<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                   FORM 10-K

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

                   For the fiscal year ended March 31, 1999

                         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           (I.R.S. Employer I.D. No.)
      incorporation or organization)

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

      Registrant's telephone number, including area code: (909) 623-2323
       Securities registered pursuant to Section 12(b) of the Act:  NONE
          Securities 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  X  No ___.
                                               ---

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of 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 $242,389,738, based upon the last
sales price as quoted on The NASDAQ National Market for June 17, 1999.

     The number of shares of Common Stock outstanding as of June 17, 1999:
13,952,370

                      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 22, 1999 are incorporated by reference in Part
III hereof.
<PAGE>

                                     INDEX

<TABLE>
<CAPTION>
                                     PART I                                           PAGE
                                                                                      ----
<S>                                                                                   <C>
Item 1.     Description of Business                                                     3
Item 2.     Properties                                                                 38
Item 3.     Legal Proceedings                                                          39
Item 4.     Submission of Matters to a vote of Security Holders                        39

                                     PART II

Item 5.     Market for Registrant's Common Equity and Related
             Stockholders Matters                                                      39
Item 6.     Selected Financial Data                                                    40
Item 7.     Management's Discussion and Analysis of Financial
             Condition and Results of Operations                                       43
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk                 57
Item 8.     Financial Statements and Supplementary Data                                58
Item 9.     Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure                                    98

                                     PART III

Item 10.    Directors and Executive Officers of the Registrant                         98
Item 11.    Executive Compensation                                                     98
Item 12.    Security Ownership of Certain Beneficial Owners
             and Management                                                            98
Item 13.    Certain Relationships and Related Transactions                             98

                                     PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports
            on Form 8-K                                                                99
</TABLE>

                                       2
<PAGE>

                                    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, as amended (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, including but not limited to, Year 2000 compliance issues; 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 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 subsidiaries. At March
31, 1999, on a consolidated basis, the Company had total assets of $2.9 billion,
total deposits of $1.8 billion and total stockholders' equity of $242.7 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") and other investment securities. The
Bank's current emphasis is on attracting business deposit accounts and
originating commercial, construction and land (primarily tract construction),
commercial real estate and consumer loans. Loan sales come from loans held in
the Bank's portfolio designated as being held for sale. The Bank generally
retains all the servicing rights of loans sold. The Bank's revenues are derived
principally from interest on its loans, and to a lesser extent, interest and
dividends on its mortgage-backed (MBS) and other investment securities and to a
significantly lesser extent income from deposit related and other fees and loan
servicing. 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, MBS and other investment securities.

                                       3
<PAGE>

Scheduled payments on loans, MBS and other investment securities are a
relatively stable source of funds, while prepayments on loans, MBS and other
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 a
subsidiary.

As new technologies become more important to the success of businesses in
general and financial institutions in particular, the Bank remains strongly
committed to their effective use. The Bank has used the Year 2000 compliance
project as a method to assist in evaluating the technologies currently used and
to map out directions for new implementations. During fiscal 1999, personal
computer operating systems and word processing and spreadsheet programs were
upgraded throughout the Bank. Similarly, the Bank is in the final implementation
stage of a new mortgage loan origination system, incorporating automated
underwriting, tracking, pricing and workflow technology, that will significantly
improve the efficiency and speed of mortgage loan approvals and fundings. During
fiscal 2000 the Bank plans to implement new messaging and groupware technology
to further enhance the efficiency of its employees. The Bank maintains a process
of continuous evaluation and enhancement of technologies for file servers,
networks and communications. Regular training for technical staff is also
recognized as a key component of getting the most out of technologies being
used. See Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a further discussion of Year 2000 activities and
readiness.

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 central 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, MBS
and other investment securities and the level of prepayments on loans, MBS and
other investment 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 Bank acquired the trust operations of another bank for
$3.5 million. As a result of the acquisition, the Bank 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 Bank and are not included in the balance sheet
of the Bank. Trust fee income for the year ended March 31, 1999 and 1998 was
$1.9 million. See Note 18 to the Consolidated Financial Statements.

                                       4
<PAGE>

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, 1999, the Bank had total gross loans outstanding of $2.22 billion, of
which $1.48 billion were one-to-four family residential mortgage loans, or 66.8%
of the Bank's total gross loans. The remainder of the portfolio consisted of
$87.9 million of multi-family mortgage loans, or 4.0% of total gross loans;
$156.5 million of commercial real estate loans, or 7.0% of total gross loans;
$349.1 million of construction and land loans, or 15.7% of total gross loans;
consumer loans of $70.7 million or 3.2% of total gross loans and commercial
business loans of $74.5 million or 3.3% of total gross loans. At March 31, 1999,
89.6% of the Bank's total loans had adjustable interest rates of which 37.9% are
indexed to the 11th FHLB District Cost of Funds Index (COFI).

     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
<PAGE>

     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.

<TABLE>
<CAPTION>
                                                                                At March 31,
                                      ---------------------------------------------------------------------------------------------
                                              1999              1998               1997             1996               1995
                                      ---------------------------------------------------------------------------------------------
                                                  Percent           Percent            Percent           Percent           Percent
                                                    of                of                 of                of                of
                                         Amount    Total    Amount   Total    Amount    Total   Amount    Total   Amount    Total
                                      ---------------------------------------------------------------------------------------------
                                                                    (Dollars in thousands)
<S>                                   <C>         <C>     <C>       <C>     <C>       <C>     <C>       <C>     <C>        <C>
Real estate:
  Residential:
    One-to-four family                $ 1,482,839  66.8%  1,467,857  75.3%  1,499,858  79.4%  1,269,099  77.9%  1,291,300   78.0%
    Multi-Family                           87,856   4.0      97,350   5.0     108,896   5.8     114,477   7.0     119,802    7.2
  Commercial real estate                  156,474   7.0     144,035   7.4     137,169   7.2     148,300   9.1     146,746    8.9
  Construction and land                   349,119  15.7     185,225   9.5     113,188   6.0      76,529   4.7      76,007    4.6
Commercial                                 74,451   3.3      12,468   0.6       3,100   0.2           -     -           -      -
Consumer                                   70,686   3.2      42,826   2.2      26,931   1.4      21,853   1.3      22,606    1.3
                                      ---------------------------------------------------------------------------------------------
     Total loans, gross                 2,221,425 100.0%  1,949,761 100.0%  1,889,142 100.0%  1,630,258 100.0%  1,656,461  100.0%

Undisbursed loan funds                   (167,042)          (95,457)          (38,485)          (25,030)          (25,934)
Net premiums on loans                       1,665             1,114            (1,629)             (803)           (1,158)
Deferred loan origination fees, net          (276)           (1,101)           (1,362)           (3,384)           (4,400)
Allowance for loan losses                 (26,160)          (26,002)          (27,721)          (19,741)          (19,294)
                                      ------------        ---------         ---------         ---------         ---------
     Total loans, net                   2,029,612         1,828,315         1,819,945         1,581,300         1,605,675
Less:
Loans held for sale                        (3,531)             (701)             (736)           (6,365)                -
                                      -----------         ---------         ---------         ---------         ---------
     Loans receivable, net            $ 2,026,081         1,827,614         1,819,209         1,574,935         1,605,675
                                      ===========         =========         =========         =========         =========
</TABLE>

                                       6
<PAGE>

     Loan Maturity. The following table shows the contractual maturity of the
Bank's gross loans at March 31, 1999.

<TABLE>
<CAPTION>
                                                                              At March 31, 1999
                                         ------------------------------------------------------------------------------------------
                                          One-to-                                                                          Total
                                            Four       Multi-    Commercial    Construction and                            Loans
                                           Family      Family    Real Estate         Land        Commercial   Consumer   Receivable
                                         ------------------------------------------------------------------------------------------
                                                                             (Dollars in thousands)
<S>                                      <C>          <C>        <C>           <C>               <C>          <C>        <C>
Amounts due:
  One year or less                       $    4,941      697        7,492           193,944       18,745      11,009      236,828
  After one year:
    More than one year to three years.        9,209      404       19,794           144,157       20,170         447      194,181
    More than three years to five years       3,261    2,198       18,696                 -       32,018         462       56,635
    More than five years to ten years        23,200    6,778       38,845                 -        3,518       3,388       75,729
    More than ten years to twenty years     166,042   39,115       64,340             8,200            -      55,198      332,895
    More than twenty years                1,276,186   38,664        7,307             2,818            -         182    1,325,157
                                         ------------------------------------------------------------------------------------------
      Total due after March 31, 2000      1,477,898   87,159      148,982           155,175       55,706      59,677    1,984,597

                                         ------------------------------------------------------------------------------------------
        Total amount due                  1,482,839   87,856      156,474           349,119       74,451      70,686    2,221,425
  Less:
    Undisbursed loan funds                                 -            -          (167,042)           -           -     (167,042)
    Net premiums on loans                     1,645       20            -                 -            -           -        1,665
    Deferred loan origination fees, net       2,624     (329)        (598)           (2,582)         310         299         (276)
    Allowance for loan losses                (5,724)  (2,026)      (2,048)           (8,911)      (2,761)     (4,690)     (26,160)
                                         ------------------------------------------------------------------------------------------
        Total loans, net                  1,481,384   85,521      153,828           170,584       72,000      66,295    2,029,612
    Loans held for sale                      (3,531)       -            -                 -            -           -       (3,531)
                                         ------------------------------------------------------------------------------------------
        Loans receivable, net            $1,477,853   85,521      153,828           170,584       72,000      66,295    2,026,081
                                         ==========================================================================================
</TABLE>

                                       7
<PAGE>

     The following table sets forth at March 31, 1999, the dollar amount of
total gross loans receivable contractually due after March 31, 2000, and whether
such loans have fixed interest rates or adjustable interest rates.

<TABLE>
<CAPTION>
                                               Due after March 31, 2000
                                   ----------------------------------------------
                                        Fixed          Adjustable         Total
                                   ----------------------------------------------
                                               (Dollars in Thousands)
<S>                                <C>                 <C>              <C>
Real estate loans: (1)
  Residential:
    One-to-four family                 $173,627         1,304,271       1,477,898
    Multi-family                         17,842            69,317          87,159
    Commercial real estate               10,947           138,035         148,982
    Construction and land                   120           155,055         155,175
Commercial                                    -            55,706          55,706
Consumer                                 28,930            30,747          59,677
                                   ----------------------------------------------
      Total gross loans receivable     $231,466         1,753,131       1,984,597
                                   ==============================================
</TABLE>

 (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 and wholesale brokers approved by
the Bank. 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 $987.6 million for fiscal 1999 compared to $557.4
million for fiscal 1998. 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 tract
construction, commercial, commercial real estate and consumer loans as a means
of enhancing the Bank's yield on interest-earning assets. Originations of tract
construction, commercial, commercial real estate and consumer loans aggregated
$577.8 million or 58.5% of total originations for fiscal 1999 compared to $306.5
million or 55.0% of total originations for fiscal 1998. The weighted average
initial contract rate on total originations was 8.58% for fiscal 1999, compared
to 8.75% for fiscal 1998.

     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, 1999, the Bank was servicing $325.7 million of loans for others. See
"Loan Servicing". When loans are sold on a servicing retained basis, the Company
records gains or losses from the sale based on the difference between the net
sales proceeds and the allocated basis of the loans sold. The Company
capitalizes mortgage servicing rights ("MSRs") 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 MSRs and the mortgage
loans without the MSRs based on their relative fair values. MSRs are included in
the financial statements in the category of "other assets." The Bank had $1.2
million and $1.6 million of MSRs as of March 31, 1999 and 1998, respectively.
Impairment losses are recognized through a valuation allowance, with any
associated provision recorded as a component of loan servicing fees. At March
31, 1999, there were $3.5 million of mortgage loans categorized as held for sale
consisting of fixed-rate one-to-four family residential mortgage loans.

                                       8
<PAGE>

     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.

<TABLE>
<CAPTION>
                                                     For the Years Ended March 31,
                                          ---------------------------------------------------
                                             1999                   1998               1997
                                          ---------------------------------------------------
                                                        (Dollars in thousands)
<S>                                       <C>                    <C>                <C>
Beginning balance(1)                      $  1,828,315           1,819,945          1,580,950
  Loans originated:
    One-to-four family                         406,445             248,224            354,391
    Multi-family                                 3,371               2,721              4,844
    Commercial real estate                      27,465              16,693              2,656
    Construction and land                      384,991             226,321            109,747
    Commercial                                  89,852              19,988              3,719
    Consumer                                    75,480              43,481             24,310
                                          ---------------------------------------------------
Total loans originated                         987,604             557,428            499,667
  Loans purchased                              168,395             163,045             28,417
                                          ---------------------------------------------------
      Total                                  2,984,314           2,540,418          2,109,034
Less:
  Principal payments                          (831,468)           (471,544)          (225,996)
  Sales of loans                               (38,829)           (163,035)           (27,019)
  Transfer to foreclosed real
   estate owned (REO)                          (14,038)            (25,274)           (15,661)

  Change in undisbursed loan
    funds                                      (71,585)            (56,972)           (13,695)
  Change in allowance for loan
    losses                                        (158)              1,719             (7,980)
  Other(2)                                       1,376               3,003              1,262
                                          ---------------------------------------------------
Total loans                                  2,029,612           1,828,315          1,819,945
  Loans held for sale, net                      (3,531)               (701)              (736)
                                          ---------------------------------------------------
Ending balance loans receivable,
  Net                                     $  2,026,081           1,827,614          1,819,209
                                          ===================================================
</TABLE>

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

                                       9
<PAGE>

     One-to-Four Family Residential Mortgage Lending. The Bank offers both
fixed-rate and adjustable-rate mortgage loans with maturities up to 40 years
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, members of the local communities and
wholesale brokers who are compensated on a fee basis.

     At March 31, 1999, the Bank's one-to-four family residential mortgage loans
totaled $1.48 billion or 66.8% of total loans. Of the $1.48 billion, 29.2% were
classified as loans secured by non-owner-occupied properties, which 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, 1999, 88.3% 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, 1999, the outstanding principal
balances of these loans totaled $403.8 million (including $30.7 million of loans
serviced by others in which the Bank has purchased a participating interest), or
27.3% of total one-to-four family residential mortgage loans. At March 31, 1999,
the total outstanding negative amortization on these loans (excluding the $30.7
million of loans serviced by others) was $2.6 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 85% 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. As a result of
declining economic conditions in its primary market area during the period of
1990 to 1995, the Bank de-emphasized the origination of multi-family loans
through fiscal 1996. The University of California at Los Angeles Economic
Forecast has reported an improvement in the Southern California economy which
began during fiscal 1997. With that improvement, the Bank has selectively
increased loan originations in this type of product. 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 120-125%. 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

                                       10
<PAGE>

adverse economic conditions over the past several years, have 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 are
presently experiencing strong economic conditions and real estate value
appreciation.

     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, 1999 totaled $87.9
million or 4.0% of total gross loans. At March 31, 1999, 80.0% of the Bank's
multi-family loans were adjustable-rate indexed to COFI. The Bank's largest
multi-family loan at March 31, 1999, had an outstanding balance of $3.0 million
and is secured by a 51-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. These loans may be made with terms
up to thirty years and have generally been indexed to COFI. However, the Bank
has begun to originate loans of this type which are indexed to either the one-
year CMT or six-month London Interbank Offered Rate (LIBOR) in an effort to
diversify away from COFI indexed loan products. Terms on such loans are
generally 5 to 7 years with 25 to 30 year amortization. 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, 1999 was $3.4 million and is secured
by a gas station in Ontario, California. At March 31, 1999, the Bank's
commercial real estate loan portfolio was $156.5 million, or 7.0% of total gross
loans.

     Loans secured by commercial real estate properties, like multi-family
loans, 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 or 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. 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.

     Construction and Land Lending. The Bank 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, 1999, the Bank
had construction loans outstanding for development of residential properties
located in Colorado, Nevada, Arizona and Oregon totaling $15.6 million, $11.8
million of which was disbursed. As of March 31, 1999, the remainder

                                       11
<PAGE>

of the Bank's construction loans were for development of real estate located in
California. The Bank's construction loans primarily are made to finance tract
construction of one-to-four family residential properties. These loans are all
adjustable-rate with maturities of one year or less and generally include
extension options of six to eighteen months upon payment of an additional fee.
The Bank's policies provide that construction loans may be made in amounts up to
75% of the appraised value of the property for construction of commercial
properties, up to 80% for multi-family properties and up to 85% for one-to-four
family residences. The Bank requires an independent appraisal of the property
and generally requires personal guarantees. Loan proceeds are disbursed as
construction progresses and as inspections warrant. The Bank's inspectors
generally visit projects on a weekly basis to monitor the progress of
construction. The largest credit exposure in the construction loan portfolio as
of March 31, 1999 consists of one loan for $16.7 million for the development of
a master planned community located in southeastern San Bernardino, California.
The aggregate disbursed balance of these loans at March 31, 1999 was $10.5
million. Repayment is to come from the sale of planning areas to merchant
builders. The second largest loan in the Bank's construction loan portfolio at
March 31, 1999 had a balance of $10.1 million, for the development of a 296 home
residential development in northern Los Angeles County. Repayment is to come
from home sales to individual home buyers. At March 31, 1999, the balance of the
Bank's construction and land loan portfolio was $349.1 million (15.7% of total
gross loans), $182.1 million of which was disbursed. At March 31, 1999 the
aggregate balances of loans for the construction of properties other than
one-to-four family residences was $30.5 million, $19.4 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 Bank may
be confronted with a project, when completed, having a value which is
insufficient to assure full repayment of the Bank's loan.

     Consumer and Other Lending. The Bank's originated consumer loans consist
primarily of home equity lines of credit ($60.7 million) and secured and
unsecured personal loans and lines of credit ($10.0 million). At March 31, 1999,
the Bank's total consumer loan portfolio was $70.7 million or 3.2% of total
gross loans.

     Commercial Lending. The Bank has expanded its operations to include
commercial business lending. 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, 1999 were $113.9 million,
$74.5 million of which was outstanding. The largest loan in the commercial
portfolio is a $16.3 million term loan to a computer software manufacturer
specializing in modem and data transfer technology. This loan is secured by
equipment, inventory and accounts receivable and repayment is expected to come
from earnings. The second largest loan is a $5.0 million line of credit to an
equipment leasing company. This loan is secured by the equipment leases and
repayment is expected to come from earnings.

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

                                       12
<PAGE>

     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 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 in amounts up to $299,999 and consumer loans
in amounts up to $199,999 may be approved by the Bank's staff underwriters;
mortgage loans in excess of $299,999 and up to $499,999 and consumer loans in
excess of $199,999 and up to $299,999 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 in
excess of $499,999 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 $2,999,999, consumer loans in excess of $299,999
and up to $449,999 and commercial business loans in excess of $499,999 and up to
$1,999,999 must be approved by the Management Loan Committee; and mortgage loans
of $3.0 million or more, consumer loans in excess of $450,000 and commercial
business loans of $2.0 million or more require the approval of the LOARC. The
LOARC presently reviews all commercial business loans, 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. 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, 1999 the Bank's limit on
loans-to-one borrower was $33.4 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, 1999, the Bank was servicing $325.7 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 Board of Directors generally
performs a monthly review of all delinquent 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. 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.

     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,

                                       13
<PAGE>

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.

     The LOARC 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, 1999, the Bank had $17.2 million of assets classified as
Special Mention, on which there were no allowances compared to $15.3 million
classified as Special Mention, net of allowances of $248,000 at March 31, 1998.
The main component of assets classified as Special Mention at March 31, 1999
were: 45 loans totaling $5.7 million secured by one-to-four family residences;
and nine large non-homogeneous loans (defined as loans with unpaid principal
balances in excess of $500,000) which aggregated $9.7 million. At March 31,
1999, the Bank had $35.9 million of assets classified as Substandard, net of
allowances of $3.0 million, compared to $41.7 million classified as Substandard,
net of allowances of $5.1 million at March 31, 1998. The $5.8 million decrease
in assets classified as Substandard, net between March 31, 1998 and 1999 was
primarily attributable to improvement in commercial real estate loans classified
as Substandard which decreased from 10 loans totaling $10.2 million, before
allowances at March 31, 1998 to 9 loans totaling $5.8 million, before allowances
at March 31, 1999. Multi-family loans classified as Substandard decreased from
17 loans totaling $6.1 million, before allowances at March 31, 1998 to 12 loans
totaling $4.0 million, before allowances at March 31, 1999.

                                       14
<PAGE>

     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 1999, 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, 1999 and 1998 there were no assets classified as Loss and only one
asset at March 31, 1998 classified as Doubtful for $17,000. The composition of
assets classified Substandard at March 31, 1999 and 1998 is set forth on the
following page.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                      At March 31, 1999
                            -----------------------------------------------------------------------------------------------------
                                         Loans                              REO                      Total Substandard Assets
                            -----------------------------------------------------------------------------------------------------
                               Gross       Net        Number     Gross       Net        Number     Gross       Net        Number
                              Balance   Balance(1)   of Loans   Balance   Balance(1)   of Loans   Balance   Balance(1)   of Loans
                            -----------------------------------------------------------------------------------------------------
                                                                   (Dollars in thousands)
<S>                         <C>         <C>          <C>        <C>       <C>          <C>        <C>       <C>          <C>
Real Estate:
  Residential:
    One-to-four family        $18,327   $17,179           144    $4,996    $4,974            56   $23,323   $22,153           200
    Multi-family                4,038     3,249            12         -         -             -     4,038     3,249            12
  Commercial real estate        5,769     5,427             9         -         -             -     5,769     5,427             9
  Construction and land         2,448     2,213             4       767       344             1     3,215     2,557             5
                            -----------------------------------------------------------------------------------------------------
     Sub Total                 30,582    28,068           169     5,763     5,318            57    36,345    33,386           226
Commercial                      2,504     2,504             9         -         -             -     2,504     2,504             9
                            -----------------------------------------------------------------------------------------------------
Grand Total                   $33,086   $30,572           178    $5,763    $5,318            57   $38,849   $35,890           235
                            =====================================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                      At March 31, 1998
                            -----------------------------------------------------------------------------------------------------
                                         Loans                              REO                      Total Substandard Assets
                            -----------------------------------------------------------------------------------------------------
                               Gross      NEt         Number     Gross      Net         Number     Gross      Net         Number
                              Balance   Balance(1)   of Loans   Balance   Balance(1)   of Loans   Balance  Balance(1)   of Loans
                            -----------------------------------------------------------------------------------------------------
                                                                   (Dollars in thousands)
<S>                         <C>         <C>          <C>        <C>       <C>          <C>        <C>      <C>          <C>
Real Estate:
  Residential:
    One-to-four family        $21,084   $18,537           172    $5,956    $5,956            74   $27,040   $24,493           246
    Multi-family                6,102     4,725            17       414       414             2     6,516     5,139            19
  Commercial real estate       10,197     9,644            10       512       512             1    10,709    10,156            11
  Construction and land           996       996             2     1,316       713             5     2,312     1,709             7
                            -----------------------------------------------------------------------------------------------------
     Sub Total                 38,379    33,902           201     8,198     7,595            82    46,577    41,497           283
                            -----------------------------------------------------------------------------------------------------
Commercial                        183       183             3         -         -             -       183       183             3
                            -----------------------------------------------------------------------------------------------------
Grand Total                   $38,562   $34,085           204    $8,198    $7,595            82   $46,760   $41,680           286
                            =====================================================================================================
</TABLE>

_________________________

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

                                       16
<PAGE>

     Non-Accrual and Past-Due Loans. The following table sets forth information
     regarding non-accrual loans, REO and TDR loans. There were 24 TDR loans and
     57 REO properties at March 31, 1999. It is the policy of the Bank 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,
     1999, 1998, 1997, 1996, and 1995, 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 $1.1 million, $1.7
     million, $2.2 million, $858,000, and $987,000, respectively, none of which
     was recognized. During the year ended March 31, 1999 and 1998, the
     Company's average investment in impaired loans was $17,941 and $20,988,
     respectively and interest income recorded during these periods was $916 and
     $776, respectively of which $887 and $845, respectively was recorded
     utilizing the cash basis method of accounting. 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 $1.0 million, $1.2 million, $1.3 million, $1.2 million, and
     $506,000, respectively; $887,000, $779,000, $942,000, $891,000, and
     $326,000, of which was recognized. The decrease in TDR loans from $12.5
     million at March 31, 1998 to $11.3 million at March 31, 1999 reflects a
     decrease in the number of TDR loans from 32 at March 31, 1998 to 24 at
     March 31, 1999.

