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Average Balance Sheets

The following table sets forth certain information relating to our average balances of assets, liabilities and equity for the six months ended September 30, 2006 and 2005.  The yields and costs are derived by dividing interest income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods shown.  Average balances are generally derived from average daily balances.  The yields and costs include fees that are considered adjustments to yields.

Rate/Volume Analysis

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

Forward-Looking Statements

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This Form 10-Q contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to, changes in economic conditions in our market areas, changes in policies by regulatory agencies, the impact of competitive loan and deposit products, the quality or composition of our loan or investment portfolios, fluctuations in interest rates and changes in the relative differences between short and long-term interest rates, levels of nonperforming assets and operating results, the impact of domestic or world events on our loan and deposit inflows and outflows and other risks detailed from time to time in our filings with the Securities and Exchange Commission. We caution readers not to place undue reliance on forward-looking statements.  We do not undertake and specifically disclaim any obligation to revise or update any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.  These risks could cause our actual results for fiscal year 2007 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us.

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Critical Accounting Policies

Our management has established various accounting policies, which govern the application of accounting principles generally accepted in the United States of America in the preparation of our consolidated financial statements.  The significant accounting policies are described in our Annual Report on Form 10-K for the year ended March 31, 2006 and there has not been any material change in those policies since that date, other than changes discussed in this report. Certain accounting policies require significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and these are considered to be critical accounting policies.  The estimates and assumptions used are based on historical experience and other factors, which we believe are reasonable under the circumstances.  Actual results could differ significantly from these estimates and assumptions which could have a material impact on the carrying values of assets and liabilities at the balance sheet dates and on the results of operations for the reporting periods.  The following represents critical accounting policies that require the most significant estimates and assumptions that are particularly susceptible to significant change in the preparation of the consolidated financial statements:

• Allowance for losses on loans and leases.  For further information, see "Comparison of Financial Condition at September 30, 2006 and March 31, 2006" in this Form 10-Q and "Item 1 - Business - Lending Activities - Allowance for Loan and Lease Losses", "Item 1- Foreclosed Assets" and "Notes 5 and 6 to the Consolidated Financial Statements" in our March 31, 2006 Annual Report on Form 10-K.

• Other-Than-Temporary Impairment.  For further information, see "Item 1 - Business - Investment Activities" and "Notes 2 and 3 to the Consolidated Financial Statements" in our March 31, 2006 Annual Report on Form 10-K.

• Financial Derivatives. For further information, see "Item 1 -- Financial Statements - Note 5 - Derivative Hedging Activities" in this Form 10-Q and "Note 13 to the Consolidated Financial Statements" in our March 31, 2006 Annual Report on Form 10-K.

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Comparison of Operating Results for the Three Months Ended September 30, 2006 and 2005

Overview

The following discussion compares the results of operations for the three months ended September 30, 2006 with the corresponding period of 2005. This discussion should be read in conjunction with the consolidated financial statements and footnotes included therein.

We recorded net earnings of $14.0 million or $0.56 per diluted share for the three months ended September 30, 2006 compared to net earnings of $13.4 million or $0.54 per diluted share for the comparable period of 2005. 

• Net interest income rose $4.3 million or 10 percent to $45.9 million for the current quarter compared to the same quarter of 2005.  On a sequential quarter basis, net interest income decreased $1.0 million or 2 percent.  Net interest margin contracted 21 basis points to 4.16% between the quarters ended September 30, 2005 and 2006 and contracted 24 basis points on a sequential quarter basis. 

• Construction, commercial business, commercial real estate and consumer loans (the "Four-Cs") increased $598.3 million or 33 percent to $2.42 billion or 59 percent of loans and leases receivable, net compared to $1.82 billion or 52 percent of loans and leases receivable, net, one year ago. Based on end of period balances, the Four-Cs increased $132.5 million or 6 percent during the current quarter.  The average balance of the Four-Cs increased $53.2 million or 2 percent on a sequential quarter basis.

