---

# SECURITIES
AND EXCHANGE COMMISSIONWashington,
D.C. 20549

---

# FORM 10-K

(Mark one)

[X]             Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required)

For the fiscal year ended December 31, 2001

# or

[     ]           Transitional Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required)

For the transition period from                    to

# Commission
file number 0-21845

Wilshire Financial Services Group Inc.(Exact name of registrant as specified in its charter)

|Delaware                                                       | 93-1223879                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
|                                                               |                                     
|1776 SW Madison Street, Portland, OR                           | 97205                               
|(Address of principal executive offices)                       | (Zip Code)                          

(503) 223-5600
                                         (Registrant's telephone number, including area code)

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

None.

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

|                    | Name of each exchange
|------------------- | ---------------------
|Title of each class | on which registered  
|Common Stock.       | None.                

Indicate  by check mark  whether  the  registrant:  (1) has filed all  reports  required  to be filed by Section 13 or 15(d) of the  Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the  registrant was required to file such reports),  and (2) has
been subject to such filing requirements for the past 90 days.    YesXNo____

Indicate by check mark  whether  the  registrant  has filed all  documents  and reports  required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes X       No_____

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

The aggregate market value of the voting stock held by  non-affiliates  of the registrant,  computed by reference to the closing sales price on
March 1, 2002, was $17,511,645.

As of March 1, 2002, 16,180,604 shares of Wilshire Financial Services Group Inc.'s common stock, par value $0.01 per share, were outstanding.

# DOCUMENTS
INCORPORATED BY REFERENCE

None.

# WILSHIRE
FINANCIAL SERVICES GROUP INC.

# FORM 10-K

# INDEX

`Item                                                                                                  Page
------                                                                                                  ----
PART I                                                                                                   4
     1. Business....................................................................................     4
     2. Properties..................................................................................     14
     3. Legal Proceedings...........................................................................     14
     4. Submission of Matters to a Vote of Security Holders.........................................     15

PART II                                                                                                  15
     5. Market for the Registrant's Common Equity and Related Stockholder Matters...................     15
     6. Selected Financial Data and Operating Statistics............................................     16
     7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......     20
     7A. Quantitative and Qualitative Disclosures About Market Risk.................................     36
     8. Financial Statements and Supplementary Data.................................................     36
     9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........     36

PART III                                                                                                 37
     10. Directors and Executive Officers of the Registrant.........................................     37
     11. Executive Compensation.....................................................................     38
     12. Security Ownership of Certain Beneficial Owners and Management.............................     38
     13. Certain Relationships and Related Transactions.............................................     39

PART IV                                                                                                  39
     14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........................     39`

## FORWARD-LOOKING
STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a  "safe harbor"  for forward-looking  statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary  statements  identifying important factors that could cause actual results
to differ  materially  from those  projected in such  statements.  All of the  statements  contained in this Annual Report on Form 10-K which are not
identified as historical  should be  considered  forward-looking.  In connection  with certain  forward-looking  statements  contained in this Annual
Report on Form 10-K and those that may be made in the future by or on behalf of the Company  which are  identified  as  forward-looking,  the Company
notes that  there are  various  factors  that could  cause  actual  results  to differ  materially  from those set forth in any such  forward-looking
statements.  Such  factors  include,  but are not limited to, the  condition of the real estate  market,  interest  rates,  regulatory  matters,  the
availability of pools of servicing rights and loans at acceptable  prices,  the availability and conditions of financing for loan pool  acquisitions,
mortgage loan servicing  rights and other  financial  assets,  and the outcome of the litigation  described in Item 3.  Accordingly,  there can be no
assurance  that the  forward-looking  statements  contained  in this Annual  Report on Form 10-K will be realized or that actual  results will not be
significantly  higher or lower.  The  forward-looking  statements  have not been audited by,  examined by or subjected to  agreed-upon  procedures by
independent  accountants,  and no third party has  independently  verified or reviewed  such  statements.  Readers of this Annual Report on Form 10-K
should  consider these facts in evaluating the  information  contained  herein.  The inclusion of the  forward-looking  statements  contained in this
Annual  Report on Form 10-K should not be regarded  as a  representation  by the  Company or any other  person  that the  forward-looking  statements
contained in this Annual Report on Form 10-K will be achieved.  In light of the  foregoing,  readers of this Annual Report on Form 10-K are cautioned
not to place undue reliance on the forward-looking statements contained herein.

# PART I.

## ITEM 1.
Business

## General

## The Company

Wilshire Financial Services Group Inc. and subsidiaries ("WFSG" or the "Company"),  a diversified financial services company,  conducts banking
and lending operations in southern  California and surrounding states and specialized  mortgage loan servicing and investment  operations  nationwide
through its two principal business segments, Banking and Specialty Servicing and Finance.

|o | Banking OperationsThrough its wholly-owned subsidiary, First Bank
of Beverly Hills, F.S.B. (the Bank or FBBH), the Company
conducts a retail and wholesale banking business focused primarily on
specialty-niche products, including the origination of small-balance commercial
and multi-family real estate loans and investments in residential whole loans
and mortgage-backed securities. At December 31, 2001, FBBH had total assets of
approximately $716.8 million and employed 35 people.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|o | Specialty Servicing and Finance OperationsThrough its
majority-owned subsidiary, Wilshire Credit Corporation (WCC), the
Company conducts a full-service mortgage and consumer loan servicing business,
specializing in the servicing of labor-intensive mortgage pools requiring
expertise in loss mitigation and/or investor reporting. Through its wholly-owned
subsidiary, Wilshire Funding Corporation (WFC), the Company conducts
an investment and co-investment business with institutional investors where such
investments align the Companys interests with those of such institutional
investors and provide operating leverage for the servicing operations of WCC.
Together, WCC and WFC are referred to as Specialty Servicing and Finance
Operations. At December 31, 2001, the Companys Specialty Servicing
and Finance Operations employed 270 people and serviced approximately $3.4
billion principal balance of residential and commercial mortgage pools for
approximately 700 individual and institutional investors and government
agencies.

The Bank, a federally  chartered savings  institution  regulated by the Office of Thrift  Supervision  ("OTS"),  is headquartered in Calabasas,
California  and  conducts  its branch  banking  activities  in Beverly  Hills,  California.  WFSG's  administrative,  investment  and loan  servicing
headquarters are located at 1776 SW Madison Street,  Portland,  Oregon 97205,  and its telephone number is (503) 223-5600.  The Company employed 318 people,
including executive and administrative personnel at the parent company, as of December 31, 2001.

## Restructuring
of the Company

On June 10, 1999,  the Company  completed its plan of  reorganization  (the "Plan") under Chapter 11 of the United States  Bankruptcy  Code and
emerged from  bankruptcy.  The  restructuring  was the Company's  necessary  response to significant  adverse market factors arising in late 1998 and
continuing into early 1999. For financial  reporting  purposes,  the Company accounted for the Plan effective May 31, 1999. The periods prior to this
date have been designated  "Predecessor Company" and the periods subsequent to this date have been designated  "Reorganized  Company." As a result of
the Plan, the Company believes that the results of operations of the Reorganized Company are not comparable to those of the Predecessor Company.

## Business
Strategy

In its Banking Operations,  the Bank generates deposits and obtains funding from other cost-effective sources,  including short-term repurchase
agreements  and  longer-term  borrowings.  The Bank deploys these funds to invest in securities  and  originate  mortgage  loans within our tolerance
limits for  interest-rate  and credit risk.  The resultant net interest  spread and the Bank's low  fixed-cost  structure  enable the Bank to operate
profitably  and comply with its  regulatory  requirements.  The Bank seeks to grow its deposit  franchise in southern  California and to leverage its
strengths in residential  whole loan and  mortgage-backed  securities  investments and small balance  commercial and  multi-family  mortgage
lending to increase  its  earning-asset  base.  As  discussed  more fully  below (see Item 7 -  Management's  Discussion  and  Analysis of  Financial
Condition and Results of  Operations),  the Bank's  management has reduced  substantially  its exposure to credit risk in 2001 through a reduction in
its  delinquent  loans (as a % of total loans) from 3.3% at year-end 2000 to 1.9% at year-end 2001 and has reduced its exposure to interest rate risk
through its purchases of  adjustable-rate  mortgages  and  mortgage-backed  securities  and the  utilization  of  longer-term  Federal Home Loan Bank
("FHLB") borrowings.  In implementing its strategic focus, the Bank is committed to growing its asset platform with high-quality earning assets while
maintaining an effective overhead cost structure.

In its Specialty  Servicing and Finance Operations,  the Company seeks to leverage its core competencies in special servicing,  loss mitigation
and client-customized  investor reporting by expanding its contract servicing for institutional  investors, and by investing its capital primarily in
the purchase of servicing rights and/or servicing platforms for its own account and through  co-investment with institutional  investors.  Management
believes that market  opportunities  to grow its serviced  mortgage  assets and  resulting  servicing  income exist and will  continue to exist.  The
Company  maintains an  infrastructure  which  anticipates  such growth and which it believes  provides a scalable  platform for high quality earnings
growth in the form of recurring  long-term  servicing and investment  income.  Through WFC, the Company deploys its capital where such investments or
co-investments  with others serve to grow its serviced asset platform and provide  anticipated  superior  risk-adjusted  rates of return. The Company
employs  financial  leverage in instances  where (1) the expected cash flows from the  underlying  earning  assets  generally  match the  contractual
repayment terms of the related debt and (2) the employment of such leverage achieves the Company's objectives in growing its serviced asset base.

Management  believes that  opportunities  to grow its Specialty  Servicing and Finance  Operations exist as a result of the exodus of sub-prime
mortgage  originators and their related servicing  operations from this niche, and a shortage of capacity among competing special servicers
in the industry that the Company believes such exodus has created.

The Company believes that its success in implementing this dual strategy in its Banking  Operations and in its Specialty  Servicing and Finance
Operations  depends  primarily on its ability to (1) evaluate and manage credit risk, (2) efficiently  service mortgage loan pools requiring  special
competence  in loss  mitigation  and  specialized  client-driven  investor  reporting,  (3) employ  financial  leverage such that cash flows from the
underlying investments generally match the debt service requirements, and (4) effectively manage interest-rate risk.

## BANKING
OPERATIONS

The Bank originates and acquires loans secured by properties  located primarily in California,  purchases  government and agency securities and
other securities (including  mortgage-backed  securities),  substantially all of which are rated AAA or better, and offers specialty lending products
to small businesses and professionals.  Until June 2001, the Bank also conducted a Visa and Mastercard  processing business and operated a commercial
banking  subsidiary,  George  Elkins  Mortgage  Banking  ("GEMB").  Effective  June 30,  2001,  the Bank  disposed  of these two  divisions,  and has
subsequently refocused on its core retail banking and lending activities.

## Origination
and Acquisition of Mortgage Loans

The Bank originates and acquires  high-quality  first-mortgage  loans secured by residential,  multi-family and commercial  properties  located
primarily in California. The following table sets forth the composition of the Bank's portfolio of loans by type of loan at the dates indicated.

`Composition of FBBH Loans

                                                                                           December 31,
                                                               --------------------------------------------------------------------
                                                                2001           2000           1999           1998           1997
                                                              ---------      ---------      ---------      ---------      ---------
                                                                                               (Dollars in thousands)
Single-family residential ...............................     $ 220,731      $ 225,091      $ 190,375      $ 277,765      $ 185,294
Multi-family residential ................................       150,367        156,647         96,611         65,482         55,216
Commercial real estate ..................................       151,827        178,205        163,419        126,735         64,695
Consumer and other ......................................         6,939          9,889         12,575         23,094         15,921
                                                              ---------      ---------      ---------      ---------      ---------
     Loan Portfolio Principal Balance ...................       529,864        569,832        462,980        493,076        321,126
Premium (unaccreted discount) and deferred fees .........         3,554          2,658          4,018          5,932         (6,228)
Allowance for loan losses (1) ...........................        (8,116)       (10,233)       (18,600)       (23,398)       (54,971)
                                                              ---------      ---------      ---------      ---------      ---------
     Total Loan Portfolio, net ..........................     $ 525,302      $ 562,257      $ 448,398      $ 475,610      $ 259,927
                                                              =========      =========      =========      =========      =========`

|(1) | For discussion of the allowance for loan losses allocation for purchase discount, see "Asset Quality--Allowance for Loan Losses"
|--- | --------------------------------------------------------------------------------------------------------------------------------

The real properties which secure the Bank's mortgage loans are located  throughout the United States.  At December 31, 2001, the state with the
greatest  concentration  of  properties  securing the loans was  California,  in which the Bank held $379.1  million  principal  amount of loans,  or
approximately 72% of the Bank's total portfolio.

The following table sets forth certain  information at December 31, 2001 regarding the dollar amount of loans based on their  contractual terms
to  maturity  and  includes  scheduled  payments  but not  potential  prepayments,  as well as the dollar  amount of those  loans which have fixed or
adjustable  interest  rates.  Loan balances have not been adjusted for  unamortized  discounts or premiums,  deferred loan fees and the allowance for
loan losses.

`Maturity of FBBH Loans

                                                                                        Maturing in
                                                     -------------------------------------------------------------------------------
                                                                         After One      After Five
                                                                            Year           Years
                                                        One Year          Through         Through        After Ten
                                                         Or Less         Five Years      Ten Years         Years           Total
                                                     ---------------   -------------   -------------   -------------   -------------
                                                                                           (Dollars in thousands)
Single-family residential ..........................        $     37        $    499        $  1,149        $219,046        $220,731
Multi-family residential ...........................           4,233           6,843          64,328          74,963         150,367
Commercial and other mortgage loans ................          10,374          38,964          79,655          22,834         151,827
Consumer and other loans ...........................              67             139           3,072           3,661           6,939
Interest rate terms on amounts due:
    Fixed ..........................................           9,098           7,893          73,394          95,432         185,817
    Adjustable .....................................           5,613          38,552          74,810         225,072         344,047`

Scheduled  contractual  principal  repayments do not reflect the actual maturities of mortgage loans because of prepayments and, in the case of
conventional  mortgage  loans,  due-on-sale  clauses.  The average life of mortgage  loans,  particularly  fixed-rate  loans,  tends to increase when
current  mortgage loan rates are  substantially  higher than rates on existing  mortgage loans and,  conversely,  decrease when current mortgage loan
rates are substantially lower than rates on existing mortgages.

## Acquisition of
Securities

The Bank invests in securities to earn positive net interest  spread.  The following  table sets forth the Bank's  holdings of  mortgage-backed
and other securities at the dates indicated:

`Mortgage-Backed and Other Securities

                                                                                                December 31,
                                                                                   ---------------------------------------
                                                                                     2001           2000           1999
                                                                                   ---------      ---------      ---------
                                                                                            (Dollars in thousands)
Available for sale:
      AAA mortgage-backed securities ...................................            $ 51,436       $     --       $     --
      Government agency mortgage-backed securities .....................              64,377         37,817         33,152
      Other mortgage-backed securities .................................                 360            421            802
      Other asset-backed securities ....................................                  --          9,500             --
      Other securities .................................................               8,000             --             --
Held to maturity:
      U.S. Government and other securities .............................                  --             --          5,979
      Mortgage-backed securities .......................................                  --             --         10,196
                                                                                    --------       --------       --------
           Total investment securities .................................            $124,173       $ 47,738       $ 50,129
                                                                                    ========       ========       ========`

## Merchant
Bankcard Processing Operations

Through June 2001, the Bank conducted a merchant  bankcard  processing  business,  which  generated  revenues  through  merchant  discounts and
processing fees for Visa and MasterCard transactions.  The Bank sold this division effective June 30, 2001.

The Bank's income from merchant  bankcard  processing  operations for the years ended December 31, 2001, 2000 and 1999 was  approximately  $0.8
million, $0.7 million and $1.0 million, respectively.  The income for 2001 reflects six months' activity.

## Funding Sources

The Bank's  principal  funding sources  consist of (1) checking,  savings and  certificate of deposit  accounts  generated at its Beverly Hills
retail branch ("Retail Deposits");  (2) certificates of deposit generated through the Bank's money desk ("Wholesale  Deposits");  (3) certificates of
deposit  generated  through  independent  brokers  ("Brokered  Deposits");  (4)  borrowings  from the Federal Home Loan Bank of San Francisco  ("FHLB
Advances"); and (5) repurchase agreements and other short-term borrowings with major banks.

FBBH generally  accumulates  deposits  through its Beverly Hills branch,  local media  advertising and by participating in deposit rate surveys
which list the Bank among the higher  rate-paying  insured  institutions in the nation. The Bank competes for deposits to a large extent on the basis
of rates and, therefore,  could experience  difficulties in attracting deposits if it could not continue to offer deposit rates at levels above those
of other banks and savings institutions.

The following table sets forth information relating to the Bank's borrowings and other interest-bearing obligations at the dates indicated.

`Borrowings and Interest-Bearing Obligations

                                                                                                     December 31,
                                                                                      ------------------------------------------
                                                                                          2001          2000            1999
                                                                                      ------------   ------------   ------------
                                                                                                (Dollars in thousands)
         Deposits ..................................................................  $    439,469   $    435,073   $    419,229
         Repurchase agreements and other short-term borrowings .....................            --          4,272             50
         FHLB Advances .............................................................       189,500        132,000         80,000
                                                                                      ------------   ------------   ------------
               Total ...............................................................  $    628,969   $    571,345   $    499,279
                                                                                      ============   ============   ============`

Deposits.  The following table sets forth information relating to the Bank's deposits at the dates indicated.

`December 31,
                                                          ---------------------------------------------------------------
                                                                 2001                  2000                  1999
                                                          -------------------   -------------------   -------------------
                                                                        Avg.                  Avg.                   Avg.
                                                            Amount      Rate      Amount      Rate      Amount      Rate
                                                          ----------   ------   ----------   ------   ----------   ------
                                                                              (Dollars in thousands)
Non-interest bearing checking accounts ............       $    2,794     0.00%  $   10,663     0.00%  $   11,321     0.00%
NOW and money market checking accounts ............           28,811     2.12       18,743     5.68        4,383     4.46
Savings accounts ..................................            4,265     1.91          872     2.99          399     2.01
Certificates of deposit ...........................          403,599     4.42      404,795     6.46      403,126     5.49
                                                          ----------   ------   ----------   ------   ----------   ------
      Total deposits ..............................       $  439,469     4.22%  $  435,073     6.02%  $  419,229     5.33%
                                                          ==========   ======   ==========   ======   ==========   ======`

As a percentage of the Bank's total deposits at December 31, 2001,  Wholesale  Deposits account for 28%,  Brokered Deposits account for 44% and
Retail Deposits account for 28%.  Generally,  the Bank obtains  Wholesale  Deposits on terms more financially  attractive to it than those obtainable
through Brokered Deposits.

The following table sets forth, by various interest rate categories, the Bank's certificates of deposit at December 31, 2001.

`Interest Rates for Certificates of Deposit

                                                                                December 31, 2001
                                                                              -------------------
                                                                              (Dollars in thousands)
              3.50% or less.................................................       $    103,245
              3.51-4.50%....................................................             48,346
              4.51-5.50%....................................................            210,294
              5.51-6.50%....................................................             19,629
              6.51-7.50%....................................................             22,085
                                                                                   ------------
                    Total...................................................       $    403,599
                                                                                   ============`

The following table sets forth the amount and maturities of the Bank's certificates of deposit at December 31, 2001.

`Maturities of Certificates of Deposit

                                                                              Original Maturity in Months
                                                                       -----------------------------------------
                                                                         12 or Less    Over 12 to 36    Over 36
                                                                       --------------  -------------   ---------
                                                                                  (Dollars in thousands)
              Balances Maturing in 3 Months or Less..................    $   97,470     $     5,584     $    127
                    Weighted Average Rate............................          4.00%           5.17%        5.98%
              Balances Maturing in over 3 Months to 12
                 Months..............................................    $  145,851     $    43,313     $    278
                    Weighted Average Rate............................          3.84%           5.57%        6.11%
              Balances Maturing in over 12 Months to 36
                 Months..............................................            --     $   108,970     $    282
                    Weighted Average Rate............................            --            5.05%        5.28%
              Balances Maturing in over 36 Months....................            --              --     $  1,724
                    Weighted Average Rate............................            --              --         6.47%`

At December 31, 2001, the Bank had  outstanding an aggregate of  approximately  $285.6 million of certificates of deposit in face amounts equal
to or greater than $100,000  maturing as follows:  approximately  $69.0 million  within three months,  approximately  $88.2 million over three months
through six months, approximately $36.6 million over six months through 12 months, and approximately $91.8 million thereafter.

FHLB Advances.  The Bank obtains FHLB Advances based on the security of certain of its assets,  provided FBBH has met certain standards related
to its  creditworthiness.  FHLB Advances are available to member financial  institutions such as FBBH for investment and lending activities and other
general business  purposes.  FHLB Advances are made pursuant to several different credit programs (each of which has its own interest rate, which may
be fixed or  adjustable).  The  Federal  Home Loan Bank of San  Francisco  has agreed to provide a credit  facility to the Bank equal to 25% of total
assets measured as of each previous quarter-end and for terms of up to 10 years.

The following table sets forth the Bank's FHLB advances at and for the years ended December 31, 2001, 2000, and 1999:

`At or for the Year Ended
                                                                                           December 31,
                                                                                 2001         2000         1999
                                                                              ----------   ----------   ----------
                                                                                     (Dollars in thousands)
FHLB Advances:
      Average amount outstanding during the period..........................  $  153,269   $  111,615   $   33,115
      Maximum month-end balance outstanding during the period...............     189,500      132,000       87,500
      Weighted average rate:
            During the period...............................................        6.25%        6.53%        5.84%
            At end of period................................................        5.54%        6.58%        6.33%`

No short-term  FHLB Advances were  outstanding  during the above periods.  As of December 31, 2001, the Bank had $30.5 million of FHLB Advances
maturing within one year,  $60.0 million  maturing within two years,  $38.5 million  maturing within three years,  $26.0 million maturing within four
years, and $34.5 million maturing within five years.

Repurchase  Agreements  and Other  Short-Term  Borrowings.  From time to time,  if required for  liquidity  purposes,  the Bank will enter into
short-term  repurchase  agreements which enable the Bank to purchase investment  securities and pools of loans with immediate financing.  In December
2001 the Bank entered into a repurchase agreement with Countrywide  Securities  Corporation and, in January 2002, borrowed  approximately $35 million
under this facility to purchase mortgage-backed and other investment securities.

## Asset Quality
 Banking Operations

The Bank is exposed to certain  credit  risks  related to the value of the  collateral  that  secures its loans and the ability of borrowers to
repay their loans. The Bank closely monitors its pools of loans and foreclosed real estate for potential problems on a periodic basis.

Non-Performing  Loans. It is the Bank's policy to establish an allowance for uncollectible  interest  previously accrued on loans that are over
90 days past due, or at any time when, in the judgment of  management,  the  probability  of collection of interest is deemed to be  insufficient  to
warrant further accrual.  Upon such a determination,  those loans are placed on non-accrual  status and deemed to be  non-performing.  When a loan is
placed on non-accrual status, previously accrued but unpaid interest is reversed by a charge to interest income.

Foreclosed  Real Estate.  The Bank carries its holdings of foreclosed  real estate at the lower of cost or fair value less  estimated  costs to
sell.  Holding and  maintenance  costs related to properties are recorded as expenses in the period  incurred.  Declines in values of foreclosed real
estate  subsequent to  acquisition  are charged to income and  recognized  as a valuation  allowance.  Subsequent  increases in the valuation of real
estate owned are reflected as a reduction in the valuation  allowance,  but not below zero,  and credited to income.  The following  table sets forth
the aggregate carrying value of the Bank's holdings of foreclosed real estate (by source of acquisition) at the dates indicated.

`Bank Foreclosed Real Estate by Loan Type

                                                                                  December 31,
                                                         --------------------------------------------------------------
                                                            2001         2000         1999         1998         1997
                                                         ----------   ----------   ----------   ----------   ----------
                                                                             (Dollars in thousands)
      Loans:
         Single-family residential ...................   $      253   $      648   $    1,073   $    9,997   $   52,235
         Multi-family residential ....................           --           32          462          271        3,082
         Commercial and other mortgage loans .........          327          110          929          917        1,227
                                                         ----------   ----------   ----------   ----------   ----------
               Total .................................          580          790        2,464       11,185       56,544
         Valuation allowance for losses ..............         (151)         (11)        (198)      (1,715)      (5,070)
                                                         ----------   ----------   ----------   ----------   ----------
               Foreclosed real estate owned, net .....   $      429   $      779   $    2,266   $    9,470   $   51,474
                                                         ==========   ==========   ==========   ==========   ==========`

Allowance for Loan Losses.  The Bank  maintains an allowance  for loan losses at a level  believed  adequate by management to absorb  estimated
losses  inherent in the loan  portfolios.  The  allowance is increased by  provisions  for loan losses  charged  against  operations,  recoveries  of
previously  charged off loans,  and allocations of discounts on purchased  loans,  and is decreased by loan  charge-offs.  Loans are charged off when
they are deemed to be  uncollectable,  or in the case of automobile,  mobile home and other consumer loans, when payments are delinquent by more than
120 days.

The Bank uses its internal asset review system to evaluate all loans individually and to classify loans as pass, special mention,  substandard,
doubtful or loss.  These terms  correspond to varying degrees of risk that the loans will not be collected in part or in full. The frequency at which
a specific  loan is subjected to internal  asset review  depends on the type and size of the loan and the presence or absence of other risk  factors,
such as delinquency and changes in collateral values. The allowance for loan losses includes specific valuation  allowances ("SVAs")  established for
impaired loans and for certain other classified loans, and general valuation allowances ("GVAs").

SVAs are based on the estimated fair value of the collateral  for impaired or troubled  collateral  dependent  loans,  in most cases.  GVAs are
based on qualitative and quantitative  factors that are updated each quarter.  The qualitative  factors are subject to management's  evaluation after
consideration of certain credit risk  characteristics.  These factors include,  but are not limited to, the following:  the institution's  historical
and recent loss  experience in its  portfolios;  the volume,  severity and trend of  non-performing  assets;  the extent to which  refinances or loan
modifications  are made to maintain loans in a current status;  known  deterioration in credit  concentrations  or certain classes of loans;  loan to
value ratios of real estate secured loans;  risks associated with specific types of collateral;  the quality and effectiveness of the lending policy,
loan purchase policy, internal asset review policy,  charge-off,  collection and recovery policies; current and anticipated conditions in the general
and local  economies  which might affect the  collectability  of the  institution's  asset;  anticipated  changes in the composition or volume of the
portfolio; reasonableness standards in accordance with regulatory agency policies; and the comparison of the Bank's GVA with that of industry peers.

To assess the adequacy of the Bank's allowance for loan losses, the portfolio is segmented into three components:  impaired loans,  homogeneous
loans, and non-homogeneous loans.

 Impaired loans have
been defined as all loan types classified either substandard, doubtful, or loss
(including loans which may have been upgraded but which are troubled debt
restructurings). SVAs are measured on a loan-by-loan basis utilizing either the
discounted cash flow or fair market value approaches, as defined under the
accounting standards for impaired loans.

 Homogeneous loans have
been defined as loans secured by one to four single-family residences, mobile
home loans, and consumer loans, and are analyzed by their respective loan group.
GVA loss estimates are measured utilizing annual loss rates for homogeneous
pools. The Bank currently uses a loss horizon of four years for this analysis.

 Non-homogeneous loans
include the following loan types: multifamily, commercial real estate,
bridge loans, construction loans, and commercial unsecured. The
non-homogeneous loans are analyzed individually. GVA loss estimates are
developed based upon risk rating utilizing migration analysis, which considers
the impact of losses on a loan-by-loan basis. A loss horizon of four years has
been developed with the objective of achieving loss data to capture a full
business cycle.

When FBBH increases the allowance for loan losses  related to loans,  it records a  corresponding  increase to the provision for loan losses in
the statement of operations.  The OTS, as part of its examination  process,  periodically  reviews the Bank's  allowances for losses and the carrying
values of its assets. There can be no assurance that the OTS will not require additional reserves following future examinations.

The following table sets forth information with respect to the Bank's allowance for loan losses by category of loan.

`Allowance for Loan Losses by Loan Category

                                                                                            December 31,
                                                                   --------------------------------------------------------------
                                                                      2001         2000         1999         1998         1997
                                                                   ----------   ----------   ----------   ----------   ----------
                                                                               (Dollars in thousands)
Allowance for loan losses:
      Real estate .............................................    $    6,912   $    8,845   $   11,363   $   13,182   $   20,429
      Non-real estate .........................................         1,060          961        2,601        4,981        3,511
      Discounted loans ........................................           144          427        4,636        5,235       31,031
                                                                   ----------   ----------   ----------   ----------   ----------
      Total allowance for loan losses .........................    $    8,116   $   10,233   $   18,600   $   23,398   $   54,971
                                                                   ==========   ==========   ==========   ==========   ==========

Percentage of loans in each category to total loans:
      Real estate .............................................          98.6%        98.1%        94.1%        91.5%        51.9%
      Non-real estate .........................................           1.3          1.7          2.6          4.6          4.7
      Discounted loans ........................................           0.1          0.2          3.3          3.9         43.4
                                                                   ----------   ----------   ----------   ----------   ----------
      Total ...................................................         100.0%       100.0%       100.0%       100.0%       100.0%
                                                                   ==========   ==========   ==========   ==========   ==========`

The following table sets forth the activity in the allowance for loan losses during the periods indicated.

`Activity in the Allowance for Loan Losses

                                                                              Year Ended December 31,
                                                      ------------------------------------------------------------------------
                                                          2001           2000           1999           1998           1997
                                                      ------------   ------------   ------------   ------------   ------------
                                                                               (Dollars in thousands)
      Balance, beginning of period ................   $     10,233   $     18,600   $     23,398   $     54,971   $     37,555
      Allocation of purchased loan discount:
            at acquisition ........................             --             --             --             --         49,957
            at disposition ........................             --         (1,150)        (1,538)       (18,259)       (33,197)
      Charge-offs .................................           (894)        (1,794)        (2,468)        (8,927)            --
      Recoveries ..................................            507            377            458            713          1,206
      Recapture of loan losses ....................         (1,730)        (5,800)        (1,250)        (5,100)          (550)
                                                      ------------   ------------   ------------   ------------   ------------
      Balance, end of period ......................   $      8,116   $     10,233   $     18,600   $     23,398   $     54,971
                                                      ============   ============   ============   ============   ============`

The table below sets forth the delinquency status of the Bank's loans at the dates indicated.

`Delinquency Experience for Non-Discounted Loans

                                                                                       December 31,
                                                         ------------------------------------------------------------------------
                                                             2001           2000           1999           1998           1997
                                                         ------------   ------------   ------------   ------------   ------------
                                                                                  (Dollars in thousands)
Balance of delinquent loans:
      31-60 days ....................................    $      1,788   $     13,487   $      2,845   $      2,148   $      8,063
      61-90 days ....................................             836            920          1,162            931          2,297
      91 days or more (1) (2) .......................           7,570          4,452          3,816          6,940         28,574
                                                         ------------   ------------   ------------   ------------   ------------
            Total loans delinquent ..................    $     10,194   $     18,859   $      7,823   $     10,019   $     38,934
                                                         ============   ============   ============   ============   ============

Delinquent  loans as a percentage of total
    loan portfolio:
      31-60 days ....................................             0.3%           2.4%           0.6%           0.4%           4.4%
      61-90 days ....................................             0.2            0.1            0.3            0.2            1.3
      91 days or more (1) (2) .......................             1.4            0.8            0.8            1.5           15.7
                                                         ------------   ------------   ------------   ------------   ------------
            Total ...................................             1.9%           3.3%           1.7%           2.1%          21.4%
                                                         ============   ============   ============   ============   ============`

(1)   All loans delinquent over 90 days were on nonaccrual status.

(2)   The Bank classifies loans as discounted or non-discounted  on a pool basis.  Each pool is designated as discounted or  non-discounted  based on
      whether the pool consists  primarily of discounted or non-discounted  loans at the time of acquisition.  For example,  a pool of non-discounted
      loans may contain  non-performing  loans at the time of acquisition as long as the  non-performing  loans were not the primary component of the
      pool at the time.  At year-end 2001, the Bank held discounted loans with an aggregate principal balance of $0.7 million.

## SPECIALTY SERVICING AND FINANCE OPERATIONS

The Company's Specialty Servicing and Finance Operations are conducted by WCC, a majority-owned  subsidiary of the Company formed in June 1999,
and by WFC, a wholly-owned investment subsidiary.  WCC provides loan portfolio management services,  including billing,  portfolio administration and
collection  services  for pools of loans.  WCC has  developed  specialized  procedures  and  proprietary  software  designed  to service  performing,
non-performing  and  sub-performing  loans and foreclosed real estate.  As part of its loan pool  acquisition or servicing  analysis,  WCC develops a
strategy  for each pool of loans that is intended to maximize  cash flow from that pool of loans.  The Company is the  majority  owner of WCC and, as
such,  shares in 50.01% of WCC's revenues and expenses.  The remaining  49.99%  interest in WCC's  operations is reflected as "Minority  interest" in
the Company's consolidated statements of operations.

The following table sets forth the composition of loans serviced by WCC by type of loan at the dates indicated.

`December 31,
                                                                    ------------------------------------------
                                                                        2001           2000           1999
                                                                    ------------   ------------   ------------
                                                                              (Dollars in thousands)
Single-family residential ...............................           $  3,020,267   $  1,909,761   $  1,516,536
Multi-family residential ................................                141,297        163,511        104,307
Commercial real estate ..................................                192,275        223,539        221,605
Consumer and other (1) ..................................                 90,497        265,598        271,515
                                                                    ------------   ------------   ------------
      Total .............................................           $  3,444,336   $  2,562,409   $  2,113,963
                                                                    ============   ============   ============`

(1) Approximately  $166 million in unpaid principal balance of fully-reserved  consumer loans previously  acquired by the Company were charged off in
   January 2001.

Prior to June 1999, the Specialty  Servicing and Finance Operations acquired pools of performing and sub-performing  residential,  multi-family
and commercial mortgage loans and, to a lesser degree,  mortgage backed securities and servicing rights.  Currently,  and for the foreseeable future,
the Company intends to focus primarily on contract  servicing for third parties,  the  acquisition of servicing  rights and, to a lesser degree,  the
acquisition of loan pools through co-investment arrangements with  institutional investors.

Loan pools acquired by the Company's Specialty Servicing and Finance  Operations,  at the time of acquisition,  consist primarily of discounted
loans.  At December 31, 2001, WCC and WFC held approximately $15.3 million of discounted loans.

The following table sets forth the composition of such discounted loans held by WCC and WFC by type of loan at the dates indicated.

`Composition of Discounted Loans


                                                                                    December 31,
                                                      ------------------------------------------------------------------------
                                                          2001           2000           1999           1998           1997
                                                      ------------   ------------   ------------   ------------   ------------
                                                                               (Dollars in thousands)
Single-family residential ..........................  $      6,643   $      8,684   $     17,879   $    258,121   $    628,992
Multi-family residential ...........................         1,142            634          1,477          3,015         29,385
Commercial real estate .............................         1,582          3,464         14,990         31,768        109,808
Consumer and other (1) .............................        54,852        211,836        220,439        287,967        271,674
                                                      ------------   ------------   ------------   ------------   ------------
      Discounted Loans Principal Balance ...........        64,219        224,618        254,785        580,871      1,039,859
Unaccreted discount and deferred fees ..............        (3,497)        (1,385)        (4,624)        (6,569)      (308,046)
Allowance for loan losses (1) (2) (3) ..............       (45,413)      (213,019)      (223,675)      (270,588)       (63,304)
                                                      ------------   ------------   ------------   ------------   ------------
    Total Discounted Loans, net (4) ................  $     15,309   $     10,214   $     26,486   $    303,714   $    668,509
                                                      ============   ============   ============   ============   ============`

|(1) | Prior to 1999,  the  predecessor  company to the Company  purchased  pools of  non-performing  loans at prices  representing a significant
           discount from the loans' unpaid  balances.  The Company fully reserved for estimated losses on these discounted loans at the time of their
           acquisition.  Currently,  the Company is seeking to sell these loans,  and continues to pursue  collection on such loans when permitted by
           applicable  collection  statutes  and where it is deemed  cost-effective.  Approximately  $166  million  in unpaid  principal  balance  of
           fully-reserved discounted loans were charged off in January 2001.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(2) | For discussion of the allowance for loan losses allocation for purchase discount, see "Asset Quality--Allowance for Loan Losses."                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(3) | Included in the allowance for loan losses at December 31, 1998 is $30.4 million  classified as market  valuation losses and impairments in
           the audited  financial  statements.  The balance  represents  other than temporary  impairment  recognized to reduce the carrying value of
           certain non-discounted loans at December 31, 1998.                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(4) | The real properties that secure the Company's  discounted loans are located  throughout the United States.  At December 31, 2001, the five
           states with the  greatest  concentration  of  properties  securing  our  discounted  loans were  California,  Florida,  Texas,  Oregon and
           Massachusetts,  in which the Company held $13.6 million,  $10.4 million,  $5.5 million,  $2.9 million and $2.8 million principal amount of
           loans, respectively.                                                                                                                                                                                                   

Funding  sources  for the  Company's  servicing  rights  and, to a lesser  extent,  loan pool  acquisitions  consist  largely of  recourse  and
non-recourse debt secured by the underlying  earning assets.  The anticipated cash flows from these assets generally match the contractual  repayment
terms of such debt.

The carrying value of our subordinated  mortgage-backed  securities at December 31, 2001, 2000, and 1999 totaled $3.4 million, $6.4 million and
$9.6 million,  respectively.  The related  short-term  repurchase  agreement which financed these  securities was repaid in full in February 2001. We
intend to purchase  such  securities  in the future only in instances  where such  purchases  carry the rights to service the  underlying  loan pools
backing such securities.

## Asset Quality - Specialty Servicing and Finance Operations

Our Specialty  Servicing and Finance  Operations are exposed to certain  credit risks related to the value of the  collateral  that secures our
loans and the ability of  borrowers  to repay their  loans.  We monitor our pools of loans and  foreclosed  real estate for  potential  problems on a
periodic basis.

Non-Performing  Loans. It is our policy to establish an allowance for uncollectible  interest on previously accrued loans that are over 90 days
past due, or at any time when, in the judgment of  management,  the  probability  of collection of interest is deemed to be  insufficient  to warrant
further accrual.  Upon such a determination,  those loans are placed on non-accrual status and deemed to be non-performing.  When a loan is placed on
non-accrual status, previously accrued but unpaid interest is reversed by a charge to interest income.

