##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)



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

For the quarterly period ended March 31, 2006

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 April 30,
2006
|Common Stock, par value $0.01 per share |  | 21,331,506 shares            



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

INDEX



|           |  |                                                                                       |  |   
|---------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I.    |  | FINANCIAL INFORMATION                                                                 |  |   
|           |  |                                                                                      
|Item 1.    |  | Interim Condensed Consolidated Financial Statements (Unaudited):                      |  |   
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Financial Condition                              |  | 3 
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Operations                                       |  | 4 
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5 
|           |  |                                                                                      
|           |  | Notes to Interim Condensed Consolidated Financial Statements                          |  | 6 
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 14
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 24
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 26
|           |  |                                                                                      
|PART II.   |  | OTHER INFORMATION                                                                     |  |   
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 27
|           |  |                                                                                      
|Item 1A.   |  | Risk Factors                                                                          |  | 27
|           |  |                                                                                      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 27
|           |  |                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 27
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 27
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 27
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 27
|           | 
|Signatures |  | 28                                                                                   



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(Dollars in thousands)



|                                                                                                                                           |  |                |           |   |                   |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                           |  | March 31, 2006 |           |   | December 31, 2005 |  
|ASSETS                                                                                                                                     |  |                |           |   |                   |   |           |  
|Cash and cash equivalents                                                                                                                  |  | $              | 19,822    |   |                   | $ | 20,954    |  
|Mortgage-backed securities available for sale, at fair value                                                                               |  |                | 315,723   |   |                   |   | 332,572   |  
|Investment securities available for sale, at fair value                                                                                    |  |                | 13,652    |   |                   |   | 13,728    |  
|Investment securities held to maturity, at amortized cost (fair value of $9,601 and $9,650)                                                |  |                | 9,721     |   |                   |   | 9,708     |  
|Loans, net of allowance for loan losses of $7,100 and $7,080                                                                               |  |                | 953,817   |   |                   |   | 948,144   |  
|Discounted loans, net of allowance for loan losses of $183 and $209                                                                        |  |                | 1,481     |   |                   |   | 1,679     |  
|Stock in Federal Home Loan Bank of San Francisco, at cost                                                                                  |  |                | 27,949    |   |                   |   | 27,625    |  
|Real estate owned, net                                                                                                                     |  |                | 47        |   |                   |   | 62        |  
|Leasehold improvements and equipment, net                                                                                                  |  |                | 1,479     |   |                   |   | 1,539     |  
|Accrued interest receivable                                                                                                                |  |                | 6,666     |   |                   |   | 6,284     |  
|Income taxes receivable                                                                                                                    |  |                | 2,351     |   |                   |   | 3,910     |  
|Deferred tax asset, net                                                                                                                    |  |                | 31,531    |   |                   |   | 30,739    |  
|Goodwill, net                                                                                                                              |  |                | 3,054     |   |                   |   | 3,054     |  
|Prepaid expenses and other assets                                                                                                          |  |                | 3,883     |   |                   |   | 3,741     |  
|                                                                                                                                           |  |                |           |   |                   |   |           |  
|TOTAL                                                                                                                                      |  | $              | 1,391,176 |   |                   | $ | 1,403,739 |  
|                                                                                                                                           |  |                |           |   |                   |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                       |  |                |           |   |                   |   |           |  
|LIABILITIES:                                                                                                                               |  |                |           |   |                   |   |           |  
|Deposits:                                                                                                                                  |  |                |           |   |                   |   |           |  
|Noninterest-bearing deposits                                                                                                               |  | $              | 5,761     |   |                   | $ | 4,655     |  
|Interest-bearing deposits                                                                                                                  |  |                | 678,271   |   |                   |   | 599,994   |  
|                                                                                                                                           |  |                |           |   |                   |   |           |  
|Total deposits                                                                                                                             |  |                | 684,032   |   |                   |   | 604,649   |  
|Repurchase agreements                                                                                                                      |  |                | 40,000    |   |                   |   | 63,000    |  
|FHLB advances                                                                                                                              |  |                | 462,837   |   |                   |   | 530,837   |  
|Junior subordinated notes payable to trust                                                                                                 |  |                | 20,619    |   |                   |   | 20,619    |  
|Accounts payable and other liabilities                                                                                                     |  |                | 10,959    |   |                   |   | 10,764    |  
|                                                                                                                                           |  |                |           |   |                   |   |           |  
|Total liabilities                                                                                                                          |  |                | 1,218,447 |   |                   |   | 1,229,869 |  
|                                                                                                                                           |  |                |           |   |                   |   |           |  
|COMMITMENTS AND CONTINGENCIES (NOTE 4)                                                                                                     |  |                |           |   |                   |   |           |  
|                                                                                                                                           |  |               
|STOCKHOLDERS EQUITY:                                                                                                                      |  |                |           |   |                   |   |           |  
|Common stock, $0.01 par value, 30,000,000 shares authorized, 26,970,874 and 26,965,874 shares issued (including 5,639,368 treasury
shares) |  |                | 270       |   |                   |   | 270       |  
|Additional paid-in capital                                                                                                                 |  |                | 165,802   |   |                   |   | 165,710   |  
|Treasury stock, 5,639,368 shares, at cost                                                                                                  |  |                | (15,224   | ) |                   |   | (15,224   | )
|Retained earnings                                                                                                                          |  |                | 26,851    |   |                   |   | 27,019    |  
|Accumulated other comprehensive loss, net                                                                                                  |  |                | (4,970    | ) |                   |   | (3,905    | )
|                                                                                                                                           |  |                |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                 |  |                | 172,729   |   |                   |   | 173,870   |  
|                                                                                                                                           |  |                |           |   |                   |   |           |  
|TOTAL                                                                                                                                      |  | $              | 1,391,176 |   |                   | $ | 1,403,739 |  
|                                                                                                                                           |  |                |           |   |                   |   |           |  

See notes to unaudited interim condensed consolidated financial statements



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in
thousands, except share data)



|                                                                       |  |                              |            |   |      |   |            |  
|---------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                       |  | Three Months Ended March 31, |           
|                                                                       |  | 2006                         |            |   | 2005 |  
|INTEREST INCOME:                                                       |  |                              |            |   |      |   |            |  
|Loans                                                                  |  | $                            | 16,099     |   |      | $ | 13,427     |  
|Mortgage-backed securities                                             |  |                              | 3,776      |   |      |   | 3,427      |  
|Securities and federal funds sold                                      |  |                              | 480        |   |      |   | 351        |  
|                                                                       |  |                              |            |   |      |   |            |  
|Total interest income                                                  |  |                              | 20,355     |   |      |   | 17,205     |  
|                                                                       |  |                              |            |   |      |   |            |  
|INTEREST EXPENSE:                                                      |  |                              |            |   |      |   |            |  
|Deposits                                                               |  |                              | 6,240      |   |      |   | 3,214      |  
|Borrowings                                                             |  |                              | 5,239      |   |      |   | 4,583      |  
|                                                                       |  |                              |            |   |      |   |            |  
|Total interest expense                                                 |  |                              | 11,479     |   |      |   | 7,797      |  
|                                                                       |  |                              |            |   |      |   |            |  
|NET INTEREST INCOME                                                    |  |                              | 8,876      |   |      |   | 9,408      |  
|PROVISION FOR (RECAPTURE OF) LOSSES ON LOANS                           |  |                              | 40         |   |      |   | (4         | )
|                                                                       |  |                              |            |   |      |   |            |  
|NET INTEREST INCOME AFTER PROVISION FOR (RECAPTURE OF) LOSSES ON LOANS |  |                              | 8,836      |   |      |   | 9,412      |  
|OTHER INCOME:                                                          |  |                              |            |   |      |   |            |  
|Deposit fees and charges                                               |  |                              | 16         |   |      |   | 20         |  
|Real estate owned, net                                                 |  |                              | (5         | ) |      |   | 207        |  
|FHLB stock dividends                                                   |  |                              | 352        |   |      |   | 246        |  
|Other (loss) income, net                                               |  |                              | (5         | ) |      |   | 20         |  
|                                                                       |  |                              |            |   |      |   |            |  
|Total other income                                                     |  |                              | 358        |   |      |   | 493        |  
|                                                                       |  |                              |            |   |      |   |            |  
|OTHER EXPENSES:                                                        |  |                              |            |   |      |   |            |  
|Compensation and employee benefits                                     |  |                              | 2,013      |   |      |   | 1,869      |  
|Professional fees                                                      |  |                              | 1,642      |   |      |   | 706        |  
|Occupancy                                                              |  |                              | 246        |   |      |   | 260        |  
|Loan expenses                                                          |  |                              | 150        |   |      |   | 94         |  
|Regulatory assessments                                                 |  |                              | 20         |   |      |   | 84         |  
|Data processing                                                        |  |                              | 93         |   |      |   | 105        |  
|Insurance                                                              |  |                              | 172        |   |      |   | 173        |  
|Depreciation                                                           |  |                              | 89         |   |      |   | 55         |  
|Amortization of intangibles                                            |  |                              |           |   |      |   | 65         |  
|Directors expense                                                      |  |                              | 90         |   |      |   | 135        |  
|Other general and administrative expense                               |  |                              | 329        |   |      |   | 293        |  
|                                                                       |  |                              |            |   |      |   |            |  
|Total other expenses                                                   |  |                              | 4,844      |   |      |   | 3,839      |  
|                                                                       |  |                              |            |   |      |   |            |  
|INCOME BEFORE INCOME TAX PROVISION                                     |  |                              | 4,350      |   |      |   | 6,066      |  
|INCOME TAX PROVISION                                                   |  |                              | 1,852      |   |      |   | 2,578      |  
|                                                                       |  |                              |            |   |      |   |            |  
|NET INCOME                                                             |  | $                            | 2,498      |   |      | $ | 3,488      |  
|                                                                       |  |                              |            |   |      |   |            |  
|Earnings per sharebasic                                               |  | $                            | 0.12       |   |      | $ | 0.16       |  
|Earnings per sharediluted                                             |  | $                            | 0.12       |   |      | $ | 0.16       |  
|                                                                       |  |                             
|Weighted average number of sharesbasic                                |  |                              | 21,327,950 |   |      |   | 21,138,964 |  
|Weighted average number of sharesdiluted                              |  |                              | 21,554,188 |   |      |   | 21,465,008 |  

