UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

~~[X]~~x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: June 30, ~~2009~~2010

~~[ ]~~o 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: 000-50592

K-Fed Bancorp (Exact name of registrant as specified in its charter)

(Exact name of registrant as specified in its charter)

	Federal				20-0411486
(State or other jurisdiction of incorporation)				(I.R.S. Employer Identification No.)

(800) 524-2274 (Registrant’s telephone number, including area code)

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of exchange on which registered

Common Stock, $.01 par value per share		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicated by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o

Non-accelerated filer o Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes o No x

The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the average bid and asked price of such common equity as of ~~August~~December 31, 2009 was $33.84 million. There were 13,~~304~~290,~~588~~ 200 shares of the registrant’s common stock, $.01 par value per share, outstanding at August 3124, ~~2009~~2010.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the ~~2009~~2010 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

K-FED BANCORP

Annual Report on Form 10-K

For the Fiscal Year Ended June 30, ~~2009~~2010

Table of Contents

		Page
Part I.
Item 1.	Business.	2
Item 1A.	Risk Factors.	4044
Item 1B.	Unresolved Staff Comments.	4555
Item 2.	Properties.	4655
Item 3.	Legal Proceedings.	4756
Item 4.	~~Submission~~Removed ofand ~~Matters to a Vote of Security Holders~~Reserved.	4756
Part II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	4756
Item 6.	Selected Financial Data.	4958
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	5160
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk.	6473
Item 8.	Financial Statements and Supplementary Data.	6675
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	6775
Item 9A.	Controls and Procedures.	6775
Item 9B.	Other Information.	6775
Part III.
Item 10.	Directors, Executive Officers and Corporate Governance.	6775
Item 11.	Executive Compensation.	6876
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	6876
Item 13.	Certain Relationships and Related Transactions and Director Independence.	6876
Item 14.	Principal Accountant Fees and Services.	6876
Part IV.
Item 15.	Exhibits and Financial Statement Schedules.	6977
	Signatures.	7078

~~Page~~ 1

Part I.

Item 1. Business.

General

K-Fed Bancorp (the “Company”) is a federally-chartered stock ~~corporation~~holding company that was formed in July 2003 as a wholly-owned subsidiary of K-Fed Mutual Holding Company (the “MHC”), a federally-chartered mutual holding company, in connection with the mutual holding company reorganization of Kaiser Federal Bank (the “Bank”), a ~~federally~~ federally chartered stock savings ~~association~~bank. Upon completion of the mutual holding company reorganization in July 2003, ~~the~~K-Fed ~~Company~~Bancorp acquired all of the capital stock of ~~the~~Kaiser Federal Bank. On March 30, 2004, ~~the~~K-Fed ~~Company~~Bancorp completed a minority stock offering in which it sold 5,686,750 shares, or 39.09%, of its outstanding common stock to eligible depositors of ~~the~~Kaiser Federal Bank and the Kaiser Federal Bank’s ~~Employee~~employee ~~Stock~~stock ~~Ownership~~ownership ~~Plan~~plan in a subscription offering. The remaining 8,861,750 outstanding shares of ~~the~~K-Fed ~~Company~~Bancorp’s common stock are ~~owned~~ owned by K-Fed Mutual Holding Company. At June 30, ~~2009~~2010, K-Fed Mutual Holding Company owned 66.67% of the outstanding shares of common stock of ~~the~~K-Fed ~~Company~~Bancorp, with the remaining 33.43%, or 4,428,450 shares held by public stockholders. K-Fed Bancorp owns 100% of Kaiser Federal Bank’s outstanding common stock.

At June 30, 2010, K-Fed ~~Mutual~~Bancorp ~~Holding~~had ~~Company,~~consolidated ~~the~~assets ~~Company~~of $866.8 million, deposits of $630.7 million and ~~the~~stockholders’ ~~Bank~~equity ~~are~~of ~~subject~~$94.7 tomillion. K-Fed Bancorp ~~regulation~~has bynot ~~the~~engaged ~~Office~~in ofany ~~Thrift~~significant ~~Supervision~~business ~~(the~~to ~~“OTS”)~~date. Its primary ~~K-Fed~~activity ~~Mutual~~is ~~Holding~~holding ~~Company’s~~all ~~principal~~of ~~assets~~the ~~are~~outstanding ~~its~~shares ~~investment~~of incommon stock of Kaiser Federal Bank. K-Fed Bancorp. Sodoes ~~long~~not asmaintain ~~K-Fed~~offices ~~Mutual~~separate from ~~Holding~~those ~~Company~~of isKaiser inFederal ~~existence,~~Bank itor ~~will~~utilize atpersons ~~all~~other ~~times~~than ~~own~~certain atof Kaiser ~~least~~Federal aBank’s ~~majority~~officers. Our ofexecutive offices are located at ~~the~~1359 ~~outstanding~~North ~~common~~Grand ~~stock~~Avenue, ofCovina, ~~K-Fed~~California ~~Bancorp~~91724 and our telephone number is (626) 339-9663.

AtKaiser Federal ~~June~~Bank ~~30,~~is ~~2009,~~a ~~K-Fed~~community ~~Bancorp~~oriented ~~had~~financial ~~total~~institution ~~consolidated~~offering ~~assets~~a variety of financial ~~$895.1~~services ~~million,~~to ~~net~~meet ~~loans~~the needs of ~~$746~~the communities it serves.9 ~~million~~We are headquartered in Covina, ~~deposits~~California, ofwith ~~$566.2~~branches ~~million~~or financial service centers in Pasadena, Covina, Bellflower, Harbor City, Los Angeles and ~~stockholders’~~Panorama ~~equity~~City ofto serve ~~$92.6~~Los ~~million.~~Angeles ~~The~~County, ~~Company’s~~financial ~~business~~service ~~activities~~centers ~~generally~~in ~~are~~Fontana ~~limited~~and Riverside to serve ~~passive~~San ~~investment~~Bernardino ~~activities~~and Riverside counties, and ~~oversight~~one offinancial ~~its~~service ~~investment~~center in Santa ~~the~~Clara ~~Bank~~to serve Santa Clara County. ~~Unless~~Financial ~~the context~~service ~~otherwise~~centers ~~requires,~~provide all of ~~references~~the toservices ~~the~~as ~~Company~~our ~~include~~full ~~the~~service ~~Bank~~branches ~~and~~except ~~the~~they ~~Company~~do not disburse cash; however, there is an on-site aATM ~~consolidated~~that ~~basis~~dispenses cash.

~~The~~We ~~Bank~~began operations isas a ~~community~~credit ~~oriented~~union ~~financial~~in ~~institution~~1953 ~~offering~~initially aserving ~~variety~~the employees of ~~financial services to meet~~ the Kaiser ~~needs~~Foundation ofHospital ~~the~~in ~~communities~~Los itAngeles, ~~serves~~California. WeAs ~~are~~the ~~headquartered~~Kaiser inPermanente Medical ~~Covina,~~Care ~~California,~~Program ~~with~~evolved ~~branches~~so ordid ~~financial~~the ~~service~~credit ~~centers~~union, and in ~~Pasadena~~1972, ~~Covina,~~it ~~Bellflower,~~changed its ~~Harbor~~name ~~City,~~to ~~Los~~Kaiser ~~Angeles~~Permanente ~~and~~Federal ~~Panorama~~Credit ~~City~~Union. toThe ~~serve~~credit ~~Los~~union ~~Angeles~~grew ~~County, financial~~to ~~service~~primarily ~~centers~~serve inKaiser ~~Fontana~~Permanente employees and ~~Riverside~~physicians towho ~~serve~~worked ~~San~~or ~~Bernardino~~lived in ~~and~~California. ~~Riverside~~The ~~Counties,~~credit ~~and~~union ~~one~~serviced ~~financial~~members ~~service~~with ~~center~~two inbranches, Pasadena and Santa Clara, toand ~~serve~~a ~~Santa~~network ~~Clara~~of ~~County.~~ATMs ~~Financial~~primarily ~~service~~located ~~centers~~in ~~provide~~Kaiser ~~all~~Permanente medical ofcenters. ~~the~~However, ~~services~~ as ~~our~~a ~~full~~credit ~~service~~union, ~~branches~~the ~~except~~credit ~~they~~union dowas ~~not~~legally restricted ~~disburse~~to ~~cash;~~serve ~~however,~~only ~~there~~individuals iswho anshared ~~on-site~~a ~~ATM~~“common ~~that~~bond” ~~dispenses~~such ~~cash~~as a common employer.

~~The~~After receiving ~~Bank began operations as a credit union in 1953 initially serving~~ the ~~employees~~necessary ofregulatory ~~the~~and ~~Kaiser~~membership ~~Foundation Hospital in Los Angeles~~approvals, ~~California.~~on AsNovember ~~the Kaiser Permanente Medical Care Program evolved so did the credit union~~1, ~~and in 1972~~ 1999, ~~it changed its name to~~ Kaiser Permanente Federal Credit Union. ~~The~~converted ~~credit union grew~~ to ~~primarily~~a ~~serve~~federal mutual ~~Kaiser~~savings ~~Permanente~~bank ~~employees~~known ~~and~~as ~~physicians~~Kaiser ~~who~~Federal ~~worked~~Bank orwhich ~~lived~~serves inthe ~~California.~~general ~~The~~public ~~credit~~as well ~~union~~as ~~serviced members with two branches, Pasadena and Santa Clara, and a network of ATMs primarily located in~~ Kaiser Permanente ~~medical centers~~employees. ~~However,~~Kaiser asFederal aBank ~~credit~~reorganized ~~union,~~into the mutual ~~credit~~holding ~~union~~company ~~was~~structure ~~legally~~in ~~restricted~~2003 toand ~~serve~~became ~~only~~the ~~individuals~~wholly ~~who~~owned ~~shared~~subsidiary of aK-Fed ~~“common bond” such as a common employer~~Bancorp.

After receiving the necessary regulatory and membership approvals, on November 1, 1999, Kaiser Permanente Federal Credit Union converted to a federal mutual savings association known as Kaiser Federal Bank which serves the general public as well as Kaiser Permanente employees. Kaiser Federal Bank reorganized into the mutual holding company structure in 2003 and became the wholly owned subsidiary of K-Fed Bancorp.2

~~Page~~Kaiser Federal 2Bank’s principal business activity consists of attracting retail deposits from the general public and originating primarily loans secured by first mortgages on owner-occupied one-to-four family residences and multi-family residences located in its market area and, to a lesser extent, automobile and other consumer loans. Prior to 2007, Kaiser Federal Bank purchased, using our own underwriting standards, a significant number of first mortgages on owner-occupied, one-to-four family residences secured by properties located throughout California. These purchases were primarily funded with Federal Home Loan Bank borrowings. Kaiser Federal Bank also originated commercial real estate loans, but made the strategic decision to cease such lending in January 2009 in light of the downturn in economic conditions. Historically, we have not originated, or purchased, commercial business, commercial construction, or residential construction loans and have no current plans to do so.

Our principal business consists of attracting retail deposits from the general public and investing those funds primarily in permanent loans secured by first mortgages on owner-occupied, one-to-four family residences, multi-family residences and commercial real estate properties. We also originate automobile and other consumer loans. Historically, we have not made, or purchased, commercial business, commercial construction, or residential construction loans and have no current plans to do so.

Our revenues are derived principally from interest on loans and mortgage-backed and related securities. We also generate revenue from service charges and other income.

We offer a variety of deposit accounts having a wide range of interest rates and terms, which generally include savings accounts, money market accounts, demand deposit accounts and certificate of deposit accounts with varied terms ranging from 90 days to five years. We solicit deposits in our primary market areas of Los Angeles, Orange, San Diego, San Bernardino, Riverside, and Santa Clara ~~Counties~~counties, in California.

Recent Developments

The Board of Directors of the MHC, the Company and the Bank adopted a Plan of Conversion and Reorganization (the “Plan”) on May 27, 2010, as amended August 24, 2010. The Plan is subject to the approval of the Company’s stockholders, the Bank’s depositors and the Office of Thrift Supervision (“OTS”), our primary banking regulator. Pursuant to the Plan, the MHC will convert from the mutual holding company form of organization to the fully stock public form. The MHC will then no longer exist. Pursuant to the Plan, the Company, which owns 100% of the Bank, also will be succeeded by a Maryland corporation, Kaiser Federal Financial Group, Inc. As part of the conversion, the MHC’s ownership interest of the Company will be offered for sale in a public offering. The existing publicly held shares of the Company, which represent the minority ownership interest in the Company, will be exchanged for new shares of common stock of Kaiser Federal Financial Group, Inc. The exchange ratio will ensure that immediately after the conversion and public offering, the public stockholders of the Company will own the same aggregate percentage of Kaiser Federal Financial Group, Inc. that they owned immediately prior to that time, excluding any new shares purchased in the offering or cash paid in lieu of fractional shares. When the conversion and public offering are completed, all of the capital stock of the Bank will be owned by Kaiser Federal Financial Group, Inc.

Available Information

Our Internet address is www.k-fed.com. We make available free of charge, through our web site, annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). All SEC filings of the Company are also available at the SEC’s website, www.sec.gov.

Market Area

The financial services sector of the United States economy continues to experience a declining economic environment. Economic conditions continued to weaken both nationally and in our market area of California. ~~Over~~With the ~~past year, with the~~ tightening of credit standards, there has been an imbalance between the number of homes available for sale and the demand from qualified borrowers, creating significant downward pressure on home prices. California, in particular, experienced significant declines in real estate values over the past several years and increasing unemployment rates as compared to the national average.

Future growth opportunities will be influenced by the stability of the regional economy and other trends within California, including housing market conditions. Unemployment rates in California increased to 11.6% at June 30, 2009 from 7.0% at June 30, 2008. This compares to an increase in the national unemployment rate to 9.5% at June 30, 2009 from 5.6% at June 30, 2008. The S&P/Case-Shiller Home Price Index for the Los Angeles Metropolitan Area, where most of our lending activity occurs, declined by approximately 18% in fiscal 2009 and 25% in fiscal 2008. This compares to the S&P/Case-Shiller U.S. National Home Price Index decline of approximately 15% in both fiscal 2009 and fiscal 2008. Despite the weakened employment conditions, reduced home sales prices supported a strong volume of existing home sales in California during the fiscal year. During the 12 months ending June 2009, the California Association of Realtors reported the number of existing homes sold in the state increased 65%. Foreclosures accounted for 50% of these existing home sales, up from 40% in 2008. Sales of new homes remained extremely weak.3

~~Page~~Future growth opportunities will be influenced by the stability of the regional economy and other trends within California, including housing market conditions. According to the U.S. Census Bureau, unemployment rates in California increased to 12.3% at June 30, 2010 from 11.6% at June 30, 2009 and 7.0% at June 2008. This compares to the national unemployment rate of 9.5% at June 30, 2010, 9.5% at June 30, 2009 and 5.5% at June 30, 2008. According to the U.S. Census Bureau, the unemployment rates (not seasonally adjusted) for the Los Angeles-Long Beach-Santa Ana metropolitan area, where most of our lending activity occurs increased to 11.6% at June 30, 2010 from 10.8% at June 30, 2009 and 6.8% at June 30, 2008. The S&P/Case-Shiller Home Price Index for the Los Angeles Metropolitan Area declined by approximately 36% at May 2010 as compared to the high reported in 2006. This compares to the S&P/Case-Shiller U.S. National Home Price Index decline of approximately 29% as compared to the high reported in 2006. The California Association of Realtors reported single-family home sales decreased 4.2% in June 2010 as compared to June 2009.

According to the California Building Industry Association, housing starts gained ground in June 2010; however, production levels are still hovering around record lows. In response to declining new home sales, builders ~~have~~reduced ~~continued to reduce~~ the pace of new construction, asover ~~measured by~~ the ~~number~~past ofseveral ~~building permits issued~~years. According to the U.S. Census Bureau, one-to-four family and multi-family building permits ~~have~~ declined significantly in the past two years, both nationally and in California. On a national level, one-to-four family building permits declined 4135% in ~~fiscal~~ 2008 and 3936% in ~~fiscal~~ 2009. This compares to one-to-four family building permits in California declining 5443% in ~~fiscal~~ 2008 and 3844% in ~~fiscal~~ 2009. Multi-family building permits declined 123% in ~~fiscal~~ 2008 and 6949% in ~~fiscal~~ 2009 on a national level. This compares to multi-family building permits in California declining 434% in ~~fiscal~~ 2008 and 7456% in 2009. According ~~fiscal~~to the Construction Industry Research Board, for the first half of 2010 permits were up 17% when compared to the first half of 2009. ~~The~~One-to-four family permits were up 8% and multi-family permits rose 35%. While the recent improvement in construction is encouraging, the California housing market ~~has~~ and economy have been adversely impacted by the ~~decline~~record inlow levels of building permits over the past several years.

