##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)



|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2007

or



| ̈ | Transitional Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------------

For the transition period from                    
to

Commission file
number 0-21845

Beverly Hills Bancorp 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.)
|                                                               | 
|23901 Calabasas Road, Suite 1050 Calabasas, CA                 |  | 91302                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(818) 223-8084

(Registrants telephone number, including area code)

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ̈Accelerated filer    x            Non-accelerated filer ̈

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

Applicable only to corporate issuers:

Indicate the
number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



|                                        |  |                                
|--------------------------------------- |  | -------------------------------
|Class                                   |  | Outstanding at October 31,
2007
|Common Stock, par value $0.01 per share |  | 18,787,094 shares              



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

INDEX



|           |  |                                                                                       |  |   
|---------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I.    |  | FINANCIAL INFORMATION                                                                 |  |   
|           |  |                                                                                      
|Item 1.    |  | Interim Condensed Consolidated Financial Statements (Unaudited):                      |  |   
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Financial Condition                              |  | 3 
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Operations                                       |  | 4 
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5 
|           |  |                                                                                      
|           |  | Notes to Interim Condensed Consolidated Financial Statements                          |  | 6 
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 16
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 29
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 31
|           |  |                                                                                      
|PART II.   |  | OTHER INFORMATION                                                                     |  |   
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 32
|           |  |                                                                                      
|Item 1A.   |  | Risk Factors                                                                          |  | 32
|           |  |                                                                                      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 32
|           |  |                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 32
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 32
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 32
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 32
|           | 
|Signatures |  | 33                                                                                   



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(Dollars
in thousands)



|                                                                                                                                           |  |                    |           |   |                   |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                           |  | September 30, 2007 |           |   | December 31, 2006 |  
|ASSETS                                                                                                                                     |  |                    |           |   |                   |   |           |  
|Cash and cash equivalents                                                                                                                  |  | $                  | 15,274    |   |                   | $ | 27,005    |  
|Mortgage-backed securities available for sale, at fair value                                                                               |  |                    | 429,157   |   |                   |   | 460,893   |  
|Investment securities available for sale, at fair value                                                                                    |  |                    | 6,878     |   |                   |   | 8,920     |  
|Investment securities held to maturity, at amortized cost (fair value of $9,971 and $9,735)                                                |  |                    | 9,797     |   |                   |   | 9,759     |  
|Loans, net of allowance for loan losses of $9,482 and $7,878                                                                               |  |                    | 1,046,712 |   |                   |   | 1,040,726 |  
|Discounted loans, net of allowance for loan losses of $163 and $99                                                                         |  |                    | 831       |   |                   |   | 1,157     |  
|Stock in Federal Home Loan Bank of San Francisco, at cost                                                                                  |  |                    | 31,465    |   |                   |   | 29,015    |  
|Real estate owned, net                                                                                                                     |  |                    | 254       |   |                   |   | 653       |  
|Leasehold improvements and equipment, net                                                                                                  |  |                    | 992       |   |                   |   | 1,244     |  
|Accrued interest receivable                                                                                                                |  |                    | 8,973     |   |                   |   | 8,685     |  
|Deferred tax asset, net                                                                                                                    |  |                    | 27,362    |   |                   |   | 28,276    |  
|Goodwill, net                                                                                                                              |  |                    | 3,054     |   |                   |   | 3,054     |  
|Prepaid expenses and other assets                                                                                                          |  |                    | 3,829     |   |                   |   | 4,449     |  
|                                                                                                                                           |  |                    |           |   |                   |   |           |  
|TOTAL                                                                                                                                      |  | $                  | 1,584,578 |   |                   | $ | 1,623,836 |  
|                                                                                                                                           |  |                    |           |   |                   |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                       |  |                    |           |   |                   |   |           |  
|LIABILITIES:                                                                                                                               |  |                    |           |   |                   |   |           |  
|Deposits:                                                                                                                                  |  |                    |           |   |                   |   |           |  
|Noninterest-bearing deposits                                                                                                               |  | $                  | 1,971     |   |                   | $ | 2,038     |  
|Interest-bearing deposits                                                                                                                  |  |                    | 734,548   |   |                   |   | 848,852   |  
|                                                                                                                                           |  |                    |           |   |                   |   |           |  
|Total deposits                                                                                                                             |  |                    | 736,519   |   |                   |   | 850,890   |  
|Short-term borrowings                                                                                                                      |  |                    | 9,500     |   |                   |   | 20,000    |  
|Repurchase agreements                                                                                                                      |  |                    | 40,000    |   |                   |   | 40,000    |  
|FHLB advances                                                                                                                              |  |                    | 576,000   |   |                   |   | 496,337   |  
|Junior subordinated notes payable to trust                                                                                                 |  |                    | 46,393    |   |                   |   | 46,393    |  
|Accounts payable and other liabilities                                                                                                     |  |                    | 20,039    |   |                   |   | 14,778    |  
|                                                                                                                                           |  |                    |           |   |                   |   |           |  
|Total liabilities                                                                                                                          |  |                    | 1,428,451 |   |                   |   | 1,468,398 |  
|                                                                                                                                           |  |                    |           |   |                   |   |           |  
|COMMITMENTS AND CONTINGENCIES (NOTE 4)                                                                                                     |  |                    |           |   |                   |   |           |  
|                                                                                                                                           |  |                   
|STOCKHOLDERS EQUITY:                                                                                                                      |  |                    |           |   |                   |   |           |  
|Common stock, $0.01 par value, 30,000,000 shares authorized, 27,176,462 and 27,107,534 shares issued (including 8,389,368 treasury shares) |  |                    | 272       |   |                   |   | 271       |  
|Additional paid-in capital                                                                                                                 |  |                    | 166,315   |   |                   |   | 165,972   |  
|Treasury stock, 8,389,368 shares, at cost                                                                                                  |  |                    | (39,974   | ) |                   |   | (39,974   | )
|Retained earnings                                                                                                                          |  |                    | 31,878    |   |                   |   | 31,800    |  
|Accumulated other comprehensive loss, net                                                                                                  |  |                    | (2,364    | ) |                   |   | (2,631    | )
|                                                                                                                                           |  |                    |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                 |  |                    | 156,127   |   |                   |   | 155,438   |  
|                                                                                                                                           |  |                    |           |   |                   |   |           |  
|TOTAL                                                                                                                                      |  | $                  | 1,584,578 |   |                   | $ | 1,623,836 |  
|                                                                                                                                           |  |                    |           |   |                   |   |           |  

See notes to unaudited interim condensed consolidated financial statements



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in
thousands, except share data)



|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|------------------------------------------------------- |  | -------------------------------- | ---------- | ------------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                        |  | Three Months Ended September 30, |            | Nine Months Ended September 30,
|                                                        |  | 2007                             |            | 2006                            |   | 2007       |  | 2006
|INTEREST INCOME:                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|Loans                                                   |  | $                                | 20,220     |                                 | $ | 16,807     |  | $    | 59,277     |  | $ | 49,415    
|Mortgage-backed securities                              |  |                                  | 5,811      |                                 |   | 5,095      |  |      | 17,711     |  |   | 13,329    
|Securities and federal funds sold                       |  |                                  | 468        |                                 |   | 569        |  |      | 1,357      |  |   | 1,612     
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|Total interest income                                   |  |                                  | 26,499     |                                 |   | 22,471     |  |      | 78,345     |  |   | 64,356    
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|INTEREST EXPENSE:                                       |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|Deposits                                                |  |                                  | 9,839      |                                 |   | 8,522      |  |      | 29,993     |  |   | 22,309    
|Borrowings                                              |  |                                  | 8,717      |                                 |   | 5,966      |  |      | 24,749     |  |   | 16,590    
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|Total interest expense                                  |  |                                  | 18,556     |                                 |   | 14,488     |  |      | 54,742     |  |   | 38,899    
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|NET INTEREST INCOME                                     |  |                                  | 7,943      |                                 |   | 7,983      |  |      | 23,603     |  |   | 25,457    
|PROVISION FOR LOSSES ON LOANS                           |  |                                  | 1,182      |                                 |   | 120        |  |      | 2,028      |  |   | 51        
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS |  |                                  | 6,761      |                                 |   | 7,863      |  |      | 21,575     |  |   | 25,406    
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|OTHER INCOME:                                           |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|FHLB stock dividends                                    |  |                                  | 406        |                                 |   | 352        |  |      | 1,173      |  |   | 1,025     
|Other income, net                                       |  |                                  | 28         |                                 |   | 50         |  |      | 454        |  |   | 85        
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|Total other income                                      |  |                                  | 434        |                                 |   | 402        |  |      | 1,627      |  |   | 1,110     
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|OTHER EXPENSES:                                         |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|Compensation and employee benefits                      |  |                                  | 1,868      |                                 |   | 1,726      |  |      | 5,682      |  |   | 5,757     
|Professional fees                                       |  |                                  | 603        |                                 |   | 1,064      |  |      | 1,985      |  |   | 3,095     
|Occupancy                                               |  |                                  | 135        |                                 |   | 249        |  |      | 435        |  |   | 749       
|Loan expenses                                           |  |                                  | 37         |                                 |   | 30         |  |      | 119        |  |   | 257       
|Regulatory assessments                                  |  |                                  | 45         |                                 |   | 53         |  |      | 157        |  |   | 92        
|Data processing                                         |  |                                  | 76         |                                 |   | 88         |  |      | 252        |  |   | 285       
|Insurance                                               |  |                                  | 167        |                                 |   | 178        |  |      | 486        |  |   | 524       
|Depreciation                                            |  |                                  | 91         |                                 |   | 93         |  |      | 280        |  |   | 274       
|Directors expense                                       |  |                                  | 99         |                                 |   | 120        |  |      | 318        |  |   | 306       
|Real estate owned, net                                  |  |                                  | 50         |                                 |   | 21         |  |      | 410        |  |   | 32        
|Other general and administrative expense                |  |                                  | 188        |                                 |   | 468        |  |      | 982        |  |   | 1,094     
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|Total other expenses                                    |  |                                  | 3,359      |                                 |   | 4,090      |  |      | 11,106     |  |   | 12,465    
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|INCOME BEFORE INCOME TAX PROVISION                      |  |                                  | 3,836      |                                 |   | 4,175      |  |      | 12,096     |  |   | 14,051    
|INCOME TAX PROVISION                                    |  |                                  | 1,498      |                                 |   | 1,540      |  |      | 4,972      |  |   | 5,642     
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|NET INCOME                                              |  | $                                | 2,338      |                                 | $ | 2,635      |  | $    | 7,124      |  | $ | 8,409     
|                                                        |  |                                  |            |                                 |   |            |  |      |            |  |   |           
|Earnings per sharebasic                                |  | $                                | 0.12       |                                 | $ | 0.13       |  | $    | 0.38       |  | $ | 0.40      
|Earnings per sharediluted                              |  | $                                | 0.12       |                                 | $ | 0.13       |  | $    | 0.38       |  | $ | 0.40      
|Dividends declared per common share                     |  | $                                | 0.13       |                                 | $ | 0.13       |  | $    | 0.38       |  | $ | 0.38      
|                                                        |  |                                  |            |                                
|Weighted average number of sharesbasic                 |  |                                  | 18,786,757 |                                 |   | 20,030,488 |  |      | 18,768,637 |  |   | 20,906,593
|Weighted average number of sharesdiluted               |  |                                  | 18,813,327 |                                 |   | 20,112,420 |  |      | 18,807,723 |  |   | 21,069,377