Foreclosed  Real Estate.  WCC and WFC carry their holdings of foreclosed real estate at the lower of cost or fair value less estimated costs to
sell.  Holding and  maintenance  costs related to properties are recorded as expenses in the period  incurred.  Declines in values of foreclosed real
estate  subsequent to  acquisition  are charged to income and  recognized  as a valuation  allowance.  Subsequent  increases in the valuation of real
estate owned are reflected as a reduction in the valuation  allowance,  but not below zero,  and credited to income.  The following  table sets forth
the aggregate carrying value of our holdings of foreclosed real estate (by source of acquisition) at the dates indicated.

`WCC and WFC Foreclosed Real Estate by Loan Type

                                                                                       December 31,
                                                         ------------------------------------------------------------------------
                                                             2001           2000           1999           1998           1997
                                                         ------------   ------------   ------------   ------------   ------------
                                                                                  (Dollars in thousands)
      Loans (1):
            Single-family residential .................  $        358   $        449   $      1,872   $     18,827   $     45,501
            Multi-family residential ..................           118             53            199          2,610          2,270
            Commercial and other mortgage loans .......           380            834          2,916          5,831          9,970
                                                         ------------   ------------   ------------   ------------   ------------
                  Total ...............................           856          1,336          4,987         27,268         57,741
      Foreclosed real estate purchased directly:
            Single-family residential .................            --             --             --          4,173         40,706
            Commercial and other mortgage loans .......            --             --            273          2,011             --
      Valuation allowance for losses ..................          (554)          (345)        (1,567)            --             --
                                                         ------------   ------------   ------------   ------------   ------------
            Foreclosed real estate owned, net .........  $        302   $        991   $      3,693   $     33,452   $     98,447
                                                         ============   ============   ============   ============   ============`

(1)     The decreases in foreclosed real estate are due to sale of the properties to third parties.

Allowance for Loan Losses.  We maintain an allowance for loan losses at a level believed  adequate by management to absorb  estimated  incurred
losses in the loan  portfolios.  The  allowance is increased by  provisions  for loan losses  charged  against  operations,  recoveries of previously
charged-off  loans,  and  allocations  of discounts on purchased  loans,  and is decreased by loan  charge-offs.  Loans are charged off when they are
deemed to be uncollectable, or in the case of automobile and other consumer loans, when payments are delinquent by more than 120 days.

When the Company  acquires  pools of discounted  loans,  it records an increase to the allowance for loan losses by allocating a portion of the
purchase  discount  deemed to be associated with  measurable  credit risk. The allocation is based on the analyses of specific and general  valuation
allowances  discussed  above.  Amounts  allocated to the  allowance  for loan losses from  purchase  discounts do not increase the provision for loan
losses  recorded in the  statement of  operations;  rather they  decrease the amounts of the purchase  discounts  that are accreted into the interest
income over the lives of the loans.  If,  after the  initial  allocation  of the  purchase  discount to the  allowance  for loan  losses,  management
subsequently  identifies the need for additional  allowances against discounted loans, the additional  allowances are established  through charges to
the provision for loan losses.

## ITEM 2.
Properties

The Company's corporate  headquarters and loan servicing  operations are located in Portland,  Oregon,  where the Company leases  approximately
61,000 square feet of office space from Watumull  Properties  Corp.  pursuant to lease  agreements  expiring June 30, 2003 and December 31, 2003. The
Bank leases its branch office in Beverly Hills,  California,  office space for its wholesale lending unit in Woodland Hills,  California,  and office
space for its  administrative  offices in Calabasas,  California  pursuant to leases expiring  September 30, 2003,  February 28, 2004, and August 31,
2004, respectively.

While the Company  believes  that its  facilities  are  suitable  and adequate for its present  business  purposes,  it is currently  exploring
alternative real estate locations to meet its anticipated future growth needs.

## ITEM 3. Legal
Proceedings

Between 1994 and 1998 Capital  Consultants,  LLC ("CCL"), as investment advisor to and on behalf of various clients,  made a number of loans to
the  privately-owned  company then known as Wilshire  Credit  Corporation and now known as Capital  Wilshire  Holdings Inc.  ("CWH").  As part of the
Company's  June 1999  restructuring,  it  purchased  the assets of CWH. In  exchange  it gave CCL for the benefit of its clients a 49.99%  non-voting
ownership interest in WCC with certain rights to convert such interest to a portion of the Company's stock.

On September 21, 2000 Thomas F. Lennon was appointed by the U.S.  District  Court of Oregon in Securities  and Exchange  Commission v. Capital
Consultants, LLC, et al. as a receiver for CCL.

The receiver and a number of CCL's clients ("CCL  Investors") have filed lawsuits in the U.S. District Court for the District of Oregon against
CCL, some of its former  executives,  the Company,  WCC and the Bank and some of their  executives,  and a number of other  corporations  and pension
trust  trustees.  Some of the defendants in these cases, in turn,  have filed lawsuits  against others.  The Company has been named as a defendant in
the following cases which were filed on the dates indicated:

| | Schultz v. Kirkland, et al, U.S. District Court Case No. CV 00-1377 KI (October 10, 2000)                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | Miller v. Clinton, et al, U.S. District Court Case No. CV 00-1317 HA (September 26, 2000)                                                           
| | Eidem and Malcolm v. Trustees, et al, U.S. District Court Case No. CV 00-1446 HE (October 26, 2000)                                                 
| | Hazzard, et al. v. Trustees, et al, U.S. District Court Case No. CV 00-1338 HU (September 29, 2000)                                                 
| | Madole v. Capital Consultants, LLC, et al, U.S. District Court Case No. CV 00-1660 AS (December 1, 2000)                                            
| | Chilia,  et al. v. Capital  Consultants,  LLC, U.S.  District  Court Case No. CV 00-1633-JE  (November 29, 2000)                                    
| | American  Funeral & Cemetery Trust Services,  et al. v. Capital  Consultants,  LLC, et al., U.S.  District Court Case No. CV 01-609-HU (May 4, 2001)
| | Dyer, et al. v. Grayson, et al., U.S. District Court Case No. CV 01-1496-JO (October 9, 2001)                                                       

The plaintiffs allege that
the Company, WCC and the Bank and some of their executives wrongfully
participated in various transactions in which CCL made improper loans to WCC
from 1994 through 1998, thereafter misled the CCL clients by failing to disclose
significant losses on $160 million of loans to WCC, and used additional CCL
client funds (approximately $71 million) to cover up such losses.

The Company  believes  that it has strong  defenses  with regard to such  allegations  and  intends to contest the claims  vigorously  unless a
satisfactory  settlement  can be reached.  Without  limitation,  as part of the June 1999  reorganization  of the Company,  CCL, on behalf of the CCL
Investors,  provided the Company with a release of all claims that they might have had against the  Company,  pursuant to the Plan of  Reorganization
approved by the Delaware  Bankruptcy  Court.  The  plaintiffs  contend that CCL did not have  authority to provide this release and that the releases
were  fraudulently  obtained.  In addition,  the Company's former executives have requested that the Company indemnify them as directors and officers
of the Company for their costs and potential liability to the extent such amounts are not covered by insurance.

The District  Court of Oregon  appointed a mediator to supervise a limited  discovery  procedure in most of the above cases and to determine if
the claims can be resolved by settlement.  The Company and the plaintiffs  continue to  participate in the mediation  process.  The parties are under
a confidentiality order prohibiting any disclosure of the status of any settlement discussions.

The Company is a defendant in other legal actions arising from  transactions  conducted in the ordinary course of business.  Management,  after
consultation  with legal  counsel,  believes the ultimate  liability,  if any,  arising from such actions will not  materially  affect the  Company's
consolidated results of operations or financial position.

## ITEM 4.
Submission of Matters to a Vote of Security Holders

Not applicable.

# PART II.

## ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters

The  Company's  common  stock,  par value $0.01 per share (the  "Common  Stock") is traded  over-the-counter  under the symbol  "WFSG.OB."  The
approximate number of record holders of the Company's Common Stock at March 1, 2002 was 44.

The following table sets forth the range of high and low sales prices for Common Stock for the periods indicated:

`Period                             High            Low
                                               ------                             -----          -----
                          Year ended December 31, 2001:
                                First Quarter..........................           $1.78          $1.13
                                Second Quarter.........................           $2.42          $1.69
                                Third Quarter..........................           $1.95          $1.60
                                Fourth Quarter.........................           $2.05          $1.75

                          Year ended December 31, 2000:
                                First Quarter..........................           $1.44          $0.81
                                Second Quarter.........................           $1.88          $0.81
                                Third Quarter..........................           $1.69          $1.05
                                Fourth Quarter.........................           $1.38          $1.03`

The Company has not paid any cash  dividends on its Common Stock.  It is the current  intention of the  Company's  Board of Directors to retain
earnings to finance the growth of the Company's business rather than to pay dividends.

## ITEM 6. Selected
Financial Data and Operating Statistics

The following tables present selected financial  information for the Company at the dates and for the periods indicated.  The historical income
statement and balance sheet data for the five years presented have been derived from the audited  consolidated  financial  statements of the Company.
The 1999 income statement and operating data includes the five-month  period ended May 31, 1999 prior to reorganization  ("Predecessor  Company") and
the seven-month period ended December 31, 1999 following reorganization ("Reorganized Company").  Management does not believe that the results of the Predecessor Company are comparable to those of the Reorganized Company.

`Year Ended December 31,
                                                                       -------------------------------------------------------------
                                                                         2001         2000         1999         1998         1997
                                                                       ---------    ---------    ---------    ---------    ---------
                                                                             (Dollars in thousands, except per-share amounts)
Income Statement Data:
Total interest income ..............................................   $  57,516    $  54,520    $  64,623    $ 140,516    $ 110,057
Total interest expense .............................................      35,687       35,655       43,992      125,458       86,836
                                                                       ---------    ---------    ---------    ---------    ---------
      Net interest income ..........................................      21,829       18,865       20,631       15,058       23,221
(Recapture of) provision for loan losses(1) ........................      (1,784)      (4,027)       3,722       13,338        1,991
                                                                       ---------    ---------    ---------    ---------    ---------
      Net interest income after (recapture of) provision for loan
        losses .....................................................      23,613       22,892       16,909        1,720       21,230
Other income (loss):
      Servicing income .............................................      17,366       12,691        9,674        6,497        5,580
      Loan fees and charges ........................................       2,080        3,145        4,492        4,210          825
      Market valuation losses and impairments ......................          --           --      (10,837)    (113,711)          --
      Permanent write-down of mortgage servicing rights ............          --           --           --      (13,704)          --
      Gain on sale of loans ........................................       1,475        1,244        1,494       19,240       39,049
      (Loss) gain on sale of securities ............................        (262)        (438)         423        4,024        3,742
      Trading account gain, net ....................................          --           --           --        1,630        2,330
      Real estate owned, net .......................................         (46)        (308)       3,814        5,508        6,309
      Bankcard income, net .........................................       2,286        4,115        4,142        4,908        1,995
      Gain on sale of Bankcard operations ..........................       5,118           --           --           --           --
      Discontinuation of European operations .......................          --           --       (2,365)          --           --
      Other income (loss), net .....................................       1,684        5,096        4,823      (12,755)       1,473
                                                                       ---------    ---------    ---------    ---------    ---------
            Total other income (loss) ..............................      29,701       25,545       15,660      (94,153)      61,303
                                                                       ---------    ---------    ---------    ---------    ---------
Other expenses:
      Compensation and employee benefits ...........................      25,052       23,653       29,298       36,787       14,404
      Loan service fees and expenses ...............................          --           --        8,523       39,277       28,126
      Professional services ........................................       6,560        4,596        6,413        9,306        3,171
      Occupancy ....................................................       2,106        2,405        2,682        2,461        1,125
      FDIC insurance premiums ......................................         703          892          812          896        1,049
      Corporate travel and development .............................         475        1,002        2,622        6,851        3,439
      Depreciation and amortization ................................       2,429        3,520        2,551        3,995          495
      Investor participation interest ..............................       1,036           --           --           --           --
      Other general and administrative expenses ....................       6,988        6,794        9,223       13,709        4,923
                                                                       ---------    ---------    ---------    ---------    ---------
            Total other expenses ...................................      45,349       42,862       62,124      113,282       56,732
                                                                       ---------    ---------    ---------    ---------    ---------
Income (loss) before reorganization items, minority interest,
   income tax provision (benefit) and extraordinary items ..........       7,965        5,575      (29,555)    (205,715)      25,801
Reorganization items ...............................................          --           --      (52,034)          --           --
                                                                       ---------    ---------    ---------    ---------    ---------
Income (loss) before minority interest, income tax provision
   (benefit) and extraordinary items ...............................       7,965        5,575      (81,589)    (205,715)      25,801
Minority interest(2)................................................         647        1,203          542           --           --
                                                                       ---------    ---------    ---------    ---------    ---------
Income (loss) before income tax provision (benefit) and
   extraordinary items .............................................       8,612        6,778      (81,047)    (205,715)      25,801
Income tax provision (benefit) .....................................       3,000        3,596        1,312       (4,056)      10,637
                                                                       ---------    ---------    ---------    ---------    ---------
Income (loss) before extraordinary items ...........................       5,612        3,182      (82,359)    (201,659)      15,164
Extraordinary items, net of tax ....................................          --          239      225,606           --           --
                                                                       ---------    ---------    ---------    ---------    ---------
Net income (loss) ..................................................   $   5,612    $   3,421    $ 143,247    $(201,659)   $  15,164
                                                                       =========    =========    =========    =========    =========
Basic income (loss) per share(3) ...................................   $    0.28    $    0.17          N/A    $  (18.93)   $    1.79`

`December 31,
                                                                       -------------------------------------------------------------
                                                                         2001          2000        1999         1998         1997
                                                                       ---------    ---------    ---------    ---------   ----------
                                                                                                   (Dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents ...........................................  $  37,876    $   9,516    $  54,168    $  23,468   $  66,115
Portfolio Assets:(4)
      Discounted Loans, net .........................................     15,309       10,214       22,518       51,989     463,355
      Non-Discounted Loans, net .....................................    525,034      561,876      460,656      740,233     464,602
      Mortgage-backed and other securities ..........................    127,540       54,138       59,728      134,005     362,347
      Foreclosed real estate, net ...................................        731        1,770       11,571       62,168     169,612
                                                                       ---------    ---------    ---------    ---------   ---------
            Total portfolio assets ..................................    668,614      627,998      554,473      988,395   1,459,916
Total assets ........................................................    769,004      696,050      654,518    1,084,253   1,629,027
Deposits ............................................................    439,469      435,073      419,285      510,430     362,598
Short-term debt .....................................................      9,970        9,123       31,927      420,816     966,500
FHLB advances .......................................................    189,500      132,000       80,000           --          --
Long-term financing .................................................     14,474        1,634           --           --          --
Notes payable .......................................................         --           --           --      184,245     184,245
Stockholders' equity (deficit) ......................................     91,420       86,595       78,333      (92,795)     99,122


                                                                                        Year Ended December 31,
                                                                         ----------------------------------------------------------
                                                                           2001       2000        1999         1998         1997
                                                                         --------   --------   ----------   ----------   ----------

Financial Ratios and Other Data:
Return on average assets(5) .........................................       0.75%      0.50%       17.86%      (11.85)        1.22%
Return on average equity(6) .........................................       6.18%      4.16%    1,172.46%     (273.93)       19.48%
Average interest yield on total loans(7) ............................       7.89%      6.17%        5.97%        7.91%        9.68%
Net interest spread(8)(9) ...........................................       1.61%     (0.07)        0.42%        0.17%        2.03%
Net interest margin(9)(10)...........................................       2.80%      2.18%        2.04%        0.86%        2.03%
Ratio of earnings to fixed charges(11):
      Including interest on deposits ................................       1.24       1.19         0.34           --         1.30
      Excluding interest on deposits ................................       1.80       1.70           --           --         1.42
Long-term debt to total capitalization(12) ..........................       0.69       0.60         0.52         2.01         0.65
Total financial liabilities to equity ...............................       7.41       7.03         7.36         N/A         15.43
Average equity to average assets(13) ................................      12.08%     11.96%        1.52%        4.33%        6.25%
Non-performing loans to loans at end of period(14)(15) ..............       1.43%      0.78%        2.95%        3.27%       12.83%
Allowance for loan losses to total loans at end of period ...........       1.58%      1.86%        5.74%        4.53%        5.98%



                                                                                    Year Ended December 31,
                                                            ------------------------------------------------------------------------
                                                               2001           2000           1999           1998           1997
                                                            -----------    -----------    -----------    -----------    ------------
Operating Data:                                                                     (Dollars in thousands)
Investments and originations:
      Discounted Loans and foreclosed real estate .......   $    15,515    $     5,403    $     3,830    $   179,105    $   584,014
      Non-Discounted Loans ..............................       150,137        155,385        164,023        907,328        673,234
      Mortgage originations .............................        74,026         56,177         32,317        811,769         77,918
      Mortgage-backed and other securities ..............       102,535         15,048            792        133,092        310,220
                                                            -----------    -----------    -----------    -----------    -----------
            Total .......................................       342,213        232,013        200,962      2,031,294      1,645,386
Repayments ..............................................      (260,976)      (109,319)      (163,666)      (327,785)      (196,646)
Loan sales and securitizations ..........................       (37,963)       (28,362)      (354,634)    (1,535,501)      (486,109)
Net change in portfolio assets ..........................        40,616         73,525       (433,922)      (471,521)       885,160`

|(1)  | In 2001 and 2000, FBBH had recaptures of loan loss reserves of $2.1 million and $5.8 million,  respectively,  which were partially  offset by
        loan loss provisions by the Bank and in the Company's Specialty Servicing and Finance Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  | WCC incurred net losses in 2001, 2000 and 1999.  Consequently, the share of WCC's results in which WFSG does not have an interest is presented as an addition on WFSG's consolidated statements of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(3)  | Earnings per share amounts are based on weighted  average number of shares  outstanding of WFSG stock during the applicable  periods.  For
        1999,  earnings per share for the full year is not  applicable,  as the company had a different  issuance of common stock for the  five-month
        period  ended May 31, 1999 (prior to the  reorganization)  than for the  seven-month  period  ended  December  31,  1999  (subsequent  to the
        reorganization).  See Item  14(a)--Financial  Statements for earnings per share amounts for the Predecessor  Company for the five months ended
        May 31, 1999 and for the Reorganized Company for the seven months ended December 31, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(4)  | During 1998 the Company sold to Wilshire  Real Estate  Investment  Inc.  ("WREI",  now known as Fog Cutter  Capital  Group Inc.) (i) $44.1
        million of loans,  (ii)  mortgage-backed  securities for  approximately  $127.2 million,  and (iii)  international  investments in the United
        Kingdom for approximately $3.3 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(5)  | Excluding the  extraordinary  gain on  extinguishment of debt and  non-recurring  costs incurred in connection with the  reorganization,  the
        Company's return on average assets for 1999 was (3.78)%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(6)  | The results for 1999 reflect the Company's deficit balance in its equity for the first five months of 1999, which  significantly  reduced the
        average equity  (denominator) for the year. For the seven-month period subsequent to the reorganization,  the Company's  annualized return on
        average equity was (27.85)%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(7)  | The decrease in yield for 1999 was due to the large  proportion  of  Discounted  Loans in the  Company's  portfolio.  The average  balance of
        Discounted Loans represents the gross unpaid  principal  balance before adjusting for allowances for loan losses,  but interest on such loans
        is recognized  only when cash is received.  As a result,  these loans have an adverse effect on the overall loan yield.  In January 2001, the
        Company charged off approximately $166 million in Discounted Loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(8)  | Net interest spread represents average yield on interest-earning assets minus average rate paid on interest-bearing liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(9)  | The  reductions in net interest  margin and net interest  spread in 1998  primarily  reflected the  significant  increase in the
        Company's  holdings of Discounted  Loans.  The acquisition of a pool of Discounted Loans tends to reduce net interest margin and net interest
        spread,  because the interest cost of the debt used to fund the  acquisition is not offset by a  corresponding  increase in interest  income.
        Relatively little cash flow from a pool of Discounted Loans is generally  received during the six to nine months following the acquisition of
        a pool of Discounted  Loans and the Company only recognizes  interest and discount on Discounted Loans when those loans result in the receipt
        of cash.  In addition,  a  significant  portion of the income  associated  with  Discounted  Loans  generally  results from gains on sales of
        foreclosed real estate,  which are not reflected in interest income.  The reductions also reflected  interest expense on the Company's $184.2
        million  in 13%  Notes and 13%  Series B Notes  payable  (the  "Notes"),  the  proceeds  of which  were  held for part of such  periods  in a
        lower-yielding  liquid  investment  prior to their use by the Company to fund  acquisitions.  In March 1999,  these Notes were  canceled  and
        subsequently converted into equity as part of the Company's restructuring.
|(10) | Net interest  margin  represents net interest  income divided by total average  interest-earning  assets.  The increase in interest margin in
        1999 was primarily due to the cancellation of the Notes as part of the Company's  restructuring.  As a result, the Company's interest expense
        on the Notes  decreased by  approximately  $21.3  million  during 1999,  significantly  increasing  net  interest  income as a percentage  of
        interest-earning assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(11) | The ratios of  earnings to fixed  charges  were  computed  by dividing  (x) income from  continuing  operations  before  income  taxes and
        extraordinary  gains plus fixed charges by (y) fixed  charges.  Fixed  charges  represent  total  interest  expense,  including and excluding
        interest on deposits, as applicable,  as well as the interest component of rental expense.  During 1999 and 1998, earnings were inadequate to
        cover fixed charges by $15.0 million and $80.3 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(12) | Total capitalization equals long-term debt plus equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(13) | Average equity to average assets  decreased  substantially  in 1999, as the Company had a deficit balance in its equity for the first five
        months of 1999,  significantly  reducing  the  average  equity  (numerator)  for the  year.  For the  seven-month  period  subsequent  to the
        reorganization, the Company's average equity to average assets was 11.58%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(14) | Non-performing  loans include all Non-Discounted  Loans that have been placed on non-accrual status by the Company.  Non-Discounted Loans are
        placed on non-accrual  status when they became past due more than 90 days or sooner when, in the judgment of management,  the  probability of
        collection of interest is deemed to be insufficient to warrant further accrual.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(15) | Discounted Loans are not included in non-performing loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

## ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following  discussion and analysis should be read in conjunction with the Consolidated  Financial Statements of Wilshire Financial Services
Group Inc. and the notes thereto included  elsewhere in this filing.  References in this filing to "Wilshire  Financial Services Group Inc.," "WFSG,"
the  "Company,"  "we,"  "our," and "us" refer to  Wilshire  Financial  Services  Group Inc.,  our  wholly-owned  subsidiaries,  and  Wilshire  Credit
Corporation ("WCC"), our majority-owned subsidiary, unless the context indicates otherwise.

## Results of Operations - 2001 Compared to 2000

## CONSOLIDATED RESULTS

Our consolidated net income was approximately $5.6 million,  or $0.28 per basic share, for the year ended December 31, 2001, compared with $3.4
million,  or $0.17 per basic share,  for the year ended December 31, 2000. This increase in net income  resulted from a number of factors,  including
the following:  (1) Our banking subsidiary,  First Bank of Beverly Hills, F.S.B.  ("FBBH" or the "Bank"),  recorded a pre-tax gain of $5.1 million on
the sale of its bankcard  processing  division in June 2001;  (2) our net  servicing  income  increased by  approximately  $4.7 million  during 2001,
reflecting the  significant  growth of our asset  servicing  operations  despite the steady decline in interest rates  throughout  2001 and resultant
increase in loan prepayments;  and (3) our consolidated net interest income increased by approximately  $3.0 million from 2000 to 2001 as a result of
problem asset recoveries and overall improvement in our portfolio of interest-earning assets.

Our results  continue to be  negatively  impacted by certain  events that  occurred  prior to our 1999  restructuring.  During 2001 we incurred
approximately  $3.0 million in legal  expenses  related to litigation  arising from such events,  including $2.1 million of costs that we advanced to
two of the  Company's  former  executives.  A portion of these  advances  have been  recovered  through  insurance,  and  additional  amounts  may be
recoverable  in the future.  In the fourth  quarter of 2001 the  Company  incurred  approximately  $1.0  million in other legal fees and  write-downs
related to  pre-restructuring  events.  These legal expenses  contributed to a $2.5 million  increase in other  operating  expenses,  which partially
offset the gains  described  above.  Also offsetting our increases in income was a decrease in recaptures of loan loss provisions of $2.2 million and
a decrease in miscellaneous  income, as the results for 2000 included a gain from settlement of litigation with our former  affiliate,  Wilshire Real
Estate Investment Inc. (now known as Fog Cutter Capital Group Inc.).

Our consolidated  stockholders' equity was $91.4 million at December 31, 2001, compared with $86.6 million at December 31, 2000, an increase of
$4.8  million.  This  increase  reflects  our net income  for the year and  after-tax  unrealized  gains of $0.2  million.  In  addition,  in 2001 we
recognized the benefit of a portion of our  pre-reorganization  net operating loss  carryforwards  and, as a result, we recorded  approximately  $8.7
million in related tax benefits  during the year. The realization of these tax benefits is reflected as a direct  increase to  stockholders'  equity,
and not as a tax benefit on the consolidated  statement of operations,  since the related net operating losses were generated in periods prior to our
June 1999 reorganization.

In December  2001 we  repurchased  approximately  4.2 million  shares of our common  stock,  representing  nearly 21% of the total  shares then
outstanding,  from one of our  shareholders,  partially  offsetting the increases in stockholders'  equity described above. We financed this purchase
primarily  through  borrowings on an existing line of credit,  which were  subsequently  repaid with proceeds from  approximately  $7.7 million in 8%
convertible subordinated debentures due December 15, 2005, which we issued in a private placement in January and February 2002.

## Interest Income

A significant  portion of our consolidated  earnings arises from net interest income,  which is the difference between interest income received
and interest expense paid. Net interest income is affected by the relative amount of interest-earning  assets and interest-bearing  liabilities,  the
degree of mismatch in the maturity and repricing  characteristics of  interest-earning  assets and  interest-bearing  liabilities,  the percentage of
discounted  loans included in the portfolio and the timing of receipt or accretion of purchase  discount.  In addition,  net interest income reflects
the full  interest cost of funding the  acquisition  of discounted  loans and  foreclosed  real estate but does not reflect any accretion of purchase
discount on those assets until cash is collected (which  generally  occurs later in the life of a pool of discounted  loans) and does not reflect any
gain on sales of foreclosed real estate.

The  following  table  sets  forth,  for  the  periods  indicated,  information  regarding  the  total  amount  of the  Company's  income  from
interest-earning  assets and the resulting average yields, the interest expense associated with  interest-bearing  liabilities,  expressed in dollars
and rates, and the net interest spread and net interest  margin.  (The interest income and expense amounts in the table below are  consolidated,  but
primarily  represent the results of our Banking  Operations.  As discussed later in this section,  the principal source of revenues for our Specialty
Servicing and Finance  Operations is loan servicing  fees.)  Information is based on monthly  balances  during the indicated  periods.  For 1999, the
interest  income and expense  amounts  represent  the sum of those for the five months ended May 31, 1999  ("Predecessor  Company") and for the seven
months ended December 31, 1999 ("Reorganized Company").

`Interest-Earning Assets and Interest-Bearing Liabilities

                                                                            Year Ended December 31,
                                             --------------------------------------------------------------------------------------
                                                         2001                        2000                        1999
                                             ---------------------------- --------------------------- -----------------------------
                                             Average            Average   Average           Average   Average             Average
                                             Balance  Interest Yield/Rate Balance Interest Yield/Rate Balance  Interest  Yield/Rate
                                             -------- -------- ---------- ------- -------- ---------- -------  --------  ----------
                                                                                          (Dollars in thousands)
Average Assets:
Mortgage-backed securities ................  $ 56,350 $  4,265     7.57%  $51,817 $  4,084     7.88%   $98,007  $ 10,794     11.01%
Loan portfolio net of unaccreted discounts
  /unamortized premium(1) .................   646,345   50,982     7.89   789,510   48,717     6.17    872,387    52,099      5.97
Investment securities and other ...........    78,299    2,269     2.90    24,926    1,719     6.90     42,543     1,730      4.07
                                             -------- -------- ---------  ------- -------- --------- ---------  -------- ----------
     Total interest-earning assets ........   780,994   57,516     7.36   866,253   54,520     6.29  1,012,937    64,623      6.38
                                             -------- -------- ---------  ------- -------- --------- ---------  -------- ----------
Non-interest earning cash .................     1,711                       4,445                        8,487
Allowance for loan losses .................   (68,818)                   (237,558)                    (279,645)
Other assets ..............................    37,769                      55,115                       70,488
                                             --------                    --------                    ---------
     Total assets .........................  $751,656                    $688,255                    $ 812,267
                                             ========                    ========                    =========

Average Liabilities and Stockholders' Equity:
Interest-bearing deposits .................  $453,223 $ 24,914     5.50% $424,418 $ 26,014     6.13% $ 466,187  $ 25,913      5.56%
FHLB advances .............................   153,269    9,575     6.25   111,615    7,294     6.53     33,115     1,935      5.84
Short-term borrowings .....................     5,270      121     2.30    21,323    1,935     9.07    161,209    11,000      6.82
Other borrowings(2) .......................     9,273    1,077    11.61     3,336      412    12.35     77,840     5,144      6.61
                                             -------- -------- --------- -------- -------- --------- ---------  --------  ---------
     Total interest-bearing liabilities ...   621,035   35,687     5.75   560,692   35,655     6.36    738,351    43,992      5.96
                                             -------- -------- --------- -------- -------- --------- ---------  --------  ---------
Non-interest bearing deposits .............     7,874                      12,902                       12,108
Other liabilities .........................    31,914                      32,354                       49,590
                                             --------                    --------                    ---------
     Total liabilities ....................   660,823                     605,948                      800,049
Stockholders' equity ......................    90,833                      82,307                       12,218
                                             --------                    --------                    ---------
     Total liabilitie and stockholders'
          equity ..........................  $751,656                    $688,255                    $ 812,267
                                             ========                    ========                    =========
Net interest income .......................           $ 21,829                    $ 18,865                      $ 20,631
                                                      ========                    ========                      ========
Net interest spread(3)(4) .................                        1.61%                      (0.07)%                         0.42%
Net interest margin(4) ....................                        2.80%                       2.18%                          2.04%
Ratio of average interest-earning assets to
    average interest-bearing liabilities ....  125.76%                     154.50%                      137.19%`

|(1) | The average balances of the loan portfolio include  Discounted Loans and  non-performing  loans, on which interest is recognized on a cash basis.                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Interest  expense  on other  borrowings  includes  financing  charges  and other  fees not  associated  with any  borrowing  balance.  Our
weighted-average contractual rate of interest paid on other borrowings was approximately 3.50% for 2001.
|(3) | Net interest spread represents average yield on interest-earning assets minus average rate paid on interest-bearing liabilities.                                                                                                                   
|(4) | Net interest margin represents net interest income divided by total average interest-earning assets.                                                                                                                                               

The  following  table  describes  the  extent to which  changes  in  interest  rates and  changes  in volume  of  interest-earning  assets  and
interest-bearing  liabilities  have affected our interest  income and expense  during the periods  indicated.  For each category of  interest-earning
assets and  interest-bearing  liabilities,  information is provided on changes  attributable to (i) changes in volume (change in volume multiplied by
prior rate),  (ii) changes in rate (change in rate  multiplied by prior volume) and (iii) total change in rate and volume.  Changes  attributable  to
both volume and rate have been allocated proportionately to the change due to volume and the change due to rate.

`Changes in Net Interest Income

                                                                         Year Ended December 31,
                                       --------------------------------------------------------------------------------------------
                                               2001 v. 2000                    2000 v. 1999                    1999 v. 1998
                                       -----------------------------  ------------------------------  -----------------------------
                                       Increase (Decrease)    Net     (Decrease) Increase     Net     (Decrease)  Increase     Net
                                         Rate     Volume     Change      Rate     Volume     Change      Rate     Volume    Change
                                       -------- ----------  --------  ---------- ---------  --------  ----------  -------  ---------

Interest-Earning Assets:
  Mortgage-backed securities.......... $  (167) $      348  $    181  $  (2,525) $ (4,185)  $ (6,710) $   2,853  $(17,735) $(14,882)
  Loan portfolio......................  12,069      (9,804)    2,265      1,689    (5,071)    (3,382)   (23,267)  (36,078)  (59,345)
  Investment securities and other.....  (1,451)      2,001       550        892      (903)       (11)      (135)   (1,531)   (1,666)
                                       -------  ----------  --------  ---------  --------   --------  ---------  --------- ---------
       Total interest-earning assets..  10,451      (7,455)    2,996         56   (10,159)   (10,103)   (20,549)  (55,344)  (75,893)
Interest-Bearing Liabilities:
  Interest-bearing deposits...........  (2,793)      1,693    (1,100)     2,534    (2,433)       101     (1,088)    1,435       347
  FHLB advances.......................    (334)      2,615     2,281        255     5,104      5,359         --     1,935     1,935
  Short-term borrowings and other
     Interest-bearing obligations.....    (904)       (910)   (1,814)     2,761   (11,826)    (9,065)    (7,258)  (56,116)  (63,374)
  Long-term debt......................     (26)        691       665      2,434    (7,166)    (4,732)    (9,681)  (10,693)  (20,374)
                                       -------  ----------  --------  ---------  --------   --------  ---------  ---------  --------
       Total interest-bearing
          liabilities.................  (4,057)      4,089        32      7,984   (16,321)    (8,337)   (18,027)  (63,439)  (81,466)
                                       -------  ----------  --------  ---------  --------   --------  ---------  ---------  --------
  Increase (decrease) in net
      interest income................. $14,508  $  (11,544) $  2,964  $  (7,929) $  6,163   $ (1,766) $  (2,522) $   8,095  $  5,573
                                       =======  ==========  ========  =========  ========   ========  =========  =========  ========`

The Company's  consolidated net interest income was approximately  $21.8 million for the year ended December 31, 2001,  compared with $18.8 million for
the year ended December 31, 2000, an increase of  approximately  $3.0 million.  The consolidated net interest spread and margin were 1.61% and 2.80%,
respectively, for the year ended December 31, 2001, compared with (0.07)% and 2.18%, respectively, for the year ended December 31, 2000.

Average  interest-earning assets were $781.0 million for the year ended December 31, 2001, down from $866.3 million for the year ended December
31,  2000.  The  average  yield  earned on our  interest-earning  assets was 7.36% in 2001,  compared  with 6.29% in 2000.  Average  interest-bearing
liabilities  were $621.0  million for the year ended  December 31,  2001,  compared  with $560.7  million for the year ended  December 31, 2000.  The
average cost of our interest-bearing liabilities was 5.75% for 2001, compared with 6.36% for 2000.

The increase in the consolidated  net interest spread from 2000 to 2001 was largely due to the charge-off of approximately  $166 million unpaid
principal balance of non-performing  loans in our Specialty  Servicing and Finance  Operations in January 2001. This contributed to a 172-basis point
increase  in the  consolidated  yield  on  loans  (from  6.17%  in 2000 to  7.89% in 2001)  and a  107-basis  point  increase  in the  yield on total
interest-earning  assets,  despite the steady decline in interest rates throughout the year. In addition,  as discussed earlier,  the average cost of
interest-bearing liabilities decreased by 61 basis points from 2000 to 2001.

The increase in the consolidated net interest margin from 2000 to 2001 was primarily due to two factors:  (1) consolidated loan interest income
increased by $2.3 million as a result of FBBH's and WFC's  purchases of loan  portfolios  during the year,  and (2) average  interest-earning  assets
decreased by  approximately  $85.3 million from 2000 to 2001 as a result of the loan  charge-offs  described above, and also due to increases in loan
prepayments triggered by the sharp decline in interest rates.

Following is a discussion of the operating results of the Company's two business segments:  our Banking Operations and our Specialty  Servicing
and Finance Operations.

## FIRST BANK OF
BEVERLY HILLS, F.S.B.

The following tables compare operating income before taxes for FBBH for the years ended December 31, 2001 and 2000 (dollars in thousands):

`Year Ended December 31,
                                                  ------------------------------------------
                                                                                  Increase
                                                      2001           2000        (Decrease)
                                                  ------------   ------------   ------------
        Interest income ........................  $     51,901   $     50,847   $      1,054
        Interest expense .......................        34,472         33,946            526
                                                  ------------   ------------   ------------
        Net interest income ....................        17,429         16,901            528
        Recapture of loan losses ...............        (1,730)        (5,800)         4,070
                                                  ------------   ------------   ------------
        Net interest income after recapture of
           loan losses .........................        19,159         22,701         (3,542)
        Other income ...........................         9,227          6,744          2,483
        Other expense ..........................        15,845         21,143         (5,298)
                                                  ------------   ------------   ------------
        Income before taxes ....................  $     12,541   $      8,302   $      4,239
                                                  ============   ============   ============`

Net Interest Income
        The Bank's net interest income for the year ended December 31, 2001 was approximately $17.4 million,  compared with approximately $16.9 million
for the year ended December 31, 2000.  Total interest income  increased by  approximately  $1.1 million from 2000 to 2001, which was partially offset
by a $0.5 million increase in interest expense.

FBBH's average balance of interest-earning  assets increased by approximately $65.4 million in 2001, largely due to the Bank's purchase of $131
million in  adjustable-rate  mortgage  loans in the second  quarter,  and also as a result of an increase in the average fed funds balance during the
year. However, the declining interest-rate  environment in 2001 particularly affected the Bank's interest-earning  assets, which generally reprice in
advance of its  interest-bearing  liabilities.  The Bank's average yield on loans decreased from 8.57% in 2000 to 8.17% in 2001, and its yield on fed
fund  investments  declined from 5.9% in 2000 to 4.0% in 2001.  These  decreases in yields,  in addition to the unusually  high  prepayments of loans
triggered by the drop in rates, offset much of the effects of the higher asset volume.

The Bank's average  deposits  balance  increased by approximately  $28.8 million from 2000 to 2001, as the Bank raised  significant  amounts of
certificates of deposit in the second quarter to fund the loan purchases described above.  However,  the average rate paid on deposits declined by 63
basis points, from 6.13% in 2000 to 5.50% in 2001, resulting in a $1.1 million decrease in deposit interest expense.