See notes to unaudited interim condensed consolidated financial statements



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in
thousands, except share data)



|                                                                                    |  |                              |          |   |      |   |         |  
|----------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                    |  | Three Months Ended March 31, |         
|                                                                                    |  | 2006                         |          |   | 2005 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                               |  |                              |          |   |      |   |         |  
|Net income                                                                          |  | $                            | 2,498    |   |      | $ | 3,488   |  
|Adjustments to reconcile net income to net cash provided by operating activities:   |  |                              |          |   |      |   |         |  
|Provision for (recapture of) losses on loans                                        |  |                              | 40       |   |      |   | (4      | )
|Write-down of real estate owned                                                     |  |                              | 7        |   |      |   |        |  
|Depreciation and amortization                                                       |  |                              | 89       |   |      |   | 120     |  
|Stock-based compensation                                                            |  |                              | 60       |   |      |   |        |  
|Deferred tax (benefit) provision                                                    |  |                              | (23      | ) |      |   | 2,311   |  
|Gain on sale of real estate owned                                                   |  |                              | (2       | ) |      |   | (218    | )
|Loss on sale of equipment                                                           |  |                              | 6        |   |      |   |        |  
|Amortization of discounts and deferred fees                                         |  |                              | 439      |   |      |   | 497     |  
|Federal Home Loan Bank stock dividends                                              |  |                              | (324     | ) |      |   |        |  
|Tax benefit from exercise of nonqualified stock options                             |  |                              |         |   |      |   | 37      |  
|Change in:                                                                          |  |                              |          |   |      |   |         |  
|Accrued interest receivable                                                         |  |                              | (382     | ) |      |   | (687    | )
|Income taxes receivable                                                             |  |                              | 1,559    |   |      |   |        |  
|Prepaid expenses and other assets                                                   |  |                              | (142     | ) |      |   | (539    | )
|Accounts payable and other liabilities                                              |  |                              | 195      |   |      |   | 12,348  |  
|                                                                                    |  |                              |          |   |      |   |         |  
|Net cash provided by operating activities                                           |  |                              | 4,020    |   |      |   | 17,353  |  
|                                                                                    |  |                              |          |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                               |  |                              |          |   |      |   |         |  
|Purchase of loans                                                                   |  |                              |         |   |      |   | (4,764  | )
|Loan repayments                                                                     |  |                              | 54,541   |   |      |   | 34,845  |  
|Loan originations                                                                   |  |                              | (60,429  | ) |      |   | (21,628 | )
|Purchase of mortgage-backed securities available for sale                           |  |                              |         |   |      |   | (48,927 | )
|Repayments of mortgage-backed securities available for sale                         |  |                              | 15,012   |   |      |   | 21,927  |  
|Purchases of FHLB stock                                                             |  |                              |         |   |      |   | (576    | )
|Proceeds from sale of real estate owned                                             |  |                              | 10       |   |      |   | 1,987   |  
|Purchases of leasehold improvements and equipment                                   |  |                              | (35      | ) |      |   | (355    | )
|                                                                                    |  |                              |          |   |      |   |         |  
|Net cash provided by (used in) investing activities                                 |  |                              | 9,099    |   |      |   | (17,491 | )
|                                                                                    |  |                              |          |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                               |  |                              |          |   |      |   |         |  
|Net increase in deposits                                                            |  |                              | 79,383   |   |      |   | 7,832   |  
|Proceeds from FHLB advances                                                         |  |                              | 135,000  |   |      |   | 45,000  |  
|Repayments of FHLB advances                                                         |  |                              | (203,000 | ) |      |   | (51,000 | )
|(Decrease) increase in repurchase agreements                                        |  |                              | (23,000  | ) |      |   | 23,000  |  
|Proceeds from exercise of stock options                                             |  |                              | 17       |   |      |   | 27      |  
|Tax benefit from exercise of nonqualified stock options                             |  |                              | 15       |   |      |   |        |  
|Dividends paid on common stock                                                      |  |                              | (2,666   | ) |      |   | (2,642  | )
|                                                                                    |  |                              |          |   |      |   |         |  
|Net cash (used in) provided by financing activities                                 |  |                              | (14,251  | ) |      |   | 22,217  |  
|                                                                                    |  |                              |          |   |      |   |         |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                |  |                              | (1,132   | ) |      |   | 22,079  |  
|CASH AND CASH EQUIVALENTS:                                                          |  |                              |          |   |      |   |         |  
|Beginning of period                                                                 |  |                              | 20,954   |   |      |   | 15,526  |  
|                                                                                    |  |                              |          |   |      |   |         |  
|End of period                                                                       |  | $                            | 19,822   |   |      | $ | 37,605  |  
|                                                                                    |  |                              |          |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: |  |                              |          |   |      |   |         |  
|Interest                                                                            |  | $                            | 11,856   |   |      | $ | 7,746   |  
|Income taxes, net                                                                   |  |                              | 315      |   |      |   | 22      |  
|NONCASH INVESTING ACTIVITIES:                                                       |  |                              |          |   |      |   |         |  
|Additions to real estate owned acquired in settlement of loans                      |  |                              |         |   |      |   | 9       |  

See notes to unaudited interim condensed consolidated financial statements



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



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

The accompanying interim
condensed consolidated financial statements of Beverly Hills Bancorp Inc. (BHBC, and with its consolidated subsidiaries, the Company) are unaudited and should be read in conjunction with the Companys 2005 Annual Report
on Form 10-K. A summary of the Companys significant accounting policies is set forth in Note 2 to the Consolidated Financial Statements in such Annual Report on Form 10-K. There were no significant changes to any accounting policies during the
quarter ended March 31, 2006, except as discussed in Note 3.

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 months ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

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.

As of December 31, 2005, the Company reclassified its prepayment fees on loans from other operating income to
interest income. All prior periods have been restated to conform to the current format. This change in classification was made pursuant to the conversion of its bank subsidiarys charter from a federal savings and loan charter to a California
state commercial bank charter, effective September 1, 2005. The Company believes this classification of loan prepayment fees is consistent with that of other state-chartered banks. The amount of such fees reclassified as interest income totaled
$313,000 for the quarter ended March 31, 2005.



|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 periods ended March 31, 2006 and 2005.



|                                                                    |  |                                               |            |     |      |   |           
|------------------------------------------------------------------- |  | --------------------------------------------- | ---------- | --- | ---- | - | ----------
|                                                                    |  | Three Months Ended March 31,                 
|                                                                    |  | 2006                                          |            |     | 2005
|                                                                    |  | (Dollars in thousands, except per-share data)
|Net income                                                          |  | $                                             | 2,498      |     |      | $ | 3,488     
|                                                                    |  |                                               |            |     |      |   |           
|Weighted average number of common shares outstandingbasic          |  |                                               | 21,327,950 |     |      |   | 21,138,964
|Net effect of dilutive stock optionsbased on treasury stock method |  |                                               | 226,238    | (1) |      |   | 326,044   
|                                                                    |  |                                               |            |     |      |   |           
|Weighted average number of common shares outstandingdiluted        |  |                                               | 21,554,188 |     |      |   | 21,465,008
|                                                                    |  |                                               |            |     |      |   |           
|Earnings per sharebasic                                            |  | $                                             | 0.12       |     |      | $ | 0.16      
|                                                                    |  |                                               |            |     |      |   |           
|Earnings per sharediluted                                          |  | $                                             | 0.12       |     |      | $ | 0.16      
|                                                                    |  |                                               |            |     |      |   |           

---

|(1) | Does not include a weighted average of 586,667 options outstanding during the period whose exercise would have had an anti-dilutive effect on earnings per share.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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

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.

