---

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 June 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 July 31,
2007
|Common Stock, par value $0.01 per share |  | 18,786,594 shares           



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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 |  | 17
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 30
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 32
|           |  |                                                                                      
|PART II.   |  | OTHER INFORMATION                                                                     |  |   
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 33
|           |  |                                                                                      
|Item 1A.   |  | Risk Factors                                                                          |  | 33
|           |  |                                                                                      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 33
|           |  |                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 33
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 33
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 33
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 33
|           | 
|Signatures |  | 34                                                                                   



2



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(Dollars
in thousands)



|                                                                                                                                           |  |               |           |   |                   |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                           |  | June 30, 2007 |           |   | December 31, 2006 |  
|ASSETS                                                                                                                                     |  |               |           |   |                   |   |           |  
|Cash and cash equivalents                                                                                                                  |  | $             | 19,169    |   |                   | $ | 27,005    |  
|Mortgage-backed securities available for sale, at fair value                                                                               |  |               | 447,652   |   |                   |   | 460,893   |  
|Investment securities available for sale, at fair value                                                                                    |  |               | 6,836     |   |                   |   | 8,920     |  
|Investment securities held to maturity, at amortized cost (fair value of $9,729 and $9,735)                                                |  |               | 9,784     |   |                   |   | 9,759     |  
|Loans, net of allowance for loan losses of $8,419 and $7,878                                                                               |  |               | 1,063,911 |   |                   |   | 1,040,726 |  
|Discounted loans, net of allowance for loan losses of $68 and $99                                                                          |  |               | 977       |   |                   |   | 1,157     |  
|Stock in Federal Home Loan Bank of San Francisco, at cost                                                                                  |  |               | 31,083    |   |                   |   | 29,015    |  
|Real estate owned, net                                                                                                                     |  |               | 364       |   |                   |   | 653       |  
|Leasehold improvements and equipment, net                                                                                                  |  |               | 1,098     |   |                   |   | 1,244     |  
|Accrued interest receivable                                                                                                                |  |               | 8,703     |   |                   |   | 8,685     |  
|Deferred tax asset, net                                                                                                                    |  |               | 29,247    |   |                   |   | 28,276    |  
|Goodwill, net                                                                                                                              |  |               | 3,054     |   |                   |   | 3,054     |  
|Prepaid expenses and other assets                                                                                                          |  |               | 4,115     |   |                   |   | 4,449     |  
|                                                                                                                                           |  |               |           |   |                   |   |           |  
|TOTAL                                                                                                                                      |  | $             | 1,625,993 |   |                   | $ | 1,623,836 |  
|                                                                                                                                           |  |               |           |   |                   |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                       |  |               |           |   |                   |   |           |  
|LIABILITIES:                                                                                                                               |  |               |           |   |                   |   |           |  
|Deposits:                                                                                                                                  |  |               |           |   |                   |   |           |  
|Noninterest-bearing deposits                                                                                                               |  | $             | 1,214     |   |                   | $ | 2,038     |  
|Interest-bearing deposits                                                                                                                  |  |               | 711,971   |   |                   |   | 848,852   |  
|                                                                                                                                           |  |               |           |   |                   |   |           |  
|Total deposits                                                                                                                             |  |               | 713,185   |   |                   |   | 850,890   |  
|Short-term borrowings                                                                                                                      |  |               | 12,300    |   |                   |   | 20,000    |  
|Repurchase agreements                                                                                                                      |  |               | 40,000    |   |                   |   | 40,000    |  
|FHLB advances                                                                                                                              |  |               | 641,337   |   |                   |   | 496,337   |  
|Junior subordinated notes payable to trust                                                                                                 |  |               | 46,393    |   |                   |   | 46,393    |  
|Accounts payable and other liabilities                                                                                                     |  |               | 18,907    |   |                   |   | 14,778    |  
|                                                                                                                                           |  |               |           |   |                   |   |           |  
|Total liabilities                                                                                                                          |  |               | 1,472,122 |   |                   |   | 1,468,398 |  
|                                                                                                                                           |  |               |           |   |                   |   |           |  
|COMMITMENTS AND CONTINGENCIES (NOTE 4)                                                                                                     |  |               |           |   |                   |   |           |  
|                                                                                                                                           |  |              
|STOCKHOLDERS EQUITY:                                                                                                                      |  |               |           |   |                   |   |           |  
|Common stock, $0.01 par value, 30,000,000 shares authorized, 27,175,962 and 27,107,534 shares issued (including 8,389,368 treasury shares) |  |               | 272       |   |                   |   | 271       |  
|Additional paid-in capital                                                                                                                 |  |               | 166,258   |   |                   |   | 165,972   |  
|Treasury stock, 8,389,368 shares, at cost                                                                                                  |  |               | (39,974   | ) |                   |   | (39,974   | )
|Retained earnings                                                                                                                          |  |               | 31,890    |   |                   |   | 31,800    |  
|Accumulated other comprehensive loss, net                                                                                                  |  |               | (4,575    | ) |                   |   | (2,631    | )
|                                                                                                                                           |  |               |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                 |  |               | 153,871   |   |                   |   | 155,438   |  
|                                                                                                                                           |  |               |           |   |                   |   |           |  
|TOTAL                                                                                                                                      |  | $             | 1,625,993 |   |                   | $ | 1,623,836 |  
|                                                                                                                                           |  |               |           |   |                   |   |           |  

See notes to unaudited interim condensed consolidated financial statements



3



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in
thousands, except share data)



|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|---------------------------------------------------------------------- |  | --------------------------- | ---------- | ---- | ------------------------- | ---------- | ---- |  | ---- | ---------- |  | - | ---------- | -
|                                                                       |  | Three Months Ended June 30, |            |      | Six Months Ended June 30, |           
|                                                                       |  | 2007                        |            | 2006 |                           |            | 2007 |  | 2006 |           
|INTEREST INCOME:                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|Loans                                                                  |  | $                           | 20,064     |      | $                         | 16,509     |      |  | $    | 39,057     |  | $ | 32,608     |  
|Mortgage-backed securities                                             |  |                             | 5,901      |      |                           | 4,458      |      |  |      | 11,900     |  |   | 8,234      |  
|Securities and federal funds sold                                      |  |                             | 404        |      |                           | 563        |      |  |      | 889        |  |   | 1,043      |  
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|Total interest income                                                  |  |                             | 26,369     |      |                           | 21,530     |      |  |      | 51,846     |  |   | 41,885     |  
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|INTEREST EXPENSE:                                                      |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|Deposits                                                               |  |                             | 9,467      |      |                           | 7,547      |      |  |      | 20,154     |  |   | 13,787     |  
|Borrowings                                                             |  |                             | 8,898      |      |                           | 5,385      |      |  |      | 16,032     |  |   | 10,624     |  
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|Total interest expense                                                 |  |                             | 18,365     |      |                           | 12,932     |      |  |      | 36,186     |  |   | 24,411     |  
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|NET INTEREST INCOME                                                    |  |                             | 8,004      |      |                           | 8,598      |      |  |      | 15,660     |  |   | 17,474     |  
|PROVISION FOR (RECAPTURE OF) LOSSES ON LOANS                           |  |                             | 661        |      |                           | (109       | )    |  |      | 846        |  |   | (69        | )
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|NET INTEREST INCOME AFTER PROVISION FOR (RECAPTURE OF) LOSSES ON LOANS |  |                             | 7,343      |      |                           | 8,707      |      |  |      | 14,814     |  |   | 17,543     |  
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|OTHER INCOME:                                                          |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|FHLB stock dividends                                                   |  |                             | 361        |      |                           | 321        |      |  |      | 767        |  |   | 673        |  
|Other income, net                                                      |  |                             | 206        |      |                           | 24         |      |  |      | 426        |  |   | 35         |  
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|Total other income                                                     |  |                             | 567        |      |                           | 345        |      |  |      | 1,193      |  |   | 708        |  
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|OTHER EXPENSES:                                                        |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|Compensation and employee benefits                                     |  |                             | 2,005      |      |                           | 2,018      |      |  |      | 3,814      |  |   | 4,031      |  
|Professional fees                                                      |  |                             | 675        |      |                           | 389        |      |  |      | 1,382      |  |   | 2,031      |  
|Occupancy                                                              |  |                             | 153        |      |                           | 254        |      |  |      | 300        |  |   | 500        |  
|Loan expenses                                                          |  |                             | 29         |      |                           | 77         |      |  |      | 82         |  |   | 227        |  
|Regulatory assessments                                                 |  |                             | 57         |      |                           | 19         |      |  |      | 112        |  |   | 39         |  
|Data processing                                                        |  |                             | 86         |      |                           | 104        |      |  |      | 176        |  |   | 197        |  
|Insurance                                                              |  |                             | 154        |      |                           | 174        |      |  |      | 319        |  |   | 346        |  
|Depreciation                                                           |  |                             | 96         |      |                           | 92         |      |  |      | 189        |  |   | 181        |  
|Directors expense                                                      |  |                             | 107        |      |                           | 96         |      |  |      | 219        |  |   | 186        |  
|Real estate owned, net                                                 |  |                             | 259        |      |                           | 6          |      |  |      | 360        |  |   | 11         |  
|Other general and administrative expense                               |  |                             | 592        |      |                           | 297        |      |  |      | 794        |  |   | 626        |  
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|Total other expenses                                                   |  |                             | 4,213      |      |                           | 3,526      |      |  |      | 7,747      |  |   | 8,375      |  
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|INCOME BEFORE INCOME TAX PROVISION                                     |  |                             | 3,697      |      |                           | 5,526      |      |  |      | 8,260      |  |   | 9,876      |  
|INCOME TAX PROVISION                                                   |  |                             | 1,554      |      |                           | 2,250      |      |  |      | 3,474      |  |   | 4,102      |  
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|NET INCOME                                                             |  | $                           | 2,143      |      | $                         | 3,276      |      |  | $    | 4,786      |  | $ | 5,774      |  
|                                                                       |  |                             |            |      |                           |            |      |  |      |            |  |   |            |  
|Earnings per sharebasic                                               |  | $                           | 0.11       |      | $                         | 0.15       |      |  | $    | 0.26       |  | $ | 0.27       |  
|Earnings per sharediluted                                             |  | $                           | 0.11       |      | $                         | 0.15       |      |  | $    | 0.25       |  | $ | 0.27       |  
|                                                                       |  |                             |            |     
|Weighted average number of sharesbasic                                |  |                             | 18,785,550 |      |                           | 21,368,113 |      |  |      | 18,759,427 |  |   | 21,348,213 |  
|Weighted average number of sharesdiluted                              |  |                             | 18,813,673 |      |                           | 21,552,366 |      |  |      | 18,805,146 |  |   | 21,552,981 |  

