UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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



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 $454,841,461, based
upon the last sales price as quoted on the New York Stock Exchange for June 21,
2002.

The number of shares of common stock
outstanding as of June 21, 2002: 13,260,684Documents 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 18, 2002 are incorporated by
reference in Part III hereof.

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INDEXPART I
      PAGEItem 1.
      Description of Business
      3Item 2.
      Properties
      42Item 3.
      Legal Proceedings
      43Item 4.
      Submission of Matters to a Vote of Security Holders
      43PART IIItem 5.
      Market for Registrant's Common Equity and RelatedStockholders'
        Matters
      43Item 6.
      Selected Financial Data
      45Item 7.
      Management's Discussion and Analysis of FinancialCondition
        and Results of Operations
      48Item 7A.
      Quantitative and Qualitative Disclosures About Market Risk
      61Item 8.
      Financial Statements and Supplementary Data
      62Item 9.
      Changes in and Disagreements with Accountantson Accounting
        and Financial Disclosure
      105PART IIIItem 10.
      Directors and Executive Officers of the Registrant
      105Item 11.
      Executive Compensation
      105Item 12.
      Security Ownership of Certain Beneficial Ownersand Management
      105Item 13.
      Certain Relationships and Related Transactions
      105PART IVItem 14.
      Exhibits, Financial Statement Schedules and Reportson Form
        8-K
      106


2

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PART I

Forward-Looking Statements

Except 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. At March 31, 2002, on a consolidated basis, the Company had total
assets of $3.04 billion, total deposits of $2.17 billion and total stockholders'
equity of $284.1 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").The Company is operating under a community banking business model. This business
model focuses on the origination of commercial, construction and land (primarily
residential tract construction), commercial real estate and consumer loans
(collectively the "Four-Cs") and to a lesser degree, one-to-four
family residential mortgages. The Bank engages in secondary market activities,
primarily the purchase of one-to-four family residential mortgages to supplement
internal origination activities. To a lesser degree, the Company invests in
mortgage-backed securities ("MBS"), collateralized mortgage
obligations ("CMO") and other investment securities (collectively
"securities"). 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 and
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 CompetitionThe Bank's 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 to 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.
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, 2002 and
2001 was $2.1 million and $1.8 million, respectively. See "Notes to
Consolidated Financial Statements - Note 19: Trust Operations." Pursuant to
federal securities laws applicable to its trust activities the Bank operates
with a Registered Investment Advisor ("RIA") designation. During April
2002, as a part of its strategy to increase fee income associated with its
wealth management and advisory services, the Company formed a second RIA,
Glencrest Investment Advisors, Inc. ("Glencrest") as a wholly-owned
subsidiary of the Bancorp. In addition to providing investment advice to
independent third parties, Glencrest will provide investment advisory services
to the Bank for which it will be paid a fee. The Bank will provide fee based
custody services for Glencrest.Management is of the opinion that the positioning of
Glencrest as an entity with an identity separate and distinct from the Bank will
enable Glencrest to more effectively market its advisory services to higher net
worth individuals and institutions.

4

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Lending ActivitiesLoan Portfolio Composition. The Bank's loan portfolio consists
primarily of conventional first mortgage loans secured by one-to-four family
residences. At March 31, 2002, the Bank had total gross loans outstanding of
$2.82 billion, of which $1.40 billion or 50% were one-to-four family residential
mortgage loans. The remainder of the portfolio consisted of $711.6 million of
construction and land loans, or 25% of total gross loans; $309.3 million of
commercial real estate loans, or 11% of total gross loans; consumer loans of
$158.5 million or 6% of total gross loans; commercial business loans of $155.6
million or 5% of total gross loans; and $78.0 million of multi-family mortgage
loans, or 3% of total gross loans. At March 31, 2002, approximately $2.51
billion or 89% of the Bank's total loans had adjustable interest rates of
which approximately $1.18 billion or 47% are indexed to the one year constant
maturity Treasury ("CMT"), approximately $791.2 million or 31% are
indexed to Wall Street Journal Prime ("Prime") and approximately
$429.7 million or 17% are indexed to the 11th FHLB District Cost of Funds Index
("COFI"). The Bank's portfolio of adjustable rate loans includes
approximately $731.8 million of loans whose rates are fixed for an initial term
of three to five years prior to transitioning to a semi-annual or annually
adjustable rate loan ("hybrid ARMs"). The Bank's hybrid ARMs are
primarily indexed to the CMT.
The types of loans that the Bank may originate are subject to federal and state
laws and regulations. Interest rates charged by the Bank on loans are affected
by the demand for such loans, the supply of money available for lending purposes
and the rates offered by competitors. These factors are, in turn, affected by,
among other things, economic conditions, monetary policies of the federal
government, including the Federal Reserve Board, and legislative tax policies.

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,          
|----------------------------------- | ----------------------
|                                    | 2002                  
|                                    | Amount                
|                                    | (Dollars in thousands)
|                                    |                       
|Real estate: (1)                    |                       
|Residential:                        |                       
|One-to-four family                  | $ 1,402,977           
|Multi-family                        | 77,964                
|Commercial real estate              | 309,335               
|Construction and land               | 711,637               
|Commercial                          | 155,589               
|Consumer                            | 158,475               
|Total loans, gross                  | 2,815,977             
|                                    |                       
|Undisbursed loan funds              | (288,231)             
|Net premiums (discounts) on loans   | (202)                 
|Deferred loan origination fees, net | (1,412)               
|Allowance for loan losses           | (31,359)              
|Total loans, net                    | 2,494,773             
|Less: Loans held for sale           | (106)                 
|Loans receivable, net               | $ 2,494,667           
|(1) Includes loans held for sale.  

6

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Loan Maturity.



|                                    | At March 31, 2002              
|----------------------------------- | -------------------------------
|                                    | One-to-
      Four
      Family
|                                    | (Dollars in thousands)         
|                                    |                                
|Amounts due:                        |                                
|One year or less                    | $ 12,557                       
|After one year:                     |                                
|More than one year to three years   | 662                            
|More than three years to five years | 2,901                          
|More than five years to ten years   | 14,247                         
|More than ten years to twenty years | 148,719                        
|More than twenty years              | 1,223,891                      
|Total due after March 31, 2003      | 1,390,420                      
|Total amount due                    | 1,402,977                      
|Less:                               |                                
|Undisbursed loan funds              | -                              
|Net discounts on loans              | (202)                          
|Deferred loan origination fees, net | 2,633                          
|Allowance for loan losses           | (672)                          
|Total loans, net                    | 1,404,736                      
|Loans held for sale                 | (106)                          
|Loans receivable, net               | $ 1,404,630                    

7

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The following table sets forth at March 31, 2002, the dollar
amount of total gross loans receivable contractually due after March 31, 2003,
and whether such loans have fixed or adjustable interest rates.

|                                        | Due after March 31, 2003
|--------------------------------------- | ------------------------
|                                        | Fixed                   
|                                        | (Dollars in thousands)  
|                                        |                         
|Real estate loans: (1)                  |                         
|Residential:                            |                         
|One-to-four family                      | $ 116,434               
|Multi-family                            | 4,322                   
|Commercial real estate                  | 2,069                   
|Construction and land                   | 270                     
|Commercial                              | 47,633                  
|Consumer                                | 85,056                  
|Total gross loans receivable            | $ 255,784               
|(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 first trust deed 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 does continue 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 $1.43 billion for fiscal 2002 compared to $1.05 billion
for fiscal 2001. Originations of the Four-Cs aggregated $1.19 billion or 83% of
total originations for fiscal 2002 compared to $969.3 million or 92% of total
originations for fiscal 2001. Reflecting the dramatically lower interest rate
environment, the weighted average initial contract rate on total originations
was 7.30% for fiscal 2002, compared to 10.07% for fiscal 2001.
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
retains servicing of the loans sold. At March 31, 2002, the Bank was servicing
$189.7 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 $518,000 of MSR as of March 31,
2002, compared to $1.1 million at March 31, 2001. Impairment losses, if any, are
recognized through a valuation allowance, with any associated provision recorded
as a component of loan servicing fees. At March 31, 2002 and 2001, no MSR
valuation allowances were required. At March 31, 2002, there were $106,000 of
mortgage loans categorized as held for sale consisting of fixed-rate one-to-four
family residential mortgage loans.

8

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|                                                                                                                   | For the Years Ended March 31,
|------------------------------------------------------------------------------------------------------------------ | -----------------------------
|                                                                                                                   | 2002                         
|                                                                                                                   | (Dollars in thousands)       
|                                                                                                                   |                              
|Beginning balance (1)                                                                                              | $ 2,285,890                  
|Loans originated:                                                                                                  |                              
|One-to-four family                                                                                                 | 234,926                      
|Multi-family                                                                                                       | 10,939                       
|Commercial real estate                                                                                             | 125,544                      
|Construction and land                                                                                              | 740,573                      
|Commercial                                                                                                         | 192,762                      
|Consumer                                                                                                           | 129,077                      
|Total loans originated                                                                                             | 1,433,821                    
|Loans purchased                                                                                                    | 415,287                      
|Sub-total                                                                                                          | 4,134,998                    
|Less:                                                                                                              |                              
|Principal payments                                                                                                 | (1,573,443)                  
|Sales of loans                                                                                                     | (10,162)                     
|Transfer to foreclosed real estate owned (REO)                                                                     | (2,331)                      
|Change in undisbursed loan
      funds                                                                             | (50,684)                     
|Change in allowance for loan
      losses                                                                          | (337)                        
|Other (2)                                                                                                          | (3,268)                      
|Total loans                                                                                                        | 2,494,773                    
|Loans held for sale, net                                                                                           | (106)                        
|Ending balance loans receivable,
      net                                                                         | $ 2,494,667                  
|(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

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.
The Bank's multi-family loan portfolio at March 31, 2002 totaled $78.0 million
or 3% of total gross loans. At March 31, 2002, 68% of the Bank's multi-family
loans were adjustable-rate indexed to COFI and 26% were indexed to the one-year
CMT. The Bank's largest multi-family loan at March 31, 2002, had an
outstanding balance of $4.7 million and is secured by a 128 unit apartment
complex.
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.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. Competitive market
factors have also prompted the Bank to originate such loans with fixed rates of
interest. Maturities on commercial real estate loans are generally 10 years with
25 to 30 year amortization, although these loans may be made with maturities 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%.
At March 31, 2002, the Bank's commercial real estate loan portfolio was $309.3
million, or 11% of total gross loans. At March 31, 2002, 22% of these loans were
indexed to COFI and 69% were indexed to the one-year CMT. The largest commercial
real estate loan in the Bank's portfolio at March 31, 2002 was $9.0 million
and is secured by a 158,000 square foot multi-tenant light industrial facility.
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.Construction and Land Lending. The Bank generally originates construction
loans to real estate developers and individuals in Southern 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 Bank'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.
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. The Bank requires an independent appraisal of the property and generally
requires personal guarantees. Loan proceeds are disbursed as construction
progresses and as inspections warrant. The Bank's inspectors generally visit
projects twice a month to monitor the progress of construction.

11

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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, 2002, the Bank
had construction loans outstanding for development of residential properties
located in Nevada, Utah and Arizona totaling $30.2 million, $15.5 million of
which was disbursed. As of March 31, 2002, the remainder of the Bank's
construction loans were for development of real estate located in California.
The largest credit exposure in the construction loan portfolio as of March 31,
2002 consists of $29.7 million of loans for the development of 296 finished lots
and homes located in northern Los Angeles County (Castaic). The aggregate
disbursed balance of these loans at March 31, 2002 was $21.7 million. The second
largest credit exposure in the Bank's construction loan portfolio at March 31,
2001 had a balance of $21.7 million, for a multi-phase residential development
of 89 homes in Santa Clara County. At March 31, 2002, the Bank's construction
and land loan portfolio was $711.6 million or 25% of total gross loans, $423.4
million of which was disbursed. At March 31, 2002 the aggregate balance of loans
for the construction of properties other than one-to-four family residences was
$81.1 million, $63.2 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 Bank may
be confronted with a project, when completed, having a value which is
insufficient to assure full repayment of the Bank's loanConsumer and Other Lending.The Bank
offers both fixed-rate equity loans and adjustable rate equity lines of credit
secured by one-to-four family residences made primarily on properties located in
the Bank's primary market area. Loan originations are generated from the Bank's
loan representatives and approved mortgage brokers. The majority of consumer
loans are underwritten and approved on the basis of the applicant's ability
and apparent willingness to pay (credit history). A security interest on the
property is taken as an abundance of caution.The equity lines of credit offered by they Bank have
introductory terms below the fully indexed rate. At the end of the introductory
period the lines of credit will adjust monthly based on changes in the Prime
rate. These lines of credit provide for overall caps/floors on the
increase/decrease in interest rates over the life of the loan.
The Bank's policy is to originate equity loans and lines of credit up to 100%
of the appraised value of the property securing the loan. Loans secured by a
second lien on property and with higher loan to values are generally considered
to involve a higher degree of credit risk than loans secured by a first lien
position or with a lower loan to value. These loans are priced to compensate for
these higher risks. The Bank also originates a limited number of equity loans
with loan to values up to 125%. These loans are originated for the secondary
market and substantially all of the originations are sold upon funding to an
investor. These loans also have a higher degree of risk and are made with strict
credit guidelines.
At March 31, 2002, the Bank's total consumer loan portfolio was $158.5 million
or 6% of total gross loans, composed primarily of $73.8 million in home equity
lines of credit and $84.4 million in secured and unsecured personal loans and
lines of credit. At March 31, 2002, 54% of these loans were fixed rate, 39% were
indexed to Prime and 3% were indexed to COFI.

12

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Commercial Lending. During the past six years, the Bank
expanded its operations to include commercial business lending to small and
medium-sized businesses. Loan products include working capital lines of credit,
capital and equipment term loans, SBA and other government loan guarantee
programs, and contractor financing for residential housing rehabilitation, all
delivered directly to borrowers in our community through the retail branch
network and a team of highly experienced business financial advisors. The Bank's
Commercial operations also include wholesale lending for business equipment
finance and leasing companies, as well as syndications and participations with
local and national business lenders.
As of March 31, 2002, the Bank's total commercial business loan commitments
were $267.4 million, of which $155.6 million or 6% of total gross loans was
outstanding. At March 31, 2002, of the commercial loans outstanding 48% were
indexed to Prime. At March 31, 2002, the largest amount of loans outstanding to
one borrower was $18.2 million to an equipment leasing company. The loans to
this borrower are secured by the assignment of leases averaging $204,000 per
lease and the underlying leased equipment, as well as inventory and accounts
receivable. The second largest amount of loans to one borrower was $11.0 million
to a manufacturer and lessor of vehicles used in food service and package
delivery. This loan is also secured by the assignment of leases and underlying
equipment. Repayment of loans to both borrowers is expected to come from lessee
payments or, alternatively, from liquidation of equipment and assets of the
borrowers or guarantors.
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 guarantees 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.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, 2002, the Bank's limit on loans-to-one borrower was $43.2 million.

13

---

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, 2002, the Bank was servicing $189.7 million
of loans for others. The Bank does not purchase servicing rights related to
mortgage loans originated by other institutions.Delinquencies
and Classified Assets.
The LOARC generally performs a monthly review of all loans ninety days or more
past due. In addition, management reviews on an ongoing basis all loans 15 or
more days delinquent. The procedures taken by the Bank, with respect to
delinquencies, vary depending on the nature of the loan and period of
delinquency. For mortgage loans, the Bank generally sends the borrower a written
notice of non-payment 15 days after the loan is first past due. In the event
payment is not received, additional letters and phone calls are generally made.
If the loan is still not brought current and it becomes necessary for the Bank
to take legal action, which typically occurs after a loan is delinquent at least
30 days or more, the Bank will commence foreclosure proceedings against the real
property that secures the loan. If a foreclosure action is instituted and the
loan is not brought current, paid in full, or refinanced before the foreclosure
sale, the Bank generally takes possession of the real property securing the loan
("REO") and subsequently sells the property.For commercial business loans, management conducts an ongoing review of
all loans 15 or more days delinquent. The procedures undertaken by the Bank 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 Bank
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 non-accrual status.Allowance for Loan Losses.The Company maintains a valuation allowance
for losses on loans and real estate to provide for losses inherent in those
portfolios. The adequacy of the allowance is evaluated quarterly by management
to maintain the allowance at levels sufficient to provide for inherent losses. A
key component to the evaluation is the internal asset review process.
The Internal Asset Review Department ("IARD") conducts independent
reviews to evaluate the risk and quality of Bank assets. IARD reports to the
Internal Asset Review Committee ("IARC"). The IARC members include the
IAR Manager/Chair, General Counsel, Accounting Manager, Senior Counsel, Chief
Appraiser, Loan Service Manager, Internal Asset Review Analyst, Internal Asset
Review Officer and Staff Secretary. The President/CEO, Sr. Executive Vice
President/COO, and Chief Lending Officer attend as non-voting members. IARC
meets monthly to review the recommendations from the IARD for asset
classifications and valuation allowances. The IARD reports quarterly to the
Board of Directors regarding overall asset quality, the adequacy of valuation
allowances and adherence to policies and procedures regarding asset
classification and valuation.

14

---

IARD adheres to an
internal asset review system and loss allowance methodology designed to provide
for timely recognition of problem assets and adequate valuation allowances to
cover asset losses. The Bank's asset monitoring process includes the use of
asset classifications to segregate the assets, largely loans and real estate,
into various risk categories. The Bank uses the various asset classifications as
a means of measuring risk and determining the adequacy of valuation allowances
by using an eight grade system to classify assets. The current grades are: pass
1; pass 2; pass 3; pass 4; special mention; substandard; doubtful; and loss.
Substandard, doubtful and loss assets are considered "classified
assets" for regulatory purposes. A brief description of these
classifications follows:

- The four pass classification grades represent a level of credit quality, which
ranges from no well-defined deficiency or weakness to some noted weakness, yet
risk of default is expected to be remote.
- A special mention asset does not currently expose the Bank to a sufficient
degree of risk to warrant an adverse classification, but does possess a
correctable deficiency or potential weakness deserving management's close
attention.
- Substandard assets have a well-defined weakness or weaknesses. They are
characterized by the distinct possibility that some loss will be sustained if
the deficiencies are not corrected.
- An asset classified doubtful has all the weaknesses inherent in those classified
substandard with the added characteristic that the weaknesses make collection or
liquidation in full, on the basis of currently existing facts, conditions and
values, highly questionable and improbable. Doubtful is considered to be a
temporary classification until resolution of pending weakness issues enables the
potential for loss to be more clearly defined.
- That portion of an asset classified as loss is considered uncollectible and of
so little value that its continuance as an asset, without establishment of a
specific valuation allowance, is not warranted. A loss classification does not
mean that an asset has no recovery or salvage value. IARD will generally
classify as loss the balance of an asset that is greater than the net fair value
of the asset unless payment can be expected from another source.