A summary of the Companys stock option activity for the period indicated is presented below:



|                                   |  |                                   |   |  |                              |      
|---------------------------------- |  | --------------------------------- | - |  | ---------------------------- | -----
|                                   |  | Three Months Ended March 31, 2006
|                                   |  | Shares                            |   |  | WeightedAverageExercisePrice
|Outstanding at beginning of period |  | 322,106                           |   |  | $                            | 2.29 
|Granted                            |  | 600,000                           |   |  |                              | 10.50
|Exercised                          |  | (5,000                            | ) |  |                              | 3.45 
|Forfeited                          |  |                                  |   |  |                              |     
|                                   |  |                                   |   |  |                              |      
|Outstanding at end of period       |  | 917,106                           |   |  | $                            | 7.66 
|                                   |  |                                   |   |  |                              |      
|Exercisable at end of period       |  | 349,604                           |   |  | $                            | 3.38 
|                                   |  |                                   |   |  |                              |      

A summary of the status of the Companys nonvested options as of March 31, 2006, and
changes during the quarter then ended, is presented below:



|                                 |  |                                   |   |  |                                     |     
|-------------------------------- |  | --------------------------------- | - |  | ----------------------------------- | ----
|                                 |  | Three Months Ended March 31, 2006
|                                 |  | Shares                            |   |  | WeightedAverageGrant DateFair Value
|Nonvested at beginning of period |  | 17,502                            |   |  | $                                   | 0.79
|Granted                          |  | 600,000                           |   |  |                                     | 1.13
|Vested                           |  | (50,000                           | ) |  |                                     | 1.24
|Forfeited                        |  |                                  |   |  |                                     |    
|                                 |  |                                   |   |  |                                     |     
|Nonvested at end of period       |  | 567,502                           |   |  | $                                   | 1.11
|                                 |  |                                   |   |  |                                     |     

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 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.



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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 subsequent to 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.

In the first quarter of 2006, the adoption of SFAS No. 123R resulted in stock-based compensation expense of $60,184,
deferred tax benefits of $22,848 and a net reduction in net income of $37,336. There was a negligible effect on basic and diluted earnings per share. The compensation expense and deferred tax benefits are reflected as adjustments to cash flows from
operating activities on the Companys consolidated statement of cash flows. The Company recorded tax benefits from the exercise of non-qualified stock options of $14,663, which are included in cash flows from financing activities for the three
months ended March 31, 2006. Prior to the adoption of SFAS No. 123R, such tax benefits were presented as adjustments to cash flows from operating activities.

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 4.3%, a dividend yield of 5% and an expected life of five years.

The volatility assumption was based on the historical weekly price data of BHBCs 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 equal to the 5-year U. S. Treasury rate in effect on the date of the grant. 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 months ended March 31, 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.

As of
March 31, 2006, the Company had $622,094 of unrecognized compensation cost related to unvested stock options. This cost is expected to be amortized over a weighted-average period of 2.74 years, ending in December 2008.



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Additional information regarding options outstanding as of March 31, 2006 is as follows:



|                         |  |             |  |                   |  |                                       |                    |                                 |                    |  |   |      
|------------------------ |  | ----------- |  | ----------------- |  | ------------------------------------- | ------------------ | ------------------------------- | ------------------ |  | - | -----
|                         |  |             |  |                   |  | Weighted Average RemainingLife(Years) |                    | Weighted Average Exercise Price
|Range of Exercise Prices |  | TotalShares |  | ExercisableShares |  |                                       | OptionsOutstanding |                                 | OptionsExercisable
|$1.63  $1.90            |  | 204,604     |  | 204,604           |  | 5.21                                  |                    | $                               | 1.73               |  | $ | 1.73 
|$2.34  $2.61            |  | 35,000      |  | 35,000            |  | 5.90                                  |                    |                                 | 2.42               |  |   | 2.42 
|$3.45  $3.80            |  | 77,502      |  | 60,000            |  | 6.70                                  |                    |                                 | 3.65               |  |   | 3.61 
|$10.50                   |  | 600,000     |  | 50,000            |  | 9.76                                  |                    |                                 | 10.50              |  |   | 10.50

Prior to the adoption of SFAS No. 123R, the Company applied APB 25 to account for its
stock-based awards. The following table illustrates the effect on net income and earnings per share had the Company accounted for share-based compensation in accordance with SFAS No. 123R for the period indicated:



|                                                                                                                                           |  |                                               |      
|------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------- | -----
|                                                                                                                                           |  | Three Months Ended March 31, 2005            
|                                                                                                                                           |  | (Dollars in thousands, except per-share data)
|Net income, as reported                                                                                                                    |  | $                                             | 3,488
|Add:  Stock-based employee compensation expense included in reported net income, net of related tax effects                                |  |                                               |     
|Less:  Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax
effects |  |                                               | 84   
|                                                                                                                                           |  |                                               |      
|Pro forma net income                                                                                                                       |  | $                                             | 3,404
|                                                                                                                                           |  |                                               |      
|Earnings per sharebasic:                                                                                                                  |  |                                               |      
|As reported                                                                                                                                |  | $                                             | 0.16 
|                                                                                                                                           |  |                                               |      
|Pro forma                                                                                                                                  |  | $                                             | 0.16 
|                                                                                                                                           |  |                                               |      
|Earnings per sharediluted:                                                                                                                |  |                                               |      
|As reported                                                                                                                                |  | $                                             | 0.16 
|                                                                                                                                           |  |                                               |      
|Pro forma                                                                                                                                  |  | $                                             | 0.16 
|                                                                                                                                           |  |                                               |      



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

At March 31, 2006, the Company had outstanding commitments to fund $22.6 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.

The Company continues to incur
legal expenses on behalf of a former officer in connection with the events that gave rise to litigation arising from the financial collapse of Capital Consultants LLC (CCL) in 2000. Such expenses totaled $1.0 million for the three months
ended March 31, 2006, compared with $16,000 for the three months ended March 31, 2005. The Company expects these expenses to decline significantly after the second quarter of 2006. See Note 8  Legal Matters.



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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

The Company files consolidated
federal and state income tax returns with its eligible subsidiaries. The Company recorded income tax provisions of $1.9 million and $2.6 million, respectively, for the three months ended March 31, 2006 and 2005. 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 $31.5 million and $30.7 million, respectively, at March 31, 2006 and December 31, 2005. In
accounting for the deferred tax asset, the Company applies SFAS No. 109, Accounting for Income Taxes, which requires, among other things, that deferred tax assets be reduced by a valuation allowance if it is more likely than not that
some portion or all of the deferred tax asset will not be realized. The Company has evaluated the positive and negative evidence regarding the future realization of its deferred tax assets and has recorded a valuation allowance of $5.8 million. The
Company believes it is more likely than not that its net deferred tax asset of $31.5 million will be realized in future periods.

As of
March 31, 2006, the Company had federal net operating loss carryforwards of $87.5 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 million.



|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. Through the year ended December 31, 2005, the Company reported the results of its investment
subsidiary, WFC Inc. (WFC), as an additional segment known as Mortgage Investments. In 2006, the Company determined that WFC no longer meets the qualitative definition or quantitative thresholds of an operating segment as set
forth in SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. Consequently, WFCs results for the three months ended March 31, 2006 are not presented as a separate segment but are included in the
Holding Company and Other Operations segment. Segment data for the three months ended March 31, 2005 have been restated to conform to the current format.

