<PAGE>
 
                                 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, 1998

                                      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 0-27404

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


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


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

                                (909) 623-2323
                                --------------
             (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_____.
      -----

     The registrant had 15,442,850 shares of common stock, par value $.01 per
share, outstanding as of February 5, 1999.
<PAGE>
 
                      PFF BANCORP, INC. AND SUBSIDIARIES
                                   Form 10-Q
                                     Index
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>  
PART I      FINANCIAL INFORMATION (Unaudited)                    

  Item 1    Financial Statements
            
            Consolidated Balance Sheets as of
            December 31, 1998 and March 31, 1998                           1
 
            Consolidated Statements of Earnings for the
            three months and nine months ended
            December 31, 1998 and 1997                                     2
 
            Consolidated Statements of Comprehensive Earnings
            for the three months and nine months ended               
            December 31, 1998 and 1997                                     3
 
            Consolidated Statement of Stockholders' Equity
            for the nine months ended December 31, 1998                    4
 
            Consolidated Statements of Cash Flows for the
            nine months ended December 31, 1998 and 1997                   5
 
            Notes to Unaudited Consolidated Financial Statements           7

  Item 2    Management's Discussion and Analysis of
            Financial Condition and Results of Operations                 11

  Item 3    Qualitative and Quantitative disclosures about
            Market Risk                                                   27

PART II     OTHER INFORMATION

  Item 1    Legal Proceedings                                             28

  Item 2    Changes in Securities                                         28

  Item 3    Defaults Upon Senior Securities                               28

  Item 4    Submission of Matters to a Vote of Security Holders           28

  Item 5    Other Information                                             28

  Item 6    Reports on Form 8-K                                           28

SIGNATURES
</TABLE> 
<PAGE>
 
                   PART 1  FINANCIAL INFORMATION (Unaudited)
                                        
Item 1. Financial Statements.

                       PFF BANCORP, INC. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
                 (Dollars in thousands, except per share data)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                            December 31,          March 31,
                                                                                1998                 1998
----------------------------------------------------------------------------------------------------------- 
<S>                                                                           <C>                   <C>  
                                Assets
                                                                                                         
Cash and cash equivalents                                                      $42,855              $46,021
Loans held for sale                                                              4,071                  701
Investment securities held-to-maturity (estimated fair value
 of $722 at December 31, 1998 and $725 at March 31, 1998)                          710                  714
Investment securities available-for-sale, at fair value                        245,144              316,410
Mortgage-backed securities held-to-maturity (estimated fair value
 of $712 at December 31, 1998 and $1,375 at March, 31, 1998)                       718                1,373
Mortgage-backed securities available-for-sale, at fair value                   590,932              481,620
Trading securities, at fair value                                                3,938                    -
Investment in real estate                                                        5,934                  731
Loans receivable, net                                                        1,942,241            1,827,614
Federal Home Loan Bank (FHLB) stock, at cost                                    49,644               39,504
Accrued interest receivable                                                     17,217               17,320
Real estate acquired through foreclosure, net                                    4,429                7,595
Property and equipment, net                                                     24,529               25,567
Prepaid expenses and other assets                                               24,983               47,214
----------------------------------------------------------------------------------------------------------- 
      Total assets                                                          $2,957,345           $2,812,384
=========================================================================================================== 

                 Liabilities and Stockholders' Equity
Liabilities:
 Deposits                                                                   $1,815,059           $1,740,824
 FHLB advances and other borrowings                                            872,000              785,886
 Accrued expenses and other liabilities                                         34,373               31,396
----------------------------------------------------------------------------------------------------------- 
      Total liabilities                                                      2,721,432            2,558,106
----------------------------------------------------------------------------------------------------------- 
Commitments and contingencies                                                        -                    -
Stockholders' equity:
 Preferred stock, $.01 par value.  Authorized 2,000,000
  shares; none issued                                                                -                    -
 Common stock, $.01 par value.  Authorized 59,000,000 
  shares; issued 19,940,843; outstanding 15,442,376 at
  December 31, 1998, and 17,067,099 at March 31, 1998                              199                  199
 Additional paid-in capital                                                    150,495              165,912
 Retained earnings, substantially restricted                                   104,547              106,617
 Unearned stock-based compensation                                             (18,224)             (20,895)
 Treasury stock (4,498,467 at December 31, 1998 and 2,834,323 
  at March 31, 1998)                                                               (45)                 (28)
 Accumulated other comprehensive income unrealized 
  gains(losses) on securities available-for-sale                                (1,059)               2,473
----------------------------------------------------------------------------------------------------------- 
      Total stockholders' equity                                               235,913              254,278
----------------------------------------------------------------------------------------------------------- 
      Total liabilities and stockholders' equity                            $2,957,345           $2,812,384
===========================================================================================================
</TABLE>

    See accompanying notes to the unaudited consolidated financial statements.

                                       1
<PAGE>
 
                        PFF BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF EARNINGS
                 (Dollars in thousands, except per share data)
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
                                                        For the Three Months Ended         For the Nine Months Ended
                                                               December 31,                       December 31,
                                                 ----------------------------------------------------------------------
                                                         1998              1997              1998              1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>              <C>              <C> 
Interest income:
  Mortgage loans                                     $    35,476      $    34,924       $   103,118      $   104,756
  Non-mortgage loans                                       2,527            1,164             6,228            2,995
  Mortgage-backed securities                               9,590            7,883            28,942           24,700   
  Investment securities and deposits                       5,628            3,936            17,076            9,741            
-----------------------------------------------------------------------------------------------------------------------
      Total interest income                               53,221           47,907           155,364          142,192
-----------------------------------------------------------------------------------------------------------------------
Interest expense:
  Interest on deposits                                    20,351           20,061            60,105           60,723
  Interest on borrowings                                  13,294            9,299            39,426           26,678
-----------------------------------------------------------------------------------------------------------------------
      Total interest expense                              33,645           29,360            99,531           87,401
-----------------------------------------------------------------------------------------------------------------------
      Net interest income                                 19,576           18,547            55,833           54,791
Provision for loan losses                                  1,000            1,300             3,020            5,799
-----------------------------------------------------------------------------------------------------------------------
      Net interest income after provision for     
       loan losses                                        18,576           17,247            52,813           48,992           
-----------------------------------------------------------------------------------------------------------------------
Non-interest income:
  Deposit and related fees                                 2,127            2,073             6,454            6,276
  Loan and servicing fees                                    769              676             2,119            1,860
  Trust fees                                                 487              462             1,415            1,304
  Gain on sales of assets, net                               197            1,050               496            1,207
  Gain on trading securities, net                            617                -               258                -
  Profit on real estate investment                            21                -               122                -
  Other non-interest income                                  160               22               456               69
-----------------------------------------------------------------------------------------------------------------------
      Total non-interest income                            4,378            4,283            11,320           10,716
-----------------------------------------------------------------------------------------------------------------------
Non-interest expense:                                                                               
General and administrative:                                                                         
    Compensation and benefits                              6,955            6,802            20,755           19,984
    Occupancy and equipment                                3,087            3,052             8,983            8,743
    Marketing and professional services                    1,491              996             3,543            2,437
    Other non-interest expense                             2,445            2,395             7,589            7,435 
-----------------------------------------------------------------------------------------------------------------------
      Total general and administrative                    13,978           13,245            40,870           38,599
  Foreclosed real estate operations, net                     (90)             (13)             (126)             520
-----------------------------------------------------------------------------------------------------------------------
      Total non-interest expense                          13,888           13,232            40,744           39,119
-----------------------------------------------------------------------------------------------------------------------
      Earnings before income taxes                         9,066            8,298            23,389           20,589
Income taxes                                               3,850            3,546            10,001            8,868
-----------------------------------------------------------------------------------------------------------------------
      Net earnings                                   $     5,216      $     4,752       $    13,388      $    11,721
=======================================================================================================================
Basic earnings per share                             $      0.38      $      0.30       $      0.95      $      0.72
=======================================================================================================================
Weighted average shares outstanding for basic
  earnings per share                                  13,645,040       15,946,157        14,152,139       16,257,008
=======================================================================================================================
Diluted earnings per share                           $      0.37      $      0.28       $      0.90      $      0.69
=======================================================================================================================
Weighted average shares outstanding for diluted
  earnings per share                                  14,139,758       16,813,786        14,850,548       16,958,230
=======================================================================================================================
</TABLE>

See accompanying notes to the unaudited consolidated financial statements.

