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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark one)



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



For the quarterly period ended September 30, 2005



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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x  No



Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).

|Yes | No   x
|--- | ------



Applicable only to corporate issuers:



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



|                                        |  |                                
|--------------------------------------- |  | -------------------------------
|Class                                   |  | Outstanding at October 31, 2005
|Common Stock, par value $0.01 per share |  | 21,306,110 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                          |  | 7 
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 15
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 27
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 29
|           |  |                                                                                      
|PART II.   |  | OTHER INFORMATION                                                                     |  |   
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 30
|           |  |                                                                                      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 30
|           |  |                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 30
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 30
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 30
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 30
|           | 
|Signatures |  | 31                                                                                   



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(Dollars in thousands, except share data)



|                                                                                                                                                             |  |                    |           |   |                   |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                                             |  | September 30, 2005 |           |   | December 31, 2004 |  
|ASSETS                                                                                                                                                       |  |                    |           |   |                   |   |           |  
|Cash and cash equivalents                                                                                                                                    |  | $                  | 25,317    |   |                   | $ | 15,526    |  
|Mortgage-backed securities available for sale, at fair value                                                                                                 |  |                    | 344,658   |   |                   |   | 307,461   |  
|Investment securities available for sale, at fair value                                                                                                      |  |                    | 13,754    |   |                   |   | 13,819    |  
|Investment securities held to maturity, at amortized cost (fair value of $9,807 and $9,795)                                                                  |  |                    | 9,695     |   |                   |   | 9,657     |  
|Loans, net of allowance for loan losses of $7,104 and $7,277                                                                                                 |  |                    | 936,275   |   |                   |   | 915,383   |  
|Discounted loans, net of allowance for loan losses of $228 and $367                                                                                          |  |                    | 1,808     |   |                   |   | 1,587     |  
|Stock in Federal Home Loan Bank of San Francisco, at cost                                                                                                    |  |                    | 27,313    |   |                   |   | 22,681    |  
|Real estate owned, net                                                                                                                                       |  |                    | 62        |   |                   |   | 1,769     |  
|Leasehold improvements and equipment, net                                                                                                                    |  |                    | 1,503     |   |                   |   | 854       |  
|Accrued interest receivable                                                                                                                                  |  |                    | 6,150     |   |                   |   | 5,333     |  
|Deferred tax asset, net                                                                                                                                      |  |                    | 36,992    |   |                   |   | 37,412    |  
|Goodwill, net                                                                                                                                                |  |                    | 3,054     |   |                   |   | 3,054     |  
|Other intangible assets, net                                                                                                                                 |  |                    |          |   |                   |   | 129       |  
|Prepaid expenses and other assets                                                                                                                            |  |                    | 3,811     |   |                   |   | 3,449     |  
|                                                                                                                                                             |  |                    |           |   |                   |   |           |  
|TOTAL                                                                                                                                                        |  | $                  | 1,410,392 |   |                   | $ | 1,338,114 |  
|                                                                                                                                                             |  |                    |           |   |                   |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                         |  |                    |           |   |                   |   |           |  
|LIABILITIES:                                                                                                                                                 |  |                    |           |   |                   |   |           |  
|Noninterest-bearing deposits                                                                                                                                 |  | $                  | 4,928     |   |                   | $ | 4,473     |  
|Interest-bearing deposits                                                                                                                                    |  |                    | 569,657   |   |                   |   | 537,487   |  
|Repurchase agreements                                                                                                                                        |  |                    | 103,000   |   |                   |   | 120,000   |  
|Accounts payable and other liabilities                                                                                                                       |  |                    | 13,775    |   |                   |   | 10,559    |  
|FHLB advances                                                                                                                                                |  |                    | 525,837   |   |                   |   | 474,837   |  
|Junior subordinated notes payable to trust                                                                                                                   |  |                    | 20,619    |   |                   |   | 20,619    |  
|                                                                                                                                                             |  |                    |           |   |                   |   |           |  
|Total liabilities                                                                                                                                            |  |                    | 1,237,816 |   |                   |   | 1,167,975 |  
|                                                                                                                                                             |  |                    |           |   |                   |   |           |  
|COMMITMENTS AND CONTINGENCIES (NOTE 4)                                                                                                                       |  |                    |           |   |                   |   |           |  
|                                                                                                                                                             |  |                   
|STOCKHOLDERS EQUITY:                                                                                                                                        |  |                    |           |   |                   |   |           |  
|Preferred stock, $0.01 par value, 0 and 10,000,000 shares authorized, 0 shares outstanding                                                                   |  |                    |          |   |                   |   |          |  
|Common stock, $0.01 par value, 30,000,000 and 90,000,000 shares authorized, 26,945,478 and 26,777,554 shares issued (including treasury shares
of 5,639,368) |  |                    | 269       |   |                   |   | 268       |  
|Additional paid-in capital                                                                                                                                   |  |                    | 165,417   |   |                   |   | 164,740   |  
|Treasury stock, 5,639,368 shares, at cost                                                                                                                    |  |                    | (15,224   | ) |                   |   | (15,224   | )
|Retained earnings                                                                                                                                            |  |                    | 24,668    |   |                   |   | 21,442    |  
|Accumulated other comprehensive loss, net                                                                                                                    |  |                    | (2,554    | ) |                   |   | (1,087    | )
|                                                                                                                                                             |  |                    |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                                   |  |                    | 172,576   |   |                   |   | 170,139   |  
|                                                                                                                                                             |  |                    |           |   |                   |   |           |  
|TOTAL                                                                                                                                                        |  | $                  | 1,410,392 |   |                   | $ | 1,338,114 |  
|                                                                                                                                                             |  |                    |           |   |                   |   |           |  



See notes to unaudited
interim condensed consolidated financial statements



3



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in
thousands, except share data)



|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|---------------------------------------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                               |  | Three Months Ended September 30, |            |   | Nine Months Ended September 30, |  
|                                                                                               |  | 2005                             |            |   | 2004                            |   |            | 2005 |  |   | 2004       |  
|INTEREST INCOME:                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Loans                                                                                          |  | $                                | 14,205     |   |                                 | $ | 11,824     |      |  | $ | 41,307     |   |  | $ | 32,876     |  
|Mortgage-backed securities                                                                     |  |                                  | 3,846      |   |                                 |   | 3,351      |      |  |   | 10,848     |   |  |   | 8,841      |  
|Securities and federal funds sold                                                              |  |                                  | 438        |   |                                 |   | 288        |      |  |   | 1,217      |   |  |   | 863        |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Total interest income                                                                          |  |                                  | 18,489     |   |                                 |   | 15,463     |      |  |   | 53,372     |   |  |   | 42,580     |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|INTEREST EXPENSE:                                                                              |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Deposits                                                                                       |  |                                  | 4,665      |   |                                 |   | 3,033      |      |  |   | 12,044     |   |  |   | 9,424      |  
|Borrowings                                                                                     |  |                                  | 5,695      |   |                                 |   | 3,802      |      |  |   | 15,051     |   |  |   | 9,816      |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Total interest expense                                                                         |  |                                  | 10,360     |   |                                 |   | 6,835      |      |  |   | 27,095     |   |  |   | 19,240     |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|NET INTEREST INCOME                                                                            |  |                                  | 8,129      |   |                                 |   | 8,628      |      |  |   | 26,277     |   |  |   | 23,340     |  
|(RECAPTURE OF) PROVISION FOR LOSSES ON LOANS                                                   |  |                                  | (48        | ) |                                 |   | 338        |      |  |   | (52        | ) |  |   | 552        |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|NET INTEREST INCOME AFTER (RECAPTURE OF) PROVISION FOR LOSSES ON LOANS                         |  |                                  | 8,177      |   |                                 |   | 8,290      |      |  |   | 26,329     |   |  |   | 22,788     |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|OTHER INCOME:                                                                                  |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Loan related fees and charges                                                                  |  |                                  | 2,401      |   |                                 |   | 143        |      |  |   | 3,264      |   |  |   | 664        |  
|Deposit fees and charges                                                                       |  |                                  | 16         |   |                                 |   | 78         |      |  |   | 52         |   |  |   | 273        |  
|Gain (loss) on sales of loans, net                                                             |  |                                  | 13         |   |                                 |   | 7          |      |  |   | (8         | ) |  |   | 55         |  
|Gain on sale of securities, net                                                                |  |                                  |           |   |                                 |   | 113        |      |  |   |           |   |  |   | 386        |  
|Real estate owned, net                                                                         |  |                                  |           |   |                                 |   |           |      |  |   | 192        |   |  |   | 70         |  
|FHLB stock dividend income                                                                     |  |                                  | 285        |   |                                 |   | 213        |      |  |   | 795        |   |  |   | 507        |  
|Other income (loss), net                                                                       |  |                                  | 522        |   |                                 |   | (27        | )    |  |   | 596        |   |  |   | (1         | )
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Total other income                                                                             |  |                                  | 3,237      |   |                                 |   | 527        |      |  |   | 4,891      |   |  |   | 1,954      |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|OTHER EXPENSES:                                                                                |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Compensation and employee benefits                                                             |  |                                  | 1,911      |   |                                 |   | 1,594      |      |  |   | 5,675      |   |  |   | 4,988      |  
|Professional fees                                                                              |  |                                  | 718        |   |                                 |   | 857        |      |  |   | 2,346      |   |  |   | 2,484      |  
|Occupancy                                                                                      |  |                                  | 235        |   |                                 |   | 203        |      |  |   | 746        |   |  |   | 605        |  
|FDIC insurance premiums                                                                        |  |                                  | 85         |   |                                 |   | 127        |      |  |   | 252        |   |  |   | 352        |  
|Loan expenses                                                                                  |  |                                  | 76         |   |                                 |   | 13         |      |  |   | 272        |   |  |   | 114        |  
|Data processing                                                                                |  |                                  | 95         |   |                                 |   | 151        |      |  |   | 325        |   |  |   | 418        |  
|Insurance                                                                                      |  |                                  | 171        |   |                                 |   | 290        |      |  |   | 518        |   |  |   | 636        |  
|Depreciation                                                                                   |  |                                  | 92         |   |                                 |   | 75         |      |  |   | 238        |   |  |   | 261        |  
|Amortization of intangibles                                                                    |  |                                  |           |   |                                 |   | 65         |      |  |   | 129        |   |  |   | 194        |  
|Directors expense                                                                              |  |                                  | 149        |   |                                 |   | 93         |      |  |   | 419        |   |  |   | 473        |  
|Other general and administrative expense                                                       |  |                                  | 407        |   |                                 |   | 282        |      |  |   | 1,098      |   |  |   | 1,089      |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Total other expenses                                                                           |  |                                  | 3,939      |   |                                 |   | 3,750      |      |  |   | 12,018     |   |  |   | 11,614     |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION                                  |  |                                  | 7,475      |   |                                 |   | 5,067      |      |  |   | 19,202     |   |  |   | 13,128     |  
|INCOME TAX PROVISION                                                                           |  |                                  | 3,053      |   |                                 |   | 2,103      |      |  |   | 8,019      |   |  |   | 5,515      |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|INCOME FROM CONTINUING OPERATIONS                                                              |  |                                  | 4,422      |   |                                 |   | 2,964      |      |  |   | 11,183     |   |  |   | 7,613      |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|DISCONTINUED OPERATIONS (NOTE 3):                                                              |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|INCOME FROM OPERATIONS OF DISCONTINUED SEGMENT (INCLUDING GAIN ON DISPOSAL OF $18,516 IN 2004) |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   | 19,000     |  
|INCOME TAX PROVISION                                                                           |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   | 7,885      |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|INCOME FROM DISCONTINUED OPERATIONS                                                            |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   | 11,115     |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|NET INCOME                                                                                     |  | $                                | 4,422      |   |                                 | $ | 2,964      |      |  | $ | 11,183     |   |  | $ | 18,728     |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Earnings per share  basic:                                                                    |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations                                                              |  | $                                | 0.21       |   |                                 | $ | 0.14       |      |  | $ | 0.53       |   |  | $ | 0.37       |  
|Discontinued operations                                                                        |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   | 0.54       |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Net income                                                                                     |  | $                                | 0.21       |   |                                 | $ | 0.14       |      |  | $ | 0.53       |   |  | $ | 0.91       |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Earnings per share  diluted:                                                                  |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Income from continuing operations                                                              |  | $                                | 0.21       |   |                                 | $ | 0.14       |      |  | $ | 0.52       |   |  | $ | 0.36       |  
|Discontinued operations                                                                        |  |                                  |           |   |                                 |   |           |      |  |   |           |   |  |   | 0.52       |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Net income                                                                                     |  | $                                | 0.21       |   |                                 | $ | 0.14       |      |  | $ | 0.52       |   |  | $ | 0.88       |  
|                                                                                               |  |                                  |            |   |                                 |   |            |      |  |   |            |   |  |   |            |  
|Weighted average number of shares  basic                                                      |  |                                  | 21,243,550 |   |                                 |   | 21,136,519 |      |  |   | 21,187,687 |   |  |   | 20,650,550 |  
|Weighted average number of shares  diluted                                                    |  |                                  | 21,517,100 |   |                                 |   | 21,458,548 |      |  |   | 21,488,239 |   |  |   | 21,344,523 |  



