##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended December 31, 2007

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission
File Number 001-16845

PFF BANCORP, INC.

(Exact name of registrant as specified in its charter)



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

9337 Milliken Avenue, Rancho Cucamonga, California 91730

(Address of principal executive offices) (Zip Code)

(909) 941-5400

(Registrants telephone number, including area code)

Not Applicable

(Former name, former
address and former fiscal year, if changed since last report)

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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer  x             Accelerated filer   ̈            Non- accelerated filer   ̈.

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).  Yes   ̈    No  x.

The registrant had 22,624,961
shares of common stock, par value $0.01 per share, outstanding as of January 31, 2008.









---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

Form 10-Q

Table of Contents



|           |  |                                                                                                                         |  |     
|---------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                         |  | PAGE
|           |  |                                                                                                                        
|PART I     |  | FINANCIAL INFORMATION (Unaudited)                                                                                       |  |     
|           |  |                                                                                                                        
|Item 1     |  | Financial Statements  Consolidated Balance Sheets as of December 31, 2007 and March 31, 2007                            |  | 1   
|           |  |                                                                                                                        
|           |  | Consolidated Statements of Earnings (Loss) for the three and nine months ended December 31, 2007 and 2006               |  | 2   
|           |  |                                                                                                                        
|           |  | Consolidated Statements of Comprehensive Earnings (Loss) for the three and nine months ended December 31, 2007 and 2006 |  | 3   
|           |  |                                                                                                                        
|           |  | Consolidated Statement of Stockholders Equity for the nine months ended December 31, 2007                              |  | 4   
|           |  |                                                                                                                        
|           |  | Consolidated Statements of Cash Flows for the nine months ended December 31, 2007 and 2006                              |  | 5   
|           |  |                                                                                                                        
|           |  | Notes to Unaudited Consolidated Financial Statements                                                                    |  | 6   
|           |  |                                                                                                                        
|Item 2     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                   |  | 13  
|           |  |                                                                                                                        
|Item 3     |  | Quantitative and Qualitative Disclosures about Market Risk                                                              |  | 29  
|           |  |                                                                                                                        
|Item 4     |  | Controls and Procedures                                                                                                 |  | 29  
|           |  |                                                                                                                        
|PART II    |  | OTHER INFORMATION                                                                                                       |  |     
|           |  |                                                                                                                        
|Item 1     |  | Legal Proceedings                                                                                                       |  | 30  
|           |  |                                                                                                                        
|Item 1A    |  | Risk Factors                                                                                                            |  | 30  
|           |  |                                                                                                                        
|Item 2     |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                             |  | 31  
|           |  |                                                                                                                        
|Item 3     |  | Defaults Upon Senior Securities                                                                                         |  | 31  
|           |  |                                                                                                                        
|Item 4     |  | Submission of Matters to a Vote of Security Holders                                                                     |  | 31  
|           |  |                                                                                                                        
|Item 5     |  | Other Information                                                                                                       |  | 31  
|           |  |                                                                                                                        
|Item 6     |  | Exhibits                                                                                                                |  | 31  
|           | 
|SIGNATURES |  | 32                                                                                                                     



---

##### Table of Contents

PART I  FINANCIAL INFORMATION



|Item 1. | Financial Statements.
|------- | ---------------------

PFF BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

(Unaudited)



|                                                                                                                                                                                  |  |                  |           |   |               |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | --------- | - | ------------- | - | --------- | -
|                                                                                                                                                                                  |  | December 31,2007 |           |   | March 31,2007 |  
|Assets                                                                                                                                                                            |  |                  |           |   |               |   |           |  
|Cash and cash equivalents                                                                                                                                                         |  | $                | 61,559    |   |               | $ | 59,587    |  
|Investment securities held-to-maturity (estimated fair value of $7,147 at December 31, 2007, and $6,646 at March 31,
2007)                                                        |  |                  | 6,809     |   |               |   | 6,712     |  
|Investment securities available-for-sale, at fair value                                                                                                                           |  |                  | 1,661     |   |               |   | 28,067    |  
|Mortgage-backed securities available-for-sale, at fair value                                                                                                                      |  |                  | 165,190   |   |               |   | 186,607   |  
|Loans held-for-sale                                                                                                                                                               |  |                  | 1,674     |   |               |   |          |  
|Loans and leases receivable, net (net of allowances for loan and lease losses of $72,845 at December 31, 2007 and $46,315 at
March 31, 2007)                                      |  |                  | 3,957,379 |   |               |   | 4,116,232 |  
|Federal Home Loan Bank (FHLB) stock, at cost                                                                                                                                      |  |                  | 36,669    |   |               |   | 46,158    |  
|Accrued interest receivable                                                                                                                                                       |  |                  | 22,562    |   |               |   | 25,704    |  
|Assets acquired through foreclosure, net                                                                                                                                          |  |                  | 973       |   |               |   |          |  
|Property and equipment, net                                                                                                                                                       |  |                  | 60,192    |   |               |   | 56,564    |  
|Prepaid expenses and other assets                                                                                                                                                 |  |                  | 59,207    |   |               |   | 27,896    |  
|                                                                                                                                                                                  |  |                  |           |   |               |   |           |  
|Total assets                                                                                                                                                                      |  | $                | 4,373,875 |   |               | $ | 4,553,527 |  
|                                                                                                                                                                                  |  |                  |           |   |               |   |           |  
|Liabilities and Stockholders Equity                                                                                                                                              |  |                  |           |   |               |   |           |  
|Liabilities:                                                                                                                                                                      |  |                  |           |   |               |   |           |  
|Deposits                                                                                                                                                                          |  | $                | 3,246,534 |   |               | $ | 3,291,645 |  
|FHLB advances and other borrowings                                                                                                                                                |  |                  | 684,400   |   |               |   | 775,300   |  
|Junior subordinated debentures                                                                                                                                                    |  |                  | 87,630    |   |               |   | 56,702    |  
|Accrued expenses and other liabilities                                                                                                                                            |  |                  | 29,030    |   |               |   | 32,767    |  
|                                                                                                                                                                                  |  |                  |           |   |               |   |           |  
|Total liabilities                                                                                                                                                                 |  |                  | 4,047,594 |   |               |   | 4,156,414 |  
|Commitments and contingencies                                                                                                                                                     |  |                  |          |   |               |   |          |  
|Stockholders equity:                                                                                                                                                             |  |                  |           |   |               |   |           |  
|Preferred stock, $0.01 par value. Authorized 2,000,000 shares; none issued                                                                                                        |  |                  |          |   |               |   |          |  
|Common stock, $0.01 par value. Authorized 59,000,000 shares; issued and outstanding 22,624,961 shares and 24,156,834 shares at
December 31, 2007 and March 31, 2007, respectively |  |                  | 225       |   |               |   | 240       |  
|Additional paid-in capital                                                                                                                                                        |  |                  | 172,902   |   |               |   | 180,285   |  
|Retained earnings                                                                                                                                                                 |  |                  | 157,692   |   |               |   | 221,892   |  
|Accumulated other comprehensive losses                                                                                                                                            |  |                  | (4,538    | ) |               |   | (5,304    | )
|                                                                                                                                                                                  |  |                  |           |   |               |   |           |  
|Total stockholders equity                                                                                                                                                        |  |                  | 326,281   |   |               |   | 397,113   |  
|                                                                                                                                                                                  |  |                  |           |   |               |   |           |  
|Total liabilities and stockholders equity                                                                                                                                        |  | $                | 4,373,875 |   |               | $ | 4,553,527 |  
|                                                                                                                                                                                  |  |                  |           |   |               |   |           |  

See accompanying notes to the unaudited consolidated financial statements.



1



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Dollars in thousands, except per share data)

(Unaudited)



|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------- |  | -------------------------------------- | ---------- | - | ------------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                      |  | For the Three Months EndedDecember 31, |            |   | For the Nine Months EndedDecember 31, |  
|                                                                                      |  | 2007                                   |            |   | 2006                                  |   |            | 2007 |  |   | 2006       |  
|Interest income:                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Loans and leases receivable                                                           |  | $                                      | 72,178     |   |                                       | $ | 82,751     |      |  | $ | 230,915    |   |  | $ | 239,539    |  
|Mortgage-backed securities                                                            |  |                                        | 1,947      |   |                                       |   | 2,648      |      |  |   | 5,999      |   |  |   | 8,025      |  
|Investment securities and deposits                                                    |  |                                        | 730        |   |                                       |   | 1,578      |      |  |   | 2,387      |   |  |   | 4,750      |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Total interest income                                                                 |  |                                        | 74,855     |   |                                       |   | 86,977     |      |  |   | 239,301    |   |  |   | 252,314    |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Interest expense:                                                                     |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Deposits                                                                              |  |                                        | 30,248     |   |                                       |   | 28,550     |      |  |   | 90,253     |   |  |   | 76,966     |  
|Borrowings                                                                            |  |                                        | 10,379     |   |                                       |   | 13,269     |      |  |   | 32,610     |   |  |   | 37,460     |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Total interest expense                                                                |  |                                        | 40,627     |   |                                       |   | 41,819     |      |  |   | 122,863    |   |  |   | 114,426    |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Net interest income                                                                   |  |                                        | 34,228     |   |                                       |   | 45,158     |      |  |   | 116,438    |   |  |   | 137,888    |  
|Provision for loan and lease losses                                                   |  |                                        | 35,000     |   |                                       |   | 1,900      |      |  |   | 90,800     |   |  |   | 4,920      |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Net interest income (expense) after provision for loan and lease losses               |  |                                        | (772       | ) |                                       |   | 43,258     |      |  |   | 25,638     |   |  |   | 132,968    |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Non-interest income:                                                                  |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Deposit and related fees                                                              |  |                                        | 3,868      |   |                                       |   | 3,519      |      |  |   | 11,344     |   |  |   | 10,192     |  
|Loan and servicing fees                                                               |  |                                        | 355        |   |                                       |   | 566        |      |  |   | 1,128      |   |  |   | 1,737      |  
|Trust, investment and insurance fees                                                  |  |                                        | 1,325      |   |                                       |   | 1,529      |      |  |   | 4,541      |   |  |   | 4,353      |  
|Gain on sale of loans, net                                                            |  |                                        | 37         |   |                                       |   | 81         |      |  |   | 152        |   |  |   | 164        |  
|Gain on sale of securities, net                                                       |  |                                        |           |   |                                       |   |           |      |  |   |           |   |  |   | 271        |  
|Mark-to-market on interest rate swaps                                                 |  |                                        | (730       | ) |                                       |   | (35        | )    |  |   | (1,139     | ) |  |   | (357       | )
|Other non-interest income                                                             |  |                                        | 254        |   |                                       |   | 349        |      |  |   | 929        |   |  |   | 1,754      |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Total non-interest income                                                             |  |                                        | 5,109      |   |                                       |   | 6,009      |      |  |   | 16,955     |   |  |   | 18,114     |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Non-interest expense:                                                                 |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|General and administrative:                                                           |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Compensation and benefits                                                             |  |                                        | 14,735     |   |                                       |   | 14,595     |      |  |   | 41,498     |   |  |   | 43,926     |  
|Occupancy and equipment                                                               |  |                                        | 5,273      |   |                                       |   | 4,190      |      |  |   | 14,994     |   |  |   | 12,215     |  
|Marketing and professional services                                                   |  |                                        | 3,397      |   |                                       |   | 3,088      |      |  |   | 9,901      |   |  |   | 9,405      |  
|Other general and administrative                                                      |  |                                        | 6,668      |   |                                       |   | 4,136      |      |  |   | 14,577     |   |  |   | 11,410     |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Total general and administrative                                                      |  |                                        | 30,073     |   |                                       |   | 26,009     |      |  |   | 80,970     |   |  |   | 76,956     |  
|Foreclosed asset operations, net                                                      |  |                                        | 42         |   |                                       |   | (355       | )    |  |   | 51         |   |  |   | (470       | )
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Total non-interest expense                                                            |  |                                        | 30,115     |   |                                       |   | 25,654     |      |  |   | 81,021     |   |  |   | 76,486     |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Earnings (loss) before income taxes                                                   |  |                                        | (25,778    | ) |                                       |   | 23,613     |      |  |   | (38,428    | ) |  |   | 74,596     |  
|Income taxes (benefit)                                                                |  |                                        | (11,095    | ) |                                       |   | 9,970      |      |  |   | (16,754    | ) |  |   | 31,485     |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Net earnings (loss)                                                                   |  | $                                      | (14,683    | ) |                                       | $ | 13,643     |      |  | $ | (21,674    | ) |  | $ | 43,111     |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Basic earnings (loss) per share                                                       |  | $                                      | (0.65      | ) |                                       | $ | 0.56       |      |  | $ | (0.94      | ) |  | $ | 1.76       |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Weighted average shares outstanding for basic earnings (loss) per share calculation   |  |                                        | 22,592,898 |   |                                       |   | 24,557,623 |      |  |   | 23,116,004 |   |  |   | 24,500,157 |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Diluted earnings (loss) per share                                                     |  | $                                      | (0.65      | ) |                                       | $ | 0.55       |      |  | $ | (0.94      | ) |  | $ | 1.74       |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  
|Weighted average shares outstanding for diluted earnings (loss) per share calculation |  |                                        | 22,592,898 |   |                                       |   | 24,893,341 |      |  |   | 23,116,004 |   |  |   | 24,819,134 |  
|                                                                                      |  |                                        |            |   |                                       |   |            |      |  |   |            |   |  |   |            |  

See accompanying notes to the unaudited consolidated financial statements.



2



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(Dollars in thousands)

(Unaudited)



|                                                                                                                                                                                                                                             |  |                                        |         |                                       |      |   |        |  |   |         |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ------- | ------------------------------------- | ---- | - | ------ |  | - | ------- | - |  | - | ------ | -
|                                                                                                                                                                                                                                             |  | For the Three Months EndedDecember 31, |         | For the Nine Months EndedDecember 31, |     
|                                                                                                                                                                                                                                             |  | 2007                                   |         |                                       | 2006 |   | 2007   |  |   | 2006    |  
|Net earnings (loss)                                                                                                                                                                                                                          |  | $                                      | (14,683 | )                                     |      | $ | 13,643 |  | $ | (21,674 | ) |  | $ | 43,111 |  
|                                                                                                                                                                                                                                             |  |                                        |         |                                       |      |   |        |  |   |         |   |  |   |        |  
|Other comprehensive earnings (loss), net of income tax expense (benefit)                                                                                                                                                                     |  |                                        |         |                                       |      |   |        |  |   |         |   |  |   |        |  
|Change in unrealized gains (loss) on:                                                                                                                                                                                                        |  |                                        |         |                                       |      |   |        |  |   |         |   |  |   |        |  
|Investment securities available-for-sale, at fair value, net of income tax expense (benefit) of $(2) and $8 for three months ended December,
2007 and 2006, and $(2) and $64 for nine months ended December 31, 2007 and 2006, respectively  |  |                                        | (3      | )                                     |      |   | 11     |  |   | (3      | ) |  |   | 89     |  
|Mortgage-backed securities available-for-sale, at fair value, net of income tax expense of $264 and $259 for three months ended
December 31, 2007 and 2006, and $548 and $872 for nine months ended December 31, 2007 and 2006, respectively |  |                                        | 365     |                                       |      |   | 357    |  |   | 757     |   |  |   | 1,204  |  
|Reclassification of realized investment securities gains included in earnings (loss), net of income tax expense (benefit) of $8 and $(126) for
nine months ended December 31, 2007 and 2006, respectively                                    |  |                                        |        |                                       |      |   |       |  |   | 11      |   |  |   | (174   | )
|Reclassification of realized mortgage-backed securities gains (loss) included in earnings (loss), net of income tax expense of $1 and $0 for
nine months ended December 31, 2007 and 2006, respectively                                      |  |                                        |        |                                       |      |   |       |  |   | 1       |   |  |   |       |  
|Reclassification of realized credits on interest rate swaps included in earnings (loss), net of income tax benefit of $0 and $67 for nine
months ended December 31, 2007 and 2006, respectively                                              |  |                                        |        |                                       |      |   |       |  |   |        |   |  |   | (93    | )
|                                                                                                                                                                                                                                             |  |                                        |         |                                       |      |   |        |  |   |         |   |  |   |        |  
|Other comprehensive income                                                                                                                                                                                                                   |  |                                        | 362     |                                       |      |   | 368    |  |   | 766     |   |  |   | 1,026  |  
|                                                                                                                                                                                                                                             |  |                                        |         |                                       |      |   |        |  |   |         |   |  |   |        |  
|Comprehensive earnings (loss)                                                                                                                                                                                                                |  | $                                      | (14,321 | )                                     |      | $ | 14,011 |  | $ | (20,908 | ) |  | $ | 44,137 |  
|                                                                                                                                                                                                                                             |  |                                        |         |                                       |      |   |        |  |   |         |   |  |   |        |  

See accompanying notes to the unaudited consolidated financial statements.