                                       2
<PAGE>
 
                        PFF BANCORP, INC. AND SUBSIDIARY
               CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
                             (Dollars in thousands)
                                  (Unaudited)
                                        
<TABLE>
<CAPTION>
                                                    For the Three Months Ended         For the Nine Months Ended
                                                           December 31,                      December 31,
-------------------------------------------------------------------------------------------------------------------
                                                    1998                1997           1998                 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                <C>            <C>                  <C> 
Net earnings                                        $5,216             $4,752          $13,388             $11,721
-------------------------------------------------------------------------------------------------------------------
Other comprehensive earnings (losses), net
 of income taxes
 Unrealized gains (losses) on securities
  available-for-sale:
  U.S. Treasury and agency securities and other
   investment securities available-for-sale, at
   fair value                                         (404)               582           (2,906)                983
  Reclassification of realized (gains)losses
   included in earnings                                 46                274               (8)                337
  Mortgage-backed securities available-for-sale,
   at fair value                                    (1,247)            (2,199)            (618)              3,593
-------------------------------------------------------------------------------------------------------------------
Other comprehensive income                          (1,605)            (1,343)          (3,532)              4,913
-------------------------------------------------------------------------------------------------------------------
Comprehensive earnings                             $ 3,611            $ 3,409          $ 9,856             $16,634
===================================================================================================================
</TABLE> 

See accompanying notes to the unaudited consolidated financial statements.

                                       3
<PAGE>
 
                        PFF BANCORP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                             (Dollars in thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                                                  Accumulated 
                                                                                 Retained                            Other
                                                                     Additional  Earnings,     Unearned             Compre-
                                                    Number of  Common  Paid-in Substantially  Stock-based Treasury  hensive        
                                                     Shares    Stock   Capital  Restricted   Compensation   Stock   Income   Total  
----------------------------------------------------------------------------------------------------------------------------------- 
<S>                                                <C>         <C>    <C>       <C>          <C>          <C>     <C>      <C> 
Balance at March 31, 1998                          17,067,099   $199  $165,912   $106,617      $(20,895)   $(28)  $ 2,473  $254,278 

Net earnings                                                -      -         -     13,388             -       -         -    13,388
Purchase of treasury stock                         (1,664,144)     -   (16,624)   (15,458)            -     (17)        -   (32,099)
Change in market value of shares held in deferred                                                                                   
compensation trusts                                         -      -      (148)         -           172       -         -        24

Amortization of shares under stock-based                                                                                            
 compensation plans                                         -      -       839          -         2,499       -         -     3,338

Stock options exercised                                39,421      -       516          -             -       -         -       516
Changes in unrealized gains (losses) on                                                                                             
 securities available for sale, net                         -      -         -          -             -       -    (3,532)   (3,532)
----------------------------------------------------------------------------------------------------------------------------------- 

Balance at December 31, 1998                       15,442,376   $199  $150,495   $104,547      $(18,224)   $(45)  $(1,059) $235,913
===================================================================================================================================
</TABLE>

See accompanying notes to the unaudited consolidated financial statements.

                                       4
<PAGE>
 
                        PFF BANCORP, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                  (Unaudited)
                                        


<TABLE>
<CAPTION>
                                                                                 Nine Months Ended
                                                                                     December 31,
-------------------------------------------------------------------------------------------------------
                                                                                 1998           1997
-------------------------------------------------------------------------------------------------------
<S>                                                                             <C>            <C> 
Cash flows from operating activities:
  Net earnings                                                                  $13,388        $11,721                     
Adjustments to reconcile net earnings to net cash
provided by operating activities:
      Amortization of premiums (discounts) on loans,
        investments and mortgage-backed securities                                3,637            282
      Amortization of deferred loan origination fees                               (893)            69
      Loan fees collected                                                        (1,824)        (2,918)
      Dividends on FHLB stock                                                    (1,908)        (1,276)
      Provisions for losses on:
        Loans                                                                     3,020          5,799                     
        Real estate                                                                   -           (447)
      Gains on sales of loans, mortgage-backed securities
        available-for-sale, real estate and property and equipment               (1,474)          (648)
      Depreciation and amortization of property and equipment                     2,910          2,782
      Loans originated for sale                                                       -         (3,192)
      Proceeds from sale of loans held-for-sale                                  33,837        166,614
      Amortization of unearned stock-based compensation                           3,338          3,499
      (Increase) decrease in:
        Accrued expenses and other liabilities                                    5,268          7,210                     
        Accrued interest receivable                                               2,278          1,794
        Prepaid expenses and other assets                                        22,231          4,328
-------------------------------------------------------------------------------------------------------
          Net cash provided by operating activities                              83,808        195,617
-------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Loans originated for investment                                              (673,864)      (359,794)
  Increase (decrease) in construction loans in process                           30,049        (49,368)
  Purchases of loans held for investment                                       (139,086)      (152,958)
  Principal payments on loans                                                   621,480        332,996
  Principal payments on mortgage-backed securities
    held-to-maturity                                                                644          1,371
  Principal payments on mortgage-backed securities
    available-for-sale                                                          205,222         93,765
  Purchases of investment securities available-for-sale                         (90,111)      (191,539)
  Purchases of FHLB stock                                                        (8,232)        (6,864)
  Purchases of mortgage-backed securities available-
    for-sale                                                                   (317,988)      (133,550)
  Proceeds from maturities of investment securities
    held-to-maturity                                                                  -         15,481
  Proceeds from maturities of investment securities
    available-for-sale                                                          113,256         15,563

                                                                            (Continued)
</TABLE>


                                        

                                       5
<PAGE>
 
                        PFF BANCORP, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                              Nine Months Ended
                                                                                December 31,
-----------------------------------------------------------------------------------------------------
                                                                           1998               1997
-----------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C> 
  Proceeds from sale of investment securities available-for-sale      $  37,278         $     7,899
  Proceeds from sale of trading securities                                1,500                   -
  Proceeds from sale of mortgage-backed securities                            
   available-for-sale                                                         -              24,955                  
  Investment in real estate                                                  19                 533
  Proceeds from sale of real estate                                      11,262               9,396
  Investment in real estate held for investment                          (5,267)                  -
  Purchases of property and equipment                                    (1,906)             (2,632)
  Proceeds from sale of property and equipment                                4                  67
-----------------------------------------------------------------------------------------------------
          Net cash used in investing activities                        (215,740)           (394,679)
-----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Proceeds from FHLB advances and other borrowings                      794,876           1,058,886
  Repayment of FHLB advances and other borrowings                      (708,762)           (830,800)
  Net change in deposits                                                 74,235              (4,487)
  Proceeds from exercise of stock options                                   516                 669
  Purchase of treasury stock                                            (32,099)            (17,966)
-----------------------------------------------------------------------------------------------------
          Net cash provided by financing activities                     128,766             206,302
-----------------------------------------------------------------------------------------------------
          Net increase in cash and cash equivalents                      (3,166)              7,240
Cash and cash equivalents, beginning of period                           46,021              31,632
-----------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                              $  42,855          $   38,872
=====================================================================================================
Supplemental information:
  Interest paid, including interest credited                             99,397              85,875
  Cash paid for income taxes                                             10,200               9,435
Non-cash investing and financing activities:
Change in unrealized gain (loss) on securities
  available-for-sale                                                     (6,159)              4,913
Net transfers from loans receivable to loans held for sale               24,331               9,362
Net transfers from available-for-sale securities to                             
  trading securities                                                      5,419                   -
Net transfers from loans receivable to real estate                        5,733               1,584
=====================================================================================================
</TABLE> 

   See accompanying notes to the unaudited consolidated financial statements.

                                       6
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
             Notes to Unaudited Consolidated Financial Statements

(1) Basis of Consolidation


The accompanying consolidated financial statements include the accounts of PFF
Bancorp, Inc. and its subsidiary PFF Bank & Trust (collectively, "the Company").
The Company's business is conducted primarily through PFF Bank & Trust ("the
Bank") and its subsidiary, Pomona Financial Services, Inc.  Pomona Financial
Services, Inc. includes the accounts of Diversified Services, Inc. and PFF
Insurance Service.  All material intercompany balances and transactions have
been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial operations and are in compliance with the instructions for Form 10-Q
and therefore do not include all information and footnotes necessary for  a fair
presentation of financial position, results of operations and cash flows.  The
following information under the heading Management's Discussion and Analysis of
Financial Condition and Results of Operations is written with the presumption
that the interim consolidated financial statements will be read in conjunction
with the Company's Annual Report on Form 10-K  for the year ended March 31,
1998, which contains among other things, a description of the business, the
latest audited consolidated financial statements and notes thereto, together
with Management's Discussion and Analysis of Financial Position and Results of
Operations as of March 31, 1998 and for the year then ended.  Therefore, only
material changes in financial condition and results of operations are discussed
in the remainder of Part 1.

The results of operations for the nine months ended December 31, 1998 are not
necessarily indicative of results that may be expected for the entire fiscal
year ending March 31, 1999.

(2) New Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information"  ("SFAS No. 131").  SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997.  SFAS No. 131
establishes standards for reporting financial and descriptive information about
an enterprise's operating segments in its annual financial statements and
selected segment information in interim financial reports.  Restatement of
comparative financial statements or financial information for earlier periods is
required upon adoption of SFAS No. 131.  Application of FASB No. 131
requirements is not expected to have a material impact on the Company's
disclosures.

