UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Annual report pursuant to Section 13 of the
Securities Exchange Act of 1934

For the fiscal year ended March 31, 2001
Commission File No. 0-27404

PFF BANCORP, INC.(exact name of registrant as specified in its charter)

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

350 South Garey Avenue, Pomona, California 91766(Address of principal executive offices)

Registrant's telephone number, including area code: (909) 623-2323Securities registered pursuant to Section 12(b) of the Act: NoneSecurities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share(Title of class)

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. X

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, i.e., persons other than the directors and
executive officers of the registrant, was $304,260,405, based upon the last
sales price as quoted on the Nasdaq National Market for June 22, 2001.

The number of shares of common stock outstanding as of June 22, 2001: 13,257,534

Documents Incorporated by Reference

Portions of the Registrant's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Annual Meeting of
Stockholders to be held September 19, 2001 are incorporated by reference in Part
III hereof.

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INDEXPART I
    PAGEItem 1.
    Description of Business
    3Item 2.
    Properties
    39Item 3.
    Legal Proceedings
    39Item 4.
    Submission of Matters to a Vote of Security Holders
    39PART IIItem 5.
    Market for Registrant's Common Equity and Related Stockholders' Matters
    40Item 6.
    Selected Financial Data
    41Item 7.
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    44Item 7A.
    Quantitative and Qualitative Disclosures About Market Risk
    56Item 8.
    Financial Statements and Supplementary Data
    57Item 9.
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    99PART IIIItem 10.
    Directors and Executive Officers of the Registrant
    99Item 11.
    Executive Compensation
    99Item 12.
    Security Ownership of Certain Beneficial Owners and Management
    99Item 13.
    Certain Relationships and Related Transactions
    99PART IVItem 14.
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    100


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.

General

The Bancorp completed its initial public offering of 19,837,500 shares of
common stock on March 28, 1996, in connection with the conversion of Pomona
First Federal Savings and Loan Association (the "Association") from
the mutual to stock form of ownership (the "conversion") and the
change of the Association's name to PFF Bank & Trust. The Bancorp received
$198.4 million from this initial public offering before offering expenses of
$4.5 million. The Bancorp utilized $105.0 million of the net proceeds of the
initial public offering to acquire all of the issued and outstanding stock of
the Bank. The Bancorp is headquartered in Pomona, California and its principal
business currently consists of the operations of its wholly owned subsidiary,
the Bank. The Bancorp had no operations prior to March 28, 1996, and
accordingly, the results of operations prior to that date reflect only those of
the Bank and its subsidiary. At March 31, 2001, on a consolidated basis, the
Company had total assets of $2.89 billion, total deposits of $2.02 billion and
total stockholders' equity of $258.0 million. The Bancorp, as a unitary
savings and loan holding company, and the Bank, as a federal savings bank, are
subject to regulation by the Office of Thrift Supervision (the "OTS"),
the Federal Deposit Insurance Corporation (the "FDIC") and the
Securities and Exchange Commission (the "SEC").

Prior to the conversion, the Bank's historical focus had been on attracting
retail deposits from the general public in the areas surrounding its branch
offices and investing those deposits, together with funds generated from
operations and borrowings, primarily in one-to-four family residential mortgage
loans. To a lesser extent, the Bank engaged and continues to engage in secondary
market activities, the origination of multi-family mortgage loans and investment
in mortgage-backed securities ("MBS"), collateralized mortgage
obligations ("CMO") and other investment securities (collectively
"securities"). The Bank's current asset generation emphasis is on
originating commercial, construction and land (primarily tract construction),
commercial real estate and consumer loans (collectively the
"Four-Cs"). The Bank's revenues are derived principally from
interest on its loans, and to a lesser extent, interest and dividends on
investment securities. The Bank's primary sources of funds are deposits and
Federal Home Loan Bank ('FHLB") advances and other borrowings,
principal and interest payments on loans and investment securities. Scheduled
payments on loans and investment securities are a relatively stable source of
funds, while prepayments on loans and investment securities and deposit flows
are subject to significant fluctuation. The Bank engages in trust activities
through its trust department and offers certain annuity and mutual fund
non-deposit investment products through its subsidiary.

3

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Market Area and Competition

The Bank is a community-oriented savings institution whose lending, deposit
gathering and trust activities are concentrated in eastern Los Angeles, San
Bernardino, Riverside and northern Orange counties. The Bank also originates
loans on a wholesale basis throughout Southern California and has expanded its
lending markets outside of Southern California on a limited basis. The Bank's
deposit gathering is concentrated in the communities surrounding its offices.

The Bank's primary market area is highly competitive for financial services
and the Bank faces significant competition both in making loans and in
attracting deposits. The Bank faces direct competition from a significant number
of financial institutions operating in its market area, many with a state-wide,
regional or national presence. Many of these financial institutions are
significantly larger and have greater financial resources than the Bank. The
Bank's competition for loans comes principally from savings and loan
associations, mortgage banking companies, commercial banks, credit unions and
insurance companies. Its most direct competition for deposits has historically
come from savings and loan associations and commercial banks. In addition, the
Bank faces increasing competition for deposits and other financial products from
non-bank institutions such as brokerage firms and insurance companies in such
areas as short-term money market funds, mutual funds and annuities. Competition
may also increase as a result of the lifting of restrictions on the interstate
operations of financial institutions. Additionally, the Bank's operations are
significantly influenced by general economic conditions, the monetary and fiscal
policies of the federal government and the regulatory policies of governmental
authorities. Deposit flows and the costs of interest-bearing liabilities to the
Bank are influenced by interest rates on competing investments and general
market interest rates. Similarly, the Bank's loan volume and yield on loans
and securities and the level of prepayments on loans and securities are affected
by market interest rates, as well as additional factors affecting the supply of,
and demand for, housing and the availability of funds.

Trust Activities

In January 1995, the Company acquired the trust operations of another bank
for $3.5 million. As a result of the acquisition, the Company now has additional
fiduciary responsibilities acting as trustee, executor, administrator, guardian,
custodian, record keeper, agent, registrar, advisor and manager. The trust
assets are not the assets of the Company and are not included in the balance
sheet of the Company. Trust fee income for the years ended March 31, 2001 and
2000 was $1.8 million and $2.1 million, respectively. See "Notes to
Consolidated Financial Statements - Note 19: Trust Operations."

4

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Lending Activities

Loan Portfolio Composition. The Bank's loan portfolio consists
primarily of conventional first mortgage loans secured by one-to-four family
residences. At March 31, 2001, the Bank had total gross loans outstanding of
$2.55 billion, of which $1.34 billion or 53% were one-to-four family residential
mortgage loans. The remainder of the portfolio consisted of $597.1 million of
construction and land loans, or 24% of total gross loans; $234.0 million of
commercial real estate loans, or 9% of total gross loans; consumer loans of
$161.0 million or 6% of total gross loans; commercial business loans of $133.6
million or 5% of total gross loans; and $87.3 million of multi-family mortgage
loans, or 3% of total gross loans. At March 31, 2001, approximately $2.26
billion or 89% of the Bank's total loans had adjustable interest rates of
which approximately $936.9 million or 41% are indexed to the one year constant
maturity Treasury ("CMT"), approximately $658.5 million or 29% are
indexed to Wall Street Journal Prime ("Prime") and approximately
$575.7 million or 25% are indexed to the 11th FHLB District Cost of Funds Index
("COFI"). The Bank's portfolio of adjustable rate loans includes
approximately $576.4 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 one year 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 31,2001
    2000
    1999
    1998
    1997Amount
    Percent
      of
      Total
    Amount
    Percent
      of
      Total
    Amount
    Percent
      of
      Total
    Amount
    Percent
      of
      Total
    Amount
    Percent
      of
      Total(Dollars in thousands)Real estate: (1)Residential:One-to-four family
    $ 1,338,940
    52.5%

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

    $ 1,827,614
      
    $ 1,819,209


|(1) Includes loans held for sale.
|---------------------------------

6

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Loan Maturity. The following table shows the contractual maturity of the
Bank's loan portfolio at March 31, 2001.

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


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

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


(1) Includes loans held for sale.

Origination, Sale, Servicing and Purchase of Loans. The Bank's lending
activities are conducted primarily by loan representatives through its 24
banking branches, its loan origination center in Rancho Cucamonga, California, a
satellite loan office in Redding, California and up until March 2000 wholesale
brokers approved by the Bank. During March 2000, in connection with its strategy
of de-emphasizing one-to-four family residential lending in favor of a greater
focus on the Four-Cs, the Bank discontinued one-to-four family first trust deed
residential mortgage originations through wholesale brokers. The Bank continues
to originate one-to-four family first trust deed residential mortgages through
internal sources. The Bank continues to originate equity-based consumer loans
through wholesale brokers. All loans originated by the Bank, either through
internal sources or through wholesale brokers, are underwritten by the Bank
pursuant to the Bank's policies and procedures. The Bank originates both
adjustable-rate and fixed-rate loans. The Bank's ability to originate loans is
influenced by general economic conditions affecting housing, business and
consumer activities as well as the relative customer demand for fixed-rate or
adjustable-rate loans, which is affected by the current and expected future
levels of interest rates.

Loan originations were $1.05 billion for fiscal 2001 compared to $1.27 billion
for fiscal 2000. Beginning during fiscal 1997, the Bank began reducing its
emphasis on the origination of one-to-four family residential mortgage loans
with a corresponding increased emphasis on the origination of the Four-Cs as a
means of enhancing the Bank's yield on interest-earning assets. Originations
of the Four-Cs aggregated $969.3 million or 92% of total originations for fiscal
2001 compared to $833.0 million or 66% of total originations for fiscal 2000.
The weighted average initial contract rate on total originations was 10.07% for
fiscal 2001, compared to 8.25% for fiscal 2000.

It is the general policy of the Bank to sell substantially all of the 15 and
30-year fixed-rate mortgage loans that it originates and retain substantially
all of the adjustable-rate mortgage loans that it originates. The Bank generally
utilizes 10-day Federal National Mortgage Association ("FNMA") forward
commitments in connection with the origination and funding of fixed-rate loans
held for sale. The Bank generally retains servicing of the loans sold. At March
31, 2001, the Bank was servicing $256.5 million of loans for others. See
"Loan Servicing." When loans are sold on a servicing retained basis,
the Company records gains or losses from the sale based on the difference
between the net sales proceeds and the allocated basis of the loans sold. The
Company capitalizes mortgage servicing rights ("MSR") through the sale
of mortgage loans which are sold with servicing rights retained. The total cost
of the mortgage loans designated for sale is allocated to the MSR and the
mortgage loans without the MSR based on their relative fair values. MSR are
included in the financial statements in the category "other assets."
The Bank had $1.1 million of MSR as of March 31, 2001 and 2000. Impairment
losses are recognized through a valuation allowance, with any associated
provision recorded as a component of loan servicing fees. At March 31, 2001,
there were $583,000 of mortgage loans categorized as held for sale consisting of
fixed-rate one-to-four family residential mortgage loans.

8

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

The following tables set forth the Bank's loan originations, purchases, sales
and principal repayments for the periods indicated.

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


________________________
(1) Includes loans held for sale.
(2) Includes net capitalization of fees and amortization of premium or accretion
of discount on loans.

9

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One-to-Four Family Residential Mortgage Lending. The Bank offers both
fixed-rate and adjustable-rate mortgage loans secured by one-to-four family
residences substantially all of which are located in the Bank's primary market
area. Loan originations are obtained from the Bank's loan representatives and
their contacts with the local real estate industry, existing or past customers
and members of the local communities. Prior to March 2000, adjustable rate loans
were offered with maturities up to 40 years. Effective during March 2000, in
response to interest rate risk considerations, the Bank discontinued offering 40
year maturities. The Bank is presently giving consideration to resuming the
origination of 40 year maturity mortgages.

At March 31, 2001, the Bank's one-to-four family residential mortgage loans
totaled $1.34 billion or 53% of total loans. Of the $1.34 billion, 28% were
classified as loans secured by non-owner-occupied properties of which 81% were
second homes. Non-owner-occupied properties are generally considered to involve
a higher degree of credit risk than loans secured by owner-occupied properties
because repayment is generally dependent upon the property producing sufficient
cash flow to cover debt service and other operating expenses. Of the one-to-four
family residential mortgage loans outstanding at March 31, 2001, 92% were
adjustable-rate loans. The Bank's one-to-four family residential
adjustable-rate mortgage loans have historically been primarily indexed to COFI.
The Bank has been increasing the origination of adjustable-rate mortgage loans
tied to other indices, primarily the one-year CMT index. The Bank currently
offers a number of adjustable-rate mortgage loan programs with interest rates
that adjust monthly, semi-annually or annually. A portion of the Bank's
adjustable-rate mortgage loans have introductory terms below the fully indexed
rate. In underwriting such loans, the Bank qualifies the borrowers based upon
the fully indexed rate. At the end of the introductory period, such loans will
adjust either monthly, semi-annually or annually according to their terms. The
Bank's adjustable-rate mortgage loans generally provide for periodic and
overall caps on the increase or decrease in interest rate at any adjustment date
and over the life of the loan.

The Bank currently has a number of mortgage loan programs that may be subject to
negative amortization. At March 31, 2001, the outstanding principal balances of
these loans totaled $426.5 million, (including $37.0 million of loans serviced
by others in which the Bank has purchased a participating interest) or 32% of
total one-to-four family residential mortgage loans. At March 31, 2001, the
total outstanding negative amortization on these loans (excluding the $37.0
million of loans serviced by others) was $3.6 million. The negative amortization
is generally capped at up to 110% of the original loan amount. Negative
amortization involves a greater risk to the Bank because during a period of
higher interest rates the loan principal may increase above the amount
originally advanced, which may increase the risk of default. However, the Bank
believes that the risk of default is reduced by negative amortization caps,
underwriting criteria and the stability provided by payment schedules.

The Bank's policy is to originate one-to-four family residential mortgage
loans in amounts up to 89% of the lower of the appraised value or the selling
price of the property securing the loan and up to 95% of the appraised value or
selling price if private mortgage insurance is obtained. Mortgage loans
originated by the Bank generally include due-on-sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property without the Bank's
consent. Due-on-sale clauses are an important means of adjusting the rates on
the Bank's fixed-rate mortgage loan portfolio and the Bank has generally
exercised its rights under these clauses when it has been advantageous for the
Bank to do so.

Multi-Family Lending. The Bank originates multi-family mortgage loans
generally secured by properties located in Southern California. In reaching its
decision on whether to make a multi-family loan, the Bank considers a number of
factors including: the net operating income of the mortgaged premises before
debt service and depreciation; the debt service ratio (the ratio of net
operating income to debt service); and the ratio of loan amount to appraised
value. Pursuant to the Bank's current underwriting policies, a multi-family
mortgage loan may only be made in an amount up to 80% of the appraised value of
the underlying property. In addition, the Bank generally requires a debt service
ratio of at least 110%. Properties securing these loans are appraised and title
insurance is required on all loans. Declines in the real estate values in the
Bank's primary market area as a result of adverse economic conditions during
the mid 1990's resulted in an increase in the loan-to-value ratios on some
mortgage loans subsequent to origination. However, most segments of the Bank's
primary market area have subsequently experienced strong economic conditions and
real estate value appreciation.

10

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When evaluating a multi-family loan, the Bank also considers the financial
resources and income level of the borrower, the borrower's experience in
owning or managing similar properties, and the Bank's lending experience with
the borrower. The Bank's underwriting policies require that the borrower be
able to demonstrate strong management skills and the ability to maintain the
property from current rental income. The borrower is required to present
evidence of the ability to repay the mortgage and a history of making mortgage
payments on a timely basis. In making its assessment of the creditworthiness of
the borrower, the Bank generally reviews the financial statements, employment
and credit history of the borrower, as well as other related documentation.

Loans secured by multi-family residential properties generally involve a greater
degree of risk than one-to-four family residential mortgage loans. Because
payments on loans secured by multi-family properties are often dependent on
successful operation or management of the properties, repayment of such loans
may be subject to a greater extent to adverse conditions in the real estate
market or the economy. The Bank seeks to minimize these risks through its
underwriting policies, which require such loans to be qualified at origination
on the basis of the property's income and debt service ratio.

The Bank's multi-family loan portfolio at March 31, 2001 totaled $87.3 million
or 3% of total gross loans. At March 31, 2001, 70% of the Bank's multi-family
loans were adjustable-rate indexed to COFI. The Bank's largest multi-family
loan at March 31, 2001, had an outstanding balance of $6.0 million and is
secured by a 124 unit apartment complex.

Commercial Real Estate Lending. The Bank originates commercial real
estate loans that are generally secured by properties such as small office
buildings or retail facilities located in Southern California. The Bank's
underwriting policies provide that commercial real estate loans may be made in
amounts up to 75% of the appraised value of the property. Thirty-six percent of
these loans are indexed to COFI and 51% are indexed to the one-year CMT.
Competitive market factors have also prompted the Bank to originate such loans
with fixed rates of interest. Terms on commercial real estate loans are
generally 5 to 7 years with 25 to 30 year amortization, although these loans may
be made with terms up to 30 years. The Bank's underwriting standards and
procedures are similar to those applicable to its multi-family loans, whereby
the Bank considers the net operating income of the property and the borrower's
expertise, credit history and profitability. The Bank has generally required
that the properties securing commercial real estate loans have debt service
ratios of at least 120%. The largest commercial real estate loan in the Bank's
portfolio at March 31, 2001 was $9.0 million and is secured by a 77,100 square
foot office building. At March 31, 2001, the Bank's commercial real estate
loan portfolio was $234.0 million, or 9% of total gross loans.

Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than one-to-four family residential mortgage
loans. Because payments on loans secured by commercial real estate properties
are often dependent upon the successful operation and management of the
properties, repayment of such loans may be influenced to a great extent by
conditions in the real estate market or the economy. The Bank seeks to minimize
these risks through its underwriting standards, which require such loans to be
qualified on the basis of the property's income and debt service ratio.

