorp") was incorporated under Delaware law in March 1996
for the purpose of acquiring and holding all of the outstanding capital stock of
the Bank as part of the Bank's conversion. Any references to financial
information for periods before March 28, 1996, refer to the Association prior to
the conversion (see "Note 22" for further discussion).
The following accounting policies, together with those disclosed elsewhere in
the consolidated financial statements, represent the significant accounting
policies used in presenting the accompanying consolidated financial statements.Basis of ConsolidationThe accompanying consolidated financial statements include the accounts of
PFF Bancorp, Inc. and its subsidiary, PFF Bank & Trust (collectively, the
"Company"). The Company's business is conducted primarily through
PFF Bank & Trust and its subsidiary, Pomona Financial Services, Inc. The
accounts of Diversified Services, Inc. and PFF Financial Services, Inc. are
included in Pomona Financial Services, Inc. All material intercompany balances
and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the prior years' consolidated financial
statements to conform to the current year's presentation.
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and contingent liabilities as of the dates of the consolidated
balance sheets, and revenues and expenses reflected in the consolidated
statements of earnings. Actual results could differ from those estimates.Cash and Cash EquivalentsCash and cash equivalents consist of cash on hand and in banks of $37,886
and $35,060 and short-term deposits in banks of $13,640 and $71 at March 31,
2001 and 2000, respectively. The Company considers all highly liquid debt
instruments with maturities at the date of acquisition of three months or less
to be cash equivalents.Investment and Mortgage-Backed Securities and Collateralized Mortgage
ObligationsAt the time of purchase of an investment security, a mortgage-backed
security or a collateralized mortgage obligation, the Company designates the
security as either held-to-maturity, available-for-sale or trading based on the
Company's investment objectives, operational needs and intent. The Company
then monitors its investment activities to ensure that those activities are
consistent with the established guidelines and objectives.

64

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PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

Held-to-MaturityInvestment securities held-to-maturity are carried at cost,
or in the case of mortgage-backed securities and collateralized mortgage
obligations at unpaid principal balance, adjusted for amortization of premiums
and accretion of discounts which are recognized in interest income using the
interest method, adjusted for anticipated prepayments where applicable. It is
the intent of the Company and the Company has the ability, to hold these
securities until maturity as part of its portfolio of long-term interest earning
assets. If the security is determined to be other than temporarily impaired, the
amount of the impairment is charged to operations.Available-for-SaleInvestment securities, mortgage-backed securities and
collateralized mortgage obligations available-for-sale are carried at fair
value. Amortization of premiums and accretion of discounts are recognized in
interest income using the interest method, adjusted for anticipated prepayments
where applicable. Unrealized holding gains and losses are excluded from earnings
and reported as a separate component of stockholders' equity, net of income
taxes, unless the security is deemed to be other than temporarily impaired. If
the security is determined to be other than temporarily impaired, the amount of
the impairment is charged to operations.
Realized gains and losses on the sale of securities available-for-sale are
determined using the specific identification method and recorded in earnings.TradingTrading securities are comprised principally of
equity securities which are carried at fair value, based upon the quoted market
prices of those investments. Accordingly, the net gains and losses on trading
securities are included in earnings.Loans Held for SaleLoans designated as held for sale in the secondary market are carried at the
lower of cost or market value in the aggregate, as determined by outstanding
commitments from investors or current investor requirements. Loan fees and costs
are deferred and recognized as a component of gain or loss on sale of loans when
the loans are sold. Net unrealized losses are recognized through a valuation
allowance established by charges to operations.Gains or Losses on Sales of LoansGains or losses on sales of loans are recognized at the time of sale and are
determined by the difference between the net sales proceeds and the allocated
basis of the loans sold. The Company capitalizes mortgage servicing rights
("MSR") through the sale of mortgage loans which are sold with
servicing rights retained. At the time of sale the total cost of the mortgage
loans is allocated to the MSR and the mortgage loans without the MSR based upon
their relative fair values. The MSR are included in other assets and as a
component of the gain on the sale of loans. The MSR are amortized in proportion
to and over the estimated period of the net servicing income. This amortization
is reflected as a component of loan servicing fees.
The MSR are periodically reviewed for impairment based upon their fair value.
The fair value of the MSR, for the purposes of impairment, is measured using a
discounted cash flow analysis using market prepayment rates, the Company's net
servicing income and market-adjusted discount rates. Impairment losses are
recognized through a valuation allowance, with any associated provision recorded
as a component of loan servicing fees.

65

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PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

Loans ReceivableLoans receivable are stated at unpaid principal balances less the
undisbursed portion of construction loans, unearned discounts, net deferred loan
origination fees and allowances for losses. Premiums/discounts are
amortized/accreted using the interest method over the remaining term to
maturity.
Uncollected interest on loans contractually delinquent more than ninety days or
on loans for which collection of interest appears doubtful is excluded from
interest income and accrued interest receivable. Payments received on nonaccrual
receivables are recorded as a reduction of principal or as interest income
depending on management's assessment of the ultimate collectibility of the
loan principal. Such loans are restored to an accrual status only if the loan is
brought contractually current and the borrower has demonstrated the ability to
make future payments of principal and interest.Loan Origination, Commitment Fees and Related CostsLoan fees and certain direct loan origination costs are deferred, with the
net fee or cost being accreted or amortized to interest income over the
remaining term to maturity of the related loan using the interest method.
Accretion or amortization is discontinued in the event the loan becomes
contractually delinquent by more than ninety days. Accretion or amortization
resumes in the period all delinquent interest and principal is paid. When a loan
is paid in full, any unamortized net loan origination fee or cost is recognized
in interest income. When a loan is sold any net loan origination fee or cost is
recognized in the calculation of the gain (loss) on sale of loans. Commitment
fees and costs related to commitments where the likelihood of exercise is remote
are recognized over the commitment period on a straight-line basis. If the
commitment is subsequently exercised during the commitment period, the remaining
net unamortized commitment fees at the time of exercise are recognized over the
life of the loan using the interest method.Valuation Allowances for Loans Receivable and Real EstateValuation allowances for loan losses are provided on both a specific and
non-specific basis. Specific allowances are provided when an identified
significant decline in the value of the underlying collateral occurs or an
identified adverse situation occurs that may affect the borrower's ability to
repay. Non-specific allowances are provided based on a number of factors,
including the Company's past loan loss experience, current and economic
conditions and management's ongoing evaluation of the credit risk inherent in
the portfolio.
Valuation allowances for losses on real estate are established when a decline in
value reduces the fair value less estimated disposal costs to less than the
carrying value.
Management believes that allowances for loan losses 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 loan and real estate losses. Such agencies may
require the Company to recognize additions to the allowances based on their
judgments of the information available to them at the time of their
examinations.
Management considers loans with a principal balance of $500 or more, including
loans to one borrower that exceed $1,000 as non-homogeneous for purposes of
evaluation for impairment. A loan is considered impaired if it is probable that
the creditor will be unable to collect all contractual amounts due (principal
and interest) as scheduled in the loan agreement. Impaired loans are measured
based on either an estimate of the present value of expected future cash flows
discounted at the loan's effective interest rate or the loan's market value
or the fair value of collateral if the loan is collateral dependent.
Substantially all loans measured for impairment are measured using the fair
value of the collateral. The amount by which the recorded investment in the loan
exceeds the measure of the impaired loan is recognized by recording a valuation
allowance with a corresponding charge to operations. The Company will charge-off
a portion of an impaired loan against the valuation allowance when it is
probable that there is no possibility of recovering the full amount of the
impaired loan.

66

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PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

All non-homogeneous loans designated by the Company as
impaired are either placed on non-accrual status or are designated as
restructured loans. Only non-accrual loans and restructured loans not performing
in accordance with their restructured terms are included in non-performing
loans. Loans are generally placed on non-accrual status when the payment of
interest is 90 days or more delinquent, or if the loan is in the process of
foreclosure, or earlier if the timely collection of interest and/or principal
appears doubtful. The Company's policy allows for loans to be designated as
impaired and placed on non-accrual status even though the loan may be current as
to the principal and interest payments and may continue to perform in accordance
with its contractual terms.
Payments received on impaired loans are recorded as a reduction of principal or
as interest income depending on management's assessment of the ultimate
collectibility of the loan principal. The amount of interest income recognized
is limited to the amount of interest that would have accrued at the loan's
contractual rate applied to the recorded loan balance, with any difference
recorded as a loan loss recovery. Generally, interest income on an impaired loan
is recorded on a cash basis when the outstanding principal is brought current.Real Estate Acquired Through ForeclosureReal estate properties acquired through loan foreclosure are initially
recorded at fair value at the date of foreclosure. Once real estate properties
are acquired, evaluations are periodically performed by management and an
allowance for losses is established by a charge to operations if the carrying
value of a property exceeds its fair value. Real estate properties held for sale
or development are carried at the lower of cost, including cost of improvements
and amenities incurred subsequent to acquisition, or net realizable value. Costs
related to development and improvement of properties are capitalized, whereas
costs relating to holding the properties are expensed. During the development
period, the portion of interest costs related to development of real estate are
capitalized.Property and EquipmentLand is carried at cost. Buildings and improvements, furniture, fixtures and
equipment, and leasehold improvements are carried at cost, less accumulated
depreciation or amortization. Depreciation and amortization are recorded using
the straight-line method over the estimated useful lives of the assets or the
terms of the related leases, if shorter.
The Company capitalizes interest on all construction in progress based on the
cost of funds in effect during the construction period.IntangiblesIn January 1995, the Company acquired the trust operations of another bank
for $3,470. The excess cost over net assets acquired was capitalized and is
being amortized on a straight-line basis over the estimated average life of the
trust relationships acquired of 11 years.
On a periodic basis, the Company reviews its intangible assets for events or
changes in circumstances that may indicate the carrying amounts of the assets
may not be recoverable. Recoverability of an asset to be held and used is
measured by a comparison of the carrying amount of the asset to future net cash
flows expected to be generated by the asset. If such asset is considered to be
impaired, the impairment is measured by the amount by which the carrying amount
exceeds the fair value of the asset.