See notes to unaudited interim condensed consolidated financial statements



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in
thousands)



|                                                                                  |  |                                 |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | Nine Months Ended September 30, |         
|                                                                                  |  | 2007                            |          |   | 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                                 |          |   |      |   |          |  
|Net income                                                                        |  | $                               | 7,124    |   |      | $ | 8,409    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |          |   |      |   |          |  
|Provision for losses on loans                                                     |  |                                 | 2,028    |   |      |   | 51       |  
|Write-down of real estate owned                                                   |  |                                 | 279      |   |      |   | 6        |  
|Depreciation and amortization                                                     |  |                                 | 280      |   |      |   | 274      |  
|Stock-based compensation                                                          |  |                                 | 168      |   |      |   | 174      |  
|Deferred tax provision                                                            |  |                                 | 367      |   |      |   | 811      |  
|(Gain) loss on sale of assets                                                     |  |                                 | (10      | ) |      |   | 27       |  
|(Accretion) amortization of discounts and deferred fees                           |  |                                 | (173     | ) |      |   | 353      |  
|Federal Home Loan Bank stock dividends                                            |  |                                 | (1,114   | ) |      |   | (1,006   | )
|Change in:                                                                        |  |                                 |          |   |      |   |          |  
|Accrued interest receivable                                                       |  |                                 | (288     | ) |      |   | (620     | )
|Income taxes receivable                                                           |  |                                 |         |   |      |   | 3,910    |  
|Prepaid expenses and other assets                                                 |  |                                 | 620      |   |      |   | (659     | )
|Accounts payable and other liabilities                                            |  |                                 | 5,616    |   |      |   | 3,593    |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                                 | 14,897   |   |      |   | 15,323   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                                 |          |   |      |   |          |  
|Purchase of loans                                                                 |  |                                 | (10,082  | ) |      |   | (36,197  | )
|Loan originations                                                                 |  |                                 | (219,334 | ) |      |   | (147,536 | )
|Loan repayments                                                                   |  |                                 | 197,069  |   |      |   | 198,553  |  
|Proceeds from sale of loans                                                       |  |                                 | 24,999   |   |      |   |         |  
|Purchase of mortgage-backed securities available for sale                         |  |                                 | (34,922  | ) |      |   | (117,902 | )
|Repayments of mortgage-backed securities available for sale                       |  |                                 | 66,939   |   |      |   | 55,094   |  
|Repayments of investment securities available for sale                            |  |                                 | 2,018    |   |      |   |         |  
|Purchases of FHLB stock                                                           |  |                                 | (2,484   | ) |      |   |         |  
|Proceeds from sale of FHLB stock                                                  |  |                                 | 1,148    |   |      |   | 2,932    |  
|Proceeds from sale of real estate owned                                           |  |                                 | 138      |   |      |   | 34       |  
|Purchases of leasehold improvements and equipment                                 |  |                                 | (45      | ) |      |   | (66      | )
|Proceeds from sale of leasehold improvements and equipment                        |  |                                 | 7        |   |      |   |         |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                               |  |                                 | 25,451   |   |      |   | (45,088  | )
|                                                                                  |  |                                 |          |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                                 |          |   |      |   |          |  
|Net (decrease) increase in deposits                                               |  |                                 | (114,371 | ) |      |   | 216,791  |  
|Decrease in short-term borrowings                                                 |  |                                 | (10,500  | ) |      |   |         |  
|Decrease in repurchase agreements                                                 |  |                                 |         |   |      |   | (23,000  | )
|Proceeds from FHLB advances                                                       |  |                                 | 400,000  |   |      |   | 395,000  |  
|Repayments of FHLB advances                                                       |  |                                 | (320,337 | ) |      |   | (528,000 | )
|Issuance of junior subordinated notes payable                                     |  |                                 |         |   |      |   | 20,619   |  
|Proceeds from exercise of stock options                                           |  |                                 | 175      |   |      |   | 17       |  
|Tax benefit from exercise of nonqualified stock options                           |  |                                 |         |   |      |   | 15       |  
|Repurchase of common stock                                                        |  |                                 |         |   |      |   | (24,750  | )
|Dividends paid on common stock                                                    |  |                                 | (7,046   | ) |      |   | (7,689   | )
|                                                                                  |  |                                 |          |   |      |   |          |  
|Net cash (used in) provided by financing activities                               |  |                                 | (52,079  | ) |      |   | 49,003   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                              |  |                                 | (11,731  | ) |      |   | 19,238   |  
|CASH AND CASH EQUIVALENTS:                                                        |  |                                 |          |   |      |   |          |  
|Beginning of period                                                               |  |                                 | 27,005   |   |      |   | 20,954   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|End of period                                                                     |  | $                               | 15,274   |   |      | $ | 40,192   |  
|                                                                                  |  |                                 |          |   |      |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                |  |                                 |          |   |      |   |          |  
|Cash paid during the period for:                                                  |  |                                 |          |   |      |   |          |  
|Interest                                                                          |  | $                               | 48,278   |   |      | $ | 35,167   |  
|Income taxes, net                                                                 |  |                                 | 6,064    |   |      |   | 748      |  
|NONCASH INVESTING ACTIVITIES:                                                     |  |                                 |          |   |      |   |          |  
|Additions to real estate owned acquired in settlement of loans                    |  |                                 |         |   |      |   | 13       |  

See notes to unaudited interim condensed consolidated financial statements



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



|1. | BASIS OF PRESENTATION
|-- | ---------------------

The accompanying interim
condensed consolidated financial statements of Beverly Hills Bancorp Inc. (BHBC, and with its consolidated subsidiaries, the Company) are unaudited and should be read in conjunction with the Companys 2006 Annual Report
on Form 10-K. A summary of the Companys significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements in such Annual Report on Form 10-K. There were no significant changes to any accounting policies during the
nine months ended September 30, 2007.

In the opinion of management, all adjustments, generally comprised of normal recurring accruals
necessary for a fair presentation of the interim condensed consolidated financial statements, have been included and all intercompany accounts and transactions have been eliminated in consolidation. Operating results for the three and nine months
ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts and results could differ from those
estimates.

A certain item in the condensed consolidated statements of operations for the three and nine months ended September 30,
2006 was reclassified to conform to the 2007 presentation, none of which effected previously reported net income. In fiscal 2007, we reclassified real estate owned, net from other income to other expenses.



|2. | PER-SHARE DATA
|-- | --------------

Basic earnings per share is
computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and potentially
dilutive stock options outstanding during the period. Following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the three-month and nine-month periods ended September 30, 2007 and
2006.



|                                                                       |  |                                               |            |                                 |   |            |  |      |            |  |   |           
|---------------------------------------------------------------------- |  | --------------------------------------------- | ---------- | ------------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                                       |  | Three Months Ended September 30,              |            | Nine Months Ended September 30,
|                                                                       |  | 2007                                          |            | 2006                            |   | 2007       |  | 2006
|                                                                       |  | (Dollars in thousands, except per-share data)
|Net income                                                             |  | $                                             | 2,338      |                                 | $ | 2,635      |  | $    | 7,124      |  | $ | 8,409     
|                                                                       |  |                                               |            |                                 |   |            |  |      |            |  |   |           
|Weighted average number of common shares outstandingbasic             |  |                                               | 18,786,757 |                                 |   | 20,030,488 |  |      | 18,768,637 |  |   | 20,906,593
|Net effect of dilutive stock optionsbased on treasury stock method(1) |  |                                               | 26,570     |                                 |   | 81,932     |  |      | 39,086     |  |   | 162,784   
|                                                                       |  |                                               |            |                                 |   |            |  |      |            |  |   |           
|Weighted average number of common shares outstandingdiluted           |  |                                               | 18,813,327 |                                 |   | 20,112,420 |  |      | 18,807,723 |  |   | 21,069,377
|                                                                       |  |                                               |            |                                 |   |            |  |      |            |  |   |           
|Earnings per sharebasic                                               |  | $                                             | 0.12       |                                 | $ | 0.13       |  | $    | 0.38       |  | $ | 0.40      
|                                                                       |  |                                               |            |                                 |   |            |  |      |            |  |   |           
|Earnings per sharediluted                                             |  | $                                             | 0.12       |                                 | $ | 0.13       |  | $    | 0.38       |  | $ | 0.40      
|                                                                       |  |                                               |            |                                 |   |            |  |      |            |  |   |           



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



---

|(1) | Does not include options to purchase a weighted average 600,000 shares outstanding during the three months ended September 30, 2007 and 2006, and 600,000 shares and 595,605
shares outstanding during the nine months ended September 30, 2007 and 2006, respectively, whose exercise would have had an anti-dilutive effect on earnings per share.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | STOCK-BASED COMPENSATION
|-- | ------------------------

Effective January 1,
2006, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment(SFAS No. 123R) using the
modified prospective transition method. Under this method, stock compensation cost recognized beginning January 1, 2006 includes (a) compensation cost for all previously granted stock options that were unvested as of January 1, 2006
and (b) compensation cost for all stock options granted on or after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R.

For the quarter ended September 30, 2007, the application of SFAS No. 123R resulted in a stock-based compensation expense reduction of
$157,400, deferred tax expense of $67,237 and a net increase in net income of $90,163. There was a negligible effect on basic and diluted earnings per share. The reduction in compensation expense was due to a decrease in the fair value of the stock
appreciation rights as the Companys stock price at September 30, 2007 was below the exercise price of the stock appreciation rights. In comparison, the Company recorded stock-based compensation expense of $56,445, deferred tax benefits of
$22,578 and a net reduction in net income of $33,867 for the quarter ended September 30, 2006. There was a negligible effect on basic and diluted earnings per share.

For the nine months ended September 30, 2007, the application of SFAS No. 123R resulted in stock-based compensation expense of $168,188, deferred tax benefits of $67,252 and a net reduction in net income of
$100,936. There was a negligible effect on basic and diluted earnings per share. For the nine months ended September 30, 2006, the Company recorded stock-based compensation expense of $174,278 and deferred tax benefits of $68,274, resulting in
a net reduction in net income of $106,004, and basic and diluted earnings per share of $0.01.

The compensation expense and deferred tax
benefits are reflected as adjustments to cash flows from operating activities on the Companys consolidated statements of cash flows. For the nine months ended September 30, 2007 and 2006, the Company recorded tax benefits from the
exercise of non-qualified stock options of $0 and $14,663, respectively, which are included in cash flows from financing activities.

The
Company has two stock-based employee compensation plans, the 1999 Equity Participation Plan and the 2002 Equity Participation Plan, pursuant to which stock options have been granted to its directors and certain employees. All stock options have an
exercise price that is equal to the fair value of the Companys stock on the date of grant. Options generally vest over a three-year period and have a maximum term of 10 years.



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



A summary of the Companys stock option activity for the nine months ended September 30,
2007 is presented below:



|                                            |  |         |   |  |                              |      |                                      |      |                            |   |        
|------------------------------------------- |  | ------- | - |  | ---------------------------- | ---- | ------------------------------------ | ---- | -------------------------- | - | -------
|                                            |  | Shares  |   |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingTerm (Years) |      | AggregateIntrinsicValue(1)
|Outstanding at beginning of period          |  | 747,502 |   |  | $                            | 8.98 |                                      |      |                            |   |        
|Granted                                     |  |        |   |  |                              |     |                                      |      |                            |   |        
|Exercised                                   |  | (68,428 | ) |  |                              | 2.81 |                                      |      |                            |   |        
|Forfeited                                   |  | (4,072  | ) |  |                              | 3.24 |                                      |      |                            |   |        
|                                            |  |         |   |  |                              |      |                                      |      |                            |   |        
|Outstanding at end of period                |  | 675,002 |   |  |                              | 9.63 |                                      | 7.84 |                            | $ | 261,472
|                                            |  |         |   |  |                              |      |                                      |      |                            |   |        
|Vested or expected to vest at end of period |  | 675,002 |   |  |                              | 9.63 |                                      | 7.84 |                            | $ | 261,472
|                                            |  |         |   |  |                              |      |                                      |      |                            |   |        
|Exercisable at end of period                |  | 425,002 |   |  |                              | 9.13 |                                      | 7.59 |                            | $ | 261,472
|                                            |  |         |   |  |                              |      |                                      |      |                            |   |        

---

|(1) | Aggregate intrinsic value excludes options to purchase 600,000 shares of common stock (350,000 shares exercisable) whose strike price is greater than the fair market value of the
stock as of September 30, 2007.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There were no grants of stock options in the three and nine months ended
September 30, 2007. In January 2006, the Company granted an option to purchase 600,000 shares of common stock at an exercise price of $10.50 per share. The weighted average fair value of this option grant was $1.13 per share. This fair value
was estimated using the Black-Scholes option-pricing model based on the following assumptions: expected volatility of 19%, risk-free interest rate of 4.30%, a dividend yield of 5% and an expected life of five years.

The volatility assumption was based on the historical weekly price data of the common stock over the one-year period prior to the grant. The Company
believes the volatility over this period is a reasonable predictor of future volatility. The Company did not believe the historical volatility over the most recent period equal to the expected life of the option (i.e., the 5-year period ended
January 2006) was indicative of future volatility, because the price of the Companys stock increased more than 800% during that period, and similar volatility is considered unlikely to recur over the following 5-year period. The risk-free
interest rate was based on the U. S. Treasury rate in effect on the date of the grant equal to the stock options expected life. The dividend yield was based on the most recent year and is considered a reasonable estimate of future dividend
yields. The expected life of the option represents the period that the stock options are expected to be outstanding and is based on historical experience. The Company has assumed a forfeiture rate of 0% as all of these options were granted to its
Chief Executive Officer.

The Companys stock-based compensation for the three and nine months ended September 30, 2006 also
includes costs related to stock options granted in 2003 that were unvested as of January 1, 2006. The fair value of stock options granted in 2003 was estimated using the Black-Scholes option-pricing model based on the following assumptions:
expected volatility of 16%, risk-free interest rate of 2.8%, no dividend yield (the Company did not pay any dividends until 2004) and an expected life of five years.



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Additional information on the Companys stock option activity for the three and nine months
ended September 30, 2007 is presented below:



|                                       |  |                                       |        |                                      |   |        
|-------------------------------------- |  | ------------------------------------- | ------ | ------------------------------------ | - | -------
|                                       |  | Three Months Ended September 30, 2007 |        | Nine Months Ended September 30, 2007
|Weighted average grant date fair value |  | $                                     |       |                                      | $ |       
|Intrinsic value of options exercised   |  | $                                     |       |                                      | $ | 320,280
|Fair value of shares vested            |  | $                                     | 56,546 |                                      | $ | 172,841

In the first quarter of 2007, the Company granted stock appreciation rights (SARs) to
an executive officer. The SARs are settled in cash, and are classified as liabilities, and not equity instruments, per SFAS No. 123R. Consequently, the Company is required to remeasure the fair value of the liability at the end of each
reporting period and record a corresponding adjustment to the related compensation expense. The weighted-average fair value of this grant of SARs was $0.15 per SAR. This fair value was estimated using the Black-Scholes option-pricing model based on
the following assumptions: expected volatility of 20%, dividend yield of 8.06%, risk-free interest rate of 4.02% and an expected life of 2.83 years.