Construction and Land Lending. The Company generally originates
construction loans to real estate developers and individuals in Southern
California. The Bank has expanded, on a selective basis, construction lending to
western states other than California. Such expansion has been undertaken with
developers with whom the Bank has had long-term lending relationships. As of
March 31, 2001, the Bank had construction loans outstanding for development of
residential properties located in Nevada, Utah, Arizona and Oregon totaling
$19.1 million, $14.6 million of which was disbursed. As of March 31, 2001, the
remainder of the Bank's construction loans were for development of real estate
located in California. The Company's construction loans primarily are made to
finance tract construction of one-to-four family residential properties. These
loans are generally indexed to Prime, have maturities of two years or less and
generally include extension options of six to eighteen months upon payment of an
additional fee. The Company's policies provide that construction loans may be
made in amounts up to 75% of the appraised value of the property for
construction of commercial properties, up to 80% for multi-family properties and
up to 85% for one-to-four family residences. The Company requires an independent
appraisal of the property and generally

11

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requires personal guaranties. Loan
proceeds are disbursed as construction progresses and as inspections warrant.
The Company's inspectors generally visit projects twice a month to monitor the
progress of construction. At March 31, 2001, the Bank had $78.1 million of land
loans on which construction is not scheduled to begin within six months. All
such land is planned for residential developments. The largest such land loan is
for $14.6 million. The largest credit exposure in the construction loan
portfolio as of March 31, 2001 consists of $39.0 million of loans for the
development of 296 finished lots located in northern Los Angeles County
(Castaic). The aggregate disbursed balance of these loans at March 31, 2001 was
$30.3 million. At March 31, 2001 and 2000, the balance of the Bancorp's loan
on this project was $3.0 million and $3.9 million, respectively. This loan is
subordinated to $36.0 million in development and phased construction loans made
by the Bank on the project. Prior to April 2000, the Bancorp was accounting for
its loan as a direct investment in real estate and as such was deferring all
profit in excess of its cost of capital until its principal was paid down by
funds received from third party buyers of finished lots or homes. Pursuant to an
OTS interpretation of regulations regarding transactions with affiliates, during
April 2000 the Bancorp restructured the loan on the project to Prime + 4.0%.
Repayment is to come from the release of lots into phased construction loans.
See "Delinquencies and Classified Assets" and "Non-Accrual and
Past Due Loans." The second largest credit exposure in the Bank's
construction loan portfolio at March 31, 2001 had a balance of $15.9 million,
for a multi-phase residential development of 53 homes. Repayment is to come from
home sales to individual home buyers. At March 31, 2001, the Company's
construction and land loan portfolio was $597.1 million (23% of total gross
loans), $359.5 million of which was disbursed. At March 31, 2001 the aggregate
balance of loans for the construction of properties other than one-to-four
family residences was $67.3 million, $45.4 million of which was disbursed.

Construction financing is generally considered to involve a higher degree of
credit risk than long-term financing on improved, owner-occupied real estate.
Mitigation of risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development compared to the estimated cost (including interest)
of construction. If the estimate of value proves to be inaccurate, the Company
may be confronted with a project, when completed, having a value which is
insufficient to assure full repayment of the Company's loan. Land loans are
underwritten on an individual basis, but generally do not exceed 65% of the
actual cost or current appraised value of the property, whichever is less.

Consumer and Other Lending. The Bank's consumer loans consist primarily
of home equity lines of credit ($56.2 million) and secured and unsecured
personal loans and lines of credit ($104.7 million). At March 31, 2001, the Bank's
total consumer loan portfolio was $161.0 million or 6% of total gross loans.

Commercial Lending. The Bank has expanded its operations to include
commercial business lending to small- and medium-sized businesses. The year
ended March 31, 1997 was the Bank's first full year of originating commercial
business loans. Total term and revolving line of credit loans in the portfolio
as of March 31, 2001 were $196.0 million, $133.6 million of which was
outstanding. The largest loan in the commercial portfolio is a $20.0 million
term loan to an equipment leasing company. This loan is secured by the
assignment of underlying leases and equipment as well as inventory and accounts
receivable. The second largest loan is a $15.4 million commitment to another
equipment leasing company specializing in the dental industry. This loan is also
secured by the assignment of underlying leases and equipment as well as
inventory and accounts receivable. Repayment of both loans is expected to come
from underlying cash flows. The size of the equipment leases supporting these
loans is generally in the $50,000 to $500,000 range.

Commercial business lending is generally considered to involve a higher degree
of credit risk than the forms of secured real estate lending in which the Bank
has traditionally engaged. Commercial business loans may be originated on an
unsecured basis or may be secured by collateral that is not readily marketable.
The Bank generally requires personal guaranties on its commercial business
loans. The risk of default by a commercial business borrower may be influenced
by numerous factors which may include the strength of the worldwide, regional or
local economies or sectors thereof, changes in technology or demand for
particular goods and services and the ongoing ability of the commercial business
borrower to successfully manage the business. Because of these risks, the Bank
monitors the performance of its commercial business loans and the underlying
businesses and individuals with a different focus than is typical of traditional
one-to-four family residential mortgage lending. The monitoring of commercial
business loans

12

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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, 2001 the Bank's limit on loans-to-one borrower was $39.4 million.

Loan Servicing. The Bank also services mortgage loans for others. Loan
servicing includes collecting and remitting loan payments, accounting for
principal and interest, making inspections of mortgaged premises as required,
contacting delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults, making certain borrower
insurance and tax payments are made and generally administering the loans. All
of the loans currently being serviced for others are loans that have been sold
by the Bank. At March 31, 2001, the Bank was servicing $256.5 million of loans
for others. The Bank currently does not purchase servicing rights related to
mortgage loans originated by other institutions.

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 then received, additional
letters and phone calls generally are 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 Company with
respect to delinquencies may vary depending on the nature of the loan, the
period of delinquency, and the quality of collateral or guaranties. The Company
generally sends the borrower a notice of non-payment within 15 days after the
due date and subsequent notices thereafter. In the event that payment is not
then received, the responsible loan officer contacts the borrower directly and
may notify guarantors and grantors of collateral that the loan is delinquent.
The loan officer may review the loan documentation and secure additional
collateral or sources of repayment. Delinquent loans may be classified as other
than a "pass" credit, in order to provide management visibility,
periodic reporting, and appropriate reserves. Legal recourse is

13

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considered and
promptly undertaken if alternate repayment sources cannot be identified. At 90
days past due, the loan will be placed on a non-accrual status.

Federal regulations and the Bank's Internal Asset Review Policy require that
the Bank utilize an internal asset classification system as a means of reporting
problem and potential problem assets. The Bank has incorporated the OTS internal
asset classifications as a part of its credit monitoring system. The Bank
currently classifies problem and potential problem assets as
"Substandard," "Doubtful," or "Loss." An asset is
considered Substandard if it is inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the "distinct
possibility" that the Bank will sustain "some loss" if the
deficiencies are not corrected. Assets classified as Doubtful have all of the
weaknesses inherent in those classified Substandard with the added
characteristic that the weaknesses present make "collection or liquidation
in full," on the basis of currently existing facts, conditions, and values,
"highly questionable and improbable." Assets classified as Loss are
those considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss allowance is
not warranted. Assets which do not currently expose the Bank to sufficient risk
to warrant classification in one of the aforementioned categories but possess
weaknesses are required to be designated "Special Mention."

When the Bank classifies one or more assets, or portions thereof, as Substandard
or Doubtful, under current OTS policy, the Bank is required to consider
establishing a valuation allowance in an amount deemed prudent by management to
recognize the inherent credit risk associated with the asset. When the Bank
classifies one or more assets, or portions thereof, as Loss, it is required
either to establish a valuation allowance equal to 100% of the amount of the
asset so classified or to charge off such amount. The Bank has adopted a policy
of charging off all amounts classified as Loss.

The Bank's determination as to the classification of its assets and the amount
of its valuation allowances is subject to review by the OTS who can order the
establishment of additional loss allowances. The OTS, in conjunction with the
other federal banking agencies, has adopted an interagency policy statement on
the allowance for loan and lease losses. The policy statement provides guidance
for financial institutions on both the responsibilities of management for the
assessment and establishment of adequate allowances and guidance for banking
agency examiners to use in determining the adequacy of valuation allowances.
Generally, the policy statement recommends that institutions have effective
systems and controls to identify, monitor and address asset quality problems;
that management analyze all significant factors that affect the collectibility
of the portfolio in a reasonable manner; and that management establish
acceptable allowance evaluation processes that meet the objectives set forth in
the policy statement. As a result of the declines in local and regional real
estate market values and the significant losses experienced by many financial
institutions in the past, there has been a greater level of scrutiny by
regulatory authorities of the loan portfolios of financial institutions
undertaken as part of the examination of institutions by the OTS and the FDIC.
While the Bank believes that it has established an adequate allowance for loan
losses, there can be no assurance that regulators, in reviewing the Bank's
loan portfolio, will not request the Bank to materially increase its allowance
for loan losses, thereby negatively affecting the Bank's financial condition
and earnings. Although management believes that an adequate allowance for loan
losses has been established, further additions to the level of allowance for
loan losses may become necessary.

Management reviews and classifies the Bank's assets monthly and reports the
results of its review to the Board of Directors. The Bank classifies assets in
accordance with the management guidelines described above. REO is classified as
Substandard. The Bank utilizes an internal appraisal staff and Board approved
independent appraisers to conduct appraisals at the time of foreclosure and
subsequent appraisals on REO on a periodic basis. Qualified staff appraisers are
also utilized for annual property inspections on all income producing properties
with a loan balance over $1.0 million and other specified properties. Property
inspections are intended to provide updated information concerning occupancy,
maintenance, current rent levels, and changes in market conditions.

At March 31, 2001 and 2000 the Bank had $24.5 million and $15.9 million,
respectively of assets classified as Special Mention, on which there were no
allowances. The main components of assets classified as Special Mention at March
31, 2001 were: 12 loans totaling $1.1 million secured by one-to-four family
residences; and 13 non-homogeneous loans (defined as loans with unpaid principal
balances in excess of $500,000). The composition of

14

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the non-homogeneous loans is
as follows: two commercial property loans totaling $3.4 million; one 27 unit
residential property loan for $613,000; two 16 unit residential property loans
totaling $1.1 million; six commercial credit loans totaling $15.2 million; and
two construction loans totaling $1.9 million. At March 31, 2001, the Company had
$59.8 million of assets, net of specific allowances of $5.3 million classified
as Substandard, compared to $36.3 million, net of specific allowances of $1.0
million classified as Substandard at March 31, 2000. Included in the Substandard
total are construction loans for a 296 home development in Castaic with a
disbursed balance reported as a classified asset of $30.3 million. These loans
were classified Substandard during fiscal 2000 due to delays in construction and
increased costs caused by grading problems. See "Non-Accrual and Past-Due
Loans." Commercial real estate loans classified as Substandard changed from
2 loans totaling $3.5 million, before specific allowances at March 31, 2000 to 3
loans totaling $3.0 million, before specific allowances at March 31, 2001.

The Bank's present policy is generally to continue to classify a troubled-debt
restructured ("TDR") loan as Substandard until the asset has performed
at normal contract terms for a period of six to twelve months. Where there has
been a forgiveness of principal or interest or a submarket interest rate
granted, the loan is generally considered a TDR. Although the economy, in
general, improved during fiscal 2001, the Bank continued to utilize early
intervention and flexibility in restructuring some troubled loans with borrowers
rather than foreclosing on the underlying properties. See "Non-Accrual and
Past-Due Loans."

At March 31, 2001 there were no assets classified as Loss and seven assets
totaling $707,000 classified as Doubtful compared to no assets classified as
loss and two assets totaling $300,000 classified as Doubtful at March 31, 2000.
The composition of assets classified Substandard at March 31, 2001 and 2000 is
set forth on the following page.

15

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


_________________________
(1) Net balances are reduced for specific loss allowances established against
Substandard loans and REO.

16

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

17

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|                                                                               | At March 31,          
|------------------------------------------------------------------------------ | ----------------------
|                                                                               | 2001                  
|                                                                               | (Dollars in thousands)
|Non-accrual loans:                                                             |                       
|Residential real estate:                                                       |                       
|One-to-four family                                                             | $ 5,420               
|Multi-family                                                                   | -                     
|Commercial real estate                                                         | -                     
|Construction and land (4)                                                      | 4,572                 
|Commercial                                                                     | 437                   
|Consumer                                                                       | 1,052                 
|Total                                                                          | 11,481                
|REO, net (1)                                                                   | 351                   
|Non-performing assets                                                          | $ 11,832              
|TDR loans (4)                                                                  | $   3,012             
|Classified assets, gross                                                       | $ 62,102              
|Allowance for loan losses as a percent of gross loans receivable (2)           | 1.22%                 
|Allowance for loan losses as a
      percent of total non-performing loans (3) | 270.20                
|Non-performing loans as a percent of gross loans receivable (2) (3)            | 0.45                  
|Non-performing assets as a percent of total assets (3)                         | 0.51                  

________________________
(1) REO balances are shown net of related loss allowances.
(2) Gross loans include loans receivable held for investment and loans
receivable held for sale.
(3) Non-performing assets consist of non-performing loans and REO. Non-performing
loans consist of all loans 90 days or more past due and all other non-accrual
loans.
(4) At March 31, 2001 the Bancorp's $3.0 million loan for the Castaic development
is included in non-accrual and TDR loans.

18

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

|                       | At March 31, 2001      | At March 31, 2000                     
|---------------------- | ---------------------- | --------------------------------------
|                       | 60-89 Days             | 90 Days or More(1)                    
|                       | Number
      of Loans  | Principal
      Balance
      of Loans
|                       | (Dollars in thousands)
|                       |                        |                                       
|One-to-four family     | 18                     | $ 1,847                               
|Multi-family           | -                      | -                                     
|Commercial real estate | 1                      | 242                                   
|Construction and land  | -                      | -                                     
|Commercial             | -                      | -                                     
|Consumer               | 8                      | 256                                   
|Total                  | 27                     | $ 2,345                               
|                       |                        |                                       
|                       |                        |                                       
|                       | At March 31, 1999      |                                       
|                       | 60-89 Days             | 90 Days or More(1)                    
|                       | Number
      of Loans  | Principal
      Balance
      of Loans
|                       | (Dollars in thousands) |                                       
|                       |                        |                                       
|One-to-four family     | 22                     | $ 1,837                               
|Multi-family           | -                      | -                                     
|Commercial real estate | -                      | -                                     
|Construction and land  | -                      | -                                     
|Commercial             | -                      | -                                     
|Consumer               | 2                      | 41                                    
|Total                  | 24                     | $ 1,878                               

____________________
(1) Loans 90 days or more past due are included in non-accrual loans. See
"Non-Accrual and Past Due Loans."

19

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Allowance for Loan Losses. The allowance for loan losses is
established through a provision for loan losses based on management's
evaluation of the risks inherent in the Company's loan portfolio and the
general economy. The Company's allowance evaluation methodology takes into
account the changing composition of the loan portfolio and the increased
proportion of the portfolio comprised by the Four-Cs. The allowance for loan
losses is maintained at an amount management considers adequate to cover losses
on loans receivable, which are deemed probable and estimable. The allowance is
based upon a number of factors, including current economic conditions, actual
loss experience and industry trends. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the Company to
make additional provisions for loan losses based upon information available at
the time of the examination. At March 31, 2001, the Company's allowance for
loan losses was $31.0 million or 1.22% of gross loans and 270.20% of
non-performing loans compared to $27.8 million or 1.09% of gross loans and
512.96% of non-performing loans at March 31, 2000. At March 31, 2001, the
Company had non-performing loans of $11.5 million or 0.45% of gross loans
compared to $5.4 million or 0.21% of gross loans at March 31, 2000. The Company
will continue to monitor and modify its allowance for loan losses as economic
conditions, loss experience, changes in portfolio composition and other factors
dictate.

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


20

---

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

|                                | At March 31,          
|------------------------------- | ----------------------
|                                | 2001                  
|                                | Amount                
|                                | (Dollars in thousands)
|                                |                       
|One-to-four family              | $ 1,549               
|Multi-family                    | 228                   
|Commercial real estate          | 891                   
|Construction and land           | 17,835                
|Commercial                      | 5,334                 
|Consumer                        | 5,185                 
|Unallocated                     | -                     
|Total allowance for loan losses | $ 31,022              
|                                |                       
|                                | At March 31,          
|                                | 1998                  
|                                | Amount                
|                                | (Dollars in thousands)
|                                |                       
|One-to-four family              | $ 10,766              
|Multi-family                    | 3,133                 
|Commercial real estate          | 3,898                 
|Construction                    | 4,454                 
|Commercial                      | 3,024                 
|Consumer                        | 473                   
|Unallocated                     | 254                   
|Total allowance for loan losses | $ 26,002              

21

---

Real Estate

At March 31, 2001, the Company had $351,000 of REO, net of allowances, and
no real estate acquired for investment ("REI"). If the Bank acquires
any REO, it is initially recorded at fair value. If there is a further
deterioration in value, the Bank provides for a specific valuation allowance and
charges operations for the diminution in value. It is the policy of the Bank to
obtain an appraisal on all REO at the time of possession.

Prior to fiscal 1999, REI consisted of a former branch facility and land
acquired for a new branch site, which the Bank subsequently decided to not
pursue, and a security interest in 26 lots held for development through the Bank's
service corporation. The former branch facility was disposed of during the year
ended March 31, 1996 and the security interest in the 26 lots paid in full in
February 1999.

The following table sets forth certain information with regard to the Bank's
REO and REI.

|                                                 | At March 31,          
|------------------------------------------------ | ----------------------
|                                                 | 2001                  
|                                                 | (Dollars in thousands)
|REO                                              |                       
|Properties acquired in
      settlement of loans | $ 400                 
|Allowance for losses                             | (49)                  
|Total REO, net                                   | 351                   
|                                                 |                       
|REI                                              |                       
|Properties wholly owned                          | -                     
|Mezzanine real estate
      financing            | -                     
|Allowance for losses                             | -                     
|Total REI, net                                   | -                     
|Total real estate, net                           | $ 351                 

Investment Activities

Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured banks
and savings institutions, bankers' acceptances, repurchase agreements and
federal funds. Subject to various restrictions, federally chartered savings
institutions may also invest their assets in commercial paper, investment-grade
corporate debt securities and mutual funds whose assets conform to the
investments that a federally chartered savings institution is otherwise
authorized to make directly. Additionally, the Bank must maintain minimum levels
of investments that qualify as liquid assets under OTS regulations. See
";Regulation and Supervision - Federal Savings Institution Regulation -
Liquidity." Historically, the Bank has maintained liquid assets above the
minimum OTS requirements and at a level considered to be adequate to meet its
normal daily activities.

The investment policy of the Bank, as established by the Board of Directors,
attempts to provide and maintain liquidity, generate a favorable return on
investments without incurring undue interest rate or credit risk, and complement
the Bank's lending activities. Specifically, the Bank's policies generally
limit investments to government and federal agency-backed securities and other
non-government guaranteed securities, including corporate debt obligations, that
are investment grade. On November 4, 1998 the OTS issued Thrift Bulletin 73
("TB73") "Trust Preferred Securities" which, among other
things, limits the aggregate investment in investment grade trust preferred
securities for OTS supervised institutions to 15 percent of total capital. At
the time TB73 was issued, the Bank's aggregate investment in such securities
of $52.4 million, exceeded the OTS limitation by $23.0 million. The Bank applied
for and was granted a waiver by the OTS permitting the Bank to continue to hold
its trust preferred

22

---

securities. At March 31, 2001, the Bank's aggregate
investment in trust preferred securities is $46.9 million which represents 20%
of the Bank's total capital.