3



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(Dollars in thousands, except per share data)

(Unaudited)



|                                                                  |  |                                           |   |  |             |     |   |                          |   |         |                  |  |   |               |   |  |                                              |     |   |       |   |        |   |  |   |         |  
|----------------------------------------------------------------- |  | ----------------------------------------- | - |  | ----------- | --- | - | ------------------------ | - | ------- | ---------------- |  | - | ------------- | - |  | -------------------------------------------- | --- | - | ----- | - | ------ | - |  | - | ------- | -
|                                                                  |  | Number ofShares                           |   |  | CommonStock |     |   | AdditionalPaid-inCapital |   |         | RetainedEarnings |  |   | TreasuryStock |   |  | AccumulatedOtherComprehensiveIncome (Losses) |     |   | Total |  
|                                                                  |  | (Dollars in thousands, except share data) |  
|Balance at March 31, 2007                                         |  | 24,156,834                                |   |  | $           | 240 |   |                          | $ | 180,285 |                  |  | $ | 221,892       |   |  | $                                            |    |   |       | $ | (5,304 | ) |  | $ | 397,113 |  
|Net earnings (loss)                                               |  |                                          |   |  |             |    |   |                          |   |        |                  |  |   | (21,674       | ) |  |                                              |    |   |       |   |       |   |  |   | (21,674 | )
|Repurchase of common stock                                        |  | (1,611,975                                | ) |  |             |    |   |                          |   | (7,657  | )                |  |   | (29,443       | ) |  |                                              | (16 | ) |       |   |       |   |  |   | (37,116 | )
|Stock issued for incentive plan                                   |  | 73,426                                    |   |  |             |    |   |                          |   |        |                  |  |   |              |   |  |                                              |    |   |       |   |       |   |  |   |        |  
|Amortization under stock-based compensation plans                 |  |                                          |   |  |             |    |   |                          |   | (82     | )                |  |   |              |   |  |                                              |    |   |       |   |       |   |  |   | (82     | )
|Stock options exercised                                           |  | 6,676                                     |   |  |             | 1   |   |                          |   | 56      |                  |  |   |              |   |  |                                              |    |   |       |   |       |   |  |   | 57      |  
|Stock options expense                                             |  |                                          |   |  |             |    |   |                          |   | 239     |                  |  |   |              |   |  |                                              |    |   |       |   |       |   |  |   | 239     |  
|Dividends ($0.19 per share for June, September and December 2007) |  |                                          |   |  |             |    |   |                          |   |        |                  |  |   | (13,083       | ) |  |                                              |    |   |       |   |       |   |  |   | (13,083 | )
|Treasury stock retirement                                         |  |                                          |   |  |             | (16 | ) |                          |   |        |                  |  |   |              |   |  |                                              | 16  |   |       |   |       |   |  |   |        |  
|Changes in unrealized losses on securities AFS, net               |  |                                          |   |  |             |    |   |                          |   |        |                  |  |   |              |   |  |                                              |    |   |       |   | 766    |   |  |   | 766     |  
|Tax benefit from stock-based compensation                         |  |                                          |   |  |             |    |   |                          |   | 61      |                  |  |   |              |   |  |                                              |    |   |       |   |       |   |  |   | 61      |  
|                                                                  |  |                                           |   |  |             |     |   |                          |   |         |                  |  |   |               |   |  |                                              |     |   |       |   |        |   |  |   |         |  
|Balance at December 31, 2007                                      |  | 22,624,961                                |   |  | $           | 225 |   |                          | $ | 172,902 |                  |  | $ | 157,692       |   |  | $                                            |    |   |       | $ | (4,538 | ) |  | $ | 326,281 |  
|                                                                  |  |                                           |   |  |             |     |   |                          |   |         |                  |  |   |               |   |  |                                              |     |   |       |   |        |   |  |   |         |  

See accompanying notes to the unaudited consolidated financial statements.



4



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)



|                                                                                      |  |                                |          |   |      |   |          |  
|------------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                      |  | Nine Months Ended December 31, |         
|                                                                                      |  | 2007                           |          |   | 2006 |  
|Cash flows from operating activities:                                                 |  |                                |          |   |      |   |          |  
|Net earnings (loss)                                                                   |  | $                              | (21,674  | ) |      | $ | 43,111   |  
|Adjustments to reconcile net earnings to net cash provided by operating activities:   |  |                                |          |   |      |   |          |  
|Amortization of premiums, net of discount accretion on loans, leases and securities   |  |                                | 467      |   |      |   | 1,016    |  
|Dividends on FHLB stock                                                               |  |                                | (1,591   | ) |      |   | (1,609   | )
|Provisions for losses on loans and leases                                             |  |                                | 90,800   |   |      |   | 4,920    |  
|Gains on sales of loans, securities available-for-sale and property and equipment     |  |                                | (169     | ) |      |   | (1,491   | )
|Depreciation and amortization of property and equipment                               |  |                                | 4,752    |   |      |   | 3,400    |  
|Loans originated for sale                                                             |  |                                | (1,674   | ) |      |   | (12,666  | )
|Proceeds from sale of loans held-for-sale                                             |  |                                |         |   |      |   | 12,068   |  
|Amortization of stock-based compensation                                              |  |                                | (82      | ) |      |   | 3,480    |  
|Decrease in market value on interest rate swaps                                       |  |                                | 1,139    |   |      |   | 357      |  
|Amortization of deferred issuance cost on junior subordinated debt                    |  |                                | 60       |   |      |   | 60       |  
|Deferred income tax expense (benefit)                                                 |  |                                | (28,357  | ) |      |   | (3,110   | )
|Other, net                                                                            |  |                                | (4,047   | ) |      |   | (1,194   | )
|                                                                                      |  |                                |          |   |      |   |          |  
|Net cash provided by operating activities                                             |  |                                | 39,624   |   |      |   | 48,342   |  
|                                                                                      |  |                                |          |   |      |   |          |  
|Cash flows from investing activities:                                                 |  |                                |          |   |      |   |          |  
|Net change in loans and leases                                                        |  |                                | 66,725   |   |      |   | (284,125 | )
|Principal payments on mortgage-backed securities available-for-sale                   |  |                                | 36,878   |   |      |   | 50,004   |  
|Principal payments on investment securities-available-for-sale                        |  |                                | 1,464    |   |      |   | 1,464    |  
|Purchases of investment securities held-to-maturity                                   |  |                                | (5,802   | ) |      |   |         |  
|Purchases of investment securities available-for-sale                                 |  |                                |         |   |      |   | (25,000  | )
|Purchases of mortgage-backed securities available-for-sale                            |  |                                | (14,501  | ) |      |   | (42,449  | )
|Redemption (purchases) of FHLB stock, net                                             |  |                                | 11,080   |   |      |   | (4,576   | )
|Proceeds from maturity of investment securities                                       |  |                                | 30,700   |   |      |   | 45,000   |  
|Proceeds from sale of investment securities available-for-sale                        |  |                                |         |   |      |   | 5,337    |  
|Proceeds from sale of property and equipment                                          |  |                                | 37       |   |      |   | 1,218    |  
|Purchases of property and equipment                                                   |  |                                | (8,380   | ) |      |   | (12,781  | )
|                                                                                      |  |                                |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                                   |  |                                | 118,201  |   |      |   | (265,908 | )
|                                                                                      |  |                                |          |   |      |   |          |  
|Cash flows from financing activities:                                                 |  |                                |          |   |      |   |          |  
|Net change in deposits                                                                |  |                                | (45,111  | ) |      |   | 181,545  |  
|Proceeds from long-term FHLB advances and other borrowings                            |  |                                | 436,750  |   |      |   | 779,800  |  
|Repayment of long-term FHLB advances and other borrowings                             |  |                                | (522,650 | ) |      |   | (714,100 | )
|Net change in short-term FHLB advances and other borrowings                           |  |                                | (5,000   | ) |      |   | (10,000  | )
|Proceeds from issuance of junior subordinated debentures                              |  |                                | 30,000   |   |      |   |         |  
|Proceeds from exercise of stock options                                               |  |                                | 57       |   |      |   | 604      |  
|Stock option expense                                                                  |  |                                | 239      |   |      |   |         |  
|Cash dividends                                                                        |  |                                | (13,083  | ) |      |   | (12,530  | )
|Excess tax benefit from stock-based compensation arrangements                         |  |                                | 61       |   |      |   | 1,235    |  
|Purchases of treasury stock                                                           |  |                                | (37,116  | ) |      |   |         |  
|                                                                                      |  |                                |          |   |      |   |          |  
|Net cash provided by (used in) financing activities                                   |  |                                | (155,853 | ) |      |   | 226,554  |  
|                                                                                      |  |                                |          |   |      |   |          |  
|Net increase in cash and cash equivalents                                             |  |                                | 1,972    |   |      |   | 8,988    |  
|Cash and cash equivalents, beginning of period                                        |  |                                | 59,587   |   |      |   | 58,831   |  
|                                                                                      |  |                                |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                              |  | $                              | 61,559   |   |      | $ | 67,819   |  
|                                                                                      |  |                                |          |   |      |   |          |  
|Supplemental information:                                                             |  |                                |          |   |      |   |          |  
|Interest paid                                                                         |  | $                              | 125,727  |   |      | $ | 110,504  |  
|Income taxes paid                                                                     |  | $                              | 13,800   |   |      | $ | 31,300   |  
|Non-cash investing and financing activities:                                          |  |                                |          |   |      |   |          |  
|Net transfers from loans and leases receivable to assets acquired through foreclosure |  | $                              | 1,178    |   |      | $ |         |  

See accompanying notes to the unaudited consolidated financial statements.



5



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements



|(1) | Basis of Consolidation
|--- | ----------------------

The accompanying unaudited consolidated
financial statements include the accounts of PFF Bancorp, Inc. (the Bancorp) and its wholly-owned subsidiaries PFF Bank & Trust (the Bank), Glencrest Investment Advisors, Inc. (Glencrest) and Diversified
Builder Services, Inc. (DBS). Our business is conducted primarily through the Bank. The Bank includes the accounts of Pomona Financial Services, Inc. and Diversified Services, Inc. Glencrest includes the accounts of Glencrest Insurance
Services, Inc. The Bancorp owns 100% of the common stock of three unconsolidated special purpose business trusts PFF Bancorp Capital Trust I, PFF Bancorp Capital Trust II and PFF Bancorp Capital Trust III created
for the purpose of issuing capital securities. Subsequent to December 31, 2007, we established a new subsidiary, PFF Real Estate Services, Inc., a wholly owned subsidiary of PFF Bancorp Inc. PFF Real Estate Services, Inc. has not yet commenced
operations. All material intercompany balances and transactions have been eliminated in consolidation. As used throughout this report, the terms we, our, us or the Company refer to the Bancorp and its
consolidated subsidiaries.

Our unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial statements. In our opinion, all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation have been included. We have made certain
reclassifications to the prior years consolidated financial statements to conform to the current presentation. The results of operations for the three and nine months ended December 31, 2007 are not necessarily indicative of results that
may be expected for the entire fiscal year ending March 31, 2008.

These interim consolidated financial statements should be read in conjunction with
our consolidated financial statements, and the notes thereto, included in our Form 10-K for the year ended March 31, 2007.



|(2) | New Accounting Pronouncements
|--- | -----------------------------

In September 2006, the Financial
Accounting Standards Board (FASB) issued SFAS 157 Fair Value Measurements (SFAS 157), which provides a definition of fair value, guidance on the methods used to measure fair value and also expands financial
statement disclosure requirements for fair value information. SFAS 157 establishes a fair value hierarchy that distinguishes between assumptions based on market data from independent sources (observable inputs) and a reporting
entitys internal assumptions based upon the best information available when external market data is limited or unavailable (unobservable inputs). The fair value hierarchy in SFAS 157 prioritizes inputs within three levels. Quoted
prices in active markets have the highest priority (Level 1) followed by observable inputs other than quoted prices (Level 2) and unobservable inputs having the lowest priority (Level 3). SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, with earlier application allowed for entities that have not issued financial statements in the fiscal year of adoption. We are currently assessing the impact that the adoption of SFAS 157 will
have on our consolidated financial statements.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Liabilities (SFAS 159), which provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both the complexity in accounting for financial instruments
and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement
attributes for similar assets and liabilities. This statement is effective as of the beginning of an entitys first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous year
provided that the company makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS 157. We are currently assessing the impact that the adoption of SFAS 159 will have on our consolidated financial
statements.



6



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)



|(3) | Share-Based Payment Plans
|--- | -------------------------

2006 Equity Incentive Plan

During December 2007, our Board of Directors granted 80,000 stock options to a new executive officer. These options were granted at an exercise price
of $16.27 with cliff vesting on March 31, 2010 and a contractual term of 9.73 years. As of December 31, 2007, the remaining vesting period is 2.25 years and the remaining contractual term is 9.70 years.

The fair value of each option is estimated on the grant date using the Black-Scholes model that applies the following assumptions: volatility, based on the historical
volatility of our stock, is 32.95%; the expected term of options granted of five years represents the period of time the options are expected to be outstanding; the risk-free rate of 3.46% is the yield from United States government securities with
the same terms as the life of the options; and dividend yield of 6.71% is calculated using the anticipated dividend payout rate of the stock over the life of the option.

Compensation expense associated with these options was $2,000 for the three and nine months ended December 31, 2007 and the unrecognized compensation cost as of December 31, 2007 was $96,000.