See notes to unaudited interim condensed consolidated financial statements



4



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in
thousands)



|                                                                                    |  |                           |          |   |      |   |          |  
|----------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                    |  | Six Months Ended June 30, |         
|                                                                                    |  | 2007                      |          |   | 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                               |  |                           |          |   |      |   |          |  
|Net income                                                                          |  | $                         | 4,786    |   |      | $ | 5,774    |  
|Adjustments to reconcile net income to net cash provided by operating activities:   |  |                           |          |   |      |   |          |  
|Provision for (recapture of) losses on loans                                        |  |                           | 846      |   |      |   | (69      | )
|Write-down of real estate owned                                                     |  |                           | 244      |   |      |   | 6        |  
|Depreciation and amortization                                                       |  |                           | 189      |   |      |   | 181      |  
|Stock-based compensation                                                            |  |                           | 326      |   |      |   | 118      |  
|Deferred tax provision                                                              |  |                           | 437      |   |      |   | 1,006    |  
|(Gain) loss on sale of assets                                                       |  |                           | (1       | ) |      |   | 8        |  
|(Accretion) amortization of discounts and deferred fees                             |  |                           | 123      |   |      |   | 396      |  
|Federal Home Loan Bank stock dividends                                              |  |                           | (731     | ) |      |   | (667     | )
|Change in:                                                                          |  |                           |          |   |      |   |          |  
|Accrued interest receivable                                                         |  |                           | (18      | ) |      |   | (890     | )
|Income taxes receivable                                                             |  |                           |         |   |      |   | 2,391    |  
|Prepaid expenses and other assets                                                   |  |                           | 334      |   |      |   | (562     | )
|Accounts payable and other liabilities                                              |  |                           | 3,916    |   |      |   | 861      |  
|                                                                                    |  |                           |          |   |      |   |          |  
|Net cash provided by operating activities                                           |  |                           | 10,451   |   |      |   | 8,553    |  
|                                                                                    |  |                           |          |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                               |  |                           |          |   |      |   |          |  
|Purchase of loans                                                                   |  |                           | (8,212   | ) |      |   | (36,197  | )
|Loan originations                                                                   |  |                           | (157,199 | ) |      |   | (87,463  | )
|Loan repayments                                                                     |  |                           | 125,267  |   |      |   | 131,515  |  
|Proceeds from sale of loans                                                         |  |                           | 16,276   |   |      |   |         |  
|Purchase of mortgage-backed securities available for sale                           |  |                           | (34,922  | ) |      |   | (117,902 | )
|Repayments of mortgage-backed securities available for sale                         |  |                           | 44,748   |   |      |   | 37,037   |  
|Repayments of investment securities available for sale                              |  |                           | 2,018    |   |      |   |         |  
|Purchases of FHLB stock                                                             |  |                           | (2,485   | ) |      |   |         |  
|Proceeds from sale of FHLB stock                                                    |  |                           | 1,148    |   |      |   | 2,932    |  
|Proceeds from sale of real estate owned                                             |  |                           | 45       |   |      |   | 19       |  
|Purchases of leasehold improvements and equipment                                   |  |                           | (44      | ) |      |   | (68      | )
|                                                                                    |  |                           |          |   |      |   |          |  
|Net cash used in investing activities                                               |  |                           | (13,360  | ) |      |   | (70,127  | )
|                                                                                    |  |                           |          |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                               |  |                           |          |   |      |   |          |  
|Net (decrease) increase in deposits                                                 |  |                           | (137,705 | ) |      |   | 98,810   |  
|Decrease in short-term borrowings                                                   |  |                           | (7,700   | ) |      |   |         |  
|Decrease in repurchase agreements                                                   |  |                           |         |   |      |   | (23,000  | )
|Proceeds from FHLB advances                                                         |  |                           | 370,000  |   |      |   | 260,000  |  
|Repayments of FHLB advances                                                         |  |                           | (225,000 | ) |      |   | (293,000 | )
|Issuance of junior subordinated notes payable                                       |  |                           |         |   |      |   | 20,619   |  
|Proceeds from exercise of stock options                                             |  |                           | 174      |   |      |   | 17       |  
|Tax benefit from exercise of nonqualified stock options                             |  |                           |         |   |      |   | 15       |  
|Dividends paid on common stock                                                      |  |                           | (4,696   | ) |      |   | (5,349   | )
|                                                                                    |  |                           |          |   |      |   |          |  
|Net cash (used in) provided by financing activities                                 |  |                           | (4,927   | ) |      |   | 58,112   |  
|                                                                                    |  |                           |          |   |      |   |          |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                           |  |                           | (7,836   | ) |      |   | (3,462   | )
|CASH AND CASH EQUIVALENTS:                                                          |  |                           |          |   |      |   |          |  
|Beginning of period                                                                 |  |                           | 27,005   |   |      |   | 20,954   |  
|                                                                                    |  |                           |          |   |      |   |          |  
|End of period                                                                       |  | $                         | 19,169   |   |      | $ | 17,492   |  
|                                                                                    |  |                           |          |   |      |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: |  |                           |          |   |      |   |          |  
|Interest                                                                            |  | $                         | 30,866   |   |      | $ | 28,216   |  
|Income taxes, net                                                                   |  |                           | 4,760    |   |      |   | 720      |  
|NONCASH INVESTING ACTIVITIES:                                                       |  |                           |          |   |      |   |          |  
|Additions to real estate owned acquired in settlement of loans                      |  |                           |         |   |      |   | 13       |  

See notes to unaudited interim condensed consolidated financial statements



5



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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
six months ended June 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 six months
ended June 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.

Certain items in the condensed consolidated statements of operations for the three and six months ended June 30, 2006 were
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 six-month periods ended June 30, 2007 and 2006.



|                                                                       |  |                                               |            |                           |   |            |  |      |            |  |   |           
|---------------------------------------------------------------------- |  | --------------------------------------------- | ---------- | ------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                                       |  | Three Months Ended June 30,                   |            | Six Months Ended June 30,
|                                                                       |  | 2007                                          |            | 2006                      |   | 2007       |  | 2006
|                                                                       |  | (Dollars in thousands, except per-share data)
|Net income                                                             |  | $                                             | 2,143      |                           | $ | 3,276      |  | $    | 4,786      |  | $ | 5,774     
|                                                                       |  |                                               |            |                           |   |            |  |      |            |  |   |           
|Weighted average number of common shares outstandingbasic             |  |                                               | 18,785,550 |                           |   | 21,368,113 |  |      | 18,759,427 |  |   | 21,348,143
|Net effect of dilutive stock optionsbased on treasury stock method(1) |  |                                               | 28,123     |                           |   | 184,253    |  |      | 45,719     |  |   | 204,838   
|                                                                       |  |                                               |            |                           |   |            |  |      |            |  |   |           
|Weighted average number of common shares outstandingdiluted           |  |                                               | 18,813,673 |                           |   | 21,552,366 |  |      | 18,805,146 |  |   | 21,552,981
|                                                                       |  |                                               |            |                           |   |            |  |      |            |  |   |           
|Earnings per sharebasic                                               |  | $                                             | 0.11       |                           | $ | 0.15       |  | $    | 0.26       |  | $ | 0.27      
|                                                                       |  |                                               |            |                           |   |            |  |      |            |  |   |           
|Earnings per sharediluted                                             |  | $                                             | 0.11       |                           | $ | 0.15       |  | $    | 0.25       |  | $ | 0.27      
|                                                                       |  |                                               |            |                           |   |            |  |      |            |  |   |           



6



---

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 June 30, 2007 and 2006, and 600,000 shares and 593,370 shares
outstanding during the six months ended June 30, 2007 and 2006, respectively, whose exercise would have had an anti-dilutive effect on earnings per share.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Prior to 2006, the
Company accounted for its stock option plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations (APB 25), as
permitted by Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS No. 123).

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment(SFAS No. 123R). Under this standard,
companies are no longer able to account for share-based compensation transactions using the intrinsic value method in accordance with APB 25. Instead, companies are required to account for such transactions using a fair-value method and recognize
the expense in the consolidated statement of operations.

Effective January 1, 2006, the Company adopted 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. Results for prior periods have not been restated.

For the quarter ended June 30, 2007, the application of SFAS No. 123R resulted in stock-based compensation expense of $267,932,
deferred tax benefits of $111,402 and a net reduction in net income of $156,530, reducing basic and diluted earnings per share by $0.01. In comparison, the Company recorded stock-based compensation expense of $57,649, deferred tax benefits of
$22,848 and a net reduction in net income of $34,801 for the quarter ended June 30, 2006. There was a negligible effect on basic and diluted earnings per share.

For the six months ended June 30, 2007, the application of SFAS No. 123R resulted in stock-based compensation expense of $325,588, deferred tax benefits of $134,489 and a net reduction in net income of
$191,096, reducing basic and diluted earnings per share by $0.01. For the six months ended June 30, 2006, the Company recorded stock-based compensation expense of $117,833, deferred tax benefits of $45,696 and a net reduction in net income of
$72,137, reducing basic and diluted earnings per share by $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 six months ended June 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. Prior to the adoption of SFAS No. 123R, such tax benefits were presented as adjustments to cash flows from operating 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.



