---

# SECURITIES
AND EXCHANGE COMMISSIONWashington,
D.C. 20549

---

# FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2001

# 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

Wilshire Financial Services Group 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.)
|                                                               |                                     
|1776 SW Madison Street, Portland, OR                           | 97205                               
|(Address of principal executive offices)                       | (Zip Code)                          

(503) 223-5600
                                         (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 [___]

# Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

Indicate by check mark whether the registrant has filed all documents and reports  required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
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 October 31, 2001
|-------------------------------------- | -------------------------------
|Common Stock, par value $.01 per share | 20,274,458 shares              

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

# INDEX

## PART I.
FINANCIAL INFORMATION

`Item 1.   Interim Condensed Consolidated Financial Statements (Unaudited):

                     Consolidated Statements of Financial Condition............................3

                     Consolidated Statements ofOperations......................................4

                     Consolidated Statement of Stockholders' Equity............................6

                     Consolidated Statements of Cash Flows.....................................7

                     Notes to Interim Condensed Consolidated Financial Statements..............9

           Item 2.   Management's Discussion and Analysis of Financial Condition and
                     Results of Operations.....................................................16

           Item 3.   Quantitative and Qualitative Disclosures About Market Risk................28

PART II.   OTHER INFORMATION

           Item 1.   Legal Proceedings.........................................................30

           Item 2.   Changes in Securities.....................................................30

           Item 3.   Defaults Upon Senior Securities...........................................30

           Item 4.   Submission of Matters to a Vote of Security Holders.......................30

           Item 5.   Other Information.........................................................30

           Item 6.   Exhibits and Reports on Form 8-K..........................................30`

2

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(Dollars in
thousands)

`September 30,   December 31,
                                                                                         2001           2000
                                             ASSETS                                --------------  -------------

Cash and cash equivalents .......................................................   $     57,463   $      9,516
Mortgage-backed securities available for sale, at fair value ....................         36,025         54,138
Loans, net of allowance for loan losses of $8,622 and $10,614 ...................        555,659        561,876
Loans and discounted loans held for sale, net, at lower of cost or market .......         16,375         10,214
Stock in Federal Home Loan Bank of San Francisco, at cost .......................          7,838          6,615
Real estate owned, net ..........................................................            840          1,770
Leasehold improvements and equipment, net .......................................          3,472          4,064
Accrued interest receivable .....................................................          4,151          4,133
Servicer advance receivables, net ...............................................         17,525         19,063
Service fees receivable .........................................................          3,110          2,198
Mortgage servicing rights .......................................................         10,169          4,544
Receivables from loan servicers .................................................          2,596          3,161
Prepaid expenses and other assets ...............................................         16,351         14,272
                                                                                    ------------   ------------
TOTAL ...........................................................................   $    731,574   $    695,564
                                                                                    ============   ============


      LIABILITIES & STOCKHOLDERS' EQUITY

Liabilities:
      Noninterest-bearing deposits ..............................................   $      2,862   $     10,663
      Interest-bearing deposits .................................................        440,038        424,410
      Short-term borrowings .....................................................          3,330          9,123
      FHLB advances .............................................................        139,000        132,000
      Long-term borrowings ......................................................         16,494          1,634
      Accounts payable and other liabilities ....................................         22,332         21,230
      Minority interest .........................................................          9,989          9,909
      Investor participation liability ..........................................            499             --
                                                                                    ------------   ------------
         Total liabilities ......................................................        634,544        608,969
                                                                                    ------------   ------------

Commitments and Contingencies (see Note 2)

Stockholders' Equity:
      Preferred stock, $0.01 par value, 10,000,000 shares authorized, 0 shares
         outstanding ............................................................             --             --
      Common stock, $0.01 par value; 24,035,458 and 20,035,458 shares
         authorized; 20,224,458 and 20,035,458 shares issued and outstanding.....        100,458         96,516
      Retained deficit ..........................................................         (4,759)       (10,670)
      Accumulated other comprehensive income, net ...............................          1,331            749
                                                                                    ------------   ------------
         Total stockholders' equity .............................................         97,030         86,595
                                                                                    ------------   ------------
TOTAL ...........................................................................   $    731,574   $    695,564
                                                                                    ============   ============`

See notes to interim consolidated financial statements

3

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in
thousands, except per-share data)