See notes to unaudited
interim condensed consolidated financial statements



4



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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)



|                                                                                                         |  |                                 |          |   |      |   |          |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                                         |  | Nine Months Ended September 30, |         
|                                                                                                         |  | 2005                            |          |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                    |  |                                 |          |   |      |   |          |  
|Net income                                                                                               |  | $                               | 11,183   |   |      | $ | 18,728   |  
|Less: income from discontinued operations, net of taxes                                                  |  |                                 |         |   |      |   | (11,115  | )
|                                                                                                         |  |                                 |          |   |      |   |          |  
|                                                                                                         |  |                                 |          |   |      |   |          |  
|Income from continuing operations                                                                        |  |                                 | 11,183   |   |      |   | 7,613    |  
|Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |  |                                 |          |   |      |   |          |  
|(Recapture of) provision for estimated losses on loans                                                   |  |                                 | (52      | ) |      |   | 601      |  
|Provision for losses on real estate owned                                                                |  |                                 | 10       |   |      |   | 18       |  
|Change in valuation allowance for mortgage servicing rights                                              |  |                                 |         |   |      |   | 257      |  
|Depreciation and amortization                                                                            |  |                                 | 367      |   |      |   | 455      |  
|Deferred tax provision                                                                                   |  |                                 | 1,484    |   |      |   |         |  
|Gain on sale of real estate owned                                                                        |  |                                 | (214     | ) |      |   | (97      | )
|Loss (gain) on disposal of equipment                                                                     |  |                                 | 11       |   |      |   | (1       | )
|Loss (gain) on sale of loans                                                                             |  |                                 | 8        |   |      |   | (55      | )
|Gain on sale of securities                                                                               |  |                                 |         |   |      |   | (386     | )
|Gain on extinguishment of investor participation liability                                               |  |                                 | (404     | ) |      |   |         |  
|Amortization of discounts and deferred fees                                                              |  |                                 | 1,947    |   |      |   | 2,178    |  
|Amortization of mortgage servicing rights                                                                |  |                                 |         |   |      |   | 1,740    |  
|Federal Home Loan Bank stock dividends                                                                   |  |                                 | (713     | ) |      |   | (443     | )
|Change in:                                                                                               |  |                                 |          |   |      |   |          |  
|Servicer advance receivables                                                                             |  |                                 |         |   |      |   | (3,456   | )
|Service fees receivable                                                                                  |  |                                 |         |   |      |   | 182      |  
|Accrued interest receivable                                                                              |  |                                 | (817     | ) |      |   | (1,142   | )
|Receivables from other loan servicers                                                                    |  |                                 |         |   |      |   | 773      |  
|Prepaid expenses and other assets                                                                        |  |                                 | (362     | ) |      |   | (1,105   | )
|Accounts payable and other liabilities                                                                   |  |                                 | 2,566    |   |      |   | 3,958    |  
|Net cash used in operations of discontinued segment                                                      |  |                                 |         |   |      |   | 6,697    |  
|                                                                                                         |  |                                 |          |   |      |   |          |  
|Net cash provided by operating activities of continuing operations                                       |  |                                 | 15,014   |   |      |   | 17,787   |  
|                                                                                                         |  |                                 |          |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                    |  |                                 |          |   |      |   |          |  
|Purchase of loans                                                                                        |  |                                 | (105,425 | ) |      |   | (120,994 | )
|Loan repayments                                                                                          |  |                                 | 159,294  |   |      |   | 100,046  |  
|Loan originations                                                                                        |  |                                 | (75,494  | ) |      |   | (242,082 | )
|Purchase of mortgage-backed securities available for sale                                                |  |                                 | (112,508 | ) |      |   | (238,407 | )
|Repayments of mortgage-backed securities available for sale                                              |  |                                 | 72,350   |   |      |   | 99,180   |  
|Proceeds from sale of mortgage-backed securities available for sale                                      |  |                                 |         |   |      |   | 18,284   |  
|Proceeds from sale of investment securities available for sale                                           |  |                                 |         |   |      |   | 10,130   |  
|Purchases of FHLB stock                                                                                  |  |                                 | (3,919   | ) |      |   | (7,885   | )
|Proceeds from sale of real estate owned                                                                  |  |                                 | 2,031    |   |      |   | 1,016    |  
|Purchases of leasehold improvements and equipment                                                        |  |                                 | (900     | ) |      |   | (665     | )
|Proceeds from sale of leasehold improvements and equipment                                               |  |                                 | 2        |   |      |   | 7        |  
|Net proceeds from sale of discontinued operations                                                        |  |                                 |         |   |      |   | 48,709   |  
|Net cash provided by investing activities of discontinued segment                                        |  |                                 |         |   |      |   | (495     | )
|                                                                                                         |  |                                 |          |   |      |   |          |  
|Net cash used in investing activities of continuing operations                                           |  |                                 | (64,569  | ) |      |   | (333,156 | )
|                                                                                                         |  |                                 |          |   |      |   |          |  



See notes to unaudited
interim condensed consolidated financial statements



5



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)

(Unaudited)

(Dollars in thousands, except share data)



|                                                                                     |  |                                 |          |   |      |   |          |  
|------------------------------------------------------------------------------------ |  | ------------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                     |  | Nine Months Ended September 30, |         
|                                                                                     |  | 2005                            |          |   | 2004 |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                |  |                                 |          |   |      |   |          |  
|Net increase in deposits                                                             |  | $                               | 32,625   |   |      | $ | 81,437   |  
|Proceeds from FHLB advances                                                          |  |                                 | 286,000  |   |      |   | 440,800  |  
|Repayments of FHLB advances                                                          |  |                                 | (235,000 | ) |      |   | (241,300 | )
|(Decrease) increase in repurchase agreements                                         |  |                                 | (17,000  | ) |      |   | 34,000   |  
|Repayments of long-term financing                                                    |  |                                 |         |   |      |   | (1,871   | )
|Issuance of common stock                                                             |  |                                 | 373      |   |      |   | 3,237    |  
|Tax benefit from exercise of nonqualified stock options                              |  |                                 | 305      |   |      |   |         |  
|Dividends on common stock                                                            |  |                                 | (7,957   | ) |      |   | (5,284   | )
|Net cash provided by financing activities of discontinued segment                    |  |                                 |         |   |      |   | (5,810   | )
|                                                                                     |  |                                 |          |   |      |   |          |  
|Net cash provided by financing activities of continuing operations                   |  |                                 | 59,346   |   |      |   | 305,209  |  
|                                                                                     |  |                                 |          |   |      |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                 |  |                                 | 9,791    |   |      |   | (10,160  | )
|CASH AND CASH EQUIVALENTS:                                                           |  |                                 |          |   |      |   |          |  
|Beginning of period                                                                  |  |                                 | 15,526   |   |      |   | 18,739   |  
|                                                                                     |  |                                 |          |   |      |   |          |  
|End of period                                                                        |  | $                               | 25,317   |   |      | $ | 8,579    |  
|                                                                                     |  |                                 |          |   |      |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION  Cash paid during the period for: |  |                                 |          |   |      |   |          |  
|Interest                                                                             |  | $                               | 25,512   |   |      | $ | 18,070   |  
|Income taxes, net                                                                    |  |                                 | 5,104    |   |      |   | 422      |  
|NONCASH INVESTING ACTIVITIES:                                                        |  |                                 |          |   |      |   |          |  
|Additions to real estate owned acquired in settlement of loans                       |  |                                 | 120      |   |      |   | 2,104    |  
|NONCASH FINANCING ACTIVITIES:                                                        |  |                                 |          |   |      |   |          |  
|Extinguishment of investor participation liability                                   |  |                                 | 650      |   |      |   |         |  





See notes to unaudited interim condensed consolidated financial statements



6



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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 its subsidiaries (the
Company) are unaudited and should be read in conjunction with the Companys 2004 Annual Report on Form 10-K. A summary of the Companys significant accounting policies is set forth in Note 1 to the Consolidated Financial
Statements in such Annual Report on Form 10-K.



In the opinion
of management, all adjustments, generally comprised of normal recurring accruals necessary for a fair presentation of the interim condensed consolidated financial statements, have been included and all intercompany accounts and transactions have
been eliminated in consolidation. Operating results for the three and nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.



The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts and results could differ from those estimates. Certain reclassifications of 2004 amounts were made in order to conform to the 2005
presentation, none of which affected previously reported net income.



2.
PER-SHARE DATA



Basic earnings per share is computed by
dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and potentially dilutive stock
options outstanding during the period. Following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the three-month and nine-month periods ended September 30, 2005 and 2004.



|                                                                      |  |                                           |            |                                 |   |            |  |      |            |  |   |           
|--------------------------------------------------------------------- |  | ----------------------------------------- | ---------- | ------------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                                      |  | Three Months Ended September 30,          |            | Nine Months Ended September 30,
|                                                                      |  | 2005                                      |            | 2004                            |   | 2005       |  | 2004
|                                                                      |  | (Dollars in thousands, except share data)
|Income from continuing operations                                     |  | $                                         | 4,422      |                                 | $ | 2,964      |  | $    | 11,183     |  | $ | 7,613     
|Discontinued operations                                               |  |                                           |           |                                 |   |           |  |      |           |  |   | 11,115    
|                                                                      |  |                                           |            |                                 |   |            |  |      |            |  |   |           
|Net income                                                            |  | $                                         | 4,422      |                                 | $ | 2,964      |  | $    | 11,183     |  | $ | 18,728    
|                                                                      |  |                                           |            |                                 |   |            |  |      |            |  |   |           
|Weighted average number of common shares outstanding  basic          |  |                                           | 21,243,550 |                                 |   | 21,136,519 |  |      | 21,187,687 |  |   | 20,650,550
|Net effect of dilutive stock options  based on treasury stock method |  |                                           | 273,550    |                                 |   | 322,029    |  |      | 300,552    |  |   | 693,973   
|                                                                      |  |                                           |            |                                 |   |            |  |      |            |  |   |           
|Weighted average number of common shares outstanding  diluted        |  |                                           | 21,517,100 |                                 |   | 21,458,548 |  |      | 21,488,239 |  |   | 21,344,523
|                                                                      |  |                                           |            |                                 |   |            |  |      |            |  |   |           
|Earnings per share  basic:                                           |  |                                           |            |                                 |   |            |  |      |            |  |   |           
|Income from continuing operations                                     |  | $                                         | 0.21       |                                 | $ | 0.14       |  | $    | 0.53       |  | $ | 0.37      
|Discontinued operations                                               |  |                                           |           |                                 |   |           |  |      |           |  |   | 0.54      
|                                                                      |  |                                           |            |                                 |   |            |  |      |            |  |   |           
|Net income                                                            |  | $                                         | 0.21       |                                 | $ | 0.14       |  | $    | 0.53       |  | $ | 0.91      
|                                                                      |  |                                           |            |                                 |   |            |  |      |            |  |   |           
|Earnings per share  diluted:                                         |  |                                           |            |                                 |   |            |  |      |            |  |   |           
|Income from continuing operations                                     |  | $                                         | 0.21       |                                 | $ | 0.14       |  | $    | 0.52       |  | $ | 0.36      
|Discontinued operations                                               |  |                                           |           |                                 |   |           |  |      |           |  |   | 0.52      
|                                                                      |  |                                           |            |                                 |   |            |  |      |            |  |   |           
|Net income                                                            |  | $                                         | 0.21       |                                 | $ | 0.14       |  | $    | 0.52       |  | $ | 0.88      
|                                                                      |  |                                           |            |                                 |   |            |  |      |            |  |   |           



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the
market value of the underlying common stock on the date of grant. Had compensation expense for the Companys Equity Participation Plans been determined based on the fair value at the grant date consistent with the methods of Statement of
Financial Accounting Standards (SFAS) No. 123, the Companys net income and earnings per share for the quarter and nine months ended September 30, 2005 and 2004 would have been reduced to the pro-forma amounts indicated
below.