7



---

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 six months ended June 30, 2007 is
presented below:



|                                            |  |         |   |  |                                 |      |                                        |      |                              |   |        
|------------------------------------------- |  | ------- | - |  | ------------------------------- | ---- | -------------------------------------- | ---- | ---------------------------- | - | -------
|                                            |  | Shares  |   |  | Weighted Average Exercise Price |      | Weighted Average Remaining Term(Years) |      | Aggregate Intrinsic Value(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 |                                        | 8.09 |                              | $ | 383,725
|                                            |  |         |   |  |                                 |      |                                        |      |                              |   |        
|Vested or expected to vest at end of period |  | 675,002 |   |  |                                 | 9.63 |                                        | 8.09 |                              | $ | 383,725
|                                            |  |         |   |  |                                 |      |                                        |      |                              |   |        
|Exercisable at end of period                |  | 375,002 |   |  |                                 | 8.94 |                                        | 7.75 |                              | $ | 383,725
|                                            |  |         |   |  |                                 |      |                                        |      |                              |   |        

---

|(1) | Aggregate intrinsic value excludes options whose strike price is greater than the fair market value of the stock as of June 30, 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

There were no grants of stock options in the three and six months ended June 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 six months ended June 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.



8



---

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 six months ended
June 30, 2007 is presented below:



|                                       |  |                                  |        |                                |   |        
|-------------------------------------- |  | -------------------------------- | ------ | ------------------------------ | - | -------
|                                       |  | Three Months Ended June 30, 2007 |        | Six Months Ended June 30, 2007
|Weighted average grant date fair value |  | $                                |       |                                | $ |       
|Intrinsic value of options exercised   |  | $                                | 7,625  |                                | $ | 320,280
|Fair value of shares vested            |  | $                                | 57,648 |                                | $ | 116,295

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 $0.51 per SAR. This fair value was estimated using the Black-Scholes option-pricing model based on
the following assumptions: expected volatility of 19%, dividend yield of 6.58%, risk-free interest rate of 4.54% and an expected life of four 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 $0.50 per SAR.
This fair value was estimated using the Black-Scholes option-pricing model based on the following assumptions: expected volatility of 19%, dividend yield of 6.39%, risk-free interest rate of 4.91% and an expected life of one year.

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



|                                   |  |                                  |  |                                 |      |            |         |                                 |   |     
|---------------------------------- |  | -------------------------------- |  | ------------------------------- | ---- | ---------- | ------- | ------------------------------- | - | ----
|                                   |  | Three Months Ended June 30, 2007 |  | Six Months Ended June 30, 2007 
|                                   |  | ShareUnits                       |  | Weighted Average Exercise Price |      | ShareUnits |         | Weighted Average Exercise Price
|                                   |  |                                  | 
|                                   |  |                                  | 
|                                   |  |                                  | 
|Outstanding at beginning of period |  | 246,000                          |  | $                               | 8.74 |            | 216,000 |                                 | $ | 8.87
|Granted                            |  | 400,000                          |  |                                 | 7.86 |            | 430,000 |                                 |   | 7.86
|Exercised                          |  |                                 |  |                                 |     |            |        |                                 |   |    
|Forfeited                          |  |                                 |  |                                 |     |            |        |                                 |   |    
|                                   |  |                                  |  |                                 |      |            |         |                                 |   |     
|Outstanding at end of period       |  | 646,000                          |  |                                 | 8.20 |            | 646,000 |                                 |   | 8.20
|                                   |  |                                  |  |                                 |      |            |         |                                 |   |     
|Exercisable at end of period       |  | 400,000                          |  |                                 | 7.86 |            | 400,000 |                                 |   | 7.86
|                                   |  |                                  |  |                                 |      |            |         |                                 |   |     

At June 30, 2007, the Company had $339,000 of unrecognized compensation cost related to
unvested stock options. This cost is expected to be amortized over a weighted-average period of 1.50 years, ending in December 2008. The unrecognized compensation related to the SARs at June 30, 2007 was $72,000 and is expected to be amortized
over the following 2.58 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.



9



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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

At June 30, 2007, the Company had outstanding commitments to fund $220.6 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 June 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 $1.6 million and $3.5 million, respectively, for the three and six months ended June 30, 2007, compared with provisions of $2.3
million and $4.1 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 $29.2 million and $28.3 million,
respectively, at June 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 $29.2
million will be realized in future periods.

As of June 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 material 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 six months ended
June 30, 2007.



10



---

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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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



|                                                              |  |                                  |           |                                      |   |        |       |  |   |          
|------------------------------------------------------------- |  | -------------------------------- | --------- | ------------------------------------ | - | ------ | ----- |  | - | ---------
|                                                              |  | Three Months Ended June 30, 2007
|                                                              |  | Banking                          |           | Holding Company and Other
Operations |   |        | Total
|                                                              |  | (Dollars in thousands)          
|Interest income                                               |  | $                                | 25,441    |                                      | $ | 928    |       |  | $ | 26,369   
|Interest expense                                              |  |                                  | 17,233    |                                      |   | 1,132  |       |  |   | 18,365   
|                                                              |  |                                  |           |                                      |   |        |       |  |   |          
|Net interest income (expense)                                 |  |                                  | 8,208     |                                      |   | (204   | )     |  |   | 8,004    
|Provision for loan losses                                     |  |                                  | 652       |                                      |   | 9      |       |  |   | 661      
|                                                              |  |                                  |           |                                      |   |        |       |  |   |          
|Net interest income (expense) after provision for loan losses |  |                                  | 7,556     |                                      |   | (213   | )     |  |   | 7,343    
|Other income                                                  |  |                                  | 406       |                                      |   | 161    |       |  |   | 567      
|Compensation and employee benefits expense                    |  |                                  | 1,674     |                                      |   | 331    |       |  |   | 2,005    
|Other expenses                                                |  |                                  | 1,276     |                                      |   | 932    |       |  |   | 2,208    
|                                                              |  |                                  |           |                                      |   |        |       |  |   |          
|Income (loss) before taxes                                    |  |                                  | 5,012     |                                      |   | (1,315 | )     |  |   | 3,697    
|Income tax provision (benefit)                                |  |                                  | 2,108     |                                      |   | (554   | )     |  |   | 1,554    
|                                                              |  |                                  |           |                                      |   |        |       |  |   |          
|Net income (loss)                                             |  | $                                | 2,904     |                                      | $ | (761   | )     |  | $ | 2,143    
|                                                              |  |                                  |           |                                      |   |        |       |  |   |          
|Goodwill                                                      |  | $                                | 3,054     |                                      | $ |       |       |  | $ | 3,054    
|                                                              |  |                                  |           |                                      |   |        |       |  |   |          
|Total assets                                                  |  | $                                | 1,564,468 |                                      | $ | 61,525 |       |  | $ | 1,625,993
|                                                              |  |                                  |           |                                      |   |        |       |  |   |          



|                                                                             |  |                                  |           |   |                                      |   |        |       |  |   |           |  
|---------------------------------------------------------------------------- |  | -------------------------------- | --------- | - | ------------------------------------ | - | ------ | ----- |  | - | --------- | -
|                                                                             |  | Three Months Ended June 30, 2006 |          
|                                                                             |  | Banking                          |           |   | Holding Company and Other
Operations |   |        | Total | 
|                                                                             |  | (Dollars in thousands)           |          
|Interest income                                                              |  | $                                | 21,074    |   |                                      | $ | 456    |       |  | $ | 21,530    |  
|Interest expense                                                             |  |                                  | 12,439    |   |                                      |   | 493    |       |  |   | 12,932    |  
|                                                                             |  |                                  |           |   |                                      |   |        |       |  |   |           |  
|Net interest income (expense)                                                |  |                                  | 8,635     |   |                                      |   | (37    | )     |  |   | 8,598     |  
|(Recapture of) provision for loan losses                                     |  |                                  | (154      | ) |                                      |   | 45     |       |  |   | (109      | )
|                                                                             |  |                                  |           |   |                                      |   |        |       |  |   |           |  
|Net interest income (expense) after (recapture of) provision for loan losses |  |                                  | 8,789     |   |                                      |   | (82    | )     |  |   | 8,707     |  
|Other income (loss)                                                          |  |                                  | 357       |   |                                      |   | (12    | )     |  |   | 345       |  
|Compensation and employee benefits expense                                   |  |                                  | 1,772     |   |                                      |   | 246    |       |  |   | 2,018     |  
|Other expenses                                                               |  |                                  | 1,310     |   |                                      |   | 198    |       |  |   | 1,508     |  
|                                                                             |  |                                  |           |   |                                      |   |        |       |  |   |           |  
|Income (loss) before taxes                                                   |  |                                  | 6,064     |   |                                      |   | (538   | )     |  |   | 5,526     |  
|Income tax provision (benefit)                                               |  |                                  | 2,466     |   |                                      |   | (216   | )     |  |   | 2,250     |  
|                                                                             |  |                                  |           |   |                                      |   |        |       |  |   |           |  
|Net income (loss)                                                            |  | $                                | 3,598     |   |                                      | $ | (322   | )     |  | $ | 3,276     |  
|                                                                             |  |                                  |           |   |                                      |   |        |       |  |   |           |  
|Goodwill                                                                     |  | $                                | 3,054     |   |                                      | $ |       |       |  | $ | 3,054     |  
|                                                                             |  |                                  |           |   |                                      |   |        |       |  |   |           |  
|Total assets                                                                 |  | $                                | 1,423,987 |   |                                      | $ | 41,527 |       |  | $ | 1,465,514 |  
|                                                                             |  |                                  |           |   |                                      |   |        |       |  |   |           |  