In the second quarter of 2007, the Company granted SARs to an executive officer. The SARs are settled in cash, and are classified as liabilities, and not equity instruments, per SFAS No. 123R. Consequently, the
Company is required to remeasure the fair value of the liability at the end of each reporting period and record a corresponding adjustment to the related compensation expense. The weighted-average fair value of this grant of SARs was $0.01 per SAR.
This fair value was estimated using the Black-Scholes option-pricing model based on the following assumptions: expected volatility of 20%, dividend yield of 8.06%, risk-free interest rate of 3.96% and an expected life of 0.38 years.

A summary of the Companys SARs activity for the periods indicated is presented below:



|                                   |  |                                       |  |                                      |      |            |         |                              |   |     
|---------------------------------- |  | ------------------------------------- |  | ------------------------------------ | ---- | ---------- | ------- | ---------------------------- | - | ----
|                                   |  | Three Months Ended September 30, 2007 |  | Nine Months Ended September 30, 2007
|                                   |  | ShareUnits                            |  | WeightedAverageExercisePrice         |      | ShareUnits |         | WeightedAverageExercisePrice
|Outstanding at beginning of period |  | 646,000                               |  | $                                    | 8.20 |            | 216,000 |                              | $ | 8.87
|Granted                            |  |                                      |  |                                      |     |            | 430,000 |                              |   | 7.86
|Exercised                          |  |                                      |  |                                      |     |            |        |                              |   |    
|Forfeited                          |  |                                      |  |                                      |     |            |        |                              |   |    
|                                   |  |                                       |  |                                      |      |            |         |                              |   |     
|Outstanding at end of period       |  | 646,000                               |  |                                      | 8.20 |            | 646,000 |                              |   | 8.20
|                                   |  |                                       |  |                                      |      |            |         |                              |   |     
|Exercisable at end of period       |  | 472,000                               |  |                                      | 8.01 |            | 472,000 |                              |   | 8.01
|                                   |  |                                       |  |                                      |      |            |         |                              |   |     

At September 30, 2007, the Company had $282,000 of unrecognized compensation cost related to
unvested stock options. This cost is expected to be amortized over a weighted-average period of 1.25 years, ending in December 2008. The unrecognized compensation related to the SARs at September 30, 2007 was $13,000 and is expected to be
amortized over the following 2.33 years, ending in January 2010. Because the SARs are classified as liabilities and not equity instruments per SFAS No. 123R, the Company is required to remeasure the fair value of the liability at the end of
each subsequent reporting period and record a corresponding adjustment to the related compensation expense. Consequently, compensation cost related to the SARs may vary based on changes in the awards total estimated fair value.



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



|4. | COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
|-- | -----------------------------------------------------

At September 30, 2007, the Company had outstanding commitments to fund $186.2 million of loans. Loan commitments expose the Company to credit risk in excess of amounts reflected in the consolidated financial statements. The Company
receives collateral to support loans and commitments to extend credit for which collateral is deemed necessary. As of September 30, 2007, the Company did not have an allowance of unfunded loan commitments.



|5. | INCOME TAXES
|-- | ------------

The Company files consolidated
federal and state income tax returns with its eligible subsidiaries. The Company recorded income tax provisions of $1.5 million and $5.0 million, respectively, for the three and nine months ended September 30, 2007, compared with provisions of
$1.5 million and $5.6 million, respectively, for the corresponding 2006 periods. A portion of the Companys income tax provision is not expected to be currently payable in cash, due to the utilization of the Companys net operating loss
carryforward. The Companys deferred tax provision (benefit) is determined on a quarterly basis pursuant to an evaluation of its net deferred tax asset. These deferred tax assets and liabilities represent the tax effect of future deductible or
taxable amounts and are primarily attributable to net operating loss carryforwards, in addition to other differences between amounts that have been recognized in the financial statements and amounts that have been recognized in the income tax
returns. An effective tax rate of approximately 42% is applied to each attribute in determining the amount of the related deferred tax asset or liability. Decreases (increases) in the net deferred tax asset are recorded as a deferred tax provision
(benefit) in the consolidated statements of operations.

The Companys net deferred tax asset was $27.4 million and $28.3 million,
respectively, at September 30, 2007 and December 31, 2006. The deferred tax asset is 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. The Company has
evaluated the positive and negative evidence regarding the future realization of its deferred tax asset and has recorded a valuation allowance of $5.7 million. The Company believes it is more likely than not that its net deferred tax asset of $27.4
million will be realized in future periods.

As of September 30, 2007, the Company had federal net operating loss carryforwards of
$81.5 million and also had state net operating loss carryforwards. The federal carryforward period runs through 2020. However, in June 2002, the Company experienced a change in control as defined by Section 382 of the Internal Revenue Code. As
a result of the change in control, the Companys net operating loss carryforwards that were generated prior to the change in control are subject to an annual limitation on the amount that may be used to offset taxable income. The Company has
determined that the limitation on the amount that may be used annually to offset taxable income is approximately $6.0 million.

In June
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 is an interpretation of FASB SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The cumulative effect, if any, of applying FIN 48 is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption. On January 1, 2007, the Company
adopted the provisions of FIN 48 and there was no effect on the financial statements. As a result, there was no cumulative effect recognized upon adoption of FIN 48. In addition, the Company does not have any unrecognized tax benefits as a result of
uncertainty. It is the Companys policy to record any penalties or interest arising from the application of federal or state income taxes as other expense. There were no penalties or interest paid during the three and nine months ended
September 30, 2007.



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The Company is subject to income tax in the U.S. federal jurisdiction and numerous state
jurisdictions. The Internal Revenue Service (IRS) has completed its examinations of our federal income tax returns through the 2003 tax year. California and other state jurisdictions are subject to examinations for the tax years 2004
through 2006. Presently, there are no federal or state income tax examinations in process.



|6. | OPERATING SEGMENTS
|-- | ------------------

The Companys two
operating segments, as defined by the Companys management, consist of its Banking Operations and its Holding Company and Other Operations. The Companys operating segments are described in further detail as follows:



| |  |  | Banking OperationsThrough its bank subsidiary, First Bank of Beverly Hills (FBBH or the Bank), the Company conducts a banking
business focused primarily on products tailored to construction, commercial and multifamily real estate lending, in addition to investments in primarily AAA-rated and government-sponsored enterprise (GSE) mortgage-backed securities. The
primary sources of funding for the Bank are deposits, Federal Home Loan Bank (FHLB) advances and repurchase agreements. The Bank is a state-chartered commercial bank and is regulated by the California Department of Financial Institutions
(DFI) and the Federal Deposit Insurance Corporation (FDIC).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Holding Company and Other OperationsThe Companys Holding Company and Other Operations consist of other operating revenues and expenses not
attributable to its Banking Operations. This segment includes interest income on loans and other investments, the operations of its investment subsidiary, WFC Inc. (WFC), interest expense on $46.4 million of junior subordinated notes
payable, general corporate expenses and eliminations of intercompany accounts and transactions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Segment data for the three months ended September 30, 2007 and 2006 are as follows:



|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|---------------------------------------------------------------------------- |  | ------------------------------------- | --------- | ------------------------------------ | - | ------ | ----- |  | - | ---------
|                                                                             |  | Three Months Ended September 30, 2007
|                                                                             |  | Banking                               |           | Holding Company and Other
Operations |   |        | Total
|                                                                             |  | (Dollars in thousands)               
|Interest income                                                              |  | $                                     | 25,661    |                                      | $ | 838    |       |  | $ | 26,499   
|Interest expense                                                             |  |                                       | 17,418    |                                      |   | 1,138  |       |  |   | 18,556   
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Net interest income (expense)                                                |  |                                       | 8,243     |                                      |   | (300   | )     |  |   | 7,943    
|Provision for loan losses                                                    |  |                                       | 1,078     |                                      |   | 104    |       |  |   | 1,182    
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Net interest income (expense) after provision for loan losses                |  |                                       | 7,165     |                                      |   | (404   | )     |  |   | 6,761    
|Other income (loss)                                                          |  |                                       | 452       |                                      |   | (18    | )     |  |   | 434      
|Compensation and employee benefits expense                                   |  |                                       | 1,883     |                                      |   | (15    | )     |  |   | 1,868    
|Other expenses                                                               |  |                                       | 1,112     |                                      |   | 379    |       |  |   | 1,491    
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Income (loss) before taxes                                                   |  |                                       | 4,622     |                                      |   | (786   | )     |  |   | 3,836    
|Income tax provision (benefit)                                               |  |                                       | 1,780     |                                      |   | (282   | )     |  |   | 1,498    
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Net income (loss)                                                            |  | $                                     | 2,842     |                                      | $ | (504   | )     |  | $ | 2,338    
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Goodwill                                                                     |  | $                                     | 3,054     |                                      | $ |       |       |  | $ | 3,054    
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Total assets                                                                 |  | $                                     | 1,527,780 |                                      | $ | 56,798 |       |  | $ | 1,584,578
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|                                                                             | 
|                                                                             |  | Three Months Ended September 30, 2006
|                                                                             |  | Banking                               |           | Holding Company and Other Operations |   |        | Total
|                                                                             |  | (Dollars in thousands)               
|Interest income                                                              |  | $                                     | 22,040    |                                      | $ | 431    |       |  | $ | 22,471   
|Interest expense                                                             |  |                                       | 13,764    |                                      |   | 724    |       |  |   | 14,488   
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Net interest income (expense)                                                |  |                                       | 8,276     |                                      |   | (293   | )     |  |   | 7,983    
|Provision for (recapture of) loan losses                                     |  |                                       | 131       |                                      |   | (11    | )     |  |   | 120      
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Net interest income (expense) after provision for (recapture of) loan losses |  |                                       | 8,145     |                                      |   | (282   | )     |  |   | 7,863    
|Other income (loss)                                                          |  |                                       | 385       |                                      |   | 17     |       |  |   | 402      
|Compensation and employee benefits expense                                   |  |                                       | 1,497     |                                      |   | 229    |       |  |   | 1,726    
|Other expenses                                                               |  |                                       | 1,198     |                                      |   | 1,166  |       |  |   | 2,364    
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Income (loss) before taxes                                                   |  |                                       | 5,835     |                                      |   | (1,660 | )     |  |   | 4,175    
|Income tax provision (benefit)                                               |  |                                       | 2,302     |                                      |   | (762   | )     |  |   | 1,540    
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Net income (loss)                                                            |  | $                                     | 3,533     |                                      | $ | (898   | )     |  | $ | 2,635    
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Goodwill                                                                     |  | $                                     | 3,054     |                                      | $ |       |       |  | $ | 3,054    
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          
|Total assets                                                                 |  | $                                     | 1,427,792 |                                      | $ | 38,293 |       |  | $ | 1,466,085
|                                                                             |  |                                       |           |                                      |   |        |       |  |   |          



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Segment data for the nine months ended September 30, 2007 and 2006 are as follows:



|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|------------------------------------------------------------- |  | ------------------------------------ | --------- | ------------------------------------ | - | ------ | ----- |  | - | ---------
|                                                              |  | Nine Months Ended September 30, 2007
|                                                              |  | Banking                              |           | Holding Company and Other
Operations |   |        | Total
|                                                              |  | (Dollars in thousands)              
|Interest income                                               |  | $                                    | 75,892    |                                      | $ | 2,453  |       |  | $ | 78,345   
|Interest expense                                              |  |                                      | 51,449    |                                      |   | 3,293  |       |  |   | 54,742   
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Net interest income (expense)                                 |  |                                      | 24,443    |                                      |   | (840   | )     |  |   | 23,603   
|Provision for loan losses                                     |  |                                      | 1,903     |                                      |   | 125    |       |  |   | 2,028    
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Net interest income (expense) after provision for loan losses |  |                                      | 22,540    |                                      |   | (965   | )     |  |   | 21,575   
|Other income                                                  |  |                                      | 1,303     |                                      |   | 324    |       |  |   | 1,627    
|Compensation and employee benefits expense                    |  |                                      | 5,210     |                                      |   | 472    |       |  |   | 5,682    
|Other expenses                                                |  |                                      | 3,518     |                                      |   | 1,906  |       |  |   | 5,424    
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Income (loss) before taxes                                    |  |                                      | 15,115    |                                      |   | (3,019 | )     |  |   | 12,096   
|Income tax provision (benefit)                                |  |                                      | 6,192     |                                      |   | (1,220 | )     |  |   | 4,972    
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Net income (loss)                                             |  | $                                    | 8,923     |                                      | $ | (1,799 | )     |  | $ | 7,124    
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Goodwill                                                      |  | $                                    | 3,054     |                                      | $ |       |       |  | $ | 3,054    
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Total assets                                                  |  | $                                    | 1,527,780 |                                      | $ | 56,798 |       |  | $ | 1,584,578
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|                                                              | 
|                                                              |  | Nine Months Ended September 30, 2006
|                                                              |  | Banking                              |           | Holding Company and Other Operations |   |        | Total
|                                                              |  | (Dollars in thousands)              
|Interest income                                               |  | $                                    | 63,228    |                                      | $ | 1,128  |       |  | $ | 64,356   
|Interest expense                                              |  |                                      | 37,373    |                                      |   | 1,526  |       |  |   | 38,899   
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Net interest income (expense)                                 |  |                                      | 25,855    |                                      |   | (398   | )     |  |   | 25,457   
|Provision for loan losses                                     |  |                                      | 17        |                                      |   | 34     |       |  |   | 51       
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Net interest income (expense) after provision for loan losses |  |                                      | 25,838    |                                      |   | (432   | )     |  |   | 25,406   
|Other income                                                  |  |                                      | 1,107     |                                      |   | 3      |       |  |   | 1,110    
|Compensation and employee benefits expense                    |  |                                      | 5,050     |                                      |   | 707    |       |  |   | 5,757    
|Other expenses                                                |  |                                      | 3,705     |                                      |   | 3,003  |       |  |   | 6,708    
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Income (loss) before taxes                                    |  |                                      | 18,190    |                                      |   | (4,139 | )     |  |   | 14,051   
|Income tax provision (benefit)                                |  |                                      | 7,442     |                                      |   | (1,800 | )     |  |   | 5,642    
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Net income (loss)                                             |  | $                                    | 10,748    |                                      | $ | (2,339 | )     |  | $ | 8,409    
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Goodwill                                                      |  | $                                    | 3,054     |                                      | $ |       |       |  | $ | 3,054    
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          
|Total assets                                                  |  | $                                    | 1,427,792 |                                      | $ | 38,293 |       |  | $ | 1,466,085
|                                                              |  |                                      |           |                                      |   |        |       |  |   |          