Our loan origination focus continues to be on the Four-Cs.  Four-Cs originations totaled $612.8 million or 86 percent of total originations in the current quarter, compared to $636.4 million or 87 percent of total originations for the comparable period of the prior year.  The Four-Cs originations include $16.5 million and $10.3 million originated by DBS during the quarters ended September 30, 2006 and 2005, respectively.  At September 30, 2006, DBS had outstanding loans receivable, net, of $89.9 million compared to $54.7 million one year ago.  The majority of DBS's loans are classified as construction and land.

• Average total deposits increased $313.6 million or 11 percent compared to the quarter ended September 30, 2005 and increased $244.5 million from the quarter ended March 31, 2006.  Reflecting a widening rate differential between certificate accounts ("CDs") and interest-bearing liquid accounts arising from increases in the general level of interest rates, the average balance of CDs increased $536.2 million while lower cost passbook, money market and demand deposits ("core deposits") decreased $222.6 million from one year ago.  At September 30, 2006, core deposits totaled $1.61 billion or 51 percent of total deposits, compared to $1.69 billion or 55 percent of total deposits at March 31, 2006 and $1.87 billion or 64 percent of total deposits one year ago. Non-interest-bearing demand deposits averaged $283.7 million or 9 percent of average total deposits for the current quarter compared to $285.6 million or 10 percent of average total deposits for the comparable quarter of 2005.

Deposits, particularly core deposits, provide a more preferable source of funding than Federal Home Loan Bank ("FHLB") advances and other borrowings. However, as and to the extent competitive or market factors do not allow us to meet our funding needs with deposits, FHLB advances and other borrowings provide a readily available source of liquidity.  At September 30, 2006, FHLB advances and other borrowings increased to $973.4 million or 23 percent of total liabilities from $822.0 million or 21 percent of total liabilities at March 31, 2006.

Non-accrual loans were $617,000 or 0.01 percent of gross loans and leases at September 30, 2006 compared to $1.1 million or 0.03 percent of gross loans and leases at March 31, 2006 and $11.9 million or 0.28 percent of gross loans and leases at September 30, 2005.  The distribution of the non-accrual loan balance of $617,000 as of September 30, 2006 by loan type was $119,000 single-family, $346,000 commercial business and $152,000 consumer.

We did not repurchase any shares of our common stock during the current quarter.  At September 30, 2006, 954,310 shares remain under a 1.0 million share repurchase authorization adopted by our Board of Directors on October 26, 2005. 

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At September 30, 2006, our consolidated capital to assets ratio was 8.40%.  The Bank's core and total risk-based capital ratios were 8.35% and 10.83%, respectively, compared to 5.00% and 10.00%, respectively, needed to be considered "Well Capitalized."  Our internal target floors for the Bank's core and total risk-based capital ratios are 7.75% and 11.00%, respectively.    For further information relating to our risk-based capital ratios, see "Liquidity and Capital Resources" in this Form 10-Q.

Net Interest Income

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

Our net interest income totaled $45.9 million for the quarter, up 10 percent or $4.3 million from $41.5 million for the quarter ended September 30, 2005.  This increase was attributable primarily to a $604.1 million or 16 percent increase in average interest-earning assets from the comparable period of the prior year, partially offset by a 21 basis point decrease in our net interest margin for the current quarter compared with the year ago period.  The average balance of the Four-Cs increased $560.4 million or 32 percent between the quarters ended September 30, 2005 and 2006, which contributed to the increase of $580.8 million or 17 percent in the average balance of loans and leases receivable, net. Highly competitive pricing of deposits in our markets has exacerbated the effect of the flattening of the yield curve over the past year. These factors, in combination with a larger portion of our funding being in certificate accounts and borrowings, have resulted in a 140 basis point increase in our cost of funds for the current quarter as compared to the same period last year. This exceeded the 112 basis point increase in our earning assets yield for the current quarter as compared to the same period last year. As a result, our net interest spread and net interest margin for the three months ended September 30, 2006 were 3.93% and 4.16%, respectively, compared to 4.21% and 4.37%, respectively for the same period last year.