12



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Segment data for the six months ended June 30, 2007 and 2006 are as follows:



|                                                              |  |                             |           |                                      |   |        |       |  |   |          
|------------------------------------------------------------- |  | --------------------------- | --------- | ------------------------------------ | - | ------ | ----- |  | - | ---------
|                                                              |  | Six Months Ended June, 2007
|                                                              |  | Banking                     |           | Holding Company and Other
Operations |   |        | Total
|                                                              |  | (Dollars in thousands)     
|Interest income                                               |  | $                           | 50,231    |                                      | $ | 1,615  |       |  | $ | 51,846   
|Interest expense                                              |  |                             | 34,031    |                                      |   | 2,155  |       |  |   | 36,186   
|                                                              |  |                             |           |                                      |   |        |       |  |   |          
|Net interest income (expense)                                 |  |                             | 16,200    |                                      |   | (540   | )     |  |   | 15,660   
|Provision for loan losses                                     |  |                             | 825       |                                      |   | 21     |       |  |   | 846      
|                                                              |  |                             |           |                                      |   |        |       |  |   |          
|Net interest income (expense) after provision for loan losses |  |                             | 15,375    |                                      |   | (561   | )     |  |   | 14,814   
|Other income                                                  |  |                             | 851       |                                      |   | 342    |       |  |   | 1,193    
|Compensation and employee benefits expense                    |  |                             | 3,327     |                                      |   | 487    |       |  |   | 3,814    
|Other expenses                                                |  |                             | 2,406     |                                      |   | 1,527  |       |  |   | 3,933    
|                                                              |  |                             |           |                                      |   |        |       |  |   |          
|Income (loss) before taxes                                    |  |                             | 10,493    |                                      |   | (2,233 | )     |  |   | 8,260    
|Income tax provision (benefit)                                |  |                             | 4,412     |                                      |   | (938   | )     |  |   | 3,474    
|                                                              |  |                             |           |                                      |   |        |       |  |   |          
|Net income (loss)                                             |  | $                           | 6,081     |                                      | $ | (1,295 | )     |  | $ | 4,786    
|                                                              |  |                             |           |                                      |   |        |       |  |   |          
|Goodwill                                                      |  | $                           | 3,054     |                                      | $ |       |       |  | $ | 3,054    
|                                                              |  |                             |           |                                      |   |        |       |  |   |          
|Total assets                                                  |  | $                           | 1,564,468 |                                      | $ | 61,525 |       |  | $ | 1,625,993
|                                                              |  |                             |           |                                      |   |        |       |  |   |          



|                                                                             |  |                                |           |   |                                      |   |        |       |  |   |           |  
|---------------------------------------------------------------------------- |  | ------------------------------ | --------- | - | ------------------------------------ | - | ------ | ----- |  | - | --------- | -
|                                                                             |  | Six Months Ended June 30, 2006 |          
|                                                                             |  | Banking                        |           |   | Holding Company and Other
Operations |   |        | Total | 
|                                                                             |  | (Dollars in thousands)         |          
|Interest income                                                              |  | $                              | 41,188    |   |                                      | $ | 697    |       |  | $ | 41,885    |  
|Interest expense                                                             |  |                                | 23,609    |   |                                      |   | 802    |       |  |   | 24,411    |  
|                                                                             |  |                                |           |   |                                      |   |        |       |  |   |           |  
|Net interest income (expense)                                                |  |                                | 17,579    |   |                                      |   | (105   | )     |  |   | 17,474    |  
|(Recapture of) provision for loan losses                                     |  |                                | (114      | ) |                                      |   | 45     |       |  |   | (69       | )
|                                                                             |  |                                |           |   |                                      |   |        |       |  |   |           |  
|Net interest income (expense) after (recapture of) provision for loan losses |  |                                | 17,693    |   |                                      |   | (150   | )     |  |   | 17,543    |  
|Other income (loss)                                                          |  |                                | 722       |   |                                      |   | (14    | )     |  |   | 708       |  
|Compensation and employee benefits expense                                   |  |                                | 3,553     |   |                                      |   | 478    |       |  |   | 4,031     |  
|Other expenses                                                               |  |                                | 2,507     |   |                                      |   | 1,837  |       |  |   | 4,344     |  
|                                                                             |  |                                |           |   |                                      |   |        |       |  |   |           |  
|Income (loss) before taxes                                                   |  |                                | 12,355    |   |                                      |   | (2,479 | )     |  |   | 9,876     |  
|Income tax provision (benefit)                                               |  |                                | 5,140     |   |                                      |   | (1,038 | )     |  |   | 4,102     |  
|                                                                             |  |                                |           |   |                                      |   |        |       |  |   |           |  
|Net income (loss)                                                            |  | $                              | 7,215     |   |                                      | $ | (1,441 | )     |  | $ | 5,774     |  
|                                                                             |  |                                |           |   |                                      |   |        |       |  |   |           |  
|Goodwill                                                                     |  | $                              | 3,054     |   |                                      | $ |       |       |  | $ | 3,054     |  
|                                                                             |  |                                |           |   |                                      |   |        |       |  |   |           |  
|Total assets                                                                 |  | $                              | 1,423,987 |   |                                      | $ | 41,527 |       |  | $ | 1,465,514 |  
|                                                                             |  |                                |           |   |                                      |   |        |       |  |   |           |  



13



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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 June 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 made demands on the Company for reimbursement of certain costs purportedly incurred by WCC in connection with WCCs performance under one of its loan servicing contracts. The Company disagrees with this assertion. As
a result, 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 is claiming 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 June 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 unknown at the present whether the
total claims for which Merrill Lynch asserts the Company is responsible will surpass the $2.0 million threshold and whether this matter will evolve into a formal claim. As of June 30, 2007, the Company determined that it was probable that a
liability had been incurred in connection with this litigation and believed $480,000 was 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 $4.7 million, respectively, for the three and six months ended June 30, 2007. Commencing in the second quarter of 2004, the Company has declared regular quarterly cash dividends of $0.125 per share, or $0.50 annually.



14



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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, the SFAS No. 156 requires all separately recognized servicing asset and liabilities to be initially measured at fair value, if practicable. SFAS No. 156 must be adopted as of
the first fiscal year that begins after September 15, 2006. The Company adopted SFAS No. 156 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 FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS No. 158). SFAS No. 158 requires an entity to recognize in its statement of financial position an asset for a defined benefit pension or postretirement
plans overfunded status or a liability for a plans underfunded status, and to recognize changes in that funded status through other comprehensive income in the year in which the changes occur. SFAS No. 158 will not change the
amount of net periodic benefit expense recognized in an entitys results of operations. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. The Company does not expect the adoption of SFAS No. 158 to have
an impact 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 (year-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), which establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. SFAS No. 159 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 on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. This new guidance does
not eliminate disclosure requirements included in other accounting



15



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



standards, including fair value measurement disclosures required by SFAS No. 157 and SFAS No. 107, Disclosures about Fair Value of Financial
Instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to certain conditions including the adoption of SFAS No. 157 at the same time. The Company will adopt SFAS
No. 159 on January 1, 2008. Management does not expect this guidance to have a material effect on the Companys financial condition or results of operations.



16



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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 Interim 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 continues to be regulated by the Federal Deposit Insurance Corporation (FDIC).

Our net income for the three months ended June 30, 2007 was $2.1 million, or $0.11 per diluted share, compared with $3.3 million, or $0.15 per
diluted share, for the three months ended June 30, 2006. The decrease in net income was attributable to a $0.6 million decrease in net interest income, reflecting a significant increase in our cost of funds, a $0.7 million increase in operating
expenses, and a $0.7 million provision for loan losses, as compared with a $0.1 million loan loss recapture in the prior period.

For the
six months ended June 30, 2007, our net income was $4.8 million, or $0.25 per diluted share, compared with $5.8 million, or $0.27 per diluted share, for the six months ended June 30, 2006. This decrease reflects a $1.8 million decline in
net interest income, and a $0.8 million provision for loan losses in the 2007 period, as compared with a loan loss recapture of $69,000 in the 2006 period. Our other operating expenses, primarily legal fees, were reduced $0.6 million from the 2006
period.

Our stockholders equity decreased by $1.6 million during the six months ended June 30, 2007 to $153.9 million, or
$8.18 book value per diluted share. This decrease in equity was primarily due to cash dividends of $4.7 million and net after-tax unrealized losses of $2.0 million on the Companys portfolio of available-for-sale securities. These decreases
were partially offset by net income of $4.8 million, a $0.2 million increase in paid-in capital relating to exercise of stock options, and a $0.1 million increase in paid-in capital representing stock-based compensation expense.

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 six months ended June 30, 2007.

RESULTS OF
OPERATIONSTHREE AND SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2006

Net Interest Income

Our net interest income was $8.0 million for the three months ended June 30, 2007, compared with $8.6 million for the
three months ended June 30, 2006. Net interest income for the six months ended June 30,



17



---

2007, totaled $15.7 million, compared with $17.5 million for the first six months of 2006. The decrease in net interest income for both periods was due to a
significant decline in our net interest margin. The margin decreases more than offset the impact of increases in average interest earning assets in the 2007 periods as compared with the 2006 periods.

Our net interest margin was 2.06% for the second quarter of 2007, compared with 2.54% for the second quarter of 2006. The net interest margin for the six
months ended June 30, 2007, was 2.03%, compared with 2.61% for the corresponding 2006 period. The declines in the margins were primarily the result of increases in market interest rates during 2006 and 2007. Our net interest margin tends to
decrease as interest rates rise since our interest-bearing liabilities reprice more frequently than our interest-earning assets. Our net interest margin was further compressed due to the sale of our Beverly Hills branch in November 2006 which
increased our reliance on higher-costing brokered deposits and borrowings. As a result, our weighted average cost of interest-bearing liabilities increased by 93 basis points to 5.11% for the three months ended June 30, 2007, compared with
4.18% for the three months ended June 30, 2006. This contrasts with a 44 basis points increase in the yield on our interest-earning assets from 6.27% for the second quarter of 2006 to 6.71% for the second quarter of 2007. For the six months
ended June 30, 2007, our cost of funds was 5.06%, or 106 basis points above the 4.00% for the year ago period. In contrast, our yield on interest-earning assets increased only 47 basis points from 6.17% for the first six months of 2006 to 6.64%
for the first six months of 2007.

