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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark one)



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



For the quarterly period ended March 31, 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 ̈



Applicable only to corporate issuers:



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



|                                        |  |                              
|--------------------------------------- |  | -----------------------------
|Class                                   |  | Outstanding at April 25, 2005
|Common Stock, par value $0.01 per share |  | 21,151,520 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 |  | 13
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 24
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 25
|           |  |                                                                                      
|PART II.   |  | OTHER INFORMATION                                                                     |  |   
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 26
|           |  |                                                                                      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 26
|           |  |                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 26
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 26
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 26
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 26
|           | 
|Signatures |  | 28                                                                                   



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(Dollars in thousands, except share data)



|                                                                                                                                              |  |                |           |   |                   |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                              |  | March 31, 2005 |           |   | December 31, 2004 |  
|ASSETS                                                                                                                                        |  |                |           |   |                   |   |           |  
|Cash and cash equivalents                                                                                                                     |  | $              | 37,605    |   |                   | $ | 15,526    |  
|Mortgage-backed securities available for sale, at fair value                                                                                  |  |                | 330,469   |   |                   |   | 307,461   |  
|Investment securities available for sale, at fair value                                                                                       |  |                | 13,762    |   |                   |   | 13,819    |  
|Investment securities held to maturity, at amortized cost (fair value of $9,765 and $9,795)                                                   |  |                | 9,670     |   |                   |   | 9,657     |  
|Loans, net of allowance for loan losses of $7,260 and $7,277                                                                                  |  |                | 907,033   |   |                   |   | 915,383   |  
|Discounted loans, net of allowance for loan losses of $1,273 and $3,506                                                                       |  |                | 1,831     |   |                   |   | 2,360     |  
|Stock in Federal Home Loan Bank of San Francisco, at cost                                                                                     |  |                | 23,257    |   |                   |   | 22,681    |  
|Real estate owned, net                                                                                                                        |  |                | 9         |   |                   |   | 1,769     |  
|Leasehold improvements and equipment, net                                                                                                     |  |                | 1,154     |   |                   |   | 854       |  
|Accrued interest receivable                                                                                                                   |  |                | 6,020     |   |                   |   | 5,333     |  
|Deferred tax asset, net                                                                                                                       |  |                | 36,761    |   |                   |   | 37,412    |  
|Goodwill, net                                                                                                                                 |  |                | 3,054     |   |                   |   | 3,054     |  
|Other tangible assets, net                                                                                                                    |  |                | 64        |   |                   |   | 129       |  
|Prepaid expenses and other assets                                                                                                             |  |                | 3,988     |   |                   |   | 3,449     |  
|                                                                                                                                              |  |                |           |   |                   |   |           |  
|TOTAL                                                                                                                                         |  | $              | 1,374,677 |   |                   | $ | 1,338,887 |  
|                                                                                                                                              |  |                |           |   |                   |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                          |  |                |           |   |                   |   |           |  
|                                                                                                                                              |  |               
|LIABILITIES:                                                                                                                                  |  |                |           |   |                   |   |           |  
|Noninterest-bearing deposits                                                                                                                  |  | $              | 3,597     |   |                   | $ | 4,473     |  
|Interest-bearing deposits                                                                                                                     |  |                | 546,195   |   |                   |   | 537,487   |  
|Repurchase agreements                                                                                                                         |  |                | 143,000   |   |                   |   | 120,000   |  
|Accounts payable and other liabilities                                                                                                        |  |                | 22,850    |   |                   |   | 10,559    |  
|FHLB advances                                                                                                                                 |  |                | 468,837   |   |                   |   | 474,837   |  
|Junior subordinated notes payable to trust                                                                                                    |  |                | 20,619    |   |                   |   | 20,619    |  
|Investor participation liability                                                                                                              |  |                | 710       |   |                   |   | 773       |  
|                                                                                                                                              |  |                |           |   |                   |   |           |  
|Total liabilities                                                                                                                             |  |                | 1,205,808 |   |                   |   | 1,168,748 |  
|                                                                                                                                              |  |                |           |   |                   |   |           |  
|COMMITMENTS AND CONTINGENCIES (NOTE 4)                                                                                                        |  |                |           |   |                   |   |           |  
|                                                                                                                                              |  |               
|STOCKHOLDERS EQUITY:                                                                                                                         |  |                |           |   |                   |   |           |  
|Preferred stock, $0.01 par value, 10,000,000 shares authorized, 0 shares outstanding                                                          |  |                |          |   |                   |   |          |  
|Common stock, $0.01 par value, 90,000,000 shares authorized, 26,790,888 and 26,777,554 shares issued (including treasury shares of
5,639,368) |  |                | 268       |   |                   |   | 268       |  
|Additional paid-in capital                                                                                                                    |  |                | 164,884   |   |                   |   | 164,740   |  
|Treasury stock, 5,639,368 shares, at cost                                                                                                     |  |                | (15,224   | ) |                   |   | (15,224   | )
|Retained earnings                                                                                                                             |  |                | 22,288    |   |                   |   | 21,442    |  
|Accumulated other comprehensive loss, net                                                                                                     |  |                | (3,347    | ) |                   |   | (1,087    | )
|                                                                                                                                              |  |                |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                    |  |                | 168,869   |   |                   |   | 170,139   |  
|                                                                                                                                              |  |                |           |   |                   |   |           |  
|TOTAL                                                                                                                                         |  | $              | 1,374,677 |   |                   | $ | 1,338,887 |  
|                                                                                                                                              |  |                |           |   |                   |   |           |  



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)



|                                                                       |  |                         |            |   |      |   |            |  
|---------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                       |  | Quarter Ended March 31, |           
|                                                                       |  | 2005                    |            |   | 2004 |  
|INTEREST INCOME:                                                       |  |                         |            |   |      |   |            |  
|Loans                                                                  |  | $                       | 13,148     |   |      | $ | 9,696      |  
|Mortgage-backed securities                                             |  |                         | 3,427      |   |      |   | 2,620      |  
|Securities and federal funds sold                                      |  |                         | 351        |   |      |   | 306        |  
|                                                                       |  |                         |            |   |      |   |            |  
|Total interest income                                                  |  |                         | 16,926     |   |      |   | 12,622     |  
|                                                                       |  |                         |            |   |      |   |            |  
|INTEREST EXPENSE:                                                      |  |                         |            |   |      |   |            |  
|Deposits                                                               |  |                         | 3,214      |   |      |   | 3,113      |  
|Borrowings                                                             |  |                         | 4,583      |   |      |   | 2,726      |  
|                                                                       |  |                         |            |   |      |   |            |  
|Total interest expense                                                 |  |                         | 7,797      |   |      |   | 5,839      |  
|                                                                       |  |                         |            |   |      |   |            |  
|NET INTEREST INCOME                                                    |  |                         | 9,129      |   |      |   | 6,783      |  
|(RECAPTURE OF) PROVISION FOR LOSSES ON LOANS                           |  |                         | (4         | ) |      |   | 114        |  
|                                                                       |  |                         |            |   |      |   |            |  
|NET INTEREST INCOME AFTER (RECAPTURE OF) PROVISION FOR LOSSES ON LOANS |  |                         | 9,133      |   |      |   | 6,669      |  
|                                                                       |  |                         |            |   |      |   |            |  
|OTHER INCOME:                                                          |  |                         |            |   |      |   |            |  
|Loan related fees and charges                                          |  |                         | 313        |   |      |   | 209        |  
|Deposit fees and charges                                               |  |                         | 20         |   |      |   | 98         |  
|Gain on sales of loans, net                                            |  |                         |           |   |      |   | 47         |  
|Gain on sale of securities, net                                        |  |                         |           |   |      |   | 273        |  
|Real estate owned, net                                                 |  |                         | 207        |   |      |   | 58         |  
|Investor participation interest                                        |  |                         | (34        | ) |      |   | (90        | )
|Other income, net                                                      |  |                         | 172        |   |      |   | 65         |  
|                                                                       |  |                         |            |   |      |   |            |  
|Total other income                                                     |  |                         | 678        |   |      |   | 660        |  
|                                                                       |  |                         |            |   |      |   |            |  
|OTHER EXPENSES:                                                        |  |                         |            |   |      |   |            |  
|Compensation and employee benefits                                     |  |                         | 1,869      |   |      |   | 1,822      |  
|Professional fees                                                      |  |                         | 706        |   |      |   | 820        |  
|Occupancy                                                              |  |                         | 260        |   |      |   | 185        |  
|FDIC insurance premiums                                                |  |                         | 84         |   |      |   | 108        |  
|Data processing                                                        |  |                         | 105        |   |      |   | 144        |  
|Insurance                                                              |  |                         | 173        |   |      |   | 118        |  
|Depreciation                                                           |  |                         | 55         |   |      |   | 90         |  
|Amortization of intangibles                                            |  |                         | 65         |   |      |   | 65         |  
|Directors expense                                                      |  |                         | 135        |   |      |   | 156        |  
|Other general and administrative expense                               |  |                         | 293        |   |      |   | 456        |  
|                                                                       |  |                         |            |   |      |   |            |  
|Total other expenses                                                   |  |                         | 3,745      |   |      |   | 3,964      |  
|                                                                       |  |                         |            |   |      |   |            |  
|INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION          |  |                         | 6,066      |   |      |   | 3,365      |  
|INCOME TAX PROVISION                                                   |  |                         | 2,578      |   |      |   | 1,396      |  
|                                                                       |  |                         |            |   |      |   |            |  
|INCOME FROM CONTINUING OPERATIONS                                      |  |                         | 3,488      |   |      |   | 1,969      |  
|                                                                       |  |                         |            |   |      |   |            |  
|DISCONTINUED OPERATIONS (NOTE 3):                                      |  |                         |            |   |      |   |            |  
|INCOME FROM OPERATIONS OF DISCONTINUED SEGMENT                         |  |                         |           |   |      |   | 814        |  
|INCOME TAX PROVISION                                                   |  |                         |           |   |      |   | 338        |  
|                                                                       |  |                         |            |   |      |   |            |  
|INCOME FROM DISCONTINUED OPERATIONS                                    |  |                         |           |   |      |   | 476        |  
|                                                                       |  |                         |            |   |      |   |            |  
|NET INCOME                                                             |  | $                       | 3,488      |   |      | $ | 2,445      |  
|                                                                       |  |                         |            |   |      |   |            |  
|Earnings per share  Basic:                                            |  |                         |            |   |      |   |            |  
|Income from continuing operations                                      |  | $                       | 0.16       |   |      | $ | 0.10       |  
|Discontinued operations                                                |  |                         |           |   |      |   | 0.02       |  
|                                                                       |  |                         |            |   |      |   |            |  
|Net income                                                             |  | $                       | 0.16       |   |      | $ | 0.12       |  
|                                                                       |  |                         |            |   |      |   |            |  
|Earnings per share  Diluted:                                          |  |                         |            |   |      |   |            |  
|Income from continuing operations                                      |  | $                       | 0.16       |   |      | $ | 0.09       |  
|Discontinued operations                                                |  |                         |           |   |      |   | 0.02       |  
|                                                                       |  |                         |            |   |      |   |            |  
|Net income                                                             |  | $                       | 0.16       |   |      | $ | 0.11       |  
|                                                                       |  |                         |            |   |      |   |            |  
|Weighted average number of shares  Basic                              |  |                         | 21,138,964 |   |      |   | 20,022,989 |  
|Weighted average number of shares  Diluted                            |  |                         | 21,465,008 |   |      |   | 21,288,258 |  