The investment powers of the Bancorp are substantially broader than those
permitted for the Bank. The investment policy of the Bancorp, as established by
its Board of Directors, while generally consistent with that of the Bank,
permits the investment by the Bancorp in equity securities and non-rated
corporate debt obligations. At March 31, 2001, the Bancorp had direct equity
investments of $7.3 million, investments in equity mutual funds of $2.4 million
and investments in non-rated corporate debt obligations (trust preferred debt
securities) of $5.0 million. Given the non-rated nature of the Bancorp's
investments in trust preferred debt securities along with the longer-term
(typically 30 years) structure of the obligations, the Bancorp undertakes a
review of the historical and current financial condition and operating results
of the issuer prior to making an investment. These reviews are updated
periodically during the holding periods for the investments.

A portion of the Bancorp's direct equity investments are managed by the Bank's
trust department on a no fee basis. The Bancorp's equity mutual fund
investments are placed with fund managers with whom the Bancorp's Senior
Management is familiar. The performance of the Bancorp's direct and mutual
fund equity investments is reviewed no less frequently than monthly by the
Bancorp's Senior Management and no less frequently than quarterly by the
Bancorp's Board of Directors.

Unlike the securities comprising the Bank's investment portfolio, which by
their nature present little to no risk of loss of principal or interest, the
trust preferred debt securities and equity investments of the Bancorp are
subject to partial or complete diminution in market value upon the occurrence of
adverse economic events affecting the issuers of the securities.

At March 31, 2001, the Company had $61.5 million in investment securities
consisting primarily of investment grade corporate and U.S. agency securities.
The Company's MBS portfolio consists of adjustable-rate securities tied to the
one-year CMT (45% of the portfolio), or six-month LIBOR (1% of the portfolio),
seasoned fixed-rate securities (16% of the portfolio) and five and seven year
balloon securities (38% of the portfolio). At March 31, 2001, the carrying value
of the Company's MBS portfolio totaled $303.0 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Comparison of Financial Condition at March 31, 2001 and March 31, 2000."
All of the Company's MBS were insured or guaranteed by either the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC").

Investments in MBS involve a risk that actual prepayments will vary from the
estimated prepayments over the life of the security. This may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments, thereby changing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities. In addition, the market value of such securities may be adversely
affected by changes in interest rates.

The Company's CMO portfolio consists principally of adjustable rate securities
tied to the one or three month LIBOR or the Prime rate. The adjustment intervals
for these securities are generally monthly. All of the Company's $82.3 million
CMO portfolio is backed by mortgages insured by FNMA or FHLMC. As with MBS, CMO
involve a risk that actual levels of prepayments will require an adjustment to
the amortization of any premium or accretion of any discounts on the security
with an impact on the yield on the security. Additionally, the structure of many
CMO is such that their cash flows exhibit greater sensitivity to changes in
prepayments than do traditional MBS.

23

---

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

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


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



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


24

---



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


25

---

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

At March 31, 2001One Year or less
    More than One
      Year to Five Years
    More than Five
      Years to Ten Years
    More than Ten
      Years
    TotalCarrying
      Value
    Weighted
      Average
      Yield
    Carrying
      Value
    Weighted
      Average
      Yield
    Carrying
      Value
    Weighted
      Average
      Yield
    Carrying
      Value
    Weighted
      Average
      Yield
    Carrying
      Value
    Weighted
      Average
      Yield(Dollars in thousands)Mortgage-backed securities:Available-for-sale:FHLMC
    $ -
    -%
    $ 68,857
    6.31%
    $ 512
    9.27%
    $ 14,482
    7.65%
    $ 83,851
    6.56%FNMA
    -
    -
    132,255
    6.31
    9,540
    7.11
    65,097
    7.12
    206,892
    6.60GNMA
    -
    -
    49
    9.00
    -
    -
    12,172
    7.58
    12,221
    7.59Total mortgage-backed securities
    $ -
    -%
    $ 201,161
    6.31%
    $ 10,052
    7.22%
    $ 91,751
    7.26%
    $ 302,964
    6.62%Investment securities:Held-to-maturity:U.S. government and Federal agency Obligations
    $ -
    -%
    $ -
    -%
    $ 702
    6.80%
    $ -
    -%
    $ 702
    6.80%Total held-to-maturity
    -
    -
    -
    -
    702
    6.80
    -
    -
    702
    6.80Available-for-sale:Corporate debt securities
    -
    -
    10,024
    7.03
    31,832
    6.49
    9,952
    7.33
    51,808
    6.76Equity securities:Direct (1)
    -
    -
    -
    -
    -
    -
    4,900
    16.00
    4,900
    13.22Mutual funds (1)
    -
    -
    -
    -
    -
    -
    2,429
    13.22
    2,429
    -Total available-for-sale
    -
    -
    10,024
    7.03
    31,832
    6.49
    17,281
    10.62
    59,137
    7.79Total investment securities
    $ -
    -%
    $ 10,024
    7.03%
    $ 32,534
    6.49%
    $ 17,281
    10.62%
    $ 59,839
    7.78%Collateralized mortgage obligations:Available-for-sale:FHLMC
    $ -
    -%
    $ -
    -%
    $ -
    -%
    $ 47,081
    6.70%
    $ 47,081
    6.70%FNMA
    -
    -
    -
    -
    -
    -
    35,234
    6.59
    35,234
    6.59Total collateralized mortgage obligations
    $ -
    -%
    $ -
    -%
    $ -
    -%
    $ 82,315
    6.65%
    $ 82,315
    6.65%


(1) "Yield" derived from unrealized change in
    market value of equity securities is not included in totals for purposes of
    the calculation of weighted average yield on the portfolio here or on
    average balance sheets in Item 7 - "Management's Discussion and
    Analysis of Financial Condition and Results of Operations".

26

---

Sources of Funds

General. Deposits, loan and securities repayments and
    prepayments, proceeds from sales of loans, cash flows generated from
    operations and FHLB advances and other borrowings are the primary sources of
    the Bank's funds for lending, investing and other general purposes.

Deposits. The Bank offers a variety of deposit accounts with a range
    of interest rates and terms. The Bank's deposits consist of passbook
    accounts, NOW and other demand accounts, money market savings accounts
    (collectively "core deposits") and certificate accounts. The terms
    of the fixed-rate certificate accounts offered by the Bank vary from 90 days
    to five years and the offering rates are established by the Bank on a weekly
    basis. Once an account is established, no additional amounts are permitted
    to be deposited in fixed-rate accounts. The Bank also presently offers
    variable rate certificates whose rates are indexed to the one year CMT.
    Additions are permitted prior to maturity for certain of the Bank's
    variable rate accounts. The Bank also offers a 12 month step-up certificate
    account that permits additions and the ability to increase the interest rate
    one time if the offering rate increases during the term of the account.
    Specific terms of an individual account vary according to the type of
    account, the minimum balance required, the time period funds must remain on
    deposit and the interest rate, among other factors. The flow of deposits is
    influenced significantly by general economic conditions, changes in money
    market rates, prevailing interest rates and competition. At March 31, 2001,
    the Bank had $1.09 billion of certificate accounts maturing in less than one
    year. The Bank expects to retain a substantial portion of these maturing
    dollars. The Bank's deposits are obtained predominantly from the areas in
    which its branch offices are located. The Bank relies primarily on customer
    service and long-standing relationships with customers to attract and retain
    these deposits.

During the fourth quarter of fiscal 1998, the Bank opened a wholesale
    deposit operation (Money Desk) through its Telebanking Center. The Bank's
    Money Desk solicited deposits directly from individual and institutional
    investors. During the fourth quarter of fiscal 1999, the Bank made the
    decision to discontinue its Money Desk effective April 1999 due to the
    availability of alternative, cost-effective sources of funds, including
    retail deposit growth and FHLB advances. At March 31, 2001, the Bank's
    certificate accounts include $4.3 million generated through the Money Desk.
    The weighted average interest rate on these deposits is 5.82%.

The following table presents the deposit activity of the Bank for the
    periods indicated.

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


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

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


27

---

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

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


28

---



|              | Period to Maturity from March 31, 2001 | March 31,             
|------------- | -------------------------------------- | ----------------------
|              | Less than
      One Year               | One to
      Two Years
|              | (Dollars in thousands)                
|              |                                        |                       
|0.00 to 4.00% | $             
      2                 | -                     
|4.01 to 5.00% | 74,309                                 | 5,756                 
|5.01 to 6.00% | 308,930                                | 38,203                
|6.01 to 7.00% | 683,772                                | 33,597                
|7.01 to 8.00% | 22,369                                 | 8,351                 
|8.01 to 9.00% | -                                      | -                     
|Over 9.01%    | -                                      | -                     
|              |                                        |                       
|Total         | $1,089,382                             | 85,907                

29

---

FHLB Advances and Other Borrowings. The Bank utilizes FHLB advances and
reverse repurchase agreements as alternative sources of funds to retail
deposits. These borrowings are collateralized by securities and, in the case of
certain FHLB advances, certain of the Bank's mortgage loans and secondarily by
the Bank's investment in the capital stock of the FHLB. See "Regulation
and Supervision-Federal Home Loan Bank System." The FHLB provides advances
pursuant to several different credit programs, each of which has its own
interest rate, range of maturities and collateralization requirements. The
maximum amount that the FHLB will advance to member institutions, including the
Bank, fluctuates from time to time in accordance with the policies of the FHLB.

At March 31, 2001, the Bank had outstanding FHLB advances and other borrowings
of $575.0 million at a weighted average cost of 5.98%. The original terms of the
FHLB advances and other borrowings outstanding at March 31, 2001, range from 4
years to 10 years. The Bank expects to continue to utilize FHLB advances and
other borrowings including reverse repurchase agreements as secondary sources of
funds to deposit liabilities. FHLB advances and other borrowings are utilized to
balance the differential net cash flows arising from loan and deposit activities
and as a primary funding vehicle for the Bank's investment in securities.
Reverse repurchase agreements take the form of sales of securities under
agreements to repurchase the identical securities at a later date. These
transactions are accounted for as financing arrangements with the obligations to
repurchase securities sold reflected as a liability while the securities
underlying the agreements remain in the respective asset account.

During fiscal 1998, the Bank began making increased use of putable borrowings
(primarily FHLB advances). Under the putable advance program, in exchange for a
favorable interest rate on the borrowing, the Bank grants to the FHLB an option
to "put" the advance back to the Bank at specified quarterly
"put" dates prior to maturity but after the conclusion of a specified
lock out period. Under the putable advance program, the Bank obtains funds below
the cost of non-putable FHLB advances which have fixed maturities between the
first "put" date and the final maturity date of the putable advance.
In exchange for this favorable funding rate, the Bank is exposed to the risk
that the advance is "put" back to the Bank following an increase in
the general level of interest rates causing the Bank to initiate a new borrowing
at a less advantageous cost. The Bank's use of putable advances allowed the
Bank to extend the term to maturity and initial "put" dates of its
funding in connection with increased investment in hybrid and balloon MBS
products. The Bank has not initiated any new putable advances since May 1998.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Asset/Liability Management."

The use of reverse repurchase agreements involves the risk that between the
dates of "sale" and subsequent repurchase, a decline in the market
value of the underlying security may require the sale of additional securities
to the counterparty to the reverse repurchase agreement. See "Sources of
Funds - FHLB Advances and Other Borrowings."

30

---

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

At or for the Years Ended March 31,2001
    2000
    1999(Dollars in thousands)FHLB advances:Average balance outstanding
    $ 771,869
    792,778
    855,197Maximum amount outstanding at any Month-end during the year
    886,000
    884,000
    949,000Balance outstanding at end of year (1)
    575,000
    884,000
    764,000Weighted average interest rate during the year
    6.25%
    5.63
    5.57Weighted average interest rate end of year
    5.98
    6.02
    5.37Reverse repurchase agreements:Average balance outstanding
    $           
      -
    43,750
    50,000Maximum amount outstanding at any Month-end during the year
    -
    50,000
    50,000Balance outstanding at end of year (1)
    -
    -
    50,000Weighted average interest rate during the year
    -%
    5.87
    5.87Weighted average interest rate end of year
    -
    -
    5.87


(1) Included in the balance of FHLB advances outstanding at
March 31, 2001 are putable borrowings of $165.0 million with initial put dates
ranging from April 16, 2001 to February 12, 2003. The weighted average term to
maturity for these putable borrowings is 28 months and the weighted average term
to first put date is 4 months.

Subsidiary Activities

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, 2001, PFS had net earnings
of $67,000.

PFF Financial Services, Inc. ("PFFFS"), a California
corporation, is a wholly owned subsidiary of PFS. Prior to July 1994, PFFFS
operated as an agency selling various personal and business insurance policies
strictly as an adjunct to the Bank's traditional thrift business. As part of
the Bank's strategy to diversify the products and services it offers and
restructure its balance sheet, a decision was made to expand the role of PFFFS.
In July 1994, PFFFS was authorized to sell fixed annuities to the Bank's
customers through the Bank's branches. In August 1995, PFFFS was further
authorized to offer variable annuities and mutual funds through a relationship
with a third party marketer of annuity and mutual fund non-deposit investment
products. In addition, PFFFS is working with vendors of other insurance
products, such as auto, home and life insurance, to further expand the products
and services offered to the Bank's customers and members of the local
community. For the year ended March 31, 2001, PFFFS had net earnings of $99,000.

Diversified Services, Inc. ("DSI"), a California corporation,
is a wholly owned subsidiary of PFS. DSI had historically participated as an
investor in residential real estate projects. DSI may consider additional real
estate activities as market conditions warrant. For the year ended March 31,
2001, DSI had minimal activity and net earnings of $3,000.

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Personnel

As of March 31, 2001, the Bank had 469 full-time employees and 121 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

General

The Bancorp, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS under the Home Owners' Loan Act, as amended (the "HOLA"). In
addition, the activities of savings institutions, such as the Bank, are governed
by the HOLA and the Federal Deposit Insurance Act ("FDI Act").

The Bank is subject to extensive regulation, examination and supervision by the
OTS, as its primary federal regulator, and the FDIC, as the deposit insurer. The
Bank is a member of the Federal Home Loan Bank ("FHLB") System and its
deposit accounts are insured up to applicable limits by the Savings Association
Insurance Fund ("SAIF") managed by the FDIC. The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other savings
institutions. The OTS and/or the FDIC conduct periodic examinations to test the
Bank's safety and soundness and compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss allowances for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the OTS, the
FDIC or Congress, could have a material adverse impact on the Bancorp, the Bank
and their operations. Certain of the regulatory requirements applicable to the
Bank and to the Bancorp are referred to below or elsewhere herein. The
description of statutory provisions and regulations applicable to savings
institutions and their holding companies set forth in this Form 10-K does not
purport to be a complete description of such statutes and regulations and their
effects on the Bank and the Bancorp.

Holding Company Regulation

The Bancorp is a non diversified unitary savings and loan holding company
within the meaning of the HOLA. As a unitary savings and loan holding company,
the Bancorp generally is not restricted under existing laws as to the types of
business activities in which it may engage, provided that the Bank continues to
be a qualified thrift lender ("QTL"). See "Federal Savings
Institution Regulation - QTL Test." Upon any non-supervisory acquisition by
the Bancorp of another savings institution or savings bank that meets the QTL
test and is deemed to be a savings institution by the OTS, the Bancorp would
become a multiple savings and loan holding company (if the acquired institution
is held as a separate subsidiary) and would be subject to extensive limitations
on the types of business activities in which it could engage. The HOLA limits
the activities of a multiple savings and loan holding company and its
non-insured institution subsidiaries primarily to activities permissible for
bank holding companies under Section 4(c)(8) of the Bank Holding Company Act
("BHC Act"), subject to the prior approval of the OTS, and certain
activities authorized by OTS regulation, and no multiple savings and loan
holding company may acquire more than 5% of the voting stock of a company
engaged in impermissible activities.

The HOLA prohibits a savings and loan holding company, directly or indirectly,
or through one or more subsidiaries, from acquiring more than 5% of the voting
stock of another savings institution or holding company thereof, without prior
written approval of the OTS or acquiring or retaining control of a depository
institution that is not insured by the FDIC. In evaluating applications by
holding companies to acquire savings institutions, the OTS must consider the

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financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the insurance
funds, the convenience and needs of the community and competitive factors.

The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.

Although savings and loan holding companies are not subject to specific capital
requirements or specific restrictions on the payment of dividends or other
capital distributions, HOLA does prescribe such restrictions on subsidiary
savings institutions as described below. The Bank must notify the OTS 30 days
before declaring any dividend to the Bancorp. In addition, the financial impact
of a holding company on its subsidiary institution is a matter that is evaluated
by the OTS and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.

Federal Savings Institution Regulation

Business Activities. The activities of federal savings institutions
are governed by federal law and regulations. These laws and regulations
delineate the nature and extent of the activities in which federal associations
may engage. In particular, many types of lending authority for federal
associations are limited to a specified percentage of the institution's
capital or assets.

Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 4% leverage (core) capital ratio (or a 3% leverage (core) capital ratio
for those institutions with the highest rating on the CAMELS financial
institution rating system) and an 8% risk-based capital ratio. In addition, the
prompt corrective action standards discussed below also establish, in effect, a
minimum 2% tangible capital standard, a 4% leverage (core) capital ratio (3% for
institutions receiving the highest rating on the CAMELS financial institution
rating system), and, together with the risk-based capital standard itself, a 4%
Tier I risk-based capital standard. Core capital is defined as common
stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships. The OTS regulations
also require that, in meeting the tangible, leverage (core) and risk-based
capital standards, institutions must generally deduct investments in and loans
to subsidiaries engaged in activities as principal that are not permissible for
a national bank.

The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, as assigned by the OTS capital regulation based on the
risks OTS believes are inherent in the type of asset. The components of Tier I
(core) capital are equivalent to those discussed earlier. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital.

The OTS regulatory capital requirements also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value of its
assets (i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts) that would result from
a hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets. In
calculating its total capital under the risk-based capital rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference between the institution's measured
interest rate risk and

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2%, multiplied by the estimated economic value of the
institution's assets. The Director of the OTS may waive or defer a savings
institution's interest rate risk component on a case-by-case basis. A savings
institution with assets of less than $300 million and risk-based capital ratios
in excess of 12% is not subject to the interest rate risk component, unless the
OTS determines otherwise. For the present time, the OTS has deferred
implementation of the interest rate risk component. At March 31, 2001, the Bank
met each of its capital requirements and it is anticipated that the Bank would
not be subject to the interest rate risk component.