The Bank made additional FHLB Advance  borrowings in the first and fourth quarters of 2001 to replace  certificates of deposit and to fund some
of its purchases of  mortgage-backed  and other investment  securities.  As a result, the average balance of FHLB Advances increased by approximately
$41.7 million in 2001, and the Bank's interest  expense on FHLB Advances  increased by  approximately  $2.3 million from 2000 to 2001.  Substantially
all of the Bank's FHLB Advances had fixed rates of interest and thus were unaffected by the declines in interest rates.

Provision for Loan Losses
        Provisions  for losses on loans are charged to operations  to maintain an allowance for losses on the loan  portfolio at a level which the Bank
believes is adequate  based on an  evaluation  of the inherent  risks in the  portfolio.  The Bank's  evaluation  is based on an analysis of the loan
portfolio, historical loss experience, current economic conditions and trends, collateral values, and other relevant factors.

The Bank's  provision for loan losses for the year ended  December 31, 2001 was a net recapture of $1.7  million,  compared with  recaptures of
$5.8 million for the year ended December 31, 2000. In September  2001,  pursuant to the settlement and payoff of a troubled loan, the Bank recaptured
$2.1 million in provision  previously taken on such loan. This recapture was partially  offset by loan loss provisions of approximately  $0.4 million
during  the  current  year.  The  reversals  of  reserves  in 2000 were the result of two  factors:  (1) the Bank sold  $13.1  million  book value of
non-performing  and  sub-performing  loans in June 2000 and recaptured the related  reserves and (2) the Bank's periodic  analyses of the adequacy of
loan loss reserves  indicated  that the reserves  were  excessive due to the  continued  seasoning and improved loss  performance  of the Bank's loan
portfolio.

Other Income
        The Bank's other income was approximately  $9.2 million for the year ended December 31, 2001,  compared with approximately $6.7 million for the
year ended  December 31, 2000.  This increase in other income was  primarily due to the Bank's sale of its Bankcard  division in June 2001 for a gain
of $5.1  million,  and a $0.9 million  increase in gains on sales of loans.  These  increases  were  partially  offset by a $1.8  million  decline in
Bankcard  income from 2000 to 2001, as the 2001 results  included only six months'  activity.  Also  offsetting the gains  described above was a $0.4
million  decrease in real estate income due to reduced  sales  activity in 2001, a loss of  approximately  $0.3 million on the Bank's sale of its mortgage banking subsidiary, George Elkins Mortgage Banking ("GEMB") in
June 2001, and a decline in loan fees of approximately $1.2 million due to the sale of GEMB.

Other Expenses
        The Bank's other expenses were approximately  $15.8 million for the year ended December 31, 2001, compared with approximately $21.1 million for
the year ended  December  31,  2000,  a decrease of $5.3  million.  This  decrease  was largely due to the Bank's  sales of its Bankcard and mortgage
banking  divisions in June 2001,  which resulted in savings of approximately  $5.0 million in other operating  expenses  (primarily  compensation and
employee benefits and, to a lesser extent,  occupancy,  data processing and marketing expenses) for the remainder of 2001. In addition, the year 2000
expenses  contained  approximately  $2.0 million in write-downs of goodwill related to GEMB and other  capitalized  costs.  However,  these decreases
were partially  offset by additional  charges earlier in 2001,  including  severance pay for some of the Bank's former  executives,  and professional
services and consulting fees associated with conversions of the Bank's accounting and deposit systems.

## Operating
Divisions

Through June 30, 2001,  the Bank's  businesses  consisted of three  primary  divisions:  lending and deposit  banking  services,  mortgage loan
origination  and brokerage  services  (GEMB) and Bankcard  processing.  The GEMB and Bankcard  divisions  were sold in June 2001.  Consequently,  the
Bank's income subsequent to June 30, 2001 has been derived solely from its core retail banking and lending activities.

The operating  results  (before  income taxes) of the Bank's  businesses  for the years ended  December 31, 2001 and 2000 are summarized in the
following table and discussed in further detail below:

`Year Ended
                                                                                   December 31,
                                                                          ------------------------------
                                                                               2001            2000
                                                                          -------------    -------------
                                                                               (Dollars in thousands)
                         Lending and deposit banking services...........  $       7,150    $      10,522
                         Net gain on sales of Bankcard and GEMB.........          4,798               --
                         George Elkins..................................           (246)          (2,922)
                         Bankcard income, net...........................            839              702
                                                                          -------------    -------------
                             Total Bank income (pre-tax)................  $      12,541    $       8,302
                                                                          =============    =============`

Lending and Deposit Banking
        Income in FBBH's banking operations was approximately  $7.2 million for the year ended December 31, 2001,  compared with $10.5 million for the
year ended December 31, 2000.  This decrease was primarily due to a $4.1 million decrease in recaptures of loan losses from 2000 to 2001, partially offset by an
increase in net interest income.

George Elkins
        The net loss from the Bank's  mortgage loan  origination  and brokerage  services in 2001 was  approximately  $0.2 million,  reflecting  GEMB's
operations  through June 30, 2001. For the year ended December 31, 2000, GEMB's loss was  approximately  $2.9 million,  which included  approximately
$2.0  million in  write-downs  of goodwill and other  capitalized  costs.  Effective  June 30,  2001,  the Bank sold this  division for a net loss of
approximately $0.3 million.

Bankcard Division
        The Bank's income from its merchant  bankcard  operations was  approximately  $0.8 million for the year ended December 31, 2001,  compared with
$0.7 million for the year ended  December 31, 2000.  The increase in income was  primarily  due to recaptures of loan losses of $0.2 million in 2001,
compared with loan loss provisions of $0.2 million in 2000. Gross bankcard revenues and expenses  decreased  substantially  from 2000 to 2001, as the
amounts for 2001 reflect only six months' activity.

## Changes in
Financial Condition  First Bank of Beverly Hills

Following are condensed statements of financial condition for FBBH as of December 31, 2001 and 2000:

`December 31,   December 31,
                                                                    2001           2000
                                                                ------------   ------------
                                                                   (Dollars in thousands)
ASSETS:
Cash and cash equivalents ..................................    $     35,841   $      7,907
Mortgage-backed securities available for sale, at fair value         116,173         47,738
Investment securities available for sale, at fair value ....           8,000             --
Loans, net .................................................         525,302        562,257
Real estate owned, net .....................................             429            779
Receivables from loan servicers ............................           1,114          3,089
Other assets ...............................................          29,907         24,603
                                                                ------------   ------------
    Total assets ...........................................    $    716,766   $    646,373
                                                                ============   ============

LIABILITIES:
Deposits ...................................................    $    439,469   $    435,073
FHLB advances ..............................................         189,500        132,000
Other liabilities ..........................................          19,203         17,322
                                                                ------------   ------------
    Total liabilities ......................................         648,172        584,395

NET WORTH ..................................................          68,594         61,978
                                                                ------------   ------------
    Total liabilities and net worth ........................    $    716,766   $    646,373
                                                                ============   ============`

Mortgage-Backed and Other Securities.  The Bank's portfolio of mortgage-backed  securities  increased by approximately $68.4 million during the
year ended  December 31, 2001.  This increase was due to purchases of $94.5 million in securities  (substantially  all of which  occurred in November
and December),  partially  offset by principal  repayments of $25.3 million and an increase in unrealized  holding  losses of $0.5 million.  The Bank
also purchased $8.0 million in other investment securities available for sale in December 2001.

Loans,  net. The Bank's  portfolio of loans, net of discounts and allowances,  decreased by  approximately  $37.0 million during the year ended
December 31, 2001. The decline in interest rates throughout the year triggered an acceleration of loan  repayments,  which totaled $229.7 million for
the year. The Bank also sold for a gain  approximately  $31.4 million of loans in June 2001.  Partially  offsetting  these  repayments and sales were
loan purchases during the year of $150.1 million and new loan originations of $74.0 million.

Real Estate Owned,  net. The Bank's real estate owned,  net decreased by $0.35 million  during 2001 due to sales of properties  for proceeds of
approximately $1.2 million, partially offset by acquisitions of real estate during the year through foreclosures from its portfolio of loans.

Deposits.  The Bank's deposits  increased by approximately  $4.4 million during the year ended December 31, 2001. As a result of the decline in
interest rates, the Bank significantly  increased its certificates of deposit in the second quarter of 2001 to fund its loan acquisitions,  and again
prior to year-end to fund the purchases of mortgage-backed  and other investment  securities  discussed above. These increases were largely offset by
maturities of time deposits,  substantially  all of which were not renewed,  and by a decrease in Bankcard reserve  deposits  pursuant to the sale of
the Bankcard division in June 2001.

FHLB  Advances.  The Bank's FHLB Advances  increased by $57.5 million during the year ended December 31, 2001, as a result of new borrowings of
$70.5  million,  partially  offset by repayments of $13.0  million.  These advances have original  maturities  ranging from two to five years,  which
assists in  reducing  the Bank's  sensitivity  to market  interest-rate  fluctuations  and  enables the Bank to more  closely  match the  anticipated
maturities of its investments to its overall borrowings.

## Regulatory Capital
Requirements

Federally insured savings  associations such as FBBH are required to maintain minimum levels of regulatory  capital.  Those standards generally
are as stringent as the comparable  capital  requirements  imposed on national  banks.  The OTS also is authorized to impose capital  requirements in
excess of these standards on a case-by-case  basis. In connection  with the year 2000  examination,  the OTS indicated that the capital level of FBBH
exceeds the minimum requirement for "well capitalized" status under provisions of the Prompt Corrective Action Regulation.

The following table sets forth the regulatory capital ratios of the Bank at December 31, 2001.

`Regulatory Capital Ratios
                                                                                                      To be Categorized
                                                                                                              as
                                                                                 Amount Required      "Well Capitalized"
                                                                                   For Capital           under Prompt
                                                                                    Adequacy          Corrective Action
                                                               Actual               Purposes              Provisions
                                                       --------------------   --------------------   --------------------
                                                        Amount      Ratio      Amount      Ratio      Amount      Ratio
                                                       ---------   --------   ---------   --------   ---------   --------
                                                                                            (Dollars in thousands)
Total Capital to Risk-Weighted Assets (Risk-Based
Capital).............................................. $  70,858      15.7%   $  36,014      =>8.0%  $  45,018     =>10.0%
Tier 1 Capital to Risk-Weighted Assets................    65,204      14.5%       Not Applicable        27,018     => 6.0%
Core Capital to Tangible Assets.......................    65,204       9.2%      28,442      =>4.0%     35,553     => 5.0%
Tangible Capital to Tangible Assets...................    65,204       9.2%      10,666      =>1.5%       Not Applicable`

## Liquidity and
Capital Resources

Liquidity is the measurement of the Bank's ability to meet potential cash  requirements,  including  ongoing  commitments to repay  borrowings,
fund  investments,  purchase pools of loans,  and make payments for general  business  purposes.  The Bank's sources of liquidity  include retail and
wholesale deposits,  FHLB advances (up to 25% of the Bank's total assets as of the previous quarter-end),  repurchase agreements,  whole loan and mortgage-backed  securities sales, and net interest income.  Liquidity in
the Bank's operations is actively managed on a daily basis and periodically reviewed by the Bank's Board of Directors.

At December 31, 2001,  the Bank's cash balances  totaled  approximately  $35.8  million,  compared with $7.9 million at December 31, 2000.  The
increase in cash during 2001 was primarily due to a significant  increase in  certificates  of deposit in the second quarter of 2001 and, to a lesser
extent,  increases in  certificates  of deposit and FHLB Advances in the fourth  quarter.

At December 31, 2001, the Bank had  approximately  $403.6 million of certificates of deposit.  Scheduled  maturities of certificates of deposit
during the 12 months  ending  December  31,  2002 and  thereafter  amounted  to  approximately  $292.6  million  and  approximately  $111.0  million,
respectively.  Wholesale  deposits  generally are more  responsive to changes in interest  rates than core deposits and,  thus, are more likely to be
withdrawn by the investor upon maturity as changes in interest  rates and other  factors are  perceived by investors to make other  investments  more
attractive.  Bank  management  continues its effort to reduce its exposure to interest  rate changes by utilizing  funding  sources  whose  repricing
characteristics more closely match those of the Bank's interest-earning assets.

The Bank is party to various contractual financial obligations,  including repayment of borrowings, operating lease payments and commitments to
extend credit.  The table below presents the Bank's future financial obligations outstanding as of December 31, 2001:

`Payments due within time period at December 31, 2001
                                             -----------------------------------------------------------------------------
                                              0-12 Months      1-3 Years       4-5 Years     After 5 Years       Total
                                             -------------   -------------   -------------   -------------   -------------
                                                                         (Dollars in thousands)

Operating leases............................ $         742   $         974   $          69   $          --   $       1,785
FHLB Advances...............................        30,500          98,500          60,500              --         189,500
                                             -------------   -------------   -------------   -------------   -------------
   Total                                     $      31,242   $      99,474   $      60,569   $          --   $     191,285
                                             =============   =============   =============   =============   =============`

At December 31, 2001 the Bank had commitments to extend credit of  approximately  $7.3 million.  For additional  information  regarding  future
commitments,  this discussion and analysis should be read in conjunction with our consolidated  financial  statements and related notes including the
footnote "Commitments, Contingencies and Off-Balance-Sheet Risk".

In March 2001, the OTS rescinded the regulatory  requirement that  institutions  maintain an average daily balance of liquid assets of at least
4% of its liquidity base.  Even though the percentage  requirement has been  eliminated,  the Bank is still required by the OTS to maintain  adequate
liquidity to assure safe and sound operation.  It is the Bank's responsibility to determine the appropriate level of liquidity to be maintained.

## SPECIALTY
SERVICING AND FINANCE OPERATIONS

WFSG  conducts its  Specialty  Servicing and Finance  Operations  through WFC, our  wholly-owned  investment  subsidiary,  and through WCC, our
majority-owned  servicing subsidiary which was formed pursuant to our June 10, 1999 reorganization.  As the majority owner of WCC, the Company shares
in 50.01% of WCC's revenues and expenses.  The remaining  49.99%  interest in WCC's  operations is reflected as "Minority  interest" in the Company's
consolidated  statements  of  operations.  In addition,  certain of WFC's and WCC's  activities  are  conducted  with lenders who have  participation
interests in the returns  generated by the assets that serve as  collateral  for the loans.  The share of such  activities  held by these  lenders is
reflected as "Investor participation interest" in the Company's consolidated statements of operations.

The following  table compares  operating loss (before taxes and minority  interest) of our Specialty  Servicing and Finance  Operations for the
year ended December 31, 2001 and 2000 (dollars in thousands).

`WCC and WFC for the Year
                                                                       Ended December 31,
                                                           ------------------------------------------
                                                                                           Increase
                                                               2001           2000        (Decrease)
                                                           ------------   ------------   ------------
              Servicing income ............................$     18,801   $     14,257   $      4,544
              Interest income .............................       5,305          4,364            941
              Investment and other income .................       1,294          2,942         (1,648)
                                                           ------------   ------------   ------------
                   Total income ...........................      25,400         21,563          3,837
                                                           ------------   ------------   ------------
              Interest expense ............................       1,358          1,276             82
              (Recapture of) provision for  loan losses ...         (54)         1,669         (1,723)
              Compensation expense ........................      15,507         13,132          2,375
              Other expenses ..............................      10,297          9,033          1,264
                                                           ------------   ------------   ------------
                   Total expenses .........................      27,108         25,110          1,998
                                                           ------------   ------------   ------------
              Loss before taxes ...........................$     (1,708)  $     (3,547)  $      1,839
                                                           ============   ============   ============`

Servicing Income
        The components of servicing income in our Specialty Servicing and Finance Operations are reflected in the following table:

`Year Ended
                                                                                      December 31,
                                                                               ---------------------------
                                                                                   2001           2000
                                                                               ------------   ------------
                                                                                     (Dollars in thousands)
              Servicing revenue ............................................   $     21,306   $     10,539
              Ancillary fees ...............................................          4,986          2,994
              Amortization of mortgage servicing rights ....................         (5,847)          (396)
              Valuation allowance for mortgage servicing rights ............         (1,552)            --
              Custodial float ..............................................          2,438          1,719
              Curtailment expense ..........................................         (2,530)          (599)
                                                                               ------------   ------------
                  Total servicing income ...................................   $     18,801   $     14,257
                                                                               ============   ============`

Servicing income for the year ended December 31, 2001 was approximately  $18.8 million,  compared with approximately $14.3 million for the year
ended December 31, 2000. WCC's servicing operations grew significantly  during 2001 due to several  acquisitions of servicing  portfolios  throughout
the year.  As a result of this  continued  expansion,  our gross  servicing  revenues and  ancillary  fees  (primarily  late  charges and  prepayment
penalties)  increased by approximately  102% and 67%,  respectively,  over their 2000 levels.  However,  the continuing  decline in mortgage interest
rates during 2001 has adversely impacted our servicing income in a number of ways.

First, the drop in mortgage rates triggered a significant increase in prepayments on the underlying loans in our servicing portfolio,  which in
turn  resulted in  accelerated  amortization  of our  mortgage  servicing  rights  (MSRs).  Amortization  of MSRs was $5.8 million for the year ended
December 31, 2001,  compared with $0.4 million for 2000 (though a portion of the increase in  amortization  was  attributable to the larger volume of
our servicing  portfolio).  In addition,  in 2001 we recorded a valuation allowance for our MSRs of approximately $1.6 million.  Further, as a result
of underlying  loan  prepayments,  we incurred an increase in the interest we are required to pay to  securitization  trusts  ("curtailment  interest
expense") under our servicing agreements.

The following table sets forth the composition of loans serviced by WCC by type of loan at the dates indicated.

`December 31,       December 31,
                                                                             2001               2000
                                                                        --------------     --------------
                                                                               (Dollars in thousands)
               Single-family residential............................    $    3,020,267     $    1,909,761
               Multi-family residential.............................           141,297            163,511
               Commercial real estate...............................           192,275            223,539
               Consumer and other...................................            90,497            265,598
                                                                        --------------     --------------
                     Total..........................................    $    3,444,336     $    2,562,409
                                                                        ==============     ==============`

Interest Income and Interest Expense
        Interest income was  approximately  $5.3 million for the year ended December 31, 2001,  compared with  approximately  $4.4 million for the year
ended  December 31, 2000,  an increase of $0.9  million.  This  increase was due to higher loan  interest  income  resulting  from WFC's  purchase of
approximately $10.5 million in principal balance of discounted loans in the third quarter of 2001.

Interest expense was  approximately  $1.4 million for the year ended December 31, 2001,  compared with $1.3 million for the year ended December
31, 2000. This increase was due to additional  borrowings which funded the loan acquisition  described above in addition to acquisitions of servicing
rights.  The additional  interest expense  generated by the third quarter 2001 borrowings was offset by paydowns of late 2000 and early 2001 borrowings
with proceeds from asset sales, and by lower interest rates in 2001.

Investment and Other Income
        The components of investment and other income in our Specialty Servicing and Finance Operations are reflected in the following table:

`Year Ended
                                                                                       December 31,
                                                                              ------------------------------
                                                                                  2001             2000
                                                                              -------------    -------------
                                                                                  (Dollars in thousands)
                          Investment and other income:
                          Real estate owned, net.........................     $        (165)   $        (847)
                          Gain on sale of loans..........................               851            1,484
                          Loss on sale of securities.....................              (262)            (495)
                          Other, net.....................................               870            2,800
                                                                              -------------    -------------
                              Total investment and other income..........     $       1,294    $       2,942
                                                                              =============    =============`

The decrease in investment  and other income in 2001 as compared with 2000 is primarily a result of a decline in gains on sales of loans due to
reduced sales activity in the current year. In addition,  other, net decreased  primarily due to reimbursements  received for inter-company  expenses
occurring in 2000 and not in 2001 as such expenses were not incurred in 2001,  and the receipt of a $0.5 million  settlement in the second quarter of
2000 on a prior loan purchase.

Compensation Expense
        Compensation and employee benefits were approximately  $15.5 million for the year ended December 31, 2001,  compared with  approximately  $13.1
million for the year ended December 31, 2000.  This increase was due to higher salary  expenses and contract  labor costs over the prior year.  WCC's
employee head count increased by  approximately  31% from December 31, 2000 to December 31, 2001,  reflecting the growth in the size of our servicing
business.

Other Expenses
        Other  expenses in our Specialty  Servicing  and Finance  Operations  were  approximately  $10.3 million for the year ended  December 31, 2001,
compared with approximately  $9.0 million for the year ended December 31, 2000. The amount for 2001 includes  approximately $1.0 million in "investor
participation interest," which represents the share in certain of our activities held by outside co-investors.

Despite our generally  successful efforts to reduce and control operating  overhead,  we were adversely affected  throughout 2001 by litigation
that arose from events prior to our 1999  restructuring.  Our legal  expenses,  which  consisted  primarily  of defense  costs and advances to former
executives related to such litigation,  increased by $1.8 million, net of insurance recoveries,  from 2000 to 2001. We believe that some costs may be
recoverable through insurance in the future.

In several other expense  categories,  our operating  expenses  declined from the year ended  December 31, 2000 to the year ended  December 31,
2001.  Depreciation  and  amortization  expenses  decreased by  approximately  $0.9 million from the prior year,  largely due to a one-time charge to
depreciation  expense of  approximately  $0.8 million in  September  2000  pursuant to a change in the  estimated  lives of  depreciable  assets.  In
addition, our expenses for occupancy,  audit and tax services,  insurance, tax and licenses, and business travel declined by a total of approximately
$0.7 million in 2001 as a result of our ongoing cost-reduction efforts.

## Changes in
Financial Condition  Specialty Servicing and Finance Operations

Following are condensed statements of financial condition for our Specialty Servicing and Finance Operations as of December 31, 2001 and 2000:

`December 31,   December 31,
                                                                                   2001           2000
                                                                               ------------   ------------
                                                                                  (Dollars in thousands)
ASSETS:
Cash and cash equivalents ...................................................  $        262   $      1,143
Mortgage-backed securities available for sale, at fair value ................         3,367          6,400
Loans and discounted loans, net .............................................        15,309         10,214
Real estate owned, net ......................................................           302            991
Servicer advance receivables, net ...........................................        18,266         19,063
Service fees receivable .....................................................         3,100          2,198
Purchased mortgage servicing rights, net ....................................         8,473          4,544
Intercompany receivables ....................................................        18,544          5,523
Other assets ................................................................         2,541          4,249
                                                                               ------------   ------------
    Total assets ............................................................  $     70,164   $     54,325
                                                                               ============   ============

LIABILITIES:
Short-term borrowings .......................................................  $      9,970   $      4,851
Long-term investment financing ..............................................        14,474          1,634
Other liabilities ...........................................................         8,643          9,622
                                                                               ------------   ------------
    Total liabilities .......................................................        33,087         16,107

NET WORTH ...................................................................        37,077         38,218
                                                                               ------------   ------------
    Total liabilities and net worth .........................................  $     70,164   $     54,325
                                                                               ============   ============`

Mortgage-Backed  Securities  Available for Sale. WFC's portfolio of  mortgage-backed  securities  available for sale decreased by approximately
$3.0 million  during the year ended  December 31, 2001.  This decrease was primarily due to principal  paydowns of $1.3 million and a disposition  of
$2.6 million of securities.  In April 2001 WFC sold  approximately  $1.5 million of loans  underlying  such  securities,  and retained an interest in
real property  comprising the remaining  $1.1 million of the  securitization.  In September  2001 this property was sold for a gain of  approximately
$0.1  million.  WFC currently  holds only those  securities  which are backed by loans in WCC's  servicing  portfolio,  as such  investments  provide
operating leverage to our core business.

Loans and  Discounted  Loans,  net.  In our  Specialty  Servicing  and  Finance  Operations,  loans and  discounted  loans,  net  increased  by
approximately  $5.1 million  during the year ended  December 31, 2001.  This increase was primarily due to purchases of  approximately  $14.9 million
book value of loans, partially offset by sales of approximately $5.8 million and loan resolutions occurring in the ordinary course of business.

Real Estate Owned,  net. Real estate owned, net decreased by  approximately  $0.7 million during the year ended December 31, 2001. The decrease
was primarily due to sales of properties for proceeds of  approximately  $1.9 million,  partially  offset by  acquisitions  of real estate during the
year through foreclosure from our portfolio of loans.

Servicer Advance  Receivables,  net. Servicer advance  receivables,  net decreased by approximately $0.8 million during the year ended December
31, 2001. This decrease resulted from recoveries by WCC of scheduled  principal and interest  advances on loans previously made,  partially offset by
new advances made during the year.

Purchased Mortgage Servicing Rights,  net. Purchased mortgage servicing rights, net (MSRs) increased by approximately $3.9 million for the year
ended December 31, 2001, primarily due to our purchases of $12.1 million in MSRs associated with new servicing portfolio  acquisitions.  However, the
decline in mortgage  interest rates during the year has triggered an increase in prepayments of the underlying loans being serviced,  which, in turn,
resulted in accelerated  amortization of our servicing rights. As a result, we recorded  amortization of MSRs of $5.8 million in 2001, in addition to
a valuation write-down of $1.6 million.

Intercompany  Receivables.  Intercompany  receivables  increased by  approximately  $13.0  million from December 31, 2000 to December 31, 2001.
This increase was primarily due to borrowings  by WFSG at year-end to finance the Company's  repurchase of 4.2 million  shares of  outstanding  stock
for approximately  $10.0 million.  In January 2002, WCC received settlement on this receivable from WFSG with the proceeds from WFSG's issuance of 8%
convertible subordinated debentures.

Short-Term Borrowings and Long-Term Investment  Financing.  Short-term borrowings and long-term investment financing in our Specialty Servicing
and Finance  Operations  increased by a total of $18.0 million from December 31, 2000 to December 31, 2001. In December 2001 we borrowed $9.2 million
under one of our line of credit  facilities for WFSG's  repurchase of approximately  4.2 million shares of common stock from one of our shareholders.
This borrowing was substantially repaid in January 2002 with proceeds from WFSG's issuance of 8% convertible  subordinated  debentures,  which funded
the majority of the stock  repurchase.  WCC's and WFC's other  borrowings  increased during 2001 to fund  acquisitions of investments,  including the
loan purchases described above, and mortgage servicing rights.

## Liquidity and
Capital Resources

Liquidity is the  measurement of our ability to meet potential cash  requirements,  including  ongoing  commitments to repay  borrowings,  fund
investments,  purchase pools of loans,  and make payments for general  business  purposes.  Our sources of cash flow for our Specialty  Servicing and
Finance Operations include servicing revenue,  whole loan and mortgage-backed  securities sales, net interest income, lines of credit from commercial
banks,  and borrowings from  institutional  lenders.  The  availability  of liquidity from our line of credit  facilities is subject to the Company's
maintenance of sufficient  available  collateral to pledge against such  borrowings.  We are currently  maintaining  sufficient  collateral under the
credit agreements.  Liquidity in our Specialty Servicing and Finance Operations is actively managed on a daily basis and is periodically  reviewed by
our Board of Directors. This process is intended to ensure the maintenance of sufficient funds to meet the needs of the Company.

At December 31, 2001,  liquidity in our Specialty  Servicing and Finance  Operations  (including  cash and unused  borrowings  under our credit
facilities)  totaled $9.8  million,  compared with  approximately  $5.6 million at December 31, 2000.  Based on our current and expected  asset size,
capital levels, and organizational  infrastructure,  we believe there will be sufficient available liquidity to meet our needs. In addition,  as part
of our business strategy to use bank and  institutional  co-investment  financing,  we intend to use our available capital in a manner which will not
make us dependent on securitizations as a source of liquidity.  As a result, we have no present intent to securitize loans as a source of liquidity.

We no longer own  subordinated  mortgage-backed  securities  backed by loan pools  originated or serviced by  unaffiliated  third parties,  and
currently hold  subordinated  mortgage-backed  securities only where we act as servicer of the loan pools backing these  securities.  At December 31,
2001 we held $3.4 million of such  mortgage-backed  securities.  The related  short-term  repurchase  agreement  which financed these  securities was
repaid in full in February 2001.

Adequate  credit  facilities  and other sources of funding are essential to the  continuation  of the Company's  ability to purchase  servicing
assets and pools of loans.  The  Company's  growth  strategy is dependent in part on its ability to find credit  facilities  and equity  partners for
purchases  of  servicing  assets and, to a lesser  extent,  loan pools.  Such  growth will depend  largely on the  Company's  ability to find and use
capital partners for growth of our Specialty Servicing and Finance Operations.  Otherwise, such growth could be significantly curtailed or delayed.

WCC and WFC are party to various  contractual  financial  obligations,  including  repayment  of  borrowings  and capital and  operating  lease
payments.  The table below presents financial obligations outstanding in our Specialty Servicing and Finance Operations as of December 31, 2001:

`Payments due within time period at December 31, 2001
                                                     -----------------------------------------------------------------------------
                                                      0-12 Months      1-3 Years       4-5 Years     After 5 Years       Total
                                                     -------------   -------------   -------------   -------------   -------------
                                                                                 (Dollars in thousands)

Short-term borrowings............................... $       9,970   $          --   $          --   $          --   $       9,970
Capital leases......................................           572              --              --              --             572
Operating leases....................................           309             506              40              --             855
Long-term investment financing......................         2,366          12,108              --              --          14,474
                                                     -------------   -------------   -------------   -------------   -------------
   Total                                             $      13,217   $      12,614   $          40   $          --   $      25,871
                                                     =============   =============   =============   =============   =============`

For additional  information  regarding  future  commitments,  this discussion and analysis should be read in conjunction  with our consolidated
financial statements and related notes including the footnote "Commitments, Contingencies and Off-Balance-Sheet Risk".

## HOLDING
COMPANY AND MISCELLANEOUS OPERATIONS

Our Holding Company and  Miscellaneous  Operations  consist of other operating  revenues and expenses not directly  attributable to our Banking
Operations  or Specialty  Servicing and Finance  Operations,  and also includes  eliminations  of  intercompany  accounts and  transactions.  Primary
sources of liquidity  include funds available from the Company's  wholly-owned  non-Bank  subsidiaries and payments  received from FBBH pursuant to a
tax  allocation  agreement  between the Company and the Bank.  However,  the OTS has presently  limited the amount of these payments to the lesser of
(1) the Bank's  stand-alone  tax liability and (2) the total tax payments made by the Company.  In April 2001,  the Bank remitted $2.0 million to the
Company for a portion of prior years'  liabilities.  In February 2002, the Bank remitted  $0.7 million for a portion of its 2001  liability  under the
foregoing formula.

# Results of
Operations  2000 Compared to 1999

In the following  discussion,  the amounts for the year ended December 31, 1999 represent the sum of the Predecessor  Company's  operations for
the five months  ended May 31, 1999 and the  Reorganized  Company's  operations  for the seven months  ended  December  31, 1999,  as reported in the
accompanying consolidated statements of operations.

## CONSOLIDATED RESULTS

Our  consolidated  net income was  approximately  $3.4 million for the year ended December 31, 2000,  compared with $143.2 million for the year
ended December 31, 1999.  However,  the 1999 results included an  extraordinary  gain of $225.6 million on the  extinguishment  of debt, and costs of
$52.0  million  related to our  reorganization.  Our net income from  recurring  operations,  before  income tax, was $6.8 million for the year ended
December 31, 2000,  compared  with a net loss of $29.0  million for the year ended  December  31, 1999.  This  increase in net income for the current
year was due primarily to a decrease in other  expenses of $19.3  million,  an increase in other income of $9.9 million,  and a decrease in provision
for loan losses of $7.7 million, partially offset by a decrease in net interest income of $1.8 million.

These  improvements in operating results reflect our efforts to reduce corporate  overhead and manage credit and liquidity risk in our business
segments.  Following is a discussion of the operating  results of the Company's two discrete  businesses:  our Banking  Operations  and our Specialty
Servicing and Finance Operations.

## FIRST BANK OF
BEVERLY HILLS, F.S.B.

The following table compares operating income for the Bank for the years ended December 31, 2000 and December 31, 1999 (dollars in thousands):

`Year Ended December 31,
                                                              ------------------------------------------
                                                                                              Increase
                                                                  2000           1999        (Decrease)
                                                              ------------   ------------   ------------
                    Interest income.......................    $     50,847   $     46,121   $      4,726
                    Interest expense......................          33,946         29,127          4,819
                                                              ------------   ------------   ------------
                    Net interest income...................          16,901         16,994            (93)
                    Recapture of loan losses..............          (5,800)        (1,250)        (4,550)
                                                              ------------   ------------   ------------
                    Net interest income after
                       recapture of loan losses...........          22,701         18,244          4,457
                    Other income..........................           6,744          5,859            885
                    Other expense.........................          21,143         17,678          3,465
                                                              ------------   ------------   ------------
                    Income before taxes...................           8,302          6,425          1,877
                    Income tax provision..................           3,570          2,963            607
                                                              ------------   ------------   ------------
                    Net income............................    $      4,732   $      3,462   $      1,270
                                                              ============   ============   ============`

Net Interest Income
        The Bank's net interest income for the year ended December 31, 2000 was approximately $16.9 million,  compared with approximately $17.0 million
for the year ended  December 31, 1999.  Interest  income  increased by $4.7 million,  primarily due to the Bank's  purchase of  approximately  $155.3
million of mortgage  loans  during the year.  This  increase in  interest  income was offset by a $4.8  million  increase in interest  expense  which
resulted from an increase in borrowings, as the Bank utilized FHLB advances and short-term borrowings to fund its loan acquisitions.

Provision for Loan Losses
        Provision  for loan losses for the year ended  December 31, 2000 was a net recapture of $5.8  million,  compared  with net  recoveries of $1.25
million for 1999.  These  reversals of reserves were a result of periodic  analyses  performed to determine the adequacy of loan loss reserve levels,
which were deemed excessive due to the continued seasoning and improved loss performance of the Bank's loan portfolio.

Other Income
        The Bank's other income was $6.7 million for the year ended  December  31,  2000,  compared  with $5.9 million for the year ended  December 31,
1999.  This  increase was  primarily  due to smaller  losses on sales of loans (loss of $0.2 million in the current year compared with a loss of $2.2
million in the prior year),  and a $0.7 million  increase in gains on sales of real estate,  partially offset by a $1.7 million decrease in loan fees
and charges.  The financial results of the Bank's Bankcard division are discussed in further detail below.

Other Expenses
        The Bank's other expenses  increased by  approximately  $3.5 million from the year ended December 31, 1999 to the year ended December 31, 2000.
This  increase was  primarily  due to a $2.0 million  write-down  of goodwill and other  capitalized  costs  related to the Bank's  mortgage  banking
operations.  In addition,  the Bank incurred  approximately $0.7 million in professional  services and other expenses incurred in connection with its
relocation of its administrative headquarters, and approximately $1.3 million related to its June, 2000 branch acquisition.

## Operating
Divisions

For the years ended  December 31, 2000 and 1999, the Bank's core  businesses  have  consisted of three primary  divisions:  lending and deposit
banking  services,  mortgage loan origination and brokerage  services  (GEMB),  and Bankcard  processing.  The
operating results (before income taxes) of these businesses are summarized in the following table and discussed in further detail below:

`Year Ended
                                                                                December 31,
                                                                        ---------------------------
                                                                            2000           1999
                                                                        ------------   ------------
                                                                             (Dollars in thousands)
                    Lending and deposit banking services............... $     10,522   $      5,070
                    George Elkins......................................       (2,922)           318
                    Bankcard income, net...............................          702          1,037
                                                                        ------------   ------------
                    Total Bank net income (pre-tax).................... $      8,302   $      6,425
                                                                        ============   ============`

Lending and Deposit Banking
        Net income in our commercial  banking  operations  was  approximately  $10.5 million for the year ended  December 31, 2000,  compared with $5.1
million for the year ended  December 31, 1999.  This  increase  was  primarily  due to the net  recapture of $5.8 million in loan loss  reserves,  as
discussed previously, compared with recoveries of $1.25 million for 1999.

The banking  segment's  operating  results for the year ended  December 31, 2000 were  highlighted by the following  events:  (1) The Bank sold
approximately  $14.8 million principal balance of non-performing  and  sub-performing  loans. This sale reflected the Bank's strategy of reducing its
credit risk exposure through the sale of sub-standard  assets. As a result of the sale, the Bank incurred a loss of approximately  $0.2 million,  but
recaptured  $1.7 million of loan loss reserves  through a provision  reversal.  (2) The Bank  purchased a branch in Beverly Hills,  California.  This
branch,  which  contains  approximately  $81.5  million in retail  deposits,  is expected to lower the overall  cost of funds and increase the Bank's
retail deposit growth and fee revenue. (3) The Bank relocated its administrative  headquarters to Calabasas,  California,  at a cost of approximately
$0.7 million.

George Elkins
        The net loss from our mortgage loan  origination and brokerage  services was  approximately  $2.9 million for the year ended December 31, 2000,
compared  with net income of  approximately  $0.3  million for the year ended  December 31, 1999.  The decrease was  primarily  due to a $1.5 million
write-down of goodwill  during 2000. In addition,  loan fee income  decreased  from $4.5 million for the year ended December 31, 1999 to $3.4 million
for the ended December 31, 2000, as the volume of loans brokered declined from $467.5 million in 1999 to $323.2 million in 2000.

Bankcard Division
        Bankcard income, net of other related expenses,  was $0.7 million for the year ended December 31, 2000, compared with $1.0 million for the year
ended  December 31, 1999.  This  decrease was  primarily  due to a $1.6 million  decline in net bankcard  revenues  resulting  from lower  processing
volumes, and a $0.3 million increase in other expenses, partially offset by decreases in processing expenses and provision for losses.

## Changes in
Financial Condition  First Bank of Beverly Hills

Following are condensed statements of financial condition for FBBH as of December 31, 2000 and 1999:

`December 31,       December 31,
                                                                                 2000                1999
                                                                              ------------       ------------
                                                                                   (Dollars in thousands)
ASSETS:
Cash and cash equivalents.................................................    $      7,907       $     48,393
Mortgage-backed securities available for sale, at fair value..............          47,738             33,954
Mortgage-backed securities held to maturity, at amortized cost............              --             10,196
Investment securities held to maturity, at amortized cost.................              --              5,979
Loans, net                                                                         562,257            448,398
Real estate owned, net....................................................             779              2,266
Other assets..............................................................          27,692             17,569
                                                                              ------------       ------------
    Total assets..........................................................    $    646,373            566,755
                                                                              ============       ============

LIABILITIES:
Deposits    ..............................................................    $    435,073       $    419,229
FHLB advances.............................................................         132,000             80,000
Other liabilities.........................................................          17,322             10,231
                                                                              ------------       ------------
    Total liabilities.....................................................         584,395            509,460

NET WORTH                                                                           61,978             57,295
                                                                              ------------       ------------
    Total liabilities and net worth.......................................    $    646,373       $    566,755
                                                                              ============       ============`

Mortgage-Backed and Other Securities.  The Bank's portfolio of mortgage-backed and other securities available for sale increased  approximately
$13.8  million  during the year ended  December 31,  2000.  This  increase was  primarily  due to the  transfer of $21.9  million of  mortgage-backed
securities and other securities  previously  classified as held-to-maturity to  available-for-sale,  partially offset by principal repayments of $7.2
million, sales of $0.6 million, and an increase in unrealized holding losses of $0.1 million.