|                                                                                                                                          |  |                                           |       |                                 |   |       |  |      |        |  |   |       
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ----- | ------------------------------- | - | ----- |  | ---- | ------ |  | - | ------
|                                                                                                                                          |  | Three Months EndedSeptember 30,           |       | Nine Months Ended September 30,
|                                                                                                                                          |  | 2005                                      |       | 2004                            |   | 2005  |  | 2004
|                                                                                                                                          |  | (Dollars in thousands, except share data)
|Net income, as reported                                                                                                                   |  | $                                         | 4,422 |                                 | $ | 2,964 |  | $    | 11,183 |  | $ | 18,728
|Less: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax
effects |  |                                           | 62    |                                 |   | 123   |  |      | 208    |  |   | 367   
|                                                                                                                                          |  |                                           |       |                                 |   |       |  |      |        |  |   |       
|Pro forma net income                                                                                                                      |  | $                                         | 4,360 |                                 | $ | 2,841 |  | $    | 10,975 |  | $ | 18,361
|                                                                                                                                          |  |                                           |       |                                 |   |       |  |      |        |  |   |       
|Earnings per share  basic:                                                                                                               |  |                                           |       |                                 |   |       |  |      |        |  |   |       
|As reported                                                                                                                               |  | $                                         | 0.21  |                                 | $ | 0.14  |  | $    | 0.53   |  | $ | 0.91  
|                                                                                                                                          |  |                                           |       |                                 |   |       |  |      |        |  |   |       
|Pro forma                                                                                                                                 |  | $                                         | 0.21  |                                 | $ | 0.13  |  | $    | 0.52   |  | $ | 0.89  
|                                                                                                                                          |  |                                           |       |                                 |   |       |  |      |        |  |   |       
|Earnings per share  diluted:                                                                                                             |  |                                           |       |                                 |   |       |  |      |        |  |   |       
|As reported                                                                                                                               |  | $                                         | 0.21  |                                 | $ | 0.14  |  | $    | 0.52   |  | $ | 0.88  
|                                                                                                                                          |  |                                           |       |                                 |   |       |  |      |        |  |   |       
|Pro forma                                                                                                                                 |  | $                                         | 0.20  |                                 | $ | 0.13  |  | $    | 0.51   |  | $ | 0.86  
|                                                                                                                                          |  |                                           |       |                                 |   |       |  |      |        |  |   |       



3. SALE OF WILSHIRE CREDIT
CORPORATION



On April 30, 2004, the Company completed
the sale of its wholly owned mortgage servicing subsidiary, Wilshire Credit Corporation (WCC), to Merrill Lynch Mortgage Capital Inc. (Merrill Lynch) for a pre-tax gain of $18.5 million. (This gain was subsequently adjusted
to $18.0 million as of December 31, 2004.) Effective January 1, 2004, the Company began accounting for WCC as a disposal group held for sale in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. Accordingly, WCCs operating results for the nine months ended September 30, 2004, and the Companys gain on the sale of WCC, have been removed from the Companys results from continuing operations on the Consolidated
Statements of Operations, and are presented separately under the caption Discontinued operations.



8



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



The following table presents the operating results for WCC for the nine months ended
September 30, 2004. The amounts reflect WCCs results only for the four months prior to its sale on April 30, 2004.



|                                                     |  |                                      |        |  
|---------------------------------------------------- |  | ------------------------------------ | ------ | -
|                                                     |  | Nine Months Ended September 30, 2004 |       
|                                                     |  | (Dollars in thousands)               |       
|Interest income                                      |  | $                                    | (10    | )
|Interest expense                                     |  |                                      | 164    |  
|                                                     |  |                                      |        |  
|Net interest expense                                 |  |                                      | (174   | )
|Provision for loan losses                            |  |                                      | 49     |  
|                                                     |  |                                      |        |  
|Net interest expense after provision for loan losses |  |                                      | (223   | )
|Servicing income                                     |  |                                      | 11,754 |  
|Other income                                         |  |                                      | 699    |  
|Compensation and employee benefits expense           |  |                                      | 9,427  |  
|Other expenses                                       |  |                                      | 2,319  |  
|                                                     |  |                                      |        |  
|Income before income taxes                           |  |                                      | 484    |  
|Income tax provision                                 |  |                                      | 201    |  
|                                                     |  |                                      |        |  
|Net income                                           |  | $                                    | 283    |  
|                                                     |  |                                      |        |  



4. COMMITMENTS, CONTINGENCIES AND
OFF-BALANCE SHEET RISK



At September 30, 2005, the
Companys bank subsidiary, First Bank of Beverly Hills (FBBH, or the Bank), had outstanding commitments to fund $17.2 million of loans. In addition, the Bank had unfunded commitments under lines of credit of $0.4
million.



The Company continues to incur legal expenses on
behalf of former officers 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 $0.1 and $0.5 million, respectively, for the three
and nine months ended September 30, 2005, compared with $0.2 million and $0.7 million, respectively, for the corresponding 2004 periods (see Note 8  Legal Matters).



5. INCOME TAXES



The Company files consolidated federal and state income tax returns with its eligible subsidiaries. The Company recorded income tax provisions from
continuing operations of $3.1 million and $8.0 million, respectively, for the three and nine months ended September 30, 2005, compared with $2.1 million and $5.5 million, respectively, for the corresponding 2004 periods. A portion of the
Companys 2005 income tax provision is not expected to be currently payable in cash, due to the utilization of the Companys net operating loss carryforwards. 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 attributable to net operating loss carryforwards and also 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 $37.0 million and $37.4
million, respectively, at September 30, 2005 and December 31, 2004. In accounting for the deferred tax asset, the Company applies SFAS No. 109,



9



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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 the deferred tax assets and has recorded a valuation allowance of $6.8
million. The Company believes it is more likely than not that its net deferred tax asset of $37.0 million will be realized in future periods.



As of September 30, 2005, the Company had U.S. net operating loss carryforwards of approximately $96 million, and also had approximately $86 million
in state net operating loss carryforwards. The federal carryforward period runs through 2024. However, in June 2002 the Company experienced a change in control as defined by Section 382 of the Internal Revenue Code. In general, a change in
control is defined as a greater than 50% ownership shift as measured over the prior three-year period. 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 a limitation on the amount that may be used annually to offset taxable income. The Company has determined that the amount of this limitation is approximately $6 million per year and believes that its valuation allowance against the
deferred tax asset provides adequately for this limitation.



6. OPERATING
SEGMENTS



The Company reports segment data in accordance
with the accounting principles discussed in Note 1 to the Consolidated Financial Statements in the 2004 Annual Report on Form 10-K. As discussed in Note 3, the Company completed the sale of WCC, which comprised the Companys Loan Servicing
segment, to Merrill Lynch effective April 30, 2004. Accordingly, the operating results of WCC are presented separately under the caption Discontinued operations in the consolidated statements of operations for the nine months ended
September 30, 2004.



The operating segments differ in
terms of regulatory environment, funding sources and asset acquisition strategies, as described below:



| |  |  | Banking OperationsThrough FBBH, the Company conducts a banking business focused primarily on specialty-niche products tailored to commercial and multi-family real
estate lending, in addition to investments in primarily AAA-rated and government-sponsored enterprise (GSE) mortgage-backed securities. The primary sources of liquidity for the Banks loan purchases and originations are wholesale
certificates of deposit, retail deposits, Federal Home Loan Bank advances and repurchase agreements. On September 1, 2005, the Bank converted its charter from a federal charter to a state commercial bank charter and as a result is now regulated
by the California Department of Financial Institutions and the Federal Deposit Insurance Corporation.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Mortgage Investment OperationsThe Companys investment subsidiary, WFC Inc. (WFC), manages a portfolio of mortgage-backed securities and pools of
performing, sub-performing and non-performing residential and commercial loans. Prior to September 30, 2005, WFC conducted certain of these activities with an institutional investor where such investments aligned the Companys interests
with those of the institutional investor. Effective September 30, 2005, WFC acquired a 100% interest in the returns generated by those portfolios and, as a result, no longer shares the net cash flows with the co-investor. WFCs funding
sources have consisted primarily of commercial bank financing and co-investors, with debt service repayment terms that generally parallel the cash flows of the underlying collateral.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Holding Company and Miscellaneous OperationsThe Companys Holding Company and Miscellaneous Operations consist of other operating revenues and expenses not
directly attributable to the Companys defined business segments. In addition, this segment includes interest expense on the $20.6 million of junior subordinated notes payable issued in July 2002 and eliminations of intercompany accounts and
transactions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Segment data for the three months ended September 30, 2005 and 2004 are as follows:



|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|---------------------------------------------------------------------------- |  | ------------------------------------- | --------- | - | -------------------- | - | ------ | -------------------------------------------- |  | - | ------ | - |  | - | --------- | -
|                                                                             |  | Three Months Ended September 30, 2005 |          
|                                                                             |  | Banking                               |           |   | Mortgage Investments |   |        | Holding Company and Miscellaneous Operations |  |   | Total  |  
|                                                                             |  | (Dollars in thousands)                |          
|Interest income                                                              |  | $                                     | 18,247    |   |                      | $ | 224    |                                              |  | $ | 18     |   |  | $ | 18,489    |  
|Interest expense                                                             |  |                                       | 10,131    |   |                      |   |       |                                              |  |   | 229    |   |  |   | 10,360    |  
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net interest income (expense)                                                |  |                                       | 8,116     |   |                      |   | 224    |                                              |  |   | (211   | ) |  |   | 8,129     |  
|(Recapture of) provision for loan losses                                     |  |                                       | (91       | ) |                      |   | 43     |                                              |  |   |       |   |  |   | (48       | )
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net interest income (expense) after (recapture of) provision for loan losses |  |                                       | 8,207     |   |                      |   | 181    |                                              |  |   | (211   | ) |  |   | 8,177     |  
|Realized gains on sales                                                      |  |                                       |          |   |                      |   | 13     |                                              |  |   |       |   |  |   | 13        |  
|Other income                                                                 |  |                                       | 2,692     |   |                      |   | 532    |                                              |  |   |       |   |  |   | 3,224     |  
|Compensation and employee benefits expense                                   |  |                                       | 1,826     |   |                      |   |       |                                              |  |   | 85     |   |  |   | 1,911     |  
|Other expenses                                                               |  |                                       | 1,370     |   |                      |   | (1     | )                                            |  |   | 659    |   |  |   | 2,028     |  
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Income (loss) before taxes                                                   |  |                                       | 7,703     |   |                      |   | 727    |                                              |  |   | (955   | ) |  |   | 7,475     |  
|Income tax provision (benefit)                                               |  |                                       | 3,141     |   |                      |   | 303    |                                              |  |   | (391   | ) |  |   | 3,053     |  
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net income (loss)                                                            |  | $                                     | 4,562     |   |                      | $ | 424    |                                              |  | $ | (564   | ) |  | $ | 4,422     |  
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Total assets                                                                 |  | $                                     | 1,373,301 |   |                      | $ | 28,028 |                                              |  | $ | 9,063  |   |  | $ | 1,410,392 |  
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|                                                                             | 
|                                                                             |  | Three Months Ended September 30, 2004 |          
|                                                                             |  | Banking                               |           |   | Mortgage Investments |   |        | Holding Company and Miscellaneous Operations |  |   | Total  |  
|                                                                             |  | (Dollars in thousands)                |          
|Interest income                                                              |  | $                                     | 15,105    |   |                      | $ | 356    |                                              |  | $ | 2      |   |  | $ | 15,463    |  
|Interest expense                                                             |  |                                       | 6,553     |   |                      |   |       |                                              |  |   | 282    |   |  |   | 6,835     |  
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net interest income (expense)                                                |  |                                       | 8,552     |   |                      |   | 356    |                                              |  |   | (280   | ) |  |   | 8,628     |  
|Provision for loan losses                                                    |  |                                       | 338       |   |                      |   |       |                                              |  |   |       |   |  |   | 338       |  
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net interest income (expense) after provision for loan losses                |  |                                       | 8,214     |   |                      |   | 356    |                                              |  |   | (280   | ) |  |   | 8,290     |  
|Realized gains                                                               |  |                                       | 113       |   |                      |   | 7      |                                              |  |   |       |   |  |   | 120       |  
|Other income (loss)                                                          |  |                                       | 439       |   |                      |   | (35    | )                                            |  |   | 3      |   |  |   | 407       |  
|Compensation and employee benefits expense                                   |  |                                       | 1,501     |   |                      |   |       |                                              |  |   | 93     |   |  |   | 1,594     |  
|Other expenses                                                               |  |                                       | 1,277     |   |                      |   | (32    | )                                            |  |   | 911    |   |  |   | 2,156     |  
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Income (loss) before taxes                                                   |  |                                       | 5,988     |   |                      |   | 360    |                                              |  |   | (1,281 | ) |  |   | 5,067     |  
|Income tax provision (benefit)                                               |  |                                       | 2,485     |   |                      |   | 149    |                                              |  |   | (531   | ) |  |   | 2,103     |  
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net income (loss)                                                            |  | $                                     | 3,503     |   |                      | $ | 211    |                                              |  | $ | (750   | ) |  | $ | 2,964     |  
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Total assets                                                                 |  | $                                     | 1,278,742 |   |                      | $ | 21,870 |                                              |  | $ | (489   | ) |  | $ | 1,300,123 |  
|                                                                             |  |                                       |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  