The following table presents the Bank's capital position at March 31, 2001.

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

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

Insurance of Deposit Accounts. Deposits of the Bank are presently
insured by the SAIF. The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon
the categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.

In addition to the assessment for deposit insurance, institutions are required
to pay on bonds issued in the late 1980s by the Federal Financing Corporation to
recapitalize the predecessor to the SAIF (the "FICO Bonds"). During
2000, FICO Bond payments for SAIF members and Bank Insurance Fund
("BIF" - the deposit insurance fund that covers most commercial bank
deposits) members approximated 2.07 basis points. The BIF and SAIF have equal
sharing of FICO Bond payments between the members of both insurance funds.

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The Bank's assessment rate for fiscal 2001 ranged from 1.9 to 3.0 basis points
and the premium paid for this period was $661,000 all of which was paid towards
the FICO Bonds. The FDIC has authority to increase insurance assessments. A
significant increase in SAIF insurance premiums would have an adverse effect on
the operating expenses and results of operations of the Bank. Management cannot
predict what the insurance assessment rate will be in the future.

Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.

Thrift Rechartering Legislation.Various proposals to eliminate
the federal savings association charter, create a uniform financial institutions
charter, abolish the OTS and restrict savings and loan holding company
activities have been introduced in Congress. The Bank is unable to predict
whether any of this legislation will be enacted or the extent to which
legislation might restrict or disrupt its operations.

Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. Generally, savings institutions may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. An additional amount may be lent, equal to 10% of unimpaired
capital and surplus, if such loan is secured by readily marketable collateral,
which is defined to include certain financial instruments and bullion. At March
31, 2001, the Bank's limit on loans to one borrower was $39.4 million. At
March 31, 2001, the Bank's largest aggregate outstanding balance of loans was
$36.1 million to a single family tract developer.

QTL Test. The HOLA requires savings institutions to meet a QTL
test. Under the QTL test, a savings and loan association must either qualify as
a "domestic building and loan association" as defined in the Internal
Revenue Code or maintain at least 65% of its "portfolio assets" (i.e,
total assets less: (i) specified liquid assets up to 20% of total assets; (ii)
intangibles, including goodwill; and (iii) the value of property used to conduct
business) in certain "qualified thrift investments" (primarily
residential mortgages and related investments, including certain mortgage-backed
securities) in at least 9 months out of each 12 month period.

A savings institution that fails the QTL test is subject to certain operating
restrictions and may be required to convert to a bank charter. As of March 31,
2001, the Bank maintained 76.11% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test. Recent legislation has expanded
the extent to which education loans, credit card loans and small business loans
may be considered "qualified thrift investments."

Limitation on Capital Distributions. OTS regulations impose
limitations upon all capital distributions by savings institutions, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger and other distributions
charged against capital. The rule effective in fiscal 1999 established three
tiers of institutions, which are based primarily on an institution's capital
level. An institution that exceeded all fully phased-in capital requirements
before and after a proposed capital distribution ("Tier 1 Bank") and
had not been advised by the OTS that it was in need of more than normal
supervision, could, after prior notice but without obtaining approval of the
OTS, make capital distributions during a calendar year equal to the greater of
(i) 100% of its net earnings to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of the
calendar year or (ii) 75% of its net income for the previous four quarters.
Effective April 1, 1999, the OTS's capital distribution regulation changed.
Under the new regulation, an application to and the prior approval of the OTS is
required before any capital distribution if the institution does not meet the
criteria for "expedited treatment" of applications under OTS
regulations, the total capital distributions for the calendar year exceed net
income for that year plus the amount of retained net income for the preceding
two years, the institution would be undercapitalized following the distribution,
or the distribution would otherwise be contrary to a statute, regulation or
agreement with the OTS. If an application is not required, institutions in a
holding company structure must still give advance notice to the OTS of the
capital distribution. If the Bank's capital fell below its regulatory
requirements or if the OTS notified it

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that it was in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution,
which would otherwise be permitted by the regulation, if the OTS determined that
the distribution would be an unsafe or unsound practice. At March 31, 2001, the
Bank was a Tier 1 Bank.

Liquidity. The Bank is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawal deposit accounts plus short-term
borrowings. This liquidity requirement was 4% at March 31, 2001. Monetary
penalties may be imposed for failure to meet these liquidity requirements. The
Bank's liquidity ratio at March 31, 2001 was 6.25%, which exceeded the
applicable requirement. The Bank has never been subject to monetary penalties
for failure to meet its liquidity requirements. Effective March 14, 2001, the
OTS adopted an interim rule eliminating the statutory liquidity requirement. In
its place, the OTS adopted a policy, consistent with that of the other Federal
banking regulatory agencies that liquidity be maintained at a level which
provides for safe and sound banking practices and financial flexibility.

Assessments. Savings institutions are required to pay assessments
to the OTS to fund the agency's operations. The general assessments, paid on a
semi-annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Bank's latest
quarterly thrift financial report. The assessments paid by the Bank for the
fiscal year ended March 31, 2001 totaled $509,000.

Branching. OTS regulations permit nationwide branching by
federally chartered savings institutions to the extent allowed by federal
statute. This permits federal savings institutions to establish interstate
networks and to geographically diversify their loan portfolios and lines of
business. The OTS authority preempts any state law purporting to regulate
branching by federal savings institutions.

Transactions with Related Parties. The Bank's authority to engage
in transactions with related parties or "affiliates" (e.g., any
company that controls or is under common control with an institution, including
the Bancorp and its non-savings institution subsidiaries) is limited by Sections
23A and 23B of the Federal Reserve Act ("FRA"). Section 23A limits the
aggregate amount of covered transactions with any individual affiliate to 10% of
the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is generally
prohibited. Section 23B generally provides that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary. The Bank's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such
persons control, is governed by Sections 22(g) and 22(h) of the FRA and
Regulation O thereunder. Among other things, such loans are required to be made
on terms substantially the same as those offered to unaffiliated individuals and
to not involve more than the normal risk of repayment. Recent legislation
created an exception for loans made pursuant to a benefit or compensation
program that is widely available to all employees of the institution and does
not give preference to insiders over other employees. Regulation O also places
individual and aggregate limits on the amount of loans the Bank may make to
insiders based, in part, on the Bank's capital position and requires certain
board approval procedures to be followed.

Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. Under the FDI Act, the FDIC has the authority to

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recommend to the
Director of the OTS enforcement action to be taken with respect to a particular
savings institution. If action is not taken by the Director, the FDIC has
authority to take such action under certain circumstances. Federal law also
establishes criminal penalties for certain violations.

Standards for Safety and Soundness. The federal banking agencies
have adopted Interagency Guidelines Prescribing Standards for Safety and
Soundness ("Guidelines") and a final rule to implement safety and
soundness standards required under the FDI Act. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The standards set forth in the Guidelines address internal controls
and information systems; internal audit system; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; asset quality;
earnings; and compensation, fees and benefits. If the appropriate federal
banking agency determines that an institution fails to meet any standard
prescribed by the Guidelines, the agency may require the institution to submit
to the agency an acceptable plan to achieve compliance with the standard, as
required by the FDI Act. The final rule establishes deadlines for the submission
and review of such safety and soundness compliance plans when such plans are
required.

Recent Developments. On November 12, 1999, the Gramm-Leach-Bliley
Financial Modernization Act of 1999 became law. The Modernization Act contains
new financial privacy provisions that will generally prohibit financial
institutions, including the Company and the Bank, from disclosing nonpublic
personal financial information to third parties unless customers have the
opportunity to "opt out" of the disclosure. The Modernization Act also
allows, among other things, for bank holding companies meeting certain
management, capital and CRA standards to engage in a substantially broader range
of nonbanking activities than were previously permissible, including insurance
underwriting and making merchant banking investments in commercial and financial
companies. The Modernization Act further allows insurers and other financial
services companies to acquire banks; removes various restrictions that currently
apply to bank holding company ownership of securities firms and mutual fund
advisory companies; and establishes the overall regulatory structure applicable
to bank holding companies that also engage in insurance and securities
operations.

Because the Modernization Act permits banks, securities firms and insurers to
combine and to offer a wide variety of financial products and services, many of
these resulting companies will be larger and have more resources than the
Company. Should these companies choose to compete directly with the Company in
its target markets, the Company's results of operations could be adversely
impacted.

Federal Reserve System

The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $42.8 million or less
(subject to adjustment by the Federal Reserve Board) the reserve requirement was
3%; and for accounts aggregating greater than $42.8 million, the reserve
requirement was $1.284 million plus 10% (subject to adjustment by the Federal
Reserve Board) 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 the Federal Reserve Board) were exempted from the reserve
requirements. The Bank maintained compliance with the foregoing requirements.
The balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements imposed by the OTS.

FEDERAL AND STATE TAXATION

Federal Taxation

General. 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

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for both IRS and California Franchise
Tax Board purposes through the 1994 tax year. The following discussion of tax
matters is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Company.

Tax Bad Debt Reserve. Formerly, savings institutions such as the
Bank which met certain definitional tests primarily relating to their assets and
the nature of their business "qualifying thrifts" were permitted to
establish a reserve for bad debts and to make annual additions , which additions
could, within specified formula limits, be deducted in arriving at taxable
income. The Bank's deduction with respect to "qualifying loans," (
generally loans secured by certain interests in real property), could be
computed using a percentage based on the Bank's actual loss experience, (the
"experience method"), or a percentage equal to eight percent of the
Bank's taxable income before such deduction (the "percentage of taxable
income method"). Each year the Bank selected the more favorable way to
calculate the deduction attributable to an addition to the bad debt reserve.

Pursuant to the Small Business Job Protection Act of 1996 (the "Act"),
Congress repealed the reserve method of accounting for bad debts for savings
institutions, effective for taxable years beginning after 1995. The Bank changed
its method of accounting for bad debts from the reserve method formerly
permitted under section 593 of the Internal Revenue Code of 1986, as amended
(the "Code") to the "specific charge-off" method. Under the
specific charge-off method, which is governed by section 166 of the Code and the
regulations thereunder, tax deductions may be taken for bad debts only if loans
become wholly or partially worthless. Although the Act requires that qualifying
thrifts recapture (i.e., include in taxable income) over a six-year period a
portion of their existing bad debt reserves equal to their "applicable
excess reserves," the Bank does not have applicable excess reserves subject
to recapture. However, the Bank's tax bad debt reserve balance of
approximately $25.3 million (as of March 31, 2001) will, in future years, be
subject to recapture in whole or in part upon the occurrence of certain events,
such as a distribution to shareholders in excess of the Bank's current and
accumulated earnings and profits, a redemption of shares, or upon a partial or
complete liquidation of the Bank. The Bank does not intend to make distributions
to shareholders that would result in recapture of any portion of its bad debt
reserves. These reserves would also be subject to recapture if the Bank fails to
qualify as a "bank" for federal income tax purposes.

Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as
amended (the "Code') imposes a tax on alternative minimum taxable
income ("AMTI") at a rate of 20%. The excess of the bad debt reserve
deduction using the percentage of taxable income method over the deduction that
would have been allowable under the experience method is treated as a preference
item for purposes of computing the AMTI. Only 90% of AMTI can be offset by net
operating loss carryovers of which the Company currently has none. AMTI is
increased by an amount equal to 75% of the amount by which the Company's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). In addition, for
taxable years beginning after December 31, 1996 and before January 1, 1996, an
environmental tax of .12% of the excess of AMTI (with certain modifications)
over $2.0 million is imposed on corporations, including the Company, whether or
not an Alternative Minimum Tax ("AMT") is paid. The Company does not
expect to be subject to the AMT, but may be subject to the environmental tax
liability.

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

State and Local Taxation

State of California. The California franchise tax rate applicable to
the Company equals the franchise tax rate applicable to corporations generally,
plus an "in lieu" rate approximately equal to personal property taxes
and business license taxes paid by such corporations (but not generally paid by
banks or financial corporations such as the Company); however, the total tax
rate cannot exceed 10.84%. Under California regulations, bad debt deductions are
available in computing California franchise taxes using a three or six-year
weighted average loss experience

38

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method. The Bancorp and its California
subsidiary file California state franchise tax returns on a combined basis.
Assuming that the holding company form of organization is continued to be
utilized, the Bancorp, as a savings and loan holding company commercially
domiciled in California, will generally be treated as a financial corporation
and subject to the general corporate tax rate plus the "in lieu" rate
as discussed previously.

Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Bancorp is exempted from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.

Item 2. Properties.

As of March 31, 2001, PFF Bank & Trust was conducting its business
through 24 banking branches, two trust offices (one of which is domiciled in one
of the Bank's branch banking buildings), a regional loan center, a satellite
loan office, a human resources and training center, plus one executive
administrative building and one records center.

The executive offices for the Bank and the Bancorp are located at 350 South
Garey Avenue, Pomona, California.

Of the 24 banking branches, 17 of the buildings and the land on which they are
located are owned, one building is owned on leased land, and six buildings and
the land on which they are located are leased. The separate trust office, the
administrative office and land on which they are located are leased. The
regional loan center and the land on which it is located are owned and the
satellite loan office is leased. The human resources and training center and the
records center and land occupied by them are owned.

As of March 31, 2001, the net book value of owned real estate including the
branch located on leased land totaled $18.3 million. The net book value of
leased offices was $2.0 million. The net book value of furniture, fixtures and
electronic data processing equipment was $4.6 million.

Item 3. Legal Proceedings.

The Bancorp and subsidiaries have been named as defendants in various
lawsuits arising in the normal course of business. The outcome of these lawsuits
cannot be predicted, but the Bancorp intends to vigorously defend the actions
and is of the opinion that the lawsuits will not have a material effect on the
Bancorp.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

39

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.

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

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


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

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


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

40

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Item 6. Selected Financial Data.

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

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


(continued on next page)

41

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|                                                    | For the Year Ended March 31,                    
|--------------------------------------------------- | ------------------------------------------------
|                                                    | 2001                                            
|                                                    | (Dollars in thousands, except per share amounts)
|                                                    |                                                 
|Selected Operating Data:                            |                                                 
|                                                    |                                                 
|Interest income                                     | $ 240,356                                       
|Interest expense                                    | 143,471                                         
|Net interest income                                 | 96,885                                          
|Provision for loan losses                           | 5,004                                           
|Net interest income after provision for loan losses | 91,881                                          
|Non-interest income                                 | 13,912                                          
|Non-interest expense:                               |                                                 
|General and administrative
      expense            | 57,066                                          
|SAIF recapitalization assessment                    | -                                               
|Foreclosed real estate operations, net              | (324)                                           
|Total non-interest expense                          | 56,742                                          
|Earnings before income taxes                        | 49,051                                          
|Income taxes                                        | 20,791                                          
|Net earnings                                        | $ 28,260                                        
|Basic earnings per share (2)                        | $ 2.42                                          
|Diluted earnings per share (2)                      | $ 2.20                                          

(continued on next page)

42

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|                                                                           | At or for the Year Ended March 31,
|-------------------------------------------------------------------------- | ----------------------------------
|                                                                           | 2001                              
|                                                                           | (Dollars in thousands)            
|                                                                           |                                   
|Performance Ratios (3):                                                    |                                   
|Return on average assets                                                   | 0.95%                             
|Return on average equity                                                   | 11.81                             
|Average equity to average assets                                           | 8.04                              
|Equity to total assets at end of period                                    | 8.94                              
|Net interest spread (4)                                                    | 2.94                              
|Effective interest spread (5)                                              | 3.32                              
|Average interest-earning assets to average interest-bearing liabilities    | 107.72                            
|Core efficiency ratio (6)                                                  | 50.82                             
|General and administrative expense to average assets                       | 1.92                              
|Regulatory Capital Ratios (3)(7):                                          |                                   
|Tangible capital                                                           | 8.28                              
|Core capital                                                               | 8.28                              
|Risk-based capital                                                         | 12.72                             
|Asset Quality Ratios (3):                                                  |                                   
|Non-performing loans as a percent of gross loans receivable (8)(9)         | 0.45                              
|Non-performing assets as a percent
      of total assets (9)               | 0.41                              
|Allowance for loan losses as a percent of gross loans receivable
      (8) | 1.22                              
|Allowance for loan losses as a percent of non-performing loans (9)         | 270.20                            
|Number of full-service customer facilities                                 | 24                                
|Loan originations                                                          | $1,049,535                        

____________________________
(1) The allowances for loan losses at March 31, 2001,
2000, 1999, 1998, and 1997 were $31.0 million $27.8 million, $26.2 million,
$26.0 million, and $27.7 million, respectively.
(2) Earnings per share have been restated to reflect the adoption of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share."
(3) Asset Quality Ratios and Regulatory Capital Ratios are end of period ratios.
Performance Ratios are based on average daily balances during the indicated
periods.
(4) Net interest spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Effective interest spread represents net interest income as a percent of
average interest-earning assets.
(6) Core efficiency ratio represents general and administrative expense as a
percent of net interest income plus core non-interest income. Core non-interest
income excludes trading securities activity, fiscal 2000 gain on branch sale and
fiscal 2000 marketable equity security impairment writedown.
(7) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation - Federal Savings Institution
Regulation - Capital Requirements."
(8) Gross loans receivable includes loans receivable held for investment and
loans held for sale.
(9) Non-performing assets consist of non-performing loans and REO.
Non-performing loans consist of all loans 90 days or more past due and all other
non-accrual loans. It is the Bank's policy to cease accruing interest on loans
90 days or more past due. See "Business of the Bank - Non-Accrual and
Past Due Loans" and "Real Estate."

43

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

Asset/Liability Management

The Company's earnings depend primarily on its net interest income. Net
interest income is affected by net interest spread. Changes in net interest
spread ("interest rate risk") are influenced to a significant degree
by the repricing characteristics of assets and liabilities ("timing
risk"), the relationship between various rates ("basis risk"),
customer options, and changes in the shape of the yield curve.

The Company's Asset/Liability Committee ("ALCO") is responsible for
implementing the interest rate risk policies designed to manage its interest
rate risk exposure. The Board of Directors approves acceptable interest rate
risk levels designed to provide sufficient net interest income and market value
of shareholder equity ("NPV") assuming specified changes in interest
rates. NPV is defined as the present value of expected net cash flows from
existing assets minus the present value of expected net cash flows from existing
liabilities.

One measure of the Company's exposure to interest rate risk is shown in the
following table which sets forth the repricing frequency of its major assets and
liabilities as of March 31, 2001. Repricing frequencies of assets are based upon
contractual maturities, repricing opportunities, and the scheduled principal
payments and estimated prepayments. Repricing of liabilities are based upon the
contractual maturities, estimated decay rates for core deposits, and the
earliest repricing opportunity for variable and floating rate instruments. The
Company also had $165.0 million of putable FHLB advances on the balance sheet as
of March 31, 2001 that are assumed to reprice at their next put date. The
interest rate sensitivity of the Company's assets and liabilities illustrated
in the following table would vary substantially if different assumptions were
used, or if actual experience differed from that assumed.