The Bank's  holdings of  mortgage-backed  and other  securities  held to  maturity  decreased  approximately  $10.2  million and $6.0  million,
respectively,  during the year ended December 31, 2000,  primarily due to the transfer of such  securities to the  available-for-sale  classification
described above.

Loans,  net. The Bank's  portfolio of loans, net of discounts and allowances,  increased by approximately  $113.9 million during the year ended
December 31, 2000. This increase is primarily attributable to the acquisition and origination of performing commercial loans.

Deposits.  The Bank's deposits increased by approximately $15.8 million during the year ended December 31, 2000,  primarily due to the purchase
of a branch of Fidelity Federal Bank,  which had  approximately  $81.5 million in retail deposits.  This increase was largely offset by maturities of
higher-rate certificates of deposit, as the Bank permitted the run-off of such deposits in an effort to reduce its overall cost of funds.

FHLB Advances.  The Bank's FHLB advances  increased by $52.0 million during year ended December 31, 2000, as these  borrowings were utilized to
fund the Bank's new loan  acquisitions.  These  advances  have  maturities  ranging  from three to five years,  which  assists in reducing the Bank's
sensitivity to market interest-rate fluctuations and enables the Bank to more closely match the maturities of its investments and borrowings.

## SPECIALTY
SERVICING AND FINANCE OPERATIONS

The following table compares operating income (before taxes and extraordinary  items) of our Specialty Servicing and Finance Operations for the
years ended  December 31, 2000 and 1999.  The 1999 amounts  represent the sum of the  Predecessor  Company's WFC operations for the five months ended
May 31, 1999 and the Reorganized Company's Specialty Servicing and Finance Operations for the seven months ended December 31, 1999.

`WCC and WFC for the Year Ended December 31,
                                                                 -------------------------------------------
                                                                           (Dollars in thousands)
                                                                                                  Increase
                                                                      2000          1999         (Decrease)
                                                                 ------------   ------------    ------------
                    Servicing income...........................  $     14,257   $     10,550 *  $      3,707
                    Interest income............................         4,364         15,996 *       (11,632)
                    Investment and other income (loss) ........         2,942         (1,929)*         4,871
                                                                 ------------   ------------    ------------
                    Total revenues.............................        21,563         24,617          (3,054)
                                                                 ------------   ------------    ------------
                    Interest expense...........................         1,276          7,191 *        (5,915)
                    Provision for loan losses..................         1,669          5,060          (3,391)
                    Compensation expense.......................        13,132         13,602 *          (470)
                    Other expenses.............................         9,033         17,335 *        (8,302)
                                                                 ------------   ------------    ------------
                    Total provisions and expenses..............        25,110         43,188         (18,078)
                                                                 ------------   ------------    ------------
                    Operating loss.............................  $     (3,547)  $    (18,571)   $     15,024
                                                                 ============   ============    ============`

*   Amounts include WCC's servicing operations only for the seven-month period ended December 31, 1999.

Servicing Income
        Servicing income for the year ended December 31, 2000 was approximately  $14.3 million,  compared with approximately $10.6 million for the year
ended  December 31, 1999.  Excluding $2.4 million in servicing  fees earned by a subsidiary of WFC for the Company's  securitizations,  our Specialty
Servicing and Finance  Operations,  through WCC, earned $8.2 million in servicing  revenues in 1999. Thus, our revenue from loan servicing  increased
by  approximately  $6.1 million from 1999 to 2000.  This increase  reflects a full year's  servicing  activity of WCC, our  majority-owned  servicing
subsidiary,  in 2000,  compared with only seven months of such activity in 1999. (WCC was formed in connection with the Company's  reorganization and
commenced  operations  in June 1999.  Prior to the  reorganization,  the  activities  of our Prior  Servicer  were not  included in the  consolidated
financial statements of WFSG.)

The increase in servicing revenue described above was partially offset by the run-off of loans in the servicing  portfolio during the year and,
to a lesser extent, by sales of loans owned by the Company's subsidiaries which had been serviced by WCC (thereby reducing WCC's fees earned).

The following table sets forth the composition of loans serviced by WCC by type of loan at the dates indicated.

`December 31,   December 31,
                                                   2000           1999
                                               ------------   ------------
                                                  (Dollars in thousands)
Single-family residential................      $  1,909,761   $  1,516,536
Multi-family residential.................           163,511        104,307
Commercial real estate...................           223,539        221,605
Consumer and other (1)...................           265,598        271,515
                                               ------------   ------------
    Total................................      $  2,562,409   $  2,113,963
                                               ============   ============`

(1) Approximately $166 million in unpaid principal balance of fully-reserved consumer loans were charged off in January, 2001.

During the fourth  quarter of 2000,  our  Specialty  Servicing  and  Finance  Operations  completed  the  transfer of  servicing  rights in two
significant  acquisitions:  (1) we acquired,  from  subsidiaries of Transamerica  Finance  Corporation and from DLJ Mortgage  Capital,  the servicing
rights and related  servicer  advance  receivables  for  approximately  10,500  residential  mortgage  loans totaling  approximately  $370 million in
aggregate  unpaid  principal  balances,  and (2) we contracted  with Wells Fargo as Master  Servicer,  and MBIA as  certificate  insurer,  to service
approximately 27,000 residential mortgage loans totaling approximately $424 million in aggregate unpaid principal balances.

Interest Income and Interest Expense
        Interest income was approximately  $4.4 million for the year ended December 31, 2000,  compared with  approximately  $16.0 million for the year
ended  December  31,  1999, a decrease of $11.6  million.  Interest  expense was  approximately  $1.3  million for the year ended  December 31, 2000,
compared with  approximately  $7.2 million for the year ended  December 31, 1999, a decrease of $5.9 million.  These  decreases were primarily due to
the sale of  certain  loans  and  other  interest-earning  assets  throughout  1999 and  2000 to  provide  liquidity  and pay down the  related  debt
facilities.

Other Income (Loss)
        The components of other income (loss) in our Specialty Servicing and Finance operations are reflected in the following table:

`Year Ended
                                                                         December 31,
                                                                 ----------------------------
                                                                     2000            1999
                                                                 ------------    ------------
                                                                    (Dollars in thousands)
               Other income (loss):
               Real estate owned, net..........................  $       (847)   $      1,128
               Gain on sale of loans...........................         1,484           3,687
               (Loss) gain on sale of securities...............          (495)            665
               Market valuation losses and impairments.........            --          (8,068)
               Other, net......................................         2,800             659
                                                                 ------------    ------------
                   Total other income (loss)...................  $      2,942    $     (1,929)
                                                                 ============    ============`

The  increase  in other  income  during the year ended  December  31, 2000 was  primarily  due to the  absence of market  valuation  losses and
impairments  in the current  year.  (We incurred $8.1 million of such losses in our Specialty  Servicing  and Finance  Operations  during 1999, as we
wrote down the  carrying  value of our  portfolio  of  mortgage-backed  securities  and certain  other  assets.)  This  increase in other  income was
partially  offset by decreases in income from real estate  operations  and a decrease in gains on sales of loans,  due to reduced  sales  activity in
2000 as compared to 1999.  In addition, we incurred losses on sales of securities in 2000, compared with gains on such sales in 1999.

Compensation Expense
        Compensation  and employee  benefits in our Specialty  Servicing and Finance  Operations  were  approximately  $13.1 million for the year ended
December 31, 2000,  compared with  approximately  $13.6 million for the year ended  December 31, 1999, a decrease of $0.5 million.  This decrease was
primarily due to reductions  in our  workforce  during 1999,  resulting in savings in the year 2000 of  approximately  $4.8 million.  However,  these
expense reductions were partially offset by the inclusion of a full year's  compensation  expense for WCC in 2000, compared with only seven months of
compensation  in 1999.  Prior to June 1999,  such  expenses  were  incurred by CWH, and thus were not included in WFSG's  consolidated  statements of
operations.  As a result,  only $7.2 million of  compensation  expense for WCC is included in the 1999 statement of  operations,  compared with $11.6
million for 2000.

Other Expenses
        Other expenses were  approximately $9.0 million for the year ended December 31, 2000,  compared with  approximately  $17.3 million for the year
ended  December 31, 1999, a decrease of $8.3 million.  This  decrease was  primarily due to a $9.8 million  decline in loan service fees and expenses
paid by WFC to the Prior  Servicer  from January 1 to May 31, 1999.  Any expenses  incurred by WFC for the  servicing of its loan  portfolio  are now
eliminated in consolidation.

In addition to the aforementioned  decrease in loan service fees, our other miscellaneous general and administrative expenses declined slightly
from 1999 to 2000, reflecting our efforts to reduce general corporate overhead.

## Changes in
Financial Condition  Specialty Servicing and Finance Operations

Following are condensed statements of financial condition for our Specialty Servicing and Finance Operations as of December 31, 2000 and 1999:

`December 31,   December 31,
                                                                              2000           1999
                                                                          ------------   ------------
                                                                             (Dollars in thousands)
ASSETS:
Cash and cash equivalents ..............................................  $      1,143   $      3,467
Mortgage-backed securities available for sale, at fair value ...........         6,400          9,560
Loans and discounted loans, net ........................................        10,214         26,486
Real estate owned, net .................................................           991          3,420
Servicer advance receivables, net ......................................        21,261         25,074
Mortgage servicing rights, net .........................................         4,544            507
Other assets ...........................................................         9,772          8,428
                                                                          ------------   ------------
    Total assets .......................................................  $     54,325   $     76,942
                                                                          ============   ============

LIABILITIES:
Short-term borrowings ..................................................  $      6,485   $     26,193
Other liabilities ......................................................         9,622          9,686
                                                                          ------------   ------------
     Total liabilities .................................................        16,107         35,879

NET WORTH ..............................................................        38,218         41,063
                                                                          ------------   ------------
    Total liabilities and net worth ....................................  $     54,325   $     76,942
                                                                          ============   ============`

Mortgage-Backed  Securities  Available for Sale. WFC's portfolio of  mortgage-backed  securities  available for sale decreased by approximately
$3.2 million  during the year ended  December 31, 2000,  primarily due to sales of  approximately  $4.3 million in carrying  value of securities  and
principal  repayments of $0.2 million,  partially  offset by  unrealized  holding gains of $1.3 million.  The sales reflect our efforts to reduce our
balance sheet exposure to fluctuations  in the market values of  mortgage-backed  securities.  As a result,  we currently hold only those  securities
which are backed by loans in WCC's servicing portfolio, as such investments provide operating leverage to our core business.

Loans and  Discounted  Loans,  net.  In our  Specialty  Servicing  and  Finance  Operations,  loans and  discounted  loans,  net  decreased  by
approximately  $16.3 million  during the year ended  December 31, 2000.  This  decrease was primarily due to the sale of loans to reduce  outstanding
borrowings,  to a lesser extent bulk sales of loans considered  opportunistic  by management,  and loan resolutions that occur in the ordinary course
of business.

Real Estate Owned,  net. Real estate owned, net decreased by  approximately  $2.4 million during the year ended December 31, 2000. The decrease
was primarily  due to sales of properties  for proceeds of  approximately  $3.0 million,  partially  offset by  acquisitions  of real estate  through
foreclosure or deed-in-lieu thereof from our portfolio of discounted loans.

Servicer Advance  Receivables,  net. Servicer advance  receivables,  net decreased by approximately $3.8 million during the year ended December
31, 2000.  This decrease was primarily due to recoveries by WCC of scheduled  principal and interest  advances on loans  previously  made,  partially
offset by new advances made during the period.

Purchased  Mortgage  Servicing Rights,  net.  Purchased  mortgage servicing rights, net increased by approximately $4.0 million during the year
ended  December  31,  2000.  The  increase  was due to  purchases  of $4.4  million of  servicing  rights  associated  with new  servicing  portfolio
acquisitions during the year, partially offset by amortization of $0.4 million of such rights.

Short-Term  Borrowings.  Short-term  borrowings in our Specialty  Servicing and Finance  Operations  decreased by  approximately  $19.7 million
during the year ended  December 31, 2000.  This decrease was primarily  due to repayments of debt  facilities  with the proceeds from the asset sales
described above.

## QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Managing risk is an essential  part of  successfully  operating a financial  services  company.  The most  prominent  risk exposures are credit
quality,  interest rate  sensitivity,  and liquidity.  Credit quality risk is the risk of not collecting  interest and/or the principal  balance of a
loan or  investment  when it is due.  Interest  rate risk is the  potential  reduction  of net  interest  income as the result of changes in interest
rates.  Rate  movements  can affect the  repricing of assets and  liabilities  differently,  as well as their  market  value.  Liquidity  risk is the
possible inability to fund obligations to depositors, investors and borrowers.

## Asset and
Liability Management

It is our objective to attempt to control risks  associated with interest rate  movements.  In general,  management's  strategy is to limit our
exposure to earnings  variations  and  variations in the value of assets and  liabilities as interest rates change over time. Our asset and liability
management  strategy is  formulated  and  monitored  by the asset and  liability  committees  for the Company and the Bank (the "Asset and  Liability
Committees") which meet to review,  among other things,  the sensitivity of our assets and liabilities to interest rate changes,  the book and market
values of assets and liabilities,  unrealized  gains and losses  (including  those  attributable to hedging  transactions),  purchase  activity,  and
maturities of  investments  and  borrowings.  FBBH's Asset and Liability  Committee  coordinates  with the Bank's Board of Directors  with respect to
overall asset and liability composition.

The Asset and Liability  Committees are authorized to utilize a wide variety of off-balance  sheet  financial  techniques to assist them in the
management of interest rate risk.  These  techniques  include  interest rate swap  agreements,  pursuant to which the parties exchange the difference
between  fixed-rate and  floating-rate  interest  payments on a specified  principal  amount  (referred to as the "notional  amount") for a specified
period without the exchange of the underlying  principal  amount.  In the past, we have utilized interest rate swap agreements to reduce our exposure
caused by the narrowing of the interest  spread between fixed rate loans held for investment  and associated  liabilities  funding those loans caused
by changes in market interest rates.  The Bank had  approximately  $18.2 million  notional  principal amount in an interest rate swap agreement which
was  designated  as a hedge of certain  fixed rate loans in order to convert  fixed rate income  streams on loans to a variable  rate. In April 2001,
this swap agreement expired.

We evaluate the interest rate  sensitivity of each pool of loans or securities in conjunction  with the current  interest rate  environment and
decide whether to hedge the interest rate exposure of a particular pool. In general,  when a pool of loans,  securities or mortgage  servicing rights
is acquired, we will determine whether or not to hedge.

In addition, as required by OTS regulations,  the Bank's Asset and Liability Committee also regularly reviews interest rate risk by forecasting
the impact of alternative  interest rate  environments on the interest rate  sensitivity of Net Portfolio Value ("NPV"),  which is defined as the net
present value of an institution's  existing assets,  liabilities and off-balance  sheet  instruments.  The Committee  further  evaluates such impacts
against the maximum potential changes in the interest rate sensitivity of NPV that is authorized by the Board of Directors of the Bank.

The following table quantifies the potential  changes in the Company's net portfolio value at December 31, 2001, should interest rates increase
or decrease by 100 to 300 basis points, assuming the yield curves of the rate shocks will be parallel to each other.

`Interest Rate Sensitivity of Net Portfolio Value

                                                                     Net Portfolio Value                 NPV as % of Assets
                                                            ---------------------------------------   ------------------------
                                                             $Amount       $Change        % Change     NPV Ratio      Change
                                                            ----------   -----------     ----------   -----------   ----------
         Change in Rates                                           (Dollars in thousands)
          +300bp........................................... $   80,128   $   (19,869)         (20)%        10.87%        (191) bp
          +200bp...........................................     85,925       (14,072)         (14)         11.44         (134) bp
          +100bp...........................................     94,508        (5,489)          (5)         12.30          (48) bp
             0bp...........................................     99,997            --           --          12.78           --
          -100bp...........................................     95,799        (4,198)          (4)         12.17          (61) bp
          -200bp...........................................     89,228       (10,769)         (11)         11.30         (148) bp
          -300bp...........................................     84,039       (15,958)         (16)         10.59         (219) bp`

Management also believes that the assumptions  (including  prepayment  assumptions) it uses to evaluate the  vulnerability of our operations to
changes in interest rates  approximate  actual  experience and considers them  reasonable;  however,  the interest rate sensitivity of our assets and
liabilities  and the estimated  effects of changes in interest rates on NPV could vary  substantially  if different  assumptions  were used or actual
experience differs from the historical experience on which they are based.

## Regulation

On February  8, 1999,  the OTS  terminated  a Cease and Desist  Order (the  "Order") to which the Bank had  stipulated  in 1996.  The Order had
prohibited  the Bank from  increasing  total assets in excess of $750 million;  purchasing  any loans or real estate  without the approval of the OTS
until certain  acquisition and servicing  deficiencies had been corrected;  and purchasing any non-performing  assets or foreclosed real estate until
such time as the Bank was rated a composite "3" rating according to the Uniform Financial Institutions Rating System.

On June 8, 2000, the OTS terminated an OTS directive  letter (the  "Directive")  issued to the Bank on June 3, 1999. The Directive had required
prior written approval of the OTS Assistant  Regional Director for the Bank to engage in certain  activities  including  material cash  expenditures,
loan pool purchases,  capital  distributions  and the hiring of any executive  officers.  Additionally,  the Directive had required the adoption of a
monthly board resolution indicating that the Bank complied with the provisions stated in the Directive.

On January 9, 2001, the OTS terminated Cease and Desist Orders to which WFSG, Wilshire  Acquisitions  Corporation  ("WAC ", the holding company
for the Bank),  and WCC had  stipulated on January 7, 2000.  The orders had  prohibited  these  entities from entering into  transactions  that would
cause  the Bank to  violate  or be in  violation  of  transactions  with  affiliates'  regulations.  The  orders  also had  required  30-day  advance
notification before adding, replacing or terminating any member of the Bank's board of directors or any senior executive of the Bank.

## CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The "Management's  Discussion and Analysis of Financial Condition and Results of Operations," as well as disclosures included elsewhere in this
Form 10-K,  are based upon our  consolidated  financial  statements,  which have been prepared in accordance  with  accounting  principles  generally
accepted in the United States of America.  The  preparation  of these  financial  statements  requires us to make estimates and judgments that affect
the reported amounts of assets,  liabilities,  revenues and expenses,  and related disclosure of contingencies.  On an ongoing basis, we evaluate the
estimates  used,  including  those  related to  allowances  for loan losses,  other than  temporary  impairment  in the market  values of  investment
securities and other assets,  assumptions used to estimate fair values of certain financial  instruments for which there is not an active market, the
allocation  of basis between  assets sold and retained,  the selection of yields  utilized to recognize  interest  income on certain  mortgage-backed
securities,  and contingencies and litigation. We  base our estimates on historical  experience,  current conditions and on various other assumptions
that are believed to be reasonable  under the  circumstances,  the results of which form the basis for making  judgments about the carrying values of
assets and liabilities  that are not readily  apparent from other sources as well as identifying and assessing our accounting  treatment with respect
to commitments and contingencies.  Actual results may differ from these estimates under different assumptions or conditions.

We believe the following  critical  accounting  policies  involve the more  significant  judgments and estimates used in the preparation of the
consolidated financial statements:

 Allowance
for Loan Losses. In estimating the allowance for loan losses, management
utilizes historical experience as well as other factors, including the effect of
changes in the real estate market on collateral values, the effect on the loan
portfolio of current economic indicators and their probable impact on borrowers,
and increases or decreases in nonperforming and impaired loans. Changes in these
factors may cause managements estimate of the allowance to increase or
decrease and result in adjustments to the Companys provision for loan
losses.

 Mortgage
Servicing Rights. Our loan servicing business represents an increasingly
significant proportion of our operations. In determining the fair value of our
mortgage servicing rights, we make assumptions of market discount rates,
prepayment speeds and default rates which affect the estimated present
value of future cash flows. Changes in these assumptions and economic factors
may result in increases or decreases in the valuation of our mortgage servicing
rights.


Contingencies. We are party to various legal proceedings, as discussed
above and in the notes to the consolidated financial statements.  These
matters have a high degree of uncertainty associated with them.  We
continually assess the likely outcomes of these matters and the adequacy of
amounts provided for these matters.  There can be no assurance that the
ultimate outcome will not differ materially from our assessment of them. 
There can also be no assurance that all matters that may be brought against us
or that we may bring against other parties are known to us at any point in time.

For further information on these and other significant accounting policies, see Note 1 to the Consolidated Financial Statements.

## ITEM 7A.
Quantitative and Qualitative Disclosure About Market Risk

See Item 7--Asset and Liability Management--of Part II of this Report.

## ITEM 8.
Financial Statements and Supplementary Data

See Item 14 of Part IV of this Report.

## ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Information regarding changes in accountants is incorporated herein by reference to the Company's report on Form 8-K/A dated October 20, 2000.

# PART III

## ITEM 10.
Directors and Executive Officers of the Registrant

The following sets forth  information  about the executive  officers and directors of the Company as of March 1, 2002. The business  address of
each executive  officer and director is the address of the Company,  1776 SW Madison  Street,  Portland,  OR 97205,  and each  executive  officer and
director is a United States Citizen, unless otherwise noted.

## Directors

Larry B. Faigin,  age 59, was appointed to the Board of Directors in June 1999 and has been Chairman  since  September  1999. In May 2001,  Mr.
Faigin was  re-elected  to a one-year  term.  Mr.  Faigin is President  and Chief  Executive  Officer of GreenPark  Remediation,  LLC, a company that
specializes in acquiring  environmentally-impacted  land and  remediating and improving the property for further  development.  Prior to joining that
company,  he was Chief  Executive  Officer of Home Capital  Corporation,  a subsidiary of HomeFed Bank. He also has served as a consultant to Chevron
Corporation, and Chief Executive Officer and Director of Wood Bros. Homes, Inc.

Howard  Amster,  age 54, was  appointed to the Board of Directors  in November  2001.  Mr.  Amster is a principal of Ramat  Securities  Ltd., a
Cleveland-based  investment firm.  Previously,  Mr. Amster was an investment consultant with First Union Securities (formerly Kemper Securities) from
1992 to June 2000. From June 1979 to 1991, Mr. Amster was co-manager of a convertible  bond hedging  department at Kemper  Securities.  Mr. Amster is
also a director of Horizon Group  Properties,  Inc., Maple Leaf Financial,  and Astrex Inc., and previously  served as a director of American Savings
of Florida.

Robert M.  Deutschman, age 44, has been a director of the Company since June 1999 and, in May 2001,  was  re-elected to a one-year  term.  Mr.
Deutschman is a Managing  Director of Cappello  Capital Corp., a financial  service and advisory company which engages in merchant  banking,  venture
capital and investment  banking.  Prior to joining  Cappello,  Mr. Deutschman was a Managing Director of Saybrook Capital Corp. From 1991 until 1994,
Mr. Deutschman was a Senior Vice President and Director of Principal Investments in the Public Finance Group of Houlihan Lokey Howard & Zukin.

Peter S. Fishman,  age 54, has been a director of the Company since  September  1999,  and in May 2001,  was re-elected to a one-year term. Mr.
Fishman has been a Vice President at Houlihan Lokey,  Howard & Zukan, an investment banking firm, since January 2000.  Previously,  Mr. Fishman was a
Director of Helix Capital  services,  a private merchant bank engaged in investing in and providing merger and acquisition  advisory  services to its
clients.  Prior  to  joining  Helix,  Mr.  Fishman  was a  partner  in law  firms  in Los  Angeles  and  San  Francisco,  specializing  in  financial
reorganizations  and  restructurings.  Mr. Fishman's practice focused on the representation of underperforming  and troubled  companies,  both public
and private, and the representation of financial institutions and other lenders in structuring new financings and the workout of troubled credits.

Stephen P. Glennon,  age 57, has been the Company's  Chief  Executive  Officer since  September 1999 and a director since December 1999. In May
2001, he was re-elected to a one-year term on the Board of Directors.  From 1994 until joining the Company,  Mr.  Glennon  served as Chief  Executive
Officer of Glennon Associates,  a firm of private investment bankers specializing in financial  restructuring and turnaround  management of financial
sector  companies.  Mr.  Glennon  previously  served as an  investment  banker with Lehman  Brothers,  N.Y. and Lepercq,  de Neuflize & Co., N.Y. Mr.
Glennon currently serves as a director of New Water Street Corporation, N.Y. and Point Clear Holdings, N.Y.

Robert H. Kanner,  age 54, was appointed to the Board of Directors in January 2002.  From 1987 until the present,  Mr. Kanner has been Chairman
of the Board and President of Pubco  Corporation,  a manufacturer and marketer of computer printer and labeling  products and supplies,  and has been
the company's  President and a director since 1983. Mr. Kanner also serves as a director of Prime Retail,  Inc., a real estate  investment trust that
owns, develops and manages more than forty discount factory outlet centers throughout the U.S.

Edmund M.  Kaufman,  age 72, has been a director of the Company  since March 2000 and, in May 2001,  was  re-elected  to a one-year  term.  Mr.
Kaufman is a private  investor and the owner of a bookstore  specializing  in mystery and crime fiction.  Previously,  Mr. Kaufman was a partner with
the law firm of Irell & Manella LLP for thirty-six  (36) years,  specializing in mergers and  acquisitions  and corporate  finance.  Mr. Kaufman is a
director emeritus of the Los Angeles Opera, and is a member of the Board of Trustees of the Friends of the University of California Press.

Daniel A. Markee,  age 44, has been a director of the Company since June 1999 and, in May 2001,  was  re-elected to a one-year term. Mr. Markee
is a principal of LendSource,  Inc., a firm specializing in the origination of first mortgage,  home equity and consumer  installment debt. From 1993
until 1997,  Mr.  Markee was involved in the real estate  investment  business as President of Forterra,  Inc.,  and as a principal of  Euro-American
Partners, Inc.

Bruce A. Weinstein,  age 39, has been Executive Vice President and Chief  Financial  Officer of the Company since April 2001, and was appointed
to the Board of Directors in January 2002.  From April 2000 to April 2001 Mr.  Weinstein was Senior Vice  President  and Chief  Financial  Officer of
the Company.  Prior to this  appointment,  Mr. Weinstein served as Senior Vice President and Chief Financial  Officer of Wilshire Credit  Corporation
since November 1999.  From August 1998 to November 1999, Mr.  Weinstein was Vice President,  Finance of the Company.  From March 1997 to August 1998,
Mr.  Weinstein  had  various  operations  and finance  responsibilities  at the  predecessor  company to WCC.  Mr.  Weinstein  is a Certified  Public
Accountant.

## Executive
Officers

Stephen P. Glennon,  age 57, has been the Company's  Chief  Executive  Officer since  September 1999 and a director since December 1999. In May
2001, he was re-elected to a one-year term on the Board of Directors.  From 1994 until joining the Company,  Mr.  Glennon  served as Chief  Executive
Officer of Glennon Associates,  a firm of private investment bankers specializing in financial  restructuring and turnaround  management of financial
sector  companies.  Mr.  Glennon  previously  served as an  investment  banker with Lehman  Brothers,  N.Y. and Lepercq,  de Neuflize & Co., N.Y. Mr.
Glennon currently serves as a director of New Water Street Corporation, N.Y. and Point Clear Holdings, N.Y.

Joseph W. Kiley III, age 46, has been President and Chief Executive  Officer of FBBH since September 2001 and a director of FBBH since November
2001.  From March 2001 until this  appointment,  Mr. Kiley served as the Bank's  Executive  Vice  President  and Chief  Financial  Officer.  Prior to
joining the Bank, Mr. Kiley was Executive Vice President of Operations and Chief  Financial  Officer of National  Mercantile  Bancorp,  the parent of
Mercantile National Bank in Century City,  California from July 1996 to February 2001.  Previously,  Mr. Kiley was Chief Financial Officer of Hancock
Savings Bank, F.S.B. in Los Angeles, California from 1992 to 1996. Mr. Kiley is a Certified Public Accountant.

Jay H. Memmott,  age 40, has been President and Chief  Executive  Officer of Wilshire  Credit  Corporation  since  November 1999.  Prior to his
appointment as President,  Mr. Memmott served as Vice President in charge of Loan Servicing of the Company's  prior  affiliated  servicer from August
1997 to November 1999. From April 1990 to August 1997, Mr. Memmott served as a Vice President of Coast Federal Bank in Los Angeles, California.

Bruce A. Weinstein,  age 39, has been Executive Vice President and Chief Financial Officer of the Company since April 2001 and a director since
January  2002.  From April 2000 to April 2001 Mr.  Weinstein  was Senior Vice  President and Chief  Financial  Officer of the Company.  Prior to this
appointment,  Mr.  Weinstein  served as Senior Vice President and Chief Financial  Officer of Wilshire Credit  Corporation  since November 1999. From
August 1998 to November 1999, Mr.  Weinstein was Vice President,  Finance of the Company.  From March 1997 to August 1998, Mr.  Weinstein had various
operations and finance responsibilities at the predecessor company to WCC.   Mr. Weinstein is a Certified Public Accountant.

Mark H.  Peterman,  age 54, has been the Company's  Executive Vice  President,  Legal Counsel and Secretary  since November 1999. Mr.  Peterman
served as Senior Vice President and Legal Counsel from July 1998 through  November 1999.  Previously,  Mr.  Peterman was a partner in the law firm of
Stoel Rives LLP between 1975 and July 1998.

Russell T. Campbell,  age 38, has been Senior Vice President,  Acquisitions since April 2000. Mr. Campbell held several management positions at
the Company from 1997 to April 2000.  From 1992 to 1997, he was Chief Financial  Officer for Oregon  Business Media.  Prior to 1992, Mr. Campbell was
a CPA working in the commercial real estate industry.

Bradley B. Newman,  age 40, has been Senior Vice  President,  Capital Markets since November 1999.  Previously,  Mr. Newman was Vice President,
Capital  Markets/Securitization  for the Company  from August 1998 to  November  1999.  From  September  1995 to August  1998,  Mr.  Newman was Chief
Operating Officer of J.G. Newman Co., an insurance underwriter.

## Section 16(a)
Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires a company's directors and executive officers,  and beneficial owners of more than
10% of the common stock of such company,  to file with the Securities and Exchange  Commission  initial reports of ownership and periodic  reports of
changes in ownership of the  company's  securities.  Due to an  administrative  oversight,  the Company  inadvertently  failed to furnish a Form 3 on
behalf of Joseph W. Kiley III  reporting  that he had been  appointed  President of FBBH.  The Company  subsequently  disclosed his  appointment  and
reportable  holdings  with the SEC. To the  knowledge  of the  Company,  no other  director,  officer,  or  beneficial  owner of more than 10% of the
Company's Common Stock has failed to timely furnish reports required of such person by Section 16(a) on Forms 3, 4 and 5.

## ITEM 11.
Executive Compensation

## Compensation
of Directors

Each member of the Board of Directors who is not an officer or employee of the Company is paid a monthly  stipend of $2,083,  a per-meeting fee
of $1,000 for each Board of Directors'  meeting  attended in person,  $500 for each meeting attended  telephonically,  and a $500 per-meeting fee for
each committee meeting attended on days other than when Board of Directors'  meetings are held.  Effective December 1, 2001,  non-employee  directors
who are also  directors of FBBH receive an additional  monthly  stipend of $833.  Directors  who serve as the chair of the Audit  Committee or of the
Board receive an additional  yearly stipend of $10,000,  and the chairperson of the Compensation  Committee  receives an additional yearly stipend of
$5,000. Other members of the Audit Committee and Compensation  Committee receive yearly stipends of $5,000 and $2,500,  respectively.  In March 2002,
the Board  authorized  one-time  payments of $10,000 to the  chairperson  and $5,000 to each of the other two members of a special  committee  of the
Board which was formed to analyze and advise the Board  regarding a proposed  transaction.  Officers  and  employees of the Company who also serve as
directors do not receive any retainer or additional fees for serving as a director.

Upon joining the Board, each  non-employee  director was granted an option to purchase 30,000 shares of common stock at a price per share equal
to the fair market value of the shares of common stock on the grant date.  Each  director  also  receives  options to purchase an  additional  20,000
shares of common stock on each annual  meeting date and the  continuation  of his or her  appointment.  All options  granted to the directors vest in
thirds on each anniversary of the grant date.

## Summary
Compensation Table

The following table sets forth the total  compensation  paid or accrued by the Company for services rendered during the year ended December 31,
2001 to the Chief  Executive  Officer of the Company and each of the four other most highly  compensated  executive  officers of the Company who were
serving as executive officers at December 31, 2001.

`Long-Term
                                                                             Annual Compensation                  Compensation
                                                                 --------------------------------------------     ------------
                                                                                                    Other          Securities
                                                                                                    Annual      Underlying Options/
Name and Principal Position                            Year       Salary ($)        Bonus ($)      Comp.($)           SARs(#)
---------------------------                            ----      ------------     ------------   ------------     ------------
Stephen P. Glennon..................................   2001      $         24     $    250,000   $    74,583(1)             --
   Chief Executive Officer                             2000      $     75,016     $    100,000   $    68,406(2)        975,000
                                                       1999      $     89,349(3)  $         --            --                --

Jay H. Memmott......................................   2001      $    225,224     $    175,000            --           100,000
   Chief Executive Officer and President,              2000      $    217,530     $    135,000            --           250,000
   Wilshire Credit Corporation                         1999      $    139,450     $     50,000            --                --

Bruce A. Weinstein..................................   2001      $    214,223     $    175,000            --           100,000
   Executive Vice President and                        2000      $    198,632     $    150,000            --           250,000
   Chief Financial Officer                             1999      $    130,109     $     50,000            --                --

Mark H. Peterman....................................   2001      $    258,249     $     70,000            --            10,000
   Executive Vice President, Legal Counsel             2000      $    269,010     $     50,000            --           125,000
   and Secretary                                       1999      $    253,242     $    250,000            --                --

Joseph W. Kiley III.................................   2001      $    172,197(4)  $    107,500            --           200,000
   Chief Executive Officer and President,
   First Bank of Beverly Hills, FSB
----------------`

(1) Includes $60,487 for personal living expenses and taxes.
(2) Includes $45,365 for personal living expenses and taxes.
(3) Mr. Glennon was hired in September 1999.
(4) Mr. Kiley was hired in March 2001.

## Option/SAR Grants In Last Fiscal Year

The following  table provides  information  concerning  stock options granted by the Company during the year ended December 31, 2001 to each of
the named executive officers.

`% of Total                                 Potential Realizable
                                                   Options/SARs                                  Value at Assumed
                                     Number of      Granted to                                Annual Rates of Stock
                                    Securities     Employees in                               Price Appreciation for
                                    Underlying     Year Ended     Exercise or                     Option Term (1)
                                   Options/SARs    December 31,    Base Price  Expiration   ---------------------------
Name                               Granted (#)           2000        ($/sh)       Date           5%             10%
----                               -----------     ------------    ----------  ----------   ------------   ------------
Jay H. Memmott.............            100,000          15.15%        $1.90        2011     $    119,490   $    302,811

Bruce A. Weinstein.........            100,000          15.15%        $1.90        2011     $    119,490   $    302,811

Mark H. Peterman...........             10,000           1.52%        $1.87        2011     $     11,760   $     29,803

Joseph W. Kiley............            150,000          22.73%        $1.63        2011     $    153,293   $    388,475
Joseph W. Kiley............             50,000           7.58%        $1.90        2011     $     59,745   $    151,406
_________________`

| | (1) | These amounts represent hypothetical gains that could be achieved for the
options if they are exercised at the end of their terms. The assumed 5% and 10%
rates of stock price appreciation are mandated by rules of the Securities and
Exchange Commission. They do not represent the Companys estimate or
projection of future prices of the Common Stock.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## Aggregated
Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End Option/SAR Values

The following table lists the aggregate number of unexercised  options and the value of unexercised  in-the-money  options at December 31, 2001
for each of the named executive officers.  The Company has no outstanding SARs.

`Number of Securities             Value of Unexercised
                                                                        Underlying Unexercised               In-the-Money
                                                                      Options/SARs at FY-End (#)      Options/SARs at FY-End ($)
                               Shares Acquired      Value           -----------------------------    ----------------------------
Name                           on Exercise (#)     Realized ($)     Exercisable     Unexercisable    Exercisable    Unexercisable
-----                          ---------------     ------------     -----------     -------------    -----------    -------------
Stephen P. Glennon.........             --              --             791,666           183,334         $716,145       $174,792
Jay H. Memmott.............             --              --             116,666           233,334           99,583        100,417
Bruce A. Weinstein.........             --              --             116,666           233,334           99,583        100,417
Mark H. Peterman...........             --              --              74,999            50,001           71,457         44,168
Joseph W. Kiley............             --              --                  --           200,000               --         70,500`

## Long Term
Incentive Plan Awards In Last Fiscal Year

No long term incentive plan awards were made during the 2001 fiscal year to any of the named executive officers.

## Employment
Arrangements

From April 1, 2000 to February 28, 2002, the Company's Chief Executive Officer,  Mr. Stephen P. Glennon,  received a salary of $24 per year for
two years,  and was  reimbursed  for certain living  expenses.  Mr.  Glennon also was granted  575,000 stock options at a price of $1.1875 per share.
The options  vested at the rate of 25,000 per month and had vested in full as of February  28,  2002.  In March 2002 Mr.  Glennon  entered into a new
employment  agreement  with the Company.  Pursuant to this  agreement,  Mr.  Glennon will receive a salary of $100,000 from March 1, 2002 to February
28, 2003 and a salary of $300,000 from March 1, 2003 to February 29, 2004,  and will  continue to be  reimbursed  for certain  living  expenses.  Mr.
Glennon also was granted  300,000 stock  options at a price of $2.34 per share,  vesting at the rate of 12,500 per month for each month of employment
completed by Mr.  Glennon.  Mr.  Glennon's new agreement  provides that, in the event of a change in control of the Company,  all of his options will
vest and  immediately  become  exercisable,  and he will be paid  $500,000  in  consideration  of a general  release of all  claims.  If the  Company
terminates  Mr.  Glennon's  employment  without  cause,  all of his stock  options  will vest and he will be paid  $150,000 in exchange for a general
release of all claims. In the event Mr. Glennon  voluntarily  terminates his employment,  he shall receive only those options that vested through the
date of his resignation and will receive no further salary.