67

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PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

Reverse Repurchase Agreements
The Company enters into sales of securities under agreements to repurchase the
same securities. Reverse repurchase agreements are accounted for as financing
arrangements, with the obligation to repurchase securities sold reflected as a
liability in the consolidated balance sheets. The dollar amount of securities
underlying the agreements remains in the respective asset account.Interest on Deposits
Accrued interest is either paid to the depositor or added to the deposit account
on a periodic basis. On term accounts, the forfeiture of interest (because of
withdrawal prior to maturity) is offset as of the date of withdrawal against
interest expense in the consolidated statements of operations.Income Taxes
The Company files consolidated Federal income and combined state franchise tax
returns.
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.Employee Stock Ownership PlanThe Company accounted for the original issuance of the Employee Stock
Ownership Plan ("ESOP") as a component of equity recorded in a
contra-equity account. When the issuance occurs, compensation expense is
recognized over the allocation period based upon the fair value of the shares
committed to be released to employees. This may result in fluctuations in
compensation expense as a result of changes in the fair value of the Company's
common stock. However, any such compensation expense fluctuations result in an
equal and offsetting adjustment to additional paid-in capital.Stock Option Plan
On October 23, 1996, the Company granted stock options and adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
compensation on the date of grant. Alternatively, SFAS No. 123 allows entities
to apply the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and
related interpretations, and provide pro forma net earnings and pro forma
earnings per share disclosures for employee stock option grants made in 1996 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. The Company has elected to apply the provisions of APB 25 and provide the
pro forma disclosure provisions of SFAS No. 123.

68

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PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

Segment ReportingThe Company, through the branch network of the Bank, provides
a broad range of financial services to individuals and companies located
primarily in Southern California. These services include demand, time, and
savings deposits; real estate, business and consumer lending; ATM processing;
cash management; and trust services. While the Company's chief decision makers
monitor the revenue streams of the various Company products and services,
operations are managed and financial performance is evaluated on a Company-wide
basis. Accordingly, all of the Company's banking operations are considered by
management to be aggregated in one reportable operating segment.New Accounting PronouncementsIn June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
Under SFAS No. 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach of
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk.
This statement, as amended, is effective for all quarters of fiscal years
beginning after June 15, 2000. Management has implemented SFAS No. 133 and it
has not had a significant impact on the Company's financial position or
results of operations.In March 2000, the FASB issued Interpretation No. 44 "Accounting for
Certain Transactions Involving Stock Compensation an Interpretation of APB
Opinion No. 25" ("FIN 44"). This interpretation clarifies the
definition of an employee for purposes of applying Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"), the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. This
interpretation is effective July 1, 2000, but certain conclusions in this
interpretation cover specific events that occur after either December 15, 1998
or January 12, 2000. Management has implemented FIN 44 and it has not had a
significant impact on the Company's financial position or results of
operations.In September
2000, the FASB issued Statement of Financial Accounting Standards No. 140
("SFAS No. 140") to replace SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities". SFAS No. 140 provides the accounting and reporting guidance
for transfers and servicing of financial assets and extinguishments of
liabilities. SFAS No. 140 will be the authoritative accounting literature for:
(1) securitization transactions involving financial assets; (2) sales of
financial assets (including loan participations); (3) factoring transactions;
(4) wash sales; (5) servicing assets and liabilities; (6) collateralized
borrowing arrangements; (7) securities lending transactions; (8) repurchase
agreements; and (9) extinguishment of liabilities. Management has implemented
SFAS No. 140 and it has not had a significant impact on the Company's
financial position or results of operations.

69

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(2) Investment SecuritiesThe amortized cost and estimated fair values of investment securities are
summarized as follows:

March 31, 2001Amortized
        Cost
      Gross
        Unrealized
        Gains
      Gross
        Unrealized
        Losses
      Estimated
        Fair
        ValueHeld-to-maturity:Bonds, notes and debentures at amortized cost:U.S. Government and federal agency obligations
      $ 702
      70
      -
      772Total
      $ 702
      70
      -
      772Available-for-sale:Corporate debt securities
      $ 56,194
      25
      (4,411)
      51,808Equity securities
      4,600
      2,729
      -
      7,329Total
      $ 60,794
      2,754
      (4,411)
      59,137


During the years ended March 31, 2001, 2000 and 1999, the
Company realized net losses on sales of investment securities available-for-sale
of $156, $279 and $53, respectively.

March 31, 2000Amortized
        Cost
      Gross
        Unrealized
        Gains
      Gross
        Unrealized
        Losses
      Estimated
        Fair
        ValueHeld-to-maturity:Bonds, notes and debentures at amortized cost:U.S. Government and federal agency obligations
      $ 701
      18
      -
      719Total
      $ 701
      18
      -
      719Available-for-sale:U.S. Government and federal agency obligations
      $ 35,000
      -
      (938)
      34,062Corporate debt securities
      51,086
      -
      (2,771)
      48,315Equity securities
      6,708
      -
      (1,275)
      5,433Total
      $ 92,794
      -
      (4,984)
      87,810


Maturities of investment securities at March 31, 2001 are
summarized as follows:

Held-to-maturity
      Available-
        for-saleMaturity
      Amortized
        Cost
      Estimated
        Fair
        Value
      Estimated
        Fair
        ValueWithin one year
      $ -
      -
      -After one to five years
      -
      -
      -After five to ten years
      702
      772
      -After ten years
      -
      -
      59,137Total
      $ 702
      772
      59,137


70

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(3) Mortgage-Backed Securities
The amortized cost and estimated fair values of mortgage-backed securities are
summarized as follows:

March 31, 2001Amortized
        Cost
      Gross
        Unrealized
        Gains
      Gross
        Unrealized
        Losses
      Estimated
        Fair
        ValueAvailable-for-sale:GNMA
      $ 12,104
      117
      -
      12,221FHLMC
      84,222
      170
      (541)
      83,851FNMA
      206,973
      979
      (1,060)
      206,892Total
      $ 303,299
      1,266
      (1,601)
      302,964


During the years ended March 31, 2001, 2000 and 1999, the
Company realized net gains on sales of mortgage-backed securities
available-for-sale of zero, zero and $79, respectively.

March 31, 2000Amortized
        Cost
      Gross
        Unrealized
        Gains
      Gross
        Unrealized
        Losses
      Estimated
        Fair
        ValueAvailable-for-sale:GNMA
      $ 14,820
      112
      (53)
      14,879FHLMC
      114,534
      100
      (2,804)
      111,830FNMA
      260,336
      189
      (5,957)
      254,568Total
      $ 389,690
      401
      (8,814)
      381,277


The mortgage-backed securities have original maturities of up
to 30 years.(4) Collateralized Mortgage ObligationsThe amortized cost and estimated fair values of collateralized mortgage
obligations are summarized as follows:

March 31, 2001Amortized
        Cost
      Gross
        Unrealized
        Gains
      Gross
        Unrealized
        Losses
      Estimated
        Fair
        ValueAvailable-for-sale:FHLMC
      $ 58,430
      14
      (1,208)
      57,236FNMA
      25,701
      -
      (622)
      25,079Total
      $ 84,131
      14
      (1,830)
      82,315




|                    | March 31, 2000      
|------------------- | --------------------
|                    | Amortized
      Cost
|Available-for-sale: |                     
|FHLMC               | $ 60,005            
|FNMA                | 28,300              
|Total               | $ 88,305            

71

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(5) Loans Receivable
Loans receivable are summarized as follows:

March 31,2001
      2000Mortgage loans:Residential:One-to-four family
      $ 1,338,357
      1,529,871Multi-family
      87,321
      85,169Commercial real estate
      233,953
      169,010Construction and land
      597,083
      517,659Total mortgage loans
      2,256,714
      2,301,709Commercial
      133,564
      122,095Consumer
      160,987
      126,424Total loans
      2,551,265
      2,550,228Less:Undisbursed portion of construction loans
      (237,547)
      (198,656)Net premium on loans
      818
      1,215Net deferred loan origination fees
      1,793
      1,753Allowance for loan losses (note 7)
      (31,022)
      (27,838)Total loans receivable, net
      $ 2,285,307
      2,326,702Weighted average yield
      8.60%
      7.94%


Loans receivable from officers and directors of the Company
were as follows:

March 31,2001
      2000Beginning balance
      $ 2,210
      2,445Additions
      270
      228Repayments
      (231)
      (463)Ending balance
      $ 2,249
      2,210


72

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PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
  (Dollars in thousands)

The following table provides information with respect to the
  Company's nonaccrual loans and troubled debt restructured ("TDR")
  loans at the dates indicated.

March 31,2001
      2000
      1999Non-accrual loans
      $ 11,481
      5,427
      11,012TDR loans
      3,012
      1,950
      11,291Total non-accrual and TDR loans (1)
      $ 14,493
      7,377
      22,303(1) At March 31,
        2001 the Bancorp's $3,000 loan for the Castaic development is included
        in both non-accrual and TDR loans.


The effect of non-accrual and TDR loans on interest income is
presented below.

Year Ended March 31,2001
      2000
      1999Contractual interest due:Non-accrual loans
      $ 733
      466
      1,144TDR loans
      86
      499
      1,032819
      965
      2,176Interest income recognized on TDR loans on a cash basis
    59
    369
    887Interest income not recognized
    $ 760
    596
    1,289


The following table identifies the Company's total recorded
investment in impaired and TDR loans with a recorded investment greater than
$500 by type, at the dates indicated.