     During March 1999, the Bank entered into an agreement to sell for $1.8
     million, 12 TDR loans with principal balances aggregating $2.3 million
     before previously established specific allowances for losses aggregating
     $860,000. Upon consummation of this sale during April 1999, the TDR loans
     balance decreased by $2.3 million and the Bank's allowance for losses
     decreased by $860,000. The consummation of this sale did not have a
     material impact on earnings.

<TABLE>
<CAPTION>
                                                                        At March 31,
                                     -------------------------------------------------------------------------------
                                            1999            1998            1997            1996            1995
                                     -------------------------------------------------------------------------------
                                                                  (Dollars in thousands)
<S>                                  <C>                    <C>             <C>             <C>             <C>
Non-accrual loans:
Residential real estate:
    One-to-four family                     $  10,061          13,834          19,258          17,794          14,418
    Multi-family                                 122             467             790           1,558           4,331
Commercial real estate                             -           2,717           1,331               -               -
Construction and land                            647             131           1,447           3,254           4,521
Consumer                                         182              40             524             345             443
                                     -------------------------------------------------------------------------------
      Total                                   11,012          17,189          23,350          22,951          23,713
REO, net(1)                                    5,318           7,595           7,745           6,733           8,007
                                     -------------------------------------------------------------------------------
Non-performing assets                      $  16,330          24,784          31,095          29,684          31,720
                                     ===============================================================================
TDR loans                                  $  11,291          12,505          14,559          13,810           4,896
                                     ===============================================================================
Classified assets, gross                   $  39,058          46,758          56,462          53,702          41,329
Allowance for loan losses as a
  percent of gross loans                        1.18%           1.33%           1.47%           1.21%           1.16%
   receivable(2)
Allowance for loan losses as a
  percent of total non-performing
  loans(3)                                    237.56          151.27          118.72           86.01           81.36
Non-performing loans as a percent
  of gross loans receivable(2)(3)               0.50            0.88            1.24            1.41            1.43
Non-performing assets as a percent
  of total assets(3)                            0.56            0.88            1.23            1.48            1.72
</TABLE>

________________________
(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 and excludes loans held for accelerated
    disposition.
(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.

                                       17
<PAGE>

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

<TABLE>
<CAPTION>
                                               At March 31, 1999                                    At March 31, 1998
                       ----------------------------------------------------------------------------------------------------------
                                 60-89 Days               90 days or more(1)                  60-89 days       90 days or more(1)
                                         Principal                       Principal                 Principal            Principal
                           Number         Balance          Number         Balance         Number    Balance    Number    Balance
                          of loans        of Loans        of Loans        of Loans       of Loans  of Loans   of Loans  of Loans
                       ----------------------------------------------------------------------------------------------------------
                                                                  (Dollars in thousands)
<S>                    <C>               <C>              <C>            <C>             <C>       <C>        <C>       <C>
One-to-four family               22           $1,837             91          $10,061           38     $3,774       117    $13,834
Multi-family                      -                -              1              122            -          -         3        467
Commercial real estate            -                -              -                -            -          -         5      2,717
Construction and land             -                -              -                -            -          -         1        131
Commercial                        -                -              1              647            -          -         -          -
Consumer                          2               41             14              182            5         46        16         40
                       ----------------------------------------------------------------------------------------------------------
  Total                          24           $1,878            107          $11,012           43     $3,820       142    $17,189
                       ==========================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                              At March 31, 1997
                       -------------------------------------------------------------
                                 60-89 Days                  90 Days or More(1)
                       -------------------------------------------------------------
                                          Principal                       Principal
                           Number          Balance           Number        Balance
                          of Loans        of Loans          of Loans      of Loans
                       -------------------------------------------------------------
                                           (Dollars in thousands)
<S>                    <C>                <C>               <C>           <C>
One-to-four family               46           $2,629             56          $19,258
Multi-family                      1              118              2              790
Commercial real estate            2              675              2            1,331
Construction and land             -                -              1            1,447
Commercial                        -                -              -                -
Consumer                        188              283            215              524
                        ------------------------------------------------------------
  Total                         237           $3,705            276          $23,350
                       =============================================================
</TABLE>
     ____________________

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

                                       18
<PAGE>

     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 Bank's loan portfolio and the general economy. The Bank'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 C's. 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 Bank's allowance for loan losses.
Such agencies may require the Bank to make additional provisions for loan losses
based upon information available at the time of the examination. At March 31,
1999, the Bank's allowance for loan losses was $26.2 million or 1.18% of gross
loans and 237.56% of non-performing loans compared to $26.0 million or 1.33% of
gross loans and 151.27% of non-performing loans at March 31, 1998. At March 31,
1999, the Bank had non-accrual loans of $11.0 million or .50% of gross loans
compared to $17.2 million or .88% of gross loans at March 31, 1998. The Bank
will continue to monitor and modify its allowance for loan losses as economic
conditions, loss experience, changes in portfolio composition and other factors
dictate.

     During the year ended March 31, 1994, in connection with a program for the
rapid reduction of problem loans, the Bank identified loans for accelerated
disposition with an aggregate principal balance of $33.3 million, which resulted
in a $10.7 million provision for loan losses and a charge-off of the same amount
for the year ended March 31, 1994. During the year ended March 31, 1995, and
prior to the consummation of the sale of the $33.3 million of loans, additional
loans with aggregate principal balances of $4.0 million were added to the
accelerated disposition program. The inclusion of this additional $4.0 million
in the accelerated disposition coupled with receipt of final pricing on the
entire $37.3 million of loans held for accelerated disposition resulted in a
$2.1 million charge to the provision for loan losses during the year ended March
31, 1995. The closing of the sale of the $37.3 million of loans held for
accelerated disposition occurred in September 1994. During the year ended March
31, 1996, the Bank identified loans for accelerated disposition with an
aggregate principal balance of $8.8 million, which resulted in a $2.7 million
provision for loan losses and a charge-off of the same amount for the year ended
March 31, 1996. The closing of the sale of the $8.8 million of loans held for
accelerated disposition occurred in December 1995.

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

<TABLE>
<CAPTION>
                                                             For the Year Ended March 31,
                                      ---------------------------------------------------------------------------
                                         1999            1998            1997            1996            1995
                                      ---------------------------------------------------------------------------
                                                               (Dollars in Thousands)
<S>                                   <C>                <C>             <C>             <C>             <C>
Beginning balance                         $26,002          27,721          19,741          19,294          11,723
Provision for loan losses                   4,020           7,099          13,661          10,895          13,901
Charge-offs:
  Real estate:
    One-to-four family                     (3,361)         (7,251)         (4,190)         (5,089)         (3,493)
    Multi-family                             (115)           (316)           (134)         (1,635)            (98)
    Commercial real estate                      -            (188)           (842)              -            (420)
    Construction and land                     (31)         (1,012)           (313)           (589)           (113)
  Commercial
  Consumer                                   (372)           (343)           (303)           (422)           (121)
  Loans held for accelerated
   disposition                                  -               -               -          (2,716)         (2,090)
                                      ----------------------------------------------------------------------------
      Total                                (3,879)         (9,110)         (5,782)        (10,451)         (6,335)
Recoveries                                     17             292             101               3               5
                                      ----------------------------------------------------------------------------
Ending balance                            $26,160          26,002          27,721          19,741          19,294
                                      ===========================================================================
Net charge-offs to average gross
  loans outstanding                          0.17%           0.47%           0.31%           0.64%           0.38%
</TABLE>

                                       19
<PAGE>

     The following tables set forth the amount of the Bank'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.

<TABLE>
<CAPTION>
                                                                      At March 31,
                   ------------------------------------------------------------------------------------------------------------
                                  1999                               1998                                1997
                   ------------------------------------------------------------------------------------------------------------
                                             Percent of                          Percent of                          Percent of
                                            Gross Loans                         Gross Loans                         Gross Loans
                               Percent of     in each              Percent of     in each              Percent of     in each
                               Allowance    Category to            Allowance    Category to            Allowance    Category to
                                to Total    Total Gross              to Total   Total Gross              to Total   Total Gross
                      Amount   Allowance      Loans       Amount   Allowance      Loans       Amount   Allowance      Loans
                   ------------------------------------------------------------------------------------------------------------
                                                               (Dollars in thousands)
<S>                <C>         <C>          <C>           <C>      <C>          <C>           <C>      <C>          <C>

One-to-four           $ 5,721       21.87%        66.75%  $10,766       41.40%        75.28%  $13,841       49.93%        79.39%
 family
Multi-family            2,026        7.74          3.95     3,133       12.05          4.99     3,410       12.30          5.77
Commercial real         2,048        7.83          7.04     3,898       14.99          7.39     4,648       16.77          7.26
 estate
Construction            8,911       34.06         15.72     4,454       17.13          9.50     4,103       14.80          5.99
 and land
Commercial              2,761       10.56          3.36     3,024       11.63          0.64        56        0.20          0.16
Consumer                4,690       17.93          3.18       473        1.82          2.20     1,586        5.72          1.43
Unallocated                 3        0.01             -       254        0.98             -        77        0.28             -
                   ------------------------------------------------------------------------------------------------------------
Total allowance
 for loan losses      $26,160       100.0%        100.0%  $26,002      100.00%       100.00%  $27,721      100.00%       100.00%
                   ============================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                               At March 31,
                ---------------------------------------------------------------------------
                                  1996                                1995
                ---------------------------------------------------------------------------
                                            Percent of                          Percent of
                                            Gross Loans                         Gross Loans
                               Percent of     in each              Percent of     in each
                               Allowance    Category to            Allowance    Category to
                                to Total    Total Gross             to Total    Total Gross
                      Amount   Allowance       Loans      Amount   Allowance      Loans
                ---------------------------------------------------------------------------
                                          (Dollars in thousands)
<S>             <C>            <C>          <C>        <C>         <C>          <C>
One-to-four        $ 9,687       49.07%        77.85%  $ 9,710       50.33%        77.96%
 family
Multi-family         3,468       17.57          7.02     2,485       12.88          7.23
Commercial real      3,116       15.78          9.10     2,160       11.20          8.86
 estate
Construction         2,413       12.22          4.69     3,826       19.83          4.59
Commercial               -           -             -         -           -             -
Consumer               730        3.70          1.34       653        3.38          1.36
Unallocated            327        1.66             -       460        2.38             -
                ---------------------------------------------------------------------------
Total allowance
 for loan losses   $19,741      100.00%       100.00%  $19,294      100.00%       100.00%
                ===========================================================================
</TABLE>

                                      20
<PAGE>

Real Estate

     At March 31, 1999, the Company had $5.3 million of REO and $6.4 million of
real estate acquired for investment (REI), net of allowances. If the Bank
acquires any REO, it is initially recorded at fair value. If there is a further
deterioration in va 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 Bank is currently exploring opportunities for sale of
the land originally acquired for the new branch site. During fiscal 1999, the
Bancorp provided "mezzanine" investment financing for three residential real
estate development projects. The three projects are being undertaken by
developers with whom the Bank has had a long history of successful construction
lending activities. The largest investment was $6.0 million on a project for lot
development and construction of 296 single-family homes in northern Los Angeles
County. At March 31, 1999, the balance of this investment was $3.96 million.
This investment is subordinated to $23.9 million in development and phased
construction loans made by the Bank on this project, $7.7 million of which has
been disbursed as of March 31, 1999. The Bancorp expects this investment to be
repaid along with the associated profits by December 2000. The second investment
was $1.7 million for a project for development of 56 lots in a new master-
planned community in southeastern San Bernardino County. This investment was
made in March 1999 and there have been no paydowns expected or made to date. The
developer of this project is not related to nor affiliated with the first
project noted. This investment is not subordinated to any loans of the Bank.
However, the Bank does have a loan commitment of $16.7 million outstanding to an
unrelated developer for infrastructure improvements (e.g. flood control
channels, etc.) in connection with this master-planned community. The Bancorp
expects this investment to be repaid, along with the associated profits by July
2000. The third investment was for $111,500 to provide a short term escrow
deposit on a property in Ventura County. All of these investments provide for a
preferential return to the Bancorp of between 11.00% and 29.25% per annum on the
outstanding balance of the Bancorp's investment. The Bancorp is accounting for
these investments as direct investments in real estate and as such is deferring
all profit in excess of its cost of capital until its investment is paid down by
funds received from third party buyers of finished lots or homes. During the
year ended March 31, 1999 the Company recognized $246,000 of profit on these
investments. The following table sets forth certain information with regard to
the Bank's REO and REI.

<TABLE>
<CAPTION>
                                                                   At March 31,
                              ------------------------------------------------------------------------------------
                                       1999             1998             1997             1996             1995
                              ------------------------------------------------------------------------------------
                                                              (Dollars in thousands)
<S>                           <C>                       <C>              <C>              <C>              <C>
REO
---
Properties acquired in
 settlement of loans(REO)              $ 5,763            8,198            8,074           11,495           13,028
Allowance for losses                      (445)            (603)            (329)          (4,762)          (5,021)
                              ------------------------------------------------------------------------------------
 REO, net                                5,318            7,595            7,745            6,733            8,007
                              ------------------------------------------------------------------------------------

REI
---
Properties wholly owned                    558              731            1,113              911            1,449
Mezzanine equity
 investments in real estate              5,813                -                -                -                -

Allowance for losses                         -                -                -                -             (419)
                              ------------------------------------------------------------------------------------
 REI, net                                6,371              731            1,113              911            1,030
                              ------------------------------------------------------------------------------------
Total real estate, net                 $11,689            8,326            8,858            7,644            9,037
                              ====================================================================================
</TABLE>

                                      21
<PAGE>

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 MBS and other non-government guaranteed securities, including corporate debt
obligations, that are investment grade. On November 4, 1998 the OTS issued
Thrift Bulletin 73 (TB73) "Trust Preferred Securities" which, among other
things, limits the aggregate investment in investment grade trust preferred
securities for OTS supervised institutions to 15 percent of total capital. At
the time TB73 was issued, the Bank's aggregate investment in such securities of
$52.4 million, exceeded the OTS limitation by $23.0 million. The Bank applied
for and was granted a waiver by the OTS permitting the Bank to continue to hold
its trust preferred securities. At March 31, 1999, the Bank's aggregate
investment in trust preferred securities is $44.7 million which represents
21.80% 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, 1999, the Bancorp had direct equity
investments (excluding REI) of $1.8 million, investments in equity mutual funds
of $5.4 million and investments in non-rated corporate debt obligations (trust
preferred debt securities) of $13.1 million. Given the non-rated nature of the
Bancorp's investments in trust preferred debt securities along with the longer-
term (typically 30 years) structure of the obligations, the Bancorp undertakes a
review of the historical and current financial condition and operating results
of the issuer prior to making an investment. These reviews are updated
periodically during the holding periods for the investments.

     A portion of 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, 1999, the Company had $190.1 million in investment securities
consisting primarily of investment grade corporate and U.S. agency securities
including $17.5 million of U.S. agency securities that are callable at par by
the issuers at specified dates prior to maturity. The Company invests in such
callable securities when the yields to each call date and to final maturity
exceed those available from comparable term and credit quality non-callable
securities by amounts which management deems sufficient to compensate the
Company for the call options inherent in the securities. The Company's MBS
portfolio

                                       22
<PAGE>

consists of adjustable-rate securities tied to the one-year CMT (43.40% of the
portfolio), or six-month LIBOR (1.00% of the portfolio), seasoned fixed-rate
securities (13.39% of the portfolio) and five and seven year balloon securities
(42.21% of the portfolio). At March 31, 1999, the carrying value of the
Company's MBS portfolio totaled $526.1 million, $525.6 million or 99.90% of
which was classified as available-for-sale. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Comparison of
Financial Condition at March 31, 1999 and March 31, 1998." All of the Company's
MBS were insured or guaranteed by either the Government National Mortgage
Association (GNMA), 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 reducing 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 Collateralized Mortgage Obligations (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 $102.7 million CMO portfolio is backed by
mortgages insured by FNMA or FHLMC. As with MBS, CMOs 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 adverse impact on
the yield on the security. Additionally, the structure of many CMOs is such that
their cash flows exhibit greater sensitivity to changes in prepayments than do
traditional MBS.

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

<TABLE>
<CAPTION>
                                                                        At March 31,
                                   ------------------------------------------------------------------------------------
                                                1999                        1998                        1997
                                   ------------------------------------------------------------------------------------
                                       Carrying        Fair        Carrying        Fair        Carrying        Fair
                                        Value         Value         Value         Value         Value         Value
                                   ------------------------------------------------------------------------------------
                                                                   (Dollars in thousands)
<S>                                <C>                <C>          <C>            <C>          <C>            <C>
Held-to-maturity:
 FHLMC                                   $    556           560         1,373         1,375         5,490         5,509
                                   ------------------------------------------------------------------------------------
  Total held-to-maturity                      556           560         1,373         1,375         5,490         5,509
                                   ------------------------------------------------------------------------------------

Available-for-sale:
 GNMA                                      19,650        19,650        35,094        35,094        56,682        56,682
 FHLMC                                    158,475       158,475       137,706       137,706       149,788       149,788
 FNMA                                     347,435       347,435       308,820       308,820       279,539       279,539
                                   ------------------------------------------------------------------------------------
  Total available-for-sale                525,560       525,560       481,620       481,620       486,009       486,009
                                   ------------------------------------------------------------------------------------
Total mortgage-backed securities         $526,116       526,120       482,993       482,995       491,499       491,518
                                   ====================================================================================
</TABLE>

                                       23
<PAGE>

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

<TABLE>
<CAPTION>
                                                                      At March 31,
                          --------------------------------------------------------------------------------------------------
                                          1999                             1998                            1997
                          --------------------------------------------------------------------------------------------------
                                Carrying           Fair          Carrying          Fair          Carrying          Fair
                                 Value            Value           Value           Value           Value           Value
                          --------------------------------------------------------------------------------------------------
                                                                 (Dollars in thousands)
<S>                       <C>                     <C>            <C>              <C>            <C>              <C>
Held-to-maturity
 Domestic corporate                 $      -               -               -               -          15,000          15,000
 Collateralized mortgage
  obligations                              -               -               -               -             472             474
 U.S. government and
  federal agency
     obligations                         709             716             714             725             718             739
                          --------------------------------------------------------------------------------------------------
Total held-to-maturity                   709             716             714             725          16,190          16,213
                          --------------------------------------------------------------------------------------------------

Available-for-sale:
 Collateralized mortgage
  obligations                        102,700         102,700         223,502         223,502          24,437          24,437
 FHLMC non-cumulative
  preferred stock                          -               -           5,768           5,768           5,600           5,600
 Corporate debt
   securities                         57,765          57,765          17,359          17,359               -               -
 Equity securities
  Direct                               5,370           5,370           6,239           6,239               -               -
  Mutual funds                         1,780           1,780           7,490           7,490               -               -
 U.S. government and
  federal agency
     obligations                      17,472          17,472          56,052          56,052          57,610          57,610
                          --------------------------------------------------------------------------------------------------
Total available-for-sale             185,087         185,087         316,410         316,410          87,647          87,647
                          --------------------------------------------------------------------------------------------------

      Total                         $185,796         185,803         317,124         317,135         103,837         103,860
                          ==================================================================================================
</TABLE>

                                       24
<PAGE>

     The table below sets forth certain information regarding the carrying
value, weighted average yields and maturities of the Company's investment
securities and mortgage-backed securities as of March 31, 1999.

<TABLE>
<CAPTION>
                                                                                   AT March 31, 1999
                                                            -----------------------------------------------------------------
                                                                                      More than ONE       More than FIVE
                                                               One Year or less    Year to Five Years   Years to Ten Years
                                                            -----------------------------------------------------------------
                                                                        Weighted             Weighted             Weighted
                                                              Carrying   Average   Carrying   Average   Carrying   Average
                                                               Value      Yield     Value      Yield     Value      Yield
                                                            -----------------------------------------------------------------
<S>                                                           <C>       <C>        <C>       <C>        <C>       <C>
                                                                                       (Dollars in Thousands)
Mortgage-backed securities
  Held-to-maturity:
    FHLMC                                                      $   560      6.59%  $      -         -%  $      -         -%
    FNMA                                                             -         -          -         -          -         -
    GNMA                                                             -         -          -         -          -         -
                                                            -----------------------------------------------------------------
  Total held-to-maturity                                           560         -          -         -          -         -
  Available-for-sale
    FHLMC                                                            -         -     53,568      6.08     20,927      5.97
    FNMA                                                         1,735      6.65     74,966      6.36     79,036      6.14
    GNMA                                                             -         -          -         -         91      9.00
                                                            -----------------------------------------------------------------
  Total available-for-sale                                       1,735      6.65    128,534      6.24    100,054      6.11
                                                            -----------------------------------------------------------------
Total mortgage-backed securities                               $ 2,295      6.64%  $128,534      6.24%  $100,054      6.11%
                                                            =================================================================

Investment securities:
  Held-to-maturity:
    U.S. government and Federal agency obligations             $   716      7.16%         -         -          -         -
                                                            -----------------------------------------------------------------
  Total held-to-maturity                                           716      7.16          -         -          -         -
                                                            -----------------------------------------------------------------
  Available-for-sale:
    Collateralized mortgage obligations                              -         -          -         -          -         -
    FHLMC non-cumulative preferred stock                             -         -          -         -          -         -
    Corporate debt securities                                        -         -          -         -          -         -
    Equity securities Direct (1)                                     -         -          -         -          -         -
      Mutual funds (1)                                               -         -          -         -          -         -
    U.S. government and federal agency obligations              17,472      6.03          -         -          -         -
                                                            -----------------------------------------------------------------
  Total available-for-sale                                      17,472      6.03          -         -          -         -
                                                            -----------------------------------------------------------------
Total investment securities                                    $18,188      6.08%         -         -          -         -
                                                            =================================================================

<CAPTION>
                                                            ---------------------------------------
                                                                More than Ten
                                                                    Years              Total
                                                            ---------------------------------------
                                                                      Weighted             Weighted
                                                            Carrying   Average   Carrying   Average
                                                             Value      Yield     Value      Yield
                                                            ---------------------------------------
<S>                                                         <C>       <C>        <C>       <C>

Mortgage-backed securities
  Held-to-maturity:
    FHLMC                                                          -         -%  $    560      6.59%
    FNMA                                                           -         -          -         -
    GNMA                                                           -         -          -         -
                                                            ---------------------------------------
  Total held-to-maturity                                           -         -        560      6.59
  Available-for-sale
    FHLMC                                                     83,980      6.18    158,475      6.12
    FNMA                                                     191,698      6.45    347,435      6.36
    GNMA                                                      19,559      7.02     19,650      7.03
                                                            ---------------------------------------
  Total available-for-sale                                   295,237      6.41    525,560      6.31
                                                            ---------------------------------------
Total mortgage-backed securities                            $295,237      6.41%  $526,120      6.31%
                                                            =======================================

Investment securities:
  Held-to-maturity:
    U.S. government and Federal agency obligations          $      -         -%       716      7.16%
  Total held-to-maturity                                    ---------------------------------------
                                                                   -         -        716      7.16
  Available-for-sale:                                       ---------------------------------------
    Collateralized mortgage obligations                      102,700      5.94    102,700      5.94
    FHLMC non-cumulative preferred stock                           -         -          -         -
    Corporate debt securities                                 57,765      6.51     57,765      6.51
    Equity securities Direct (1)                               5,370     -3.56      5,370     -3.56
      Mutual funds (1)                                         1,780     -9.73      1,780     -9.73
    U.S. government and federal agency obligations                 -         -     17,472         -
                                                            ---------------------------------------
  Total available-for-sale                                   167,615      5.88    185,087      6.29
                                                            ---------------------------------------
Total investment securities                                 $167,615      5.88%  $185,803      6.29%
                                                            =======================================
</TABLE>

__________________________


(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".

                                       25
<PAGE>

Sources of Funds

     General.  Deposits, loan 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 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's 12-month and
step-up certificates permit additions to the account and the ability to increase
the interest rate one time if the offering rate increases during the term of the
account.  Variable-rate certificates offer rates that change each month relative
to COFI and additions to the account are permitted.  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, 1999, the Bank had $1.01 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.  However, market interest
rates and rates offered by competing financial institutions significantly affect
the Bank's ability to attract and retain 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 solicits deposits directly from individual and institutional investors.  At
March 31, 1999 the Bank's certificate accounts include $18.5 million generated
through the Money Desk.  The weighted average interest rate on these deposits
was 4.97% at March 31, 1999.  During the fourth quarter of fiscal 1999, the Bank
made the decision to discontinue its Money Desk effective April 6, 1999 due to
the availability of alternative, cost-effective sources of funds, including
retail deposit growth and FHLB advances.  The Bank does not expect to retain any
significant portion of the Money Desk deposits upon their maturity dates, which
are all within on year.