The asset classifications from the internal asset review process are used in the
following manner to determine the amount of the allowance for loan losses:

- General valuation allowances ("GVA"): This element relates to assets
with no well-defined deficiency or weakness (i.e. assets classified pass) and
takes into consideration losses that are imbedded within the portfolio but have
not yet been realized. Generally, borrowers are impacted by events well in
advance of a lender's knowledge that may ultimately result in loan default and
eventual loss. Examples of such loss-causing events would be borrower job loss,
divorce or medical crisis in the case of single family residential and consumer
loans, or loss of a major tenant in the case of commercial real estate loans.
General valuation allowances are determined by applying factors that take into
consideration past loss experience, current trends, etc. for each major asset
type.
- Specific valuation allowances ("SVA") : A loan is impaired when, based
on current information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. When the Bank identifies a high probability that a loss may occur the
Bank establishes an SVA for the loss by subtracting the difference between the
Bank's recorded investment in the loan from the market value. If the loan is
collateral dependent the fair value is applied to determine the SVA.
- Large borrower risk allowance: PFF has a number of borrowers with large loan
balances which may create an additional risk if one or two of these borrowers
were to suddenly default. Therefore an additional allowance for this risk is
analyzed and applied.
- Model risk allowance: The GVA allowance methodology applied above includes both
quantitative and qualitative factors and documentation, however, any methodology
is subject to some uncertainties. Estimating future losses inherent in a loan
portfolio will vary with each method. Therefore, a model risk component for the
GVA is also utilized.

At March 31, 2002, the Company's allowance for loan losses was $31.4 million
or 1.l1% of gross loans and 697.80% of non-performing loans compared to $31.0
million or 1.22% of gross loans and 270.20% of non-performing loans at March 31,
2001. At March 31, 2002, the Company had non-performing loans of $4.5 million or
0.16% of gross loans compared to $11.5 million or 0.45% of gross loans at March
31, 2001. The Company will continue to monitor and modify its allowance for loan
losses based upon economic conditions, loss experience, changes in portfolio
composition and other factors.

15

---

The following table sets forth activity in the Company's allowance for loan
losses for the periods set forth in the table.



|                                                         | For the Year Ended March 31,
|-------------------------------------------------------- | ----------------------------
|                                                         | 2002                        
|                                                         | (Dollars in thousands)      
|                                                         |                             
|Beginning balance                                        | $ 31,022                    
|Provision for loan losses                                | 5,000                       
|Charge-offs:                                             |                             
|Real estate:                                             |                             
|One-to-four family                                       | (78)                        
|Multi-family                                             | -                           
|Commercial real estate                                   | -                           
|Construction and land                                    | (3,012)                     
|Commercial                                               | (612)                       
|Consumer                                                 | (1,069)                     
|Total                                                    | (4,771)                     
|Recoveries                                               | 108                         
|Ending balance                                           | $ 31,359                    
|Net charge-offs to average gross
      loans outstanding | 0.17%                       

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 specific 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 specific valuation allowance equal to 100% of the
amount of the asset identified as loss or to charge off such amount. The Bank
has adopted a policy of charging off all assets classified as 100% 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 an
acceptable allowance evaluation process that meets the objectives set forth in
the policy statement. 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 personnel are also
utilized for annual property inspections on all income producing real properties
securing 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.

16

---



17

---



|                                                                                                                     | At March 31, 2002     
|-------------------------------------------------------------------------------------------------------------------- | ----------------------
|                                                                                                                     | Loans                 
|                                                                                                                     | Gross
      Balance   
|                                                                                                                     | (Dollars in thousands)
|Real estate:                                                                                                         |                       
|Residential:                                                                                                         |                       
|One-to-four family                                                                                                   | $ 8,592               
|Multi-family                                                                                                         | 1,154                 
|Commercial real estate                                                                                               | 2,576                 
|Construction and land                                                                                                | 42,139                
|Sub-total                                                                                                            | 54,461                
|Commercial                                                                                                           | 19,324                
|Consumer                                                                                                             | 359                   
|Total                                                                                                                | $ 74,144              
|                                                                                                                     |                       
|                                                                                                                     |                       
|                                                                                                                     |                       
|                                                                                                                     | At March 31, 2001     
|                                                                                                                     | Loans                 
|                                                                                                                     | Gross
      Balance   
|                                                                                                                     | (Dollars in thousands)
|Real Estate:                                                                                                         |                       
|Residential:                                                                                                         |                       
|One-to-four family                                                                                                   | $ 14,011              
|Multi-family                                                                                                         | 1,188                 
|Commercial real estate                                                                                               | 2,951                 
|Construction and land                                                                                                | 41,359                
|Sub-total                                                                                                            | 59,509                
|Commercial                                                                                                           | 4,830                 
|Consumer                                                                                                             | 374                   
|Total                                                                                                                | $ 64,713              
|(1) Net balances
      are reduced for specific loss allowances established against Substandard
      loans and REO.

18

---

Non-Accrual and Past-Due Loans. The following table sets forth
information regarding non-accrual loans, REO and TDR loans. There were no TDR
loans and six REO properties at March 31, 2002. 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,
2002, 2001, 2000, 1999 and 1998, 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 $330,000, $733,000, $466,000, $1.1
million and $1.7 million, respectively, none of which was recognized.The Company has a total of $21.7 million in loans outstanding on the 296
home residential development project in Castaic with an aggregate commitment of
$29.7 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
was impaired as of December 31, 2000. Accordingly, during the quarter ended
December 31, 2000, the Bancorp placed this loan on non-accrual status and
established an allowance for loss for the full amount of this loan. During the
quarter ended December 31, 2001, the Bancorp charged this loan off against the
previously established allowance. The Company has determined that it is still
probable that it will collect all amounts contractually due on the remaining
$21.7 million of loans outstanding on this project. The Company has taken an
assignment of the borrower's interest on two projects, on which the Company
has no indebtedness from the borrower, to 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, 2002 was as follows:
194 of the 296 homes have been sold and closed and 30 homes are in escrow. The
30 homes in escrow are currently under construction. The remaining 69 production
homes are expected to be built and sold during calendar year 2002 or the
beginning of 2003, along with the sale of the three existing models. During the
quarter ended March 31, 2002, 25 homes closed escrow, and an additional 24 homes
entered escrow.
During the years ended March 31, 2002 and 2001, the Company's average
investment in impaired loans was $46.9 million and $24.0 million, respectively.
Interest income recorded during these periods was $1.9 million and $1.8 million,
respectively of which zero and zero, respectively was recorded utilizing the
cash basis method of accounting.

19

---



At March 31,2002
      2001
      2000
      1999
      1998(Dollars in thousands)Non-accrual loans:Residential real estate:One-to-four family
      $ 3,049
      5,420
      4,415
      10,061
      13,834Multi-family
      -
      -
      -
      122
      467Commercial real estate
      285
      -
      -
      -
      2,717Construction and land (3)
      -
      4,572
      -
      647
      131Commercial
      65
      437
      243
      -
      -Consumer
      1,095
      1,052
      769
      182
      40Total
      4,494
      11,481
      5,427
      11,012
      17,189REO, net (1)
      507
      351
      1,466
      5,318
      7,595Non-performing assets
      $ 5,001
      11,832
      6,893
      16,330
      24,784TDR loans (3)
      $ -
      3,012
      1,950
      11,291
      12,505Classified assets, gross
      $ 74,904
      62,102
      37,354
      39,058
      46,758Allowance for loan losses as a
        percent of gross loans receivable
      1.11%
      1.22
      1.09
      1.18
      1.33Allowance for loan losses as a
        percent of total non-performing
        loans (2)
      697.80
      270.20
      512.96
      237.56
      151.27Non-performing loans as a percent
        of gross loans receivable (2)
      0.16
      0.45
      0.21
      0.50
      0.88Non-performing assets as a percent
        of total assets (2)
      0.16
      0.51
      0.23
      0.56
      0.88(1) REO balances
        are shown net of related loss allowances.
        (2) 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.
        (3) At March 31, 2001 the Bancorp's $3.0 million loan for the Castaic
        development is included in non-accrual and TDR loans.


20

---

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



|                                                                                                                        | At March 31, 2002      | At March 31, 2001                     
|----------------------------------------------------------------------------------------------------------------------- | ---------------------- | --------------------------------------
|                                                                                                                        | 60-89 Days             | 90 Days or More(1)                    
|                                                                                                                        | Number
      of Loans  | Principal
      Balance
      of Loans
|                                                                                                                        | (Dollars in thousands)
|                                                                                                                        |                        |                                       
|One-to-four family                                                                                                      | 5                      | $ 607                                 
|Multi-family                                                                                                            | -                      | -                                     
|Commercial real estate                                                                                                  | -                      | -                                     
|Construction and land                                                                                                   | -                      | -                                     
|Commercial                                                                                                              | -                      | -                                     
|Consumer                                                                                                                | 1                      | 34                                    
|Total                                                                                                                   | 6                      | $ 641                                 
|                                                                                                                        |                        |                                       
|                                                                                                                        |                        |                                       
|                                                                                                                        | At March 31, 2000      |                                       
|                                                                                                                        | 60-89 Days             | 90 Days or More(1)                    
|                                                                                                                        | Number
      of Loans  | Principal
      Balance
      of Loans
|                                                                                                                        | (Dollars in thousands) |                                       
|                                                                                                                        |                        |                                       
|One-to-four family                                                                                                      | 16                     | $ 1,869                               
|Multi-family                                                                                                            | 1                      | 106                                   
|Commercial real estate                                                                                                  | -                      | -                                     
|Construction and land                                                                                                   | 1                      | 990                                   
|Commercial                                                                                                              | -                      | -                                     
|Consumer                                                                                                                | 8                      | 226                                   
|Total                                                                                                                   | 26                     | $ 3,191                               
|(1) Loans 90 days
      or more past due are included in non-accrual loans. See "Non-Accrual
      and Past Due Loans."

21

---

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,          
|------------------------------------- | ----------------------
|                                      | 2002                  
|                                      | Amount                
|                                      | (Dollars in thousands)
|                                      |                       
|One-to-four family                    | $ 672                 
|Multi-family                          | 191                   
|Commercial real estate                | 2,829                 
|Construction and land                 | 19,588                
|Commercial                            | 5,947                 
|Consumer                              | 2,132                 
|Unallocated                           | -                     
|Total allowance for
      loan losses | $ 31,359              
|                                      |                       
|                                      | At March 31,          
|                                      | 1999                  
|                                      | Amount                
|                                      | (Dollars in thousands)
|                                      |                       
|One-to-four family                    | $ 5,721               
|Multi-family                          | 2,026                 
|Commercial real estate                | 2,048                 
|Construction                          | 8,911                 
|Commercial                            | 2,761                 
|Consumer                              | 4,690                 
|Unallocated                           | 3                     
|Total allowance for
      loan losses | $ 26,160              

22

---

Real Estate

At March 31,2002
      2001
      2000
      1999
      1998(Dollars in thousands)REOProperties acquired in
        settlement of loans
      $ 507
      400
      1,466
      5,763
      8,198Allowance for losses
      -
      (49)
      -
      (445)
      (603)Total REO, net
      507
      351
      1,466
      5,318
      7,595REIProperties wholly owned
      -
      -
      558
      558
      731Mezzanine real estate
        financing
      -
      -
      4,370
      5,813
      -Allowance for losses
      -
      -
      -
      -
      -Total REI, net
      -
      -
      4,928
      6,371
      731Total real estate, net
      $ 507
      351
      6,394
      11,689
      8,326




23

---

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, 2002, the Bancorp had direct equity
investments of $7.8 million (which includes trading securities of $2.3 million),
investments in equity mutual funds of $4.0 million and investments in corporate
debt obligations (trust preferred debt securities) of $5.1 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.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, 2002, the Company had $94.5 million in investment securities
consisting primarily of investment grade corporate and U.S. agency securities.
Forty-nine percent of the Company's MBS portfolio is comprised of
adjustable-rate securities tied to the one-year CMT including 31% of the
portfolio comprised by hybrid ARMs. The remainder of the Company's MBS
portfolio is comprised of six-month LIBOR ARMs (1% of the portfolio), seasoned
fixed-rate securities (22% of the portfolio) and five and seven year balloon
securities (28% of the portfolio). At March 31, 2002, the carrying value of the
Company's MBS portfolio totaled $196.6 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Comparison of Financial Condition at March 31, 2002 and March 31, 2001."
All of the Company's MBS are 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 premium or accretion of 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 $62.8 million CMO portfolio consists principally of adjustable
rate securities tied to the one month LIBOR ($14.6 million) or the Prime rate
($47.9 million). The adjustment intervals for these securities are generally
monthly. All of the Company's CMO are 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 premium or accretion of 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.

24

---

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,          
|------------------------ | ----------------------
|                         | 2002                  
|                         | Carrying
      Value  
|                         | (Dollars in thousands)
|Available-for-sale:      |                       
|GNMA                     | $ 20,450              
|FHLMC                    | 45,717                
|FNMA                     | 130,413               
|Total available-for-sale | $ 196,580             

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,          
|-------------------------------------------------------------------------------------------------------- | ----------------------
|                                                                                                         | 2002                  
|                                                                                                         | Carrying
      Value  
|                                                                                                         | (Dollars in thousands)
|                                                                                                         |                       
|Held-to-maturity:                                                                                        |                       
|U.S. government and
      federal agency obligations                                                     | $ 703                 
|Total held-to-maturity                                                                                   | 703                   
|                                                                                                         |                       
|Available-for-sale:                                                                                      |                       
|Corporate debt securities                                                                                | 55,236                
|Equity securities:
      Direct (1)                                                                      | 5,440                 
|Mutual funds                                                                                             | 33,144                
|U.S. government and
      federal agency obligations                                                     | -                     
|Total available-for-sale                                                                                 | 93,820                
|                                                                                                         |                       
|Total                                                                                                    | $ 94,523              
|(1) The Bancorp's direct equity investments include $2.3 million managed by
the Bank's trust department.

25

---

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 31,2002
    2001
    2000Carrying
      Value
    Fair
      Value
    Carrying
      Value
    Fair
      Value
    Carrying
      Value
    Fair
      Value(Dollars in thousands)Available-for-sale:Collateralized mortgage
      obligations:FHLMC
    $ 43,928
    43,928
    57,236
    57,236
    58,254
    58,254FNMA
    18,850
    18,850
    25,079
    25,079
    27,399
    27,399Total
    $ 62,778
    62,778
    82,315
    82,315
    85,653
    85,653


26

---

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, 2002. The table presented represents stated maturities and does not
reflect scheduled principal payments.

|                                                                                                                                                                                                                                                                                                                            | At March 31, 2002     
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------
|                                                                                                                                                                                                                                                                                                                            | One Year or less      
|                                                                                                                                                                                                                                                                                                                            | Carrying
      Value  
|                                                                                                                                                                                                                                                                                                                            | (Dollars in thousands)
|Mortgage-backed securities:                                                                                                                                                                                                                                                                                                 |                       
|Available-for-sale:                                                                                                                                                                                                                                                                                                         |                       
|GNMA                                                                                                                                                                                                                                                                                                                        | $ -                   
|FHLMC                                                                                                                                                                                                                                                                                                                       | 4,537                 
|FNMA                                                                                                                                                                                                                                                                                                                        | 4,598                 
|Total mortgage-backed securities                                                                                                                                                                                                                                                                                            | $ 9,135               
|                                                                                                                                                                                                                                                                                                                            |                       
|Investment securities:                                                                                                                                                                                                                                                                                                      |                       
|Held-to-maturity:                                                                                                                                                                                                                                                                                                           |                       
|U.S. government and Federal agency
      Obligations                                                                                                                                                                                                                                                                        | $ -                   
|Total held-to-maturity                                                                                                                                                                                                                                                                                                      | -                     
|Available-for-sale:                                                                                                                                                                                                                                                                                                         |                       
|Corporate debt securities                                                                                                                                                                                                                                                                                                   | -                     
|Equity securities:                                                                                                                                                                                                                                                                                                          |                       
|Direct (1)                                                                                                                                                                                                                                                                                                                  | -                     
|Mutual funds                                                                                                                                                                                                                                                                                                                | -                     
|Total available-for-sale                                                                                                                                                                                                                                                                                                    | -                     
|Total investment securities                                                                                                                                                                                                                                                                                                 | $ -                   
|                                                                                                                                                                                                                                                                                                                            |                       
|Collateralized mortgage obligations:                                                                                                                                                                                                                                                                                        |                       
|Available-for-sale:                                                                                                                                                                                                                                                                                                         |                       
|FHLMC                                                                                                                                                                                                                                                                                                                       | $ -                   
|FNMA                                                                                                                                                                                                                                                                                                                        | -                     
|Total collateralized mortgage obligations                                                                                                                                                                                                                                                                                   | $ -                   
|(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".

27

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Sources of Funds

|                                      | For the Year Ended March 31,
|------------------------------------- | ----------------------------
|                                      | 2002                        
|                                      | (Dollars in thousands)      
|Net deposits (withdrawals)            | $ 76,898                    
|Sale of branch deposits               | -                           
|Interest credited on deposit accounts | 70,805                      
|Total increase in deposit accounts    | $ 147,703                   

At March 31, 2002, the Bank had $408.7 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          | $ 177,364              | 3.80%                      
|Over three through six months | 105,051                | 4.09                       
|Over six through 12 months    | 71,456                 | 3.49                       
|Over 12 months                | 54,863                 | 5.05                       
|Total                         | $ 408,734              | 3.99                       

28

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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,
|------------------------------------- | ----------------------------
|                                      | 2002                        
|                                      | Average
      Balance       
|                                      | (Dollars in thousands)      
|                                      |                             
|Passbook accounts                     | $ 124,855                   
|Money market savings accounts         | 446,821                     
|NOW accounts                          | 216,269                     
|Non-interest bearing accounts         | 100,894                     
|Total core deposits                   | 888,839                     
|                                      |                             
|Certificate accounts:                 |                             
|Variable-rate certificates of deposit | 18,062                      
|Step-up certificates of deposit       | 49,928                      
|Less than 6 months                    | 109,464                     
|6 through 11 months                   | 215,121                     
|12 though 23 months                   | 603,732                     
|24 months through 47 months           | 119,986                     
|48 months or greater                  | 56,937                      
|Other                                 | 19                          
|Total certificate accounts            | 1,173,249                   
|Total average deposits                | $2,062,088                  

29

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|              | Period to Maturity from March 31, 2002 | March 31,             
|------------- | -------------------------------------- | ----------------------
|              | Less than
      One Year               | One to
      Two Years
|              | (Dollars in thousands)                
|              |                                        |                       
|0.00 to 4.00% | $ 554,711                              | 19,980                
|4.01 to 5.00% | 281,598                                | 29,496                
|5.01 to 6.00% | 66,920                                 | 8,358                 
|6.01 to 7.00% | 35,012                                 | 7,581                 
|7.01 to 8.00% | 10,477                                 | 481                   
|Total         | $ 948,718                              | 65,896                

30

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FHLB Advances and Other Borrowings

31

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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 31,2002
    2001
    2000(Dollars in thousands)FHLB advances:Average balance outstanding
    $ 597,173
    771,869
    792,778Maximum amount outstanding at any
      Month-end during the year
    655,000
    886,000
    884,000Balance outstanding at end of year (1)
    558,000
    575,000
    884,000Weighted average interest rate during
      the year
    5.01%
    6.25
    5.63Weighted average interest rate end
      of year
    4.16
    5.98
    6.02Reverse repurchase agreements:Average balance outstanding
    $ -
    -
    43,750Maximum amount outstanding at any
      month-end during the year
    -
    -
    50,000Balance outstanding at end of year
    -
    -
    -Weighted average interest rate during
      the year
    -
    -
    5.87Weighted average interest rate end
      of year
    -
    -
    -(1) Included in the balance of FHLB advances outstanding at March 31,
2002 are putable borrowings of $150.0 million with next put dates ranging from
April 23, 2002 to February 12, 2003. The weighted average term to maturity for
these putable borrowings is 18 months and the weighted average term to next put
date is 3 months.