Competition

We face strong competition in originating real estate and other loans and in attracting deposits. Competition in originating real estate loans comes primarily from other savings institutions, commercial banks, credit unions and mortgage bankers. Other savings institutions, commercial banks, credit unions and finance companies provide vigorous competition in consumer lending.

We attract all of our deposits through our branch and ATM network. Competition for those deposits is principally from other savings institutions, commercial banks and credit unions, as well as mutual funds and other alternative investments. We compete for these deposits by offering superior service and a variety of deposit accounts at competitive rates. We have less than a 1% market share of deposits in each of the markets in which we compete.

Lending Activities

General. Historically, we originated and purchased first lien one-to-four family real estate loans. ~~The~~throughout ~~Bank,~~our ~~however~~market area. However, ~~has~~we have not purchased any one-to-four family real estate loans since June 2007 as ~~the~~we ~~Bank~~have ~~has~~ focused ~~its~~ our efforts on originating multi-family residential loans. We also originate ~~commercial real estate and~~ consumer loans, primarily automobile loans. ~~Our loans carry either a fixed or an adjustable rate of interest.~~ WePrior do not offer adjustable rate loans where the initial rate is below the otherwise applicable index rate (i.e., teaser rates). Mortgage loans generally have a longer term amortization, with maturities up to 30January ~~years~~2009, ~~depending upon the type of property with~~we ~~principal~~also ~~and~~originated ~~interest~~commercial ~~due~~real ~~each~~estate ~~month. Consumer~~ loans, ~~are~~but ~~generally short term and amortize monthly or~~ have ~~interest~~ceased ~~payable~~making ~~monthly. We~~such ~~also have~~ loans until ineconomic ~~our~~conditions ~~portfolio~~improve ~~that~~and only require interest payments on a monthly basis. At June 30, 2009, our net loan portfolio totaled $746.9 million, which constituted 83.4% of our total assets. We underwrite each purchased loan in accordance with our underwriting standards. The majority of the ~~loans that we purchased were acquired with servicing retained by the seller to allow for greater investments in~~ real- estate ~~lending without having to significantly increase our servicing and operations costs~~market stabilizes. ~~We generally purchased these loans without recourse against the seller.~~

AtOur ~~June~~loans carry ~~30,~~either ~~2009,~~a ~~the~~fixed ~~maximum~~or ~~amount~~an ~~which~~adjustable werate ~~could~~of ~~have~~interest. We ~~loaned~~do tonot offer ~~any~~adjustable ~~one~~rate ~~borrower~~loans ~~and~~where the ~~borrower’s~~initial ~~related~~rate ~~entities~~is ~~under~~below the otherwise applicable ~~regulations~~index ~~was~~rate ~~$12~~(i.~~0 million~~e., orteaser ~~15%~~rates). ofMortgage ~~the~~loans ~~Bank’s~~generally ~~unimpaired~~have ~~capital.~~a longer Atterm ~~June~~amortization, with maturities up to 30, ~~2009~~years, wedepending ~~had~~upon nothe type ~~loans~~of orproperty ~~group~~with ofprincipal and interest due each month. Consumer loans toare generally ~~related~~short ~~borrowers~~term ~~with~~and ~~outstanding~~amortize ~~balances~~monthly inor ~~excess~~have ofinterest ~~this~~payable ~~amount~~monthly. We ~~Our~~also ~~five~~have ~~largest~~loans ~~lending~~in ~~relationships~~our atportfolio that only require interest payments on a monthly basis. At June 30, ~~2009~~2010, ~~were~~our asnet ~~follows: (1)~~loan ~~three~~portfolio totaled ~~loans~~$758.0 tomillion, anwhich ~~individual~~constituted ~~totaling~~87.4% $7of our total assets.7 ~~million~~With respect to purchased loans, ~~secured~~we byunderwrote aeach ~~multi-tenant~~purchased ~~medical~~loan ~~office~~in ~~building~~accordance ~~and~~with our ~~two~~underwriting ~~multi-family~~standards. ~~dwellings;~~The ~~(2)~~majority ~~seven~~of the loans tothat anwe ~~individual~~purchased ~~for~~were acquired ~~$7.6~~with ~~million~~servicing ~~secured~~retained by ~~seven~~the ~~multi-family~~seller ~~dwellings~~to ~~ranging~~allow ~~from~~for ~~eight~~greater investments in real-estate lending without having to 50significantly ~~units;~~increase ~~(3)~~our ~~three~~servicing and operations costs. We generally purchased these loans towithout anrecourse against the seller.

~~Page~~At June 30, 2010, the maximum amount which we could have loaned to any one borrower and the borrower’s related entities under applicable regulations was $13.4 million, or 15% of our unimpaired capital. At June 30, 2010, we had no loans or group of loans to related borrowers with outstanding balances in excess of this amount. Our five largest lending relationships at June 30, 2010 were as follows:

~~individual~~● ~~for~~three ~~$6.9 million secured by a single tenant retail building, a single tenant supermarket building and a 15 tenant mixed use office building; (4) two~~ loans to an individual ~~for~~totaling $67.6 million, secured by a 16 multi-tenant medical office building and atwo ~~54 unit~~ multi-family ~~dwelling~~dwellings; and (5) two loans to an individual for $5.8 million secured by a single tenant industrial building and a single tenant office building. All of the loans noted in the above relationships were performing in accordance with their terms as of June 30, 2009.

~~Page~~● seven loans to an individual for $7.5 million secured by seven multi-family dwellings ranging from eight to 50 units;

~~The~~● ~~following~~three ~~table~~loans ~~presents~~to ~~information~~an ~~concerning~~individual ~~the~~for ~~composition~~$6.8 ofmillion ~~the~~secured ~~loan~~by ~~portfolio~~a insingle ~~dollar~~tenant ~~amounts~~retail building, a single tenant supermarket building and ina ~~percentages~~15 astenant ofmixed ~~the~~use ~~dates~~office ~~indicated.~~building;

	At June 30,
	2009					2008					2007					2006					2005
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
Real estate
One-to-four family	$	377,230		50.22	%	$	428,727		57.51	%	$	469,459		66.88	%	$	437,024		68.63	%	$	372,134		69.04	%
Multi-family		196,575		26.17			132,290		17.75			88,112		12.55			89,220		14.01			87,650		16.26
Commercial		121,143		16.13			115,831		15.54			77,821		11.09			58,845		9.24			32,383		6.01
Total real estate loans		694,948		92.52			676,848		90.80			635,392		90.52			585,089		91.88			492,167		91.31
Other loans
Consumer:
Automobile		41,798		5.56			52,299		7.01			53,100		7.56			41,572		6.53			38,613		7.16
Home equity		1,299		0.17			1,405		0.19			1,446		0.21			1,787		0.28			601		0.11
Other		13,119		1.75			14,883		2.00			12,024		1.71			8,374		1.31			7,644		1.42
Total other loans		56,216		7.48			68,587		9.20			66,570		9.48			51,733		8.12			46,858		8.69
Total loans		751,164		100.00	%		745,435		100.00	%		701,962		100.00	%		636,822		100.00	%		539,025		100.00	%
Less:
Net deferred loan origination costs (fees)		376					33					(134	)				(202	)				(32	)
Net (discount) premium on purchased loans		(79	)				(48	)				120					195					982
Allowance for loan losses		(4,586	)				(3,229	)				(2,805	)				(2,722	)				(2,408	)
Total loans receivable, net	$	746,875				$	742,191				$	699,143				$	634,093				$	537,567

●

two loans to an individual for $6.5 million secured by a 16 tenant medical office building and a 54 unit multi-family dwelling; and

~~Page~~● 6two loans to an individual for $5.7 million secured by a single tenant industrial building and a single tenant office building.

~~The~~All ~~following~~of the ~~table~~loans ~~shows~~noted in the ~~composition~~above ofrelationships ~~the~~were ~~loan~~performing ~~portfolio~~in byaccordance ~~fixed~~with their ~~and~~terms ~~adjustable~~as ~~rate~~of atJune ~~the~~30, ~~dates indicated~~2010.

	At June 30,
	2009					2008					2007					2006					2005
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
FIXED RATE	(Dollars in thousands)
Real Estate
One-to-four family	$	303,287		40.38	%	$	335,453		45.00	%	$	348,798		49.69	%	$	258,918		40.66	%	$	133,854		24.83	%
Multi-family		—		—			—		—			—		—			—		—			—		—
Commercial		—		—			—		—			—		—			—		—			—		—
Total real estate loans		303,287		40.38			335,453		45.00			348,798		49.69			258,918		40.66			133,854		24.83
Other loans
Consumer:
Automobile		41,798		5.56			52,299		7.02			53,100		7.56			41,572		6.53			38,613		7.16
Other		12,265		1.63			13,991		1.87			11,115		1.58			7,424		1.17			6,666		1.24
Total other loans		54,063		7.19			66,290		8.89			64,215		9.14			48,996		7.70			45,279		8.40
Total fixed rate loans		357,350		47.57			401,743		53.89			413,013		58.83			307,914		48.36			179,133		33.23
ADJUSTABLE RATE
Real Estate
One-to-four family		73,943		9.84			93,274		12.51			120,661		17.19			178,106		27.96			238,280		44.21
Multi-family		196,575		26.17			132,290		17.75			88,112		12.55			89,220		14.01			87,650		16.26
Commercial		121,143		16.13			115,831		15.54			77,821		11.09			58,845		9.24			32,383		6.01
Total real estate loans		391,661		52.14			341,395		45.80			286,594		40.83			326,171		51.21			358,313		66.48
Other loans
Consumer:
Home equity		1,299		0.17			1,405		0.19			1,446		0.21			1,787		0.28			601		0.11
Other		854		0.12			892		0.12			909		0.13			950		0.15			978		0.18
Total other loans		2,153		0.29			2,297		0.31			2,355		0.34			2,737		0.43			1,579		0.29
Total adjustable rate loans		393,814		52.43			343,692		46.11			288,949		41.17			328,908		51.64			359,892		66.77
Total loans		751,164		100.00	%		745,435		100.00	%		701,962		100.00	%		636,822		100.00	%		539,025		100.00	%
Less:
Net deferred loan originations costs(fees)		376					33					(134	)				(202	)				(32	)
Net (discounts) premium on purchasedloans		(79	)				(48	)				120					195					982
Allowance for loan losses		(4,586	)				(3,229	)				(2,805	)				(2,722	)				(2,408	)
Total loans receivable, net	$	746,875				$	742,191				$	699,143				$	634,093				$	537,567

~~Page~~The following 7table presents information concerning the composition of the loan portfolio in dollar amounts and in percentages as of the dates indicated. There were no loans held for sale on any of the dates indicated below.

Loan Maturity. The following schedule illustrates certain information at June 30, 2009 regarding the dollar amount of loans maturing in the portfolio based on their contractual terms-to-maturity, but does not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. Loan balances do not include undisbursed loan proceeds, unearned discounts, unearned income and allowance for loan losses.

	At June 30,
	2010						2009						2008						2007						2006
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate
One-to-four family	$	335,631			43.55	%	$	377,230			50.22	%	$	428,727			57.51	%	$	469,459			66.88	%	$	437,024			68.63	%
Multi-family residential		278,397			36.12			196,575			26.17			132,290			17.75			88,112			12.55			89,220			14.01
Commercial		113,458			14.72			121,143			16.13			115,831			15.54			77,821			11.09			58,845			9.24
Total real estate loans		727,486			94.39			694,948			92.52			676,848			90.80			635,392			90.52			585,089			91.88

Other loans
Consumer:
Automobile		29,492			3.83			41,798			5.56			52,299			7.01			53,100			7.56			41,572			6.53
Home equity		1,096			0.14			1,299			0.17			1,405			0.19			1,446			0.21			1,787			0.28
Other		12,672			1.64			13,119			1.75			14,883			2.00			12,024			1.71			8,374			1.31
Total other loans		43,260			5.61			56,216			7.48			68,587			9.20			66,570			9.48			51,733			8.12

Total loans	$	770,746			100.00	%	$	751,164			100.00	%	$	745,435			100.00	%	$	701,962			100.00	%	$	636,822			100.00	%

Less:
Net deferred loan originations costs (fees)		607						376						33						(134	)					(202	)
Net (discounts) premiums on purchased loans		(59	)					(79	)					(48	)					120						195
Allowance for loan losses		(13,309	)					(4,586	)					(3,229	)					(2,805	)					(2,722	)
Total loans receivable, net	$	757,985					$	746,875					$	742,191					$	699,143					$	634,093

	Real Estate								Consumer
	One-to-four family		Multi-family			Commercial			Automobile			Home Equity			Other			Total
	(In thousands)
At June 30, 2009
Within (1) year (1)	$	—		$	235		$	—		$	682		$	1,299		$	3,441		$	5,657
After 1 year:
After 1 year through 3 years		302			—			244			17,924			—			930			19,400
After 3 year through 5 years		836			35			9,247			23,033			—			1,488			34,639
After 5 year through 10 years		30,401			19,367			110,542			159			—			7,260			167,729
After 10 year through 15 years		23,882			155,512			1,110			—			—			—			180,504
After 15 years		321,809			21,426			—			—			—			—			343,235
Total due after 1 year		377,230			196,340			121,143			41,116			—			9,678			745,507
Total	$	377,230		$	196,575		$	121,143		$	41,798		$	1,299		$	13,119		$	751,164
(1) Includes demand loans and loans that have no stated maturity.

~~Page~~Loan Maturity. The 8following schedule illustrates certain information at June 30, 2010 regarding the dollar amount of loans maturing in the portfolio based on their contractual terms-to-maturity, but does not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. Loan balances do not include undisbursed loan proceeds, unearned discounts, unearned income and allowance for loan losses.

The following table sets forth the dollar amount of all loans due after June 30, 2010, which have fixed interest rates and adjustable interest rates.

	Real Estate						Consumer
	One-to-four family		Multi-family residential		Commercial		Automobile		Home Equity		Other		Total
	(In thousands)
At June 30, 2010

Within (1) year (1)	$	136	$	—	$	—	$	1,027	$	1,096	$	2,690	$	4,949

After 1 year:
After 1 year through 3 years		132		249		3,469		15,518		—		1,255		20,623
After 3 years through 5 years		731		21		9,594		12,909		—		1,308		24,563
After 5 years through 10 years		37,006		23,137		99,304		38		—		7,419		166,904
After 10 years through 15 years		8,960		231,106		1,091		—		—		—		241,157
After 15 years		288,666		23,884		—		—		—		—		312,550
Total due after 1 year		335,495		278,397		113,458		28,465		—		9,982		765,797

Total	$	335,631	$	278,397	$	113,458	$	29,492	$	1,096	$	12,672	$	770,746

	Due after June 30, 2010
	Fixed		Adjustable		Total
	(In thousands)
Real Estate Loans
One-to-four family	$	303,287	$	73,943	$	377,230
Multi-family	─			196,340		196,340
Commercial	─			121,143		121,143
Real estate loans due after June 30, 2010		303,287		391,426		694,713
Other Loans
Consumer
Automobile		41,116	─			41,116
Home equity	─		─		─
Other loans		9,678	─			9,678
Other loans due after June 30, 2010		50,794	─			50,794
Total loans due after June 30, 2010	$	354,081	$	391,426	$	745,507

(1)	Includes demand loans and loans that have no stated maturity.