March 31,2001
      2000Recorded
        Investment
      Specific
        Allowances
      Recorded
        Investment
      Specific
        AllowancesImpaired loans:Residential:One-to-four family
      $ 599
      -
      -
      -Multi-family
      1,188
      -
      1,798
      252Commercial real estate
      2,951
      210
      1,795
      45Commercial
      3,533
      93
      1,887
      -Construction and land (1)
      38,347
      1,570
      20,178
      -TDR loans (1)
      3,012
      3,012
      1,950
      406Total
      $ 49,630
      4,885
      27,608
      703(1) At March 31,
        2001 the Bancorp's $3,000 loan for the Castaic development is included
        in both non-accrual and TDR loans.


During the year ended March 31, 2001, 2000 and 1999, the
Company's average investment in impaired loans was $26,306, $13,810 and
$17,941, respectively and interest income recorded during these periods was $47,
$381 and $916, respectively of which zero, $369 and $887, respectively was
recorded utilizing the cash basis method of accounting.

73

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(6) Real Estate
Real estate acquired through foreclosure is summarized as follows:

March 31,2001
      2000Properties acquired in settlement of loans
    $ 400
    1,466Allowance for losses (note 7)
    (49)
    -Total
      $ 351
      1,466


(Gain) loss from foreclosed real estate operations, net is
summarized as follows:

Year Ended March 31,2001
      2000
      1999(Gain) loss on sale of foreclosed real estate, net
      $ (248)
      (870)
      (1,356)Real estate (income) expense
      (125)
      592
      1,270Provision for (recoveries of) losses on real estate
      49
      -
      41Total
      $ (324)
      (278)
      (45)


Real estate held for sale or development is summarized as
follows:

March 31,2001
      2000Properties wholly owned
      $ -
      558Mezzanine equity investments in real estate
      -
      4,370Total
      $ -
      4,928


During the years ended March 31, 2001, 2000 and 1999, the
Company recognized net gains of zero, zero, and $36, respectively from the sale
of properties wholly owned by the Company and profit of zero, zero and $246,
respectively from equity investments in real estate developments.

74

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(7) Allowances for Losses on Loans Receivable and Real Estate
Activity in the allowances for losses on loans and real estate is summarized as
follows:

Year Ended March 31,2001
      2000
      1999Loans receivable:Beginning balance
      $ 27,838
      26,160
      26,002Provision
      5,004
      4,000
      4,020Charge-offs
      (1,861)
      (2,390)
      (3,879)Recoveries
      41
      68
      17Ending balance
      31,022
      27,838
      26,160Foreclosed real estate:Beginning balance
      -
      445
      603Provision (recoveries)
      49
      -
      41Charge-offs
      -
      (445)
      (199)Ending balance
      49
      -
      445Total loans receivable and real estate:Beginning balance
      27,838
      26,605
      26,605Provision
      5,053
      4,000
      4,061Charge-offs
      (1,861)
      (2,835)
      (4,078)Recoveries
      41
      68
      17Ending balance
      $ 31,071
      27,838
      $ 26,605


(8) Accrued Interest Receivable
Accrued interest receivable is summarized as follows:

March 31,2001
      2000Investment securities
      $ 700
      1,420Mortgage-backed securities
      2,032
      2,545Collateralized mortgage obligations
      469
      516Loans receivable
      15,265
      14,103Total
      $ 18,466
      18,584


75

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(9) Property and Equipment, net
Property and equipment, net is summarized as follows:

March 31,2001
      2000
      Estimated LifeLand
      $ 5,945
      5,215
      -Buildings and improvements
      21,815
      21,209
      40Leasehold improvements
      2,121
      2,192
      10Furniture, fixtures and equipment
      26,939
      25,920
      7Automobiles
      156
      156
      3Construction in progress
      1,004
      168
      -57,980
      54,860Accumulated depreciation and Amortization
    (35,034)
    (32,486)Total
      $ 22,946
      22,374


(10) Deposits
Deposits and their respective weighted average interest rates are summarized as
follows:

March 31,2001
      2000Weighted
        Average
        Rate
      Amount
      Weighted
        Average
        Rate
      AmountRegular passbook
      2.21%
      $ 124,830
      2.21%
      $ 134,700NOW and other demand deposit accounts
      0.75
      262,358
      0.63
      229,603Fixed and variable-rate certificate accounts
      5.88
      1,217,360
      5.63
      1,167,339Money market checking and savings
      4.48
      416,713
      4.82
      374,892Total
      4.70%
      $ 2,021,261
      4.63%
      $ 1,906,534


Certificate accounts maturing subsequent to March 31, 2001
are summarized as follows:

|Year Ending March 31, | Amount     
|--------------------- | -----------
|                      |            
|2002                  | $ 1,089,382
|2003                  | 85,907     
|2004                  | 18,123     
|2005                  | 12,351     
|2006                  | 11,226     
|thereafter            | 371        
|Total                 | $ 1,217,360

76

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PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

Interest expense on deposits is summarized as follows:

Year Ended March 31,2001
      2000
      1999Regular passbook
      $ 2,756
      3,156
      3,405NOW and other demand deposit accounts
    1,956
    1,366
    1,291Money market checking and savings
    18,684
    17,649
    13,133Certificates of deposit
      71,593
      57,149
      61,705Total
      $ 94,989
      79,320
      79,534


At March 31, 2001 and 2000, the Company had accrued interest
payable on deposits of $1,767 and $1,563, respectively, which is included in
other liabilities in the accompanying consolidated balance sheets.
At March 31, 2001 and 2000, $23,296 and $23,800 of public funds on deposit were
secured by loans receivable, mortgage-backed securities, investment securities
and collateralized mortgage obligations with aggregate carrying values of
$33,401 and $36,448, respectively.
Accounts which are greater than $100 at March 31, 2001 and 2000 total $593,707
and $361,155, respectively. Deposit accounts greater than $100 are not federally
insured.

77

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(11) FHLB Advances and Other Borrowings
The Company utilizes FHLB advances and reverse repurchase agreements as sources
of funds. The advances and repurchase agreements are collateralizedby
mortgage-backed securities, investment securities, collateralized mortgage
obligations and/or loans. The Company only transacts business with the FHLB or
brokerage firms that are recognized as primary dealers in U.S. government
securities. FHLB advances and reverse repurchase agreements were $575,000 and
zero and $884,000 and zero at March 31, 2001 and March 31, 2000, respectively.
(See "Note 12.")

March 31,2001
      2000
      1999FHLB advances:Average amount outstanding during the year
      $771,869
      792,778
      855,197Maximum amount outstanding at any month end
      886,000
      884,000
      949,000Amount outstanding at year end (1)
      575,000
      884,000
      764,000Average interest rate:For the year
      6.25%
      5.63
      5.57At year end
      5.98
      6.02
      5.37Reverse repurchase agreements:Average amount outstanding during the year
      $ -
      43,750
      50,000Maximum amount outstanding at any month end
      -
      50,000
      50,000Amount outstanding at year end (1)
      -
      -
      50,000Average interest rate:For the year
      -%
      5.87
      5.87At year end
      -
      -
      5.87(1) Included in
        the balance of FHLB advances outstanding at March 31, 2001 are putable
        borrowings of $165,000 with original terms to maturity of 48 to 120
        months with final maturity dates ranging from January 2002 to February
        2008 and initial put dates ranging from April 2001 to February 2003.


FHLB advances have the following final maturities at March
31, 2001.

Amount2002
      $ 520,0002003
      55,0002004
      -2005
      -thereafter
      -Total
      $ 575,000


78

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

Included in the table above are putable advances with first
put dates as follows:

Amount2002
      $ 150,0002003
      15,000Total
      $ 165,000


Interest expense on borrowings is summarized as follows:

Year ended March 31,2001
      2000
      1999FHLB advances
      $ 48,434
      44,435
      47,735Reverse repurchase agreements
      -
      2,760
      2,976Other interest expense
      48
      24
      111Total
      $ 48,482
      47,219
      50,822


(12) Lines of Credit

79

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

The following table sets forth the plans' change in benefit
obligation and change in plan assets at the plans' most recent measurement
dates of December 31, 2000 and 1999.

2000
      1999Pension
        Plan
      Directors'Retirement andSupplemental
        Plans
      Pension
        Plan
      Directors'Retirement andSupplemental
        PlansChange in benefit obligationProjected benefit obligation,
        beginning of year
      $ 18,123
      2,685
      21,770
      2,703Interest cost
      1,354
      200
      1,568
      167Benefits paid
      (1,390)
      (210)
      (1,299)
      (210)Actuarial loss (gain)
      1,859
      41
      (3,916)
      25Projected benefit obligation, end of year
      $ 19,946
      2,716
      18,123
      2,685Change in plan assetsPlan assets, beginning of year
      $ 27,310
      -
      23,653
      -Actual return on plan assets
      (2,111)
      -
      4,956
      -Employer contribution
      -
      210
      -
      210Benefits paid
      (1,391)
      (210)
      (1,299)
      (210)Plan assets, end of year
      $ 23,808
      -
      27,310
      -Funded status
      $ 3,862
      (2,716)
      9,187
      (2,685)Unrecognized transition obligation
      -
      33
      -
      66Unrecognized prior service cost
      11
      -
      82
      -Unrecognized (gain)/loss
      (799)
      590
      (7,173)
      582Prepaid (accrued) benefit cost
      $ 3,074
      (2,093)
      2,096
      (2,037)


Net periodic pension costs for 2000, 1999 and 1998 included
the following components:

December 31,2000
      1999
      1998Pension
        Plan
      Directors'
        Retirement
        and Supple-
        mental Plans
      Pension
        Plan
      Directors'
        Retirement
        and Supple-
        mental Plans
      Pension
        Plan
      Directors'
        Retirement
        and Supple-
        mental PlansComponents of net periodic benefit
        costInterest cost
    $ 1,354
    200
    1,568
    167
    1,411
    171Expected return on plan assets
    (1,933)
    -
    (1,761)
    -
    (1,546)
    -Amortization of unrecognized transition
      obligation
    -
    33
    -
    33
    -
    33Amortization of unrecognized prior service
      cost
    70
    -
    70
    -
    70
    (11)Amortization of unrecognized (gain)/loss
    (470)
    33
    -
    37
    -
    29Net periodic pension (income) expense
    $ (979)
    266
    (123)
    237
    (65)
    222