7



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)



|(4) | Earnings (Loss) Per Share
|--- | -------------------------

Earnings per share (EPS) is
calculated on both a basic and diluted basis, excluding common shares in treasury. Basic EPS is calculated by dividing net earnings (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted
EPS includes the potential dilution resulting from the assumed exercise of stock options, including the effect of shares exercisable under our stock-based payment plans.

The following table presents a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the three months ended December 31, 2007 and 2006.



|                                                                         |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|------------------------------------------------------------------------ |  | --------------------------------------------- | ------- | - | ------------------- | ---------- | --------------- | - | ----- | -------------------------- |  | ------------------- | ------ | --------------- | ---------- |  | - | ----
|                                                                         |  | For the Three Months Ended December 31,      
|                                                                         |  | 2007                                          |         |   | 2006               
|                                                                         |  | Earnings (Loss)(Numerator)                    |         |   | Shares(Denominator) |            | Per-ShareAmount |   |       | Earnings (Loss)(Numerator) |  | Shares(Denominator) |        | Per-ShareAmount
|                                                                         |  | (Dollars in thousands, except per share data)
|Net Earnings (Loss)                                                      |  | $                                             | (14,683 | ) |                     |            |                 |   |       |                            |  | $                   | 13,643 |                 |            |  |   |     
|Basic EPS                                                                |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|Earnings (loss) available to common stockholders                         |  |                                               | (14,683 | ) |                     | 22,592,898 |                 | $ | (0.65 | )                          |  |                     | 13,643 |                 | 24,557,623 |  | $ | 0.56
|                                                                         |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|Effect of Dilutive Securities                                            |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|Options and stock awards (1) (2)                                         |  |                                               |         |   |                     |           |                 |   |       |                            |  |                     |        |                 | 335,718    |  |   |     
|                                                                         |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|Diluted EPS                                                              |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|Earnings (loss) available to common stockholders and assumed conversions |  | $                                             | (14,683 | ) |                     | 22,592,898 |                 | $ | (0.65 | )                          |  | $                   | 13,643 |                 | 24,893,341 |  | $ | 0.55
|                                                                         |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     



|(1) | For the three months ended December 31, 2007, the dilutive effect of 34,818 shares was excluded from the computation of diluted earnings per share due to anti-dilution.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The exercise price of all options was less than the average market price of the common shares during the three month period ended December 31, 2006. As a result, there were no
options excluded from the computation of earnings per share due to anti-dilution.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)



The following table presents a reconciliation of the numerators and denominators of the basic and diluted EPS
computations for the nine months ended December 31, 2007 and 2006.



|                                                                         |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|------------------------------------------------------------------------ |  | --------------------------------------------- | ------- | - | ------------------- | ---------- | --------------- | - | ----- | -------------------------- |  | ------------------- | ------ | --------------- | ---------- |  | - | ----
|                                                                         |  | For the Nine Months Ended December 31,       
|                                                                         |  | 2007                                          |         |   | 2006               
|                                                                         |  | Earnings (Loss)(Numerator)                    |         |   | Shares(Denominator) |            | Per-ShareAmount |   |       | Earnings (Loss)(Numerator) |  | Shares(Denominator) |        | Per-ShareAmount
|                                                                         |  | (Dollars in thousands, except per share data)
|Net Earnings (Loss)                                                      |  | $                                             | (21,674 | ) |                     |            |                 |   |       |                            |  | $                   | 43,111 |                 |            |  |   |     
|Basic EPS                                                                |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|Earnings (loss) available to common stockholders                         |  |                                               | (21,674 | ) |                     | 23,116,004 |                 | $ | (0.94 | )                          |  |                     | 43,111 |                 | 24,500,157 |  | $ | 1.76
|                                                                         |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|Effect of Dilutive Securities                                            |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|Options and stock awards (1) (2)                                         |  |                                               |         |   |                     |           |                 |   |       |                            |  |                     |        |                 | 318,977    |  |   |     
|                                                                         |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|Diluted EPS                                                              |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     
|Earnings (loss) available to common stockholders and assumed conversions |  | $                                             | (21,674 | ) |                     | 23,116,004 |                 | $ | (0.94 | )                          |  | $                   | 43,111 |                 | 24,819,134 |  | $ | 1.74
|                                                                         |  |                                               |         |   |                     |            |                 |   |       |                            |  |                     |        |                 |            |  |   |     



|(1) | For the nine months ended December 31, 2007, the dilutive effect of 150,275 shares was excluded from the computation of diluted earnings per share due to anti-dilution.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The exercise price of all options was less than the average market price of the common shares during the nine month period ended December 31, 2006. As a result, there were no
options excluded from the computation of earnings per share due to anti-dilution.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)



|(5) | Other Borrowings
|--- | ----------------

During the quarter ended December 31, 2007, our
$75.0 million line of credit with a commercial bank matured and we renegotiated a line of credit of $60.0 million with the same commercial bank with a maturity date of August 31, 2008. See Item 1 - Business  Sources of Funds in our
March 31, 2007 Annual Report on Form 10-K. The covenants in the new line of credit included the following:



| |  |  | Bank and the Company must show a net profit on a rolling four-quarter basis;
| | - |  | ----------------------------------------------------------------------------



| |  |  | Bank and the Company must maintain at all times a ratio of non-performing loans (as defined) to total loans which is equal to or less than 6.00%, tested quarterly;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Bank and the Company must maintain well capitalized regulatory capital ratios, as required by federal regulators;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | Company must maintain a consolidated tangible net worth of not less than $320.0 million, tested quarterly;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Company shall not merge into or consolidate with any other business enterprises, or another business enterprise shall not merge into the Company, without prior
written consent of the lender;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an event of default shall occur if the Company and/or Bank become subject to a Memorandum of Understanding a Cease and Desist Order or other
regulatory action that reflects any material adverse change in the safety and soundness of the Company and/or Bank;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | all obligations to lender shall become due and payable upon the sale of, or change in control of the Company or Bank; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | the Company shall maintain a demand deposit account balance in an amount not less than 2% of the note amount.
| | - |  | -------------------------------------------------------------------------------------------------------------

The Company is required to provide the lender with copies of (a) all quarterly Thrift Financial Reports of the Bank no later than the due date required by the Office of
Thrift Supervision, (b) a balance sheet and related statements of income and retained earnings and cash flow within 120 days after the end of each fiscal year and 45 days after the end of each quarter, and (c) asset quality reports with respect to
the Bank and each subsidiary within 45 days after the end of each quarter.

This line of credit is secured by a pledge of the stock of the Bank. The debt
relating to the Companys credit facility is classified as a component of FHLB advances and other borrowings in our Consolidated Balance Sheets.

As of December 31, 2007, the Company was in violation of the rolling four quarter net profit and non-performing loan covenants under this line of credit.

As of January 31, 2008, we entered into a new agreement that amended and restated in its entirety the $60.0 million line of credit. Under this new agreement, the $60.0 million line of credit was converted to a $49.4 million term note which
constituted the current principal balance outstanding on the date of the agreement. The maturity date of the note was amended to be May 31, 2008 and the interest rate is the one month LIBOR plus 3.25%. This note continues to be secured by a pledge
of the stock of the Bank.

The Company is required to make principal payments of $1.4 million by March 31, 2008 and $3.0 million by April 30, 2008 and is
required to make additional prepayments upon (a) the occurrence of a change in control of the Company or Bank which results in any change in ownership of 25% or more of the common or other stock of the Company; or (b) the Company ceasing to own 100%
of the capital stock of the Bank. Additionally, the Company is required to make prepayments upon receipt of any excess cash flow or dividends received by the Company from any subsidiary minus normal operating expenses of the Company and scheduled
payments on the Companys existing indebtedness. The Company shall not permit the sale of all or substantially all of the assets, or any capital stock, of any other subsidiary.

The amended covenants include the following:



| |  |  | Bank and the Company must maintain well capitalized regulatory capital ratios, as required by federal regulators;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | Company shall not merge into or consolidate with any other business enterprises, or another business enterprise shall not merge into the Company, without prior
written consent of the lender. Company shall not acquire all or substantially all of the assets of any other business enterprises, or acquire all or substantially all of the capital stock of any other business enterprises, without prior written
consent of lender;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an event of default shall occur if the Company and/or Bank become subject to a Memorandum of Understanding a Cease and Desist Order or other
regulatory action that reflects any material adverse change in the safety and soundness of the Company and/or Bank;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Company must provide prompt notice of the occurrence of any default or event of default under the credit agreement, any material adverse determination or
development in any litigation, arbitration or governmental proceeding, or any event which would have or could be expected to have a material adverse effect on the Company or any subsidiary;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Company shall maintain a demand deposit account balance in an amount not less than 2.0% of the outstanding principal amount owed under the credit agreement;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Company shall not pay any dividends, or make any other distributions, to its shareholders;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the Company shall suspend any stock repurchase plan, and shall not repurchase any shares of stock of the Company from any shareholder; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Company and its subsidiaries shall not permit the creation of or existence of any lien or encumbrance on the capital stock, or any of the property or assets, of
any subsidiary.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company is required to provide the lender with copies of (a) all quarterly Thrift Financial Reports of the Bank no
later than the due date required by the Office of Thrift Supervision, (b) a balance sheet and related statements of income and retained earnings and cash flow within 120 days after the end of each fiscal year and 45 days after the end of each
quarter, and (c) asset quality reports with respect to the Bank and each subsidiary within 45 days after the end of each quarter.



10



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)





|(6) | Derivative Hedging Activities
|--- | -----------------------------

On September 30, 2004, we
entered into an interest rate swap with a financial institution in the notional amount of $30.0 million for a period of five years. This interest rate swap was transacted concurrent with and for the purpose of hedging the cash outflows from $30.0
million of variable rate junior subordinated debentures against increasing interest rates. The terms of the interest rate swap require us to pay a fixed rate of 6.08 percent and receive three month LIBOR plus 2.20 percent quarterly on dates which
mirror those of the junior subordinated debentures through the termination of the interest rate swap on November 23, 2009. We recognize all derivatives on the balance sheet at fair value based on dealer quotes. At December 31, 2007, this
interest rate swap had a fair value of $(17,000) as compared to $821,000 at December 31, 2006. The periodic net settlement of this swap decreased interest expense by $118,000 and $364,000 for the three and nine months ended December 31,
2007 compared to $126,000 and $330,000 for the three and nine months ended December 31, 2006.

On September 16, 2005, we entered into an interest
rate swap with a financial institution in the notional amount of $10.0 million for a period of five years. This interest rate swap was transacted concurrent with and for the purpose of hedging the cash outflows from a portion of an additional $25.0
million of variable rate junior subordinated debentures against increasing interest rates. The terms of the interest rate swap require us to pay a fixed rate of 5.98 percent and receive three month LIBOR plus 1.52 percent quarterly on dates which
mirror those of the junior subordinated debentures through the termination of the interest rate swap on November 23, 2010. At December 31, 2007, this interest rate swap had a fair value of $(150,000) as compared to $137,000 at
December 31, 2006. The periodic net settlement of this swap decreased interest expense by $25,000 and $77,000 for the three and nine months ended December 31, 2007 compared to $27,000 and $65,000 for the comparable periods of 2006.

Hedge accounting is not applied and the change in fair value of both of these swaps is recorded in the Statement of Earnings (Loss).



|(7) | Allowance For Loan And Lease Losses
|--- | -----------------------------------

At December 31, 2007, the
allowance for loan and lease losses (ALLL) was $72.8 million or 1.81% of net loans and leases (loans and leases receivable, net plus allowance for loan and lease losses) compared to $46.3 million or 1.11% of net loans and leases at
March 31, 2007. At December 31, 2007, approximately $52.7 million of our total ALLL is assigned to our construction and land loan portfolio. As a percentage of committed and disbursed balances on construction and land loans, this
represents 3.4 percent and 4.3 percent, respectively. The ALLL is maintained at an amount management considers adequate to cover probable losses on loans and leases receivable. The determination of the adequacy of the ALLL is influenced to a
significant degree by the evaluation of the loan and lease portfolio by our internal asset review (IAR) function. The IAR system is designed to promptly identify problem loans and leases and probable losses. As the percentage of our loan
and lease portfolio comprised by the construction, commercial business, commercial real estate and consumer loans (the Four-Cs) has



11



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)



increased, the IAR function has become increasingly important not only for the timely and accurate identification of probable losses, but also to minimize
our exposure to such losses through early intervention. Among the factors taken into account by the IAR function in identifying probable losses and determining the adequacy of the ALLL are the nature, level and severity of classified assets,
historical loss experience adjusted for current economic conditions, and composition of the loan and lease portfolio by type. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the
Banks ALLL. Such agencies may require the Bank to make additional provisions for loan and lease losses based upon information available at the time of the review. We will continue to monitor and modify our ALLL as economic conditions, loss
experience, changes in asset quality, portfolio composition and other factors dictate.

The following table sets forth activity in our ALLL.



|                                    |  |                                |         |   |                               |   |        |      |  |   |         |   |  |   |        |  
|----------------------------------- |  | ------------------------------ | ------- | - | ----------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                    |  | Three Months EndedDecember 31, |         |   | Nine Months EndedDecember 31, |  
|                                    |  | 2007                           |         |   | 2006                          |   |        | 2007 |  |   | 2006    |  
|                                    |  | (Dollars in thousands)         |        
|Beginning balance                   |  | $                              | 94,391  |   |                               | $ | 40,289 |      |  | $ | 46,315  |   |  | $ | 37,126 |  
|Provision for loan and lease losses |  |                                | 35,000  |   |                               |   | 1,900  |      |  |   | 90,800  |   |  |   | 4,920  |  
|Charge-offs                         |  |                                | (56,553 | ) |                               |   | (152   | )    |  |   | (64,370 | ) |  |   | (260   | )
|Recoveries                          |  |                                | 7       |   |                               |   | 69     |      |  |   | 100     |   |  |   | 320    |  
|                                    |  |                                |         |   |                               |   |        |      |  |   |         |   |  |   |        |  
|Ending balance                      |  | $                              | 72,845  |   |                               | $ | 42,106 |      |  | $ | 72,845  |   |  | $ | 42,106 |  
|                                    |  |                                |         |   |                               |   |        |      |  |   |         |   |  |   |        |  

The $56.6 million of charge-offs during the three months ended December 31, 2007 included $30.0 million of
specific valuation allowances established in previous quarters, which the Bank considers not collectible. The composition of the charge-offs during the three months ended December 31, 2007 was as follows: (i) first trust deeds secured by
residential construction and land of $40.9 million; (ii) one-to-four family residential properties of $3.3 million; (iii) commercial business loans of $11.8 million; and (iv) consumer loans of $575,000. The one-to-four family
residential and commercial business loan charge-offs were attributable principally to the single borrower relationship described in our September 30, 2007 Quarterly Report on Form 10-Q.