11



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Segment data for the nine months ended September 30, 2005 and 2004 are as follows:



|                                                                             |  |                                      |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|---------------------------------------------------------------------------- |  | ------------------------------------ | --------- | - | -------------------- | - | ------ | -------------------------------------------- |  | - | ------ | - |  | - | --------- | -
|                                                                             |  | Nine Months Ended September 30, 2005 |          
|                                                                             |  | Banking                              |           |   | Mortgage Investments |   |        | Holding Company and Miscellaneous Operations |  |   | Total  |  
|                                                                             |  | (Dollars in thousands)               |          
|Interest income                                                              |  | $                                    | 52,625    |   |                      | $ | 692    |                                              |  | $ | 55     |   |  | $ | 53,372    |  
|Interest expense                                                             |  |                                      | 26,179    |   |                      |   |       |                                              |  |   | 916    |   |  |   | 27,095    |  
|                                                                             |  |                                      |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net interest income (expense)                                                |  |                                      | 26,446    |   |                      |   | 692    |                                              |  |   | (861   | ) |  |   | 26,277    |  
|(Recapture of) provision for loan losses                                     |  |                                      | (91       | ) |                      |   | 39     |                                              |  |   |       |   |  |   | (52       | )
|                                                                             |  |                                      |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net interest income (expense) after (recapture of) provision for loan losses |  |                                      | 26,537    |   |                      |   | 653    |                                              |  |   | (861   | ) |  |   | 26,329    |  
|Realized losses                                                              |  |                                      |          |   |                      |   | (8     | )                                            |  |   |       |   |  |   | (8        | )
|Other income                                                                 |  |                                      | 4,301     |   |                      |   | 547    |                                              |  |   | 51     |   |  |   | 4,899     |  
|Compensation and employee benefits expense                                   |  |                                      | 5,437     |   |                      |   |       |                                              |  |   | 238    |   |  |   | 5,675     |  
|Other expenses                                                               |  |                                      | 4,193     |   |                      |   | 55     |                                              |  |   | 2,095  |   |  |   | 6,343     |  
|                                                                             |  |                                      |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Income (loss) before taxes                                                   |  |                                      | 21,208    |   |                      |   | 1,137  |                                              |  |   | (3,143 | ) |  |   | 19,202    |  
|Income tax provision (benefit)                                               |  |                                      | 8,869     |   |                      |   | 477    |                                              |  |   | (1,327 | ) |  |   | 8,019     |  
|                                                                             |  |                                      |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net income (loss)                                                            |  | $                                    | 12,339    |   |                      | $ | 660    |                                              |  | $ | (1,816 | ) |  | $ | 11,183    |  
|                                                                             |  |                                      |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Total assets                                                                 |  | $                                    | 1,373,301 |   |                      | $ | 28,028 |                                              |  | $ | 9,063  |   |  | $ | 1,410,392 |  
|                                                                             |  |                                      |           |   |                      |   |        |                                              |  |   |        |   |  |   |           |  



|                                                              |  |                                      |           |                |   |                      |  |   |                                              |   |  |       |        |   |  |   |          
|------------------------------------------------------------- |  | ------------------------------------ | --------- | -------------- | - | -------------------- |  | - | -------------------------------------------- | - |  | ----- | ------ | - |  | - | ---------
|                                                              |  | Nine Months Ended September 30, 2004
|                                                              |  | Banking                              |           | Loan Servicing |   | Mortgage Investments |  |   | Holding Company and Miscellaneous Operations |   |  | Total
|                                                              |  | (Dollars in thousands)              
|Interest income                                               |  | $                                    | 41,301    |                | $ |                     |  | $ | 1,250                                        |   |  | $     | 29     |   |  | $ | 42,580   
|Interest expense                                              |  |                                      | 18,432    |                |   |                     |  |   | 13                                           |   |  |       | 795    |   |  |   | 19,240   
|                                                              |  |                                      |           |                |   |                      |  |   |                                              |   |  |       |        |   |  |   |          
|Net interest income (expense)                                 |  |                                      | 22,869    |                |   |                     |  |   | 1,237                                        |   |  |       | (766   | ) |  |   | 23,340   
|Provision for loan losses                                     |  |                                      | 438       |                |   |                     |  |   | 114                                          |   |  |       |       |   |  |   | 552      
|                                                              |  |                                      |           |                |   |                      |  |   |                                              |   |  |       |        |   |  |   |          
|Net interest income (expense) after provision for loan losses |  |                                      | 22,431    |                |   |                     |  |   | 1,123                                        |   |  |       | (766   | ) |  |   | 22,788   
|Realized gains                                                |  |                                      | 386       |                |   |                     |  |   | 55                                           |   |  |       |       |   |  |   | 441      
|Other income (loss)                                           |  |                                      | 1,587     |                |   |                     |  |   | (77                                          | ) |  |       | 3      |   |  |   | 1,513    
|Compensation and employee benefits expense                    |  |                                      | 4,514     |                |   |                     |  |   |                                             |   |  |       | 474    |   |  |   | 4,988    
|Other expenses                                                |  |                                      | 4,034     |                |   |                     |  |   | (2                                           | ) |  |       | 2,594  |   |  |   | 6,626    
|                                                              |  |                                      |           |                |   |                      |  |   |                                              |   |  |       |        |   |  |   |          
|Income (loss) from continuing operations before taxes         |  |                                      | 15,856    |                |   |                     |  |   | 1,103                                        |   |  |       | (3,831 | ) |  |   | 13,128   
|Income tax provision (benefit)                                |  |                                      | 6,580     |                |   |                     |  |   | 458                                          |   |  |       | (1,523 | ) |  |   | 5,515    
|                                                              |  |                                      |           |                |   |                      |  |   |                                              |   |  |       |        |   |  |   |          
|Income (loss) from continuing operations                      |  |                                      | 9,276     |                |   |                     |  |   | 645                                          |   |  |       | (2,308 | ) |  |   | 7,613    
|Discontinued operations:                                      |  |                                      |           |                |   |                      |  |   |                                              |   |  |       |        |   |  |   |          
|Income from operations of discontinued segment                |  |                                      |          |                |   | 484                  |  |   |                                             |   |  |       |       |   |  |   | 484      
|Gain on sale of discontinued segment                          |  |                                      |          |                |   |                     |  |   |                                             |   |  |       | 18,516 |   |  |   | 18,516   
|Income tax provision                                          |  |                                      |          |                |   | 201                  |  |   |                                             |   |  |       | 7,684  |   |  |   | 7,885    
|                                                              |  |                                      |           |                |   |                      |  |   |                                              |   |  |       |        |   |  |   |          
|Income from discontinued operations                           |  |                                      |          |                |   | 283                  |  |   |                                             |   |  |       | 10,832 |   |  |   | 11,115   
|                                                              |  |                                      |           |                |   |                      |  |   |                                              |   |  |       |        |   |  |   |          
|Net income                                                    |  | $                                    | 9,276     |                | $ | 283                  |  | $ | 645                                          |   |  | $     | 8,524  |   |  | $ | 18,728   
|                                                              |  |                                      |           |                |   |                      |  |   |                                              |   |  |       |        |   |  |   |          
|Total assets                                                  |  | $                                    | 1,278,742 |                | $ |                     |  | $ | 21,870                                       |   |  | $     | (489   | ) |  | $ | 1,300,123
|                                                              |  |                                      |           |                |   |                      |  |   |                                              |   |  |       |        |   |  |   |          



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



7. GOODWILL AND INTANGIBLE ASSETS



In June 2000, the Bank acquired a branch location and recorded goodwill of $3.4 million and a core deposit intangible of
$1.3 million. Through December 31, 2001, the goodwill was amortized on a straight-line basis over an estimated useful life of 15 years. In January 2002 the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, and, as
a result, no longer amortizes goodwill, but tests it at least annually for impairment. The Company continued to amortize the core deposit intangible over an estimated useful life of 5 years and had amortized it in full as of June 30, 2005.



Following is a summary of the Companys goodwill and
intangible assets:



|                        |  |                          |       |                          |                         |        |                       |  |                          |       |  |   |        |  
|----------------------- |  | ------------------------ | ----- | ------------------------ | ----------------------- | ------ | --------------------- |  | ------------------------ | ----- |  | - | ------ | -
|                        |  | As of September 30, 2005 |       |                          | As of December 31, 2004 |       
|                        |  | Gross Carrying Amount    |       | Accumulated Amortization |                         |        | Gross Carrying Amount |  | Accumulated Amortization |      
|                        |  | (Dollars in thousands)   |      
|Goodwill                |  | $                        | 3,393 |                          | $                       | (339   | )                     |  | $                        | 3,393 |  | $ | (339   | )
|Core deposit intangible |  |                          | 1,294 |                          |                         | (1,294 | )                     |  |                          | 1,294 |  |   | (1,165 | )
|                        |  |                          |       |                          |                         |        |                       |  |                          |       |  |   |        |  
|Total                   |  | $                        | 4,687 |                          | $                       | (1,633 | )                     |  | $                        | 4,687 |  | $ | (1,504 | )
|                        |  |                          |       |                          |                         |        |                       |  |                          |       |  |   |        |  



The Company recorded
amortization expense of $129,000 related to the core deposit intangible for the six months ended June 30, 2005. As of June 30, 2005, the core deposit intangible no longer had a carrying value.



There were no changes in the carrying value of goodwill during the quarter
ended September 30, 2005. The Company tested goodwill for impairment as of March 31, 2005 and determined that no impairment charge was required.



8. LEGAL MATTERS



In June 2004, a former officer of the Company, 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 CCL. As part of this 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. The Company disagrees with this assertion and is contesting the claim. In addition, the Company is seeking to recover some of the legal expenses that it paid on
behalf of the former officer in previous years.



In April 2005,
the above-referenced former officer filed a counterclaim for indemnity against the Company for consequential damages and losses purportedly incurred by the former officer as a result of his guilty plea and subsequent incarceration. This counterclaim
alleges various damages such as loss of reputation, emotional distress, and interference with the former officers professional and personal relationships. The amount of the indemnification sought by the former officer is expected to exceed $10
million. The Company disagrees with this assertion and plans to contest the counterclaim vigorously.



The Company is not currently able to quantify the impact, if any, that the outcome of the above actions may have on its financial condition or results of
operations.



In June and July 2005, WCC made demands on the
Company for reimbursement of certain costs purportedly incurred by WCC in connection with WCCs performance under one of its loan servicing contracts. WCC further asserted that the Company is obligated to reimburse WCC for similar recurring
costs it may incur through April



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



2008. The Company disagrees with this assertion. Accordingly, in July 2005 the Company filed a complaint for declaratory relief (the Complaint)
against Merrill Lynch and WCC with the Superior Court of the State of California. 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 damages. Management, after consultation with legal counsel, and based on prior experience with
consumer claims, 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 and $8.0 million, respectively, for the three and nine months ended
September 30, 2005. 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, unless the context indicates otherwise.



Beverly Hills Bancorp Inc. (BHBC) is a financial holding company that conducts banking and lending operations in southern California and surrounding states through its wholly owned subsidiary, First Bank of Beverly
Hills (FBBH or the Bank), and mortgage investment operations through its investment subsidiary, WFC Inc. (WFC). Our business strategy is focused on the growth and profitability of our bank subsidiary, FBBH,
through (1) originations and purchases of commercial real estate and multi-family mortgage loans and (2) investments in primarily AAA-rated and government-sponsored enterprise (GSE) mortgage-backed securities. On
September 1, 2005, the Bank converted its charter from a federal savings and loan charter to a California state commercial bank charter, and as a result its primary regulators are the California Department of Financial Institutions
(DFI) and the Federal Deposit Insurance Corporation (FDIC). Management believes that a state bank charter is better aligned with the Banks strategic business plan, by providing FBBH with greater flexibility in its
lending operations and increased opportunities for growth.



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, 2004.
There were no changes to our Critical Accounting Policies and Estimates in the three months ended September 30, 2005.



RESULTS OF OPERATIONSTHREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2004



Our net income for the three months ended September 30, 2005 was $4.4
million, or $0.21 per diluted share, compared with net income of $3.0 million, or $0.14 per diluted share, for the three months ended September 30, 2004.



For the nine months ended September 30, 2005, our net income was $11.2 million, or $0.52 per diluted share, compared with income from continuing
operations of $7.6 million, or $0.36 per diluted share, for the nine months ended September 30, 2004. Total net income for the first nine months of 2004, including discontinued operations, was $18.7 million, or $0.88 per diluted share.



Our consolidated results for the first nine months of 2004
included a pre-tax gain of $18.5 million (subsequently adjusted to $18.0 million) on the sale of our former loan servicing subsidiary, Wilshire Credit Corporation (WCC). Our income from continuing operations, excluding the operating
results of WCC and the gain on its sale, increased by 47%, from $7.6 for the nine months ended September 30, 2004 to $11.2 million for the nine months ended September 30, 2005.