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

<TABLE>
<CAPTION>
                                                                    For the Year Ended March 31,
                                                              1999              1998              1997
                                                       ----------------------------------------------------
     <S>                                               <C>              <C>                       <C>
                                                                       (Dollars in thousands)
     Net deposits (withdrawals)                                 $ 24,561          (49,543)          (42,601)
     Interest credited on deposit accounts                        78,153           79,318            71,577
                                                       ----------------------------------------------------
           Total increase in deposit accounts                   $102,714           29,775            28,976
                                                       ====================================================
</TABLE>

     At March 31, 1999, the Bank had $247.9 million in certificate accounts in
amounts of $100,000 or more maturing as follows:

<TABLE>
<CAPTION>
                                                                                            Weighted
                              Maturity Period                            Amount           Average Rate
          -----------------------------------------------------------------------------------------------
                                                                           (Dollars in thousands)
          <S>                                                            <C>              <C>
          Three months or less                                               $ 79,348                5.14%
          Over three through six months                                        89,079                5.39
          Over six through 12 months                                           66,241                5.06
          Over 12 months                                                       13,185                5.65
                                                                           ------------------------------
                Total                                                        $247,853                5.24%
                                                                           ==============================
</TABLE>

                                       26
<PAGE>

   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.

<TABLE>
<CAPTION>
                                                                             For the Year Ended March 31,
                                       ---------------------------------------------------------------------------------
                                                       1999                              1998
                                       ---------------------------------------------------------------------------------
                                                      Percent                           Percent
                                                     of Total   Weighted               of Total   Weighted
                                          Average     Average    Average    Average     Average    Average    Average
                                          Balance    Deposits     Yield     Balance    Deposits     Yield     Balance
                                       ---------------------------------------------------------------------------------
<S>                                      <C>         <C>        <C>        <C>         <C>        <C>        <C>
                                                                               (Dollars in thousands)

Passbook accounts                        $  147,702      8.30%      2.31%  $  162,874      9.48%      2.58%  $  192,520
Money market savings accounts               290,917     16.34       4.51      193,146     11.25       4.13      111,793
NOW accounts                                133,102      7.48       0.96      126,244      7.35       0.96      106,355
Non-interest bearing accounts                55,028      3.09          -       33,054      1.92          -       27,292
                                       ---------------------------------------------------------------------------------
    Total                                   626,749     35.21       2.84%     515,318     30.00       2.60%     437,960

Certificate accounts:
  Variable-rate certificates of deposit      31,788      1.79       4.98       26,852      1.56       5.03       45,395
  Step-up certificates of deposit            76,681      4.31       5.12      126,123      7.35       5.50      303,595
  Less than 6 months                         47,040      2.64       4.61       49,145      2.86       4.60      171,594
  6 through 11 months                       290,462     16.32       5.22      234,850     13.68       5.41      184,274
  12 though 23 months                       533,774     29.99       5.43      581,927     33.89       5.66      304,984
  24 months through 47 months                83,834      4.71       5.67       76,129      4.43       5.68       85,515
  48 months or greater                       85,498      4.80       5.84       96,835      5.64       5.82      111,648
  Jumbo                                       3,970      0.22       6.27        9,800       .57       5.99       31,021
  Acquired certificates of deposit(1)           152       .01       3.99          328       .02       4.14        1,484
                                       ---------------------------------------------------------------------------------
    Total certificate accounts            1,153,199     64.79       5.35%   1,201,989     70.00       5.55%   1,239,510
                                       ---------------------------------------------------------------------------------
      Total average deposits             $1,779,948    100.00%      4.47%  $1,717,307    100.00%      4.67%  $1,677,470
                                       =================================================================================
<CAPTION>
                                                  --------------------
                                                     1997
                                                  --------------------
                                                    Percent
                                                   of Total   Weighted
                                                    Average    Average
                                                   Deposits     Yield
                                                  --------------------
<S>                                               <C>         <C>
Passbook accounts                                     11.48%      2.87%
Money market savings accounts                          6.66       3.52
NOW accounts                                           6.34       0.91
Non-interest bearing accounts                          1.63          -
                                                  --------------------
    Total                                             26.11       2.38%

Certificate accounts:
  Variable-rate certificates of deposit                2.71       4.88
  Step-up certificates of deposit                     18.10       5.77
  Less than 6 months                                  10.23       4.94
  6 through 11 months                                 10.98       5.09
  12 though 23 months                                 18.18       5.35
  24 months through 47 months                          5.10       5.64
  48 months or greater                                 6.65       5.78
  Jumbo                                                1.85       5.39
  Acquired certificates of deposit(1)                  0.09       4.28
                                                  --------------------
    Total certificate accounts                        73.89       5.55%
                                                  --------------------
      Total average deposits                         100.00%      4.72%
                                                  ====================
</TABLE>

________________________

(1)  These certificates of deposit were acquired in connection with various
acquisitions of branch offices from other institutions.

                                       27
<PAGE>

   The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at March 31, 1999.

<TABLE>
<CAPTION>
                                      Period to Maturity from March 31, 1999                            At March 31,
                    ---------------------------------------------------------------------------------------------------------
                                                            Three to
                      Less than    One to      Two to         Four      Four to    More than
                       One Year   Two Years  Three Years      Years    Five Years  Five Years     1999      1998      1997
                    ---------------------------------------------------------------------------------------------------------
                                                              (Dollars in thousands)
<S>                 <C>           <C>        <C>            <C>        <C>         <C>        <C>        <C>        <C>
0.00 to 4.00%         $      499          2            -           -           -           -        501        702        828
4.01 to 5.00%            478,858     12,141        2,492         623       4,652         135    498,901     60,740    116,684
5.01 to 6.00%            513,058     27,818       14,430      11,067       5,210         261    571,844  1,035,511  1,034,377
6.01 to 7.00%             19,754      6,873          732       1,232          99           -     28,690     81,086     87,082
7.01 to 8.00%                138          -           23           -           -           -        161        349      1,006
8.01 to 9.00%                  -          -            -           -           -           -          -          -          -
Over 9.01%                   127          -            -           -           -           -        127        127        254
                    ---------------------------------------------------------------------------------------------------------

      Total           $1,012,434     46,834       17,677      12,922       9,961         396  1,100,224  1,178,515  1,240,231
                    =========================================================================================================
</TABLE>

                                       28
<PAGE>

     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 MBS and other investment
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 OTS and FHLB.

     At March 31, 1999, the Bank had outstanding FHLB advances and other
borrowings of $814.0 million at a weighted average cost of 5.74% secured by
GNMA, FNMA and FHLMC MBS and other investment securities.  The original terms of
the FHLB advances and other borrowings outstanding at March 31, 1999, range from
1 year 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 MBS and
other investment 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 increased use of putable advances has allowed the Bank to extend the
term to maturity and initial "put" dates of its funding in connection with
increased investment in balloon MBS products.  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".

                                       29
<PAGE>

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

<TABLE>
<CAPTION>
                                                                 At or For the Years Ended March 31,
                                                     -------------------------------------------------------
                                                           1999                 1998                 1997
                                                     -------------------------------------------------------
                                                                   (Dollars in thousands)
<S>                                                  <C>                       <C>                  <C>
FHLB advances:
  Average balance outstanding                             $855,197             $601,078             $335,188
  Maximum amount outstanding at any
    month-end during the year                              949,000              790,086              545,400
  Balance outstanding at end of year (1)                   764,000              735,886              480,000
  Weighted average interest rate during
    the year                                                  5.57%                5.87%                5.78%
  Weighted average interest rate end
    of year                                                   5.37%                5.70%                5.78%

Reverse repurchase agreements:
  Average balance outstanding                             $ 50,000             $ 50,000             $ 10,129
  Maximum amount outstanding at any
    month-end during the year                               50,000               50,000               50,000
  Balance outstanding at end of year (1)                    50,000               50,000               50,000
  Weighted average interest rate during
    the year                                                  5.87%                5.87%                5.96%
  Weighted average interest rate end
    of year                                                   5.87%                5.87%                5.87%
</TABLE>

_______________
(1) Included in the balances of FHLB advances and reverse repurchase agreements
    outstanding at March 31, 1999 are putable borrowings of $465.0 million and
    $50.0 million, respectively, with initial put dates ranging from April 1999
    to February 2003 and May 1999 to December 1999, respectively. The weighted
    average term to maturity for these putable borrowings are 40 and 34 months,
    respectively, and the weighted average terms to first put dates are 14 and 5
    months, respectively.

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, 1999, PFS had net earnings of $132,000.

     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,
1999, PFFFS had net earnings of $50,000.

     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, 1999, DSI
had net earnings of $41,000.

                                       30
<PAGE>

Personnel

     As of March 31, 1999, the Bank had 474 full-time employees and 130 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 the
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

                                       31
<PAGE>

company thereof, without prior written approval of the OTS or acquiring or
retaining control of a depository institution that is not insured by the FDIC.
In evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.

     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 3% leverage (core) capital ratio and an 8% risk-based capital ratio.
Effective April 1, 1999, however, the minimum leverage ratio increased to 4% for
all institutions except those with the highest rating on the CAMELS financial
institution rating system.  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

                                       32
<PAGE>

purposes of calculating their risk-based capital requirements. A savings
institution's interest rate risk is measured by the decline in the net portfolio
value of its assets (i.e., the difference between incoming and outgoing
discounted cash flows from assets, liabilities and off-balance sheet contracts)
that would result from a hypothetical 200 basis point increase or decrease in
market interest rates divided by the estimated economic value of the
institution's assets. In calculating its total capital under the risk-based
capital rule, a savings institution whose measured interest rate risk exposure
exceeds 2% must deduct an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the estimated
economic value of the institution's assets. The Director of the OTS may waive or
defer a savings institution's interest rate risk component on a case-by-case
basis. A savings institution with assets of less than $300 million and risk-
based capital ratios in excess of 12% is not subject to the interest rate risk
component, unless the OTS determines otherwise. For the present time, the OTS
has deferred implementation of the interest rate risk component. At March 31,
1999, 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, 1999.

<TABLE>
<CAPTION>

                                                                                Actual          Required
                                     Actual       Required       Excess       Percentage       Percentage
                                  -----------------------------------------------------------------------
<S>                               <C>             <C>            <C>          <C>              <C>
                                                           (Dollars in thousands)
Tangible                            $201,210        46,429       154,781            6.95%            1.50%
Core (Leverage)                      201,210        86,859       114,351            6.95             3.00
Risk-based                           222,915       142,403        80,512           12.52             8.00
</TABLE>

     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 examination 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.

                                       33
<PAGE>

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 Financing Corporation
to recapitalize the predecessor to the SAIF. During 1998, Financing Corporation
payments for SAIF members approximated 6.10 basis points, while BIF members paid
1.22 basis points. By law, there will be equal sharing of Financing Corporation
payments between the members of both insurance funds on the earlier of January
1, 2000 or the date the two insurance funds are merged.

     The Bank's assessment rate for fiscal 1999 ranged from 5.8 to 6.1 basis
points and the premium paid for this period was $1.0 million all of which was
paid towards the Financing Corporation bonds. The FDIC has authority to increase
insurance assessments. A significant increase in SAIF insurance premiums would
have an adverse effect on the operating expenses and results of operations of
the Bank. Management cannot predict what the insurance assessment rate will be
in the future.

     Under 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.  Legislation enacted in 1996 provided that
the BIF and the SAIF were to have merged on January 1, 1999 if there were no
more savings associations as of that date.  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,
1999, the Bank's limit on loans to one borrower was $33.4 million.  At March 31,
1999, the Bank's largest aggregate outstanding balance of loans was $29.9
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" (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, 1999, the Bank maintained 81.4% 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

                                       34
<PAGE>

charged against capital. The rule effective in fiscal 1999 established three
tiers of institutions, which are based primarily on an institution's capital
level. An institution that exceeded all fully phased-in capital requirements
before and after a proposed capital distribution ("Tier 1 Bank") and had not
been advised by the OTS that it was in need of more than normal supervision,
could, after prior notice but without obtaining approval of the OTS, make
capital distributions during a calendar year equal to the greater of (i) 100% of
its net earnings to date during the calendar year plus the amount that would
reduce by one-half its "surplus capital ratio" (the excess capital over its
fully phased-in capital requirements) at the beginning of the calendar year or
(ii) 75% of its net income for the previous four quarters. Effective April 1,
1999, the OTS's capital distribution regulation changed. Under the new
regulation, an application to and the prior approval of the OTS is required
before any capital distribution if the institution does not meet the criteria
for "expedited treatment" of applications under OTS regulations, the total
capital distributions for the calendar year exceed net income for that year plus
the amount of retained net income for the preceding two years, the institution
would be undercapitalized following the distribution, or the distribution would
otherwise be contrary to a statute, regulation or agreement with the OTS. If an
application is not required, institutions in a holding company structure must
still give advance notice to the OTS of the capital distribution. If the Bank's
capital fell below its regulatory requirements or if the OTS notified it that it
was in need of more than normal supervision, the Bank's ability to make capital
distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution, which would otherwise be permitted by the
regulation, if the OTS determined that the distribution would be an unsafe or
unsound practice. At March 31, 1999, 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, 1999, but is subject to change
from time to time by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the savings flows of member institutions.
Monetary penalties may be imposed for failure to meet these liquidity
requirements.  The Bank's liquidity ratio for March 31, 1999 was 5.7%, which
exceeded the applicable requirement.  The Bank has never been subject to
monetary penalties for failure to meet its liquidity requirements.

     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, 1999 totaled $439,000.

     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.

                                       35
<PAGE>

     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 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.

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 $46.5 million or less
(subject to adjustment by the Federal Reserve Board) the reserve requirement was
3%; and for accounts aggregating greater than $46.5 million, the reserve
requirement was $1.40 million plus 10% (subject to adjustment by the Federal
Reserve Board between 8% and 14%) against that portion of total transaction
accounts in excess of $46.5 million. The first $4.9 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.

                                       36
<PAGE>

                          FEDERAL AND STATE TAXATION

Federal Taxation

     General.  The Company reports its income on a calendar year basis using the
accrual method of accounting and is subject to federal income taxation in the
same manner as other corporations with some exceptions, including particularly
the Bank's reserve for bad debts discussed below.  The Company files federal
income tax returns on a consolidated basis.  The Bank has been audited by the
IRS through the 1990 tax year and the California Franchise Tax Board through the
1985 tax year and for the 1993 tax year.  The statute of limitations has closed
for all tax years for both IRS and California Franchise Tax Board purposes
through the 1992 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, 1999) 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

                                       37
<PAGE>

corporations with which the Company will not file a consolidated tax return,
except that if the Company owns more than 20% of the stock of a corporation
distributing a dividend then 80% of any dividends received may be deducted.

State and Local Taxation

     State of California.  The California franchise tax rate applicable to the
Company equals the franchise tax rate applicable to corporations generally, plus
an "in lieu" rate approximately equal to personal property taxes and business
license taxes paid by such corporations (but not generally paid by banks or
financial corporations such as the Company); however, the total tax rate cannot
exceed 10.84%.  Under California regulations, bad debt deductions are available
in computing California franchise taxes using a three or six-year weighted
average loss experience method.  The Bancorp and its California subsidiary file
California state franchise tax returns on a combined basis.  Assuming that the
holding company form of organization is continued to be utilized, the Bancorp,
as a savings and loan holding company commercially domiciled in California, will
generally be treated as a financial corporation and subject to the general
corporate tax rate plus the "in lieu" rate as discussed previously.

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

Item 2. Properties.
------------------

     PFF Bank & Trust, as of March 31, 1999, conducted its business through
twenty-four banking branches, two separate trust offices, a regional loan
center, a human resource 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 twenty-four bank branches, seventeen 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 two
separate trust offices and the administrative offices and land on which they are
located are leased, and the human resources and training center and the records
center and land occupied by them are owned.

     As of March 31, 1999, the net book value of owned real estate including the
branch located on leased land totaled $15.8 million. The net book value of
leased branch offices was $2.0 million. The net book value of furniture,
fixtures and electronic data processing equipment was $6.0 million.

                                       38
<PAGE>

Item 3. Legal Proceedings.
--------------------------

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


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

     None.


                                    PART II

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

     The Common Stock of PFF Bancorp, Inc. is traded 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.  To date, the
Bancorp has not paid a dividend to its stockholders.  In the future, the Board
of Directors may consider a policy of paying cash dividends on the Common Stock.
As of March 31, 1999, there were approximately 6,898 holders of the Common Stock
of the Company, which includes the approximate number of shares held in street
name.

<TABLE>
<CAPTION>
                                           High         Low           Closing
                                       -----------------------------------------
     <S>                               <C>              <C>           <C>

     Year Ended March 31, 1999
          First Quarter                      $21.38         17.75         18.63
          Second Quarter                      19.63         11.50         15.25
          Third Quarter                       16.13         10.75         16.00
          Fourth Quarter                      18.63         15.25         17.50

     Year Ended March 31, 1998
          First Quarter                      $19.00         13.25         18.75
          Second Quarter                      20.13         17.75         19.38
          Third Quarter                       22.19         17.94         19.88
          Fourth Quarter                      21.13         16.88         20.63
</TABLE>

                                       39
<PAGE>

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".

<TABLE>
<CAPTION>
                                                                   At March 31,
                                   ---------------------------------------------------------------------------
                                         1999           1998           1997           1996           1995
                                   ---------------------------------------------------------------------------
                                                              (DOLLARS IN THOUSANDS)
<S>                                <C>               <C>            <C>            <C>            <C>
Selected Balance Sheet Data:

Total assets                            $2,935,980      2,812,384      2,535,767      2,008,139      1,842,877
Investment securities held-to-
  maturity                                     709            714         16,190         28,026         40,059
Investment securities
 available-for-                            185,087        316,410         87,647          9,932          6,881
  sale
Mortgage-backed securities held-
  to-maturity                                  556          1,373          5,490          7,134         80,778
Mortgage-backed securities
  available-for-sale                       525,560        481,620        486,009        125,588              -
Trading securities                           4,271              -              -              -              -
Investment in real estate                    6,371            731          1,113            911          1,449
Loans held for sale                          3,531            701            736          6,015              -
Loans receivable, net(1)                 2,026,081      1,827,614      1,819,209      1,574,935      1,605,675
Deposits                                 1,843,538      1,740,824      1,711,049      1,682,073      1,669,416
FHLB advances and other
  borrowings                               814,000        785,886        530,000         19,722         49,095
Stockholders' equity, substantially
  restricted                               242,665        254,278        265,526        289,071        108,053
</TABLE>

                                                        (continued on next page)

                                       40
<PAGE>

<TABLE>
<CAPTION>
                                                             For the Year Ended March 31,
                                          ----------------------------------------------------------------------
                                           1999              1998           1997           1996           1995
                                          ----------------------------------------------------------------------
<S>                                       <C>              <C>            <C>             <C>            <C>
                                                  (Dollars in thousands, except per share amounts)

Selected Operating Data:

Interest income                           $206,955         191,368        168,515         136,173        108,009
Interest expense                           130,356         118,517         99,306          87,556         62,066
                                          ----------------------------------------------------------------------
Net interest income                         76,599          72,851         69,209          48,617         45,943
Provision for loan losses                    4,020           7,099         13,661          10,895         13,901
                                          ----------------------------------------------------------------------
Net interest income after
  provision for loan losses                 72,579          65,752         55,548          37,722         32,042
Non-interest income                         15,548          14,280         10,227           8,139          4,912
Non-interest expense:
  General and administrative
    expense                                 54,960          51,560         49,381          40,475         39,534
  SAIF recapitalization assessment               -               -         10,900               -              -
  Foreclosed real estate operations,
    net                                        (45)            473           (325)          1,670          4,691
                                          ----------------------------------------------------------------------
Total non-interest expense                  54,915          52,033         59,956          42,145         44,225
                                          ----------------------------------------------------------------------
Earnings (loss) before income
  taxes                                     33,212          27,999          5,819           3,716         (7,271)
Income taxes (benefit)                      14,208          12,019          3,087           1,651         (3,112)
                                          ----------------------------------------------------------------------
Net earnings (loss)                       $ 19,004          15,980          2,732           2,065         (4,159)
                                          ======================================================================
Basic earnings per share (2)              $   1.37            1.00           0.15             N/A            N/A
                                          ======================================================================
Diluted earnings per share (2)            $   1.29             .95           0.15             N/A            N/A
                                          ======================================================================
</TABLE>

                                                        (continued on next page)

                                       41
<PAGE>

<TABLE>
<CAPTION>
                                                           At or for the Year Ended March 31,
                                              ------------------------------------------------------------------
                                                   1999         1998          1997          1996           1995
                                              ------------------------------------------------------------------
                                                                 (Dollars in thousands)
<S>                                           <C>             <C>           <C>            <C>            <C>
Performance Ratios (3):
  Return on average assets                        0.64%         0.60          0.12           0.11          (0.24)
  Return on average equity                        7.92          6.07          0.96           1.86          (3.68)
  Average equity to average assets                8.08          9.87         12.10           5.88           6.60
  Equity to total assets at end of period         8.27          9.04         10.47          14.39           5.86
  Net interest spread (4)                         2.47          2.41          2.52           2.51           2.63
  Effective interest spread (5)                   2.71          2.82          3.05           2.66           2.80
  Average interest-earning assets to
    average interest-bearing liabilities        105.16        108.98        112.04         103.17         104.52
  Efficiency ratio (6)                           59.64         59.18         62.16          71.31          77.74
  General and administrative
    expense to average assets                     1.85          1.93          2.10           2.14           2.31
Regulatory Capital Ratios (3)(7):
  Tangible capital                                6.95          7.10          8.46          10.53           5.67
  Core capital                                    6.95          7.10          8.46          10.53           5.67
  Risk-based capital                             12.52         14.17         16.54          20.93          10.56
Asset Quality Ratios (3):
  Non-performing loans as a percent of
    gross loans receivable (8)(9)                 0.50          0.88          1.24           1.41           1.43
  Non-performing assets as a percent
    of total assets (9)                           0.56          0.88          1.80           2.17           1.99
  Allowance for loan losses as a
    percent of gross loans receivable (8)         1.18          1.33          1.47           1.21           1.16
  Allowance for loan losses as a
    percent of non-performing loans (9)         237.56        151.27        118.72          86.01          81.36
  Number of full-service customer
    facilities                                      24            23            23             22             22
  Loan originations                           $987,604       557,428       499,667        265,210        403,073
</TABLE>

____________________________
(1) The allowances for loan losses at March 31, 1999, 1998, 1997, 1996, and 1995
     were $26.2 million, $26.0 million, $27.7 million, $19.7 million, and $19.3
     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) The efficiency ratio represents general and administrative expense as a
     percent of net interest income plus non-interest income.
(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 and excludes loans held for accelerated disposition.
(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."

                                       42
<PAGE>

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, 1999.  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 passbook, NOW
and other demand accounts and money market savings accounts ("core deposits"),
and the earliest repricing opportunity for variable and floating rate
instruments. The Company also had $515.0 million of putable borrowings on the
balance sheet as of March 31, 1999 that are assumed to reprice at their
contractual final maturity.  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.