See notes to unaudited
interim condensed consolidated financial statements



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in
thousands, except share data)



|                                                                                                         |  |                         |         |   |      |   |          |  
|-------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | -------- | -
|                                                                                                         |  | Quarter Ended March 31, |        
|                                                                                                         |  | 2005                    |         |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                    |  |                         |         |   |      |   |          |  
|Net income                                                                                               |  | $                       | 3,488   |   |      | $ | 2,445    |  
|Less: income from discontinued operations, net of taxes                                                  |  |                         |        |   |      |   | (476     | )
|                                                                                                         |  |                         |         |   |      |   |          |  
|Income from continuing operations                                                                        |  |                         | 3,488   |   |      |   | 1,969    |  
|Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |  |                         |         |   |      |   |          |  
|(Recapture of) provision for estimated losses on loans                                                   |  |                         | (4      | ) |      |   | 163      |  
|Provision for losses on real estate owned                                                                |  |                         |        |   |      |   | 18       |  
|Change in valuation allowance for mortgage servicing rights                                              |  |                         |        |   |      |   | 97       |  
|Depreciation and amortization                                                                            |  |                         | 120     |   |      |   | 154      |  
|Deferred tax provision                                                                                   |  |                         | 2,311   |   |      |   |         |  
|Gain on sale of real estate owned                                                                        |  |                         | (218    | ) |      |   | (87      | )
|Loss on disposal of equipment                                                                            |  |                         |        |   |      |   | 2        |  
|Gain on sale of loans                                                                                    |  |                         |        |   |      |   | (47      | )
|Gain on sale of securities                                                                               |  |                         |        |   |      |   | (273     | )
|Amortization of discounts and deferred fees                                                              |  |                         | 497     |   |      |   | 674      |  
|Amortization of mortgage servicing rights                                                                |  |                         |        |   |      |   | 1,385    |  
|Tax benefit from exercise of nonqualified stock options                                                  |  |                         | 37      |   |      |   |         |  
|Federal Home Loan Bank stock dividends                                                                   |  |                         |        |   |      |   | (120     | )
|Change in:                                                                                               |  |                         |         |   |      |   |          |  
|Servicer advance receivables                                                                             |  |                         |        |   |      |   | (3,491   | )
|Service fees receivable                                                                                  |  |                         |        |   |      |   | 314      |  
|Accrued interest receivable                                                                              |  |                         | (687    | ) |      |   | (695     | )
|Receivables from other loan servicers                                                                    |  |                         |        |   |      |   | 381      |  
|Prepaid expenses and other assets                                                                        |  |                         | (539    | ) |      |   | 80       |  
|Accounts payable and other liabilities                                                                   |  |                         | 12,348  |   |      |   | 2,051    |  
|Investor participation liability                                                                         |  |                         | (63     | ) |      |   | (181     | )
|Net cash used in operating activities of discontinued segment                                            |  |                         |        |   |      |   | 1,143    |  
|                                                                                                         |  |                         |         |   |      |   |          |  
|Net cash provided by operating activities of continuing operations                                       |  |                         | 17,290  |   |      |   | 3,537    |  
|                                                                                                         |  |                         |         |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                    |  |                         |         |   |      |   |          |  
|Purchase of loans                                                                                        |  |                         | (4,764  | ) |      |   | (85,585  | )
|Loan repayments                                                                                          |  |                         | 34,908  |   |      |   | 39,591   |  
|Loan originations                                                                                        |  |                         | (21,628 | ) |      |   | (98,922  | )
|Purchase of mortgage-backed securities available for sale                                                |  |                         | (48,927 | ) |      |   | (105,229 | )
|Repayments of mortgage-backed securities available for sale                                              |  |                         | 21,927  |   |      |   | 22,253   |  
|Proceeds from sale of mortgage-backed securities available for sale                                      |  |                         |        |   |      |   | 7,859    |  
|Proceeds from sale of investment securities available for sale                                           |  |                         |        |   |      |   | 10,130   |  
|Purchases of FHLB stock                                                                                  |  |                         | (576    | ) |      |   | (2,980   | )
|Proceeds from sale of real estate owned                                                                  |  |                         | 1,987   |   |      |   | 850      |  
|Purchases of leasehold improvements and equipment                                                        |  |                         | (355    | ) |      |   | (355     | )
|Net cash provided by investing activities of discontinued segment                                        |  |                         |        |   |      |   | (282     | )
|                                                                                                         |  |                         |         |   |      |   |          |  
|Net cash used in investing activities of continuing operations                                           |  |                         | (17,428 | ) |      |   | (212,670 | )
|                                                                                                         |  |                         |         |   |      |   |          |  



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)



|                                                                   |  |                         |         |   |      |   |          |  
|------------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | -------- | -
|                                                                   |  | Quarter Ended March 31, |        
|                                                                   |  | 2005                    |         |   | 2004 |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                              |  |                         |         |   |      |   |          |  
|Net increase in deposits                                           |  | $                       | 7,832   |   |      | $ | 162,717  |  
|Proceeds from FHLB advances                                        |  |                         | 45,000  |   |      |   | 230,000  |  
|Repayments of FHLB advances                                        |  |                         | (51,000 | ) |      |   | (162,000 | )
|Increase (decrease) in repurchase agreements                       |  |                         | 23,000  |   |      |   | (11,500  | )
|Repayments of long-term financing                                  |  |                         |        |   |      |   | (1,233   | )
|Proceeds from exercise of stock options                            |  |                         | 27      |   |      |   | 2,327    |  
|Dividends on common stock                                          |  |                         | (2,642  | ) |      |   |         |  
|Net cash provided by financing activities of discontinued segment  |  |                         |        |   |      |   | (310     | )
|                                                                   |  |                         |         |   |      |   |          |  
|Net cash provided by financing activities of continuing operations |  |                         | 22,217  |   |      |   | 220,001  |  
|                                                                   |  |                         |         |   |      |   |          |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                          |  |                         | 22,079  |   |      |   | 10,868   |  
|CASH AND CASH EQUIVALENTS:                                         |  |                         |         |   |      |   |          |  
|Beginning of period                                                |  |                         | 15,526  |   |      |   | 18,739   |  
|                                                                   |  |                         |         |   |      |   |          |  
|End of period                                                      |  | $                       | 37,605  |   |      | $ | 29,607   |  
|                                                                   |  |                         |         |   |      |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                 |  |                         |         |   |      |   |          |  
|Cash paid during the period for:                                   |  |                         |         |   |      |   |          |  
|Interest                                                           |  | $                       | 7,746   |   |      | $ | 4,610    |  
|Income taxes, net                                                  |  |                         | 22      |   |      |   |         |  
|NONCASH INVESTING ACTIVITIES:                                      |  |                         |         |   |      |   |          |  
|Additions to real estate owned acquired in settlement of loans     |  |                         | 9       |   |      |   | 1,962    |  



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)

(Dollars in thousands, except per-share data and where noted)



|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 quarter ended March 31, 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.



|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 quarters ended March 31, 2005 and 2004.



|                                                                      |  |                         |            |      |   |           
|--------------------------------------------------------------------- |  | ----------------------- | ---------- | ---- | - | ----------
|                                                                      |  | Quarter Ended March 31,
|                                                                      |  | 2005                    |            | 2004
|Income from continuing operations                                     |  | $                       | 3,488      |      | $ | 1,969     
|Discontinued operations                                               |  |                         |           |      |   | 476       
|                                                                      |  |                         |            |      |   |           
|Net income                                                            |  | $                       | 3,488      |      | $ | 2,445     
|                                                                      |  |                         |            |      |   |           
|Weighted average number of common shares outstanding  basic          |  |                         | 21,138,964 |      |   | 20,022,989
|Net effect of dilutive stock options  based on treasury stock method |  |                         | 326,044    |      |   | 1,265,269 
|                                                                      |  |                         |            |      |   |           
|Weighted average number of common shares outstanding  diluted        |  |                         | 21,465,008 |      |   | 21,288,258
|                                                                      |  |                         |            |      |   |           
|Earnings per share  basic:                                           |  |                         |            |      |   |           
|Income from continuing operations                                     |  | $                       | 0.16       |      | $ | 0.10      
|Discontinued operations                                               |  |                         |           |      |   | 0.02      
|                                                                      |  |                         |            |      |   |           
|Net income                                                            |  | $                       | 0.16       |      | $ | 0.12      
|                                                                      |  |                         |            |      |   |           
|Earnings per share  diluted:                                         |  |                         |            |      |   |           
|Income from continuing operations                                     |  | $                       | 0.16       |      | $ | 0.09      
|Discontinued operations                                               |  |                         |           |      |   | 0.02      
|                                                                      |  |                         |            |      |   |           
|Net income                                                            |  | $                       | 0.16       |      | $ | 0.11      
|                                                                      |  |                         |            |      |   |           



7



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

(Unaudited)

(Dollars in thousands, except per-share data and where noted)



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 quarters ended March 31, 2005 and 2004 would have been reduced to the pro-forma amounts indicated below.



|                                                                                                                                         |  |                         |       |      |   |      
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----- | ---- | - | -----
|                                                                                                                                         |  | Quarter Ended March 31,
|                                                                                                                                         |  | 2005                    |       | 2004
|Net income, as reported                                                                                                                  |  | $                       | 3,488 |      | $ | 2,445
|Less: Total stock-based employee compensation expense determined underfair value-based method for all awards, net of related tax
effects |  |                         | 84    |      |   | 122  
|                                                                                                                                         |  |                         |       |      |   |      
|Pro forma net income                                                                                                                     |  | $                       | 3,404 |      | $ | 2,323
|                                                                                                                                         |  |                         |       |      |   |      
|                                                                                                                                         |  |                        
|Earnings per share  basic:                                                                                                              |  |                         |       |      |   |      
|As reported                                                                                                                              |  | $                       | 0.16  |      | $ | 0.12 
|                                                                                                                                         |  |                         |       |      |   |      
|Pro forma                                                                                                                                |  | $                       | 0.16  |      | $ | 0.12 
|                                                                                                                                         |  |                         |       |      |   |      
|                                                                                                                                         |  |                        
|Earnings per share  diluted:                                                                                                            |  |                         |       |      |   |      
|As reported                                                                                                                              |  | $                       | 0.16  |      | $ | 0.11 
|                                                                                                                                         |  |                         |       |      |   |      
|Pro forma                                                                                                                                |  | $                       | 0.16  |      | $ | 0.11 
|                                                                                                                                         |  |                         |       |      |   |      



|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). 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 quarter ended March 31, 2004 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.