During the three months ended December 31, 2007, 8 construction and land loans with aggregate principal balances totaling $37.9 million were restructured in order
to maximize the recovery of our investment in these properties. These restructures resulted in charge-offs of $3.1 million. One of these loans totaling $9.7 million was restored to accrual status through restructure. The remainder of the loans will
be restored to accrual status after the passage of a sufficient period of time (generally six months) to provide evidence of performance under the new terms. Subsequent to December 31, 2007, an additional 12 loans with aggregate principal
balances totaling $58.6 million have been restructured. Charge-offs of $20.5 million attributable to these post December 31, 2007, restructures are included in the $56.6 million of total chargeoffs recorded for the quarter ended
December 31, 2007. In 19 of the 20 restructures prior or subsequent to December 31, 2007, the existing or new borrowers contributed additional cash to the projects in the form of principal paydowns, past due interest payments, deposits to
interest reserves and/or development costs. During the quarter ended December 31, 2007, we foreclosed on one single family loan of $563,000, and recorded a $17,000 loan charge-off, upon classification to assets acquired through foreclosure.



|(8) | Non-Accrual Loans
|--- | -----------------

Non-accrual loans were $235.2 million or 5.84
percent of net loans and leases (loans and leases receivable, net plus allowance for loan and lease losses) at December 31, 2007 compared to $11.4 million or 0.27 percent of net loans and leases at March 31, 2007 and $1.5 million or 0.04
percent of net loans and leases at December 31, 2006.

During the three months ended December 31, 2007, 61 loans totaling $76.6 million were
placed on non-accrual, 10 loans totaling $12.6 million were restored to accrual status and charge-offs against non-accrual loans totaled $55.0 million. Included in non-accrual loans at December 31, 2007 are $44.0 million in loans that are
current or less than ninety days past due, but are exhibiting weaknesses in the underlying collateral or borrower strength.



12



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(Continued)



|(9) | Income Taxes
|--- | ------------

On April 1, 2007, we adopted the provisions of
FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109. FIN 48 establishes a single model to address accounting for uncertain tax positions.
FIN 48 clarifies accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement
classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of our adoption of FIN 48, we had no cumulative effect adjustment. In addition, we do not have any unrecognized tax benefits as a result of
uncertainty in income taxes in our Consolidated Balance Sheets as of April 1, 2007 and December 31, 2007, and we do not anticipate any changes in the amount of unrecognized tax benefits prior to our fiscal year-end.

We file income tax returns with U.S. Federal and State of California jurisdictions. It is our policy to record any penalties or interest arising from federal or state
taxes as a component of income tax expense. There were no penalties related to income taxes included in the Consolidated Statements of Earnings (Loss), but we had a reduction of interest expense of $314,000 and $458,000 for the three and nine months
ended December 31, 2007, respectively. Upon adoption of FIN 48, we included interest payable of $197,000 in the Consolidated Balance Sheet as of April 1, 2007. Included in the Consolidated Balance Sheet as of December 31, 2007 is
interest receivable of $261,000 related to amended income tax returns.

During our fiscal 3rd quarter, the Internal Revenue Service concluded their
examination of our tax years ended March 31, 2002 through 2004. Accordingly, tax years ended on or after March 31, 2005 remain open to examination by federal authorities. Tax years ending March 31, 2002, and thereafter remain open to
examination by state authorities.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to, changes in economic conditions in our market areas, changes in
policies by regulatory agencies, the impact of competitive loan and deposit products, the quality or composition of our loan or investment portfolios, fluctuations in interest rates and changes in the relative differences between short and long-term
interest rates, levels of nonperforming assets and operating results, the impact of domestic or world events on our loan and deposit inflows and outflows and other risks detailed from time to time in our filings with the Securities and Exchange
Commission. We caution readers not to place undue reliance on forward-looking statements. We do not undertake and specifically disclaim any obligation to revise or update any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for fiscal year 2008 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us.

The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included in
Item 1 of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes for the fiscal year ended March 31, 2007, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission
on May 30, 2007.



13



---

##### Table of Contents

Average Balance Sheets

The following table sets forth certain information relating to our average balances of assets, liabilities and equity for the three months ended December 31, 2007 and 2006. The yields and costs are derived by dividing interest income
or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods shown. Average balances are generally derived from average daily balances. The yields and costs include fees that are
considered adjustments to yields.



|                                                                 |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|---------------------------------------------------------------- |  | ------------------------------- | --------- | - | -------- | - | ----------------- |  | ---- | -------------- |  | - | --------- | - | ----------------- | - | ------ |  | ---- | -
|                                                                 |  | Three Months Ended December 31, |          
|                                                                 |  | 2007                            |           |   | 2006     |  
|                                                                 |  | AverageBalance                  |           |   | Interest |   | AverageYield/Cost |  |      | AverageBalance |  |   | Interest  |   | AverageYield/Cost |  
|                                                                 |  | (Dollars in thousands)          |          
|Assets:                                                          |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Interest-earning assets:                                         |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Interest-earning deposits and short-term investments             |  | $                               | 10,985    |   |          | $ | 100               |  | 3.61 | %              |  | $ | 12,375    |   |                   | $ | 150    |  | 4.81 | %
|Investment securities, net                                       |  |                                 | 8,321     |   |          |   | 105               |  | 5.05 |                |  |   | 60,169    |   |                   |   | 758    |  | 5.00 |  
|Mortgage-backed securities, net                                  |  |                                 | 169,325   |   |          |   | 1,947             |  | 4.60 |                |  |   | 231,319   |   |                   |   | 2,648  |  | 4.58 |  
|Loans and leases receivable, net                                 |  |                                 | 4,031,070 |   |          |   | 72,178            |  | 7.13 |                |  |   | 4,105,702 |   |                   |   | 82,751 |  | 8.03 |  
|FHLB stock                                                       |  |                                 | 36,853    |   |          |   | 525               |  | 5.65 |                |  |   | 45,294    |   |                   |   | 670    |  | 5.87 |  
|                                                                 |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Total interest-earning assets                                    |  |                                 | 4,256,554 |   |          |   | 74,855            |  | 7.00 |                |  |   | 4,454,859 |   |                   |   | 86,977 |  | 7.78 |  
|Non-interest-earning assets                                      |  |                                 | 168,407   |   |          |   |                   |  |      |                |  |   | 168,544   |   |                   |   |        |  |      |  
|                                                                 |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Total assets                                                     |  | $                               | 4,424,961 |   |          |   |                   |  |      |                |  | $ | 4,623,403 |   |                   |   |        |  |      |  
|                                                                 |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Liabilities and Stockholders Equity:                            |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Deposits:                                                        |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Non-interest bearing demand accounts                             |  | $                               | 263,956   |   |          |   |                  |  | 0.00 |                |  | $ | 284,160   |   |                   |   |       |  | 0.00 |  
|Interest-bearing demand accounts                                 |  |                                 | 265,630   |   |          |   | 266               |  | 0.40 |                |  |   | 327,239   |   |                   |   | 374    |  | 0.45 |  
|Savings accounts                                                 |  |                                 | 125,031   |   |          |   | 176               |  | 0.56 |                |  |   | 145,155   |   |                   |   | 153    |  | 0.42 |  
|Money market accounts                                            |  |                                 | 968,755   |   |          |   | 9,521             |  | 3.90 |                |  |   | 860,519   |   |                   |   | 8,389  |  | 3.87 |  
|Certificate accounts                                             |  |                                 | 1,636,135 |   |          |   | 20,285            |  | 4.92 |                |  |   | 1,575,038 |   |                   |   | 19,634 |  | 4.95 |  
|                                                                 |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Total Deposits                                                   |  |                                 | 3,259,507 |   |          |   | 30,248            |  | 3.68 |                |  |   | 3,192,111 |   |                   |   | 28,550 |  | 3.55 |  
|FHLB advances and other borrowings                               |  |                                 | 702,185   |   |          |   | 8,972             |  | 5.07 |                |  |   | 922,702   |   |                   |   | 12,379 |  | 5.32 |  
|Junior subordinated debentures                                   |  |                                 | 87,630    |   |          |   | 1,407             |  | 6.42 |                |  |   | 56,702    |   |                   |   | 890    |  | 6.28 |  
|                                                                 |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Total interest-bearing liabilities                               |  |                                 | 4,049,322 |   |          |   | 40,627            |  | 3.98 |                |  |   | 4,171,515 |   |                   |   | 41,819 |  | 3.98 |  
|                                                                 |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Non-interest-bearing liabilities                                 |  |                                 | 48,146    |   |          |   |                   |  |      |                |  |   | 54,963    |   |                   |   |        |  |      |  
|                                                                 |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Total liabilities                                                |  |                                 | 4,097,468 |   |          |   |                   |  |      |                |  |   | 4,226,478 |   |                   |   |        |  |      |  
|Stockholders equity                                             |  |                                 | 327,493   |   |          |   |                   |  |      |                |  |   | 396,925   |   |                   |   |        |  |      |  
|                                                                 |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Total liabilities and stockholders equity                       |  | $                               | 4,424,961 |   |          |   |                   |  |      |                |  | $ | 4,623,403 |   |                   |   |        |  |      |  
|                                                                 |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Net interest income                                              |  |                                 |           |   |          | $ | 34,228            |  |      |                |  |   |           |   |                   | $ | 45,158 |  |      |  
|                                                                 |  |                                 |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |        |  |      |  
|Net interest spread                                              |  |                                 |           |   |          |   |                   |  | 3.02 |                |  |   |           |   |                   |   | 3.80   |  |      |  
|Net interest margin                                              |  |                                 |           |   |          |   |                   |  | 3.22 |                |  |   |           |   |                   |   | 4.05   |  |      |  
|Ratio of interest-earning assets to interest-bearing liabilities |  |                                 | 105.12    | % |          |   |                   |  |      |                |  |   | 106.79    | % |                   |   |        |  |      |  



14



---

##### Table of Contents

Average Balance Sheets

The following table sets forth certain information relating to our average balances of assets, liabilities and equity for the nine months ended December 31, 2007 and 2006. The yields and costs are derived by dividing interest income or
expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods shown. Average balances are generally derived from average daily balances. The yields and costs include fees that are considered
adjustments to yields.



|                                                                 |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|---------------------------------------------------------------- |  | ------------------------------ | --------- | - | -------- | - | ----------------- |  | ---- | -------------- |  | - | --------- | - | ----------------- | - | ------- |  | ---- | -
|                                                                 |  | Nine Months Ended December 31, |          
|                                                                 |  | 2007                           |           |   | 2006     |  
|                                                                 |  | AverageBalance                 |           |   | Interest |   | AverageYield/Cost |  |      | AverageBalance |  |   | Interest  |   | AverageYield/Cost |  
|                                                                 |  | (Dollars in thousands)         |          
|Assets:                                                          |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Interest-earning assets:                                         |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Interest-earning deposits and short-term investments             |  | $                              | 12,457    |   |          | $ | 399               |  | 4.25 | %              |  | $ | 10,592    |   |                   | $ | 378     |  | 4.74 | %
|Investment securities, net                                       |  |                                | 13,421    |   |          |   | 471               |  | 4.66 |                |  |   | 65,406    |   |                   |   | 2,594   |  | 5.26 |  
|Mortgage-backed securities, net                                  |  |                                | 171,414   |   |          |   | 5,999             |  | 4.67 |                |  |   | 240,164   |   |                   |   | 8,025   |  | 4.46 |  
|Loans and leases receivable, net                                 |  |                                | 4,058,196 |   |          |   | 230,915           |  | 7.57 |                |  |   | 4,012,961 |   |                   |   | 239,539 |  | 7.94 |  
|FHLB stock                                                       |  |                                | 38,832    |   |          |   | 1,517             |  | 5.19 |                |  |   | 43,418    |   |                   |   | 1,778   |  | 5.44 |  
|                                                                 |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Total interest-earning assets                                    |  |                                | 4,294,320 |   |          |   | 239,301           |  | 7.41 |                |  |   | 4,372,541 |   |                   |   | 252,314 |  | 7.68 |  
|Non-interest-earning assets                                      |  |                                | 151,761   |   |          |   |                   |  |      |                |  |   | 159,734   |   |                   |   |         |  |      |  
|                                                                 |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Total assets                                                     |  | $                              | 4,446,081 |   |          |   |                   |  |      |                |  | $ | 4,532,275 |   |                   |   |         |  |      |  
|                                                                 |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Liabilities and Stockholders Equity:                            |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Deposits:                                                        |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Non-interest bearing demand accounts                             |  | $                              | 272,644   |   |          |   |                  |  | 0.00 |                |  | $ | 281,142   |   |                   |   |        |  | 0.00 |  
|Interest-bearing demand accounts                                 |  |                                | 283,174   |   |          |   | 874               |  | 0.41 |                |  |   | 359,420   |   |                   |   | 1,305   |  | 0.48 |  
|Savings accounts                                                 |  |                                | 131,059   |   |          |   | 524               |  | 0.53 |                |  |   | 152,989   |   |                   |   | 484     |  | 0.42 |  
|Money market accounts                                            |  |                                | 982,612   |   |          |   | 29,996            |  | 4.05 |                |  |   | 827,272   |   |                   |   | 22,003  |  | 3.53 |  
|Certificate accounts                                             |  |                                | 1,581,712 |   |          |   | 58,859            |  | 4.94 |                |  |   | 1,510,715 |   |                   |   | 53,174  |  | 4.67 |  
|                                                                 |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Total Deposits                                                   |  |                                | 3,251,201 |   |          |   | 90,253            |  | 3.68 |                |  |   | 3,131,538 |   |                   |   | 76,966  |  | 3.26 |  
|FHLB advances and other borrowings                               |  |                                | 723,785   |   |          |   | 28,878            |  | 5.30 |                |  |   | 910,043   |   |                   |   | 34,813  |  | 5.08 |  
|Junior subordinated debentures                                   |  |                                | 77,958    |   |          |   | 3,732             |  | 6.38 |                |  |   | 56,702    |   |                   |   | 2,647   |  | 6.22 |  
|                                                                 |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Total interest-bearing liabilities                               |  |                                | 4,052,944 |   |          |   | 122,863           |  | 4.02 |                |  |   | 4,098,283 |   |                   |   | 114,426 |  | 3.71 |  
|                                                                 |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Non-interest-bearing liabilities                                 |  |                                | 37,203    |   |          |   |                   |  |      |                |  |   | 50,678    |   |                   |   |         |  |      |  
|                                                                 |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Total liabilities                                                |  |                                | 4,090,147 |   |          |   |                   |  |      |                |  |   | 4,148,961 |   |                   |   |         |  |      |  
|Stockholders equity                                             |  |                                | 355,934   |   |          |   |                   |  |      |                |  |   | 383,314   |   |                   |   |         |  |      |  
|                                                                 |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Total liabilities and stockholders equity                       |  | $                              | 4,446,081 |   |          |   |                   |  |      |                |  | $ | 4,532,275 |   |                   |   |         |  |      |  
|                                                                 |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Net interest income                                              |  |                                |           |   |          | $ | 116,438           |  |      |                |  |   |           |   |                   | $ | 137,888 |  |      |  
|                                                                 |  |                                |           |   |          |   |                   |  |      |                |  |   |           |   |                   |   |         |  |      |  
|Net interest spread                                              |  |                                |           |   |          |   |                   |  | 3.39 |                |  |   |           |   |                   |   |         |  | 3.97 |  
|Net interest margin                                              |  |                                |           |   |          |   |                   |  | 3.62 |                |  |   |           |   |                   |   |         |  | 4.20 |  
|Ratio of interest-earning assets to interest-bearing liabilities |  |                                | 105.96    | % |          |   |                   |  |      |                |  |   | 106.69    | % |                   |   |         |  |      |  



15



---

##### Table of Contents

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 our 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.