                                       43
<PAGE>

<TABLE>
<CAPTION>
                                                                                     March 31, 1999
                                                               ---------------------------------------------------------
                                                                              More than 3    More than 6   More than 12
                                                                  3 Months    Months to 6   Months to 12    Months to 3
                                                                   or Less       Months        Months          Years
                                                               ---------------------------------------------------------
                                                                                                  (Dollars in thousands)
<S>                                                            <C>            <C>           <C>            <C>
Interest-earning assets:
  Cash, investment securities and FHLB stock (1)                 $  178,176         1,175          2,743          5,253
  Loans and mortgage-backed securities: (1)
    Mortgage-backed securities                                       47,987        40,613         78,426        167,186
    Loans receivable, net                                           944,568       332,103        180,971        364,474
                                                               --------------------------------------------------------

     Total loans and mortgage-backed securities                     992,555       372,716        259,397        531,660
                                                               --------------------------------------------------------
     Total interest-earning assets                                1,170,731       373,891        262,140        536,913
  Non-interest earning assets                                             -             -              -              -
                                                               ---------------------------------------------------------
     Total assets                                                $1,170,731       373,891        262,140        536,913
                                                               ========================================================

Interest-bearing liabilities:
  Fixed maturity deposits                                        $  364,695       355,174        289,854         63,776
  Core deposits (2)                                                  48,905        48,905         97,812        391,246
                                                               --------------------------------------------------------
     Total deposits                                                 413,600       404,079        387,666        455,022
  Borrowings (3)                                                     65,000        70,000         45,000        224,000
                                                               --------------------------------------------------------
     Total interest-bearing liabilities                             478,600       474,079        432,666        679,022
  Non-interest bearing liabilities                                        -             -              -              -
  Equity                                                                  -             -              -              -
                                                               --------------------------------------------------------

     Total liabilities and stockholders' equity                  $  478,600       474,079        432,666        679,022
                                                               ========================================================
Interest sensitivity gap                                         $  692,131      (100,188)      (170,526)      (142,109)
Cumulative interest sensitivity gap                              $  692,131       591,943        421,417        279,308
Cumulative interest sensitivity gap as a
  percentage of total assets                                          23.57%        20.16          14.35           9.51
Cumulative interest-earning assets as a
  percentage of cumulative interest-
  bearing liabilities                                                244.62%       162.13         130.42         113.53

<CAPTION>
                                                                                       March 31, 1999
                                                            --------------------------------------------------------
                                                               More than 3
                                                               Years to 5  More than 5                    Fair
                                                                 Years        Years         Total        Value
                                                            --------------------------------------------------------

<S>                                                         <C>            <C>              <C>          <C>
Interest-earning assets:
  Cash, investment securities and FHLB stock (1)                  30,325        49,803        267,475        267,482
  Loans and mortgage-backed securities: (1)
    Mortgage-backed securities                                   106,275        85,629        526,116        526,120
    Loans receivable, net                                         70,325       137,171      2,029,612      2,034,596
                                                            --------------------------------------------------------

     Total loans and mortgage-backed securities                  176,600       222,800      2,555,728      2,034,596
                                                            ---------------------------------------------------------
     Total interest-earning assets                               206,925       272,603      2,823,203      2,828,198
  Non-interest earning assets                                          -       112,777        112,777        112,777
                                                            --------------------------------------------------------
     Total assets                                                206,925       385,380      2,935,980      2,940,975
                                                            ========================================================

Interest-bearing liabilities:
  Fixed maturity deposits                                         21,094           364      1,094,957      1,098,802
  Core deposits (2)                                              142,554        19,159        748,581        748,581
                                                            --------------------------------------------------------
     Total deposits                                              163,648        19,523      1,843,538      1,847,383
  Borrowings (3)                                                 345,000        65,000        814,000        737,083
                                                            --------------------------------------------------------
     Total interest-bearing liabilities                          508,648        84,523      2,657,538      2,584,466
  Non-interest bearing liabilities                                     -        35,777         35,777         35,777
  Equity                                                               -       242,665        242,665        242,665
                                                            --------------------------------------------------------

     Total liabilities and stockholders' equity                  508,648       362,965      2,935,980      2,862,908
                                                            ========================================================
Interest sensitivity gap                                        (301,723)      188,080        165,665
Cumulative interest sensitivity gap                              (22,415)      165,665
Cumulative interest sensitivity gap as a
  percentage of total assets                                       (0.76)         5.64
Cumulative interest-earning assets as a
  percentage of cumulative interest-
  bearing liabilities                                              99.13        106.23
</TABLE>

______________
(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 17%-35%.
(3)  Putable borrowings are presented based upon contractual final maturities.

                                       44
<PAGE>

  The Company's one year GAP at March 31, 1999, was 14.35% (i.e., more interest
earning assets reprice within one year than interest-bearing liabilities); this
compares with 11.07% at March 31, 1998. The increase in the Company's one-year
repricing GAP between March 31, 1998 and 1999 is attributable, in part, to an
acceleration in the assumed level of principal prepayments on loans and MBS
between the two years. The Company's continuing strategy to limit its interest
rate risk exposure is emphasizing the origination of adjustable rate loans
indexed to more responsive indices such as the one year CMT and the Prime rate
and attempting to more closely match the sensitivity of liabilities to the
anticipated repricing characteristics of assets through the use of putable
borrowings and growth in core deposits.

  Although the table indicates the Company is better protected against rising
interest rates, 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, 200, 300 and 400 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 table below indicates the results of the Company's internal
modeling of its balance sheet as of March 31, 1999. 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.

                                                 Percentage Change
                                ------------------------------------------------
     Change in Interest Rates
         (in basis points)      Net Interest Income(1)   Net Portfolio Value(2)
     ---------------------------------------------------------------------------
                200                             (2.1)%                  (14.5)%
                100                             (0.2)                    (6.3)
               (100)                            (1.3)                     2.7
               (200)                            (2.6)                     3.7

     _________________
     (1)  This percentage change represents the impact to net interest income
          for the period from April 1, 1999 through March 31, 2000 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 would
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, certain borrowings being "put" back to the Bank, 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, 1999, the
Bank's sensitivity measure, as calculated by the OTS, was a negative 1.52%.
This represents an increase in sensitivity of 30 basis points from the March 31,
1998 results.

                                       45
<PAGE>

Average Balance Sheets

  The following table sets forth certain information relating to the Company for
the years ended March 31, 1999, 1998, and 1997.  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.

<TABLE>
<CAPTION>
                                                                                              Year Ended March 31,
                                                                -------------------------------------------------------------------
                                                                     1999                             1998
                                                                --------------------------------------------------------------------
                                                                                          Average                          Average
                                                                     Average               Yield/     Average               Yield/
                                                                     Balance    Interest    Cost      Balance    Interest    Cost
                                                                --------------------------------------------------------------------
<S>                                                                  <C>          <C>       <C>       <C>          <C>       <C>
Assets:                                                                         (Dollars in Thousands)

 Interest-earning assets:
  Interest-earning deposits and short-term investments                40,037    $   1,921    4.80%  $   30,158   $   1,590    5.27%
  Investment securities, net                                         270,164       16,842    6.23      179,895      11,931    6.63
  Mortgage-backed securities, net                                    596,185       37,471    6.29      489,562      33,167    6.77
  Loans receivable, net                                            1,872,869      148,013    7.90    1,853,686     142,815    7.70
  FHLB stock                                                          47,778        2,708    5.67       30,911       1,865    6.03
                                                                ---------------------------       -------------------------
      Total interest-earning assets                                2,827,033      206,955    7.32    2,584,212     191,368    7.41
  Non-interest-earning assets                                        139,799                            85,842
                                                                ---------------                   --------------
        Total assets                                              $2,966,832                        $2,670,054
                                                                ===============                   ==============
Liabilities and Stockholders' Equity:
 Interest-bearing liabilities:
  Passbook accounts                                               $  147,702        3,405    2.31   $  162,874       4,205    2.58
  Money market savings accounts                                      290,917       13,131    4.51      193,146       7,981    4.13
  NOW and other demand deposit accounts                              188,130        1,293    0.69      159,298       1,214    0.76
  Certificate accounts                                             1,153,199       61,705    5.35    1,201,989      66,755    5.55
                                                                -------------------------         ------------------------
    Total                                                          1,779,948       79,534    4.47    1,717,307      80,155    4.67
  FHLB advances and other borrowings                                 905,197       50,711    5.60      651,078      38,233    5.87
  Other                                                                3,101          111    3.58        2,910         129    4.43
                                                                -------------------------         -------------------------
    Total interest-bearing liabilities                             2,688,246      130,356    4.85    2,371,295     118,517    5.00
                                                                              -----------                      ------------
  Non-interest-bearing liabilities                                    38,729                            35,318
                                                                --------------                   --------------
    Total liabilities                                              2,726,975                         2,406,613
  Stockholders' equity                                               239,857                           263,441
                                                                --------------                   --------------
     Total liabilities and stockholders' equity                   $2,966,832                        $2,670,054
                                                                ==============                   ==============
  Net interest income                                                         $    76,599                       $   72,851
                                                                          =================                 ================
  Net interest spread                                                                        2.47                             2.41
  Effective interest spread                                                                  2.71%                            2.82%
  Ratio of interest-earning assets to interest-
   bearing liabilities                                                105.16%                           108.98%

<CAPTION>
                                                                --------------------------------------
                                                                                1997
                                                                --------------------------------------
                                                                                          Average
                                                                     Average              Yield/
                                                                     Balance    Interest   Cost
                                                                -------------------------------------
<S>                                                             <C>           <C>         <C>
Assets:

  Interest-earning assets:
   Interest-earning deposits and short-term investments           $   35,676  $     2,005    5.62%
   Investment securities, net                                         62,671        4,292    6.85
   Mortgage-backed securities, net                                   406,703       27,723    6.82
   Loans receivable, net                                           1,743,487      133,116    7.64
   FHLB stock                                                         21,383        1,379    6.45
                                                                --------------------------
     Total interest-earning assets                                 2,269,920      168,515    7.42
   Non-interest-earning assets                                        78,368
                                                                --------------
     Total assets                                                 $2,348,288
                                                                ==============
Liabilities and Stockholders' Equity:
 Interest-bearing liabilities:
  Passbook accounts                                               $  192,520        5,525    2.87
  Money market savings accounts                                      111,793        3,935    3.52
  NOW and other demand deposit accounts                              133,647        1,096    0.82
  Certificate accounts                                             1,239,510       68,690    5.55
                                                                --------------------------
    Total                                                          1,677,470       79,246    4.72
  FHLB advances and other borrowings                                 345,317       19,981    5.79
  Other                                                                3,223           79    2.45
                                                                --------------------------
    Total interest-bearing liabilities                             2,026,010       99,306    4.90
                                                                                ----------
  Non-interest-bearing liabilities                                    38,143
                                                                --------------
    Total liabilities                                              2,064,153
  Stockholders' equity                                               284,135
                                                                --------------
     Total liabilities and stockholders' equity                   $2,348,288
                                                                ==============
Net interest income                                                              $ 69,209
                                                                                ==========

Net interest spread                                                                          2.52
Effective interest spread                                                                    3.05%
Ratio of interest-earning assets to interest-
  bearing liabilities                                                 112.04%
</TABLE>

                                       46
<PAGE>

Rate/Volume Analysis

     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.

<TABLE>
<CAPTION>
                                                               Year Ended March 31, 1999            Year Ended March 31, 1998
                                                                      Compared To                          Compared To
                                                               Year Ended March 31, 1998            Year Ended March 31, 1997
                                                        ------------------------------------------------------------------------
                                                                  Increase (Decrease)                  Increase (Decrease)
                                                                         Due to                              Due to
                                                        ------------------------------------------------------------------------
                                                                               Rate/                              Rate/
                                                           Volume     Rate    Volume     Net    Volume    Rate   Volume     Net
                                                        ------------------------------------------------------------------------
<S>                                                       <C>        <C>      <C>      <C>      <C>      <C>     <C>      <C>
                                                                                  (Dollars In Thousands)
   Interest-earning Assets:
    Interest-earning deposits and short-term investments   $  521      (143)     (47)     331     (310)    (125)     20     (415)
    Investment securities, net (1)                          5,987      (716)    (360)   4,911    8,030     (138)   (253)   7,639
    Mortgage-backed securities, net (1)                         -         -        -        -    5,651     (203)     (4)   5,444
    Loans held for sale                                     1,478     3,682       38    5,198        -        -       -        -
    Loans receivable, net (2)                               7,224    (2,397)    (523)   4,304    8,419    1,046     234    9,699
    FHLB stock                                              1,018      (113)     (62)     843      615      (90)    (39)     486
                                                        ------------------------------------------------------------------------
        Total interest-earning assets                     $16,228       313     (954)  15,587   22,405      490     (42)  22,853
                                                        ------------------------------------------------------------------------
   Interest-bearing Liabilities:
    Passbook accounts                                      $ (392)     (450)      42     (800)    (851)    (558)     89   (1,320)
    Money market savings accounts                           4,040       737      373    5,150    2,864      682     500    4,046
    NOW and other demand deposit accounts                     220      (119)     (22)      79      210      (80)    (12)     118
    Certificate accounts                                   (2,710)   (2,439)      99   (5,050)  (2,082)       -     147   (1,935)
    FHLB advances and other borrowings                     14,923    (1,758)    (687)  12,478   17,704      276     272   18,252
    Other                                                       8       (25)      (1)     (18)      (8)      64      (6)      50
                                                        ------------------------------------------------------------------------
         Total interest-bearing liabilities                16,089    (4,054)    (196)  11,839   17,837      384     990   19,211
                                                        ------------------------------------------------------------------------
         Change in net interest income                    $   139     4,367     (758)   3,748    4,568      106  (1,032)   3,642
                                                        ========================================================================
</TABLE>


     _________________________
    (1) Includes assets available-for-sale.
    (2) Included in the increases/(decreases) in interest income on loans
        receivable, net for the year ended March 31, 1999 compared to 1998, the
        year ended March 31, 1998 compared to 1997 are increases/(decreases) in
        interest income on loans held for sale attributable to volume and rate
        of $(3.4 million) and $(267,000); $3.2 million and $82,000,
        respectively.

                                       47
<PAGE>

Comparison of Operating Results for the Years Ended March 31, 1999 and March 31,
1998

General
-------

     The Company reported net earnings of $19.0 million for fiscal 1999 compared
to net earnings of $16.0 million for fiscal 1998. The improvement in operating
resul ts between fiscal 1999 and fiscal 1998 was attributable to three factors:
(i) an increase in net interest income from $72.9 million for fiscal 1998 to
$76.6 million for fiscal 1999 attributable to growth in average interest-earning
assets (ii) a decrease in the provision for loan losses from $7.1 million for
fiscal 1998 to $4.0 million for fiscal 1999 arising from an improvement in asset
quality and (iii) an increase in non-interest income from $14.3 million for
fiscal 1998 to $15.5 million for fiscal 1999 driven principally by increases in
deposit and related fees from $8.2 million for fiscal 1998 to $8.6 million for
fiscal 1999 and the gain on trading securities of $569,000 for fiscal 1999
compared to zero for fiscal 1998.

Interest Income
---------------

     Interest income for fiscal 1999 was $207.0 million compared to $191.4
million for fiscal 1998, an increase of $15.6 million or 8.2%. The increase in
interest income between fiscal 1998 and fiscal 1999 was attributable to a $242.8
million increase in average interest-earning assets from $2.58 billion for
fiscal 1998 to $2.83 billion for fiscal 1999. The yield on average interest-
earning assets was 7.32% for fiscal 1999 compared to 7.41% for fiscal 1998.

     The increase in average interest-earning assets between fiscal 1998 and
fiscal 1999 was comprised principally of a $90.3 million increase in the average
balance of investment securities from $179.9 million for fiscal 1998 to $270.2
million for fiscal 1999, a $19.2 million increase in the average balance of
loans receivable, net from $1.85 billion for fiscal 1998 to $1.87 billion for
fiscal 1999 and $106.6 million increase in the average balance of mortgage-
backed securities (MBS) from $489.6 million for fiscal 1998 to $596.2 million
for fiscal 1999.  The increases in the average balances of MBS and investment
securities between fiscal 1998 and 1999 reflect activity during fiscal 1998 and
early fiscal 1999.

     During mid-fiscal 1999, the Company undertook a strategy of reducing its
wholesale leverage (MBS and investment securities funded with FHLB advances and
other borrowings).  This strategy was undertaken in connection with an increased
focus by the Company on enhancing its net interest spread and achieving an
earnings stream and balance sheet comprised to a greater extent by commercial
business, construction and land, commercial real estate and consumer loans
(collectively,  the "Four-C's") on the asset side and money market savings,
passbook, NOW and other demand deposits (core deposits) on the liability side.
Strong loan origination volumes of the Four-C's have provided an investment
alternative for the Company which is preferential over MBS or investment
securities and is consistent with its long term strategic objectives.
Additionally, having passed the three year anniversary of the Bank's March 28,
1996 mutual to stock conversion, the Company has alternative avenues for capital
management available to it (e.g. stock repurchases) which did not exist prior to
March 28, 1999.  The average yield on loans receivable, net increased 20 basis
points from 7.70% for fiscal 1998 to 7.90% for fiscal 1999 reflecting the Bank's
increased emphasis on the origination of the Four-C's.  The disbursed balance of
the Four-C's averaged $370.0 million or 19.76% of average total loans
receivable, net during fiscal 1999 compared to $259.2 million or 13.98% for
fiscal 1998.

     The Bank also increased the proportion of its loan portfolio comprised by
single-family residential mortgage loans which provide for a 36 to 84 month
fixed-rate of interest before transitioning to an adjustable-rate loan tied to
the one-year constant maturity treasury (CMT) index (hybrid ARMs). During fiscal
1999, the Bank's portfolio of hybrid ARM loans averaged $418.0 million at an
average yield of 7.08% compared to $318.9 million at an average yield of 7.22%
during fiscal 1998. Unlike the typical COFI based adjustable-rate loans
originated by the Bank, these hybrid ARM loans are not originated with lower
introductory rates.

                                       48
<PAGE>

     The increase in yield on loans receivable, net attributable to the change
in the composition of the loan portfolio was partially offset by a decrease in
the general level of interest rates and an increase in the level of prepayments
of higher yielding residential mortgage loans.  These prepayments also resulted
in an increase in the amortization of premiums paid on loans purchased.  This
premium amortization amounted to $2.4 million for fiscal 1999 compared to
$784,000 for fiscal 1998.  At March 31, 1999, 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 investment securities decreased from 6.63% for fiscal
1998 to 6.23% for fiscal 1999 as lower-yielding adjustable rate collateralized
mortgage obligations (CMOs) indexed primarily to the one-month London Interbank
Offered Rate (LIBOR) were added to the portfolio during the first half of fiscal
1999 prior to the Company's decision during mid-fiscal year to begin de-
emphasizing wholesale leverage. The decrease in the yield on investment
securities between fiscal 1998 and fiscal 1999 was attributable in part to a
decrease in one month LIBOR.  One month LIBOR decreased from 5.63% at March 31,
1998 to 4.93% at March 31, 1999.  Premium amortization on investment securities
of $780,000 for fiscal 1999 and $131,000 for fiscal 1998 decreased the yield on
investment securities by 29 basis points and 8 basis points for fiscal 1999 and
1998, respectively.  The average yield on MBS decreased  from 6.77% for fiscal
1998 to 6.29% for fiscal 1999.  This decrease in the yield on MBS was
attributable in part to a decrease in the general level of interest rates during
fiscal 1999, particularly the one year CMT index to which 43.3% of the Company's
MBS portfolio is tied.  The CMT index decreased from 5.41% at March 31, 1998 to
3.86% on October 16, 1998 before increasing to 4.72% at March 31, 1999.
Premium amortization on MBS of $3.3 million for fiscal 1999 and $2.0 million for
fiscal 1998 decreased the yield on MBS by 55 basis points and 41 basis points
for fiscal 1999 and 1998, respectively.  The weighted average cost basis of the
MBS and other investment securities held by the Company at March 31, 1999 was
100.9 percent of par value.

Interest Expense
----------------

     Interest expense for fiscal 1999 was $130.4 million compared to $118.5
million for fiscal 1998, an increase of $11.8 million or 10.0%. The increase in
interest expense between fiscal 1998 and fiscal 1999, was due to a $317.0
million increase in average interest-bearing liabilities from $2.37 billion for
fiscal 1998 to $2.69 billion for fiscal 1999 partially offset by a decrease in
the average cost of interest-bearing liabilities from 5.00% for fiscal 1998 to
4.85% for fiscal 1999. The increase in the average balance of interest-bearing
liabilities was principally attributable to a $254.1 million increase in the
average balance of FHLB advances and other borrowings from $651.1 million for
fiscal 1998 to $905.2 million for fiscal 1999. The average balance of deposits
increased $62.6 million from $1.72 billion for fiscal 1998 to $1.78 billion for
fiscal 1999. During fiscal 1999, the Bank utilized FHLB advances and other
borrowings as its primary funding source for its investments in MBS and other
investment securities and as a means of managing the difference in cash flows
between retail loan and deposit activity in a manner complementary to the
overall interest rate risk and profitability objectives of the Bank. The average
cost of deposits decreased from 4.67% for fiscal 1998 to 4.47% for fiscal 1999.
Contributing to the decrease in the average cost of deposits was a $111.4
million increase in the average balance of core deposits from $515.3 million for
fiscal 1998 to $626.7 million for fiscal 1999. The average cost of FHLB advances
and other borrowings decreased from 5.87% for fiscal 1998 to 5.60% for fiscal
1999. This decrease reflects the decrease in the general level of interest rates
during fiscal 1999.

Provision for Loan Losses
--------------------------

     Provision for loan losses was $4.0 million for fiscal 1999 compared to $7.1
million for fiscal 1998. The decrease in provision for losses between fiscal
1998 and 1999 reflects an improvement in the Bank's overall level of asset
quality as well as an assessment by the Bank of an improvement in general
economic conditions and property valuations in its market area. Non-accrual
loans were $11.0 million or 0.50%, of gross loans receivable at March 31, 1999
compared to $17.2 million or 0.88% of gross loans receivable at March 31, 1998.
The allowance for loan losses was $26.2 million or 1.18% of gross loans
receivable at March 31, 1999 compared to $26.0 million or 1.33% of gross loans
receivable at March 31, 1998.

                                       49
<PAGE>

Non-interest Income
-------------------

     Non-interest income was $15.5 million for fiscal 1999 compared to $14.3
million for fiscal 1998, an increase of $1.3 million or 8.9%.  The increase
between fiscal 1998 and fiscal 1999 was attributable principally to an increase
in deposit and related fees from $8.2 million for fiscal 1998 to $8.6 million
for fiscal 1999 due to a combination of higher volumes of core deposit activity
and an increased emphasis on the assessment and collection of fees.  The income
from the sale of non-deposit investments decreased from $1.6 million for fiscal
1998 to $1.1 million for fiscal 1999.  Trust fees were $1.9 million for fiscal
1998 and 1999.  Gain on sales of loans and securities was $698,000 for fiscal
1999 compared to $1.6 million for fiscal 1998.  The $698,000 for fiscal 1999 is
comprised of gains on sales of loans of $672,000 and gain on sales of securities
of $26,000.  During fiscal 1999, the Bancorp established a trading portfolio
comprised principally by readily marketable equity securities.  This portfolio
is managed by the Bank's Trust Department with the objective of enhancing the
overall returns to the Bancorp.  The net gain from trading activity was $569,000
for fiscal 1999.

Non-interest Expense
--------------------

     Non-interest expense was $54.9 million for fiscal 1999 compared to $52.0
million for fiscal 1998, a increase of $2.9 million or 5.5%.  The $1.5 million
increase in marketing and professional services expense between fiscal 1999 and
fiscal 1998 is attributable principally to the costs associated with the Bank's
image branding campaign which carries the theme, "As big as you need, as small
as you like."

     General and administrative expense was $55.0 million or 1.9% of average
assets for fiscal 1999 compared to $51.6 million or 1.9% of average assets for
fiscal 1998, an increase of $3.4 million or 6.6%. Compensation and benefits
expense increased $1.2 million from $26.8 million for fiscal 1998 to $28.0
million for fiscal 1999. Included in compensation and benefits expense are non-
cash charges of $2.7 million and $1.9 million associated with the Bank's ESOP
and 1996 Incentive Plan. Occupancy and equipment expense was $12.1 million for
fiscal 1999 compared to $11.6 million for fiscal 1998. The $519,000 increase in
occupancy and equipment expense between fiscal 1998 and fiscal 1999 is
attributable principally to depreciation on computer equipment related to
upgrades to the Bank's wide area networked personal computers and service bureau
charges. Foreclosed real estate operations, net generated income of $45,000 for
fiscal 1999 compared to expense of $473,000 for fiscal 1998 reflecting an
improved regional economy and real estate market.

Income Taxes
------------

     Income taxes were $14.2 million for fiscal 1999 compared to $12.0 million
for fiscal 1998. The effective income tax rate for fiscal 1999 was 42.8%
compared to an effective rate of 42.9% for fiscal 1998.