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



|7. | GOODWILL AND INTANGIBLE ASSETS
|-- | ------------------------------

The Company has
goodwill of $3.1 million as a result of a branch purchase in June 2000. Through December 31, 2001, the goodwill was amortized on a straight-line basis over an estimated useful life of 15 years. In January 2002, the Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets, and, as a result, no longer amortizes goodwill, but tests it at least annually for impairment. The Company tested goodwill for impairment as of March 31, 2007 and determined that no
impairment charge was required. There were no conditions that indicated impairment at September 30, 2007.



|8. | LEGAL MATTERS
|-- | -------------

The Company is involved in
litigation with its former loan servicing subsidiary, Wilshire Credit Corporation (WCC), and WCCs parent, Merrill Lynch Mortgage Capital Inc. (Merrill Lynch), which purchased WCC from the Company in April 2004.
Beginning in June 2005, WCC demanded that the Company reimburse WCC for certain costs purportedly incurred by WCC in connection with WCCs performance under one of its loan servicing contracts. The Company disagrees that it is liable for such
costs. To resolve this dispute, in July 2005, the Company filed a complaint for declaratory relief against WCC and Merrill Lynch. The complaint seeks, among other things, a declaration that the Company has no obligation to reimburse WCC for those
costs, and that if such an obligation is found to exist, it is for a substantially lesser amount than that claimed by WCC. In September 2005, Merrill Lynch filed a cross-complaint against the Company alleging breach of contract. Merrill Lynch claims
that WCC has incurred and will continue to incur costs totaling approximately $3.7 million. The trial is currently scheduled for January 7, 2008. The Company is not currently able to quantify the impact, if any, that the outcome of these
actions may have on its financial condition or results of operations.

The Company has contractually agreed to indemnify Merrill Lynch for
claims asserted against WCC by third parties arising out of acts taken by WCC prior to its sale on April 30, 2004. The indemnity is for settlements of judgments paid and for defense costs, and is for amounts which, in the aggregate, exceed $2.0
million. Merrill Lynch has notified the Company of a number of claims that have been or are being asserted against WCC, and for which Merrill Lynch is seeking indemnity from the Company. As of September 30, 2007, the total payments and defense
costs of such claims which Merrill Lynch has formally tendered to the Company was approximately $1.1 million. Although the Company expects that Merrill Lynch will demand indemnity for additional costs and expenses, it is probable that the total
claims for which Merrill Lynch asserts the Company is responsible will surpass the $2.0 million threshold. As of September 30, 2007, the Company determined that it is probable that a liability has incurred in connection with this litigation and
believes $480,000 is a reasonable estimate of its potential liability. The Company accrued expenses for this potential liability in the third quarter of 2006 and second quarter of 2007 of $100,000 and $380,000, respectively.

The Company is a defendant in other legal actions arising from transactions conducted in the ordinary course of business. Some of these claims involve
individual borrowers demanding material amounts for alleged damages. Management, after consultation with legal counsel, and based on prior experience with similar litigation, believes the ultimate liability, if any, arising from such actions will
not materially affect the Companys consolidated results of operations, financial position or cash flows.



|9. | CASH DIVIDENDS
|-- | --------------

The Company paid dividends totaling
$2.3 million and $7.0 million, respectively, for the three and nine months ended September 30, 2007. Since the second quarter of 2004, the Company has declared regular quarterly cash dividends of $0.125 per share, or $0.50 annually.



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



|10. | NEW ACCOUNTING PRONOUNCEMENTS
|--- | -----------------------------

In March 2006, the
FASB issued SFAS No. 156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No. 140 (SFAS No. 156). SFAS No. 156 requires an entity to recognize a servicing asset or liability each
time it undertakes an obligation to service a financial asset by entering into a servicing contract if a) a transfer of the servicers assets meets the requirements for sale accounting b) a transfer of the servicers financial assets to a
qualifying special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and c) an acquisition or assumption of an obligation to service a financial asset does not relate to financial
assets of the servicer or its consolidated affiliates. Further, SFAS No. 156 requires all separately recognized servicing asset and liabilities to be initially measured at fair value, if practicable. The Company adopted SFAS No. 156 as of
January 1, 2007 and the adoption has had no material impact on the consolidated financial statements or results of operations of the Company.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about
fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is evaluating the impact, if any, that
the adoption of SFAS No. 157 will have on its financial position, results of operations and cash flows.

In September 2006, the
Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 108, Quantifying Financial Misstatements, which expresses the Staffs views regarding the process of quantifying financial statement
misstatements. Registrants are required to quantify the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. The techniques most commonly
used in practice to accumulate and quantify misstatements are generally referred to as the rollover (current year income statement perspective) and iron curtain (period-end balance perspective) approaches. The financial
statements would require adjustment when either approach results in quantifying a misstatement that is material, after considering all relevant quantitative and qualitative factors. The adoption of SAB No. 108 did not have any impact on the
Companys financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 would allow the Company a one-time irrevocable election to measure certain
financial assets and liabilities on the balance sheet at fair value and report the unrealized gains and losses on the elected items in earnings at each subsequent reporting date. This standard requires companies to provide additional information
that will help investors and other users of financial statements to more easily understand the effect of the companys choice to use fair value of its earnings. SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. The Company does not expect this guidance to have a material effect on the Companys financial condition and results of operations.



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements of Beverly Hills Bancorp Inc.
(BHBC) and the notes thereto included elsewhere in this filing. References in this filing to the Company, we, our, and us refer to BHBC and its consolidated subsidiaries, including First
Bank of Beverly Hills (FBBH or the Bank), unless the context indicates otherwise.

OVERVIEW

Beverly Hills Bancorp Inc. is a financial holding company that conducts primarily banking and lending operations in southern California and
surrounding states through our bank subsidiary, First Bank of Beverly Hills. Our business strategy is focused on the growth and profitability of the Bank through (1) originations and purchases of construction, commercial real estate and
multifamily mortgage loans and (2) investments in primarily AAA-rated and government-sponsored enterprise (GSE) mortgage-backed securities. The Bank is a California state chartered commercial bank, and its primary regulator is the
California Department of Financial Institutions (DFI). As an insured institution, the Bank is also regulated by the Federal Deposit Insurance Corporation (FDIC).

Our net income for the three months ended September 30, 2007 was $2.3 million, or $0.12 per diluted share, compared with $2.6 million, or $0.13 per
diluted share, for the three months ended September 30, 2006. The decrease in net income was attributable to a $1.1 million increase in the provision for loan losses, offset by a $0.7 million reduction in operating expenses.

For the nine months ended September 30, 2007, our net income was $7.1 million, or $0.38 per diluted share, compared with $8.4 million, or $0.40 per
diluted share, for the nine months ended September 30, 2006. This decrease reflects a $1.9 million decline in net interest income and a $2.0 million increase in the provision for loan losses. These reductions in income were offset by a $0.5
million increase in other income and a $1.4 million decrease in operating expenses.

Our stockholders equity increased by $0.7
million during the nine months ended September 30, 2007 to $156.1 million, or $8.30 book value per diluted share. This change in equity was primarily due to net income of $7.1 million, a $0.2 million increase in paid-in capital relating to
exercise of stock options, a $0.2 million increase in paid-in capital representing stock-based compensation expense, and net after-tax unrealized gains of $0.3 million on the Companys portfolio of available-for-sale securities, offset by cash
dividends of $7.1 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a discussion of our Critical Accounting Policies and Estimates, see Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form
10-K for the year ended December 31, 2006. There were no changes to our Critical Accounting Policies and Estimates in the nine months ended September 30, 2007.

RESULTS OF OPERATIONSTHREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006

Net Interest Income

Our net interest income was $7.9 million for the three months ended
September 30, 2007, compared with $8.0 million for the three months ended September 30, 2006. Our net interest income for the nine months ended



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September 30, 2007, totaled $23.6 million, compared with $25.5 million for the first nine months of 2006. The decrease in net interest income in 2007
was due to the continued narrowing of the net interest margin, which more than offset the impact of higher average interest earning assets in the 2007 periods.

Our net interest margin was 2.04% for the third quarter of 2007, compared with 2.28% for the third quarter of 2006. The net interest margin for the nine months ended September 30, 2007, was 2.03% as compared with
2.50% for the corresponding 2006 period. The Companys balance sheet is liability sensitive as our interest-bearing liabilities reprice more frequently than our interest-earning assets. As a result, our net interest margin was compressed as
market interest rates increased from 2005 through mid-2007. The weighted average cost of interest-bearing liabilities increased by 62 basis points to 5.13% for the three months ended September 30, 2007, compared with 4.51% for the three months
ended September 30, 2006. This contrasts with an increase of 37 basis points in the yield on our interest-earning assets from 6.33% for the third quarter of 2006 to 6.70% for the third quarter of 2007. For the nine months ended
September 30, 2007, our cost of funds was 5.08%, or 90 basis points above the 4.18% for the year ago period. The yield on interest-earning assets increased 42 basis points over the same period from 6.24% to 6.66%.



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The following tables set forth, for the periods indicated, information regarding the total amount of our
income from interest-earning assets and the resulting weighted average yields, the interest expense associated with interest-bearing liabilities along with the resulting weighted average rates, in addition to net interest income, interest rate
spread and net interest margin. The interest income and expense amounts in the tables below are consolidated, but primarily reflect the results of the Bank.