Subsidiary ActivitiesGlencrest Investment Advisors, Inc.("Glencrest"),
incorporated in Delaware on January 25, 2002, and commenced operations in April
2002 as a wholly owned subsidiary of the Bancorp. Glencrest will function as a
Registered Investment Advisor. It will be engaged in offering investment and
asset management services to individuals and institutions such as foundations
and endowments, pension plans and charitable organizations.Pomona 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, 2002, PFS had net earnings of
$104,000.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, 2002, PFFFS had net earnings of
$262,000.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,
2002, DSI had minimal activity and a nominal loss.

32

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PersonnelAs of March 31, 2002, the Bank had 508 full-time employees and 116
part-time employees. The employees are not represented by a collective
bargaining unit and the Bank considers its relationship with its employees to be
good. See "Item 11 - Executive Compensation" for a description of
certain compensation and benefit programs offered to the Bank's employees.

Regulation and Supervision

The Bancorp is regulated as a savings and loan holding company by the OTS under
the Home Owners' Loan Act, as amended (the "HOLA"). The Bank, as a
federally chartered savings institution, is also subject to federal regulation
and oversight by the OTS extending to all aspects of its operations. In
addition, the Bank is subject to regulation and examination by the FDIC, which
insures the deposits of the Bank to the maximum extent permitted by law. The
Bancorp is also required to file reports with, and otherwise comply with the
rules and regulations of the Securities and Exchange Commission (the
"SEC") under the federal securities laws.
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 laws and regulations, whether by the OTS, the FDIC, the
Federal Reserve Board (the "FRB"), the SEC or through legislation,
could have a material adverse impact on the Bancorp, the Bank and their
operations and stockholders.
On November 12, 1999, President Clinton signed into law landmark financial
services legislation, titled the Gramm-Leach-Bliley Act ("GLB Act").
The GLB Act repeals depression-era laws restricting affiliations among banks,
securities firms, insurance companies and other financial services providers.
The impact of the GLB Act on the Bancorp and the Bank where relevant, is
discussed throughout the regulation section below.
The following discussion is intended to be a summary of the material statutes
and regulations applicable to savings banks and their holding companies, and it
does not purport to be a comprehensive description of all such statutes and
regulations, and does not purport to be a complete description of their effects
on the Bank and the Bancorp.

33

---

Holding Company RegulationThe Bancorp is a non-diversified unitary savings and loan holding company
within the meaning of the HOLA. As such, the Bancorp is required to register
with and be subject to OTS examination and supervision as well as certain
reporting requirements. In addition, the OTS has enforcement authority over the
Bancorp and any of its non-savings institution subsidiaries. Among other things,
this authority permits the OTS to restrict or prohibit activities that are
determined to be a serious risk to the financial safety, soundness or stability
of a subsidiary savings bank. Unlike bank holding companies, a savings and loan
holding company is not subject to any regulatory capital requirements or to
supervision by the Federal Reserve System.
"Grandfathered" Savings and Loan Holding Company Status.
Because the Bancorp acquired the Bank prior to May 4, 1999, the Bancorp is a
"grandfathered" unitary savings and loan holding company under the GLB
Act. As such, the Bancorp has no restrictions on its business activities,
provided the Bank continues to be a qualified thrift lender ("QTL").
See "Federal Savings Institution Regulation -- QTL Test." If, however,
the Bancorp is acquired by a non-financial company, the Bancorp will terminate
its "grandfathered" unitary savings and loan holding company status,
and become subject to certain limitations on the types of business activities in
which it could engage.
The Bancorp would also terminate its "grandfathered" status 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. Upon such acquisition, 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. In addition, no multiple savings and loan holding company may
acquire more than 5% of the voting stock of a company engaged in impermissible
activities.
The OTS is also 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.Restrictions Applicable to All Savings and Loan Holding Companies.
Federal law prohibits a savings and loan holding company, including the Bancorp,
directly or indirectly, from acquiring:

> 

through merger, consolidation, or purchase of
assets, another savings institution or a holding company thereof, or acquiring
all or substantially all of the assets of such institution (or a holding
company) without prior OTS approval; or

control of any depository institution not
insured by the FDIC (except through a merger with and into the holding company's
savings institution subsidiary that is approved by the OTS).

34

---

A savings and loan holding company may not acquire as a separate
subsidiary an insured institution that has a principal office outside of the
state where the principal office of its subsidiary institution is located,
except:

> in the case of certain emergency
> acquisitions approved by the FDIC;
> if such holding company controls a savings
> institution subsidiary that operated a home or branch office in such additional
> state as of March 5, 1987; or
> if the laws of the state in which the savings
> institution to be acquired is located specifically authorize a savings
> institution chartered by that state to be acquired by a savings institution
> chartered by the state where the acquiring savings institution or savings and
> loan holding company is located or by a holding company that controls such a
> state chartered association.

In addition, if the Bank fails the QTL test, the Bancorp must
register with the FRB as a bank holding company under the Bank Holding Company
Act within one year of the Bank's failure to so qualify.

Federal Savings Institution RegulationBusiness Activities. The activities of federal savings banks 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.Lending and Investment Powers. The Bank derives its lending and
investment powers from the HOLA, and the regulations and policies of the OTS.
Under these laws, regulations and policies, the Bank may invest in mortgage
loans secured by residential and commercial real estate; commercial, community
development, small business and consumer loans; certain types of
government-related debt securities; and certain other assets. The Bank may also
establish service corporations that may engage in activities not otherwise
permissible for the Bank, including certain real estate equity investments and
securities and insurance brokerage. The Bank's authority to invest in certain
types of loans or other investments is limited by federal law. The Bank may also
establish operating subsidiaries that may engage in activities or investments
permissible for federal savings banks.
All lending activities are subject to general safety and soundness limits
against over-concentration of investments in particular types of assets.Loans-to-One-Borrower Limitations. Under HOLA, the Bank is generally
subject to the same limits on loans-to-one borrower as a national bank. With
specified exceptions, the Bank's total loans or extensions of credit to a
single borrower cannot exceed 15% of the Bank's unimpaired capital and surplus
which does not include accumulated other comprehensive income. The Bank may lend
additional amounts up to 10% of its unimpaired capital and surplus, if the loans
or extensions of credit are fully-secured by readily-marketable collateral. The
Bank currently complies with applicable loans-to-one-borrower limitations.QTL Test. Under the HOLA, the Bank must comply with the qualified thrift
lender, or "QTL" test. Under the QTL test, the Bank is required to
maintain at least 65% of its "portfolio assets" in certain
"qualified thrift investments" (primarily residential mortgages and
related investments, including certain mortgage-backed securities) in at least
nine months of the most recent 12-month period. Recent legislation has expanded
the extent to which education loans, credit card loans and small business loans
may be considered "qualified thrift investments." For purposes of the
QTL test, "portfolio assets" means, in general, the Bank's total
assets less the sum of:

> specified liquid assets up to 20% of
> total assets;
> goodwill and other intangible assets; and
> the value of property used to conduct the Bank's
> business.

35

---

The Bank may also satisfy the QTL test by qualifying as a
"domestic building and loan association" as defined in the Internal
Revenue Code of 1986. At March 31, 2002, the Bank met the QTL test, and in each
of the prior 12 months, and, therefore, qualifies as a thrift lender. If the
Bank fails the QTL test, it must either operate under certain restrictions on
its activities or convert to a bank charter.

> Capital Requirements. OTS regulations require the Bank to meet three
> minimum capital standards:
> (1) a tangible capital ratio requirement of 1.5% of total assets, as adjusted
> under the OTS regulations;
> (2) a leverage ratio requirement of 3% of core capital to such adjusted total
> assets, if a savings bank has been assigned the highest composite rating of 1
> under the Uniform Financial Institutions Ratings System; or if a savings bank
> does not have the highest composite rating of 1, a leverage ratio requirement of
> 4% of core capital to the adjusted total assets; and
> (3) a risk-based capital ratio requirement of 8% of core and supplementary
> capital to total risk-weighted assets.

The minimum leverage capital ratio for any other depository institution that
does not have a composite rating of 1 will be 4%, unless a higher leverage
capital ratio is warranted by the particular circumstances or risk profile of
the depository institution. In determining compliance with the risk based
capital requirement, the Bank must compute its risk-weighted assets by
multiplying its assets and certain off-balance sheet items by risk-weights,
which range from 0% for cash and obligations issued by the United States
Government or its agencies to 100% for consumer and commercial loans, as
assigned by the OTS capital regulation based on the risks that the OTS believes
are inherent in the type of asset.
Tangible capital is defined, generally, as common stockholders' equity
(including retained earnings), certain non-cumulative perpetual preferred stock
and related earnings and minority interests in equity accounts of fully
consolidated subsidiaries, less intangibles (other than certain mortgage
servicing rights) and investments in and loans to subsidiaries engaged in
activities not permissible for a national bank. Core capital is defined
similarly to tangible capital, but core capital also includes certain qualifying
supervisory goodwill and certain purchased credit card relationships.
Supplementary capital currently includes cumulative and other perpetual
preferred stock, mandatory convertible securities, subordinated debt and
intermediate preferred stock and the allowance for loan and lease losses. In
addition, up to 45% of unrealized gains on available-for-sale equity securities
with a readily determinable fair value may be included in supplementary capital.
The allowance for loan and lease losses includable in supplementary capital is
limited to a maximum of 1.25% of risk-weighted assets, and the amount of
supplementary capital that may be included as total capital cannot exceed the
amount of core capital.
The following table presents the Bank's capital position at March 31, 2002.

Actual
    Required
    Excess
    Actual
      Percentage
    Required
      Percentage(Dollars in thousands)Tangible
    $ 260,771
    45,343
    215,428
    8.63%
    1.50Core (Leverage)
    260,771
    120,914
    139,857
    8.63
    4.00Risk-based
    288,757
    179,514
    109,243
    12.87
    8.00


As the foregoing table indicates, at March 31, 2002, the Bank met each of its
capital requirements.

36

---

Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"),
as implemented by OTS regulations, the Bank has a continuing and affirmative
obligation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for the Bank nor does it limit its discretion to
develop the types of products and services that it believes are best suited to
its particular community, consistent with the CRA. The CRA requires the OTS, in
connection with its examination of the Bank, to assess the Bank's record of
meeting the credit needs of its community and to take the record into account in
its evaluation of certain applications by the Bank. The CRA also requires all
institutions to make public disclosure of their CRA ratings. The Bank received a
"satisfactory" CRA rating in its most recent examination.
CRA regulations rate an institution based on its actual performance in meeting
community needs. In particular, the system focuses on three tests:

> 

Transactions
with Related Parties.The Bank's authority to engage in transactions with its "affiliates"
is limited by OTS regulations and by Sections 23A and 23B of the Federal Reserve
Act (the "FRA"). In general, these transactions must be on terms which
are as favorable to the Bank as comparable transactions with non-affiliates. In
addition, certain types of these transactions are restricted to an aggregate
percentage of the Bank's capital. Collateral in specified amounts must usually
be provided by affiliates in order to receive loans from the Bank. In addition,
the OTS regulations prohibit a savings bank from lending to any of its
affiliates that are engaged in activities that are not permissible for bank
holding companies and from purchasing the securities of any affiliate, other
than a subsidiary.
The Bank's authority to extend credit to directors, executive officers and 10%
shareholders of the Bank and the Bancorp, as well as to entities controlled by
such persons, is currently governed by the requirements of Sections 22(g) and
22(h) of the FRA and Regulation O of the Federal Reserve Board. Among other
things, these provisions require that extensions of credit to insiders (a) be
made on terms that are substantially the same as, and follow credit underwriting
procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the
normal risk of repayment or present other unfavorable features and (b) not
exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of the Bank's capital. In addition, extensions of credit in excess of
certain limits must be approved by the Bank's Board of Directors.Enforcement. The OTS has primary enforcement responsibility over savings
banks, including the Bank. This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue cease and desist
orders and to remove directors and officers. In general, these enforcement
actions may be initiated in response to violations of laws and regulations and
to unsafe or unsound practices. The FDIC also has the authority to recommend to
the OTS that enforcement action be taken with respect to a particular savings
institution. If action is not taken 
 by the OTS, the FDIC may take action under
certain circumstances.Standards For Safety And Soundness. Under federal law, the OTS has
adopted, a set of guidelines prescribing safety and soundness standards. These
guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, asset quality, earnings
standards, and compensation, fees and benefits. In general, the guidelines
require appropriate systems and practices to identify and manage the risks and
exposures specified in the guidelines.

37

---

In addition, the OTS adopted regulations that authorize, but do not require, the
OTS to order an institution that has been given notice that it is not satisfying
these safety and soundness standards to submit a compliance plan. If, after
being notified, an institution fails to submit an acceptable plan or fails in
any material respect to implement an accepted plan, the OTS must issue an order
directing action to correct the deficiency and may issue an order directing
other actions of the types to which an undercapitalized association is subject
under the "prompt corrective action" provisions of federal law. If an
institution fails to comply with such an order, the OTS may seek to enforce such
order in judicial proceedings and to impose civil money penalties.Limitation on Capital Distributions. The OTS imposes various restrictions
or requirements on the Bank's ability to make capital distributions, including
cash dividends. A savings institution that is the subsidiary of a savings and
loan holding company must file an application or a notice with the OTS at least
30 days before making a capital distribution. The Bank must file an application
for prior approval if the total amount of its capital distributions, including
the proposed distribution, for the applicable calendar year would exceed an
amount equal to the Bank's net income for that year plus the Bank's retained
net income for the previous two years. However, a savings bank subsidiary of a
savings and loan holding company, such as the Bank, will continue to have to
file a notice, unless the specific capital distribution requires an application.

> The OTS may disapprove of a notice or application if:the
> Bank would be undercapitalized following the distribution; the proposed capital distribution raises safety
> and soundness concerns; or the capital distribution would violate a
> prohibition contained in any statute, regulation or agreement between the Bank
> and the
>  OTS or the FDIC, or a condition imposed on the Bank in an OTS-approved
> application or notice.

Liquidity.The Bank is required to maintain a sufficient amount of liquid assets to ensure
its safe and sound operation.Prompt Corrective Action Regulations. Under the OTS prompt corrective
action regulations, the OTS is required to take certain, and is authorized to
take other, supervisory actions against undercapitalized savings banks. For this
purpose, a savings bank would be placed in one of the following four categories
based on the association's capital:

> well
> capitalized; adequately capitalized; undercapitalized; and critically undercapitalized.

At March 31,
2002, the Bank met the criteria for being considered
"well-capitalized."

When appropriate, the OTS can require corrective action by a savings bank under
the "prompt corrective action" provisions of federal law.Insurance of Deposit Accounts. The Bank is a member of the SAIF and the
Bank pays its deposit insurance assessments to the SAIF. The FDIC also maintains
another insurance fund, the Bank Insurance Fund, which primarily insures the
deposits of banks and state chartered savings banks.
Under federal law, the FDIC established a risk based assessment system for
determining the deposit insurance assessments to be paid by insured depository
institutions. Under the assessment system, the FDIC assigns an institution to
one of three capital categories based on the institution's financial
information as of the quarter ending three months before the beginning of the
assessment period. An institution's assessment rate depends on the capital
category and supervisory category to which it is assigned. Under the regulation,
there are nine assessment risk classifications (i.e., combinations of capital
groups and supervisory subgroups) to which different assessment rates are
applied. Assessment rates currently range from 0.0% of deposits for an
institution in the highest category (i.e., well-capitalized and financially
sound, with no more than a few minor weaknesses) to 0.27% of deposits for an
institution in the lowest category (i.e., undercapitalized and substantial
supervisory concern). The FDIC is authorized to raise the assessment rates as
necessary to maintain the required reserve ratio of 1.25%.

38

---

In addition, all FDIC insured institutions are required to pay assessments to
the FDIC at an annual rate of approximately .0212% of insured deposits to fund
interest payment on bonds issued by the Financing Corporation, an agency of the
federal government established to recapitalize the predecessor to the SAIF.
These assessments will continue until the Financing Corporation bonds mature in
2017.
The Bank's assessment rate for fiscal 2002 ranged from 1.8 to 1.9 basis points
and the premium paid for this period was $368,000 all of which was paid towards
the Financing Corporation 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 federal law, 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.Federal Home Loan Bank System. The Bank is a member of the Federal Home
Loan Bank (the "FHLB") of San Francisco, which is one of the regional
FHLBs making up the FHLB System. Each FHLB provides a central credit facility
primarily for its member institutions. The Bank is required to acquire and hold
shares of capital stock in the FHLB of San Francisco in an amount equal to the
greater of 1% of the aggregate principal amount of its unpaid residential
mortgage loans, home-purchase contracts and similar obligations, but not less
than $500 or 5% of outstanding advances. The Bank was in compliance with this
requirement with an investment in the capital stock of the FHLB of San Francisco
at March 31, 2002, of $35.1 million. Any advances from a FHLB must be secured by
specified types of collateral, and all long term advances may be obtained only
for the purpose of providing funds for residential housing finance.
FHLBs are required to provide funds for the resolution of insolvent thrifts and
to contribute funds for affordable housing programs. These requirements could
reduce the amount of earnings that the FHLBs can pay as dividends to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future FHLB
advances increased, the Bank's net interest income would be affected.
Under the GLB Act, membership in the FHLB System is now voluntary for all
federally-chartered savings bank, such as the Bank. The GLB Act also replaces
the existing redeemable stock structure of the FHLB System with a capital
structure that requires each FHLB to meet a leverage limit and a risk-based
permanent capital requirement.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, 2002 totaled $458,000.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.