One-to-Four Family Residential Lending. At June 30, 2009, our first lien one-to-four family residential mortgage loans totaled $377.2 million, or 50.2%, of our gross loan portfolio. We generally underwrite our one-to-four family loans based on the applicant’s employment, credit history and the appraised value of the subject property. With respect to purchased loans, we underwrite each loan based upon our underwriting standards prior to making the purchase. Presently, we lend up to 80% of the lesser of the appraised value or purchase price of the subject property for one-to-four family residential loans. Properties securing our one-to-four family loans are appraised by independent state licensed fee appraisers approved by our board of directors. We require our borrowers to obtain title and hazard insurance, and flood insurance, if necessary, in an amount not less than the value of the property improvements.7

WeThe following ~~currently~~table ~~originate~~sets ~~one-to-four~~forth ~~family~~the ~~mortgage~~dollar ~~loans~~amount onof aall ~~fixed rate and adjustable rate basis. Our pricing strategy for mortgage~~ loans ~~includes~~at ~~setting~~June ~~interest~~30, ~~rates~~2010 that are ~~competitive~~due ~~with~~after ~~other~~June ~~local~~30, ~~financial~~2011, ~~institutions~~which ~~and~~have consistent with our internal needs. Adjustable rate loans are tied to indices based on the one year London Inter Bank Offering Rate and U.S. Treasury securities adjusted to a constant maturity of one year. A majority of our adjustable rate loans carry an initial fixed ~~rate of~~ interest ~~for~~rates either three or five years which then converts to an interest rate that is adjusted annually based upon the applicable index. Our one-to-four family mortgage loans are structured with a thirty year maturity and ~~with amortizations up to a 30-year period. All of our one-to-four family loans are secured by properties located~~adjustable ininterest ~~California~~rates. ~~All our real estate loans contain a “due on sale” clause allowing us to declare the unpaid principal balance due and payable upon the sale of the security property~~

Adjustable rate mortgage loans generally pose different credit risks than fixed rate loan mortgages, primarily because as interest rates rise, the borrower’s payment rises, increasing the potential for default. At June 30, 2009, our one-to-four family adjustable rate mortgage loan portfolio totaled $73.9 million, or 9.8% of our gross loan portfolio. At that date, the fixed rate one-to-four family mortgage loan portfolio totaled $303.3 million, or 40.4% of the Company’s gross loan portfolio. Included in non-accrual loans at June 30, 2009 were $3.1 million in adjustable rate one-to-four family mortgage loans and $5.5 million in fixed rate one-to-four family mortgage loans.

	Due after June 30, 2011
	Fixed Rate		Adjustable Rate		Total
	(In thousands)
Real estate loans
One-to-four family	$	276,859	$	58,636	$	335,495
Multi-family residential		—		278,397		278,397
Commercial		—		113,458		113,458
Total real estate loans		276,859		450,491		727,350

Other Loans
Consumer:
Automobile		28,465		—		28,465
Home equity		—		—		—
Other loans		9,982		—		9,982
Total other loans		38,447		—		38,447
Total loans	$	315,306	$	450,491	$	765,797

~~Page~~One-to-four Family 9Residential Lending. At June 30, 2010, our first lien one-to-four family residential mortgage loans totaled $335.6 million, or 43.5%, of our gross loan portfolio. We generally underwrite our one-to-four family loans based on the applicant’s employment, credit history and the appraised value of the subject property. With respect to loans we have purchased, we underwrote each loan based upon our underwriting standards prior to making the purchase. Presently, we lend up to 80% of the lesser of the appraised value or purchase price of the subject property for one-to-four family residential loans. Properties securing our one-to-four family loans are appraised by independent state licensed fee appraisers approved by our board of directors. We require our borrowers to obtain title and hazard insurance, and flood insurance, if necessary, in an amount not less than the value of the property improvements.

InWe currently ~~addition,~~originate ~~the Company has purchased and originated interest-only~~ one-to-four family mortgage loans. ~~One-to-four~~on ~~family~~a ~~interest-only~~fixed ~~mortgage~~rate ~~loans~~and adjustable ~~have~~rate ~~decreased~~basis. byOur ~~$31.9~~pricing ~~million,~~strategy orfor ~~34.8%~~mortgage toloans ~~$59.7~~includes ~~million~~setting interest atrates ~~June~~that ~~30,~~are ~~2009~~competitive ~~from~~with ~~$91.6~~other ~~million~~local atfinancial ~~June~~institutions ~~30,~~and consistent ~~2008.~~with ~~The~~our ~~Company~~internal ~~has~~needs. ~~also~~Adjustable ~~purchased~~rate loans ~~underwritten~~are ~~based~~tied ~~upon~~to ~~stated income.~~indices Abased ~~stated~~on ~~income~~the ~~loan~~one isyear aLondon ~~loan~~Inter ~~where~~Bank ~~the~~Offering ~~borrower’s~~Rate ~~income~~and ~~source~~U.S. isTreasury securities ~~not~~adjusted ~~subject~~ to ~~verification~~a ~~through~~constant ~~the~~maturity ~~application process, but the reasonableness~~ of ~~the~~one ~~stated~~year. ~~income~~A ismajority ~~verified through review~~ of ~~other~~our adjustable ~~sources,~~rate ~~such~~loans ascarry ~~compensation~~an ~~surveys.~~initial ~~One-to-four~~fixed ~~family~~rate ~~stated~~of ~~income~~interest ~~mortgage~~for ~~loans~~either ~~have~~three or ~~decreased~~five byyears ~~$12.9~~which ~~million,~~then orconverts ~~12.0%~~ to ~~$94.3~~an ~~million~~interest atrate ~~June~~that ~~30,~~is ~~2009~~adjusted ~~from~~annually based ~~$107.2~~upon ~~million~~the atapplicable ~~June 30, 2008~~index. AsOur ofone-to-four ~~June~~family ~~30, 2009, $66.5 million of stated income~~ mortgage loans ~~were fixed rate loans and $27.8~~are ~~million~~structured ~~were~~with ~~adjustable~~a ~~rate~~thirty ~~loans. Included~~year inmaturity ~~non-accrual~~and ~~loans~~with atamortizations ~~June~~up ~~30,~~to ~~2009~~a ~~are $4~~30-year period.9 ~~million~~All inof our one-to-four family loans ~~that~~are ~~were~~secured ~~interest-only~~by orproperties ~~stated~~located ~~income~~in California. All our real estate loans~~. We~~ ~~have~~contain noa ~~plans~~“due toon ~~increase~~sale” ~~the~~clause ~~number~~allowing ofus to ~~interest-only~~declare orthe ~~stated~~unpaid ~~income~~principal ~~loans~~balance ~~held~~due inand ~~our~~payable ~~loan~~upon ~~portfolio~~the atsale ~~this~~of ~~time~~the security property.

InAdjustable rate ~~2005,~~mortgage weloans ~~began~~generally topose ~~underwrite~~different ~~interest-only~~credit ~~loans~~risks ~~assuming~~than afixed ~~fully~~rate ~~amortizing~~loan mortgages, ~~monthly~~primarily ~~payment~~because ~~and~~as ~~loan~~interest ~~qualification~~rates ~~was~~rise, ~~based upon~~ the ~~rate~~borrower’s ~~that~~payment rises, ~~would~~increasing ~~apply upon~~ the ~~first~~potential ~~interest~~for ~~rate adjustment~~default. AnAt ~~interest-only~~June ~~loan~~30, ~~typically~~2010, ~~provides~~our one-to-four ~~for~~family ~~the~~adjustable ~~payment~~rate ofmortgage ~~interest~~loan ~~(rather~~portfolio ~~than~~totaled ~~both~~$58.6 million, ~~principal~~or ~~and~~7.6% ~~interest)~~of ~~for~~our agross ~~fixed period~~loan ofportfolio. ~~three,~~At ~~five~~that ~~or seven years~~date, ~~thereafter~~ the ~~loan~~fixed ~~payments~~rate one-to-four ~~adjust~~family tomortgage ~~include~~loan ~~both~~portfolio ~~principal~~totaled ~~and~~$276.9 ~~interest~~million, ~~for~~or ~~the~~35.9% ~~remaining~~of our ~~term~~gross loan portfolio. ByIncluded ~~imposing~~in ~~these~~non-accrual ~~additional~~loans ~~underwriting~~at ~~standards~~June we30, 2010 ~~believe~~were ~~these~~$2.9 ~~loans~~million ~~should~~in ~~not~~adjustable ~~present~~rate ~~greater~~one-to-four ~~risk~~family ~~than~~mortgage ~~other~~ loans and $21.9 million in ~~our~~fixed rate one-to-four family ~~loan~~mortgage ~~portfolio~~loans.

~~The following table describes certain risk characteristics of the Company’s one-to-four family nonconforming mortgage loans held for investment as of June 30, 2009 and 2008:~~8

	Outstanding Balance		Weighted-Average Original Credit Score(1)		Weighted Average Original LTV(2)			Weighted-Average Seasoning(3)
	(Dollars in thousands)
June 30, 2009
Interest-only(4)	$	59,741		736		76.25	%	3.46 years
Stated income(4) (5)		94,263		738		71.84	%	4.34 years
Credit score less than or equal to 660		27,766		641		71.23	%	4.05 years
June 30, 2008
Interest-only(4)	$	91,550		737		71.36	%	3.01 years
Stated income(4) (5)		107,224		739		66.66	%	3.36 years
Credit score less than or equal to 660		30,914		641		69.48	%	3.13 years

In addition, we previously purchased interest-only one-to-four family mortgage loans. One-to-four family interest-only mortgage loans have decreased by $14.4 million, or 24.1% to $45.3 million at June 30, 2010 from $59.7 million at June 30, 2009. We have also purchased loans underwritten based upon stated income. A stated income loan is a loan where the borrower’s income source is not subject to verification through the application process, but the reasonableness of the stated income is verified through review of other sources, such as compensation surveys. One-to-four family stated income mortgage loans have decreased by $19.1 million, or 20.3% to $75.2 million at June 30, 2010 from $94.3 million at June 30, 2009. As of June 30, 2010, $53.4 million of stated income mortgage loans were fixed rate loans and $21.8 million were adjustable rate loans. Included in non-accrual loans at June 30, 2010 were $12.5 million in one-to-four family loans that were interest-only or stated income loans that carried a specific valuation allowance of $1.7 million. There were $3.2 million in interest-only or stated income loans that were modified as of June 30, 2010. The $3.2 million in loans were classified as troubled debt restructurings and are included in non-accrual loans. There are no special or unusual payment arrangements on these loans.

~~(1)~~In ~~The~~2005, we ~~credit~~began ~~score~~to ispurchase ~~one~~interest-only ~~factor~~loans inassuming ~~determining~~a fully amortizing monthly payment and loan qualification was based upon the ~~credit~~rate ~~worthiness~~that would apply upon the first interest rate adjustment. We have no plans to increase the number of interest-only or stated income loans held in our loan portfolio or originate such loans at this time and have not purchased any such loans since 2007. An interest-only loan typically provides for the payment of interest (rather than both principal and interest) for a ~~borrower~~fixed ~~based~~period onof three, five or seven years, thereafter the ~~borrower’s~~loan ~~credit~~payments ~~history~~adjust to include both principal and interest for the remaining term. By imposing these additional underwriting standards we believe these loans should not present greater risk than other loans in our one-to-four family loan portfolio.

~~(2)~~The following ~~LTV~~table ~~(loan-to-value)~~describes iscertain ~~the~~risk ~~ratio~~characteristics ~~calculated~~of byour ~~dividing~~one-to-four ~~the~~family nonconforming ~~original~~mortgage ~~loan~~loans ~~balance~~held byfor ~~the~~investment ~~appraised~~as ~~value~~ of ~~the~~June ~~real~~30, ~~estate~~2010 ~~collateral.~~and 2009:

Category	Outstanding Balance		Weighted-Average Credit Score(1)		Weighted Average LTV(2)			Weighted- Average Seasoning(3)
	(Dollars in thousands)

June 30, 2010
Interest-only(4)	$	45,295		735		71.86	%	4.16 years
Stated income(4)(5)		75,184		737		66.95			5.18
Credit score less than or equal to 660		25,268		640		70.68			4.90

June 30, 2009
Interest-only(4)	$	59,741		736		76.25	%	3.46 years
Stated income(4)(5)		94,263		738		71.84			4.34
Credit score less than or equal to 660		27,766		641		71.23			4.05

(1)	The credit score is one factor in determining the credit worthiness of a borrower based on the borrower’s credit history. The credit score is as of origination.

(2)	LTV (loan-to-value) is the ratio calculated by dividing the original loan balance by the original appraised value of the real estate collateral.

(3)	Seasoning describes the number of years since the funding date of the loan.

(4) At June 30, ~~2009~~2010 and ~~2008~~2009 there ~~are~~were $169.89 million and $3716.08 million in loans that are both stated income and interest-only, respectively.

(5)	Stated income is defined as a borrower provided level of income which is not subject to verification during the loan origination process through the borrower’s application, but the reasonableness of the borrower’s income is verified through other sources.

Multi-Family Residential Lending. We also offer multi-family residential loans. These loans are secured by real estate located in our primary market area. At June 30, 2009, multi-family residential loans totaled $196.6 million, or 26.2%, of our gross loan portfolio.9

~~Our~~Multi-Family Residential Real Estate Lending. We also offer multi-family residential real estate loans ~~are~~through ~~originated~~our ~~with~~loan ~~adjustable~~division ~~interest~~at ~~rates~~the Covina headquarters office. These Weloans ~~use~~are asecured ~~number~~by ofreal ~~indices~~estate tolocated ~~set~~in ~~the~~our ~~interest~~primary ~~rate~~market areas, within ~~including~~the astate ~~rate~~of ~~based~~California. We ongenerally ~~the~~originate ~~constant~~multi-family residential ~~maturity~~loans ofthrough ~~one~~our ~~year~~loan Uofficers.S. Since ~~Treasury~~multi-family residential ~~securities.~~lending ~~Our~~has ~~adjustable~~become ~~rate~~the ~~loans~~predominate ~~carry~~source anof ~~initial~~our ~~fixed~~loan ~~rate~~origination activity, ofwe ~~interest~~have ~~for~~hired ~~one~~additional seasoned loan officers, ~~three~~underwriters, ~~five~~and support orstaff ~~seven~~in ~~years~~this ~~which~~area. ~~then~~We ~~convert~~ seek to anoriginate ~~interest~~multi-family ~~rate~~residential ~~that~~loans with isinitial ~~adjusted~~principal ~~annually~~balances ~~based~~of ~~upon~~$1.5 ~~the~~million ~~applicable~~or ~~index~~less. At June ~~Presently~~30, we2010, ~~lend~~multi-family upresidential toloans 80totaled $278.4 million, or 36.1%, of our gross loan portfolio, and consisted of ~~the~~415 ~~lesser~~loans outstanding with an average loan balance of approximately $670,000 although we originate loans with balances greater than this average.

~~Page~~Our multi-family 10residential loans are originated with adjustable interest rates. We use a number of indices to set the interest rate, including a rate based on the constant maturity of one year U.S. Treasury securities. Our adjustable rate loans carry an initial fixed rate of interest for one, three, five or seven years which then convert to an interest rate that is adjusted annually based upon the applicable index. Presently, our underwriting guidelines allow us to lend up to 70% of the lesser of the appraised value or purchase price of multi-family residential real estate. These loans require monthly payments, amortize over a period of up to thirty years and have maximum maturity of thirty years and carry prepayment penalties.

~~the~~Loans secured ~~appraised~~by ~~value or purchase price of~~ multi-family residential real estate are underwritten based on non-discriminatory underwriting standards and loan origination procedures established by Kaiser Federal Bank’s Credit Committee. Loan ~~These~~policies are ~~loans~~reviewed ~~require~~annually, ~~monthly~~or ~~payments~~more frequently if warranted, ~~amortize~~and ~~over~~approved aby ~~period~~both the Credit Committee and Kaiser Federal Bank’s board of updirectors. The loan underwriting process is intended to ~~thirty~~assess ~~years~~the income producing potential of the property and ~~have~~the ~~maximum~~financial ~~maturity~~strength of ~~thirty~~the ~~years~~borrower. We review the borrower’s sources of income, cash flow, assets, and ~~carry~~credit history. We ~~prepayment~~evaluate ~~penalties~~the historical and projected income and expenses of the borrower and property. We ~~These~~also ~~loans~~evaluate ~~are~~a ~~secured~~guarantor bywhen ~~properties~~a guarantee ~~located~~is inprovided ~~California~~as part of the loan. The Wenet ~~originate~~operating ~~these~~income, which is the income derived from the operation of the property less all operating expenses, must be sufficient to cover the payments related to the outstanding debt. Appraisals and secondary review appraisals on properties securing multi-family residential loans ~~through~~are performed by independent state licensed fee appraisers approved by our ~~loan~~board ~~officers~~of directors.