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 reflect primarily the results of the Bank.



18



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|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|------------------------------------------ |  | -------------------------------- | --------- | - | -------------------------------- | - | --------------------- |  | ---- | --------------- |  | - | --------- | - | --------------------- | - | ------ |  | ---- | -
|                                           |  | Three Months Ended June 30, 2007 |           |   | Three Months Ended June 30, 2006 |  
|                                           |  | Average Balance                  |           |   | Interest                         |   | Annualized Yield/Rate |  |      | Average Balance |  |   | Interest  |   | Annualized Yield/Rate |  
|                                           |  | (Dollars in thousands)           |          
|Interest-Earning Assets:                   |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Mortgage-backed securities                 |  | $                                | 454,136   |   |                                  | $ | 5,901                 |  | 5.14 | %               |  | $ | 361,419   |   |                       | $ | 4,458  |  | 4.88 | %
|Loans(1)(2)                                |  |                                  | 1,068,972 |   |                                  |   | 20,064                |  | 7.43 | %               |  |   | 957,447   |   |                       |   | 16,509 |  | 6.82 | %
|Federal funds and other investments        |  |                                  | 32,308    |   |                                  |   | 404                   |  | 4.95 | %               |  |   | 40,159    |   |                       |   | 563    |  | 5.55 | %
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-earning assets              |  |                                  | 1,555,416 |   |                                  |   | 26,369                |  | 6.71 | %               |  |   | 1,359,025 |   |                       |   | 21,530 |  | 6.27 | %
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-earning cash                   |  |                                  | 553       |   |                                  |   |                       |  |      |                 |  |   | 1,853     |   |                       |   |        |  |      |  
|Allowance for loan losses                  |  |                                  | (8,447    | ) |                                  |   |                       |  |      |                 |  |   | (7,238    | ) |                       |   |        |  |      |  
|Other assets                               |  |                                  | 72,470    |   |                                  |   |                       |  |      |                 |  |   | 74,908    |   |                       |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total assets                               |  | $                                | 1,619,992 |   |                                  |   |                       |  |      |                 |  | $ | 1,428,548 |   |                       |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-bearing deposits:                 |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Savings, NOW and money market accounts     |  | $                                | 9,383     |   |                                  | $ | 83                    |  | 3.55 | %               |  | $ | 64,257    |   |                       | $ | 538    |  | 3.36 | %
|Certificates of deposit                    |  |                                  | 745,924   |   |                                  |   | 9,384                 |  | 5.05 | %               |  |   | 626,580   |   |                       |   | 7,009  |  | 4.49 | %
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing deposits            |  |                                  | 755,307   |   |                                  |   | 9,467                 |  | 5.03 | %               |  |   | 690,837   |   |                       |   | 7,547  |  | 4.38 | %
|Short-term borrowings                      |  |                                  | 11,275    |   |                                  |   | 207                   |  | 7.26 | %               |  |   |          |   |                       |   |       |  |     |  
|Repurchase agreements                      |  |                                  | 40,000    |   |                                  |   | 487                   |  | 4.82 | %               |  |   | 40,000    |   |                       |   | 337    |  | 3.38 | %
|FHLB advances                              |  |                                  | 588,848   |   |                                  |   | 7,277                 |  | 4.96 | %               |  |   | 477,837   |   |                       |   | 4,412  |  | 3.70 | %
|Junior subordinated notes payable          |  |                                  | 46,393    |   |                                  |   | 927                   |  | 8.01 | %               |  |   | 30,929    |   |                       |   | 636    |  | 8.25 | %
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                  | 1,441,823 |   |                                  |   | 18,365                |  | 5.11 | %               |  |   | 1,239,603 |   |                       |   | 12,932 |  | 4.18 | %
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                  | 1,342     |   |                                  |   |                       |  |      |                 |  |   | 5,152     |   |                       |   |        |  |      |  
|Other liabilities                          |  |                                  | 17,049    |   |                                  |   |                       |  |      |                 |  |   | 11,006    |   |                       |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities                          |  |                                  | 1,460,214 |   |                                  |   |                       |  |      |                 |  |   | 1,255,761 |   |                       |   |        |  |      |  
|Stockholders equity                       |  |                                  | 159,778   |   |                                  |   |                       |  |      |                 |  |   | 172,787   |   |                       |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                                | 1,619,992 |   |                                  |   |                       |  |      |                 |  | $ | 1,428,548 |   |                       |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest income                        |  |                                  |           |   |                                  | $ | 8,004                 |  |      |                 |  |   |           |   |                       | $ | 8,598  |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest spread                        |  |                                  |           |   |                                  |   |                       |  | 1.60 | %               |  |   |           |   |                       |   |        |  | 2.09 | %
|Net interest margin                        |  |                                  |           |   |                                  |   |                       |  | 2.06 | %               |  |   |           |   |                       |   |        |  | 2.54 | %

---

|(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 $549 and $350, respectively, for the three months ended June 30, 2007 and 2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------



19



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|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|------------------------------------------ |  | ------------------------------ | --------- | - | ------------------------------ | - | --------------------- |  | ---- | --------------- |  | - | --------- | - | --------------------- | - | ------ |  | ---- | -
|                                           |  | Six Months Ended June 30, 2007 |           |   | Six Months Ended June 30, 2006 |  
|                                           |  | Average Balance                |           |   | Interest                       |   | Annualized Yield/Rate |  |      | Average Balance |  |   | Interest  |   | Annualized Yield/Rate |  
|                                           |  | (Dollars in thousands)         |          
|Interest-Earning Assets:                   |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Mortgage-backed securities                 |  | $                              | 456,990   |   |                                | $ | 11,900                |  | 5.18 | %               |  | $ | 346,507   |   |                       | $ | 8,234  |  | 4.73 | %
|Loans(1)(2)                                |  |                                | 1,060,994 |   |                                |   | 39,057                |  | 7.32 | %               |  |   | 961,201   |   |                       |   | 32,608 |  | 6.75 | %
|Federal funds and other investments        |  |                                | 35,262    |   |                                |   | 889                   |  | 5.01 | %               |  |   | 41,778    |   |                       |   | 1,043  |  | 4.97 | %
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-earning assets              |  |                                | 1,553,246 |   |                                |   | 51,846                |  | 6.64 | %               |  |   | 1,349,486 |   |                       |   | 41,885 |  | 6.17 | %
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-earning cash                   |  |                                | 572       |   |                                |   |                       |  |      |                 |  |   | 1,622     |   |                       |   |        |  |      |  
|Allowance for loan losses                  |  |                                | (8,340    | ) |                                |   |                       |  |      |                 |  |   | (7,256    | ) |                       |   |        |  |      |  
|Other assets                               |  |                                | 72,817    |   |                                |   |                       |  |      |                 |  |   | 75,641    |   |                       |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total assets                               |  | $                              | 1,618,295 |   |                                |   |                       |  |      |                 |  | $ | 1,419,493 |   |                       |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-bearing deposits:                 |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Savings, NOW and money market accounts     |  | $                              | 10,933    |   |                                | $ | 220                   |  | 4.06 | %               |  | $ | 65,521    |   |                       | $ | 1,029  |  | 3.17 | %
|Certificates of deposit                    |  |                                | 781,059   |   |                                |   | 19,934                |  | 5.15 | %               |  |   | 591,583   |   |                       |   | 12,758 |  | 4.35 | %
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing deposits            |  |                                | 791,992   |   |                                |   | 20,154                |  | 5.13 | %               |  |   | 657,104   |   |                       |   | 13,787 |  | 4.28 | %
|Short-term borrowings                      |  |                                | 9,413     |   |                                |   | 336                   |  | 7.10 | %               |  |   |          |   |                       |   |       |  |     |  
|Repurchase agreements                      |  |                                | 40,000    |   |                                |   | 968                   |  | 4.81 | %               |  |   | 46,571    |   |                       |   | 779    |  | 3.37 | %
|FHLB advances                              |  |                                | 554,194   |   |                                |   | 12,882                |  | 4.69 | %               |  |   | 499,694   |   |                       |   | 8,780  |  | 3.54 | %
|Junior subordinated notes payable          |  |                                | 46,393    |   |                                |   | 1,846                 |  | 8.02 | %               |  |   | 26,510    |   |                       |   | 1,065  |  | 8.10 | %
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                | 1,441,992 |   |                                |   | 36,186                |  | 5.06 | %               |  |   | 1,229,879 |   |                       |   | 24,411 |  | 4.00 | %
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                | 1,343     |   |                                |   |                       |  |      |                 |  |   | 4,933     |   |                       |   |        |  |      |  
|Other liabilities                          |  |                                | 15,966    |   |                                |   |                       |  |      |                 |  |   | 11,187    |   |                       |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities                          |  |                                | 1,459,301 |   |                                |   |                       |  |      |                 |  |   | 1,245,999 |   |                       |   |        |  |      |  
|Stockholders equity                       |  |                                | 158,994   |   |                                |   |                       |  |      |                 |  |   | 173,494   |   |                       |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                              | 1,618,295 |   |                                |   |                       |  |      |                 |  | $ | 1,419,493 |   |                       |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest income                        |  |                                |           |   |                                | $ | 15,660                |  |      |                 |  |   |           |   |                       | $ | 17,474 |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest spread                        |  |                                |           |   |                                |   |                       |  | 1.58 | %               |  |   |           |   |                       |   |        |  | 2.17 | %
|Net interest margin                        |  |                                |           |   |                                |   |                       |  | 2.03 | %               |  |   |           |   |                       |   |        |  | 2.61 | %

---

|(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 $938 and $570, respectively, for the six months ended June 30, 2007 and 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

Interest income on mortgage-backed securities was $5.9 million for the second quarter of 2007, compared with $4.5 million for the second quarter of
2006. For the six months ended June 30, 2007, interest income on mortgage-backed securities totaled $11.9 million, compared with $8.2 million for the six months ended June 30, 2006. The increase in interest income from the 2006 periods to
the 2007 periods was primarily due to increases in the average investment balances. The average investment balances for the three and six months ended June 30,



20



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2007, were higher than the 2006 periods by $92.7 million and $110.5 million, respectively. The higher average investment balances in the 2007 periods reflect
security purchases of $79.7 million during the last two quarters of 2006 and $34.9 million in the first two quarters of 2007. The increase in interest income also resulted from increases in the average yield on the mortgage-backed securities. The
higher yields were due to purchasing securities at higher market interest rates during 2006 and 2007, and the rise in market interest rates which extended the expected lives of the securities and reduced the amortization of premiums. The yield on
mortgage-backed securities increased by 26 basis points from the second quarter of 2006 to the second quarter of 2007, and by 45 basis points from the first six months of 2006 to the first six months of 2007.