Pre-tax income from continuing operations increased from $5.1 million for the third quarter of 2004 to $7.5 million for the
third quarter of 2005, and from $13.1 million for the nine months ended September 30, 2004 to $19.2 million for the nine months ended September 30, 2005. The income tax provision of $8.0 million for the first nine months of 2005 includes
approximately $2.0 million that is not expected to be currently payable in cash due to the utilization of our net operating loss carryforward.



The increase in income for the third quarter of 2005 over the third quarter of 2004 reflects a $2.3 million increase in loan fees and charges, primarily
as a result of early loan payoffs. In addition, we recorded $48,000 in



15



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##### Table of Contents

loan loss recaptures during the quarter, compared with a provision for loan losses of $0.3 million for the third quarter of 2004. Partially offsetting these
increases in income was a decline in net interest income of $0.5 million, reflecting accelerated premium amortization associated with loan prepayments combined with a narrowing of the net interest margin.



Our results for the nine months ended September 30, 2005 versus the
comparable 2004 period reflect a $2.9 million increase in net interest income, a $2.9 million increase in other income, and $52,000 in loan loss recaptures compared with a loan loss provision of $0.6 million for the first nine months of 2004. These
increases in income were partially offset by a $0.4 million increase in operating expenses.



Net Interest Income



The following tables set forth, for the periods indicated, information regarding the total amount of the Companys income from interest-earning assets and the resulting average yields, the interest expense associated with
interest-bearing liabilities and the resulting average rate, the 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 EndedSeptember 30, 2005 |           |   | Three Months EndedSeptember 30, 2004 |  
|                                           |  | Average Balance                      |           |   | Interest                             |   | Annualized Yield/Rate |  |      | Average Balance |  |   | Interest  |   | Annualized Yield/Rate |  
|                                           |  | (Dollars in thousands)               |          
|Interest-Earning Assets:                   |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Investment securities and other            |  | $                                    | 42,817    |   |                                      | $ | 438                   |  | 4.00 | %               |  | $ | 29,475    |   |                       | $ | 288    |  | 3.82 | %
|Mortgage-backed securities                 |  |                                      | 348,656   |   |                                      |   | 3,846                 |  | 4.41 | %               |  |   | 329,896   |   |                       |   | 3,351  |  | 3.97 | %
|Loans(1)(2)(3)                             |  |                                      | 965,390   |   |                                      |   | 14,205                |  | 5.76 | %               |  |   | 882,918   |   |                       |   | 11,824 |  | 5.24 | %
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-earning assets              |  |                                      | 1,356,863 |   |                                      |   | 18,489                |  | 5.41 | %               |  |   | 1,242,289 |   |                       |   | 15,463 |  | 4.87 | %
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-earning cash                   |  |                                      | 1,953     |   |                                      |   |                       |  |      |                 |  |   | 4,329     |   |                       |   |        |  |      |  
|Allowance for loan losses                  |  |                                      | (7,391    | ) |                                      |   |                       |  |      |                 |  |   | (35,418   | ) |                       |   |        |  |      |  
|Other assets                               |  |                                      | 78,469    |   |                                      |   |                       |  |      |                 |  |   | 54,364    |   |                       |   |        |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total assets                               |  | $                                    | 1,429,894 |   |                                      |   |                       |  |      |                 |  | $ | 1,265,564 |   |                       |   |        |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-bearing deposits                  |  | $                                    | 565,433   |   |                                      | $ | 4,665                 |  | 3.27 | %               |  | $ | 578,648   |   |                       | $ | 3,033  |  | 2.09 | %
|Repurchase agreements                      |  |                                      | 106,750   |   |                                      |   | 870                   |  | 3.23 | %               |  |   | 93,750    |   |                       |   | 592    |  | 2.51 | %
|FHLB advances                              |  |                                      | 546,587   |   |                                      |   | 4,439                 |  | 3.22 | %               |  |   | 408,437   |   |                       |   | 2,929  |  | 2.85 | %
|Other borrowings                           |  |                                      | 20,619    |   |                                      |   | 386                   |  | 7.43 | %               |  |   | 20,619    |   |                       |   | 281    |  | 5.42 | %
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                      | 1,239,389 |   |                                      |   | 10,360                |  | 3.32 | %               |  |   | 1,101,454 |   |                       |   | 6,835  |  | 2.47 | %
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                      | 4,460     |   |                                      |   |                       |  |      |                 |  |   | 4,789     |   |                       |   |        |  |      |  
|Other liabilities                          |  |                                      | 13,478    |   |                                      |   |                       |  |      |                 |  |   | 18,959    |   |                       |   |        |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities                          |  |                                      | 1,257,327 |   |                                      |   |                       |  |      |                 |  |   | 1,125,202 |   |                       |   |        |  |      |  
|Stockholders equity                       |  |                                      | 172,567   |   |                                      |   |                       |  |      |                 |  |   | 140,362   |   |                       |   |        |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                                    | 1,429,894 |   |                                      |   |                       |  |      |                 |  | $ | 1,265,564 |   |                       |   |        |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest income                        |  |                                      |           |   |                                      | $ | 8,129                 |  |      |                 |  |   |           |   |                       | $ | 8,628  |  |      |  
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest spread                        |  |                                      |           |   |                                      |   |                       |  | 2.09 | %               |  |   |           |   |                       |   |        |  | 2.40 | %
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest margin                        |  |                                      |           |   |                                      |   |                       |  | 2.38 | %               |  |   |           |   |                       |   |        |  | 2.76 | %
|                                           |  |                                      |           |   |                                      |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  

---

|(1) | It is the Companys policy to discontinue the accrual of interest on loans that are over 90 days past due, or at any time when, in the judgment of management, the probability
of collection of interest is deemed to be insufficient to warrant further accrual. Upon such a determination, those loans are placed on non-accrual status and deemed to be non-performing. When a loan is placed on non-accrual status, previously
accrued but unpaid interest is reversed by a charge to interest income.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | Interest income on loans includes $43 in net amortization of deferred loan costs for the quarter ended September 30, 2005, and accretion of loan fees of $15 for the quarter
ended September 30, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Interest on loans for the three months ended September 30, 2005 included $0.9 million in loan premium amortization triggered by early prepayments. This accelerated premium
amortization reduced the net interest margin by approximately 26 basis points for the quarter.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|------------------------------------------ |  | ----------------------------------- | --------- | - | ----------------------------------- | - | --------------------- |  | ---- | --------------- |  | - | --------- | - | --------------------- | - | ------ |  | ---- | -
|                                           |  | Nine Months EndedSeptember 30, 2005 |           |   | Nine Months EndedSeptember 30, 2004 |  
|                                           |  | Average Balance                     |           |   | Interest                            |   | Annualized Yield/Rate |  |      | Average Balance |  |   | Interest  |   | Annualized Yield/Rate |  
|                                           |  | (Dollars in thousands)              |          
|Interest-Earning Assets:                   |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Investment securities and other            |  | $                                   | 43,668    |   |                                     | $ | 1,217                 |  | 3.68 | %               |  | $ | 38,185    |   |                       | $ | 863    |  | 2.97 | %
|Mortgage-backed securities                 |  |                                     | 333,718   |   |                                     |   | 10,848                |  | 4.33 | %               |  |   | 294,114   |   |                       |   | 8,841  |  | 3.95 | %
|Loans(1)(2)                                |  |                                     | 941,289   |   |                                     |   | 41,307                |  | 5.79 | %               |  |   | 800,817   |   |                       |   | 32,876 |  | 5.39 | %
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-earning assets              |  |                                     | 1,318,675 |   |                                     |   | 53,372                |  | 5.34 | %               |  |   | 1,133,116 |   |                       |   | 42,580 |  | 4.94 | %
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-earning cash                   |  |                                     | 2,213     |   |                                     |   |                       |  |      |                 |  |   | 5,235     |   |                       |   |        |  |      |  
|Allowance for loan losses                  |  |                                     | (8,645    | ) |                                     |   |                       |  |      |                 |  |   | (37,473   | ) |                       |   |        |  |      |  
|Other assets                               |  |                                     | 76,077    |   |                                     |   |                       |  |      |                 |  |   | 72,212    |   |                       |   |        |  |      |  
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total assets                               |  | $                                   | 1,388,320 |   |                                     |   |                       |  |      |                 |  | $ | 1,173,090 |   |                       |   |        |  |      |  
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-bearing deposits                  |  | $                                   | 549,622   |   |                                     | $ | 12,044                |  | 2.93 | %               |  | $ | 569,376   |   |                       | $ | 9,424  |  | 2.21 | %
|Repurchase agreements                      |  |                                     | 123,900   |   |                                     |   | 2,833                 |  | 3.06 | %               |  |   | 83,800    |   |                       |   | 1,564  |  | 2.49 | %
|FHLB advances                              |  |                                     | 504,537   |   |                                     |   | 11,146                |  | 2.95 | %               |  |   | 339,677   |   |                       |   | 7,445  |  | 2.93 | %
|Other borrowings                           |  |                                     | 20,619    |   |                                     |   | 1,072                 |  | 6.95 | %               |  |   | 20,882    |   |                       |   | 807    |  | 5.16 | %
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                     | 1,198,678 |   |                                     |   | 27,095                |  | 3.02 | %               |  |   | 1,013,735 |   |                       |   | 19,240 |  | 2.54 | %
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                     | 4,364     |   |                                     |   |                       |  |      |                 |  |   | 4,080     |   |                       |   |        |  |      |  
|Other liabilities                          |  |                                     | 13,469    |   |                                     |   |                       |  |      |                 |  |   | 20,903    |   |                       |   |        |  |      |  
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities                          |  |                                     | 1,216,511 |   |                                     |   |                       |  |      |                 |  |   | 1,038,718 |   |                       |   |        |  |      |  
|Stockholders equity                       |  |                                     | 171,809   |   |                                     |   |                       |  |      |                 |  |   | 134,372   |   |                       |   |        |  |      |  
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                                   | 1,388,320 |   |                                     |   |                       |  |      |                 |  | $ | 1,173,090 |   |                       |   |        |  |      |  
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest income                        |  |                                     |           |   |                                     | $ | 26,277                |  |      |                 |  |   |           |   |                       | $ | 23,340 |  |      |  
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest spread                        |  |                                     |           |   |                                     |   |                       |  | 2.32 | %               |  |   |           |   |                       |   |        |  | 2.40 | %
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest margin                        |  |                                     |           |   |                                     |   |                       |  | 2.66 | %               |  |   |           |   |                       |   |        |  | 2.75 | %
|                                           |  |                                     |           |   |                                     |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  

---

|(1) | Interest income on loans includes the accretion of loan fees of $112 and $54, respectively, for the nine months ended September 30, 2005 and 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Interest on loans for the nine months ended September 30, 2005 included $0.9 million in loan premium amortization in the third quarter of 2005. This accelerated premium
amortization reduced the net interest margin by approximately 9 basis points for the nine-month period.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Net interest income was $8.1 million for the third quarter of 2005, compared with $8.6 million for the third quarter of 2004. For the nine months ended
September 30, 2005, net interest income was $26.3 million, compared with $23.3 million for the nine months ended September 30, 2004.



The net interest margin declined by 38 basis points, to 2.38% for the third quarter of 2005 from 2.76% for the third quarter of 2004. For the nine months
ended September 30, 2005, the net interest margin was 2.66%, compared with 2.76% for the corresponding 2004 period.



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The decrease in net interest income in the third quarter of 2005 as compared with the third quarter of
2004 was primarily attributable to a substantial increase in our cost of funds, reflecting the rise in market interest rates. As older and lower-costing deposits and borrowings matured, they were replaced with higher-costing funds. We anticipate
that the net interest margin may narrow further in future periods if interest rates continue to rise and the yield curve continues to flatten. Net interest income for the quarter also was negatively impacted by $0.9 million in amortization of
premiums on loans triggered by early repayments. This additional premium amortization reduced the interest margin by approximately 26 basis points for the quarter. (These early loan prepayments also caused a significant increase in the Banks
income from Loan feessee Loan Fees and Charges.)



The increase in net interest income from the nine months ended September 30, 2004 to the nine months ended September 30, 2005 was due primarily to an increase in the average loan volume in 2005, which more than offset an increase
in the cost of funds. The average balance of the interest-earning portfolio for the nine months ended September 30, 2005 exceeded $1.3 billion, an increase of nearly $200 million over the corresponding 2004 period. This increase in
earning-asset volume reflects the Banks significant loan originations throughout 2004, utilizing primarily borrowings and, to a lesser extent, deposits as funding sources. As discussed further below, loan origination activity has declined
throughout 2005.