Loans secured by multi-family residential ~~real~~properties ~~estate~~ are ~~underwritten~~generally ~~based~~larger onand ~~the~~involve a ~~income~~greater ~~producing~~degree ~~potential~~ of ~~the~~credit ~~property~~risk ~~and~~than ~~the~~one-to-four ~~financial~~family ~~strength~~residential ofmortgage loans. ~~the~~Because ~~borrower.~~payments ~~The~~on ~~net~~loans ~~operating~~secured ~~income,~~by ~~which~~multi-family isresidential ~~the~~properties are ~~income~~often ~~derived~~dependent ~~from~~on the successful operation or management of the ~~property~~properties, repayment ~~less~~of ~~all~~such ~~operating~~loans ~~expenses,~~may ~~must~~ be ~~sufficient~~subject to ~~cover~~adverse conditions in the ~~payments~~real ~~related~~estate tomarket or the ~~outstanding debt~~economy. WeIf ~~may~~the ~~require~~cash anflow ~~assignment~~from ofthe ~~rents~~project is reduced, or if leases inare ~~order~~not obtained or renewed, the borrower’s ability to repay the loan may be ~~assured~~impaired. ~~that~~In order to monitor the adequacy of cash ~~flow~~flows ~~from~~on income-producing properties, the ~~project~~borrowers are required to provide periodic financial information. To ensure adequate resources to request, follow-up, and analyze borrower financial updates, additional staff has been allocated to these functions, and staffing will be ~~used~~added in the future to ~~repay~~support the ~~debt~~size and complexity of the portfolios. Included ~~Appraisals~~in ~~and~~non-accrual ~~secondary~~loans ~~review~~at ~~appraisals~~June 30, on2010 ~~properties~~were ~~securing~~five multi-family residential ~~loans~~real ~~are~~estate ~~performed~~loans bytotaling ~~independent~~$4.0 million, ~~state~~three ~~licensed~~of ~~fee~~which ~~appraisers~~were ~~approved~~classified byas ~~our~~troubled ~~Board~~debt ofrestructurings ~~Directors.~~and ~~See~~are current “-under ~~Loan~~the ~~Originations,~~modified ~~Purchases,~~terms. See ~~Sales~~“—Asset ~~and~~Quality ~~Repayments~~- Non-Performing Assets.”

Loans secured by multi-family residential properties are generally larger and involve a greater degree of credit risk than one-to-four family residential mortgage loans. Because payments on loans secured by multi-family residential properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced, or if leases are not obtained or renewed, the borrower’s ability to repay the loan may be impaired. In order to monitor the adequacy of cash flows on income-producing properties, the borrowers are required to provide periodic financial information. Included in non-accrual loans at June 30, 2009 were $235,000 of multi-family real estate loans. See “- Asset Quality - Non-Performing Assets.”10

Commercial Real Estate Lending. WeIn ~~also~~January ~~offer~~2009, we suspended offering new commercial real estate loans due to the unstable economic outlook for this type of loan. We ~~These~~will reevaluate whether to originate commercial real estate loans ~~are~~in the future as market conditions change. The existing portfolio is secured primarily by small retail establishments, small industrial warehouse buildings and small office buildings located in our primary market area, within the state of California, and are both owner and non-owner occupied. WeThese ~~originate~~loans ~~commercial~~were ~~real~~originated ~~estate~~through ~~loans~~our ~~through~~staff at our ~~own~~Covina headquarters ~~staff~~office. Generally, we dohave not ~~purchase~~purchased commercial real estate loans. At June 30, ~~2009~~2010, commercial real estate loans totaled $~~121~~113.15 million, or 1614.17% of our gross loan portfolio, of which $2724.01 million or 22 21.2% of this portfolio was to borrowers who occupy the property. The table below shows the number and balance by collateral type of our commercial real estate loans at June 30, 2010.

We originate only adjustable rate commercial real estate loans. The interest rate on these loans is tied to a rate based on the constant maturity of one year U.S. Treasury securities. A majority of our adjustable rate loans carry an initial fixed rate of interest for either three or five years which then converts to an interest rate that is adjusted annually based upon the index. Presently, we lend up to 75% of the lesser of the appraised value or purchase price for the commercial real estate. These loans require monthly payments, amortize up to thirty years, have maturities of up to fifteen years and carry prepayment penalties.

Type of Loan	Number of Loans		Balance
			(In thousands)

Office		36	$	40,728
Owner occupied		35		24,054
Manufacturing facilities		13		16,912
Retail		10		16,188
Medical office		4		5,346
Other		13		10,230
Total		111	$	113,458

~~Loans~~We originated ~~secured~~only byadjustable rate commercial real estate ~~are~~loans. ~~underwritten~~The interest rate on these loans is tied to a rate based on the ~~income~~constant ~~producing~~maturity ~~potential~~of one year U.S. Treasury securities. A majority of our adjustable rate loans carry an initial fixed rate of interest for either three or five years which then converts to an interest rate that is adjusted annually based upon the ~~property~~index. Presently, ~~the~~our underwriting ~~financial~~guidelines ~~strength~~allow us to lend up to 60% of the ~~borrower~~lesser ~~and~~of ~~any~~the appraised ~~guarantors~~value or purchase price for the commercial real estate. ~~The~~These ~~net~~loans require ~~operating~~monthly ~~income~~payments, ~~which~~amortize isup ~~the~~to ~~income~~thirty years, have maturities of up to fifteen years and carry prepayment penalties.

~~Page~~Loans secured 11by commercial real estate were underwritten based on the income producing potential of the property, the financial strength of the borrower and any guarantors. The net operating income, which is the income derived from the operation of the property less all operating expenses, must be sufficient to cover the payments related to the outstanding debt. We may require an assignment of rents or leases in order to be assured that the cash flow from the project will be used to repay the debt. All loans required an appraisal and secondary review from two different independent state licensed fee appraisers on our approved appraiser list, which is approved by the board of directors.

~~derived~~Loans secured ~~from~~by ~~the~~commercial ~~operation~~real ofestate ~~the~~properties ~~property~~are ~~less~~generally ~~all~~larger ~~operating~~and ~~expenses,~~involve ~~must~~a greater bedegree ~~sufficient~~of credit risk than one-to-four ~~cover~~family ~~the~~residential mortgage loans. Because payments ~~related~~on toloans secured by commercial real estate properties are often dependent on the ~~outstanding~~successful ~~debt.~~operation Weor ~~may~~management ~~require~~of anthe ~~assignment~~properties, repayment of ~~rents~~such orloans ~~leases~~may inbe ~~order~~subject to beadverse ~~assured~~conditions ~~that~~in the real estate market or the economy. If the cash flow from the project ~~will~~is bereduced, ~~used~~or if leases are not obtained or renewed, the borrower’s ability to repay the ~~debt~~loan may be impaired. In ~~Appraisals~~order onto ~~properties~~monitor ~~securing~~the ~~commercial~~adequacy ~~real~~of ~~estate~~cash ~~loans~~flows ~~are~~on income-producing ~~performed~~properties, bythe ~~independent~~borrowers ~~state~~are ~~licensed~~required ~~fee~~to ~~appraisers~~provide ~~approved~~periodic financial byinformation. Included ~~the~~in ~~Board~~non-accrual loans as of ~~Directors.~~ ~~All~~June ~~the~~30, 2010 ~~properties~~was ~~securing~~one ~~our~~contractually current commercial real estate ~~loans~~loan ~~are~~with ~~located~~a inbalance ~~California~~of $2.7 million. See “-—Asset ~~Loan~~Quality ~~Originations,~~- ~~Purchases, Sales and Repayments~~Non-Performing Assets.”

Consumer Loans. ~~secured~~We byoffer ~~commercial~~a ~~real~~variety ~~estate~~of ~~properties~~secured ~~are~~consumer ~~generally~~loans, ~~larger~~including ~~and~~home equity ~~involve~~lines ~~a greater degree~~ of credit, ~~risk~~new ~~than~~and ~~one-to-four~~used ~~family~~automobile ~~residential mortgage~~ loans., ~~Because~~and ~~payments on~~ loans secured by savings ~~commercial~~deposits. ~~real~~We ~~estate~~also ~~properties~~offer ~~are~~a ~~often~~limited ~~dependent~~amount ~~on the successful operation or management~~ of ~~the~~unsecured ~~properties,~~loans. ~~repayment of such~~Consumer loans ~~may~~generally behave ~~subject~~shorter terms to ~~adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced~~maturity, orwhich ifreduces ~~leases~~our ~~are~~exposure ~~not~~to changes ~~obtained~~in orinterest ~~renewed~~rates, ~~the~~and ~~borrower’s~~carry ~~ability~~higher torates ~~repay the loan may be impaired. In order to monitor the adequacy~~ of ~~cash~~interest ~~flows~~than ~~on income~~do one-~~producing properties, the borrowers are required~~ to-four ~~provide~~family ~~periodic~~residential ~~financial~~mortgage ~~information~~loans. ~~There~~ ~~were~~At noJune ~~commercial~~30, ~~real~~2010, ~~estate~~our ~~loans~~consumer loan onportfolio, ~~non-accrual~~exclusive atof ~~June~~automobile 30loans, ~~2009~~totaled $13.8 ~~See~~million, “-or ~~Asset~~1.8%, of ~~Quality~~our -gross ~~Non-Performing Loans~~loan portfolio.”

Consumer Loans. We offer a variety of secured consumer loans, including home equity lines of credit, new and used automobile loans, and loans secured by savings deposits. We also offer a limited amount of unsecured loans. Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates, and carry higher rates of interest than do one-to-four family residential mortgage loans. At June 30, 2009, our consumer loan portfolio, exclusive of automobile loans, totaled $14.4 million, or 1.9%, of our gross loan portfolio.11

The most significant component of our consumer lending is automobile loans. We originate automobile loans only on a direct basis with the borrower. Many of our automobile loans are made to employees of the Kaiser Permanente Health Care System. Loans secured by automobiles totaled $4129.85 million, or 53.683%, of our gross loan portfolio at June 30, ~~2009~~2010. Automobile loans may be written for up to seven years for new automobiles and a maximum of five years for used automobiles ~~(with an age limit of eight years)~~ and have fixed rates of interest. Loan-to-value ratios for automobile loans are up to 100% of the manufacturer’s suggested retail price for new automobiles and up to 100% of value on used cars, based on valuation from official used car guides.

Each automobile loan requires the borrower to keep the financed vehicle fully insured against loss or damage by fire, theft and collision. Nevertheless, there can be no assurance that each financed vehicle will continue to be covered by physical damage insurance provided by the borrower during the entire term which the related loan is outstanding. In addition, we have the right to force place insurance coverage in the event the required physical damage insurance on an automobile is not maintained by the borrower.

Our primary focus when originating automobile loans is on the ability of the borrower to repay the loan rather than the value of the underlying collateral. The amount financed by us is generally up to the manufacturer’s suggested retail price of the financed vehicle plus sales tax, dealer preparation fees, license fees and title fees, plus the cost of service and warranty contracts obtained through ~~the~~us ~~bank~~ in connection with the vehicle.

Consumer loans may entail greater risk than do one-to-four family residential mortgage loans, particularly in the case of consumer loans which are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. As a result, consumer loan collections are dependent on the borrower’s continuing financial stability and, thus, are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Loan Approval ~~Originations~~Procedures and Authority. All multi-family residential and commercial real estate loans require an appraisal and secondary review appraisal as part of the underwriting process. One-to-four family residential loans require an appraisal and may be subject to a secondary review appraisal. Secured consumer loans require evaluation of collateral. Additionally, ~~Purchases~~any loan request that results in a total credit exposure to one borrower of over $500,000 ~~Sales~~and up to $1.5 million requires the additional approval of a second underwriter and/or ~~Repayments~~the Chief Credit Officer. Any loan request that results in a total credit exposure to one borrower over $1.5 million and up to $5 million requires the approval of the Credit Committee, which is currently comprised of the Chairman of the Board, President/CEO, Chief Operating Officer, Chief Credit Officer, and other senior lending staff. Loan requests that result in a credit exposure to one borrower over $5.0 million require the board of director’s approval. All loan approvals granted by the Credit Committee are documented in the meeting minutes and reported to the board of directors. Although our regulatory loans-to-one borrower limit is substantially higher than the $5 million internal limit, and will increase with the successful completion of this offering, our intention is to keep our lending limits at their current levels.

Loan Originations, Purchases, Sales and Repayments. We originate loans through employees located at our ~~offices~~headquarters office. Walk-in customers and referrals from our current customer base, advertisements, real estate brokers and mortgage loan brokers are also important sources of loan originations.

While we originate adjustable rate and fixed rate loans, our ability to originate loans is dependent upon customer demand for loans in our market area. Demand is affected by local competition and the interest rate environment. In prior years, we have also purchased real estate whole loans as well as participation interests in real estate loans. However, we have not purchased any loans since June 2007. At June 30, 2009, our real estate loan 12

~~Page~~While 12we originate adjustable rate and fixed rate loans, our ability to originate loans is dependent upon customer demand for loans in our market area. Demand is affected by local competition and the interest rate environment. In prior years, we have also purchased real estate whole loans as well as participation interests in real estate loans. However, we have not purchased any loans since June 2007. At June 30, 2010, our real estate loan portfolio totaled $727.5 million or 94.4% of the gross loan portfolio. Purchased real estate loans serviced by others at June 30, 2010 totaled $215.3 million, or 27.9% of the gross loan portfolio. At June 30, 2009, our real estate loan portfolio totaled $694.9 million or 92.5% of the gross loan portfolio. Purchased real estate loans serviced by others at June 30, 2009 totaled $291.1 million, or 38.8% of the gross loan portfolio.

portfolio totaled $694.9 million or 92.5% of the gross loan portfolio. Purchased real estate loans at June 30, 2009 totaled $291.1 million, or 38.8% of the gross loan portfolio. At June 30, 2008, our real estate loan portfolio totaled $676.8 million or 90.8% of the gross loan portfolio. Purchased real estate loans at June 30, 2008 totaled $351.6 million, or 47.2% of the gross loan portfolio.

The following table shows the loan originations, purchases, sales and repayment activities for the years indicated.

	Year ended June 30,
	For the Year Ended June 30,
	2009			2008			2007
	2010			2009			2008
	(In thousands)	~~(In thousands)~~
Originations by type:
Adjustable rate:
Real estate:
Real estate one-to-four-family	$	—		$	—		$	4,491
One-to-four family	$	─		$	4,491		$	2,399
-multi-family residential		91,104			76,495			59,548
Multi-family		76,495			59,548			13,740
-commercial		—			13,664			53,108
Commercial		13,664			53,108			23,432
Non-real estate – other consumer		—			—			185
Other:
Total adjustable rate		91,104			90,159			117,332
Other consumer		─			185			3,542
Total adjustable rate		90,159			117,332			43,113
Fixed rate:
Real estate:
Real estate one-to-four family	$	29,045		$	7,777		$	14,749
One-to-four family		7,777			14,749			20,574
Non-real estate - consumer automobile		8,285			12,395			24,960
Other:
- other consumer		9,397			11,264			13,569
Consumer automobile		12,395			24,960			35,654
Total fixed rate		46,727			31,436			53,278
Other consumer		11,264			13,569			11,841
Total loans originated		137,831			121,595			170,610
Total fixed rate		31,436			53,278			68,069
Total loans originated		121,595			170,610			111,182
Purchases:
Adjustable rate:
Real estate:
Real estate one-to-four family	$	—		$	—		$	—
One-to-four family		─			─			─
-multi-family residential		—			—			—
Multi-family		─			─			─
-commercial		—			—			—
Commercial		─			─			─
Total adjustable rate		—			—			—
Total adjustable rate		─			─			─
Fixed rate:
Real estate- one-to-four family		─			─			109,830
Real estate one-to-four family	$	—		$	—		$	—
Total fixed rate		─—			─—			~~109,830~~—
Total loans purchased		─—			─—			~~109,830~~—
Sales and repayments:
Sales and loan participations sold		─2,485			─—			─—
Principal repayments		115,~~866~~764			~~127~~115,~~137~~866			~~155~~127,~~872~~137
Total reductions		~~115~~118,~~866~~249			~~127~~115,~~137~~866			~~155~~127,~~872~~137
Decrease in other items, net		(18,~~045~~472	)		(~~425~~1,045	)		(90425	)
Net increase	$	411,~~684~~110		$	434,~~048~~684		$	6543,~~050~~048

~~Page~~ 13

Asset Quality

~~Asset~~General. As ~~quality~~a ~~remains~~result ~~strong~~of ~~despite~~ the ~~continued~~prolonged ~~deterioration~~distressed ineconomic ~~the~~environment, ~~housing~~elevated unemployment ~~market~~levels and ~~weakened~~a ~~economy~~depressed asreal ~~evidenced~~estate bymarket, ~~non-accrual~~our ~~and~~loan ~~delinquency~~portfolio continues ~~ratios~~to ~~that~~show ~~are~~increased ~~significantly below industry averages~~delinquency. While ~~This~~delinquency ~~has~~ratios have ~~been~~increased ~~accomplished~~we ~~through~~continue our ~~conservative and~~ disciplined lending practices, including our strict adherence to a long standing ~~disciplined~~regimented credit culture that emphasizes the consistent application of underwriting standards to all loans. In this regard, ~~the~~we ~~Bank~~ fully ~~underwrites~~underwrite all loans based on an applicant’s employment history, credit history and an appraised value of the subject property. With respect to loans we purchased ~~loans,~~in the ~~Bank~~past, ~~underwrites~~we underwrote each loan based upon our own underwriting standards prior to making the purchase. The following underwriting guidelines, among other things, have been used by ~~the~~us ~~Bank~~ as underwriting tools to further limit ~~the Bank’s~~ our potential loss exposure:

1.● All variable rate one-to-four family residential loans are underwritten using the fully indexed rate.