Comparison of Financial Condition at March 31, 1999 and March 31, 1998
----------------------------------------------------------------------

     Total assets at March 31, 1999 were $2.94 billion compared to $2.81 billion
at March 31, 1998 an increase of $123.6 million or 4.4%. Loans receivable, net
increased $198.5 million from $1.83 billion at March 31, 1998 to $2.03 billion
at March 31, 1999. Loan originations were $987.6 million for fiscal 1999
compared to $557.4 million for fiscal 1998. The increase in originations between
fiscal 1998 and 1999 reflects the impact of a very favorable interest rate
environment for re-finance activity combined with an increase in real estate
values and sales volume in the Bank's market areas. The weighted average initial
contract rate for total loan originations was 8.58% for fiscal 1999, compared to
8.75% for fiscal 1998. Originations of the Four-C's totaled $577.8 million for
fiscal 1999 compared to $308.4 million for fiscal 1998 reflecting the Bank's
emphasis on these areas of lending. Investment securities available-for-sale
decreased $131.3 million from $316.4 million at March 31, 1998 to $185.1 million
at March 31, 1999. MBS available-for-sale increased $43.9 million from $481.6
million at March 31, 1998 to $525.6 million at March 31, 1999. The increase in
FHLB stock from $39.5 million at March 31, 1998 to $50.3 million at March 31,
1999 reflects the additional stock the Bank is required to hold based upon its
level of outstanding FHLB

                                       50
<PAGE>

advances. Prepaid expenses and other assets were $23.3 million at March 31, 1999
compared to $47.2 million at March 31, 1998 due to MBS sold but not yet settled
as of March 31, 1998.

     Total liabilities at March 31, 1999 were $2.69 billion compared to $2.56
billion at March 31, 1998, an increase of $135.2 million or 5.3%.  Total
deposits of the Bank were $1.84 billion at March 31, 1999 compared to $1.74
billion at March 31, 1998.  FHLB advances and other borrowings were $814.0
million at March 31, 1999 compared to $785.9 million at March 31, 1998.  The
increase in FHLB advances and other borrowings between March 31, 1998 and 1999
was attributable to the Bank's use of FHLB advances and other borrowings to
supplement deposits in funding the growth in loans receivable during fiscal
1999.  As noted above in the discussion of interest income, during mid-fiscal
1999 the Company began reducing its level of wholesale leverage.

     Total stockholders' equity decreased $11.6 million from $254.3 million at
March 31, 1998 to $242.7 million at March 31, 1999.  The $11.6 million decrease
is comprised principally of a $15.3 million decrease in additional paid-in-
capital partially offset by a $3.7 million decrease in unearned stock-based
compensation and a $3.6 million decrease in accumulated other comprehensive
earnings (loss) on securities available-for-sale.  The $15.3 million decrease in
additional paid-in-capital was attributable principally to the Company's
repurchase during fiscal 1999 of 1,664,144 shares of its outstanding common
stock, at  a weighted average price of $19.29 per share. The $3.5 million
increase in retained earnings from $106.6 million at March 31, 1998 to $110.2
million at March 31, 1999 reflects $15.5 million attributable to the amount paid
by the Company to repurchase its common stock in excess of the issuance price of
the stock, partially offset by the Company's net earnings of $19.0 million for
fiscal 1999.  The $3.7 million decrease in unearned stock-based compensation was
attributable to the amortization of shares under the Company's ESOP and 1996
Incentive Plan.

Comparison of Operating Results for the Years Ended March 31, 1998 and March 31,
1997

General
-------

     The Company reported net earnings of $16.0 million for fiscal 1998 compared
to net earnings of $2.7 million for fiscal 1997. The improvement in operating
results between fiscal 1998 and fiscal 1997 was attributable to four factors:
(i) an increase in net interest income from $69.2 million for fiscal 1997 to
$72.9 million for fiscal 1998 attributable to growth in average interest-earning
assets (ii) a decrease in the provision for loan losses from $13.7 million for
fiscal 1997 to $7.1 million for fiscal 1998 arising from an improvement in asset
quality (iii) an increase in non-interest income from $10.2 million for fiscal
1997 to $14.3 million for fiscal 1998 driven principally by an increase in
deposit and related fees from $9.0 million for fiscal 1997 to $11.7 million for
fiscal 1998 and (iv) the impact on fiscal 1997 of the Bank's $10.9 million share
of the SAIF recapitalization assessment.

Interest Income
---------------

     Interest income for fiscal 1998 was $191.4 million compared to $168.5
million for fiscal 1997, an increase of $22.9 million or 13.6%. The increase in
interest income between fiscal 1997 and fiscal 1998 was attributable to a $314.3
million increase in average interest-earning assets from $2.27 billion for
fiscal 1997 to $2.58 billion for fiscal 1998. The yield on average interest-
earning assets was 7.41% for fiscal 1998 compared to 7.42% for fiscal 1997.

     The increase in average interest-earning assets between fiscal 1997 and
fiscal 1998 was comprised principally of a $117.2 million increase in the
average balance of investment securities from $62.7 million for fiscal 1997 to
$179.9 million for fiscal 1998, a $110.2 million increase in the average balance
of loans receivable, net from $1.74 billion for fiscal 1997 to $1.85 billion for
fiscal 1998 and $82.9 million increase in the average balance of MBS from $406.7
million for fiscal 1997 to $489.6 million for fiscal 1998.  The average yield on
loans receivable, net increased 6 basis points from 7.64% for fiscal 1997 to
7.70% for fiscal 1998 reflecting the Bank's increased emphasis on the
origination of mortgages which provide higher yields than those earned on
single-family residential FHLB and COFI based loan products.  The disbursed
balance

                                       51
<PAGE>

of the Bank's portfolio of construction loans totaled $90.3 million at an
average yield of 10.02% during fiscal 1998 compared to $74.7 million at an
average yield of 11.49% during fiscal 1997.

     The Bank has also increased the proportion of its loan portfolio comprised
by hybrid ARM loans. During fiscal 1998, the Bank's portfolio of hybrid ARM
loans averaged $318.9 million at an average yield of 7.22% compared to $193.9
million at an average yield of 7.12% during fiscal 1997.  Unlike the typical
COFI based adjustable-rate loans originated by the Bank, these hybrid ARM loans
are not originated with lower introductory rates.

     The increase in yield on loans receivable, net attributable to the change
in the composition of the loan portfolio was partially offset by an increase in
the level of prepayments of higher yielding residential mortgage loans.  These
prepayments also resulted in an increase in the amortization of premiums paid on
loans purchased.  This premium amortization amounted to $784,000 for fiscal 1998
compared to $38,000 for fiscal 1997.  At March 31, 1998, the Bank's weighted
average carrying value of loans purchased from others as a percentage of the
outstanding principal balance of $165.0 million was 101.8 percent of par value.

     The yield on investment securities decreased from 6.85% for fiscal 1997 to
6.63% for fiscal 1998 as lower-yielding adjustable rate CMOs indexed primarily
to the one-month LIBOR were added to the portfolio in connection with the Bank's
strategy of supplementing growth in loans and deposits with MBS and other
securities funded primarily with FHLB advances and other borrowings.  The yield
on MBS decreased  from 6.82% for fiscal 1997 to 6.77% for fiscal 1998.  This
decrease in the yield on MBS was attributable to a decrease in the general level
of interest rates during fiscal 1998, particularly the one year CMT index to
which 26.02% of the Company's MBS portfolio is tied.  The CMT index decreased
from 6.02% at March 31, 1997 to 5.08% on January 9, 1998 before increasing
slightly to 5.41% at March 31, 1998.  The decrease in the general level of
interest rates also resulted in an acceleration in the level of prepayments of
the higher yielding fixed and adjustable rate MBS in the Company's portfolio
with a resulting increase in premium amortization.  This premium amortization
was $2.0 million for fiscal 1998 compared to $1.1 million for fiscal 1997.  The
weighted average cost basis of the MBS and other investment securities held by
the Company at March 31, 1998 was 100.8 percent of par value.

Interest Expense
----------------

     Interest expense for fiscal 1998 was $118.5 million compared to $99.3
million for fiscal 1997, an increase of $19.2 million or 19.3%. The increase in
interest expense between fiscal 1997 and fiscal 1998, was due to a $345.3
million increase in average interest-bearing liabilities from $2.03 billion for
fiscal 1997 to $2.37 billion for fiscal 1998 coupled with an increase in the
average cost of interest-bearing liabilities from 4.90% for fiscal 1997 to 5.00%
for fiscal 1998. The increase in the average balance of interest-bearing
liabilities was attributable to a $305.8 million increase in the average balance
of FHLB advances and other borrowings from $345.3 million for fiscal 1997 to
$651.1 million for fiscal 1998. The average balance of deposits increased $39.8
million from $1.68 billion for fiscal 1997 to $1.72 billion for fiscal 1998.

     During fiscal 1998, the Bank utilized FHLB advances and other borrowings as
its primary funding source for its additional investments in MBS and other
investment securities and as a means of managing the difference in cash flows
between retail loan and deposit activity in a manner complementary to the
overall interest rate risk and profitability objectives of the Bank.

     The average cost of deposits decreased from 4.72% for fiscal 1997 to 4.67%
for fiscal 1998.  Contributing to the decrease in the average cost of deposits
was a $77.4 million increase in the average balance of core deposits from $438.0
million for fiscal 1997 to $515.3 million for fiscal 1998.

     The average cost of FHLB advances and other borrowings increased from 5.79%
for fiscal 1997 to 5.87% for fiscal 1998.  This increase reflects the Bank's
lengthening of the term to repricing of its FHLB advances in order to achieve
greater correlation between the repricing of its interest-earning assets and
interest-bearing liabilities.  At March 31, 1998, the weighted average maturity
for the Bank's FHLB advances and other borrowings was 15 months compared to 9
months at March 31, 1997.  In calculating

                                       52
<PAGE>

these weighted average terms to repricing, putable borrowings have been assumed
to reprice at their first put date.

Provision for Loan Losses
--------------------------

     Provision for loan losses was $7.1 million for fiscal 1998 compared to
$13.7 million for fiscal 1997. The provision for loan losses for fiscal 1997
includes $2.5 million applicable to the establishment of specific allowances on
several loans based upon updated reviews in June 1996. Non-accrual loans were
$17.2 million or 0.88%, of gross loans receivable at March 31, 1998 compared to
$23.4 million or 1.24% of gross loans receivable at March 31, 1997. The
allowance for loan losses was $26.0 million or 1.33% of gross loans receivable
at March 31, 1998 compared to $27.7 million or 1.47% of gross loans receivable
at March 31, 1997.

Non-Interest Income
-------------------

     Non-interest income was $14.3 million for fiscal 1998 compared to $10.2
million for fiscal 1997, an increase of $4.1 million or 39.6%.  The increase
between fiscal 1997 and fiscal 1998 was attributable principally to an increase
in deposit and related fees from $6.3 million for fiscal 1997 to $8.2 million
for fiscal 1998 due to a combination of higher volumes of core deposit activity
and an increased emphasis on the assessment and collection of fees. The income
from the sale of non-deposit investments increased from $1.4 million for fiscal
1997 to $1.6 million for fiscal 1998 as the Bank continued to expand its
offerings of non-proprietary annuity and mutual fund products.  Trust fees
increased from $1.4 million for fiscal 1997 to $1.9 million for fiscal 1998
reflecting, in part, growth in assets under custody from $211.0 million at March
31, 1997 to $238.6 million at March 31, 1998.  Gain on sale of loans and
securities was $1.6 million for fiscal 1998 compared to $150,000 for fiscal
1997.  The $1.6 million for fiscal 1998 is comprised of gains on sales of loans
of $992,000 and gains on sales of securities of $624,000.  The gains on sales of
loans include $701,000 applicable to the sale of $149.6 million of single family
loans indexed to COFI.  These loans were sold and a similar amount of loans
indexed to the one year CMT were purchased during the year in connection with
the Bank's efforts to diversify the repricing characteristics of its loan
portfolio.

Non-Interest Expense
--------------------

     Non-interest expense was $52.0 million for fiscal 1998 compared to $60.0
million for fiscal 1997, a decrease of $7.9 million or 13.2%.  Non-interest
expense for fiscal 1997 includes a pre-tax charge of $10.9 million representing
the Bank's share of an industry-wide special assessment levied against the March
31, 1995 deposit bases of all savings institutions in the country with deposits
insured by the SAIF.  Excluding the impact of the SAIF assessment, non-interest
expense increased $3.0 million or 6.1% between fiscal 1997 and fiscal 1998.

     General and administrative expense was $51.6 million or 1.93% of average
assets for fiscal 1998 compared to $49.4 million or 2.11%  of average assets for
fiscal 1997, an increase of $2.2 million or 4.4%. Compensation and benefits
expense increased $3.8 million from $23.0 million for fiscal 1997 to $26.8
million for fiscal 1998. The increase between fiscal 1997 and fiscal 1998 was
attributable principally to a $875,000 increase in ESOP expense arising from an
increase in the market value of the Company's common stock and $1.1 million of
expense associated with the Company's 1996 Incentive Plan which became effective
in October 1996.  Other non-interest expense decreased $2.9 million from $12.8
million for fiscal 1997 to $9.9 million for fiscal 1998.  The decrease was due
principally to the inclusion in fiscal 1997 of approximately $2.1 million of
expenses associated with the Bank's transition of its EDP systems to a new
third-party service provider in October 1996.  Other non-interest expense for
fiscal 1997 also includes a $350,000 legal judgment and a $420,000 accrual for
the interest portion of a probable adverse California franchise tax settlement.
Occupancy and equipment expense was $11.6 million for fiscal 1998 compared to
$10.3 million for fiscal 1997. The $1.3 million increase in occupancy and
equipment expense between fiscal 1997 and fiscal 1998 is attributable
principally to depreciation on computer equipment related to upgrades to the
Bank's wide area networked personal computers and service bureau charges. Real
estate operations, net reflects expense of $473,000 for fiscal 1998 compared to
income of $325,000 for fiscal 1997.

                                       53
<PAGE>

The results for fiscal 1997 reflect a $1.4 million reduction in the allowance
for real estate losses based upon updated property valuations.

Income Taxes
------------

     Income taxes were $12.0 million for fiscal 1998 compared to $3.1 million
for fiscal 1997. The effective income tax rate for fiscal 1998 was 42.9%
compared to an effective rate of 43.2% for fiscal 1997.

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.  The Bank has maintained the
required minimum levels of liquid assets as defined by OTS regulations.  This
requirement, which may be varied at the direction of the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings.  Effective with the quarter ended December 31, 1997
the required ratio is 4%.  Prior to that the requirement was 5%.  The Bank's
average liquidity ratios were 4.85%, 4.90%, and 5.30% for the years ended March
31, 1999, 1998 and 1997, respectively.   Management attempts to maintain a
liquidity ratio no higher than 1% above the regulatory requirement.  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 $97.7 million,
$152.1 million, and $40.5 million, for the years ended March 31, 1999, 1998 and
1997, respectively.  Net cash provided by (used in) investing activities
consisted primarily of disbursements for loan originations and purchases of
mortgage-backed and other investment securities, offset by principal collections
on loans and proceeds from maturation of investments and paydowns on mortgage-
backed securities.  Principal payments on loans were $831.5 million, $471.5
million, and $226.0 million for the years ended March 31, 1999, 1998 and 1997,
respectively.  Disbursements on loans originated and purchased, excluding loans
originated for sale, were $1.08 billion, $659.6 million, and $492.8 million for
the years ended March 31, 1999, 1998 and 1997, respectively.  Disbursements for
purchases of mortgage-backed and other investment securities were $416.3
million, $480.8 million, and $563.1 million for the years ended March 31, 1999,
1998 and 1997, respectively.  Proceeds from the maturation of investment
securities and paydowns of mortgage-backed securities were $419.8 million,
$207.4 million and $101.8 million for the years ended March 31, 1999, 1998 and
1997, 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 $102.7 million, $29.8
million, and $29.0 million for the years ended March 31, 1999, 1998 and 1997,
respectively.  The net increases in FHLB advances and other borrowings were
$28.1 million, $255.9 million, and $510.3 million for the years ended March 31,
1999, 1998 and 1997, respectively.

At March 31, 1999, the Bank exceeded all of its regulatory capital requirements
with a tangible capital level of $201.2 million, or 6.95% of adjusted total
assets, which is above the required level of $46.4 million, or 1.5%; core
capital of $201.2 million, or 6.95 % of adjusted total assets, which is above
the required level of $86.9 million, or 3.0%, and total risk-based capital of
$222.9 million, or 12.52% of risk-weighted assets,

                                       54
<PAGE>

which is above the required level of $142.4 million, or 8%. 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, 1999
cash and short-term investments totaled $63.8 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,
1999, the Bank has $764.0 million of FHLB advances and $50.0 million of reverse
repurchase agreements outstanding.  Other sources of liquidity include
investment securities maturing within one year.

     The Company currently has no material contractual obligations or
commitments for capital expenditures.  See "Item 1 - Description of Business -
General."  At March 31, 1999, the Bank had outstanding commitments to originate
and purchase loans of $28.8 million and zero, respectively, compared to $15.2
million and zero, respectively, at March 31, 1998.  At March 31, 1999, and 1998
the Company had no outstanding commitments to purchase mortgage-backed
securities 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, 1999 totaled $1.0 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.

Year 2000
---------

Risks of the Year 2000 Issue

     The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to represent the calendar year (e.g. "98" for
"1998").  Software so developed, and not corrected, could produce inaccurate or
unpredictable results or system failures commencing January 1, 2000, when dates
present a lower two digit year number than dates in the prior century.  Such
occurrences may have a material adverse effect on the Company's financial
condition, results of operation, business or business prospects, as the Company,
like most financial organizations, is significantly subject to the potential
impact of the Year 2000 issue due to the nature of financial information.
Potential impacts to the Company may arise from software, computer hardware, and
other equipment both within the Company's direct control and outside the
Company's ownership, yet with which the Company electronically or operationally
interfaces.

                                       55
<PAGE>

Financial institution regulators have intensively focused upon Year 2000
exposures, issuing guidance concerning the responsibilities of management and
the board of directors. Year 2000 testing and certification is being addressed
as a key safety and soundness issue in conjunction with regulatory exams and the
Office of Thrift Supervision has authority to bring enforcement actions against
any institution under its supervision which it believes is not properly
addressing Year 2000 issues.

State of Readiness

     The Company has established a five-phase process to address the Year 2000
issue and pursuant to its plans, for both information technology and non-
information technology related systems, the majority of effort remaining is in
the fifth and final phases of the project.  The Company's Board of Directors
oversees the Year 2000 compliance project's progress through monthly status
reports provided by the Year 2000 Project Office, which indicate that the
Company expects to be ready for Year 2000.  The Company expects to be
substantially ready by June 30, 1999.

     Phase one of the project consisted of developing a Company-wide awareness
of the Year 2000 issue and included establishment of a Year 2000 Project Office
for the Company.  As part of the second phase, the Company completed an
inventory of all data systems to determine which are most critical to support
customer transaction processing and provide customer services.  This inventory
not only included in-house systems, but those provided by third party vendors as
well.  Project plans were developed which place priority emphasis on those
systems requiring change and classified as mission critical.  Third party
vendors were contacted during this phase to determine their processes and
timelines for correcting any Year 2000 compliance issues. The Company has in
place a process to monitor the progress of mission critical third party vendors
toward making required Year 2000 corrections.  In addition, significant real
estate and commercial loan borrowers of the Company were also contacted to
determine the extent of their preparations for Year 2000 and any potential
impact Year 2000 may have on their businesses and ability to repay loan
obligations to the Company.  The first two phases are completed.

     Phase three of the process consists of making appropriate Year 2000
programming changes to the Company's in-house and vendor-provided core
processing systems, as well as replacement of other vendor-provided PC-based
systems.  Phase four consists of acceptance testing and sign-off of both the
Company's in-house and vendor-provided systems.  The fifth and final phase of
the Year 2000 compliance project includes installation of the system
modifications.  The Company has completed renovation, validation and
installation of one of the two major applications currently maintained on its
internally maintained mid-range computer, and replacement of another major
application is scheduled to be completed in the second calendar quarter of 1999.
A third system, for internal Human Resources and payroll processing, will be
converted from a PC-based, outsourced solution to the mid-range computer, with
installation scheduled for the third calendar quarter.  The application this
will be replacing is not Y2K ready, but could be with an upgrade that would
require minimal effort for the Company.  However, due to business reasons, the
Company has decided to convert to a new system rather than upgrade the existing
system.  This brings it under the Y2K umbrella and is being tracked accordingly.
The Company's core processing systems vendors have installed Year 2000 compliant
code for all systems and remaining validation testing scheduled to be
substantially completed by June 30, 1999.  Two external vendors provide core
processing.  The Y2K project office has closely monitored the renovation,
testing and implementation phases of the two processors' Y2K projects and is
satisfied with the progress.  The timing of Year 2000 acceptance testing and
installation of all third party vendor changes is dependent upon when such
systems become available to the Company.

     In addition to the computer systems utilized by the Company, the Company
has also inventoried other essential services that may be impacted by Year 2000
issues, such as telecommunications and utilities. The Company is monitoring such
essential service providers to determine their progress and how they are
addressing Year 2000 issues.  To date, no information exists to suggest such
essential services will not be Year 2000 compliant.

                                       56
<PAGE>

Costs to Address the Year 2000 Issue

     Currently the Company estimates that Year 2000 project costs will
approximate $3.1 million.  This cost is in addition to existing personnel who
may participate in the project. Included in the estimate are costs for hardware
and software renovation or replacement, as well as existing staff who are
specifically devoted to the project.  Approximately 60% of the cost represents
expenditures to replace certain older hardware and software which the Company
might otherwise have replaced during the period, notwithstanding the Year 2000
issue, the costs of which will be depreciated over its anticipated useful life.
Of the estimated total cost, approximately $2.1 million has been incurred on the
project year-to-date.  The table below summarizes by year the estimated amount
and anticipated timing of the planned Year 2000 expenditures.

<TABLE>
<CAPTION>
                                                               Fiscal Year
----------------------------------------------------------------------------------------------
(In Millions)                                1998           1999           2000          Total
----------------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>           <C>
Capital                                      $   -            1.1            .5            1.6
Operating                                       .3             .7            .5            1.5
----------------------------------------------------------------------------------------------
Estimated Year 2000 expenditures             $  .3            1.8           1.0            3.1
==============================================================================================
</TABLE>

     The total amount reflects the costs for inclusion of an internally
maintained mid range computer system recently added to the Y2K compliance
process.  As the Company progresses in addressing the Year 2000 compliance
project and additional information becomes available estimates of costs could
change.  At this time, no significant data system projects have been delayed as
a result of the Company's Year 2000 compliance effort.

Contingency Plans

     The Company believes its Year 2000 compliance process should enable it to
be successful in modifying its computer systems to be Year 2000 compliant.  In
addition to Year 2000 compliance system modification plans, the Company is in
the process of finalizing and testing contingency plans, including manual
procedures, for systems classified as mission critical and high risk.  These
contingency plans provide timetables to pursue various alternatives based upon
the failure of a system to be adequately modified and/or sufficiently tested and
validated to ensure Year 2000 compliance.  However, there can be no assurance
that either the compliance process or contingency plans will avoid partial or
total system interruptions (particularly for disruptions caused by systems
outside of the Company's control), nor that the costs necessary to update
hardware and software would not have a material adverse effect upon the
Company's financial condition, results of operation, business or business
prospects.


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 at Item 7 of this Form 10-K.