We believe that the competitive pressures on deposit rates and customer preference for certificate accounts will continue to put pressure on our net interest margin. Certificate accounts which will reprice or mature during the third quarter ending December 31, 2006 total $292.3 million and have a weighted average rate of 4.41%.

Reflecting the higher interest rate environment and the sensitivity of our loan and lease portfolio to changes in rates, the average yield on loans and leases receivable, net, increased 111 basis points to 7.95% for the quarter ended September 30, 2006 as compared to the quarter ended September 30, 2005.  Loan and lease principal repayments totaled $547.9 million for the quarter ended September 30, 2006 compared to $645.9 million for the same period of 2005.  Expressed as an annualized percentage of average loans and leases receivable, net, this represented 54 percent of the portfolio compared to 75 percent for the quarter ended September 30, 2005.  Premium amortization, net of discount accretion on the loan and lease portfolio for the quarters ended September 30, 2006 and 2005 was $323,000 and $510,000, respectively.  Amortization of loan origination fees and extension fees, net, increased to $3.9 million and $1.5 million, respectively, for the quarter ended September 30, 2006 compared to $3.6 million and $1.3 million for the comparable period of 2005.  For the quarter ended September 30, 2006, this fee amortization increased yield on average loans receivable, net, and yield on average interest-earning assets by 53 basis points and 48 basis points, respectively, compared to 56 basis points and 51 basis points for the comparable period of 2005.

Our average cost of interest-bearing liabilities increased 140 basis points to 3.74% for the quarter ended September 30, 2006 as compared to the quarter ended September 30, 2005.  Our average cost of deposits rose 116 basis points to 3.28% for   the quarter ended September 30, 2006 as compared to the quarter ended September 30, 2005, while our average cost of FHLB advances, other borrowings and junior subordinated debentures rose 199 basis points over that same time period.  The average balance of our deposit portfolio increased $313.6 million or 11 percent to $3.14 billion or 76 percent of our average interest-bearing liabilities.

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Provision for Loan and Lease Losses

We recorded a $2.5 million provision for loan and lease losses for the quarter ended September 30, 2006 compared to $1.2 million for the comparable period of 2005.  Classified assets rose $13.4 million during the current quarter to $32.8 million at September 30, 2006.  This increase was due to a $15.0 million commercial loan that is paying as agreed, but is secured by equipment leases, some of which are non-performing.  This loan accounted for $850,000 of the $2.5 million provision for loan and lease losses during the current quarter.  At September 30, 2006, the Allowance for Loan and Lease Losses ("ALLL") was $40.3 million or 0.85% of gross loans and leases compared to $37.1 million or 0.83% of gross loans and leases at March 31, 2006.  We will continue to monitor and modify the ALLL based upon economic conditions, loss experience, changes in portfolio composition, and other factors.

Non-Interest Income

Total non-interest income decreased $708,000 to $5.6 million between the quarters ended September 30, 2006 and 2005.  Excluding gains on sales of securities of $923,000 for the quarter ended September 30, 2005, gain on sale of a former administrative building of $716,000 and the non-cash charges of $797,000 associated with our interest rate swaps, non-interest income increased $296,000 or 5 percent between the quarters ended September 30, 2005 and 2006.

Deposit and Related Fees

Deposit and related fees decreased 3 percent or $89,000 to $3.4 million for the current quarter due to a decrease in ATM service fees as we are no longer charging our customers a service fee for using foreign or non-bank ATMs.   Monthly service charges and overdraft fees were relatively unchanged at $2.9 million for the current quarter.  Our transaction accounts increased slightly to 70,000 accounts at September 30, 2006 as compared to 68,000 accounts at September 30, 2005.

Loan and Servicing Fees

Loan and servicing fees decreased $15,000 or 3 percent to $578,000 for the current quarter.  Amortization of our mortgage servicing rights ("MSR") asset was $3,000 and $12,000 for the quarters ended September 30, 2006 and 2005, respectively.  At September 30, 2006, our MSR asset was $283,000.