44

---



|                                                                                                     | March 31, 2001        
|---------------------------------------------------------------------------------------------------- | ----------------------
|                                                                                                     | 3 Months
      or Less
|                                                                                                     | (Dollars in thousands)
|Interest-earning assets:                                                                             |                       
|Cash, investment securities, collateralized mortgage obligations and FHLB stock (1)                  | $    189,925          
|Loans and mortgage-backed securities: (1)                                                            |                       
|Mortgage-backed securities                                                                           | 64,908                
|Loans receivable, net                                                                                | 1,168,567             
|Total loans and mortgage-backed securities                                                           | 1,233,475             
|Total interest-earning assets                                                                        | 1,423,400             
|Non-interest earning assets                                                                          | -                     
|Total assets                                                                                         | $ 1,423,400           
|                                                                                                     |                       
|Interest-bearing liabilities:                                                                        |                       
|Fixed maturity deposits                                                                              | $   397,098           
|Core deposits (2)                                                                                    | 201,781               
|Total deposits                                                                                       | 598,879               
|Borrowings (3)                                                                                       | 305,000               
|Total interest-bearing liabilities                                                                   | 903,879               
|Non-interest bearing liabilities                                                                     | -                     
|Equity                                                                                               | -                     
|Total liabilities and stockholders' equity                                                           | $  903,879            
|Interest sensitivity gap                                                                             | $  519,521            
|Cumulative interest sensitivity gap                                                                  | 519,521               
|Cumulative interest sensitivity gap as a
      percentage of total assets                            | 18.00%                
|Cumulative interest-earning assets as a percentage of cumulative interest-
      bearing liabilities | 157.48                

(1) Based upon contractual maturities, repricing date and
forecasted principal payments assuming normal amortization and, where applicable
prepayments.
(2) Assumes annual decay rates ranging from 20%-33%.
(3) Putable borrowings are presented based upon their first put date.

45

---

The Company's one year GAP at March 31, 2001, was negative 10.08% (i.e., more
interest bearing liabilities reprice within one year than interest-earning
assets); this compares with positive 2.96% at March 31, 2000. The change in the
Company's one-year repricing GAP between March 31, 2000 and 2001 is
attributable, in part, to a change in the presentation of core deposits from
decay rates with lives of more than five years to recognition that all core
deposits are subjected to repricing within one year.

Although the table indicates the Company is more exposed to declining interest
rates in the short term, a GAP table is limited to measuring the timing risk and
does not reflect the impact of customer options or basis risk. To better measure
the Company's exposure to these and other components of interest rate risk,
management relies on an internally maintained, externally supported
asset/liability simulation model.

The Company forecasts its net interest income for the next twelve months, and
its NPV, assuming there are no changes in interest rates or the balance sheet
structure from the current period end. Once this "base case" has been
established, the Company subjects its balance sheet to instantaneous and
sustained rate changes of 100 and 200 basis points to the treasury yield curve.
Prepayment speeds and the responsiveness of the various indices are estimated
for each rate change level. The model then re-forecasts net interest income and
NPV. The tables below indicate the results of the Company's internal modeling
of its balance sheet as of March 31, 2001 and 2000. Once again, it should be
noted that the internal calculation of the Company's sensitivity to interest
rate changes would vary substantially if different assumptions were used, or if
the Company's response to changes in interest rates included changes in the
structure of its balance sheet.

March 31, 2001Percentage ChangeChange in Interest Rates
      (in basis points)
    Net Interest Income (1)
    Net Portfolio Value (2)200
    1.10%
    13.27%100
    1.21
    9.16(100)
    (0.58)
    (16.87)(200)
    (0.87)
    (37.06)


(1) This percentage change represents the impact to net interest
income for the period from April 1, 2001 through March 31, 2002 assuming the
Company does not change the structure of its balance sheet.
(2) This percentage represents the NPV of the Company assuming no changes to the
balance sheet.

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

46

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March 31, 2000Percentage ChangeChange in Interest Rates
      (in basis points)
    Net Interest Income (1)
    Net Portfolio Value (2)200
    (8.43)%
    (56.43)%100
    (2.06)
    (27.47)(100)
    0.44
    26.71(200)
    0.14
    53.08


(1) This percentage change represents the impact to net interest
income for the period from April 1, 2000 through March 31, 2001 assuming the
Company does not change the structure of its balance sheet.
(2) This percentage represents the NPV of the Company assuming no changes to the
balance sheet.

Although the GAP table indicates the Company's net interest income should
perform better in a rising rate environment, results from the asset/liability
simulation model indicate that yield compression would occur decreasing net
interest income over the next twelve months. These results reflect the impact
rising rates would have in decreasing prepayments, assets encountering periodic
and lifetime caps and other factors that are not included in the GAP table.

The OTS produces an analysis of the Bank's interest rate risk using its own
model, based upon data submitted on the Bank's quarterly Thrift Financial
Reports. The results of the OTS model may vary from the Bank's internal model
primarily due to differences between assumptions utilized in the Bank's
internal model and the OTS model, including estimated loan market rates,
prepayment rates, reinvestment rates and deposit decay rates. As of March 31,
2001, the Bank's sensitivity measure, as calculated by the OTS, was a negative
1.80%. This represents a decrease in sensitivity of 97 basis points from the
March 31, 2000 results.

47

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Average Balance Sheets

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

|                                                                        | Year Ended March 31,  
|----------------------------------------------------------------------- | ----------------------
|                                                                        | 2001                  
|                                                                        | Average
      Balance 
|                                                                        | (Dollars in thousands)
|                                                                        |                       
|Assets:                                                                 |                       
|                                                                        |                       
|Interest-earning assets:                                                |                       
|Interest-earning deposits and short-term investments                    | $        32,979       
|Investment securities, net                                              | 88,290                
|Mortgage-backed securities, net                                         | 338,956               
|Collateralized mortgage obligations, net                                | 86,267                
|Loans receivable, net                                                   | 2,323,919             
|FHLB stock                                                              | 46,094                
|Total interest-earning assets                                           | 2,916,505             
|Non-interest-earning assets                                             | 59,426                
|Total assets                                                            | $   2,975,931         
|                                                                        |                       
|Liabilities and Stockholders' Equity:                                   |                       
|Interest-bearing liabilities:                                           |                       
|Passbook accounts                                                       | $      128,955        
|Money market savings accounts                                           | 385,973               
|NOW and other demand deposit accounts                                   | 239,064               
|Certificate accounts                                                    | 1,178,726             
|Total                                                                   | 1,932,718             
|FHLB advances and other borrowings                                      | 774,750               
|Total interest-bearing liabilities                                      | 2,707,468             
|Non-interest-bearing liabilities                                        | 29,215                
|Total liabilities                                                       | 2,736,683             
|Stockholders' equity                                                    | 239,248               
|Total liabilities and stockholders' equity                              | $   2,975,931         
|Net interest income                                                     |                       
|Net interest spread                                                     |                       
|Effective interest spread                                               |                       
|Ratio of interest-earning assets to interest-
      bearing liabilities | 107.72%               

48

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

|                                                     | Year Ended March 31, 2001
      Compared to
      Year Ended March 31, 2000 | Year Ended March 31, 2000
      Compared to
      Year Ended March 31, 1999
|---------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------------------------------------
|                                                     | Increase (Decrease)
      Due to                                            | Increase (Decrease)
      Due to                                           
|                                                     | Volume                                                                      | Rate                                                                       
|                                                     | (Dollars in thousands)                                                     
|                                                     |                                                                             |                                                                            
|Interest-earning assets:                             |                                                                             |                                                                            
|Interest-earning deposits and short-term investments | $     (126)                                                                 | 520                                                                        
|Investment securities, net                           | (252)                                                                       | 731                                                                        
|Mortgage-backed securities, net                      | (6,290)                                                                     | 837                                                                        
|Collateralized mortgage obligations, net             | (405)                                                                       | 973                                                                        
|Loans receivable, net                                | 12,817                                                                      | 14,329                                                                     
|FHLB stock                                           | 124                                                                         | 888                                                                        
|Total interest-earning assets                        | 5,868                                                                       | 18,278                                                                     
|                                                     |                                                                             |                                                                            
|Interest-bearing liabilities:                        |                                                                             |                                                                            
|Passbook accounts                                    | (272)                                                                       | (145)                                                                      
|Money market savings accounts                        | (679)                                                                       | 1,769                                                                      
|NOW and other demand deposit accounts                | 168                                                                         | 380                                                                        
|Certificate accounts                                 | 4,021                                                                       | 9,732                                                                      
|FHLB advances and other borrowings                   | (3,672)                                                                     | 5,358                                                                      
|Total interest-bearing liabilities                   | (434)                                                                       | 17,094                                                                     
|Change in net interest income                        | $ 6,302                                                                     | 1,184                                                                      

49

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

General

Net earnings increased
from $26.6 million for fiscal 2000 to $28.3 million for fiscal 2001. Core net
earnings (defined as net earnings excluding activity, net of taxes, in the
Company's trading securities portfolio, the fiscal 2000 gain on a branch sale
and the fiscal 2000 impairment writedown of a marketable equity security)
increased 15 percent 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 $88.8 million
for fiscal 2000 to $96.9 million for fiscal 2001 arising from expansion of
effective interest spread coupled with growth in average interest-earning
assets.

Interest Income

Interest income increased $25.0 million or 12% from $215.3 million for
fiscal 2000 to $240.4 million for fiscal 2001. The increase was attributable
principally to a 72 basis point increase in yield on average interest-earning
assets from 7.52% for fiscal 2000 to 8.24% 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 66 basis points from 7.94%
for fiscal 2000 to 8.60% 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 proportion of the loan portfolio comprised by the disbursed balance of
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 the aggregate average balance of 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 to which 30% of the Company's
securities portfolio is tied averaged 5.71% during fiscal 2001 compared to 5.45%
during fiscal 2000. One month LIBOR, to which 6% of the Company's securities
portfolio is tied averaged 6.28% during fiscal 2001 compared to 5.47% during
fiscal 2000. Premium amortization net of discount accretion on securities of
$802,000 for fiscal 2001 and $1.2 million for fiscal 2000 decreased the yield on
securities by 9 basis points and 18 basis points for fiscal 2001 and 2000,
respectively. The weighted average cost basis of the securities held by the
Company at March 31, 2001 was 100.88 percent of par value.

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 aggregate average balance of
investment securities from $622.4 million to $513.5 million.

During fiscal 2001, the Company continued the strategy it began during fiscal
1999 of reducing its wholesale leverage (securities funded with FHLB advances
and other borrowings). This strategy was undertaken in connection with the
Company's focus on enhancing its net interest spread and achieving an earnings
stream and balance sheet comprised to a greater extent by the Four-Cs on the
asset side and core deposits on the liability side. Strong loan origination
volumes of the Four-Cs have provided an investment alternative for the Company
which is preferential to securities, and is consistent with its long term
strategic objectives.

50

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Interest Expense

Interest 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 the average
balance of 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 reflects the increase in the Company's
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 $13.9 million for fiscal 2001 compared to $17.3
million for fiscal 2000. Core non-interest income (total non-interest income
excluding trading securities portfolio activity, fiscal 2000 gain on branch sale
and fiscal 2000 marketable equity security impairment writedown) increased
$300,000 or 2% between fiscal 2000 and fiscal 2001 to $15.4 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 to $1.0 million for fiscal 2001 from $1.4 million for
fiscal 2000. 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 reflect 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 a $995,000 writedown of a marketable equity security
deemed to be other than temporarily impaired. Loan and servicing fees of $3.4
million for fiscal 2001 were comparable with fiscal 2000. 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.

Non-Interest Expense

Non-interest expense was $56.7 million for fiscal 2001 compared to $55.2
million for fiscal 2000. 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 $5.7 million
and $5.2 million associated with the

51

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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.

Comparison of Financial Condition at March 31, 2001 and March 31, 2000

Total assets decreased $147.6 million or 5% from $3.03 billion at March
31, 2000 to $2.89 billion at March 31, 2001. Loans receivable, net decreased
$41.4 million from $2.33 billion at March 31, 2000 to $2.29 billion at March 31,
2001. Loan originations were $1.05 billion for fiscal 2001 compared to $1.27
billion for fiscal 2000. The decrease in originations between fiscal 2000 and
2001 reflects the Bank's de-emphasis on 1-4 family residential mortgage
lending. The weighted average initial contract rate for total loan originations
was 10.07% for fiscal 2001, compared to 8.25% for fiscal 2000. Investment
securities (as defined earlier) decreased $110.3 million from $555.4 million at
March 31, 2000 to $445.1 million at March 2001. The $16.4 million increase in
cash and cash equivalents from $35.1 million at March 31, 2000 to $51.5 million
at March 31, 2001 reflects the acceleration in cash inflows during the fourth
quarter of fiscal 2001 arising from increased levels of loan and investment
security pre-payments.

Total liabilities decreased $183.8 million or 7% from $2.81 billion March 31,
2000 to $2.63 billion at March 31, 2001. Total deposits increased $114.7 million
from $1.91 billion at March 31, 2000 to $2.02 billion at March 31, 2001. Core
deposits increased $64.7 million during fiscal 2001 to $803.9 million or 40
percent of total deposits at March 31, 2001. FHLB advances and other borrowings
decreased $309.0 million from $884.0 million at March 31, 2000 to $575.0 million
at March 31, 2001. The decrease in FHLB advances and other borrowings was
facilitated by the strong deposit activity as well as the Bank's strategy of
de-emphasizing wholesale leverage. In response to the acceleration in cash
inflows from loans and securities, the Bank pre-paid $65.0 million of FHLB
advances and other borrowings during the fourth quarter of fiscal 2001.

Total stockholders' equity increased $36.2 million from $221.8 million at
March 31, 2000 to $258.0 million at March 31, 2001. The $36.2 million increase
is comprised principally of a $24.2 million increase in retained earnings,
substantially restricted, a $4.4 million decrease in unearned stock-based
compensation and a $7.1 million decrease in accumulated other comprehensive loss
on securities available-for-sale. The $24.2 million increase in retained
earnings, substantially restricted was attributable to the Company's net
earnings of $28.3 million for fiscal 2001 partially offset by 1) $2.6 million
attributable to the amount paid by the Company to repurchase 145,000 shares of
its common stock in excess of the original issuance price of the stock and 2)
$3.2 million of cash dividends declared during fiscal 2001. The $4.4 million
decrease in unearned stock-based compensation was attributable to the
amortization of shares under the Company's ESOP ($1.8 million) and 1996
Incentive Plan ($2.6 million).

52

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

General

The Company reported net earnings of $26.6 million for fiscal 2000
compared to net earnings of $19.0 million for fiscal 1999. The improvement in
operating results between fiscal 2000 and fiscal 1999 was attributable
principally to an increase in net interest income from $76.6 million for fiscal
1999 to $88.8 million for fiscal 2000 attributable to expansion of net interest
rate spread coupled with growth in average interest-earning assets and an
increase in non-interest income from $15.5 million for fiscal 1999 to $17.3
million for fiscal 2000 driven principally by a $1.5 million gain on branch sale
during fiscal 2000.

Interest Income

Interest income increased $8.4 million or 4% from $207.0 million for
fiscal 1999 to $215.3 million for fiscal 2000. The increase was attributable to
a $37.3 million increase in average interest-earning assets from $2.83 billion
for fiscal 1999 to $2.86 billion for fiscal 2000 and a 20 basis point increase
in yield on average interest-earning assets from 7.32% for fiscal 1999 to 7.52%
for fiscal 2000.

The increase in average interest-earning assets between fiscal 1999 and fiscal
2000 was comprised principally of a $289.6 million increase in the average
balance of loans receivable, net from $1.87 billion for fiscal 1999 to $2.16
billion for fiscal 2000, partially offset by a $244.0 million decrease in the
aggregate average balance of securities from $866.3 million for fiscal 1999 to
$622.4 million for fiscal 2000.

The average yield on loans receivable, net increased 4 basis points from 7.90%
for fiscal 1999 to 7.94% for fiscal 2000 reflecting the Bank's increased
emphasis on the origination of the Four-Cs. The disbursed balance of the Four-Cs
increased $252.8 million during fiscal 2000 to $736.5 million or 32% of loans
receivable, net at March 31, 2000 from $483.7 million or 24% of loans
receivable, net at March 31, 1999.

The level of prepayments of higher yielding residential mortgage loans declined
between fiscal 1999 and fiscal 2000. This decline resulted in a decrease in
premium amortization on purchased loans. This premium amortization, net of
discount accretion, amounted to $501,000 or a 2 basis point reduction in yield
on loans receivable, net for fiscal 2000 compared to $2.3 million or a 13 basis
point reduction in yield for fiscal 1999. At March 31, 2000, the Bank's
weighted average carrying value of loans purchased from others as a percentage
of outstanding principal balance was 101.6%.

The average yield on the aggregate average balance of securities was 6.39% for
fiscal 2000 compared to 6.27% for fiscal 1999. Consistent with the Company's
strategy of reducing wholesale leverage, maturing securities were not replaced.
Premium amortization net of discount accretion on securities of $1.2 million for
fiscal 2000 and $3.8 million for fiscal 1999 decreased the yield on investment
securities by 18 basis points and 43 basis points for fiscal 2000 and 1999,
respectively. The one year CMT index to which 32% of the Company's March 31,
2000 securities portfolio is tied, averaged 5.45% during fiscal 2000 compared to
4.89% during fiscal 1999. One month LIBOR, to which 5% of the Company's March
31, 2000 securities portfolio is tied, averaged 5.47% during fiscal 2000
compared to 5.36% during fiscal 1999. The weighted average cost basis of the
securities held by the Company at March 31, 2000 was 100.83 percent of par
value.

Interest Expense

Interest expense decreased $3.8 million or 3% from $130.4 million for
fiscal 1999 to $126.5 million for fiscal 2000. The decrease in interest expense
was due to a 16 basis point decrease in the average cost of interest-bearing
liabilities from 4.85% for fiscal 1999 to 4.69% for fiscal 2000, partially
offset by an $8.3 million increase in average interest-bearing liabilities from
$2.69 billion for fiscal 1999 to $2.70 billion for fiscal 2000.

The increase in the average balance of interest-bearing liabilities was
comprised of a $76.6 million increase in the average balance of deposits from
$1.78 billion for fiscal 1999 to $1.86 billion for fiscal 2000, partially offset
by a

53

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$68.7 million decrease in the average balance of FHLB advances and other
borrowings from $905.2 million for fiscal 1999 to $836.5 million for fiscal
2000. The $76.6 million increase in the average balance of deposits during
fiscal 2000 is net of $45.9 million of deposits sold during the fiscal year.