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 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. Through August 2005, the Bank was a federally-chartered savings bank regulated by the Office of Thrift Supervision. On
September 1, 2005, the Bank converted its charter to a state commercial bank charter
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



| | and as a result is now regulated by the California Department of Financial Institutions (DFI). As an insured institution, the Bank continues to
be regulated by 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, interest expense on $20.6 million of junior subordinated notes payable, general corporate expenses and eliminations of intercompany accounts and transactions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Segment data for the three months ended March 31, 2006 and 2005 are as follows:



|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|------------------------------------------------------------- |  | --------------------------------- | --------- | ------------------------------------ | - | ------ | ----- |  | - | --------- | -
|                                                              |  | Three Months Ended March 31, 2006 |          
|                                                              |  | Banking                           |           | Holding Company and Other
Operations |   |        | Total | 
|                                                              |  | (Dollars in thousands)            |          
|Interest income                                               |  | $                                 | 20,114    |                                      | $ | 241    |       |  | $ | 20,355    |  
|Interest expense                                              |  |                                   | 11,170    |                                      |   | 309    |       |  |   | 11,479    |  
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|Net interest income (expense)                                 |  |                                   | 8,944     |                                      |   | (68    | )     |  |   | 8,876     |  
|Provision for loan losses                                     |  |                                   | 40        |                                      |   |       |       |  |   | 40        |  
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|Net interest income (expense) after provision for loan losses |  |                                   | 8,904     |                                      |   | (68    | )     |  |   | 8,836     |  
|Other income (loss)                                           |  |                                   | 360       |                                      |   | (2     | )     |  |   | 358       |  
|Compensation and employee benefits expense                    |  |                                   | 1,781     |                                      |   | 232    |       |  |   | 2,013     |  
|Other expenses                                                |  |                                   | 1,192     |                                      |   | 1,639  |       |  |   | 2,831     |  
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|Income (loss) before taxes                                    |  |                                   | 6,291     |                                      |   | (1,941 | )     |  |   | 4,350     |  
|Income tax provision (benefit)                                |  |                                   | 2,674     |                                      |   | (822   | )     |  |   | 1,852     |  
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|Net income (loss)                                             |  | $                                 | 3,617     |                                      | $ | (1,119 | )     |  | $ | 2,498     |  
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|Total assets                                                  |  | $                                 | 1,351,208 |                                      | $ | 39,968 |       |  | $ | 1,391,176 |  
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|                                                              | 
|                                                              |  | Three Months Ended March 31, 2005 |          
|                                                              |  | Banking                           |           | Holding Company and Other
Operations |   |        | Total | 
|                                                              |  | (Dollars in thousands)            |          
|Interest income                                               |  | $                                 | 16,912    |                                      | $ | 293    |       |  | $ | 17,205    |  
|Interest expense                                              |  |                                   | 7,468     |                                      |   | 329    |       |  |   | 7,797     |  
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|Net interest income (expense)                                 |  |                                   | 9,444     |                                      |   | (36    | )     |  |   | 9,408     |  
|Recapture of loan losses                                      |  |                                   |          |                                      |   | (4     | )     |  |   | (4        | )
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|Net interest income (expense) after recapture of loan losses  |  |                                   | 9,444     |                                      |   | (32    | )     |  |   | 9,412     |  
|Other income                                                  |  |                                   | 479       |                                      |   | 14     |       |  |   | 493       |  
|Compensation and employee benefits expense                    |  |                                   | 1,779     |                                      |   | 90     |       |  |   | 1,869     |  
|Other expenses                                                |  |                                   | 1,338     |                                      |   | 632    |       |  |   | 1,970     |  
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|Income (loss) before taxes                                    |  |                                   | 6,806     |                                      |   | (740   | )     |  |   | 6,066     |  
|Income tax provision (benefit)                                |  |                                   | 2,893     |                                      |   | (315   | )     |  |   | 2,578     |  
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|Net income (loss)                                             |  | $                                 | 3,913     |                                      | $ | (425   | )     |  | $ | 3,488     |  
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  
|Total assets                                                  |  | $                                 | 1,337,116 |                                      | $ | 34,920 |       |  | $ | 1,372,036 |  
|                                                              |  |                                   |           |                                      |   |        |       |  |   |           |  



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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 the Banks purchase of its Beverly Hills branch 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. As of March 31, 2006, the Company determined that no impairment
charge to goodwill was required. The Company is considering selling the Banks Beverly Hills Branch in 2006.

The Company also
recorded a core deposit intangible of $1.3 million in connection with the Banks purchase of the branch. The Company amortized the core deposit intangible over an estimated useful life of 5 years and had amortized it in full as of June 30,
2005. For the three months ended March 31, 2005, the Company recorded amortization expense of $65,000 related to the core deposit intangible.



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

The Company is involved in binding
arbitration with a former officer who, in June 2004, pursuant to a plea bargain, pleaded guilty to two felony counts in connection with certain criminal proceedings against him arising out of the financial collapse of Capital Consultants
LLC in 2000. As part of his plea bargain, the former officer agreed to pay restitution in the amount of $2.0 million. The former officer has made a claim against the Company for this amount, asserting that he is entitled to indemnification
under Delaware law. He subsequently made an additional claim for more than $10 million in consequential damages and losses purportedly incurred by him as a result of his guilty plea and subsequent incarceration. This claim was based
on various alleged damages such as loss of reputation, emotional distress, and interference with the former officers professional and personal relationships. The Company disagrees with these claims and is contesting the claims
vigorously. In addition, the Company is seeking to recover some of the legal expenses that it paid on behalf of the former officer. The arbitration was held in February 2006. The arbitrator dismissed the former officers claim against the
Company for consequential damages, and the Company expects the arbitrator to rule on the other claims toward the end of the second quarter of 2006. The Companys legal expenses for these matters are expected to decline significantly following
that ruling. 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.

Beginning in June 2005, the Companys former loan servicing subsidiary, Wilshire Credit Corporation (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. Through March 31, 2006, WCC had claimed a total of $728,000 of such costs. WCC further asserted
that the Company is obligated to reimburse WCC for similar recurring costs it may incur through April 2008. The Company disagrees with this assertion. As a result, in July 2005 the Company filed a complaint for declaratory relief against WCC and
WCCs parent, Merrill Lynch Mortgage Capital Inc. (Merrill Lynch, which purchased WCC from the Company in April 2004). 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. The Company is
attempting to resolve this matter through discussions with Merrill Lynch and WCC and thus avoid the need for further litigation. 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 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



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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
$2.7 million for the three months ended March 31, 2006. Commencing in the second quarter of 2004, the Company has declared regular quarterly cash dividends of $0.125 per share, or $0.50 annually.



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES



|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 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 March 31, 2006 was $2.5 million, or $0.12 per diluted share, compared with net income of $3.5 million, or
$0.16 per diluted share, for the three months ended March 31, 2005. The decline in our net income was due principally to legal expenses of $1.0 million in the first quarter of 2006 (compared to $16,000 in the first quarter of 2005) in
connection with an arbitration with a former officer over indemnification and other claims brought over a year ago. Net income also declined due to a $0.5 million decrease in net interest income from the first quarter of 2005 to the first quarter of
2006, which reflects a significant increase in our cost of funds triggered by the continuing rise in market interest rates.

Our
stockholders equity decreased by $1.1 million during the three months ended March 31, 2006 to $172.7 million, or $8.01 book value per diluted share, despite our net income of $2.5 million. This decrease was due to cash dividends of $2.7
million and after-tax unrealized losses of $1.1 million on our portfolio of available-for-sale securities, partially offset by a $0.1 increase in paid-in capital from the exercise of stock options and related tax benefits.

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 the Companys Report on Form 10-K for the year ended
December 31, 2005. There were no changes to our Critical Accounting Policies and Estimates in the three months ended March 31, 2006.

RESULTS
OF OPERATIONSTHREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THREE MONTHS ENDED MARCH 31, 2005

Net Interest Income

Net interest income was $8.9 million for the three months ended March 31, 2006, compared with $9.4 million for the three months ended March 31,
2005. This decrease was due to a decline in our net interest margin from 2.93% to 2.70%, as the level of net interest earning assets in the quarters was comparable.



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##### Table of Contents

The net interest margin declined due to increasing market interest rates. Because our interest bearing
liabilities reprice more frequently than our interest earning assets, in periods of rising interest rates the net interest margin will decline. As a result, the weighted average cost of our interest bearing liabilities increased by 112 basis points
to 3.84% for the three months ended March 31, 2006, compared to 2.72% for the three months ended March 31, 2005. In contrast, the yield on our interest-earning assets increased by only 76 basis points, to 6.11% for the first quarter of
2006 compared to 5.35% for the first quarter of 2005. We anticipate that the net interest margin may narrow further in future periods if interest rates continue to rise and the treasury yield remains relatively flat.