In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132 ("SFAS No. 132"), "Employers' Disclosures about Pension and Other
Postretirement Benefits."  SFAS No. 132 amends the disclosure requirements of
SFAS No. 87, "Employers' Accounting for Pensions", SFAS No. 88, "Employer's
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits," and SFAS No. 106, "Employer's Accounting for
Retirement Benefits Other than Pensions."  SFAS No. 132 standardizes the
disclosure requirements of SFAS Nos. 87 and 106 to the extent practicable and
recommends a parallel format for presenting information about pensions and other
retirement benefits. SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997.  SFAS No. 132 will result in disclosure changes only.

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133").  SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities.  It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value.  If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in 

                                       7
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
             Notes to Unaudited Consolidated Financial Statements

the fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of a net investment
in a foreign operation, an unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted transaction.

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

This statement is effective for all quarters of fiscal years beginning after
June 15, 1999.  Management is in the process of determining the impact of SFAS
No. 133 on the Company's financial position and results of operations.

                                       8
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
             Notes to Unaudited Consolidated Financial Statements

(3) Earnings per share

The following table is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations for net earnings for PFF Bancorp, Inc.

<TABLE>
<CAPTION>
 
                                                                     For the Three Months Ended December 31,
                                             ---------------------------------------------------------------------------------------
                                                               1998 (1)                                        1997 
                                             ------------------------------------------     ----------------------------------------
                                                 Earnings       Shares       Per-Share        Earnings        Shares       Per-Share
                                                (Numerator)   (Denominator)    Amount        (Numerator)   (Denominator)    Amount
                                             ---------------------------------------------------------------------------------------
                                                                     (Dollars in thousands, except per share data)
<S>                                               <C>          <C>            <C>             <C>            <C>           <C> 
Net Earnings                                       $5,216                                      $4,752
                                                              
Basic EPS
Earnings available to common stockholders          $5,216         13,645,040    $0.38          $4,752        15,946,157      $0.30
                                                                                =====                                        =====
Effect of Dilutive Securities
Options and stock awards                               --            494,718                       --           867,629
                                                   -------------------------                   ------------------------
Diluted EPS
Earnings available to common stockholders
 and assumed conversions                           $5,216         14,139,758    $0.37          $4,752        16,813,786      $0.28
                                                   ==================================          ===================================
</TABLE>

(1) Options to purchase 43,009 shares of common stock at a weighted average
    price of $17.13 per share were outstanding during the three month period
    ending December 31, 1998 but were not included in the computation of diluted
    EPS because the options' exercise price was greater than the average market
    price of the common shares. The options, which expire between February 27,
    2002 and April 22, 2003, were still outstanding at December 31, 1998.

                                       9
<PAGE>

                       PFF BANCORP, INC. AND SUBSIDIARY
             Notes to Unaudited Consolidated Financial Statements 
<TABLE> 
<CAPTION> 
 
                                                                       For the Nine Months Ended December 31,
                                             ---------------------------------------------------------------------------------------
                                                                1998 (1)                                    1997
                                             ------------------------------------------  -------------------------------------------
                                                 Earnings       Shares       Per-Share     Earnings        Shares       Per-Share
                                                (Numerator)  (Denominator)    Amount      (Numerator)   (Denominator)    Amount
                                             ---------------------------------------------------------------------------------------
                                                                     (Dollars in thousands, except per share data)
<S>                                             <C>          <C>            <C>             <C>          <C>          <C> 
Net Earnings                                      $13,388                                   $11,721
Basic EPS
Earnings available to common stockholders         $13,388     14,152,139       $0.95        $11,721      16,257,008      $0.72
                                                                             ========                                  ========
Effect of Dilutive Securities
Options and stock awards                                -        698,409                          -         701,222
                                             ----------------------------                ---------------------------
Diluted EPS
Earnings available to common stockholders
  and assumed conversions                         $13,388     14,850,548       $0.90        $11,721      16,958,230      $0.69
                                             ========================================    ======================================
</TABLE>


(1) Options to purchase 10,108 shares of common stock at a weighted average
    price of $20.12 per share were outstanding during the nine month period
    ending December 31, 1998 but were not included in the computation of diluted
    EPS because the options' exercise price was greater than the average market
    price of the common shares. The options, which expire between October 22,
    2002 and April 22, 2003, were still outstanding at December 31, 1998.

                                       10
<PAGE>

                       PFF BANCORP, INC. AND SUBSIDIARY 

Item 2: Management's Discussion and Analysis of Financial Condition 
        and Operations

Average Balance Sheets

The following table sets forth certain information relating to the Company for
the three months ended December 31, 1998 and 1997.  The yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown.  Average balances are derived
from average daily balances.  The yields and costs include fees, which are
considered adjustments to yields.
<TABLE>
<CAPTION>
                                                           Three Months Ended December 31,
                                        -------------------------------------------------------------------
                                                         1998                               1997
                                        ----------------------------------------------------------------------
                                                                      Average                                Average
                                            Average                    Yield/      Average                    Yield/
                                            Balance      Interest       Cost       Balance      Interest       Cost
                                        ------------------------------------------------------------------------------
                                                                (Dollars in thousands)
<S>                                         <C>         <C>             <C>       <C>           <C>           <C> 
Assets:
 Interest-earning assets:
  Interest-earning deposits and             
   short-term investments                  $   50,385    $   596         4.69%     $   31,492    $   369        4.65%
  Investment securities, net (1)(2)           277,017      4,302         6.21         181,082      3,076        6.74 
  Loans receivable, net (3)(4)              1,912,575     38,003         7.95       1,850,375     36,088        7.80 
  Mortgage-backed securities, net (1)         613,758      9,590         6.25         466,051      7,883        6.77 
  FHLB stock                                   49,435        730         5.86          29,571        491        6.59  
                                           ---------------------                   ---------------------
      Total interest-earning assets         2,903,170     53,221         7.33       2,558,571     47,907        7.49
                                                         -------                                 -------
  Non-interest-earning assets                 116,946                                  93,043
                                           ----------                              ----------
      Total assets                         $3,020,116                              $2,651,614
                                           ==========                              ==========
 
Liabilities and Stockholders' Equity:
 Interest-bearing liabilities:
  Passbook accounts                        $  144,940        837         2.29      $  199,369      1,002        1.99
  Money market savings accounts               300,929      3,766         4.97         159,074      2,083        5.20
  NOW and other demand deposit accounts       189,668        324         0.68         162,857        309        0.75
  Certificate accounts                      1,159,800     15,424         5.28       1,191,812     16,667        5.55
                                           ---------------------                   ---------------------
      Total deposits                        1,795,337     20,351         4.50       1,713,112     20,061        4.65
  FHLB advances and other borrowings          946,500     13,228         5.54         628,015      9,249        5.84
  Other                                         3,544         66         7.39           3,785         50        5.24
                                           ---------------------                   ---------------------
      Total interest-bearing liabilities    2,745,381     33,645         4.86       2,344,912     29,360        4.97
                                                         -------                                 -------
  Non-interest-bearing liabilities             41,109                                  41,596
                                           ----------                              ----------     
      Total liabilities                     2,786,490                               2,386,508
 Stockholders' Equity                         233,626                                 265,106
                                           ----------                              ----------     
      Total liabilities and 
       stockholders' equity                $3,020,116                              $2,651,614
                                           ==========                              ==========
Net interest income                                      $19,576                                 $18,547
                                                         =======                                 =======
Net interest spread (5)                                                  2.47                                   2.52
Effective interest spread (6)                                            2.70                                   2.90
Ratio of interest-earning assets to 
 interest-bearing liabilities                  105.75%                                 109.11%
</TABLE> 

                                       11
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
   Item 2: Management's Discussion and Analysis of Financial Condition and 
                                  Operations
                                 (Continued) 


___________________

(1)  Includes related assets available-for-sale and unamortized discounts and
     premiums.
(2)  Average yield for 1998 was calculated using a 30/360 basis to reflect the
     predominant composition of the portfolio, whereas in 1997 actual days/365
     was used because of the composition of the portfolio at that time.
(3)  Amount is net of deferred loan origination fees, undisbursed loan funds,
     unamortized discounts and allowance for loan losses and includes loans held
     for sale and non-performing loans.
(4)  Included in the average balance of loans receivable, net for the three
     months ended December 31, 1998 and 1997 are loans held for sale of $803,000
     and $81.5 million, respectively. Interest income recognized on loans held
     for sale during these periods was $14,000 and $1.4 million, respectively,
     resulting in average yields of 6.74% and 7.10%, respectively.
(5)  Net interest spread represents the difference between the yield on 
     interest-earning assets and the cost of interest-bearing liabilities.
(6)  Effective interest spread represents net interest income divided by average
     interest-earning assets.