2.● ~~All~~We ~~interest-~~only ~~loans~~lend ~~are~~up ~~underwritten~~to ~~using~~80% of the ~~fully~~lesser ~~amortized~~of ~~payment~~the appraised value or purchase price for one-to-four family residential loans.

3.● We only lend up to 8070% of the ~~lesser of the~~ appraised value or purchase price for ~~one~~multi-~~to-four~~ family residential loans.

Additionally, our ~~the Bank’s~~ portfolio has remained strongly anchored in traditional mortgage products. We ~~In this regard, we~~ do not originate or purchase construction and development loans, teaser option-ARM loans, negatively amortizing loans or high loan -to -value loans.

At June 30, ~~2009~~2010, one-to-four family residential mortgage loans totaled $~~377~~335.26 million, or 5043.25%, of our gross loan portfolio of which $~~303~~276.39 million were fixed rate and $7358.96 million were adjustable rate loans. Adjustable rate mortgages generally pose different credit risks than fixed rate mortgages, primarily because as interest rates rise, the borrower’s payment rises, increasing the potential for default. Included in non-accrual loans at June 30, ~~2009~~2010 were $32.19 million in adjustable rate one-to-four family loans and $521.59 million in fixed rate one-to-four family loans. Overall this represents 27.34% of the one-to-four family residential mortgage loan portfolio.

~~For~~All ~~one-to-four~~of our ~~family residential, multi-family and commercial~~ real estate loans ~~serviced~~are secured by ~~the~~properties ~~Bank,~~located a delinquency notice is sent to the borrower when the loan is eight days past due. When the loan is twenty days past due, we mail a subsequent delinquency notice to the borrower. Typically, before the loan becomes thirty days past due, contact with the borrower is made requesting payment of the delinquent amount in ~~full, or the establishment of an acceptable repayment plan to bring the loan current~~ California. ~~If an acceptable repayment plan has not been agreed upon, loan personnel will generally prepare a notice of intent to foreclose.~~ The ~~notice~~following oftables ~~intent~~set toforth ~~foreclose~~our ~~allows~~real ~~the~~estate ~~borrower~~loans ~~up to ten days to bring the account current. Once the loan becomes sixty days delinquent,~~ and ~~an acceptable repayment plan has not been agreed upon, the servicing~~ ~~officer~~non-accrual ~~will~~real ~~turn over the account to the deed of trust trustee with instructions to initiate foreclosure. Real~~ estate loans ~~serviced~~ by a third party are subject to the servicing institution’s collection policies. However, we track each purchased loan individually to ensure full payments are received as scheduled. Each month, third party servicers are required to provide delinquent loan status reports to our servicing officer, which are included in the month-end delinquent real estate report to management.county:

Real Estate Loans by County as of June 30, 2010
County	One-to-four family		Multi-family residential		Commercial		Total		Percent
	(Dollars in thousands)

Los Angeles	$	127,625	$	208,616	$	65,614	$	401,855		55.24	%
Orange		55,968		24,027		28,464		108,459		14.91
San Diego		31,318		15,878		2,665		49,861		6.85
Riverside		14,912		6,850		9,376		31,138		4.28
San Bernardino		13,584		14,033		4,181		31,798		4.37
Santa Clara		25,634		577		—		26,211		3.60
Alameda		12,699		65		465		13,229		1.82
Other		53,891		8,351		2,693		64,935		8.93
Total	$	335,631	$	278,397	$	113,458	$	727,486		100.00	%

Non-accrual Real Estate Loans by County as of June 30, 2010
County	One-to-four family		Multi-family residential		Commercial		Total		Percent of Non- accrual to Loans in Each Category
	(Dollars in thousands)

Los Angeles	$	8,081	$	—	$	—	$	8,081		2.01	%
Orange		2,870		—		—		2,870		2.65
San Diego		2,942		—		2,665		5,607		11.25
Riverside		3,239		231		—		3,470		11.14
San Bernardino		2,634		2,705		—		5,339		16.79
Santa Clara		1,005		—		—		1,005		3.83
Alameda		985		—		—		985		7.45
Other		2,998		1,029		—		4,027		6.20
Total	$	24,754	$	3,965	$	2,665	$	31,384		4.31	%

Problem Assets. For one-to-four family residential, multi-family residential and commercial real estate loans serviced by us, a notice is sent to the borrower when the loan is eight days past due. When the loan is twenty days past due, we mail a subsequent delinquency notice to the borrower. Typically, before the loan becomes thirty days past due, contact with the borrower is made requesting payment of the delinquent amount in full, or the establishment of an acceptable repayment plan to bring the loan current. If an acceptable repayment plan has not been agreed upon, loan personnel will generally prepare a notice of intent to foreclose. The notice of intent to foreclose allows the borrower up to ten days to bring the account current. Once the loan becomes sixty days delinquent, and an acceptable repayment plan has not been agreed upon, the servicing officer will turn over the account to the deed of trust trustee with instructions to initiate foreclosure. Real estate loans serviced by a third party are subject to the servicing institution’s collection policies. However, we track each purchased loan individually to attempt to receive full payments as scheduled. Each month, third party servicers are required to provide delinquent loan status reports to our servicing officer, which are included in the month-end delinquent real estate report to management.

When a borrower fails to make a timely payment on a consumer loan, a delinquency notice is sent when the loan is ten days past due. When the loan is twenty days past due, we mail a subsequent delinquency notice to the borrower. Once a loan is thirty days past due, our staff contacts the borrower by telephone to determine the reason for delinquency and to request payment of the delinquent amount in full or to establish an acceptable repayment plan to bring the loan current. If the borrower is unable to make or keep payment arrangements, additional collection action is taken in the form of repossession of collateral for secured loans and legal action for unsecured loans.

~~Page~~At 14June 30, 2010, $208.8 million, or 62.2% of our one-to-four family residential mortgage portfolio was serviced by others. As a result of a higher level of delinquent loans nationwide, third party servicers have been unable to service and in certain circumstances foreclose on properties in a timely manner. Currently, we track the servicing of these loans on our core mortgage servicing system. We have hired additional experienced mortgage loan workout staff and reallocated existing staff to monitor the collection activity of the servicers and perform direct customer outreach when a loan falls 30 days past due. In many instances, our role has been to provide direction to the third party servicers regarding loan modification requests and to develop collection plans for individual loans, while maintaining contact with the borrower. Due to a number of factors, including the high rate of loan delinquencies, we believe our servicers have not vigorously pursued collection efforts on our behalf. We have been unsuccessful in negotiating the transfer of these servicing rights to us and are currently pursuing legal action. We have filed legal suit against Bank of America and expect to file suit against another servicer in the next few months seeking to obtain the transfer of servicing rights on $205.2 million of loans serviced by others. In anticipation of this effort, we have hired additional staff in the real estate loan servicing area.

The following table presents information concerning the composition of the one-to-four family residential loan portfolio by servicer at June 30, 2010:

	Amount		Percent			Non-performing		Percent of Non- accrual to Loans in Each Category
	(Dollars in thousands)

Purchased and serviced by others	$	208,800		62.21	%	$	16,048		7.69	%
Purchased and servicing transferred to us		30,747		9.16			4,578		14.89
Originated and serviced by us		96,084		28.63			4,128		4.30
Total	$	335,631		100.00	%	$	24,754		7.38	%

Delinquent Loans. The following table sets forth certain information with respect to our loan portfolio delinquencies at the dates indicated:

	Loans Delinquent :
		Loans Delinquent:
	~~60-89 Days~~	60-89 Days			~~90 Days or More~~				90 Days or More	~~Total Delinquent Loans~~				Total Delinquent Loans
	~~Number of Loans~~	Number of Loans	~~Amount~~		~~Number of Loans~~Amount		~~Amount~~		Number of Loans	~~Number of Loans~~	~~Amount~~	Amount		Number of Loans		Amount
	~~(Dollars in thousands)~~	(Dollars in thousands)
At June 30, 2009
At June 30, 2010
Real estate loans:
One-to-four family	6		$3	~~2,212~~	14$	1,297	$	~~6,220~~		2033	$	~~8,432~~$	13,373		36	$	14,670
Multi-family	—			—	—			—		—		—
Multi-family residential			—			—				2			2,786		2		2,786
Commercial	—		—	—	—	—		—		—		—	—		—		—
Other loans:
Automobile	3		4	16	—	35		—		3—		16	—		4		35
Home equity	—		—	—	—	—		—		—1		—	63		1		63
Other	11		—	16	6	—		11		172		27	4		2		4
Total loans	20		$7	~~2,244~~	20$	1,332	$	~~6,231~~		4038	$	~~8,475~~$	16,226		45	$	17,558
At June 30, 2008
At June 30, 2009
Real estate loans:
One-to-four family	—		$6	—	4$	2,212	$	~~1,583~~		414	$	~~1,583~~$	6,220		20	$	8,432
Multi-family	—			—	—			—		—		—
Multi-family residential			—			—				—			—		—		—
Commercial	—		—	—	—	—		—		—		—	—		—		—
Other loans:
Automobile	10		3	~~159~~	8	16		~~132~~		18—		~~291~~	—		3		16
Home equity	—		—	—	—	—		—		—		—	—		—		—
Other	22		11	34	9	16		15		316		49	11		17		27
Total loans	32		$20	~~193~~	21$	2,244	$	~~1,730~~		5320	$	~~1,923~~$	6,231		40	$	8,475
At June 30, 2007
At June 30, 2008
Real estate loans:
One-to-four family	—		$—	—	2$	—	$	~~1,115~~		24	$	~~1,115~~$	1,583		4	$	1,583
Multi-family	—			—	—			—		—		—
Multi-family residential			—			—				—			—		—		—
Commercial	—		—	—	—	—		—		—		—	—		—		—
Other loans:
Automobile	7		10	~~111~~	2	159		19		98		~~130~~	132		18		291
Home equity	—		—	—	—	—		—		—		—	—		—		—
Other	5		22	8	4	34		7		9		15	15		31		49
Total loans	12		$32	~~119~~	8$	193	$	~~1,141~~		2021	$	~~1,260~~$	1,730		53	$	1,923
At June 30, 2006
At June 30, 2007
Real estate loans:
One-to-four family	2		$—	~~383~~	—$	—	$	—		2	$	~~383~~$	1,115		2	$	1,115
Multi-family	—			—	—			—		—		—
Multi-family residential			—			—				—			—		—		—
Commercial	—		—	—	—	—		—		—		—	—		—		—
Other loans:
Automobile	8		7	~~108~~	7	111		57		152		~~165~~	19		9		130
Home equity	—		—	—	—	—		—		—		—	—		—		—
Other	3		5	3	6	8		10		94		13	7		9		15
Total loans	13		$12	~~494~~	13$	119	$	67		268	$	~~561~~$	1,141		20	$	1,260
At June 30, 2005
At June 30, 2006
Real estate loans:
One-to-four family	—		$2	—	2$	383	$	~~757~~		2—	$	~~757~~$	—		2	$	383
Multi-family	—			—	—			—		—		—
Multi-family residential			—			—				—			—		—		—
Commercial	—		—	—	—	—		—		—		—	—		—		—
Other loans:
Automobile	6		8	50	2	108		28		87		78	57		15		165
Home equity	—		—	—	—	—		—		—		—	—		—		—
Other	10		3	10	1	3		2		116		12	10		9		13
Total loans	16		$13	60	5$	494	$	~~787~~		2113	$	~~847~~$	67		26	$	561

~~Page 15~~16

~~Non-Performing~~Delinquent loans ~~Assets.~~60 ~~The~~days ~~following~~or ~~table~~more ~~sets~~past ~~forth~~due ~~the~~increased ~~amounts~~to ~~and~~$17.6 ~~categories~~million ofor ~~non-performing assets in our portfolio~~2.28% ~~Non-performing assets consist~~ of ~~non-accrual~~ total loans ~~and~~at ~~foreclosed~~June ~~assets.~~30, ~~Loans~~2010 tofrom a$8.5 ~~customer~~million ~~whose financial condition has deteriorated are considered for non-accrual status whether~~ or ~~not the loan is 90 days and over past due~~1.13% ~~All~~of total loans ~~past~~at ~~due~~June ~~90 days and over are classified as non-accrual~~30, 2009. Delinquent ~~On non~~one-~~accrual~~to-four family loans, ~~interest~~increased ~~income~~from ~~is not recognized until actually collected~~$8.4 Atmillion at ~~the~~June ~~time the loan is placed on non-accrual status~~30, ~~interest~~2009 ~~previously~~to ~~accrued~~$14.7 ~~but~~million ~~not~~at ~~collected is reversed and charged against current income. At~~ June 30, ~~2009, we had $2~~2010.1 In ~~million~~addition, there ofwere ~~troubled~~two ~~debt~~multi-family ~~restructurings~~residential (loans ~~for~~totaling ~~which~~$2.8 amillion ~~concession~~that ~~has~~were over ~~been~~90 ~~granted due~~days todelinquent ~~the~~at ~~debtor’s~~June ~~financial~~30, ~~difficulties)~~2010 ~~that~~and are ~~included~~ in ~~non-accrual loans in~~ the ~~following~~process ~~table~~of foreclosure.

~~Other~~Non-Performing Assets. ~~real~~Non-performing ~~estate~~assets ~~owned~~consist ~~and~~of ~~repossessed~~non-accrual loans and foreclosed assets. ~~consist~~Loans ofto ~~real~~a ~~estate~~customer ~~and~~whose ~~other~~financial ~~assets~~condition ~~which~~has ~~have~~deteriorated ~~been~~are considered ~~acquired~~for ~~through~~non-accrual ~~foreclosure~~status onwhether ~~loans. At~~or not the ~~time~~loan ofis ~~foreclosure,~~90 ~~assets~~days and over past due. All loans past due 90 days and over are ~~recorded~~classified atas ~~the~~non-accrual. ~~lower~~On non-accrual ofloans, ~~their~~interest ~~estimated~~income ~~fair~~is ~~value~~not ~~less~~recognized ~~selling~~until ~~costs~~actually orcollected. At the time the loan ~~balance,~~is ~~with~~placed ~~any~~on ~~write~~non-~~down~~accrual status, interest previously accrued but not collected is reversed and charged against ~~the allowance~~current ~~for~~income. Non-accrual ~~loan~~loans ~~losses~~also include certain troubled debt restructurings.