Interest income on mortgage-backed securities
was $3.8 million for the third quarter of 2005, compared with $3.4 million for the third quarter of 2004. For the nine months ended September 30, 2005, interest on mortgage-backed securities totaled $10.8 million, compared with $8.8 million for
the nine months ended September 30, 2004. The increase in 2005 reflects primarily 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 44 basis points from the third quarter of 2004 to the third quarter of 2005, and by 38 basis points from the nine months ended September 30, 2004 to the corresponding 2005 period. To
a lesser extent, the increase in interest income reflects an increase in the average investment balance, primarily as a result of the Banks purchases of $238.4 million of mortgage-backed securities in 2004.



Interest income on loans was $14.2 million for the quarter ended
September 30, 2005, compared with $11.8 million for the quarter ended September 30, 2004. For the nine months ended September 30, 2005, interest on loans totaled $41.3 million, compared with $32.9 million for the nine months ended
September 30, 2004. The increases in the 2005 periods were due to (i) an increase in the average balance of loans, reflecting the Banks significant loan originations and purchases throughout 2004, the effects of which were realized
in 2005 and (ii) increases in the weighted average yield on the loan portfolio of 52 basis points and 40 basis points, respectively, in the three and nine months ended September 2005 over the corresponding 2004 periods due to increasing market
interest rates. The increase in volume and higher yields more than offset the effects of the accelerated loan premium amortization described above. The Banks loan fundings have slowed throughout 2005, primarily due to the increase in interest
rates, which reduced the number of refinancings, and also due to increasing competitiveness in loan pricing. Consequently, the Bank has focused on increasing its loan acquisition activity. In the first three quarters of 2005, the Bank purchased an
aggregate of $105.4 million unpaid principal balance of multi-family and commercial loans, including one multi-family loan portfolio consisting of 109 loans with a total unpaid principal balance of $52.7 million. As of September 30, 2005, the
Banks pipeline of loans in process totaled $120.5 million.



Interest expense on deposits was $4.7 million for the quarter ended September 30, 2005, compared with $3.0 million for the quarter ended September 30, 2004. For the nine months ended September 30, 2005, interest on deposits
totaled $12.0 million, compared with $9.4 million for the corresponding 2004 period. The increases in the 2005 periods were due to the higher market interest rates, which raised the cost of the Banks interest-bearing deposits by 118 basis
points from the third quarter of 2004 to the third quarter of 2005, and by 72 basis points from the first nine months of 2004 to the first nine months of 2005. These increases in cost were partially offset by a decline in the Banks average
volume of interest-bearing deposits from 2004 to 2005. Beginning in the second quarter of 2004, after receiving a deposit of $52 million from BHBC representing primarily the gross



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proceeds from the sale of WCC, the Bank increasingly utilized borrowing facilities as its primary funding source, and permitted the run-off of its
higher-costing certificates of deposit.



Interest expense on
borrowings, consisting of repurchase agreements, Federal Home Loan Bank (FHLB) advances and subordinated debt, totaled $5.7 million for the third quarter of 2005, compared with $3.8 million for the third quarter of 2004. For the nine
months ended September 30, 2005, interest expense on borrowings was $15.1 million, compared with $9.8 million for the first nine months of 2004. These increases were due primarily to a significant increase in the average balance of outstanding
borrowings. As discussed above, in the latter half of 2004 the Bank began to utilize its debt facilities in lieu of certificates of deposit to finance its asset growth. The increase in interest on borrowings also reflects the recent increases in
market interest rates, which raised the Banks average cost of repurchase agreements by 72 basis points from the third quarter of 2004 to the third quarter of 2005, and by 57 basis points from the first nine months of 2004 to the first nine
months of 2005. Similarly, the Banks cost of FHLB advances increased by 37 basis points from the third quarter of 2004 to the third quarter of 2005. For the nine months ended September 30, 2005, the cost of FHLB advances increased by only
2 basis points over the corresponding 2004 period, due to the maturity of some of the Banks higher-costing advances in late 2004 and early 2005.



Provision for Loan Losses



Provisions for losses on loans are charged to operations to maintain an allowance for losses on the loan portfolio at a level which the Company believes
is adequate based on an evaluation of the inherent risks in the portfolio. Our evaluation is based on an analysis of the loan portfolio, historical loss experience, credit concentrations, current economic conditions and trends, the effects of
interest rate changes on collateral values, and other relevant factors. The evaluation of the inherent loss with respect to these factors is subject to a higher degree of uncertainty because they are not identified with specific problem credits or
portfolio components. Management currently intends 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 $43,000 on WFCs portfolio of discounted loans in the third quarter of 2005. This provision was more than offset by the Banks recapture of $91,000 of loan losses previously taken. For the
nine months ended September 30, 2005, we recorded net loan loss recaptures of $52,000. In 2004, we recorded provisions for loan losses of $0.3 million and $0.6 million, respectively, for the quarter and nine months ended September 30.



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.



Gain on Sale of Securities



We realized a net gain of $0.1 million on sales of $10.3 million in mortgage-backed securities in the third quarter of 2004 and net gains totaling $0.4
million on sales of $28.0 million of mortgage-backed securities for the nine months ended September 30, 2004. There was no such sales activity in the first three quarters of 2005.



Net gains on sales of securities are generated primarily in declining interest rate environments. Accordingly, gains or
losses from sales of securities may fluctuate significantly from period to period, and the results in any period are not necessarily indicative of the results that may be attained in future periods.



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Loan Fees and Charges



Loan fees and charges increased significantly in 2005 as a result of early prepayments on loans. We recorded prepayment fees
of $2.4 million for the quarter ended September 30, 2005, compared with $0.1 million for the quarter ended September 30, 2004. The Banks third quarter 2005 activity included $1.8 million in fees pursuant to a single prepayment in
August. This prepayment also triggered $0.6 million in amortization of loan premium, which reduced our net interest income as discussed earlier. For the nine months ended September 30, 2005, loan fees and charges totaled $3.3 million, compared
with $0.7 million for the nine months ended September 30, 2004.



Other Expenses



The Companys
other operating expenses for the three months and nine months ended September 30, 2005 and 2004 consisted of the following:



|                                         |  |                                 |       |                                |   |       |  |      |        |  |   |       
|---------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ------ |  | - | ------
|                                         |  | Three Months EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|                                         |  | 2005                            |       | 2004                           |   | 2005  |  | 2004
|                                         |  | (Dollars in thousands)         
|Compensation and employee benefits       |  | $                               | 1,911 |                                | $ | 1,594 |  | $    | 5,675  |  | $ | 4,988 
|Professional fees                        |  |                                 | 718   |                                |   | 857   |  |      | 2,346  |  |   | 2,484 
|Occupancy                                |  |                                 | 235   |                                |   | 203   |  |      | 746    |  |   | 605   
|FDIC insurance premiums                  |  |                                 | 85    |                                |   | 127   |  |      | 252    |  |   | 352   
|Loan expenses                            |  |                                 | 76    |                                |   | 13    |  |      | 272    |  |   | 114   
|Data processing                          |  |                                 | 95    |                                |   | 151   |  |      | 325    |  |   | 418   
|Insurance                                |  |                                 | 171   |                                |   | 290   |  |      | 518    |  |   | 636   
|Depreciation                             |  |                                 | 92    |                                |   | 75    |  |      | 238    |  |   | 261   
|Amortization of intangibles              |  |                                 |      |                                |   | 65    |  |      | 129    |  |   | 194   
|Directors expense                        |  |                                 | 149   |                                |   | 93    |  |      | 419    |  |   | 473   
|Other general and administrative expense |  |                                 | 407   |                                |   | 282   |  |      | 1,098  |  |   | 1,089 
|                                         |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Total other expenses                     |  | $                               | 3,939 |                                | $ | 3,750 |  | $    | 12,018 |  | $ | 11,614
|                                         |  |                                 |       |                                |   |       |  |      |        |  |   |       



Compensation and
employee benefits expense increased by $0.3 million from the third quarter of 2004 to the third quarter of 2005, and by $0.7 million from the nine months ended September 30, 2004 to the nine months ended September 30, 2005. These increases
were due to higher staffing levels in 2005, primarily as a result of an increase in the Banks lending staff and the opening of the Banks new branch at its Calabasas offices. Partially offsetting these increases was a decrease in
incentive compensation, as a result of a decline in loan fundings in 2005 as compared with 2004.



Our legal expenses (included in Professional fees in the table) increased by $0.1 million from the nine months ended September 30, 2004
to the nine months ended September 30, 2005. This increase was due primarily to expenses related to various ongoing issues with respect to a former officer (see Note 8 of Notes to Interim Condensed Consolidated Financial Statements). Other
professional fees, particularly audit and consulting expenses, were higher in the 2004 periods primarily as a result of expenses related to the implementation of Sarbanes-Oxley Section 404.



Occupancy expense increased slightly from the 2004 periods to the 2005
periods as a result of the renewal of the lease at our Calabasas offices, which became effective on August 31, 2004. The decline in FDIC insurance premiums for the 2005 periods reflects an overall decline in the Banks deposit levels since
mid-2004, as the Bank began to utilize borrowings as its primary funding source. Loan expenses increased from the 2004 periods to 2005, due in part to the larger loan portfolio in 2005 and also due to costs related to actual and contemplated loan
purchases. The amortization expense shown above represents the amortization recorded on our core deposit



20



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##### Table of Contents

intangible asset, which we acquired in connection with our purchase of a branch in June 2000. As of June 30, 2005, the core deposit intangible asset had
been amortized in full and no longer had a book value (see Note 7 of Notes to Interim Condensed Consolidated Financial Statements). Accordingly, we do not expect to incur such amortization expense in future periods. In most other expense categories,
costs remained largely consistent from 2004 to 2005, reflecting our efforts to control overhead.



CHANGES IN FINANCIAL CONDITION



At September 30, 2005, our total assets were $1.4 billion, an increase of $72.3 million, or 5.4%, over the total as of December 31, 2004. The following discussion summarizes the significant changes in our financial condition
during the nine months ended September 30, 2005.



Mortgage-Backed
and Other Securities Available for Sale



Our portfolio
of mortgage-backed securities (MBS) available for sale increased by $37.2 million during the nine months ended September 30, 2005. This increase primarily reflects purchases of $112.5 million of AAA-rated MBS, partially offset by principal
repayments of $72.3 million. As a result of recent increases in market interest rates, we recorded unrealized holding losses of $2.5 million in the first nine months of 2005, including $2.2 million in the third quarter.



The balance of our other investment securities available for sale (consisting
of trust preferred securities and mutual funds) was substantially the same at September 30, 2005 and December 31, 2004, 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:



|                                                    |  |                        |         |                  |   |        
|--------------------------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                                    |  | September 30, 2005     |         | December 31,2004
|                                                    |  | (Dollars in thousands)
|Available for sale, at fair value:                  |  |                        |         |                  |   |        
|AAA mortgage-backed securities                      |  | $                      | 223,173 |                  | $ | 166,339
|GSE mortgage-backed securities                      |  |                        | 108,433 |                  |   | 140,777
|Other mortgage-backed securities                    |  |                        | 13,052  |                  |   | 345    
|Trust preferred securities                          |  |                        | 8,000   |                  |   | 8,000  
|Mutual funds                                        |  |                        | 5,754   |                  |   | 5,819  
|                                                    |  |                        |         |                  |   |        
|Total available for sale                            |  |                        | 358,412 |                  |   | 321,280
|Held to maturity:                                   |  |                        |         |                  |   |        
|Agency securities (fair value of $9,807 and $9,795) |  |                        | 9,695   |                  |   | 9,657  
|                                                    |  |                        |         |                  |   |        
|Total investment securities                         |  | $                      | 368,107 |                  | $ | 330,937
|                                                    |  |                        |         |                  |   |        



The amortized cost and
fair value of the Companys securities, by contractual maturity, are shown below as of September 30, 2005:



|                         |  |                        |         |            |   |        
|------------------------ |  | ---------------------- | ------- | ---------- | - | -------
|                         |  | Amortized Cost         |         | Fair Value
|                         |  | (Dollars in thousands)
|Due in five to ten years |  | $                      | 14,375  |            | $ | 14,430 
|Due after ten years      |  |                        | 351,895 |            |   | 348,035
|Mutual funds             |  |                        | 5,750   |            |   | 5,754  
|                         |  |                        |         |            |   |        
|Total                    |  | $                      | 372,020 |            | $ | 368,219
|                         |  |                        |         |            |   |        