`Quarter Ended              Nine Months Ended
                                                                           September 30,               September 30,
                                                                    --------------------------   --------------------------
                                                                        2001          2000           2001          2000
                                                                    ------------  ------------   ------------  ------------
INTEREST INCOME:
    Loans ......................................................... $     13,603  $     12,967   $     39,841  $     36,299
    Mortgage-backed securities ....................................        1,119           936          2,980         3,132
    Securities and federal funds sold .............................          813           388          1,996         1,416
                                                                    ------------  ------------   ------------  ------------
        Total interest income .....................................       15,535        14,291         44,817        40,847
                                                                    ------------  ------------   ------------  ------------
INTEREST EXPENSE:
    Deposits ......................................................        6,580         6,813         19,915        18,640
    Borrowings ....................................................        2,725         2,508          7,902         7,022
                                                                    ------------  ------------   ------------  ------------
        Total interest expense ....................................        9,305         9,321         27,817        25,662
                                                                    ------------  ------------   ------------  ------------
NET INTEREST INCOME ...............................................        6,230         4,970         17,000        15,185
RECAPTURE OF ESTIMATED LOSSES ON LOANS ............................       (2,082)       (1,131)        (1,797)       (4,227)
                                                                    ------------  ------------   ------------  ------------
NET INTEREST INCOME AFTER RECAPTURE OF ESTIMATED LOSSES ON LOANS ..        8,312         6,101         18,797        19,412
                                                                    ------------  ------------   ------------  ------------
OTHER INCOME:
    Servicing income ..............................................        5,225         2,788         13,268         8,665
    Real estate owned, net ........................................           85            23            (92)          202
    Bankcard income, net ..........................................           --         1,209          2,286         2,968
    Gain on sale of loans .........................................           14            --          1,518         1,244
    Loss on sale of securities ....................................           --          (452)          (262)         (452)
    Loan fees and charges .........................................            6           833          2,052         2,241
    Gain on sale of Bankcard operations ...........................           --            --          4,997            --
    Other, net ....................................................          813         3,000          1,850         4,086
                                                                    ------------  ------------   ------------  ------------
        Total other income ........................................        6,143         7,401         25,617        18,954
                                                                    ------------  ------------   ------------  ------------
OTHER EXPENSES:
    Compensation and employee benefits ............................        5,094         5,812         19,396        17,657
    Professional services .........................................        1,391         1,104          4,546         3,475
    Occupancy .....................................................          478           558          1,523         1,859
    FDIC insurance premiums .......................................          170           240            587           658
    Corporate travel and development ..............................          101           268            346           850
    Depreciation ..................................................          436         1,181          1,355         2,246
    Amortization ..................................................          122           666            515           817
    Other general and administrative expenses .....................        1,533         1,435          5,222         4,914
                                                                    ------------  ------------   ------------  ------------
        Total other expenses ......................................        9,325        11,264         33,490        32,476
                                                                    ------------  ------------   ------------  ------------
INCOME BEFORE INVESTOR PARTICIPATION AND MINORITY INTEREST,
 INCOME TAXES AND EXTRAORDINARY ITEM                                       5,130         2,238         10,924         5,890
Investor participation interest ...................................         (173)           --           (882)           --
Minority interest .................................................          (94)          614            (80)        1,210
                                                                    ------------  ------------   ------------  ------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM..................        4,863         2,852          9,962         7,100
INCOME TAX PROVISION ..............................................        1,955         1,238          4,051         3,143
                                                                    ------------  ------------   ------------  ------------
INCOME BEFORE EXTRAORDINARY ITEM ..................................        2,908         1,614          5,911         3,957
EXTRAORDINARY ITEM, NET OF TAX ....................................           --           239             --           239
                                                                    ------------  ------------   ------------  ------------
NET INCOME ........................................................ $      2,908  $      1,853   $      5,911  $      4,196
                                                                    ============  ============   ============  ============`

See notes to interim consolidated financial statements

4

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per-share data)

`Quarter Ended                   Nine Months Ended
                                                                    September 30,                    September 30,
                                                          -------------------------------   -------------------------------
                                                               2001             2000             2001              2000
                                                          --------------   --------------   --------------   --------------
Earnings per share:
   Basic:
       Income before extraordinary item ................  $         0.14   $         0.08   $         0.29   $         0.20
       Extraordinary item, net of tax ..................              --             0.01               --             0.01
                                                          --------------   --------------   --------------   --------------
       Net income ......................................  $         0.14   $         0.09   $         0.29   $         0.21
                                                          ==============   ==============   ==============   ==============
   Diluted:
       Income before extraordinary item ................  $         0.14   $         0.08   $         0.28   $         0.20
       Extraordinary item, net of tax ..................              --             0.01               --             0.01
                                                          --------------   --------------   --------------   --------------
       Net income ......................................  $         0.14   $         0.09   $         0.28   $         0.21
                                                          ==============   ==============   ==============   ==============

Weighted average shares outstanding - basic ............      20,166,009       20,035,458       20,097,872       20,035,458
Weighted average shares outstanding - diluted ..........      21,174,107       20,035,458       21,166,751       20,035,458`

See notes to interim consolidated financial statements

5

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(Unaudited)

(Dollars in thousands)