39

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Prohibitions Against Tying Arrangements. Federal savings banks are
subject to the prohibitions of 12 U.S.C. section 1972 on certain tying arrangements.
A depository institution is prohibited, subject to some exceptions, from
extending credit to or offering any other service, or fixing or varying the
consideration for such extension of credit or service, on the condition that the
customer obtain some additional service from the institution or its affiliates
or not obtain services of a competitor of the institution.Privacy Standards. Effective July 1, 2001, financial institutions,
including the Bancorp and the Bank, became subject to FDIC regulations
implementing the privacy protection provisions of the GLB Act. These regulations
require financial institutions to disclose their privacy policy, including
identifying with whom they share "non-public personal information," to
customers at the time of establishing the customer relationship and annually
thereafter.Trust Activities Regulation. The Bank derives its trust activity powers
from Section 5 of the HOLA and the regulations and policies of the OTS. Under
these laws, regulations and policies, the trust activities of federal savings
banks are governed by both federal laws and state laws. Generally, the scope of
trust activities that the Bank can provide will be governed by the laws of the
states in which the Bank is "located" (as such term is defined under
the regulations of the OTS), while the operations of the Bank are governed by
federal laws and regulations. If the trust activities of a federal savings bank
are located in more than one state, however, then the scope of fiduciary
services the federal savings bank can provide will vary depending on the law of
each state.
The Bank through its trust department acts as trustee, executor, administrator,
guardian, custodian, record keeper, agent, registrar, advisor and manager for
various accounts. As of March 31, 2002, the trust department of the Bank
maintained approximately $251.6 million in assets under management.Federal Reserve SystemUnder
regulations of the FRB, the Bank is required to maintain non-interest-earning
reserves against its transaction accounts. FRB regulations generally require
that reserves of 3% must be maintained against aggregate transaction accounts of
$42.8 million or less, subject to adjustment by FRB, and an initial reserve of
$1.3 million plus 10%, subject to adjustment by FRB between 8% and 14%, against
that portion of total transaction accounts in excess of $42.8 million. The first
$5.5 million of otherwise reservable balances, subject to adjustments by FRB,
are exempted from the reserve requirements. The Bank is in compliance with these
requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest-bearing account at an Federal Reserve bank or a
pass-through account as defined by FRB, the effect of this reserve requirement
is to reduce the Bank's interest-earning assets, to the extent the requirement
exceeds vault cash.Federal Securities LawThe Bancorp's
common stock is registered with the SEC under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Bancorp is
subject to information, proxy solicitation, insider trading restrictions, and
other requirements under the Exchange Act.

40

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Other Federal Regulation
In response to the events of September 11th, President George W. Bush
signed into law the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA
PATRIOT Act, on October 26, 2001. The USA PATRIOT Act gives the federal
government new powers to address terrorist threats through enhanced domestic
security measures, expanded surveillance powers, increased information sharing,
and broadened anti-money laundering requirements. By way of amendments to the
Bank Secrecy Act, Title III of the USA PATRIOT Act takes measures intended to
encourage information sharing among bank regulatory agencies and law enforcement
bodies. Further, certain provisions of Title III impose affirmative obligations
on a broad range of financial institutions, including banks, thrifts, brokers,
dealers, credit unions, money transfer agents and parties registered under the
Commodity Exchange Act.
Among other requirements, Title III of the USA PATRIOT Act imposes the following
requirements with respect to financial institutions:

> Pursuant to Section 352, all financial institutions must establish
> anti-money laundering programs that include, at minimum: (i) internal policies,
> procedures, and controls, (ii) specific designation of an anti-money laundering
> compliance officer, (iii) ongoing employee training programs, and (iv) an
> independent audit function to test the anti-money laundering program.
>     Section 326 of the Act authorizes the Secretary of the Department of Treasury,
> in conjunction with other bank regulators, to issue regulations by October 26,
> 2002 that provide for minimum standards with respect to customer identification
> at the time new accounts are opened.
>     Section 312 of the Act requires financial institutions that establish, maintain,
> administer, or manage private banking accounts or correspondent accounts in the
> United States for non-United States persons or their representatives (including
> foreign individuals visiting the United States) to establish appropriate,
> specific, and, where necessary, enhanced due diligence policies, procedures, and
> controls designed to detect and report money laundering.
>     Effective December 25, 2001, financial institutions are prohibited from
> establishing, maintaining, administering or managing correspondent accounts for
> foreign shell banks (foreign banks that do not have a physical presence in any
> country), and will be subject to certain recordkeeping obligations with respect
> to correspondent accounts of foreign banks.
>     Bank regulators are directed to consider a holding company's effectiveness in
> combating money laundering when ruling on Federal Reserve Act and Bank Merger
> Act applications.

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 1998 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, 2002) 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.

41

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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.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 TaxationState 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, 2002, 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.

42

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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, 2002, the net book value of owned real estate including the
branch located on leased land totaled $15.5 million. The net book value of
leased offices was $1.9 million. The net book value of furniture, fixtures and
electronic data processing equipment was $4.1 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.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The common stock of PFF Bancorp, Inc. is traded on the New York Stock Exchange
under the symbol "PFB." 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, 2002, there were
approximately 4,427 holders of the common stock of the Company, which includes
the approximate number of shares held in street name.

|                          | High    | Low   | Closing
|------------------------- | ------- | ----- | -------
|                          |         |       |        
|Year Ended March 31, 2002 |         |       |        
|First Quarter             | $ 25.13 | 19.25 | 25.00  
|Second Quarter            | 28.85   | 22.90 | 27.50  
|Third Quarter             | 28.00   | 22.50 | 27.70  
|Fourth Quarter            | 31.64   | 25.65 | 31.20  
|                          |         |       |        
|Year Ended March 31, 2001 |         |       |        
|First Quarter             | $ 18.25 | 12.25 | 18.25  
|Second Quarter            | 22.50   | 16.63 | 21.75  
|Third Quarter             | 23.75   | 15.75 | 20.88  
|Fourth Quarter            | 25.00   | 19.25 | 22.94  

43

---

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, 2002 was as follows:

|                   |                    | Amount   
|------------------ | ------------------ | ---------
|Record Date        | Payment Date       | Per share
|June 15, 2001      | June 29, 2001      | $.06     
|September 15, 2001 | September 27, 2001 | $.06     
|December 14, 2001  | December 28, 2001  | $.08     
|March 15, 2002     | March 29, 2002     | $.08     

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

44

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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,          
|------------------------------------------------------------ | ----------------------
|                                                             | 2002                  
|                                                             | (Dollars in thousands)
|                                                             |                       
|Selected Balance Sheet Data:                                 |                       
|                                                             |                       
|Total assets                                                 | $3,042,932            
|Investment securities held-to-
      maturity                | 703                   
|Investment securities available-for-
      sale              | 93,820                
|Mortgage-backed securities held-
      to-maturity           | -                     
|Mortgage-backed securities
      available-for-sale          | 196,580               
|Collateralized mortgage obligations
      available-for-sale | 62,778                
|Trading securities                                           | 2,334                 
|Investment in real estate                                    | -                     
|Loans held for sale                                          | 106                   
|Loans receivable, net(1)                                     | 2,494,667             
|Deposits                                                     | 2,168,964             
|FHLB advances and other
      borrowings                     | 558,000               
|Stockholders' equity, substantially
      restricted         | 284,077               
|                                                             |                       

45

---



For the Year Ended March 31,2002
    2001
    2000
    1999
    1998(Dollars in thousands, except per share amounts)Selected Operating Data:Interest income
    $ 215,731
    239,949
    214,952
    206,579
    191,284Interest expense
    104,624
    143,471
    126,539
    130,356
    118,517Net interest income
    111,107
    96,478
    88,413
    76,223
    72,767Provision for loan losses
    5,000
    5,004
    4,000
    4,020
    7,099Net interest income after provision for loan losses
  106,107
    91,474
    84,413
    72,203
    65,668Non-interest income
    17,043
    14,319
    17,628
    15,924
    14,364Non-interest expense:General and administrative expense
  62,127
    57,066
    55,506
    54,960
    51,560Foreclosed real estate operations, net
  (102)
    (324)
    (278)
    (45)
    473Total non-interest expense
    62,025
    56,742
    55,228
    54,915
    52,033Earnings before income taxes
    61,125
    49,051
    46,813
    33,212
    27,999Income taxes
    25,761
    20,791
    20,215
    14,208
    12,019Net earnings
    $ 35,364
    28,260
    26,598
    19,004
    15,980Basic earnings per share
    $ 3.01
    2.42
    2.20
    1.37
    1.00Diluted earnings per share
    $ 2.69
    2.20
    2.02
    1.29
    0.95(continued on next page)


46

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At or for the Year Ended March 31,2002
    2001
    2000
    1999
    1998(Dollars in thousands)Performance Ratios (2):Return on average assets
  1.19%
    0.95
    0.90
    0.64
    0.60Return on average equity
    12.80
    11.81
    11.91
    7.92
    6.07Average equity to average assets
  9.28
    8.04
    7.54
    8.08
    9.87Equity to total assets at end of period
  9.34
    8.94
    7.31
    8.27
    9.04Net interest spread (3)
    3.51
    2.93
    2.81
    2.46
    2.40Effective interest spread (4)
    3.83
    3.31
    3.09
    2.70
    2.82Average interest-earning assets to average interest-bearing liabilities
    108.91
    107.72
    106.22
    105.16
    108.98Efficiency ratio (5)
    48.48
    51.51
    52.34
    59.64
    59.18General and administrative
      expense to average assets
    2.09
    1.92
    1.87
    1.85
    1.93Regulatory Capital Ratios (2)(6):Tangible capital
    8.63
    8.28
    6.77
    6.95
    7.10Core capital
    8.63
    8.28
    6.77
    6.95
    7.10Risk-based capital
    12.87
    12.72
    11.00
    12.52
    14.17Asset Quality Ratios (2):Non-performing loans as a percent of gross loans receivable (7)
  0.16
    0.45
    0.21
    0.50
    0.88Non-performing assets as a percent of total assets (7)
  0.16
    0.41
    0.23
    0.56
    0.88Allowance for loan losses as a percent of gross loans receivable
    1.11
    1.22
    1.09
    1.18
    1.33Allowance for loan losses as a percent of non-performing loans (7)
  697.80
    270.20
    512.96
    237.56
    151.27Number of full-service customer facilities
    24
    24
    23
    24
    23Loan originations
    $1,433,821
    1,049,535
    1,268,324
    987,604
    557,428(1) The allowances for loan losses at March 31, 2002, 2001, 2000, 1999, and 1998
were $31.4 million $31.0 million, $27.8 million, $26.2 million, and $26.0
million, respectively.
(2) Asset Quality Ratios and Regulatory Capital Ratios are end of period ratios.
Performance Ratios are based on average daily balances during the indicated
periods.
(3) Net interest spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities. Effective interest spread represents net interest income as a percent of average
interest-earning assets. Efficiency ratio represents general and administrative expense as a percent of
net interest income plus non-interest income.
(6) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation - Federal Savings Institution
Regulation - Capital Requirements."
(7) 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."


47

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

48

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|                                                                                                                                                                                                                                                                                                                                                              | March 31, 2002        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------
|                                                                                                                                                                                                                                                                                                                                                              | 3 Months
      or Less
|                                                                                                                                                                                                                                                                                                                                                              | (Dollars in thousands)
|Interest-earning assets:                                                                                                                                                                                                                                                                                                                                      |                       
|Cash, investment securities, collateralized mortgage obligations and FHLB stock (1)                                                                                                                                                                                                                                                                           | $ 211,224             
|Loans and mortgage-backed
      securities: (1)                                                                                                                                                                                                                                                                                                               |                       
|Mortgage-backed securities                                                                                                                                                                                                                                                                                                                                    | 29,011                
|Loans receivable, net                                                                                                                                                                                                                                                                                                                                         | 1,179,865             
|Total loans and mortgage-backed
      securities                                                                                                                                                                                                                                                                                                              | 1,208,876             
|Total interest-earning assets                                                                                                                                                                                                                                                                                                                                 | 1,420,100             
|Non-interest earning assets                                                                                                                                                                                                                                                                                                                                   | -                     
|Total assets                                                                                                                                                                                                                                                                                                                                                  | $ 1,420,100           
|                                                                                                                                                                                                                                                                                                                                                              |                       
|Interest-bearing liabilities:                                                                                                                                                                                                                                                                                                                                 |                       
|Fixed maturity deposits                                                                                                                                                                                                                                                                                                                                       | $ 495,485             
|Core deposits (2)                                                                                                                                                                                                                                                                                                                                             | 271,401               
|Total deposits                                                                                                                                                                                                                                                                                                                                                | 766,886               
|Borrowings (3)                                                                                                                                                                                                                                                                                                                                                | 200,000               
|Total interest-bearing liabilities                                                                                                                                                                                                                                                                                                                            | 966,886               
|Non-interest bearing liabilities                                                                                                                                                                                                                                                                                                                              | -                     
|Equity                                                                                                                                                                                                                                                                                                                                                        | -                     
|Total liabilities and stockholders'
      equity                                                                                                                                                                                                                                                                                                              | $ 966,886             
|Interest sensitivity gap                                                                                                                                                                                                                                                                                                                                      | $ 453,214             
|Cumulative interest sensitivity gap                                                                                                                                                                                                                                                                                                                           | 453,214               
|Cumulative interest sensitivity gap as a
      percentage of total assets                                                                                                                                                                                                                                                                                     | 14.89%                
|Cumulative interest-earning assets as a
      percentage of cumulative interest-
      bearing liabilities                                                                                                                                                                                                                                                    | 146.87                
|(1)Based upon
      contractual maturities, repricing date and forecasted principal payments
      assuming normal amortization and, where applicable prepayments.
      (2)Assumes 100% of rate paying core deposits are subject to repricing in
      year one.
      (3)Putable borrowings are presented based upon their contractual maturity
      date.

49

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The Company's one year GAP at March 31, 2002, was negative 9.95% (i.e.,
more interest bearing liabilities reprice within one year than interest-earning
assets); this compares with negative 10.08% at March 31, 2001.
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, 2002 and 2001. 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, 2002                                                                                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                            
|Change in Interest Rates
      (in basis points)                                                                                                                                                                            
|200                                                                                                                                                                                                                         
|100                                                                                                                                                                                                                         
|(100)                                                                                                                                                                                                                       
|(1)  This percentage change represents the impact
      to net interest income for the period from April 1, 2002 through March 31,
      2003 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 remain relatively stable
under modest rate shocks in either direction.
The substantial reductions in the indices, particularly Prime, to which many of
the Company's adjustable rate loans are tied, has resulted in many of the
Company's most rate sensitive assets falling below rate floors. For yields on
these assets to benefit from rate movements, rates would need to increase by
more than 100 basis points. The rate reductions during fiscal 2002 also
accelerated ARM loan prepayments throughout the year. The Company replenished
its one-to-four family residential mortgage portfolio primarily with new
originations and purchases of 3/1 and 5/1 hybrid loans that are not expected to
experience significant prepayment activity or rate adjustments during the next
twelve months.
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,
2002, the Bank's sensitivity measure, as calculated by the OTS, was a negative
1.39%. This represents a decrease in sensitivity of 41 basis points from the
March 31, 2001 results.

50

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Average Balance SheetsThe following table sets forth certain information
relating to the Company for the years ended March 31, 2002, 2001 and 2000. 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,  
|----------------------------------------------------------------------- | ----------------------
|                                                                        | 2002                  
|                                                                        | Average
      Balance 
|                                                                        | (Dollars in thousands)
|Assets:                                                                 |                       
|Interest-earning assets:                                                |                       
|Interest-earning deposits and short-term investments                    | $ 55,504              
|Investment securities, net                                              | 94,802                
|Mortgage-backed securities, net                                         | 246,814               
|Collateralized mortgage obligations, net                                | 72,486                
|Loans receivable, net                                                   | 2,393,264             
|FHLB stock                                                              | 36,039                
|Total interest-earning assets                                           | 2,898,909             
|Non-interest-earning assets                                             | 77,542                
|Total assets                                                            | $2,976,451            
|                                                                        |                       
|Liabilities and Stockholders' Equity:                                   |                       
|Interest-bearing liabilities:                                           |                       
|Passbook accounts                                                       | $ 124,855             
|Money market savings accounts                                           | 446,821               
|NOW and other demand deposit accounts                                   | 317,163               
|Certificate accounts                                                    | 1,173,249             
|Total                                                                   | 2,062,088             
|FHLB advances and other borrowings                                      | 599,749               
|Total interest-bearing liabilities                                      | 2,661,837             
|Non-interest-bearing liabilities                                        | 38,275                
|Total liabilities                                                       | 2,700,112             
|Stockholders' equity                                                    | 276,339               
|Total liabilities and stockholders' equity                              | $2,976,451            
|Net interest income                                                     |                       
|Net interest spread                                                     |                       
|Effective interest spread                                               |                       
|Ratio of interest-earning assets to interest-
      bearing liabilities | 108.91%               

51

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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, 2002
      Compared to
      Year Ended March 31, 2001 | Year Ended March 31, 2001
      Compared to
      Year Ended March 31, 2000
|---------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------------------------------------
|                                                     | Increase (Decrease)
      Due to                                            | Increase (Decrease)
      Due to                                           
|                                                     | Volume                                                                      | Rate                                                                       
|                                                     | (Dollars in thousands)                                                     
|                                                     |                                                                             |                                                                            
|Interest-earning assets:                             |                                                                             |                                                                            
|Interest-earning deposits and short-term investments | $ 1,374                                                                     | (1,189)                                                                    
|Investment securities, net                           | 471                                                                         | (1,502)                                                                    
|Mortgage-backed securities, net                      | (6,054)                                                                     | (832)                                                                      
|Collateralized mortgage obligations, net             | (1,021)                                                                     | (2,567)                                                                    
|Loans receivable, net                                | 5,957                                                                       | (16,945)                                                                   
|FHLB stock                                           | (736)                                                                       | (624)                                                                      
|Total interest-earning assets                        | (9)                                                                         | (23,659)                                                                   
|                                                     |                                                                             |                                                                            
|Interest-bearing liabilities:                        |                                                                             |                                                                            
|Passbook accounts                                    | (88)                                                                        | (1,060)                                                                    
|Money market savings accounts                        | 2,945                                                                       | (6,641)                                                                    
|NOW and other demand deposit accounts                | 640                                                                         | 226                                                                        
|Certificate accounts                                 | (332)                                                                       | (13,749)                                                                   
|FHLB advances and other borrowings                   | (10,955)                                                                    | (11,543)                                                                   
|Total interest-bearing liabilities                   | (7,790)                                                                     | (32,767)                                                                   
|Change in net interest income                        | $ 7,781                                                                     | 9,108                                                                      

52

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Comparison of Operating Results for the Years Ended March 31,
2002 and March 31, 2001

53

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Interest
Expense
Interest expense decreased $38.8 million from $143.5 million for fiscal 2001 to
$104.6 million for fiscal 2002. The decrease was attributable principally to a
137 basis point decrease in the average cost of interest-bearing liabilities
from 5.30% for fiscal 2001 to 3.93% for fiscal 2002.
The average cost of deposits decreased 122 basis points from 4.91% for fiscal
2001 to 3.69% for fiscal 2002. The average cost of CDs decreased 117 basis
points from 6.07% for fiscal 2001 to 4.90% for fiscal 2002 and the average cost
of core deposits decreased 102 basis points from 3.10% for fiscal 2001 to 2.08%
for fiscal 2002. Contributing to the decrease in the average cost of deposits
was an increase in the proportion of the portfolio comprised by core deposits.
The average balance of core deposits grew by $134.8 million from $754.0 million
for fiscal 2001 to $888.8 million for fiscal 2002. At March 31, 2002, core
deposits totaled $1.08 billion or 50 percent of total deposits compared to
$803.9 million or 40 percent of total deposits one year earlier. The average
cost of FHLB advances and other borrowings decreased from 6.26% for fiscal 2001
to 4.77% for fiscal 2002.
Average interest-bearing liabilities decreased $45.6 million from $2.71 billion
for fiscal 2001 to $2.66 billion for fiscal 2002. The decrease in average
interest-bearing liabilities was attributable to a $175.0 million decrease in
the average balance of FHLB advances and other borrowings from $774.8 million
for fiscal 2001 to $599.7 million for fiscal 2002. The average balance of total
deposits increased $129.4 million from $1.93 billion for fiscal 2001 to $2.06
billion for fiscal 2002.Provision for Loan Losses
Provision for loan losses was $5.0 million for fiscal 2001 and 2002. Non-accrual
loans were $4.5 million or 0.16% of gross loans receivable at March 31, 2002
compared to $11.5 million or 0.45% of gross loans receivable at March 31, 2001.
Non-accrual loans at March 31, 2001 included a $3.0 million loan on the 296
residential home development in Castaic, California. During fiscal 2001, this
$3.0 million loan was determined to be impaired and an allowance for loss was
established for the full amount of the loan. During fiscal 2002, this loan was
charged off, reducing total non-accrual loans and the total allowance for loan
losses by $3.0 million. As a result, the allowance for loan losses was little
changed between March 31, 2001 ($31.0 million) and March 31, 2002 ($31.4
million).
Growth in the loan portfolio reduced the ratio of allowance for loan losses to
gross loans receivable from 1.22% at March 31, 2001 to 1.11% at March 31, 2002.
Had the $3.0 million Castaic loan been charged off at March 31, 2001, it would
have reduced the ratio of allowance for loan losses to gross loans at that time
to 1.10%, a level that would have been very comparable to the March 31, 2002
ratio of 1.11%.
In determining the adequacy of the allowance for loan losses, consideration is
given to levels and trends in the following factors: 1) the volume and
composition of non-accrual loans; 2) the volume, severity and composition of
classified assets; 3) changes in the composition of the loan portfolio by type
and by collateral. Each of these factors is discussed more fully below.
Between March 31, 2001 and 2002, the volume of non-accrual loans decreased by
$7.0 million (including the $3.0 million reduction attributable to the charging
off of the Castaic loan). The $4.5 million of non-accrual loans at March 31,
2002 includes $3.0 million of loans secured by one-to-four family residential
mortgages and $1.4 million of Four-Cs loans.