|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|------------------------------------------ |  | ------------------------------------- | --------- | - | ------------------------------------- | - | --------------------- |  | ---- | --------------- |  | - | --------- | - | --------------------- | - | ------ |  | ---- | -
|                                           |  | Three Months Ended September 30, 2007 |           |   | Three Months Ended September 30, 2006 |  
|                                           |  | Average Balance                       |           |   | Interest                              |   | Annualized Yield/Rate |  |      | Average Balance |  |   | Interest  |   | Annualized Yield/Rate |  
|                                           |  | (Dollars in thousands)                |          
|Interest-Earning Assets:                   |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Mortgage-backed securities                 |  | $                                     | 442,768   |   |                                       | $ | 5,811                 |  | 5.14 | %               |  | $ | 402,816   |   |                       | $ | 5,095  |  | 4.95 | %
|Loans(1)(2)                                |  |                                       | 1,067,724 |   |                                       |   | 20,220                |  | 7.41 | %               |  |   | 941,102   |   |                       |   | 16,807 |  | 6.99 | %
|Federal funds and other investments        |  |                                       | 36,903    |   |                                       |   | 468                   |  | 4.96 | %               |  |   | 45,947    |   |                       |   | 569    |  | 4.85 | %
|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-earning assets              |  |                                       | 1,547,395 |   |                                       |   | 26,499                |  | 6.70 | %               |  |   | 1,389,865 |   |                       |   | 22,471 |  | 6.33 | %
|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-earning cash                   |  |                                       | 530       |   |                                       |   |                       |  |      |                 |  |   | 1,259     |   |                       |   |        |  |      |  
|Allowance for loan losses                  |  |                                       | (8,778    | ) |                                       |   |                       |  |      |                 |  |   | (7,139    | ) |                       |   |        |  |      |  
|Other assets                               |  |                                       | 74,951    |   |                                       |   |                       |  |      |                 |  |   | 72,387    |   |                       |   |        |  |      |  
|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total assets                               |  | $                                     | 1,614,098 |   |                                       |   |                       |  |      |                 |  | $ | 1,456,372 |   |                       |   |        |  |      |  
|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-bearing deposits:                 |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Savings, NOW and money market accounts     |  | $                                     | 8,782     |   |                                       | $ | 86                    |  | 3.89 | %               |  | $ | 61,170    |   |                       | $ | 564    |  | 3.66 | %
|Certificates of deposit                    |  |                                       | 734,007   |   |                                       |   | 9,753                 |  | 5.27 | %               |  |   | 681,527   |   |                       |   | 7,958  |  | 4.63 | %
|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing deposits            |  |                                       | 742,789   |   |                                       |   | 9,839                 |  | 5.26 | %               |  |   | 742,697   |   |                       |   | 8,522  |  | 4.55 | %
|Short-term borrowings                      |  |                                       | 11,293    |   |                                       |   | 201                   |  | 6.96 | %               |  |   |          |   |                       |   |       |  |     |  
|Repurchase agreements                      |  |                                       | 40,000    |   |                                       |   | 492                   |  | 4.81 | %               |  |   | 40,000    |   |                       |   | 337    |  | 3.34 | %
|FHLB advances                              |  |                                       | 595,760   |   |                                       |   | 7,084                 |  | 4.72 | %               |  |   | 451,587   |   |                       |   | 4,769  |  | 4.19 | %
|Junior subordinated notes payable          |  |                                       | 46,393    |   |                                       |   | 940                   |  | 8.04 | %               |  |   | 41,238    |   |                       |   | 860    |  | 8.27 | %
|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                       | 1,436,235 |   |                                       |   | 18,556                |  | 5.13 | %               |  |   | 1,275,522 |   |                       |   | 14,488 |  | 4.51 | %
|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                       | 1,289     |   |                                       |   |                       |  |      |                 |  |   | 5,892     |   |                       |   |        |  |      |  
|Other liabilities                          |  |                                       | 18,270    |   |                                       |   |                       |  |      |                 |  |   | 12,966    |   |                       |   |        |  |      |  
|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities                          |  |                                       | 1,455,794 |   |                                       |   |                       |  |      |                 |  |   | 1,294,380 |   |                       |   |        |  |      |  
|Stockholders equity                       |  |                                       | 158,304   |   |                                       |   |                       |  |      |                 |  |   | 161,992   |   |                       |   |        |  |      |  
|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                                     | 1,614,098 |   |                                       |   |                       |  |      |                 |  | $ | 1,456,372 |   |                       |   |        |  |      |  
|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest income                        |  |                                       |           |   |                                       | $ | 7,943                 |  |      |                 |  |   |           |   |                       | $ | 7,983  |  |      |  
|                                           |  |                                       |           |   |                                       |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest spread                        |  |                                       |           |   |                                       |   |                       |  | 1.57 | %               |  |   |           |   |                       |   |        |  | 1.82 | %
|Net interest margin                        |  |                                       |           |   |                                       |   |                       |  | 2.04 | %               |  |   |           |   |                       |   |        |  | 2.28 | %

---

|(1) | It is the Companys policy to discontinue the accrual of interest 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Interest income on loans includes the accretion of deferred loan fees of $676 and $327, respectively, for the three months ended September 30, 2007 and 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|------------------------------------------ |  | ------------------------------------ | --------- | - | ------------------------------------ | - | --------------------- |  | ---- | --------------- |  | - | --------- | - | --------------------- | - | ------ |  | ---- | -
|                                           |  | Nine Months Ended September 30, 2007 |           |   | Nine Months Ended September 30, 2006 |  
|                                           |  | Average Balance                      |           |   | Interest                             |   | Annualized Yield/Rate |  |      | Average Balance |  |   | Interest  |   | Annualized Yield/Rate |  
|                                           |  | (Dollars in thousands)               |          
|Interest-Earning Assets:                   |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Mortgage-backed securities                 |  | $                                    | 451,384   |   |                                      | $ | 17,711                |  | 5.17 | %               |  | $ | 362,867   |   |                       | $ | 13,329 |  | 4.84 | %
|Loans(1)(2)                                |  |                                      | 1,064,367 |   |                                      |   | 59,277                |  | 7.34 | %               |  |   | 954,401   |   |                       |   | 49,415 |  | 6.83 | %
|Federal funds and other investments        |  |                                      | 36,001    |   |                                      |   | 1,357                 |  | 4.97 | %               |  |   | 43,690    |   |                       |   | 1,612  |  | 4.87 | %
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-earning assets              |  |                                      | 1,551,752 |   |                                      |   | 78,345                |  | 6.66 | %               |  |   | 1,360,958 |   |                       |   | 64,356 |  | 6.24 | %
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-earning cash                   |  |                                      | 554       |   |                                      |   |                       |  |      |                 |  |   | 1,490     |   |                       |   |        |  |      |  
|Allowance for loan losses                  |  |                                      | (8,497    | ) |                                      |   |                       |  |      |                 |  |   | (7,224    | ) |                       |   |        |  |      |  
|Other assets                               |  |                                      | 73,672    |   |                                      |   |                       |  |      |                 |  |   | 74,418    |   |                       |   |        |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total assets                               |  | $                                    | 1,617,481 |   |                                      |   |                       |  |      |                 |  | $ | 1,429,642 |   |                       |   |        |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-bearing deposits:                 |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Savings, NOW and money market accounts     |  | $                                    | 10,225    |   |                                      | $ | 306                   |  | 4.00 | %               |  | $ | 64,069    |   |                       | $ | 1,593  |  | 3.32 | %
|Certificates of deposit                    |  |                                      | 768,752   |   |                                      |   | 29,687                |  | 5.16 | %               |  |   | 623,134   |   |                       |   | 20,716 |  | 4.44 | %
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing deposits            |  |                                      | 778,977   |   |                                      |   | 29,993                |  | 5.15 | %               |  |   | 687,203   |   |                       |   | 22,309 |  | 4.34 | %
|Short-term borrowings                      |  |                                      | 9,978     |   |                                      |   | 537                   |  | 7.10 | %               |  |   |          |   |                       |   |       |  |     |  
|Repurchase agreements                      |  |                                      | 40,000    |   |                                      |   | 1,460                 |  | 4.81 | %               |  |   | 44,600    |   |                       |   | 1,120  |  | 3.36 | %
|FHLB advances                              |  |                                      | 565,300   |   |                                      |   | 19,966                |  | 4.72 | %               |  |   | 480,637   |   |                       |   | 13,549 |  | 3.77 | %
|Junior subordinated notes payable          |  |                                      | 46,393    |   |                                      |   | 2,786                 |  | 8.03 | %               |  |   | 30,929    |   |                       |   | 1,921  |  | 8.30 | %
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                      | 1,440,648 |   |                                      |   | 54,742                |  | 5.08 | %               |  |   | 1,243,369 |   |                       |   | 38,899 |  | 4.18 | %
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                      | 1,327     |   |                                      |   |                       |  |      |                 |  |   | 5,313     |   |                       |   |        |  |      |  
|Other liabilities                          |  |                                      | 16,862    |   |                                      |   |                       |  |      |                 |  |   | 11,853    |   |                       |   |        |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities                          |  |                                      | 1,458,837 |   |                                      |   |                       |  |      |                 |  |   | 1,260,535 |   |                       |   |        |  |      |  
|Stockholders equity                       |  |                                      | 158,644   |   |                                      |   |                       |  |      |                 |  |   | 169,107   |   |                       |   |        |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                                    | 1,617,481 |   |                                      |   |                       |  |      |                 |  | $ | 1,429,642 |   |                       |   |        |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest income                        |  |                                      |           |   |                                      | $ | 23,603                |  |      |                 |  |   |           |   |                       | $ | 25,457 |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest spread                        |  |                                      |           |   |                                      |   |                       |  | 1.58 | %               |  |   |           |   |                       |   |        |  | 2.06 | %
|Net interest margin                        |  |                                      |           |   |                                      |   |                       |  | 2.03 | %               |  |   |           |   |                       |   |        |  | 2.50 | %

---

|(1) | It is the Companys policy to discontinue the accrual of interest 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Interest income on loans includes the accretion of deferred loan fees of $1.6 million and $897, respectively, for the nine months ended September 30, 2007 and 2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest income on mortgage-backed securities was $5.8 million for the third quarter of 2007, compared with $5.1 million for
the third quarter of 2006. For the nine months ended September 30, 2007, interest income on mortgage-backed securities totaled $17.7 million, compared with $13.3 million for the nine months ended September 30, 2006. The increase in
interest income reflected average investment balances for the three and nine months ended September 30, 2007, that were higher than the 2006 periods by $40.0 million and $104.9 million, respectively. Average investment balances were higher in
2007 due to security purchases of $79.7 million in the fourth quarter of 2006 and $34.9 million in the first half of 2007. Purchase of the securities at higher market interest rates also increased the average yield on the mortgage-backed securities.
The amortization of premiums



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has also been reduced as the rise in market interest rates in recent years has extended the expected lives of the securities. The yield on mortgage-backed
securities increased by 19 basis points from the third quarter of 2006 to the third quarter of 2007, and by 33 basis points from the first nine months of 2006 to the first nine months of 2007.

Interest income on loans was $20.2 million for the quarter ended September 30, 2007, compared with $16.8 million for the quarter ended
September 30, 2006. For the nine months ended September 30, 2007, interest income on loans was $59.3 million, compared with $49.4 million for the first nine months of 2006. Loan interest income increased as average loans for the three and
nine months ended September 30, 2007, were above the corresponding 2006 periods by $126.6 million and $103.2 million, respectively. The increases in average loans were primarily due to net loan fundings during the fourth quarter of 2006; there
has been minimal growth in the loan portfolio during 2007. Loan interest income also increased as the average loan yield rose 42 basis points from the third quarter of 2006 to the third quarter of 2007. The loan yield for the first nine months of
2007 was 51 basis points above the yield for the first nine months of 2006. The higher loan yields were due to our focus on construction lending, which resulted in higher margin loans and increased loan fees. Loan fee income for the three and nine
months ended September 30, 2007 were higher than the 2006 periods by $349,000 and $717,000, respectively.

Interest expense on
deposits was $9.8 million for the quarter ended September 30, 2007, compared with $8.5 million for the quarter ended September 30, 2006. Interest on deposits for the nine months ended September 30, 2007, totaled $30.0 million,
compared with $22.3 million for the first nine months of 2006. The higher interest expense in 2007 resulted from a significant increase in the average cost of interest-bearing deposits as lower rate certificates of deposit (CDs) matured and were
replaced with CDs in a higher interest rate environment. In addition, the Company utilized higher cost brokered deposits to replace the deposits sold with the Beverly Hills branch in the fourth quarter of 2006. The average cost of our
interest-bearing deposits increased 71 basis points from the third quarter of 2006 to the third quarter of 2007, and 81 basis points from the first nine months of 2006 to the first nine months of 2007. Interest expense also increased as average
interest-bearing deposits for the three and nine months ended September 30, 2007 were above the 2006 periods by $0.1 million and $91.8 million, respectively.

Interest expense on short-term borrowings was $201,000 and $537,000, respectively, for the three and nine months ended September 30, 2007, while there was no interest expense during the corresponding 2006
periods. The interest expense in the 2007 periods was due to outstanding borrowings under a $20.0 million revolving line of credit obtained in the fourth quarter of 2006.

Interest expense on repurchase agreements and FHLB advances totaled $7.6 million for the three months ended September 30, 2007, compared with $5.1 million for the three months ended September 30, 2006. For
the nine months ended September 30, 2007, interest expense on repurchase agreements and FHLB advances was $21.4 million, compared with $14.7 million for the nine months ended September 30, 2006. The increase in interest expense was due to
our increased utilization of FHLB advances and a higher borrowing cost that resulted from the rise in market interest rates during 2006. Average borrowings for the three and nine months ended September 30, 2007, were above the 2006 periods by
$144.2 million and $84.7 million, respectively. FHLB advances have been the primary funding source in 2007 because their funding cost is lower than comparable brokered CDs. For the three and nine months ended September 30, 2007, the cost of our
repurchase agreements was higher than the 2006 periods by 147 basis points and 145 basis points, respectively. The cost of the FHLB advances increased by 53 basis points and 95 basis points, respectively, over the same periods.

Interest expense on the junior subordinated notes payable was $940,000 for the third quarter of 2007, compared with $860,000 for the third quarter of
2006. For the nine months ended September 30, 2007, interest on junior subordinated notes payable totaled $2.8 million, compared with $1.9 million for the first nine months of 2006. These increases in expense were due to the new debt issuances
of $20.6 million in May 2006 and $5.2 million in December 2006. The average liability balance for the three and nine months ended September 30, 2007, was above the 2006 periods by $5.2 million and $15.5 million respectively. Because the
new debt issued



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during 2006 was at spreads lower than the Companys prior debt, the average cost of the junior subordinated notes payable in 2007 was lower than in the
2006 periods. The average borrowing costs for the three and nine months ended September 30, 2007 were lower than the 2006 periods by 23 basis points and 27 basis points, respectively.

Provision for Loan Losses

Provision for
losses on loans are charged to operations to maintain an allowance for losses on the loan portfolio at a level that we believe is adequate based on an evaluation of the inherent risks in the portfolio. Our evaluation is based on an analysis of the
loan portfolio, historical loss experience, credit concentrations, current economic conditions and trends, the effects of interest rate changes on collateral values, and other relevant factors. The evaluation of the inherent loss with respect to
these factors is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio components. We currently intend to maintain an unallocated allowance in the range of 3% to 6% of the total
estimated allowance for loan losses, due to the inherent risk associated with the imprecision in estimating the allowance.