The following tables set forth, for the periods indicated, information regarding the total amount of our income from interest-earning assets and the
resulting average yields, the interest expense associated with interest-bearing liabilities along with the resulting average rate, 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.



|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|------------------------------------------ |  | --------------------------------- | --------- | - | --------------------------------- | - | --------------------- |  | ---- | --------------- |  | - | --------- | - | --------------------- | - | ------ |  | ---- | -
|                                           |  | Three Months Ended March 31, 2006 |           |   | Three Months Ended March 31, 2005 |  
|                                           |  | Average Balance                   |           |   | Interest                          |   | Annualized Yield/Rate |  |      | Average Balance |  |   | Interest  |   | Annualized Yield/Rate |  
|                                           |  | (Dollars in thousands)            |          
|Interest-Earning Assets:                   |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Mortgage-backed securities                 |  | $                                 | 323,898   |   |                                   | $ | 3,776                 |  | 4.66 | %               |  | $ | 318,851   |   |                       | $ | 3,427  |  | 4.30 | %
|Loans (1)(2)                               |  |                                   | 965,394   |   |                                   |   | 16,099                |  | 6.67 | %               |  |   | 922,715   |   |                       |   | 13,427 |  | 5.82 | %
|Federal funds and other investments        |  |                                   | 43,490    |   |                                   |   | 480                   |  | 4.41 | %               |  |   | 43,899    |   |                       |   | 351    |  | 3.20 | %
|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-earning assets              |  |                                   | 1,332,782 |   |                                   |   | 20,355                |  | 6.11 | %               |  |   | 1,285,465 |   |                       |   | 17,205 |  | 5.35 | %
|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-earning cash                   |  |                                   | 1,247     |   |                                   |   |                       |  |      |                 |  |   | 2,484     |   |                       |   |        |  |      |  
|Allowance for loan losses                  |  |                                   | (7,287    | ) |                                   |   |                       |  |      |                 |  |   | (10,218   | ) |                       |   |        |  |      |  
|Other assets                               |  |                                   | 76,617    |   |                                   |   |                       |  |      |                 |  |   | 72,289    |   |                       |   |        |  |      |  
|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total assets                               |  | $                                 | 1,403,359 |   |                                   |   |                       |  |      |                 |  | $ | 1,350,020 |   |                       |   |        |  |      |  
|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-bearing deposits:                 |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Savings, NOW and money market accounts     |  | $                                 | 66,855    |   |                                   | $ | 491                   |  | 2.98 | %               |  | $ | 112,615   |   |                       | $ | 657    |  | 2.37 | %
|Certificates of deposit                    |  |                                   | 561,809   |   |                                   |   | 5,749                 |  | 4.15 | %               |  |   | 415,333   |   |                       |   | 2,557  |  | 2.50 | %
|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing deposits            |  |                                   | 628,664   |   |                                   |   | 6,240                 |  | 4.03 | %               |  |   | 527,948   |   |                       |   | 3,214  |  | 2.47 | %
|Repurchase agreements                      |  |                                   | 51,500    |   |                                   |   | 442                   |  | 3.48 | %               |  |   | 131,500   |   |                       |   | 903    |  | 2.78 | %
|FHLB advances                              |  |                                   | 512,337   |   |                                   |   | 4,368                 |  | 3.46 | %               |  |   | 483,337   |   |                       |   | 3,351  |  | 2.81 | %
|Junior subordinated notes payable          |  |                                   | 20,619    |   |                                   |   | 429                   |  | 8.44 | %               |  |   | 20,619    |   |                       |   | 329    |  | 6.47 | %
|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                   | 1,213,120 |   |                                   |   | 11,479                |  | 3.84 | %               |  |   | 1,163,404 |   |                       |   | 7,797  |  | 2.72 | %
|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                   | 4,922     |   |                                   |   |                       |  |      |                 |  |   | 4,347     |   |                       |   |        |  |      |  
|Other liabilities                          |  |                                   | 11,306    |   |                                   |   |                       |  |      |                 |  |   | 10,619    |   |                       |   |        |  |      |  
|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities                          |  |                                   | 1,229,348 |   |                                   |   |                       |  |      |                 |  |   | 1,178,370 |   |                       |   |        |  |      |  
|Stockholders equity                       |  |                                   | 174,011   |   |                                   |   |                       |  |      |                 |  |   | 171,650   |   |                       |   |        |  |      |  
|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                                 | 1,403,359 |   |                                   |   |                       |  |      |                 |  | $ | 1,350,020 |   |                       |   |        |  |      |  
|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest income                        |  |                                   |           |   |                                   | $ | 8,876                 |  |      |                 |  |   |           |   |                       | $ | 9,408  |  |      |  
|                                           |  |                                   |           |   |                                   |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest spread                        |  |                                   |           |   |                                   |   |                       |  | 2.27 | %               |  |   |           |   |                       |   |        |  | 2.63 | %
|Net interest margin                        |  |                                   |           |   |                                   |   |                       |  | 2.70 | %               |  |   |           |   |                       |   |        |  | 2.93 | %

---

|(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
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 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 loan fees of $220 and $40, respectively, for the quarters ended March 31, 2006 and 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

Interest income on mortgage-backed securities was $3.8 million for the first quarter of 2006, compared with $3.4 million for the first quarter of 2005.
The increase in 2006 reflects an increase in yields due to rising market interest rates, which extended the expected lives of the securities and reduced the amortization of premiums. As a result, our yield on mortgage-backed securities increased by
36 basis points, to 4.66% for the first quarter of 2006 compared with 4.30% for the first quarter of 2005. To a lesser extent, the increase in interest income reflects an increase in the average investment balance, primarily as a result of the
increase in mortgage-backed securities throughout 2005.

Interest income on loans was $16.1 million for the quarter ended March 31,
2006, compared with $13.4 million for the quarter ended March 31, 2005. This increase was due primarily to an 85-basis point increase in the weighted average yield on the loan portfolio, to 6.67% for the first quarter of 2006, compared with
5.82% for the first quarter of 2005. Adjustable-rate loans (including loans with an initial fixed rate for 3 or 5 years which subsequently convert to adjustable-rate) comprised 85.6% of our total loans at March 31, 2006, increasing the
sensitivity of the portfolio to interest rate fluctuations. The increase in loan interest income was to a lesser extent due to a $42.7 million increase in the average balance of loans over the first quarter of 2005. This increase in average volume
reflects the Banks moderate growth in its loan portfolio throughout 2005 (the effects of which are realized in future periods), largely through loan portfolio acquisitions in the second and fourth quarters of 2005.

Interest expense on deposits was $6.2 million for the quarter ended March 31, 2006, compared with $3.2 million for the quarter ended March 31,
2005. This increase was primarily the result of a 156-basis point increase in the average cost of our interest-bearing deposits, which was due to two factors: (1) the increase in market interest rates raised the cost of deposits as maturing
certificates of deposit (CDs) were replaced with higher-costing CDs, and (2) the proportion of CDs to total deposits increased to an average of 89.4% for the quarter, compared with an average of 79.6% for the first quarter of 2005. The Bank
utilized deposits as its primary funding source in the first quarter of 2006 and raised a significant volume of wholesale CDs, resulting in a $100.7 million increase in the average balance of interest-bearing deposits over the first quarter of 2005.

Interest expense on repurchase agreements and Federal Home Loan Bank (FHLB) advances totaled $4.8 million for the three months
ended March 31, 2006, compared with $4.3 million for the three months ended March 31, 2005. This increase was due to the higher interest rates in the 2006 period, which raised the cost of our repurchase agreements and FHLB advances by 70
and 65 basis points, respectively. The effects of the higher rates were partially offset by a $51.0 million decline in the average total borrowing balance from the first quarter of 2005 to the first quarter of 2006.

Interest expense on our junior subordinated notes payable increased by $100,000 from the first quarter of 2005 to the first quarter of 2006 as a result
of the increase in interest rates. These notes bear interest at the three-month LIBOR rate plus 3.65%.

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



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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.

Pursuant to the quarterly evaluation of the adequacy of our loan loss reserves, we recorded a provision of $40,000 for the three months ended March 31, 2006, compared with net loan loss recaptures of $4,000 for
the three months ended March 31, 2005.

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 Expenses

Compensation and employee benefits expense totaled $2.0 million for the three months ended March 31, 2006, compared with $1.9
million for the three months ended March 31, 2005. The increase in the 2006 period was due primarily to two factors: (1) in August 2005 we hired a new Chief Executive Officer, whose compensation is included in the first quarter 2006
results but not the first quarter 2005 results, and (2) effective January 1, 2006, the Company adopted SFAS No. 123R, which requires the Company to record the fair value of stock option grants as compensation expense (see Note 3 to
the interim condensed consolidated financial statements). In the first quarter of 2006, the Company recorded $60,000 in compensation costs pursuant to the adoption of SFAS No. 123R. This expense was primarily related to a grant of stock options
to the new Chief Executive Officer in January 2006. We expect to incur a similar quarterly amount of compensation expense related to this grant through December 31, 2008, when this grant vests in full.

Our legal expenses (included in Professional fees in the statement of operations) increased by $1.0 million from the first quarter of 2005 to
the first quarter of 2006. This increase was due to expenses related to various issues with respect to a former officer of the Company (see Note 8 to the interim condensed consolidated financial statements). We anticipate that these matters will be
resolved in full toward the end of the second quarter of 2006 and that subsequently, the related legal expenses will decline significantly.