54

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Total
classified assets increased from $62.1 million at March 31, 2001 to $74.9
million at March 31, 2002. The March 31, 2002 balance includes a loan in the
amount of $18.2 million to a business equipment leasing company. This loan was
discussed more fully under "Lending Activities-Delinquencies and Classified
Assets." Total classified assets at March 31, 2001 and 2002 also include
loans on the Castaic project aggregating $39.0 million and $29.7 million,
respectively.
Between March 31, 2001 and 2002, the disbursed balance of the Four-Cs increased
by $158.8 million. This increased the proportion of loans receivable, net
comprised by the Four-Cs from 39 percent to 42 percent. It also contributed to
an increase in the Company's average loan size from $130,000 at March 31, 2001
to $155,000 at March 31, 2002. For a discussion of the larger credits under each
loan type, see "Lending Activities."
While the level of non-accrual loans decreased between March 31, 2001 and 2002,
the allowance for loan losses was maintained at its current level based upon the
following: 1) the increase in the level and individual credit exposure of
classified assets; 2) the shift in the composition of the loan portfolio away
from one to four family residential mortgages to the Four-Cs.Non-Interest Income
Non-interest income increased from $14.3 million for fiscal 2001 to $17.0
million for fiscal 2002. Deposit and related fees were $9.4 million for fiscal
2002 compared to $9.0 million for fiscal 2001. The increase in deposit and
related fees reflects the additional fee opportunities associated with the
growth in core deposits. Trust fees were $2.1 million for fiscal 2002 compared
to $1.8 million for fiscal 2001. Assets under management or custody increased
from $239.3 million at March 31, 2001 to $251.6 million at March 31, 2002. Trust
fees for fiscal 2001 are net of a $291,000 non-recurring downward adjustment of
fees. Loan and servicing fees increased from $3.9 million for fiscal 2001 to
$5.0 million for fiscal 2002 due principally to the much higher volume of loan
payoff activity noted earlier. The net loss from trading activity was $107,000
for fiscal 2002 compared to $1.5 million for fiscal 2001. The reduction in net
loss from trading activities between fiscal 2001 and 2002 was due, in part, to
the direction and magnitude of changes in the equity markets. The better
performance during fiscal 2002 was also attributable to a change in personnel
and portfolio management philosophy.Non-Interest Expense
Non-interest expense increased from $56.7 million for fiscal 2001 to $62.0
million for fiscal 2002. General and administrative expense increased $5.1
million from $57.1 million or 1.92% of average assets for fiscal 2001 to $62.1
million or 2.09% of average assets for fiscal 2002. Compensation and benefits
accounted for $4.0 million of the increase in general and administrative
expense. A portion of the increase in compensation and benefits expense from
$30.3 million for fiscal 2001 to $34.3 million for fiscal 2002 reflects the
hiring of experienced personnel to generate and support the higher volumes of
Four-Cs and core deposits. The improvement in the efficiency ratio from 51.51%
for fiscal 2001 to 48.48% for fiscal 2002 reflects the positive relationships
being achieved between revenue growth and the costs associated with properly
supporting that growth. Included in compensation and benefits expense for fiscal
2002 and fiscal 2001, respectively are non-cash charges of $5.7 million and $5.8
million associated with the Bank's ESOP and 1996 Incentive Plan. The stock
awarded under the 1996 Incentive Plan vested over a five-year period ending
October 2001. Accordingly, the non-cash charge to expense associated with the
1996 Incentive Plan will decrease from the $1.4 million that was recorded during
fiscal 2002 to zero for fiscal 2003. The allocation of shares under the Bank's
ESOP will continue in generally equal installments through fiscal 2006. The
amount charged to expense under the ESOP will move upward or downward with
changes in the market price of the Company's common stock. ESOP expense for
fiscal 2002 was $4.3 million.

55

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Also
contributing to the increase in compensation and benefits expense was a decrease
in pension income from $979,000 for fiscal 2001 to $317,000 for fiscal 2002
applicable to the Bank's frozen defined benefit pension plan (the
"Plan"). The decrease in pension income reflects a significant
reduction in the value of Plan assets, the majority of which had been invested
in equity securities. As of March 31, 2002, the market value of Plan assets was
$19.5 million, compared to $23.8 million at March 31, 2001. As of March 31,
2002, the projected Plan benefit obligation was $21.2 million compared to $19.9
million at March 31, 2001. As a result, included in accumulated other
comprehensive loss as of March 31, 2002 is $5.1 million applicable to the March
31, 2002 shortfall between Plan assets and liabilities. The Company has moved a
substantial portion of Plan assets into fixed income investments under an
investment immunization program. This strategy is expected to significantly
reduce the future earnings and asset/liability value mismatch volatility arising
from the Plan.
The increase in marketing and professional services expense from $6.3 million
for fiscal 2001 to $7.0 million for fiscal 2002 was attributable, in part, to an
increase in expenditures associated with increased marketing efforts directed
toward the Hispanic segments of the communities served by the Bank. Hispanic
marketing expenditures for fiscal 2002 and 2001 were $906,000 and $707,000,
respectively.
Approximately $599,000 of the increase in general and administrative expense
between fiscal 2001 and 2002 was attributable to the Bank's opening of its
twenty-fourth full service branch in La Quinta, California in February 2001. The
Bank expects to continue to expand its retail delivery network through de novo
branching with at least two new branches expected to be opened during fiscal
2003.Income Taxes
Income Taxes were $25.8 million for fiscal 2002 compared to $20.8 million for
fiscal 2001. The effective income tax rate was 42.1% for fiscal 2002 compared to
42.4% for fiscal 2001.Comparison of Financial Condition at March 31, 2002 and March 31, 2001
Total assets increased $156.5 million from $2.89 billion at March 31, 2001 to
$3.04 billion at March 31, 2002. Reflecting the Company's strategy of
increasing the loan orientation of its asset base, loans receivable, net
increased $209.4 million from $2.29 billion at March 31, 2001 to $2.49 billion
at March 31, 2002, while securities decreased $91.2 million from $445.1 million
at March 31, 2001 to $353.9 million at March 2002. Cash and cash equivalents
increased $54.4 million from $51.5 million at March 31, 2001 to $106.0 million
at March 31, 2002 as a result of very strong deposit inflows during fiscal 2002,
particularly during the quarter ended March 31, 2002.
Total liabilities increased $130.4 million from $2.63 billion March 31, 2001 to
$2.76 billion at March 31, 2002. Total deposits increased $147.7 million from
$2.02 billion at March 31, 2001 to $2.17 billion at March 31, 2002. The Bank's
emphasis on growing the lower cost, more stable segments of its deposit
portfolio is reflected in a core deposit increase of $280.5 million from $803.9
million or 40 percent of total deposits at March 31, 2001 to $1.08 billion or 50
percent of total deposits at March 31, 2002. FHLB advances decreased $17.0
million from $575.0 million at March 31, 2001 to $558.0 million at March 31,
2002.
Total stockholders' equity increased $26.1 million from $258.0 million at
March 31, 2001 to $284.1 million at March 31, 2002. The $26.1 million increase
is comprised principally of a $23.4 million increase in retained earnings,
substantially restricted, a $3.6 million increase in additional paid-in-capital,
a $3.2 million decrease in unearned stock-based compensation and a $4.2 million
increase in accumulated other comprehensive loss.
The $23.4 million increase in retained earnings, substantially restricted
reflects net earnings of $35.4 million for fiscal 2002 partially offset by: 1)
$8.4 million attributable to the amount paid to repurchase 510,100 shares of
common stock in excess of the original issuance price of the stock. The 510,100
shares of common stock were repurchased at a weighted average price of $26.53
per share; and 2) $3.5 million of cash dividends declared during fiscal 2002.
Cash dividends of $.06 per share were declared and paid during the first two
quarters of fiscal 2002. The cash dividend was increased to $.08 per share for
the last two quarters of the fiscal year.

56

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The
$3.6 million increase in additional paid-in-capital was attributable to: 1) a
$6.2 million increase representing the amounts paid by directors and officers to
exercise stock options granted to them under the 1996 Incentive Plan along with
the tax benefit to the Company arising therefrom. During fiscal 2002 options to
purchase 374,547 shares of the Company's common stock were exercised at a
weighted average exercise price of $26.52 per share; 2) a $2.5 million increase
attributable to amortization of shares under the 1996 Incentive Plan; and 3) a
$5.1 million reduction representing the removal from additional paid in capital
of the March 1996 original purchase price of the shares that were repurchased
during fiscal 2002.
The $3.2 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 ($1.4 million).
The $4.2 million increase in other comprehensive loss was comprised principally
of a $5.1 million minimum pension liability adjustment arising from the
shortfall of $1.7 million between frozen defined benefit pension plan assets and
liabilities as of March 31, 2002 compared to a surplus of $3.9 million as of
March 31, 2001. The unrealized loss, net of tax on the Company's portfolio of
securities available for sale decreased from $2.2 million at March 31, 2001 to
$1.3 million at March31,
2002.Comparison of Operating Results for the Years Ended March 31, 2001 and March 31,
2000GeneralNet earnings
increased from $26.6 million for fiscal 2000 to $28.3 million for fiscal 2001.
Fiscal 2000 earnings include a $1.5 million pre-tax gain on sale of a branch and
a $995,000 impairment writedown of a marketable equity security. Additionally,
gain (loss) on trading securities, net went from a $1.7 million gain for fiscal
2000 to a $1.5 million loss for fiscal 2001. Excluding the gain on branch sale,
impairment writedown and trading activities, net earnings would have increased
from $25.4 million for fiscal 2000 to $29.1 million for fiscal 2001. The
improvement in operating results between fiscal 2000 and fiscal 2001 was
attributable to an increase in net interest income from $88.4 million for fiscal
2000 to $96.5 million for fiscal 2001 arising from expansion of effective
interest spread coupled with growth in average interest-earning assets.Interest
IncomeInterest income increased $25.0 million or 12% from $215.0 million for fiscal
2000 to $239.9 million for fiscal 2001. The increase was attributable
principally to a 73 basis point increase in yield on average interest-earning
assets from 7.50% for fiscal 2000 to 8.23% for fiscal 2001. Average
interest-earning assets increased $52.2 million from $2.86 billion for fiscal
2000 to $2.92 billion for fiscal 2001.
The average yield on loans receivable, net increased 67 basis points from 7.92%
for fiscal 2000 to 8.59% for fiscal 2001. The increase in average yield on loans
receivable, net reflects the Bank's continuing emphasis on the Four-Cs as well
as the impact of a generally higher interest rate environment during fiscal
2001. The Four-Cs increased $151.5 million during fiscal 2001 to $888.0 million
or 39 percent of loans receivable, net at March 31, 2001 from $736.5 million or
32 percent of loans receivable, net at March 31, 2000. Originations of the
Four-Cs totaled $969.3 million or 92 percent of total originations for fiscal
2001 compared to $833.0 million or 66 percent of total originations for fiscal
2000.
The average yield on securities, increased from 6.39% for fiscal 2000 to 6.82%
for fiscal 2001. The increase in average yield on securities was attributable
primarily to the increase in the general level of interest rates. The one-year
CMT index averaged 5.71% during fiscal 2001 compared to 5.45% during fiscal
2000. One month LIBOR averaged 6.28% during fiscal 2001 compared to 5.47% during
fiscal 2000.
The increase in average interest-earnings assets between fiscal 2000 and fiscal
2001 was comprised principally of a $161.4 million increase in the average
balance of loans receivable, net from $2.16 billion to $2.32 billion partially
offset by a $108.9 million decrease in the average balance of securities from
$622.4 million to $513.5 million reflecting the Company's continuing strategy
of reducing wholesale leverage.

57

---

Interest
ExpenseInterest
expense increased $16.9 million or 13% from $126.5 million for fiscal 2000 to
$143.5 million for fiscal 2001. The increase was attributable primarily to a 61
basis point increase in the average cost of interest-bearing liabilities from
4.69% for fiscal 2000 to 5.30% for fiscal 2001. The average cost of deposits
increased from 4.27% for fiscal 2000 to 4.91% for fiscal 2001. The average cost
of CDs increased 88 basis points from 5.19% for fiscal 2000 to 6.07% for fiscal
2001 and the average cost of core deposits increased 16 basis points from 2.94%
for fiscal 2000 to 3.10% for fiscal 2001. The average cost of FHLB advances and
other borrowings was 6.26% for fiscal 2001 compared to 5.62% for fiscal 2000.
The increases in funding costs for deposits and FHLB advances and other
borrowings reflect the increase in the general level of interest rates between
fiscal 2000 and fiscal 2001.
Average interest-bearing liabilities increased $10.9 million from $2.70 billion
for fiscal 2000 to $2.71 billion for fiscal 2001. The increase in average
interest-bearing liabilities was comprised of a $76.2 million increase in the
average balance of total deposits from $1.86 billion for fiscal 2000 to $1.93
billion for fiscal 2001 partially offset by a $65.3 million decrease in the
average balance of FHLB advances and other borrowings from $840.1 million for
fiscal 2000 to $774.8 million for fiscal 2001.Provision for Loan Losses
Provision for loan losses was $5.0 million for fiscal 2001 compared to $4.0
million for fiscal 2000. The increase in the provision for loan losses between
fiscal 2001 and fiscal 2000 was attributable in part, to an increase in the
level of non-accrual loans. The Bank's emphasis on the Four-Cs has also
resulted in a change in the overall risk profile of the Bank's loan portfolio.
Non-accrual loans were $11.5 million or 0.45% of gross loans receivable at March
31, 2001 compared to $5.4 million or 0.21% of gross loans receivable at March
31, 2000. The allowance for loan losses was $31.0 million or 1.22% of gross
loans receivable at March 31, 2001 compared to $27.8 million or 1.09% of gross
loans receivable at March 31, 2000.Non-Interest Income
Non-interest income was $14.3 million for fiscal 2001 compared to $17.6 million
for fiscal 2000. Non-interest income excluding trading securities portfolio
activity, the fiscal 2000 gain on branch sale and fiscal 2000 marketable equity
security impairment writedown increased $331,000 or 2% between fiscal 2000 and
fiscal 2001 to $15.8 million. Deposit and related fees were $9.0 million for
fiscal 2001 compared to $9.1 million for fiscal 2000. The $167,000 decrease in
deposit and related fees was attributable to a $356,000 decrease in commissions
earned from sales of non-deposit investment (NDI) products from $1.4 million for
fiscal 2000 to $1.0 million for fiscal 2001. NDI products consist primarily of
third-party annuities and mutual funds. Trust fees were $1.8 million for fiscal
2001 compared to $2.1 million for fiscal 2000. Trust fees for fiscal 2001
include a $291,000 non-recurring downward adjustment of fees. Gain (loss) on
sales of assets was $557,000 for fiscal 2001 compared to ($1.0 million) for
fiscal 2000. The $1.0 million loss for fiscal 2000 includes the $995,000
writedown of a marketable equity security deemed to be other than temporarily
impaired. Loan and servicing fees of $3.8 million were comparable between fiscal
2000 and 2001. Higher volumes of loan payoffs during fiscal 2001 increased loan
fee income in an amount comparable to the $445,000 prepayment fee received on a
commercial loan during fiscal 2000. The net loss from trading activity was $1.5
million for fiscal 2001 compared to a net gain of $1.7 million for fiscal 2000
reflecting the dramatic change in the direction of the equity markets between
the two periods.