|                                                     |  |                                                 |        |   |                                                |        |   |             |     |   |     |         |   |        |   |        |      |  |         |             |  |      |     |  |         |  
|---------------------------------------------------- |  | ----------------------------------------------- | ------ | - | ---------------------------------------------- | ------ | - | ----------- | --- | - | --- | ------- | - | ------ | - | ------ | ---- |  | ------- | ----------- |  | ---- | --- |  | ------- | -
|                                                     |  | Three Months Ended December 31, 2007Compared to |        |   | Nine Months Ended December 31, 2007Compared to |       
|                                                     |  | Three Months Ended December 31, 2006            |        |   | Nine Months Ended December 31, 2006            |       
|                                                     |  | Increase (Decrease)Due to                       |        |   | Increase (Decrease)Due to                      |       
|                                                     |  | Volume                                          |        |   | Rate                                           |        |   | Rate/Volume |     |   | Net |         |   | Volume |   |        | Rate |  |         | Rate/Volume |  |      | Net | 
|                                                     |  | (In thousands)                                  |       
|Interest-earning assets:                             |  |                                                 |        |   |                                                |        |   |             |     |   |     |         |   |        |   |        |      |  |         |             |  |      |     |  |         |  
|Interest-earning deposits and short-term investments |  | $                                               | (17    | ) |                                                | (37    | ) |             | 4   |   |     | (50     | ) |        | $ | 67     |      |  | (39     | )           |  | (7   | )   |  | 21      |  
|Investment securities, net                           |  |                                                 | (653   | ) |                                                | 8      |   |             | (8  | ) |     | (653    | ) |        |   | (2,062 | )    |  | (298    | )           |  | 237  |     |  | (2,123  | )
|Mortgage-backed securities, net                      |  |                                                 | (710   | ) |                                                | 12     |   |             | (3  | ) |     | (701    | ) |        |   | (2,308 | )    |  | 393     |             |  | (111 | )   |  | (2,026  | )
|Loans receivable, net                                |  |                                                 | (1,498 | ) |                                                | (9,243 | ) |             | 168 |   |     | (10,573 | ) |        |   | 2,706  |      |  | (11,204 | )           |  | (126 | )   |  | (8,624  | )
|FHLB stock                                           |  |                                                 | (124   | ) |                                                | (26    | ) |             | 5   |   |     | (145    | ) |        |   | (188   | )    |  | (81     | )           |  | 8    |     |  | (261    | )
|                                                     |  |                                                 |        |   |                                                |        |   |             |     |   |     |         |   |        |   |        |      |  |         |             |  |      |     |  |         |  
|Total interest-earning assets                        |  |                                                 | (3,002 | ) |                                                | (9,286 | ) |             | 166 |   |     | (12,122 | ) |        |   | (1,785 | )    |  | (11,229 | )           |  | 1    |     |  | (13,013 | )
|                                                     |  |                                                 |        |   |                                                |        |   |             |     |   |     |         |   |        |   |        |      |  |         |             |  |      |     |  |         |  
|Interest-bearing liabilities:                        |  |                                                 |        |   |                                                |        |   |             |     |   |     |         |   |        |   |        |      |  |         |             |  |      |     |  |         |  
|Demand deposit accounts                              |  |                                                 | (70    | ) |                                                | (47    | ) |             | 9   |   |     | (108    | ) |        |   | (278   | )    |  | (194    | )           |  | 41   |     |  | (431    | )
|Savings accounts                                     |  |                                                 | (21    | ) |                                                | 51     |   |             | (7  | ) |     | 23      |   |        |   | (68    | )    |  | 126     |             |  | (18  | )   |  | 40      |  
|Money market accounts                                |  |                                                 | 1,055  |   |                                                | 68     |   |             | 9   |   |     | 1,132   |   |        |   | 4,132  |      |  | 3,253   |             |  | 608  |     |  | 7,993   |  
|Certificate accounts                                 |  |                                                 | 762    |   |                                                | (107   | ) |             | (4  | ) |     | 651     |   |        |   | 2,499  |      |  | 3,042   |             |  | 144  |     |  | 5,685   |  
|FHLB advances and other borrowings                   |  |                                                 | (2,958 | ) |                                                | (589   | ) |             | 140 |   |     | (3,407  | ) |        |   | (7,125 | )    |  | 1,502   |             |  | (312 | )   |  | (5,935  | )
|Junior subordinated debentures                       |  |                                                 | 489    |   |                                                | 20     |   |             | 8   |   |     | 517     |   |        |   | 997    |      |  | 63      |             |  | 25   |     |  | 1,085   |  
|                                                     |  |                                                 |        |   |                                                |        |   |             |     |   |     |         |   |        |   |        |      |  |         |             |  |      |     |  |         |  
|Total interest-bearing liabilities                   |  |                                                 | (743   | ) |                                                | (604   | ) |             | 155 |   |     | (1,192  | ) |        |   | 157    |      |  | 7,792   |             |  | 488  |     |  | 8,437   |  
|                                                     |  |                                                 |        |   |                                                |        |   |             |     |   |     |         |   |        |   |        |      |  |         |             |  |      |     |  |         |  
|Change in net interest income                        |  | $                                               | (2,259 | ) |                                                | (8,682 | ) |             | 11  |   |     | (10,930 | ) |        | $ | (1,942 | )    |  | (19,021 | )           |  | (487 | )   |  | (21,450 | )
|                                                     |  |                                                 |        |   |                                                |        |   |             |     |   |     |         |   |        |   |        |      |  |         |             |  |      |     |  |         |  

Critical Accounting Policies

Our management has established various accounting policies, which govern the application of accounting principles generally accepted in the United States of America in the preparation of our consolidated financial
statements. The significant accounting policies are described in our Annual Report on Form 10-K for the year ended March 31, 2007 and there has not been any material change in those policies since that date, other than changes discussed in this
report. Certain accounting policies require significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and these are considered to be critical accounting policies. The estimates and
assumptions used are based on historical experience and other factors, which we believe are reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions which could have a material impact on the
carrying values of assets and liabilities at the balance sheet dates and on the results of operations for the reporting periods. The following represents critical accounting policies that require the most significant estimates and assumptions that
are particularly susceptible to significant change in the preparation of the consolidated financial statements:



| |  |  | Allowance for loan and lease losses. For further information, see Note -7  Allowance for loan and lease losses in this Quarterly Report on Form
10-Q and Item 1 - Business - Lending Activities - Allowance for Loan and Lease Losses, Item 1- Business - Assets Acquired Through Foreclosure and Notes 5 and 6 to the Consolidated Financial Statements in our
March 31, 2007 Annual Report on Form 10-K.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other-Than-Temporary Impairment. For further information, see Item 1 - Business - Investment Activities and Notes 2 and 3 to the Consolidated
Financial Statements in our March 31, 2007 Annual Report on Form 10-K.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16



---

##### Table of Contents

Comparison of Operating Results for the Three Months Ended December 31, 2007 and 2006

Overview

The following discussion compares the results of
operations for the three months ended December 31, 2007 with the corresponding period of 2006. This discussion should be read in conjunction with the consolidated financial statements and footnotes included therein.

We recorded a net loss of $14.7 million or $0.65 per diluted share for the three months ended December 31, 2007 compared to net earnings of $13.6 million or $0.55
per diluted share for the comparable period of 2006.



| |  |  | The decrease in earnings between the three months ended December 31, 2006 and 2007 was primarily due to $35.0 million provision for loan and lease losses
recorded during quarter ended December 31, 2007 compared to $1.9 million for the comparable period of 2006. The provision for loan and lease losses was attributable principally to the residential construction and land segments of our portfolio.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the three months ended December 31, 2007, we recorded a $2.5 million provision for estimated losses assigned to our total exposure to undrawn letters of
credit which was comprised of 41 letters of credit aggregating $24.1 million at December 31, 2007. This allowance is included in accrued expenses and other liabilities and the provision was recorded in other general and administrative expense.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net interest income decreased $10.9 million or 24 percent to $34.2 million for the third quarter compared to the same quarter of 2006. Net interest margin
contracted 83 basis points to 3.22% between the three months ended December 31, 2006 and 2007 due principally to an increase in non-accrual loans. Non-accrual loans were $235.2 million or 5.84 percent of net loans and leases at
December 31, 2007 compared to $11.4 million or 0.27 percent of net loans and leases at March 31, 2007 and $1.5 million or 0.04 percent of net loans and leases at December 31, 2006.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Four-Cs decreased $40.8 million or 2 percent to $2.42 billion at December 31, 2007or 61 percent of loans and leases receivable, net, compared to $2.46
billion or 60 percent of loans and leases receivable, net, at December 31, 2006. At December 31, 2007, our construction loan portfolio, net of undisbursed loans in process, included $1.03 billion of residential construction and land loans
and $193.5 million of commercial construction loans as compared to $1.09 billion of residential construction and land loans and $139.7 million of commercial construction loans at March 31, 2007.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Four-Cs originations totaled $203.7 million or 72 percent of total originations in the third quarter, compared to $419.9 million or 85 percent of total
originations for the comparable period of the prior year. The Four-Cs originations include $8.9 million and $43.0 million originated by DBS during the quarters ended December 31, 2007 and 2006, respectively. At December 31, 2007, DBS had
outstanding loans receivable, net, of $82.7 million compared to $118.4 million at March 31, 2007. The majority of DBSs loans are classified as construction and land.



| |  |  | Total deposits increased $7.7 million between the quarters ended December 31, 2006 and 2007 to $3.25 billion at December 31, 2007. Certificates of
deposits (CDs) increased $66.5 million between the quarters ended December 31, 2006 and 2007 to $1.66 billion at December 31, 2007, while lower cost passbook, money market and demand deposits (core deposits)
decreased $58.8 million to $1.59 billion at December 31, 2007. During the nine months ended December 31, 2007, total deposits related to the six new branches opened since March 31, 2007 increased $94.6 million.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At December 31, 2007, core deposits totaled $1.59 billion or 49 percent of total deposits, compared to $1.64 billion
or 51 percent of total deposits at December 31, 2006. Non-interest-bearing demand deposits were $257.0 million or 8 percent of total deposits at December 31, 2007 compared to $284.3 million or 9 percent of total deposits at
December 31, 2006.



17



---

##### Table of Contents

Net Interest Income

Net interest income is the difference between interest and dividends earned on loans and leases, mortgage-backed securities and other investment securities and other interest-earning investments (collectively, interest-earnings
assets) and the interest paid on deposits and borrowings (interest-bearing liabilities). The spread between the yield on interest-earning assets and the cost of interest-bearing liabilities and the relative dollar amounts of these
assets and liabilities are the principle items affecting net interest income.

Our net interest income totaled $34.2 million for the quarter ended
December 31, 2007, down 24 percent or $10.9 million from $45.2 million for the quarter ended December 31, 2006, as net interest spread contracted 78 basis points to 3.02%. The decrease in net interest income and the contraction in net
interest spread and margin was primarily attributable to the $233.7 million increase in non-accrual loans between December 31, 2006 and 2007 and the related non-recognition of interest income of $7.7 million for the quarter ended
December 31, 2007. Excluding the non-recognition of interest on non-accrual loans, net interest spread and margin for the quarter ended December 31, 2007 would have been 3.74 percent and 3.94 percent, respectively. Highly competitive
pricing of deposits in our markets coupled with the decreases in the general level of short term rates has resulted in a larger proportion of our funding being in higher yielding CD accounts as opposed to core deposits.

The average balances of the Four-Cs increased $37.6 million between the quarters ended December 31, 2006 and 2007, while the average balance of total loans and
leases receivable, net, decreased $74.6 million during that same period. The average yield on loans and leases receivable, net decreased 90 basis points to 7.13% for the quarter ended December 31, 2007 as compared to the comparable period of
the prior year. Excluding the non-recognition of interest on non-accrual loans, the average yield on loans and leases receivable, net would have been 7.89% for the quarter ended December 31, 2007 as compared to 8.03% for the comparable period
of the prior year. Loan and lease principal repayments totaled $422.0 million for the quarter ended December 31, 2007, compared to $502.8 million for the same period of 2006. Expressed as an annualized percentage of average loans and leases
receivable, net, this represented 42 percent of the portfolio compared to 49 percent for the quarter ended December 31, 2006. Premium amortization, net of discount accretion on the loan and lease portfolio for the quarters ended
December 31, 2007 and 2006 was $142,000 and $229,000, respectively. Amortization of loan origination fees, net, including extension and late fees were $1.7 million and $1.8 million, respectively for the quarter ended December 31, 2007
compared to $3.5 million and $1.7 million, respectively for the comparable period of 2006. For the quarter ended December 31, 2007, this fee amortization increased yield on average loans receivable, net, and yield on average interest-earning
assets by 34 basis points and 32 basis points, respectively, compared to 51 basis points and 47 basis points for the comparable period of 2006.

Our
average cost of interest-bearing liabilities remained unchanged at 3.98% for the quarters ended December 31, 2006 and 2007. Our average cost of deposits increased 13 basis points from the quarter ended December 31, 2006 to 3.68% for the
quarter ended December 31, 2007, while our average cost of FHLB advances, other borrowings and junior subordinated debentures decreased 16 basis points to 5.22% over that same time period. The average balance of our deposit portfolio increased
$67.4 million between the quarters ended December 31, 2006 and 2007 to $3.26 billion for the quarter ended December 31, 2007. The average balance of certificate accounts increased $61.1 million and the average balance of core deposits
increased $6.3 million.

Provision for Loan and Lease Losses

We recorded a $35.0 million provision for loan and lease losses for the quarter ended December 31, 2007 compared to a $1.9 million provision for the quarter ended December 31, 2006. The provision reflects
increases in and downgrades to criticized or classified loans, primarily in the residential tract construction category that are experiencing slower than projected sales and/or increases in loan to value ratios arising from declines in residential
home and land prices in our lending markets. The disbursed balance of assets classified special mention, substandard and doubtful increased $109.8 million, $123.3 million and $14.4 million, respectively, between September 30 and
December 31, 2007, to $287.5 million, $401.6 million and $14.4 million, respectively, net of specific loss allowances of $37.6 million at September 30, 2007 and $975,000 at December 31, 2007. These increases were principally due to
increases in classified residential construction and land loans.