We recorded a
provision for loan losses of $1.2 million for the three months ended September 30, 2007, compared with a provision for loan losses of $120,000 for the three months ended September 30, 2006. For the nine months ended September 30,
2007, our provision for loan losses was $2.0 million, compared with $51,000 in loan loss provision for the corresponding 2006 period. The provision for loan losses in the 2007 periods reflect the increase in nonperforming loans and the increase
amount of construction and land loans.

The credit quality of our assets is affected by many factors beyond our control, including local
and national economic conditions, and the possible existence of facts which are not known to us which adversely affect the likelihood of repayment of various loans in our loan portfolio and realization of the collateral upon a default. Accordingly,
we can give no assurance that we will not sustain loan losses materially in excess of the allowance for loan losses.

Other Income

Our other income, primarily FHLB stock dividends, was $434,000 and $402,000 for the three months ended September 30, 2007 and
2006, respectively. Other income for the nine months ended September 30, 2007 was $1.6 million, compared with $1.1 million for the corresponding 2006 period. Other income for the first nine months of 2007 included $400,000 pursuant to a
settlement agreement with a former officer.

Other Expenses

Compensation and employee benefits expense totaled $1.9 million for the quarter ended September 30, 2007, as compared with $1.7 million for the third quarter of 2006. For the nine months ended September 30,
2007, compensation expense totaled $5.7 million, compared with $5.8 million for the first nine months of 2006. In June 2007, the Company approved stay bonus agreements for certain executive officers and employees. These employees will be entitled to
receive a stay bonus payment if they are employees either 60 days after a change in control (as defined in the agreement) or on December 31, 2008. The expense in the third quarter of 2007 for the stay bonus agreements totaled $407,000.
Stock-based compensation expense for the third quarter of 2007 was a credit of $157,000, as compared with expense of $56,000 for the third quarter of 2006. The credit in the 2007 period was due to adjusting the fair value of the SARs which decreased
during the quarter as a result of the decline in the Companys stock price. For the first nine months of 2007, stock-based compensation was $168,000, as compared with $174,000 for the 2006 period.

Our legal expenses (included in Professional fees in the statement of operations) for the third quarter of 2007 were $108,000, compared with
$500,000 in the third quarter of 2006. For the nine months ended September 30, 2007, legal expenses were $362,000, compared with $1.5 million for the nine months ended



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September 30, 2006. Legal expenses were higher in the 2006 periods due to various issues with respect to a former officer of the Company, and expenses
related to our dispute with our former loan servicing subsidiary, Wilshire Credit Corporation, and Merrill Lynch.

Occupancy expense was
$135,000 for the three months ended September 30, 2007, as compared with $249,000 for the three months ended September 30, 2006. For the nine months ended September 30, 2007, occupancy expenses were $435,000, compared with $749,000
for the nine months ended September 30, 2006. The reduction in expenses from the 2006 periods was due to the sale of the Beverly Hills branch in November 2006.

Real estate owned expense was $50,000 for the third quarter of 2007, as compared with $21,000 for the third quarter of 2006. For the first nine months of 2007, real estate owned expense was $410,000, compared with
$32,000 for the first nine months of 2006. The increase in expense during 2007 was mainly due to write-downs on a multi-family property. The write-downs in the three and nine months ended September 30, 2007, totaled $35,000 and $266,000,
respectively.

Other general and administrative expense was $188,000 for the third quarter of 2007, compared with $468,000 for the third
quarter of 2006. For the nine months ended September 30, 2007, other general and administrative expense was $982,000, as compared with $1,094,000 for the first nine months of 2006. Shareholder expenses declined by $73,000 from the third quarter
of 2006 to the third quarter of 2007, due to the stock tender offer in the 2006 period. In addition, marketing and business travel costs for the third quarter of 2007 were lower than the 2006 period by $65,000 as the Company has, for the most part,
focused on direct loan originations located in California.

The Company has contractually agreed to indemnify Merrill Lynch for claims
asserted against Wilshire Credit Corporation by third parties arising out of acts taken by Wilshire Credit Corporation prior to its sale on April 30, 2004. The indemnity is for settlements of judgments paid and for defense costs, and is for
amounts which, in the aggregate, exceed $2.0 million. The Company recorded accruals for its estimated liability in this matter in the third quarter of 2006 and the second quarter of 2007 of $100,000 and $380,000, respectively. No settlement accrual
was recorded in the third quarter of 2007.

CHANGES IN FINANCIAL CONDITION

General

At September 30, 2007, our total assets were $1.6 billion, a decrease of $39.3
million from total assets as of December 31, 2006. The following discussion summarizes the significant changes in our financial condition for the nine months ended September 30, 2007.

Mortgage-Backed and Other Securities Available for Sale

Our portfolio of mortgage-backed securities available for sale decreased by $31.7 million during the nine months ended September 30, 2007. This decrease was due to principal repayments of $66.9 million exceeding
the security purchases of $34.9 million. The purchases that occurred in the first two quarters of 2007 included $24.9 million in GSE mortgage-backed securities with a weighted-average yield of 6.04% and $10.0 million in AAA-rated mortgage-backed
securities with a weighted-average yield of 6.05%. We recorded unrealized holding gains on our mortgage-backed securities portfolio of approximately $0.4 million during the first nine months of 2007, due to a decline in market interest rates during
the third quarter of 2007.

The balance of our other investment securities available for sale (consisting of trust preferred securities and
mutual funds) declined by $2.0 million during the nine months ended September 30, 2007, primarily as a result of principal repayment on a trust preferred security.



22



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The following table sets forth our holdings of mortgage-backed and other investment securities as of the
dates indicated:



|                                                    |  |                        |         |                  |   |        
|--------------------------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                                    |  | September 30, 2007     |         | December 31,2006
|                                                    |  | (Dollars in thousands)
|Available for sale, at fair value:                  |  |                        |         |                  |   |        
|GSE mortgage-backed securities                      |  | $                      | 224,964 |                  | $ | 216,844
|AAA mortgage-backed securities                      |  |                        | 198,541 |                  |   | 237,288
|Other mortgage-backed securities                    |  |                        | 5,652   |                  |   | 6,762  
|Trust preferred securities                          |  |                        | 1,211   |                  |   | 3,228  
|Mutual funds                                        |  |                        | 5,667   |                  |   | 5,691  
|                                                    |  |                        |         |                  |   |        
|Total available for sale                            |  |                        | 436,035 |                  |   | 469,813
|Held to maturity:                                   |  |                        |         |                  |   |        
|Agency securities (fair value of $9,971 and $9,735) |  |                        | 9,797   |                  |   | 9,759  
|                                                    |  |                        |         |                  |   |        
|Total investment securities                         |  | $                      | 445,832 |                  | $ | 479,572
|                                                    |  |                        |         |                  |   |        

The amortized cost and fair value of our securities, by contractual maturity, are shown below as
of September 30, 2007:



|                         |  |                        |         |            |   |                        |  |      |  
|------------------------ |  | ---------------------- | ------- | ---------- | - | ---------------------- |  | ---- | -
|                         |  | Amortized Cost         |         | Fair Value |   | Weighted Average Yield | 
|                         |  | (Dollars in thousands) |         |            |  
|Due in five to ten years |  | $                      | 19,080  |            | $ | 19,058                 |  | 4.99 | %
|Due after ten years      |  |                        | 424,685 |            |   | 421,281                |  | 5.68 | %
|Mutual funds             |  |                        | 5,750   |            |   | 5,667                  |  | 4.71 | %
|                         |  |                        |         |            |   |                        |  |      |  
|Total                    |  | $                      | 449,515 |            | $ | 446,006                |  | 5.63 | %
|                         |  |                        |         |            |   |                        |  |      |  

The following tables show the gross unrealized losses and fair value of our investments,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of September 30, 2007 and December 31, 2006:



|                                         |  |                        |        |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|---------------------------------------- |  | ---------------------- | ------ | ----------------- | - | ---------- |  | ----------------- | ------- | ---------- | - | ----------------- |  | - | ------- |  | - | -----
|                                         |  | Less than 12 months    |        | 12 months or more |   | Total     
|                                         |  | Fair Value             |        | Unrealized Losses |   | Fair Value |  | Unrealized Losses |         | Fair Value |   | Unrealized Losses
|                                         |  | (Dollars in thousands)
|September 30, 2007                       |  |                        |        |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|GSE mortgage-backed securities           |  | $                      | 85,839 |                   | $ | 654        |  | $                 | 51,834  |            | $ | 1,056             |  | $ | 137,673 |  | $ | 1,710
|AAA and other mortgage-backed securities |  |                        | 12,569 |                   |   | 115        |  |                   | 160,153 |            |   | 2,639             |  |   | 172,722 |  |   | 2,754
|Mutual funds                             |  |                        |       |                   |   |           |  |                   | 1,906   |            |   | 94                |  |   | 1,906   |  |   | 94   
|Agency securities                        |  |                        |       |                   |   |           |  |                   |        |            |   |                  |  |   |        |  |   |     
|                                         |  |                        |        |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|Total                                    |  | $                      | 98,408 |                   | $ | 769        |  | $                 | 213,893 |            | $ | 3,789             |  | $ | 312,301 |  | $ | 4,558
|                                         |  |                        |        |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|                                         |  |                        |       
|                                         |  | Less than 12 months    |        | 12 months or more |   | Total     
|                                         |  | Fair Value             |        | Unrealized Losses |   | Fair Value |  | Unrealized Losses |         | Fair Value |   | Unrealized Losses
|                                         |  | (Dollars in thousands)
|December 31, 2006                        |  |                        |        |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|GSE mortgage-backed securities           |  | $                      | 18,509 |                   | $ | 79         |  | $                 | 72,595  |            | $ | 1,610             |  | $ | 91,104  |  | $ | 1,689
|AAA and other mortgage-backed securities |  |                        | 16,033 |                   |   | 66         |  |                   | 175,045 |            |   | 3,667             |  |   | 191,078 |  |   | 3,733
|Mutual funds                             |  |                        |       |                   |   |           |  |                   | 1,916   |            |   | 84                |  |   | 1,916   |  |   | 84   
|Agency securities                        |  |                        | 9,735  |                   |   | 24         |  |                   |        |            |   |                  |  |   | 9,735   |  |   | 24   
|                                         |  |                        |        |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|Total                                    |  | $                      | 44,277 |                   | $ | 169        |  | $                 | 249,556 |            | $ | 5,361             |  | $ | 293,833 |  | $ | 5,530
|                                         |  |                        |        |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      



23



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##### Table of Contents

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that
are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value
has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in
fair value.

We have the ability and intent to hold the securities classified as held to maturity until they mature, at which time we
expect to receive full value for the securities. Furthermore, as of September 30, 2007, we also had the ability and intent to hold the securities classified as available for sale for a period of time sufficient for a full recovery of cost. The
unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or
if market yields for such investments decline. We do not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of September 30, 2007 and December 31, 2006, we believe the impairments detailed in the
table above are temporary, and as a result, no impairment loss has been recognized in our consolidated statements of operations.

At
September 30, 2007 and December 31, 2006, securities with amortized cost of $397.2 million and $362.6 million, respectively, and market values of $393.9 million and $358.8 million, respectively, were pledged to secure repurchase
agreements, FHLB advances and public deposits.

Loans

Our loan portfolio, net of discounts and allowances, increased by $6.0 million during the nine months ended September 30, 2007. The loan portfolio has shown minimal growth in 2007 as loan originations and
purchases of $229.4 million have been offset by loan repayments of $196.9 million and loan participation sales of $25.0 million. Loan fundings in the first nine months of 2007 consisted of $88.1 million in commercial real estate loans, $72.3 million
in construction loans, $52.1 million in multifamily loans, and $16.9 million in other loans. At September 30, 2007, we had outstanding commitments to fund $186.2 million in new construction, commercial and multifamily loans.