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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 September 30, 2005 and December 31, 2004:



|                                               |  |                        |         |                   |   |            |  |                   |        |            |   |                   |  |   |         |  |   |      
|---------------------------------------------- |  | ---------------------- | ------- | ----------------- | - | ---------- |  | ----------------- | ------ | ---------- | - | ----------------- |  | - | ------- |  | - | -----
|                                               |  | Less than 12 months    |         | 12 months or more |   | Total     
|                                               |  | Fair Value             |         | Unrealized Losses |   | Fair Value |  | Unrealized Losses |        | Fair Value |   | Unrealized Losses
|                                               |  | (Dollars in thousands)
|September 30, 2005                             |  |                        |         |                   |   |            |  |                   |        |            |   |                   |  |   |         |  |   |      
|GSE mortgage-backed securities                 |  | $                      | 66,039  |                   | $ | 643        |  | $                 | 34,967 |            | $ | 662               |  | $ | 101,006 |  | $ | 1,305
|AAA-rated and other mortgage-backed securities |  |                        | 140,517 |                   |   | 1,563      |  |                   | 59,615 |            |   | 1,594             |  |   | 200,132 |  |   | 3,157
|Mutual funds                                   |  |                        | 1,924   |                   |   | 76         |  |                   |       |            |   |                  |  |   | 1,924   |  |   | 76   
|                                               |  |                        |         |                   |   |            |  |                   |        |            |   |                   |  |   |         |  |   |      
|Total                                          |  | $                      | 208,480 |                   | $ | 2,282      |  | $                 | 94,582 |            | $ | 2,256             |  | $ | 303,062 |  | $ | 4,538
|                                               |  |                        |         |                   |   |            |  |                   |        |            |   |                   |  |   |         |  |   |      



|                                               |  |                        |         |                   |   |            |  |                   |       |            |   |                   |  |   |         |  |   |      
|---------------------------------------------- |  | ---------------------- | ------- | ----------------- | - | ---------- |  | ----------------- | ----- | ---------- | - | ----------------- |  | - | ------- |  | - | -----
|                                               |  | 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, 2004                              |  |                        |         |                   |   |            |  |                   |       |            |   |                   |  |   |         |  |   |      
|GSE mortgage-backed securities                 |  | $                      | 88,695  |                   | $ | 745        |  | $                 |      |            | $ |                  |  | $ | 88,695  |  | $ | 745  
|AAA-rated and other mortgage-backed securities |  |                        | 136,404 |                   |   | 1,379      |  |                   | 3,616 |            |   | 89                |  |   | 140,020 |  |   | 1,468
|Mutual funds                                   |  |                        | 1,946   |                   |   | 54         |  |                   |      |            |   |                  |  |   | 1,946   |  |   | 54   
|                                               |  |                        |         |                   |   |            |  |                   |       |            |   |                   |  |   |         |  |   |      
|Total                                          |  | $                      | 227,045 |                   | $ | 2,178      |  | $                 | 3,616 |            | $ | 89                |  | $ | 230,661 |  | $ | 2,267
|                                               |  |                        |         |                   |   |            |  |                   |       |            |   |                   |  |   |         |  |   |      



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



We have the ability and intent to hold the securities classified as held to maturity until they mature, at which time we expect to receive full value for the securities. Furthermore, as of September 30, 2005, we
also had the ability and intent to hold the securities classified as available for sale for a period of time sufficient for a recovery of cost. The unrealized losses are largely 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 bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities
are impaired due to reasons of credit quality. Accordingly, as of September 30, 2005, management believes the impairments detailed in the table above are temporary, and no impairment loss has been realized in the Companys consolidated
statement of operations.



Loans



Our portfolio of loans, net of discounts and allowances, increased by $20.9
million in the first nine months of 2005. This increase reflects loan purchases of $105.4 million and loan originations of $75.5 million, partially offset by repayments of $158.6 million. Our loan originations have declined substantially in 2005 as
compared with 2004, primarily as a result of the increase in interest rates, which reduced the number and amount of refinancings, and also due to increasing competitiveness in loan pricing. As a result, we achieved our portfolio growth in 2005
primarily through loan purchases, including an acquisition in June 2005 of a multi-family loan portfolio consisting of 109 loans with an aggregate unpaid principal balance of $52.7 million.



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



|                                 |  |                        |         |   |                   |   |         |  
|-------------------------------- |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                 |  | September 30, 2005     |         |   | December 31, 2004 |  
|                                 |  | (Dollars in thousands) |        
|Single-family residential        |  | $                      | 33,577  |   |                   | $ | 44,569  |  
|Multi-family residential         |  |                        | 429,313 |   |                   |   | 412,074 |  
|Commercial real estate           |  |                        | 475,800 |   |                   |   | 462,961 |  
|Consumer and other               |  |                        | 870     |   |                   |   | 992     |  
|                                 |  |                        |         |   |                   |   |         |  
|Loan portfolio principal balance |  |                        | 939,560 |   |                   |   | 920,596 |  
|Net premium and deferred fees    |  |                        | 3,819   |   |                   |   | 2,064   |  
|Allowance for loan losses        |  |                        | (7,104  | ) |                   |   | (7,277  | )
|                                 |  |                        |         |   |                   |   |         |  
|Total loan portfolio, net        |  | $                      | 936,275 |   |                   | $ | 915,383 |  
|                                 |  |                        |         |   |                   |   |         |  



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



|                                         |  |                                  |       |   |                                 |   |       |      |  |   |       |   |  |   |       |  
|---------------------------------------- |  | -------------------------------- | ----- | - | ------------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                         |  | Three Months Ended September 30, |       |   | Nine Months Ended September 30, |  
|                                         |  | 2005                             |       |   | 2004                            |   |       | 2005 |  |   | 2004  |  
|                                         |  | (Dollars in thousands)           |      
|Balance, beginning of period             |  | $                                | 7,230 |   |                                 | $ | 6,876 |      |  | $ | 7,277 |   |  | $ | 6,735 |  
|(Recapture of) provision for loan losses |  |                                  | (91   | ) |                                 |   | 338   |      |  |   | (91   | ) |  |   | 438   |  
|Charge-offs                              |  |                                  | (148  | ) |                                 |   | (4    | )    |  |   | (181  | ) |  |   | (19   | )
|Recoveries                               |  |                                  | 120   |   |                                 |   | 3     |      |  |   | 122   |   |  |   | 73    |  
|Amortization of fresh-start adjustment   |  |                                  | (7    | ) |                                 |   | (2    | )    |  |   | (23   | ) |  |   | (16   | )
|                                         |  |                                  |       |   |                                 |   |       |      |  |   |       |   |  |   |       |  
|Balance, end of period                   |  | $                                | 7,104 |   |                                 | $ | 7,211 |      |  | $ | 7,104 |   |  | $ | 7,211 |  
|                                         |  |                                  |       |   |                                 |   |       |      |  |   |       |   |  |   |       |  



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



|                                                          |  |                        |       |   |                   |   |       |  
|--------------------------------------------------------- |  | ---------------------- | ----- | - | ----------------- | - | ----- | -
|                                                          |  | September 30, 2005     |       |   | December 31, 2004 |  
|                                                          |  | (Dollars in thousands) |      
|Balance of delinquent loans:                              |  |                        |       |   |                   |   |       |  
|31-60 days                                                |  | $                      | 16    |   |                   | $ | 2,364 |  
|61-90 days                                                |  |                        | 1,906 |   |                   |   | 902   |  
|91 days or more (1)                                       |  |                        | 2,489 |   |                   |   | 4,535 |  
|                                                          |  |                        |       |   |                   |   |       |  
|Total delinquent loans                                    |  | $                      | 4,411 |   |                   | $ | 7,801 |  
|                                                          |  |                        |       |   |                   |   |       |  
|Delinquent loans as a percentage of total loan portfolio: |  |                        |       |   |                   |   |       |  
|31-60 days                                                |  |                        | 0.0   | % |                   |   | 0.2   | %
|61-90 days                                                |  |                        | 0.2   |   |                   |   | 0.1   |  
|91 days or more (1)                                       |  |                        | 0.3   |   |                   |   | 0.5   |  
|                                                          |  |                        |       |   |                   |   |       |  
|Total                                                     |  |                        | 0.5   | % |                   |   | 0.8   | %
|                                                          |  |                        |       |   |                   |   |       |  

---

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



Discounted Loans, net



Our discounted loans, net, consist of WFCs portfolio of discounted loans. Prior to September 30, 2005, WFC conducted its loan investment and
portfolio management operations with an institutional investor, which had participation interests in the returns generated by the assets serving as collateral for the loans. The carrying



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value of WFCs discounted loans then was reported net of the co-investors interest. Effective September 30, 2005, WFC acquired a 100%
interest in the returns generated by those portfolios, resulting in an increase in carrying value of $1.1 million. This increase was partially offset by $0.7 million in loan principal repayments during the year.



Real Estate Owned



Real estate owned decreased by $1.7 million in the first nine months of
2005. This decrease was due to our sales of four properties with an aggregate carrying value of $1.8 million for a net gain of $0.2 million, partially offset by acquisitions of $0.1 million in connection with new foreclosures.



Deposits



Deposits increased by $32.6 million during the first nine months of 2005, due primarily to an increase in brokered
certificates of deposit and the opening of our new branch in Calabasas. The Banks cost of deposits has risen throughout 2005 as maturing balances were replaced with newer deposits at the prevailing market rates. The weighted-average interest
cost of the Banks total deposit balance was 3.23% at September 30, 2005 compared with 2.06% at December 31, 2004. The Banks deposits at September 30, 2005 included a total of $21.1 million in balances held by BHBC and WFC.
These deposits are eliminated in consolidation and not reflected in total deposits on our consolidated statements of financial condition.



Repurchase Agreements



Repurchase agreements decreased by $17.0 million during the nine months ended September 30, 2005, as a result of repayments of $50.0 million,
partially offset by repurchase agreement renewals totaling $33.0 million. At September 30, 2005, we had total repurchase agreements of $103.0 million, bearing interest at a weighted-average rate of 3.29%, compared with the December 31,
2004 weighted-average rate of 2.74%. These borrowings are used primarily to finance the Banks lending and investment activities.



FHLB Advances



FHLB advances increased by $51.0 million in the nine months ended September 30, 2005, as a result of $286.0 million in new advances, partially offset
by maturities of $235.0 million. This increase occurred primarily in June 2005, as we obtained $155.0 million in new advances to fund loan acquisitions and also to replace maturing advances. In the third quarter, we reduced the outstanding borrowing
balance by $25.0 million due to excess liquidity generated by loan payoffs and cash flow from the investment securities portfolio. As discussed above, we have utilized FHLB advances as the primary funding source for our asset acquisitions after
receiving BHBCs deposit of the proceeds from the sale of WCC. The FHLB has authorized a borrowing limit for the Banks total FHLB advances of 45% of the Banks total assets as of the previous quarter-end. The following table sets
forth the Banks FHLB advances at the dates and for the periods indicated:



|                                                        |  |                                      |         |   |                              |   |         |  
|------------------------------------------------------- |  | ------------------------------------ | ------- | - | ---------------------------- | - | ------- | -
|                                                        |  | Nine Months Ended September 30, 2005 |         |   | Year Ended December 31, 2004 |  
|                                                        |  | (Dollars in thousands)               |        
|Average amount outstanding during the period            |  | $                                    | 504,537 |   |                              | $ | 361,249 |  
|Maximum month-end balance outstanding during the period |  |                                      | 555,837 |   |                              |   | 474,837 |  
|Weighted average rate:                                  |  |                                      |         |   |                              |   |         |  
|During the period                                       |  |                                      | 2.95    | % |                              |   | 2.95    | %
|At end of period                                        |  |                                      | 3.28    | % |                              |   | 2.75    | %



Stockholders Equity



Our consolidated stockholders equity increased
by $2.4 million during the nine months ended September 30, 2005, to $172.6 million, or $8.01 book value per diluted share. This increase reflects our net



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income of $11.2 million, the issuance of $0.4 million in common stock upon the exercise of stock options, and a $0.3 million tax benefit from the exercise of
non-qualified stock options. These increases were partially offset by cash dividends of $8.0 million on common stock and net after-tax unrealized losses of $1.5 million on our portfolio of available-for-sale securities.



Regulatory Capital Requirements



Bank holding companies such as BHBC and FDIC-insured banks such as FBBH are
required to meet certain minimum regulatory capital requirements. At September 30, 2005, BHBC and FBBH met all applicable regulatory capital requirements and FBBH was well capitalized, as defined under applicable regulations.



The following table sets forth the regulatory standards for
well capitalized and adequately capitalized institutions and capital ratios for BHBC and FBBH at September 30, 2005:



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) |  | $                      | 165,490 |       | 17.4                          | % |                 | $                                      | 75,885 |  | >  8.0 | %      |  |       | Not Applicable | 
|Tier 1 capital to risk-weighted assets                     |  |                        | 138,199 |       | 14.6                          | % |                 |                                        | 37,942 |  | >  4.0 | %      |  |       | Not Applicable | 
|Tier 1 leverage ratio                                      |  |                        | 138,199 |       | 9.9                           | % |                 |                                        | 55,770 |  | >  4.0 | %      |  |       | Not Applicable | 
|                                                           |  |                        |         |       |                               |  
|FBBH                                                       |  |                        |         |       |                               |   |                 |                                        |        |  |        |        |  |       |                |  |        |  
|Total capital to risk-weighted assets (Risk-based capital) |  | $                      | 137,410 |       | 14.5                          | % |                 | $                                      | 75,902 |  | >  8.0 | %      |  | $     | 94,878         |  | >10.0  | %
|Tier 1 capital to risk-weighted assets                     |  |                        | 130,347 |       | 13.7                          | % |                 |                                        | 37,951 |  | >  4.0 | %      |  |       | 56,927         |  | >  6.0 | %
|Tier 1 leverage ratio                                      |  |                        | 130,347 |       | 9.4                           | % |                 |                                        | 55,561 |  | >  4.0 | %      |  |       | 69,452         |  | >  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 September 1, 2008. As of September 30, 2005, 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, fund
investments, purchase pools of loans, and make payments for general business purposes.