58

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Non-Interest
Expense
Non-interest expense increased from $55.2 million for fiscal 2000 to $56.7
million for fiscal 2001. General and administrative expense increased $1.6
million or 3% from $55.5 million or 1.87% of average assets for fiscal 2000 to
$57.1 million or 1.92% of average assets for fiscal 2001. Compensation and
benefits expense increased $857,000 from $29.5 million for fiscal 2000 to $30.3
million for fiscal 2001. Included in compensation and benefits expense for
fiscal 2001 and fiscal 2000, respectively are non-cash charges of $5.8 million
and $6.0 million associated with the Bank's ESOP and 1996 Incentive Plan. The
increase in marketing and professional services expense from $5.1 million for
fiscal 2000 to $6.3 million for fiscal 2001 was attributable, in part, to fiscal
2001 expenditures of $707,000 associated with increased marketing efforts
directed toward the Hispanic segments of the communities served by the Bank.
Hispanic marketing expenditures for fiscal 2002 are expected to equal or exceed
the fiscal 2001 level. The $595,000 decrease in other non-interest expense from
$9.2 million for fiscal 2000 to $8.6 million for fiscal 2001 was due primarily
to office supplies expense.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.Liquidity and Capital ResourcesThe Company's primary sources of funds are deposits, principal and
interest payments on loans and securities, FHLB advances and other borrowings,
proceeds from the maturation of securities and, to a lesser extent, proceeds
from the sale of loans. While maturities and scheduled amortization of loans and
securities are predictable sources of funds, deposit flows and mortgage and
security prepayments are greatly influenced by the general level of interest
rates, economic conditions and competition. Effective July 11, 2001 the OTS
adopted a 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. The Bank's average
regulatory liquidity ratios were 5.05%, 5.09% and 5.04% for the years ended
March 31, 2002, 2001 and 2000, respectively. Management's strategy is to
invest excess liquidity in higher yielding interest-earning assets, such as
loans or other investments, depending on market conditions. The Bank has
invested in corporate securities when the yields thereon have been more
attractive than U.S. government and federal agency securities of similar
maturity. While corporate securities are not backed by any government agency,
the maturity structure and credit quality of all corporate securities owned by
the Bank meet the minimum standards set forth by the OTS for regulatory
liquidity-qualifying investments. The Bank has invested in callable debt issued
by Federal agencies of the U.S. government when the yields thereon to call
date(s) and maturity exceeded the yields on comparable term and credit quality
non-callable investments by amounts which management deems sufficient to
compensate the Bank for the call options inherent in the securities.The Company's cash flows are comprised of three primary classifications: cash
flows from operating activities, investing activities and financing activities.
Cash flows provided by operating activities were $50.9 million, $54.0 million
and $23.7 million for the years ended March 31, 2002, 2001 and 2000,
respectively. Net cash used in investing activities consisted primarily of
disbursements for loan originations and purchases of mortgage-backed and other
investment securities and collateralized mortgage obligations, offset by
principal collections on loans and proceeds from maturation of investments and
paydowns on mortgage-backed securities and collateralized mortgage obligations.
Principal payments on loans were $1.57 billion, $1.05 billion and $902.9 million
for the years ended March 31, 2002, 2001 and 2000, respectively. Disbursements
on loans originated and purchased, excluding loans originated for sale, were
$1.85 billion, $1.07 billion and $1.27 billion for the years ended March 31,
2002, 2001 and 2000, respectively. Disbursements for purchases of
mortgage-backed and other investment securities and collateralized mortgage
obligations were $108.6 million, $5.0 million and $30.0 million for the years
ended March 31, 2002, 2001 and 2000, respectively. Proceeds from the maturation
of investment securities and paydowns of MBS and CMO were $187.9 million, $122.9
million and $162.6 million for the years ended March 31, 2002, 2001 and 2000,
respectively. Net cash provided by (used in) financing activities consisted
primarily of net activity in deposit accounts and FHLB advances and other
borrowings. The net increases in deposits were $147.7 million, $114.7 million
and $63.0 million for the years ended March 31, 2002, 2001 and 2000,
respectively. The net increases (decreases) in FHLB advances and other
borrowings were ($17.0 million), ($309.0 million) and $70.0 million for the
years ended March 31, 2002, 2001 and 2000, respectively.

59

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At March 31, 2002, the Bank exceeded all of its
regulatory capital requirements with a tangible capital level of $260.8 million,
or 8.63% of adjusted total assets, which is above the required level of $45.3
million, or 1.50%; core capital of $260.8 million, or 8.63% of adjusted total
assets, which is above the required level of $120.9 million, or 4.00% and total
risk-based capital of $288.8 million, or 12.87% of risk-weighted assets, which
is above the required level of $179.5 million, or 8.00%. See "Item 1 -
Description of Business - Regulation and Supervision - Federal Savings
Institution Regulation."
The Company's most liquid assets are cash and short-term investments. The
levels of these assets are dependent on the Company's operating, financing,
lending and investing activities during any given period. At March 31, 2002,
cash and short-term investments totaled $106.0 million. The Company has other
sources of liquidity if a need for additional funds arises, including the
utilization of reverse repurchase agreements and FHLB advances. At March 31,
2002, the Bank had $558.0 million of FHLB advances outstanding. Based upon
pledged collateral in place, the Company had available borrowing capacity of
$283.9 million as of March 31, 2002. No collateral was pledged under reverse
repurchase agreements at March 31, 2002. Other sources of liquidity include
securities maturing within one year.The Company currently has no material contractual obligations or
commitments for capital expenditures. See "Item 1 - Description of Business
- General." At March 31, 2002 the Bank had outstanding commitments to
originate and purchase loans of $61.0 million and zero, respectively, compared
to $124.6 million and zero, respectively, at March 31, 2001. The Company
anticipates that it will have sufficient funds available to meet these
commitments. At March 31, 2002 and 2001 the Company had no outstanding
commitments to purchase MBS, CMO or other investment securities.. See "Item
1 - Description of Business - General." Certificate accounts that are
scheduled to mature in less than one year from March 31, 2002 totaled $948.7
million. 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.

60

---

Item 7A. Quantitative and Qualitative Disclosures About Market
Risk

61

---

Item 8. Financial Statements and
      Supplementary Data



Index to Financial Statements
    PAGEConsolidated Balance Sheets - March 31, 2002
      and 2001
    63Consolidated Statements of Earnings - Years
      ended March 31, 2002, 2001 and 2000
    64Consolidated Statements of Comprehensive
      Earnings - Years ended March 31, 2002, 2001 and 2000
    65Consolidated Statements of Stockholders'
      Equity - Years ended March 31, 2002, 2001 and 2000
    66Consolidated Statements of Cash Flows - Years
      ended March 31, 2002, 2001 and 2000
    67Notes to Consolidated Financial Statements
    69Independent Auditors' Report
    104


62

---

PFF BANCORP, INC. AND SUBSIDIARYConsolidated Balance Sheets
(Dollars in thousands, except per share data)

March 31,2002
      2001AssetsCash and equivalents
      $ 105,965
      51,526Loans held-for-sale
      106
      583Investment securities held-to-maturity (estimated fair value
        of $703 and $772 at March 31, 2002 and 2001)
      703
      702Investment securities available-for-sale, at fair value
      93,820
      59,137Mortgage-backed securities available-for-sale, at fair value
      196,580
      302,964Collateralized mortgage obligations available-for-sale, at fair value
      62,778
      82,315Trading securities, at fair value
      2,334
      2,375Loans receivable, net
      2,494,667
      2,285,307Federal Home Loan Bank (FHLB) stock, at cost
      35,133
      46,121Accrued interest receivable
      15,653
      18,466Real estate acquired through foreclosure, net
      507
      351Property and equipment, net
      21,575
      22,946Prepaid expenses and other assets
      13,111
      13,638Total assets
      $ 3,042,932
      2,886,431Liabilities and Stockholders' EquityLiabilities:Deposits
      $ 2,168,964
      2,021,261FHLB advances and other borrowings
      558,000
      575,000Deferred income taxes payable
      6,849
      7,849Accrued expenses and other liabilities
      25,042
      24,323Total liabilities
      2,758,855
      2,628,433Commitments and contingencies
      -
      -Stockholders' equity :Preferred stock, $.01 par value. Authorized 2,000,000
        shares; none issued
      -
      -Common stock, $.01 par value. Authorized 59,000,000
        shares; issued 20,412,351 and 20,082,094; outstanding
        13,058,784 and 13,238,627 at March 31, 2002 and 2001,
        respectively
      203
      200Additional paid-in capital
      135,540
      131,919Retained earnings, substantially restricted
      161,123
      137,703Unearned stock-based compensation
      (5,750)
      (8,953)Treasury stock (7,353,567 and 6,843,467 at March 31, 2002 and 2001,
        respectively)
      (73)
      (68)Accumulated other comprehensive losses
      (6,966)
      (2,803)Total stockholders' equity
      284,077
      257,998Total liabilities and stockholders' equity
      $ 3,042,932
      2,886,431See accompanying
        notes to consolidated financial statements.


63

---



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

Year Ended March 31,2002
      2001
      2000Interest income:Mortgage loans
      $ 162,392
      171,187
      148,345Non-mortgage loans
      25,739
      28,324
      22,897Mortgage-backed securities
      15,610
      22,274
      27,910Collateralized mortgage obligations
      3,214
      6,393
      5,893Investment securities and deposits
      8,776
      11,771
      9,907Total interest income
      215,731
      239,949
      214,952Interest on deposits
      76,015
      94,989
      79,320Interest on borrowings
      28,609
      48,482
      47,219Total interest expense
      104,624
      143,471
      126,539Net interest income
      111,107
      96,478
      88,413Provision for loan losses
      5,000
      5,004
      4,000Net interest income after provision for loan losses
      106,107
      91,474
      84,413Non-interest income:Deposit and related fees
      9,427
      8,969
      9,136Trust fees
      2,086
      1,846
      2,098Loan and servicing fees
      4,972
      3,854
      3,847Gain (loss) on sale of assets, net
      384
      557
      (1,017)Gain (loss) on trading securities, net
      (107)
      (1,490)
      1,677Gain on sale of branch
      -
      -
      1,468Other non-interest income
      281
      583
      419Total non-interest income
      17,043
      14,319
      17,628Non-interest expense:General and administrative:Compensation and benefits
      34,319
      30,332
      29,475Occupancy and equipment
      11,905
      11,792
      11,690Marketing and professional services
      6,969
      6,310
      5,114Other non-interest expense
      8,934
      8,632
      9,227Total general and administrative
      62,127
      57,066
      55,506Foreclosed real estate operations, net
      (102)
      (324)
      (278)Total non-interest expense
      62,025
      56,742
      55,228Earnings before income taxes
      61,125
      49,051
      46,813Income taxes
      25,761
      20,791
      20,215Net earnings
      $ 35,364
      28,260
      26,598Basic earnings per share
      $ 3.01
      2.42
      2.20Weighted average shares outstanding for basic
        earnings per share
      11,756,653
      11,656,482
      12,111,323Diluted earnings per share
      $ 2.69
      2.20
      2.02Weighted average shares outstanding for diluted
        earnings per share
      13,153,166
      12,821,559
      13,184,030See accompanying
        notes to consolidated financial statements.


64

---

PFF BANCORP, INC. AND SUBSIDIARY

|                                                                            | For the Year Ended
      March 31,
|--------------------------------------------------------------------------- | ----------------------------------
|                                                                            | 2002                              
|                                                                            |                                   
|Net earnings                                                                | $ 35,364                          
|                                                                            |                                   
|Other comprehensive earnings (losses), net
      of income taxes:           |                                   
|Unrealized gains (losses) on securities
      available-for-sale:           |                                   
|Investment securities available-for-sale, at fair
      value               | (261)                             
|Collateralized mortgage obligations
      available-for-sale, at fair value | 989                               
|Mortgage-backed securities available-for-sale, at fair value                | 459                               
|Reclassification of realized gains (losses) included in earnings            | (271)                             
|                                                                            | 916                               
|Minimum pension liability adjustment                                        | (5,079)                           
|Other comprehensive gains (losses)                                          | (4,163)                           
|Comprehensive earnings                                                      | $ 31,201                          
|See
      accompanying notes to consolidated financial statements.         

65

---

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

|                                                                        | Number of
      Shares | Common
      Stock | Additional
      Paid-in
      Capital | Retained Earnings Substantially Restricted | Unearned
      Stock-based
      Compensation | Treasury
      Stock | Accumulated Other Comprehensive Losses | Total   
|----------------------------------------------------------------------- | ---------------------- | ------------------ | -------------------------------------- | ------------------------------------------ | --------------------------------------------- | -------------------- | -------------------------------------- | --------
|Balance at March 31, 1999                                               | 15,445,481             | $ 199              | $ 150,612                              | $ 110,163                                  | $ (17,169)                                    | $ (45)               | $ (1,095)                              | $242,665
|                                                                        |                        |                    |                                        |                                            |                                               |                      |                                        |         
|Net earnings                                                            | -                      | -                  | -                                      | 26,598                                     | -                                             | -                    | -                                      | 26,598  
|Purchase 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                                         | -                    | -                                      | 6,029   
|Stock options exercised                                                 | 69,024                 | 1                  | 573                                    | -                                          | -                                             | -                    | -                                      | 574     
|Dividends ($0.24 per share for 2000)                                    | -                      | -                  | -                                      | (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)                                | 221,831 
|                                                                        |                        |                    |                                        |                                            |                                               |                      |                                        |         
|Net earnings                                                            | -                      | -                  | -                                      | 28,260                                     | -                                             | -                    | -                                      | 28,260  
|Purchase of treasury stock                                              | (145,000)              | -                  | (1,449)                                | (1,117)                                    | -                                             | (1)                  | -                                      | (2,567) 
|Amortization of shares under stock-based
      compensation plans       | -                      | -                  | 1,403                                  | -                                          | 4,350                                         | -                    | -                                      | 5,753   
|Stock options exercised                                                 | 69,122                 | -                  | 595                                    | -                                          | -                                             | -                    | -                                      | 595     
|Dividends ($0.24 per share for 2001)                                    | -                      | -                  | -                                      | (2,961)                                    | -                                             | -                    | -                                      | (2,961) 
|Changes in unrealized gains on
      securities available-for-sale, net | -                      | -                  | -                                      | -                                          | -                                             | -                    | 7,087                                  | 7,087   
|Balance at March 31, 2001                                               | 13,238,627             | 200                | 131,919                                | 137,703                                    | (8,953)                                       | (68)                 | (2,803)                                | 257,998 
|                                                                        |                        |                    |                                        |                                            |                                               |                      |                                        |         
|Net earnings                                                            | -                      | -                  | -                                      | 35,364                                     | -                                             | -                    | -                                      | 35,364  
|Purchase of treasury stock                                              | (510,100)              | -                  | (5,096)                                | (8,431)                                    | -                                             | (5)                  | -                                      | (13,532)
|Change in minimum pension liability                                     | -                      | -                  | -                                      | -                                          | -                                             | -                    | (5,079)                                | (5,079) 
|Amortization of shares under stock-based
      compensation plans       | -                      | -                  | 2,456                                  | -                                          | 3,203                                         | -                    | -                                      | 5,659   
|Stock options exercised                                                 | 330,257                | 3                  | 3,777                                  | -                                          | -                                             | -                    | -                                      | 3,780   
|Dividends ($0.28 per share for 2002)                                    | -                      | -                  | -                                      | (3,513)                                    | -                                             | -                    | -                                      | (3,513) 
|Changes in unrealized gains on
      securities available-for-sale, net | -                      | -                  | -                                      | -                                          | -                                             | -                    | 916                                    | 916     
|Tax benefit from stock options                                          | -                      | -                  | 2,484                                  | -                                          | -                                             | -                    | -                                      | 2,484   
|Balance at March 31, 2002                                               | 13,058,784             | $ 203              | $ 135,540                              | $ 161,123                                  | $ (5,750)                                     | $ (73)               | $ (6,966)                              | $284,077
|See accompanying notes to consolidated financial
      statements.     



---

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

Year Ended March 31,2002
      2001
      2000Cash flows from operating activities:Net earnings
      $ 35,364
      28,260
      26,598Adjustments to reconcile net earnings to net cash provided by operating activities:Amortization of premiums net of discount accretion on loans and securities
      824
      1,192
      2,089Amortization of deferred loan origination fees
      2,955
      (276)
      190Loan fees collected
      343
      237
      (2,219)Dividends on FHLB stock
      (2,358)
      (3,284)
      (2,441)Provisions for losses on:Loans
      5,000
      5,004
      4,000Real estate
      -
      49
      -Gains on sales of loans, mortgage-backed securities available-for-sale, real estate and property
        and equipment
      (625)
      (646)
      (1,679)Proceeds from sale of trading securities
      -
      466
      1,700(Gains) losses on trading securities
      107
      1,490
      (1,677)Depreciation and amortization of property and equipment
      3,006
      3,396
      3,608Loans originated for sale
      (9,685)
      (16,341)
      (32,799)Proceeds from sale of loans held-for-sale
      10,497
      23,439
      25,673Amortization of unearned stock-based compensation
      5,659
      5,753
      6,029Increase (decrease) in accrued expenses and other liabilities
      (3,565)
      5,640
      (14,119)(Increase) decrease in:Accrued interest receivable
      2,813
      118
      (1,466)Prepaid expenses and other assets
      527
      (471)
      10,173Net cash provided by operating activities
      50,862
      54,026
      23,660Cash flows from investing activities:Loans originated for investment
      (1,424,136)
      (1,033,194)
      (1,235,525)Increase in construction loans in process
      50,684
      38,891
      31,614Purchases of loans held-for-investment
      (415,287)
      (18,892)
      (1,560)Principal payments on loans
      1,573,443
      1,049,029
      902,923Principal payments on mortgage-backed securities held-to-maturity
      -
      -
      552Principal payments on mortgage-backed securities available-for-sale
      127,387
      83,794
      137,246Principal payments on collateralized mortgage obligations available-for-sale
      20,601
      4,103
      15,895Purchases of investment securities available-for-sale
      (83,395)
      (5,000)
      (28,066)Purchases of FHLB stock
      -
      -
      (1,974)


67

---



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

Year Ended March 31,2002
      2001
      2000Redemption of FHLB stock
      $ 13,346
      1,713
      10,188Purchases of mortgage-backed securities available-
        for-sale
      (25,236)
      -
      -Proceeds from maturities of investment securities
        available-for-sale
      39,881
      35,000
      8,886Proceeds from sale of investment securities available-
        for-sale
      8,525
      1,951
      10,626Proceeds from sale of real estate
      1,977
      2,993
      8,515Investment in or proceeds from real estate
        held for investment
      -
      5,155
      1,443Purchases of property and equipment
      (1,651)
      (3,968)
      (2,345)Proceeds from sale of property and equipment
      -
      -
      933Net cash provided by (used in) investing activities
      (113,861)
      161,575
      (140,649)Cash flows from financing activities:Proceeds from FHLB advances and other borrowings
      561,400
      494,800
      884,600Repayment of FHLB advances and other borrowings
      (578,400)
      (803,800)
      (814,600)Net change in deposits
      147,703
      114,727
      62,996Proceeds from exercise of stock options
      3,780
      595
      574Cash dividends
      (3,513)
      (2,961)
      (2,272)Purchase of treasury stock
      (13,532)
      (2,567)
      (42,968)Net cash provided by (used in) financing activities
      117,438
      (199,206)
      88,330Net increase (decrease) in cash and cash equivalents
      54,439
      16,395
      (28,659)Cash and cash equivalents, beginning of year
      51,526
      35,131
      63,790Cash and cash equivalents, end of year
      $ 105,965
      51,526
      35,131Supplemental information:Interest paid, including interest credited
      $ 107,111
      142,689
      128,402Income taxes paid
      25,078
      19,200
      17,000Loans to facilitate
      256
      -
      -Non-cash investing and financing activities:Net transfers from loans receivable to real estate
        acquired through foreclosure
      2,331
      2,011
      5,793See accompanying
        notes to consolidated financial statements.