Results of operations for WCC were as follows:



|                                                     |  |                             |       |  
|---------------------------------------------------- |  | --------------------------- | ----- | -
|                                                     |  | Quarter EndedMarch 31, 2004 |      
|Interest income                                      |  | $                           | (10   | )
|Interest expense                                     |  |                             | 127   |  
|                                                     |  |                             |       |  
|Net interest expense                                 |  |                             | (137  | )
|Provision for loan losses                            |  |                             | 49    |  
|                                                     |  |                             |       |  
|Net interest expense after provision for loan losses |  |                             | (186  | )
|Servicing income                                     |  |                             | 8,334 |  
|Other income                                         |  |                             | 476   |  
|Compensation and employee benefits expense           |  |                             | 6,103 |  
|Other expenses                                       |  |                             | 1,707 |  
|                                                     |  |                             |       |  
|Income before income taxes                           |  |                             | 814   |  
|Income tax provision                                 |  |                             | 338   |  
|                                                     |  |                             |       |  
|Net income                                           |  | $                           | 476   |  
|                                                     |  |                             |       |  



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

(Unaudited)

(Dollars in thousands, except per-share data and where noted)



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



At March 31, 2005, the Companys banking subsidiary, First Bank of Beverly Hills, F.S.B. (FBBH, or the Bank), had outstanding
commitments to fund $14.4 million of loans and to purchase $18.5 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 prior 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 $22 for the quarter ended March 31, 2005, compared with $0.3 million for the quarter ended March 31, 2004. The Company expects
these costs to continue to decline in future periods.



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



The Company files consolidated federal and state income tax returns with its eligible subsidiaries. The Company recorded an income tax provision of $2.6
million for the quarter ended March 31, 2005, compared with a provision from continuing operations of $1.4 million for the quarter ended March 31, 2004. A portion of the Companys income tax provision is not expected to be currently payable,
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 42.5% 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 $36.8 million and $37.4 million, respectively, at March 31, 2005 and December 31, 2004. In accounting for
the deferred tax asset, the Company applies SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 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. Pursuant to this evaluation, the Company has concluded that the
available objective positive evidence regarding its ability to generate future federal taxable income substantially outweighed the available objective negative evidence regarding future federal taxable income. The Company also concluded that the
objective negative evidence regarding the ability to generate certain future state taxable income outweighed the available objective positive evidence regarding certain future state taxable income, primarily as a result of the curtailment of its
operations in the state of Oregon subsequent to the sale of WCC.



As a result, the Company believes it is more likely than not that a substantial amount of its deferred tax assets will be realized in future years, and that, as of March 31, 2005, the only valuation allowance required is $6.8 million
related to (1) net operating loss carryforwards in Oregon and certain other states and (2) federal net operating loss carryforwards that may not be utilized prior to expiration. As benefits relating to the Companys pre-reorganizational (before
June 10, 1999) period are realized and the valuation allowance is reduced, the tax effect is recorded as an increase to stockholders equity in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7,
Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (SOP 90-7), and not as a tax benefit in the statement of operations. As benefits relating to the Companys post-reorganizational period are realized, the
tax effect will be recorded as a tax benefit in the consolidated statements of operations.



As of March 31, 2005, the Company had U.S. net operating loss carryforwards of approximately $104 million, and also has approximately $99 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.



9



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

(Unaudited)

(Dollars in thousands, except per-share data and where noted)



|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 quarter ended March 31, 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, including commercial and multi-family real estate
lending and investments in primarily AAA-rated and government-sponsored enterprise (GSE) mortgage-backed securities. The primary sources of liquidity for the Banks purchases and originations are wholesale certificates of deposit,
retail deposits, Federal Home Loan Bank advances and repurchase agreements. The Bank is a federally chartered savings bank and is regulated by the Office of Thrift Supervision (OTS). The Bank has filed an application with the California
Department of Financial Institutions (DFI) for conversion to a state commercial bank charter. On April 13, 2005, the DFI approved the Banks application subject to certain conditions, as amended on April 28, 2005. The Bank expects
to be in compliance with all such conditions prior to the effective date of the conversion.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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. WFC conducts certain of these activities with an institutional investor where such investments align the Companys interests with those of the institutional
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)

(Dollars in thousands, except per-share data and where noted)



Segment data for the three months ended March 31, 2005 and 2004 are as follows:



|                                                             |  |                                   |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|------------------------------------------------------------ |  | --------------------------------- | --------- | -------------------- | - | ------ | ------------------------------------------- |  | - | ------ | - |  | - | --------- | -
|                                                             |  | Three Months Ended March 31, 2005 |          
|                                                             |  | Banking                           |           | Mortgage Investments |   |        | Holding Companyand Miscellaneous Operations |  |   | Total  |  
|Interest income                                              |  | $                                 | 16,599    |                      | $ | 306    |                                             |  | $ | 21     |   |  | $ | 16,926    |  
|Interest expense                                             |  |                                   | 7,468     |                      |   |       |                                             |  |   | 329    |   |  |   | 7,797     |  
|                                                             |  |                                   |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|Net interest income (expense)                                |  |                                   | 9,131     |                      |   | 306    |                                             |  |   | (308   | ) |  |   | 9,129     |  
|Recapture of loan losses                                     |  |                                   |          |                      |   | (4     | )                                           |  |   |       |   |  |   | (4        | )
|                                                             |  |                                   |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|Net interest income (expense) after recapture of loan losses |  |                                   | 9,131     |                      |   | 310    |                                             |  |   | (308   | ) |  |   | 9,133     |  
|Other income (loss)                                          |  |                                   | 720       |                      |   | (42    | )                                           |  |   |       |   |  |   | 678       |  
|Compensation and employee benefits expense                   |  |                                   | 1,779     |                      |   |       |                                             |  |   | 90     |   |  |   | 1,869     |  
|Other expenses                                               |  |                                   | 1,266     |                      |   | 11     |                                             |  |   | 599    |   |  |   | 1,876     |  
|                                                             |  |                                   |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|Income (loss) before taxes                                   |  |                                   | 6,806     |                      |   | 257    |                                             |  |   | (997   | ) |  |   | 6,066     |  
|Income tax provision (benefit)                               |  |                                   | 2,893     |                      |   | 109    |                                             |  |   | (424   | ) |  |   | 2,578     |  
|                                                             |  |                                   |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|Net income (loss)                                            |  | $                                 | 3,913     |                      | $ | 148    |                                             |  | $ | (573   | ) |  | $ | 3,488     |  
|                                                             |  |                                   |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|Total assets                                                 |  | $                                 | 1,337,116 |                      | $ | 27,302 |                                             |  | $ | 10,259 |   |  | $ | 1,374,677 |  
|                                                             |  |                                   |           |                      |   |        |                                             |  |   |        |   |  |   |           |  



|                                                              |  |                                   |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|------------------------------------------------------------- |  | --------------------------------- | --------- | -------------- | - | -------------------- |  | - | ------------------------------------------- | - |  | ----- | ------ | - |  | - | ---------
|                                                              |  | Three Months Ended March 31, 2004
|                                                              |  | Banking                           |           | Loan Servicing |   | Mortgage Investments |  |   | Holding Companyand Miscellaneous Operations |   |  | Total
|Interest income                                               |  | $                                 | 12,048    |                | $ |                     |  | $ | 560                                         |   |  | $     | 14     |   |  | $ | 12,622   
|Interest expense                                              |  |                                   | 5,572     |                |   |                     |  |   | 10                                          |   |  |       | 257    |   |  |   | 5,839    
|                                                              |  |                                   |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Net interest income (expense)                                 |  |                                   | 6,476     |                |   |                     |  |   | 550                                         |   |  |       | (243   | ) |  |   | 6,783    
|Provision for loan losses                                     |  |                                   |          |                |   |                     |  |   | 114                                         |   |  |       |       |   |  |   | 114      
|                                                              |  |                                   |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Net interest income (expense) after provision for loan losses |  |                                   | 6,476     |                |   |                     |  |   | 436                                         |   |  |       | (243   | ) |  |   | 6,669    
|Realized gains                                                |  |                                   | 273       |                |   |                     |  |   | 47                                          |   |  |       |       |   |  |   | 320      
|Other income (loss)                                           |  |                                   | 478       |                |   |                     |  |   | (138                                        | ) |  |       |       |   |  |   | 340      
|Compensation and employee benefits expense                    |  |                                   | 1,568     |                |   |                     |  |   |                                            |   |  |       | 254    |   |  |   | 1,822    
|Other expenses                                                |  |                                   | 1,314     |                |   |                     |  |   | 3                                           |   |  |       | 825    |   |  |   | 2,142    
|                                                              |  |                                   |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Income (loss) from continuing operations before taxes         |  |                                   | 4,345     |                |   |                     |  |   | 342                                         |   |  |       | (1,322 | ) |  |   | 3,365    
|Income tax provision (benefit)                                |  |                                   | 1,825     |                |   |                     |  |   | 142                                         |   |  |       | (571   | ) |  |   | 1,396    
|                                                              |  |                                   |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Income (loss) from continuing operations                      |  |                                   | 2,520     |                |   |                     |  |   | 200                                         |   |  |       | (751   | ) |  |   | 1,969    
|Discontinued operations:                                      |  |                                   |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Income from operations of discontinued segment                |  |                                   |          |                |   | 814                  |  |   |                                            |   |  |       |       |   |  |   | 814      
|Income tax provision                                          |  |                                   |          |                |   | 338                  |  |   |                                            |   |  |       |       |   |  |   | 338      
|                                                              |  |                                   |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Income from discontinued operations                           |  |                                   |          |                |   | 476                  |  |   |                                            |   |  |       |       |   |  |   | 476      
|                                                              |  |                                   |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Net income (loss)                                             |  | $                                 | 2,520     |                | $ | 476                  |  | $ | 200                                         |   |  | $     | (751   | ) |  | $ | 2,445    
|                                                              |  |                                   |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Total assets                                                  |  | $                                 | 1,129,780 |                | $ | 43,835               |  | $ | 23,055                                      |   |  | $     | 3,774  |   |  | $ | 1,200,444
|                                                              |  |                                   |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

(Unaudited)

(Dollars in thousands, except per-share data and where noted)



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



In June 2000, FBBH 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 will continue to amortize the core deposit intangible over its estimated useful life of 5 years.