The Company and the Bank entered into an Employment, Confidentiality and Severance Agreement with Mr. Joseph W. Kiley III,
effective as of March 12, 2001, thereafter, amended, generally effective as of August 30, 2001 (the "Kiley Agreement").  The Kiley
Agreement provides that Mr. Kiley serve as Executive Vice President and Chief Financial Officer of the Bank for the periods between
March 12, 2001 and August 30, 2001; thereafter, as President of the Bank.  Pursuant to the Kiley Agreement, Mr. Kiley's employment is
for a term of two years commencing on March 12, 2001, with an option to renew for successive periods of twelve months each.  Under
the Kiley Agreement, Mr. Kiley receives an annual base salary of $180,000, increased to $200,000 effective as of August 30, 2001, and
a car allowance of $750.00 per month.  In addition, Mr. Kiley is entitled to participate in the Bank's employee benefit plans,
medical, dental, vision, disability or insurance programs, if any, to the extent offered to other officers of similar position under
the Bank's personnel policies.  The Kiley Agreement also provides for a stock option grant to Mr. Kiley under the Company's 1999
Equity Participation Plan, covering an aggregate of 150,000 shares of the Company's Common Stock at a price of $1.625 per share.  The
stock option grant vests in three equal annual installments beginning on March 12, 2002 and is subject to forfeiture under certain
circumstances prior to September 12, 2002.  Under the Kiley Agreement, Mr. Kiley is granted an additional stock option grant under
the Companys 1999 Equity Participation Plan, covering an aggregate of 50,000 shares of Company Common Stock at a price of $1.90 per
share effective as of October 2, 2001. The additional stock option grant vests in three equal annual installments beginning on
October 2, 2002. All stock options granted under the Kiley Agreement are granted at a price equal to the fair market value of the
Company's Common Stock on the date of grant.  Pursuant to the Kiley Agreement, in the event Mr. Kiley's employment is terminated upon
the occurrence of an "Other Event of Termination," (as defined in the Kiley Agreement) he is entitled to an amount equal to his then
annual base salary and to life, medical, dental and disability coverage substantially identical to the coverage maintained by the
Bank or the Company for Mr. Kiley prior to his termination of employment at no cost to him for a period of one year, subject to
certain limitations.  Under the Kiley Agreement, in the event of a "change in control" (as defined in the Kiley Agreement) of the
Bank or the Company, Mr. Kiley's stock options become immediately vested and exercisable.  Furthermore, in the event Mr. Kiley's
employment is terminated within 12 months after a "change in control," without "cause" (as defined in the Kiley Agreement) or
following Mr. Kiley's resignation following an Other Event of Termination, Mr. Kiley is entitled to a sum equal to two times the
average of his "Annual Cash Compensation," as defined below, for the five most recent taxable years that Mr. Kiley is employed by the
Bank (subject to certain adjustments) and to life, medical, dental and disability coverage substantially identical to the coverage
maintained by the Bank or the Company for Mr. Kiley prior to his termination of employment at no cost to him for a period of one
year, subject to certain limitations.  Under the Kiley Agreement, "Annual Cash Compensation" includes base salary, commissions,
bonuses, and directors or committee fees.  The Kiley Agreement is attached hereto as Exhibit 10.2.

In October 2000, the Company gave  change-in-control  agreements to Messrs. Bruce A. Weinstein,  Jay H. Memmott,  Mark H. Peterman,  Russell T.
Campbell and Bradley B. Newman.  The Company revised portions of these  agreements in April 2001.  These  agreements  provide that, in the event of a
change in control of the Company,  these  executives  would be entitled to receive a severance  payment if within a specified  period of time after a
change in control,  their  employment  is  involuntarily  terminated by the Company for any reason other than cause or death or  disability,  or they
voluntarily  terminate their  employment  after certain adverse changes in the terms of their  employment  ("Good  Reason").  The specified period of
time is 120 days for Messrs.  Weinstein,  Memmott,  Campbell and Newman and one year for Mr.  Peterman.  In  addition,  Messrs.  Weinstein,  Memmott,
Campbell and Newman are entitled to their severance  payment if they terminate their  employment  after the 120-day period,  whether or not they have
been  terminated  without  cause or  voluntarily  terminate  for Good Reason.  The amount of the severance  payment for Messrs.  Weinstein,  Memmott,
Campbell and Newman would be twice their annual base salary, and the severance payment for Mr. Peterman would be equal to his base salary.

## Compensation
Committee Report On Executive Compensation

The Compensation Committee report below shall not be deemed incorporated by reference by any general statement  incorporating by reference this
Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended (the "Securities  Act") or under the Securities  Exchange Act
of 1934, as amended (the "Exchange Act"),  except to the extent the Company  specifically  incorporates this information by reference,  and shall not
otherwise  be deemed  filed under the  Securities  Act or Exchange  Act.  The  Compensation  Committee  of the Board of Directors of the Company (the
"Committee") is made up exclusively of non-employee  directors.  The Committee  administers the executive  compensation  programs of the Company. All
actions of the Committee pertaining to executive compensation are submitted to the Board of Directors for approval.

The Company's executive  compensation  program is designed to attract,  retain, and motivate high caliber executives and to focus the interests
of the executives on objectives that enhance  stockholder  value.  These goals are attained by emphasizing  "pay for performance" by having a portion
of the executive's  compensation  dependent upon business  results and by providing equity  interests in the Company.  The principal  elements of the
Company's executive  compensation  program are base salary and stock options. In addition,  the Company anticipates that it will recognize individual
contributions as well as overall business results, using a discretionary bonus program.

Base Salary

Base salaries for the Company's executives are intended to reflect the scope of each executive's responsibilities,  the success of the Company,
and  contributions  of each  executive  to that  success.  Executive  salaries are  adjusted  gradually  over time and only as necessary to meet this
objective.  Increases  in base salary may be moderated by other  considerations,  such as  geographic  or market  data,  industry  trends or internal
fairness within the Company.

Base Salary

Annual discretionary  bonuses were paid by the Company and the Bank in 2001. The amount of the annual discretionary  bonuses paid to executives
by the Company was  determined by the  Committee,  and the amount of the annual  discretionary  bonuses paid by the Bank was determined by the Bank's
board of directors.  Annual bonuses paid to other employees were based on their individual  contributions  towards meeting the overall  objectives of
the Company.

Incentive Stock Option Plan

At its annual shareholder meeting in December 1999, the Company adopted a new stock option plan (the "Equity  Participation Plan"). The purpose
of the Equity  Participation Plan is to enable the Company to attract,  retain and motivate key employees,  directors and, on occasion,  consultants,
by providing them with equity participation in the Company.  Accordingly,  the Equity Participation Plan permits the Company to grant incentive stock
options  ("ISOs"),  non-statutory  stock options  ("NSOs"),  restricted stock and stock  appreciation  rights  (collectively  "Awards") to employees,
directors and consultants of the Company and subsidiaries of the Company.  The Plan was  subsequently  amended at the Company's June 2000 shareholder
meeting to (1) increase the number of shares  reserved for issuance  under the Plan by 1,200,000  shares of common stock to an aggregate of 4,000,000
shares and (2) allow any  participant  in the Plan to receive  grants of options or other  awards with  respect to up to  1,000,000  shares of common
stock per year. In January 2001 the Plan was further  amended to revise the  definition  of "change in control" in those  provisions of the Plan that
permit  accelerated  vesting of the options in the event of a change in control.  In April 2001 the Board of Directors passed a resolution  providing
that upon a change in control of the Company,  all granted options would vest and immediately  become  exercisable.  In March 2002 the Board passed a
resolution  providing that future options granted would not  automatically  include a provision for immediate  vesting upon a change in control.  The
Board of Directors has delegated administration of the Equity Participation Plan to the Committee.

Under the Equity  Participation  Plan, the Committee may grant ISOs and NSOs.  The option  exercise price of both ISOs and NSOs may not be less
than the fair  market  value of the  shares  covered  by the  option on the date the  option  is  granted.  The  Committee  also may grant  Awards of
restricted  shares of Common Stock.  Each  restricted  stock Award would specify the number of shares of Common Stock to be issued to the  recipient,
the date of issuance,  any consideration for such shares and the restrictions  imposed on the shares (including the conditions of release or lapse of
such  restrictions).  The Committee also may grant Awards of stock  appreciation  rights. A stock  appreciation  right entitles the holder to receive
from the  Company,  in cash or Common  Stock,  at the time of  exercise,  the excess of the fair  market  value at the date of exercise of a share of
Common  Stock  over a  specified  price  fixed by the  Committee  in the  Award,  multiplied  by the  number of shares as to which the right is being
exercised.  The specified  price fixed by the  Committee  will not be less than the fair market value of shares of Common Stock at the date the stock
appreciation right was granted.

CEO Compensation

As discussed  previously,  from April 1, 2000 to February 28, 2002 Mr. Glennon agreed to forego  substantially all of his cash compensation for
options to acquire  575,000  shares of the Company's  common stock.  The purpose of this  arrangement  was to improve the Company's  cash flow and to
provide  added  incentive  for high levels of  performance  and for unusual  efforts to increase  the earnings and  performance  of the Company.  Mr.
Glennon's new employment  agreement,  while  providing for a base salary,  continues to provide  incentives for improving the Company's  earnings and
shareholder  value,  as the agreement  grants an additional  300,000 stock  options at the current  market price.  The Committee  believes that these
arrangements are in the best interests of the Company and its stockholders,  as the value of Mr. Glennon's  compensation is directly aligned with the
financial performance of the Company.

| | COMPENSATION COMMITTEE
| | ----------------------
| | Daniel A. Markee      
| | Robert M. Deutschman  
| | Edmund M. Kaufman     

## Compensation Committee
Interlocks and Insider Participation

Daniel A. Markee,  Robert M. Deutschman and Edmund M. Kaufman served on the  Compensation  Committee  throughout 2001. No Committee member was,
during the year ended December 31, 2001, an officer or employee of the Company or any of its subsidiaries.

## Performance
Graph

The  following  Performance  Graph covers the period  beginning  July 7, 1999 when the Company's new Common Stock  commenced  trading,  through
December 31, 2001. The graph compares the performance of the Company's Common Stock to the S&P 500 and a Financial Services Index ("FSI").

`2001 Measurement Period(1)(2)

                                                            July 7,     December 31,  December 31,  December 31,
                                                             1999          1999          2000          2001
                                                           ---------     ---------     ---------     ---------
              Company...................................   $  100.00     $   39.29     $   35.71     $   58.57
              FSI(3)....................................      100.00         94.64         77.91         77.30
              S&P 500...................................      100.00        105.26         94.59         82.25
___________________`

|(1) | Assumes all distributions to stockholders are reinvested on the payment dates.                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Assumes $100 invested on July 7, 1999 in the Company's Common Stock, the S&P 500 Index and the FSI.                                                                                                                                                                                                                                                                                                                                                                           
|(3) | The companies included in the FSI through December 31, 2000 were Advanta Corporation, American Business Financial Services Inc., American
      Express Company, Bingham Financial Services Corporation, CIT Group Inc., Equivest Finance Inc., Resource America Inc. and Ocwen Financial
      Corporation. CIT Group Inc. and Equivest Finance Inc. were acquired by larger institutions during 2001 and consequently were excluded from the
      FSI at December 31, 2001.

## ITEM 12. Security Ownership of Certain Beneficial Owners and Management

The shares of common  stock  constitute  the only  outstanding  class of voting  securities  of the  Company.  As of March 1, 2002,  there were
16,180,604 shares of common stock outstanding and entitled to vote and approximately 44 stockholders of record.

The following table shows,  as of March 1, 2002, the beneficial  ownership of common stock with respect to (i) each person who was known by the
Company to own beneficially more than 5% of the outstanding  shares of common stock,  (ii) each  director,  (iii) each named executive  officer,  and
(iv) all directors and executive officers as a group.

`Amount and Nature of
                                                                                         Beneficial              Percent of
Name, Title and Address of Beneficial Owner                                            Ownership (1)               Class
--------------------------------------------                                           -------------               -----
Fog Cutter Capital Group Inc.....................................................        2,874,791                  17.8%
   1410 SW Jefferson Street
   Portland, Oregon 97201
Capital Research and Management - Income Fund....................................        2,150,517                  13.3%
   333 South Hope Street, 55th Floor
   Los Angeles, CA 90071
Capital Research and Management - Bond Fund......................................        1,601,967                   9.9%
   333 South Hope Street, 55th Floor
   Los Angeles, CA 90071
Lutheran Brotherhood Research Corp...............................................        1,457,358                   9.0%
   625 4th Avenue South
   Minneapolis, MN 55415
Jayhawk Capital Management.......................................................          947,000                   5.9%
    8201 Mission Road, Suite 110
   Prairie Village, KS 66208
Directors and executive officers:
Larry B. Faigin (2)..............................................................           96,249 (3)                 *
Howard Amster....................................................................        1,859,615                  11.5%
   23811 Chagrin Blvd. #200
   Beachwood, OH 44122
Robert M. Deutschman (2) ........................................................          131,249 (3)                 *
Peter S. Fishman (2) ............................................................           29,999 (3)                 *
Stephen P. Glennon (2)...........................................................          841,666 (4)               4.9%
Robert H. Kanner.................................................................               --                     *
   3830 Kelley Ave
   Cleveland, OH 44114
Edmund M. Kaufman (2)............................................................           84,999 (3)                 *
Daniel A. Markee (2).............................................................           46,249 (3)                 *
Bruce A. Weinstein (2)...........................................................          119,866 (5)                 *
Jay H. Memmott (2)...............................................................          116,666 (5)                 *
Mark H. Peterman (2).............................................................           74,999 (6)                 *
Joseph W. Kiley III (2)..........................................................           50,000 (7)                 *
All directors and executive officers as a group (12 persons).....................        3,451,557 (8)              19.7%
_________________________`

|(1) | Amounts include stock options vesting within 60 days of March 1, 2002.                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(2) | The address for this stockholder is c/o Wilshire Financial Services Group Inc., 1776 S.W. Madison Street, Portland, OR 97205.
|(3) | Includes 29,999 shares of common stock which may be acquired upon the exercise of options.                                   
|(4) | Includes 841,666 shares of common stock which may be acquired upon the exercise of options.                                  
|(5) | Includes 116,666 shares of common stock which may be acquired upon the exercise of options.                                  
|(6) | Includes 74,999 shares of common stock which may be acquired upon the exercise of options.                                   
|(7) | Includes 50,000 shares of common stock which may be acquired upon the exercise of options.                                   
|(8) | Includes 1,349,992 shares of common stock which may be acquired upon the exercise of options.                                



## ITEM 13. Certain Relationships and Related Transactions

Edmund M.  Kaufman,  a Director of the Company,  is a Senior  Partner  emeritus  with the law firm of Irell & Manella LLP, one of the Company's
counsel.  Previously,  Mr.  Kaufman was a Senior  Partner with Irell & Manella LLP for  thirty-six  years.  In 2001,  the Company paid  approximately
$783,000 in legal fees to Irell & Manella.

In April 2001 the Company sold  approximately  $1.5 million in  mortgage-backed  securities to Fog Cutter Capital Group Inc. ("FCCG",  formerly
known as Wilshire Real Estate Investment Inc.  ("WREI")) for proceeds of approximately  $1.2 million.  FCCG owned  approximately 14% of the Company's
outstanding common stock on the date of the transaction and approximately 18% at December 31, 2001.

In July 2001 Amster Trading Company (of which Howard Amster, a Director of the Company,  is a 100%  shareholder) was paid a fee of $103,200 for
services  rendered in connection with the sale of the Bank's bankcard  division.  Amster Trading Company received an additional  $5,333 in March 2002
relating to such sale and, if certain conditions are satisfied, may receive an additional contingent payment of up to $10,667 at a future date.

In December  2001 the Company  repurchased  4,168,854  shares of its common stock from entities  affiliated  with  American  Express  Financial
Advisors Inc.  (collectively,  "AXP").  These shares  represented  AXP's entire interest in the Company's common stock, or  approximately  21% of the
total WFSG shares previously outstanding. The purchase price for the shares was approximately $10.0 million, or $2.40 per share.

In January and February 2002 the Company  issued a total of $7.69 million in 8%  convertible  subordinated  debentures due December 15, 2005 to
five of its  Directors  in a private  placement.  The  proceeds  from this  issuance  provided  the  majority of the  financing  for the common stock
repurchase  described above. The following Directors purchased  debentures in the following amounts:  Robert H. Kanner, $4.2 million;  Howard Amster,
$2.25 million; Daniel A. Markee, $1.0 million; Larry B. Faigin,  $132,000; and Edmund M. Kaufman,  $108,000.  Commencing in July 2002, the debentures
will be  convertible  at $2.40 per share and, at the option of the Company,  will be redeemable  (if certain  conditions are satisfied) at a premium,
decreasing to par over the subsequent nine-month period.

## PART IV

## ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Financial Statements

See Index to Financial Statements immediately following Exhibit Index.

(b) Reports on Form 8-K

| | (i)   | Current report on Form 8-K, dated November 15, 2001
| | ----- | ---------------------------------------------------
| | (ii)  | Current report on Form 8-K, dated January 2, 2002  
| | (iii) | Current report on Form 8-K/A, dated January 7, 2002

(c) Exhibits

See Exhibit Index immediately following the signature page.

## INDEX TO FINANCIAL STATEMENTS

`Page
                                                                                                                    ----
Wilshire Financial Services Group Inc. and Subsidiaries

Independent Auditors' Report.................................................................................         F-2

Report of Independent Public Accountants.....................................................................         F-3

Consolidated Financial Statements:

      Consolidated Statements of Financial Condition
         December 31, 2001 and 2000..........................................................................         F-4

      Consolidated Statements of Operations
         Years ended December 31, 2001 and 2000, seven months ended December 31, 1999, and five months ended
         May 31, 1999........................................................................................         F-5

      Consolidated Statements of Stockholders' Equity (Deficit)
         Years ended December 31, 2001 and 2000, seven months ended December 31, 1999, and five months ended
         May 31, 1999........................................................................................         F-7

      Consolidated Statements of Cash Flows
         Years ended December 31, 2001 and 2000, seven months ended December 31, 1999, and five months ended
         May 31, 1999........................................................................................         F-8

      Notes to Consolidated Financial Statements.............................................................        F-10`

## INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Wilshire Financial Services Group Inc.
Portland, Oregon

We have audited the accompanying  consolidated  statements of financial  condition of Wilshire  Financial  Services Group Inc. and Subsidiaries  (the
"Company") as of December 31, 2001 and 2000, and the related consolidated  statements of operations,  stockholders' equity (deficit),  and cash flows
for the years then ended.  These  financial  statements are the  responsibility  of the Company's  management.  Our  responsibility  is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing  standards  generally  accepted in the United States of America.  Those standards require that we
plan and perform the audit to obtain  reasonable  assurance  about  whether the  financial  statements  are free of material  misstatement.  An audit
includes examining,  on a test basis, evidence supporting the amounts and disclosures in the financial  statements.  An audit also includes assessing
the accounting  principles used and significant  estimates made by management,  as well as evaluating the overall financial  statement  presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements  present fairly, in all material  respects,  the financial  position of Wilshire  Financial
Services Group Inc. and  Subsidiaries  as of December 31, 2001 and 2000, and the results of their  operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United States of America.

/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP

Portland, Oregon
March 1, 2002

## REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Wilshire Financial Services Group Inc. and Subsidiaries:

We have audited the  accompanying  consolidated  statements of operations,  stockholders'  equity  (deficit) and cash flows of Wilshire
Financial  Services Group Inc. and Subsidiaries  (the Company) for the seven months ended December 31, 1999 and the five months ended
May 31, 1999. These financial  statements are the  responsibility  of the Company's  management.  Our  responsibility  is to express an
opinion on these financial statements based on our audit.

As discussed in Note 1,  effective June 10, 1999, the Company was  reorganized  under a plan confirmed by the United States  Bankruptcy
Court in  Wilmington,  Delaware.  At May 31, 1999,  the Company  adopted a new basis of  accounting  whereby all  remaining  assets and
liabilities were adjusted to their estimated fair values.  Accordingly,  the consolidated  financial  statements for periods subsequent
to the reorganization are not comparable to the consolidated financial statements presented for prior periods.

We conducted our audit in accordance with auditing standards  generally accepted in the United States.  Those standards require that we
plan and perform the audit to obtain  reasonable  assurance about whether the financial  statements are free of material  misstatement.
An audit includes examining,  on a test basis,  evidence supporting the amounts and disclosures in the financial  statements.  An audit
also includes  assessing the  accounting  principles  used and  significant  estimates  made by  management,  as well as evaluating the
overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in all material  respects,  the results of operations and
cash flows of Wilshire  Financial  Services  Group Inc. and  Subsidiaries  for the seven  months  ended  December 31, 1999 and the five
months ended May 31, 1999 in conformity with accounting principles generally accepted in the United States.

/S/   ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Portland, Oregon
March 17, 2000

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF OPERATIONS
(Dollars in thousands)

`December 31,   December 31,
                                                                                           2001           2000
                                                                                       ------------   ------------
                                            ASSETS

Cash and cash equivalents ...........................................................  $     37,876   $      9,516
Government agency mortgage-backed securities available for sale, at fair value ......        64,377         37,817
AAA mortgage-backed securities available for sale, at fair value ....................        51,436             --
Other mortgage-backed securities available for sale, at fair value ..................         3,727          6,821
Investment securities available for sale, at fair value .............................         8,000          9,500
Loans, net of allowance for loan losses of $8,384 and $10,614 .......................       525,034        561,876
Discounted loans, net of allowance for loan losses of $45,413 and $213,019 ..........        15,309         10,214
Stock in Federal Home Loan Bank of San Francisco, at cost ...........................         9,475          6,615
Real estate owned, net ..............................................................           731          1,770
Leasehold improvements and equipment, net ...........................................         3,198          3,939
Accrued interest receivable .........................................................         4,190          4,133
Servicer advance receivables, net ...................................................        18,266         19,063
Service fees receivable .............................................................         3,100          2,198
Purchased mortgage servicing rights .................................................         8,473          4,544
Receivables from other loan servicers ...............................................         1,788          3,161
Intangible assets, net ..............................................................         3,960          4,529
Prepaid expenses and other assets ...................................................        10,064         10,354
                                                                                       ------------   ------------
            TOTAL ...................................................................  $    769,004   $    696,050
                                                                                       ============   ============

                             LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
      Noninterest-bearing deposits ..................................................  $      2,794   $     10,663
      Interest-bearing deposits .....................................................       436,675        424,410
      Short-term borrowings .........................................................         9,970          9,123
      FHLB advances .................................................................       189,500        132,000
      Long-term investment financing ................................................        14,474          1,634
      Accounts payable and other liabilities ........................................        14,381         21,716
      Investor participation liability ..............................................           528             --
                                                                                       ------------   ------------
            Total liabilities .......................................................       668,322        599,546
                                                                                       ------------   ------------

MINORITY INTEREST ...................................................................         9,262          9,909

COMMITMENTS AND CONTINGENCIES (NOTE 14)

STOCKHOLDERS' EQUITY:
      Preferred stock, $0.01 par value, 10,000,000 shares authorized, 0 shares
         outstanding ................................................................            --             --
      Common stock, $0.01 par value, 24,035,458 and 20,035,458 shares
         authorized, 20,349,458 and 20,035,458 shares issued (including treasury
         shares of 4,168,854 in 2001 and 0 in 2000) .................................       105,530         96,516
      Treasury stock, 4,168,854 and 0 shares, at cost ...............................       (10,005)            --
      Accumulated deficit ...........................................................        (5,058)       (10,670)
      Accumulated other comprehensive income, net ...................................           953            749
                                                                                       ------------   ------------
            Total stockholders' equity ..............................................        91,420         86,595
                                                                                       ------------   ------------
            TOTAL ...................................................................  $    769,004   $    696,050
                                                                                       ============   ============

                                                   See notes to consolidated financial statements.`

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF OPERATIONS

(Dollars in
thousands, except share data)

`Predecessor
                                                                                  Reorganized Company                 Company
                                                                       ------------------------------------------   ------------
                                                                                                     Seven Months   Five Months
                                                                        Year Ended     Year Ended       Ended          Ended
                                                                       December 31,   December 31,   December 31,     May 31,
                                                                           2001           2000           1999           1999
                                                                       ------------   ------------   ------------   ------------
    INTEREST INCOME:
          Loans .....................................................  $     50,982   $     48,717   $     30,389   $     21,710
          Mortgage-backed securities ................................         4,265          4,084          5,313          5,481
          Securities and federal funds sold .........................         2,269          1,719          1,056            674
                                                                       ------------   ------------   ------------   ------------
             Total interest income ..................................        57,516         54,520         36,758         27,865
                                                                       ------------   ------------   ------------   ------------
    INTEREST EXPENSE:
           Deposits .................................................        24,914         26,014         14,707         11,206
           Borrowings ...............................................        10,773          9,641          6,156         11,923
                                                                       ------------   ------------   ------------   ------------
             Total interest expense .................................        35,687         35,655         20,863         23,129
                                                                       ------------   ------------   ------------   ------------
    NET INTEREST INCOME .............................................        21,829         18,865         15,895          4,736
    (RECAPTURE OF) PROVISION FOR LOSSES ON LOANS ....................        (1,784)        (4,027)         1,025          2,697
                                                                       ------------   ------------   ------------   ------------
    NET INTEREST INCOME AFTER (RECAPTURE OF) PROVISION FOR
       LOSSES ON LOANS ..............................................        23,613         22,892         14,870          2,039
                                                                       ------------   ------------   ------------   ------------
    OTHER INCOME (LOSS):
           Servicing income .........................................        17,366         12,691          6,365          3,309
           Loan fees and charges ....................................         2,080          3,145          2,796          1,696
           Market valuation losses and impairments ..................            --             --        (10,837)            --
           Gain (loss) on sales of loans ............................         1,475          1,244         (1,671)         3,165
           (Loss) gain on sale of securities ........................          (262)          (438)           423             --
           Real estate owned, net ...................................           (46)          (308)         2,348          1,466
           Bankcard income, net .....................................         2,286          4,115          1,807          2,335
           Gain on sale of Bankcard operations ......................         5,118             --             --             --
           Discontinuation of European Operations ...................            --             --         (2,365)            --
           Other income, net ........................................         1,684          5,096          3,035          1,788
                                                                       ------------   ------------   ------------   ------------
             Total other income .....................................        29,701         25,545          1,901         13,759
                                                                       ------------   ------------   ------------   ------------
    OTHER EXPENSES:
           Compensation and employee benefits .......................        25,052         23,653         17,502         11,796
           Loan service fees and expenses ...........................            --             --             --          8,523
           Professional services ....................................         6,560          4,596          3,661          2,752
           Occupancy ................................................         2,106          2,405          1,297          1,385
           FDIC insurance premiums ..................................           703            892            311            501
           Data processing ..........................................         1,443          1,553            648            379
           Communication ............................................         1,363          1,515            977            590
           Insurance ................................................         1,130          1,045            385            475
           Corporate travel and development .........................           475          1,002          1,847            775
           Depreciation .............................................         1,816          2,705          1,276          1,008
           Amortization of intangibles ..............................           613            815            114            153
           Postage and courier expense ..............................           957            440            320             61
           Investor participation interest ..........................         1,036             --             --             --
           Other general and administrative expense .................         2,095          2,241          2,412          2,976
                                                                       ------------   ------------   ------------   ------------
             Total other expenses ...................................        45,349         42,862         30,750         31,374
                                                                       ------------   ------------   ------------   ------------
    INCOME (LOSS) BEFORE REORGANIZATION ITEMS, MINORITY
        INTEREST, INCOME TAX PROVISION AND
        EXTRAORDINARY ITEMS .........................................         7,965          5,575        (13,979)       (15,576)
    REORGANIZATION ITEMS ............................................            --             --             --        (52,034)
                                                                       ------------   ------------   ------------   ------------
    INCOME (LOSS) BEFORE MINORITY INTEREST, INCOME TAX
        PROVISION AND EXTRAORDINARY ITEMS ...........................         7,965          5,575        (13,979)       (67,610)
    MINORITY INTEREST ...............................................           647          1,203            542             --
                                                                       ------------   ------------   ------------   ------------
    INCOME (LOSS) BEFORE INCOME TAX PROVISION .......................         8,612          6,778        (13,437)       (67,610)
    INCOME TAX PROVISION ............................................         3,000          3,596            654            658
                                                                       ------------   ------------   ------------   ------------
    INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS ........................         5,612          3,182        (14,091)       (68,268)
    EXTRAORDINARY ITEMS, NET OF TAX (See Note 3) ....................            --            239             --        225,606
                                                                       ------------   ------------   ------------   ------------
    NET INCOME (LOSS) ...............................................  $      5,612   $      3,421   $    (14,091)  $    157,338
                                                                       ============   ============   ============   ============


                                                   See notes to consolidated financial statements.`

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF OPERATIONS (Continued)
(Dollars in thousands, except share data)

`Predecessor
                                                                          Reorganized Company                    Company
                                                           ------------------------------------------------   --------------
                                                                                              Seven Months     Five Months
                                                             Year Ended       Year Ended         Ended            Ended
                                                            December 31,     December 31,     December 31,       May 31,
                                                                2001             2000             1999             1999
                                                           --------------   --------------   --------------   --------------

    EARNINGS (LOSS) PER SHARE:
       Basic:
           Income (loss) before extraordinary items ....   $         0.28   $         0.16   $        (0.70)  $        (6.27)
           Extraordinary items .........................               --             0.01               --            20.72
                                                           --------------   --------------   --------------   --------------
           Net income (loss) ...........................   $         0.28   $         0.17   $        (0.70)  $        14.45

       Diluted:
           Income (loss) before extraordinary items ....   $         0.27   $         0.16   $        (0.70)  $        (6.27)
           Extraordinary items .........................               --             0.01               --            20.72
                                                           --------------   --------------   --------------   --------------
           Net income (loss) ...........................   $         0.27   $         0.17   $        (0.70)  $        14.45

    Weighted average shares outstanding - basic ........       20,138,015       20,035,458       20,033,600       10,885,000
    Weighted average shares outstanding - diluted ......       21,176,069       20,255,363       20,033,600       10,885,000





                                                   See notes to consolidated financial statements.`

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Dollars in thousands, except share data)

`Accumulated
                                            Preferred Stock    Common Stock        Treasury Stock                  Other
                                            --------------- ------------------   ----------------- Accumulated  Comprehensive
                                             Shares Amount   Shares    Amount    Shares     Amount    Deficit (Loss) Income  Total
                                             ------ ------ ---------- --------  ---------  --------  ---------  ----------  -------
(Predecessor Company)
BALANCE, December 31, 1998                       -- $  --  11,070,000 $117,708    185,000  $ (2,852) $(183,294) $(24,357) $(92,795)
   Comprehensive income:
     Net income............................                                                            157,338             157,338
     Unrealized holding losses on available
        for sale securities - net of tax
        benefit of $46.....................                                                                         (720)     (720)
     Unrealized loss on foreign currency
        translation........................                                                                       (1,662)   (1,662)
                                                                                                                          --------
   Total comprehensive income..............                                                                                154,956
   Impact of reorganization:
    Elimination of former equity in
     connection with bankruptcy plan.......               (11,070,000)(117,708)  (185,000)    2,852     25,956    26,739   (62,161)
    Issuance of new equity in connection
     with bankruptcy plan..................                20,033,600   86,819                                              86,819
                                             --------------------------------------------------------------------------------------
BALANCE, May 31, 1999 - (Reorgainzed Company)
   (Fresh-start reporting date) ...........      --    --  20,033,600   86,819         --        --         --        --    86,819
   Comprehensive loss:
     Net loss..............................                                                            (14,091)            (14,091)
     Unrealized holding losses on available
        for sale securities - net of tax
        benefit of $22.....................                                                                          (29)      (29)
     Unrealized loss on foreign currency
        translation........................                                                                          (89)      (89)
                                                                                                                          --------
   Total comprehensive loss................                                                                                (14,209)
   Impact of reorganization:
     Contribution of equity of WCC.........                              5,723                                               5,723
                                             --------------------------------------------------------------------------------------
BALANCE, December 31, 1999                       --    --  20,033,600   92,542         --        --    (14,091)     (118)   78,333
   Comprehensive income:
     Net income............................                                                              3,421               3,421
     Unrealized holding gains on available
        for sale securities - net of tax
        expense of $540 (1)................                                                                          778       778
     Unrealized gain on foreign currency
        translation........................                                                                           89        89
                                                                                                                          --------
   Total comprehensive income..............                                                                                  4,288
   Tax benefit from utilization of
     pre-reorganizational Net Operating
     Losses (Note 13)......................                              3,974                                               3,974
   Allocation of additional shares pursuant
     to reorganization.....................                     1,858
                                             --------------------------------------------------------------------------------------
BALANCE, December 31, 2000.................      --    --  20,035,458   96,516         --        --    (10,670)      749    86,595
   Comprehensive income:
     Net income............................                                                              5,612               5,612
     Unrealized holding gains on available
        for sale securities - net of tax
        expense of $143 (2)................                                                                          204       204
                                                                                                                          --------
   Total comprehensive income..............                                                                                  5,816
   Tax benefit from utilization of
     pre-reorganizational Net Operating
     Losses (Note 13)......................                              8,683                                               8,683
   Exercise of stock options...............                   314,000      331                                                 331

   Treasury stock acquired.................                                    (4,168,854)  (10,005)                       (10,005)
                                             --------------------------------------------------------------------------------------
   BALANCE, December 31, 2001..............      -- $  --  20,349,458 $105,530 (4,168,854) $(10,005) $  (5,058) $    953  $ 91,420
                                             ====== =====  ========== ========  =========  ========  =========  ========  ========`

|(1) | Includes reclassification adjustment for gain included in net income of $19, net of tax expense of $14.  
|--- | ---------------------------------------------------------------------------------------------------------
|(2) | Includes reclassification adjustment for gain included in net income of $176, net of tax expense of $127.

`See notes to consolidated financial statements.`

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF CASH FLOWS

(Dollars in thousands)

`Predecessor
                                                                                     Reorganized Company              Company
                                                                            -------------------------------------   -----------
                                                                                                      Seven Months  Five Months
                                                                             Year Ended   Year Ended     Ended         Ended
                                                                            December 31, December 31, December 31,    May 31,
                                                                                2001         2000         1999         1999
                                                                             ----------   ----------   ----------   ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income (loss) ...................................................  $    5,612   $    3,421   $  (14,091)  $  157,338
      Adjustments to reconcile net income (loss) to net cash provided by
          (used in) operating activities:
            Market valuation losses and impairments .......................          --           --       10,837           --
            (Recapture of) provision for estimated losses on loans ........      (1,784)      (4,027)       1,025        2,697
            Provision for losses on real estate owned .....................          49           90          638           --
            Write-downs from discontinuation of European operations .......          --           --        1,740           --
            Valuation allowance for mortgage servicing rights .............       1,552           --           --           --
            Asset valuation adjustments ...................................          --           --          158          647
            Depreciation and amortization .................................       2,429        3,520        1,390        1,161
            Tax effect from utilization of net operating loss carryforward ..     4,183        3,974           --           --
            Gain on sale of real estate owned .............................         (17)         (43)      (1,748)      (2,192)
            Loss on disposal of equipment .................................          44            6           --           62
            (Gain) loss on sale of loans ..................................      (1,475)      (1,244)       1,671       (3,165)
            Loss (gain) on sale of securities .............................         262          438         (423)          --
            Gain on sale of mortgage servicing rights .....................        (414)          --           --           --
            Amortization of discounts and deferred fees ...................         451        2,157           30          869
            Amortization of mortgage servicing rights .....................       5,847          396           11          154
            Federal Home Loan Bank stock dividends ........................        (453)        (390)        (128)         (73)
            Income on equity investments ..................................          --           --           --         (218)
            Minority interest in WCC ......................................        (647)      (1,203)        (542)          --
            Receipt of income tax refund ..................................          --           --           --       12,219
            Other .........................................................          --           --         (370)          --
            Reorganization items:
              Write-off of unamortized debt issuance costs ................          --           --           --       11,319
              European reorganization costs ...............................          --           --           --        2,492
              Adjustments to carrying amounts of assets and liabilities
                pursuant to fresh-start reporting .........................          --           --           --       37,601
            Gain on extinguishment of debt ................................          --         (239)          --     (225,606)
            Change in:
              Servicer advance receivables ................................         797        4,709        3,348       (2,545)
              Service fees receivable .....................................        (902)        (896)      (1,302)          --
              Accrued interest receivable .................................         (57)        (194)       1,199          330
              Receivables from other loan servicers .......................       1,373       (2,240)        (921)          --
              Prepaid expenses and other assets ...........................         926       (9,772)       3,297       (3,334)
              Accounts payable and other liabilities ......................      (3,939)      (7,600)       2,135       12,893
              Investor participation liability ............................         528           --           --           --
                                                                             ----------   ----------   ----------   ----------
                      Net cash provided by (used in) operating activities .      14,365       (9,137)       7,954        2,649
                                                                             ----------   ----------   ----------   ----------


                                                   See notes to consolidated financial statements.`

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
(Dollars in
thousands)

`Predecessor
                                                                                     Reorganized Company                Company
                                                                            ---------------------------------------   -----------
                                                                                                        Seven Months  Five Months
                                                                            Year Ended    Year Ended       Ended         Ended
                                                                            December 31,  December 31,  December 31,    May 31,
                                                                               2001          2000          1999          1999
                                                                            -----------   -----------   -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
       Purchase of loans .................................................  $  (150,137)  $  (155,385)  $   (76,035)  $   (87,988)
       Loan repayments ...................................................      234,350        98,592        74,512        70,412
       Loan originations .................................................      (74,026)      (56,177)      (20,402)      (11,915)
       Proceeds from sale of loans .......................................       32,101        12,160        94,439            --
       Purchase of discounted loans ......................................      (15,515)       (5,159)       (1,493)       (1,629)
       Proceeds from sale of discounted loans ............................        7,337        17,446         5,844       255,845
       Purchase of mortgage-backed securities available for sale .........      (94,535)           --            --            --
       Repayments of mortgage-backed securities available for sale .......       26,626         7,429         6,388         9,010
       Proceeds from sale of mortgage-backed securities available for sale        1,271         4,448        42,476            --
       Purchase of investment securities available for sale ..............       (8,000)           --            --            --
       Purchase of mortgage-backed securities held to maturity ...........           --        (5,607)           --            --
       Repayments of mortgage-backed securities held to maturity .........           --         3,298         1,800         1,544
       Purchase of securities held to maturity ...........................           --        (9,441)           --            --
       Proceeds from sale of securities held to maturity .................           --         5,997            --            --
       Proceeds from redemption of FHLB stock ............................           --           776            --           750
       Purchases of FHLB stock ...........................................       (2,407)       (1,426)         (792)           --
       Purchases of real estate owned ....................................           --          (244)           --          (708)
       Proceeds from sale of real estate owned ...........................        3,054        12,676        26,755        28,359
       Purchases of leasehold improvements and equipment .................       (1,285)       (2,406)         (750)         (768)
       Proceeds from sale of leasehold improvements and equipment ........          166           175            --            --
       Purchase of mortgage servicing rights .............................      (12,124)       (4,433)         (518)           --
       Proceeds from sale of mortgage servicing rights ...................        1,210            --            --            --
                                                                            -----------   -----------   -----------   -----------
               Net cash (used in) provided by investing activities .......      (51,914)      (77,281)      152,224       262,912
                                                                            -----------   -----------   -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
       Net increase (decrease) in deposits ...............................        4,396        15,788       (78,139)      (13,256)
       Proceeds from FHLB advances .......................................       70,500        68,000        66,500        21,000
       Repayments of FHLB advances .......................................      (13,000)      (16,000)       (7,500)           --
       Proceeds from short-term borrowings ...............................       38,280       104,985       151,517        78,579
       Repayments of short-term borrowings ...............................      (37,433)     (127,366)     (262,788)     (353,800)
       Proceeds from long-term financing .................................       20,567         1,634            --            --
       Repayment of notes payable to Wilshire Real Estate Investment Inc.            --        (5,275)       (2,152)           --
       Proceeds from debtor-in-possession financing ......................           --            --            --         5,000
       Repayments of long-term financing .................................       (7,727)           --            --            --
       Issuance of common stock ..........................................          331            --            --            --
       Purchase of treasury stock ........................................      (10,005)           --            --            --
                                                                            -----------   -----------   -----------   -----------
              Net cash provided by (used in) financing activities ........       65,909        41,766      (132,562)     (262,477)
                                                                            -----------   -----------   -----------   -----------

              NET INCREASE (DECREASE) IN CASH AND CASH
                 EQUIVALENTS .............................................       28,360       (44,652)       27,616         3,084
CASH AND CASH EQUIVALENTS:
       Beginning of period ...............................................        9,516        54,168        26,552        23,468
                                                                            -----------   -----------   -----------   -----------
       End of period .....................................................  $    37,876   $     9,516   $    54,168   $    26,552
                                                                            ===========   ===========   ===========   ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
   INFORMATION--Cash paid during the period for:
       Interest ..........................................................  $    33,983   $    32,953   $    18,653   $    17,083
       Income taxes, net .................................................          625           875           240         1,327
NONCASH INVESTING ACTIVITIES:
       Additions to real estate owned acquired in settlement of loans ....        1,963         2,917         1,830         3,547
       Transfer of securities classified as held to maturity to available
         for sale ........................................................           --        21,909            --            --
       Transfer of loans classified as discounted to available for sale ..           --            --         9,743            --
NONCASH REORGANIZATION ITEMS:
       Cancellation of old common stock ..................................           --            --            --       114,856
       Issuance of new common stock in exchange for notes payable
           and accrued interest thereon ..................................           --            --            --        86,819
       Contribution of net assets of WCC .................................           --            --         5,723            --

                                                   See notes to consolidated financial statements.`

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

(Dollars in
thousands, except per share amounts)

## 1.      NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of  Operations--Wilshire  Financial  Services Group Inc.  ("WFSG" or the "Company")  conducts its operations  primarily  through non-bank
subsidiaries,  Wilshire Credit Corporation  ( "WCC ") and Wilshire Funding Corporation  ("WFC"),  and through a second-tier  subsidiary savings bank,
First Bank of Beverly Hills, F.S.B. ( "FBBH"  or the  "Bank ").