	At June 30,
	2009			2008			2007			2006			2005
	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One-to-four family	$	6,766		$	1,583		$	1,115		$	—		$	757
Multi-family		—			—			—			—			—
Commercial		—			—			—			—			—
Other loans:
Automobile		—			132			19			57			28
Home Equity		—			—			—			—			—
Other		11			15			7			10			2
Troubled debt restructuring:
One-to-four family		1,859			—			—			—			—
Multi-family		235			—			—			—			—
Commercial		—			—			—			—			—
Total non-accrual loans		8,871			1,730			1,141			67			787
Other real estate owned and repossessed assets:
Real estate:
One-to-four family		496			1,045			238			—			—
Multi-family		—			—			—			—			—
Commercial		—			—			—			—			—
Other:
Automobile		3			161			74			69			35
Home equity		—			—			—			—			—
Other		—			—			—			—			—
Total other real estate owned and repossessed assets		499			1,206			312			69			35
Total non-performing assets	$	9,370		$	2,936		$	1,453		$	136		$	822
Ratios:
Non-performing loans to total loans (1)		1.18	%		0.23	%		0.16	%		0.01	%		0.15	%
Non-performing assets to total assets		1.05	%		0.35	%		0.18	%		0.02	%		0.13	%
Non-accrued interest (2)	$	170		$	49		$	17		$	1		$	25
(1) Total loans are net of deferred fees and costs
(2) If interest on the loans classified as non-accrual had been accrued, interest income in these amounts would have been recorded.

At June 30, 2010, we had $16.0 million in troubled debt restructurings. Of the $16.0 million in troubled debt restructurings, $13.0 million are included in non-accrual loans in the following table. There were no further commitments to customers whose loans are troubled debt restructurings at June 30, 2010.

~~Page~~Any changes 16or modifications made to loans are carefully reviewed to determine whether they are troubled debt restructurings. Any loan modifications made due to financial difficulties of the borrower where a concession is made are reported as troubled debt restructurings. Any other changes or modifications made for borrowers who are not experiencing financial difficulties are done on an infrequent basis. There were nine loans that were modified in fiscal 2010 and not accounted for as troubled debt restructurings in the amount of $6.2 million. The modifications were made to refinance the credits to maintain the borrowing relationships and generally consisted of term or rate modifications. The borrowers were not experiencing financial difficulty and the modifications were made at market terms.

~~The~~Real Estate ~~increase~~Owned. Real inestate ~~non-performing~~owned ~~loans~~and ~~was~~repossessed aassets ~~result~~ consist of ~~the~~real ~~increased~~estate ~~delinquency~~and inother ~~our~~assets ~~one-to-four~~which ~~family~~have ~~loans~~been asacquired athrough ~~result~~foreclosure ofon loans. At the ~~continued~~time ~~deterioration~~of inforeclosure, ~~the~~assets ~~housing~~are ~~market~~recorded asat ~~well~~fair value asless ~~deteriorating~~estimated ~~general~~selling ~~economic~~costs, ~~conditions~~with ~~and~~any ~~increased unemployment in our market area. The increase in non~~write-~~performing~~down ~~loans~~charged ~~has~~against ~~impacted our determination of~~ the allowance for loan losses ~~at June 30, 2009~~. ~~Non-performing~~The ~~loans~~fair ~~are~~value ~~assessed~~of toreal ~~determine~~estate ~~impairment. Loans~~owned ~~that~~is determined ~~are~~by ~~found to be impaired are individually evaluated and~~ a ~~specific~~third ~~valuation~~party ~~allowance~~appraisal isof ~~applied. Accordingly~~ the ~~Company’s specific valuation allowance has increased from $334,000 at June 30, 2008 to $1~~property.~~2 million at June 30, 2009.~~

Changes in asset quality were considered in the allowance for loan losses based on a detailed analysis of loans, including delinquent loans. Each delinquent loan was evaluated for impairment based on the loan balance, the borrower’s ability to pay and collateral value. The other factors reviewed in determining the allowance for loan losses included loss ratio trends by loan product and concentrations in (1) geographic regions, (2) interest-only loans, (3) stated income loans and (4) loans with credit scores less than a specified amount. The Company also reviewed the debt service coverage ratios and seasoning for income property loans. The Company has not changed its estimation methods or assumptions related to the allowance for loan losses during the periods presented.17

~~Classified~~The Assets. Regulations provide for the classification of loans and other assets, such as debt and equity securities considered by regulators to be of lesser quality, as “substandard,” “doubtful” or “loss.” Antable ~~asset~~below issets ~~considered~~forth ~~“substandard” if it is inadequately protected by~~ the ~~current~~amounts ~~net worth~~ and ~~paying~~categories ~~capacity~~ of ~~the~~our ~~obligor~~non-performing ~~or of the collateral pledged, if any. “Substandard”~~ assets ~~include~~at ~~those characterized by~~ the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with ~~the~~dates ~~added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable~~indicated.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan losses in an amount deemed prudent by management and approved by the board of directors. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS and the Federal Deposit Insurance Corporation (the “FDIC”), which may order the establishment of additional general or specific loss allowances.

	At June 30,
	2010			2009			2008			2007			2006
	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One-to-four family	$	15,561		$	6,766		$	1,583		$	1,115		$	—
Multi-family residential		2,786			—			—			—			—
Commercial		—			—			—			—			—
Other loans:
Automobile		—			—			132			19			57
Home equity		63			—			—			—			—
Other		4			11			15			7			10
Troubled debt restructurings:
One-to-four family		9,193			1,859			—			—			—
Multi-family residential		1,179			235			—			—			—
Commercial		2,665			—			—			—			—
Total non-accrual loans	$	31,451		$	8,871		$	1,730		$	1,141		$	67

Real estate owned and repossessed assets:
Real estate loans:
One-to-four family	$	1,373		$	496		$	1,045		$	238		$	—
Multi-family residential		—			—			—			—			—
Commercial		—			—			—			—			—
Other loans:
Automobile		—			3			161			74			69
Home equity		—			—			—			—			—
Other		—			—			—			—			—
Total real estate owned and repossessed assets	$	1,373		$	499		$	1,206		$	312		$	69

Total non-performing assets	$	32,824		$	9,370		$	2,936		$	1,453		$	136
Ratios:
Non-performing loans to total loans (1)		4.08	%		1.18	%		0.23	%		0.16	%		0.01	%
Non-performing assets to total assets		3.79	%		1.05	%		0.35	%		0.18	%		0.02	%
Non-accrued interest (2)	$	408		$	170		$	49		$	17		$	1

In(1) ~~connection~~Total ~~with~~loans ~~the~~are ~~filing~~net of ~~our~~deferred ~~periodic~~fees ~~reports with the OTS~~ and in accordance with our classification of assets policy, we regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulationscosts. The total amount of classified assets represented 23.15% of our equity capital and 2.39% of our total assets at June 30, 2009, as compared to 10.4% of our equity capital and 1.11% of our total assets at June 30, 2008.

~~Page~~(2) 17If interest on the loans classified as non-accrual had been accrued, interest income in these amounts would have been recorded.

The increase in non-accrual loans was a result of the increased delinquency in real estate loans as a result of the continued deterioration in the housing market as well as deteriorating general economic conditions and increased and prolonged unemployment in our market area. We continue to work with responsible borrowers to keep their properties and as a result we have restructured $16.0 million in mortgage loans of which $12.8 million were performing in accordance with their revised contractual terms at June 30, 2010. This compares to $2.1 million in restructured loans at June 30, 2009. Of the $16.0 million in restructured loans, $13.0 million were reported as non-accrual at June 30, 2010. Troubled debt restructured loans are reported as non-accrual until we are reasonably assured of repayment and sustained performance according to the modified terms. At June 30, 2010, there were $6.6 million of multi-family residential and commercial real estate loans on non-accrual for which specific valuation allowances of $1.3 million have been applied. Included in the $6.6 million of income property loans on non-accrual at June 30, 2010 were five multi-family residential loans totaling $3.9 million and one commercial real estate loan totaling $2.7 million.

At June 30, 2010, there were five multi-family residential loans on non-accrual. The first multi-family residential loan was made to one borrower with a principal balance of $1.8 million located in Adelanto, California at June 30, 2010. The loan was over 90 days delinquent and had a court appointed receiver in place to manage the property and collect the rents during the judicial foreclosure process. The second multi-family residential loan located in Tehachapi, California was made in the amount of $1.0 million and was over 90 days delinquent and in the process of foreclosure at June 30, 2010. The remaining three multi-family residential loans on non-accrual were in the amount of $1.2 million in the aggregate and were troubled debt restructurings at June 30, 2010. At June 30, 2010, we had one non-accruing commercial real estate loan with a balance of $2.7 million secured by a strip mall in San Diego, California, which was current at June 30, 2010, but had previously experienced cash flow problems.

Classified Assets. Regulations provide for the classification of loans and other assets, such as debt and equity securities considered by regulators to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Loans are classified as special mention when it is determined a loan relationship should be monitored more closely. Loans are classified as special mention for a variety of reasons including changes in recent borrower financial condition, changes in borrower operations, changes in value of available collateral, concerns regarding changes in economic conditions in a borrower’s industry, and other matters. A loan classified as special mention in many instances may be performing in accordance with the loan terms.

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan losses in an amount deemed prudent by management and approved by the board of directors. General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation, which may order the establishment of additional general or specific loss allowances.

In connection with the filing of our periodic reports with the Office of Thrift Supervision and in accordance with our classification of assets policy, we regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations. The total amount of classified assets represented 53.48% of our equity capital and 5.84% of our total assets at June 30, 2010, as compared to 23.15% of our equity capital and 2.39% of our total assets at June 30, 2009. At June 30, 2010 and 2009, there were $31.5 million and $8.9 million in non-accrual loans included in classified assets, respectively.

The aggregate amount of our classified and special mention assets at the dates indicated were as follows:

	~~At June 30,~~	At June 30,
	2009			2008			2007
		2010			2009			2008
	~~(In thousands)~~	(In thousands)
Classified and Special Mention Assets:
Loss		$	209		$	8420		$	5884
Doubtful			~~126~~43			~~460~~126			~~670~~460
Substandard			1340,~~964~~513			313,~~519~~964			23,~~010~~519
Special Mention			710,~~316~~043			57,~~335~~316			35,~~495~~335
Total		$	2150,~~426~~608		$	921,~~398~~426		$	69,~~233~~398

Allowance for Loan Losses. We maintain an allowance for loan losses to absorb probable incurred losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable losses inherent in the loan portfolio. ~~Our~~In ~~methodology for~~accordance ~~assessing~~with ~~the~~generally ~~appropriateness~~accepted ofaccounting ~~the~~principles allowance consists of several key elements, which include loss ratio analysis by type of loan and specific allowances for identified problem loans, including the results of measuring impaired loans as provided in Statement of Financial Accounting Standards (“~~SFAS~~GAAP”) ~~No. 114~~, the ~~“Accounting~~allowance byis ~~Creditors~~comprised ~~for Impairment~~ of aboth ~~Loan”~~specific and ~~SFAS~~general ~~No. 118, “Accounting by Creditors for Impairment of a Loan – Income Recognition and Disclosures.” These~~valuation ~~accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans~~allowances.

The specific ~~loss~~component ~~ratio~~relates ~~analysis~~to ~~component~~loans ofthat ~~the~~are ~~allowance~~classified as impaired. We consider a loan impaired when it is ~~calculated~~probable bythat ~~applying~~we will ~~loss~~be ~~factors~~unable to ~~outstanding~~collect ~~loans~~all ~~based~~amounts ondue ~~the~~according ~~internal~~to ~~risk~~the ~~evaluation~~terms of the ~~loans~~loan agreement orand ~~pools~~determine ofimpairment ~~loans.~~by ~~Changes~~computing ina ~~risk~~fair ~~evaluations~~value ofeither ~~both~~based ~~performing~~on discounted ~~and~~cash ~~non-performing~~flows ~~loans~~using ~~affect~~the loan’s initial interest rate or the ~~amount~~fair value of the ~~allowance~~collateral, less estimated selling costs, if the loan is collateral dependent. The ~~Loss~~general ~~factors~~component ~~are~~covers non-impaired loans and is based both on our historical loss experience as well as on significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date.

The general valuation allowance is calculated by applying loss factors to outstanding loans based on the internal risk evaluation of the loans or pools of loans. Changes in risk evaluations of both performing and non-performing loans affect the amount of the allowance. The appropriateness of the allowance is reviewed and established by management based upon its evaluation of then-existing economic and business conditions affecting ~~our~~ key lending areas and other conditions, such as credit quality trends (including trends in non-performing loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions and peer data within portfolio segments, and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan. Significant factors reviewed in determining the allowance for loan losses included loss ratio trends by loan product and concentrations in geographic regions, ~~interest-only~~as ~~loans,~~well ~~stated~~as ~~income~~concentrations ~~loans~~by ~~and~~third ~~loans~~party ~~with credit scores less than a specified amount~~servicers. ~~The~~Specific valuation ~~company~~allowances ~~also~~on ~~reviewed~~real ~~the~~estate ~~debt~~loans ~~service~~are ~~coverage~~charged-off ~~ratios~~at ~~and~~foreclosure; however, ~~seasoning~~we ~~for~~include ~~income~~specific ~~property~~valuation ~~loans.~~allowances ~~Senior management reviews these conditions quarterly~~ in ~~discussions with~~ our ~~senior~~historical ~~credit~~loss experience ~~officers~~ratios. Holding Toperiod ~~the~~restrictions ~~extent~~imposed ~~that any of these conditions is evidenced~~ by ~~a specifically identifiable problem credit or portfolio segment as of~~ the ~~evaluation date, management’s estimate of the effect of such condition may be reflected as a specific allowance applicable to such~~State ~~credit or portfolio segment. Where any~~ of ~~these~~California ~~conditions~~on islenders ~~not~~foreclosing ~~evidenced~~on byowner aoccupied ~~specifically~~real ~~identifiable~~estate ~~problem credit or portfolio segment as of the evaluation date, management’s evaluation of the loss related~~ securing one-to-four ~~this~~family ~~condition~~residential isloans ~~reflected~~and indifficulty ~~the~~pursuing ~~general~~collection ~~allowance.~~efforts through ~~The~~third ~~evaluation~~party ofservicers ~~the~~on ~~inherent~~our ~~loss~~behalf ~~with~~has ~~respect~~delayed toour ~~these~~ability ~~conditions is subject~~ to ~~a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments~~ foreclose.

~~Page 18~~20

~~Management~~Our multi-family ~~also~~and ~~evaluates~~commercial ~~the~~real ~~adequacy~~estate ofloans ~~the~~(“income ~~allowance~~property”) ~~for~~are ~~loan losses based on a review of individual loans~~less seasoned, ~~historical~~and ~~loan loss experience~~therefore, ~~the~~to-date ~~value~~we ~~and~~have ~~adequacy~~not ofincurred ~~collateral~~material charge-offs and our ~~economic~~delinquent ~~conditions~~history inon ~~our~~income ~~market~~property ~~area.~~loans ~~This~~has ~~evaluation~~been isless ~~inherently~~than ~~subjective~~our single-family asreal itestate ~~requires~~loans. In ~~material estimates~~addition, ~~including~~ the ~~amounts and timing of~~multi-family ~~future~~portfolio ~~cash~~has ~~flows~~been ~~expected~~a tosignificant begrowth ~~received~~area onin ~~impaired~~our ~~loans~~loan ~~that~~portfolio ~~may~~during 2010. For beincome ~~susceptible~~property toloans ~~significant~~we ~~change.~~review ~~For~~the ~~all~~debt ~~specifically~~service ~~reviewed~~coverage ratios, ~~loans~~seasoning ~~for~~and ~~which~~peer itgroup isdata. In ~~probable~~2010, ~~that~~ we ~~will~~expanded beour migration ~~unable~~analysis to ~~collect~~include ~~all~~the ~~amounts~~credit ~~due~~loss ~~according~~migration tofrom ~~the~~published ~~terms~~sources, including ofboth the ~~loan~~OTS ~~agreement,~~and weFederal ~~determine~~Deposit ~~impairment~~Insurance byCorporation, ~~computing~~in aorder ~~fair~~to determine ~~value~~the ~~either~~allowance ~~based~~for loan losses on ~~discounted~~income ~~cash~~property ~~flows~~loans, ~~using~~given the characteristics ~~loan’s~~of ~~initial~~the ~~interest~~peer ~~rate~~group oras ~~the~~compared ~~fair~~to ~~value~~our ofportfolio. Due to the ~~collateral~~loss ifexperience ~~the~~of ~~loan~~our ispeer ~~collateral~~group ~~dependent.~~over ~~Large~~the ~~groups~~past ofyear, ~~smaller~~our ~~balance~~analysis ~~homogeneous~~of ~~loans~~debt ~~that~~service ~~are~~coverage ~~collectively~~ratios, ~~evaluated~~and ~~for~~the ~~impairment~~growth ~~and~~of ~~are~~our ~~excluded~~income ~~from~~property ~~specific~~loans ~~impairment~~year over ~~evaluation;~~year, ~~their~~the ~~allowance~~general ~~for~~valuation ~~loan~~portion ~~losses~~of isour ~~calculated~~income inproperty ~~accordance~~loan ~~with~~portfolio increased ~~the~~by ~~allowance~~$3.1 ~~for~~million ~~loan~~at ~~losses~~June ~~policy~~30, ~~described~~2010, ~~above~~compared to June 30, 2009.