                                       12
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
   Item 2: Management's Discussion and Analysis of Financial Condition and 
                                  Operations
                                 (Continued) 

Average Balance Sheets


The following table sets forth certain information relating to the Company for
the nine months ended December 31, 1998 and 1997.  The yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown.  Average balances are derived
from average daily balances.  The yields and costs include fees, which are
considered adjustments to yields.

<TABLE>
<CAPTION>
                                                                                   Nine Months Ended December 31,
                                                                   -------------------------------------------------------------
                                                                                  1998                        1997
                                                                   -------------------------------------------------------------
                                                                                        Average                        Average
                                                                       Average           Yield/   Average              Yield/
                                                                       Balance  Interest  Cost    Balance   Interest    Cost
                                                                   -------------------------------------------------------------
                                                                                     (Dollars in thousands)
<S>                                                                  <C>        <C>       <C>    <C>        <C>       <C> 
Assets:
 Interest-earning assets:
  Interest-earning deposits and short-term investments               $   39,700 $  1,460   4.88% $   27,321  $  1,159   5.63%
  Investment securities, net (1)(2)                                     294,376   13,549   6.14     145,247     7,271   6.64 
  Loans receivable, net (3)(4)                                        1,873,749  109,346   7.78   1,857,624   107,751   7.73 
  Mortgage-backed securities, net (1)                                   613,807   28,942   6.29     481,728    24,700   6.84 
  FHLB stock                                                             46,991    2,067   5.84      28,411     1,311   6.12 
                                                                     -------------------         --------------------
    Total interest-earning assets                                     2,868,623  155,364   7.22   2,540,331   142,192   7.46 
                                                                                --------                     -------- 
  Non-interest-earning assets                                           105,707                      82,386                  
                                                                     ----------                  ----------
    Total assets                                                     $2,974,330                  $2,622,717                  
                                                                     ==========                  ==========
Liabilities and Stockholders' Equity:                                                                                        
 Interest-bearing liabilities:                                                                                               
  Passbook accounts                                                  $  148,901    2,599   2.32  $  183,718     3,302   2.39 
  Money market savings accounts                                         264,440    8,960   4.50     166,055     5,710   4.56 
  NOW and other demand deposit accounts                                 184,818      966   0.69     155,054       910   0.78 
  Certificate accounts                                                1,167,586   47,580   5.41   1,212,485    50,801   5.56 
                                                                     -------------------         -------------------- 
    Total deposits                                                    1,765,745   60,105   4.52   1,717,312    60,723   4.69 
  FHLB advances and other borrowings                                    926,178   39,329   5.64     599,661    26,595   5.89 
  Other                                                                   3,021       97   4.26       2,913        83   3.78 
                                                                     -------------------         -------------------- 
    Total interest-bearing liabilities                                2,694,944   99,531   4.90   2,319,886    87,401   5.00 
                                                                                --------                     -------- 
  Non-interest-bearing liabilities                                       39,660                      36,007                  
                                                                     ----------                  ----------
    Total liabilities                                                 2,734,604                   2,355,893                  
 Stockholders' Equity                                                   239,726                     266,824                  
                                                                     ----------                  ----------
    Total liabilities and stockholders' equity                       $2,974,330                  $2,622,717                  
                                                                     ==========                  ==========
Net interest income                                                             $ 55,833                     $ 54,791
                                                                                ========                     ========
Net interest spread (5)                                                                    2.32                         2.46 
Effective interest spread (6)                                                              2.60                         2.88 
Ratio of interest-earning assets to interest-bearing liabilities        106.44%                     109.50%
</TABLE> 

                                       13
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
   Item 2: Management's Discussion and Analysis of Financial Condition and 
                                  Operations
                                 (Continued) 

_______________

(1)  Includes related assets available-for-sale and unamortized discounts and
     premiums.
(2)  Average yield for 1998 was calculated using a 30/360 basis to reflect the
     predominant composition of the portfolio, whereas in 1997 actual days/365
     was used because of the composition of the portfolio at that time.
(3)  Amount is net of deferred loan origination fees, undisbursed loan funds,
     unamortized discounts and allowance for loan losses and includes loans held
     for sale and non-performing loans.
(4)  Included in the average balance of loans receivable, net for the nine
     months ended December 31, 1998 and 1997 are loans held for sale of $959,000
     and $33.3 million, respectively. Interest income recognized on loans held
     for sale during these periods was $49,000 and $3.2 million, respectively,
     resulting in average yields of 6.86% and 7.23%, respectively.
(5)  Net interest rate spread represents the difference between the yield on
     interest-earning assets and the cost of interest-bearing liabilities.
(6)  Effective interest spread represents net interest income divided by average
     interest-earning assets.

                                       14
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 


Rate/Volume Analysis


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

<TABLE>
<CAPTION> 
                                       Three Months Ended December 31, 1998          Nine Months Ended December 31, 1998    
                                                     Compared to                                Compared to                
                                        Three Months Ended December 31, 1997          Nine Months Ended December 31, 1997   
                                    ------------------------------------------------------------------------------------------
                                                    Increase (Decrease)                          Increase (Decrease)        
                                                          Due to                                       Due to               
                                    ------------------------------------------------------------------------------------------
                                                              Rate/                                       Rate/            
                                        Volume      Rate      Volume      Net        Volume       Rate      Volume       Net
------------------------------------------------------------------------------------------------------------------------------ 
                                                                  (Dollars in thousands)
<S>                                  <C>       <C>        <C>       <C>         <C>         <C>       <C>         <C> 
Interest-earning assets:
  Interest-earning deposits and
   short-term investments               $  221     $     4   $   2     $  227      $   525      $  (154)   $   (70)    $   301
  Investment securities, net (1)         1,616        (239)   (151)     1,226        7,431         (553)      (600)      6,278
  Loans receivable, net (1) (2)          1,213         679      23      1,915          935          654          6       1,595
  Mortgage-backed securities, net (1)    2,498        (601)   (190)     1,707        6,772       (1,986)      (544)      4,242 
  FHLB stock                               330         (54)    (37)       239          857          (61)       (40)        756
------------------------------------------------------------------------------------------------------------------------------ 
    Total interest-earning assets        5,878        (211)   (353)     5,314       16,520       (2,100)    (1,248)     13,172
------------------------------------------------------------------------------------------------------------------------------ 
Interest-bearing liabilities:
  Passbook accounts                       (274)        149     (40)      (165)        (626)         (95)        18        (703)
  Money market savings accounts          1,858         (92)    (83)     1,683        3,383          (84)       (49)      3,250
  NOW and other demand deposit accounts     51         (31)     (5)        15          175         (100)       (19)         56
  Certificate accounts                    (448)       (817)     22     (1,243)      (1,881)      (1,391)        51      (3,221)
  FHLB advances and other borrowings     4,690        (472)   (239)     3,979       14,481       (1,131)      (616)     12,734
  Other                                     (3)         20      (1)        16            3           11         --          14
------------------------------------------------------------------------------------------------------------------------------ 
    Total interest-bearing liabilities   5,874      (1,243)   (346)     4,285       15,535       (2,790)      (615)     12,130
------------------------------------------------------------------------------------------------------------------------------ 
    Change in net interest income       $    4     $ 1,032   $  (7)    $1,029      $   985      $   690      $(633)    $ 1,042
==============================================================================================================================
</TABLE> 
 
_________________________

(1) Includes assets available-for-sale.

(2) Included in the increases/(decreases) in interest income on loans
    receivable, net for the three and nine months ended December 31, 1998
    compared to 1997 are increases/(decreases) in interest income on loans held
    for sale attributable to volume and rate of ($5.7 million) and $293,000,
    and $1.3 million and $57,000, respectively.

                                       15
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 

Forward-Looking Statements

Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
that involve substantial risks and uncertainties. When used in this report, or
in the documents incorporated by reference herein, the words "anticipate,"
"believe," "estimate," "may," "intend," "expect" and similar expressions
identify certain of such forward-looking statements.  Actual results could
differ materially from such forward-looking statements contained herein.
Factors that could cause future results to vary from current expectations
include, but are not limited to, the following: changes in economic conditions
(both generally and more specifically in the markets in which the Company
operates); changes in interest rates, deposit flows, loan demand, real estate
values and competition; changes in accounting principles, policies or guidelines
and in government legislation and regulation (which change from time to time and
over which the Company has no control); other factors affecting the Company's
operations, markets, products and services, including but not limited to, Year
2000 compliance issues; and other risks detailed in this Form 10-Q and in the
Company's other Securities and Exchange Commission filings.  Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof.   The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof.

Comparison of Operating Results for the Three Months Ended December 31, 1998 and
--------------------------------------------------------------------------------
1997
----


General
-------

The Company recorded net earnings of $5.2 million or $0.37 per diluted share for
the three months ended December 31, 1998 compared to net earnings of $4.8
million or $0.28 per diluted share for the comparable period of 1997. Excluding
trading portfolio and real estate investment activity, the Company's core
earnings improved to $4.9 million or $0.34 per diluted share for the quarter
ended December 31, 1998 compared to $4.8 million or $0.30 per diluted share for
the quarter ended December 31, 1997 (which included a $407,000 or $0.03 per
diluted share after tax non-core gain on sale of loans).  The increase in
earnings per diluted share reflects the Company's consistent use of stock
repurchase programs as a capital management tool.