Interest income on loans was $20.1 million for the quarter ended June 30, 2007, compared with $16.5 million for the quarter ended June 30,
2006. For the six months ended June 30, 2007, interest income on loans was $39.1 million, compared with $32.6 million for the first six months of 2006. Loan interest income increased in the 2007 periods due to a combination of higher weighted
average loans and higher loan yields. Average loans for the three and six months ended June 30, 2007, were above the 2006 periods by $111.5 million and $99.8 million, respectively, mainly due to loan originations and purchases in the fourth
quarter of 2006. Loan interest income also increased due to a 61 basis point increase in yield, from 6.82% for the second quarter of 2006 to 7.43% for the second quarter of 2007. The loan yield for the first six months of 2007 was 7.32%, or 57 basis
points above the yield of 6.75% for the first six months of 2006. The higher loan yields reflect the increase in market interest rates during 2006 and the Companys strategy of originating higher yielding adjustable-rate construction loans. The
loan yields in 2007 were also enhanced by the increased accretion of loan fees, primarily from construction loans. Loan fee income for the first six months of 2007 was $938,000, as compared with $570,000, for the comparable period of 2006.

Interest expense on deposits was $9.5 million for the quarter ended June 30, 2007, compared with $7.5 million for the quarter ended
June 30, 2006. Interest on deposits for the six months ended June 30, 2007, totaled $20.2 million, compared with $13.8 million for the first six months of 2006. The higher interest expense resulted from an increase in the average cost
of our interest-bearing deposits of 65 basis points from the second quarter of 2006 to the second quarter of 2007, and an increase of 85 basis points from the first six months of 2006 to the first six months of 2007. The average cost of funds for
2007 increased over the 2006 periods as maturing certificates of deposits (CDs) were replaced with CDs at higher market interest rates. Due to the increase in adjustable-rate construction loans, new CDs in 2007 generally have maturities within one
year. Interest expense also increased as average interest-bearing deposits for the three and six months ended June 30, 2007, were above the 2006 periods by $64.5 million and $134.9 million, respectively. The Company utilized brokered deposits
as the primarily funding source throughout 2006, but has relied more on FHLB advances during the first six months of 2007.

Interest
expense on short-term borrowings was $207,000 and $336,000, respectively, for the three and six months ended June 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 agreement that was obtained during the fourth quarter of 2006.

Interest expense on repurchase agreements and FHLB advances totaled $7.8 million for the three months ended June 30, 2007, compared with $4.7 million for the three months ended June 30, 2006. For the six months ended June 30,
2007, interest expense on repurchase agreements and FHLB advances was $13.9 million, compared with $9.6 million for the six months ended June 30, 2006. The increase in interest expense was due to a higher borrowing cost that resulted from the
rise in market interest rates during 2006. The cost of our repurchase agreements increased 144 basis points from the second quarter of 2006 to the second quarter of 2007, and the cost of our FHLB advances increased by 126 basis points over the same
periods. The average cost of our repurchase agreements and FHLB advances increased by 144 basis points and 115 basis points, respectively, from the first six months of 2006 to the first six months of 2007. Interest expense was further increased as
average borrowings for the three and six months ended June 30, 2007, were above the 2006 periods by $111.0 million and $47.9 million, respectively.



21



---

Interest expense on our junior subordinated notes payable was $0.9 million for the second quarter of
2007, compared with $0.6 million for the second quarter of 2006. For the six months ended June 30, 2007, interest on junior subordinated notes payable totaled $1.8 million, compared with $1.1 million for the first six months of 2006. This
increase was primarily due to higher average borrowing balances in the 2007 periods. The average liability balance of $46.4 million for the three and six months ended June 30, 2007, was above the 2006 periods by $15.5 million and $19.9 million
respectively. The higher balances resulted for new debt issuances of $20.6 million in May 2006 and $5.2 million in December 2006. Although market interest rates increased during 2006, the average cost of the junior subordinated notes payable
decreased from 2006 to 2007 as the notes issued in 2006 bear interest at spreads lower than the Companys prior notes. The average borrowing cost for the three and six months ended June 30, 2007, were lower than the 2006 periods by 23
basis points and 8 basis points, respectively.

Provision for Loan Losses

Provisions for losses on loans are charged to operations to maintain an allowance for losses on the loan portfolio at a level 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 $661,000 for the three months ended June 30, 2007, compared with a recapture of loan loss reserves of
$109,000 for the three months ended June 30, 2006. For the six months ended June 30, 2007, our provision for loan losses was $846,000, compared with $69,000 in net loan loss recaptures for the corresponding 2006 period.

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 was $567,000 and $345,000 for the three months ended June 30, 2007 and 2006, respectively. Other income for the six months ended
June 30, 2007 was $1.2 million, compared with $708,000 for the corresponding 2006 period. Other income included $200,000 in the first and second quarters of 2007 pursuant to a settlement agreement with a former officer.

Other Expenses

Compensation and employee
benefits expense totaled $2.0 million for the three months ended June 30, 2007 and 2006. For the six months ended June 30, 2007, compensation expense totaled $3.8 million, compared with $4.0 million for the first six months of 2006.
Stock-based compensation expense for the three and six months ended June 30, 2007, was $268,000 and $326,000, respectively, as compared with $58,000 and $118,000 for the 2006 periods. These expenses were partially offset by lower incentive
compensation to loan officers due to a reduction in the number of loans originated and to a change in the manner of determining incentive compensation for loan originations. Compensation expense was also lower due to a reduction in staffing levels
as a result of the branch sale in November 2006.



22



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Our legal expenses (included in Professional fees in the statement of operations) for the
second quarter of 2007 were $133,000, compared with a net recapture of $25,000 of expenses in the second quarter of 2006. The net recapture in the second quarter of 2006 was due to the reversal of $746,000 in previously accrued and unpaid expenses
on behalf of a former officer. For the six months ended June 30, 2007, legal expenses were approximately $254,000, compared with $1.0 million for the six months ended June 30, 2006. Legal expenses in the 2006 period related primarily 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 $153,000 for the three months ended June 30, 2007, as compared with $254,000 for the three months ended June 30, 2006.
For the six months ended June 30, 2007, occupancy expenses were $300,000, compared with $500,000 for the six months ended June 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 $259,000 for the second quarter of 2007, as compared with $6,000 for the second quarter of
2006. For the first six months of 2007, real estate owned expense was $360,000, compared with $11,000 for the first six months of 2006. The increase in expense was due to a $231,000 write-down on a multi-family property located in Houston, Texas, as
well as monthly operating expenses for the same property. The Company foreclosed on this property during the fourth quarter of 2006.

Other
general and administrative expense was $592,000 for the second quarter of 2007, compared with $297,000 for the second quarter of 2006. For the six months ended June 30, 2007, other expenses were $794,000, as compared with $626,000 for the first
six months of 2006. 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. In the second quarter of 2007, the Company recorded a $380,000 accrual for its estimated liability in
this matter.

CHANGES IN FINANCIAL CONDITION

General

At June 30, 2007, our total assets were $1.6 billion, an increase of $2.2 million from the total assets
as of December 31, 2006. The following discussion summarizes the significant changes in our financial condition for the six months ended June 30, 2007.

Mortgage-Backed and Other Securities Available for Sale

Our portfolio of mortgage-backed securities available for
sale decreased by $13.2 million during the six months ended June 30, 2007. This decrease was due to principal repayments ($44.7 million) exceeding purchases of securities ($34.9 million). Our purchases 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%. During the first six months of 2007, we recorded unrealized holding losses on our
mortgage-backed securities portfolio of approximately $3.3 million as a result of increases in longer-term treasury yields.

The balance of
our other investment securities available for sale (consisting of trust preferred securities and mutual funds) declined by $2.1 million during the six months ended June 30, 2007, primarily as a result of principal repayment on a trust preferred
security.