~~Because~~Senior management ~~the~~reviews ~~allowance~~these ~~for~~conditions ~~loan~~quarterly ~~losses is based on estimates of losses inherent~~ in ~~the~~discussions ~~loan~~with ~~portfolio,~~our ~~actual~~senior credit ~~losses~~officers. ~~can~~To ~~vary significantly from~~ the ~~estimated~~extent ~~amounts.~~that ~~Our~~any ~~methodology~~of asthese ~~described~~conditions ~~above~~is ~~permits~~evidenced ~~adjustments~~by toa specifically ~~any~~identifiable ~~loss~~problem ~~factor~~credit ~~used~~or inportfolio ~~the~~segment ~~computation~~as of the evaluation ~~formula allowance in the event that~~date, in management’s ~~judgment, significant~~estimate ~~factors which affect the collectability~~ of the ~~portfolio~~effect as of ~~the~~such ~~evaluation~~conditions ~~date~~may ~~are not~~ be reflected inas ~~the~~a ~~loss~~specific ~~factors.~~allowance Byapplicable ~~assessing~~to ~~the~~such ~~estimated~~credit ~~losses~~or ~~inherent in the loan~~ portfolio segment. onWhere aany ~~quarterly~~of ~~basis,~~these weconditions ~~are~~is ~~able~~not toevidenced ~~adjust~~by ~~specific~~a ~~and~~specifically identifiable ~~inherent~~problem ~~loss~~credit ~~estimates~~or ~~based~~portfolio ~~upon~~segment ~~any~~as ~~more~~of ~~recent~~the ~~information~~evaluation ~~that has become available. In addition~~date, management’s ~~determination~~evaluation asof to the ~~amount~~loss ofrelated ~~our~~to ~~allowance~~this ~~for~~condition ~~loan losses~~ is ~~subject~~reflected toin the ~~review~~general byallowance. ~~the~~The ~~OTS~~evaluation ~~and~~of the ~~FDIC,~~inherent ~~which~~loss ~~may~~with ~~require~~respect ~~the~~to ~~establishment~~these ofconditions ~~additional~~is ~~general~~subject orto ~~specific~~a ~~allowances~~higher ~~based~~degree ~~upon their judgment~~ of ~~the~~uncertainty ~~information~~because ~~available~~they toare ~~them~~not identified atwith ~~the~~specific ~~time~~problem ofcredits ~~their~~or ~~examination~~portfolio ~~of Kaiser Federal Bank~~segments.

~~Our~~Given that ~~provision~~management ~~for~~evaluates ~~loan losses increased to $2.6 million for~~ the ~~year~~adequacy ~~ended~~of ~~June 30, 2009 compared to $962,000 for~~ the ~~prior year. The~~ allowance for loan losses asbased on a ~~percent~~review of ~~total~~individual loans ~~was 0.61% at June 30~~, ~~2009~~historical asloan ~~compared~~loss ~~to 0.43% at June 30~~experience, ~~2008.~~the ~~Net~~value ~~charge-offs~~and adequacy ~~totaled~~of ~~$1.2~~collateral ~~million~~and oreconomic ~~0.16%~~conditions ofin ~~average~~our ~~loans~~market ~~for~~area, ~~the~~this ~~year~~evaluation ~~ended~~is ~~June~~inherently ~~30,~~subjective ~~2009~~ as ~~compared~~it torequires ~~$538~~material estimates,~~000~~ orincluding the ~~0.07%~~amounts ofand ~~average~~timing ~~loans~~of ~~for~~future ~~the~~cash ~~year~~flows ~~ended~~expected ~~June~~to ~~30,~~be ~~2008.~~received ~~The~~on ~~increase~~impaired loans inthat ~~provision~~may ~~for~~be ~~loan~~susceptible ~~losses was primarily attributable~~ to ansignificant ~~increase~~change. inLarge ~~real~~groups ~~estate~~of ~~loan~~smaller balance ~~delinquencies~~homogeneous ~~as well as an increase in~~ loans that ~~were~~are ~~reviewed~~collectively evaluated for impairment. ~~The~~and ~~increase~~are excluded infrom ~~delinquencies~~specific ~~was~~impairment ~~experienced~~evaluation; ~~primarily~~their inallowance ~~our~~for ~~one-to-four~~loan ~~family~~losses ~~loans~~is calculated asin aaccordance ~~result~~with of the ~~continued~~allowance ~~deterioration~~for inloan ~~the~~losses ~~housing~~policy ~~market as well as deteriorating general economic conditions and increased~~described ~~unemployment in our market area~~above.

~~The~~Because the ~~increase~~allowance for loan losses is based on estimates of losses inherent in ~~non-performing~~the loan ~~loans~~portfolio, ~~has~~actual ~~impacted~~losses can vary significantly from the ~~level~~estimated amounts. Our methodology as described above permits adjustments to any loss factor used in the computation of the formula allowance ~~for~~in ~~loan~~the ~~losses~~event atthat, ~~June~~in 30management’s judgment, ~~2009. Non-performing~~significant ~~loans~~factors which affect the collectability of the portfolio as of the evaluation date are ~~assessed~~not toreflected ~~determine~~in ~~impairment~~the loss factors. ~~Loans~~ ~~that~~By ~~are~~assessing the ~~found~~estimated tolosses beinherent ~~impaired~~in ~~are~~the ~~individually~~loan ~~evaluated~~portfolio ~~and~~on a quarterly basis, we are able to adjust specific ~~valuation~~and ~~allowance~~inherent isloss ~~applied. Accordingly~~estimates ~~the~~based upon any more recent ~~Company~~information that has become available. In addition, management’s ~~specific~~determination as ~~valuation~~to the amount of our allowance ~~has~~for ~~increased~~loan ~~from~~losses ~~$334,000~~is atsubject ~~June~~to 30review by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation, which ~~2008~~may torequire ~~$1.2~~the ~~million~~establishment of additional general or specific allowances based upon their judgment of the information available to them at ~~June~~the ~~30,~~time ~~2009~~of their examination of Kaiser Federal Bank.

~~Page 19~~21

Our provision for loan losses increased to $9.9 million for the year ended June 30, 2010 compared to $2.6 million for the year ended June 30, 2009. The provision for loan losses for the year ended June 30, 2010 was comprised of $4.8 million in general valuation allowances and $5.1 million in specific valuation allowances. The increase in provision for loan losses was primarily attributable to an increase in real estate loan delinquencies and troubled debt restructurings during the period. Also impacting the provision for loan losses for the year ended June 30, 2010 were multi-family residential and commercial real estate loans totaling $6.4 million that were added to non-accrual. The allowance for loan losses as a percentage of total loans was 1.73% at June 30, 2010 as compared to 0.61% at June 30, 2009. The allowance for loan losses as a percentage of non-accrual loans was 42.32% at June 30, 2010 as compared to 51.69% at June 30, 2009. The decreased ratio at June 30, 2010 and 2009, as compared to prior years, is due to the increase in delinquencies and non-performing loans during the years. Total allowance for loan losses has increased as well over the years as a result of the declining portfolio trends. The general valuation allowance has increased from $3.4 million at June 30, 2009 to $8.0 million at June 30, 2010. The general valuation allowance as a percentage of total loans was 1.04% at June 30, 2010 as compared to 0.45% at June 30, 2009. The specific valuation allowance increased from $1.2 million at June 30, 2009 to $5.3 million at June 30, 2010. The following sets forth an analysis of our allowance for loan losses.

	Year Ended June 30,
	2009			2008			2007			2006			2005
	(Dollars in thousands)
Balance at beginning of year	$	3,229		$	2,805		$	2,722		$	2,408		$	2,328
Charge-offs:
One-to-four family real estate		860			70			—			—			—
Multi-family real estate		—			—			—			—			—
Commercial real estate		—			110			—			—			—
Consumer – automobile		487			646			676			547			500
Consumer – other		141			80			92			33			48
Total Charge-offs		1,488			906			768			580			548
Recoveries:
One-to-four family real estate		—			—			—			—			—
Multi-family real estate		—			27			—			—			—
Commercial real estate		—			—			—			—			—
Consumer – automobile		227			304			312			234			203
Consumer – other		32			37			10			8			19
Total Recoveries		259			368			322			242			222
Net charge-offs		1,229			538			446			338			326
Provision for losses		2,586			962			529			652			406
Balance at end of year	$	4,586		$	3,229		$	2,805		$	2,722		$	2,408
Net charge-offs to average loans during the year (1)		0.16	%		0.07	%		0.07	%		0.06	%		0.06	%
Net charge-offs to average non-performing loans during the year		23.91	%		35.35	%		47.90	%		73.04	%		112.37	%
Allowance for loan losses to non-performing loans (end of year)		51.69	%		186.66	%		245.84	%		4,062.69	%		305.97	%
Allowance for loan losses to total loans (end of year) (1)		0.61	%		0.43	%		0.40	%		0.43	%		0.45	%
(1) Loans are net of deferred fees and costs.

Page 20

	At or For the Year Ended June 30,
	2010			2009			2008			2007			2006
	(Dollars in thousands)

Balance at beginning of year	$	4,586		$	3,229		$	2,805		$	2,722		$	2,408

Charge-offs:
One-to-four family		966			860			70			—			—
Multi-family residential		—			—			—			—			—
Commercial		—			—			110			—			—
Consumer – automobile		184			487			646			676			547
Consumer – other		82			141			80			92			33
Total charge-offs		1,232			1,488			906			768			580
Recoveries:
One-to-four family		—			—			—			—			—
Multi-family residential		—			—			27			—			—
Commercial		—			—			—			—			—
Consumer – automobile		65			227			304			312			234
Consumer – other		23			32			37			10			8
Total recoveries		88			259			368			322			242

Net charge-offs		1,144			1,229			538			446			338
Provision for losses		9,867			2,586			962			529			652
Balance at end of year	$	13,309		$	4,586		$	3,229		$	2,805		$	2,722
Ratios:
Net charge-offs to average loans during the year (1)		0.15	%		0.16	%		0.07	%		0.07	%		0.06	%
Net charge-offs to average non-performing loans during the year		5.24	%		23.91	%		35.35	%		47.90	%		73.04	%
Allowance for loan losses to non-performing loans		42.32	%		51.69	%		186.66	%		245.84	%		4,062.69	%
Allowance as a percent of total loans (1)		1.73	%		0.61	%		0.43	%		0.40	%		0.43	%

(1)	Loans are net of deferred fees and costs

Allocation of Allowance for Loan Losses. The distribution of the allowance for losses on loans at the dates indicated is summarized as follows.

	At June 30,										~~At June 30,~~
	2009					2008					2007					2006					2005
	2010					2009					2008					2007						2006
	Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			Amount		Percent of Loans in Each Category to Total Loans			~~Amount~~	Amount		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One-to-four family	$	37,~~326~~821		5043.2255	%	$	13,~~744~~326		5750.5122	%	$	1,~~626~~744		6657.8851	%	$	1,~~322~~626		6866.6388	%		$	1,~~037~~322		6968.0463	%
Multi-family		515		26.17			407		17.75			114		12.55			123		14.01				155		16.26
Multi-family residential		3,643		36.12			515		26.17			407		17.75			114		12.55				123		14.01
Commercial		~~286~~1,599		1614.1372			~~245~~286		1516.5413			73245		1115.0954			5473		911.2409				4054		69.0124
Other loans:
Automobile		~~342~~185		53.5683			~~716~~342		75.0156			~~922~~716		7.5601			~~1,184~~922		67.5356				1,~~143~~184		76.1653
Home equity		67		0.1714			16		0.1917			1		0.2119			21		0.2821				12		0.1128
Other		~~111~~54		1.7564			~~116~~111		21.0075			69116		12.7100			3769		1.3171				3237		1.4231
Total allowance for loan losses	$	413,~~586~~309		100.00	%	$	34,~~229~~586		100.00	%	$	23,~~805~~229		100.00	%	$	2,~~722~~805		100.00	%		$	2,~~408~~722		100.00	%

~~Page 21~~24

Investment Activities

General. We are required by federal regulations to maintain an amount of liquid assets in order to meet our liquidity needs. These assets consist of certain specified securities. ~~See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity Capital Resources and Commitments.”~~ Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is provided.

We are authorized to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers’ acceptances, repurchase agreements and federal funds. Subject to various restrictions, federal savings ~~associations~~ banks may also invest their assets in investment grade commercial paper and corporate debt securities and mutual funds whose assets conform to the investments that a federally chartered savings ~~association~~bank is otherwise authorized to make directly. See “How We Are Regulated - Kaiser Federal Bank” for a discussion of additional restrictions on our investment activities.

Under the direction and guidance of the Asset and Liability Management Committee and board policy, our ~~President~~president has the basic responsibility for the management of our investment portfolio. Various factors are considered when making decisions, including the marketability, maturity and tax consequences of the proposed investment. The maturity structure of investments will be affected by various market conditions, including the current and anticipated short and long term interest rates, the level of interest rates, the trend of new deposit inflows, and the anticipated demand for funds via deposit withdrawals and loan originations and purchases.

The current structure of our investment portfolio provides liquidity when loan demand is high, assists in maintaining earnings when loan demand is low and maximizes earnings while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk and interest rate risk. See “~~Item 7A.~~ Quantitative and ~~Qualitative~~ Qualitative Disclosures about Market Risk – Asset and Liability Management and Market Risk.”

At June 30, ~~2009~~2010, our investment portfolio totaled $96.80 million and consisted principally of investment grade collateralized mortgage obligations and mortgage-backed securities. From time to time, investment levels may increase or decrease depending upon yields available on investment alternatives and management’s projected demand for funds for loan originations, deposits, and other activities. At June 30, ~~2009~~2010 we held no trust preferred securities and have never invested in trust preferred securities.

~~Page 22~~25

The following table sets forth the composition of our investment portfolio at the dates indicated.