Net interest income was $19.6 million for the three months ended December 31,
1998 compared to $18.5 million for the comparable period of 1997.  The increase
in net interest income resulted from growth in average interest-earning assets.
Net interest spread was 2.47% for the three months ended December 31, 1998
compared to 2.52% for the comparable period of 1997.  The Company's ratio of
average interest-earning assets to average interest-bearing liabilities was
105.75% for the three months ended December 31, 1998 compared to 109.11% for the
comparable period of 1997 reflecting the Company's stock repurchases and
wholesale leverage activity.  During the current quarter, the Company began
allowing its wholesale leverage (mortgage backed securities [MBS] and other
investment securities funded utilizing [FHLB] advances) to decrease through
normal amortization on the asset side and maturation and, to a lesser degree,
prepayment of borrowings.  The reason for this strategy is two-fold.  First, the
Company's success in originating higher volumes of construction, commercial
business, consumer and commercial real estate loans supports a reallocation of
asset balances from securities to loans.  Second, the de-leveraging is being
undertaken in order to create an increased level of capital flexibility for the
Company as the three year anniversary of the Company's March 1996 initial public
offering approaches at which time OTS stock repurchase restrictions will be
lifted.

                                       16
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 

Provision for loan losses was $1.0 million for the three months ended December
31, 1998 compared to $1.3 million for the comparable period of 1997 reflecting
continued improvement in asset quality.

Excluding trading, real estate investment and the non-core loan sale activity,
non-interest income was $3.7 million for the quarter ended December 31, 1998
compared to $3.6 million for the comparable period of 1997. Total non-interest
expense was $13.9 million for the three months ended December 31, 1998 compared
to $13.2 million for the comparable period of 1997.  The majority of the
increase in non-interest expense was attributable to a $495,000 increase in
marketing and professional services expense due principally to the costs
associated with an extensive image "branding" effort by the Bank, designed to
capitalize on its strong community reputation and presence.

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

Interest income was $53.2 million for the three months ended December 31, 1998
compared to $47.9 million for the comparable period of 1997.  The increase in
interest income was attributable to a $344.6 million increase in average
interest-earning assets from $2.56 billion for the three months ended December
31, 1997 to $2.90 billion for the comparable period of 1998.  The weighted
average yield on interest-earning assets decreased from 7.49% for the three
months ended December 31, 1997 to 7.33% for the comparable period of 1998.  The
increase in average interest-earning assets was due principally to increases in
the average balances of MBS and investment securities.  The average balance of
MBS increased $147.7 million from $466.1 million for the three months ended
December 31, 1997 to $613.8 million for the comparable period of 1998. The
average balance of investment securities increased $95.9 million from $181.1
million for the three months ended December 31, 1997 to $277.0 million for the
comparable period of 1998.  The average balance of loans receivable, net
increased $62.2 million from $1.85 billion for the three months ended December
31, 1997 to $1.91 billion for the comparable period of 1998.

The weighted average yield on loans receivable was 7.95% for the three months
ended December 31, 1998 compared to 7.80% for the same period in  1997.  The
negative impact on weighted average yield on loans receivable from the high
level of payoff and refinancing activity has been offset by the positive impact
of the Bank's continued emphasis on originating construction, commercial
business, consumer and commercial real estate loans, the majority of which
provide higher yields than those earned on single-family residential loan
products.  For the three months ended December 31, 1998, originations of these
four loan types aggregated $143.6 million (56.7% of total originations) at a
weighted average note rate of 9.74% compared to $106.3 million (68.0% of total
originations) at a weighted average note rate of 10.34% for the comparable
period of 1997.  The aggregate outstanding average balance of construction,
commercial business, consumer and commercial real estate loans was $513.5
million or 26.9% of average loans receivable, net for the three months ended
December 31, 1998 compared to $429.4 million or 23.2% of average loans
receivable, net for the comparable period of 1997.

The weighted average yield on MBS was 6.25% for the three months ended December
31, 1998 compared to 6.93% for the comparable period of 1997.  The decrease in
the weighted average yield on MBS was due primarily to a shift in the MBS
portfolio to a higher percentage of five and seven year balloon and 5/1 ARM
securities.  5/1 ARM securities provide a fixed rate of interest for the first
five years after which the rate adjusts annually based upon the one-year
constant maturity treasury (CMT) index.  For the three months ended December 31,
1998, the amortization of purchase premiums on MBS was $838,000 or 14 basis
points as a percentage of the average portfolio balance compared to $597,000 or
13 basis points for the comparable period of 1997.

The weighted average yield on investment securities decreased from 6.74% for the
three months ended December 31, 1997 to 6.21% for the comparable period of 1998.
The decrease in the weighted average yield on investment 

                                       17
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 

securities reflects a higher proportion of the portfolio being comprised by
floating rate collateralized mortgage obligations (CMO's). These floating rate
CMO's are generally indexed to the one-month London Inter-Bank Offered Rate
(LIBOR). One month LIBOR averaged 5.33% for the three months ended December 31,
1998 compared to 5.72% for the comparable period of 1997. For the three months
ended December 31, 1998, the amortization of purchase premiums on investment
securities was $265,000 or 10 basis points as a percentage of the average
portfolio balance compared to $85,000 or 5 basis points for the comparable
period of 1997.

At December 31, 1998 the Company's unamortized cost basis of its MBS and
investment securities portfolio as a percentage of current face value is 101.0%.

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

Interest expense was $33.6 million for the three months ended December 31, 1998
compared to $29.4 million for the comparable period of 1997.  The increase was
attributable to a $400.5 million increase in average interest-bearing
liabilities from $2.34 billion for the three months ended December 31, 1997 to
$2.75 billion for the comparable period of 1998.  The weighted average cost of
interest-bearing liabilities decreased from 4.97% for the three months ended
December 31, 1997 to 4.86% for the comparable period of 1998.

The increase in average interest-bearing liabilities was due principally to a
$318.5 million increase in the average balance of FHLB advances and other
borrowings from $628.0 million for the three months ended December 31, 1997 to
$946.5 million for the comparable period of 1998. The increase in the average
balance of FHLB advances and other borrowings was due principally to the Bank's
wholesale leverage strategy which, as noted earlier, has since been
substantially scaled back.  The weighted average cost of FHLB advances and other
borrowings decreased from 5.84% for the three months ended December 31, 1997 to
5.54% for the comparable period of 1998 reflecting a decrease in the general
level of interest rates and the Bank's increased utilization of putable fixed
rate FHLB advances and other borrowings.  Under the putable borrowing program,
in exchange for a favorable interest rate on the borrowing, the Bank grants to
the creditor an option to "put" the borrowing back to the Bank at specified
"put" dates prior to maturity but after the conclusion of a specified lock out
period.  Under the putable borrowing program, the Bank obtains funds below the
cost of non-putable borrowings of comparable final maturity or term to put
date(s).  In exchange for this favorable funding rate, the Bank is exposed to
the risk that the borrowing is put back to the Bank following an increase in the
general level of interest rates causing the Bank to initiate a borrowing at a
less advantageous cost.  The increased use of putable borrowings has allowed the
Bank to extend the term to maturity and initial put dates of its funding in
connection with increased investment in balloon and 5/1 MBS and loan products.
At December 31, 1998 the Bank's putable borrowings totaled $515.0 million
compared to $180.0 at December 31, 1997.

The average balance of deposits was $1.80 billion for the three months ended
December 31, 1998 compared to $1.71 billion for the comparable period of 1997,
an increase of $82.2 million.  The average balance of "core deposits" (money
market, passbook and NOW and other demand accounts) increased $114.2 million
from $521.3 million or 30.4% of average total deposits for the three months
ended December 31, 1997 to $635.5 million or 35.4% of average total deposits for
the comparable period of 1998.  The Bank is continuing to emphasize the building
of its core deposit base through its marketing, pricing and business development
efforts.  The weighted average cost of deposits decreased from 4.65% for the
three months ended December 31, 1997 to 4.50% for the comparable period of 1998.
The weighted average cost of core deposits increased to 3.08% for the three
months ended December 31, 1998 compared to 2.58% for the three months ended
December 31, 1997.  The increase in the average cost on core deposits is due to
a $141.9 million increase in the average balance of money market accounts from
$159.1 million for the three months ended December 31, 1997 to $300.9 million
for the comparable period of 1998.

                                       18
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 

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

Provision for loan losses was $1.0 million for the three months ended December
31, 1998 compared to $1.3 million for the comparable period of 1997 reflecting
the continued improvement in the Bank's asset quality.  See "Comparison of
Financial Condition at December 31, 1998 and March 31, 1998."