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



|                        |  |                       |       |                          |                         |        |                       |  |                          |       |  |   |        |  
|----------------------- |  | --------------------- | ----- | ------------------------ | ----------------------- | ------ | --------------------- |  | ------------------------ | ----- |  | - | ------ | -
|                        |  | As of March 31, 2005  |       |                          | As of December 31, 2004 |       
|                        |  | Gross Carrying Amount |       | Accumulated Amortization |                         |        | Gross Carrying Amount |  | Accumulated Amortization |      
|Goodwill                |  | $                     | 3,393 |                          | $                       | (339   | )                     |  | $                        | 3,393 |  | $ | (339   | )
|Core deposit intangible |  |                       | 1,294 |                          |                         | (1,230 | )                     |  |                          | 1,294 |  |   | (1,165 | )
|                        |  |                       |       |                          |                         |        |                       |  |                          |       |  |   |        |  
|Total                   |  | $                     | 4,687 |                          | $                       | (1,569 | )                     |  | $                        | 4,687 |  | $ | (1,504 | )
|                        |  |                       |       |                          |                         |        |                       |  |                          |       |  |   |        |  



The Company recorded
amortization expense of $65 related to the core deposit intangible for the quarter ended March 31, 2005. The net core deposit intangible balance of $64 as of March 31, 2005 will be amortized in full in the second quarter of 2005.



There were no changes in the carrying value of goodwill during the quarter
ended March 31, 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 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 intends to contest the claim vigorously.



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 DIVIDEND
|-- | -------------



In the first quarter of 2005 the Company declared its regular quarterly dividend of $0.125 per share. The total dividend of $2.6 million was paid to
stockholders on April 1, 2005.



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



In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R), which replaces SFAS No. 123,
Accounting for Stock-Based Compensation, and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. SFAS No. 123R is effective as of the
beginning of the first fiscal year that begins after June 15, 2005. The Company thus is required to adopt SFAS No. 123R effective January 1, 2006. In adopting SFAS No. 123R, the Company may apply the modified prospective application
method, which requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS No. 123R. In addition, the Company may apply modified retrospective
application, which would require the recording of compensation expense for all unvested stock options beginning with the first period restated. The Company does not expect the adoption of SFAS No. 123R to result in amounts that are materially
different from the current pro forma disclosures under SFAS No. 123.



12



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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, F.S.B.
(FBBH or the Bank), and mortgage investment operations through its investment subsidiary, WFC Inc. (WFC).



Subsequent to the April 30, 2004 sale of our loan servicing subsidiary, Wilshire Credit Corporation (WCC), we have operated primarily as a
unitary bank holding company. Consequently, our business strategy is focused on the growth and profitability of our banking 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.



The Bank has filed an application with the California Department of Financial Institutions (DFI) for conversion to a state commercial bank
charter. 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. On April 13, 2005,
the DFI approved the Banks application subject to certain conditions, as amended on April 28, 2005. The Bank expects to be in compliance with all such conditions prior to the effective date of the conversion. In addition, in connection with
the Banks DFI application, BHBC is required to be approved as a holding company under the federal Bank Holding Company Act. BHBC is in the process of filing an application with the Federal Reserve Board to obtain such approval.



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 quarter ended March 31, 2005.



RESULTS OF
OPERATIONSQUARTER ENDED MARCH 31, 2005 COMPARED TO QUARTER ENDED MARCH 31, 2004



Our net income for the quarter ended March 31, 2005 was $3.5 million, or $0.16 per diluted share, compared with $2.4 million, or $0.11 per diluted share, for the quarter ended March 31, 2004.



The Companys consolidated results for the first quarter of 2004 include
the results of our former loan servicing subsidiary, WCC, which was sold to Merrill Lynch Mortgage Capital Inc. (Merrill Lynch) in the second quarter of 2004. WCCs income for the first quarter of 2004 is presented separately under
the caption Discontinued operations in the accompanying consolidated statements of operations. Income from continuing operations, excluding the results of WCC, increased by 77%, from $2.0 million ($0.09 per diluted share) for the quarter
ended March 31, 2004 to $3.5 million ($0.16 per diluted share) for the quarter ended March 31, 2005.



Pre-tax income from continuing operations increased from $3.4 million for the first quarter of 2004 to $6.1 million for the first quarter of 2005. A
portion of the Companys $2.6 million income tax provision for the first quarter of 2005 is not expected to be payable, due to the utilization of the Companys net operating loss carryforwards.



The increase in net income for the first quarter of 2005 reflects a $2.3
million increase in net interest income, primarily at our banking subsidiary, and a $0.2 million decrease in operating expenses. In addition, we did not record a provision for loan losses in the first quarter of 2005, compared with a provision of
$0.1 million for the first quarter of 2004.



Our
stockholders equity decreased by $1.3 million during the three months ended March 31, 2005 to $168.9 million, or $7.87 book value per diluted share, notwithstanding the net income of $3.5 million. This decrease was due to after-tax unrealized
losses of $2.3 million on our portfolio of available-for-sale securities during the quarter, as a result of recent increases in market interest rates, and cash dividends of $2.6 million.



13



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##### Table of Contents

Following is a discussion of the operating results of our Banking Operations and Mortgage Investment
Operations segments, and our discontinued Loan Servicing Operations.



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



Results of Operations - FBBH



The following table compares income before taxes for FBBH
for the quarters ended March 31, 2005 and 2004.



|                                                    |  |                         |        |                     |   |        |  |   |       |  
|--------------------------------------------------- |  | ----------------------- | ------ | ------------------- | - | ------ |  | - | ----- | -
|                                                    |  | Quarter Ended March 31, |        | Increase (Decrease) |  
|                                                    |  | 2005                    |        | 2004                |  
|                                                    |  | (Dollars in thousands)  |       
|Interest income                                     |  | $                       | 16,599 |                     | $ | 12,048 |  | $ | 4,551 |  
|Interest expense                                    |  |                         | 7,468  |                     |   | 5,572  |  |   | 1,896 |  
|                                                    |  |                         |        |                     |   |        |  |   |       |  
|Net interest income                                 |  |                         | 9,131  |                     |   | 6,476  |  |   | 2,655 |  
|Provision for loan losses                           |  |                         |       |                     |   |       |  |   |      |  
|                                                    |  |                         |        |                     |   |        |  |   |       |  
|Net interest income after provision for loan losses |  |                         | 9,131  |                     |   | 6,476  |  |   | 2,655 |  
|Realized gains on sales                             |  |                         |       |                     |   | 273    |  |   | (273  | )
|Other income                                        |  |                         | 720    |                     |   | 478    |  |   | 242   |  
|Compensation and employee benefit expense           |  |                         | 1,779  |                     |   | 1,568  |  |   | 211   |  
|Other expenses                                      |  |                         | 1,266  |                     |   | 1,314  |  |   | (48   | )
|                                                    |  |                         |        |                     |   |        |  |   |       |  
|Income before taxes                                 |  | $                       | 6,806  |                     | $ | 4,345  |  | $ | 2,461 |  
|                                                    |  |                         |        |                     |   |        |  |   |       |  



Net Interest Income



The following table sets forth information regarding
the Banks income from interest-earning assets and expenses from interest-bearing liabilities for the quarters ended March 31, 2005 and 2004:



|                                         |  |                              |           |          |                              |                       |  |      |                 |  |          |         |                       |   |        |  |      |  
|---------------------------------------- |  | ---------------------------- | --------- | -------- | ---------------------------- | --------------------- |  | ---- | --------------- |  | -------- | ------- | --------------------- | - | ------ |  | ---- | -
|                                         |  | Quarter Ended March 31, 2005 |           |          | Quarter Ended March 31, 2004 |                      
|                                         |  | Average Balance              |           | Interest |                              | Annualized Yield/Rate |  |      | Average Balance |  | Interest |         | Annualized Yield/Rate |  
|                                         |  | (Dollars in thousands)       |          
|Interest-Earning Assets:                 |  |                              |           |         
|Federal funds and short-term investments |  | $                            | 15,234    |          | $                            | 99                    |  | 2.59 | %               |  | $        | 18,841  |                       | $ | 53     |  | 1.10 | %
|Mortgage-backed and other securities     |  |                              | 338,140   |          |                              | 3,470                 |  | 4.11 | %               |  |          | 267,686 |                       |   | 2,614  |  | 3.91 | %
|Loans (1) (2)                            |  |                              | 917,026   |          |                              | 13,030                |  | 5.68 | %               |  |          | 639,863 |                       |   | 9,381  |  | 5.86 | %
|                                         |  |                              |           |          |                              |                       |  |      |                 |  |          |         |                       |   |        |  |      |  
|Total interest-earning assets            |  |                              | 1,270,400 |          |                              | 16,599                |  | 5.23 | %               |  |          | 926,390 |                       |   | 12,048 |  | 5.15 | %
|                                         |  |                              |           |          |                              |                       |  |      |                 |  |          |         |                       |   |        |  |      |  
|Interest-Bearing Liabilities:            |  |                              |           |          |                              |                       |  |      |                 |  |          |         |                       |   |        |  |      |  
|Interest-bearing deposits                |  |                              | 560,035   |          |                              | 3,214                 |  | 2.33 | %               |  |          | 531,662 |                       |   | 3,113  |  | 2.35 | %
|Borrowings                               |  |                              | 613,570   |          |                              | 4,254                 |  | 2.81 | %               |  |          | 322,842 |                       |   | 2,459  |  | 3.05 | %
|                                         |  |                              |           |          |                              |                       |  |      |                 |  |          |         |                       |   |        |  |      |  
|Total interest-bearing liabilities       |  |                              | 1,173,605 |          |                              | 7,468                 |  | 2.58 | %               |  |          | 854,504 |                       |   | 5,572  |  | 2.62 | %
|                                         |  |                              |           |          |                              |                       |  |      |                 |  |          |         |                       |   |        |  |      |  
|Net interest income                      |  |                              |           |          | $                            | 9,131                 |  |      |                 |  |          |         |                       | $ | 6,476  |  |      |  
|                                         |  |                              |           |          |                              |                       |  |      |                 |  |          |         |                       |   |        |  |      |  
|Net interest spread                      |  |                              |           |          |                              |                       |  | 2.65 | %               |  |          |         |                       |   |        |  | 2.53 | %
|                                         |  |                              |           |          |                              |                       |  |      |                 |  |          |         |                       |   |        |  |      |  
|Net interest margin                      |  |                              |           |          |                              |                       |  | 2.91 | %               |  |          |         |                       |   |        |  | 2.80 | %
|                                         |  |                              |           |          |                              |                       |  |      |                 |  |          |         |                       |   |        |  |      |  

---

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



|(2) | Interest income on loans includes the accretion of loan fees of $40 and $29, respectively, for the quarters ended March 31, 2005 and 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



The Banks net interest income was $9.1 million for the quarter ended
March 31, 2005, compared with $6.5 million for the quarter ended March 31, 2004. The net interest spread increased by 12 basis points, from 2.53% for the first quarter of 2004 to 2.65% for the first quarter of 2005, and the net interest margin
increased from 2.80% to 2.91% for the same periods.