18



---

##### Table of Contents

The distribution of our construction and land loan portfolio by region as of December 31, 2007 is as follows:



|                    |  |                                      |           |                          |         |                       |         |                    |      
|------------------- |  | ------------------------------------ | --------- | ------------------------ | ------- | --------------------- | ------- | ------------------ | -----
|                    |  | Construction and Land Loan Portfolio
|                    |  | DisbursedBalance                     |           | ClassifiedSpecialMention |         | ClassifiedSubstandard |         | ClassifiedDoubtful
|                    |  | (Dollars in thousands)              
|Inland Empire       |  |                                      |           |                          |         |                       |         |                    |      
|Coachella Valley    |  | $                                    | 158,612   |                          | 70,420  |                       | 30,622  |                    |     
|High Desert         |  |                                      | 82,830    |                          | 19,183  |                       | 13,020  |                    |     
|Other               |  |                                      | 509,946   |                          | 59,330  |                       | 138,716 |                    |     
|                    |  |                                      |           |                          |         |                       |         |                    |      
|Total Inland Empire |  |                                      | 751,388   |                          | 148,933 |                       | 182,358 |                    |     
|Central Valley      |  |                                      | 80,278    |                          | 10,384  |                       | 21,221  |                    |     
|Northern California |  |                                      | 141,188   |                          | 51,126  |                       | 68,068  |                    | 1,200
|Other California    |  |                                      | 172,972   |                          | 4,500   |                       | 52,206  |                    |     
|Out of State        |  |                                      | 74,670    |                          | 30,409  |                       | 7,188   |                    |     
|                    |  |                                      |           |                          |         |                       |         |                    |      
|                    |  | $                                    | 1,220,496 |                          | 245,352 |                       | 331,041 |                    | 1,200
|                    |  |                                      |           |                          |         |                       |         |                    |      

Following is the vintage of our construction and land portfolio as of December 31, 2007 by year of
origination:



|                    |  |                                      |           |            |         |                |         |             |         |          |      
|------------------- |  | ------------------------------------ | --------- | ---------- | ------- | -------------- | ------- | ----------- | ------- | -------- | -----
|                    |  | Construction and Land loan Portfolio |           |            |         |                |         |            
|Year of origination |  | Residential                          |           | Commercial |         | SpecialMention |         | Substandard |         | Doubtful
|                    |  | (Dollars in thousands)              
|2007                |  | $                                    | 179,576   |            | 89,252  |                | 19,005  |             | 36,295  |          | 1,200
|2006                |  |                                      | 508,889   |            | 81,476  |                | 150,772 |             | 156,032 |          |     
|2005                |  |                                      | 266,268   |            | 15,941  |                | 63,628  |             | 120,294 |          |     
|2004                |  |                                      | 67,063    |            | 6,870   |                | 11,947  |             | 16,906  |          |     
|2003 and before     |  |                                      | 5,161     |            |        |                |        |             | 1,514   |          |     
|                    |  |                                      |           |            |         |                |         |             |         |          |      
|Total               |  | $                                    | 1,026,957 |            | 193,539 |                | 245,352 |             | 331,041 |          | 1,200
|                    |  |                                      |           |            |         |                |         |             |         |          |      

Included in the $235.2 million of non-accrual loans at December 31, 2007 are $44.0 million in loans that are
current ($22.3 million) or less than ninety days past due ($21.7 million), but are exhibiting weaknesses in the underlying collateral or borrower strength. At December 31, 2007, our non-accrual loans are comprised principally of $109.6 million
of single family construction loans, $56.3 million of residential lot development loans, $5.6 million of condominium conversion loans, $40.1 million of one-to-four family loans, $17.6 million in commercial loans and leases, $3.7 million of
commercial real estate loans and $2.3 million in consumer loans. Included in the $40.1 million of one-to-four family loans are eighty-five first trust deed non-owner occupied loans aggregating $33.4 million to a common borrower, net of charge-offs
of $3.0 million. These one-to-four family loans to a common borrower also have a $975,000 specific valuation allowance as of December 31, 2007. This borrower also has $3.7 million in commercial and real estate loans with the Bank, which are on
non-accrual status. Additionally, during the quarter ended December 31, 2007, we charged off commercial loans of $8.3 million to this borrower secured by leases and other real estate collateral.



19



---

##### Table of Contents

The following table sets forth the composition of our loan and lease delinquencies for 30-59 days and 60-89 days as of
December 31 and March 31, 2007.



|                                             |  |                        |        |   |                |       |   |            |   |        |            |  |      |  
|-------------------------------------------- |  | ---------------------- | ------ | - | -------------- | ----- | - | ---------- | - | ------ | ---------- |  | ---- | -
|                                             |  | December 31, 2007 (1)  |        |   | March 31, 2007 |      
|Loan Category                                |  | 30-59 days             |        |   | 60-89 days     |       |   | 30-59 days |   |        | 60-89 days | 
|                                             |  | (Dollars in thousands) |       
|Real estate loans:                           |  |                        |        |   |                |       |   |            |   |        |            |  |      |  
|Residential                                  |  |                        |        |   |                |       |   |            |   |        |            |  |      |  
|One-to-four family (2)                       |  | $                      | 3,175  |   |                | 1,090 |   |            | $ | 2,320  |            |  |     |  
|Multi-family                                 |  |                        | 575    |   |                |      |   |            |   | 572    |            |  |     |  
|Commercial real estate                       |  |                        | 3,126  |   |                |      |   |            |   | 272    |            |  |     |  
|Construction and land:                       |  |                        |        |   |                |       |   |            |   |        |            |  |      |  
|Unentitled land                              |  |                        |       |   |                |      |   |            |   |       |            |  |     |  
|Entitled land/ developed lots                |  |                        |       |   |                |      |   |            |   | 17,139 |            |  |     |  
|Residential construction:                    |  |                        |        |   |                |       |   |            |   |        |            |  |      |  
|Single family                                |  |                        | 14,943 |   |                |      |   |            |   | 3,376  |            |  |     |  
|Multi-family                                 |  |                        |       |   |                |      |   |            |   |       |            |  |     |  
|Condominium conversion                       |  |                        |       |   |                |      |   |            |   |       |            |  |     |  
|Commercial construction                      |  |                        |       |   |                |      |   |            |   |       |            |  |     |  
|Commercial loans and leases                  |  |                        | 14,288 |   |                | 322   |   |            |   | 167    |            |  |     |  
|Consumer                                     |  |                        | 4,721  |   |                | 212   |   |            |   | 492    |            |  | 237  |  
|                                             |  |                        |        |   |                |       |   |            |   |        |            |  |      |  
|                                             |  | $                      | 40,828 |   |                | 1,624 |   |            | $ | 24,338 |            |  | 237  |  
|                                             |  |                        |        |   |                |       |   |            |   |        |            |  |      |  
|Delinquencies as a percentage of total loans |  |                        | 1.01   | % |                | 0.04  | % |            |   | 0.58   | %          |  | 0.01 | %
|                                             |  |                        |        |   |                |       |   |            |   |        |            |  |      |  



|(1) | Excluding $9.8 million of 30-59 day delinquencies and $11.9 million of 60-89 day delinquencies which are on non-accrual status as shown in the following table.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes loans held for sale.
|--- | -----------------------------

Loans and leases 90 days or more
delinquent totaling $191.2 million and $11.4 million as of December 31 and March 31, 2007, respectively, are included as a component of non-accrual loans.



20



---

##### Table of Contents

The following tables set forth the composition of our consolidated loan and lease portfolio, Special Mention and
Substandard assets and non-accrual loans as of December 31 and March 31, 2007.

At December 31, 2007



|                                              |  |                     |           |   |                     |           |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|--------------------------------------------- |  | ------------------- | --------- | - | ------------------- | --------- | - | ------------------- | ------- | ------------------- | ------- | --------------------------- | ------- | --------------------------- | ------- | ------------------- | ------ | ------------------- | ------ | -------------- | -------
|                                              |  |                     |           |   |                     |           |   | Special Mention     |         | Substandard         |         | Doubtful                    |         |                            
|Loan Category                                 |  | CommittedBalance(1) |           |   | DisbursedBalance(2) |           |   | CommittedBalance(1) |         | DisbursedBalance(2) |         | CommittedBalance(1) (3) (5) |         | DisbursedBalance(2) (3) (5) |         | CommittedBalance(1) |        | DisbursedBalance(2) |        | Non-accrual(2)
|Real estate loans:                            |  |                     |           |   |                     |           |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|Residential                                   |  |                     |           |   |                     |           |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|One-to- four family (4)                       |  | $                   | 1,416,182 |   |                     | 1,416,182 |   |                     | 9,154   |                     | 9,154   |                             | 40,153  |                             | 40,153  |                     |       |                     |       |                | 40,155 
|Multi-family                                  |  |                     | 195,382   |   |                     | 195,382   |   |                     |        |                     |        |                             |        |                             |        |                     |       |                     |       |                |       
|Commercial real estate                        |  |                     | 650,401   |   |                     | 650,401   |   |                     |        |                     |        |                             | 8,482   |                             | 8,482   |                     |       |                     |       |                | 3,681  
|Construction and land:                        |  |                     |           |   |                     |           |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|Unentitled Land                               |  |                     | 79,401    |   |                     | 73,651    |   |                     | 2,503   |                     | 2,501   |                             | 12,082  |                             | 11,985  |                     |       |                     |       |                | 6,600  
|Entitled land/ developed lots                 |  |                     | 343,687   |   |                     | 283,974   |   |                     | 38,901  |                     | 31,308  |                             | 81,327  |                             | 72,316  |                     | 1,200  |                     | 1,200  |                | 49,725 
|Residential construction:                     |  |                     |           |   |                     |           |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|Single Family                                 |  |                     | 684,045   |   |                     | 537,347   |   |                     | 156,747 |                     | 132,495 |                             | 247,432 |                             | 202,113 |                     |       |                     |       |                | 109,563
|Multi-family                                  |  |                     | 35,421    |   |                     | 28,977    |   |                     | 22,131  |                     | 21,261  |                             |        |                             |        |                     |       |                     |       |                |       
|Condominium conversion                        |  |                     | 105,189   |   |                     | 103,008   |   |                     | 50,478  |                     | 48,952  |                             | 44,684  |                             | 44,627  |                     |       |                     |       |                | 5,627  
|Commercial construction                       |  |                     | 287,226   |   |                     | 193,539   |   |                     | 8,910   |                     | 8,835   |                             |        |                             |        |                     |       |                     |       |                |       
|Commercial loans and leases                   |  |                     | 199,715   |   |                     | 199,715   |   |                     | 32,506  |                     | 32,506  |                             | 19,611  |                             | 19,611  |                     | 12,900 |                     | 12,900 |                | 17,570 
|Consumer                                      |  |                     | 347,077   |   |                     | 347,077   |   |                     | 462     |                     | 462     |                             | 2,291   |                             | 2,291   |                     | 333    |                     | 333    |                | 2,284  
|                                              |  |                     |           |   |                     |           |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|                                              |  |                     | 4,343,726 |   |                     | 4,029,253 |   |                     | 321,792 |                     | 287,474 |                             | 456,062 |                             | 401,578 |                     | 14,433 |                     | 14,433 |                | 235,205
|Undisbursed construction loan funds           |  |                     | (314,473  | ) |                     | N/A       |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|Deferred loan and lease origination fees, net |  |                     | 2,645     |   |                     | 2,645     |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|Allowance for loan and lease losses(6)        |  |                     | (72,845   | ) |                     | (72,845   | ) |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|                                              |  |                     |           |   |                     |           |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|Total loans and leases, net                   |  |                     | 3,959,053 |   |                     | 3,959,053 |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|Less loans held-for- Sale                     |  |                     | (1,674    | ) |                     | (1,674    | ) |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|                                              |  |                     |           |   |                     |           |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|Loans and leases receivable, net              |  | $                   | 3,957,379 |   |                     | 3,957,379 |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        
|                                              |  |                     |           |   |                     |           |   |                     |         |                     |         |                             |         |                             |         |                     |        |                     |        |                |        



|(1) | Includes undisbursed construction loan funds.
|--- | ---------------------------------------------



|(2) | Excludes undisbursed construction loan funds.
|--- | ---------------------------------------------



|(3) | Balances have been reduced by amounts of specific valuation allowances.
|--- | -----------------------------------------------------------------------



|(4) | Includes loans held-for-sale.
|--- | -----------------------------



|(5) | Includes $973,000 of assets acquired through foreclosure at December 31, 2007, in substandard committed and disbursed balances, one-to-four family loans.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Allowance for loan and lease losses includes specific valuation allowances of $975,000.
|--- | ---------------------------------------------------------------------------------------



21



---

##### Table of Contents

At March 31, 2007



|                                              |  |                        |           |             |                      |           |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|--------------------------------------------- |  | ---------------------- | --------- | ----------- | -------------------- | --------- | - | ----------------------- | ------ | ---------------------- | ------ | ----------------------- | ------ | ----------------------- | ------ | -------------- | ------ | --------------------------- | ---
|                                              |  | Special Mention        |           | Substandard
|Loan Category                                 |  | CommittedBalance (1)   |           |             | DisbursedBalance (2) |           |   | CommittedBalance (1)(3) |        | DisbursedBalance(2)(3) |        | CommittedBalance (1)(3) |        | DisbursedBalance(2) (3) |        | Non-Accrual(2) |        | SpecificValuationAllowances
|                                              |  | (Dollars in thousands)
|Real estate loans:                            |  |                        |           |             |                      |           |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|Residential                                   |  |                        |           |             |                      |           |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|One-to-four family (4)                        |  | $                      | 1,421,310 |             |                      | 1,421,310 |   |                         |       |                        |       |                         | 1,349  |                         | 1,349  |                | 1,349  |                             | 36 
|Multi-family                                  |  |                        | 235,424   |             |                      | 235,424   |   |                         |       |                        |       |                         |       |                         |       |                |       |                             |   
|Commercial real estate                        |  |                        | 679,526   |             |                      | 679,526   |   |                         |       |                        |       |                         |       |                         |       |                |       |                             |   
|Construction and Land:                        |  |                        |           |             |                      |           |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|Unentitled land                               |  |                        | 95,990    |             |                      | 89,518    |   |                         |       |                        |       |                         |       |                         |       |                |       |                             |   
|Entitled land/ developed lots                 |  |                        | 325,323   |             |                      | 266,787   |   |                         | 18,137 |                        | 18,137 |                         |       |                         |       |                |       |                             |   
|Residential construction:                     |  |                        |           |             |                      |           |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|Single Family                                 |  |                        | 916,210   |             |                      | 583,460   |   |                         | 24,907 |                        | 24,158 |                         | 31,700 |                         | 26,670 |                |       |                             |   
|Multi-family                                  |  |                        | 64,898    |             |                      | 49,269    |   |                         |       |                        |       |                         |       |                         |       |                |       |                             |   
|Condominium conversion                        |  |                        | 109,132   |             |                      | 99,329    |   |                         |       |                        |       |                         | 8,876  |                         | 8,876  |                | 8,876  |                             | 450
|Commercial construction                       |  |                        | 264,036   |             |                      | 139,710   |   |                         |       |                        |       |                         |       |                         |       |                |       |                             |   
|Commercial loans and leases                   |  |                        | 286,678   |             |                      | 286,678   |   |                         | 564    |                        | 564    |                         | 9,540  |                         | 9,540  |                | 430    |                             | 68 
|Consumer                                      |  |                        | 313,203   |             |                      | 313,203   |   |                         | 237    |                        | 237    |                         | 766    |                         | 766    |                | 766    |                             | 131
|                                              |  |                        |           |             |                      |           |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|                                              |  |                        | 4,711,730 |             |                      | 4,164,214 |   |                         | 43,845 |                        | 43,096 |                         | 52,231 |                         | 47,201 |                | 11,421 |                             | 685
|Undisbursed construction loan funds           |  |                        | (547,516  | )           |                      | N/A       |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|Deferred loan and lease origination fees, net |  |                        | (1,667    | )           |                      | (1,667    | ) |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|Allowance for loan and lease losses (5)       |  |                        | (46,315   | )           |                      | (46,315   | ) |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|                                              |  |                        |           |             |                      |           |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|Total loans and leases, net                   |  |                        | 4,116,232 |             |                      | 4,116,232 |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|Less loans held-for-sale                      |  |                        |          |             |                      |          |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|                                              |  |                        |           |             |                      |           |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|Loans and leases receivable, net              |  | $                      | 4,116,232 |             |                      | 4,116,232 |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    
|                                              |  |                        |           |             |                      |           |   |                         |        |                        |        |                         |        |                         |        |                |        |                             |    



|(1) | Includes undisbursed construction loan funds.
|--- | ---------------------------------------------



|(2) | Excludes undisbursed construction loan funds.
|--- | ---------------------------------------------



|(3) | Balances have not been reduced by amounts of specific valuation allowances.
|--- | ---------------------------------------------------------------------------



|(4) | Includes loans held-for-sale.
|--- | -----------------------------



|(5) | Allowance for loan and lease losses includes specific valuation allowances shown above.
|--- | ---------------------------------------------------------------------------------------

Troubled Debt Restructures

A troubled debt restructuring (TDR) is a formal restructure of a loan
when the lender, for economic or legal reasons related to the borrowers financial difficulties, grants a concession to the borrower. The concession may be granted in various forms, including reduction in the stated interest rate, reduction in
the loan balance or accrued interest, or extension of the maturity date.