80

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

The assumptions used in determining the actuarial present
value of the accumulated benefit obligation and the expected return on plan
assets for 2000 and 1999 are as follows:

December 31,2000
      1999Pension
        Plan
      Directors'
        Retirement
        and Supple-
        mental Plans
      Pension
        Plan
      Directors'
        Retirement
        and Supple-
        mental PlansWeighted-average assumptionsDiscount rate
      7.00%
      7.00
      7.75
      7.75Expected long-term rate of return on plan assets
      7.25
      -
      7.25
      -


In 1985, the Company established a capital accumulation plan
(401(k) Plan) which is available to all full-time employees over 21 years of age
with more than six months of service. Under the 401(k) Plan, the Company
contributes funds in an amount equal to a percentage of employee contributions.
In 2001, 2000 and 1999, the total 401(k) Plan expense was $422, $514 and $393,
respectively.
The Company provides a non-qualified Directors' Deferred Compensation Plan and
a non-qualified Employees' Deferred Compensation Plan that offer directors and
senior officers of the Company, respectively, the opportunity to defer
compensation through a reduction in salary and then receipt of a benefit upon
retirement. The benefit from the Directors' Deferred Compensation Plan is
payable upon the occurrence of the first Board of Directors' meeting held in
the fiscal year following the participant attaining age 73. The benefit from the
Employees' Deferred Compensation Plan is payable at normal retirement (age 65)
or actual retirement but no later than age 70, or alternatively upon termination
if termination occurs earlier due to disability. The primary form of benefit is
120 monthly installment payments of the account balance. Such balance shall
equal the amount of the deferrals and interest thereon. Other actuarially
equivalent payout schedules, including a lump sum payout, are available with
certain restrictions. Deferrals are currently credited with an interest rate
equal to the highest interest rate paid on a designated date to depositors of
the Company or, at the Participants' election, investment earnings or losses
equivalent to that of the Company's common stock. At March 31, 2001, the
liability for these plans is included in accrued expenses and other liabilities.
The Company currently provides post retirement medical coverage to eligible
employees. At March 31, 2001 and 2000, the expected cost associated with this
coverage was $15 and $17, respectively, and is included in accrued expenses and
other liabilities.
As part of the reorganization to the stock form of ownership, the ESOP purchased
1,587,000 shares of the Company's common stock at ten dollars per share, or
$15,870, which was funded by a loan from the Company. The loan will be repaid
from the Company's or the Bank's discretionary contributions over a period
of 10 years. The loan is secured by the common stock owned by the ESOP. Shares
purchased with the loan proceeds are held in a suspense account for allocation
among participants as the loan is repaid. ESOP shares are allocated to the
eligible participants based on compensation as described in the ESOP plan. For
the years ended March 31, 2001 and 2000, 181,281 and 171,621 ESOP shares,
respectively were allocated to the participants. At March 31, 2001 and 2000, the
unearned balance of the ESOP shares is included in unearned stock-based
compensation as a reduction of total stockholders' equity in the accompanying
consolidated financial statements. The value of ESOP shares committed to be
released is included in compensation expense based upon the fair value of the
shares on the dates they were committed. At March 31, 2001, the fair value of
the unearned ESOP shares is $21,545. Compensation expense associated with the
ESOP was $3,230, $3,152 and $2,694 for the years ended March 31, 2001, 2000 and
1999.

81

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

During October, 1996, the stockholders of the Company
approved the PFF Bancorp, Inc. 1996 Incentive Plan (the "1996 Plan").
During September, 1999, the stockholders of the Company approved the PFF
Bancorp, Inc. 1999 Incentive Plan (the "1999 Plan"). The 1996 Plan
authorized the granting of options to purchase the Company's common stock,
option related awards, and grants of common stock (collectively
"Awards"). The 1999 Plan authorized the granting of options to
purchase the Company's common stock. Concurrent with the approval of the 1996
Plan, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits a company to account for stock options granted
under either the fair-value-based or the intrinsic-value-based (as described in
APB No. 25) method of accounting. If the Company elects to account for options
granted under the intrinsic-value-based method, it must make certain disclosures
with respect thereto. The Company has elected to account for stock options
granted under the intrinsic-value-based method of accounting.
The maximum number of shares reserved for Awards under the 1996 Plan is
2,777,250 shares, with 1,983,750 shares reserved for purchase pursuant to
options and option-related awards and 793,500 shares reserved for grants of the
Company's common stock. The maximum number of shares reserved under the 1999
Plan is 625,000 all of which are reserved for purchase pursuant to options and
option related awards. The exercise price of all options and option-related
awards under both Plans must be 100% of the fair value of the Company's common
stock at the time of grant and the term of the options may not exceed 10 years.
Of the 793,500 shares reserved for stock grants, 770,545 shares with a fair
value of $9,890 were granted to directors and executive officers during the year
ended March 31, 1997. 532,500 of the 770,545 shares represented grants to
employees with the remaining shares granted to directors of the Company. An
additional 15,000 shares with a fair value of $214 at the time of grant, were
granted to an executive officer of the Company during the year ended March 31,
1998. All shares granted are eligible to vest in five equal annual installments.
With respect to shares of the Company's common stock granted to executive
officers, the 1996 Plan provides that the vesting of 75% of the third, fourth
and fifth annual installments is subject to the attainment of certain
performance goals. Those goals have been met. Compensation expense, associated
with the stock grants recognized based upon the market price of the common stock
at the time of grant, was $2,538, $2,094, and $1,910 for the years ended March
31, 2001, 2000 and 1999, respectively. The unamortized balance of the grants is
included in unearned stock-based compensation in the accompanying consolidated
financial statements. At March 31, 2001 and 2000, the unamortized balance of the
stock awards was $1,429 and $4,000, respectively.

82

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands, except per share data)

The following table contains certain information with respect
to the stock options granted under the 1996 and 1999 Plans.

Assumptions Used in Determining
        Options' ValuesGrant Date
      Number
        Granted
      Exercise
        Price
      Expected
        Term in
        Years
      Risk-free
        Rate(1)
      Expected
        Volatility
      Dividend
        Yield
      Calculated
        Value of
        Each
        OptionOptions Granted During the Year Ended March 31, 2001May 24, 2000
      1,268
      $14.25
      8.00
      4.78%
      42.10%
      1.27%
      $ 6.77May 24, 2000
      30,000
      14.25
      8.00
      4.78
      42.10
      1.27
      6.77June 28, 2000
      1,366
      16.63
      8.00
      4.78
      42.10
      1.27
      7.89November 22, 2000
      7,323
      16.00
      8.00
      4.78
      42.10
      1.27
      7.60Options Granted During the Year Ended March 31, 2000May 26, 1999
      4,182
      $18.13
      8.00
      6.20%
      39.48%
      1.28%
      $ 8.78November 23, 1999
      2,612
      21.88
      8.00
      6.20
      39.48
      1.28
      10.59March 22, 2000
      17,876
      14.50
      8.00
      6.20
      39.48
      1.28
      7.02Options Granted During the Year Ended March 31, 1999April 22, 1998
      1,328
      $20.50
      8.00
      5.20%
      38.44%
      N/A
      $10.97September 23, 1998
      15,214
      14.50
      8.00
      5.20
      38.44
      N/A
      7.76October 28, 1998
      1,427
      14.31
      8.00
      5.20
      38.44
      N/A
      7.66March 24, 1999
      7,273
      17.94
      8.00
      5.20
      38.44
      N/A
      9.60(1)
        The risk-free rate is the market rate for U.S. Government securities
        with the same maturities as the options.


The Company applies APB No. 25 in accounting for its Plan
and, accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options exercisable under SFAS No. 123, the Company's results of operations
would have been adjusted to the pro forma amounts indicated below:

2001
      2000
      1999Net earnings:As reported
      $28,260
      26,598
      19,004Pro forma
      26,584
      25,051
      17,533Earnings per share - Basic (as restated) (2)As reported
      2.32
      2.13
      1.35Pro forma
      2.18
      2.01
      1.24Earnings per share - Diluted (as restated) (2)As reported
      2.24
      2.05
      1.30Pro forma
      2.10
      1.93
      1.20(2) See Note 24
        regarding this restatement.


83

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands, except per share data)

The table below reflects, for the periods indicated, the
activity in the Company's stock options issued under the 1996 and 1999 Plans.

For the Year Ended March 31,2001
      2000
      1999Balance at beginning of period
      1,749,950
      1,839,423
      1,876,471Granted
      39,957
      24,670
      25,242Canceled or expired
      (18,858)
      (3,567)
      (19,764)Exercised
      (102,703)
      (110,576)
      (42,526)Balance at end of period
      1,668,346
      1,749,950
      1,839,423Options exercisable
      1,246,118
      969,324
      707,762Options available for grant
      605,494
      1,593
      29,969Weighted average option price per share:Under option
      $13.19
      13.16
      13.10Exercisable
      13.12
      13.11
      13.07Exercised
      21.60
      20.86
      18.83


The following table summarizes information with respect to
the Company's stock options outstanding as of March 31, 2001.