The
increase in net interest income in the first quarter of 2005 as compared with the first quarter of 2004 was primarily attributable to the Banks significant loan originations throughout 2004, utilizing primarily borrowings and, to a lesser
extent,



14



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##### Table of Contents

deposits as funding sources. As a result, the average balance of the Banks earning-asset portfolio increased to $1.3 billion for the quarter ended
March 31, 2005, compared with $926 million for the quarter ended March 31, 2004. In addition, but to a lesser extent, the Banks net interest income was positively impacted by the increase in spread noted above. Despite the recent increase in
market interest rates, the Banks weighted-average cost of funds declined by 4 basis points from the first quarter of 2004 to the first quarter of 2005, while its yield on interest-earning assets increased by 8 basis points over the same
periods.



The Banks interest income on mortgage-backed
and other investment securities was $3.5 million for the quarter ended March 31, 2005, compared with $2.6 million for the quarter ended March 31, 2004. The increase in the first quarter of 2005 was due to an increase in the average investment
balance, primarily as a result of the Banks purchases of $238.4 million of mortgage-backed and other investment securities in 2004. In addition, as a result of the recent rise in market interest rates, the Banks yield on mortgage-backed
and other investment securities increased by 20 basis points from for the first quarter of 2004 to the first quarter of 2005.



The Banks interest income on loans was $13.0 million for the quarter ended March 31, 2005, compared with $9.4 million for the quarter ended March
31, 2004. This increase was due to a $277.2 million increase in the average loan balance for the first quarter of 2005, which resulted from both significant loan originations in 2004 and a slowing of prepayments as compared with the prior year. The
effect of this increase in average loan volume was partially offset by an 18-basis point decline in average yield, from 5.86% for the first quarter of 2004 to 5.68% for the first quarter of 2005. This decline in yield, in light of recent increases
in interest rates, occurred since the majority of the Banks loan portfolio was originated or purchased during the low interest-rate environment of the past two years. The Banks loan growth slowed in the first quarter of 2005, primarily
due to the increase in interest rates during that quarter, which reduced the number of refinancings, and also due to increasing competitiveness in loan pricing. However, the Banks pipeline of loans in process increased by $58.5 million during
the quarter to $165.7 million, indicating the potential for higher loan originations in the future. The Bank also anticipates increasing its loan purchasing activity.



FBBHs interest expense on deposits totaled $3.2 million for the quarter ended March 31, 2005, compared with $3.1
million for the quarter ended March 31, 2004. The increase resulted from a $28.4 million increase in the average deposit balance, as the Bank raised new brokered certificates of deposit in early 2004 to finance its loan originations and purchases.
The Bank has since permitted the run-off of its higher-costing certificates of deposit and has utilized repurchase agreements and Federal Home Loan Bank (FHLB) advances to finance its asset acquisitions. The higher average deposit volume
in the first quarter of 2005 was partially offset by a decline in cost of 2 basis points, from 2.35% for the quarter ended March 31, 2004 to 2.33% for the quarter ended March 31, 2005, as a significant portion of the Banks certificates of
deposit were raised prior to the recent increase in market interest rates.



The Banks interest expense on borrowings was $4.3 million for the quarter ended March 31, 2005, compared with $2.5 million for the quarter ended March 31, 2004. This increase was due to a significant increase in
the average balance of outstanding borrowings. Beginning in the second quarter of 2004, after receiving a deposit of $52 million from BHBC representing primarily the gross proceeds from the sale of WCC, the Bank increasingly utilized FHLB advances
and repurchase agreements as its primary funding source in lieu of higher-costing certificates of deposit. This increase in average borrowings was partially offset by a decline in the cost of borrowings from 3.05% for the first quarter of 2004 to
2.81% for the first quarter of 2005. This decline in average cost, despite rising market interest rates, was due primarily to the maturity of some of the Banks older, higher-costing borrowing facilities.



Provision for Loan Losses



Provisions for losses on loans are charged to operations to maintain an
allowance for losses on the loan portfolio at a level which the Bank believes is adequate based on an evaluation of the inherent risks in the portfolio. The Banks evaluation is based on an analysis of the loan portfolio, historical loss
experience, 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 its quarterly evaluation of the adequacy of its loan loss reserves, the Bank determined that no provision for loan losses was required for the
first quarters of 2005 and 2004.



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.



15



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##### Table of Contents

Realized Gains on Sales



In the first quarter of 2004, the Bank realized a gain of $0.3 million on sales of $17.7 million of mortgage-backed
securities. There was no such sales activity in the first quarter 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.



Other Income



The Banks other income was $0.7 million for the quarter ended March 31, 2005, compared with $0.5 million for the quarter ended March 31, 2004. This increase reflects a net gain of $0.2 million on sales of three real properties during
the quarter and a $0.1 million increase in dividends on FHLB stock, partially offset by a decline in loan fees.



Compensation and Employee Benefits Expense



The Banks compensation and employee benefits expense totaled $1.8 million for the quarter ended March 31, 2005, compared with $1.6 million for the
quarter ended March 31, 2004. This increase was due to higher staffing levels in the first quarter of 2005, primarily as a result of (i) an increase in the Banks lending staff, (ii) the opening of the new branch in Calabasas and (iii) the
conversion to an in-house loan servicing system in 2004. Partially offsetting these increases was a decline in incentive compensation, as a result of the lower level of loan fundings as compared with the first quarter of 2004.



Other Expenses



The Banks other expenses totaled approximately $1.3 million for the quarters ended March 31, 2005 and 2004. The
Banks occupancy expense increased slightly as a result of the renewal of the lease at its Calabasas, California offices which became effective on August 31, 2004. Depreciation expense declined slightly, as many of the Banks leasehold
improvements at its Calabasas offices became fully depreciated upon the expiration of the original lease. In most expense categories, costs remained largely consistent from the first quarter of 2004 to the first quarter of 2005, reflecting the
Banks efforts to control overhead.



Changes in Financial Condition
 First Bank of Beverly Hills



Following are
condensed statements of financial condition for FBBH as of March 31, 2005 and December 31, 2004:



|                                                              |  |                        |           |                   |   |          
|------------------------------------------------------------- |  | ---------------------- | --------- | ----------------- | - | ---------
|                                                              |  | March 31, 2005         |           | December 31, 2004
|                                                              |  | (Dollars in thousands)
|ASSETS:                                                       |  |                        |           |                   |   |          
|Cash and cash equivalents                                     |  | $                      | 37,605    |                   | $ | 15,526   
|Mortgage-backed securities available for sale, at fair value  |  |                        | 330,066   |                   |   | 307,116  
|Other investment securities available for sale, at fair value |  |                        | 13,762    |                   |   | 13,819   
|Investment securities held to maturity, at amortized cost     |  |                        | 9,670     |                   |   | 9,657    
|Loans, net                                                    |  |                        | 907,086   |                   |   | 915,447  
|Real estate owned                                             |  |                        | 9         |                   |   | 1,769    
|Other assets                                                  |  |                        | 38,918    |                   |   | 35,291   
|                                                              |  |                        |           |                   |   |          
|Total Assets                                                  |  | $                      | 1,337,116 |                   | $ | 1,298,625
|                                                              |  |                        |           |                   |   |          
|                                                              |  |                       
|LIABILITIES:                                                  |  |                        |           |                   |   |          
|Deposits                                                      |  | $                      | 584,283   |                   | $ | 580,085  
|Repurchase agreements                                         |  |                        | 143,000   |                   |   | 120,000  
|FHLB advances                                                 |  |                        | 468,837   |                   |   | 474,837  
|Other liabilities                                             |  |                        | 29,602    |                   |   | 13,928   
|                                                              |  |                        |           |                   |   |          
|Total liabilities                                             |  |                        | 1,225,722 |                   |   | 1,188,850
|                                                              |  |                        |           |                   |   |          
|                                                              |  |                       
|STOCKHOLDERS EQUITY                                          |  |                        | 111,394   |                   |   | 109,775  
|                                                              |  |                        |           |                   |   |          
|Total liabilities and stockholders equity                    |  | $                      | 1,337,116 |                   | $ | 1,298,625
|                                                              |  |                        |           |                   |   |          



Mortgage-Backed
and Other Securities Available for Sale. The Banks portfolio of mortgage-backed securities (MBS) available for sale increased by $22.9 million during the quarter ended March 31, 2005. This increase reflects purchases of $48.9 million
of AAA-rated MBS, partially offset by principal repayments of $21.9 million. In addition, the Bank recorded unrealized holding losses on its portfolio of $3.9 million, as a result of the increase in market rates of interest during the quarter.



The Banks portfolio of other investment securities
available for sale decreased by $0.1 million during the quarter ended March 31, 2005 as a result of an increase in unrealized holding losses.