68

---

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 Consolidation
The 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 Equivalents
Cash and cash equivalents consist of cash on hand and in banks of $37,638 and
$37,886 and short-term deposits in banks of $68,327 and $13,640 at March 31,
2002 and 2001, 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
Obligations
At 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.

69

---

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.

70

---

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 and allowances for loan losses, net of
deferred loan origination fees and discount/premium on loans. 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.

71

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

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.
All non-homogeneous loans designated by the Company as impaired have a specific
loan loss allowance or are either placed on non-accrual status or 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 or fair value less estimated
cost to sell. 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.

72

---

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

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 discounted
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.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.

73

---

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

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.

74

---

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

In
August, 2001 the FASB issued Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" which
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," and the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business. This
Statement also eliminates the exception to consolidation for a subsidiary for
which control is likely to be temporary. The provisions of this Statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. The provisions
of this Statement generally are to be applied prospectively. It is anticipated
that the financial impact of this Statement will not have a material effect on
the Company.

75

---

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

(2) Investment Securities

March 31, 2002Amortized
        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
      $ 703
      -
      -
      703Total
      $ 703
      -
      -
      703Available-for-sale:Corporate debt securities
      $ 61,301
      44
      (6,109)
      55,236Equity securities:Direct
      2,600
      2,840
      -
      5,440Mutual funds
      32,015
      1,134
      (5)
      33,144Total Equity securities
      34,615
      3,974
      (5)
      38,584Total
      $ 95,916
      4,018
      (6,114)
      93,820


During the years ended March 31, 2002, 2001 and 2000, the Company realized net
gains (losses) on sales of investment securities available-for-sale of $25,
($156) and ($279), respectively.



|                                               | March 31, 2001      
|---------------------------------------------- | --------------------
|                                               | Amortized
      Cost
|Held-to-maturity:                              |                     
|Bonds, notes and debentures at amortized cost: |                     
|U.S. Government and federal agency obligations | $ 702               
|Total                                          | $ 702               
|Available-for-sale:                            |                     
|Corporate debt securities                      | $ 56,194            
|Equity securities:                             |                     
|Direct                                         | 2,600               
|Mutual funds                                   | 2,000               
|Total Equity securities                        | 4,600               
|Total                                          | $ 60,794            

76

---

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

|                        | Held-to-maturity     | Available-
      for-sale       
|----------------------- | -------------------- | --------------------------------
|Maturity                | Amortized
      Cost | Estimated
      Fair
      Value
|                        |                      |                                 
|Within one year         | $ -                  | -                               
|After one to five years | -                    | -                               
|After five to ten years | 703                  | 703                             
|After ten years         | -                    | -                               
|Total                   | $ 703                | 703                             

(3) Mortgage-Backed Securities

March 31, 2002Amortized
        Cost
      Gross
        Unrealized
        Gains
      Gross
        Unrealized
        Losses
      Estimated
        Fair
        ValueAvailable-for-sale:GNMA
      $ 21,676
      140
      (1,366)
      20,450FHLMC
      45,505
      427
      (215)
      45,717FNMA
      128,936
      1,777
      (300)
      130,413Total
      $ 196,117
      2,344
      (1,881)
      196,580




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


The mortgage-backed securities have original maturities of up to 30 years.

77

---

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

(4) Collateralized Mortgage Obligations
The amortized cost and estimated fair values of collateralized mortgage
obligations are summarized as follows:

March 31, 2002Amortized
        Cost
      Gross
        Unrealized
        Gains
      Gross
        Unrealized
        Losses
      Estimated
        Fair
        ValueAvailable-for-sale:FHLMC
      $ 44,239
      193
      (504)
      43,928FNMA
      19,121
      -
      (271)
      18,850Total
      $ 63,360
      193
      (775)
      62,778






|                    | March 31, 2001      
|------------------- | --------------------
|                    | Amortized
      Cost
|Available-for-sale: |                     
|FHLMC               | $ 58,430            
|FNMA                | 25,701              
|Total               | $ 84,131            

(5)



|                                           | March 31,  
|------------------------------------------ | -----------
|                                           | 2002       
|                                           |            
|Mortgage loans:                            |            
|Residential:                               |            
|One-to-four family                         | $ 1,402,871
|Multi-family                               | 77,964     
|Commercial real estate                     | 309,335    
|Construction and land                      | 711,637    
|Total mortgage loans                       | 2,501,807  
|                                           |            
|Commercial                                 | 155,589    
|Consumer                                   | 158,475    
|Total loans                                | 2,815,871  
|Less:                                      |            
|Undisbursed portion of construction loans  | (288,231)  
|Net (discount) premium on loans            | (202)      
|Net deferred loan origination fees (costs) | (1,412)    
|Allowance for loan losses (note 7)         | (31,359)   
|Total loans receivable, net                | $ 2,494,667
|Weighted average yield                     | 7.86%      

78

---

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

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



|                  | March 31,
|----------------- | ---------
|                  | 2002     
|                  |          
|Beginning balance | $ 2,249  
|Additions         | 12       
|Repayments        | (58)     
|Ending balance    | $ 2,203  

The following table presents impaired loans with specific allowances and the
amount of such allowances and impaired loans without specific allowances.

March 31, 2002Loans with Specific Allowances
      Loans without Specific Allowances
      Total Impaired LoansNet carrying value
      $ 36,569
      1,154
      37,723Specific allowance
      2,935
      -
      2,935Net balance
      $ 33,634
      1,154
      34,788March 31, 2001Loans with Specific Allowances
      Loans without Specific Allowances
      Total Impaired LoansNet carrying value
      $ 14,761
      31,969
      46,730Specific allowance
      4,792
      -
      4,792Net balance
      $ 9,969
      31,969
      41,938


The average recorded investment in impaired loans totaled
  $46,892 in 2002 and $23,950 in 2001. During 2002, total interest recognized on
  the impaired loan portfolio was $1,855, compared to $1,818 in 2001 and $290 in
  2000. Income recorded utilizing the cash basis method of accounting was zero
  for fiscal 2002, 2001 and 2000.
  The aggregate amount of non-accrual loans receivable that are contractually
  past due 90 days or more as to principal or interest, in the foreclosure
  process, restructured, or upon which interest collection is doubtful were
  $4,494 and $11,481 at March 31, 2002 and 2001, respectively. At March 31, 2002
  the Company had no troubled debt restructurings.
  Interest due on non-accrual loans, but excluded from interest income, was
  approximately $330 for 2002, $733 for 2001 and $466 for 2000.

79

---

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,
|------------------------------------------ | ---------
|                                           | 2002     
|                                           |          
|Properties acquired in settlement of loans | $ 507    
|Allowance for losses (note 7)              | -        
|Total                                      | $ 507    

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



|                                                   | Year Ended March 31,
|-------------------------------------------------- | --------------------
|                                                   | 2002                
|                                                   |                     
|(Gain) loss on sale of foreclosed real estate, net | $ (280)             
|Real estate (income) expense                       | 178                 
|Provision for losses on real estate                | -                   
|Total                                              | $ (102)             

80

---

PFF BANCORP, INC. AND SUBSIDIARY
Notes 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,
|--------------------------------------- | --------------------
|                                        | 2002                
|                                        |                     
|Loans receivable:                       |                     
|Beginning balance                       | $ 31,022            
|Provision                               | 5,000               
|Charge-offs                             | (4,771)             
|Recoveries                              | 108                 
|Ending balance                          | 31,359              
|                                        |                     
|Foreclosed real estate:                 |                     
|Beginning balance                       | 49                  
|Provision                               | -                   
|Charge-offs                             | (49)                
|Ending balance                          | -                   
|                                        |                     
|Total loans receivable and real estate: |                     
|Beginning balance                       | 31,071              
|Provision                               | 5,000               
|Charge-offs                             | (4,820)             
|Recoveries                              | 108                 
|Ending balance                          | $ 31,359            

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

|                                    | March 31,
|----------------------------------- | ---------
|                                    | 2002     
|                                    |          
|Investment securities               | $ 456    
|Mortgage-backed securities          | 1,235    
|Collateralized mortgage obligations | 175      
|Loans receivable                    | 13,787   
|Total                               | $ 15,653 

81

---

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, |         
|----------------------------------------------- | --------- | --------
|                                                | 2002      | 2001    
|                                                |           |         
|Land                                            | $ 5,945   | 5,945   
|Buildings and improvements                      | 22,541    | 21,815  
|Leasehold improvements                          | 2,277     | 2,121   
|Furniture, fixtures and equipment               | 28,389    | 26,939  
|Automobiles                                     | 156       | 156     
|Construction in progress                        | 129       | 1,004   
|                                                | 59,437    | 57,980  
|Accumulated depreciation and
      amortization | (37,862)  | (35,034)
|Total                                           | $ 21,575  | 22,946  

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



|                                                   | March 31,                        
|-------------------------------------------------- | ---------------------------------
|                                                   | 2002                             
|                                                   | Weighted
      Average
      Rate
|                                                   |                                  
|Regular passbook                                   | 0.85%                            
|NOW and other demand
      deposit accounts        | 1.61                             
|Fixed and variable-rate
      certificate accounts | 3.82                             
|Money market checking
      and savings            | 2.59                             
|Total                                              | 2.87%                            

Certificate accounts maturing subsequent to March 31, 2002
are summarized as follows:



|Year Ending March 31, | Amount     
|--------------------- | -----------
|                      |            
|2003                  | $ 948,718  
|2004                  | 65,896     
|2005                  | 20,962     
|2006                  | 14,318     
|2007                  | 34,290     
|thereafter            | 351        
|Total                 | $ 1,084,535

82

---

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,
|------------------------------------------- | --------------------
|                                            | 2002                
|                                            |                     
|Regular passbook                            | $ 1,647             
|NOW and other demand deposit
      accounts | 2,900               
|Money market checking and savings           | 13,938              
|Certificates of deposit                     | 57,530              
|Total                                       | $ 76,015            

At March 31, 2002 and 2001, the Company had accrued interest payable on deposits
of $1,498 and $1,767, respectively, which is included in other liabilities in
the accompanying consolidated balance sheets.
At March 31, 2002 and 2001, $34,014 and $23,296 of public funds on deposit were
secured by loans receivable, mortgage-backed securities, investment securities
and collateralized mortgage obligations with aggregate carrying values of
$46,326 and $33,401, respectively.
Accounts which are greater than $100 at March 31, 2002 and 2001 total $756,025
and $593,707, respectively. For deposit accounts with balances in excess of
$100, that portion in excess of $100 may not be federally insured.

83

---

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 $558,000 and
zero and $575,000 and zero at March 31, 2002 and March 31, 2001, respectively.
(See "Note 12.")

|                                                                                                                                                                                                                                                                                                                                                         | March 31,
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                                                                                                                                                                                                                                                                                                                                                         | 2002     
|                                                                                                                                                                                                                                                                                                                                                         |          
|FHLB advances:                                                                                                                                                                                                                                                                                                                                           |          
|Average amount outstanding during the year                                                                                                                                                                                                                                                                                                               | $ 597,173
|Maximum amount outstanding at any month end                                                                                                                                                                                                                                                                                                              | 655,000  
|Amount outstanding at year end (1)                                                                                                                                                                                                                                                                                                                       | 558,000  
|Average interest rate:                                                                                                                                                                                                                                                                                                                                   |          
|For the year                                                                                                                                                                                                                                                                                                                                             | 5.01%    
|At year end                                                                                                                                                                                                                                                                                                                                              | 4.16     
|                                                                                                                                                                                                                                                                                                                                                         |          
|Reverse repurchase agreements:                                                                                                                                                                                                                                                                                                                           |          
|Average amount outstanding during the year                                                                                                                                                                                                                                                                                                               | $ -      
|Maximum amount outstanding at any month end                                                                                                                                                                                                                                                                                                              | -        
|Amount outstanding at year end                                                                                                                                                                                                                                                                                                                           | -        
|Average interest rate:                                                                                                                                                                                                                                                                                                                                   |          
|For the year                                                                                                                                                                                                                                                                                                                                             | -        
|At year end                                                                                                                                                                                                                                                                                                                                              | -        
|(1) Included in the
      balance of FHLB advances outstanding at March 31, 2002 are putable
      borrowings of $150.0 million with original terms to maturity of 60 to 120
      months with final maturity dates ranging from December 23, 2002 to
      February 12, 2008 and next put dates ranging from April 23, 2002 to
      February 12, 2003.

FHLB advances have the following final maturities at March
31, 2002.



|           | Amount   
|---------- | ---------
|           |          
|2003       | $ 285,000
|2004       | 218,000  
|2005       | 40,000   
|thereafter | 15,000   
|Total      | $ 558,000

Included in the table above are putable advances of $150,000
with next put dates during fiscal 2003.

84

---

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

Interest expense on borrowings is summarized as follows:

Year ended March 31,2002
      2001
      2000FHLB advances
      $ 29,907
      48,434
      44,435Reverse repurchase agreements
      -
      -
      2,760Other interest expense (1)
      (1,298)
      48
      24Total
      $ 28,609
      48,482
      47,219(1) At March 31, 2002, includes $1,258 recovery of interest expense
        resulting from favorable determination of a disputed state income tax
        matter.


(12) Lines of Credit
At March 31, 2002 and 2001, the Company had maximum borrowing capacity from the
FHLB of San Francisco in the approximate amount of $1,181,134 and $1,147,197,
respectively. Based upon pledged collateral in place, the Company had available
borrowing capacity of $283,919 and $412,153 as of March 31, 2002 and 2001,
respectively. Pledged collateral consists of certain loans receivable,
mortgage-backed securities, investment securities and collateralized mortgage
obligations aggregating $841,919 and $987,153 as of March 31, 2002 and 2001,
respectively and the Company's required investment in one hundred dollar par
value capital stock of the FHLB of San Francisco. At March 31, 2002 and 2001,
the cost basis of this FHLB capital stock was $35,133 and $46,121, respectively.(13) Employee Benefit Plans
The Company maintains a defined benefit Pension Plan ("Pension Plan")
covering a majority of its employees. The benefits are based on each employee's
years of service and final average earnings determined over the five-year period
prior to the benefit determination date. Employees become fully vested upon
completion of five years of qualifying service. The Company also maintains a
Retirement Plan for all directors and a Supplemental Plan for all senior
officers of the Company. Effective December 31, 1995, the Company elected to
freeze the Pension Plan, Directors' Retirement and Supplemental Plan.
Accordingly, no new accruals for future years of service have occurred since
December 31, 1995.

85

---

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, 2001 and 2000.

2001
      2000PensionPlan
      Directors'Retirement andSupplemental
        Plans
      Pension
        Plan
      Directors'Retirement andSupplemental
        PlansChange in benefit obligationProjected benefit obligation,
        beginning of year
      $ 19,946
      2,716
      18,123
      2,685Interest cost
      1,350
      183
      1,354
      200Benefits paid
      (1,315)
      (198)
      (1,390)
      (210)Actuarial loss (gain)
      1,215
      (26)
      1,859
      41Projected benefit obligation,
        end of year
      $ 21,196
      2,675
      19,946
      2,716Change in plan assetsPlan assets, beginning of year
      $ 23,808
      -
      27,310
      -Actual return on plan assets
      (2,966)
      -
      (2,111)
      -Employer contribution
      -
      198
      -
      210Benefits paid
      (1,315)
      (198)
      (1,391)
      (210)Plan assets, end of year
      $ 19,527
      -
      23,808
      -Funded status
      $ (1,669)
      (2,675)
      3,862
      (2,716)Unrecognized transition obligation
      -
      -
      -
      33Unrecognized prior service cost
      -
      -
      11
      -Unrecognized (gain)/loss
      5,060
      526
      (799)
      590Prepaid (accrued) benefit cost
      $ 3,391
      (2,149)
      3,074
      (2,093)


Net periodic pension costs for 2001, 2000 and 1999 included the following
components:

December 31,2001
      2000
      1999Pension
        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
      $ 1,350
      183
      1,354
      200
      1,568
      167Expected return on plan assets
      (1,678)
      -
      (1,933)
      -
      (1,761)
      -Amortization of unrecognized
        transition obligation
      -
      33
      -
      33
      -
      33Amortization of unrecognized
        prior service cost
      11
      -
      70
      -
      70
      -Amortization of unrecognized
        (gain)/loss
      -
      38
      (470)
      33
      -
      37Net periodic pension (income)
        expense
      $ (317)
      254
      (979)
      266
      (123)
      237


86

---

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 2001 and 2000 are as follows:

December 31,2001
      2000Pension
        Plan
      Directors'
        Retirement
        and Supple-
        mental Plans
      Pension
        Plan
      Directors'
        Retirement
        and Supple-
        mental PlansWeighted-average assumptionsDiscount rate
      6.50%
      6.50
      7.00
      7.00Expected long-term rate of return on plan assets
      6.75
      -
      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 2002, 2001 and 2000,
the total 401(k) Plan expense was $575, $449 and $514, 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, 2002, 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, 2002 and 2001, the expected cost associated with this
coverage was $11 and $15, 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, 2002 and 2001, 176,910 and 181,281 ESOP shares,
respectively were allocated to the participants. At March 31, 2002 and 2001, 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, 2002, the fair value of
the unearned ESOP shares is $18,139. Compensation expense associated with the
ESOP was $4,265, $3,230 and $3,152 for the years ended March 31, 2002, 2001 and
2000, respectively.

87

---

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 $1,429, $2,538, and $2,094 for the years ended March
31, 2002, 2001 and 2000, respectively. The unamortized balance of the grants is
included in unearned stock-based compensation in the accompanying consolidated
financial statements. At March 31, 2002 and 2001, the unamortized balance of the
stock awards was zero and $1,429, respectively.

88

---

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' Values                                                                                                    
|---------------------------------------------------------------------------------------------------------------------------------------------------
|Grant Date                                                                                                                                         
|Options Granted During the Year Ended March 31, 2002                                                                                               
|June 27, 2001                                                                                                                                      
|October 24, 2001                                                                                                                                   
|November 28, 2001                                                                                                                                  
|February 27, 2002                                                                                                                                  
|Options Granted During the Year Ended March 31, 2001                                                                                               
|May 24, 2000                                                                                                                                       
|May 24, 2000                                                                                                                                       
|June 28, 2000                                                                                                                                      
|November 22, 2000                                                                                                                                  
|Options Granted During the Year Ended March 31, 2000                                                                                               
|May 26, 1999                                                                                                                                       
|November 23, 1999                                                                                                                                  
|March 22, 2000                                                                                                                                     
|(1)
      The risk-free rate is the market rate for U.S. Government securities with
      the same maturities as the options, as of March 31, 2002.