The Banks 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, whole loan and
mortgage-backed securities sales, and net interest income. WFCs sources of liquidity consist of net interest income and repayments on its portfolio of loans and mortgage-backed securities. Liquidity in the Banks and WFCs operations
is actively managed on a daily basis and periodically reviewed by the Companys Board of Directors. This process is intended to ensure the maintenance of sufficient funds to meet the Companys operating needs. Based on our current and
expected asset size, capital levels, and organizational infrastructure, we believe there will be sufficient available liquidity to meet our operating needs.



At September 30, 2005, our cash balances totaled $25.3 million, compared with $15.5 million at December 31, 2004. The increase in cash was due
primarily to increases in borrowings and deposits and repayments on loans and MBS, partially offset by purchases of loans and MBS and new loan originations.



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At September 30, 2005, the Bank had $469.8 million of certificates of deposit. Scheduled maturities
of certificates of deposit during the 12 months ending September 30, 2006 and thereafter amounted to $309.2 million and $160.6 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 the
Banks exposure to interest rate changes by utilizing funding sources whose repricing characteristics more closely match those of the Banks interest-earning assets.



The Company is 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 September 30, 2005:



|                                           |  |                                                       |         |           |   |           |  |               |         |       |   |        |  |   |          
|------------------------------------------ |  | ----------------------------------------------------- | ------- | --------- | - | --------- |  | ------------- | ------- | ----- | - | ------ |  | - | ---------
|                                           |  | Payments due within time period at September 30, 2005
|                                           |  | 0-12 Months                                           |         | 1-3 Years |   | 4-5 Years |  | After 5 Years |         | Total
|                                           |  | (Dollars in thousands)                               
|Certificates of deposit                    |  | $                                                     | 319,356 |           | $ | 165,228   |  | $             | 598     |       | $ |       |  | $ | 485,182  
|Repurchase agreements                      |  |                                                       | 64,946  |           |   | 40,761    |  |               |        |       |   |       |  |   | 105,707  
|Employment contracts                       |  |                                                       | 69      |           |   |          |  |               |        |       |   |       |  |   | 69       
|Operating leases                           |  |                                                       | 696     |           |   | 1,423     |  |               | 872     |       |   | 1,793  |  |   | 4,784    
|FHLB advances                              |  |                                                       | 238,064 |           |   | 197,866   |  |               | 125,108 |       |   |       |  |   | 561,038  
|Junior subordinated notes payable to trust |  |                                                       | 1,495   |           |   | 2,989     |  |               | 2,989   |       |   | 53,128 |  |   | 60,601   
|                                           |  |                                                       |         |           |   |           |  |               |         |       |   |        |  |   |          
|Total                                      |  | $                                                     | 624,626 |           | $ | 408,267   |  | $             | 129,567 |       | $ | 54,921 |  | $ | 1,217,381
|                                           |  |                                                       |         |           |   |           |  |               |         |       |   |        |  |   |          



With the exception of
the operating leases, 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.



The DFI regulations require each bank to maintain adequate liquidity to assure safe and sound operation. It is the Banks responsibility to establish
a liquidity policy that sets minimum liquidity requirements. As of September 30, 2005, the Bank was in compliance with its liquidity policy.



DISCONTINUED OPERATIONSLOAN SERVICING



The Company previously conducted its Loan Servicing Operations through WCC, a loan servicing subsidiary which was formed pursuant to our June 10,
1999 reorganization. As discussed earlier, on April 30, 2004, we completed the sale of WCC to Merrill Lynch Mortgage Capital Inc. Results of operations for WCC for the nine months ended September 30, 2004 are shown in the table below. The
amounts reflect WCCs results for only the four-month period prior to its sale on April 30.



|                                           |  |                                      |       
|------------------------------------------ |  | ------------------------------------ | ------
|                                           |  | Nine Months Ended September 30, 2004
|                                           |  | (Dollars in thousands)              
|Servicing income                           |  | $                                    | 11,754
|Other income                               |  |                                      | 689   
|                                           |  |                                      |       
|Total revenues                             |  |                                      | 12,443
|                                           |  |                                      |       
|Interest expense                           |  |                                      | 164   
|Provision for loan losses                  |  |                                      | 49    
|Compensation and employee benefits expense |  |                                      | 9,427 
|Other expenses                             |  |                                      | 2,319 
|                                           |  |                                      |       
|Total provision and expenses               |  |                                      | 11,959
|                                           |  |                                      |       
|Income before taxes                        |  | $                                    | 484   
|                                           |  |                                      |       



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As a result of WCCs sale, its results of operations have been removed from the Companys
results from continuing operations on the accompanying Consolidated Statements of Operations, and have been presented separately in a single caption as Income from operations of discontinued segment for the periods presented.



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.



|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, managements 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 Committee (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



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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 September 30, 2005, 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         |  | $                      | 157,397 |          | $                  | (27,079 | )        |  | (15 | )%        |  | 11.80 | %      |  | (134) bp
|+ 200bp         |  |                        | 165,248 |          |                    | (19,228 | )        |  | (10 | )         |  | 12.19 |        |  | (95) bp 
|+ 100bp         |  |                        | 174,233 |          |                    | (10,243 | )        |  | (6  | )         |  | 12.63 |        |  | (51) bp 
|0bp             |  |                        | 184,476 |          |                    |        |          |  |    |           |  | 13.14 |        |  |        
|- 100bp         |  |                        | 186,208 |          |                    | 1,732   |          |  | 1   |           |  | 13.11 |        |  | (3) bp  
|- 200bp         |  |                        | 184,003 |          |                    | (473    | )        |  | (0  | )         |  | 12.83 |        |  | (31) bp 
|- 300bp         |  |                        | 182,021 |          |                    | (2,455  | )        |  | (1  | )         |  | 12.57 |        |  | (57) bp 



In determining net
portfolio value, Management relies upon various assumptions, including, but not limited to, prepayment speeds on the Companys 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.



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



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Another tool used 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 September 30, 2005.



|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|----------------------------------------------------------- |  | ---------------------- | -------- | -- | --------------------------------- | - | -------- | ----------------------------------- |  | - | --------------- | -- |  | ----- | ------- | - |  | - | ---------
|                                                            |  | 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                                     |  | $                      | 25,317   |    |                                   | $ |         |                                     |  | $ |                |    |  | $     |        |   |  | $ | 25,317   
|Mortgage-backed and other investment securities             |  |                        | 26,469   |    |                                   |   | 74,426   |                                     |  |   | 178,880         |    |  |       | 87,995  |   |  |   | 367,770  
|Single-family residential loans                             |  |                        | 18,981   |    |                                   |   | 2,715    |                                     |  |   | 37              |    |  |       | 11,844  |   |  |   | 33,577   
|Multi-family residential loans                              |  |                        | 154,854  |    |                                   |   | 83,473   |                                     |  |   | 134,990         |    |  |       | 55,996  |   |  |   | 429,313  
|Commercial real estate loans                                |  |                        | 147,473  |    |                                   |   | 109,132  |                                     |  |   | 168,792         |    |  |       | 50,403  |   |  |   | 475,800  
|Consumer and other loans                                    |  |                        |         |    |                                   |   | 594      |                                     |  |   | 23              |    |  |       | 253     |   |  |   | 870      
|Other assets (1)                                            |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 40,654  |   |  |   | 40,654   
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Total assets                                                |  |                        | 373,094  |    |                                   |   | 270,340  |                                     |  |   | 482,722         |    |  |       | 247,145 |   |  |   | 1,373,301
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Liabilities:                                                |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Demand deposits                                             |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 4,927   |   |  |   | 4,927    
|NOW and money market accounts                               |  |                        | 118,427  |    |                                   |   |         |                                     |  |   |                |    |  |       |        |   |  |   | 118,427  
|Savings accounts                                            |  |                        | 2,504    |    |                                   |   |         |                                     |  |   |                |    |  |       |        |   |  |   | 2,504    
|Certificates of deposit                                     |  |                        | 309,198  |    |                                   |   | 160,031  |                                     |  |   | 581             |    |  |       |        |   |  |   | 469,810  
|Repurchase agreements                                       |  |                        | 63,000   |    |                                   |   | 40,000   |                                     |  |   |                |    |  |       |        |   |  |   | 103,000  
|FHLB advances                                               |  |                        | 249,500  |    |                                   |   | 156,337  |                                     |  |   | 120,000         |    |  |       |        |   |  |   | 525,837  
|Other liabilities                                           |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 18,146  |   |  |   | 18,146   
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Total liabilities                                           |  |                        | 742,629  |    |                                   |   | 356,368  |                                     |  |   | 120,581         |    |  |       | 23,073  |   |  |   | 1,242,651
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|(Deficiency) excess of assets over liabilities              |  | $                      | (369,535 | )  |                                   | $ | (86,028  | )                                   |  | $ | 362,141         |    |  | $     | 224,072 |   |  | $ | 130,650  
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess                              |  | $                      | (369,535 | )  |                                   | $ | (455,563 | )                                   |  | $ | (93,422         | )  |  | $     | 130,650 |   |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess as a percent of total assets |  |                        | (26.91   | )% |                                   |   | (33.17   | )%                                  |  |   | (6.80           | )% |  |       | 9.51    | % |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          

---

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



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



Evaluation of Controls and Procedures



The Companys chief executive officer and chief financial officer have concluded, based on their evaluation as of the end of the period covered by
this report, that the Companys disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that the
Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is
accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.



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.



29



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES



PART II. OTHER INFORMATION



Item 1. Legal Proceedings.



Not applicable.



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



Not applicable.



Item 3. Defaults Upon Senior Securities



Not applicable.



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



Beverly Hills Bancorp Inc. held its annual meeting of shareholders on August 25, 2005. A brief description of each matter voted on and the results of the shareholder voting are set forth below:



|                                                                                                                                                                                                                                                                  |  |            |  |         
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- |  | --------
|                                                                                                                                                                                                                                                                  |  | For        |  | Withhold
|1. Election of a Board of Directors to serve until the next annual meeting:                                                                                                                                                                                       |  |            |  |         
|Howard Amster                                                                                                                                                                                                                                                     |  | 20,602,757 |  | 147,204 
|Larry B. Faigin                                                                                                                                                                                                                                                   |  | 20,598,704 |  | 151,257 
|Stephen P. Glennon                                                                                                                                                                                                                                                |  | 20,628,159 |  | 121,802 
|Robert H. Kanner                                                                                                                                                                                                                                                  |  | 20,636,290 |  | 113,671 
|Kathleen L. Kellogg                                                                                                                                                                                                                                               |  | 20,665,464 |  | 84,497  
|William D. King                                                                                                                                                                                                                                                   |  | 19,911,727 |  | 838,234 
|John J. Lannan                                                                                                                                                                                                                                                    |  | 20,602,759 |  | 147,202 
|                                                                                                                                                                                                                                                                 
|2. Approval of a proposed amendment to the Companys Certificate of Incorporation to reduce the number of authorized shares
of common stock from 90,000,000 shares to 30,000,000 shares, and to cancel the authorization of 10,000,000 shares of preferred stock:

| |  |            |  |         |  |        
| |  | ---------- |  | ------- |  | -------
| |  | For        |  | Against |  | Abstain
| |  | 15,966,950 |  | 84,047  |  | 10,601 



Item 5. Other Information.



Not applicable.



Item 6. Exhibits



|     |  |                                                                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|3.1  |  | Certificate of Incorporation, as amended                                                                                                       
|     | 
|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



30



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##### Table of Contents

SIGNATURES



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



|                       |  |  |  |                            |  |                        |  |                                        
|---------------------- |  |  |  | -------------------------- |  | ---------------------- |  | ---------------------------------------
|                       |  |  |  | BEVERLY HILLS BANCORP INC.
|                       |  |  | 
|Date: November 7, 2005 |  |  |  | By:                        |  | /S/    LARRY B.
FAIGIN
|                       |  |  |  |                            |  |                        |  | Larry B. Faigin Chief Executive
Officer
|                       |  |  |  |                           
|                       |  |  |  |                           
|                       |  |  |  |                            |  | By:                    |  | /S/    TAKEO K.
SASAKI                 
|                       |  |  |  |                            |  |                        |  | Takeo K. Sasaki Chief Financial
Officer



31