Options Outstanding
      Options ExercisableRange of
        Exercise
        Prices
      Number
        Outstanding
        at March 31, 2001
      Weighted-average
        Remaining
        Contractual Life
        (Years)
      Weighted-
        average
        Exercise Price
      Number
        Outstanding
        at March 31, 2001
      Weighted-
        average
        Exercise Price$12 to 14
      1,434,094
      5.6
      $12.75
      1,099,968
      $12.7514 to 16
      119,059
      7.6
      14.96
      62,798
      15.1016 to 18
      99,952
      6.0
      16.32
      77,408
      16.2818 to 20
      6,808
      7.7
      18.37
      2,410
      18.5320 to 22
      8,433
      7.3
      21.00
      3,534
      20.81


84

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(14) Income Taxes

Income taxes (benefit) is summarized as follows:

Current
      Deferred
      TotalYear Ended March 31, 2001Federal
      $ 12,942
      2,008
      14,950State
      5,174
      23
      5,197Taxes charged to stockholders equity
    644
    -
    644Total
      $ 18,760
      2,031
      20,791Year Ended March 31, 2000Federal
      $13,008
      1,356
      14,364State
      4,484
      920
      5,404Taxes charged to stockholders equity
    447
    -
    447Total
      $17,939
      2,276
      20,215Year Ended March 31, 1999Federal
      $ 7,987
      2,641
      10,628State
      2,695
      885
      3,580Total
      $10,682
      3,526
      14,208


A reconciliation of total income taxes and the amount
computed by applying the applicable Federal income tax rate to earnings before
income taxes follows:

Year Ended March 31,2001
      2000
      1999Amount
      Percent
      Amount
      Percent
      Amount
      PercentComputed "expected" taxes
      $ 17,168
      35%
      $16,385
      35%
      $11,624
      35%Increase (reduction) in taxes resulting from:California franchise tax, net of Federal tax benefit
    3,378
    7
    3,513
    7
    2,327
    7Other items
      245
      1
      317
      1
      257
      1Total
      $ 20,791
      43%
      $20,215
      43%
      $14,208
      43%


85

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities and
the related income taxes (benefits) are presented below:

March 31,
        2001
      Taxes
        (Benefit)
      March 31,
        2000
      Taxes
        (Benefit)
      March 31,
        1999Deferred tax assets:Allowance for real estate loan losses
    $ (10,381)
    430
    (10,811)
    (774)
    (10,037)California franchise tax
    (2,787)
    (41)
    (2,746)
    (950)
    (1,796)Accrued expenses
    (750)
    48
    (798)
    681
    (1,479)Core deposit intangibles amortization
    (223)
    (21)
    (202)
    (21)
    (181)Non-accrual interest
    (263)
    (142)
    (121)
    363
    (484)Unrealized gains (loss) on securities available-for-sale,
      net
    (1,586)
    5,155
    (6,741)
    (7,534)
    793Other
    (2,397)
    (323)
    (2,074)
    (189)
    (1,885)(18,387)
      5,106
      (23,493)
      (8,424)
      (15,069)Deferred tax liabilities:Deferred loan origination fees
    17,519
    1,252
    16,267
    2,651
    13,616Unredeemed FHLB stock dividends
    7,773
    635
    7,138
    1,061
    6,077Pension plan liability
    1,126
    353
    773
    584
    189Accumulated depreciation
    (544)
    (204)
    (340)
    (183)
    (157)Customer early withdrawal Penalty depreciation
    58
    (37)
    95
    (38)
    133Accrued interest on pre-1985 loans
    72
    (8)
    80
    11
    69Excess servicing rights Amortization
    79
    (1)
    80
    -
    80Other
    153
    90
    63
    (920)
    98326,236
      2,080
      24,156
      3,166
      20,990Net deferred tax liability
    $ 7,849
    7,186
    663
    (5,258)
    5,921


In determining the possible future realization of deferred
tax assets, the future taxable income from the following sources is taken into
account: (a) the reversal of taxable temporary differences, (b) future
operations exclusive of reversing temporary differences and (c) tax planning
strategies that, if necessary, would be implemented to accelerate taxable income
into years in which net operating losses might otherwise expire. Deferred tax
assets as of March 31, 2000 and 2001 have been recognized to the extent of the
expected reversal of taxable temporary differences.
Based on the Company's current and historical pretax earnings, adjusted for
significant items, management believes it is more likely than not that the
Company will realize the benefit of the deferred tax asset at March 31, 2001.
Management believes the existing net deductible temporary differences will
reverse during periods in which the Company generates net taxable income.
However, there can be no assurance that the Company will generate any earnings
or any specific level of continuing earnings in future years.
On August 20, 1996, the President signed the Small Business Job Protection Act
(the Act) into law. The Act repealed the reserve method of accounting for bad
debts for savings institutions effective for taxable years beginning after 1995.
The Company, therefore, is required to use the specific charge-off method on its
1996 and subsequent Federal income tax returns. Prior to 1996, savings
institutions that met certain definitional tests and other conditions prescribed
by the Internal Revenue Code were allowed to deduct, within limitations, a bad
debt deduction. The deduction percentage was 8% for the years ended March 31,
1996 and 1995. Alternately, a qualified savings institution could compute its
bad debt deduction based upon actual loan loss experience (the experience
method). Retained earnings at March 31, 2001 and 2000 includes approximately
$25,300 for which no deferred income tax liability has been recognized.

86

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(15) Regulatory Capital
Savings institutions are subject to the provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), which was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1992. In
addition to the prompt corrective action requirements, FDICIA includes
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.
To be considered "well capitalized," a savings institution must
generally have a core capital of at least 5%, a Tier 1 risk-based capital ratio
of at least 6% and a total risk-based capital of at least 10%. An institution is
deemed to be "critically undercapitalized" if it has a tangible equity
ratio of 2% or less. Management believes that at March 31, 2001, the Bank met
the definition of "well capitalized."
The following is a reconciliation of the Bank's GAAP capital to regulatory
capital as of March 31, 2001:

PFF Bank & Trust's
        Regulatory Capital RequirementTangible
        Capital
      Core
        Capital
      Risk-based
        CapitalCapital of the Bank presented on a GAAP
      Basis
    $ 236,586
    236,586
    236,586Adjustments to GAAP capital to arrive at regulatory
      capital:Unrealized loss on securities available-for-sale, net
    3,417
    3,417
    3,417Investments in and advances to non-includable consolidated
      subsidiaries
    (442)
    (442)
    (442)Goodwill and other intangible assets
    (1,723)
    (1,723)
    (1,723)General loan valuation allowance (1)
    -
    -
    25,156Equity investments and other assets required to be
      deducted
    -
    -
    -Regulatory capital
    237,838
    237,838
    262,994Regulatory capital requirement
    43,076
    114,869
    165,449Amount by which regulatory capital exceeds requirement
    $ 194,762
    122,969
    97,545(1) Limited to
        1.25% of risk-weighted assets.


87

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

The following table summarizes the Bank's actual capital
and required capital under prompt corrective action provisions of FDICIA as of
March 31, 2001 and 2000.

Actual
      For Capital
        Adequacy Purposes
      To be Well
        Capitalized Under
        Prompt Corrective
        Action ProvisionsMarch 31, 2001
      Amount
      Ratio
      Amount
      Ratio
      Amount
      RatioTotal capital (to risk-weighted assets)
    $262,994
    12.72%
    $165,449
    >8.00%
    $206,811
    >10.00%Tier 1 (Core) capital (to adjusted total assets)
    237,838
    8.28
    114,869
    >4.00
    143,586
    >5.00Tier 1 (Core) capital (to risk-weighted assets)
    237,838
    11.50
    -
    - (1)
    124,087
    >6.00Tangible capital (to tangible assets)
    237,838
    8.28
    43,076
    >1.50
    -
    - (1)




Actual
      For Capital
        Adequacy Purposes
      To be Well
        Capitalized Under
        Prompt Corrective
        Action ProvisionsMarch 31, 2000
      Amount
      Ratio
      Amount
      Ratio
      Amount
      RatioTotal capital (to risk-weighted assets)
      $226,857
      11.00%
      $164,937
      = 8.00%
      $206,171
      = 10.00%Tier 1 (Core) capital (to adjusted total assets)
      204,638
      6.77
      120,981
      = 4.00
      151,226
      = 5.00Tier 1(Core) capital (to risk-weighted assets)
      204,638
      9.75
      -
      - (1)
      123,702
      = 6.00Tangible capital (to tangible assets)
      204,638
      6.77
      45,368
      = 1.50
      -
      - (1)(1) Ratio is not
        specified under capital regulations.


At periodic intervals, both the OTS and the FDIC routinely
examine the Bank's financial statements as part of their legally prescribed
oversight of the thrift industry. Based on these examinations, the regulators
can direct that the Bank's financial statements be adjusted in accordance with
their findings.(16) Other Non-Interest Expense
Other non-interest expense amounts are summarized as follows:

Year Ended March 31,2001
      2000
      1999SAIF insurance premiums
      $ 1,164
      1,326
      1,573Office supplies and expense
      2,408
      2,859
      3,406Savings and NOW account expenses
    1,605
    1,146
    1,134Loan expenses
      410
      479
      581Other
      3,045
      3,417
      3,463$ 8,632
      9,227
      10,157


88

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(17) Commitments and Contingencies
The Company and subsidiaries have various outstanding commitments and contingent
liabilities in the ordinary course of business that are not reflected in the
accompanying consolidated financial statements as follows:Litigation
The Company and subsidiaries have been named as defendants in various lawsuits
arising in the normal course of business. The outcome of these lawsuits cannot
be predicted, but the Company intends to vigorously defend the actions and is of
the opinion that the lawsuits will not have a material effect on the Company.