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

Non-interest income was $4.4 million for the three months ended December 31,
1998 compared to $4.3 million for the same period in 1997.  Excluding the
$617,000 trading portfolio gain and the $21,000 profit on real estate
investment, for the three months ended December 31, 1998, and a $701,000 gain on
sale of loans for December 31, 1997, non-interest income would have been $3.7
million compared to $3.6 million for the comparable period of 1997.  Deposit and
related fees were $2.1 million for both the three months ended December 31, 1998
and 1997. Trust fees were $487,000 for the three months ended December 31, 1998
compared to $462,000 for the comparable period of 1997.  Assets under management
or custody by the Bank's trust department were $214.5 million at December 31,
1998 compared to $232.3 million at December 31, 1997.  Loan and servicing fees
were $769,000 for the three months ended December 31, 1998 compared to $676,000
for the comparable period of 1997.

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

General and administrative expense was $14.0 million or annualized, 1.85% of
average assets for the three months ended December 31, 1998 compared to $13.2
million or annualized, 2.00% of average assets for the comparable period of
1997. Marketing and professional services expense increased from $996,000 for
the three months ended December 31, 1997 to $1.5 million for the comparable
period of 1998, due principally to the costs associated with an extensive image
"branding" effort by the Bank, designed to capitalize on its strong community
presence and reputation in contrast to the current environment in which an
increasing number of consumers and businesses are feeling disenfranchised by the
significant bank merger activity which has taken place. Included in compensation
and benefits expense for the three months ended December 31, 1998 and 1997
respectively are non-cash charges of $946,000 and $1.3 million associated with
the Bank's Employee Stock Ownership Plan (ESOP) and 1996 Incentive Plan. For the
three months ended December 31, 1998 and 1997, respectively there was
approximately $423,000 and $93,000 of costs associated with the Bank's
preparation and modification of its electronic data processing (EDP) and other
systems for full functionality in the Year 2000 (Y2K) and thereafter.

Foreclosed real estate operations, net reflects income of $90,000 for the three
months ended December 31, 1998 compared to income of $13,000 for the comparable
period of 1997.  These income levels reflect the improved market conditions in
the Bank's geographic area for disposition of real estate acquired through
foreclosure.

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

Income taxes were $3.9 million for the three months ended December 31, 1998
compared to $3.5 million for the comparable period of 1997.  The increase in
income taxes was primarily the result of an increase in earnings before income
taxes from $8.3 million for the three months ended December 31, 1997 to $9.1
million for the comparable period of 1998.

                                       19
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 


Comparison of Operating Results for the Nine Months Ended December 31, 1998 and
-------------------------------------------------------------------------------
1997
----

General
-------

The Company recorded net earnings of $13.4 million or $0.90 per diluted share
for the nine months ended December 31, 1998 compared to net earnings of $11.7
million or $0.69 per diluted share for the comparable period of 1997.  Excluding
the $258,000 pre-tax gain on the Company's trading portfolio and the $122,000
pre-tax profit on real estate investment, net earnings would have been $13.2
million or $0.89 per diluted share for the nine months ended December 31, 1998.

Net interest income was $55.8 million for the nine months ended December 31,
1998 compared to $54.8 million for the comparable period of 1997.  The increase
in net interest income resulted from a $328.3 million increase in average
interest-earning assets from $2.54 billion for the nine months ended December
31, 1997 to $2.87 billion for the comparable period of 1998.  The Company's
ratio of average interest-earning assets to average interest-bearing liabilities
was 106.44% for the nine months ended December 31, 1998 compared to 109.50 % for
the comparable period of 1997.  Net interest rate spread was 2.32% for the nine
months ended December 31, 1998 compared to 2.46% for the comparable period of
1997.

Provision for loan losses was $3.0 million for the nine months ended December
31,1998 compared to $5.8 million for the comparable period of 1997.  See
"Comparison of Financial Condition at December 31, 1998 and March 31, 1998.

Total non-interest income was $11.3 million for the nine months ended December
31, 1998 (including the $258,000 gain on trading securities; the $122,000 profit
on real estate investment; and net of a $189,000 writedown of servicing assets)
compared to $10.7 million for the comparable period of 1997 (including a
$701,000 gain on sale of loans for the nine months ended December 31, 1997).
Total non-interest expense was $40.7 million for the nine months ended December
31, 1998 compared to $39.1 million for the comparable period of 1997.

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

Interest income was $155.4 million for the nine months ended December 31, 1998
compared to $142.2 million for the comparable period of 1997.  The increase in
interest income was attributable to a $328.3 million increase in average
interest-earning assets from $2.54 billion for the nine months ended December
31, 1997 to $2.87 billion for the comparable period of 1998.  The increase in
average interest-earning assets was attributable to increases in the average
balances of MBS and investment securities.  The average balances of MBS and
investment securities increased $132.1 million and $149.1 million, respectively
during the nine months ended December 31, 1998 to $613.8 million and $294.4
million, respectively.  The average balance of loans receivable, net was $1.87
billion for the nine months ended December 31, 1998 compared to $1.86 billion
for the comparable period of 1997.  The decrease in weighted average yield on
interest-earning assets from 7.46% for the nine months ended December 31, 1997
compared to 7.22% for the comparable period of 1998 was attributable to an
increase in the proportion of total average interest-earning assets comprised by
MBS and investment securities from 24.7% for the nine months ended December 31,
1997 to 31.7% for the comparable period of 1998 coupled with decreases in the
weighted average yields on such securities as described below.

The weighted average yield on loans receivable, net was 7.78% for the nine
months ended December 31, 1998 compared to 7.73% for the comparable period of
1997.  The stability in the weighted average yield on loans 

                                       20
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 

receivable during a period of declining interest rates and accelerated
prepayments reflects the positive impact on yields of the Bank's continued
emphasis on originating construction, commercial business, consumer and
commercial real estate loans. For the nine months ended December 31, 1998,
originations of these four loan types aggregated $391.3 million (58.1 % of total
originations) at a weighted average note rate of 10.00% compared to $223.0
million (55.5% of total originations) at a weighted average note rate of 10.37%
for the comparable period of 1997. The aggregate outstanding average balance of
construction, commercial business, consumer and commercial real estate loans was
$394.2 million or 21.0% of average loans receivable, net for the nine months
ended December 31, 1998 compared to $318.8 million or 17.2% of average loans
receivable, net for the comparable period of 1997.

The weighted average yield on MBS was 6.29% for the nine months ended December
31, 1998 compared to 6.84% for the comparable period of 1997.  The decrease in
the weighted average yield on MBS is attributable to an increase in the
proportion of the portfolio comprised by balloon and 5/1 ARM securities.  For
the nine months ended December 31, 1998, the amortization of purchase premium's
on MBS was $2.7 million or 44 basis points as a percentage of the average
portfolio balance compared to $1.7 million or 35 basis points for the comparable
period of 1997.

The weighted average yield on investment securities was 6.14% for the nine
months ended December 31, 1998 compared to 6.64% for the comparable period of
1997.  The decrease in the yield on investment securities reflects the higher
proportion of the portfolio comprised by floating rate CMO's indexed to one-
month LIBOR.  One-month LIBOR averaged 5.51% for the nine months ended December
31, 1998 compared to 5.67% for the comparable period of 1997.  For the nine
months ended December 31, 1998, the amortization of purchase premiums on
investment securities was $632,000 or 22 basis points as a percentage of the
average portfolio balance compared to $124,000 or 9 basis points for the
comparable period of 1997.

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

Interest expense was $99.5 million for the nine months ended December 31, 1998
compared to $87.4 million for the comparable period of 1997.  The increase in
interest expense was attributable to a $375.1 million increase in the average
balance of interest-bearing liabilities from $2.32 billion for the nine months
ended December 31, 1997 to $2.69 billion for the comparable period of 1998.  The
weighted average cost of interest-bearing liabilities decreased from 5.00% for
the nine months ended December 31, 1997 to 4.90% for the comparable period of
1998.

The increase in average interest-bearing liabilities was due principally to a
$326.5 million increase in the average balance of FHLB advances and other
borrowings from $600.0 million for the nine months ended December 31, 1997 to
$926.2 million for the comparable period of 1998.  The average balance of
deposits was $1.77 billion for the nine months ended December 31, 1998 compared
to $1.72 billion for the comparable period of 1997.  The weighted average cost
of deposits decreased from 4.69% for the nine months ended December 31, 1997 to
4.52% for the comparable period of 1998 reflecting a decrease in the general
level of interest rates and, more importantly, an increase in the proportion of
total deposits comprised by core deposits.  For the nine months ended December
31, 1998, the average balance of core deposits was $598.2 million or 33.9% of
average total deposits compared to $504.8 million or 29.4% of average total
deposits for the comparable period of 1997.  The weighted average cost of FHLB
advances and other borrowings decreased from 5.89% for the nine months ended
December 31, 1997 to 5.64% for the comparable period of 1998 reflecting a
decrease in the general level of interest rates coupled with increased use of
"putable" borrowings.