                                       57
<PAGE>

ITEM 8.  Financial Statements and Supplementary Data
-----------------------------------------------------


                         Index to Financial Statements

<TABLE>
<CAPTION>
                                                                                  PAGE
                                                                                  ----
<S>                                                                               <C>
Consolidated Balance Sheets - March 31, 1999 and 1998............................  59

Consolidated Statements of Earnings - Years ended March 31, 1999,
    1998 and 1997................................................................  60

Consolidated Statements of Comprehensive Earnings - Years ended March 31, 1999,
    1998 and 1997................................................................  61

Consolidated Statements of Stockholders' Equity - Years ended March 31, 1999,
    1998 and 1997................................................................  62

Consolidated Statements of Cash Flows - Years ended March 31, 1999, 1998
    and 1997.....................................................................  63

Notes to Consolidated Financial Statements.......................................  65

Independent Auditors' Report.....................................................  97
</TABLE>

                                       58
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                  MARCH 31,
                                                                 -----------------------------------------
                                                                          1999                 1998
                                                                 -----------------------------------------
<S>                                                              <C>                           <C>
Assets
Cash and equivalents                                                       $   63,790               46,021
Loans held for sale (note 19)                                                   3,531                  701
Investment securities held-to-maturity (estimated fair value
  of $716 and $725 at March 31, 1999 and 1998)
  (notes 2, 9 and 11)                                                             709                  714
Investment securities available-for-sale, at fair value
  (notes 2, 9 and 11)                                                         185,087              316,410
Mortgage-backed securities held-to-maturity (estimated fair
  value of $560 and $1,375 at March 31, 1999 and 1998)
  (notes 3, 9,10 and 11)                                                          556                1,373
Mortgage-backed securities available-for-sale, at fair value
  (notes 3, 9,10 and 11)                                                      525,560              481,620
Trading securities, at fair value                                               4,271                    -
Investment in real estate (note 5)                                              6,371                  731
Loans receivable, net (notes 4, 6, 9 and 11)                                2,026,081            1,827,614
Federal Home Loan Bank (FHLB) stock, at cost (note 11)                         50,323               39,504
Accrued interest receivable (note 7)                                           17,118               17,320
Real estate acquired through foreclosure, net (notes 5 and 6)                   5,318                7,595
Property and equipment, net (note 8)                                           23,925               25,567
Prepaid expenses and other assets (notes 12 and 18)                            23,340               47,214
                                                                 -----------------------------------------
          Total assets                                                     $2,935,980            2,812,384
                                                                 =========================================

Liabilities and Stockholders' Equity
Liabilities:
  Deposits (note 9)                                                        $1,843,538            1,740,824
  FHLB advances and other borrowings (notes 10 and 11)                        814,000              785,886
  Deferred income taxes payable (note 13)                                       5,921                3,396
  Accrued expenses and other liabilities (notes 9 and 12)                      29,856               28,000
                                                                 -----------------------------------------
          Total liabilities                                                 2,693,315            2,558,106
Commitments and contingencies (notes 12, 16, 17 and 18)                             -                    -
Stockholders' equity (notes 12, 13, 14, 21 and 22):
  Preferred stock, $.01 par value.  Authorized 2,000,000                            -                    -
  shares; none issued
  Common stock, $. 01 par value.  Authorized 59,000,000
  shares; issued 19,943,948 and 19,901,422; outstanding
   15,445,481 and 17,067,099 at March 31, 1999 and 1998,
   respectively                                                                   199                  199
  Additional paid-in capital                                                  150,612              165,912
  Retained earnings, substantially restricted                                 110,163              106,617
  Unearned stock-based compensation                                           (17,169)             (20,895)
  Treasury stock (4,498,467 and 2,834,323 in 1999 and 1998,
  respectively)                                                                   (45)                 (28)
  Accumulated other comprehensive earnings (loss)                              (1,095)               2,473
                                                                 -----------------------------------------
          Total stockholders' equity                                          242,665              254,278
                                                                 -----------------------------------------
          Total liabilities and stockholders' equity                       $2,935,980            2,812,384
                                                                 =========================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       59
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                         Year EndeD March 31,
                                                                      -----------------------------------------------------------
                                                                               1999                1998                1997
                                                                      -----------------------------------------------------------
<S>                                                                   <C>                          <C>                <C>
Interest income:
  Mortgage loans                                                               $   138,639             138,480            130,788
  Non-mortgage loans                                                                 9,374               4,335              2,328
  Mortgage-backed securities                                                        37,471              33,167             27,723
  Investment securities and deposits                                                21,471              15,386              7,676
                                                                      -----------------------------------------------------------
      Total interest income                                                        206,955             191,368            168,515
                                                                      -----------------------------------------------------------
Interest on deposits (note 9)                                                       79,534              80,155             79,246
Interest on borrowings (note 10)                                                    50,822              38,362             20,060
                                                                      -----------------------------------------------------------
      Total interest expense                                                       130,356             118,517             99,306
                                                                      -----------------------------------------------------------
Net interest income                                                                 76,599              72,851             69,209
Provision for loan losses (note 6)                                                   4,020               7,099             13,661
                                                                      -----------------------------------------------------------
Net interest income after provision for loan losses                                 72,579              65,752             55,548
                                                                      -----------------------------------------------------------
Non-interest income:
  Deposit and related fees                                                           8,637               8,220              6,255
  Trust fees                                                                         1,891               1,852              1,390
  Loan and servicing fees (note 19)                                                  2,780               2,494              2,307
  Gain on sale of loans and securities, net (note  19)                                 698               1,615                150
  Gain on trading securities, net                                                      569                   -                  -
  Profit on real estate investments (note 5)                                           246                   -                  -
  Other non-interest income                                                            727                  99                125
                                                                      -----------------------------------------------------------
      Total non-interest income                                                     15,548              14,280             10,227
                                                                      -----------------------------------------------------------
Non-interest expense:
  General and administrative:
    Compensation and benefits (note 12)                                             27,997              26,803             23,003
    Occupancy and equipment                                                         12,098              11,579             10,305
    Marketing and professional services                                              4,708               3,248              3,238
    Other non-interest expense (note 15)                                            10,157               9,930             12,835
                                                                      -----------------------------------------------------------
      Total general and administrative                                              54,960              51,560             49,381
  SAIF recapitalization assessment                                                       -                   -             10,900
  Foreclosed real estate operations, net (note 5)                                      (45)                473               (325)
                                                                      -----------------------------------------------------------
      Total non-interest expense                                                    54,915              52,033             59,956
                                                                      -----------------------------------------------------------
Earnings before income taxes                                                        33,212              27,999              5,819
  Income taxes (note 13)                                                            14,208              12,019              3,087
                                                                      -----------------------------------------------------------
Net earnings                                                                   $    19,004              15,980              2,732
                                                                      ===========================================================

Basic earnings per share                                                       $      1.37                1.00               0.15
                                                                      ===========================================================
Weighted average shares outstanding for basic
  earnings per share                                                            13,876,440          16,055,127         17,819,870
                                                                      ===========================================================
Diluted earnings per share                                                     $      1.29                0.95               0.15
                                                                      ===========================================================
Weighted average shares outstanding for diluted
  earnings per share                                                            14,716,682          16,795,096         17,959,561
                                                                      ===========================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       60
<PAGE>

                       PFF BANCORP, INC. AND SUBSIDIARY
               Consolidated Statements of Comprehensive Earnings
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                         For the Year Ended
                                                                              March 31,
                                                    ----------------------------------------------------------
                                                             1999               1998                1997
                                                    ----------------------------------------------------------
<S>                                                   <C>                       <C>                <C>
 Net earnings                                                   $ 19,004              15,980            2,732
                                                    ----------------------------------------------------------

Other comprehensive earnings (losses), net
  of income taxes:
  Unrealized gains (losses) on securities
    available-for-sale:
    U.S. Treasury and agency securities and other
      investment securities available-for-sale, at
       fair value                                                 (2,454)                787             (261)
          Reclassification of realized (gains) losses
     included in earnings                                           (312)                 57                -
    Mortgage-backed securities available-for-sale,
      at fair value                                                 (802)              2,120           (1,109)
                                                    ----------------------------------------------------------
Other comprehensive earnings                                      (3,568)              2,964           (1,370)
                                                    ----------------------------------------------------------
Comprehensive earnings                                          $ 15,436              18,944            1,362
                                                    ==========================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       61
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                         Retained
                                                                          Additional     Earnings       Unearned
                                                     Number of   Common    Paid-in    Substantially    Stock-based   Treasury
                                                      Shares     Stock     Capital      Restricted    Compensation     Stock
                                                   ----------------------------------------------------------------------------
<S>                                                <C>           <C>      <C>         <C>             <C>            <C>
Balance at March 31, 1996                           19,837,500     $198    $193,677        $110,187       $(15,870)   $

Net earnings                                                 -        -           -           2,732              -          -
Purchase of treasury stock                            (991,875)       -      (9,909)         (4,898)             -        (10)
Purchase of 793,500 shares for the
  Company's 1996 incentive plan                              -        -           -               -        (11,262)         -
Amortization of shares under
 stock-based compensation plans                              -        -      (1,249)              -          2,421          -
Changes in unrealized losses on
  securities available for sale, net                         -        -           -               -              -          -
                                                  -----------------------------------------------------------------------------

Balance at March 31, 1997                           18,845,625      198     182,519         108,021        (24,711)       (10)

Net earnings                                                 -        -           -          15,980              -          -
Purchase of treasury stock                          (1,842,448)       -     (18,406)        (17,384)             -        (18)
Amortization of shares under
 stock-based compensation plans                              -        -       1,118               -          3,816          -
Stock options exercised                                 63,922        1         681               -              -          -
Changes in unrealized gains on
  securities available for sale, net                         -        -           -               -              -          -
                                                  -----------------------------------------------------------------------------

Balance at March 31, 1998                           17,067,099      199     165,912         106,617        (20,895)       (28)

Net earnings                                                 -        -           -          19,004              -          -
Purchase of treasury stock                          (1,664,144)       -     (16,624)        (15,458)             -        (17)
Change in deferred compensation                              -        -        (313)              -            229          -
 market value
Amortization of shares under
 stock-based compensation plans                              -        -       1,106               -          3,497          -
Stock options exercised                                 42,526        -         531               -              -          -
Changes in unrealized gains on
  securities available for sale, net                         -        -           -               -              -          -
                                                  -----------------------------------------------------------------------------
Balance at March 31, 1999                           15,445,481     $199    $150,612        $110,163       $(17,169)   $   (45)
                                                  =============================================================================

<CAPTION>
                                                     Accumulated
                                                        Other
                                                    Comprehensive
                                                   Earnings (Loss)            Total
                                               ----------------------------------------
<S>                                            <C>                            <C>
Balance at March 31, 1996                            $      879               $289,071

Net earnings                                                  -                  2,732
Purchase of treasury stock                                    -                (14,817)
Purchase of 793,500 shares for the
  Company's 1996 incentive plan                               -                (11,262)
Amortization of shares under
 stock-based compensation plans                               -                  1,172
Changes in unrealized losses on
  securities available for sale, net                     (1,370)                (1,370)
                                               ----------------------------------------

Balance at March 31, 1997                                  (491)               265,526

Net earnings                                                  -                 15,980
Purchase of treasury stock                                    -                [35,808)
Amortization of shares under
 stock-based compensation plans                               -                  4,934
Stock options exercised                                       -                    682
Changes in unrealized gains on
  securities available for sale, net                      2,964                  2,964
                                               ----------------------------------------

Balance at March 31, 1998                                 2,473                254,278

Net earnings                                                  -                 19,004
Purchase of treasury stock                                    -                [32,099)
Change in deferred compensation                               -                    (84)
 market value
Amortization of shares under
 stock-based
  compensation plans                                          -                  4,603
Stock options exercised                                       -                    531
Changes in unrealized gains on
  securities available for sale, net                     (3,568)                (3,568)
                                               ----------------------------------------
Balance at March 31, 1999                            $   (1,095)              $242,665
                                               ========================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       62
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          Year Ended March 31,
                                                      ---------------------------------------------------------
                                                               1999               1998               1997
                                                      ---------------------------------------------------------
<S>                                                   <C>                         <C>                <C>
Cash flows from operating activities
  Net earnings                                                  $  19,004             15,980              2,732
  Adjustments to reconcile net earnings to net cash
    provided by operating activities:
      Amortization of premiums on loans,
        investments and mortgage-backed securities                  4,560              1,415                331
      Amortization of deferred loan origination fees                 (460)              (261)            (1,666)
      Loan fees collected                                          (2,400)            (3,487)              (212)
      Dividends on FHLB stock                                      (2,587)            (1,716)            (1,150)
      Provisions for losses on:
        Loans                                                       4,020              7,099             13,661
        Real estate                                                    41                416               (970)
      Gains on sales of loans, mortgage-backed
       securities
        available-for-sale, real estate and property               (1,777)            (1,792)              (764)
        and equipment
      Proceeds from sale of trading securities                      1,500                  -                  -
      Gains on trading securities                                    (569)                 -                  -
      Depreciation and amortization of property and
        equipment                                                   3,855              5,051              3,134
      Loans originated for sale                                         -             (3,893)           (21,590)
      Proceeds from sale of loans held-for-sale                    39,407            166,989             26,869
      Amortization of unearned stock-based
        compensation                                                4,603              4,934              1,172
      Increase (decrease) in:
        Deferred income taxes                                       2,525             (5,141)            (2,415)
        Accrued expenses and other liabilities                      1,856              5,702             15,395
      (Increase) decrease in:
        Accrued interest receivable                                   202             (1,441)            (5,060)
        Prepaid expenses and other assets                          23,874            (37,751)            11,061
                                                      ---------------------------------------------------------
          Net cash provided by operating activities                97,654            152,104             40,528
                                                      ---------------------------------------------------------

Cash flows from investing activities:
  Net maturities of long-term certificates of deposit                   -                  -                190
  Loans originated for investment                                (987,604)          (553,535)          (478,077)
  Increase in construction loans in process                        71,585             56,972             13,695
  Purchases of loans held for investment                         (168,395)          (163,045)           (28,417)
  Principal payments on loans                                     831,468            471,544            225,996
  Principal payments on mortgage-backed securities
    held-to-maturity                                                  804              3,325              1,644
  Principal payments on mortgage-backed securities
    available-for-sale                                            272,546            144,920             70,040
  Purchases of investment securities held-to-maturity                   -                  -            (15,000)
  Purchases of investment securities                              (90,111)          (279,762)           (86,515)
   available-for-sale
  Purchases of FHLB stock                                          (8,232)           (10,518)           (10,228)
</TABLE>

                                       63
<PAGE>

                       PFF BANCORP, INC. AND SUBSIDIARY
               Consolidated Statements of Cash Flows, continued
                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                             YEAR ENDED MARCH 31,
                                                          --------------------------------------------------------
                                                                1999                1998              1997
                                                          --------------------------------------------------------
<S>                                                       <C>                      <C>               <C>
 Purchases of mortgage-backed securities available-
   for-sale                                                    $(317,988)          (190,539)         (451,322)
 Proceeds from maturities of investment securities
   held-to-maturity                                                    -             15,475            26,899
 Proceeds from maturities of investment securities
   available-for-sale                                            146,449             43,687             3,197
 Proceeds from maturities of mortgage-backed
   securities available-for-sale                                       -                793                 -
 Proceeds from sale of investment securities
   available-for-sale                                             64,668              8,934             5,000
 Proceeds from sale of mortgage-backed securities
   available-for-sale                                                  -             52,789            19,542
 Principal payments on real estate held for investment                                  599
 Proceeds from sale of real estate                                13,611             14,214            10,853
 Investment in real estate held for investment                    (5,704)                 -              (555)
 Purchases of property and equipment                              (2,247)            (4,172)           (5,045)
 Proceeds from sale of property and equipment                          5                 69               129
                                                         ---------------------------------------------------------
        Net cash used in investing activities                   (179,145)          (388,250)         (697,974)
                                                         ---------------------------------------------------------
Cash flows from financing activities:
 Proceeds from FHLB advances and other borrowings                804,876          1,342,886         1,215,600
 Repayment of FHLB advances and other borrowings                (776,762)        (1,087,000)         (705,323)
 Net change in deposits                                          102,714             29,775            28,976
 Proceeds from exercise of stock options                             531                682                 -
 Purchase of stock for unearned stock-based
   compensation plans                                                  -                  -           (11,262)
 Purchase of treasury stock                                      (32,099)           (35,808)          (14,817)
                                                         ---------------------------------------------------------
        Net cash provided by financing activities                 99,260            250,535           513,174
                                                         ---------------------------------------------------------
        Net increase (decrease) in cash and cash
        equivalents                                               17,769             14,389          (144,272)

Cash and cash equivalents, beginning of year                      46,021             31,632           175,904
                                                         ---------------------------------------------------------
Cash and cash equivalents, end of year                         $  63,790             46,021            31,632
                                                         =========================================================
Supplemental information:
  Interest paid, including interest credited                   $ 136,165        $   116,991        $   90,298
  Income taxes paid                                               10,700             16,608             1,838
Non-cash investing and financing activities:
Change in unrealized gain (loss) on securities
   available-for-sale                                             (6,185)             5,145            (2,431)
 Net transfers from loans receivable to real estate               14,038             12,563             9,979
 Net transfer from loans receivable to loans
   held for sale                                                  41,659            163,000                 -
Loans originated for the sale of real estate
 acquired in settlement of loans                                     444                617             1,187
Net transfers from available-for-sale securities
   to trading securities                                           5,419                  -                 -
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       64
<PAGE>

                       PFF BANCORP, INC. AND SUBSIDIARY
                  Notes 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 21 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
generally accepted accounting principles.  In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets, 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 $38,419 and
$33,560 and short-term deposits in banks of $25,371 and $12,461 at March 31,
1999 and 1998, 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

At the time of purchase of an investment security or a mortgage-backed security,
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.

                                       65
<PAGE>

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

Held-to-Maturity

Securities held-to-maturity are carried at cost, adjusted for amortization of
premiums and accretion of discounts which are recognized in interest income
using the interest method.  Mortgage-backed securities represent participating
interests in pools of long-term first mortgage loans originated and serviced by
the issuers of the securities.  Mortgage-backed securities held-to-maturity are
carried at unpaid principal balances, adjusted for unamortized premiums and
unearned discounts.  Premiums and discounts on mortgage-backed securities are
amortized or accreted using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments.  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

Securities available-for-sale are carried at fair value.  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 realized gains and losses on trading securities are
included in net 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
("MSRs") 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 MSRs and the mortgage loans without the MSRs based upon their relative
fair values.  The MSRs are included in other assets and as a component of the
gain on the sale of loans.  The MSRs 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 MSRs are periodically reviewed for impairment based upon their fair value.
The fair value of the MSRs, 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.

                                       66
<PAGE>

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

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 prospective 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 $500, 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.  The amount by
which the recorded investment in the loan exceeds the measure of the impaired
loan is recognized by recording a valuation

                                       67
<PAGE>

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

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 nonaccrual status or are designated as restructured loans.  Only
nonaccrual loans and restructured loans not performing in accordance with their
restructured terms are included in nonperforming loans.  Loans are generally
placed on nonaccrual 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 nonaccrual
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 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.

                                       68
<PAGE>

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

Reverse Repurchase Agreements

The Company enters into sales of securities under agreements to repurchase the
same securities.  Reverse repurchase agreements are accounted for as financing
arrangements, with the obligation to repurchase securities sold reflected as a
liability in the consolidated balance sheets.  The dollar amount of securities
underlying the agreements remains in the respective asset account.

Interest on Deposits

Accrued interest is either paid to the depositor or added to the deposit account
on a periodic basis.  On term accounts, the forfeiture of interest (because of
withdrawal prior to maturity) is offset as of the date of withdrawal against
interest expense in the consolidated statements of operations.

Income Taxes

The Company files consolidated Federal income and combined state franchise tax
returns.

Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.  Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.  The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.

Employee Stock Ownership 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.

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

                                       69
<PAGE>

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

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 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 is effective for all quarters of fiscal years beginning after
June 15, 1999 however, the FASB has issued an exposure draft which would delay
the implementation by one year if approved.  Management is in the process of
determining the impact of SFAS No. 133 on the Company's financial position and
results of operations.

(2) Investment Securities

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

<TABLE>
<CAPTION>
                                                                                     March 31, 1999
                                                       ------------------------------------------------------------------
                                                                                  Gross            Gross       Estimated
                                                                Amortized       Unrealized      Unrealized        Fair
                                                                   Cost           Gains           Losses         Value
                                                       ------------------------------------------------------------------
<S>                                                    <C>                      <C>             <C>            <C>
Held-to-maturity:
  Bonds, notes and debentures at amortized cost:
    U.S. Government and federal agency obligations             $    709               7               -              716
                                                       ------------------------------------------------------------------
          Total                                                $    709               7               -              716
                                                       ==================================================================
Available-for-sale:
    Collateralized mortgage obligations                        $104,338             126          (1,764)         102,700
    U.S. Government and federal agency obligations               17,491              12             (31)          17,472
    Corporate debt securities                                    58,879             224          (1,338)          57,765
    Equity securities                                             8,108               -            (958)           7,150
                                                       ------------------------------------------------------------------
          Total                                                $188,816             362          (4,091)         185,087
                                                       ==================================================================
</TABLE>

                                       70
<PAGE>

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


During the years ended March 31, 1999, 1998 and 1997, the Company realized net
gains on sales of securities available-for-sale of $26, $114 and $23,
respectively.

<TABLE>
<CAPTION>
                                                                          March 31, 1998
                                                  ---------------------------------------------------------------
                                                                      Gross            Gross         Estimated
                                                    Amortized       Unrealized      Unrealized         Fair
                                                       Cost           Gains           Losses           Value
                                                  ---------------------------------------------------------------
<S>                                               <C>             <C>             <C>              <C>
Held-to-maturity:
  Bonds, notes and debentures at amortized cost:
    U.S. Government and federal agency                $    714              11               -              725
     obligations
                                                  ---------------------------------------------------------------
          Total                                       $    714              11               -              725
                                                  ===============================================================
Available-for-sale:
    Collateralized mortgage obligations               $223,514             839            (851)         223,502
    U.S. Government and federal agency                  56,007              50              (5)          56,052
     obligations
    FHLMC non-cumulative preferred stock                 5,600             168               -            5,768
    Corporate debt securities                           17,309             130             (80)          17,359
    Equity securities                                   13,112             617               -           13,729
                                                  ---------------------------------------------------------------
          Total                                       $315,542           1,804            (936)         316,410
                                                =================================================================
</TABLE>

Maturities of investment securities at March 31, 1999 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                   Available-
                                                          Held-to-maturity          for-sale
                                                  ---------------------------------------------
                                                                     Estimated      Estimated
                                                      Amortized        Fair           Fair
                     Maturity                           Cost           Value          Value
          -------------------------------------------------------------------------------------
          <S>                                     <C>                <C>           <C>
          Within one year                                 $709            716              -
          After one to five years                            -              -         17,472
          After five to ten years                            -              -              -
          After ten years                                    -              -        167,615
                                                  ---------------------------------------------
                                                          $709            716        185,087
                                                  =============================================
</TABLE>

(3)  Mortgage-Backed Securities

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

<TABLE>
<CAPTION>
                                                                   March 31, 1999
                                     -------------------------------------------------------------------------
                                                              Gross              Gross           Estimated
                                          Amortized         Unrealized        Unrealized            Fair
                                             Cost             Gains             Losses             Value
                                     -------------------------------------------------------------------------
<S>                                  <C>                    <C>               <C>                <C>
Held-to-maturity
    FHLMC                                  $    556                 4                 -                560
                                     =========================================================================

Available-for-sale
    GNMA                                 $   19,334               316                 -             19,650
    FHLMC                                   158,494               538              (557)           158,475
    FNMA                                    345,892             2,516              (973)           347,435
                                     -------------------------------------------------------------------------
          Total                          $  523,720             3,370            (1,530)           525,560
                                     =========================================================================
</TABLE>

                                       71
<PAGE>

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


<TABLE>
<CAPTION>
                                                                   March 31, 1998
                                     -----------------------------------------------------------------------
                                                              Gross              Gross           Estimated
                                          Amortized         Unrealized        Unrealized            Fair
                                             Cost             Gains             Losses             Value
                                     -----------------------------------------------------------------------
<S>                                    <C>               <C>               <C>                <C>
Held-to-maturity
    FHLMC                                 $    1,373                 2                 -              1,375
                                     =======================================================================

Available-for-sale
    GNMA                                  $   34,399               695                 -             35,094
    FHLMC                                    137,504               525              (323)           137,706
    FNMA                                     306,287             2,892              (359)           308,820
                                     -----------------------------------------------------------------------
          Total                           $  478,190             4,112              (682)           481,620
                                     =======================================================================
</TABLE>

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

(4)  Loans Receivable

Loans receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                                           March 31,
                                                             ----------------------------------
                                                                     1999              1998
                                                             ----------------------------------
          <S>                                                <C>                       <C>
          Mortgage loans:
          Residential:
              One-to-four family                                 $ 1,479,308         1,467,156
              Multi-family                                            87,856            97,350
            Commercial real estate                                   156,474           144,035
            Construction and land                                    349,119           185,225
                                                             ----------------------------------
                Total mortgage loans                               2,072,757         1,893,766

          Commercial                                                  74,451            12,468
          Consumer                                                    70,686            42,826
                                                             ----------------------------------
                                                                   2,217,894         1,949,060
            Less:
            Undisbursed portion of construction loans               (167,042)          (95,457)
            Net premium on loans                                       1,665             1,114
            Net deferred loan origination fees                          (276)           (1,101)
            Allowance for loan losses (note 6)                       (26,160)          (26,002)
                                                             ----------------------------------
                                                                 $ 2,026,081         1,827,614
                                                             ==================================
            Weighted average yield                                      7.66%             7.70%
                                                             ==================================
</TABLE>

                                       72
<PAGE>

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


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

<TABLE>
<CAPTION>
                                                                           March 31,
                                                             ----------------------------------
                                                                     1999              1998
                                                             ----------------------------------
       <S>                                                   <C>                       <C>
       Beginning balance                                             $ 2,070            1,897
       Additions                                                       1,346              288
       Repayments                                                       (971)            (115)
                                                             ----------------------------------

       Ending balance                                                $ 2,445            2,070
                                                             ==================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                            March 31,
                                                      ---------------------------------------------------
                                                             1999             1998             1997
                                                      ---------------------------------------------------
     <S>                                              <C>                     <C>              <C>
     Nonaccrual loans                                        $ 11,012           17,189           23,350
     TDR loans                                                 11,291           12,505           14,559
                                                      ---------------------------------------------------
           Total nonaccrual and TDR loans                    $ 22,303           29,694           37,909
                                                      ===================================================
</TABLE>

The following table identifies the Company's total recorded investment in
impaired loans by type at the dates indicated.