16



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##### Table of Contents

The following table sets forth the Banks holdings of MBS and other investment securities as of
March 31, 2005 and December 31, 2004.



|                                                    |  |                        |         |                  |   |        
|--------------------------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                                    |  | March 31, 2005         |         | December 31,2004
|                                                    |  | (Dollars in thousands)
|Available for sale, at fair value:                  |  |                        |         |                  |   |        
|AAA mortgage-backed securities                      |  | $                      | 187,086 |                  | $ | 166,339
|GSE mortgage-backed securities                      |  |                        | 130,117 |                  |   | 140,777
|Other mortgage-backed securities                    |  |                        | 12,863  |                  |   |       
|Trust preferred securities                          |  |                        | 8,000   |                  |   | 8,000  
|Mutual funds                                        |  |                        | 5,762   |                  |   | 5,819  
|                                                    |  |                        |         |                  |   |        
|Total available for sale                            |  |                        | 343,828 |                  |   | 320,935
|Held to maturity:                                   |  |                        |         |                  |   |        
|Agency securities (fair value of $9,765 and $9,795) |  |                        | 9,670   |                  |   | 9,657  
|                                                    |  |                        |         |                  |   |        
|Total investment securities                         |  | $                      | 353,498 |                  | $ | 330,592
|                                                    |  |                        |         |                  |   |        



The amortized cost and
fair value of the Banks securities, by contractual maturity, are shown below as of March 31, 2005:



|                         |  |                        |         |            |   |        
|------------------------ |  | ---------------------- | ------- | ---------- | - | -------
|                         |  | Amortized Cost         |         | Fair Value
|                         |  | (Dollars in thousands)
|Due in five to ten years |  | $                      | 5,492   |            | $ | 5,418  
|Due after ten years      |  |                        | 347,913 |            |   | 342,413
|Mutual funds             |  |                        | 5,750   |            |   | 5,762  
|                         |  |                        |         |            |   |        
|Total                    |  | $                      | 359,155 |            | $ | 353,593
|                         |  |                        |         |            |   |        



The following tables
show the gross unrealized losses and fair value of the Banks investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 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)
|March 31, 2005                           |  |                        |         |                   |   |            |  |                   |        |            |   |                   |  |   |         |  |   |      
|GSE mortgage-backed securities           |  | $                      | 75,148  |                   | $ | 882        |  | $                 | 43,681 |            | $ | 884               |  | $ | 118,829 |  | $ | 1,766
|AAA and other mortgage-backed securities |  |                        | 128,320 |                   |   | 2,407      |  |                   | 50,797 |            |   | 1,547             |  |   | 179,117 |  |   | 3,954
|Mutual funds                             |  |                        | 1,940   |                   |   | 60         |  |                   |       |            |   |                  |  |   | 1,940   |  |   | 60   
|                                         |  |                        |         |                   |   |            |  |                   |        |            |   |                   |  |   |         |  |   |      
|Total                                    |  | $                      | 205,408 |                   | $ | 3,349      |  | $                 | 94,478 |            | $ | 2,431             |  | $ | 299,886 |  | $ | 5,780
|                                         |  |                        |         |                   |   |            |  |                   |        |            |   |                   |  |   |         |  |   |      
|                                         |  |                        |        
|                                         |  | 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 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) the intent and ability of the Bank to retain its investment in the
issuer for a period of time sufficient to allow for any anticipated recovery in fair value.



Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company expects to receive full value for the securities. Furthermore, as of March 31,
2005, management 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.



17



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##### Table of Contents

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 March 31, 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, net. The Banks portfolio of loans, net of
discounts and allowances, decreased by $8.4 million in the first quarter of 2005. This decrease reflects loan repayments of $34.4 million, partially offset by loan originations of $21.6 million and purchases of $4.8 million. The Banks loan
growth slowed during the quarter 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. However, the Banks pipeline of loans in process
increased by $58.5 million during the quarter to $165.7 million, indicating the potential for higher loan originations in the future. The Bank also anticipates increasing its loan purchasing activity.



Following is a summary of the Banks loan portfolio as of March 31, 2005
and December 31, 2004:



|                                 |  |                        |         |   |                   |   |         |  
|-------------------------------- |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                 |  | March 31, 2005         |         |   | December 31, 2004 |  
|                                 |  | (Dollars in thousands) |        
|Single-family residential        |  | $                      | 41,942  |   |                   | $ | 44,569  |  
|Multi-family residential         |  |                        | 398,472 |   |                   |   | 412,074 |  
|Commercial real estate           |  |                        | 470,192 |   |                   |   | 462,961 |  
|Consumer and other               |  |                        | 1,004   |   |                   |   | 992     |  
|                                 |  |                        |         |   |                   |   |         |  
|Loan portfolio principal balance |  |                        | 911,610 |   |                   |   | 920,596 |  
|Net premium and deferred fees    |  |                        | 2,684   |   |                   |   | 2,064   |  
|Allowance for loan losses        |  |                        | (7,208  | ) |                   |   | (7,213  | )
|                                 |  |                        |         |   |                   |   |         |  
|Total loan portfolio, net        |  | $                      | 907,086 |   |                   | $ | 915,447 |  
|                                 |  |                        |         |   |                   |   |         |  



The following table
summarizes the activity in the Banks allowance for loan losses for the periods indicated:



|                             |  |                         |       |   |      |   |      
|---------------------------- |  | ----------------------- | ----- | - | ---- | - | -----
|                             |  | Quarter Ended March 31,
|                             |  | 2005                    |       |   | 2004
|                             |  | (Dollars in thousands) 
|Balance, beginning of period |  | $                       | 7,213 |   |      | $ | 6,652
|Charge-offs                  |  |                         | (6    | ) |      |   |     
|Recoveries                   |  |                         | 1     |   |      |   | 12   
|Provision for loan losses    |  |                         |      |   |      |   |     
|                             |  |                         |       |   |      |   |      
|Balance, end of period       |  | $                       | 7,208 |   |      | $ | 6,664
|                             |  |                         |       |   |      |   |      



The following table
sets forth the delinquency status of the Banks loans as of March 31, 2005 and December 31, 2004:



|                                                          |  |                        |        |   |                   |   |       |  
|--------------------------------------------------------- |  | ---------------------- | ------ | - | ----------------- | - | ----- | -
|                                                          |  | March 31, 2005         |        |   | December 31, 2004 |  
|                                                          |  | (Dollars in thousands) |       
|Balance of delinquent loans:                              |  |                        |        |   |                   |   |       |  
|31-60 days (1)                                            |  | $                      | 11,278 |   |                   | $ | 2,364 |  
|61-90 days                                                |  |                        | 829    |   |                   |   | 902   |  
|91 days or more (2)                                       |  |                        | 2,682  |   |                   |   | 4,535 |  
|                                                          |  |                        |        |   |                   |   |       |  
|Total delinquent loans                                    |  | $                      | 14,789 |   |                   | $ | 7,801 |  
|                                                          |  |                        |        |   |                   |   |       |  
|                                                          |  |                       
|Delinquent loans as a percentage of total loan portfolio: |  |                        |        |   |                   |   |       |  
|31-60 days (1)                                            |  |                        | 1.2    | % |                   |   | 0.2   | %
|61-90 days                                                |  |                        | 0.1    |   |                   |   | 0.1   |  
|91 days or more (2)                                       |  |                        | 0.3    |   |                   |   | 0.5   |  
|                                                          |  |                        |        |   |                   |   |       |  
|Total                                                     |  |                        | 1.6    | % |                   |   | 0.8   | %
|                                                          |  |                        |        |   |                   |   |       |  

---

|(1) | The balance of loans 31-60 days past due at March 31, 2005 included one commercial real estate loan with an unpaid principal balance of $8.5 million. This loan was brought current
in April 2005.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18



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##### Table of Contents

|(2) | All loans delinquent more than 90 days were on nonaccrual status.
|--- | -----------------------------------------------------------------



Real Estate Owned. The Banks portfolio of real estate owned at March 31, 2005 consisted of one property, a mobile home acquired by
foreclosure. The decrease in real estate owned during the first quarter of 2005 was due to sales of three properties with an aggregate carrying value of $1.8 million for a net gain of $0.2 million.



Deposits. The Banks deposits increased by $4.2 million
during the first quarter of 2005, due primarily to an increase in brokered certificates of deposit in March 2005. The Banks deposits at March 31, 2005 included a total of $34.5 million in demand deposits held by BHBC and WFC. However, those
deposits are eliminated in consolidation and are not reflected in total deposits on the Companys consolidated statements of financial condition.



Repurchase Agreements. The Banks repurchase agreements increased by $23.0 million during the quarter ended March 31, 2005 as a result
of a new borrowing which bears interest at 3.60%. These borrowings are used primarily to finance the Banks lending and investment activities.



FHLB Advances. The Banks FHLB advances decreased by $6.0 million in the quarter ended March 31, 2005, reflecting $51.0 million of
maturities, partially offset by $45.0 million in new long-term advances with a weighted-average cost of 4.10%. The FHLB has authorized a borrowing limit for the Banks total FHLB advances of 40% 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:



|                                                        |  |                              |         |   |                              |   |         |  
|------------------------------------------------------- |  | ---------------------------- | ------- | - | ---------------------------- | - | ------- | -
|                                                        |  | Quarter Ended March 31, 2005 |         |   | Quarter Ended March 31, 2004 |  
|                                                        |  | (Dollars in thousands)       |        
|FHLB Advances:                                          |  |                              |         |   |                              |   |         |  
|Average amount outstanding during the period            |  | $                            | 483,337 |   |                              | $ | 262,087 |  
|Maximum month-end balance outstanding during the period |  |                              | 494,837 |   |                              |   | 317,337 |  
|Weighted average rate:                                  |  |                              |         |   |                              |   |         |  
|During the period                                       |  |                              | 2.81    | % |                              |   | 3.03    | %
|At end of period                                        |  |                              | 2.76    | % |                              |   | 2.96    | %



Other
Liabilities. The Banks other liabilities increased by $15.7 million during the first quarter of 2005, primarily as a result of the purchase of a $12.9 million MBS at quarter-end. This liability was paid in full in April 2005.



Stockholders Equity. The Banks
stockholders equity increased by $1.6 million for the quarter ended March 31, 2005. This increase reflects the Banks net income for the quarter of $3.9 million, partially offset by $2.3 million in net after-tax unrealized losses on the
portfolio of available-for-sale securities.



Regulatory Capital Requirements



Federally insured savings associations such as FBBH are
required to maintain minimum levels of regulatory capital. Those standards generally are as stringent as the comparable capital requirements imposed on national banks. The OTS has indicated that the capital level of FBBH exceeds the minimum
requirement for well capitalized status under provisions of the Prompt Corrective Action Regulation.



The following table sets forth the Banks regulatory capital ratios at March 31, 2005.



Regulatory Capital Ratios



|                                                          |  |                        |                              |       |                 |                                        |        |   |                |  |   |        |        |       |   |                |   |   |      |  
|--------------------------------------------------------- |  | ---------------------- | ---------------------------- | ----- | --------------- | -------------------------------------- | ------ | - | -------------- |  | - | ------ | ------ | ----- | - | -------------- | - | - | ---- | -
|                                                          |  | Actual                 |                              |       | Amount Required |                                       
|                                                          |  |                        | For Capital AdequacyPurposes |       |                 | To be Categorized asWell Capitalized |       
|                                                          |  | Amount                 |                              | Ratio |                 |                                        | Amount |   | Ratio          |  |   | Amount |        | Ratio |  
|                                                          |  | (Dollars in thousands) |                             
|Total capital to risk-weighted assets(Risk-based capital) |  | $                      | 118,975                      |       | 12.2            | %                                      |        | $ | 77,850         |  | 3 | 8.0    | %      |       | $ | 97,313         |   | 3 | 10.0 | %
|Tier 1 capital to risk-weighted assets                    |  |                        | 111,857                      |       | 11.5            | %                                      |        |   | Not Applicable |  |   |        | 58,388 |       | 3 | 6.0            | %
|Core capital to tangible assets                           |  |                        | 111,857                      |       | 8.3             | %                                      |        |   | 53,616         |  | 3 | 4.0    | %      |       |   | 67,020         |   | 3 | 5.0  | %
|Tangible capital to tangible assets                       |  |                        | 111,857                      |       | 8.3             | %                                      |        |   | 20,106         |  | 3 | 1.5    | %      |       |   | Not Applicable |  



19



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##### Table of Contents

Upon conversion to a California state commercial bank charter, the Bank would be subject to the same
capital requirements, and expects to remain categorized as a well capitalized bank.