                                       21
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 

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

Provision for loan losses was $3.0 million for the nine months ended December
31, 1998 compared to $5.8 million for the comparable period of 1997.  See
"Comparison of Financial Condition at December 31, 1998 and March 31, 1998."

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

Non-interest income was $11.3 million for the nine months ended December 31,
1998 compared to $10.7 million for the comparable period of 1997.  Excluding the
$258,000 trading portfolio gain, $122,000 profit from real estate investment,
and $189,000 servicing asset writedown, for the nine months ended December 31,
1998, and the $701,000 gain on sale of loans for the nine months ended December
31, 1997, non-interest income would have been $11.1 million (annualized 0.84% of
average deposits) compared to $10.0 million (annualized 0.78% of average
deposits) for the comparable period of 1997.  Deposits and related fees were
$6.5 million for the nine months ended December 31, 1998 compared to $6.3
million for the comparable period of 1997 reflecting growth in core deposits
coupled with increased fee collection efforts.  Trust fees were $1.4 million for
the nine months ended December 31, 1998 compared to $1.3 million for the
comparable period of 1997.  The $496,000 gain on sales of assets, net for the
nine months ended December 31, 1998 is net of a $153,000 loss applicable to the
sale of $13.2 million of MBS and investment securities liquidated to provide
funds utilized by the Company to repurchase its common stock.

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

General and administrative expense was $40.9 million or annualized, 1.83% of
average assets for the nine months ended December 31, 1998 compared to $38.6
million or annualized, 1.96% of average assets for the comparable period of
1997.   Compensation and benefits expense was $20.8 million for the nine months
ended December 31, 1998 compared to $20.0 million for the comparable period of
1997.  Included in compensation and benefits expense for the nine months ended
December 31, 1998 and 1997, respectively are non-cash charges of $3.3 million
and $3.5 million associated with the Bank's ESOP and 1996 Incentive Plan.  The
increase in marketing and professional services expense from $2.4 million for
the nine months ended December 31, 1997 to $3.5 million for the comparable
period of 1998, is due principally to the expenses associated with the Bank's
"branding" activities.  Other non-interest expense for the nine months ended
December 31, 1998 includes approximately $1.7 million associated with the
preparation for the Y2K compared to $159,000 for the comparable period of 1997.

Foreclosed real estate operations, net reflects income of $126,000 for the nine
months ended December 31, 1998 compared to a loss of $520,000 for the comparable
period of 1997.  The results for the nine months ended December 31, 1998 reflect
the improved real estate market conditions in the Bank's geographic area.  The
results for the nine months ended December 31, 1997 include a writedown of
$325,000 on a single-family residential development project.

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

Income taxes were was $10.0 million for the nine months ended December 31, 1998
compared to $8.9 million for the comparable period of 1997 principally
attributable to an increase in earnings before income taxes from $20.6 million
for the nine months ended December 31, 1997 to $23.4 million for the comparable
period of 1998.

                                       22
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 

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

Total assets increased $145.0 million or 5.15% from $2.81 billion at March 31,
1998 to $2.96 billion at December 31, 1998 due to growth in loans receivable,
and MBS.  Loans receivable, net increased $114.6 million from $1.83 billion at
March 31, 1998 to $1.94 billion at December 31, 1998.  MBS increased $109.3
million from $481.6 million at March 31, 1998 to $590.9 million at December 31,
1998.

Loan originations for the nine months ended December 31, 1998 were $673.9
million, compared to $363.0 million for the comparable period of 1997.  For the
nine months ended December 31, 1998 the weighted average initial contract rate
on total loan originations (excluding the positive impact of loan fee
amortization recorded as an adjustment to yield) was 8.70% compared to 8.71% for
the comparable period of 1997.  Loan principal payoffs and paydowns increased
significantly from $333.0 million for the nine months ended December 31, 1997 to
$621.4 million for the comparable period of 1998.  Non-accrual loans declined
from $17.2 million or 0.88% of gross loans at March 31, 1998 to $12.9 million or
 .62% of gross loans at December 31, 1998.  Non-performing assets, which includes
foreclosed real estate, net of specific allowances, decreased from $24.8 million
or 0.88% of total assets at March 31, 1998 to $17.4 million or .59% of total
assets at December 31, 1998.  Troubled-debt restructured loans were $13.7
million at December 31, 1998 compared to $12.5 million at March 31, 1998.

The allowance for loan losses is maintained at an amount management considers
adequate to cover losses on loans receivable which are deemed probable and
estimable.  The allowance is based upon a number of factors, including current
economic conditions, actual loss experience and industry trends.  In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses.  Such agencies may
require the Bank to make additional provisions for loan losses based upon
information available at the time of the review.  At December 31, 1998, the
Bank's allowance for loan losses was $26.1 million or 1.25% of gross loans and
201.82% of non-accrual loans compared to $26.0 million or 1.33% of gross loans
and 151.27% of non-accrual loans at March 31, 1998.  The Bank will continue to
monitor and modify its allowances for loan losses as conditions dictate.  The
following table sets forth activity in the Bank's allowance for loan losses for
the three and nine months ended December 31, 1998.
 
<TABLE>
<CAPTION>
                                       Nine months          Nine months
                                          ended                ended
                                    --------------------------------------
                                    December 31, 1997    December 31, 1998
                                    --------------------------------------
<S>                                     <C>                   <C> 
Beginning balance                       $27,721               26,002
Provision for loan losses                 5,799                3,020
Charge-offs, net                         (7,629)              (2,925)
--------------------------------------------------------------------------
Ending balance                          $25,891               26,097
==========================================================================
</TABLE>
                                                                                
Total liabilities increased $163.3 million or 6.4% from $2.56 billion at March
31, 1998 to $2.72 billion at December 31, 1998.  Deposits increased $74.2
million from $1.74 billion at March 31, 1998 to $1.82 billion at December 31,
1998.  FHLB advances and other borrowings increased $86.1 million from $785.9
million at March 31, 1998 to $872.0 million at December 31, 1998.

Total stockholders' equity was $235.9 million at December 31, 1998 compared to
$254.3 million at March 31, 1998.  The $18.4 million decrease in total
stockholders' equity is comprised principally of a $15.4 million decrease in
additional paid-in-capital, a $2.1 million decrease in retained earnings,
substantially restricted, a $3.5 million decrease in unrealized gains on
securities available for sale, net partially offset by a $2.7 million decrease
in unearned stock-based compensation and a $17,000 increase in treasury stock.
During the three months ended 

                                       23
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 

September 30, 1998, the Company completed its fifth 5% stock repurchase program
under which 810,737 shares of its common stock were repurchased at a weighted
average price of $17.75 per share. The Company also repurchased 853,407 shares
of common stock during the three months ended June 30, 1998 at a weighted
average price of $20.75 per share bringing the total number of shares
repurchased during the nine months ended December 31, 1998 to 1,664,144 at a
weighted average price of $19.29 per share. The $15.4 million decrease in
additional paid-in-capital was attributable principally to the removal of the
original amount of additional paid-in-capital recorded upon the March 1996
initial issuance of the shares repurchased ($9.99 per share, net of the $.01 per
share credited to common stock). The $2.1 million decrease in retained earnings,
substantially restricted reflects the $15.5 million difference between the
$10.00 per share original issuance price of the 1,664,144 shares repurchased and
the $19.29 per share weighted average price paid to repurchase the shares,
partially offset by the $13.4 million of net earnings for the nine months ended
December 31, 1998. The $2.7 million decrease in unearned stock-based
compensation primarily reflects the amortization of shares under the Company's
ESOP ($794,000) and 1996 Incentive Plan ($1.1 million).

Liquidity and Capital Resources
--------------------------------

The Company's primary sources of funds are deposits, principal and interest
payments on loans, MBS and other investment securities, FHLB advances and other
borrowings, proceeds from the maturation of securities and, to a lesser extent,
proceeds from the sale of loans.  While maturities and scheduled amortization of
loans and securities are predictable sources of funds, deposit flows and
mortgage prepayments are greatly influenced by the general level of interest
rates, economic conditions and competition.  The Bank is subject to a minimum
regulatory liquidity requirement.  The Bank has maintained the required minimum
level of liquid assets as defined by OTS regulations.  This requirement, which
may be varied at the direction of the OTS, is based upon a percentage of
deposits and short-term borrowings.  The required ratio is currently 4%.  The
Bank's average liquidity ratio was 4.85% for the nine months ended December 31,
1998.

The Company's cash flows are comprised of three primary classifications: cash
flows from operating activities, investing activities and financing activities.
Cash flows provided by operating activities were $83.8 million and $195.6
million for the nine months ended December 31, 1998 and 1997 respectively.