As of December 31, 2007, our TDRs were comprised of 14 residential
construction and land loans totaling $46.0 million, compared to none as of March 31, 2007. All of our TDRs are located in California. The increase in TDRs was primarily due to 4 residential construction and land loans totaling $23.2
million located in Wildomar and Temecula, California, whereby the interest rates were reduced to below market interest rates, delinquent interest of $177,000 was forgiven and these loans reflected higher loan-to-value ratios above our loan
underwriting guidelines, 2 residential construction loans totaling $6.1 million located in Oakdale, California, whereby the interest rates were reduced to below market interest rates and these loans reflected higher loan-to-value ratios above our
loan underwriting guidelines, 3 residential construction and land loans totaling $2.0 million located in Corona, California, whereby these loans reflected higher loan-to-value ratios above our loan underwriting guidelines and there is an uncontested
agreement to release their properties in the event of foreclosure, 2 land loans totaling $6.1 million located in Winchester, whereby additional advances were provided for interest reserve and these loans reflected higher loan-to- value



22



---

##### Table of Contents

ratios above our loan underwriting guidelines, 2 land loans totaling $2.3 million located in Big Bear, California were assumed by a new borrower with new
loan terms including a write-down in principal balance of $1.9 million and 1 residential construction loan totaling $6.2 million located in Murrieta, California was restructured with a below market interest rate, these loans reflected higher
loan-to-value ratios above our loan underwriting guidelines and a longer than normal maturity date to September 2009.

On a monthly basis, our Internal
Asset Review Department (IARD) conducts independent evaluations of the credit risk and quality of our assets. During these evaluations, the IARD classifies assets according to the following grades: Pass 1; Pass 2; Pass 3; Pass 4; Special
Mention; Substandard; Doubtful; and Loss. Substandard, Doubtful, and Loss assets are considered classified assets for regulatory purposes. For further information, see Item 1- Business - Lending Activities  Delinquencies and
Classified Assets in our March 31, 2007 Annual Report on Form 10-K. During the quarter ended December 31, 2007, IARDs review of our loan portfolio resulted in the increase in Special Mention and Substandard assets, primarily as
a result of credit weaknesses we are experiencing in the residential construction and land segment of our loan portfolio. For further information, see Comparison of Financial Condition at December 31, 2007 and March 31, 2007.

Non-Interest Income

Total non-interest income
decreased $900,000 between the quarters ended December 31, 2006 and 2007 to $5.1 million for the quarter ended December 31, 2007. Excluding the non-cash charge of $730,000 and $35,000 associated with our interest rate swaps for quarters
ended December 31, 2007 and 2006, non-interest income decreased $205,000 between the quarter ended December 31, 2006 and 2007.

Deposit and
Related Fees

Deposit and related fees increased 10 percent or $349,000 between the quarters ended December 31, 2006 and 2007 to $3.9 million
for the quarter ended December 31, 2007. Monthly service charges and overdraft fees increased $315,000 to $3.4 million for the quarter ended December 31, 2007. At December 31, 2007, we had 72,724 transaction accounts an increase of
2,697 accounts or 4 percent compared to 70,027 accounts at December 31, 2006.

Loan and Servicing Fees

Loan and servicing fees decreased $211,000 or 37 percent between the quarters ended December 31, 2006 and 2007 to $355,000 for the quarter ended December 31,
2007. This decrease was attributable to lower extension fees and disbursement fees on construction loans.

Trust, Investment and Insurance Fees

Trust, investment and insurance fees decreased $204,000 or 13 percent to $1.3 million between the quarters ended December 31, 2006 and 2007.
The decrease in fees is partially attributable to a decrease in market value of trust and investment assets under management or advisory by Glencrest and the Banks trust department to $715.2 million at December 31, 2007 compared to $732.6
million at December 31, 2006. These assets under management or advisory include $574.3 million managed or advised by Glencrest at December 31, 2007 compared to $592.3 million at December 31, 2006. The average annual fee per dollar of
assets managed or advised was approximately 54 basis points for the quarter ended December 31, 2007 compared to 53 basis points for the comparable period of the prior year.

Gain on Sale of Loans

Our community banking business strategy does not include aggressively pursuing the
origination of loans for sale. This activity generated net gains on sales of $37,000 and $81,000 for the quarters ended December 31, 2007 and 2006, respectively on sales of loans with principal balances of $2.3 million and $5.0 million,
respectively.



23



---

##### Table of Contents

Gain on Sale of Securities

We generally follow a buy and hold strategy with respect to our securities portfolio. While the overwhelming majority of our securities portfolio is classified as available for sale, our
securities sales activity has been and is expected to continue to be infrequent. There were no securities sales during the quarters ended December 31, 2007 and 2006.

Non-Interest Expense

Non-interest expense increased $4.5 million or 17 percent and general and administrative
(G&A) expense increased $4.1 million or 16 percent between the quarters ended December 31, 2006 and 2007 to $30.1 million for the quarter ended December 31, 2007. The increase in G&A expense was primarily attributable
to the $2.5 million provision for undrawn letters of credit, a $1.1 million increase in occupancy and equipment expense related to direct and indirect costs associated with the addition of six new banking branches opened during the nine months ended
December 31, 2007, and a $309,000 increase in marketing and professional services attributable to a $275,000 litigation accrual representing the Banks proportionate share of certain litigation involving Visa USA. The $6.1 million increase
in G&A expense between the quarters ended September 30, 2007 and December 31, 2007 was primarily attributable to the $2.5 million provision noted above and $2.1 million of incentive plan accruals that were reversed during the quarter
ended September 30, 2007.

The ratio of G&A expense to average assets was 2.72% for the quarter ended December 31, 2007 compared to 2.25% for
the comparable period of 2006. Our efficiency ratio was 76.45% for the third quarter compared to 50.83% for the comparable period of 2006, primarily attributable to the reversal of accrued interest related to the increase in non-accrual loans.

Income Taxes

Income tax benefit and the
effective tax rate were $11.1 million and 43.0 percent for the three months ended December 31, 2007 compared to income tax expense and an effective tax rate of $10.0 million and 42.2 percent for the quarter ended December 31, 2006. The
increase in the effective tax rate was primarily attributable to a decrease in pretax income, causing certain permanent differences to comprise a higher proportion of taxable income, and a reduction of interest expense related to income taxes due
with tax returns.

Comparison of Operating Results for the Nine Months Ended December 31, 2007 and 2006

Overview

The following discussion compares the results of
operations for the nine months ended December 31, 2007 with the corresponding period of 2006. This discussion should be read in conjunction with the consolidated financial statements and footnotes included therein.

We recorded a net loss of $21.7 million or $0.94 per diluted shares for the nine months ended December 31, 2007 compared to net earnings of $43.1 million or $1.74
per diluted share for the nine months ended December 31, 2006.

Net Interest Income

Our net interest income totaled $116.4 million for the nine months ended December 31, 2007, a decrease of $21.5 million or 16 percent from $137.9 million for the
comparable period of 2006. The decrease in net interest income was primarily attributable to the $233.7 million increase in non-accrual loans between December 31, 2006 and 2007 and the related non-recognition of interest income of $14.1 million
during the nine months ended December 31, 2007. Average interest-earning assets decreased $78.2 million between the nine months ended December 31, 2006 and 2007 to $4.29 billion for the nine months ended December 31, 2007. Net
interest margin contracted 58 basis points to 3.62% for the nine months ended December 31, 2007 from 4.20% for the comparable period of 2006. Excluding the non-recognition of interest income, net interest spread and margin would have been 3.83%
and 4.05% percent, respectively for the nine months ended December 31, 2007 compared to 3.97% and 4.20% for the comparative period of 2006.



24



---

##### Table of Contents

The average balance of loans and leases receivable, net, increased $45.2 million between the nine months ended
December 31, 2006 and 2007 to $4.06 billion for the nine months ended December 31, 2007, while the average balance of the Four-Cs increased $151.6 million or 7 percent during the same period to $2.49 billion for the nine months ended
December 31, 2007. The increase in the average balance of the Four-Cs was partially offset by a decrease of $106.4 million in the average balances of the single family and multi-family loan portfolios.

The average yield on loans and leases receivable, net, decreased 37 basis points between the nine months ended December 31, 2006 and 2007 to 7.57% for the nine
months ended December 31, 2007. Loan and lease principal repayments totaled $1.38 billion for the nine months ended December 31, 2007 compared to $1.64 billion for the comparable period of 2006. Expressed as an annualized percentage of
average loans and leases receivable, net, this represented 45 percent and 54 percent of the portfolio for the nine months ended December 31, 2007 and 2006, respectively. Premium amortization, net of discount accretion on the loan and lease
portfolio for the nine months ended December 31, 2007 was $322,000 compared to $794,000 for the comparable period of 2006. Amortization of loan origination fees, net, including extension and late fees decreased to $6.7 million and $5.4 million,
respectively for the nine months ended December 31, 2007 compared to $11.7 million and $5.5 million, respectively for the comparable period of 2006. For the nine months ended December 31, 2007, fee amortization increased yield on average
loans receivable, net, and yield on average interest-earning assets by 40 basis points and 37 basis points, respectively, compared to 57 basis points and 53 basis points, respectively, for the comparable period of 2006.

Our average cost of interest-bearing liabilities increased 31 basis points between the nine months ended December 31, 2006 and 2007 to 4.02% for the nine months
ended December 31, 2007. Our average cost of deposits rose 42 basis points between the nine months ended December 31, 2006 and 2007 to 3.68% for the nine months ended December 31, 2007. While our average cost of FHLB advances, other
borrowings and junior subordinated debentures rose 26 basis points to 5.41% for the nine months ended December 31, 2007. The average balance of our deposit portfolio increased $119.7 million or 4 percent to $3.25 billion or 80 percent of our
average interest-bearing liabilities compared to 76 percent for the comparable period of 2006.

Provision for Loan and Lease Losses

We recorded a $90.8 million provision for loan and lease losses for the nine months ended December 31, 2007 compared to $4.9 million for the
comparable period of 2006. We recorded increases in provision for loan and lease losses resulting from increases in our criticized and classified assets, including non-accrual loans.

Non-Interest Income

Total non-interest income was $17.0 million and $18.1 million for the nine months ended
December 31, 2007 and 2006, respectively. Excluding gain on sale of securities of $271,000 and gain on sale of a former administrative building of $716,000 for the nine months ended December 31, 2006 and non-cash charges associated with
our interest rate swaps, total non-interest income increased $610,000 between the nine months ended December 31, 2006 and 2007 to $18.1 for the nine months ended December 31, 2007.

Deposit and Related Fees

Deposit and related fees totaled
$11.3 million for the nine months ended December 31, 2007, up $1.2 million or 11 percent from the comparable period in 2006. Fee income associated with transaction accounts increased $1.1 million between the nine months ended December 31,
2006 and 2007 to $10.0 million for the nine months ended December 31, 2007.

Loan and Servicing Fees

Loan and servicing fees were $1.1 million and $1.7 million, respectively, for the nine months ended December 31, 2007 and 2006. The decrease is primarily related to
disbursement and inspection fees associated with our construction loan portfolio, which decreased $219,000 to $446,000 for the nine months ended December 31, 2007.



25



---

##### Table of Contents

Trust, Investment and Insurance Fees

Trust, investment and insurance fees were $4.5 million for the nine months ended December 31, 2007, an increase of $188,000 or 4 percent from the comparable period of 2006. Trust and investment fees increased
$246,000, partially offset by a decrease of $58,000 in insurance fees between December 31, 2006 and 2007.

Gain on Sale of Loans

The net gain on sale of loans was $152,000 on $12.1 million of principal sold for the nine months ended December 31, 2007 compared to a net gain of
$164,000 on $11.9 million of principal sold during the same period last year.

Gain on Sale of Securities

Securities with cost bases aggregating $5.1 million were sold during the nine months ended December 31, 2006, generating gains on sales of $271,000. There were no
securities sales during the nine months ended December 31, 2007.

Non-Interest Expense

Non-interest expense was $81.0 million for the nine months ended December 31, 2007 compared to $76.5 million for the same period of the prior year. Compensation and
benefit expense decreased $2.4 million or 6 percent from the nine months ended December 31, 2006 to $41.5 million for the nine months ended December 31, 2007. The decrease was primarily due a reversal of both annual and long term incentive
plan accruals aggregating $2.4 million, partially offset by an increase in ESOP expense and personnel expense related to our six new banking branches opened during the past nine months. ESOP expense was $3.5 million for the nine months ended
December 31, 2007, compared to $2.4 million for the comparable period of 2006.

The ratio of G&A expense to average assets was 2.43%, on an
annualized basis for the nine months ended December 31, 2007 compared to 2.26% for the comparable period of 2006. Our efficiency ratio was 60.70% for the nine months ended December 31, 2007 compared to 49.33% for the comparable period of
2006.

Income Taxes

Income tax benefit and the
effective tax rate were $16.8 million and 43.6 percent for the nine months ended December 31, 2007 compared to income tax expense and an effective tax rate of $31.5 million and 42.2 percent for the nine months ended December 31, 2006.

Comparison of Financial Condition at December 31, 2007 and March 31, 2007

Total assets were $4.37 billion at December 31, 2007 compared to $4.55 billion at March 31, 2007. Loans and leases receivable, net, totaled $3.96 billion at
December 31, 2007, a $158.9 million decrease from $4.12 billion at March 31, 2007. The balance of our Four-Cs were $2.42 billion at December 31, 2007 as compared to $2.51 billion at March 31, 2007. These loan balances are shown
net of undisbursed construction loan funds of $314.5 million and $547.5 million at December 31 and March 31, 2007, respectively.

Total
liabilities were $4.05 billion at December 31, 2007, a decrease of $108.8 million from $4.16 billion at March 31, 2007. Deposits decreased $45.1 million to $3.25 billion or 80 percent of total liabilities at December 31, 2007 compared
to $3.29 billion or 79 percent of total liabilities at March 31, 2007. Core deposits decreased $122.3 million to $1.59 billion, while certificate accounts increased $77.2 million during the past nine months. At December 31, 2007,
non-interest bearing demand deposits were $257.0 million or 8 percent of total deposits compared to $295.1 million or 9 percent of total deposits at March 31, 2007.