Regulatory assessments were $20,000 for the quarter ended March 31, 2006, compared with $84,000 for the quarter ended March 31, 2005. This decrease was due to the Banks conversion to a state charter in September 2005.
Because the DFI assesses its annual fee effective July 1, the Bank does not expect to incur such fees until the third quarter of 2006. Our regulatory assessments for the first quarter of 2005 included fees paid to the Banks former
regulator, the Office of Thrift Supervision.

We no longer incur amortization expense related to our core deposit intangible because this
asset was amortized in full as of June 30, 2005. For the first quarter of 2005, we recorded amortization expense of $65,000.

The
decline in our directors expense from the first quarter of 2005 to the first quarter of 2006 was due primarily to the reduction in the size of our board of directors from ten members to seven in August 2005.



17



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CHANGES IN FINANCIAL CONDITION

General

At March 31, 2006, our total assets were $1.4 billion, a decrease of $12.6
million, or 0.9%, from the total as of December 31, 2005. This decrease was largely due to a decline in the market value of investment securities and also reflects minimal growth of our loan portfolio as a result of the continuing rise in
market interest rates. The following discussion summarizes the significant changes in our financial condition for the three months ended March 31, 2006.

Mortgage-Backed and Other Securities Available for Sale

Our portfolio of mortgage-backed securities available for
sale decreased by $16.8 million during the quarter ended March 31, 2006. This decrease was due to principal repayments of $15.0 million and unrealized holding losses of $1.8 million, as a result of the increase in interest rates during the
quarter. We did not purchase or sell any securities in the first quarter of 2006.

The balance of our other investment securities available
for sale (consisting of trust preferred securities and mutual funds) was substantially the same at March 31, 2006 and December 31, 2005, reflecting minimal unrealized holding losses.

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



|                                                    |  |                        |         |                  |   |        
|--------------------------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                                    |  | March 31, 2006         |         | December 31,2005
|                                                    |  | (Dollars in thousands)
|Available for sale, at fair value:                  |  |                        |         |                  |   |        
|AAA mortgage-backed securities                      |  | $                      | 212,060 |                  | $ | 222,290
|GSE mortgage-backed securities                      |  |                        | 91,693  |                  |   | 98,091 
|Other mortgage-backed securities                    |  |                        | 11,970  |                  |   | 12,191 
|Trust preferred securities                          |  |                        | 8,000   |                  |   | 8,000  
|Mutual funds                                        |  |                        | 5,652   |                  |   | 5,728  
|                                                    |  |                        |         |                  |   |        
|Total available for sale                            |  |                        | 329,375 |                  |   | 346,300
|Held to maturity:                                   |  |                        |         |                  |   |        
|Agency securities (fair value of $9,601 and $9,650) |  |                        | 9,721   |                  |   | 9,708  
|                                                    |  |                        |         |                  |   |        
|Total investment securities                         |  | $                      | 339,096 |                  | $ | 356,008
|                                                    |  |                        |         |                  |   |        

The amortized cost and fair value of the Companys securities, by contractual maturity, are
shown below as of March 31, 2006:



|                         |  |                        |         |            |   |        
|------------------------ |  | ---------------------- | ------- | ---------- | - | -------
|                         |  | Amortized Cost         |         | Fair Value
|                         |  | (Dollars in thousands)
|Due in five to ten years |  | $                      | 13,851  |            | $ | 13,611 
|Due after ten years      |  |                        | 327,597 |            |   | 319,713
|Mutual funds             |  |                        | 5,750   |            |   | 5,652  
|                         |  |                        |         |            |   |        
|Total                    |  | $                      | 347,198 |            | $ | 338,976
|                         |  |                        |         |            |   |        



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The following tables show the gross unrealized losses and fair value of the Companys investments,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2006 and December 31, 2005:



|                                         |  |                        |         |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|---------------------------------------- |  | ---------------------- | ------- | ----------------- | - | ---------- |  | ----------------- | ------- | ---------- | - | ----------------- |  | - | ------- |  | - | -----
|                                         |  | Less than 12 months    |         | 12 months or more |   | Total     
|                                         |  | Fair Value             |         | Unrealized Losses |   | Fair Value |  | Unrealized Losses |         | Fair Value |   | Unrealized Losses
|                                         |  | (Dollars in thousands)
|March 31, 2006                           |  |                        |        
|GSE mortgage-backed securities           |  | $                      | 43,505  |                   | $ | 1,057      |  | $                 | 48,188  |            | $ | 1,447             |  | $ | 91,693  |  | $ | 2,504
|AAA and other mortgage-backed securities |  |                        | 89,374  |                   |   | 1,750      |  |                   | 117,139 |            |   | 3,995             |  |   | 206,513 |  |   | 5,745
|Mutual funds                             |  |                        | 3,736   |                   |   | 14         |  |                   | 1,916   |            |   | 84                |  |   | 5,652   |  |   | 98   
|Agency securities                        |  |                        | 9,601   |                   |   | 119        |  |                   |        |            |   |                  |  |   | 9,601   |  |   | 119  
|                                         |  |                        |         |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|Total                                    |  | $                      | 146,216 |                   | $ | 2,940      |  | $                 | 167,243 |            | $ | 5,526             |  | $ | 313,459 |  | $ | 8,466
|                                         |  |                        |         |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      



|                                         |  |                        |         |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|---------------------------------------- |  | ---------------------- | ------- | ----------------- | - | ---------- |  | ----------------- | ------- | ---------- | - | ----------------- |  | - | ------- |  | - | -----
|                                         |  | 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, 2005                        |  |                        |        
|GSE mortgage-backed securities           |  | $                      | 50,251  |                   | $ | 827        |  | $                 | 40,903  |            | $ | 1,239             |  | $ | 91,154  |  | $ | 2,066
|AAA and other mortgage-backed securities |  |                        | 119,248 |                   |   | 1,751      |  |                   | 97,018  |            |   | 2,817             |  |   | 216,266 |  |   | 4,568
|Mutual funds                             |  |                        |        |                   |   |           |  |                   | 1,920   |            |   | 80                |  |   | 1,920   |  |   | 80   
|Agency securities                        |  |                        | 9,650   |                   |   | 58         |  |                   |        |            |   |                  |  |   | 9,650   |  |   | 58   
|                                         |  |                        |         |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      
|Total                                    |  | $                      | 179,149 |                   | $ | 2,636      |  | $                 | 139,841 |            | $ | 4,136             |  | $ | 318,990 |  | $ | 6,772
|                                         |  |                        |         |                   |   |            |  |                   |         |            |   |                   |  |   |         |  |   |      

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 the Company expects to receive full value for the securities. Furthermore, as of March 31, 2006, 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 March 31, 2006 and December 31, 2005, 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 portfolio of loans, net of discounts and allowances, increased by $5.7 million in the first quarter of
2006. This increase reflects loan originations of $60.4 million, consisting primarily of commercial real estate and residential land loans. We are expanding our product line in 2006 to include construction loans, and in March 2006 began funding our
first construction loans. In addition, we intend to expand our volume of bridge loans. These loan originations were partially offset by repayments of $54.3 million. Beginning in the first quarter of 2005, our loan origination activity has been
impeded by the increase in interest rates, which reduced the number



19



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and amount of refinancings, and also by increasing competitiveness in loan pricing. However, our asset quality remains strong, as the unpaid principal
balance of nonperforming loans represented only 0.24% of total loans as of March 31, 2006.

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



|                                 |  |                        |         |   |                   |   |         |  
|-------------------------------- |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                 |  | March 31, 2006         |         |   | December 31, 2005 |  
|                                 |  | (Dollars in thousands) |        
|Single-family residential        |  | $                      | 28,669  |   |                   | $ | 29,393  |  
|Multifamily residential          |  |                        | 414,208 |   |                   |   | 436,805 |  
|Commercial real estate           |  |                        | 513,187 |   |                   |   | 483,718 |  
|Consumer and other               |  |                        | 1,090   |   |                   |   | 853     |  
|                                 |  |                        |         |   |                   |   |         |  
|Loan portfolio principal balance |  |                        | 957,154 |   |                   |   | 950,769 |  
|Net premium and deferred fees    |  |                        | 3,763   |   |                   |   | 4,455   |  
|Allowance for loan losses        |  |                        | (7,100  | ) |                   |   | (7,080  | )
|                                 |  |                        |         |   |                   |   |         |  
|Total loan portfolio, net        |  | $                      | 953,817 |   |                   | $ | 948,144 |  
|                                 |  |                        |         |   |                   |   |         |  