Net cash provided by (used in) investing activities consists primarily of
disbursements for loan originations and purchases of MBS and other investment
securities, offset by principal collections on loans, proceeds from maturation
of investments and paydowns on MBS.  Principal payments on loans were $621.5
million and $333.0 million for the nine months ended December 31, 1998 and 1997,
respectively.  Disbursements on loans originated and purchased, excluding loans
originated for sale, were $813.0 million and $512.8 million for the nine months
ended December 31, 1998 and 1997, respectively.  Disbursements for purchases of
MBS and other investment securities were $408.1 million and $325.1 million for
the nine months ended December 31, 1998 and 1997, respectively.  Proceeds from
the maturation and sale of investment securities and paydowns of MBS were $357.3
million and $118.6 million for the nine months ended December 31, 1998 and 1997,
respectively.  Net cash provided by (used in) financing activities consists
primarily of net activity in deposit accounts and FHLB advances and other
borrowings.  The net changes in deposits were $74.2 million and ($4.5) million
for the nine months ended December 31, 1998 and 1997, respectively.  The net
increases in FHLB advances and other borrowings were $86.1 million and $228.1
million for the nine months ended December 31, 1998 and 1997, respectively.

At December 31, 1998, on a consolidated basis, the Company had total capital of
$235.9 million or 7.98% of total assets. At December 31, 1998, the Bank exceeded
all of its regulatory capital requirements with a tangible capital level of
$195.4 million, or 6.70% of adjusted total assets, which is above the required
level of $43.8 million, or 

                                       24
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 

1.5%; core capital of $195.4 million, or 6.70% of adjusted total assets, which
is above the required level of $87.5 million, or 3%, and total risk based
capital of $216.3 million or 12.60% of risk weighted assets, which is above the
required level of $137.3 million or 8%. The Bank's capital ratios exceed the
"well capitalized" standards of 5% for core and tangible and 10% for risk-based,
as defined by regulations.

The Company's most liquid assets are cash and short-term investments.  The level
of these assets is dependent on the Company's operating, financing, lending and
investing activities during any given period.  At December 31, 1998, cash and
cash equivalents totaled $42.9 million.  The Company has other sources of
liquidity if a need for additional funds arises, including the utilization of
FHLB advances and other collateralized borrowings including reverse repurchase
agreements.  At December 31, 1998, the Company had $822.0 million in FHLB
advances and $50.0 million in reverse repurchase agreements outstanding.  Other
sources of liquidity include MBS and other investment securities available-for-
sale.

At December 31, 1998, the Bank had outstanding commitments to originate mortgage
loans of $17.7 million and no outstanding commitments to purchase MBS or other
investment securities.  The Bank anticipates that it will have sufficient funds
available to meet these commitments.  Certificate accounts, which are scheduled
to mature in less than one year from December 31, 1998 totaled $1.0 billion.
The Bank expects that a substantial portion of the maturing certificate accounts
will be retained by the Bank at maturity.

Year 2000
---------

Risks of the Year 2000 Issue

The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to represent the calendar year (e.g. "98" for
"1998").  Software so developed, and not corrected, could produce inaccurate or
unpredictable results or system failures commencing January 1, 2000, when dates
present a lower two digit year number than dates in the prior century.  Such
occurrences may have a material adverse effect on the Company's financial
condition, results of operation, business or business prospects, as the Company,
like most financial organizations, is significantly subject to the potential
impact of the Year 2000 issue due to the nature of financial information.
Potential impacts to the Company may arise from software, computer hardware, and
other equipment both within the Company's direct control and outside the
Company's ownership, yet with which the company electronically or operationally
interfaces.  Financial institution regulators have intensively focused upon Year
2000 exposures, issuing guidance concerning the responsibilities of management
and the board of directors. Year 2000 testing and certification is being
addressed as a key safety and soundness issue in conjunction with regulatory
exams and the Office of Thrift Supervision has authority to bring enforcement
actions against any institution under its supervision which it believes is not
properly addressing Year 2000 issues.

State of Readiness

The Company has established a five-phase process to address the Year 2000 issue.
In addition, the Company's Board of Directors oversees the Year 2000 compliance
project's progress through monthly status reports provided by the Year 2000
Project Office.

Phase one of the project consisted of developing a Company-wide awareness of the
Year 2000 issue and included establishment of a Year 2000 Project Office for the
Company.  As part of the second phase, which is now completed, the Company
completed an inventory of all data systems to determine which are most critical
to support customer transaction processing and provide customer services.  This
inventory not only included in-house systems, 

                                       25
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 

but those provided by third party vendors as well. Project plans were developed
which place priority emphasis on those systems requiring change and classified
mission critical. Third party vendors were contacted during this phase to
determine their processes and timelines for correcting any Year 2000 compliance
issues. The Company has in place a process to monitor the progress of mission
critical third party vendors toward making required Year 2000 corrections. In
addition, significant real estate and commercial loan borrowers of the Company
were also contacted to determine the extent of their preparations for Year 2000
and any potential impact Year 2000 may have on their businesses and ability to
repay loan obligations to the Company.

Phase three of the process consists of making appropriate Year 2000 programming
changes to the Company's in-house and vendor-provided core processing systems,
as well as replacement of other vendor-provided PC-based systems.  Phase four
consists of acceptance testing and sign-off of both the Company's in-house and
vendor-provided systems.  The fifth and final phase of the Year 2000 compliance
project includes installation of the system modifications.  The Company has
completed renovation, validation and installation of one of the two major
applications on its internally maintained mid-range computer, and replacement of
the other major application is scheduled to be completed in the second calendar
quarter of 1999.  The Company's core processing systems vendors have installed
most of the Year 2000 compliant code for mission critical functions, with
additional validation testing scheduled to be substantially completed by June
30, 1999.   The timing of Year 2000 acceptance testing and installation of all
third party vendor changes is dependent upon when such systems become available
to the Company.

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


Costs to Address the Year 2000 Issue

Currently the Company estimates that Year 2000 project costs will approximate
$2.5 million.  This cost is in addition to existing personnel who may
participate in the project. Included in the estimate are costs for hardware and
software renovation or replacement, as well as existing staff who are
specifically devoted to the project.  Approximately 55% of the cost represents
expenditures to replace certain older hardware and software which the Company
might otherwise have replaced during the period, notwithstanding the Year 2000
issue, the costs of which will be depreciated over its anticipated useful life.
Of the estimated total cost, approximately $1.9 million has been incurred on the
project year-to-date.  The table below summarizes by year the estimated amount
and anticipated timing of the planned Year 2000 expenditures.

<TABLE>
<CAPTION>
                                               Fiscal Year
-------------------------------------------------------------------
(In Millions)                         1998    1999   2000   Total
-------------------------------------------------------------------
<S>                                   <C>     <C>    <C>    <C> 
Capital                               $  -    $1.4   $  -    $1.4
Operating                               .3      .6     .2     1.1
-------------------------------------------------------------------
Estimated Year 2000 expenditures      $ .3    $2.0   $ .2    $2.5
===================================================================
</TABLE>

As the Company progresses in addressing the Year 2000 compliance project and
additional information becomes available; estimates of costs could change.  At
this time, no significant data system projects have been delayed as a result of
the Company's Year 2000 compliance effort.

                                       26
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                     Management's Discussion and Analysis
                                 (Continued) 

Contingency Plans

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

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

Readers should refer to the qualitative disclosures (consisting primarily of
interest rate risk) in the Company's fiscal 1998 Form 10-K, as there has been no
significant changes in these disclosures during the nine months ended December
31, 1998.

                                       27
<PAGE>
 
                          PART II  OTHER INFORMATION

                       PFF BANCORP, INC. AND SUBSIDIARY


Item 1.  Legal Proceedings

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


Item 2.  Changes in Securities

    None

Item 3.  Defaults Upon Senior Securities

    None

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

    None

Item 5.  Other Information.

    None

Item 6.  Exhibits and Reports on Form 8-K.

(a)      Exhibit 3(I)  Certificate of Incorporation of PFF Bancorp, Inc.*

Exhibit 3(ii)  Bylaws of PFF Bancorp, Inc.*

Exhibit 27.0  Financial Data Schedule (filed herewith)

(b)      Reports on form 8-K

None

_________________________
*Incorporated herein by reference to Form S-1, Registration Statement, as
amended, filed on December 8, 1995, SEC Registration Number 33-94860.

                                       28
<PAGE>
 
                       PFF BANCORP, INC. AND SUBSIDIARY
                                        
                                  SIGNATURES


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


PFF BANCORP, INC.



DATED: February 16, 1999               BY:/s/ LARRY M. RINEHART
                                          -------------------------------
                                          Larry M. Rinehart
                                          President, Chief Executive Officer
                                          and Director


DATED: February 16, 1999               BY:/s/ GREGORY C. TALBOTT
                                          --------------------------------
                                          Gregory C. Talbott
                                          Executive Vice President, Chief
                                          Financial Officer and Treasurer

                                       29