The average cost of deposits decreased from 4.47% for fiscal 1999 to 4.27% for
fiscal 2000. Contributing to the decrease in the average cost of deposits was a
$128.5 million increase in the average balance of core deposits from $626.7
million for fiscal 1999 to $755.2 million for fiscal 2000. The average cost of
FHLB advances and other borrowings was 5.64% for fiscal 2000 compared to 5.60%
for fiscal 1999.

Provision for Loan Losses

Provision for loan losses was $4.0 million for both fiscal 1999 and
2000. The consistency in provision for loan losses between fiscal 1999 and 2000
reflects the relationship between two factors. The Bank is experiencing
improvement in its overall level of asset quality and has assessed an
improvement in general economic conditions and property valuations in its market
area. At the same time, the Bank's emphasis on the Four-Cs is changing the
overall risk profile of the Bank's loan portfolio. Non-performing loans were
$5.4 million or 0.21% of gross loans receivable at March 31, 2000 compared to
$11.0 million or 0.50% of gross loans receivable at March 31, 1999. The
allowance for loan losses was $27.8 million or 1.09% of gross loans receivable
at March 31, 2000 compared to $26.2 million or 1.18% of gross loans receivable
at March 31, 1999.

Non-Interest Income

Non-interest income was $17.3 million for fiscal 2000 compared to $15.5
million for fiscal 1999, an increase of $1.7 million or 11%. The increase was
attributable principally to a $1.5 million gain on branch sale during fiscal
2000. Deposit and related fees were $9.1 million for fiscal 2000 compared to
$8.6 million for fiscal 1999. Trust fees were $2.1 million for fiscal 2000
compared to $1.9 million for fiscal 1999. Gain (loss) on sales of assets was
($1.0 million) for fiscal 2000 compared to $698,000 for fiscal 1999. The $1.0
million loss for fiscal 2000 includes a $995,000 writedown of a marketable
equity security deemed to be other than temporarily impaired. The increase in
loan and servicing fees from $2.8 million for fiscal 1999 to $3.5 million for
fiscal 2000 is attributable, in part, to a $445,000 prepayment fee received on a
commercial loan during fiscal 2000. The net gain from trading activity was $1.7
million for fiscal 2000 compared to $569,000 for fiscal 1999.

Non-Interest Expense

Non-interest expense was $55.2 million for fiscal 2000 compared to $54.9
million for fiscal 1999. General and administrative expense increased $546,000
or 1% from $55.0 million or 1.85% of average assets for fiscal 1999 to $55.5
million or 1.87% of average assets for fiscal 2000. Compensation and benefits
expense increased $1.5 million from $28.0 million for fiscal 1999 to $29.5
million for fiscal 2000. Included in compensation and benefits expense are
non-cash charges of $3.1 million and $2.1 million associated with the Bank's
ESOP and 1996 Incentive Plan. Occupancy and equipment expense was $11.7 million
for fiscal 2000 compared to $12.1 million for fiscal 1999. The $408,000 decrease
in occupancy and equipment expense between fiscal 1999 and fiscal 2000 was
attributable principally to a reduction in expenditures and reduced
depreciation. The $930,000 decrease in other non-interest expense from $10.2
million for fiscal 1999 to $9.2 million for fiscal 2000 was due primarily to a
$433,000 reduction in office supplies and expense resulting from renegotiation
and consolidation of telecommunications services.

Income Taxes

Income taxes were $20.2 million for fiscal 2000 compared to $14.2
million for fiscal 1999. The effective income tax rate for fiscal 2000 was 43.2%
compared to an effective tax rate of 42.8% for fiscal 1999.

54

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Liquidity and Capital Resources

The 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 March 14, 2001 the OTS
adopted an interim rule eliminating the statutory liquidity requirement. In its
place, the OTS adopted a policy, consistent with that of the other Federal
banking regulatory agencies, that liquidity be maintained at a level which
provides for safe and sound banking practices and financial flexibility. The
Bank's average liquidity ratios were 5.09%, 5.04% and 4.85% for the years
ended March 31, 2001, 2000 and 1999, respectively. This reflects management's
strategy 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 invests in callable debt issued by
Federal agencies of the U.S. government when the yields thereon to call date(s)
and maturity exceed 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 $54.0 million, $23.7 million
and $55.3 million for the years ended March 31, 2001, 2000 and 1999,
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 $1.05 billion, $902.9 million and $831.5
million for the years ended March 31, 2001, 2000 and 1999, respectively.
Disbursements on loans originated and purchased, excluding loans originated for
sale, were $1.05 billion, $1.24 billion and $1.11 billion for the years ended
March 31, 2001, 2000 and 1999, respectively. Disbursements for purchases of
mortgage-backed and other investment securities and collateralized mortgage
obligations were $5.0 million, $30.0 million and $416.3 million for the years
ended March 31, 2001, 2000 and 1999, respectively. Proceeds from the maturation
of investment securities and paydowns of mortgage-backed securities and
collateralized mortgage obligations were $122.9 million, $162.6 million and
$419.8 million for the years ended March 31, 2001, 2000 and 1999 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 $114.7 million, $63.0 million and $102.7 million for
the years ended March 31, 2001, 2000 and 1999, respectively. The net increases
(decreases) in FHLB advances and other borrowings were ($309.0 million), $70.0
million and $28.1 million for the years ended March 31, 2001, 2000 and 1999,
respectively.

At March 31, 2001, the Bank exceeded all of its regulatory capital requirements
with a tangible capital level of $237.8 million, or 8.28% of adjusted total
assets, which is above the required level of $43.0 million, or 1.50%; core
capital of $237.8 million, or 8.28% of adjusted total assets, which is above the
required level of $114.9 million, or 4.00% and total risk-based capital of
$263.0 million, or 12.72% of risk-weighted assets, which is above the required
level of $165.4 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, 2001,
cash and short-term investments totaled $51.5 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,
2001, the Bank had $575.0 million of FHLB advances outstanding. Based upon
pledged collateral in place, the Company had available borrowing capacity of
$412.2 million as of March 31, 2001. No collateral was pledged under reverse
repurchase agreements at March 31, 2001. Other sources of liquidity include
securities maturing within one year.

55

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The Company currently has no material contractual obligations or commitments for
capital expenditures. See "Item 1 - Description of Business -
General." At March 31, 2001 the Bank had outstanding commitments to
originate and purchase loans of $124.6 million and zero, respectively, compared
to $87.9 million and zero, respectively, at March 31, 2000. At March 31, 2001
and 2000 the Company had no outstanding commitments to purchase mortgage-backed
securities, collateralized mortgage obligations and other investment securities.
The Company anticipates that it will have sufficient funds available to meet
these commitments. See "Item 1 - Description of Business - General."
Certificate accounts that are scheduled to mature in less than one year from
March 31, 2001 totaled $1.09 billion. The Bank expects that a substantial
portion of the maturing certificate accounts will be retained by the Bank at
maturity.

Impact of Inflation

The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollar amounts
or market value without considering the changes in the relative purchasing power
of money over time due to inflation. The impact of inflation is reflected in the
increased cost of the Company's operations. Unlike industrial companies,
nearly all of the assets and liabilities of the Company are monetary in nature.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price of
goods and services.

Segment Reporting

The Company, through the branch network of the Bank, provides a broad
range of financial services to individuals and companies located primarily in
Southern California. These services include demand, time, and savings deposits;
real estate, business and consumer lending; ATM processing; cash management; and
trust services. While the Company's chief decision makers monitor the revenue
streams of the various Company products and services, operations are managed and
financial performance is evaluated on a Company-wide basis. Accordingly, all of
the Company's banking operations are considered by management to be aggregated
in one reportable operating segment.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Disclosure related to market risk is included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Asset/Liability Management" contained in Item 7 of this Form 10-K.

56

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Item 8. Financial Statements and Supplementary Data

|Index to Financial Statements                                                                 | PAGE
|--------------------------------------------------------------------------------------------- | ----
|Consolidated Balance Sheets - March 31, 2001 and 2000                                         | 58  
|Consolidated Statements of Earnings - Years ended March 31, 2001, 2000 and 1999               | 59  
|Consolidated Statements of Comprehensive Earnings - Years ended March 31, 2001,
2000 and 1999 | 60  
|Consolidated Statements of Stockholders' Equity - Years ended March 31, 2001, 2000 and 1999   | 61  
|Consolidated Statements of Cash Flows - Years ended March 31, 2001, 2000 and 1999             | 62  
|Notes to Consolidated Financial Statements                                                    | 64  
|Independent Auditors' Report                                                                  | 98  

57

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

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


See accompanying notes to consolidated financial statements.

58

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



|                                                                         | Year Ended March 31,
|------------------------------------------------------------------------ | --------------------
|                                                                         | 2001                
|                                                                         |                     
|Interest income:                                                         |                     
|Mortgage loans                                                           | $ 171,592           
|Non-mortgage loans                                                       | 28,326              
|Mortgage-backed securities                                               | 22,274              
|Collateralized mortgage obligations                                      | 6,393               
|Investment securities and deposits                                       | 11,771              
|Total interest income                                                    | 240,356             
|Interest on deposits (note 10)                                           | 94,989              
|Interest on borrowings (note 11)                                         | 48,482              
|Total interest expense                                                   | 143,471             
|Net interest income                                                      | 96,885              
|Provision for loan losses (note 7)                                       | 5,004               
|Net interest income after provision for loan losses                      | 91,881              
|Non-interest income:                                                     |                     
|Deposit and related fees                                                 | 8,969               
|Trust fees                                                               | 1,846               
|Loan and servicing fees (note 20)                                        | 3,447               
|Gain (loss) on sale of assets, net (note 20)                             | 557                 
|Gain (loss) on trading securities, net                                   | (1,490)             
|Gain on sale of branch                                                   | -                   
|Other non-interest income                                                | 583                 
|Total non-interest income                                                | 13,912              
|Non-interest expense:                                                    |                     
|General and administrative:                                              |                     
|Compensation and benefits (note 13)                                      | 30,332              
|Occupancy and equipment                                                  | 11,792              
|Marketing and professional services                                      | 6,310               
|Other non-interest expense (note 16)                                     | 8,632               
|Total general and administrative                                         | 57,066              
|Foreclosed real estate operations, net (note 6)                          | (324)               
|Total non-interest expense                                               | 56,742              
|Earnings before income taxes                                             | 49,051              
|Income taxes (note 14)                                                   | 20,791              
|Net earnings                                                             | $ 28,260            
|                                                                         |                     
|Basic earnings per share                                                 | $ 2.42              
|Weighted average shares outstanding for basic
      earnings per share   | 11,656,482          
|Diluted earnings per share                                               | $ 2.20              
|Weighted average shares outstanding for diluted
      earnings per share | 12,821,559          

See accompanying notes to consolidated financial statements.

59

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PFF BANCORP, INC. AND SUBSIDIARYConsolidated
Statements ofComprehensive Earnings
(Dollars in thousands)

|                                                                      | For the Year Ended
      March 31,
|--------------------------------------------------------------------- | ----------------------------------
|                                                                      | 2001                              
|                                                                      |                                   
|Net earnings                                                          | $ 28,260                          
|                                                                      |                                   
|Other comprehensive earnings (losses), net of income taxes:           |                                   
|Unrealized gains (losses) on securities available-for-sale:           |                                   
|Investment securities available-for-sale, at fair value               | 1,604                             
|Collateralized mortgage obligations available-for-sale, at fair value | 485                               
|Mortgage-backed securities available-for-sale, at fair value          | 4,686                             
|Reclassification of realized gains (losses) included in earnings      | 312                               
|                                                                      | 7,087                             
|Minimum pension liability adjustment                                  | -                                 
|Other comprehensive gains (losses)                                    | 7,087                             
|Comprehensive earnings                                                | $ 35,347                          

See accompanying notes to consolidated financial statements.

60

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

|                                                                  | Number of
      Shares | Common
      Stock | Additional
      Paid-in
      Capital | Retained Earnings Substantially Restricted | Unearned
      Stock-based
      Compensation | Treasury
      Stock | Accumulated Other Comprehensive Earnings (Loss) | Total   
|----------------------------------------------------------------- | ---------------------- | ------------------ | -------------------------------------- | ------------------------------------------ | --------------------------------------------- | -------------------- | ----------------------------------------------- | --------
|Balance at March 31, 1998                                         | 17,067,099             | $ 199              | $ 165,912                              | $ 106,617                                  | $ (20,895)                                    | $ (28)               | $ 2,473                                         | $254,278
|                                                                  |                        |                    |                                        |                                            |                                               |                      |                                                 |         
|Net earnings                                                      | -                      | -                  | -                                      | 19,004                                     | -                                             | -                    | -                                               | 19,004  
|Purchase of treasury stock                                        | (1,664,144)            | -                  | (16,624)                               | (15,458)                                   | -                                             | (17)                 | -                                               | (32,099)
|Change in minimum pension liability                               | -                      | -                  | (313)                                  | -                                          | 229                                           | -                    | -                                               | (84)    
|Amortization of shares under stock-based compensation plans       | -                      | -                  | 1,106                                  | -                                          | 3,497                                         | -                    | -                                               | 4,603   
|Stock options exercised                                           | 42,526                 | -                  | 531                                    | -                                          | -                                             | -                    | -                                               | 531     
|Changes in unrealized gains on securities available-for-sale, net | -                      | -                  | -                                      | -                                          | -                                             | -                    | (3,568)                                         | (3,568) 
|Balance at March 31, 1999                                         | 15,445,481             | 199                | 150,612                                | 110,163                                    | (17,169)                                      | (45)                 | (1,095)                                         | 242,665 
|                                                                  |                        |                    |                                        |                                            |                                               |                      |                                                 |         
|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                                                         | -                      | -                  | -                                      | (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                                                         | -                      | -                  | -                                      | (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

See accompanying notes to consolidated financial statements.

61

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

|                                                                                                                     | Year Ended March 31,
|-------------------------------------------------------------------------------------------------------------------- | --------------------
|                                                                                                                     | 2001                
|                                                                                                                     |                     
|Cash flows from operating activities:                                                                                |                     
|Net earnings                                                                                                         | $ 28,260            
|Adjustments to reconcile net earnings to net cash provided by operating activities:                                  |                     
|Amortization of premiums net of discount
      accretion on loans and securities                                     | 1,192               
|Amortization of deferred loan origination fees                                                                       | (276)               
|Loan fees collected                                                                                                  | 237                 
|Dividends on FHLB stock                                                                                              | (3,284)             
|Provisions for losses on:                                                                                            |                     
|Loans                                                                                                                | 5,004               
|Real estate                                                                                                          | 49                  
|Gains on sales of loans, mortgage-backed securities available-for-sale, real estate and property
      and equipment | (646)               
|Proceeds from sale of trading securities                                                                             | 466                 
|(Gains) losses on trading securities                                                                                 | 1,490               
|Depreciation and amortization of property and equipment                                                              | 3,396               
|Loans originated for sale                                                                                            | (16,341)            
|Proceeds from sale of loans held-for-sale                                                                            | 23,439              
|Amortization of unearned stock-based compensation                                                                    | 5,753               
|Increase (decrease) in accrued expenses and other liabilities                                                        | 5,640               
|(Increase) decrease in:                                                                                              |                     
|Accrued interest receivable                                                                                          | 118                 
|Prepaid expenses and other assets                                                                                    | (471)               
|Net cash provided by operating activities                                                                            | 54,026              
|                                                                                                                     |                     
|Cash flows from investing activities:                                                                                |                     
|Loans originated for investment                                                                                      | (1,033,194)         
|Increase in construction loans in process                                                                            | 38,891              
|Purchases of loans held-for-investment                                                                               | (18,892)            
|Principal payments on loans                                                                                          | 1,049,029           
|Principal payments on mortgage-backed securities held-to-maturity                                                    | -                   
|Principal payments on mortgage-backed securities available-for-sale                                                  | 83,794              
|Principal payments on collateralized mortgage obligations available-for-sale                                         | 4,103               
|Purchases of investment securities available-for-sale                                                                | (5,000)             
|Purchases of FHLB stock                                                                                              | -                   

62

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

|                                                                                | Year Ended March 31,
|------------------------------------------------------------------------------- | --------------------
|                                                                                | 2001                
|Redemption of FHLB stock                                                        | $ 1,713             
|Purchases of mortgage-backed securities available-for-sale                      | -                   
|Proceeds from maturities of investment securities available-for-sale            | 35,000              
|Proceeds from sale of investment securities available-for-sale                  | 1,951               
|Proceeds from sale of real estate                                               | 2,993               
|Investment in or proceeds from real estate held for investment                  | 5,155               
|Purchases of property and equipment                                             | (3,968)             
|Proceeds from sale of property and equipment                                    | -                   
|Net cash provided by (used in) investing activities                             | 161,575             
|Cash flows from financing activities:                                           |                     
|Proceeds from FHLB advances and other borrowings                                | 494,800             
|Repayment of FHLB advances and other borrowings                                 | (803,800)           
|Net change in deposits                                                          | 114,727             
|Proceeds from exercise of stock options                                         | 595                 
|Cash dividends                                                                  | (2,961)             
|Purchase of treasury stock                                                      | (2,567)             
|Net cash provided by (used in) financing activities                             | (199,206)           
|Net increase (decrease) in cash and cash equivalents                            | 16,395              
|Cash and cash equivalents, beginning of year                                    | 35,131              
|Cash and cash equivalents, end of year                                          | $ 51,526            
|Supplemental information:                                                       |                     
|Interest paid, including interest credited                                      | $ 142,689           
|Income taxes paid                                                               | 19,200              
|Non-cash investing and financing activities:                                    |                     
|Change in unrealized gain (loss) on securities available-for-sale               | 12,242              
|Net transfers from loans receivable to real estate acquired through foreclosure | 2,011               
|Net transfers from available-for-sale securities to trading securities          | -                   

See accompanying notes to consolidated financial statements.

63

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

(1) Summary of Significant Accounting Policies

Effective March 28, 1996, pursuant to a plan of conversion, Pomona First
Federal Savings and Loan Association (the "Association") reorganized
from a federally chartered mutual savings and loan association to PFF Bank &
Trust (the "Bank"), a federally chartered stock savings bank. PFF
Bancorp, Inc. (the "Bancorp") was incorporated under Delaware law in
March 1996 for the purpose of acquiring and holding all of the outstanding
capital stock of the Bank as part of the Bank's conversion. Any references to
financial information for periods before March 28, 1996, refer to the
Association prior to the conversion (see "Note 22" for further
discussion).

The following accounting policies, together with those disclosed elsewhere in
the consolidated financial statements, represent the significant accounting
policies used in presenting the accompanying consolidated financial statements.