23



---

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



|                                                    |  |                        |         |                  |   |        
|--------------------------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                                    |  | June 30, 2007          |         | December 31,2006
|                                                    |  | (Dollars in thousands)
|Available for sale, at fair value:                  |  |                        |         |                  |   |        
|GSE mortgage-backed securities                      |  | $                      | 235,195 |                  | $ | 216,844
|AAA mortgage-backed securities                      |  |                        | 206,754 |                  |   | 237,288
|Other mortgage-backed securities                    |  |                        | 5,703   |                  |   | 6,762  
|Trust preferred securities                          |  |                        | 1,210   |                  |   | 3,228  
|Mutual funds                                        |  |                        | 5,626   |                  |   | 5,691  
|                                                    |  |                        |         |                  |   |        
|Total available for sale                            |  |                        | 454,488 |                  |   | 469,813
|Held to maturity:                                   |  |                        |         |                  |   |        
|Agency securities (fair value of $9,729 and $9,735) |  |                        | 9,784   |                  |   | 9,759  
|                                                    |  |                        |         |                  |   |        
|Total investment securities                         |  | $                      | 464,272 |                  | $ | 479,572
|                                                    |  |                        |         |                  |   |        

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



|                         |  |                        |         |            |   |                        |  |      |  
|------------------------ |  | ---------------------- | ------- | ---------- | - | ---------------------- |  | ---- | -
|                         |  | Amortized Cost         |         | Fair Value |   | Weighted Average Yield | 
|                         |  | (Dollars in thousands) |         |            |  
|Due in five to ten years |  | $                      | 15,816  |            | $ | 15,546                 |  | 4.97 | %
|Due after ten years      |  |                        | 450,189 |            |   | 443,045                |  | 5.76 | %
|Mutual funds             |  |                        | 5,750   |            |   | 5,626                  |  | 4.67 | %
|                         |  |                        |         |            |   |                        |  |      |  
|Total                    |  | $                      | 471,755 |            | $ | 464,217                |  | 5.72 | %
|                         |  |                        |         |            |   |                        |  |      |  

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 June 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)
|June 30, 2007                            |  |                        |        
|GSE mortgage-backed securities           |  | $                      | 170,653 |                   | $ | 1,892      |  | $                 | 60,012  |            | $ | 1,547             |  | $ | 230,665 |  | $ | 3,439
|AAA and other mortgage-backed securities |  |                        | 9,175   |                   |   | 318        |  |                   | 164,983 |            |   | 3,921             |  |   | 174,158 |  |   | 4,239
|Mutual funds                             |  |                        | 3,717   |                   |   | 33         |  |                   | 1,908   |            |   | 92                |  |   | 5,625   |  |   | 125  
|Agency securities                        |  |                        | 9,729   |                   |   | 55         |  |                   |        |            |   |                  |  |   | 9,729   |  |   | 55   
|                                         |  |                        |         |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|Total                                    |  | $                      | 193,274 |                   | $ | 2,298      |  | $                 | 226,903 |            | $ | 5,560             |  | $ | 420,177 |  | $ | 7,858
|                                         |  |                        |         |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      



|                                         |  |                        |        |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|---------------------------------------- |  | ---------------------- | ------ | ----------------- | - | ---------- |  | ----------------- | ------- | ---------- | - | ----------------- |  | - | ------- |  | - | -----
|                                         |  | 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
|                                         |  |                        |        |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      



24



---

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) the intent and ability of the Company 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 June 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 June 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 realized in our consolidated statements of operations.

Loans

Our loan portfolio, net of discounts and allowances, increased by $23.0 million during the six months ended
June 30, 2007. This increase was due to loan originations and purchases of $165.4 million exceeding loan repayments of $125.3 million. Loan fundings in the first six months of 2007 included $68.5 million in commercial real estate loans, $53.9
million in construction loans, $26.1 million in multifamily loans, and $16.9 million in other loans. Due to our loans to one borrower limits, we sold loan participations of $16.3 million during the first six months of 2007. Although interest
rates have increased in recent years, we have experienced a high level of loan payoffs as (1) prepayment penalties expire, (2) loans with an initial fixed rate term approach the first interest rate change date, and (3) properties are
sold. At June 30, 2007, we had outstanding commitments to fund $220.6 million in new construction, commercial and multifamily loans.

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



|                                 |  |                        |           |   |                   |   |           |  
|-------------------------------- |  | ---------------------- | --------- | - | ----------------- | - | --------- | -
|                                 |  | June 30, 2007          |           |   | December 31, 2006 |  
|                                 |  | (Dollars in thousands) |          
|Single-family residential        |  | $                      | 17,348    |   |                   | $ | 18,797    |  
|Multifamily residential          |  |                        | 336,783   |   |                   |   | 356,992   |  
|Commercial real estate           |  |                        | 558,504   |   |                   |   | 569,840   |  
|Construction                     |  |                        | 141,547   |   |                   |   | 98,869    |  
|Other                            |  |                        | 17,076    |   |                   |   | 2,060     |  
|                                 |  |                        |           |   |                   |   |           |  
|Loan portfolio principal balance |  |                        | 1,071,258 |   |                   |   | 1,046,558 |  
|Net premium and deferred fees    |  |                        | 1,072     |   |                   |   | 2,046     |  
|Allowance for loan losses        |  |                        | (8,419    | ) |                   |   | (7,878    | )
|                                 |  |                        |           |   |                   |   |           |  
|Total loan portfolio, net        |  | $                      | 1,063,911 |   |                   | $ | 1,040,726 |  
|                                 |  |                        |           |   |                   |   |           |  



25



---

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



|                                            |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   |       |  
|------------------------------------------- |  | --------------------------- | ----- | - | ------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                            |  | Three Months Ended June 30, |       |   | Six Months Ended June 30, |  
|                                            |  | 2007                        |       |   | 2006                      |   |       | 2007 |  |   | 2006  |  
|                                            |  | (Dollars in thousands)      |      
|Balance, beginning of period                |  | $                           | 8,013 |   |                           | $ | 7,100 |      |  | $ | 7,878 |   |  | $ | 7,080 |  
|Provision for (recapture of) loan losses(1) |  |                             | 685   |   |                           |   | (154  | )    |  |   | 822   |   |  |   | (114  | )
|Charge-offs                                 |  |                             | (278  | ) |                           |   | (8    | )    |  |   | (278  | ) |  |   | (27   | )
|Recoveries                                  |  |                             | 1     |   |                           |   | 3     |      |  |   | 1     |   |  |   | 6     |  
|Amortization of fresh-start adjustment      |  |                             | (2    | ) |                           |   | (2    | )    |  |   | (4    | ) |  |   | (6    | )
|                                            |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   |       |  
|Balance, end of period                      |  | $                           | 8,419 |   |                           | $ | 6,939 |      |  | $ | 8,419 |   |  | $ | 6,939 |  
|                                            |  |                             |       |   |                           |   |       |      |  |   |       |   |  |   |       |  

---

|(1) | Excludes (recapture) provision for loan losses on discounted loans of $(24) and $24, respectively, for the three and six months ended June 30, 2007, and $45 for the three and
six months ended June 30, 2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



|                                                          |  |                        |        |   |                   |   |       |  
|--------------------------------------------------------- |  | ---------------------- | ------ | - | ----------------- | - | ----- | -
|                                                          |  | June 30, 2007          |        |   | December 31, 2006 |  
|                                                          |  | (Dollars in thousands) |       
|Balance of delinquent loans:                              |  |                        |        |   |                   |   |       |  
|31-60 days                                                |  | $                      | 100    |   |                   | $ | 1,583 |  
|61-90 days                                                |  |                        | 2,436  |   |                   |   | 2,528 |  
|91 days or more(1)                                        |  |                        | 20,019 |   |                   |   | 601   |  
|                                                          |  |                        |        |   |                   |   |       |  
|Total delinquent loans                                    |  | $                      | 22,555 |   |                   | $ | 4,712 |  
|                                                          |  |                        |        |   |                   |   |       |  
|Delinquent loans as a percentage of total loan portfolio: |  |                        |        |   |                   |   |       |  
|31-60 days                                                |  |                        | 0.0    | % |                   |   | 0.2   | %
|61-90 days                                                |  |                        | 0.2    |   |                   |   | 0.2   |  
|91 days or more(1)                                        |  |                        | 1.9    |   |                   |   | 0.1   |  
|                                                          |  |                        |        |   |                   |   |       |  
|Total                                                     |  |                        | 2.1    | % |                   |   | 0.5   | %
|                                                          |  |                        |        |   |                   |   |       |  

---

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

At June 30, 2007, nonaccrual loans included one construction loan totaling $18.6 million. In October 2006, the Company purchased a participation in the construction loan that was for the construction of 94 semi-attached residences in
Coachella, California. The Company recorded a notice of default in July 2007 and is pursuing legal remedies against the guarantors of the loan. Due to the appraised fair value of the collateral exceeding the total gross loan balance, the Company has
not recorded a loan charge-off nor established a specific reserve for this loan.

Real Estate Owned

Real estate owned decreased by $289,000 during the six months ended June 30, 2007. In the second quarter of 2007, the Company recorded a write-down
of $231,000 on a multi-family property located in Houston, Texas. There have been no foreclosures during 2007.

Deposits

Deposits decreased by $137.7 million during the six months ended June 30, 2007, due to a significant decrease in wholesale CDs. Brokered CDs were
$590.0 million at June 30, 2007, and declined $123.8 million during the first six months of 2007 as maturing brokered CDs were generally replaced with new FHLB advances.



26



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The weighted average interest cost of our deposits was 4.97% at June 30, 2007, compared with 4.82% at December 31, 2006. The average cost of
deposits has increased during 2007 as lower rate brokered CDs mature and the Company replaces these brokered CD balances with FHLB advances. Our deposits at June 30, 2007 and December 31, 2006 included $0.4 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 $7.7 million during the six months ended June 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% (7.01% at June 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 six months ended June 30, 2007. The weighted-average cost of our repurchase agreements was 4.81% at June 30, 2007 and December 31, 2006. We did not enter into any new repurchase
agreements during the first six months of 2007, as our funding requirements were met with new wholesale CDs and FHLB advances.

FHLB Advances

FHLB advances increased by $145.0 million during the six months ended June 30, 2007. This increase reflects $370.0 million in
new advances, partially offset by $225.0 million in payoffs of maturing advances. We utilized FHLB advances as our primary funding source in the first six months of 2007 due to its lower funding cost as compared with brokered CDs. 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 June 30, 2007, we had FHLB borrowing availability of $69.4 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 June 30, 2007, BHBC and FBBH met all applicable regulatory capital requirements and FBBH was well
capitalized, as defined under applicable regulations.