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



|                                       |  |                              |       |   |      |   |       |  
|-------------------------------------- |  | ---------------------------- | ----- | - | ---- | - | ----- | -
|                                       |  | Three Months Ended March 31, |      
|                                       |  | 2006                         |       |   | 2005 |  
|                                       |  | (Dollars in thousands)       |      
|Balance, beginning of period           |  | $                            | 7,080 |   |      | $ | 7,277 |  
|Provision for loan losses              |  |                              | 40    |   |      |   |      |  
|Charge-offs                            |  |                              | (19   | ) |      |   | (6    | )
|Recoveries                             |  |                              | 3     |   |      |   | 1     |  
|Amortization of fresh-start adjustment |  |                              | (4    | ) |      |   | (12   | )
|                                       |  |                              |       |   |      |   |       |  
|Balance, end of period                 |  | $                            | 7,100 |   |      | $ | 7,260 |  
|                                       |  |                              |       |   |      |   |       |  

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



|                                                          |  |                        |        |   |                   |   |        |  
|--------------------------------------------------------- |  | ---------------------- | ------ | - | ----------------- | - | ------ | -
|                                                          |  | March 31, 2006         |        |   | December 31, 2005 |  
|                                                          |  | (Dollars in thousands) |       
|Balance of delinquent loans:                              |  |                        |        |   |                   |   |        |  
|31  60 days                                              |  | $                      | 5,949  |   |                   | $ | 6,300  |  
|61  90 days                                              |  |                        | 3,270  |   |                   |   | 916    |  
|91 days or more (1)                                       |  |                        | 2,259  |   |                   |   | 5,138  |  
|                                                          |  |                        |        |   |                   |   |        |  
|Total delinquent loans                                    |  | $                      | 11,478 |   |                   | $ | 12,354 |  
|                                                          |  |                        |        |   |                   |   |        |  
|Delinquent loans as a percentage of total loan portfolio: |  |                        |        |   |                   |   |        |  
|31  60 days                                              |  |                        | 0.6    | % |                   |   | 0.7    | %
|61  90 days                                              |  |                        | 0.4    |   |                   |   | 0.1    |  
|91 days or more (1)                                       |  |                        | 0.2    |   |                   |   | 0.5    |  
|                                                          |  |                        |        |   |                   |   |        |  
|Total                                                     |  |                        | 1.2    | % |                   |   | 1.3    | %
|                                                          |  |                        |        |   |                   |   |        |  

---

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



20



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##### Table of Contents

Deposits

Deposits increased by $79.4 million during the three months ended March 31, 2005, due to a substantial increase in wholesale CDs. The weighted average interest cost of the Banks deposits was 3.96% at
March 31, 2006, compared with 3.64% at December 31, 2005. This increase resulted primarily from both the continuing increase in market interest rates and the issuance of wholesale CDs, resulting in an increase in CDs as a percentage of
total deposits during the quarter. The Banks deposits at March 31, 2006 and December 31, 2005 included $16.5 million and $21.0 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.

Repurchase Agreements

Repurchase agreements decreased by $23.0 million for the three months ended March 31, 2006, due to the repayment of a facility bearing interest at
3.6%. This repayment reduced the weighted-average cost of our repurchase agreements to 3.34% at March 31, 2006, compared with the December 31, 2005 weighted-average cost of 3.43%. We did not enter into any new repurchase agreements during
the quarter, as our funding requirements were met with new wholesale CDs.

FHLB Advances

FHLB advances decreased by $68.0 million for the three months ended March 31, 2006 as we utilized CDs as our primary funding source. This decrease
was due to $203.0 million in maturities, offset by new advances of $135.0 million. 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.

The following table sets forth information about our FHLB advances at the dates and for the periods indicated:



|                                                        |  |                              |         |   |                              |   |         |  
|------------------------------------------------------- |  | ---------------------------- | ------- | - | ---------------------------- | - | ------- | -
|                                                        |  | Quarter Ended March 31, 2006 |         |   | Quarter Ended March 31, 2005 |  
|                                                        |  | (Dollars in thousands)       |        
|Amount outstanding at end of period                     |  | $                            | 462,837 |   |                              | $ | 468,837 |  
|Average amount outstanding during the period            |  |                              | 512,337 |   |                              |   | 483,337 |  
|Maximum month-end balance outstanding during the period |  |                              | 552,837 |   |                              |   | 494,837 |  
|Weighted average rate:                                  |  |                              |         |   |                              |   |         |  
|During the period                                       |  |                              | 3.46    | % |                              |   | 2.81    | %
|At end of period                                        |  |                              | 3.53    | % |                              |   | 2.76    | %

Stockholders Equity

Our stockholders equity decreased by $1.1 million during the three months ended March 31, 2006 to $172.7 million, or $8.01 book value per
diluted share, despite our net income of $2.5 million. This decrease was due to cash dividends of $2.7 million and after-tax unrealized losses of $1.1 million on our portfolio of available-for-sale securities, partially offset by a $0.1 million
increase in paid-in capital from the exercise of stock options and related tax benefits.

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
March 31, 2006, BHBC and FBBH met all applicable regulatory capital requirements and FBBH was well capitalized, as defined under applicable regulations.



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##### Table of Contents

The following table sets forth the regulatory standards for well capitalized and adequately capitalized
institutions and capital ratios for BHBC and FBBH at March 31, 2006:

Regulatory Capital Ratios



|                                                           |  |                        |         |       |                               |   |        |                                         |        |  |   |        |   |       |   |                |  |   |      |  
|---------------------------------------------------------- |  | ---------------------- | ------- | ----- | ----------------------------- | - | ------ | --------------------------------------- | ------ |  | - | ------ | - | ----- | - | -------------- |  | - | ---- | -
|                                                           |  |                        |         |       | Amount Required               |  
|                                                           |  | Actual                 |         |       | For Capital Adequacy Purposes |   |        | To be Categorized as Well Capitalized |       
|                                                           |  | Amount                 |         | Ratio |                               |   | Amount |                                         | Ratio  |  |   | Amount |   | Ratio |  
|                                                           |  | (Dollars in thousands) |        
|BHBC                                                       |  |                        |         |       |                               |   |        |                                         |        |  |   |        |   |       |   |                |  |   |      |  
|Total capital to risk-weighted assets (Risk-based capital) |  | $                      | 172,302 |       | 18.1                          | % |        | $                                       | 76,343 |  | 3 | 8.0    | % |       |   | Not Applicable | 
|Tier 1 capital to risk-weighted assets                     |  |                        | 165,061 |       | 17.3                          | % |        |                                         | 38,171 |  | 3 | 4.0    | % |       |   | Not Applicable | 
|Tier 1 leverage ratio                                      |  |                        | 165,061 |       | 12.0                          | % |        |                                         | 55,087 |  | 3 | 4.0    | % |       |   | Not Applicable | 
|FBBH                                                       |  |                        |         |       |                               |   |        |                                         |        |  |   |        |   |       |   |                |  |   |      |  
|Total capital to risk-weighted assets (Risk-based capital) |  | $                      | 142,156 |       | 15.0                          | % |        | $                                       | 75,752 |  | 3 | 8.0    | % |       | $ | 94,690         |  | 3 | 10.0 | %
|Tier 1 capital to risk-weighted assets                     |  |                        | 135,098 |       | 14.3                          | % |        |                                         | 37,876 |  | 3 | 4.0    | % |       |   | 56,814         |  | 3 | 6.0  | %
|Tier 1 leverage ratio                                      |  |                        | 135,098 |       | 9.9                           | % |        |                                         | 54,758 |  | 3 | 4.0    | % |       |   | 68,448         |  | 3 | 5.0  | %

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 March 31, 2006, the Bank 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, loan and mortgage-backed securities sales, 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 March 31,
2006, we had $612.5 million of certificates of deposit. Scheduled maturities of certificates of deposit during the 12 months ending March 31, 2007 and thereafter amounted to $452.4 million and $160.1 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.



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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 the Companys future financial obligations outstanding as of March 31, 2006:



|                                           |  |                                                   |         |           |   |           |  |               |         |       |   |        |  |   |          
|------------------------------------------ |  | ------------------------------------------------- | ------- | --------- | - | --------- |  | ------------- | ------- | ----- | - | ------ |  | - | ---------
|                                           |  | Payments due within time period at March 31, 2006
|                                           |  | 0-12 Months                                       |         | 1-3 Years |   | 4-5 Years |  | After 5 Years |         | Total
|                                           |  | (Dollars in thousands)                           
|Certificates of deposit                    |  | $                                                 | 468,039 |           | $ | 149,511   |  | $             | 16,953  |       | $ |       |  | $ | 634,503  
|Repurchase agreements                      |  |                                                   | 30,989  |           |   | 10,440    |  |               |        |       |   |       |  |   | 41,429   
|Employment contracts                       |  |                                                   | 484     |           |   | 509       |  |               |        |       |   |       |  |   | 993      
|Operating leases                           |  |                                                   | 698     |           |   | 1,286     |  |               | 882     |       |   | 1,570  |  |   | 4,436    
|FHLB advances                              |  |                                                   | 244,113 |           |   | 155,772   |  |               | 92,748  |       |   |       |  |   | 492,633  
|Junior subordinated notes payable to trust |  |                                                   | 1,700   |           |   | 3,400     |  |               | 3,400   |       |   | 56,744 |  |   | 65,244   
|Commitments to originate loans             |  |                                                   | 22,587  |           |   |          |  |               |        |       |   |       |  |   | 22,587   
|                                           |  |                                                   |         |           |   |           |  |               |         |       |   |        |  |   |          
|Total                                      |  | $                                                 | 768,610 |           | $ | 320,918   |  | $             | 113,983 |       | $ | 58,314 |  | $ | 1,261,825
|                                           |  |                                                   |         |           |   |           |  |               |         |       |   |        |  |   |          

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 junior subordinated debentures are based on the assumption that the debentures will be repaid in full at maturity in July
2032. However, commencing July 12, 2007, the debentures may be repaid in full or in part at par.