AmountYear ending March 31,2002
      $ 7122003
      5562004
      4912005
      4082006
      166thereafter
      228Total
      $2,561


(18) Off-Balance Sheet RiskConcentrations of Operations and Assets
The Company's operations are located within Southern California. At March 31,
2001 and 2000, approximately 92.6% and 93.3% respectively, of the Company's
mortgage loans were secured by real estate in Southern California. In addition,
substantially all of the Company's real estate is located in Southern
California.Off-Balance-Sheet Credit Risk/Interest-Rate Risk
In the normal course of meeting the financing needs of its customers and
reducing exposure to fluctuating interest rates, the Company is a party to
financial instruments with off-balance-sheet risk. These financial instruments
(commitments to originate loans and commitments to purchase loans) include
elements of credit risk in excess of the amount recognized in the accompanying
consolidated financial statements. The contractual amounts of those instruments
reflect the extent of the Company's involvement in these particular classes of
financial instruments.

89

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

The Company's exposure to off-balance-sheet credit risk
(i.e., losses resulting from the other party's nonperformance of financial
guarantees) and interest rate risk (for fixed-rate mortgage loans) in excess of
the amount recognized in the accompanying consolidated financial statements is
represented by the following contractual amounts.

March 31,2001
      2000Commitments to originate loans:Variable-rate
      $121,529
      86,342Fixed-rate
      3,039
      1,587Total
      $124,568
      87,929Interest rate range for fixed-rate loans
      6.75%-9.64%
      7.63%-13.79%


Commitments to originate fixed- and
variable-rate loans represent commitments to lend to a customer, provided there
are no violations of conditions specified in the agreement. Commitments to
purchase variable-rate loans represent commitments to purchase loans originated
by other financial institutions. These commitments generally have fixed
expiration dates or other termination clauses and may require the payment of a
fee. Since some of the commitments may expire without being drawn upon, the
total commitment amounts above do not necessarily represent future cash
requirements. The Company uses the same credit policies in making commitments to
originate and purchase loans as it does for on-balance sheet instruments. The
Company controls credit risk by evaluating each customer's creditworthiness on
a case-by-case basis and by using systems of credit approval, loan limitation,
and various underwriting and monitoring procedures.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. At March 31, 2001 and
2000, the Bank had standby letters of credit of $2,300 and $698, respectively.
The Company does not require collateral or other security to support
off-balance-sheet financial instruments with credit risk. However, when the
commitment is funded, the Company receives collateral to the extent collateral
is deemed necessary, with the most significant category of collateral being real
property underlying mortgage loans.(19) Trust Operations
Included in prepaid expenses and other assets is the net unamortized trust
acquisition cost of $1,590 and $1,914 at March 31, 2001 and 2000, respectively.
As a result of the acquisition, the Company now has certain additional fiduciary
responsibilities which include acting as trustee, executor, administrator,
guardian, custodian, record keeper, agent, registrar, advisor and manager. In
addition, the Company's Trust department holds assets for the benefit of
others. These assets are not the assets of the Company and are not included in
the consolidated balance sheets of the Company at March 31, 2001 and 2000.

90

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(20) Loan Servicing and Sale Activities
Loan servicing and sale activities are summarized as follows:

As of and for the Year Ended March 31,2001
      2000
      1999Balance sheet information:Loans held for sale
      $ 583
      7,362
      3,531Statement of earnings information:Loan servicing fees
      $ 761
      878
      850Amortization of servicing asset
      -
      -
      (109)Loan servicing fees, net
      $ 761
      878
      741Gain on sale of loans
      $ 390
      452
      661Statement of cash flows information:Loans originated for sale
      $ 16,341
      32,799
      42,360Proceeds from sale of loans
      $ 23,439
      25,673
      39,407


The Company originates mortgage loans which,
depending upon whether the loans meet the Company'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 Company. Indirect non-deferrable
costs associated with origination, servicing and sale activities cannot be
presented as these operations are integrated with and not separable from the
origination and servicing of portfolio loans, and as a result, cannot be
accurately estimated.
At March 31, 2001, 2000 and 1999, the Company was servicing loans and
participations in loans owned by others of $256,478, $282,924 and $325,730,
respectively.(21) Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial
Instruments" ("SFAS 107"). The estimated fair value amounts have
been determined using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
could be realized in a current market exchange. The use of different market
assumptions or estimation methodologies may have a material impact on the
estimated fair value amounts.

91

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

The estimated fair values of the Company's financial
instruments are as follows:

March 31, 2001
      March 31, 2000Carrying
        Value
      Fair
        Value
      Carrying
        Value
      Fair
        ValueFinancial assets:Investment securities held-to-maturity
    $ 702
    767
    88,511
    88,529Loans held for sale
    583
    583
    7,362
    7,362Loans receivable, net
    2,285,307
    2,296,585
    2,326,702
    2,304,657Financial liabilities:Deposits
      2,021,261
      2,031,984
      1,906,534
      1,901,595FHLB advances
      575,000
      575,465
      884,000
      883,055


The following methods and assumptions were used in estimating the Company's
fair value disclosures for financial instruments.
Cash, Cash Equivalents and Certificates of Deposit: The fair values of cash and
cash equivalents, and certificates of deposit approximate the carrying values
reported in the consolidated balance sheet.
Investment securities, MBS and CMO available-for-sale: Fair values were based on
quoted market prices. If a quoted market price was not available, fair value was
estimated using market prices for similar securities, as well as internal
analysis.
Investment securities held-to-maturity: Fair values were based on quoted market
prices. If a quoted market price was not available, fair value was estimated
using market prices for similar securities, as well as internal analysis.
Loans Receivable: For purposes of calculating the fair value of loans
receivable, loans were segregated by payment type, such as those with fixed
interest rates and those with adjustable interest rates as well as by prepayment
and repricing frequency. For all mortgage loans, fair value is estimated using
discounted cash flow analysis. Discount rates are based on the forward rates on
the treasury yield curve. The fair values of significant non-performing loans
are based on recent appraisals, or if not available, on estimated cash flows,
discounted using a rate commensurate with the risk associated with the specific
properties.
Deposits: The fair values of passbook accounts, demand deposits and certain
money market deposits are assumed to be the carrying values at the reporting
date. The fair value of term accounts is based on projected contractual cash
flows discounted using rates currently offered on alternative funding sources
with similar maturities.
FHLB Advances: The fair value of FHLB advances and other borrowings is based on
discounted cash flows using rates currently offered on alternative funding
sources with similar maturities.
Off-Balance Sheet Financial Instruments: Commitments to originate loans had a
notional amount of $124.6 million at March 31, 2001. The carrying value of the
commitments is zero as all are cancelable and not readily marketable. Standby
letters of credit had a notional amount of $2,300 at March 31, 2001.

92

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(22) Conversion to Capital Stock Form of Ownership
The Bancorp was incorporated under Delaware law in March 1996 for the purpose of
acquiring and holding all of the outstanding capital stock of the Bank as part
of the Bank's conversion from a federally chartered mutual savings and loan
association to a federal stock savings bank. On March 28, 1996, the Bank became
a wholly owned subsidiary of the Bancorp. In connection with the conversion, the
Bancorp issued and sold to the public 19,837,500 shares of its common stock (par
value $.01 per share) at a price of $10 per share. The proceeds, net of $4,500
in conversion costs, received by the Bancorp from the conversion (before
deduction of $15,870 to fund the Employee Stock Ownership Plan) amounted to
$193,875. The Bancorp used $105,000 of the net proceeds to purchase the capital
stock of the Bank.
At the time of the conversion, the Bank established a liquidation account in the
amount of $109,347, which is equal to its total retained earnings as of
September 30, 1995. The liquidation account will be maintained for the benefit
of eligible account holders who continue to maintain their accounts at the Bank
after the conversion. The liquidation account will be reduced annually to the
extent that eligible account holders have reduced their qualifying deposits.
Subsequet increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
account holder will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held. The balance in the liquidation account at March 31, 200
is $28,268.
The Company may not declare or pay cash dividends on or repurchase any of its
shares of common stock, if the effect would cause stockholders' equity to be
reduced below applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory requirements.

93

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

(23) Parent Company Condensed Financial Information
This information should be read in conjunction with the other notes to the
consolidated financial statements. Following are the condensed parent company
only financial statements for PFF Bancorp, Inc.



March 31,2001
      2000AssetsCash and cash equivalents
      $ 4,002
      1,361Equity securities available-for-sale
      7,329
      5,433Trust preferred securities available-for-sale
      4,952
      4,833Trading securities, at fair value
      2,375
      4,318Residential loans
      241
      -Construction loans
      478
      663Investment in real estate
      -
      4,370Investment in Bank subsidiary
      236,586
      198,843Other assets
      3,034
      2,137Total assets
      $ 258,997
      221,958Liabilities and Stockholders' EquityOther liabilities
      $ 999
      127Stockholders' equity
      257,998
      221,831Total liabilities and stockholders' equity
      $ 258,997
      221,958


Condensed Statements of Earnings

Year ended March 31,2001
      2000
      1999Interest and other income
      $ 1,182
      2,596
      3,916Provision for loan losses
      3,012
      -
      -General and administrative expense
      3,416
      3,032
      2,798Earnings before equity in undistributed earnings of subsidiary before
        income taxes
      (5,246)
      (436)
      1,118Dividend from Bank subsidiary
      -
      27,000
      15,000Equity in earnings (loss) of subsidiary before income taxes
      54,297
      20,249
      17,094Earnings before income taxes
      49,051
      46,813
      33,212Income taxes
      20,791
      20,215
      14,208Net earnings
      $ 28,260
      26,598
      19,004


94

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands)