27



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

Regulatory Capital Ratios



|                                                           |  |                        |  |       |                              |  |         |                                        |        |   |  |                |  |          |  
|---------------------------------------------------------- |  | ---------------------- |  | ----- | ---------------------------- |  | ------- | -------------------------------------- | ------ | - |  | -------------- |  | -------- | -
|                                                           |  |                        |  |       | Amount Required              | 
|                                                           |  | Actual                 |  |       | For Capital AdequacyPurposes |  |         | To be Categorized as WellCapitalized |       
|                                                           |  | Amount                 |  | Ratio |                              |  | Amount  |                                        | Ratio  |   |  | Amount         |  | Ratio    |  
|                                                           |  | (Dollars in thousands) | 
|BHBC                                                       |  |                        |  |       |                              |  |         |                                        |        |   |  |                |  |          |  
|Total capital to risk-weighted assets (Risk-based capital) |  | $181,634               |  | 15.68 | %                            |  | $92,664 |                                        | > 8.00 | % |  | Not Applicable |  |          |  
|Tier 1 capital to risk-weighted assets                     |  | 173,178                |  | 14.95 | %                            |  | 46,332  |                                        | > 4.00 | % |  | Not Applicable |  |          |  
|Tier 1 leverage ratio                                      |  | 173,178                |  | 10.85 | %                            |  | 63,830  |                                        | > 4.00 | % |  | Not Applicable |  |          |  
|FBBH                                                       |  |                        |  |       |                              |  |         |                                        |        |   |  |                |  |          |  
|Total capital to risk-weighted assets (Risk-based capital) |  | $150,813               |  | 13.38 | %                            |  | $90,155 |                                        | > 8.00 | % |  | $112,693       |  | > 10.00  | %
|Tier 1 capital to risk-weighted assets                     |  | 142,552                |  | 12.65 | %                            |  | 45,077  |                                        | > 4.00 | % |  | 67,616         |  | >   6.00 | %
|Tier 1 leverage ratio                                      |  | 142,552                |  | 9.13  | %                            |  | 62,444  |                                        | > 4.00 | % |  | 78,055         |  | >   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 June 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 June 30, 2007,
we had $703.3 million of CDs. Scheduled maturities of CDs during the 12 months ending June 30, 2008 and thereafter amounted to $644.9 million and $58.4 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.



28



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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 June 30, 2007:



|                                           |  |                                                  |           |           |   |           |  |               |         |       |   |         |  |   |          
|------------------------------------------ |  | ------------------------------------------------ | --------- | --------- | - | --------- |  | ------------- | ------- | ----- | - | ------- |  | - | ---------
|                                           |  | Payments due within time period at June 30, 2007
|                                           |  | 0-12 Months                                      |           | 1-3 Years |   | 4-5 Years |  | After 5 Years |         | Total
|                                           |  | (Dollars in thousands)                          
|Certificates of deposit                    |  | $                                                | 661,035   |           | $ | 18,348    |  | $             | 47,589  |       | $ |        |  | $ | 726,972  
|Short-term borrowings                      |  |                                                  | 12,214    |           |   |          |  |               |        |       |   |        |  |   | 12,214   
|Repurchase agreements                      |  |                                                  | 11,845    |           |   | 30,571    |  |               |        |       |   |        |  |   | 42,416   
|Employment contracts                       |  |                                                  | 540       |           |   | 273       |  |               |        |       |   |        |  |   | 813      
|Operating leases                           |  |                                                  | 456       |           |   | 882       |  |               | 897     |       |   | 1,007   |  |   | 3,242    
|FHLB advances                              |  |                                                  | 265,472   |           |   | 340,415   |  |               | 89,653  |       |   |        |  |   | 695,540  
|Junior subordinated notes payable to trust |  |                                                  | 3,650     |           |   | 7,300     |  |               | 7,300   |       |   | 126,911 |  |   | 145,161  
|Commitments to originate loans             |  |                                                  | 220,558   |           |   |          |  |               |        |       |   |        |  |   | 220,558  
|                                           |  |                                                  |           |           |   |           |  |               |         |       |   |         |  |   |          
|Total                                      |  | $                                                | 1,175,770 |           | $ | 397,789   |  | $             | 145,439 |       | $ | 127,918 |  | $ | 1,846,916
|                                           |  |                                                  |           |           |   |           |  |               |         |       |   |         |  |   |          

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.

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.



29



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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 June 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 June 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         |  | $                      | 115,610 |          | $                  | (46,188 | )       |  | (29 | )%        |  | 7.53  | %      |  | (241 | ) bp
|+ 200bp         |  |                        | 130,790 |          |                    | (31,008 | )       |  | (19 | )         |  | 8.35  |        |  | (159 | ) bp
|+ 100bp         |  |                        | 145,622 |          |                    | (16,176 | )       |  | (10 | )         |  | 9.12  |        |  | (82  | ) bp
|0bp             |  |                        | 161,798 |          |                    |        |         |  |    |           |  | 9.94  |        |  |     |     
|- 100bp         |  |                        | 168,457 |          |                    | 6,659   |         |  | 4   |           |  | 10.22 |        |  | 28   | bp  
|- 200bp         |  |                        | 166,441 |          |                    | 4,643   |         |  | 3   |           |  | 10.02 |        |  | 8    | bp  
|- 300bp         |  |                        | 165,211 |          |                    | 3,413   |         |  | 2   |           |  | 9.87  |        |  | (7   | ) bp



30



---

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 June 30, 2007.



|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|----------------------------------------------------------- |  | ---------------------- | -------- | -- | --------------------------------- | - | -------- | ----------------------------------- |  | - | --------------- | -- |  | ----- | ------- | - |  | - | ---------
|                                                            |  | Within Twelve Months   |          |    | More Than One Year to Three Years |   |          | More Than Three Years to Five Years |  |   | Over Five Years |    |  | Total
|                                                            |  | (Dollars in thousands)
|Assets:                                                     |  |                        |         
|Cash and cash equivalents                                   |  | $                      | 19,169   |    |                                   | $ |         |                                     |  | $ |                |    |  | $     |        |   |  | $ | 19,169   
|Mortgage-backed and other investment securities             |  |                        | 42,619   |    |                                   |   | 140,968  |                                     |  |   | 30,860          |    |  |       | 249,825 |   |  |   | 464,272  
|Single-family residential loans                             |  |                        | 9,077    |    |                                   |   | 747      |                                     |  |   | 11              |    |  |       | 7,742   |   |  |   | 17,577   
|Multifamily residential loans                               |  |                        | 123,202  |    |                                   |   | 132,602  |                                     |  |   | 57,628          |    |  |       | 23,351  |   |  |   | 336,783  
|Commercial real estate loans                                |  |                        | 188,914  |    |                                   |   | 175,200  |                                     |  |   | 146,101         |    |  |       | 48,320  |   |  |   | 558,535  
|Construction loans                                          |  |                        | 101,274  |    |                                   |   | 29,126   |                                     |  |   |                |    |  |       | 11,147  |   |  |   | 141,547  
|Other loans                                                 |  |                        | 16,440   |    |                                   |   | 559      |                                     |  |   | 149             |    |  |       | 756     |   |  |   | 17,904   
|Other assets(1)                                             |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 70,206  |   |  |   | 70,206   
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Total assets                                                |  |                        | 500,695  |    |                                   |   | 479,202  |                                     |  |   | 234,749         |    |  |       | 411,347 |   |  |   | 1,625,993
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Liabilities:                                                |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Noninterest-bearing deposits                                |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 1,214   |   |  |   | 1,214    
|Savings, NOW and money market accounts(2)                   |  |                        | 8,716    |    |                                   |   |         |                                     |  |   |                |    |  |       |        |   |  |   | 8,716    
|Certificates of deposit                                     |  |                        | 644,862  |    |                                   |   | 13,097   |                                     |  |   | 45,296          |    |  |       |        |   |  |   | 703,255  
|Short-term borrowings                                       |  |                        | 12,300   |    |                                   |   |         |                                     |  |   |                |    |  |       |        |   |  |   | 12,300   
|Repurchase agreements                                       |  |                        | 10,000   |    |                                   |   | 30,000   |                                     |  |   |                |    |  |       |        |   |  |   | 40,000   
|FHLB advances                                               |  |                        | 241,337  |    |                                   |   | 315,000  |                                     |  |   | 85,000          |    |  |       |        |   |  |   | 641,337  
|Junior subordinated notes payable                           |  |                        | 46,393   |    |                                   |   |         |                                     |  |   |                |    |  |       |        |   |  |   | 46,393   
|Other liabilities                                           |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 18,907  |   |  |   | 18,907   
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Total liabilities                                           |  |                        | 963,608  |    |                                   |   | 358,097  |                                     |  |   | 130,296         |    |  |       | 20,121  |   |  |   | 1,472,122
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|(Deficiency) excess of assets over liabilities              |  | $                      | (462,913 | )  |                                   | $ | 121,105  |                                     |  | $ | 104,453         |    |  | $     | 391,226 |   |  | $ | 153,871  
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess                              |  | $                      | (462,913 | )  |                                   | $ | (341,808 | )                                   |  | $ | (237,355        | )  |  | $     | 153,871 |   |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess as a percent of total assets |  |                        | (28.47   | )% |                                   |   | (21.02   | )%                                  |  |   | (14.60          | )% |  |       | 9.46    | % |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          

---

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

|(2) | Excludes $0.4 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31



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|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.



32



---

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

Not applicable.

Item 5.    Other Information.

Not applicable.

Item 6.    Exhibits



|     |  |                                                                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|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



33



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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: August 9, 2007 |  |                            |  |                        
|                     |  | By:                        |  | /s/     LARRY B.
FAIGIN
|                     |  |                            |  | Larry B. Faigin        
|                     |  |                            |  | Chief Executive Officer
|                     |  |                           
|                     |  | By:                        |  | /s/     TAKEO K.
SASAKI
|                     |  |                            |  | Takeo K. Sasaki        
|                     |  |                            |  | Chief Financial Officer



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