Total stockholders equity decreased $70.8 million to $326.3 million at December 31, 2007 compared to $397.1 million at March 31, 2007. The decrease in total stockholders equity was comprised
principally of $37.1 million representing 1,611,975 shares of our common stock repurchased during the nine months ended December 31, 2007 under our share repurchase program, cash dividends of $13.1 million and a net loss of $21.7 million.



26



---

##### Table of Contents

Liquidity and Capital Resources

The objective of liquidity management is to ensure that we have the continuing ability to meet our funding needs on a cost-effective basis. Our most liquid assets are cash and short-term investments. The levels of
these assets are dependent on our operating, financing, lending and investing activities during any given period.

Our primary sources of funds are
deposits, principal and interest payments on loans, leases and securities, FHLB advances and other borrowings (including junior subordinated debentures), and to a lesser extent, proceeds from the sale of loans and securities. While maturities and
scheduled amortization of loans, leases and securities are predictable sources of funds, deposit flows and loan and security prepayments are greatly influenced by the general level of interest rates, economic conditions and competition.

The Office of Thrift Supervision has no statutory liquidity requirement, but rather a policy, consistent with that of the other Federal banking regulatory agencies,
that liquidity be maintained at a level which provides for safe and sound banking practices and financial flexibility.

The Banks internal policy is
to maintain cash, readily marketable debt securities with final maturities of one year or less and unused borrowing capacity at the FHLB and FRB at least equal to 15% of all transaction account balances and certificates of deposit maturing within
one year (our defined liquidity ratio). At December 31, 2007, the Banks defined liquidity ratio was 21.7% and the Banks defined average liquidity ratio for the three months ended December 31, 2007 was 20.55%. In
determining the adequacy of liquidity and borrowing capacity, we also consider large customer deposit concentrations, particularly with respect to core deposits, which provide immediate withdrawal opportunity. At December 31, 2007, our largest
core deposit relationship was $37.7 million and our ten largest core deposit relationships aggregated $98.5 million. As an additional component of liquidity management, we seek to maintain sufficient mortgage loan and securities collateral at the
FHLB to enable us to immediately borrow an amount equal to at least five percent of the Banks total assets. At December 31, 2007, the Banks immediate borrowing capacity from the FHLB was $602.3 million or 14 percent of the
Banks total assets. Additionally, the Bank has the capability to borrow funds from the Federal Reserve Bank discount window. As of December 31, 2007, our borrowing capacity at the Federal Reserve Bank was approximately $22.0 million.

The Bancorps sources of liquidity are more limited than those of the Bank as the Bancorp does not have access to either deposits or FHLB advances.
As a result, the Bancorp relies primarily on cash flows received from paydowns on the DBS loan portfolio and access to the Bancorps credit facility with a commercial bank, which had an outstanding balance of $49.4 million and unused capacity
of $10.6 million at December 31, 2007. Subsequent to December 31, 2007, this credit facility was reduced to $49.4 million. For further information, see Note -5  Other Borrowings in this Quarterly Report on Form 10-Q. As
of February 8, 2008, the outstanding balance under this credit facility is $49.4 million. The Bancorp is applying all cash flows in excess of those required for debt service and other required operating expenses to retiring this credit
facility. As a result, during January 2008, the Bancorps Board of Directors suspended the Bancorps quarterly shareholder dividend effective immediately. The cash needs of the Bancorp, excluding debt service on the credit facility, are
approximately $2.1 million per quarter. We believe that scheduled and projected cash flows from the DBS loan portfolio will provide sufficient resources to meet the liquidity needs of the Bancorp.

Our strategy is to manage liquidity by investing excess cash flows in higher yielding interest-earning assets, such as loans, leases and securities, or paying down FHLB
advances and other borrowings, depending on market conditions. Conversely, if the need for funds is not met through deposits and cash flows from loans, leases and securities, we initiate FHLB advances and other borrowings or, if necessary and of
economic benefit, sell loans and/or securities. Only when no other alternatives exist will we constrain loan and lease originations as a means of addressing a liquidity shortfall. We have not found it necessary to constrain loan and lease
originations at the Bank due to liquidity considerations. However, in light of current conditions in the credit markets, we are constraining loan originations at DBS. As a result, we expect the DBS loan portfolio to decline from its present level of
$82.7 million.



27



---

##### Table of Contents

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities
and financing activities.

Net cash provided by operating activities was $39.6 million for the nine months ended December 31, 2007 compared to $48.3
million for the comparable period of the prior year. The decrease in net cash provided by operating activities is primarily due to an increase in the deferred income tax benefit and the net loss for the nine months ended December 31, 2007,
partially offset by an increase in provision for loan and lease losses.

Investing activities consist primarily of disbursements for loan and lease
originations, purchases of loans, leases and securities, offset by principal collections on loans, leases and securities and to a lesser degree proceeds from the sale of securities. The levels of cash flows from investing activities are influenced
by the general level of interest rates.

Net cash provided by investing activities was $118.2 million for the nine months ended December 31, 2007
compared to net cash used of $265.9 million for the comparable period of 2006. The increase in net cash provided by investing activities for the nine months ended December 31, 2007 as compared to the nine months ended December 31, 2006 was
attributable principally to a net decrease of $350.9 million in the change in loan and leases due to lower originations, a decrease of $47.1 million in the purchase of securities and an increase of $15.7 million related to a net redemption of FHLB
stock.

Cash flows used in financing activities were $155.9 million for the nine months ended December 31, 2007 compared to net cash provided of
$226.6 million for the comparable period of 2006. Financing activities consist primarily of net activity in deposit accounts and FHLB advances and other borrowings. Net deposits decreased $45.1 million for the nine months ended December 31,
2007 compared to an increase of $181.5 million for the comparable period of 2006. During the nine months ended December 31, 2007, we decreased our use of FHLB advances and other borrowings by $90.9 million, net, compared to an increase of $55.7
million, net for the comparable period of 2006.

At December 31, 2007, the Bank exceeded all of its regulatory capital requirements with tangible
capital of $368.7 million, or 8.62% of adjusted total assets, which is above the required level of $64.2 million, or 1.5%; core capital of $368.7 million, or 8.62% of adjusted total assets, which is above the required level of $171.2 million, or
4.0%; and total risk-based capital of $414.8 million, or 11.30% of risk-weighted assets, which is above the required level of $293.6 million, or 8.0%. During the nine months ended December 31, 2007, the Bank paid a dividend of $4.0 million to
the Bancorp.

We repurchased 1,611,975 shares of our common stock at a weighted average price of $23.03 per share during nine months ended
December 31, 2007. We did not repurchase any shares during the three months ended December 31, 2007. At December 31, 2007, 865,835 shares remain under a 1.0 million share repurchase authorization adopted by our Board of Directors
on July 25, 2007. While there were no restrictions on our ability to repurchase shares of our stock during the nine months ended December 31, 2007, given the uncertainty associated with the current credit conditions and our desire to
preserve both capital and liquidity we suspended our repurchase program in August 2007. Subsequent to December 31, 2007, under the terms of our credit facility with a commercial bank, dated January 31, 2008, we are prohibited from
repurchasing stock or paying dividends to shareholders. See Note -5  Other Borrowings in this Quarterly Report on Form 10-Q.

We
currently have no material contractual obligations or commitments for capital expenditures. At December 31, 2007, we had outstanding commitments to originate loans of $135.6 million compared to $72.5 million at December 31, 2006. We did
not have outstanding commitments to purchase loans at December 31, 2007 and 2006. Standby letters of credit are conditional commitments we issue to guarantee the performance of a customer to a third party. At December 31, 2007 and 2006, we
had standby letters of credit of $23.9 million and $31.0 million, respectively. We anticipate that we will have sufficient funds available to meet our commitments. Certificate accounts that are scheduled to mature in less than one year from
December 31, 2007 totaled $1.55 billion. We expect that we will retain a substantial portion of the funds from maturing CD accounts either in certificate or liquid accounts.

Housing Market Outlook

The financial services sector of the United States economy including the Inland Empire
(San Bernardino and Riverside counties) of Southern California continues to undergo a changing and declining economic environment including excess inventory of new homes and residential lots, resulting in part from an over reliance by home buyers on
sub-prime and non-traditional lending



28



---

##### Table of Contents

products. Over the past year, with the tightening of credit standards there has been an imbalance between the number of homes available for sale and the
demand from qualified borrowers, creating downward pressure on home prices and lot values. Until this excess inventory problem is resolved through the passage of time and easing of home prices, we expect the financial services industry to continue
to experience earnings pressure. Over the long term, we believe the continued population growth in the Inland Empire and the affordability of housing relative to other areas of Southern California will provide a solid foundation for the Inland
Empire real estate market to rebound and prosper. Additionally, with the U.S. Federal Reserve lowering of interest rates during the quarter ending December 31, 2007, and most recently during January 2008, we believe we should see the past
imbalance between the number of homes available for sale and demand from qualified borrowers start to gradually improve over the next several quarters and throughout the year.

In response to the current challenging operating environment, we have and will continue to revise our credit risk policies and monitoring including revising the limits on credit exposure by geographical region,
product type and borrower. We are focusing significant resources on remedying the non-accrual loan problem we face through restructuring and renegotiating loan terms in order to maximize recovery of our investment during these challenging times. We
remain confident in the underlying economic strength of the Inland Empire to provide the economic engine that will reinvigorate the real estate market and restore our community banking franchise to profitability.

Segment Reporting

Through our branch network, lending
operations and investment advisory offices, we provide a broad range of financial services to individuals and companies located in Southern California, primarily in the Inland Empire. These services include demand, CDs, and savings deposits; real
estate, business and consumer lending; cash management; trust services; investment advisory services and diversified financial services for homebuilders. While our chief decision makers monitor the revenue streams of our various products and
services, operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, we consider all of our operations are aggregated in one reportable operating segment.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

We believe there have been no material changes to
our qualitative and quantitative disclosures of market risk (consisting primarily of interest rate risk) during the nine months ended December 31, 2007, from those which are disclosed in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2007.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d - 15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are
effective, as of December 31, 2007, to ensure that information relating to us, which is required to be disclosed in the reports we file with the Securities and Exchange Commission under the Exchange Act, is (i) recorded, processed,
summarized and reported as and when required and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required
disclosures.

Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that has materially affected, or that is reasonably
likely to materially affect, our internal control over financial reporting.



29



---

##### Table of Contents

PART II  OTHER INFORMATION

PFF BANCORP, INC. AND SUBSIDIARIES



|Item 1. | Legal Proceedings.
|------- | ------------------

Certain lawsuits and claims arising in the ordinary course of business have
been filed or are pending against us or our affiliates. Based upon information available to us, our review of such claims to date and consultation with our outside legal counsel, management believes the liability relating to these actions, if any,
will not have a material adverse effect on our liquidity, consolidated financial position, and/or results of operations. However, it is possible than an unfavorable resolution of one or more such proceedings could in the future materially affect our
future liquidity, consolidated financial position and/or results of operations.



|Item 1A. | Risk Factors.
|-------- | -------------

An investment in our common stock is subject to risks inherent in our business.
Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included in this Quarterly Report on Form 10-Q. In addition to the risks and uncertainties
described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and results of operations. The value or market price of
our common stock could decline due to any of these identified or other risks.

The following risk factors have been updated from the risk
factors previously disclosed in Part I. Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2007.

Our construction
loans are based upon estimates of costs and value associated with the completed project. These construction estimates could be inaccurate.

We originate
construction loans for single family home construction as well as for income producing properties. At December 31, 2007 and March 31, 2007, construction loans totaled $1.53 billion and $1.78 billion, or 35% and 38% of gross loans
receivable, respectively. Construction lending involves risks associated with the timely completion of the construction activities for their allotted costs and the time needed to stabilize income producing properties, sell residential tract
developments or refinance the indebtedness.

The risks inherent in construction lending may adversely affect our net income. Such risks include, among
other things, the possibility that contractors may fail to complete, or complete on a timely basis, construction of the relevant properties; substantial cost overruns in excess of original estimates and financing; market deterioration during
construction; and lack of permanent take-out financing. Loans secured by such properties also involve additional risk because such properties have no operating history. In these loans, loan funds are advanced upon the security of the project under
construction, which is of uncertain value prior to completion of construction, and the estimated operating cash flow to be generated by the completed project. There is no assurance that such properties will be sold or leased so as to generate the
cash flow anticipated by the borrower. Such consideration can affect the borrowers ability to repay their obligations to us and the value of our security interest in collateral.

Negative events or changes in economic conditions in certain geographical areas, particularly, Southern California, could adversely affect us.

Adverse economic conditions could cause us to incur additional losses from our banking and lending operations which are concentrated in Southern California, primarily in the Inland Empire. The potential adverse
economic conditions in this region could impair borrowers ability to service their loans, decrease the level and duration of deposits by customers, and erode the value of loan collateral. These events could increase the amount of our
non-performing assets and have an adverse effect on our efforts to collect our non-performing loans or otherwise liquidate our non-performing assets (including other real estate owned) on terms favorable to us. The value of real estate securing our
lending activities also depends upon conditions in the relevant real estate markets. These include general or local economic conditions and neighborhood characteristics, real estate tax rates, the cost of operating the properties, governmental
regulations and fiscal policies, acts of nature including earthquakes, flood and hurricanes (which may result in uninsured losses), wild fires and other factors beyond our control.



30



---

##### Table of Contents

|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

We did not repurchase any shares of
our common stock during the three months ended December 31, 2007. At December 31, 2007, the maximum amount of shares that were available to be repurchased was 865,835 shares under a 1,000,000 share repurchase authorization adopted by our Board of
Directors on July 25, 2007.



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

None



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

None



|Item 5. | Other Information.
|------- | ------------------

None



|Item 6. | Exhibits.
|------- | ---------



|     |  |                                                                                                                                                   
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|31.1 |  | Certification of Principal Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.                                               
|     | 
|31.2 |  | Certification of Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.                                               
|     | 
|32.1 |  | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.



31



---

##### Table of Contents

PFF BANCORP, INC. AND SUBSIDIARIES

SIGNATURES

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



|                        |  |  |  |                   |  |                        |  |                                                              
|----------------------- |  |  |  | ----------------- |  | ---------------------- |  | -------------------------------------------------------------
|                        |  |  |  | PFF BANCORP, INC.
|                        |  |  | 
|DATED: February 8, 2008 |  |  |  | BY:               |  | /s/ KEVIN MCCARTHY    
|                        |  |  |  |                   |  |                        |  | Kevin McCarthy                                               
|                        |  |  |  |                   |  |                        |  | President and Chief Executive Officer                        
|                        |  |  |  |                   |  |                        |  | (Principal Executive Officer)                                
|                        |  |  | 
|DATED: February 8, 2008 |  |  |  | BY:               |  | /s/ GREGORY C. TALBOTT
|                        |  |  |  |                   |  |                        |  | Gregory C. Talbott                                           
|                        |  |  |  |                   |  |                        |  | Senior Executive Vice President,                             
|                        |  |  |  |                   |  |                        |  | Chief Operating Officer/Chief Financial Officer and
Treasurer
|                        |  |  |  |                   |  |                        |  | (Principal Financial Officer)                                



32