<TABLE>
<CAPTION>
                                                                   March 31,
                                   ----------------------------------------------------------------------
                                                    1999                                1998
                                   ----------------------------------------------------------------------
                                         Recorded          Specific          Recorded          Specific
                                        Investment        Allowances        Investment        Allowances
                                   ----------------------------------------------------------------------
     <S>                           <C>                    <C>               <C>               <C>
     Non accrual loans:
       Residential:
         One-to-four family               $    547                33               504               202
         Multi-family                        1,252               195             2,214               436
       Commercial real estate                3,142                 -             4,872                 -
       Construction and land                     -                 -               865                 -
     TDR loans                              11,291             1,694            12,505             1,922
                                   ----------------------------------------------------------------------
           Total                          $ 16,232             1,922            20,960             2,560
                                   ======================================================================
</TABLE>

During the year ended March 31, 1999, 1998 and 1997, the Company's average
investment in impaired loans was $17,941, $20,988 and $24,940, respectively and
interest income recorded during these periods was $916, $776 and $764,
respectively of which $887, $845 and $784, respectively was recorded utilizing
the cash basis method of accounting.

                                       73
<PAGE>

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

The effect of nonaccrual and TDR loans on interest income is presented below.

<TABLE>
<CAPTION>
                                                                   Year Ended March 31,
                                              ------------------------------------------------------------
                                                       1999                 1998               1997
                                              ------------------------------------------------------------
     <S>                                      <C>                          <C>                 <C>
     Contractual interest due:
       Nonaccrual loans                                $     1,144           1,749                   2,226
       TDR loans                                             1,032           1,186                   1,312
                                              ------------------------------------------------------------
                                                             2,176           2,935                   3,538
       Interest income recognized on
         TDR loans on a cash basis                             887             779                     942
                                              ------------------------------------------------------------
       Interest income not recognized                  $     1,289           2,156                   2,596
                                              ============================================================
</TABLE>

(5) Real Estate

Real estate acquired through foreclosure is summarized as follows:

<TABLE>
<CAPTION>
                                                                                March 31,
                                                                 -------------------------------------
                                                                         1999               1998
                                                                 -------------------------------------
          <S>                                                    <C>                        <C>
          Properties acquired in settlement of loans                    $  5,763              8,198
          Allowance for losses (note 6)                                     (445)              (603)
                                                                 -------------------------------------
                Total                                                    $ 5,318              7,595
                                                                 =====================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                          Year Ended March 31,
                                                             --------------------------------------------
                                                                   1999           1998           1997
                                                             --------------------------------------------
     <S>                                                     <C>                  <C>            <C>
     (Gain)loss on sale of foreclosed real estate, net              $(1,356)        (1,692)          (519)
     Real estate expense                                              1,270          1,749          1,164
     Provision for (recoveries of) losses on real estate                 41            416           (970)
                                                             --------------------------------------------
          Total                                                     $   (45)           473           (325)
                                                             ============================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                    March 31,
                                                       ----------------------------------
                                                              1999             1998
                                                       ----------------------------------
     <S>                                               <C>                     <C>
     Properties wholly owned                              $    558             731
     Mezzanine equity investments
      in real estate                                         5,813               -

                                                       ----------------------------------
        Total                                             $ 6,371              731
                                                       ==================================
</TABLE>

During the years ended March 31, 1999, 1998, and 1997, the Company recognized
net gains of $36, zero and zero, respectively from the sale of properties wholly
owned by the Company and profit of $246, zero and zero respectively from equity
investments in real estate developments.  Profit from equity investments takes
the form of a preferential fixed return on the Company's outstanding investment
balances and is recognized as and to the extent the Company's investment is paid
down. The funds for such paydowns have been provided to the project through
proceeds from sales to independent third parties.  The investment balance at
March 31, 1999 of $5,813 is net of $32 deferred income representing preferential
return payments made to the Company by the developer of the project in excess of
funds received by the project from sales to third parties.

                                       74
<PAGE>

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


(6)  Allowances For Losses On Loans Receivable And Real Estate

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

<TABLE>
<CAPTION>
                                                                      Year Ended March 31,
                                                    -----------------------------------------------------
                                                            1999                1998               1997
                                                    -----------------------------------------------------
     <S>                                            <C>                        <C>               <C>
     Loans receivable:
       Beginning balance                                  $    26,002            27,721            19,741
         Provision                                              4,020             7,099            13,661
         Charge-offs                                           (3,879)           (9,110)           (5,782)
         Recoveries                                                17               292               101
                                                    -----------------------------------------------------
       Ending balance                                          26,160            26,002            27,721
                                                    -----------------------------------------------------

     Foreclosed real estate:
       Beginning balance                                          603               329             4,762
         Provision (recoveries)                                    41               416              (970)
         Charge-offs                                             (199)             (142)           (3,463)
                                                    -----------------------------------------------------
       Ending balance                                             445               603               329
                                                    -----------------------------------------------------

     Total loans receivable and real estate:
       Beginning balance                                       26,605            28,050            24,503
         Provision                                              4,061             7,515            12,691
         Charge-offs                                           (4,078)           (9,252)           (9,245)
         Recoveries                                                17               292               101
                                                    -----------------------------------------------------
       Ending balance                                     $    26,605            26,605            28,050
                                                    =====================================================
</TABLE>

(7) Accrued Interest Receivable

Accrued interest receivable is summarized as follows:

<TABLE>
<CAPTION>
                                                                                 March 31,
                                                                 ------------------------------------
                                                                         1999                  1998
                                                                 ------------------------------------
          <S>                                                     <C>                          <C>
          Investment securities                                         $ 1,783                 2,963
          Mortgage-backed securities                                      3,421                 3,596
          Loans receivable                                               11,914                10,761
                                                                 ------------------------------------
               Total                                                    $17,118                17,320
                                                                 ====================================
</TABLE>

                                       75
<PAGE>

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

(8)  Property and Equipment, net

Property and equipment, net is summarized as follows:

<TABLE>
<CAPTION>
                                                                March 31,
                                                  -----------------------------------
                                                          1999              1998        Estimated Life
                                                  -----------------------------------------------------
     <S>                                          <C>                       <C>         <C>
     Land                                                  $  5,254             5,254         -
     Buildings and improvements                              21,688            21,299        40
     Leasehold improvements                                   2,040             1,939        10
     Furniture, fixtures and equipment                       24,285            23,017         7
     Automobiles                                                156               159         3
     Construction in progress                                    23                92         -
                                                  -----------------------------------
                                                             53,446            51,760
     Accumulated depreciation and
       amortization                                         (29,521)          (26,193)
                                                  -----------------------------------
          Total                                            $ 23,925            25,567
                                                  ===================================
</TABLE>

(9)    Deposits

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

<TABLE>
<CAPTION>
                                                               March 31,
                                  ------------------------------------------------------------------
                                                 1999                             1998
                                  ------------------------------------------------------------------
                                       Weighted                         Weighted
                                        Average                          Average
                                         Rate            Amount           Rate            Amount
                                  ------------------------------------------------------------------
     <S>                          <C>                    <C>            <C>               <C>
     Regular passbook                     2.27%          $  143,827        2.55%          $  152,649
     NOW and other demand
         deposit accounts                 0.67              197,936        0.76              176,060
     Fixed and variable-rate
         certificate accounts             5.10            1,100,224        5.40            1,178,515
     Money market checking
         and savings                      4.44              401,551        4.05              233,600
                                                  -----------------                -----------------
          Total                           4.26%          $1,843,538        4.50%          $1,740,824
                                                  =================                =================
</TABLE>

  Certificate accounts maturing subsequent to March 31, 1999 are summarized as
follows:

<TABLE>
<CAPTION>
                Year Ending March 31,                            Amount
               ------------------------------------------------------------
               <S>                                           <C>
               2000                                              $1,012,434
               2001                                                  46,834
               2002                                                  17,677
               2003                                                  12,922
               2004                                                   9,961
               thereafter                                               396
                                                             --------------
                                                                 $1,100,224
                                                             ==============
</TABLE>

                                       76
<PAGE>

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


Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
                                                               Year Ended March 31,
                                             ------------------------------------------------------
                                                     1999              1998              1997
                                             ------------------------------------------------------
     <S>                                     <C>                       <C>               <C>
     Regular passbook                               $   3,405             4,205             5,525
     NOW and other demand deposit
       accounts                                         1,291             1,214             1,096
     Money market checking and savings                 13,133             7,981             3,935
     Certificates of deposit                           61,705            66,755            68,690
                                             ------------------------------------------------------
          Total                                     $  79,534            80,155            79,246
                                             ======================================================
</TABLE>

At March 31, 1999 and 1998, the Company had accrued interest payable on deposits
of $1,389 and $811, respectively, which is included in other liabilities in the
accompanying consolidated balance sheets.

At March 31, 1999 and 1998, $6,988 and $7,637 of public funds on deposit were
secured by loans receivable, mortgage-backed securities and investment
securities with aggregate carrying values of $19,346 and $23,575, respectively.

Accounts which are greater than $100 at March 31, 1999 and 1998 total $247,853
and $306,187, respectively.  Deposit accounts greater than $100 are not
federally insured.


(10) FHLB Advances And Other Borrowings

The Company utilizes FHLB advances and reverse repurchase agreements as sources
of funds.  The advances and repurchase agreements are collateralized by
mortgage-backed securities, investment securities 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 $764,000 and $50,000 and $735,886 and $50,000 at
March 31, 1999 and March 31, 1998, respectively.  See Note 11.

The original terms to maturity for reverse repurchase agreements outstanding at
March 31, 1999 were 5 years.  Under these agreements, the debt may be put back
to the Company by the creditor beginning May 1999 and quarterly thereafter,
continuing to final maturity in February 2002.  These agreements are
collateralized by FHLMC and FNMA mortgage-backed and other investment securities
with a historical cost basis and fair value of $52,361 and $52,756 and $55,780
and $56,033 at March 31, 1999 and March 31, 1998, respectively. The underlying
collateral for reverse repurchase agreements is held by and under the control of
Morgan Stanley, Inc.

                                       77
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                  March 31,
                                                        -----------------------------------------------------------
                                                                 1999                1998                1997
                                                        -----------------------------------------------------------
<S>                                                     <C>                           <C>                 <C>
FHLB advances:
  Average amount outstanding during the year                   $  855,197             601,078             335,188
  Maximum amount outstanding at any month end                     949,000             790,086             545,400
  Amount outstanding at year end (1)                              764,000             735,886             480,000
  Average interest rate:
    For the year                                                     5.57%               5.87%               5.78%
    At year end                                                      5.37%               5.70%               5.78%

Reverse repurchase agreements:
  Average amount outstanding during the year                       50,000              50,000              10,129
  Maximum amount outstanding at any month end                      50,000              50,000              50,000
  Amount outstanding at year end (1)                               50,000              50,000              50,000
  Average interest rate:
    For the year                                                     5.87%               5.87%               5.96%
    At year end                                                      5.87%               5.87%               5.87%
</TABLE>

______________________
(1)  Included in the balance of FHLB advances and reverse repurchase agreements
outstanding at March 31, 1999 are putable borrowings of $465,000 and $50,000
respectively with original terms to maturity of 24 to 120 months, and 36 to 60
months, respectively with final maturity dates ranging from December 1999 to
February 2008 and December 2001 to February 2002, respectively, and initial put
dates ranging from April 1999 to February 2003 and May 1999 to December 1999,
respectively.  The underlying collateral for reverse repurchase agreements is
held by and under the control of Morgan Stanley, Inc.

FHLB advances have the following final maturities at March 31, 1999.

<TABLE>
<CAPTION>
                                                        Amount
                                                   ---------------
                    <S>                            <C>
                    2000                                  $180,000
                    2001                                   174,000
                    2002                                    75,000
                    2003                                   270,000
                    2004                                    50,000
                    thereafter                              15,000
                                                   ---------------
                         Total                            $764,000
                                                   ===============
</TABLE>

Interest expense on borrowings is summarized as follows:

<TABLE>
<CAPTION>
                                                          Year Ended March 31,
                                       ---------------------------------------------------------
                                               1999               1998               1997
                                       ---------------------------------------------------------
     <S>                               <C>                        <C>                <C>
     FHLB advances                             $  47,735             35,273             19,378
     Reverse repurchase agreements                 2,976              2,959                604
     Other interest expense                          111                130                 78
                                       ---------------------------------------------------------
               Total                           $  50,822             38,362             20,060
                                       =========================================================
</TABLE>

                                       78
<PAGE>

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


(11) LINES OF CREDIT

At March 31, 1999 and 1998, the Company had maximum borrowing capacity from the
FHLB of San Francisco in the approximate amount of $724,696 and $690,108,
respectively.  Based upon pledged collateral in place, the Company had available
borrowing capacity of $278,613 and $192,386 as of March 31, 1999 and 1998,
respectively.  Pledged collateral consists of certain loans receivable,
mortgage-backed securities and investment securities aggregating $1,136,876 and
$1,045,522 and the Company's required investment in one hundred dollar par value
capital stock of the FHLB of San Francisco.  At March 31, 1999 and 1998, the
cost of this FHLB capital stock was $50,323 and $39,504, respectively.

(12) 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 became 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.  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, 1998 and 1997.

<TABLE>
<CAPTION>
                                                      1998                                     1997
                                   ---------------------------------------------------------------------------------
                                                             Directors'                               Directors'
                                                           Retirement and                           Retirement and
                                          Pension           Supplemental           Pension           Supplemental
                                           Plan                Plans                Plan                Plans
                                   ---------------------------------------------------------------------------------
<S>                                <C>                     <C>                     <C>              <C>
Change in benefit obligation
Projected benefit obligation,
 beginning of year                         $20,792                 2,536             18,038                 2,561

Interest cost                                1,411                   171              1,360                   187
Benefits paid                               (1,362)                 (210)            (1,187)                 (189)
Actuarial loss (gain)                          929                   206              2,581                   (23)
                                   ---------------------------------------------------------------------------------
Projected benefit obligation, end
 of year                                   $21,770                 2,703             20,792                 2,536
                                   ---------------------------------------------------------------------------------


Change in plan assets
Plan assets, beginning of year             $21,964                     -             20,090                     -
Actual return on plan assets                 3,051                     -              3,061                     -
Employer contribution                            -                   210                  -                   189
Benefits paid                               (1,362)                 (210)            (1,187)                 (189)
                                   ---------------------------------------------------------------------------------
Plan assets, end of year                   $23,653                     -             21,964                     -
                                   ---------------------------------------------------------------------------------

Funded status                                1,883                (2,703)             1,172                (2,536)
Unrecognized transition obligation               -                    99                  -                   132
Unrecognized prior service cost                152                     -                222                   (11)
Unrecognized (gain)/loss                       (62)                  594                514                     -
                                   ---------------------------------------------------------------------------------
Prepaid (accrued) benefit cost             $ 1,973                (2,010)             1,908                (2,415)
                                   =================================================================================
</TABLE>

                                       79
<PAGE>

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


Net periodic pension costs for 1998, 1997 and 1996 included the following
components:

<TABLE>
<CAPTION>
                                                                 December 31,
                                  -----------------------------------------------------------------------------
                                          1998                      1997                       1996
                                  -----------------------------------------------------------------------------
                                                                                                     Directors'
                                                Directors'                Directors'                 Retirement
                                                Retirement                Retirement                and Supple-
                                    Pension    and Supple-    Pension    and Supple-    Pension       mental
                                      Plan    mental Plans      Plan    mental Plans      Plan       Plans(1)
                                  -----------------------------------------------------------------------------
<S>                               <C>         <C>             <C>       <C>             <C>       <C>
Components of net periodic
 benefit cost
Interest Cost                       $ 1,411             -       1,360           187       1,357           188
Expected return on plan assets       (1,546)          171      (3,061)            -      (1,917)            -
Amortization of unrecognized
 transition obligation                    -            33           -            33           -            33

Amortization of unrecognized
 prior service cost                      70           (11)      1,856           (11)        780           (11)

Amortization of unrecognized
 (gain) / loss                            -            29           -            36           -            36
                                  -----------------------------------------------------------------------------
Net periodic pension (income)
 expense                            $   (65)          222         155           245         220           246
                                  =============================================================================
</TABLE>

(1)  The total pension expense for the Directors' Retirement and Supplemental
Plans (including amortization of prior service cost over 15 years) was $1,773
for the year ended March 31, 1997.  The $1,527 difference between total pension
expense and net periodic pension expense for the Directors' Retirement and
Supplemental Plans for the year ended March 31, 1997, results from the
curtailment of these plans.

The assumptions used in determining the actuarial present value of the
accumulated benefit obligation and the expected return on plan assets for 1998
and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                    December 31,
                                     -------------------------------------------------------------------------
                                                      1998                                 1997
                                     -------------------------------------------------------------------------
                                                             Directors'                          Directors'
                                                             Retirement                          Retirement
                                            Pension         and Supple-         Pension         and Supple-
                                             Plan           mental Plans          Plan          mental Plans
                                     -------------------------------------------------------------------------
<S>                                  <C>                    <C>                 <C>             <C>
Weighted-average assumptions
  Discount rate                                6.25%              6.25               7.00              7.00
  Expected long-term rate of return
   on plan assets                              7.25                  -               7.25                 -
</TABLE>

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 1999, 1998 and 1997,
the total 401(k) Plan expense was $393, $348, and $290, 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

                                       80
<PAGE>

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, 1999, 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, 1999 and 1998, the expected cost associated with this
coverage was $17 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 $10 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.  In each of
the fiscal years ending March 31, 1999 and 1998 158,700 shares were allocated to
the eligible participants. At March 31, 1999 and 1998, 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, 1999, the fair value of the unearned ESOP shares
is $19,441.  Compensation expense associated with the ESOP was $2,694, $2,921
and zero for the years ended March 31, 1999, 1998 and 1997.

During October, 1996, the stockholders of the Company approved the PFF Bancorp,
Inc. 1996 Incentive Plan (the "1996 Plan"). The 1996 Plan authorizes the
granting of options to purchase the Company's common stock, option related
awards, and grants of common stock (collectively "Awards").  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 exercise price of all options and option-related
awards 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, 746,745 shares with a fair value of $11,263
were granted to directors and executive officers during the year ended March 31,
1997.  532,500 of the 746,745 shares represented grants to employees with the
remaining shares granted to directors of the Company.  An additional 23,800
shares with a fair value of $369 at the time of grant, were granted to the
directors of the Company during the year ended March 31, 1999.  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.
Compensation expense, associated with the stock grants recognized based upon the
market price of the common stock at the time of grant, was $1,910 , $1,904 and
$834 for the years ended March 31, 1999, 1998 and 1997.  The unamortized balance
of the grants is included in unearned stock-based compensation in the
accompanying consolidated financial statements.  At March 31, 1999 and 1998 the
unamortized balance of the stock awards was $6,100 and $8,900, respectively.

                                       81
<PAGE>

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

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

<TABLE>
<CAPTION>
Options Granted During the Year Ended March 31, 1999        Assumptions Used in Determining Options' Values
------------------------------------------------------------------------------------------------------------
                                                                                                               Calculated
                                                             Expected                                           Value of
                                Number        Exercise       Term in          Risk-Free          Expected         Each
Grant Date                      Granted        Price          Years            Rate(1)          Volatility       Option
-------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>            <C>              <C>               <C>            <C>
April 22, 1998                       1,328        $20.50            8.00            5.20%              38.44%      $10.97
September 23, 1998                  15,214         14.50            8.00            5.20               38.44         7.76
October 28, 1998                     1,427         14.31            8.00            5.20               38.44         7.66
March 24, 1999                       7,273         17.94            8.00            5.20               38.44         9.60

<CAPTION>
Options Granted During the Year Ended March 31, 1998      Assumptions Used in Determining Options' Values
------------------------------------------------------------------------------------------------------------
                                                                                                               Calculated
                                                             Expected                                           Value of
                                Number        Exercise       Term in        Risk-Free           Expected          Each
Grant Date                      Granted        Price          Years          Rate(1)           Volatility        Option
-------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>            <C>              <C>               <C>            <C>
April 23, 1997                       1,660        $14.25            8.00            5.70%              30.00%      $ 6.93
May 7, 1997                          1,229         14.50            8.00            5.70               30.00         7.05
October 22, 1997                     6,154         20.63            8.00            5.70               30.00        10.03
February 25, 1998                    2,626         18.75            8.00            5.70               30.00         9.12

<CAPTION>
Options Granted During the Year Ended March 31, 1997      Assumptions Used in Determining Options' Values
------------------------------------------------------------------------------------------------------------
                                                                                                               Calculated
                                                             Expected                                           Value of
                                Number        Exercise       Term in        Risk-Free           Expected          Each
Grant Date                      Granted        Price          Years          Rate(1)           Volatility        Option
-------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>            <C>              <C>               <C>            <C>
October 23, 1996                 1,900,611        $12.75            8.00            6.92%              25.00%      $ 7.64
December 19, 1996                    1,031         13.75            8.00            6.92               25.00         7.23
February 27, 1997                    1,446         16.25            8.00            6.92               25.00         6.30
March 1, 1997                       96,000         16.25            8.00            6.92               25.00         6.30
March 26, 1997                      62,162         15.50            8.00            6.92               25.00         6.57
</TABLE>

(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, 1999.

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:

<TABLE>
<CAPTION>
                                               1999                   1998                   1997
                                     ---------------------------------------------------------------------
<S>                                  <C>                              <C>                    <C>
Net earnings:
    As reported                                      $19,004                 15,980                  2,732
    Pro forma                                         17,533                 14,463                  1,000
Earnings per share - Basic
    As reported                                         1.37                   1.00                   0.15
    Pro forma                                           1.26                   0.90                   0.06
Earnings per share - Diluted
    As reported                                         1.29                   0.95                   0.15
    Pro forma                                           1.19                   0.86                   0.06
</TABLE>

                                       82
<PAGE>

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


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

<TABLE>
<CAPTION>
                                                                      For the Year Ended March 31,
                                                                      1999         1998        1997
                                                                 ------------------------------------
<S>                                                                <C>          <C>         <C>
Balance at beginning of period                                      1,876,471   1,960,069           -
Granted                                                                25,242      11,669   2,061,250
Canceled or expired                                                   (19,764)    (31,345)   (101,181)
Exercised                                                             (42,526)    (63,922)          -
                                                                 ------------------------------------
Balance at end of period                                            1,839,423   1,876,471   1,960,069
                                                                 ====================================
Options exercisable                                                   707,762     381,083       2,452
Options available for grant                                            29,969      26,813      23,681

Weighted average option price per share:
  Under option                                                     $    13.10       13.05       13.01
  Exercisable                                                           13.07       13.06       12.75
  Exercised                                                             18.83       19.26           -
</TABLE>

The following table summarizes information with respect to the Company's stock
options outstanding as of March 31, 1999.