WCC conducts a full-service mortgage loan servicing business,  specializing in the servicing of labor-intensive mortgage pools. WFC conducts an
investment  and  co-investment  business  with  institutional  investors  where such  investments  align the Company's  interests  with those of such
institutional  investors and provide  operating  leverage for the servicing  operations of WCC. The Bank is engaged in a retail and wholesale banking
business focused primarily on specialty-niche lending products,  including small-balance  commercial and multi-family real estate lending. Until June
2001,  the Bank also  conducted a Visa and  Mastercard  processing  business and operated a commercial  banking  subsidiary,  George Elkins  Mortgage
Banking ("GEMB").  Effective June 30, 2001, the Bank disposed of these two divisions.

Administrative  headquarters of the Company,  WCC and WFC are located in Portland,  Oregon. The Bank, a federally chartered savings institution
regulated by the Office of Thrift Supervision ( "OTS "), conducts its operations through a branch and a lending office in Southern California.

The Company commenced loan acquisition and loan servicing  operations in France,  the United Kingdom and Ireland (the  "European  Operations ")
in 1996. In the second quarter of 2000, the Company disposed of its European loan acquisition and servicing operations and loan portfolios.

Principles of Consolidation--WFSG  was incorporated in 1996 to be the holding company for Wilshire Acquisitions  Corporation ("WAC "),  which is
the holding  company for the Bank.  WFSG formed certain  non-bank  subsidiaries,  including  WFC, and completed an initial public  offering of common
stock and a public debt offering in the fourth quarter of 1996. Intercompany accounts have been eliminated in consolidation.

Effective May 31, 1999, as part of its  restructuring  (discussed  below),  the Company formed a majority-owned  (50.01%)  subsidiary,  WCC, to
perform loan servicing  operations.  The accompanying  consolidated  financial  statements  include the accounts of WCC for periods subsequent to May
31, 1999.  The remaining 49.99% interest in WCC is reflected as "Minority Interest" in the accompanying consolidated financial statements.

WCC and WFC conduct  certain  activities  with  lenders  who have  participation  interests  in the  returns  generated  by loans that serve as
collateral for the borrowings.  The accompanying  consolidated  financial  statements include all of the accounts of these joint ventures.  The share
of these  activities  held by the lenders is reflected as "Investor  Participation  Interest" in the Company's  consolidated  statements of financial
condition, operations and cash flows.

Restructuring of the Company--On June 10, 1999, the Company  completed its plan of  reorganization  (the "Plan") under Chapter 11 of the United
States  Bankruptcy Code and emerged from bankruptcy.  Pursuant to the Plan, (i) the holders of the Company's  $184.2 million in outstanding  publicly
issued notes payable exchanged their notes for new common stock in the Company;  (ii) the Company's  existing common stock and options were canceled;
and (iii) the noteholders reallocated approximately 0.6% of the new common stock to the then-existing stockholders of the Company.

The Company  accounted for the Plan effective May 31, 1999,  and adopted  fresh-start  reporting at that date.  (See Note 2 for a discussion of
fresh-start  reporting and its effects on the Company's Statement of Financial  Condition.)  Accordingly,  the financial statements presented include
consolidated  statements of financial condition of the reorganized company as of December 31, 2001 and 2000;  consolidated  statements of operations,
stockholders'  equity and cash flows of the  reorganized  company for the years ended  December 31, 2001 and 2000 and the seven months ended December
31, 1999; and consolidated  statements of operations,  stockholders'  equity  (deficit) and cash flows of the predecessor  company for the five-month
period ended May 31, 1999.

Revenues  and  expenses  resulting  from the  reorganization  of the  Company  while it was in  Chapter  11 were  segregated  and  recorded  as
Reorganization Items in the consolidated statement of operations and include the following for the five months ended May 31, 1999:

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(Continued)

(Dollars in
thousands, except per share amounts)

`Five Months Ended
                                                                            May 31, 1999
                                                                           -------------
Write-off of unamortized debt issuance costs..........................     $      11,319
Professional services.................................................               609
European restructuring costs..........................................             2,492
Fresh-start reporting adjustments to assets and liabilities
   (See Note 2).......................................................            37,601
Other general and administrative expenses.............................                13
                                                                           -------------
      Total reorganization items......................................     $      52,034
                                                                           =============`

Pursuant to the Plan, the servicing of the Company's loans is conducted by WCC, its  majority-owned  subsidiary.  Prior to the  reorganization,
the Company's assets were serviced by the company formerly named Wilshire Credit  Corporation (now known as Capital Wilshire Holdings Inc.  ("CWH")),
a company  previously  owned by the Company's  former  principal  stockholders.  As part of the Plan, the Company  entered into an agreement with the
owners of CWH and the principal  creditor of CWH, Capital  Consultants,  LLC ("CCL"),  to incorporate the servicing  operations of CWH into WFSG. CWH
was in default on a loan from its principal  creditor,  CCL. A portion of that loan had been  guaranteed by the Company.  CCL took control of CWH and
in exchange for releases from such debt, CWH contributed  its assets and certain  liabilities to WCC and, in exchange for such assets and liabilities
and CCL's release of the Company's  loan guaranty to CCL, WFSG  transferred  49.99% of the equity of WCC to CWH. As a result,  the Company  currently
owns 100% of the Class A voting common stock  (representing  50.01% of the economic value) of WCC, and CWH owns 100% of the Class B non-voting common
stock  and the  remaining  49.99%  economic  interest  of WCC.  Class B  non-voting  common  stock  is  convertible  into  voting  common  stock on a
share-for-share  basis and, under certain  circumstances,  convertible into WFSG Common stock. Class B non-voting common stock also has a liquidation
preference of  approximately  $19.3 million.  The Company  accounted for the  acquisition of the assets and certain  liabilities of CWH as a purchase
under Accounting Principles Board Opinion No. 16, Business Combinations.

Use of Estimates in the Preparation of the  Consolidated  Financial  Statements--The  preparation of the  consolidated  financial  statements in
conformity with generally accepted  accounting  principles  requires management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and  disclosure of contingent  assets and  liabilities at the date of the  consolidated  financial  statements.  Significant
estimates  include  allowances for loan losses,  valuation  allowances for real estate owned and net deferred tax assets,  the  determination of fair
values of certain  financial  instruments  for which there is not an active market,  the  allocation of basis between  assets sold and retained,  the
evaluation of other than temporary  impairment in the market values of investment  securities and other assets,  and the selection of yields utilized
to recognize  interest  income on certain  mortgage-backed  securities.  Estimates and assumptions  also affect the reported  amounts of revenues and
expenses during the reporting period.  Actual results could differ from those estimates.

Cash and Cash  Equivalents--For  purposes of reporting  financial  condition and cash flows, cash and cash equivalents include cash and due from
banks, federal funds sold, and securities with original maturities less than 90 days.

Securities and Mortgage-Backed  Securities--The  Company's  securities  portfolios consist of mortgage-backed and other debt securities that are
classified as available for sale.  Securities  classified  as available  for sale are reported at their fair market  values with  unrealized  holding
gains and losses on securities  reported,  net of tax, when applicable,  as a separate component of accumulated other comprehensive  income (loss) in
stockholders'  equity  (deficit).  Holding  gains and losses on securities  classified as available for sale that are  determined by management to be
other than temporary in nature are  reclassified  from the unrealized  holding losses included in accumulated  other  comprehensive  income (loss) to
current  operations.  Realized  gains and losses  from the sales of  available  for sale  securities  are  reported  separately  in the  Consolidated
Statements of Operations and are calculated using the specific identification method.

Loans and Discounted Loans, and Allowance for Loan  Losses--Prior to the Company's June, 1999  reorganization,  its principal  non-Bank business
involved  acquiring  performing,  sub-performing  and  non-performing  loan  portfolios,  for prices  generally at or below face value (i.e.,  unpaid
principal balances plus accrued interest).  Nonperforming  loans ("discounted  loans") are generally acquired at deep discounts to face value and are
recorded as Discounted loans, net in the Consolidated Statements of Financial Condition.

Discounted  loans are carried net of unaccreted  discount and  allowance  for loan losses  established  for those loans.  Unaccreted  discounts
represent the portion of the  difference  between the purchase  price and the principal face amount on specific loans that is available for accretion
to interest  income.  The  allowance for loan losses  includes  valuation  allowances  for  estimated  losses  against the cost of the loans that are
established  at  acquisition  and for  subsequent  valuation  adjustments  that are provided  for through  current  period  earnings and are based on
discounted  future cash flows or the fair value of the underlying real estate  collateral for collateral  dependent  loans. If total cash received on
a pool of loans exceeds original estimates,  excess specific valuation  allowances are recorded as additional discount accretion on the cost-recovery
method.  The allocated specific valuation allowances are included in the allowance for loan losses.

Loans other than discounted  loans are presented in the  Consolidated  Statements of Financial  Condition in  substantially  the same manner as
discounted loans.  Interest income is recognized on an accrual basis.  Originated loans are carried net of unamortized  deferred origination fees and
costs. Deferred fees and costs are recognized in interest income over the terms of the loans using a method that approximates the interest method.

The Company  evaluates  commercial  and  multi-family  real estate loans (whether  purchased or originated  and whether  classified as loans or
discounted loans) for impairment.  Commercial and multi-family  real estate loans are considered to be impaired,  for financial  reporting  purposes,
when it is probable that the Company will be unable to collect all principal or interest when due.  Specific  valuation  allowances are  established,
either at  acquisition or through  provisions  for losses,  as described  above,  for impaired  loans based on the fair value of the underlying  real
estate collateral or the present value of anticipated cash flows.

The Company evaluates  single-family real estate,  consumer and other smaller balance,  homogeneous loans for impairment on a collective basis.
Management  evaluates  these loans for  impairment  by comparing  management's  estimate of net  realizable  value to the net  carrying  value of the
portfolios.

All specific and general  valuation  allowances  established  for pools of loans and  discounted  loans are recorded in the  allowance for loan
losses.  The allowance for each pool is decreased by the amount of loans charged off and is increased by the provision for estimated  losses on loans
and  recoveries of previously  charged-off  loans.  The  allowance for each pool is maintained at a level  believed  adequate by management to absorb
probable  losses.  Management's  determination  of the adequacy of the  allowance is based on an  evaluation  of the  portfolio,  previous  loan loss
experience,  current economic conditions,  volume, growth and composition of the portfolio and other relevant factors.  Actual losses may differ from
management's estimates.

It is the Company's  policy to establish an allowance for  uncollectible  interest on loans that are past due more than 90 days or sooner when,
in the judgment of management,  the  probability  of collection of interest is deemed to be  insufficient  to warrant  further  accrual.  Upon such a
determination,  those  loans are  placed  on  non-accrual  status  and  deemed to be  non-performing.  When a loan is placed on  non-accrual  status,
previously accrued but unpaid interest is reversed by a charge to interest income.

Purchased  Mortgage Servicing  Rights--Purchased  Mortgage Servicing Rights (MSRs) are reported at the lower of amortized cost or fair value. At
the time a servicing  portfolio is acquired,  the Company  capitalizes  the purchase  price of the MSRs, and  subsequently  amortizes such costs on a
monthly basis in proportion to and over the period of the estimated future net servicing revenues.

On a quarterly basis, the Company evaluates MSRs for impairment. MSRs are stratified based on the predominant risk characteristics of the
underlying financial assets. The fair value of the MSRs is then determined by estimating the present value of expected future cash flows, using a
discount rate that is considered commensurate with the risks involved. The amounts and timing of the cash flows are estimated after considering
various economic factors including prepayment speeds, delinquency and default assumptions. The amount, if any, by which the amortized cost exceeds
the fair value is recorded as an impairment and recognized through a valuation allowance.

Intangible Assets,  net.  Intangible assets consist of goodwill and core deposit  intangibles at FBBH. The Company evaluates  intangible assets
for impairment  whenever events or changes in  circumstances  indicate that the carrying amount may not be recoverable.

Foreign  Currency  Translation--All  assets and liabilities  relating to the Company's  European  activities were translated at current exchange
rates.  The results of the  Company's  foreign  operations  were  translated  at the average  exchange rate for each  reporting  period.  Translation
adjustments,  related hedging results and applicable  income taxes were included,  when material,  in the  accumulated  translation  adjustments as a
separate  component of accumulated other  comprehensive  income (loss) within  stockholders'  equity (deficit).  The Company disposed of its European
operations during the second quarter of 2000.

Real Estate  Owned--Real estate acquired in settlement of loans or purchased  directly is held for sale and is originally  recorded at the lower
of fair value less estimated  costs to sell, or purchase  price,  respectively.  Any excess of net loan cost basis over the fair value less estimated
selling costs of real estate acquired through  foreclosure is charged to the allowance for loan losses. Any subsequent  operating expenses or income,
reductions in estimated fair values, as well as gains or losses on disposition of such properties, are recorded in current operations.

Leasehold  Improvements  and  Equipment--Office  leasehold  improvements  and equipment are stated at cost, less  accumulated  depreciation  and
amortization,  computed on the  straight-line  method over the estimated  useful lives of the assets,  which currently range from one to seven years.
Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter.

Servicer  Advance  Receivables,  net--In the normal course of performing  loan  servicing  activities,  WCC makes  servicer  advances to various
unrelated third parties which represent (1) impound payments on behalf of borrowers,  (2) scheduled  remittances of principal and interest on certain
securitizations,  and (3) loan collection costs on  securitizations  and other servicing  arrangements.  In the accompanying  consolidated  financial
statements, these advances are presented net of collections from mortgagors which, in certain circumstances, are used to fund these advances.

Income Taxes--The provision  (benefit) for income taxes is based on income (loss) recognized for financial  statement purposes.  The Company and
its eligible  subsidiaries file a consolidated U.S. federal income tax return. WCC, which is consolidated for financial  reporting  purposes,  is not
eligible to be included in WFSG's  consolidated  U.S. federal income tax return and files its own separate  return.  A separate  provision for income
taxes has been  determined  for WCC.  Income taxes are accounted for using the asset and liability  method.  Under this method,  a deferred tax asset
or liability is  determined  based on the enacted tax rates which will be in effect when the  differences  between the financial  statement  carrying
amounts and tax basis of existing  assets and  liabilities  are expected to be reported in the Company's  income tax returns.  The effect on deferred
taxes of a change in tax rates is recognized in income in the period that  includes the enactment  date.  Valuation  allowances  are  established  to
reduce the net  carrying  amount of deferred  tax assets if it is  determined  to be more likely than not that all or some  portion of the  potential
deferred tax asset will not be realized.

The Company and its  subsidiaries  have entered into a tax sharing  agreement  under which the tax  liability is to be allocated pro rata among
entities that would have paid tax if they had filed separate  income tax returns.  In addition,  those entities  reimburse loss entities pro rata for
the  reduction in tax liability as a result of their  losses.  The OTS has  presently  limited the amount of the Bank's tax payments to the lesser of
(1) the Bank's stand-alone tax liability and (2) the total tax payments made by the Company.

Bankcard  Operations--Bankcard  income, net, includes merchant discounts and transaction fees for processing Visa(R)and Mastercard(R)transactions
and is  offset  by  bankcard  expense  consisting  primarily  of fees paid to the  Company's  third-party  processors  and  interchange  fees paid to
card-issuing  banks.  Other  direct and  indirect  costs of Bankcard  operations  are included in various  other  categories  of expenses and are not
specifically allocated separately from other operating expenses of the Company.  The Bankcard division was sold effective June 30, 2001.

Income (Loss) per Share--Basic income (loss) per share ("EPS") excludes  dilution and is computed by dividing income (loss) available to common
stockholders  by the weighted  average number of common shares  outstanding  for the period.  Diluted EPS reflects the potential  dilution that could
occur if the outstanding  stock option  contracts were exercised and resulted in the issuance of common stock that then shared in the earnings (loss)
of the Company.

New Accounting  Pronouncements--In  June 1998,  the Financial  Accounting  Standards  Board ("FASB")  issued  Statement of Financial  Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities".  The Statement,  as amended and interpreted,  establishes
accounting  and  reporting  standards  requiring  that every  derivative  instrument  (including  certain  derivative  instruments  embedded in other
contracts)  be recorded in the  consolidated  statement  of  financial  condition  as either an asset or  liability  measured at its fair value.  The
Statement  requires that changes in the derivative's  fair value be recognized  currently in earnings unless specific hedge  accounting  criteria are
met.  Accounting  for  qualifying  hedges  allows a  derivative's  gain or loss to be offset  with the  related  results  of the  hedged  item in the
consolidated  statement of operations,  or in certain circumstances to be deferred in other comprehensive income and later offset with the results of
the hedged item in the  Consolidated  Statement  of  Operations.  A company  must  formally  document,  designate,  and assess the  effectiveness  of
transactions  that receive hedge  accounting.  The Company adopted SFAS No. 133, as amended,  as of January 1, 2001. The adoption of SFAS No. 133 did
not have a material impact on the Company's financial position or results of operations.

In  September  2000,  the FASB issued SFAS No. 140,  "Accounting  for  Transfers  and  Servicing  of Financial  Assets and  Extinguishments  of
Liabilities."  This  pronouncement  replaces  SFAS  No.  125,  issued  in  June  1996.  SFAS  No.  140  revises  the  standards  for  accounting  for
securitizations and other transfers of financial assets and collateral and requires certain  disclosures,  but carries over most of the provisions of
SFAS No. 125 without  reconsideration.  This  statement  is  effective  for  transfers  and  servicing of  financial  assets and  extinguishments  of
liabilities  occurring  after March 31, 2001 and is effective for  recognition and  reclassification  of collateral and for  disclosures  relating to
securitization  transactions  and  collateral  for fiscal years ending after  December 15, 2000.  The adoption of SFAS No. 140 has not had a material
impact on the Company's financial position or results of operations.

In June 2001, the FASB issued SFAS No. 141, "Business  Combinations."  SFAS No. 141 requires the purchase method of accounting for all business
combinations  initiated  after June 30, 2001 and eliminates  the  pooling-of-interests  method.  The adoption of SFAS No. 141 did not have a material
impact on the Company's financial position or results of operations.

In June 2001,  the FASB issued SFAS No. 142,  "Goodwill  and Other  Intangible  Assets,"  which is effective for fiscal years  beginning  after
December 15, 2001. SFAS No. 142 requires that goodwill and intangible  assets that have indefinite  useful lives no longer be amortized,  and instead
be tested for impairment at least  annually.  Intangible  assets that have finite useful lives will continue to be amortized over their useful lives.
In addition,  the standard includes provisions for the reassessment of the useful lives of existing recognized  intangibles and the identification of
reporting units for purposes of assessing  potential  future  impairments of goodwill.  The Company is currently  evaluating the impact that SFAS No.
142 may have on its financial  position and results of operations.  Amortization  of intangibles  was  approximately  $0.6 million for the year ended
December 31, 2001.

In August 2001, the FASB issued SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived  Assets," which is effective for fiscal
years  beginning  after December 15, 2001.  This  pronouncement  supercedes  SFAS No. 121 and the  accounting and reporting  provisions of Accounting
Principles  Board  Opinion No. 30 for the  disposal of a segment of a business.  The Company  does not believe that the adoption of SFAS No. 144 will
have a material impact on its financial position and results of operations.

Reclassifications--Certain  items in the  consolidated  financial  statements  for  2000  and 1999  were  reclassified  to  conform  to the 2001
presentation, none of which affect previously reported net income.

## 2. FRESH-START
REPORTING

The Company's Plan was accounted for in accordance  with the American  Institute of Certified  Public  Accountants  Statement of Position 90-7,
"Financial  Reporting by Entities in Reorganization  Under the Bankruptcy Code" ("SOP 90-7").  The accounting of SOP 90-7 resulted in the creation of
a new entity for financial  reporting  purposes.  The Company adopted  fresh-start  reporting because holders of the Company's  existing common stock
immediately  before  filing and  confirmation  of the Plan  received  less than 50% of the new common stock of the emerging  entity and the Company's
reorganized  value is less than its  postpetition  liabilities  and  allowed  claims.  The  reorganization  value of the Company  was  determined  by
estimating the fair value of its net assets as of the fresh-start reporting date.

For financial  reporting purposes,  the Company accounted for the consummation of the reorganization  effective May 31, 1999. The periods prior
to this date have been designated  "Predecessor  Company" and the periods  subsequent to this date have been designated  "Reorganized  Company." As a
result of the adoption of the  fresh-start  reporting,  the  Reorganized  Company's  consolidated  financial  statements  are not  comparable  to the
Predecessor Company's consolidated financial statements.

The effect of the plan of  reorganization  and the  implementation  of  fresh-start  reporting  on the  Company's  consolidated  balance  sheet
(condensed) as of May 31, 1999 is as follows (unaudited):

`Adjustments to Record Confirmation of Plan
                                                 ----------------------------------------------------------------------------------
                                                  Predecessor                                                           Reorganized
                                                   Company's     Forgiveness    Fresh-Start  Cancellation  Issuance of   Company's
                                                 Balance Sheet     of Debt      Adjustments  of Old Stock   New Stock  Balance Sheet
                                                 -------------    ---------     -----------  ------------   ---------  -----------
                                                                                 (Dollars in thousands)

TOTAL ASSETS .................................     $ 792,436      $      --      $  (5,149)     $      --     $     --     $ 787,287
                                                   =========      =========      =========      =========     ========     =========


Total liabilities ............................       925,495       (225,606)           579             --           --       700,468
                                                   ---------      ---------      ---------      ---------     --------     ---------

Stockholders' equity:
  Common stock ...............................       117,708       (117,708)        86,819         86,819
  Treasury stock .............................        (2,852)         2,852             --
  Retained deficit ...........................      (216,042)       225,606        (37,601)       114,856      (86,819)           --
  Accumulated other comprehensive
     loss, net ...............................       (31,873)            --         31,873             --           --            --
                                                   ---------      ---------      ---------      ---------     --------     ---------
Total stockholders' (deficit) equity .........      (133,059)       225,606         (5,728)            --           --        86,819
                                                   ---------      ---------      ---------      ---------     --------     ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
   EQUITY ....................................     $ 792,436      $      --      $  (5,149)     $      --     $     --     $ 787,287
                                                   =========      =========      =========      =========     ========     =========`

## 3.
EXTRAORDINARY ITEMS  GAIN ON EXTINGUISHMENT OF DEBT

In August 2000,  the Company  entered into a settlement  agreement  with its former  affiliate,  Fog Cutter  Capital Group Inc.  (then known as
Wilshire Real Estate Investment Inc.  ("WREI")),  pursuant to which all disputes between the two companies were resolved.  As part of this agreement,
the Company  settled a note payable with a book value of $1.6 million with cash payments of $1.2 million,  resulting in a gain on the  extinguishment
of debt (before income taxes) of approximately  $0.4 million.  This  extraordinary  gain is reported in the consolidated  statement of operations net
of related income taxes of approximately $0.2 million.

In May,  1999, in connection  with its  restructuring,  the Company  exchanged its notes payable and certain other  outstanding  claims for new
common stock in the Company.  This gain on  extinguishment  of debt is reported in the  consolidated  statements  of  operations  for the  five-month
period ended May 31, 1999 as an extraordinary item in the amount of $225.6 million, and is comprised of the following liabilities:

`Notes payable...................................................................  $     184,245
        Accrued interest on notes payable...............................................         14,536
        Payable to Capital Wilshire Holdings, Inc.
           (formerly known as Wilshire Credit Corporation)..............................         18,338
        Payable  to Fog Cutter  Capital  Group  Inc.  (formerly  known as  Wilshire
           Real  Estate Investment Inc.)................................................          8,487
                                                                                          -------------
                                                                                          $     225,606
                                                                                          =============`

The above debt was cancelled as part of the reorganization,  and the Notes payable, accrued interest thereon and payable to WREI were converted
into equity of the Reorganized  Company.  No funds were expended in the  extinguishment  of such debt. The  extraordinary  gain caused a reduction of
tax attributes, such as net operating losses, capital losses and the tax basis of assets (see Note 13).

## 4. MARKET
VALUATION LOSSES AND IMPAIRMENTS

The Company evaluates,  on an ongoing basis, the carrying value of its securities  portfolio.  To the extent differences between the book bases
of the securities  accounted for as  available-for-sale  and their current market values are deemed to be temporary in nature,  such unrealized gains
or losses are reflected directly in stockholders'  equity, as "accumulated other comprehensive  income or (loss)."  Impairments that are deemed to be
other than temporary are charged to income,  as "market  valuation losses and  impairments." In evaluating  impairments as other than temporary,  the
Company  considers  the  magnitude  and trend in the decline of the market  value of  securities,  the  Company's  ability to collect all amounts due
according to the contractual terms and the Company's expectations at the time of purchase.

There were no recorded market  valuation losses and impairments for the years ended December 31, 2001 or 2000, or for the five months ended May
31, 1999.  Total market valuation losses and impairments  reported in net loss for the seven months ended December 31, 1999 was  approximately  $10.8
million.  Of this amount,  $5.1 million related to sales of mortgage-backed  securities,  $1.5 million related to other than temporary  impairment of
mortgage-backed  securities  remaining in the portfolio,  $0.4 million  related to real estate owned which was sold in 2000,  $1.6 million related to
our  investment in WREI which was sold in December 1999,  $0.9 million  related to sales of other assets,  and $1.3 million  related to equipment and
other assets remaining at December 31, 1999.  The Company believes that the decline in the value of these assets was other than temporary.

## 5. SECURITIES

The amortized cost, fair value and gross unrealized  gains and losses on  mortgage-backed  and other  investment  securities as of December 31,
2001 and 2000 are shown below. Fair market value estimates were obtained using discounted cash-flow models or from independent parties.

`Gross        Gross       Estimated
                                                                        Amortized    Unrealized   Unrealized   Fair Market
                                                                           Cost        Gains        Losses       Values
                                                                        ----------   ----------   ----------   ----------
      December 31, 2001
      Available-for-sale:
            Government agency mortgage-backed securities..........      $   64,965   $      333   $      921   $   64,377
            AAA mortgage-backed securities........................          51,630           63          257       51,436
            Other mortgage-backed securities......................           1,356        2,371           --        3,727
             Investment securities................................           8,000           --           --        8,000
                                                                        ----------   ----------   ----------   ----------
                  Total available for sale........................      $  125,951   $    2,767   $    1,178   $  127,540
                                                                        ==========   ==========   ==========   ==========

                                                                                       Gross        Gross       Estimated
                                                                        Amortized    Unrealized   Unrealized   Fair Market
                                                                           Cost        Gains        Losses       Values
                                                                        ----------   ----------   ----------   ----------
      December 31, 2000
      Available-for-sale:
            Mortgage-backed securities............................      $    5,424   $    1,397   $       --   $    6,821
            Government agency mortgage-backed securities..........          38,031          339          553       37,817
             Investment securities................................           9,441           59           --        9,500
                                                                        ----------   ----------   ----------   ----------
                  Total available for sale........................      $   52,896   $    1,795   $      553   $   54,138
                                                                        ==========   ==========   ==========   ==========`

As of December 31, 2001, the Company had approximately $77 fair value and $75 unamortized cost of securities  maturing in over one year through
five years,  $5,242 fair value and $4,922  unamortized cost of securities  maturing in over five years through ten years, and approximately  $122,221
fair value and $120,954  unamortized cost of securities maturing after ten years.  However, the Company expects to receive payments on its securities
over periods considerably shorter than their contractual maturities.

The Company received proceeds of approximately $1,271, $4,448 and $42,476,  respectively,  on sales of available-for-sale securities during the
years ended  December 31, 2001 and 2000 and the seven months ended  December 31, 1999.  There were no such sales during the five months ended May 31,
1999.  Gains and losses from sales of  available-for-sale  securities  were $0 and $262,  respectively,  during the year ended December 31, 2001; $28
and $471, respectively, during the year ended December 31, 2000; and $571 and $148, respectively, during the seven months ended December 31, 1999.

During the year ended December 31, 2000, the Company sold a  held-to-maturity  security with an amortized cost of $5,992 for a realized gain of
$5,  which  is  included  in loss on  sale  of  securities  in the  Consolidated  Statements  of  Operations.  The  Company  reclassified  all of its
held-to-maturity  securities to  available-for-sale  at December 31, 2000.  Such  securities had an amortized cost of $21,909,  with a net unrealized
loss of $8 reported as a component of other  comprehensive  income. The decision to sell the  held-to-maturity  security,  and accordingly to reclass
the remaining held to maturity securities to available for sale, was due to management's desire for flexibility to earn higher yields.

At December 31, 2001 and 2000,  securities  with carrying  values of $114,938 and $23,217,  respectively,  and market  values of  approximately
$114,938 and $23,217, respectively,  were pledged to secure merchant bankcard transactions,  short-term borrowings and lines of credit (see Note 12),
and a Liquidation Bond issued by the Company to Capital Consultants, LLC ("CCL") (see Note 14).

## 6. LOANS AND
DISCOUNTED LOANS

The following is a summary of each loan category by type as of December 31, 2001 and 2000:

`December 31,
                                                                                  --------------------------
                                                                                     2001            2000
                                                                                  ----------      ----------
      Loans
      Real estate loans:
            One to four units..............................................       $  220,731      $  225,091
            Over four units................................................          150,367         156,647
            Commercial.....................................................          151,827         178,205
                                                                                  ----------      ----------
            Total loans secured by real estate.............................          522,925         559,943
      Consumer and other loans.............................................            6,939           9,889
                                                                                  ----------      ----------
                                                                                     529,864         569,832
      Add:  Premium on purchased loans and deferred fees...................            3,554           2,658
      Less:  Allowance for loan losses.....................................           (8,384)        (10,614)
                                                                                  ----------      ----------
                                                                                  $  525,034      $  561,876
                                                                                  ==========      ==========

                                                                                         December 31,
                                                                                  --------------------------
                                                                                      2001           2000
                                                                                  ------------    ----------
      Discounted Loans
      Real estate loans:
            One to four units.................................................    $    6,643      $    8,684
            Over four units...................................................         1,142             634
            Commercial........................................................         1,582           3,464
            Land..............................................................           250           2,010
                                                                                  ----------      ----------
            Total loans secured by real estate................................         9,617          14,792
      Consumer and other loans................................................        54,602         209,826
                                                                                  ----------      ----------
                                                                                      64,219         224,618
      Less:
            Discounts on purchased loans......................................        (3,497)         (1,385)
            Allowance for loan losses..........................................      (45,413)       (213,019)
                                                                                  ----------      ----------
                                                                                  $   15,309      $   10,214
                                                                                  ==========      ==========`

As of December 31, 2001 and 2000 loans with adjustable rates of interest were $404,046 and $298,053,  respectively,  and loans with fixed rates
of interest were $190,037 and $496,397,  respectively.  Adjustable-rate  loans are generally  indexed to U.S.  Treasury  Bills,  the FHLB's  Eleventh
District Cost of Funds Index,  LIBOR or Prime and are subject to  limitations  on the timing and extent of  adjustment.  Most loans adjust within six
months of changes in the index.

At December 31, 2001 and 2000,  loans with unpaid  principal  balances of approximately  $315,989 and $317,759,  respectively,  were pledged to
secure credit line borrowings and repurchase agreements included in short-term borrowings (see Note 12).

Activity in the allowance for loan losses is summarized as follows:

`Predecessor
                                                                                   Reorganized Company                 Company
                                                                        ------------------------------------------   ------------
                                                                                                      Seven Months    Five Months
                                                                         Year Ended     Year Ended       Ended           Ended
                                                                        December 31,   December 31,   December 31,      May 31,
                                                                            2001           2000           1999           1999
                                                                        ------------   ------------   ------------   ------------
    Balance, beginning of period ....................................   $    223,633        264,498   $    275,402   $    288,868
    Allocations of purchased reserves:
          at acquisition ............................................          7,626          3,261          2,145          2,733
          at disposition ............................................       (175,178)       (16,737)       (12,027)       (15,962)
    Addition due to discontinuation of European Operations ..........             --             --          1,739             --
    Net change pursuant to fresh-start reporting ....................           (113)         1,007            452         (1,078)
    Charge-offs .....................................................           (894)       (23,805)        (1,400)        (1,068)
    Recoveries ......................................................            507            377            272            186
    (Recapture of) provision for losses on loans ....................         (1,784)        (4,027)         1,025          2,697
    Currency translation adjustment .................................             --           (941)        (3,110)          (974)
                                                                        ------------   ------------   ------------   ------------
    Balance, end of period ..........................................   $     53,797        223,633   $    264,498   $    275,402
                                                                        ============   ============   ============   ============`

At December 31, 2001 and 2000, the Company had impaired loans (other than discounted  loans) totaling  $19,614 and $23,615,  respectively,  and
had recorded specific  valuation  allowances to measure the impairments of those loans totaling $3,165 and $4,110,  respectively.  The average unpaid
principal  balances of impaired  loans during the years ended  December 31, 2001,  2000 and 1999 were $28,214,  $34,016,  and $55,379,  respectively.
Interest  income  recognized on impaired  loans during 2001,  2000 and 1999 was $1,354,  $1,991,  and $2,503,  respectively,  based on cash payments.
These amounts exclude consideration of single-family residential and other loan pools evaluated for impairment on a pooled basis.

The above amounts do not include  impaired  discounted  loans.  Management has determined that generally all discounted loans meet the criteria
for impairment and collectively evaluates these loans for impairment.

The Bank has a geographic concentration of mortgage loans in the western United States, primarily in southern California.  The five states with
the greatest concentration of the Bank's loans were California,  Washington,  Arizona, Colorado, and Oregon, which had $379.1 million, $23.9 million,
$15.6 million,  $14.4 million, and $13.6 million principal amount of loans,  respectively,  at December,  31, 2001. The five states with the greatest
concentration  of the Company's Loans and Discounted Loans were California,  Florida,  Texas,  Oregon,  and  Massachusetts,  which had $13.6 million,
$10.4 million, $5.5 million, $2.9 million and $2.8 million principal amount of loans, respectively, at December 31, 2001.

Management's estimates are utilized to determine the adequacy of the allowance for loan losses.  Estimates are also involved in determining the
ultimate  recoverability of purchased loans and,  consequently,  the pricing of purchased loans. These estimates are inherently  uncertain and depend
on the outcome of future  events.  Although  management  believes the levels of the allowance as of December 31, 2001 and 2000 are adequate to absorb
losses  inherent in the loan  portfolio,  changes in interest  rates,  various  other  economic  factors and  regulatory  requirements  may result in
increasing levels of losses. Those losses will be recognized if and when these events occur.