Trust, Investment and Insurance Fees

Trust, investment and insurance fees increased $272,000 or 26 percent to $1.3 million for the quarter ended September 30, 2006. The increase in fees is a result of an increase in market value of trust and investment assets under management or advisory by Glencrest and the Bank's trust department to $708.5 million at September 30, 2006, compared to $577.6 million at September 30, 2005.  These assets under management or advisory include $572.6 million managed or advised by Glencrest at September 30, 2006 compared to $428.2 million at September 30, 2005.  The average annual fee per dollar of assets managed or advised by Glencrest and the Bank's trust department was approximately 52 basis points for the quarter ended September 30, 2006 compared to 55 basis points for the comparable period of 2005.

Gain on Sale of Loans

Our community banking business strategy does not include aggressively pursuing the origination of loans for sale. Accordingly, the principal balances of loans sold during the quarters ended September 30, 2006 and 2005 were $4.9 million and $4.4 million, respectively.  This activity generated net gains on sales of $73,000 and $36,000 for the quarters ended September 30, 2006 and 2005, respectively. 

Gain on Sale of Securities

We generally follow a "buy and hold" strategy with respect to our securities portfolio.  While the overwhelming majority of our securities portfolio is classified as "available for sale," our securities sales activity has been and is expected to continue to be infrequent.  Securities with a cost basis aggregating $393,000 were sold during the quarter ended September 30, 2005,

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generating gain on sales of $923,000.  There were no securities sales during the quarter ended September 30, 2006.

Non-Interest Expense

Non-interest expense and general and administrative ("G&A") expense increased $1.3 million or 5 percent to $24.7 million for the quarter ended September 30, 2006 as compared to the same period last year.  Excluding a $700,000 revision to benefit accruals in the current quarter, G&A expenses for the quarter would have been $25.4 million, an 8 percent increase over the comparable period of 2005.  The increase in G&A expense primarily reflects the direct and indirect costs associated with the growth in our deposit and lending operations.

The ratio of G&A expense to average assets decreased 21 basis points to 2.16%, on an annualized basis for the quarter ended September 30, 2006 compared to 2.37% for the comparable period of 2005.   Our efficiency ratio improved to 47.90% for the current quarter compared to 48.87% for the comparable period of 2005.  Excluding gains on sales of securities of $923,000 for the quarter ended September 30, 2005, gain on sale of a former administrative building of $716,000 and the non-cash charges of $797,000 associated with our interest rate swaps for the quarter ended September 30, 2006, our efficiency ratios would have been 47.83% and 49.83% for the quarters ended September 30, 2006 and 2005, respectively. 

Income Taxes

Income taxes and the effective tax rates were $10.3 million and 42.2 percent, respectively, for the current quarter compared to $9.9 million and 42.5 percent for the quarter ended September 30, 2005. 

Comparison of Operating Results for the Six Months Ended September 30, 2006 and 2005

Overview

The following discussion compares the results of operations for the six months ended September 30, 2006 with the corresponding period of 2005. This discussion should be read in conjunction with the consolidated financial statements and footnotes included therein.

We recorded net earnings of $29.5 million or $1.19 per diluted share for the six months ended September 30, 2006 compared to net earnings of $25.7 million or $1.03 per diluted share for the comparable period of 2005.  Excluding gain on sale of securities of $271,000 and $923,000 for the six months ended September 30, 2006 and 2005, respectively, gain on sale of a former administrative building of $716,000 and non-cash charges of $322,000 associated with interest rate swaps for the six months ended September 30, 2006, earnings before income taxes increased $4.7 million or 10 percent to $50.3 million for the six months ended September 30, 2006, compared to $45.6 million for the comparable period of the prior year.