<TABLE>
<CAPTION>
                                     Options Outstanding                                     Options Exercisable
            ---------------------------------------------------------------------------------------------------------------

                                        Weighted-Average
  Range of           Number                Remaining              Weighted-              Number              Weighted-
  Exercise         Outstanding          Contractual Life           Average             Outstanding            Average
   Prices       at March 31, 1999           (Years)            Exercise Price       at March 31, 1999      Exercise Price
---------------------------------------------------------------------------------------------------------------------------
<S>             <C>                     <C>                    <C>                  <C>                    <C>
$ 12 to 14                1,647,378                    7.4              $12.7500                637,740            $12.7500
  14 to 16                   79,724                    7.3               15.2588                 30,293             15.4782
  16 to 18                  102,213                    8.1               16.3701                 37,975             16.2500
  18 to 20                    2,626                    8.9               18.7500                    525             18.7500
  20 to 22                    7,482                    8.7               20.6028                  1,229             20.6250
</TABLE>

                                       83
<PAGE>

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

(13) Income Taxes

Income taxes (benefit) is summarized as follows:

<TABLE>
<CAPTION>
                                               Current       Deferred        Total
                                           -------------------------------------------
<S>                                        <C>               <C>             <C>
Year Ended March 31, 1999
  Federal                                         $ 7,987         2,641         10,628
  State                                             2,695           885          3,580
                                           -------------------------------------------
       Total                                      $10,682         3,526         14,208
                                           ===========================================

Year Ended March 31, 1998
  Federal                                         $14,448        (4,399)        10,049
  State                                             2,508          (538)         1,970
                                           -------------------------------------------
       Total                                      $16,956        (4,937)        12,019
                                           ===========================================

Year Ended March 31, 1997
  Federal                                         $ 3,289        (1,867)         1,422
  State                                             1,935          (270)         1,665
                                           -------------------------------------------
      Total                                       $ 5,224        (2,137)         3,087
                                           ===========================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                               Year Ended March 31,
                            ---------------------------------------------------------------------------------------
                                         1999                         1998                          1997
                            ---------------------------------------------------------------------------------------
                                 Amount        Percent        Amount        Percent        Amount         Percent
                            ---------------------------------------------------------------------------------------
<S>                         <C>                <C>            <C>           <C>            <C>            <C>
Computed "expected" taxes          $11,624            35%       $ 9,800            35%        $2,037             35%
Increase (reduction) in
  taxes resulting from:
 California franchise tax,
  net of Federal tax benefit         2,327             7          1,281             7            433              7
 California franchise tax
  examination assessment,
  net of Federal tax benefit             -             -              -             -            649             10
      Other items                      257             1            938             1            (32)             1
                            ---------------------------------------------------------------------------------------
          Total                    $14,208            43%       $12,019            43%        $3,087             53%
                            =======================================================================================
</TABLE>

                                       84
<PAGE>

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

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

<TABLE>
<CAPTION>
                                  March 31,          Taxes          March 31,          Taxes          March 31,
                                    1999           (Benefit)          1998           (Benefit)          1997
                             ------------------------------------------------------------------------------------
<S>                          <C>                   <C>              <C>              <C>              <C>
Deferred tax assets:
  Allowance for real estate
    loan losses                      $(10,037)          (2,487)          (7,550)             453           (8,003)
  California franchise tax             (1,796)             (98)          (1,698)            (672)          (1,026)
  Accrued expenses                     (1,479)             776           (2,255)            (679)          (1,576)
  Core deposit intangibles
    amortization                         (181)             196             (377)            (106)            (271)
  Nonaccrual interest                    (484)            (337)            (147)             886           (1,033)
  Unrealized gains (loss) on
    securities                            793           (1,001)           1,794            1,439              356
     available-for-sale, net
  Other                                (1,885)            (364)          (1,521)            (434)          (1,088)
                             ------------------------------------------------------------------------------------
                                      (15,069)          (3,315)         (11,754)             887          (12,641)
                             ------------------------------------------------------------------------------------
Deferred tax liabilities:
  Deferred loan origination            13,616            5,000            8,616           (4,758)          13,374
   fees
  Unredeemed FHLB stock
    dividends                           6,077            1,241            4,836              796            4,040
  Pension plan liability                  189             (137)             326               (4)             330
  Accumulated depreciation               (157)            (337)             180             (294)             474
  Customer early withdrawl
   penalty                                133              (41)             174              (44)             218
    depreciation
  Accrued interest on pre-
    1985 loans                             69              104              (35)             (58)              23
  Excess servicing rights
    amortization                           80               10               70              (25)              95
  Other                                   983                -              983                2              981
                             ------------------------------------------------------------------------------------
                                       20,990            5,840           15,150           (4,385)          19,535
                             ------------------------------------------------------------------------------------
Net deferred tax liability           $  5,921            2,525            3,396           (3,498)           6,894
                             ====================================================================================
</TABLE>

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, 1999 and 1998 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, 1999.
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

                                       85
<PAGE>

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

limitations, a bad debt deduction. The deduction percentage was 8% for the years
ended March 31, 1996 and 1995. Alternately, a qualified savings institution
could compute its bad debt deduction based upon actual loan loss experience (the
Experience Method). Retained earnings at March 31, 1999 and 1998 includes
approximately $25,300 for which no deferred income tax liability has been
recognized.

(14) 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, 1999, 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, 1999:

<TABLE>
<CAPTION>
                                                                    PFF Bank & Trust's
                                                              Regulatory Capital Requirement
                                             --------------------------------------------------------------
                                                    Tangible               Core              Risk-based
                                                     Capital              Capital              Capital
                                             --------------------------------------------------------------
 <S>                                         <C>                          <C>                <C>
Capital of the Bank presented on a GAAP
  Basis                                                  $204,956              204,956              204,956
Adjustments to GAAP capital to arrive
  at regulatory capital:
  Unrealized loss on securities
    available-for-sale, net                                   293                  293                  293
  Investments in and advances to
    non-includable consolidated subsidiaries                 (504)                (504)                (504)
  Goodwill and other intangible assets                     (3,535)              (3,535)              (3,535)
  General loan valuation allowance (1)                          -                    -               22,263
  Real estate held for sale or development                      -                    -                 (558)
                                             --------------------------------------------------------------
Regulatory capital                                        201,210              201,210              222,915
Regulatory capital requirement                            115,812              115,812              142,403
                                             --------------------------------------------------------------
  Amount by which regulatory capital
    exceeds requirement                                  $ 85,398               85,398               80,512
                                             ==============================================================
</TABLE>

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

                                       86
<PAGE>

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

The following table summarizes the Bank's actual capital and required capital
under prompt corrective action provisions of FDICIA as of March 31, 1999 and
1998.

<TABLE>
<CAPTION>
                                                                                                   To be Well
                                                                                               Capitalized Under
                                                                       For Capital             Prompt Corrective
                                              Actual                Adequacy Purposes          Action Provisions
                                   ---------------------------------------------------------------------------------
          March 31, 1999                Amount        Ratio       Amount        Ratio         Amount        Ratio
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>         <C>           <C>           <C>           <C>
Total capital (to risk-weighted          $222,915       12.52%     $142,403        *8.00%      $178,004       *10.00%
 assets)
Core (Tier 1) capital (to total           201,210        6.95        86,859        *3.00%       144,765        *5.00
 assets)
Tier 1 capital (to risk-weighted          201,210       11.30             -        -  (1)       173,718        *6.00
 assets)
Tangible capital (to total assets)        201,210        6.95        46,429        *1.50%             -        -  (1)
</TABLE>

* greater than or equal to


<TABLE>
<CAPTION>
                                                                                                   To be Well
                                                                                               Capitalized Under
                                                                       For Capital             Prompt Corrective
                                              Actual                Adequacy Purposes          Action Provisions
                                   ---------------------------------------------------------------------------------
          March 31, 1998                Amount        Ratio       Amount        Ratio         Amount        Ratio
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>         <C>           <C>           <C>           <C>
Total capital (to risk-weighted          $213,617       14.17%     $120,481        *8.00%      $150,782       *10.00%
 assets)
Core (Tier 1) capital (to total           195,298        7.10        82,559        *3.00        137,598        *5.00
 assets)
Tier 1 capital (to risk-weighted          195,298       12.95             -        -  (1)        90,469        *6.00
 assets)
Tangible capital (to total assets)        195,298        7.10        41,280        *1.50              -        -  (1)
</TABLE>

* greater than or equal to


(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.

(15) Other Non-Interest Expense

Other non-interest expense amounts are summarized as follows:

<TABLE>
<CAPTION>
                                                              Year Ended March 31,
                                                      1999            1998            1997
                                               ------------------------------------------------
<S>                                            <C>                    <C>             <C>
SAIF insurance premiums (1)                             $ 1,573           1,470           3,270
Office supplies and expense                               3,406           2,883           2,803
Savings and NOW account expenses                          1,134           1,382             947
Loan expenses                                               581             438             221
EDP system conversion expenses                                -               -           2,117
Other                                                     3,463           3,757           3,477
                                               ------------------------------------------------
                                                        $10,157           9,930          12,835
                                               ================================================
</TABLE>

(1) The 1997 SAIF recapitalization assessment of $10,900 is recorded as a
separate line item on the statements of earnings.

                                       87
<PAGE>

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

(16) 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, 1999, 1998 and 1997, was $743, $590, and $512, respectively.  A summary of
future minimum lease payments under these agreements follows at March 31, 1999.

<TABLE>
<CAPTION>
                                                          Amount
                                                 --------------------
                 Year ending March 31,
                 <S>                             <C>
                 2000                                        $  711
                 2001                                           556
                 2002                                           494
                 2003                                           370
                 2004                                           307
                 thereafter                                     608
                                                 --------------------
                      Total                                  $3,046
                                                 ====================
</TABLE>

(17) Off-Balance Sheet Risk

Concentrations of Operations and Assets

The Company's operations are located entirely within Southern California.  At
both March 31, 1999 and 1998, approximately 94.6% 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.

                                       88
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                             March 31,
                                                        ------------------------------------------------
                                                                   1999                     1998
                                                        ------------------------------------------------
<S>                                                     <C>                                 <C>
Commitments to originate loans:
    Variable-rate                                                   $     24,287                  12,857
    Fixed-rate                                                             4,523                   2,319
                                                        ------------------------------------------------
          Total                                                     $     28,810                  15,176
                                                        ================================================

    Interest rate range for fixed-rate loans                         6.25%-15.75%            6.88%-18.00%
</TABLE>

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.

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.


(18) Trust Operations

Included in prepaid expenses and other assets is the net unamortized trust
acquisition cost of $2,263 and $2,599 at March 31, 1999 and 1998, 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, 1999 and 1998.

                                       89
<PAGE>

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

(19) Loan Servicing and Sale Activities

Loan servicing and sale activities are summarized as follows:

<TABLE>
<CAPTION>
                                                            As of and for the Year Ended March 31,
                                               --------------------------------------------------------------
                                                        1999                 1998                 1997
                                               --------------------------------------------------------------
<S>                                            <C>                            <C>                 <C>
Balance sheet information:
  Loans held for sale                                       $ 3,531                  701                  736
                                               ==============================================================

Statement of earnings information:
  Loan servicing fees                                       $   850                  887                  945
  Amortization of servicing asset                              (109)                 (42)                 (42)
                                               --------------------------------------------------------------

  Loan servicing fees, net                                  $   741                  845                  903
                                               ==============================================================

  Gain on sale of loans                                     $   661                  992                    9
                                               ==============================================================

Statement of cash flows information:
  Loans originated for sale                                 $     -                3,893               21,590
                                               ==============================================================

  Proceeds from sale of loans                               $39,407              166,989               26,869
                                               ==============================================================
</TABLE>

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, 1999, 1998 and 1997, the Company was servicing loans and
participations in loans owned by others of $325,730, $390,159, and $252,057,
respectively.

(20) 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.

                                       90
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                     March 31, 1999                       March 31, 1998
                                            -------------------------------------------------------------------
                                               Carrying            Fair             Carrying           Fair
                                                Value              Value             Value             Value
                                            -------------------------------------------------------------------
<S>                                         <C>                  <C>               <C>               <C>
Financial assets:
  Cash and cash equivalents and
    certificates of deposit                  $    63,790            63,790            46,021            46,021
  Investment securities                          185,796           185,803           317,124           317,135
  Mortgage-backed securities                     526,116           526,120           482,993           482,995
  Loans held for sale                              3,531             3,531               701               703
  Loans receivable, net                        2,026,081         2,031,065         1,827,614         1,835,033

Financial liabilities
  Deposits                                     1,843,538         1,847,383         1,740,824         1,737,923
  FHLB advances and other borrowings             814,000           737,083           785,886           789,444

Off-balance sheet instruments:
  Commitments to originate loans                  28,810            28,810            15,176            15,176
</TABLE>

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: The fair values of investment securities are based on
quoted market prices.

Mortgage-Backed Securities: The fair values of mortgage-backed securities are
based on quoted market prices or dealer quotations obtained from market sources.

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 current loan rates
for similar loan types adjusted for differences in credit and servicing
characteristics. The fair values of significant nonperforming 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 at rates currently offered for deposits of similar maturities.

FHLB Advances and Other Borrowings: The fair value of FHLB advances and other
borrowings is based on discounted cash flows using contractual rates currently
offered for similar borrowings of similar final maturities.

                                       91
<PAGE>

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

Off-Balance Sheet Financial Instruments: The fair value of commitments to
purchase loans, mortgage-backed securities and investment securities is based
upon bid quotations received from securities dealers. Commitments to fund loans
outstanding at March 31, 1999 and 1998 would be offered at substantially the
same rates and terms as commitments offered on March 31, 1999 and 1998 to
parties of similar credit worthiness.  Therefore, the carrying value of the
commitments approximates their estimated fair value.

(21) 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, 1999
is $38,549.

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.

                                       92
<PAGE>

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

(22) 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
                            ------------------------

<TABLE>
<CAPTION>
                                                                         March 31,
                                                              -------------------------------
                                                                  1999               1998
                                                              -------------------------------
<S>                                                           <C>                    <C>
                    Assets

Cash and cash equivalents                                     $   4,757                4,122
Mortgage-backed securities available-for-sale,
  at fair value                                                       -               11,286
Equity securities available-for-sale                              7,879               13,729
Trust preferred securities available-for-sale                    13,303               17,360
Trading securities, at fair value                                 4,271                    -
Investment in real estate                                         5,813                    -
Investment in Bank subsidiary                                   204,956              202,763
Other assets                                                      2,306                5,724
                                                              -------------------------------
     Total assets                                             $ 243,285              254,984
                                                              ===============================

          Liabilities and stockholders' equity

Other liabilities                                             $     620                  706
Stockholders' equity                                            242,665              254,278
                                                              -------------------------------
     Total liabilities and stockholders' equity               $ 243,285              254,984
                                                              ===============================
</TABLE>

                       Condensed Statements of Earnings
                       --------------------------------

<TABLE>
<CAPTION>
                                                                              Year Ended March 31,
                                                              -----------------------------------------------
                                                                  1999                1998             1997
                                                              -----------------------------------------------
<S>                                                           <C>                   <C>                <C>
Interest and other income                                     $    3,916             4,474             7,002
General and administrative expense                                 2,798             2,653             1,548
                                                              -----------------------------------------------
     Earnings before equity in undistributed earnings
       of subsidiary before income taxes                           1,118             1,821             5,454
Dividend from Bank subsidiary                                     15,000            30,000                 -
Equity in earnings of subsidiary before income taxes              17,094            (3,822)              365
                                                              -----------------------------------------------
     Earnings before income taxes                                 33,212            27,999             5,819
Income taxes                                                      14,208            12,019             3,087
                                                              -----------------------------------------------
     Net earnings                                             $   19,004            15,980             2,732
                                                              ===============================================
</TABLE>

                                       93
<PAGE>

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

                       Condensed Statements of Cash Flows
                       ----------------------------------

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED MARCH 31,
                                                                ----------------------------------------------------
                                                                      1999                 1998               1997
                                                                ----------------------------------------------------
<S>                                                              <C>                     <C>                 <C>
Cash flows from operating activities:
  Net earnings                                                   $    19,004              15,980               2,732
Adjustments to reconcile net earnings to cash used by
  operating activities:
  Amortization of premiums on investments and
   mortgage-backed securities                                             29                 262                   -

  Gain on trading securities                                            (569)                  -                   -
  Increase in trading securities                                      (3,924)                  -                   -
  Amortization of unearned stock-based compensation                    3,531               3,491               4,133
  (Gains) losses on sale of mortgage-backed securities and
     investments available-for-sale                                      191                (438)                  -
  Undistributed earnings of subsidiary                                (3,474)             14,968                (365)
  (Increase) decrease in other assets                                  3,418              (1,307)               (560)
  Increase (decrease) in other liabilities                               (86)               (696)              1,025
                                                                 ---------------------------------------------------
     Net cash provided by operating activities                        18,120              32,260               6,965
                                                                 ---------------------------------------------------

Cash flow from investing activities:
  Increase in real estate held for investment                         (5,813)                  -                   -
  Increase in investment securities available-for-sale                     -             (25,568)            (42,411)
  (Increase) decrease in mortgage-backed securities
   available-for-sale                                                 11,110              27,707              (4,919)

  Decrease in equity securities available-for-sale                     5,004                   -                   -
  Decrease in trust preferred securities                               3,782                   -                   -
  Note receivable from the Bank                                            -                   -              73,005
                                                                 ---------------------------------------------------
     Net cash provided by investing activities                        14,083               2,139              25,675
                                                                 ---------------------------------------------------

Cash flows from financing activities:
  Proceeds from exercise of stock options                                531                 682                   -
  Purchase of treasury stock                                         (32,099)            (35,808)            (14,817)
  Purchase of stock for unearned stock-based
   compensation plans                                                      -                   -             (12,974)
                                                                 ---------------------------------------------------
     Net cash used in financing activities                           (31,568)            (35,126)            (27,791)
                                                                 ---------------------------------------------------
     Net (decrease)increase in cash during the year                      635                (727)              4,849

Cash and cash equivalents, beginning of year                           4,122               4,849                   -
                                                                 ---------------------------------------------------

Cash and cash equivalents, end of year                           $     4,757               4,122               4,849
                                                                 ===================================================
</TABLE>

                                       94
<PAGE>

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

(23) Earnings Per Share

A reconciliation of the components used to derive basic and diluted earnings per
share for March 31, 1999, 1998 and 1997 follows:

<TABLE>
<CAPTION>
                                                         Net          Weighted Average        Per Share
                                                       Earnings      Shares Outstanding         Amount
                                                       --------------------------------------------------
<S>                                                    <C>           <C>                     <C>
1999:
  Basic earnings per share                             $ 19,004             13,876,440           $  1.37
  Effect of dilutive stock options and awards                 -                840,242               .08
                                                       --------------------------------------------------
     Diluted earnings per share                        $ 19,004             14,716,682           $  1.29
                                                       ==================================================
1998:
  Basic earnings per share                             $ 15,980             16,055,127           $  1.00
  Effect of dilutive stock options and awards                 -                739,969              0.05
                                                       --------------------------------------------------
     Diluted earnings per share                        $ 15,980             16,795,096           $  0.95
                                                       ==================================================
1997:
  Basic earnings per share                             $ 2,732              17,819,870           $  0.15
  Effect of dilutive stock options and awards                -                 139,691                 -
                                                       --------------------------------------------------
     Diluted earnings per share                        $ 2,732              17,959,561           $  0.15
                                                       ==================================================
</TABLE>

(24) Quarterly Results of Operations (Unaudited)

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                    ------------------------------------------------------------------
                                      June 30,      September 30,      December 31,         March 31,           Total
                                        1998           1998                1998               1999               1999
                                    -----------------------------------------------------------------------------------
<S>                                 <C>             <C>                <C>                  <C>                <C>
Net interest income                 $   17,959          18,298              19,576            20,766            76,599
Provision for loan losses               (1,020)         (1,000)             (1,000)           (1,000)           (4,020)
Other income                             3,891           3,051               4,378             4,228            15,548
Other expenses                         (13,284)        (13,573)            (13,888)          (14,170)          (54,915)
                                    -----------------------------------------------------------------------------------
  Earnings before income taxes           7,546           6,776               9,066             9,824            33,212
Income taxes                             3,219           2,932               3,850             4,207            14,208
                                    -----------------------------------------------------------------------------------
  Net earnings                      $    4,327           3,844               5,216             5,617            19,004
                                    ===================================================================================
Basic earnings per share            $     0.29            0.27                0.38              0.43              1.37
                                    ===================================================================================
Diluted earnings per share          $     0.28            0.26                0.37              0.38              1.29
                                    ===================================================================================
<CAPTION>
                                                         Three Months Ended
                                    ------------------------------------------------------------------
                                      June 30,      September 30,      December 31,         March 31,           Total
                                        1997           1997                1997               1998               1998
                                    -----------------------------------------------------------------------------------
<S>                                 <C>             <C>                <C>                  <C>                <C>
Net interest income                 $   18,315          17,929              18,547            18,060            72,851
Provision for loan losses               (2,250)         (2,249)             (1,300)           (1,300)           (7,099)
Other income                             3,207           3,226               4,283             3,564            14,280
Other expenses                         (12,805)        (13,082)            (13,232)          (12,914)          (52,033)
                                    -----------------------------------------------------------------------------------
  Earnings before income taxes           6,467           5,824               8,298             7,410            27,999
Income taxes                             2,784           2,538               3,546             3,151            12,019
                                    -----------------------------------------------------------------------------------
  Net earnings                      $    3,683           3,286               4,752             4,259            15,980
                                    ===================================================================================
Basic earnings per share            $     0.22            0.20                0.30              0.28              1.00
                                    ===================================================================================
Diluted earnings per share          $     0.22            0.19                0.28              0.26              0.95
                                    ===================================================================================
</TABLE>


                                       95
<PAGE>

                       PFF BANCORP, INC. AND SUSSIDIARY
             Notes to consolidated Financial Statements, Continued
                            (Dollars in Thousands)

(25) Subsequent Event

Between April 26 and 28, 1999, the Company repurchased 1,500,000 shares of its
common stock at a weighted average price of $19.18 per share.  A portion of the
funding for this repurchase was provided through a $20,000 dividend declared and
paid by the Bank to the Bancorp during April 1999.

                                       96
<PAGE>

                          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, 1999 and 1998 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, 1999.  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 generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
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, 1999 and 1998 and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 1999 in conformity with generally accepted accounting principles.

                                 KPMG LLP


April 21, 1999, except as to note 25
to the consolidated financial statements
which is as of April 28, 1999.

                                       97
<PAGE>

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 22, 1999 (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.

                                       98
<PAGE>

                                    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)
            21    Subsidiary information is incorporated herein by reference to
                  "Part I- Subsidiary Activities."
            23    Consent of KPMG LLP
            27    Financial Data Schedule
            99.1  Annual Report on Form 11-K for Capital Accumulation Plan for
                  employees of PFF Bank & Trust
            (b)   Reports 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, 1999.

            --------------------
            (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.

                                       99
<PAGE>

                                  SIGNATURES

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

                                       PFF BANCORP, INC.



                                       BY: /s/ LARRY M. RINEHART
                                          -------------------------------------
                                           Larry M. Rinehart
DATED: June 23, 1999                       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.

<TABLE>
<CAPTION>
              Name                               Title                                 Date
----------------------------------------------------------------------------------------------------------
<S>                                <C>                                            <C>
/s/ LARRY M. RINEHART                                                             June 23, 1999
---------------------------------
Larry M. Rinehart                  President, Chief Executive
                                   Officer and Director
                                   (Principal Executive Officer)

/s/ GREGORY C. TALBOTT                                                            June 23, 1999
---------------------------------
Gregory C. Talbott                 Executive Vice President, Chief
                                   Financial Officer and Treasurer
                                   (Principal Financial and
                                   Accounting Officer)

/s/ DONALD R. DESCOMBES                                                           June 23, 1999
---------------------------------
Donald R. DesCombes                Director

/s/ ROBERT W. BURWELL                                                             June 23, 1999
---------------------------------
Robert W. Burwell                  Director

/s/ WILLIAM T. DINGLE                                                             June 23, 1999
---------------------------------
William T. Dingle                  Director

/s/ CURTIS W. MORRIS                                                              June 23, 1999
---------------------------------
Curtis W. Morris                   Director

/s/ ROBERT D. NICHOLS                                                             June 23, 1999
---------------------------------
Robert D. Nichols                  Director

/s/ JIL H. STARK                                                                  June 23, 1999
---------------------------------
Jil H. Stark                       Director
</TABLE>

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