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:

|                             | 2002   | 2001   | 2000  
|---------------------------- | ------ | ------ | ------
|                             |        |        |       
|Net earnings:                |        |        |       
|As reported                  | 35,364 | 28,260 | 26,598
|Pro forma                    | 33,469 | 26,584 | 25,051
|Earnings per share - Basic   |        |        |       
|As reported                  | 3.01   | 2.42   | 2.20  
|Pro forma                    | 2.85   | 2.28   | 2.07  
|Earnings per share - Diluted |        |        |       
|As reported                  | 2.69   | 2.20   | 2.02  
|Pro forma                    | 2.54   | 2.07   | 1.90  

89

---

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,
|---------------------------------------- | ----------------------------
|                                         | 2002                        
|                                         |                             
|Balance at beginning of period           | 1,668,346                   
|Granted                                  | 554,760                     
|Canceled or expired                      | (1,427)                     
|Exercised                                | (374,547)                   
|Balance at end of period                 | 1,847,132                   
|Options exercisable                      | 1,261,102                   
|Options available for grant              | 52,161                      
|                                         |                             
|Weighted average option price per share: |                             
|Under option                             | $ 17.21                     
|Exercisable                              | 13.13                       
|Exercised                                | 26.52                       

The following table summarizes information with respect to
the Company's stock options outstanding as of March 31, 2002.

Options Outstanding
      Options ExercisableRange of
        Exercise
        Prices
      Number
        Outstanding
        at March 31, 2002
      Weighted-average
        Remaining
        Contractual Life
        (Years)
      Weighted-
        average
        Exercise Price
      Number
        Outstanding
        at March 31, 2002
      Weighted-
        average
        Exercise Price$12 to 14
      1,107,674
      4.6
      $12.75
      1,107,674
      $12.7514 to 16
      101,411
      6.3
      15.07
      78,837
      15.1316 to 18
      69,864
      5.1
      16.34
      67,311
      16.3018 to 20
      6,238
      6.6
      18.39
      3,201
      18.5420 to 22
      7,185
      6.4
      21.07
      4,079
      20.9422 to 24
      732
      9.2
      24.00
      -
      -24 to 26
      26,129
      9.6
      24.50
      -
      -26 to 28
      524,686
      9.7
      26.65
      -
      -28 to 30
      3,213
      9.9
      29.01
      -
      -


90

---

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 | Total 
|------------------------- | -------- | -------- | ------
|                          |          |          |       
|Year Ended March 31, 2002 |          |          |       
|Federal                   | $ 20,888 | (1,215)  | 19,673
|State                     | 6,548    | (460)    | 6,088 
|Total                     | $ 27,436 | (1,675)  | 25,761
|                          |          |          |       
|Year Ended March 31, 2001 |          |          |       
|Federal                   | $ 13,586 | 2,008    | 15,594
|State                     | 5,174    | 23       | 5,197 
|Total                     | $ 18,760 | 2,031    | 20,791
|                          |          |          |       
|Year Ended March 31, 2000 |          |          |       
|Federal                   | $ 13,455 | 1,356    | 14,811
|State                     | 4,484    | 920      | 5,404 
|Total                     | $ 17,939 | 2,276    | 20,215

For the years ended March 31, 2002, 2001, and 2000, $1,665,
$644 and $447 of current federal taxes, respectively was due to exercise of
stock options that are deductible for tax purposes but not for GAAP.
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 31,2002
      2001
      2000Amount
      Percent
      Amount
      Percent
      Amount
      PercentComputed "expected" taxes
      $ 21,394
      35%
      $ 17,168
      35%
      $ 16,385
      35%Increase (reduction) in taxes
        resulting from:California franchise tax, net
        of Federal tax benefit
      3,956
      6
      3,378
      7
      3,513
      7Other items
      411
      1
      245
      1
      317
      1Total
      $ 25,761
      42%
      $ 20,791
      43%
      $ 20,215
      43%


91

---

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,
        2002
      Taxes
        (Benefit)
      March 31,
        2001
      Taxes
        (Benefit)
      March 31,
        2000Deferred tax assets:Allowance for real estate
        loan losses
      $ (12,324)
      (1,943)
      (10,381)
      430
      (10,811)California franchise tax
      (3,156)
      (369)
      (2,787)
      (41)
      (2,746)Accrued expenses
      (570)
      180
      (750)
      48
      (798)Core deposit intangibles amortization
  (243)
      (20)
      (223)
      (21)
      (202)Non-accrual interest
      (348)
      (85)
      (263)
      (142)
      (121)Unrealized gains (loss) on securities available-for-sale, net
      (911)
      675
      (1,586)
      5,155
      (6,741)Other
      (1,127)
      1,270
      (2,397)
      (323)
      (2,074)(18,679)
      (292)
      (18,387)
      5,106
      (23,493)Deferred tax liabilities:Deferred loan origination fees
  18,918
      1,399
      17,519
      1,252
      16,267Unredeemed FHLB stock
        dividends
      6,416
      (1,357)
      7,773
      635
      7,138Pension plan liability
      828
      (298)
      1,126
      353
      773Accumulated depreciation
      (700)
      (156)
      (544)
      (204)
      (340)Customer early withdrawal
        Penalty depreciation
  23
      (35)
      58
      (37)
      95Accrued interest on pre-
        1985 loans
      77
      5
      72
      (8)
      80Excess servicing rights
        Amortization
  73
      (6)
      79
      (1)
      80Other
      (107)
      (260)
      153
      90
      6325,528
      (708)
      26,236
      2,080
      24,156Net deferred tax liability
      $ 6,849
      (1,000)
      7,849
      7,186
      663


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.
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, 2002.
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, 2002 and 2001 includes approximately
$25,300 for which no deferred income tax liability has been recognized.

92

---

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, 2002, 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, 2002:

PFF Bank & Trust's
        Regulatory Capital RequirementTangible
        Capital
      Core
        Capital
      Risk-based
        CapitalCapital of the Bank presented on a GAAP
        Basis
      $ 259,588
      259,588
      259,588Adjustments to GAAP capital to arrive
        at regulatory capital:Unrealized loss on securities
        available-for-sale, net
      3,206
      3,206
      3,206Investments in and advances to
        non-includable consolidated subsidiaries
      (681)
      (681)
      (681)Goodwill and other intangible assets
      (1,342)
      (1,342)
      (1,342)General loan valuation allowance (1)
      -
      
      28,050Equity investments and other assets
        required to be deducted
      -
      -
      (64)Regulatory capital
      260,771
      260,771
      288,757Regulatory capital requirement
      45,343
      120,914
      179,514Amount by which regulatory capital
        exceeds requirement
      $ 215,428
      139,857
      109,243(1) Limited to
        1.25% of risk-weighted assets.


93

---

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, 2002 and 2001.

Actual
      For Capital
        Adequacy Purposes
      To be Well
        Capitalized Under
        Prompt Corrective
        Action ProvisionsMarch 31, 2002
      Amount
      Ratio
      Amount
      Ratio
      Amount
      RatioTotal capital (to risk-weighted assets)
  $288,757
      12.87%
      $179,514
      >8.00%
      $224,392
      >10.00%Tier 1 (Core) capital (to adjusted total assets)
  260,771
      8.63
      120,914
      >4.00
      151,142
      >5.00Tier 1 (Core) capital (to risk-weighted assets)
  260,771
      11.62
      -
      - (1)
      134,635
      >6.00Tangible capital (to tangible assets)
  260,771
      8.63
      45,343
      >1.50
      -
      - (1)




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)(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,
|-------------------------------- | --------------------
|                                 | 2002                
|                                 |                     
|SAIF insurance premiums          | $ 825               
|Office supplies and expense      | 2,705               
|Savings and NOW account expenses | 1,461               
|Loan expenses                    | 669                 
|Other                            | 3,274               
|Total                            | $ 8,934             

94

---

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.Leases
The Company leases various office facilities under noncancellable operating
leases that expire through the year 2008. Net rent expense under operating
leases included in occupancy and equipment expense for the years ended March 31,
2002, 2001 and 2000, was $759, $750, and $723, respectively. A summary of future
minimum lease payments under these agreements at March 31, 2002 follows.

|                      | Amount 
|--------------------- | -------
|Year ending March 31, |        
|2003                  | $ 683  
|2004                  | 602    
|2005                  | 518    
|2006                  | 273    
|2007                  | 185    
|thereafter            | 114    
|Total                 | $ 2,375

(18) Off-Balance Sheet RiskConcentrations of Operations and Assets
The Company's operations are located within Southern California. At March 31,
2002 and 2001, approximately 86.7% and 92.6% 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.

95

---

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 31,2002
      2001Commitments to originate loans:Variable-rate
      $ 58,263
      121,529Fixed-rate
      2,760
      3,039Total
      $ 61,023
      124,568Interest rate range for fixed-rate loans
      6.37%-9.51%
      6.75%-9.64%


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, 2002 and
2001, the Bank had standby letters of credit of $1,421 and $2,300, 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 $1,267 and $1,590 at March 31, 2002 and 2001, respectively.
Amortization of trust acquisition cost was $323 for the years ended March 31,
2002, 2001 and 2000.
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, 2002 and 2001.

96

---

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 31,2002
      2001
      2000Balance sheet information:Loans held for sale
      $ 106
      583
      7,362Statement of earnings information:Loan servicing fees
      $ 280
      761
      878Amortization of servicing asset
      95
      17
      -Loan servicing fees, net
      $ 375
      778
      878Gain on sale of loans
      $ 359
      390
      452Statement of cash flows information:Loans originated for sale
      $ 9,685
      16,341
      32,799Proceeds from sale of loans
      $ 10,497
      23,439
      25,673


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, 2002, 2001 and 2000, the Company was servicing loans and
participations in loans owned by others of $189,656, $256,478 and $282,924,
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.

97

---

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, 2002
      March 31, 2001Carrying
        Value
      Fair
        Value
      Carrying
        Value
      Fair
        ValueFinancial assets:Cash & cash equivalents
      $ 105,965
      105,965
      51,526
      51,526Loans held for sale
      106
      106
      583
      583Investment securities held-to-maturity
      703
      703
      702
      772Investment securities available-for-sale
      93,820
      93,820
      59,137
      59,137Mortgage-backed securities available- for-sale
      196,580
      196,580
      302,964
      302,964Collateralized mortgage obligations available-for-sale
      62,778
      62,778
      82,315
      82,315Trading securities
      2,334
      2,334
      2,375
      2,375Loans receivable, net
      2,494,667
      2,495,737
      2,285,307
      2,296,585Federal Home Loan Bank stock
      35,133
      35,133
      46,121
      46,121Financial liabilities:Deposits
      2,168,964
      2,177,608
      2,021,261
      2,031,984FHLB advances
      558,000
      563,527
      575,000
      575,465


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 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.
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.
Trading securities: Fair values were based on quoted market prices.
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.

98

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

Federal Home Loan Bank stock: The carrying amount
approximates fair value.
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 $61,023 at March 31, 2002. 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 $1,421 at March 31, 2002.(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.
Subsequent 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, 2002
is $24,150.
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.

99

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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.

Condensed Balance Sheets

March 31,2002
      2001AssetsCash and cash equivalents
      $ 6,286
      4,002Equity securities available-for-sale
      9,464
      7,329Trust preferred securities available-for-sale
      5,052
      4,952Trading securities, at fair value
      2,334
      2,375Residential loans
      237
      241Construction loans
      -
      478Investment in Bank subsidiary
      259,588
      236,586Other assets
      5,240
      3,034Total assets
      $ 288,201
      258,997Liabilities and Stockholders' EquityOther liabilities
      $ 4,124
      999Stockholders' equity
      284,077
      257,998Total liabilities and stockholders' equity
      $ 288,201
      258,997


Condensed Statements of Earnings

|                                                                                         | Year ended March 31,
|---------------------------------------------------------------------------------------- | --------------------
|                                                                                         | 2002                
|                                                                                         |                     
|Interest and other income                                                                | $ 1,949             
|Provision for loan losses                                                                | -                   
|General and administrative expense                                                       | 3,416               
|Earnings before equity in undistributed earnings
      of subsidiary before income taxes | (1,467)             
|Dividend from Bank subsidiary                                                            | 4,150               
|Equity in earnings (loss) of subsidiary before income taxes                              | 58,442              
|Earnings before income taxes                                                             | 61,125              
|Income taxes                                                                             | 25,761              
|Net earnings                                                                             | $ 35,364            

100

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

Condensed Statements of Cash Flows

Year Ended March 31,2002
      2001
      2000Cash flows from operating activities:Net earnings
      $ 35,364
      28,260
      26,598Adjustments to reconcile net earnings to cash used by
        operating activities:Amortization of premiums on investments and mortgage-backed
        securities
      6
      5
      14(Gains) losses on trading securities
      107
      1,490
      (1,676)Provision for loan losses
      -
      3,012
      -(Increase) decrease in trading securities
      (66)
      76
      1,985Amortization of unearned stock-based compensation
      3,013
      4,125
      4,258Losses on sale of mortgage-backed securities and
        investments available-for-sale
      -
      156
      290Undistributed (earnings) loss of subsidiary
      (22,671)
      (31,409)
      53(Increase) decrease in other assets
      (2,206)
      (897)
      170Increase (decrease) in other liabilities
      2,606
      (877)
      (493)Net cash provided by operating activities
      16,153
      3,941
      31,199Cash flow from investing activities:Increase in real estate held for investment
      -
      460
      780(Increase) decrease in residential loans
      4
      (241)Decrease in construction loans
      478
      1,303
      -(Increase) decrease in equity securities available-for-sale
      (1,085)
      2,111
      1,400Decrease in trust preferred securities
      -
      -
      7,891Net cash provided by (used in) investing activities
      (603)
      3,633
      10,071Cash flows from financing activities:Proceeds from exercise of stock options
      3,780
      595
      574Purchase of treasury stock
      (13,532)
      (2,567)
      (42,968)Cash dividends
      (3,513)
      (2,961)
      (2,272)Net cash used in financing activities
      (13,265)
      (4,933)
      (44,666)Net (decrease) increase in cash during the year
      2,285
      2,641
      (3,396)Cash and cash equivalents, beginning of year
      4,002
      1,361
      4,757Cash and cash equivalents, end of year
      $ 6,287
      4,002
      1,361


101

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

(24) Earnings Per Share
A reconciliation of the components used to derive basic and diluted earnings per
share for March 31, 2002, 2001 and 2000 follows:

Net
        Earnings
      Weighted Average
        Shares Outstanding
      Per 
        Share
        Amount2002 (1)Basic earnings per share
      $ 35,364
      11,756,653
      $ 3.01Effect of dilutive stock options and awards
      -
      1,396,513
      .32Diluted earnings per share
      $ 35,364
      13,153,166
      $ 2.692001 (2)Basic earnings per share
      $ 28,260
      11,656,482
      $ 2.42Effect of dilutive stock options and awards
      -
      1,165,077
      .22Diluted earnings per share
      $ 28,260
      12,821,559
      $ 2.202000 (3)Basic earnings per share
      $ 26,598
      12,111,323
      $ 2.20Effect of dilutive stock options and awards
      -
      1,072,707
      .18Diluted earnings per share
      $ 26,598
      13,184,030
      $ 2.02


> (1) Options to purchase 527,899 shares of common stock at a weighted average
>   price of $26.66 per share were outstanding during the fiscal year ended March
>   31, 2002 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 November 28, 2006 and
>   February 27, 2007, were still outstanding at March 31, 2002.(2) 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.
>   (3) 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.

102

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

(25) Quarterly Results of Operations (Unaudited)

Three Months EndedJune 30,
      2001
    September 30,
      2001
    December 31,
      2001
    March 31,
      2002
    Total
      2002Net interest income
    $ 25,138
    27,877
    29,344
    28,748
    111,107Provision for loan losses
    1,250
    1,250
    1,250
    1,250
    5,000Other income
    4,304
    3,711
    4,652
    4,376
    17,043Other expenses
    14,508
    14,695
    16,270
    16,552
    62,025Earnings before income taxes
    13,684
    15,643
    16,476
    15,322
    61,125Income taxes
    5,760
    6,575
    6,923
    6,503
    25,761Net earnings
    $ 7,924
    9,068
    9,553
    8,819
    35,364Basic earnings per share
    $ 0.68
    0.77
    0.81
    0.75
    3.01Diluted earnings per share
    $ 0.60
    0.68
    0.72
    0.67
    2.69Three Months EndedJune 30,
      2000
    September 30,
      2000
    December 31,
      2000
    March 31,
      2001
    Total
      2001Net interest income
    $ 24,044
    23,085
    24,563
    24,786
    96,478Provision for loan losses
    1,251
    1,251
    1,251
    1,251
    5,004Other income
    3,696
    4,208
    2,688
    3,727
    14,319Other 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
    $ 0.63
    0.61
    0.57
    0.61
    2.42Diluted earnings per share
    $ 0.59
    0.55
    0.52
    0.54
    2.20


(26) Incorporation of New SubsidiaryOn January 25, 2002 Glencrest Investment Advisors,
Inc. ("Glencrest") was incorporated in the State of Delaware.
Glencrest is a wholly owned subsidiary of the Company. Glencrest will function
as a Registered Investment Advisor. It will be engaged in offering portfolio
management services to individuals and institutions such as foundations and
endowments, pension plans and charitable organizations.

103

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Independent Auditors Report

The Board of Directors and Stockholders
PFF Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of PFF Bancorp,
Inc. and subsidiary as of March 31, 2002 and 2001, 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, 2002. 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, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Orange County, California
April 18, 2002

104

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

> None.

PART III

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 18, 2002 (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.

105

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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: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
        officers 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(b)
      Report on Form 8-K
        NoneThe Registrant
        did not file any reports on Form 8-K during the last quarter of the
        fiscal year ended March 31, 2002.(1) Incorporated
        herein by reference from the Exhibits to the Registration Statement on
        Form S-1, as amended, filed on December 8, 1995, Registration No.
        33-80259.
        (2) Incorporated herein by reference from the Proxy Statement for the
        1996 Annual Meeting of Stockholders dated September 16, 1996.
        (3) Incorporated herein by reference from the Form 10-K filed on June
        20, 1997.
        (4) Incorporated herein by reference from the Proxy Statement for the
        1999 Annual Meeting of Stockholders dated September 22, 1999.


106

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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.                                   
|-------------------- | ----------------------------------------------------
|DATED: June 21, 2002 | BY:/s/ LARRY M. RINEHART                            
|                     | Larry M. Rinehart                                   
|                     | President, Chief Executive Officerand
      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
      
      June 21, 2002Larry M. Rinehart
      President, Chief Executive
        Officer and Director
        (Principal Executive Officer)/s/ GREGORY C. TALBOTT
      
      June 21, 2002Gregory C. Talbott
      Executive Vice President, Chief
        Financial Officer and Treasurer
        (Principal Financial and
        Accounting Officer)/s/Donald R. DesCombes
      Director/s/ ROBERT W. BURWELL
      
      June 21, 2002Robert W. Burwell
      Director/s/ WILLIAM T. DINGLE
      
      June 21, 2002William T. Dingle
      Director/s/ CURTIS W. MORRIS
      
      June 21, 2002Curtis W. Morris
      Director/s/Robert D. Nichols
      Director/s/ JIL H. STARK
      
      June 21, 2002Jil H. Stark
      Director/s/Stephen C. Morgan
      Director


107

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