## 7. REAL ESTATE
OWNED

Real estate owned  consists of property that was obtained  through  foreclosure or was purchased  directly,  and is reported at its fair value,
less estimated costs to sell.  Activity in real estate owned is as follows for the periods indicated:

`Predecessor
                                                                          Reorganized Company                 Company
                                                              ------------------------------------------   ------------
                                                                                            Seven Months    Five Months
                                                               Year Ended     Year Ended       Ended           Ended
                                                              December 31,   December 31,   December 31,      May 31,
                                                                  2001           2000           1999            1999
                                                              ------------   ------------   ------------   ------------
    Balance, beginning of period ..........................   $      1,770   $     11,571   $     35,374   $     62,168
    Foreclosures ..........................................          1,963          2,917          1,830          3,547
    Purchases .............................................             --            244             --            708
    Adjustment pursuant to Fresh-Start reporting ..........             --             --             --          1,408
    Sales and exchanges ...................................         (2,953)       (12,633)       (24,571)       (27,271)
    Depreciation ..........................................             --             --             (5)           (25)
    Valuation write-downs .................................             --             --           (581)        (2,514)
    Provision for losses ..................................            (49)           (90)          (638)            --
    Currency translation adjustment .......................             --           (239)           162         (2,647)
                                                              ------------   ------------   ------------   ------------
    Balance, end of period ................................   $        731   $      1,770   $     11,571   $     35,374
                                                              ============   ============   ============   ============`

Real estate owned with a net carrying value of $193 and $97 at December 31, 2001 and 2000, respectively,  collateralizes  short-term borrowings
(see Note 12).

## 8.   LEASEHOLD IMPROVEMENTS AND EQUIPMENT

Leasehold improvements and equipment consist of the following:

`December 31,
                                                                              -----------------------
                                                                                 2001         2000
                                                                              ----------   ----------
      Leasehold improvements..............................................    $      421   $      452
      Furniture and equipment.............................................         9,825       10,021
                                                                              ----------   ----------
      Total cost..........................................................        10,246       10,473
      Accumulated depreciation and amortization...........................        (7,048)      (6,534)
                                                                              ----------   ----------
                                                                              $    3,198   $    3,939
                                                                              ==========   ==========`

## 9. SERVICER
ADVANCE RECEIVABLES, NET

At December 31, 2001,  gross servicer advance  receivables  totaled  $43,585,  which were netted for purposes of the accompanying  consolidated
financial  statements  by $25,319 of  collections  from  mortgagors  which were used to fund these  advances.  The net amount  totals  $18,266 and is
included in the accompanying consolidated statement of financial condition as Servicer advance receivables, net as of December 31, 2001.

As part of these servicing  activities,  the Company held customer cash in custodial accounts totaling $102,031 at December 31, 2001 which, for
purposes of these  consolidated  financial  statements,  is offset  against a liability  representing  amounts due to investors  at that date.  These
amounts are not included in the accompanying consolidated statements of financial condition.

Loans serviced for others are not included in the accompanying  consolidated  statements of financial condition.  The unpaid principal balances
of mortgage and other loans serviced were $3,444,336, $2,562,409 and $2,113,963 at December 31, 2001, 2000, and 1999, respectively.

## 10. PURCHASED
MORTGAGE SERVICING RIGHTS

The balances of the Company's  purchased mortgage servicing rights (MSRs) as of December 31, 2001 and 2000, and changes during the periods then
ended, were as follows:

`Predecessor
                                                                             Reorganized Company                  Company
                                                                   ------------------------------------------   ------------
                                                                                                 Seven Months    Five Months
                                                                    Year Ended     Year Ended       Ended           Ended
                                                                   December 31,   December 31,   December 31,      May 31,
                                                                       2001           2000           1999           1999
                                                                   ------------   ------------   ------------   ------------
  Purchased mortgage servicing rights, beginning of period .....   $      4,544   $        507   $         --   $      2,346
  Purchases of mortgage servicing rights .......................         12,124          4,433            518             --
  Sales of mortgage servicing rights ...........................           (796)            --             --             --
  Amortization .................................................         (5,847)          (396)           (11)          (154)
  Valuation allowance ..........................................         (1,552)            --             --             --
  Write-down pursuant to fresh-start reporting .................             --             --             --         (2,192)
                                                                   ------------   ------------   ------------   ------------
  Purchased mortgage servicing rights, end of period ...........   $      8,473   $      4,544   $        507   $         --
                                                                   ============   ============   ============   ============`

The changes in the Company's valuation allowance for impairment of MSRs are as follows for the periods indicated:

`Predecessor
                                                                  Reorganized Company                  Company
                                                        ------------------------------------------   ------------
                                                                                      Seven Months    Five Months
                                                         Year Ended     Year Ended        Ended           Ended
                                                        December 31,   December 31,   December 31,      May 31,
                                                            2001           2000           1999           1999
                                                        ------------   ------------   ------------   ------------
      Balance, beginning of period..................    $         --   $         --   $         --   $         --
      Additions for impairment......................          (1,552)            --             --             --
                                                        ------------   ------------   ------------   ------------
      Balance, end of period........................    $     (1,552)  $         --   $         --   $         --
                                                        ============   ============   ============   ============`

The Company  evaluates  MSRs for impairment by stratifying  MSRs based on the  predominant  risk  characteristics  of the underlying  financial
assets.  At December 31, 2001 and 2000, the fair values of the Company's  MSRs were $10,099 and $7,533,  respectively,  which were estimated  using a
discount rate of 15% and prepayment assumptions ranging from 30% to 60% and 14% to 37%, respectively.

At December 31, 2001, the key economic  assumptions  and the  sensitivity of the current fair value for purchased MSRs to immediate 10% and 20%
adverse changes in those assumptions were as follows (dollars in thousands):

`Year Ended
                                                                         December 31,
                                                                             2001
                                                                         ------------
           Fair value of capitalized MSRs..............................  $     10,099
           CPR.........................................................         30-60%
           Impact on fair value of 10% adverse change..................          (979)
           Impact on fair value of 20% adverse change..................        (1,881)
           Future cash flows discounted at.............................         15.00%
           Impact on fair value of 10% adverse change..................          (243)
           Impact on fair value of 20% adverse change..................          (472)`

These  sensitivities are hypothetical and should be used with caution.  As the amounts indicate,  changes in fair value based on a variation in
assumptions  generally  cannot be  extrapolated  because the  relationship of the change in assumption to the change in fair value may not be linear.
Also, in this table the effect of a variation in a particular  assumption on the fair value of the retained  interest is calculated  without changing
any other  assumption.  In  reality,  however,  changes  in one  factor may result in changes in  another,  which  might  magnify or  counteract  the
sensitivities.

## 11. DEPOSITS

Deposits consist of the following:

`December 31,
                                                                    ---------------------------
                                                                        2001           2000
                                                                    ------------   ------------
      Passbook accounts........................................     $      4,265   $        872
      Money market accounts....................................           28,811         18,743
      NOW/checking.............................................            2,794         10,663
      Time deposits:
            Less than $100.....................................          118,002        166,009
            $100 or more.......................................          285,597        238,786
                                                                    ------------   ------------
      Total deposits...........................................     $    439,469   $    435,073
                                                                    ============   ============



      A summary of time deposits as of December 31, 2001, by maturity, is as follows:

      2002.....................................................     $    292,623
      2003.....................................................           62,486
      2004.....................................................           46,766
      2005.....................................................            1,587
      2006 and thereafter......................................              137
                                                                    ------------
                                                                    $    403,599
                                                                    ============`

## 12. BORROWINGS
AND FHLB ADVANCES

Short-term  borrowings at December 31, 2001 consisted of short-term notes payable and line of credit borrowings in our Specialty  Servicing and
Finance  Operations.  The notes payable were used for the  acquisition  of purchased  mortgage  servicing  rights during the year. Our line of credit
facilities are primarily  used to fund servicer  advances and, to a lesser  extent,  loan pools.  In December 2001 we borrowed $9.2 million under one
of our  lines of  credit to  repurchase  approximately  4.2  million  shares  of  common  stock  from one of our  shareholders.  This  borrowing  was
substantially  repaid in January 2002 with proceeds from the issuance of approximately $7.7 million in 8% subordinated  debentures,  which funded the
majority of the stock repurchase.  Following is information about our short-term borrowings:

`Predecessor
                                                                           Reorganized Company                  Company
                                                                ------------------------------------------   ------------
                                                                                             Seven Months     Five Months
                                                                 Year Ended     Year Ended       Ended           Ended
                                                                December 31,   December 31,   December 31,      May 31,
                                                                    2001           2000           1999           1999
                                                                ------------   ------------   ------------   ------------

      Average balance during the period...................      $      5,270   $     21,323   $     95,521   $    245,900
      Highest amount outstanding during the period........             9,970         45,506        150,339        420,816
      Average interest rate-during the period.............               2.3%           9.1%           7.1%           7.3%
      Average interest rate-end of period.................               2.0%           6.4%           8.1%           6.1%`

In addition to the borrowings  described above, our Specialty Servicing and Finance Operations have secured longer-term  investment  financing,
consisting of other notes payable and lines of credit from institutional  lenders.  These borrowing facilities are primarily used for acquisitions of
mortgage  servicing  rights and loan pools and are  collateralized  by the assets  acquired.  At December 31, 2001, we had outstanding  approximately
$14.5 million of such financing, which bears interest at an average rate of 6.0% and matures in 2003.

The Bank has an agreement with the Federal Home Loan Bank of San Francisco  (the "FHLB")  whereby the Bank can apply for advances not to exceed
25% of the Bank's total  assets.  These  advances are secured by FHLB stock,  mortgage-backed  securities  and loans.  The balances of FHLB  Advances
outstanding as of December 31, 2001 and 2000 were $189.5 million and $132.0 million,  respectively,  and the weighted  average  interest rate paid on
the  outstanding  balance at December 31, 2001 is 5.54%.  As of December 31, 2001,  the Bank had $30.5 million of FHLB Advances  maturing  within one
year,  $60.0 million  maturing within two years,  $38.5 million  maturing  within three years,  $26.0 million  maturing within four years,  and $34.5
million maturing within five years.

From time to time, if required for liquidity  purposes,  the Bank will enter into  short-term  repurchase  agreements  which enable the Bank to
purchase  investment  securities  and pools of loans with  immediate  financing.  In December 2001 the Bank entered into a repurchase  agreement with
Countrywide  Securities  Corporation and, in January 2002,  borrowed  approximately $35 million under this facility to purchase  mortgage-backed  and
other investment securities.

## 13. INCOME
TAXES

The domestic and foreign components of income (loss) before domestic and foreign income and other taxes were as follows:

`Predecessor
                                                                    Reorganized Company                   Company
                                                         --------------------------------------------   ------------
                                                                                         Seven Months    Five Months
                                                            Year Ended     Year Ended       Ended           Ended
                                                           December 31,   December 31,   December 31,      May 31,
                                                               2001         2000            1999            1999
                                                           ------------   ------------   ------------   ------------
      Domestic                                             $      8,612   $      6,488   $    (10,009)  $    (62,165)
      Foreign                                                        --            290         (3,428)        (5,445)
                                                           ------------   ------------   ------------   ------------
            Total.................................         $      8,612   $      6,778   $    (13,437)  $    (67,610)
                                                           ============   ============   ============   ============

      The components of the income tax provision were as follows:

                                                                                                            Predecessor
                                                                         Reorganized Company                  Company
                                                              ------------------------------------------    -----------
                                                                                            Seven Months    Five Months
                                                               Year Ended     Year Ended       Ended           Ended
                                                              December 31,   December 31,   December 31,      May 31,
                                                                  2001           2000           1999           1999
                                                              ------------   ------------   ------------   ------------
    Current tax (benefit) provision:
          Federal .........................................   $     (1,213)  $       (428)  $        467   $        470
          State ...........................................            350             50            187            188
                                                              ------------   ------------   ------------   ------------
                Total current tax (benefit) provision .....           (863)          (378)           654            658
                                                              ------------   ------------   ------------   ------------
    Deferred tax benefit:
          Federal .........................................         (3,507)            --             --             --
          State ...........................................         (1,313)            --             --             --
                                                              ------------   ------------   ------------   ------------
                Total deferred tax benefit ................         (4,820)            --             --             --
                                                              ------------   ------------   ------------   ------------
    Increase to stockholders' equity
          Pre-reorganization tax benefits .................          8,683          3,974             --             --
                                                              ------------   ------------   ------------   ------------
                Total increase to stockholders' equity ....          8,683          3,974             --             --
                                                              ------------   ------------   ------------   ------------
                Total income tax provision ................   $      3,000   $      3,596   $        654   $        658
                                                              ============   ============   ============   ============`

The current federal tax provision for the years ended December 31, 2001 and 2000 and the seven-month and five-month  periods ended December 31,
1999 and May 31, 1999,  respectively,  included excess inclusion income earned on certain residual  interests in REMICs which cannot be offset by tax
losses.  In addition, in 2001 and 2000 the Company realized certain benefits related to the resolution and closing of open audit years.

The increase in  stockholders'  equity  resulted  from the  realization  of  pre-reorganization  tax  benefits  and the  reduction in valuation
allowance.  The tax effect is recorded as an increase to  stockholders'  equity in accordance  with SOP 90-7 and not as a benefit on the statement of
operations.

The  difference  between the effective tax rate in the  consolidated  financial  statements  and the statutory  federal  income tax rate can be
attributed to the following:

`Predecessor
                                                                              Reorganized Company                 Company
                                                                   ------------------------------------------   ------------
                                                                                                 Seven Months    Five Months
                                                                    Year Ended     Year Ended       Ended           Ended
                                                                   December 31,   December 31,   December 31,      May 31,
                                                                        2001         2000            1999            1999
                                                                   ------------   ------------   ------------   ------------

    Federal income tax provision (benefit) at statutory rate ...           34.0%          34.0%         (34.0)%        (34.0)%
    State taxes, net of federal tax effect .....................            5.2            6.9           (6.8)          (6.8)
    Unconsolidated net operating loss not benefited ............            2.5            6.0             --             --
    Excess inclusion income from residual interests in REMICs ..            5.8           10.0             --             --
    Foreign losses with no federal tax benefit .................             --             --            8.7            2.2
    Subpart F income ...........................................             --             --            3.4            0.5
    Stock issuance costs .......................................             --             --             --            6.4
    Valuation allowance for deferred tax asset .................             --             --           34.9           36.5
    Resolution and closing of open audit years .................          (17.4)            --             --             --
    Other ......................................................            4.7           (3.9)          (1.5)          (3.8)
                                                                   ------------   ------------   ------------   ------------
    Effective income tax rate ..................................           34.8%          53.0%           4.7%           1.0%
                                                                   ============   ============   ============   ============`

Deferred income taxes are provided for temporary  differences between income tax and financial  statement  recognition of revenue and expenses.
Deferred income tax assets and liabilities are summarized as follows:

`December 31,
                                                                                  ---------------------------
                                                                                      2001           2000
                                                                                  ------------   ------------
    Deferred tax assets:
          Loans - purchase discounts, allowance for loan losses
             and market valuation adjustments .................................   $      8,292   $     10,308
          Market adjustment on mortgage-backed securities and hedge instruments          1,991             --
          Capitalized mortgage servicing rights ...............................          2,833          2,181
          Depreciation and amortization .......................................          1,465          1,222
          Pass-through income .................................................            494          1,272
          Net operating loss carryforward, net of COD income ..................         20,745         32,686
          Accrued expenses ....................................................          1,231            974
          Capitalized costs ...................................................          5,593          5,971
          Goodwill ............................................................          1,454          2,400
          Capital loss carryforward ...........................................         15,797         14,066
          Other ...............................................................          5,019          4,958
                                                                                  ------------   ------------
                Gross deferred tax assets .....................................         64,914         76,038
                                                                                  ------------   ------------
    Deferred tax liabilities:
          Market adjustment on mortgage-backed securities and hedge instruments             --         (2,205)
          Deferred loan fees ..................................................            (51)           (55)
          State taxes .........................................................         (4,398)        (1,991)
          Purchase accounting .................................................           (422)          (439)
                                                                                  ------------   ------------
                Gross deferred tax liabilities ................................         (4,871)        (4,690)
                                                                                  ------------   ------------
          Total deferred tax asset, net .......................................         60,043         71,348
          Valuation allowance .................................................        (55,223)       (71,348)
                                                                                  ------------   ------------
                Net deferred tax asset ........................................   $      4,820   $         --
                                                                                  ============   ============`

SFAS  Statement No. 109,  "Accounting  for Income Taxes,"  requires that deferred tax assets be reduced by a valuation  allowance if it is more
likely  than not that some  portion  or all of the  deferred  tax asset will not be  realized.  Management  believes  sufficient  uncertainty  exists
regarding the realizability of the asset that a valuation  allowance is required.  Although  realization is not assured,  management believes that it
is more likely than not that the Company  will  realize a portion of the deferred  tax asset.  The  Company's  net deferred tax asset at December 31,
2001 is included in prepaid expenses and other assets on the accompanying  consolidated  statements of financial condition. As pre-reorganization tax
benefits are realized and the valuation  allowance is reduced,  the tax effect is recorded as an increase to stockholders'  equity in accordance with
SOP 90-7 and not as a benefit on the statement of operations.

As of December 31, 2001, the Company had U.S. net operating loss  carryforwards and capital loss carryforwards of approximately $58 million and
$36 million,  respectively.  In addition, the Company has state net operating loss carryforwards.  The federal carryforward period runs through 2021.
Cancellation  of  indebtedness  income in the amount of $137.3  million was excluded from taxable  income in 1999 due to an exception for  bankruptcy
related debt  forgiveness.  The amount of cancellation  of  indebtedness  income that was excluded from taxable income has been applied to reduce tax
attributes, such as net operating loss and capital loss carryforwards.

The Company has not provided for U.S.  deferred  income taxes on  undistributed  earnings of foreign  subsidiaries  as  cumulative  losses were
generated in each foreign jurisdiction since inception.  The Company disposed of its foreign operations during the second quarter of 2000.

During 1999 the Internal  Revenue  Service  ("IRS")  concluded a field audit of the Bank's  (formerly  known as Girard Savings Bank) income tax
return for the year ended December 31, 1995.  The Bank agreed to two temporary adjustments that resulted in a $300 thousand payment in 1999.

## 14.
COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET RISK

Lease Commitments--The following is a schedule of future minimum rental payments under operating leases as of December 31, 2001:

`2002...................................................... $  1,924
                  2003......................................................    1,667
                  2004......................................................      555
                  2005......................................................      108
                                                                             --------
                       Total................................................ $  4,254
                                                                             ========`

Financial  Instruments  Involving  Off-Balance  Sheet Risk--In hedging the interest rate exposure of a fixed-rate or  lagging-index  asset,  the
Company may create a hedge which matches the principal  amortization of such an asset against the maturity of the Company's  liabilities generally by
entering into short sales or forward sales of U.S. Treasury  securities,  Government  Securities or interest rate futures contracts.  This results in
market gains or losses on hedging  instruments,  in response to interest rate increases or decreases,  respectively,  which approximate the amount of
the corresponding market losses or gains, respectively, on loans being hedged.

At December 31, 2000 the Bank had  approximately  $20.9 million notional  principal amount interest rate swap agreement  outstanding.  In April
2001,  this swap agreement  expired.  This swap was designated as a hedge to convert fixed rate income streams on loans to variable rate, and had the
effect of increasing  the  Company's net interest  income by  approximately  $18 thousand and $0.1 million for the years ended  December 31, 2001 and
2000, respectively.

In 2001, the Bank  purchased  interest-rate  put options on 30-year U.S.  Treasury  bonds.  The Bank paid a premium of $45 for the put options,
which expire in March 2002. A put option  contract  grants the Bank the right,  but not the  obligation,  to sell a financial  instrument at a stated
price  within a  specified  period of time.  The put option  contracts  were  purchased  to reduce the  interest  rate risk in the Bank's  fixed-rate
mortgage-backed securities portfolio during a rising interest rate environment.  The fair value of the put options as of December 31, 2001 was $31.

Purchase  Commitments--From  time to time, the Company  enters into various  commitments  and letters of intent  relating to purchases of loans,
foreclosed real estate  portfolios and other  investments.  There can be no assurance that any of such  transactions  will ultimately be consummated.
It is the Company's policy to generally  record such  transactions in the financial  statements in the period in which such  transactions are closed.
At December 31, 2001 the Bank had outstanding commitments to purchase approximately $50.0 million in mortgage-backed  securities.  The Bank purchased
these securities in January 2002.

Litigation--The  Company,  the Bank and WCC,  among other parties,  are currently  defendants to certain  lawsuits  brought by a number of CCL's
clients.  Between  1994 and 1998 CCL, as agent for various  clients,  made a number of loans to the  privately-owned  company  then known as Wilshire
Credit Corporation ("WCC") and now known as Capital Wilshire Holdings Inc. ("CWH").  As part of the Company's June 1999  restructuring,  it purchased
the assets of CWH. In exchange it gave CCL as agent a 49.99%  nonvoting  ownership  interest in WCC with certain rights to convert such interest to a
portion of the Company's stock. The plaintiffs  allege that the Company,  WCC and the Bank and some of their  executives  wrongfully  participated in
various  transactions in which CCL made improper loans to WCC,  thereafter misled the CCL clients by failing to disclose  significant  losses on $160
million of loans to WCC, and used additional CCL client funds (approximately $71 million) to cover up such losses.

The Company  believes  that it has strong  defenses  with regard to such  allegations  and  intends to contest the claims  vigorously  unless a
satisfactory  settlement  can be reached.  Without  limitation,  as part of the June 1999  reorganization  of the Company,  CCL, on behalf of the CCL
Investors,  provided the Company with a release of all claims that they might have had against the  Company,  pursuant to the Plan of  Reorganization
approved by the Delaware  Bankruptcy  Court.  The  plaintiffs  contend that CCL did not have  authority to provide this release and that the releases
were  fraudulently  obtained.  In addition,  the Company's former executives have requested that the Company indemnify them as directors and officers
of the Company for their costs and potential liability to the extent such amounts are not covered by insurance.

The District Court of Oregon appointed a mediator to supervise a limited discovery  procedure and to determine if the claims can be resolved by
settlement.  The Company  and the  plaintiffs  continue to  participate  in the  mediation  process.  The parties are under a  confidentiality  order
prohibiting any disclosure of the status of any settlement discussions.

The Company is a defendant in other legal actions arising from  transactions  conducted in the ordinary course of business.  Management,  after
consultation  with legal  counsel,  believes the ultimate  liability,  if any,  arising from such actions will not  materially  affect the  Company's
consolidated results of operations or financial position.

Other--In connection with the transfer of the Company's  minority  ownership  interest in WCC to CWH, described in Note 1, the Company provided
to CCL a  contingent  Liquidation  Bond in the form of a  non-interest  bearing  obligation  to pay CCL,  in the event (and only in the event) of any
liquidation  or  dissolution  of WCC,  $19.3 million less any  distributions  that CWH receives from its minority  ownership  interest in WCC. WCC is
obligated  to keep the bond  collateralized  with assets of WCC or the Company  having a fair market value equal to such bond and, to the extent that
it does not do so, the Company may be responsible  for the deficiency.  A receiver has been appointed for CCL in Securities and Exchange  Commission
v. Capital  Consultants,  LLC, et al., U.S.  District Court for the District of Oregon,  Case No. CV 00-1290 KI, and now holds this  Liquidation Bond
and controls the minority ownership interest in WCC on behalf of CCL's investors.

In addition,  the holder of the minority  ownership interest in WCC is entitled to convert its interest into WCC's voting Class A common stock.
The holder also may convert its interest  into the  Company's  common stock or, under  certain  circumstances,  be paid $19.3  million less any prior
distributions  received from the minority  interest at any time upon a merger of the Company into a third party, the sale of substantially all assets
of the Company to a third party,  or the purchase of  substantially  all the stock of the Company by a single third party.  Upon the conversion  into
WCC Class A common stock or into the Company's  common stock or payment of the $19.3  million,  the  Liquidation  Bond is cancelled.  The formula for
the  conversion  into the  Company's  common stock  permits the holder of the minority  interest in WCC to convert such  interest  into the number of
shares of the common stock of the Company approximately equal to:

45% x WCC's trailing 12 month GAAP earnings
------------------------------------------------------------
WFSG's 12 trailing month GAAP earnings per share

Each calculation of earnings is adjusted for extraordinary items and is net after taxes.

The Company is the guarantor on a $50 million credit facility  agreement  between WCC and a major commercial  bank.  WCC
accumulates  earnings  credits through the maintenance of certain deposit  balances that would not otherwise earn interest.  The earnings credits are
used first to offset costs of banking  services,  and then to offset certain  borrowing costs. To the extent excess earnings  credits exist,  they
are used to pay certain interest costs related to the $50 million investment line facility.

## 15. REGULATORY
MATTERS

Regulatory  Agreements--On February 8, 1999, the OTS terminated a Cease and
Desist Order (the "Order") to which the Bank had  stipulated in 1996.  The Order
had prohibited the Bank from increasing  total assets in excess of $750 million;
purchasing  any  loans or real  estate  without  the  approval  of the OTS until
certain  acquisition  and  servicing   deficiencies  had  been  corrected;   and
purchasing any  non-performing  assets or foreclosed real estate until such time
as the Bank was rated a composite "3" rating according to the Uniform  Financial
Institutions Rating System.

On June 8, 2000, the OTS terminated an OTS directive  letter (the  "Directive")  issued to the Bank on June 3, 1999. The Directive had required
prior written approval of the OTS Assistant  Regional Director for the Bank to engage in certain  activities  including  material cash  expenditures,
loan pool purchases,  capital  distributions  and the hiring of any executive  officers.  Additionally,  the Directive had required the adoption of a
monthly board resolution indicating that the Bank complied with the provisions stated in the Directive.

On January 9, 2001,  the OTS  terminated  Cease and Desist Orders to which WFSG,  WAC and WCC had stipulated on January 7, 2000. The orders had
prohibited these entities from entering into  transactions  that would cause the Bank to violate or be in violation of transactions  with affiliates'
regulations.  The orders also had required  30-day advance  notification  before adding,  replacing or terminating  any member of the Bank's board of
directors or any senior executive of the Bank.

Capital  Requirements--The  Bank is subject to various regulatory capital requirements  administered by the federal banking agencies.  Failure to
meet minimum capital  requirements can initiate certain  mandatory and possibly  additional  discretionary  actions by regulators that, if undertaken,
could have a direct material effect on the Bank's  financial  statements.  Under capital adequacy  guidelines and the regulatory  framework for prompt
corrective  action,  the Bank must meet specific  capital  guidelines  that involve  quantitative  measures of their assets,  liabilities  and certain
off-balance-sheet  items as calculated  under  regulatory  accounting  practices.  The Bank's capital amounts and  classification  are also subject to
qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative  measures  established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth
in the following  table) of total and Tier I capital (as defined in the  regulations) to  risk-weighted  assets (as defined),  and Tier I capital (as
defined) to average assets (as defined).  Management  believes,  as of December 31, 2001,  that the Bank meets all capital  adequacy  requirements to
which it is subject.

As of December 31, 2001 and 2000, the most recent  notification  from the OTS  categorized the Bank as "well  capitalized"  under the regulatory
framework for prompt corrective action. To be categorized as "well  capitalized",  the Bank must maintain minimum total risk-based,  Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the following  tables.  There are no conditions or events since the notification  that management  believes
have  changed the Bank's  category.  As of December  31, 2001 and 2000,  the total core  capital  and total  risk-based  capital  amounts of the Bank,
compared to the OTS minimum requirements, were as follows:

`To Be
                                                                                     Amount Required         "Well Capitalized"
                                                                                       For Capital                 under
                                                                                        Adequacy              Prompt Corrective
                                                                  Actual                Purposes             Action Regulations
                                                          --------------------   ----------------------   ------------------------
                                                            Amount     Ratio       Amount       Ratio       Amount       Ratio
                                                          ---------- ---------   ----------  ----------   ----------   ----------
      December 31, 2001
      Total Capital to Risk-Weighted Assets
         (Risk-Based Capital)...........................  $   70,858      15.7%  $   36,014       =>8.0%  $   45,018       =>10.0%
      Tier 1 Capital to Risk-Weighted Assets............      65,204      14.5%    Not Applicable             27,018       => 6.0%
      Core Capital to Adjusted Tangible Assets..........      65,204       9.2%      28,442       =>4.0%      35,553       => 5.0%
      Tangible Capital to Tangible Assets...............      65,204       9.2%      10,666       =>1.5%      Not Applicable

      December 31, 2000
      Total Capital to Risk-Weighted Assets
         (Risk-Based Capital)...........................  $   62,092      13.5%  $   36,770       =>8.0%  $   45,963       =>10.0%
      Tier 1 Capital to Risk-Weighted Assets............      56,261      12.2%    Not Applicable             27,578       => 6.0%
      Core Capital to Adjusted Tangible Assets..........      56,261       8.7%      25,759       =>4.0%      32,199       => 5.0%
      Tangible Capital to Tangible Assets...............      56,261       8.7%       9,659       =>1.5%      Not Applicable`

## 16. RELATED
PARTY TRANSACTIONS

In April 2001 the Company sold mortgage-backed  securities with a book value of $1.5 million to Fog Cutter Capital Group Inc. ("FCCG", formerly
known as Wilshire Real Estate  Investment Inc.  ("WREI")) for a loss of approximately  $0.3 million.  FCCG owned  approximately  18% of the Company's
outstanding common stock at December 31, 2001 and approximately 14% at December 31, 2000.

From WREI's inception in April 1998 until September 1999, Wilshire Realty Services  Corporation  ("WRSC"), a subsidiary of the Company, was the
manager of WREI and earned a management  fee based on the level of WREI's  investment  assets.  The Company,  through  WRSC,  earned  management  fee
income of $1.1  million for the seven  months  ended  December  31, 1999 and $1.3  million for the five months  ended May 31,  1999.  From 1999 until
August 2000,  the Company had a $5.0 million note payable to WREI  bearing  interest at 12%,  which was funded under a  debtor-in-possession  ("DIP")
facility.

In October 1999, WFSG sold mortgage-backed  securities with a book value of $20.9 million and transferred related debt of $18.5 million to WREI
for net  proceeds of  approximately  $2.4  million.  Such amount was  applied to the $5.8  million  discounted  present  value (book  value) of a 6%,
unsecured  pay-in-kind  ("PIK") note payable to WREI. No gain or loss was recorded on this sale, as the  mortgage-backed  securities  had  previously
been written down to the sales price in the accompanying consolidated financial statements.

In December 1999, the Company  entered into an agreement with WREI. The principal terms of the agreement  include,  but are not limited to, the
following:  WFSG sold to WREI all of its interest in WREI's  common  stock,  including  992,587  shares of WREI common  stock,  rights to  previously
declared  dividends on such shares,  and options to purchase an additional  1,112,500  shares;  WFSG released WREI from the  management fee otherwise
payable by WREI under a management  agreement  between WFSG and WREI for the  quarterly  period ended  September  30,  1999;  WREI  cancelled  WFSG's
obligations  under the PIK note  previously  issued by WFSG to WREI;  and WFSG  issued to WREI an  unsecured  promissory  note in the  amount of $275
bearing interest at 9%.

In August 2000,  the Company  reached an agreement  with WREI  pursuant to which the $5.0  million DIP loan and the $275  promissory  note were
settled in full and WREI was released from any additional  management  fees payable after  September  1999.  During the year ended December 31, 2000,
the Company incurred approximately $0.4 million in interest expense to WREI on these notes.

At December 31, 2001 and 2000,  the Company had an  outstanding  loan to a principal of CCL (the 49.99%  minority  owner of WCC) with an unpaid
principal balance of approximately $2.6 million, bearing interest at 15.5%, and had recorded a specific valuation allowance of $1.5 million.

## 17. NET
EARNINGS (LOSS) PER SHARE

The Company has outstanding  stock options which are considered  common stock  equivalents in the calculation of earnings per share.  Following
is a  reconciliation  of net income available to common  shareholders and weighted average shares  outstanding as used to calculate basic and diluted
earnings per share for the years ended December 31, 2001 and 2000.

`Weighted
                                                                                     Average       Per Share
                                                                       Income         Shares         Amount
                                                                    ------------   ------------   ------------
      Year ended December 31, 2001
      Net income applicable to common stock......................   $      5,612     20,138,015   $       0.28
      Dilution from stock options................................             --      1,038,054             --
                                                                    ------------   ------------   ------------
      Diluted income per share...................................   $      5,612     21,176,069   $       0.27
                                                                    ============   ============   ============

                                                                                    Weighted
                                                                                     Average       Per Share
                                                                       Income         Shares         Amount
                                                                    ------------   ------------   ------------
      Year ended December 31, 2000
      Net income before extraordinary item.......................   $      3,182     20,035,458      $    0.16
      Extraordinary item, net of tax.............................            239     20,035,458           0.01
                                                                    ------------   ------------   ------------
      Net income applicable to common stock......................          3,421     20,035,458           0.17
      Dilution from stock options................................             --        219,905             --
                                                                    ------------   ------------   ------------
      Diluted income per share...................................   $      3,421     20,255,363   $       0.17
                                                                    ============   ============   ============`

For the seven-month period subsequent to the Company's  restructuring,  the Company had outstanding stock options on its new common stock, some
of which are required to be considered common stock equivalents.  However,  the Company experienced a loss for this period,  which resulted in common
stock equivalents having an anti-dilutive  effect on loss per share.  Therefore,  loss per share is calculated by dividing net loss by the 20,033,600
outstanding shares of the Company's new common stock.

`Weighted
                                                                                    Average      Per Share
                                                                   Net Loss         Shares         Amount
                                                                --------------   -------------   ----------
      Seven months ended December 31, 1999
      Net loss applicable to common stock....................   $      (14,091)     20,033,600   $    (0.70)
      Dilution from stock options............................               --              --           --
                                                                --------------   -------------   ----------
      Diluted loss per share.................................   $      (14,091)     20,033,600   $    (0.70)
                                                                ==============   =============   ==========`

For the five months ended May 31, 1999, the Company had outstanding  stock options on its old common stock which were  considered  common stock
equivalents in the calculation of (loss)  earnings per share.  However,  because the exercise price of the options then  outstanding on the Company's
old common stock  exceeded the average  market price of the common stock during the period,  exercise of the options  would have been  anti-dilutive.
As a result,  the weighted  average shares  outstanding is the same for basic and diluted (loss) earnings per share,  which is calculated by dividing
(loss) income by the 10,885,000 outstanding shares of old common stock, as follows:

`Weighted
                                                                                     Average     Per Share
                                                                 (Loss) Income      Shares         Amount
                                                                 -------------    ------------   ----------
      Five months ended May 31, 1999
      Net loss before extraordinary item......................   $     (68,268)     10,885,000   $    (6.27)
      Extraordinary item, net of tax..........................         225,606      10,885,000        20.72
                                                                 -------------    ------------   ----------
      Net income applicable to common stock...................         157,338      10,885,000        14.45
      Dilution from stock options.............................              --              --           --
                                                                 -------------    ------------   ----------
      Diluted income per share................................   $     157,338      10,885,000   $    14.45
                                                                 =============    ============   ==========`

## 18. EMPLOYEE
BENEFITS AND AGREEMENTS

Profit  Sharing  Plan--The  Company's  employees  participate  in a defined  contribution  profit sharing and 401(k) plan sponsored by companies
included in the Company's  "control  group." At the discretion of the Company's  Board of Directors,  the Company may elect to contribute to the plan
based on profits of the Company or based on matching  participants'  contributions.  The Company contributed $431, $468 and $395,  respectively,  for
the years ended  December  31,  2001 and 2000 and for the  seven-month  period  ended  December  31,  1999.  There was no such  contribution  for the
five-month period ended May 31, 1999.

Employment  Agreements--From  April 1, 2000 to February 28, 2002, the Company's  Chief  Executive  Officer,  Mr. Stephen P. Glennon,  received a
salary of $24.00 per year for two years,  and was  reimbursed for certain living  expenses.  Mr. Glennon also was granted  575,000 stock options at a
price of $1.1875 per share.  The options  vested at the rate of 25,000 per month and had vested in full as of February  28,  2002.  In March 2002 Mr.
Glennon  entered into a new employment  agreement with the Company.  Pursuant to this  agreement,  Mr. Glennon will receive a salary of $100,000 from
March 1, 2002 to February 28, 2003 and a salary of $300,000 from March 1, 2003 to February 29, 2004,  and will continue to be reimbursed  for certain
living  expenses.  Mr.  Glennon also was granted  300,000  stock  options at a price of $2.34 per share,  vesting at the rate of 12,500 per month for
each month of employment  completed by Mr. Glennon.  Mr.  Glennon's new agreement  provides that, in the event of a change in control of the Company,
all of his options will vest and immediately  become  exercisable,  and he will be paid $500,000 in consideration of a general release of all claims.
If the Company  terminates Mr. Glennon's  employment without cause, all of his stock options will vest and he will be paid $150,000 in exchange for a
general  release of all claims.  In the event Mr.  Glennon  voluntarily  terminates his  employment,  he shall receive only those options that vested
through the date of his resignation and will receive no further salary.