Condensed Statements of Cash Flows

Year Ended March 31,2001
      2000
      1999Cash flows from operating activities:Net earnings
      $ 28,260
      26,598
      19,004Adjustments to reconcile net earnings to cash used by operating
        activities:Amortization of premiums on investments and mortgage-backed
        securities
      5
      14
      29(Gains) losses on trading securities
      1,490
      (1,676)
      (569)Provision for loan losses
      3,012
      -
      -Increase in trading securities
      76
      1,985
      (3,924)Amortization of unearned stock-based compensation
      4,125
      4,258
      3,531(Gains) losses on sale of mortgage-backed securities and investments
        available-for-sale
      156
      290
      191Undistributed earnings of subsidiary
      (31,409)
      53
      (3,474)(Increase) decrease in other assets
      (897)
      170
      3,418(Decrease) in other liabilities
      (877)
      (493)
      (86)Net cash provided by operating activities
      3,941
      31,199
      18,120Cash flow from investing activities:(Increase) decrease in real estate held for investment
      460
      780
      (5,813)Increase in residential loans
      (241)Decrease in construction loans
      1,303
      -
      -Decrease in mortgage-backed securities available-for-sale
      -
      -
      11,110Decrease in equity securities available-for-sale
      2,111
      1,400
      5,004Decrease in trust preferred securities
      -
      7,891
      3,782Net cash provided by investing activities
      3,633
      10,071
      14,083Cash flows from financing activities:Proceeds from exercise of stock options
      595
      574
      531Purchase of treasury stock
      (2,567)
      (42,968)
      (32,099)Cash dividends
      (2,961)
      (2,272)
      -Net cash used in financing activities
      (4,933)
      (44,666)
      (31,568)Net (decrease) increase in cash during the year
      2,641
      (3,396)
      635Cash and cash equivalents, beginning of year
      1,361
      4,757
      4,122Cash and cash equivalents, end of year
      $ 4,002
      1,361
      4,757


95

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands, except per share data)

(24) Earnings Per ShareEffect of RestatementOn August 14, 2002, the Company announced that it would restate the weighted
average shares used to calculate basic and diluted earnings per share (EPS).
This restatement does not reflect any change to previously reported net
earnings, but rather corrections of computational errors in the determination of
weighted average shares used to calculate earnings per share. The increase to
diluted EPS results from the appropriate inclusion of the tax benefits
associated with non-qualified stock options in the computation of diluted
weighted average shares under the treasury stock method. The impact of these tax
benefits was erroneously excluded from the previous computations of diluted
weighted average shares. The adjustments to basic weighted average shares relate
to the vesting of stock awards over a five-year period following the March 1996
IPO. These shares were correctly included in the calculation of diluted EPS, but
were erroneously excluded from the calculation of basic EPS.
Diluted and basic EPS as previously reported and restated are as follows:

Fiscal Year Ended
      Diluted EPS
      Basic EPSMarch 31,
      As Previously Reported
      As Restated
      As Previously Reported
      As Restated1997
      $0.15
      $0.15
      $0.15
      $0.151998
      $0.95
      $0.96
      $1.00
      $0.991999
      $1.29
      $1.30
      $1.37
      $1.352000
      $2.02
      $2.05
      $2.20
      $2.132001
      $2.20
      $2.24
      $2.42
      $2.32


Weighted average shares outstanding for diluted and basic EPS
as previously reported and restated are as follows:

Fiscal Year Ended
      Weighted average shares outstanding
        for diluted EPS
      Weighted average shares outstanding
        for basic EPSMarch 31,
      As Previously Reported
      As Restated
      As Previously Reported
      As Restated1997
      17,999,167
      17,998,709
      17,819,870
      17,819,8701998
      16,795,096
      16,617,211
      16,055,127
      16,126,1141999
      14,716,682
      14,575,721
      13,876,440
      14,124,5092000
      13,184,030
      13,002,791
      12,111,323
      12,492,6432001
      12,821,559
      12,640,281
      11,656,482
      12,182,855


The effect of dilutive stock options and awards on weighted
average shares outstanding and per share amounts as previously reported and
restated is as follows:

Fiscal Year Ended
      Effect of dilutive stock options and awards- weighted
        average shares outstanding
      Effect of dilutive stock options and awards - per share amountMarch 31,
      As Previously Reported
      As Restated
      As Previously Reported
      As Restated1997
      179,297
      178,839
      $0.00
      $0.001998
      739,969
      491,097
      $0.05
      $0.031999
      840,242
      451,212
      $0.08
      $0.052000
      1,072,707
      510,148
      $0.18
      $0.082001
      1,165,077
      457,426
      $0.22
      $0.08


96

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands, except per share data)

Annual Disclosure
A reconciliation of the components used to derive basic and diluted earnings per
share for the years ended March 31, 2001, 2000 and 1999 follows:

Net
        Earnings
      Weighted Average
        Shares Outstanding
      Per Share
        Amount(as restated)
      (as restated)2001 (1)Basic earnings per share
      $ 28,260
      12,182,855
      $ 2.32Effect of dilutive stock options and awards
      -
      457,426
      .08Diluted earnings per share
      $ 28,260
      12,640,281
      $ 2.242000 (2)Basic earnings per share
      $ 26,598
      12,492,643
      $ 2.13Effect of dilutive stock options and awards
      -
      510,148
      .08Diluted earnings per share
      $ 26,598
      13,002,791
      $ 2.051999 (3)Basic earnings per share
      $ 19,004
      14,124,509
      $ 1.35Effect of dilutive stock options and awards
      -
      451,212
      .05Diluted earnings per share
      $ 19,004
      14,575,721
      $ 1.30(1) Options to
        purchase 8,433 shares of common stock at a weighted average price of
        $21.00 per share were outstanding during the fiscal year ended March 31,
        2001 but were not included in the computation of diluted EPS because the
        options' exercise prices were greater than the average market price of
        the common shares. The options, which expire between October 22, 2002
        and November 23, 2004, were still outstanding at March 31, 2001.(2) Options to
        purchase 10,094 shares of common stock at a weighted average price of
        $20.93 per share were outstanding during the fiscal year ended March 31,
        2000 but were not included in the computation of diluted EPS because the
        options' exercise prices were greater than the average market price of
        the common shares. The options, which expire between October 22, 2002
        and November 23, 2004, were still outstanding at March 31, 2000.(3) Options to
        purchase 17,381 shares of common stock at a weighted average price of
        $19.21 per share were outstanding during the fiscal year ended March 31,
        1999 but were not included in the computation of diluted EPS because the
        options' exercise prices were greater than the average market price of
        the common shares. The options, which expire between October 22, 2002
        and March 24, 2004, were still outstanding at March 31, 1999.


97

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands, except per share data)

(25) Quarterly Results of Operations (Unaudited)Effect of RestatementAs discussed in Note 24, on August 14, 2002, the Company announced that it
would restate the weighted average shares used to calculate basic and diluted
earnings per share (EPS). This restatement does not reflect any change to
previously reported net earnings, but rather corrections of computational errors
in the determination of weighted average shares used to calculate earnings per
share. The increase to diluted EPS results from the appropriate inclusion of the
tax benefits associated with non-qualified stock options in the computation of
diluted weighted average shares under the treasury stock method. The impact of
these tax benefits was erroneously excluded from the previous computations of
diluted weighted average shares. The adjustments to basic weighted average
shares relate to the vesting of stock awards over a five-year period following
the March 1996 IPO. These shares were correctly included in the calculation of
diluted EPS, but were erroneously excluded from the calculation of basic EPS.
Diluted and basic EPS as previously reported and restated are as follows:

For the Quarter Ended
      Diluted EPS
      Basic EPSAs Previously Reported
      As Restated
      As Previously Reported
      As RestatedJune 30, 1999
      $0.47
      $0.48
      $0.51
      $0.50September 30, 1999
      $0.47
      $0.48
      $0.52
      $0.51December 31, 1999
      $0.59
      $0.60
      $0.65
      $0.63March 31, 2000
      $0.48
      $0.49
      $0.52
      $0.50June 30, 2000
      $0.59
      $0.60
      $0.63
      $0.61September 30, 2000
      $0.55
      $0.56
      $0.61
      $0.58December 31, 2000
      $0.52
      $0.53
      $0.57
      $0.55March 31, 2001
      $0.54
      $0.55
      $0.61
      $0.58


Weighted average shares outstanding for diluted and basic EPS
as previously reported and restated are as follows:

For the Quarter Ended
      Weighted average shares outstanding
        for diluted EPS
      Weighted average shares outstanding
        for basic EPSAs Previously Reported
      As Restated
      As Previously Reported
      As RestatedJune 30, 1999
      13,546,247
      13,379,818
      12,547,461
      12,882,083September 30, 1999
      13,299,542
      13,089,082
      12,129,514
      12,464,136December 31, 1999
      13,324,001
      13,101,500
      12,095,794
      12,510,437March 31, 2000
      12,550,262
      12,441,064
      11,672,492
      12,114,033June 30, 2000
      12,409,259
      12,335,619
      11,609,116
      12,054,513September 30, 2000
      12,877,091
      12,683,311
      11,665,742
      12,111,139December 31, 2000
      12,909,442
      12,721,315
      11,692,108
      12,276,826March 31, 2001
      13,053,863
      12,810,687
      11,658,491
      12,289,876


98

---

PFF BANCORP, INC. AND SUBSIDIARYNotes to Consolidated Financial Statements, Continued
(Dollars in thousands, except per share data)

The effect of dilutive stock options and awards on weighted
average shares outstanding and per share amounts as previously reported and
restated is as follows:

For the Quarter Ended
      Effect of dilutive stock options and awards- weighted
        average shares outstanding
      Effect of dilutive stock options and awards - per share amountAs Previously Reported
      As Restated
      As Previously Reported
      As RestatedJune 30, 1999
      998,786
      497,735
      $0.04
      $0.02September 30, 1999
      1,170,028
      624,946
      $0.05
      $0.03December 31, 1999
      1,228,207
      591,063
      $0.06
      $0.03March 31, 2000
      877,770
      327,031
      $0.04
      $0.01June 30, 2000
      800,143
      281,106
      $0.04
      $0.01September 30, 2000
      1,211,349
      572,172
      $0.06
      $0.02December 31, 2000
      1,217,334
      444,489
      $0.05
      $0.02March 31, 2001
      1,395,372
      520,811
      $0.07
      $0.03


Annual Disclosure

The tables below show basic and diluted earnings per share
computed on a quarterly basis for the years ended March 31, 2001 and 2000. 
The sum of the computation of earnings per share on a quarterly basis will not
necessarily equal the computation on an annual basis.