Liquidity and Capital Resources



Liquidity is the measurement of the Banks ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund investments, purchase pools of loans, and make payments for general business purposes. The
Banks sources of liquidity include wholesale and retail deposits, FHLB advances (up to 40% of the Banks total assets as of the previous quarter-end), repurchase agreements, whole loan and mortgage-backed securities sales, and net
interest income. Liquidity in the Banks operations is actively managed on a daily basis and periodically reviewed by the Banks Board of Directors.



At March 31, 2005, the Banks cash balances totaled $37.6 million, compared with $15.5 million at December 31, 2004. The increase in cash was due
primarily to new borrowings and repayments on loans, partially offset by loan originations and purchases of mortgage-backed securities.



At March 31, 2005, the Bank had $434.3 million of certificates of deposit. Scheduled maturities of certificates of deposit during the 12 months ending
March 31, 2006 and thereafter amounted to $301.0 million and $133.3 million, respectively. Wholesale deposits generally are more responsive to changes in interest rates than core deposits, and thus are more likely to be withdrawn by the investor
upon maturity as changes in interest rates and other factors are perceived by investors to make other investments more attractive. Bank management continues its effort to reduce 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 Bank is party to various contractual financial obligations, including repayment of borrowings, operating lease payments and commitments to extend
credit. The table below presents the Banks future financial obligations outstanding as of March 31, 2005:



|                        |  |                                                   |         |           |   |           |  |               |        |       |   |       |  |   |          
|----------------------- |  | ------------------------------------------------- | ------- | --------- | - | --------- |  | ------------- | ------ | ----- | - | ----- |  | - | ---------
|                        |  | Payments due within time period at March 31, 2005
|                        |  | 0-12 Months                                       |         | 1-3 Years |   | 4-5 Years |  | After 5 Years |        | Total
|                        |  | (Dollars in thousands)                           
|Certificates of deposit |  | $                                                 | 308,844 |           | $ | 128,408   |  | $             | 10,138 |       | $ |      |  | $ | 447,390  
|Repurchase agreements   |  |                                                   | 115,789 |           |   | 30,574    |  |               |       |       |   |      |  |   | 146,363  
|Employment contracts    |  |                                                   | 206     |           |   |          |  |               |       |       |   |      |  |   | 206      
|Operating leases        |  |                                                   | 698     |           |   | 1,413     |  |               | 1,008  |       |   | 2,015 |  |   | 5,134    
|FHLB advances           |  |                                                   | 206,482 |           |   | 253,801   |  |               | 26,774 |       |   |      |  |   | 487,057  
|                        |  |                                                   |         |           |   |           |  |               |        |       |   |       |  |   |          
|Total                   |  | $                                                 | 632,019 |           | $ | 414,196   |  | $             | 37,920 |       | $ | 2,015 |  | $ | 1,086,150
|                        |  |                                                   |         |           |   |           |  |               |        |       |   |       |  |   |          



With the exception of
the operating leases, the expected obligations presented above include anticipated interest accruals based on the current respective contractual terms.



OTS 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 March 31, 2005, the Bank was in compliance with its liquidity policy.



MORTGAGE INVESTMENT OPERATIONS



We conduct our Mortgage Investment Operations through WFC, our wholly owned investment subsidiary. Some of WFCs activities have been conducted with
a co-investor, which has participation interests in the returns generated by the assets that serve as collateral for the loans. The share of such activities held by this co-investor is reflected as Investor participation interest in the
Companys consolidated statements of operations.



20



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##### Table of Contents

Results of Operations  WFC



The following table compares WFCs income before taxes for the quarters ended March 31, 2005 and 2004.



|                                         |  |                         |     |   |                     |   |      |   |  |   |      |  
|---------------------------------------- |  | ----------------------- | --- | - | ------------------- | - | ---- | - |  | - | ---- | -
|                                         |  | Quarter Ended March 31, |     |   | Increase (Decrease) |  
|                                         |  | 2005                    |     |   | 2004                |   |     
|                                         |  | (Dollars in thousands)  |    
|Interest income                          |  | $                       | 306 |   |                     | $ | 560  |   |  | $ | (254 | )
|Realized gains                           |  |                         |    |   |                     |   | 47   |   |  |   | (47  | )
|Other loss, net                          |  |                         | (42 | ) |                     |   | (138 | ) |  |   | 96   |  
|                                         |  |                         |     |   |                     |   |      |   |  |   |      |  
|Total revenues                           |  |                         | 264 |   |                     |   | 469  |   |  |   | (205 | )
|                                         |  |                         |     |   |                     |   |      |   |  |   |      |  
|Interest expense                         |  |                         |    |   |                     |   | 10   |   |  |   | (10  | )
|(Recapture of) provision for loan losses |  |                         | (4  | ) |                     |   | 114  |   |  |   | (118 | )
|Other expenses                           |  |                         | 11  |   |                     |   | 3    |   |  |   | 8    |  
|                                         |  |                         |     |   |                     |   |      |   |  |   |      |  
|Total expenses                           |  |                         | 7   |   |                     |   | 127  |   |  |   | (120 | )
|                                         |  |                         |     |   |                     |   |      |   |  |   |      |  
|Income before taxes                      |  | $                       | 257 |   |                     | $ | 342  |   |  | $ | (85  | )
|                                         |  |                         |     |   |                     |   |      |   |  |   |      |  



Interest Income and Interest
Expense



WFCs interest income was $0.3 million
for the quarter ended March 31, 2005, compared with $0.6 million for the quarter ended March 31, 2004. This decrease was due primarily to a decline in interest income on loans, as a result of WFCs sale of $24 million unpaid principal balance
of loans in December 2004.



WFC did not incur interest expense
for the quarter ended March 31, 2005 due to the repayment of its outstanding borrowing facility in 2004. WFC incurred interest expense of $10,000 on this facility in the first quarter of 2004 prior to its repayment.



Other Loss, Net



WFCs other loss declined from the first quarter of 2004 to the first quarter of 2005 primarily as a result of a
decrease in investor participation interest expense, which represents the co-investors share of certain investment activities conducted with WFC.



(Recapture of) Provision for Loan Losses



WFC recorded a recapture of $4,000 of loan loss reserves upon the payoff of a loan in March 2005. In the first quarter of 2004, WFC recorded loan loss
provisions totaling $0.1 million.



Changes in Financial Condition  WFC



Following are WFCs condensed statements of
financial condition as of March 31, 2005 and December 31, 2004:



|                                                             |  |                        |        |                   |   |       
|------------------------------------------------------------ |  | ---------------------- | ------ | ----------------- | - | ------
|                                                             |  | March 31, 2005         |        | December 31, 2004
|                                                             |  | (Dollars in thousands)
|ASSETS:                                                      |  |                        |       
|Cash and cash equivalents                                    |  | $                      | 1      |                   | $ | 352   
|Mortgage-backed securities available for sale, at fair value |  |                        | 403    |                   |   | 345   
|Discounted loans, net                                        |  |                        | 1,831  |                   |   | 2,360 
|Intercompany receivables                                     |  |                        | 20,688 |                   |   | 19,611
|Other assets                                                 |  |                        | 4,379  |                   |   | 4,405 
|                                                             |  |                        |        |                   |   |       
|Total assets                                                 |  | $                      | 27,302 |                   | $ | 27,073
|                                                             |  |                        |        |                   |   |       
|LIABILITIES:                                                 |  |                        |        |                   |   |       
|Other liabilities                                            |  | $                      | 1,870  |                   | $ | 1,823 
|                                                             |  |                        |        |                   |   |       
|Total liabilities                                            |  |                        | 1,870  |                   |   | 1,823 
|STOCKHOLDERS EQUITY                                         |  |                        | 25,432 |                   |   | 25,250
|                                                             |  |                        |        |                   |   |       
|Total liabilities and stockholders equity                   |  | $                      | 27,302 |                   | $ | 27,073
|                                                             |  |                        |        |                   |   |       



Mortgage-Backed
Securities Available for Sale. WFCs portfolio of mortgage-backed securities available for sale increased slightly during the quarter ended March 31, 2005 as a result of an increase in the fair value of the securities. WFC received $0.2
million in principal and interest repayments in the current year on its mortgage-backed securities, which have been written down to an amortized cost of zero. Consequently, any payments received on these securities are recorded directly to interest
income.



Discounted Loans, net. WFCs
discounted loans, net decreased by $0.5 million during the quarter ended March 31, 2005, primarily as a result of loan principal repayments. WFC also charged off $2.2 million in loan loss reserves against one loan that was repaid in full during the
quarter.



Intercompany Receivables.Intercompany
receivables increased by approximately $1.1 million during the first quarter of 2005, due to a transfer of funds from WFC to BHBC to meet the holding companys operating costs.



21



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##### Table of Contents

Liquidity and Capital Resources



WFCs sources of cash flow include primarily net interest income and repayments on its portfolio of loans and
mortgage-backed securities. WFCs liquidity is actively managed and periodically reviewed by our Board of Directors. This process is intended to ensure the maintenance of sufficient funds to meet WFC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 WFCs needs.



HOLDING COMPANY AND MISCELLANEOUS OPERATIONS



Our Holding Company and Miscellaneous Operations consist primarily of other operating expenses not directly attributable to our Banking or Mortgage
Investment Operations, and also include eliminations of intercompany accounts and transactions. During the quarter ended March 31, 2005, the holding company incurred $22,000 in legal costs for the defense of former executives, compared with $0.3
million for the quarter ended March 31, 2004. The holding company also recorded $0.2 million in external auditing and consulting expenses in the first quarter of 2005 related to the implementation of Sarbanes-Oxley Section 404.



The holding companys primary sources of liquidity include proceeds from
the sale of WCC, proceeds from the July 2002 issuance of junior subordinated notes, and payments received from FBBH pursuant to a tax allocation agreement between the Company and the Bank. However, the OTS has limited the amount of these payments to
the lesser of (1) the Banks stand-alone tax liability and (2) the total tax payments made by the Company.