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.



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##### Table of Contents

|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.

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 the Companys net portfolio value at March 31, 2006, 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         |  | $                      | 150,417 |          | $                  | (27,820 | )        |  | (16 | )%        |  | 11.40 | %      |  | (145 | )bp
|+ 200bp         |  |                        | 159,427 |          |                    | (18,810 | )        |  | (11 | )         |  | 11.88 |        |  | (97  | )bp
|+ 100bp         |  |                        | 168,000 |          |                    | (10,237 | )        |  | (6  | )         |  | 12.32 |        |  | (53  | )bp
|0bp             |  |                        | 178,237 |          |                    |        |          |  |    |           |  | 12.85 |        |  |     |    
|- 100bp         |  |                        | 183,351 |          |                    | 5,114   |          |  | 3   |           |  | 13.04 |        |  | 19   | bp 
|- 200bp         |  |                        | 181,776 |          |                    | 3,539   |          |  | 2   |           |  | 12.81 |        |  | (4   | )bp
|- 300bp         |  |                        | 179,823 |          |                    | 1,586   |          |  | 1   |           |  | 12.56 |        |  | (29  | )bp



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##### Table of Contents

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

We believe that the assumptions (including prepayment assumptions) we use to evaluate the vulnerability of our operations to changes in interest rates
approximate actual experience and consider them reasonable. However, the interest rate sensitivity of our assets and liabilities and the estimated effects of changes in interest rates on NPV could vary substantially if different assumptions were
used or actual experience differs from the historical experience on which they are based.

Another tool we use to identify and manage our
interest rate risk profile is the static gap analysis. Interest sensitivity gap analysis measures the difference between the assets and liabilities repricing or maturing within specific time periods. The following table summarizes the scheduled
maturities or repricing of the Banks assets and liabilities based on their contractual terms as of March 31, 2006.



|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|----------------------------------------------------------- |  | ---------------------- | -------- | -- | --------------------------------- | - | -------- | ----------------------------------- |  | - | --------------- | -- |  | ----- | ------- | - |  | - | ---------
|                                                            |  | 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 due from banks                                     |  | $                      | 19,822   |    |                                   | $ |         |                                     |  | $ |                |    |  | $     |        |   |  | $ | 19,822   
|Mortgage-backed and other investment securities             |  |                        | 32,918   |    |                                   |   | 106,475  |                                     |  |   | 121,405         |    |  |       | 78,105  |   |  |   | 338,903  
|Single-family residential loans                             |  |                        | 15,584   |    |                                   |   | 2,362    |                                     |  |   | 47              |    |  |       | 10,676  |   |  |   | 28,669   
|Multifamily residential loans                               |  |                        | 123,775  |    |                                   |   | 141,485  |                                     |  |   | 105,097         |    |  |       | 43,851  |   |  |   | 414,208  
|Commercial real estate loans                                |  |                        | 180,185  |    |                                   |   | 113,954  |                                     |  |   | 166,662         |    |  |       | 46,536  |   |  |   | 507,337  
|Consumer and other loans                                    |  |                        | 195      |    |                                   |   | 586      |                                     |  |   | 116             |    |  |       | 193     |   |  |   | 1,090    
|Other assets (1)                                            |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 41,179  |   |  |   | 41,179   
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Total assets                                                |  |                        | 372,479  |    |                                   |   | 364,862  |                                     |  |   | 393,327         |    |  |       | 220,540 |   |  |   | 1,351,208
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Liabilities:                                                |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Noninterest-bearing deposits                                |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 5,761   |   |  |   | 5,761    
|NOW and money market accounts (2)                           |  |                        | 78,649   |    |                                   |   |         |                                     |  |   |                |    |  |       |        |   |  |   | 78,649   
|Savings accounts                                            |  |                        | 3,605    |    |                                   |   |         |                                     |  |   |                |    |  |       |        |   |  |   | 3,605    
|Certificates of deposit                                     |  |                        | 354,132  |    |                                   |   | 224,434  |                                     |  |   | 33,905          |    |  |       |        |   |  |   | 612,471  
|Repurchase agreements                                       |  |                        | 30,000   |    |                                   |   | 10,000   |                                     |  |   |                |    |  |       |        |   |  |   | 40,000   
|FHLB advances                                               |  |                        | 231,500  |    |                                   |   | 141,337  |                                     |  |   | 90,000          |    |  |       |        |   |  |   | 462,837  
|Other liabilities                                           |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 14,718  |   |  |   | 14,718   
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Total liabilities                                           |  |                        | 697,886  |    |                                   |   | 375,771  |                                     |  |   | 123,905         |    |  |       | 20,479  |   |  |   | 1,218,041
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|(Deficiency) excess of assets over liabilities              |  | $                      | (325,407 | )  |                                   | $ | (10,909  | )                                   |  | $ | 269,422         |    |  | $     | 200,061 |   |  | $ | 133,167  
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess                              |  | $                      | (325,407 | )  |                                   | $ | (336,316 | )                                   |  | $ | (66,894         | )  |  | $     | 133,167 |   |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess as a percent of total assets |  |                        | (24.08   | )% |                                   |   | (24.89   | )%                                  |  |   | (4.95           | )% |  |       | 9.86    | % |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          

---

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

|(2) | Includes $16,454 of money market deposits held by BHBC and WFC. These deposits are eliminated in consolidation and are not reflected in the consolidated statement of financial
condition.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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

Evaluation of Controls and Procedures

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

Changes in internal controls

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



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION



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

The Company is involved in
binding arbitration with a former officer who, in June 2004, pursuant to a plea bargain, pleaded guilty to two felony counts in connection with certain criminal proceedings against him arising out of the financial collapse of Capital
Consultants LLC in 2000. As part of his plea bargain, the former officer agreed to pay restitution in the amount of $2.0 million. The former officer has made a claim against the Company for this amount, asserting that he is entitled to
indemnification under Delaware law. He subsequently made an additional claim for more than $10 million in consequential damages and losses purportedly incurred by him as a result of his guilty plea and subsequent incarceration. This claim was
based on various alleged damages such as loss of reputation, emotional distress, and interference with the former officers professional and personal relationships. The Company disagrees with these claims and is contesting the
claims vigorously. In addition, the Company is seeking to recover some of the legal expenses that it paid on behalf of the former officer. The arbitration was held in February 2006. The arbitrator dismissed the former officers claim against
the Company for consequential damages, and the Company expects the arbitrator to rule on the other claims toward the end of the second quarter of 2006. The Companys legal expenses for these matters are expected to decline significantly
following that ruling. 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.



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



|     |  |                                                                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Employment Agreement between Beverly Hills Bancorp Inc. and Larry B. Faigin dated March 7, 2006                                                
|     | 
|10.2 |  | Incentive Stock Option Agreement between Beverly Hills Bancorp Inc. and Larry B. Faigin dated January 3, 2006                                  
|     | 
|10.3 |  | Nonqualified Stock Option Agreement between Beverly Hills Bancorp Inc. and Larry B. Faigin dated January 3, 2006                               
|     | 
|31.1 |  | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                         
|     | 
|31.2 |  | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                         
|     | 
|32.1 |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|32.2 |  | Certification by the Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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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: May 5, 2006 |  |  |  |                           
|                  |  |  |  |                           
|                  |  |  |  |                            |  | By: |  | /s/    LARRY B. FAIGIN 
|                  |  |  |  |                            |  |     |  | Larry B. Faigin        
|                  |  |  |  |                            |  |     |  | Chief Executive Officer
|                  |  |  |  |                           
|                  |  |  |  |                            |  | By: |  | /s/    TAKEO K. SASAKI 
|                  |  |  |  |                            |  |     |  | Takeo K. Sasaki        
|                  |  |  |  |                            |  |     |  | Chief Financial Officer



28