Three Months EndedJune 30,
        2000
      September 30,
        2000
      December 31,
        2000
      March 31,
        2001
      Total
        2001Net interest income
      $ 24,121
      23,166
      24,656
      24,942
      96,885Provision for loan losses
      1,251
      1,251
      1,251
      1,251
      5,004Other income
      3,619
      4,127
      2,595
      3,571
      13,912Other expenses
      13,483
      13,877
      14,373
      15,009
      56,742Earnings before income taxes
      13,006
      12,165
      11,627
      12,253
      49,051Income taxes
      5,639
      5,088
      4,908
      5,156
      20,791Net earnings
      $ 7,367
      7,077
      6,719
      7,097
      28,260Basic earnings per share (as restated) (1)
      $ 0.61
      0.58
      0.55
      0.58
      2.32Diluted earnings per share (as restated) (1)
      $ 0.60
      0.56
      0.53
      0.55
      2.24Three Months EndedJune 30,
        1999
      September 30,
        1999
      December 31,
        1999
      March 31,
        2000
      Total
        2000Net interest income
      $ 21,227
      22,247
      22,574
      22,741
      88,789Provision for loan losses
      1,000
      1,000
      1,000
      1,000
      4,000Other income
      4,251
      3,552
      6,022
      3,427
      17,252Other expenses
      13,214
      13,643
      13,872
      14,499
      55,228Earnings before income taxes
      11,264
      11,156
      13,724
      10,669
      46,813Income taxes
      4,860
      4,840
      5,880
      4,635
      20,215Net earnings
      $ 6,404
      6,316
      7,844
      6,034
      26,598Basic earnings per share (as restated) (1)
      $ 0.50
      0.51
      0.63
      0.50
      2.13Diluted earnings per share (as restated) (1)
      $ 0.48
      0.48
      0.60
      0.49
      2.05(1) See Note 24
        regarding this restatement.


99

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The Board of Directors
PFF Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of PFF Bancorp,
Inc. and subsidiary (the Company) as of March 31, 2001 and 2000 and the related
consolidated statements of earnings, comprehensive earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended March
31, 2001. 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 our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PFF Bancorp, Inc.
and subsidiary as of March 31, 2001 and 2000 and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 2001, in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 24 to the consolidated financial statements, the earnings
per share data for each of the years in the three-year period ended March 31,
2001 have been restated.
                                                                           
/s/KPMG LLP
Orange County, California
April 19, 2001, except for Note 24,
Earnings Per Share, as to which
the date is August 14, 2002



100

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Item 9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure.

None.



Item 10. Directors and Executive Officers
of the Registrant.The information appearing in the definitive Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14 A in connection
with PFF Bancorp, Inc.'s Annual Meeting of Stockholders to be held on
September 19, 2001 (the "Proxy Statement") under the captions
"Election of Directors" and "Executive Officers Who Are Not
Directors" is incorporated herein by reference.Item 11. Executive Compensation.
The information appearing in the Proxy Statement under the caption
"Executive Compensation" is incorporated herein by reference,
excluding the Stock Performance Graph and Compensation Committee Report.Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information relating to security ownership of certain beneficial owners and
management is incorporated herein by reference to the Proxy Statement.Item 13. Certain Relationships and Related Transactions.
The information relating to certain relationships and related transactions is
incorporated herein by reference to the Proxy Statement.

101

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PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.
(a)(3) Exhibits



(a)
      The following exhibits are filed as part of this
        report or are incorporate by reference herein:3.1
      Certificate of Incorporation of PFF Bancorp, Inc. (1)3.2
      Bylaws of PFF Bancorp, Inc. (1)4.0
      Stock Certificate of PFF Bancorp, Inc. (1)10.1
      Form of Employment Agreement between PFF Bank &
        Trust and PFF Bancorp, Inc.
        and certain executive officers (1)10.2
      Form of Change in Control Agreement between PFF Bank
        & Trust and PFF Bancorp, Inc.
        and certain executive officers (1)10.3
      Form of PFF Bank & Trust Employee Severance
        Compensation Plan (1)10.4
      Capital Accumulation Plan for Employees of Pomona
        First Federal Savings and Loan
        Association (1)10.5
      PFF Bancorp, Inc. 1996 Incentive Plan (2)10.6
      Form of Non-Statutory Stock Option Agreement for
        officer and employees of
        PFF Bancorp, Inc. (3)10.7
      Form of Incentive Stock Option Agreement for officers
        and employees of
        PFF Bancorp, Inc. (3)10.8
      Form of Stock Award Agreement for officers and
        employees of PFF Bancorp, Inc. (3)10.9
      Form of Stock Award and Stock Option Agreement for
        Outside Directors of
        PFF Bancorp, Inc. (3)10.10
      The Pomona First Federal Bank & Trust Restated
        Supplemental Executive
        Retirement Plan (3)10.11
      The Pomona First Federal Bank & Trust
        Directors' Deferred Compensation Plan (3)10.12
      PFF Bancorp, Inc. 1999 Incentive Plan (4)21
      Subsidiary information is incorporated herein by
        reference to "Part I- Subsidiary
        Activities."23
      Consent of KPMG LLP99.1
      Annual Report on Form 11-K for Capital Accumulation
        Plan for employees of
        PFF Bank & Trust (5)99.2
      Certification of Chief Executive Officer pursuant to
        Section 906 of Sarbanes-Oxley Act of 2002.99.3
      Certification of Chief Financial Officer pursuant to
        Section 906 of Sarbanes-Oxley Act of 2002.(b)
      Report on Form 8-K
        None


The Registrant did not file any reports on Form 8-K during the last quarter of
the fiscal year ended March 31, 2001.

102

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SIGNATURES

Pursuant to the requirements of Section 13 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.





|                                                                                                                                                                                        |                                                                                                                                | PFF BANCORP, INC.                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|                                                                                                                                                                                        |                                                                                                                                | BY:/s/ LARRY M. RINEHART                                                     
|DATED: August 16,
      2002                                                                                                                                                            |                                                                                                                                | Larry M. Rinehart
      President, Chief Executive Officer
      and Director
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|Pursuant to the requirements of
      the Securities and Exchange Act of 1934, this report has been signed by
      the following persons in the capacities and on the dates indicated.
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|Name                                                                                                                                                                                    | Title                                                                                                                          | Date                                                                         
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|/s/ LARRY M. RINEHART                                                                                                                                                                   |                                                                                                                                | August 16, 2002                                                              
|Larry M. Rinehart                                                                                                                                                                       | President, Chief Executive
      Officer and Director
      (Principal Executive Officer)                                      |                                                                              
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|/s/ GREGORY C. TALBOTT                                                                                                                                                                  |                                                                                                                                | August 16, 2002                                                              
|Gregory C. Talbott                                                                                                                                                                      | Executive Vice President, Chief
      Financial Officer and Treasurer
      (Principal Financial and
      Accounting Officer) |                                                                              
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|/s/ DONALD R. DESCOMBES                                                                                                                                                                 |                                                                                                                                | August 16, 2002                                                              
|Donald R. DesCombes                                                                                                                                                                     | Director                                                                                                                       |                                                                              
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|/s/ ROBERT W. BURWELL                                                                                                                                                                   |                                                                                                                                | August 16, 2002                                                              
|Robert W. Burwell                                                                                                                                                                       | Director                                                                                                                       |                                                                              
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|William T. Dingle                                                                                                                                                                       | Director                                                                                                                       |                                                                              
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|/s/ CURTIS W. MORRIS                                                                                                                                                                    |                                                                                                                                | August 16, 2002                                                              
|Curtis W. Morris                                                                                                                                                                        | Director                                                                                                                       |                                                                              
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|Jil H. Stark                                                                                                                                                                            | Director                                                                                                                       |                                                                              
|                                                                                                                                                                                        |                                                                                                                                |                                                                              
|/s/ STEPHEN C. MORGAN                                                                                                                                                                   |                                                                                                                                | August 16, 2002                                                              
|Stephen C. Morgan                                                                                                                                                                       | Director                                                                                                                       |                                                                              



103

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CERTIFICATION



I, Larry M. Rinehart, certify that:

> 1. I have reviewed this annual report on Form 10-K of PFF Bancorp, Inc.;
>     2. Based on my knowledge, this annual report does not contain any untrue
>     statement of a material fact or omit to state a material fact necessary to
>     make the statements made, in light of the circumstances under which such
>     statements were made, not misleading with respect to the period covered by
>     this annual report; and
>     3. Based on my knowledge, the financial statements, and other financial
>     information included in this annual report, fairly present in all material
>     respects the financial condition, results of operations and cash flows of
>     the registrant as of, and for, the periods presented in this annual report.
>     Date:
>             September 4, 2002
>           /s/
>             Larry M. RinehartLarry
>             M. RinehartPresident,
>             Chief Executive Officer and Director

104

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> 

CERTIFICATION



I, Gregory C. Talbott, certify that:

> 1. I have reviewed this annual report on Form 10-K of PFF Bancorp, Inc.;
>     2. Based on my knowledge, this annual report does not contain any untrue
>     statement of a material fact or omit to state a material fact necessary to
>     make the statements made, in light of the circumstances under which such
>     statements were made, not misleading with respect to the period covered by
>     this annual report; and
>     3. Based on my knowledge, the financial statements, and other financial
>     information included in this annual report, fairly present in all material
>     respects the financial condition, results of operations and cash flows of
>     the registrant as of, and for, the periods presented in this annual report.
>     Date:
>             September 4, 2002
>           /s/
>             Gregory C. TalbottGregory
>             C. TalbottExecutive
>             Vice President, Chief Financial Officer and Treasurer



105