The table below summarizes the holding companys future financial obligations, including estimated interest based on the current contractual terms,
with respect to the junior subordinated notes as of March 31, 2005. The amounts below are based on the assumption that the notes will be repaid in full at maturity in July 2032. However, commencing July 12, 2007, the notes may be repaid in full or
in part at par.



|                                  |  |                                                   |       |          |   |          |  |              |       |       |   |        |  |   |       
|--------------------------------- |  | ------------------------------------------------- | ----- | -------- | - | -------- |  | ------------ | ----- | ----- | - | ------ |  | - | ------
|                                  |  | Payments due within time period at March 31, 2005
|                                  |  | 0-12Months                                        |       | 1-3Years |   | 4-5Years |  | After 5Years |       | Total
|                                  |  | (Dollars in thousands)                           
|Junior subordinated notes payable |  | $                                                 | 1,301 |          | $ | 2,602    |  | $            | 2,602 |       | $ | 49,568 |  | $ | 56,073
|                                  |  |                                                   |       |          |   |          |  |              |       |       |   |        |  |   |       



DISCONTINUED OPERATIONS - LOAN
SERVICING



The Company previously conducted Loan Servicing
Operations through WCC, our 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. The following table
summarizes WCCs income before taxes for the quarter ended March 31, 2004.



|                                           |  |                              |      
|------------------------------------------ |  | ---------------------------- | -----
|                                           |  | Quarter Ended March 31, 2004
|                                           |  | (Dollars inthousands)       
|Servicing income                           |  | $                            | 8,334
|Other income                               |  |                              | 466  
|                                           |  |                              |      
|Total revenues                             |  |                              | 8,800
|                                           |  |                              |      
|Interest expense                           |  |                              | 127  
|Provision for loan losses                  |  |                              | 49   
|Compensation and employee benefits expense |  |                              | 6,103
|Other expenses                             |  |                              | 1,707
|                                           |  |                              |      
|Total provision and expenses               |  |                              | 7,986
|                                           |  |                              |      
|Income before taxes                        |  | $                            | 814  
|                                           |  |                              |      



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 under the caption as
Discontinued operations for the quarter ended March 31, 2004.



22



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##### Table of Contents

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.



23



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##### Table of Contents

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------- | -----------------------------------------------------------



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



Asset and Liability Management



It is our objective to attempt to control risks associated with interest
rate movements. In general, managements strategy is to limit our exposure to earnings 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
the Board of Directors, and coordinates with the Board with respect to overall asset and liability composition.



ALCO is authorized to utilize off-balance sheet financial techniques to assist in the management of interest rate risk. These techniques include interest
rate swap agreements, pursuant to which the parties exchange the difference between fixed-rate and floating-rate interest payments on a specified principal amount (referred to as the notional amount) for a specified period without the
exchange of the underlying principal amount.



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



In addition, as required by OTS regulations, 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 the Board of Directors.



The following table quantifies the potential changes in the Companys net portfolio value at March 31, 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         |  | $                      | 151,146 |         | $                  | (30,530 | )       |  | (17 | )%        |  | 11.54 | %      |  | (167 | )bp
|+ 200bp         |  |                        | 160,131 |         |                    | (21,545 | )       |  | (12 | )         |  | 12.04 |        |  | (117 | )bp
|+ 100bp         |  |                        | 170,136 |         |                    | (11,540 | )       |  | (6  | )         |  | 12.59 |        |  | (62  | )bp
|0bp             |  |                        | 181,676 |         |                    |        |         |  |    |           |  | 13.21 |        |  |     |    
|- 100bp         |  |                        | 187,911 |         |                    | 6,235   |         |  | 3   |           |  | 13.48 |        |  | 27   | bp 
|- 200bp         |  |                        | 188,179 |         |                    | 6,503   |         |  | 4   |           |  | 13.37 |        |  | 17   | bp 
|- 300bp         |  |                        | 188,106 |         |                    | 6,430   |         |  | 4   |           |  | 13.25 |        |  | 4    | 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.



24



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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 anticipated maturities or repricing of the Banks assets and
liabilities based on their contractual terms as of March 31, 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                                     |  | $                      | 37,605   |    |                                   | $ |         |                                     |  | $ |                |    |  | $     |        |   |  | $ | 37,605   
|Mortgage-backed and other investment securities             |  |                        | 5,762    |    |                                   |   | 47,606   |                                     |  |   | 195,035         |    |  |       | 105,095 |   |  |   | 353,498  
|Single-family residential loans                             |  |                        | 24,588   |    |                                   |   | 2,742    |                                     |  |   | 53              |    |  |       | 14,559  |   |  |   | 41,942   
|Multi-family residential loans                              |  |                        | 128,159  |    |                                   |   | 69,128   |                                     |  |   | 149,455         |    |  |       | 51,730  |   |  |   | 398,472  
|Commercial real estate loans                                |  |                        | 187,361  |    |                                   |   | 87,260   |                                     |  |   | 152,568         |    |  |       | 43,003  |   |  |   | 470,192  
|Consumer and other loans                                    |  |                        | 62       |    |                                   |   | 26       |                                     |  |   | 623             |    |  |       | 293     |   |  |   | 1,004    
|Other assets (1)                                            |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 34,403  |   |  |   | 34,403   
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Total assets                                                |  |                        | 383,537  |    |                                   |   | 206,762  |                                     |  |   | 497,734         |    |  |       | 249,083 |   |  |   | 1,337,116
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Liabilities:                                                |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Demand deposits                                             |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 38,088  |   |  |   | 38,088   
|NOW and money market accounts                               |  |                        | 108,916  |    |                                   |   |         |                                     |  |   |                |    |  |       |        |   |  |   | 108,916  
|Savings accounts                                            |  |                        | 2,992    |    |                                   |   |         |                                     |  |   |                |    |  |       |        |   |  |   | 2,992    
|Certificates of deposit                                     |  |                        | 300,962  |    |                                   |   | 123,318  |                                     |  |   | 10,007          |    |  |       |        |   |  |   | 434,287  
|Repurchase agreements                                       |  |                        | 113,000  |    |                                   |   | 30,000   |                                     |  |   |                |    |  |       |        |   |  |   | 143,000  
|FHLB advances                                               |  |                        | 222,500  |    |                                   |   | 221,337  |                                     |  |   | 25,000          |    |  |       |        |   |  |   | 468,837  
|Other liabilities                                           |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 29,602  |   |  |   | 29,602   
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Total liabilities                                           |  |                        | 748,370  |    |                                   |   | 374,655  |                                     |  |   | 35,007          |    |  |       | 67,690  |   |  |   | 1,225,722
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|(Deficiency) excess of assets over liabilities              |  | $                      | (364,833 | )  |                                   | $ | (167,893 | )                                   |  | $ | 462,727         |    |  | $     | 181,393 |   |  | $ | 111,394  
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess                              |  | $                      | (364,833 | )  |                                   | $ | (532,726 | )                                   |  | $ | (69,999         | )  |  | $     | 111,394 |   |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess as a percent of total assets |  |                        | (27.29   | )% |                                   |   | (39.84   | )%                                  |  |   | (5.24           | )% |  |       | 8.33    | % |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          



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



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



Evaluation of Controls and Procedures



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



Changes in internal controls



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



25



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



Not applicable.



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



Not applicable.



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



|       |  |                                                                                                                                                                       
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1    |  | Certificate of Incorporation, as amended (1)                                                                                                                          
|       | 
|3.2    |  | Third Amended and Restated Bylaws (2)                                                                                                                                 
|       | 
|10.1   |  | Amended and Restated Stock Purchase Agreement dated April 30, 2004 by and between the Company and Merrill Lynch Mortgage Capital Inc. (3)                             
|       | 
|10.2   |  | Amended and Restated 1999 Equity Participation Plan dated January 31, 2001 (4)                                                                                        
|       | 
|10.3   |  | 2002 Equity Participation Plan (5)                                                                                                                                    
|       | 
|10.4   |  | Employment, Confidentiality and Contingent Severance Agreement between the Company and Joseph W. Kiley III (6)                                                        
|       | 
|10.5   |  | Lease dated June 28, 2004 between Century National Properties, Inc. and First Bank of Beverly Hills, F.S.B. (7)                                                       
|       | 
|10.6   |  | Landlords Consent to Assignment of Lease and Agreement between 175 South Beverly Drive Partnership, Fidelity Federal Bank and First Bank of Beverly Hills, F.S.B. (7)
|       | 
|10.7   |  | Change In Control Agreement dated November 1, 2003 between First Bank of Beverly Hills, F.S.B. and Craig W. Kolasinski (7)                                            
|       | 
|10.8   |  | Stay Bonus Agreement dated January 1, 2004 between First Bank of Beverly Hills, F.S.B. and Craig W. Kolasinski (7)                                                    
|       | 
|10.9   |  | Form of Change In Control Agreement dated November 1, 2003 between First Bank of Beverly Hills, F.S.B. and Takeo K. Sasaki, Annette J. Vecchio and John A. Kardos (7) 
|       | 
|* 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                       

---

|(1) | Incorporated by reference to the Companys Report on Form 10-Q for the quarter ended September 30, 2004, as filed on November 12, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



|(2) | Incorporated by reference to the Companys Report on Form 10-Q for the quarter ended June 30, 2004, as filed on August 13, 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------



|(3) | Incorporated by reference to the Companys Report on Form 8-K as filed on May 14, 2004.
|--- | ---------------------------------------------------------------------------------------



|(4) | Incorporated by reference to the Companys Report on Form 10-K for the year ended December 31, 2000, as filed on March 30, 2001.
|--- | --------------------------------------------------------------------------------------------------------------------------------



|(5) | Incorporated by reference to the Companys Report on Form 10-Q for the quarter ended June 30, 2002, as filed on August 14, 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------



26



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##### Table of Contents

|(6) | Incorporated by reference to the Companys Report on Form 10-K for the year ended December 31, 2002, as filed on March 19, 2003.
|--- | --------------------------------------------------------------------------------------------------------------------------------



|(7) | Incorporated by reference to the Companys Report on Form 10-K for the year ended December 31, 2004, as filed on March 16, 2005.
|--- | --------------------------------------------------------------------------------------------------------------------------------



|* | Filed herewith.
|- | ---------------



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SIGNATURES



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



|                  |  |  |  |                            |  |                         |  |                        
|----------------- |  |  |  | -------------------------- |  | ----------------------- |  | -----------------------
|                  |  |  |  | BEVERLY HILLS BANCORP INC.
|                  |  |  | 
|Date: May 6, 2005 |  |  |  | By:                        |  | /s/ JOSEPH W. KILEY III
|                  |  |  |  |                            |  |                         |  | Joseph W. Kiley III    
|                  |  |  |  |                            |  |                         |  | Chief Executive Officer
|                  |  |  | 
|                  |  |  |  | By:                        |  | /s/ TAKEO K. SASAKI    
|                  |  |  |  |                            |  |                         |  | Takeo K. Sasaki        
|                  |  |  |  |                            |  |                         |  | Chief Financial Officer



28