The Company and the Bank entered into an Employment,  Confidentiality  and Severance  Agreement with Mr. Joseph
W. Kiley III, effective as of March 12, 2001,  thereafter,  amended,  generally effective as of August 30, 2001 (the
"Kiley  Agreement").  The Kiley  Agreement  provides  that Mr. Kiley serve as  Executive  Vice  President  and Chief
Financial Officer of the Bank for the periods between March 12, 2001 and August 30, 2001;  thereafter,  as President
of the Bank.  Pursuant to the Kiley  Agreement,  Mr.  Kiley's  employment  is for a term of two years  commencing on
March 12, 2001,  with an option to renew for successive  periods of twelve months each.  Under the Kiley  Agreement,
Mr. Kiley receives an annual base salary of $180,000,  increased to $200,000  effective as of August 30, 2001, and a
car  allowance  of $750.00 per month.  In  addition,  Mr. Kiley is entitled to  participate  in the Bank's  employee
benefit plans,  medical,  dental,  vision,  disability or insurance programs, if any, to the extent offered to other
officers of similar  position under the Bank's  personnel  policies.  The Kiley  Agreement also provides for a stock
option grant to Mr.  Kiley under the  Company's  1999 Equity  Participation  Plan,  covering an aggregate of 150,000
shares of the  Company's  Common  Stock at a price of $1.625 per share.  The stock option grant vests in three equal
annual  installments  beginning on March 12, 2002 and is subject to forfeiture under certain  circumstances prior to
September  12, 2002.  Under the Kiley  Agreement,  Mr. Kiley is granted an  additional  stock option grant under the
Companys  1999 Equity  Participation  Plan,  covering an  aggregate of 50,000  shares of Company  Common Stock at a
price of $1.90 per share  effective as of October 2, 2001.  The  additional  stock option grant vests in three equal
annual  installments  beginning on October 2, 2002. All stock options  granted under the Kiley Agreement are granted
at a price  equal to the fair  market  value of the  Company's  Common  Stock on the date of grant.  Pursuant to the
Kiley  Agreement,  in the event Mr.  Kiley's  employment  is  terminated  upon the  occurrence of an "Other Event of
Termination,"  (as defined in the Kiley  Agreement) he is entitled to an amount equal to his then annual base salary
and to life,  medical,  dental and disability  coverage  substantially  identical to the coverage  maintained by the
Bank or the  Company for Mr.  Kiley prior to his  termination  of  employment  at no cost to him for a period of one
year,  subject  to  certain  limitations.  Under the Kiley  Agreement,  in the event of a "change  in  control"  (as
defined in the Kiley  Agreement) of the Bank or the Company,  Mr.  Kiley's stock options become  immediately  vested
and exercisable.  Furthermore,  in the event Mr. Kiley's  employment is terminated  within 12 months after a "change
in control," without "cause" (as defined in the Kiley Agreement) or following Mr. Kiley's  resignation  following an
Other Event of  Termination,  Mr.  Kiley is  entitled  to a sum equal to two times the  average of his "Annual  Cash
Compensation,"  as defined  below,  for the five most recent  taxable  years that Mr.  Kiley is employed by the Bank
(subject to certain  adjustments) and to life, medical,  dental and disability coverage  substantially  identical to
the coverage  maintained by the Bank or the Company for Mr. Kiley prior to his  termination of employment at no cost
to him for a period  of one  year,  subject  to  certain  limitations.  Under  the  Kiley  Agreement,  "Annual  Cash
Compensation"  includes base salary,  commissions,  bonuses, and directors or committee fees. The Kiley Agreement is
attached hereto as Exhibit 10.2.

In October 2000, the Company gave  change-in-control  agreements to Messrs. Bruce A. Weinstein,  Jay H. Memmott,  Mark H. Peterman,  Russell T.
Campbell and Bradley B. Newman.  The Company revised portions of these  agreements in April 2001.  These  agreements  provide that, in the event of a
change in control of the Company,  these  executives  would be entitled to receive a severance  payment if within a specified  period of time after a
change in control,  their  employment  is  involuntarily  terminated by the Company for any reason other than cause or death or  disability,  or they
voluntarily  terminate their  employment  after certain adverse changes in the terms of their  employment  ("Good  Reason").  The specified period of
time is 120 days for Messrs.  Weinstein,  Memmott,  Campbell and Newman and one year for Mr.  Peterman.  In  addition,  Messrs.  Weinstein,  Memmott,
Campbell and Newman are entitled to their severance  payment if they terminate their  employment  after the 120-day period,  whether or not they have
been  terminated  without  cause or  voluntarily  terminate  for Good Reason.  The amount of the severance  payment for Messrs.  Weinstein,  Memmott,
Campbell and Newman would be twice their annual base salary, and the severance payment for Mr. Peterman would be equal to his base salary.

Stock Options--The Company adopted a new stock option plan, the Equity  Participation  Plan, on December 2, 1999. The Equity  Participation Plan
permits the Company to grant incentive stock options ("ISOs"),  non-statutory stock options ("NSOs"),  restricted stock and stock appreciation rights
(collectively  "Awards")  to  employees,  directors  and  consultants  of the  Company  and  subsidiaries  of the  Company.  In June 2000 the  Equity
Participation  Plan was amended to increase  the number of shares  reserved  for  issuance by  1,200,000  shares of common  stock to an  aggregate of
4,000,000  shares,  and to allow any  participant in the Plan to receive grants of options or other awards with respect to up to 1,000,000  shares of
common stock per year.  In January  2001 the Plan was further  amended to revise the  definition  of "change in control" in those  provisions  of the
Plan that permit  accelerated  vesting of the options in the event of a change in control and in April 2001, the Plan was amended to provide that all
options  would  vest upon a change in  control.  The  Board of  Directors  has  delegated  administration  of the  Equity  Participation  Plan to the
Compensation Committee (the "Committee").

Under the Equity  Participation  Plan, the Committee may grant ISOs and NSOs.  The option  exercise price of both ISOs and NSOs may not be less
than the fair  market  value of the  shares  covered  by the  option on the date the  option is  granted.  The  Committee  may also  grant  Awards of
restricted  shares of Common Stock.  Each  restricted  stock Award would specify the number of shares of Common Stock to be issued to the  recipient,
the date of issuance,  any consideration for such shares and the restrictions  imposed on the shares (including the conditions of release or lapse of
such  restrictions).  The Committee may also grant Awards of stock  appreciation  rights. A stock  appreciation  right entitles the holder to receive
from the  Company,  in cash or Common  Stock,  at the time of  exercise,  the excess of the fair  market  value at the date of exercise of a share of
Common  Stock  over a  specified  price  fixed by the  Committee  in the  Award,  multiplied  by the  number of shares as to which the right is being
exercised.  The specified  price fixed by the  Committee  will not be less than the fair market value of shares of Common Stock at the date the stock
appreciation right was granted.

A summary of the Company's stock options as of December 31, 2001, 2000 and 1999, and changes during the periods then ended, is presented below:

`Reorganized Company                               Predecessor Company
                                   ----------------------------------------------------------------------   -----------------------
                                          Year Ended              Year Ended         Seven Months Ended        Five Months Ended
                                      December 31, 2001       December 31, 2000       December 31, 1999          May 31, 1999
                                   ----------------------- ------------------------  --------------------   -----------------------
                                                 Weighted                 Weighted              Weighted                  Weighted
                                                 Average                  Average                Average                  Average
                                                 Exercise                 Exercise              Exercise                  Exercise
                                     Shares       Price        Shares      Price      Shares     Price        Shares       Price
                                   ----------   ----------   ----------  ----------  --------  ----------   ----------   ----------
Outstanding at beginning of
   period........................   3,157,000   $     1.16      370,000  $     1.10        --  $       --    1,809,776   $    15.62
Cancelled........................          --           --           --          --        --          --   (1,809,776)          --
Granted  ........................     810,000         1.61    3,135,000        1.15   370,000        1.10           --           --
Exercised........................    (314,000)        1.06           --          --        --          --           --           --
Forfeited........................    (463,000)        1.12     (348,000)       1.06        --          --           --           --
                                   ----------   ----------   ----------  ----------  --------  ----------   ----------    ---------
Outstanding at end of
    period.......................   3,190,000   $     1.35    3,157,000  $     1.16   370,000  $     1.10           --    $      --
                                   ==========   ==========   ==========  ==========  ========  ==========   ==========    =========
Exercisable at end of
    period.......................   1,508,320   $     1.17      806,659  $     1.10        --  $       --           --    $      --
                                   ==========   ==========   ==========  ==========  ========  ==========   ==========    =========`

Additional information regarding options outstanding as of December 31, 2001 is as follows:

`Average        Average
                                           Range of                                   Remaining       Exercise
                                       Exercise Prices                  Shares           Life          Price
                                       ---------------               ------------    -----------     --------
      $0.88......................................................        30,000           8.24          $0.88
      $1.06-$1.19................................................     1,640,000           8.18          $1.11
      $1.22-$1.38................................................       710,000           8.59          $1.35
      $1.64-$1.90................................................       780,000           9.65          $1.84
      $2.20......................................................        30,000           9.44          $2.20`

The Company applies  Accounting  Principles Board Opinion No. 25,  "Accounting for Stock Issued to Employees," and related  Interpretations  in
accounting for its Equity  Participation Plan.  Accordingly,  no compensation  expense has been recognized for grants under the Equity  Participation
Plan. Had  compensation  expense for the Company's  Equity  Participation  Plan been determined  based on the fair value at the grant date consistent
with the methods of SFAS No. 123, the  Company's  net income and  earnings  per share for the years ended  December 31, 2001 and 2000 would have been
reduced to the pro forma amounts indicated below. There was no pro-forma  adjustment to record compensation  expense under SFAS No. 123 for the seven
months ended December 31, 1999 as the options were granted near year-end.  In addition,  there was no pro-forma adjustment under SFAS No. 123 for the
five months ended May 31, 1999 since the options then outstanding were canceled as part of the Company's reorganization (see Note 1).

`Year Ended       Year Ended
                                                                       December 31,     December 31,
                                                                           2001             2000
                                                                       ------------     ------------
      Net income to common shareholders:
            As reported............................................    $      5,612     $      3,421
            Pro forma..............................................           4,980            3,009
      Net income per common and common share equivalent:
            Basic earnings per share:
                  As reported......................................    $       0.28     $       0.17
                  Pro forma........................................            0.25             0.15
            Diluted earnings per share:
                  As reported......................................    $       0.27     $       0.17
                  Pro forma........................................            0.24             0.15`

There were no options  granted  during the years ended  December  31, 2001 or 2000 or the seven months  ended  December 31, 1999 with  exercise
prices below the market  value of the stock at the grant date.  (The  Company did not grant any options  during the five months ended May 31,  1999.)
The weighted  average fair values of options  granted  during the years ended December 31, 2001 and 2000 and the seven months ended December 31, 1999
were $0.77,  $0.94, and $0.88,  respectively.  Fair values were estimated using the Black-Scholes  option-pricing  model with the following  weighted
average  assumptions  used: no dividend  yield,  expected  volatility of 40% (2001) and 72% (2000),  risk-free  interest rate of 4.3% (2001) and 4.8%
(2000), and expected lives of five years.

## 19. ESTIMATED
FAIR VALUES OF FINANCIAL INSTRUMENTS

The following  disclosure of the estimated fair value of financial  instruments is made in accordance  with the  requirements  of SFAS No. 107,
"Disclosures about Fair Value of Financial  Instruments." The estimated fair value amounts have been determined by the Company using available market
information and appropriate  valuation  methodologies.  However,  considerable  judgment is required to interpret market data to develop estimates of
fair value.  Accordingly,  the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

`December 31, 2001             December 31, 2000
                                                                   ---------------------------   ---------------------------
                                                                     Carrying      Estimated       Carrying      Estimated
                                                                      Amount       Fair Value       Amount       Fair Value
                                                                   ------------   ------------   ------------   ------------
    Assets:
          Cash and cash equivalents ............................   $     37,876   $     37,876   $      9,516   $      9,516
          Mortgage-backed securities available for sale ........        119,540        119,540         44,638         44,638
          Investment securities available for sale .............          8,000          8,000          9,500          9,500
          Loans and discounted loans, net ......................        540,343        552,564        572,090        585,007
          Federal Home Loan Bank stock .........................          9,475          9,475          6,615          6,615
          Servicer advance receivables, net ....................         18,266         14,206         19,063         15,206
          Purchased mortgage servicing rights ..................          8,473         10,099          4,544          7,533
          Service fees receivable ..............................          3,100          3,100          2,198          2,198
          Receivables from other loan servicers ................          1,788          1,788          3,161          3,161
    Liabilities:
          Deposits .............................................        439,469        441,321        435,073        418,883
          Short-term borrowings ................................          9,970          9,970          9,123          9,123
          FHLB advances ........................................        189,500        194,984        132,000        136,034
          Long-term investment financing .......................         14,474         14,474          1,634          1,634
    Off-balance-sheet instruments:
          Interest-rate swaps ..................................             --             --             --             22`

The methods and assumptions used to estimate the fair value of each class of financial  instrument for which it is practicable to estimate that
value are explained below:

Cash and Cash Equivalents--The carrying amounts approximate fair values due to the short-term nature of these instruments.

Securities and Mortgage-Backed  Securities--The  fair values of securities are generally obtained from discounted cash flow models,  market bids
for similar or identical securities, independent security brokers or dealers.

Loans and Discounted  Loans--Loans are segregated by type,  such as fixed- and  adjustable-rate  interest  terms.  The fair values of fixed-rate
mortgage loans are based on discounted cash flows utilizing  applicable  risk-adjusted  spreads relative to the current pricing of similar fixed-rate
loans as well as anticipated  prepayment  schedules.  The fair values of adjustable-rate  mortgage loans are based on discounted cash flows utilizing
discount rates that approximate the pricing of available  mortgage-backed  securities having similar rate and repricing  characteristics,  as well as
anticipated  prepayment  schedules.  No value adjustments have been made for changes in credit within the loan portfolio.  It is management's opinion
that the allowance  for estimated  loan losses  pertaining  to loans  results in a fair value  adjustment of the credit risk of such loans.  The fair
value of discounted  loans,  which are  predominately  non-performing  loans,  is more difficult to estimate due to  uncertainties  as to the nature,
timing and extent to which the loans will be either collected according to original terms,  restructured,  or foreclosed upon. Discounted loans' fair
values were  estimated  using the Company's  best  judgement for these factors in  determining  the estimated  present value of future net cash flows
discounted at a  risk-adjusted  market rate of return.  For other loans,  fair values are estimated  for  portfolios of loans with similar  financial
characteristics.

Federal Home Loan Bank Stock--The  carrying amounts  approximate fair values because the stock may be sold back to the Federal Home Loan Bank at
carrying value.

Servicer Advance  Receivables--The  fair value calculation for servicer advance receivables is separately performed for the following categories
of advances:

| | 1) | Advances related to scheduled remittances on certain securitizations for borrowers who are current   
| | -- | -----------------------------------------------------------------------------------------------------
| | 2) | Advances related to scheduled remittances on certain securitizations for borrowers who are delinquent
| | 3) | Impound payments and loan collection costs on securitizations and other servicing arrangements       

Advances on scheduled remittances on certain securitizations  approximate their book value for borrowers who are current, as the funds expended
are generally  repaid by the mortgagors in a matter of days. For advances on scheduled  remittances  on certain  securitizations  where the borrowers
are delinquent,  the expected  repayments are anticipated to occur generally within twelve months,  although a portion of such advances may be repaid
over the term of the underlying  loans,  and have been discounted  utilizing the Company's cost of funds.  Impound payments and loan collection costs
on  securitizations  and other servicing  arrangements  are also generally  recovered  within twelve months,  and have been discounted  utilizing the
Company's costs of funds.

Purchased Mortgage  Servicing  Rights--The fair value of MSRs is determined by estimating the present value of expected future cash flows, using
a discount rate that is considered  commensurate  with the risks involved.  The amounts and timing of the cash flows are estimated after  considering
various economic factors including prepayment speeds, delinquency and default assumptions.

Service Fees Receivable and Receivables  from Other Loan  Servicers--The  carrying amounts of service fees receivable and receivables from other
loan servicers approximate fair value as the amounts are generally recovered on a monthly basis.

Deposits--The  fair values of deposits  are  estimated  based on the type of deposit  products.  Demand  accounts,  which  include  passbook and
transaction  accounts,  are presumed to have equal book and fair  values,  since the interest  rates paid on these  accounts are based on  prevailing
market rates.  The estimated  fair values of time deposits are determined by  discounting  the cash flows of  settlements of deposits  having similar
maturities and rates, utilizing a yield curve that approximated the prevailing rates offered to depositors as of the reporting date.

Short-Term Borrowings--The carrying amounts of short-term borrowings approximate fair value due to the short-term nature of these instruments.

FHLB  Advances--The  carrying value of FHLB advances  maturing  within one year  approximates  fair value.  The fair value of FHLB advances with
maturities greater than one year is estimated using rates currently offered for borrowings and advances of similar maturities.

Long-term Investment  Financing--The carrying value of the Company's long-term investment financing is a reasonable approximation of fair value,
as these borrowings have remaining maturities of approximately one year and bear interest at prevailing market rates.

Off-Balance-Sheet  Liabilities--The  fair values of interest-rate  swaps are estimated at the net present value of the future payable,  based on
the current  spread,  discounted  at a current  rate.  Fair values of  off-balance-sheet  commitments  to lend are  estimated  based on deferred fees
associated with such commitments, which are immaterial as of the reporting date.

The fair value  estimates  presented  herein are based on pertinent  information  available to management as of each reporting  date.  Although
management is not aware of any factors that would significantly  affect the estimated fair value amounts,  such amounts have not been comprehensively
revalued for purposes of these financial  statements since that date, and therefore,  current estimates of fair value may differ  significantly  from
the amounts presented herein.

## 20. OPERATING
SEGMENTS

The Company's reportable operating segments, as defined by the Company's management,  consist of its Banking operations and Specialty Servicing
and Finance  operations.  The operating  segments differ in terms of regulatory  environment,  funding sources and asset acquisition  strategies,  as
described below:

Banking - The Company's  banking  operations are conducted  through FBBH. The Bank is engaged in a wholesale banking business focused primarily
on  small-balance  commercial and  multi-family  real estate lending and  acquisitions of securities.  The primary source of liquidity for the Bank's
acquisitions and  originations is wholesale  certificates of deposit,  retail deposits,  FHLB advances,  and, to a lesser extent,  short-term  credit
facilities.  The Bank is a federally chartered savings bank and is regulated by the OTS.

Specialty  Servicing and Finance - The Company conducts its Specialty  Servicing and Finance Operations  through its  majority-owned  servicing
subsidiary,  Wilshire Credit Corporation  ("WCC"),  and through its wholly-owned  investment  subsidiary,  Wilshire Funding Corporation  ("WFC"). WCC
conducts a full-service  mortgage and consumer loan servicing  business,  specializing in the servicing of  labor-intensive  mortgage pools requiring
expertise in loss mitigation and/or investor  reporting.  WFC operates an investment and co-investment  business with  institutional  investors where
such investments (1) align the Company's  interests with those of such  institutional  investors and (2) provide operating leverage for the servicing
operations of WCC. The Company's Specialty  Servicing and Finance  Operations'  funding sources consist primarily of internal  liquidity,  commercial
bank financing,  institutional  lenders and co-investors under debt service repayment terms which generally parallel the schedule of anticipated cash
flows of the underlying collateral.

Holding Company and Miscellaneous  Operations - The Company's Holding Company and Miscellaneous  Operations consist of other operating revenues
and  expenses  not  directly  attributable  to the  aforementioned  business  segments,  and  includes  eliminations  of  intercompany  accounts  and
transactions.

Segment data for the years ended December 31, 2001 and 2000, the seven months ended December 31, 1999, and the five months ended May 31, 1999
are as follows:

`Year Ended December 31, 2001
                                                              ---------------------------------------------------------
                                                                              Specialty
                                                                              Servicing       Holding
                                                                Banking      and Finance      Company         Total
                                                              ------------   ------------   ------------   ------------
    Interest income .......................................   $     51,901   $      5,305   $        310   $     57,516
    Interest expense ......................................         34,472          1,358           (143)        35,687
                                                              ------------   ------------   ------------   ------------
    Net interest income ...................................         17,429          3,947            453         21,829
    Recapture of loan losses ..............................         (1,730)           (54)            --         (1,784)
                                                              ------------   ------------   ------------   ------------
    Net interest income after recapture of loan losses ....         19,159          4,001            453         23,613
    Other income ..........................................          9,227         20,095            379         29,701
    Other expense .........................................         15,845         25,804          3,700         45,349
                                                              ------------   ------------   ------------   ------------
    Income (loss) before minority interest and taxes ......         12,541         (1,708)        (2,868)         7,965
    Minority interest .....................................             --             --            647            647
                                                              ------------   ------------   ------------   ------------
    Income (loss) before taxes ............................         12,541         (1,708)        (2,221)         8,612
    Income tax provision (benefit) ........................          5,619             --         (2,619)         3,000
                                                              ------------   ------------   ------------   ------------
    Net income (loss) .....................................   $      6,922   $     (1,708)  $        398   $      5,612
                                                              ============   ============   ============   ============
    Total assets ..........................................   $    716,766   $     70,164   $    (17,926)  $    769,004
                                                              ============   ============   ============   ============


                                                                             Year Ended December 31, 2000
                                                              ---------------------------------------------------------
                                                                              Specialty
                                                                              Servicing       Holding
                                                                Banking      and Finance      Company         Total
                                                              ------------   ------------   ------------   ------------
    Interest income .......................................   $     50,847   $      4,364   $       (691)  $     54,520
    Interest expense ......................................         33,946          1,276            433         35,655
                                                              ------------   ------------   ------------   ------------
    Net interest income (loss) ............................         16,901          3,088         (1,124)        18,865
    (Recapture of) provision for loan losses ..............         (5,800)         1,669            104         (4,027)
                                                              ------------   ------------   ------------   ------------
    Net interest income (loss) after (recapture of)
       provision for loan losses ..........................         22,701          1,419         (1,228)        22,892
    Other income ..........................................          6,744         17,199          1,602         25,545
    Other expense .........................................         21,143         22,165           (446)        42,862
                                                              ------------   ------------   ------------   ------------
    Income (loss) before minority interest, taxes and
       extraordinary item .................................          8,302         (3,547)           820          5,575
    Minority interest .....................................             --             --          1,203          1,203
                                                              ------------   ------------   ------------   ------------
    Income (loss) before taxes and extraordinary item .....          8,302         (3,547)         2,023          6,778
    Income tax provision ..................................          3,570             --             26          3,596
                                                              ------------   ------------   ------------   ------------
    Income (loss) before extraordinary item ...............          4,732         (3,547)         1,997          3,182
    Extraordinary item ....................................             --             --            239            239
                                                              ------------   ------------   ------------   ------------
    Net income (loss) .....................................   $      4,732   $     (3,547)  $      2,236   $      3,421
                                                              ============   ============   ============   ============
    Total assets ..........................................   $    646,373   $     54,325   $     (4,648)  $    696,050
                                                              ============   ============   ============   ============


                                                                                 Reorganized Company
                                                                                 -------------------
                                                                                  Seven Months Ended
                                                                                  December 31, 1999
                                                              ---------------------------------------------------------
                                                                              Specialty
                                                                              Servicing       Holding
                                                                Banking      and Finance      Company         Total
                                                              ------------   ------------   ------------   ------------
    Interest income .......................................   $     28,350   $      7,459   $        949   $     36,758
    Interest expense ......................................         17,447          2,459            957         20,863
                                                              ------------   ------------   ------------   ------------
    Net interest income (loss) ............................         10,903          5,000             (8)        15,895
    (Recapture of) provision for loan losses ..............         (1,250)         2,185             90          1,025
                                                              ------------   ------------   ------------   ------------
    Net interest income (loss) after (recapture
       of) provision for loan losses ......................         12,153          2,815            (98)        14,870
    Other income (loss) ...................................          1,481          2,067         (1,647)         1,901
    Other expense .........................................          9,900         14,500          6,350         30,750
                                                              ------------   ------------   ------------   ------------
    Income (loss) before minority interest and
       taxes ..............................................          3,734         (9,618)        (8,095)       (13,979)
    Minority interest .....................................             --             --            542            542
                                                              ------------   ------------   ------------   ------------
    Income (loss) before taxes ............................          3,734         (9,618)        (7,553)       (13,437)
    Income tax provision (benefit) ........................          1,606             --           (952)           654
                                                              ------------   ------------   ------------   ------------
    Net income (loss) .....................................   $      2,128   $     (9,618)  $     (6,601)  $    (14,091)
                                                              ============   ============   ============   ============
    Total assets ..........................................   $    566,755   $     76,942   $     10,821   $    654,518
                                                              ============   ============   ============   ============


                                                                                 Predecessor Company
                                                                                 -------------------
                                                                                  Five Months Ended
                                                                                    May 31, 1999
                                                              ---------------------------------------------------------
                                                                              Specialty
                                                                              Servicing       Holding
                                                                Banking      and Finance      Company         Total
                                                              ------------   ------------   ------------   ------------
    Interest income .......................................   $     17,771   $      8,537   $      1,557   $     27,865
    Interest expense ......................................         11,680          4,732          6,717         23,129
                                                              ------------   ------------   ------------   ------------
    Net interest income (loss) ............................          6,091          3,805         (5,160)         4,736
    Provision for (recapture of) loan losses ..............             --          2,875           (178)         2,697
                                                              ------------   ------------   ------------   ------------
    Net interest income (loss) after provision for
       (recapture of) loan losses .........................          6,091            930         (4,982)         2,039
    Other income ..........................................          4,378          6,554          2,827         13,759
    Other expense .........................................          7,778         16,437          7,159         31,374
                                                              ------------   ------------   ------------   ------------
    Income (loss) before reorganization items, taxes
       and extraordinary item .............................          2,691         (8,953)        (9,314)       (15,576)
    Reorganization items ..................................             --        (27,636)       (24,398)       (52,034)
                                                              ------------   ------------   ------------   ------------
    Income (loss) before taxes and extraordinary item .....          2,691        (36,589)       (33,712)       (67,610)
    Income tax provision (benefit) ........................          1,357             --           (699)           658
                                                              ------------   ------------   ------------   ------------
    Income (loss) before extraordinary item ...............          1,334        (36,589)       (33,013)       (68,268)
    Extraordinary item ....................................             --         78,978        146,628        225,606
                                                              ------------   ------------   ------------   ------------
    Net income ............................................   $      1,334   $     42,389   $    113,615   $    157,338
                                                              ============   ============   ============   ============
    Total assets ..........................................   $    606,954   $    125,893   $     54,440   $    787,287
                                                              ============   ============   ============   ============`

## 21.   QUARTERLY RESULTS OF OPERATIONS (Unaudited)

`Quarters Ended
                                                                ---------------------------------------------------------
                                                                December 31,   September 30,    June 30,       March 31,
                                                                    2001           2001           2001           2001
                                                                ------------   ------------   ------------   ------------
    Interest income .........................................   $     12,699   $     15,535   $     14,348   $     14,934
    Interest expense ........................................          7,870          9,305          9,758          8,754
                                                                ------------   ------------   ------------   ------------
    Net interest income .....................................          4,829          6,230          4,590          6,180
    Provision for (recapture of) loan losses ................             13         (2,082)           135            150
                                                                ------------   ------------   ------------   ------------
    Net interest income after provision for (recapture of)
       loan losses ..........................................          4,816          8,312          4,455          6,030
    Other income ............................................          4,084          6,143         12,158          7,316
    Other expense ...........................................         10,977          9,498         12,679         12,195
                                                                ------------   ------------   ------------   ------------
    (Loss) income before minority interest and taxes ........         (2,077)         4,957          3,934          1,151
    Minority interest .......................................            727            (94)           574           (560)
                                                                ------------   ------------   ------------   ------------
    (Loss) income before taxes ..............................         (1,350)         4,863          4,508            591
    Income tax (benefit) provision ..........................         (1,051)         1,955          1,965            131
                                                                ------------   ------------   ------------   ------------
    Net (loss) income .......................................   $       (299)  $      2,908   $      2,543   $        460
                                                                ============   ============   ============   ============
    (Loss) earnings per share - basic........................   $      (0.01)  $       0.14   $       0.13   $       0.02
    (Loss) earnings per share - diluted......................   $      (0.01)  $       0.14   $       0.12   $       0.02


                                                                                     Quarters Ended
                                                                ---------------------------------------------------------
                                                                December 31,   September 30,    June 30,       March 31,
                                                                    2000           2000           2000           2000
                                                                ------------   ------------   ------------   ------------                                                                           ------------     -------------    -------------    -------
    Interest income .........................................   $     13,673   $     14,291   $     14,088   $     12,468
    Interest expense ........................................          9,994          9,321          9,031          7,309
                                                                ------------   ------------   ------------   ------------
    Net interest income .....................................          3,679          4,970          5,057          5,159
    Provision for (recapture of) for loan losses ............            200         (1,131)        (1,700)        (1,396)
                                                                ------------   ------------   ------------   ------------
    Net interest income after provision for (recapture of)
       loan losses ..........................................          3,479          6,101          6,757          6,555
    Other income ............................................          6,592          7,401          5,427          6,125
    Other expense ...........................................         10,386         11,264         10,225         10,987
                                                                ------------   ------------   ------------   ------------
    (Loss) income before minority interest, taxes and
       extraordinary item ...................................           (315)         2,238          1,959          1,693
    Minority interest .......................................             (7)           614             95            501
                                                                ------------   ------------   ------------   ------------
    (Loss) income before taxes and extraordinary item .......           (322)         2,852          2,054          2,194
    Income tax provision ....................................            453          1,238            929            976
                                                                ------------   ------------   ------------   ------------
    (Loss) income before extraordinary item .................           (775)         1,614          1,125          1,218
    Extraordinary item ......................................             --            239             --             --
                                                                ------------   ------------   ------------   ------------
    Net (loss) income .......................................   $       (775)  $      1,853   $      1,125   $      1,218
                                                                ============   ============   ============   ============
    Basic and diluted (loss) earnings per share..............   $      (0.04)  $       0.09   $       0.06   $       0.06
                                                                ============   ============   ============   ============`

## 22. PARENT
COMPANY INFORMATION

## Condensed
Statements of Financial Condition

`December 31,
                                                                                      -------------------------
                                                                                         2001          2000
                                                                                      -----------   -----------
      ASSETS
      Cash and cash equivalents.....................................................  $     1,600   $       255
      Investment in subsidiaries....................................................       96,063        88,721
      Prepaid expenses and other assets.............................................       16,226         6,089
                                                                                      -----------   -----------
                                                                                      $   113,889   $    95,065
                                                                                      ===========   ===========
      LIABILITIES AND STOCKHOLDERS' EQUITY
      Accounts payable and other liabilities........................................  $     3,977   $     2,594
      Due to affiliates, net........................................................       18,492         5,876
                                                                                      -----------   -----------
                  Total liabilities.................................................       22,469         8,470
      Stockholders' equity .........................................................       91,420        86,595
                                                                                      -----------   -----------
                                                                                      $   113,889   $    95,065
                                                                                      ===========   ===========`

## Condensed Statements of Operations

`Year Ended December 31,
                                                                                      --------------------------------------
                                                                                         2001          2000         1999
                                                                                      -----------   ----------   -----------
      Interest income...............................................................  $       275   $       66   $     1,144
      Interest expense..............................................................           46          454        18,197
                                                                                      -----------   ----------   -----------
      Net interest income (expense).................................................          229         (388)      (17,053)
      Non-interest income (loss)....................................................          150        3,150        (2,441)
      Non-interest expense..........................................................        4,360        1,606        13,934
                                                                                      -----------   ----------   -----------
      (Loss) income before income tax (benefit) provision, equity in earnings
         of subsidiaries, and extraordinary item....................................       (3,981)       1,156       (33,428)
      Income tax (benefit) provision................................................       (2,618)         495          (968)
      Equity in earnings of subsidiaries............................................        6,975        2,521        25,536
      Extraordinary item............................................................           --          239       150,171
                                                                                      -----------   ----------   -----------
      Net income....................................................................  $     5,612   $    3,421   $   143,247
                                                                                      ===========   ==========   ===========`

## Condensed Statements
of Cash Flows

`Year Ended December 31,
                                                                                   ------------------------------------------
                                                                                       2001           2000           1999
                                                                                   ------------   ------------   ------------
    CASH FLOWS FROM OPERATING ACTIVITIES:
       Net income ..............................................................   $      5,612   $      3,421   $    143,247
       Adjustments to reconcile net income to net cash provided by (used in)
          operating activities:
          Market valuation losses and impairments ..............................             --             --          2,770
          Amortization and accretion of discounts ..............................             --             89             88
          Loss on sale of mortgage backed securities available for sale ........             --             --            110
          Tax effect from utilization of net operating loss carryforward .......          4,183          3,974             --
          Equity in earnings of subsidiaries ...................................         (6,975)        (2,521)       (25,536)
          Reorganization items:
             Write-off of unamortized debt issuance costs ......................             --             --         11,319
             Gain on extinguishment of debt ....................................             --             --       (150,171)
          Other ................................................................             --             --           (414)
          Change in:
             Prepaid expenses and other assets .................................         (5,637)        (4,852)        16,824
             Accounts payable and other liabilities ............................          1,383         (3,577)         5,621
             Due to affiliate, net .............................................         12,453          5,635         (4,680)
                                                                                   ------------   ------------   ------------
                Net cash provided by (used in) operating activities ............         11,019          2,169           (822)
                                                                                   ------------   ------------   ------------
    CASH FLOWS FROM INVESTING ACTIVITIES:
          Principal repayment of mortgage-backed securities available for sale .             --             --            228
          Proceeds from sale of mortgage-backed securities, available for sale .             --             --         11,298
          Dividend received from subsidiary ....................................             --             --            385
          Net investment in subsidiaries .......................................             --           (230)          (250)
                                                                                   ------------   ------------   ------------
                Net cash (used in) provided by investing activities ............             --           (230)        11,661
                                                                                   ------------   ------------   ------------
    CASH FLOWS FROM FINANCING ACTIVITIES:
          Proceeds from short term borrowings ..................................             --             --          2,241
          Repayments of short term borrowings ..................................             --         (2,474)       (13,964)
          Issuance of common stock .............................................            331             --             --
          Purchase of treasury stock ...........................................        (10,005)            --             --
                                                                                   ------------   ------------   ------------
                  Net cash used in financing activities ........................         (9,674)        (2,474)       (11,723)
                                                                                   ------------   ------------   ------------
    NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................          1,345           (535)          (884)
    CASH AND CASH EQUIVALENTS:
          Beginning of year ....................................................            255            790          1,674
                                                                                   ------------   ------------   ------------
          End of year ..........................................................   $      1,600   $        255   $        790
                                                                                   ============   ============   ============

    NONCASH REORGANIZATION ITEMS:
          Cancellation of old common stock .....................................             --             --   $    114,856
          Issuance of new common stock in exchange for
             Notes payable and accrued interest thereon ........................             --             --         86,819`

## 23. SUBSEQUENT
EVENTS

In January and February 2002 the Company issued a total of approximately  $7.7 million in 8% convertible  subordinated  debentures due December
15, 2005. The debentures were issued in a private  placement to certain of the Company's  directors.  Commencing in July 2002, the debentures will be
convertible at $2.40 per share and, at the option of the Company,  will be redeemable (if certain conditions are satisfied) at a premium,  decreasing
to par over the subsequent nine-month period.

The proceeds from this issuance provided the majority of the financing for the Company's purchase, on December 31, 2001, of a total of
4,168,854 shares of its common stock from entities affiliated with American Express Financial Advisors Inc. (collectively, "AXP"). These shares
represented AXP's entire interest in the Company's common stock, or approximately 21% of the total WFSG shares previously outstanding. The purchase
price for the shares was approximately $10.0 million, or $2.40 per share.

## SIGNATURES

Pursuant to the  requirements of Section 13 or 15 (d) of the Securities  Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf on March 22, 2002 by the undersigned, thereunto duly authorized.

| | WILSHIRE FINANCIAL SERVICES GROUP INC.
| | --------------------------------------

|By: | /s/   STEPHEN P. GLENNON
|--- | ------------------------
|    | Stephen P. Glennon      
|    | Chief Executive Officer 

Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  this report has been signed below on March 22, 2002 by the  following
persons on behalf of the Registrant and in the capacities indicated.

|Signature | Title
|--------- | -----

| | /s/   LARRY B. FAIGIN      | Chairman of the Board                                         
| | -------------------------- | --------------------------------------------------------------
| | Larry B. Faigin            |                                                               
| | /s/   STEPHEN P. GLENNON   | Chief Executive Officer and Director                          
| | Stephen P. Glennon         |                                                               
| | /s/   BRUCE A. WEINSTEIN   | Executive Vice President, Chief Financial Officer and Director
| | Bruce A. Weinstein         |                                                               
| | /s/   KENT M. GARDNER      | Vice President and Corporate Controller                       
| | Kent M. Gardner            |                                                               
| | /s/   HOWARD AMSTER        | Director                                                      
| | Howard Amster              |                                                               
| | /s/   ROBERT M. DEUTSCHMAN | Director                                                      
| | Robert M. Deutschman       |                                                               
| | /s/   PETER S. FISHMAN     | Director                                                      
| | Peter S. Fishman           |                                                               
| | /s/   ROBERT H. KANNER     | Director                                                      
| | Robert H. Kanner           |                                                               
| | /s/   EDMUND M. KAUFMAN    | Director                                                      
| | Edmund M. Kaufman          |                                                               
| | /s/   DANIEL A. MARKEE     | Director                                                      
| | Daniel A. Markee           |                                                               

## Exhibit Index

The following exhibits are filed as part of this report.

|2.1   | Solicitation and Disclosure Statement dated February 1, 1999 (incorporated by reference to the Companys current report on Form 8-K dated February 8, 1999).                                 
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.2   | Form of Plan of Reorganization (incorporated by reference to the Companys current report on form 8-K dated February 8, 1999).                                                               
|3.1  | Certificate of Incorporation                                                                                                                                                                 
|3.2   | Amended and Restated By-laws (incorporated by reference to the Companys Report on Form 10-K dated March 30, 2001)                                                                           
|±4.1  | Debenture Purchase Agreements between Wilshire Financial Services Group Inc. and Robert H. Kanner et al., dated December 28, 2001                                                            
|±4.2  | 8% Convertible Subordinated Debentures due December 15, 2005                                                                                                                                 
|*10.1 | Employment Agreement dated March 20, 2002 between the Company and Stephen P. Glennon                                                                                                         
|*10.2 | Employment Agreement dated March 12, 2001 between the Company and Joseph W. Kiley III, as modified on December 19, 2001                                                                      
|*10.3 | Stock Purchase Agreement dated December 28, 2001 between the Company and entities affiliated with American Express Financial Advisors, Inc.                                                  
|10.15 | Amended and Restated 1999 Equity Participation Plan dated January 31, 2001 (incorporated by reference to the Companys Report on Form 10-K dated March 30, 2001)                             
|10.22 | Stock Option Agreement dated January 27, 2000 between the Company and Stephen P. Glennon  (incorporated by reference to the Company's Report on Form 10-K dated March 30, 2001)              
|10.23 | Incentive  Stock Option  Agreement dated February 29, 2000 between the Company and Stephen P. Glennon  (incorporated  by reference to the Company's Report on Form 10-K dated March 30, 2001)
|10.24 | Wilshire  Financial  Services Group Inc. Change In Control Plan (incorporated by reference to the Company's Report on Form 10-K dated March 30, 2001)                                        
|*21.1 | Subsidiaries                                                                                                                                                                                 
|*23   | Consent of Experts                                                                                                                                                                           

*      Filed herewith

   Incorporated by reference to the Company's report on Form 8-K dated June 15, 1999.

±   Incorporated by reference to the Company's report on Form 8-K dated January 7, 2002.