Net Interest Income

Our net interest income totaled $92.7 million for the six months ended September 30, 2006, up 12 percent or $10.1 million from $82.6 million for the comparable period of 2005.  Average interest-earning assets increased $535.0 million or 14 percent between the six months ended September 30, 2005 and 2006 and net interest margin decreased 7 basis points to 4.28% for the six months ended September 30, 2006 from 4.35% for the same period of 2005.  The average balance of the Four-Cs increased $529.1 million or 30 percent between the six months ended September 30, 2005 and 2006, which accounted for the increase of $526.1 million or 15 percent in the average balance of loans and leases receivable, net.  

The average yield on loans and leases receivable, net, increased 121 basis points between the six months ended September 30, 2005 and 2006 to 7.90%.  Loan and lease principal repayments totaled $1.14 billion for the six months ended September 30, 2006 compared to $1.25 billion for the comparable period of 2005.  Expressed as an annualized percentage of average loans and leases receivable, net, this represented 58 percent and 73 percent of the portfolio for the six months ended September 30, 2006 and 2005, respectively.  Premium amortization, net of discount accretion on the loan and lease portfolio for the six months ended September 30, 2006 was $566,000 compared to $830,000 for the comparable period of 2005.  Amortization of loan origination fees and extension fees, net, increased to $8.2 million and $3.3 million, respectively, for the six months ended September 30, 2006

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compared to $7.3 million and $2.0 million for the comparable period of 2005.  For the six months ended September 30, 2006, this fee amortization increased yield on average loans receivable, net, and yield on average interest-earning  assets by 58 basis points and 48 basis points, respectively, compared to 54 basis points and 49 basis points, respectively, for the comparable period of 2005.

Our average cost of interest-bearing liabilities increased 135 basis points to 3.57% between the six months ended September 30, 2005 and 2006.  Our average cost of deposits rose 112 basis points between the six months ended September 30, 2005 and 2006 while our average cost of FHLB advances, other borrowings and junior subordinated debentures rose 198 basis points. The increase in our average cost of interest-bearing liabilities was partially mitigated by the continued growth and increasing utilization of deposits as our principal and preferable source of funding.  The average balance of our deposit portfolio increased $327.5 million or 12 percent to $3.10 billion or 76 percent of our average interest-bearing liabilities.

Provision for Loan and Lease Losses

We recorded a $3.0 million provision for loan and lease losses for the six months ended September 30, 2006 compared to $1.2 million for the comparable period of 2005.  The increase in provision for loan losses was primarily attributable to a $13.4 million increase in classified assets and the overall increase in our loan portfolio.

Non-Interest Income

Total non-interest income was $12.1 million and $11.2 million for the six months ended September 30, 2006 and 2005, respectively.  Excluding gain on sale of securities of $271,000 and $923,000 for the six months ended September 30, 2006 and 2005, respectively, gain on sale of a former administrative building of $716,000 and non-cash charges of $322,000 associated with interest rate swaps for the six months ended September 30, 2006, total non-interest income

increased $1.2 million to $11.4 million for the six months ended September 30, 2006 compared to $10.3 million for the comparable period of 2005. 

Deposit and Related Fees

Deposit and related fees totaled $6.7 million for the six months ended September 30, 2006, up $257,000 or 4 percent from the comparable period in 2005.  This increase reflects fee income of $400,000 associated with transaction accounts, partially offset by a decrease of $145,000 in ATM service fees associated with our customers not being charged for using foreign or non-bank ATMs for the six months ended September 30, 2006, as compared to the comparable period in 2005.

Loan and Servicing Fees

Loan and servicing fees were $1.2 million and $1.1 million, respectively, for the six months ended September 30, 2006 and 2005.  The increase is primarily related to disbursement and inspection fees associated with our construction loan portfolio, which increased $138,000 to $458,000 for the six months ended September 30, 2006.

Trust, Investment and Insurance Fees

Trust, investment and insurance fees were $2.8 million for the six months ended September 30, 2006, an increase of $648,000 or 30 percent from the comparable period of 2005, which reflects the increase in assets under management or advisory.