Basis of 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 $37,886
and $35,060 and short-term deposits in banks of $13,640 and $71 at March 31,
2001 and 2000, respectively. The Company considers all highly liquid debt
instruments with maturities at the date of acquisition of three months or less
to be cash equivalents.

Investment and Mortgage-Backed Securities and Collateralized Mortgage
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.

64

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Held-to-Maturity

Investment 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-Sale

Investment 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.

Trading

Trading 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 Sale

Loans 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 Loans

Gains or losses on sales of loans are recognized at the time of sale and are
determined by the difference between the net sales proceeds and the allocated
basis of the loans sold. The Company capitalizes mortgage servicing rights
("MSR") through the sale of mortgage loans which are sold with
servicing rights retained. At the time of sale the total cost of the mortgage
loans is allocated to the MSR and the mortgage loans without the MSR based upon
their relative fair values. The MSR are included in other assets and as a
component of the gain on the sale of loans. The MSR are amortized in proportion
to and over the estimated period of the net servicing income. This amortization
is reflected as a component of loan servicing fees.

The MSR are periodically reviewed for impairment based upon their fair value.
The fair value of the MSR, for the purposes of impairment, is measured using a
discounted cash flow analysis using market prepayment rates, the Company's net
servicing income and market-adjusted discount rates. Impairment losses are
recognized through a valuation allowance, with any associated provision recorded
as a component of loan servicing fees.

65

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Loans Receivable

Loans receivable are stated at unpaid principal balances less the
undisbursed portion of construction loans, unearned discounts, net deferred loan
origination fees and allowances for losses. Premiums/discounts are
amortized/accreted using the interest method over the remaining term to
maturity.

Uncollected interest on loans contractually delinquent more than ninety days or
on loans for which collection of interest appears doubtful is excluded from
interest income and accrued interest receivable. Payments received on nonaccrual
receivables are recorded as a reduction of principal or as interest income
depending on management's assessment of the ultimate collectibility of the
loan principal. Such loans are restored to an accrual status only if the loan is
brought contractually current and the borrower has demonstrated the ability to
make future payments of principal and interest.

Loan Origination, Commitment Fees and Related Costs

Loan 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 Estate

Valuation allowances for loan losses are provided on both a specific and
non-specific basis. Specific allowances are provided when an identified
significant decline in the value of the underlying collateral occurs or an
identified adverse situation occurs that may affect the borrower's ability to
repay. Non-specific allowances are provided based on a number of factors,
including the Company's past loan loss experience, current and economic
conditions and management's ongoing evaluation of the credit risk inherent in
the portfolio.

Valuation allowances for losses on real estate are established when a decline in
value reduces the fair value less estimated disposal costs to less than the
carrying value.

Management believes that allowances for loan losses and real estate are
adequate. While management uses available information to recognize losses on
loans and real estate, future additions to the allowances may be necessary based
on changes in economic conditions. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review the Company's
allowances for loan and real estate losses. Such agencies may require the
Company to recognize additions to the allowances based on their judgments of the
information available to them at the time of their examinations.

Management considers loans with a principal balance of $500 or more, including
loans to one borrower that exceed $1,000 as non-homogeneous for purposes of
evaluation for impairment. A loan is considered impaired if it is probable that
the creditor will be unable to collect all contractual amounts due (principal
and interest) as scheduled in the loan agreement. Impaired loans are measured
based on either an estimate of the present value of expected future cash flows
discounted at the loan's effective interest rate or the loan's market value
or the fair value of collateral if the loan is collateral dependent.
Substantially all loans measured for impairment are measured using the fair
value of the collateral. The amount by which the recorded investment in the loan
exceeds the measure of the impaired loan is

66

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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 are either
placed on non-accrual status or are designated as restructured loans. Only
non-accrual loans and restructured loans not performing in accordance with their
restructured terms are included in non-performing loans. Loans are generally
placed on non-accrual status when the payment of interest is 90 days or more
delinquent, or if the loan is in the process of foreclosure, or earlier if the
timely collection of interest and/or principal appears doubtful. The Company's
policy allows for loans to be designated as impaired and placed on non-accrual
status even though the loan may be current as to the principal and interest
payments and may continue to perform in accordance with its contractual terms.

Payments received on impaired loans are recorded as a reduction of principal or
as interest income depending on management's assessment of the ultimate
collectibility of the loan principal. The amount of interest income recognized
is limited to the amount of interest that would have accrued at the loan's
contractual rate applied to the recorded loan balance, with any difference
recorded as a loan loss recovery. Generally, interest income on an impaired loan
is recorded on a cash basis when the outstanding principal is brought current.

Real Estate Acquired Through Foreclosure

Real estate properties acquired through loan foreclosure are initially
recorded at fair value at the date of foreclosure. Once real estate properties
are acquired, evaluations are periodically performed by management and an
allowance for losses is established by a charge to operations if the carrying
value of a property exceeds its fair value. Real estate properties held for sale
or development are carried at the lower of cost, including cost of improvements
and amenities incurred subsequent to acquisition, or net realizable value. Costs
related to development and improvement of properties are capitalized, whereas
costs relating to holding the properties are expensed. During the development
period, the portion of interest costs related to development of real estate are
capitalized.

Property and Equipment

Land 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.

Intangibles

In January 1995, the Company acquired the trust operations of another bank
for $3,470. The excess cost over net assets acquired was capitalized and is
being amortized on a straight-line basis over the estimated average life of the
trust relationships acquired of 11 years.

On a periodic basis, the Company reviews its intangible assets for events or
changes in circumstances that may indicate the carrying amounts of the assets
may not be recoverable. Recoverability of an asset to be held and used is
measured by a comparison of the carrying amount of the asset to future net cash
flows expected to be generated by

67

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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 Plan

The Company accounted for the original issuance of the Employee Stock
Ownership Plan ("ESOP") as a component of equity recorded in a
contra-equity account. When the issuance occurs, compensation expense is
recognized over the allocation period based upon the fair value of the shares
committed to be released to employees. This may result in fluctuations in
compensation expense as a result of changes in the fair value of the Company's
common stock. However, any such compensation expense fluctuations result in an
equal and offsetting adjustment to additional paid-in capital.

Stock Option Plan

On October 23, 1996, the Company granted stock options and adopted Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
compensation on the date of grant. Alternatively, SFAS No. 123 allows entities
to apply the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and
related interpretations, and provide pro forma net earnings and pro forma
earnings per share disclosures for employee stock option grants made in 1996 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. As such, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. The Company has elected to apply the provisions of APB 25 and provide the
pro forma disclosure provisions of SFAS No. 123.

68

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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.

New Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.

Under SFAS No. 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach of
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk.

This statement, as amended, is effective for all quarters of fiscal years
beginning after June 15, 2000. Management has implemented SFAS No. 133 and it
has not had a significant impact on the Company's financial position or
results of operations.

In March 2000, the FASB issued
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation an Interpretation of APB Opinion No. 25" ("FIN 44").
This interpretation clarifies the definition of an employee for purposes of
applying Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), the criteria for determining
whether a plan qualifies as a noncompensatory plan, the accounting consequence
of various modifications to the terms of a previously fixed stock option or
award, and the accounting for an exchange of stock compensation awards in a
business combination. This interpretation is effective July 1, 2000, but certain
conclusions in this interpretation cover specific events that occur after either
December 15, 1998 or January 12, 2000. Management has implemented FIN 44 and it
has not had a significant impact on the Company's financial position or
results of operations.

In September 2000, the FASB issued Statement of Financial Accounting Standards
No. 140 ("SFAS No. 140") to replace SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities". SFAS No. 140 provides the accounting and reporting guidance
for transfers and servicing of financial assets and extinguishments of
liabilities. SFAS No. 140 will be the authoritative accounting literature for:
(1) securitization transactions involving financial assets; (2) sales of
financial assets (including loan participations); (3) factoring transactions;
(4) wash sales; (5) servicing assets and liabilities; (6) collateralized
borrowing arrangements; (7) securities lending transactions; (8) repurchase
agreements; and (9) extinguishment of liabilities. Management has implemented
SFAS No. 140 and it has not had a significant impact on the Company's
financial position or results of operations.

69

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(2) Investment Securities

The amortized cost and estimated fair values of investment securities are
summarized as follows:

|                                               | 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                              | 4,600               
|Total                                          | $ 60,794            

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

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


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

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


70

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(3) Mortgage-Backed Securities

The amortized cost and estimated fair values of mortgage-backed securities
are summarized as follows:

|                    | March 31, 2001      
|------------------- | --------------------
|                    | Amortized
      Cost
|Available-for-sale: |                     
|GNMA                | $   12,104          
|FHLMC               | 84,222              
|FNMA                | 206,973             
|Total               | $ 303,299           

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

|                    | March 31, 2000      
|------------------- | --------------------
|                    | Amortized
      Cost
|Available-for-sale: |                     
|GNMA                | $   14,820          
|FHLMC               | 114,534             
|FNMA                | 260,336             
|Total               | $ 389,690           

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

(4) Collateralized Mortgage Obligations

The amortized cost and estimated fair values of collateralized mortgage
obligations are summarized as follows:

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



March 31, 2000Amortized
      Cost
    Gross
      Unrealized
      Gains
    Gross
      Unrealized
      Losses
    Estimated
      Fair
      ValueAvailable-for-sale:FHLMC
    $ 60,005
    -
    (1,751)
    58,254FNMA
    28,300
    -
    (901)
    27,399Total
    $ 88,305
    -
    (2,652)
    85,653


71

---

(5) Loans Receivable

Loans receivable are summarized as follows:

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


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

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


72

---

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

March 31,2001
    2000
    1999Non-accrual loans
    $ 11,481
    5,427
    11,012TDR loans
    3,012
    1,950
    11,291Total non-accrual and TDR loans (1)
    $ 14,493
    7,377
    22,303


(1) At March 31, 2001 the Bancorp's $3,000 loan for the Castaic
development is included in both non-accrual and TDR loans.

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

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


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

March 31,2001
    2000Recorded
      Investment
    Specific
      Allowances
    Recorded
      Investment
    Specific
      AllowancesImpaired loans:Residential:One-to-four family
    $ 599
    -
    -
    -Multi-family
    1,188
    -
    1,798
    252Commercial real estate
    2,951
    210
    1,795
    45Commercial
    3,533
    93
    1,887
    -Construction and land (1)
    38,347
    1,570
    20,178
    -TDR loans (1)
    3,012
    3,012
    1,950
    406Total
    $ 49,630
    4,885
    27,608
    703


(1) At March 31, 2001 the Bancorp's $3,000 loan for the Castaic
development is included in both non-accrual and TDR loans.

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

73

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(6) Real Estate

Real estate acquired through foreclosure is summarized as follows:

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


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

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


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

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


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

74

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(7) Allowances for Losses on Loans Receivable and Real Estate

Activity in the allowances for losses on loans and real estate is summarized
as follows:

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


(8) Accrued Interest Receivable

Accrued interest receivable is summarized as follows:

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


75

---

(9) Property and Equipment, net

Property and equipment, net is summarized as follows:

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


(10) Deposits

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

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


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

Year Ending March 31,
    Amount2002
    $ 1,089,3822003
    85,9072004
    18,1232005
    12,3512006
    11,226thereafter
    371Total
    $ 1,217,360


76

---



Interest expense on deposits is summarized as follows:

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


At March 31, 2001 and 2000, the Company had accrued interest
payable on deposits of $1,767 and $1,563, respectively, which is included in
other liabilities in the accompanying consolidated balance sheets.

At March 31, 2001 and 2000, $23,296 and $23,800 of public funds on deposit were
secured by loans receivable, mortgage-backed securities, investment securities
and collateralized mortgage obligations with aggregate carrying values of
$33,401 and $36,448, respectively.

Accounts which are greater than $100 at March 31, 2001 and 2000 total $593,707
and $361,155, respectively. Deposit accounts greater than $100 are not federally
insured.

77

---

(11) FHLB Advances and Other Borrowings

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

March 31,2001
    2000
    1999FHLB advances:Average amount outstanding during the year
    $771,869
    792,778
    855,197Maximum amount outstanding at any month end
    886,000
    884,000
    949,000Amount outstanding at year end (1)
    575,000
    884,000
    764,000Average interest rate:For the year
    6.25%
    5.63
    5.57At year end
    5.98
    6.02
    5.37Reverse repurchase agreements:Average amount outstanding during the year
    $           
      -
    43,750
    50,000Maximum amount outstanding at any month end
    -
    50,000
    50,000Amount outstanding at year end (1)
    -
    -
    50,000Average interest rate:For the year
    -%
    5.87
    5.87At year end
    -
    -
    5.87


(1) Included in the balance of FHLB advances outstanding at
March 31, 2001 are putable borrowings of $165,000 with original terms to
maturity of 48 to 120 months with final maturity dates ranging from January 2002
to February 2008 and initial put dates ranging from April 2001 to February 2003.

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



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


78

---

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

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


Interest expense on borrowings is summarized as follows:

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


(12) Lines of Credit

At March 31, 2001 and 2000, the Company had maximum borrowing capacity from
the FHLB of San Francisco in the approximate amount of $1,147,197 and
$1,200,143, respectively. Based upon pledged collateral in place, the Company
had available borrowing capacity of $412,153 and $267,093 as of March 31, 2001
and 2000, respectively. Pledged collateral consists of certain loans receivable,
mortgage-backed securities, investment securities and collateralized mortgage
obligations aggregating $987,153 and $1,151,093 as of March 31, 2001 and 2000,
respectively and the Company's required investment in one hundred dollar par
value capital stock of the FHLB of San Francisco. At March 31, 2001 and 2000,
the cost basis of this FHLB capital stock was $46,121 and $44,550, respectively.

(13) Employee Benefit Plans

The Company maintains a defined benefit Pension Plan ("Pension
Plan") covering substantially all 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.

79

---

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

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


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

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


80

---

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

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


In 1985, the Company established a capital accumulation plan
(401(k) Plan) which is available to all full-time employees over 21 years of age
with more than six months of service. Under the 401(k) Plan, the Company
contributes funds in an amount equal to a percentage of employee contributions.
In 2001, 2000 and 1999, the total 401(k) Plan expense was $422, $514 and $393,
respectively.

The Company provides a non-qualified Directors' Deferred Compensation Plan and
a non-qualified Employees' Deferred Compensation Plan that offer directors and
senior officers of the Company, respectively, the opportunity to defer
compensation through a reduction in salary and then receipt of a benefit upon
retirement. The benefit from the Directors' Deferred Compensation Plan is
payable upon the occurrence of the first Board of Directors' meeting held in
the fiscal year following the participant attaining age 73. The benefit from the
Employees' Deferred Compensation Plan is payable at normal retirement (age 65)
or actual retirement but no later than age 70, or alternatively upon termination
if termination occurs earlier due to disability. The primary form of benefit is
120 monthly installment payments of the account balance. Such balance shall
equal the amount of the deferrals and interest thereon. Other actuarially
equivalent payout schedules, including a lump sum payout, are available with
certain restrictions. Deferrals are currently credited with an interest rate
equal to the highest interest rate paid on a designated date to depositors of
the Company or, at the Participants' election, investment earnings or losses
equivalent to that of the Company's common stock. At March 31, 2001, the
liability for these plans is included in accrued expenses and other liabilities.

The Company currently provides post retirement medical coverage to eligible
employees. At March 31, 2001 and 2000, the expected cost associated with this
coverage was $15 and $17, respectively, and is included in accrued expenses and
other liabilities.

As part of the reorganization to the stock form of ownership, the ESOP purchased
1,587,000 shares of the Company's common stock at ten dollars per share, or
$15,870, which was funded by a loan from the Company. The loan will be repaid
from the Company's or the Bank's discretionary contributions over a period
of 10 years. The loan is secured by the common stock owned by the ESOP. Shares
purchased with the loan proceeds are held in a suspense account for allocation
among participants as the loan is repaid. ESOP shares are allocated to the
eligible participants based on compensation as described in the ESOP plan. For
the years ended March 31, 2001 and 2000, 181,281 and 171,621 ESOP shares,
respectively were allocated to the participants. At March 31, 2001 and 2000, the
unearned balance of the ESOP shares is included in unearned stock-based
compensation as a reduction of total stockholders' equity in the accompanying
consolidated financial statements. The value of ESOP shares committed to be
released is included in compensation expense based upon the fair value of the
shares on the dates they were committed. At March 31, 2001, the fair value of
the unearned ESOP shares is $21,545. Compensation expense associated with the
ESOP was $3,230, $3,152 and $2,694 for the years ended March 31, 2001, 2000 and
1999.

81

---

During October, 1996, the stockholders of the Company approved the PFF Bancorp,
Inc. 1996 Incentive Plan (the "1996 Plan"). During September, 1999,
the stockholders of the Company approved the PFF Bancorp, Inc. 1999 Incentive
Plan (the "1999 Plan"). The 1996 Plan authorized the granting of
options to purchase the Company's common stock, option related awards, and
grants of common stock (collectively "Awards"). The 1999 Plan
authorized the granting of options to purchase the Company's common stock.
Concurrent with the approval of the 1996 Plan, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits a company to
account for stock options granted under either the fair-value-based or the
intrinsic-value-based (as described in APB No. 25) method of accounting. If the
Company elects to account for options granted under the intrinsic-value-based
method, it must make certain disclosures with respect thereto. The Company has
elected to account for stock options granted under the intrinsic-value-based
method of accounting.

The maximum number of shares reserved for Awards under the 1996 Plan is
2,777,250 shares, with 1,983,750 shares reserved for purchase pursuant to
options and option-related awards and 793,500 shares reserved for grants of the
Company's common stock. The maximum number of shares reserved under the 1999
Plan is 625,000 all of which are reserved for purchase pursuant to options and
option related awards. The exercise price of all options and option-related
awards under both Plans must be 100% of the fair value of the Company's common
stock at the time of grant and the term of the options may not exceed 10 years.
Of the 793,500 shares reserved for stock grants, 770,545 shares with a fair
value of $9,890 were granted to directors and executive officers during the year
ended March 31, 1997. 532,500 of the 770,545 shares represented grants to
employees with the remaining shares granted to directors of the Company. An
additional 15,000 shares with a fair value of $214 at the time of grant, were
granted to an executive officer of the Company during the year ended March 31,
1998. All shares granted are eligible to vest in five equal annual installments.
With respect to shares of the Company's common stock granted to executive
officers, the 1996 Plan provides that the vesting of 75% of the third, fourth
and fifth annual installments is subject to the attainment of certain
performance goals. Those goals have been met. Compensation expense, associated
with the stock grants recognized based upon the market price of the common stock
at the time of grant, was $2,538, $2,094, and $1,910 for the years ended March
31, 2001, 2000 and 1999, respectively. The unamortized balance of the grants is
included in unearned stock-based compensation in the accompanying consolidated
financial statements. At March 31, 2001 and 2000, the unamortized balance of the
stock awards was $1,429 and $4,000, respectively.