Following is a summary of our loan portfolio as of the dates indicated:



|                                 |  |                        |           |   |                   |   |           |  
|-------------------------------- |  | ---------------------- | --------- | - | ----------------- | - | --------- | -
|                                 |  | September 30, 2007     |           |   | December 31, 2006 |  
|                                 |  | (Dollars in thousands) |          
|Single-family residential        |  | $                      | 16,383    |   |                   | $ | 18,797    |  
|Multifamily residential          |  |                        | 329,119   |   |                   |   | 356,992   |  
|Commercial real estate           |  |                        | 545,284   |   |                   |   | 569,840   |  
|Construction                     |  |                        | 149,915   |   |                   |   | 98,869    |  
|Other                            |  |                        | 15,069    |   |                   |   | 2,060     |  
|                                 |  |                        |           |   |                   |   |           |  
|Loan portfolio principal balance |  |                        | 1,055,770 |   |                   |   | 1,046,558 |  
|Net premium and deferred fees    |  |                        | 424       |   |                   |   | 2,046     |  
|Allowance for loan losses        |  |                        | (9,482    | ) |                   |   | (7,878    | )
|                                 |  |                        |           |   |                   |   |           |  
|Total loan portfolio, net        |  | $                      | 1,046,712 |   |                   | $ | 1,040,726 |  
|                                 |  |                        |           |   |                   |   |           |  



24



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##### Table of Contents

The following table summarizes the activity in our allowance for loan losses for the periods indicated:



|                                       |  |                                  |       |   |                                 |   |       |      |  |   |       |   |  |   |       |  
|-------------------------------------- |  | -------------------------------- | ----- | - | ------------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                       |  | Three Months Ended September 30, |       |   | Nine Months Ended September 30, |  
|                                       |  | 2007                             |       |   | 2006                            |   |       | 2007 |  |   | 2006  |  
|                                       |  | (Dollars in thousands)           |      
|Balance, beginning of period           |  | $                                | 8,419 |   |                                 | $ | 6,939 |      |  | $ | 7,878 |   |  | $ | 7,080 |  
|Provision for loan losses(1)           |  |                                  | 1,064 |   |                                 |   | 131   |      |  |   | 1,886 |   |  |   | 17    |  
|Charge-offs                            |  |                                  |      |   |                                 |   | (1    | )    |  |   | (278  | ) |  |   | (28   | )
|Recoveries                             |  |                                  | 1     |   |                                 |   | 1     |      |  |   | 2     |   |  |   | 7     |  
|Amortization of fresh-start adjustment |  |                                  | (2    | ) |                                 |   | (2    | )    |  |   | (6    | ) |  |   | (8    | )
|                                       |  |                                  |       |   |                                 |   |       |      |  |   |       |   |  |   |       |  
|Balance, end of period                 |  | $                                | 9,482 |   |                                 | $ | 7,068 |      |  | $ | 9,482 |   |  | $ | 7,068 |  
|                                       |  |                                  |       |   |                                 |   |       |      |  |   |       |   |  |   |       |  

---

|(1) | Excludes provision for (recapture of) loan losses on discounted loans of $118 and $142, respectively, for the three and nine months ended September 30, 2007, and ($11) and $34,
respectively, for the three and nine months ended September 30, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table sets forth the delinquency
status of our loans as of the dates indicated:



|                                                          |  |                        |        |   |                   |   |       |  
|--------------------------------------------------------- |  | ---------------------- | ------ | - | ----------------- | - | ----- | -
|                                                          |  | September 30, 2007     |        |   | December 31, 2006 |  
|                                                          |  | (Dollars in thousands) |       
|Balance of delinquent loans:                              |  |                        |        |   |                   |   |       |  
|31-60 days                                                |  | $                      | 1,526  |   |                   | $ | 1,583 |  
|61-90 days                                                |  |                        | 1,511  |   |                   |   | 2,528 |  
|91 days or more(1)                                        |  |                        | 23,388 |   |                   |   | 601   |  
|                                                          |  |                        |        |   |                   |   |       |  
|Total delinquent loans                                    |  | $                      | 26,425 |   |                   | $ | 4,712 |  
|                                                          |  |                        |        |   |                   |   |       |  
|Delinquent loans as a percentage of total loan portfolio: |  |                        |        |   |                   |   |       |  
|31-60 days                                                |  |                        | 0.2    | % |                   |   | 0.2   | %
|61-90 days                                                |  |                        | 0.1    |   |                   |   | 0.2   |  
|91 days or more(1)                                        |  |                        | 2.2    |   |                   |   | 0.1   |  
|                                                          |  |                        |        |   |                   |   |       |  
|Total                                                     |  |                        | 2.5    | % |                   |   | 0.5   | %
|                                                          |  |                        |        |   |                   |   |       |  

---

|(1) | All loans delinquent more than 90 days were on nonaccrual status.
|--- | -----------------------------------------------------------------

At September 30, 2007, nonaccrual loans included one construction loan totaling $18.6 million. In October 2006, we purchased a participation in a construction loan that was for the construction of 94 semi-attached residences in
Coachella, California. We recorded a notice of default in August 2007 and are pursing legal remedies against the guarantors of the loan. We consider this loan to be impaired. Due to a reduction in the appraised fair value of the collateral, we
established a $341,000 specific reserve for this loan in the third quarter of 2007.

We evaluate loan impairment according to the
provisions of SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as amended. Under SFAS No. 114, loans are considered impaired when it is probable that we will be unable to collect all amounts due according to the
contractual terms of the loan agreement, including scheduled interest payments. Impaired loans are measured based on the present value of expected future cash flows discounted at the loans effective interest rate or, as an expedient, at the
loans observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency will be charged-off
against the allowance for loan losses, or alternatively, a specific allocation will be established. Also, in accordance with SFAS No. 114, loans that are considered impaired are specifically excluded from the quarterly migration analysis when
determining the amount of the allowance for loan and lease losses required for the period.



25



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##### Table of Contents

At September 30, 2007, we classified $26.7 million of our loans as impaired, compared with $7.0
million at December 31, 2006. Specific reserves on impaired loans amounted to $639,000 and $64,000 at September 30, 2007 and December 31, 2006, respectively. During the nine months ended September 30, 2007 and 2006, gross
interest income that would have been recorded on impaired loans, had they performed in accordance with their original terms, totaled $2.2 million and $1.0 million, respectively. Of this amount, actual interest recognized on impaired loans, on a cash
basis, was $838,000 and $658,000, respectively.

Real Estate Owned

Real estate owned decreased by $399,000 during the nine months ended September 30, 2007. We recorded write-downs on a multi-family property of
$35,000 and $266,000, respectively, for the three and nine months ended September 30, 2007. In the third quarter of 2007, we recognized an $18,000 gain on the sale of a $76,000 single-family property. We have not foreclosed any loans during
2007.

Deposits

Deposits
decreased by $114.4 million during the nine months ended September 30, 2007, due to a significant decrease in wholesale CDs. Brokered CDs were $626.6 million at September 30, 2007, and declined $96.2 million during the first nine months of
2007 as maturing brokered CDs were generally replaced with lower costing FHLB advances. The weighted average cost of our deposits was 4.98% at September 30, 2007, compared with 4.82% at December 31, 2006. The average cost of deposits
increased during 2007 due to the maturity of lower-rate brokered CDs. Because market interest rates increased during 2005 and 2006, these maturing CDs had interest rates significantly below current market rates. There are intercompany deposits at
September 30, 2007 and December 31, 2006 of $0.5 million and $12.6 million, respectively, of balances held by BHBC and WFC. These deposits are eliminated in consolidation and are not reflected in total deposits on our consolidated
statements of financial condition.

Short-Term Borrowings

Short-term borrowings decreased by $10.5 million during the nine months ended September 30, 2007. Short-term borrowings are borrowings under a $20.0 million revolving line of credit agreement with another
financial institution that bears interest at the 3-month LIBOR rate, plus 1.65% (7.23% at September 30, 2007), adjusting quarterly. The proceeds from this debt facility are used for working capital purposes. The line of credit is due and
payable in full in November 2007.

Repurchase Agreements

Total repurchase agreements did not change at any time during the nine months ended September 30, 2007. The weighted-average cost of our repurchase agreements was 4.81% at September 30, 2007 and
December 31, 2006. We did not enter into any new repurchase agreements during the first nine months of 2007, as our funding requirements were met with new brokered CDs and FHLB advances.

FHLB Advances

FHLB advances increased by
$79.7 million during the nine months ended September 30, 2007. This increase reflects $400.0 million in new advances, partially offset by $320.3 million in payoffs of maturing advances. FHLB advances have been the Companys main funding
source in 2007 as the advances generally have a lower cost than brokered deposits. The FHLB has authorized a borrowing limit for total FHLB advances of 45% of the Banks total assets as of the previous quarter-end. As of September 30,
2007, we had FHLB borrowing availability of $106.5 million.

REGULATORY CAPITAL REQUIREMENTS

Bank holding companies, such as BHBC, and FDIC-insured banks, such as FBBH, are required to meet certain minimum regulatory capital requirements. At
September 30, 2007, BHBC and FBBH met all applicable regulatory capital requirements and FBBH was well capitalized, as defined under applicable regulations.



26



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##### Table of Contents

The following table sets forth the regulatory standards for well capitalized and adequately capitalized
institutions and capital ratios for BHBC and FBBH at September 30, 2007.

Regulatory Capital Ratios



|                                                           |  |                        |                               |       |                 |                                        |        |   |        |  |   |        |   |       |   |                |  |   |       |  
|---------------------------------------------------------- |  | ---------------------- | ----------------------------- | ----- | --------------- | -------------------------------------- | ------ | - | ------ |  | - | ------ | - | ----- | - | -------------- |  | - | ----- | -
|                                                           |  | Actual                 |                               |       | Amount Required |                                       
|                                                           |  |                        | For Capital Adequacy Purposes |       |                 | To be Categorized as WellCapitalized |       
|                                                           |  | Amount                 |                               | Ratio |                 |                                        | Amount |   | Ratio  |  |   | Amount |   | Ratio |  
|                                                           |  | (Dollars in thousands) |                              
|BHBC                                                       |  |                        |                               |       |                 |                                        |        |   |        |  |   |        |   |       |   |                |  |   |       |  
|Total capital to risk-weighted assets (Risk-based capital) |  | $                      | 184,749                       |       | 16.42           | %                                      |        | $ | 90,010 |  | 3 | 8.00   | % |       |   | Not Applicable | 
|Tier 1 capital to risk-weighted assets                     |  |                        | 175,133                       |       | 15.57           | %                                      |        |   | 45,005 |  | 3 | 4.00   | % |       |   | Not Applicable | 
|Tier 1 leverage ratio                                      |  |                        | 175,133                       |       | 11.01           | %                                      |        |   | 63,641 |  | 3 | 4.00   | % |       |   | Not Applicable | 
|FBBH                                                       |  |                        |                               |       |                 |                                        |        |   |        |  |   |        |   |       |   |                |  |   |       |  
|Total capital to risk-weighted assets (Risk-based capital) |  | $                      | 152,359                       |       | 13.90           | %                                      |        | $ | 87,712 |  | 3 | 8.00   | % |       | $ | 109,640        |  | 3 | 10.00 | %
|Tier 1 capital to risk-weighted assets                     |  |                        | 143,019                       |       | 13.04           | %                                      |        |   | 43,856 |  | 3 | 4.00   | % |       |   | 65,784         |  | 3 | 6.00  | %
|Tier 1 leverage ratio                                      |  |                        | 143,019                       |       | 9.19            | %                                      |        |   | 62,251 |  | 3 | 4.00   | % |       |   | 77,814         |  | 3 | 5.00  | %

In addition to the requirements shown in the above table, FBBH is required by the DFI to maintain
a ratio of tangible shareholders equity to total tangible assets of at least 8.0% for the first three years following the effective date of the charter conversion, or through August 31, 2008. As of September 30, 2007, FBBH was in
compliance with the DFIs requirement.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the measurement of an entitys ability to meet potential cash requirements, including ongoing commitments to repay borrowings, originate
loans, fund investments, purchase pools of loans, and make payments for general business purposes.

Our sources of liquidity include
wholesale and retail deposits, FHLB advances (up to 45% of the Banks total assets as of the previous quarter-end), repurchase agreements, repayments of loans and mortgage-backed securities, and net interest income. We manage our liquidity on a
daily basis, and our Board of Directors periodically reviews our liquidity. This process is intended to ensure the maintenance of sufficient funds to meet our operating needs. Based on our current and expected asset size, capital levels, and
organizational infrastructure, we believe there will be sufficient available liquidity to meet our operating needs.

At September 30,
2007, we had $725.2 million of CDs. Scheduled maturities of CDs during the 12 months ending September 30, 2008 and thereafter amounted to $677.3 million and $47.9 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. Management
continues its effort to reduce our exposure to interest rate changes by utilizing funding sources whose repricing characteristics more closely match those of our interest-earning assets.



27



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We are party to various contractual financial obligations, including repayment of borrowings, operating
lease payments and commitments to extend credit. The table below presents our future financial obligations, including anticipated interest payments, outstanding as of September 30, 2007:



|                                           |  |                                                       |           |           |   |           |  |               |         |       |   |         |  |   |          
|------------------------------------------ |  | ----------------------------------------------------- | --------- | --------- | - | --------- |  | ------------- | ------- | ----- | - | ------- |  | - | ---------
|                                           |  | Payments due within time period at September 30, 2007
|                                           |  | 0-12 Months                                           |           | 1-3 Years |   | 4-5 Years |  | After 5 Years |         | Total
|                                           |  | (Dollars in thousands)                               
|Certificates of deposit                    |  | $                                                     | 692,969   |           | $ | 8,050     |  | $             | 46,617  |       | $ |        |  | $ | 747,636  
|Short-term borrowings                      |  |                                                       | 9,670     |           |   |          |  |               |        |       |   |        |  |   | 9,670    
|Repurchase agreements                      |  |                                                       | 11,740    |           |   | 30,190    |  |               |        |       |   |        |  |   | 41,930   
|Employment contracts                       |  |                                                       | 543       |           |   | 136       |  |               |        |       |   |        |  |   | 679      
|Operating leases                           |  |                                                       | 473       |           |   | 881       |  |               | 902     |       |   | 891     |  |   | 3,147    
|FHLB advances                              |  |                                                       | 207,924   |           |   | 341,829   |  |               | 73,608  |       |   |        |  |   | 623,361  
|Junior subordinated notes payable to trust |  |                                                       | 3,637     |           |   | 7,274     |  |               | 7,274   |       |   | 125,704 |  |   | 143,889  
|Commitments to originate loans             |  |                                                       | 186,187   |           |   |          |  |               |        |       |   |        |  |   | 186,187  
|                                           |  |                                                       |           |           |   |           |  |               |         |       |   |         |  |   |          
|Total                                      |  | $                                                     | 1,113,143 |           | $ | 388,360   |  | $             | 128,401 |       | $ | 126,595 |  | $ | 1,756,499
|                                           |  |                                                       |           |           |   |           |  |               |         |       |   |         |  |   |          

With the exception of the operating leases and loan commitments, the expected obligations
presented above include anticipated interest accruals based on the current respective contractual terms. The amounts for the three issuances of junior subordinated debentures are based on the assumption that the debentures will be repaid in full at
their respective maturities in July 2032, June 2036 and March 2037. However, the debentures may be repaid in full or in part at par commencing in July 2007, June 2011 and March 2012, respectively, and quarterly thereafter.