	At June 30,
	2009				2008				2007
	2010						2009							2008
	Carrying Value		Percent of Total		Carrying Value		Percent of Total		Carrying Value			Percent of Total
	CarryingValue			Percent ofTotal			CarryingValue				Percent ofTotal			CarryingValue		Percent ofTotal
Securities available-for-sale:		(Dollars in thousands)
	(Dollars in thousands)
U.S. government and government sponsored entity bonds	$	—	—	%	$	—	—	%	$	2,994		8.63	%
Securities available-for-sale:
Mortgage-backed securities:
U.S. government and government sponsored entity bonds	$	—			—	%	$	—				—	%	$	—		—	%
Freddie Mac		524	5.37			3,557	22.17			4,827		13.92
Mortgage-backed securities:
Collateralized mortgage obligations:
Freddie Mac		341			5.65			524				5.37			3,557		22.17
Freddie Mac		3,712	38.01			4,982	31.06			5,758		16.61
Collateralized mortgage obligations:
Total securities available-for-sale	$	4,236	43.38	%	$	8,539	53.23	%	$	13,579		39.16	%
Freddie Mac		1,949			32.25			3,712				38.01			4,982		31.06
Securities held-to-maturity:
Total securities available-for-sale	$	2,290			37.90	%	$	4,236				43.38	%	$	8,539		53.23	%
U.S. government and government sponsored entity bonds	$	—	—	%	$	—	—	%	$	12,000		34.61	%
Securities held-to-maturity:
Mortgage-backed securities:
U.S. government and government sponsored entity bonds	$	—			—	%	$	—				—	%	$	—		—	%
Fannie Mae		191	1.96			235	1.47			303		0.87
Mortgage-backed securities:
Freddie Mac		156	1.60			178	1.11			217		0.63
Fannie Mae		162			2.68			191				1.96			235		1.47
Ginnie Mae		111	1.14			123	0.77			146		0.42
Freddie Mac		131			2.17			156				1.60			178		1.11
Collateralized mortgage obligations:
Ginnie Mae		60			1.00			111				1.14			123		0.77
Fannie Mae		1,819	18.63			2,274	14.17			2,747		7.92
Collateralized mortgage obligations:
Freddie Mac		3,251	33.29			4,350	27.11			4,926		14.21
Fannie Mae		1,352			22.38			1,819				18.63			2,274		14.17
Ginnie Mae		—	—			344	2.14			757		2.18
Freddie Mac		2,046			33.87			3,251				33.29			4,350		27.11
Total securities held-to-maturity	$	5,528	56.62	%	$	7,504	46.77	%	$	21,096		60.84	%
Ginnie Mae		—			—			—				—			344		2.14
Total securities	$	9,764	100.00	%	$	16,043	100.00	%	$	34,675		100.00	%
Total securities held-to-maturity	$	3,751			62.10	%	$	5,528				56.62	%	$	7,504		46.77	%
Other earning assets:
Total securities	$	6,041			100.00	%	$	9,764				100.00	%	$	16,043		100.00	%
Interest earning time deposits in other financial institutions	$	25,508	32.22	%	$	6,925	13.28	%	$	2,970		10.39	%
Other earning assets:
Federal funds sold		41,020	51.81			32,660	62.66			15,750		55.09
Interest-earning deposits in other financial institutions	$	19,267			30.48	%	$	25,508				32.22	%	$	6,925		13.28	%
FHLB stock		12,649	15.97			12,540	24.06			9,870		34.52
Federal funds sold		31,775			50.26			41,020				51.81			32,660		62.66
Total other earning assets	$	79,177	100.00	%	$	52,125	100.00	%	$	28,590		100.00	%
Federal Home Loan Bank stock		12,179			19.26			12,649				15.97			12,540		24.06
Total securities and other earning assets	$	88,941			$	68,168			$	63,265
Total other earning assets	$	63,221			100.00	%	$	79,177				100.00	%	$	52,125		100.00	%
Total securities and other earning assets	$	69,262					$	88,941						$	68,168

While our collateralized mortgage-backed securities and mortgage-backed securities carry a reduced credit risk as compared to whole loans due to their issuance under government agency sponsored programs, they remain subject to the risk that a fluctuating interest rate environment, along with other factors like the geographic distribution of the underlying mortgage loans, may alter the prepayment rate of the mortgage loans and so affect both the prepayment speed, and value, of the investment securities. As a result of these factors, the estimated average lives of these securities will be shorter than the contractual maturities as shown on the following table.26

~~Page~~Portfolio Maturities 23and Yields. The composition and maturities of the investment securities portfolio at June 30, 2010 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.

Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at June 30, 2009 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.

	One year or less				More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Securities available-for-sale:
Mortgage-backed securities:
Freddie Mac	$	—	$	—	$	332		3.87	%	$	—		—	%	$	—		—	%	$	332	$	341		3.87	%
Collateralized mortgage obligations
Freddie Mac		—		—		—		—			—		—			1,904		5.36			1,904		1,949		5.36
Total securities available-for-sale	$	—		—	$	332		3.87	%	$	—		—	%	$	1,904		5.36	%	$	2,236	$	2,290		5.14	%

Securities held-to-maturity:
Mortgage-backed securities:
Fannie Mae		—		—		—		—			—		—			162		2.38			162		164		2.38
Freddie Mac		—		—		—		—			—		—			131		4.36			131		136		4.36
Ginnie Mae		—		—		—		—			27		3.13			33		4.03			60		62		3.62
Collateralized mortgage obligations
Fannie Mae		—		—		—		—			—		—			1,352		3.64			1,352		1,386		3.64
Freddie Mac		—		—		—		—			1,481		5.00			565		5.00			2,046		2,118		5.00
Total securities held-to-maturity	$	—	$	—	$	—		—		$	1,508		4.97	%	$	2,243		3.94	%	$	3,751	$	3,866		4.35	%

Total securities	$	—	$	—	$	332		3.87	%	$	1,508		4.97	%	$	4,147		4.59	%	$	5,987	$	6,156		4.65	%

	One year or less					More than One Year through Five Years					More than Five Years through Ten Years					More than Ten Years					Total Securities
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Securities available-for-sale:
Mortgage-backed securities:
Freddie Mac	$	—		—	%	$	511		4.50	%	$	—		—	%	$	—		—	%	$	511	$	524	4.50	%
Collateralized mortgage obligations:
Freddie Mac		—		—			—		—			—		—			3,595		5.29			3,595		3,712	5.29
Total securities available-for-sale	$	—		—	%	$	511		4.50	%	$	—		—	%	$	3,595		5.29	%	$	4,106	$	4,236	5.19	%
Securities held-to-maturity:
Mortgage-backed securities:
Fannie Mae	$	—		—	%	$	—		—	%	$	—		—	%	$	191		3.44	%	$	191	$	192	3.44	%
Freddie Mac		—		—			—		—			—		—			156		4.43			156		156	4.63
Ginnie Mae		—		—			—		—			33		4.13			78		4.83			111		115	4.62
Collateralized mortgage obligations:
Fannie Mae		—		—			—		—			—		—			1,819		3.60			1,819		1,832	3.60
Freddie Mac		—		—			—		—			2,565		4.66			686		5.00			3,251		3,330	4.73
Total securities held-to-maturity		—		—			—		—			2,598		4.66			2,930		3.99			5,528		5,625	4.31
Total securities	$	—		—	%	$	511		4.50	%	$	2,598		4.66	%	$	6,525		4.71	%	$	9,634	$	9,861	4.68	%

~~Page~~Mortgage-Backed Securities. We 24invest in mortgage-backed securities insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. We invest in mortgage-backed securities to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae or Ginnie Mae.

~~Interest~~Mortgage-backed securities ~~Earning~~are ~~Deposits~~created inby ~~Other~~pooling ~~Financial~~mortgages ~~Institutions.~~and ~~Interest~~issuing ~~earning~~a ~~time~~security ~~deposits~~with inan interest ~~other~~rate ~~financial~~that ~~institutions~~is ~~consists~~less ofthan ~~certificates~~the ofinterest ~~deposit~~rate ~~placed~~on ~~with~~the ~~federally~~underlying mortgages. Mortgage-backed ~~insured~~securities ~~financial~~typically ~~institutions~~represent a participation interest in ~~amounts~~a ~~that~~pool doof ~~not~~single-family ~~exceed~~or ~~the~~multi-family ~~insurable~~residential mortgages, ~~limit~~although we invest primarily in mortgage-backed securities backed by ofone- ~~$250,000~~to four-family mortgages. The ~~These~~issuers ~~deposits~~of ~~are~~such ~~used~~securities topool and ~~invest~~resell ~~our~~the ~~excess~~participation ~~liquidity~~interests asin ~~part~~the form of ~~our~~securities ~~overall~~to ~~asset/liability~~investors such ~~management~~as Kaiser Federal Bank. Some ~~These~~securities ~~deposits~~pools ~~had~~are aguaranteed ~~weighted~~as to payment of principal and interest to investors. Mortgage-~~average~~backed securities generally yield less than the loans that underlie such securities because of ~~1.5%~~the cost of payment guarantees and acredit enhancements. However, ~~weighted~~mortgage-backed ~~average~~securities ~~maturity~~are ofmore 4liquid than individual mortgage loans since there is an active trading market for such securities.3 In ~~months~~addition, atmortgage-backed ~~June~~securities 30may be used to collateralize our specific liabilities and obligations. Finally, mortgage-backed ~~2009~~securities are assigned lower risk weightings for purposes of calculating our risk-based capital level.

~~Federal~~Investments in ~~Home~~mortgage-backed ~~Loan~~securities ~~Bank~~involve ~~Stock. As~~ a ~~member~~risk ofthat ~~the~~actual ~~Federal~~payments ~~Home~~will ~~Loan~~be greater ~~Bank~~or ~~(“FHLB”)~~less ofthan ~~San~~the ~~Francisco,~~prepayment werate ~~are~~estimated ~~required~~at ~~to own capital stock in~~ the ~~FHLB.~~time ~~The amount~~ of ~~stock~~purchase, which wemay ~~hold~~require isadjustments ~~based~~to ~~on percentages specified by~~ the ~~FHLB~~amortization of ~~San~~any ~~Francisco~~premium onor ~~our outstanding~~acceleration ~~advances and the requirements~~ of ~~their Mortgage Purchase Program. The redemption of~~ any ~~excess~~discount ~~stock~~relating weto ~~hold~~such isinterests, atthereby ~~the~~affecting ~~discretion of~~ the ~~FHLB~~net ~~of San Francisco. The carrying value of FHLB of San Francisco stock totaled $12.6 million and had a weighted-average-~~yield ofon our 2securities.5% We ~~for~~periodically ~~the~~review ~~year~~current ~~ended~~prepayment ~~June~~speeds ~~30, 2009. The yield on the Federal Home Loan Bank of San Francisco stock is produced by stock dividends that are subject~~ to ~~the discretion of the board of directors of the Federal Home Loan Bank of San Francisco. On January~~ 8,determine ~~2009~~whether ~~and~~prepayment onestimates ~~April~~require ~~10,~~modification ~~2009, the FHLB of San Francisco announced~~ that itcould ~~would~~cause amortization ~~not~~or ~~pay~~accretion ~~a quarterly dividend and would not repurchase excess capital stock on the next regularly scheduled repurchase dates~~adjustments.

~~Equity~~Collateralized mortgage ~~Investment.~~obligations Atare ~~June~~debt ~~30,~~securities ~~2009,~~issued weby ~~also~~a ~~had~~special-purpose anentity ~~investment~~that aggregates inpools anof ~~affordable~~mortgages ~~housing~~and ~~fund~~mortgage-backed ~~totaling~~securities ~~$1.5~~and ~~million~~creates different ~~for~~classes ~~the purposes~~ of ~~obtaining~~securities ~~tax~~with ~~credits~~varying maturities and ~~for~~amortization schedules, ~~Community~~as ~~Reinvestment~~well ~~Act~~as ~~purposes.~~a ~~The~~residual ~~investment~~interest, iswith ~~being~~each ~~accounted~~class ~~for~~possessing ~~using~~different risk characteristics. The cash flows from the ~~equity~~underlying ~~method~~collateral ofare ~~accounting.~~generally ~~The~~divided ~~investment~~into is“tranches” ~~evaluated~~or ~~regularly~~classes ~~for~~that ~~impairment~~have ~~based~~descending onpriorities with ~~the~~respect ~~remaining~~to ~~allocable~~the ~~tax~~distribution ~~credits~~of principal and ~~tax~~interest ~~benefits~~cash flows, while cash flows on pass-through mortgage-backed securities are distributed pro rata to all security holders.

~~Bank-Owned~~Interest Earning ~~Life~~Deposits ~~Insurance.~~in InOther ~~April~~Financial ~~2005,~~Institutions. weInterest ~~purchased~~earning ~~$10.0~~time deposits ~~million~~ in ~~bank-owned~~other ~~life~~financial ~~insurance,~~institutions ~~which~~consists ~~covers~~of ~~certain~~certificates ~~key~~of ~~employees,~~deposit placed towith ~~provide~~federally ~~tax-exempt~~insured ~~income~~financial toinstitutions ~~assist~~ in ~~offsetting~~amounts ~~costs~~that ~~associated~~do ~~with~~not exceed ~~employee~~the ~~benefit~~insurable ~~plans~~limit ~~offered~~of by$250,000. ~~Kaiser~~These ~~Federal~~deposits ~~Bank. The~~are ~~bank-owned~~used ~~life~~to ~~insurance~~invest isour excess ~~recorded~~liquidity atas ~~its~~part ~~cash~~of ~~surrender~~our ~~value,~~overall orasset/liability ~~the~~management. ~~amount~~These deposits ~~that~~had ~~can~~a beweighted-average ~~realized~~yield of 1. At43% ~~June~~and ~~30,~~a ~~2009,~~weighted ~~the~~average ~~cash~~maturity of ~~surrender~~2.7 ~~value~~months ~~was~~at ~~$11.9~~June ~~million~~30, 2010.

Federal Home Loan Bank Stock. As a member of the Federal Home Loan Bank of San Francisco, we are required to own capital stock in the Federal Home Loan Bank. The amount of stock we hold is based on percentages specified by the Federal Home Loan Bank of San Francisco on our outstanding advances and the requirements of their Mortgage Purchase Program. The redemption of any excess stock we hold is at the discretion of the Federal Home Loan Bank of San Francisco. The carrying value of Federal Home Loan Bank of San Francisco stock totaled $12.2 million and had a weighted-average-yield of 0.34% for the year ended June 30, 2010. The yield on the Federal Home Loan Bank of San Francisco stock is produced by stock dividends that are subject to the discretion of the board of directors of the Federal Home Loan Bank of San Francisco. On January 8, 2009 and April 10, 2009, the Federal Home Loan Bank of San Francisco announced that it would not pay a quarterly dividend and would not repurchase excess capital stock on the next regularly scheduled repurchase dates.

Equity Investment. At June 30, 2010, we also had an investment in an affordable housing fund totaling $1.2 million for the purposes of obtaining tax credits and for Community Reinvestment Act purposes. The investment is being accounted for using the equity method of accounting. The investment is evaluated regularly for impairment based on the remaining allocable tax credits and tax benefits.

Bank-Owned Life Insurance. In April 2005, we purchased $10.0 million in bank-owned life insurance, which covers certain key employees, to provide tax-exempt income to assist in offsetting costs associated with employee benefit plans offered by Kaiser Federal Bank. The bank-owned life insurance is recorded at its cash surrender value, or the amount that can be realized. At June 30, 2010, the cash surrender value was $12.4 million.

Sources of Funds

General. Our sources of funds are deposits, payment of principal and interest on loans, interest earned on or ~~maturation~~maturity of ~~other~~ investment securities, borrowings, and funds provided from operations.

Deposits. We offer a variety of deposit accounts to consumers with a wide range of interest rates and terms. Our deposits consist of time deposit accounts, savings, money market and demand deposit accounts. We have historically paid competitive rates on our deposit accounts. We primarily rely on competitive pricing policies, marketing and customer service to attract and retain these deposits. At June 30, ~~2009~~2010, approximately 27.5% of the dollar amount of our deposits were from customers who are employed by the Kaiser Permanente Medical Care Program, one of the largest employers in Southern California. Our ~~ATM’s~~ATMs are located in our branches and near Kaiser Permanente Medical Centers and office buildings. We currently do not accept brokered deposits and had none at June 30, 2010.

~~Page~~The 25flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and bi-weekly direct deposits from Kaiser Permanente Medical Care Program payrolls. The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. We have become more susceptible to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. We try to manage the pricing of our deposits in keeping with our asset/liability management, liquidity and profitability objectives, subject to competitive factors. Based on our experience, we believe that our deposits are a relatively stable source of funds. Despite this stability, our ability to attract and maintain these deposits and the rates paid on them has been and will continue to be significantly affected by market conditions.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and bi-weekly direct deposits from Kaiser Permanente Medical Care Program payrolls. The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and to respond with flexibility tofollowing ~~changes~~table insets ~~consumer~~forth ~~demand.~~our ~~We have become more susceptible to short-term fluctuations in~~ deposit flows, asduring ~~customers have become less interest rate conscious. We try to manage~~ the pricing of our deposits in keeping with our asset/liability management, liquidity and profitability objectives, subject to competitive factors. Based on our experience, we believe that our deposits are a relatively stable source of funds. Despite this stability, our ability to attract and maintain these deposits and the rates paidperiods ~~on them has been and will continue to be significantly affected by market conditions~~indicated.

The following table sets forth our deposit flows during the years indicated.

	Year Ended June 30,
	2010		2009		2008
	(Dollars in thousands)

Opening balance	$	566,193	$	495,058	$	494,128
Deposits, net of withdrawals		53,572		58,013		(14,269	)
Interest credited		10,929		13,122		15,199
Ending balance	$	630,694	$	566,193	$	495,058

Net increase	$	64,501	$	71,135	$	930

1359 N. Grand Avenue, Covina, CA

(State or other jurisdiction of incorporation)

(I.R.S. Employer Identification No.)

(Address of principal executive offices)

(Zip Code)

1359 N. Grand Avenue, Covina, CA

(Address of principal executive offices)

(Zip Code)

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