Gain on Sale of Loans

The net gain on sale of loans was $83,000 on $6.6 million of principal sold for the six months ended September 30, 2006 compared to a net gain of $103,000 on $9.2 million of principal sold during the same period last year.    

Gain on Sale of Securities

Securities with cost bases aggregating $5.1 million and $393,000 were sold during the six months ended September 30, 2006 and 2005, generating gains on sales of $271,000 and $923,000, respectively.

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Non-Interest Expense

Non-interest expense increased $4.8 million to $50.8 million for the six months ended September 30, 2006 as compared to the same period last year.  G&A expense increased $4.9 million or 11 percent between the six months ended September 30, 2006 and 2005 to $50.9 million.  ESOP expense was $1.5 million for the six months ended September 30, 2006, and the comparable period of 2005. 

The ratio of G&A expense to average assets improved to 2.27%, on an annualized basis for the six months ended September 30, 2006 compared to 2.34% for

the comparable period of 2005.  Our efficiency ratio was 48.60% for the six months ended September 30, 2006 compared to 49.09% for the comparable period of 2005.  Excluding gain on sale of securities of $271,000 and $923,000 for the six months ended September 30, 2006 and 2005, respectively, gain on sale of a former administrative building of $716,000 and non-cash charges of $322,000 associated with interest rate swaps for the six months ended September 30, 2006, our efficiency ratios would have been 48.91% and 49.58% for the six months ended September 30, 2006 and 2005, respectively. 

Income Taxes

Our effective income tax rates were 42.2 percent and 44.7 percent for the six months ended September 30, 2006 and 2005.  The reduction in our effective tax rate was attributable principally to a reduction in the non-deductible portion of ESOP expense.

Comparison of Financial Condition at September 30, 2006 and March 31, 2006

Total assets were $4.64 billion at September 30, 2006 compared to $4.34 billion at March 31, 2006.  Loans and leases receivable, net, totaled $4.10 billion at September 30, 2006, a $262.0 million increase from $3.84 billion at March 31, 2006.  The balance of our Four-Cs increased $252.6 million or 12 percent from $2.17 billion at March 31, 2006 to $2.42 billion at September 30, 2006.  These loan balances are shown net of undisbursed construction loan funds of $617.5 million and $596.2 million at September 30 and March 31, 2006, respectively.  These undisbursed balances represent funds that will be disbursed and begin earning interest as construction progresses.

At September 30, 2006, the ALLL was $40.3 million or 0.85% of gross loans and leases compared to $37.1 million or 0.83% of gross loans and leases at March 31, 2006.  Assets classified "Substandard" and "Doubtful" under our Internal Asset Review ("IAR") system were $32.6 million and $150,000, respectively at September 30, 2006 compared to $16.6 million and none, respectively at March 31, 2006.  The $32.6 million at September 30, 2006 primarily consists of 24 commercial business loans totaling $23.3 million, a commercial real estate loan of $452,000, and $8.6 million attributable to a 20-unit residential construction loan, that was reclassified to assets acquired through foreclosure when a court appointed receiver was put in place to oversee the property during the quarter ended December 31, 2005.

The ALLL is maintained at an amount management considers adequate to cover probable losses on loans and leases receivable. The determination of the adequacy of the ALLL is influenced to a significant degree by the evaluation of the loan and lease portfolio by our IAR function.  The IAR system is designed to identify problem loans and leases and probable losses.  As the percentage of our loan and lease portfolio comprised by the Four-Cs has increased, the IAR function has become increasingly important not only for the timely and accurate identification of probable losses, but also to minimize our exposure to such losses through early intervention.  Among the factors taken into account by the IAR function in identifying probable losses and determining the adequacy of the ALLL are the nature, level and severity of classified assets, historical loss experience adjusted for current economic conditions, and composition of the loan and lease portfolio by type.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's ALLL.  Such agencies may require the Bank to make additional provisions for loan and lease losses based upon information available at the time of the review.  We will continue to monitor and modify our ALLL as economic conditions, loss experience, changes in asset quality, portfolio composition and other factors dictate.