The Company paid dividends totaling $2.3 million and $7.0 million, respectively, for the three and nine months ended September 30, 2007. The Company
is reviewing its dividend policy to determine if it should continue with the payment of quarterly cash dividends and if the dividend amount should be changed.

IMPORTANT FACTORS RELATING TO 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 Quarterly Report on Form 10-Q which are not identified as historical should be considered forward-looking. In connection with certain forward-looking
statements contained in this Quarterly Report on Form 10-Q 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 loans
at acceptable prices, and the availability and conditions of financing for loan pool acquisitions and other financial assets. Accordingly, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q
will be realized or that actual results will not be significantly higher or lower. Statements regarding policies and procedures are not intended, and should not be interpreted, to mean that such policies and procedures will not be amended, modified
or repealed at any time in the future. 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 Quarterly Report on Form 10-Q should consider these facts in evaluating the information contained herein. The inclusion of the forward-looking statements contained in this Quarterly Report on Form 10-Q should not be regarded as a
representation by the Company or any other person that the forward-looking statements contained in this Quarterly Report on Form 10-Q will be achieved. In light of the foregoing, readers of this Quarterly Report on Form 10-Q are cautioned not to
place undue reliance on the forward-looking statements contained herein. There are no material changes to our risk factors as presented in the Companys 2006 Annual Report on Form 10-K under the heading Item 1A. Risk Factors.



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|ITEM 3. | 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 values, and also can affect the ability of the borrower to repay. 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, our strategy is to limit our exposure to earnings volatility 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 of the Company and of the Board of Directors (collectively, ALCO) which reviews, 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. ALCO
establishes rate sensitivity tolerances (within regulatory guidelines) which are approved by our Board of Directors, and coordinates with our Board with respect to overall asset and liability composition.

ALCO is authorized to utilize off-balance sheet financial techniques to assist 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. At September 30, 2007, we were not a party to any swap agreement or other off-balance sheet financial instrument.

We continually monitor the interest rate sensitivity of our portfolios of interest-earning assets and interest-bearing liabilities in conjunction with the current interest rate environment. When new pools of loans or
securities are acquired, we will assess the incremental change in our sensitivity to interest rates, and determine accordingly whether or not to hedge.

In addition, ALCO 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. ALCO further evaluates such impacts against the maximum tolerable change in interest income that is authorized by our Board of
Directors.

The following table quantifies the potential changes in our NPV at September 30, 2007, 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 | 
|                |  | (Dollars in thousands) |         |          |                    |         |         |  |    
|Change in Rates |  |                        |         |          |                    |         |         |  |     |          
|+ 300bp         |  | $                      | 118,573 |          | $                  | (47,743 | )       |  | (29 | )%        |  | 7.87  | %      |  | (256 | ) bp
|+ 200bp         |  |                        | 133,232 |          |                    | (33,084 | )       |  | (20 | )         |  | 8.68  |        |  | (175 | ) bp
|+ 100bp         |  |                        | 148,828 |          |                    | (17,488 | )       |  | (11 | )         |  | 9.51  |        |  | (92  | ) bp
|0bp             |  |                        | 166,316 |          |                    |        |         |  |    |           |  | 10.43 |        |  |     |     
|- 100bp         |  |                        | 169,570 |          |                    | 3,254   |         |  | 2   |           |  | 10.52 |        |  | 9    | bp  
|- 200bp         |  |                        | 166,617 |          |                    | 301     |         |  |    |           |  | 10.28 |        |  | (15  | ) bp
|- 300bp         |  |                        | 165,639 |          |                    | (677    | )       |  |    |           |  | 10.14 |        |  | (29  | ) bp



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##### Table of Contents

In determining net portfolio value, we rely upon various assumptions, including, but not limited to,
prepayment speeds on our assets and the discount rates to be used. We review our assumptions regularly and adjust them when it is deemed appropriate based on current and future expected market conditions.

We believe that the assumptions (including prepayment assumptions) we use to evaluate the vulnerability of our operations to changes in interest rates
approximate actual experience and consider 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.

Another tool we use to identify and manage our
interest rate risk profile is the static gap analysis. Interest sensitivity gap analysis measures the difference between the assets and liabilities repricing or maturing within specific time periods. The following table summarizes the scheduled
maturities or repricing of our assets and liabilities based on their contractual terms as of September 30, 2007.



|                                                            |  |                        |          |    |                                   |   |          |                                    |  |   |                 |    |  |       |         |   |  |   |          
|----------------------------------------------------------- |  | ---------------------- | -------- | -- | --------------------------------- | - | -------- | ---------------------------------- |  | - | --------------- | -- |  | ----- | ------- | - |  | - | ---------
|                                                            |  | Within Twelve Months   |          |    | More Than One Year to Three Years |   |          | More Than Three Years toFive Years |  |   | Over Five Years |    |  | Total
|                                                            |  | (Dollars in thousands)
|Assets:                                                     |  |                        |          |    |                                   |   |          |                                    |  |   |                 |    |  |       |         |   |  |   |          
|Cash and cash equivalents                                   |  | $                      | 15,274   |    |                                   | $ |         |                                    |  | $ |                |    |  | $     |        |   |  | $ | 15,274   
|Mortgage-backed and other investment securities             |  |                        | 50,486   |    |                                   |   | 131,006  |                                    |  |   | 20,450          |    |  |       | 243,890 |   |  |   | 445,832  
|Single-family residential loans                             |  |                        | 8,088    |    |                                   |   | 952      |                                    |  |   | 10              |    |  |       | 7,550   |   |  |   | 16,600   
|Multifamily residential loans                               |  |                        | 152,851  |    |                                   |   | 108,818  |                                    |  |   | 47,710          |    |  |       | 19,740  |   |  |   | 329,119  
|Commercial real estate loans                                |  |                        | 232,526  |    |                                   |   | 142,466  |                                    |  |   | 131,576         |    |  |       | 38,746  |   |  |   | 545,314  
|Construction loans                                          |  |                        | 138,768  |    |                                   |   |         |                                    |  |   | 11,147          |    |  |       |        |   |  |   | 149,915  
|Other loans                                                 |  |                        | 14,991   |    |                                   |   | 94       |                                    |  |   | 124             |    |  |       | 649     |   |  |   | 15,858   
|Other assets(1)                                             |  |                        |         |    |                                   |   |         |                                    |  |   |                |    |  |       | 66,666  |   |  |   | 66,666   
|                                                            |  |                        |          |    |                                   |   |          |                                    |  |   |                 |    |  |       |         |   |  |   |          
|Total assets                                                |  |                        | 612,984  |    |                                   |   | 383,336  |                                    |  |   | 211,017         |    |  |       | 377,241 |   |  |   | 1,584,578
|                                                            |  |                        |          |    |                                   |   |          |                                    |  |   |                 |    |  |       |         |   |  |   |          
|Liabilities:                                                |  |                        |          |    |                                   |   |          |                                    |  |   |                 |    |  |       |         |   |  |   |          
|Noninterest-bearing deposits                                |  |                        |         |    |                                   |   |         |                                    |  |   |                |    |  |       | 1,971   |   |  |   | 1,971    
|Savings, NOW and money market accounts(2)                   |  |                        | 9,392    |    |                                   |   |         |                                    |  |   |                |    |  |       |        |   |  |   | 9,392    
|Certificates of deposit                                     |  |                        | 677,281  |    |                                   |   | 2,904    |                                    |  |   | 44,971          |    |  |       |        |   |  |   | 725,156  
|Short-term borrowings                                       |  |                        | 9,500    |    |                                   |   |         |                                    |  |   |                |    |  |       |        |   |  |   | 9,500    
|Repurchase agreements                                       |  |                        | 10,000   |    |                                   |   | 30,000   |                                    |  |   |                |    |  |       |        |   |  |   | 40,000   
|FHLB advances                                               |  |                        | 186,000  |    |                                   |   | 320,000  |                                    |  |   | 70,000          |    |  |       |        |   |  |   | 576,000  
|Junior subordinated notes payable                           |  |                        | 46,393   |    |                                   |   |         |                                    |  |   |                |    |  |       |        |   |  |   | 46,393   
|Other liabilities                                           |  |                        |         |    |                                   |   |         |                                    |  |   |                |    |  |       | 20,039  |   |  |   | 20,039   
|                                                            |  |                        |          |    |                                   |   |          |                                    |  |   |                 |    |  |       |         |   |  |   |          
|Total liabilities                                           |  |                        | 938,566  |    |                                   |   | 352,904  |                                    |  |   | 114,971         |    |  |       | 22,010  |   |  |   | 1,428,451
|                                                            |  |                        |          |    |                                   |   |          |                                    |  |   |                 |    |  |       |         |   |  |   |          
|(Deficiency) excess of assets over liabilities              |  | $                      | (325,582 | )  |                                   | $ | 30,432   |                                    |  | $ | 96,046          |    |  | $     | 355,231 |   |  | $ | 156,127  
|                                                            |  |                        |          |    |                                   |   |          |                                    |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess                              |  | $                      | (325,582 | )  |                                   | $ | (295,150 | )                                  |  | $ | (199,104        | )  |  | $     | 156,127 |   |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                    |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess as a percent of total assets |  |                        | (20.55   | )% |                                   |   | (18.63   | )%                                 |  |   | (12.57          | )% |  |       | 9.85    | % |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                    |  |   |                 |    |  |       |         |   |  |   |          

---

|(1) | Includes unamortized premium on loans and allowance for loan losses.
|--- | --------------------------------------------------------------------

|(2) | Excludes $0.5 million of money market deposits held by BHBC and WFC. These deposits are eliminated in consolidation and are not reflected in the consolidated statement of financial
condition.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Controls and Procedures

We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed in our
reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, our CEO and CFO concluded that the Companys disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys Exchange Act filings.

Changes in internal controls

There was no change in the Companys internal control over
financial reporting during the Companys most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION



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

Not applicable.



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

Not applicable.



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

Not applicable.



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

Not applicable.



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

Beverly Hills Bancorp Inc. held its annual meeting of shareholders on October 25, 2007. A brief description of the matter voted on and the results of the shareholder voting are set forth below:



|                                                                         |  |            |  |          
|------------------------------------------------------------------------ |  | ---------- |  | ---------
|                                                                         |  | For        |  | Withheld 
|Election of a Board of Directors to serve until the next annual meeting: |  |            |  |          
|Howard Amster                                                            |  | 14,158,707 |  | 1,792,775
|Larry B. Faigin                                                          |  | 14,412,837 |  | 1,538,645
|Stephen P. Glennon                                                       |  | 11,146,023 |  | 4,805,459
|Robert H. Kanner                                                         |  | 14,118,904 |  | 1,832,578
|Kathleen L. Kellogg                                                      |  | 14,130,749 |  | 1,820,733
|William D. King                                                          |  | 13,513,956 |  | 2,437,526
|John J. Lannan                                                           |  | 13,579,920 |  | 2,371,562



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

Not applicable.



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



|      |  |                                                                                                                                                
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|10.29 |  | Amendment No. 1 to Employment Agreement between Beverly Hills Bancorp Inc. and Larry B. Faigin dated July 26, 2007                             
|      | 
|31.1  |  | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                         
|      | 
|31.2  |  | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                         
|      | 
|32.1  |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|      | 
|32.2  |  | Certification by the Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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##### Table of Contents

SIGNATURES

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



|                       |  |  |  |                            |  |     |  |                        
|---------------------- |  |  |  | -------------------------- |  | --- |  | -----------------------
|                       |  |  |  | BEVERLY HILLS BANCORP INC.
|Date: November 9, 2007 |  |  |  |                           
|                       |  |  |  |                           
|                       |  |  |  |                            |  | By: |  | /S/    LARRY B. FAIGIN 
|                       |  |  |  |                            |  |     |  | Larry B. Faigin        
|                       |  |  |  |                            |  |     |  | Chief Executive Officer
|                       |  |  |  |                           
|                       |  |  |  |                            |  | By: |  | /S/    TAKEO K. SASAKI 
|                       |  |  |  |                            |  |     |  | Takeo K. Sasaki        
|                       |  |  |  |                            |  |     |  | Chief Financial Officer



33