82

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



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


(1) The risk-free rate is the market rate for U.S. Government
securities with the same maturities as the options, as of March 31, 2001.

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

2001
    2000
    1999Net earnings:As reported
    $28,260
    26,598
    19,004Pro forma
    26,584
    25,051
    17,533Earnings per share - BasicAs reported
    2.42
    2.20
    1.37Pro forma
    2.28
    2.07
    1.26Earnings per share - DilutedAs reported
    2.20
    2.02
    1.29Pro forma
    2.07
    1.90
    1.19


83

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

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


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

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


84

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(14) Income Taxes

Income taxes (benefit) is summarized as follows:

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


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

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


85

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

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


In determining the possible future realization of deferred
tax assets, the future taxable income from the following sources is taken into
account: (a) the reversal of taxable temporary differences, (b) future
operations exclusive of reversing temporary differences and (c) tax planning
strategies that, if necessary, would be implemented to accelerate taxable income
into years in which net operating losses might otherwise expire. Deferred tax
assets as of March 31, 2000 and 2001 have been recognized to the extent of the
expected reversal of taxable temporary differences.

Based on the Company's current and historical pretax earnings, adjusted for
significant items, management believes it is more likely than not that the
Company will realize the benefit of the deferred tax asset at March 31, 2001.
Management believes the existing net deductible temporary differences will
reverse during periods in which the Company generates net taxable income.
However, there can be no assurance that the Company will generate any earnings
or any specific level of continuing earnings in future years.

On August 20, 1996, the President signed the Small Business Job Protection Act
(the Act) into law. The Act repealed the reserve method of accounting for bad
debts for savings institutions effective for taxable years beginning after 1995.
The Company, therefore, is required to use the specific charge-off method on its
1996 and subsequent Federal income tax returns. Prior to 1996, savings
institutions that met certain definitional tests and other conditions prescribed
by the Internal Revenue Code were allowed to deduct, within limitations, a bad
debt deduction. The deduction percentage was 8% for the years ended March 31,
1996 and 1995. Alternately, a qualified savings

86

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institution could compute its
bad debt deduction based upon actual loan loss experience (the experience
method). Retained earnings at March 31, 2001 and 2000 includes approximately
$25,300 for which no deferred income tax liability has been recognized.

(15) Regulatory Capital

Savings institutions are subject to the provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA'", which was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1992. In
addition to the prompt corrective action requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting and operations.

To be considered "well capitalized," a savings institution must
generally have a core capital of at least 5%, a Tier 1 risk-based capital ratio
of at least 6% and a total risk-based capital of at least 10%. An institution is
deemed to be "critically undercapitalized" if it has a tangible equity
ratio of 2% or less. Management believes that at March 31, 2001, the Bank met
the definition of "well capitalized."

The following is a reconciliation of the Bank's GAAP capital to regulatory
capital as of March 31, 2001:

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


(1) Limited to 1.25% of risk-weighted assets.

87

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

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




|                                                 | Actual   | For Capital
      Adequacy Purposes | To be Well
      Capitalized Under
      Prompt Corrective
      Action Provisions
|------------------------------------------------ | -------- | ----------------------------------- | ----------------------------------------------------------------------------------
|March 31, 2000                                   | Amount   | Ratio                               | Amount                                                                            
|                                                 |          |                                     |                                                                                   
|Total capital (to risk-weighted assets)          | $226,857 | 11.00%                              | $164,937                                                                          
|Tier 1 (Core) capital (to adjusted total assets) | 204,638  | 6.77                                | 120,981                                                                           
|Tier 1(Core) capital (to risk-weighted assets)   | 204,638  | 9.75                                | -                                                                                 
|Tangible capital (to tangible assets)            | 204,638  | 6.77                                | 45,368                                                                            

(1) Ratio is not specified under capital regulations.

At periodic intervals, both the OTS and the FDIC routinely examine the Bank's
financial statements as part of their legally prescribed oversight of the thrift
industry. Based on these examinations, the regulators can direct that the Bank's
financial statements be adjusted in accordance with their findings.

(16) Other Non-Interest Expense

Other non-interest expense amounts are summarized as follows:

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


88

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(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 2044. Net rent expense under operating
leases included in occupancy and equipment expense for the years ended March 31,
2001, 2000 and 1999, was $750, $723, and $743, respectively. A summary of future
minimum lease payments under these agreements at March 31, 2001 follows.

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


(18) Off-Balance Sheet Risk

Concentrations of Operations and Assets

The Company's operations are located within Southern California. At March
31, 2001 and 2000, approximately 92.6% and 93.3% respectively, of the Company's
mortgage loans were secured by real estate in Southern California. In addition,
substantially all of the Company's real estate is located in Southern
California.

Off-Balance-Sheet Credit Risk/Interest-Rate Risk

In the normal course of meeting the financing needs of its customers and
reducing exposure to fluctuating interest rates, the Company is a party to
financial instruments with off-balance-sheet risk. These financial instruments
(commitments to originate loans and commitments to purchase loans) include
elements of credit risk in excess of the amount recognized in the accompanying
consolidated financial statements. The contractual amounts of those instruments
reflect the extent of the Company's involvement in these particular classes of
financial instruments.

89

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

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


Commitments to originate fixed- and variable-rate loans
represent commitments to lend to a customer, provided there are no violations of
conditions specified in the agreement. Commitments to purchase variable-rate
loans represent commitments to purchase loans originated by other financial
institutions. These commitments generally have fixed expiration dates or other
termination clauses and may require the payment of a fee. Since some of the
commitments may expire without being drawn upon, the total commitment amounts
above do not necessarily represent future cash requirements. The Company uses
the same credit policies in making commitments to originate and purchase loans
as it does for on-balance sheet instruments. The Company controls credit risk by
evaluating each customer's creditworthiness on a case-by-case basis and by
using systems of credit approval, loan limitation, and various underwriting and
monitoring procedures.

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. At March 31, 2001 and
2000, the Bank had standby letters of credit of $2,300 and $698, respectively.

The Company does not require collateral or other security to support
off-balance-sheet financial instruments with credit risk. However, when the
commitment is funded, the Company receives collateral to the extent collateral
is deemed necessary, with the most significant category of collateral being real
property underlying mortgage loans.

(19) Trust Operations

Included in prepaid expenses and other assets is the net unamortized trust
acquisition cost of $1,590 and $1,914 at March 31, 2001 and 2000, respectively.

As a result of the acquisition, the Company now has certain additional fiduciary
responsibilities which include acting as trustee, executor, administrator,
guardian, custodian, record keeper, agent, registrar, advisor and manager. In
addition, the Company's Trust department holds assets for the benefit of
others. These assets are not the assets of the Company and are not included in
the consolidated balance sheets of the Company at March 31, 2001 and 2000.

90

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(20) Loan Servicing and Sale Activities

Loan servicing and sale activities are summarized as follows:

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


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

At March 31, 2001, 2000 and 1999, the Company was servicing loans and
participations in loans owned by others of $256,478, $282,924 and $325,730,
respectively.

(21) Fair Value of Financial Instruments

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" ("SFAS 107"). The estimated fair value
amounts have been determined using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that could be realized in a current market exchange. The use of different market
assumptions or estimation methodologies may have a material impact on the
estimated fair value amounts.

91

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

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


The following methods and assumptions were used in estimating
the Company's fair value disclosures for financial instruments.

Cash, Cash Equivalents and Certificates of Deposit: The fair values of cash and
cash equivalents, and certificates of deposit approximate the carrying values
reported in the consolidated balance sheet.

Investment securities, MBS and CMO available-for-sale: Fair values were based on
quoted market prices. If a quoted market price was not available, fair value was
estimated using market prices for similar securities, as well as internal
analysis.

Investment securities held-to-maturity: Fair values were based on quoted market
prices. If a quoted market price was not available, fair value was estimated
using market prices for similar securities, as well as internal analysis.

Loans Receivable: For purposes of calculating the fair value of loans
receivable, loans were segregated by payment type, such as those with fixed
interest rates and those with adjustable interest rates as well as by prepayment
and repricing frequency. For all mortgage loans, fair value is estimated using
discounted cash flow analysis. Discount rates are based on the forward rates on
the treasury yield curve. The fair values of significant non-performing loans
are based on recent appraisals, or if not available, on estimated cash flows,
discounted using a rate commensurate with the risk associated with the specific
properties.

Deposits: The fair values of passbook accounts, demand deposits and certain
money market deposits are assumed to be the carrying values at the reporting
date. The fair value of term accounts is based on projected contractual cash
flows discounted using rates currently offered on alternative funding sources
with similar maturities.

FHLB Advances: The fair value of FHLB advances and other borrowings is based on
discounted cash flows using rates currently offered on alternative funding
sources with similar maturities.

Off-Balance Sheet Financial Instruments: Commitments to originate loans had a
notional amount of $124.6 million at March 31, 2001. The carrying value of the
commitments is zero as all are cancelable and not readily marketable. Standby
letters of credit had a notional amount of $2,300 at March 31, 2001.

92

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(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, 200
is $28,268.

The Company may not declare or pay cash dividends on or repurchase any of its
shares of common stock, if the effect would cause stockholders' equity to be
reduced below applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory requirements.

93

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


Condensed Statements of Earnings

|                                                                                   | Year ended March 31,
|---------------------------------------------------------------------------------- | --------------------
|                                                                                   | 2001                
|                                                                                   |                     
|Interest and other income                                                          | $ 1,182             
|Provision for loan losses                                                          | 3,012               
|General and administrative expense                                                 | 3,416               
|Earnings before equity in undistributed earnings of subsidiary before income taxes | (5,246)             
|Dividend from Bank subsidiary                                                      | -                   
|Equity in earnings (loss) of subsidiary before income taxes                        | 54,297              
|Earnings before income taxes                                                       | 49,051              
|Income taxes                                                                       | 20,791              
|Net earnings                                                                       | $ 28,260            

94

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Condensed Statements of Cash Flows

|                                                                                              | Year Ended March 31,
|--------------------------------------------------------------------------------------------- | --------------------
|                                                                                              | 2001                
|Cash flows from operating activities:                                                         |                     
|Net earnings                                                                                  | $ 28,260            
|Adjustments to reconcile net earnings to cash used by operating activities:                   |                     
|Amortization of premiums on investments and mortgage-backed securities                        | 5                   
|(Gains) losses on trading securities                                                          | 1,490               
|Provision for loan losses                                                                     | 3,012               
|Increase in trading securities                                                                | 76                  
|Amortization of unearned stock-based compensation                                             | 4,125               
|(Gains) losses on sale of mortgage-backed securities and
      investments available-for-sale | 156                 
|Undistributed earnings of subsidiary                                                          | (31,409)            
|(Increase) decrease in other assets                                                           | (897)               
|(Decrease) in other liabilities                                                               | (877)               
|Net cash provided by operating activities                                                     | 3,941               
|                                                                                              |                     
|Cash flow from investing activities:                                                          |                     
|(Increase) decrease in real estate held for investment                                        | 460                 
|Increase in residential loans                                                                 | (241)               
|Decrease in construction loans                                                                | 1,303               
|Decrease in mortgage-backed securities available-for-sale                                     | -                   
|Decrease in equity securities available-for-sale                                              | 2,111               
|Decrease in trust preferred securities                                                        | -                   
|Net cash provided by investing activities                                                     | 3,633               
|                                                                                              |                     
|Cash flows from financing activities:                                                         |                     
|Proceeds from exercise of stock options                                                       | 595                 
|Purchase of treasury stock                                                                    | (2,567)             
|Cash dividends                                                                                | (2,961)             
|Net cash used in financing activities                                                         | (4,933)             
|Net (decrease) increase in cash during the year                                               | 2,641               
|                                                                                              |                     
|Cash and cash equivalents, beginning of year                                                  | 1,361               
|                                                                                              |                     
|Cash and cash equivalents, end of year                                                        | $ 4,002             

95

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(24) Earnings Per Share

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

Net
      Earnings
    Weighted Average
      Shares Outstanding
    Per Share
      Amount2001 (1)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 (2)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
    $ 2.021999 (3)Basic earnings per share
    $ 19,004
    13,876,440
    $ 1.37Effect of dilutive stock options and awards
    -
    840,242
    .08Diluted earnings per share
    $ 19,004
    14,716,682
    $ 1.29


(1) Options to purchase 8,433 shares of common stock at a
weighted average price of $21.00 per share were outstanding during the fiscal
year ended March 31, 2001 but were not included in the computation of diluted
EPS because the options' exercise prices were greater than the average market
price of the common shares. The options, which expire between October 22, 2002
and November 23, 2004, were still outstanding at March 31, 2001.

(2) Options to purchase 10,094 shares of common stock at a weighted average price of
$20.93 per share were outstanding during the fiscal year ended March 31, 2000
but were not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common shares.
The options, which expire between October 22, 2002 and November 23, 2004, were
still outstanding at March 31, 2000.

(3) Options to purchase 17,381 shares of common stock at a weighted average price of
$19.21 per share were outstanding during the fiscal year ended March 31, 1999
but were not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common shares.
The options, which expire between October 22, 2002 and March 24, 2004, were
still outstanding at March 31, 1999.

96

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(25) Quarterly Results of Operations (Unaudited)

|                             | Three Months Ended  |                         
|---------------------------- | ------------------- | ------------------------
|                             | June 30,
      2000 | September 30,
      2000
|                             |                     |                         
|Net interest income          | $  24,121           | 23,166                  
|Provision for loan losses    | 1,251               | 1,251                   
|Other income                 | 3,619               | 4,127                   
|Other expenses               | 13,483              | 13,877                  
|Earnings before income taxes | 13,006              | 12,165                  
|Income taxes                 | 5,639               | 5,088                   
|Net earnings                 | $   7,367           | 7,077                   
|Basic earnings per share     | $     0.63          | 0.61                    
|Diluted earnings per share   | $     0.59          | 0.55                    
|                             |                     |                         
|                             | Three Months Ended  |                         
|                             | June 30,
      1999 | September 30,
      1999
|                             |                     |                         
|Net interest income          | $ 21,227            | 22,247                  
|Provision for loan losses    | 1,000               | 1,000                   
|Other income                 | 4,251               | 3,552                   
|Other expenses               | 13,214              | 13,643                  
|Earnings before income taxes | 11,264              | 11,156                  
|Income taxes                 | 4,860               | 4,840                   
|Net earnings                 | $  6,404            | 6,316                   
|Basic earnings per share     | $    0.51           | 0.52                    
|Diluted earnings per share   | $    0.47           | 0.47                    

97

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INDEPENDENT AUDITORS' REPORT

The Board of Directors
PFF Bancorp, Inc.:

We have audited the accompanying consolidated balance sheets of PFF Bancorp,
Inc. and subsidiary (the Company) as of March 31, 2001 and 2000 and the related
consolidated statements of earnings, comprehensive earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended March
31, 2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PFF Bancorp, Inc.
and subsidiary as of March 31, 2001 and 2000 and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 2001, in conformity with accounting principles generally accepted in the
United States of America.

KPMG LLP

Orange County, California
April 19, 2001

98

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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 19, 2001 (the "Proxy Statement") under the captions
"Election of Directors" and "Executive Officers Who Are Not
Directors" is incorporated herein by reference.

Item 11. Executive Compensation.

The information appearing in the Proxy Statement under the caption
"Executive Compensation" is incorporated herein by reference,
excluding the Stock Performance Graph and Compensation Committee Report.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Proxy Statement.

Item 13. Certain Relationships and Related Transactions.

The information relating to certain relationships and related transactions
is incorporated herein by reference to the Proxy Statement.

99

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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
      officer and employees of PFF Bancorp, Inc. (3)                      
|10.7  | Form of Incentive Stock Option Agreement for officers
      and employees of PFF Bancorp, Inc. (3)                         
|10.8  | Form of Stock Award Agreement for officers and
      employees of PFF Bancorp, Inc. (3)                                    
|10.9  | Form of Stock Award and Stock Option Agreement for
      Outside Directors of PFF Bancorp, Inc. (3)                        
|10.10 | The Pomona First Federal Bank & Trust Restated
      Supplemental Executive
      Retirement Plan (3)                      
|10.11 | The Pomona First Federal Bank & Trust Directors'
      Deferred Compensation Plan (3)                                      
|10.12 | PFF Bancorp, Inc. 1999 Incentive Plan (4)                                                                                  
|21    | Subsidiary information is incorporated herein by
      reference to "Part I- Subsidiary Activities."                       
|23    | Consent of KPMG LLP                                                                                                        
|99.1  | Annual Report on Form 11-K for Capital Accumulation
      Plan for employees of PFF Bank & Trust                           
|(b)   | Report on Form 8-K None                                                                                                    

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

____________________

(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.

100

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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 22, 2001 | BY:/s/ LARRY M. RINEHART                       
|                     | Larry M. Rinehart                              
|                     | President, Chief Executive Officer and Director

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

|Name                    | Title                                                                                                              | Date         
|----------------------- | ------------------------------------------------------------------------------------------------------------------ | -------------
|                        |                                                                                                                    |              
|/s/ LARRY M. RINEHART   |                                                                                                                    | June 22, 2001
|Larry M. Rinehart       | President, Chief Executive Officer and Director (Principal Executive Officer)                                      |              
|                        |                                                                                                                    |              
|/s/ GREGORY C. TALBOTT  |                                                                                                                    | June 22, 2001
|Gregory C. Talbott      | Executive Vice President, Chief Financial Officer and Treasurer
      (Principal Financial and Accounting Officer) |              
|                        |                                                                                                                    |              
|/s/ DONALD R. DESCOMBES |                                                                                                                    | June 22, 2001
|Donald R. DesCombes     | Director                                                                                                           |              
|                        |                                                                                                                    |              
|/s/ ROBERT W. BURWELL   |                                                                                                                    | June 22, 2001
|Robert W. Burwell       | Director                                                                                                           |              
|                        |                                                                                                                    |              
|/s/ WILLIAM T. DINGLE   |                                                                                                                    | June 22, 2001
|William T. Dingle       | Director                                                                                                           |              
|                        |                                                                                                                    |              
|/s/ CURTIS W. MORRIS    |                                                                                                                    | June 22, 2001
|Curtis W. Morris        | Director                                                                                                           |              
|                        |                                                                                                                    |              
|/s/ ROBERT D. NICHOLS   |                                                                                                                    | June 22, 2001
|Robert D. Nichols       | Director                                                                                                           |              
|                        |                                                                                                                    |              
|/s/ JIL H. STARK        |                                                                                                                    | June 22, 2001
|Jil H. Stark            | Director                                                                                                           |              

101