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The following table sets forth activity in our ALLL.

                      

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
			(Dollars in thousands)
Beginning balance	$	37,658	$	33,192	$	37,126	$	33,302
Provision for loan lossses		2,520		1,220		3,020		1,220
Charge-offs		(9	)	(29	)	(108	)	(167	)
Recoveries		120		99		251		127
Ending balance	$	40,289	$	34,482	$	40,289	$	34,482

The charge-offs of $108,000 for the six months ended September 30, 2006 included $63,000 related to commercial business loans and $45,000 related to consumer loans.  The charge-offs of $167,000 for the six months ended September 30, 2005 was primarily related to commercial business loans. 

Total liabilities were $4.25 billion at September 30, 2006, an increase of $276.7 million from $3.98 billion at March 31, 2006. Deposits increased $123.6 million to $3.18 billion or 75 percent of total liabilities at September 30, 2006 compared to $3.06 billion or 77 percent of total liabilities at March 31, 2006.  Reflecting a widening rate differential between certificate accounts and interest-bearing liquid accounts arising from increases in the general level of interest rates, core deposits decreased $80.1 million while certificate accounts increased $203.8 million during the past six months.  At September 30, 2006, non-interest bearing demand deposits were $293.7 million or 9 percent of total deposits compared to $313.6 million or 10 percent of total deposits at March 31, 2006. 

Total stockholders' equity increased $26.3 million to $390.0 million at September 30, 2006 compared to $363.7 million at March 31, 2006. The increase in total stockholders' equity was comprised principally of increases due to net earnings of $29.5 million and $4.5 million in additional paid in capital attributable to the exercise of 69,124 stock options, the associated tax benefit and the amortization of shares under our stock-based compensation plan, partially offset by dividends of $8.3 million.

Liquidity and Capital Resources

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

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

The Office of Thrift Supervision has no statutory liquidity requirement, but rather a policy, consistent with that of the other Federal banking regulatory agencies, that liquidity be maintained at a level which provides for safe and sound banking practices and financial flexibility.  Our internal policy is to seek to maintain at approximately three percent the ratio of cash and readily marketable debt securities to total deposits, (our "defined liquidity ratio").  In determining the adequacy of liquidity and borrowing capacity, we also consider large customer deposit concentrations, particularly with respect to core deposits, which provide immediate withdrawal opportunity.  At September 30, 2006, our largest core deposit relationship was $55.6 million and our ten largest core deposit relationships aggregated $147.4 million.  

At September 30, 2006, our defined liquidity ratio was 4.94% and our average defined liquidity ratio for the six months ended September 30, 2006 was 4.21%.  As an additional component of liquidity management, we seek to maintain sufficient mortgage loan and securities collateral at the FHLB to enable us to immediately borrow an amount equal to at least five percent of the Bank's total assets.  At September 30, 2006, our immediate borrowing capacity from the FHLB was $399.8

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million or nine percent of the Bank's total assets. Additionally, we have the capability to borrow funds from the Federal Reserve Bank discount window.  As of September 30, 2006, our borrowing capacity at the Federal Reserve Bank was approximately $31.6 million.  We also have $23.6 million of immediate borrowing capacity at September 30, 2006, under a $50.0 million line of credit with a commercial bank.

Our strategy is to manage liquidity by investing excess cash flows in higher yielding interest-earning assets, such as loans, leases and securities, or paying down FHLB advances and other borrowings, depending on market conditions.  Conversely, if the need for funds is not met through deposits and cash flows from loans, leases and securities, we initiate FHLB advances and other borrowings or, if necessary and of economic benefit, sell loans and/or securities.  Only when no other alternatives exist will we constrain loan and lease originations as a means of addressing a liquidity shortfall.  We have not found it necessary to constrain loan and lease originations due to liquidity considerations.

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

Net cash provided by operating activities was $25.7 million for the six months ended September 30, 2006 compared to $28.0 million for the comparable period of the prior year.  The decrease in net cash provided by operating activities is primarily due to an increase in amortization of net deferred loan origination fees and an increase in our interest receivable during the six month ended September 30, 2006, partially offset by an increase in net earnings between the six months ended September 30, 2005 and 2006.

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

Net cash used in investing activities was $290.7 million and $33.3 million for the six months ended September 30, 2006 and 2005, respectively.  The increase in net cash used in investing activities between the six months ended September 30, 2006 was attributable principally to a decrease in principal payments on loans and leases of $108.4 million, a $47.2 million increase in purchases of investment securities and mortgage-backed securities available-for-sale, and a $146.8 million net decrease in construction loans in process, partially offset by lower purchases of property and equipment.   

Cash flows provided by financing activities were $268.4 million for the six months ended September 30, 2006 compared to $13.7 million for the comparable period of 2005.  Financing activities consist primarily of net activity in deposit accounts and FHLB advances and other borrowings. Our net increases in deposits were $123.6 million and $158.6 million for the six months ended September 30, 2006 and 2005, respectively.  During the six months ended September 30, 2006, we increased our use of FHLB advances and other borrowings by $151.4 million, net, compared to a decrease of $149.4 million, net for the comparable period of 2005.

At September 30, 2006, the Bank exceeded all of its regulatory capital requirements with tangible capital of $379.9 million, or 8.35% of adjusted total assets, which is above the required level of $68.2 million, or 1.5%; core capital of $379.9 million, or 8.35% of adjusted total assets, which is above the required level of $182.0 million, or 4.0%; and total risk-based capital of $417.5 million, or 10.83% of risk-weighted assets, which is above the required level of $308.5 million, or 8.0%.  Our internal policy is to maintain our total risk-based capital ratio at approximately 11.00%.  To the extent the Bank's total risk-based capital is below 11.00%, our internal policy restricts the upstreaming of cash from the Bank to the Company.  Based on our expectations of continued robust Four-Cs loan growth, we do not expect to be in a position to upstream cash from the Bank to the Company for the next several quarters.  However, the Company has sufficient cash flow available to it from DBS as well as from a $50.0 million revolving line of credit with a commercial bank, $23.6 million of which was available at September 30, 2006, to meet all of its funding requirements, including dividends paid to shareholders.  The Company also has the ability to issue additional junior subordinated debentures should the need for additional funding arise.

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We currently have no material contractual obligations or commitments for capital expenditures. At September 30, 2006, we had outstanding commitments to originate and purchase loans of $99.1 million and none, respectively, compared to $134.0 million and $17.3 million, respectively, at September 30, 2005.  Standby letters of credit are conditional commitments we issue to guarantee the performance of a customer to a third party.  At September 30, 2006 and 2005, we had standby letters of credit of $28.4 million and $26.6 million, respectively.  We anticipate that we will have sufficient funds available to meet our commitments. Certificate accounts that are scheduled to mature in less than one year from September 30, 2006 totaled $1.41 billion.  We expect that we will retain a substantial portion of the funds from maturing CD accounts at maturity either in certificate or liquid accounts.  In response to the increases in short-term interest rates initiated by the Federal Reserve, as well as competitive market forces, rates on CDs have increased disproportionately to those of more liquid accounts.  As a result, we have seen a shift in customer behavior back towards CDs.  We anticipate that this shift in consumer preference will continue as and to the extent general market conditions create continued widening of the rate differential between CDs and liquid accounts.

Segment Reporting

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We believe there have been no significant changes to our qualitative and quantitative disclosures of market risk (consisting primarily of interest rate risk) during the six months ended September 30, 2006, from those which are disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2006.

Item 4. Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d - 15(e)) as of the end of the period covered by this report.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective, as of September 30, 2006, to ensure that information relating to us, which is required to be disclosed in the reports we file with the Securities and Exchange Commission under the Exchange Act, is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

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

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