`Accumulated
                                          Preferred Stock       Common Stock                      Other
                                            ----------------- ----------------------  Retained   Comprehensive
                                             Shares   Amount    Shares      Amount     Deficit    Income, Net    Total
                                            -------- -------- ----------- ---------- ----------- ------------- ----------
BALANCE, January 1, 2001...................       -  $     -   20,035,458  $  96,516  $ (10,670)  $        749  $  86,595
  Comprehensive income:
    Net income.............................                                               5,911                     5,911
    Unrealized holding gains on
      available for sale securities - net
    of deferred  tax liability of $447...                                                                582        582
                                                                                                               ----------
  Total comprehensive income...............                                                                         6,493
  Exercise of stock options................                       189,000        196                                  196
  Tax effect from utilization of
    pre-reorganizational Net Operating
  Losses (Note 3)........................                                    3,746                                3,746
                                            -------- -------- ----------- ---------- ----------- ------------- ----------
BALANCE, September 30, 2001................       -  $     -   20,224,458  $ 100,458  $  (4,759)  $      1,331  $  97,030
                                            ======== ======== =========== ========== =========== ============= ==========`

See notes to interim consolidated financial statements

6

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

`Nine Months Ended
                                                                                       September 30,
                                                                                ---------------------------
                                                                                    2001           2000
                                                                                ------------   ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income ...............................................................  $      5,911   $      4,196
    Adjustments to reconcile net income to net cash provided by
       operating activities:
         Recapture of estimated losses on loans ..............................        (1,797)        (4,227)
         Provision for losses on real estate owned ...........................            15             68
         Valuation write-down of mortgage servicing rights ...................           795             --
         Depreciation and amortization .......................................         1,870          3,063
         Loss (gain) on sale of real estate owned ............................            62           (446)
         Loss on disposal of equipment .......................................            44              6
         Purchase of loans held for sale .....................................       (14,825)        (5,158)
         Proceeds from sale of loans held for sale ...........................         6,893         17,446
         Gain on sale of loans ...............................................        (1,518)        (1,244)
         Loss on sale of securities ..........................................           262            452
         Gain on sale of mortgage servicing rights ...........................          (414)            --
         Amortization of discounts and deferred fees .........................           507          1,256
         Amortization of mortgage servicing rights ...........................         4,532            125
         Tax effect from utilization of net operating loss carryforward ......         3,746          3,074
         Federal Home Loan Bank stock dividends ..............................          (110)          (282)
         Minority interest ...................................................            80         (1,210)
         Change in:
            Servicer advance receivables .....................................         1,538          7,698
            Service fees receivable ..........................................          (912)          (930)
            Accrued interest receivable ......................................           (18)          (282)
            Receivables from loan servicers ..................................           565         (1,295)
            Prepaid expenses and other assets ................................        (2,446)        (8,708)
            Accounts payable and other liabilities ...........................           329         (9,566)
            Investor participation liability .................................           499             --
                                                                                ------------   ------------
               Net cash provided by operating activities .....................         5,608          4,036
                                                                                ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchase of loans ...................................................      (150,137)      (155,384)
         Loan repayments .....................................................       179,636         68,397
         Loan originations ...................................................       (50,800)       (40,302)
         Proceeds from sale of loans .........................................        32,101         12,872
         Purchase of mortgage-backed securities available for sale ...........        (6,343)        (9,919)
         Proceeds on sale of mortgage-backed securities available for sale ...         1,271          3,784
         Repayments of mortgage-backed securities available for sale .........        22,545         15,394
         Repayments of mortgage-backed securities held to maturity ...........            --          2,744
         Purchase of real estate owned .......................................            --           (244)
         Proceeds from sale of real estate owned .............................         2,582         10,932
         Purchase of FHLB stock ..............................................        (1,113)        (1,426)
         Proceeds from redemption of FHLB stock ..............................            --            776
         Purchases of leasehold improvements and equipment ...................        (1,081)        (1,758)
         Proceeds from sale of leasehold improvements and equipment ..........           126            172
         Purchase of mortgage servicing rights ...............................       (11,745)          (265)
         Proceeds from sale of mortgage servicing rights .....................         1,207             --
                                                                                ------------   ------------
               Net cash provided by (used in) investing activities ...........        18,249        (94,227)
                                                                                ------------   ------------`

See notes to interim consolidated financial statements

7

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(Dollars in thousands)

`Nine Months Ended
                                                                                       September 30,
                                                                                ---------------------------
                                                                                    2001           2000
                                                                                ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
         Net increase in deposits ............................................  $      7,827   $     29,587
         Proceeds from FHLB advances .........................................        20,000         63,000
         Repayments of FHLB advances .........................................       (13,000)       (16,000)
         Proceeds from short-term borrowings .................................        26,160         81,800
         Repayments of short-term borrowings .................................       (31,953)       (92,224)
         Proceeds from long-term financing ...................................        19,189             --
         Repayment of long-term financing ....................................        (4,329)            --
         Repayment of note payable to WREI ...................................            --         (5,275)
         Issuance of common stock pursuant to exercise of stock options ......           196             --
                                                                                ------------   ------------
               Net cash provided by financing activities .....................        24,090         60,888
                                                                                ------------   ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .........................        47,947        (29,303)
CASH AND CASH EQUIVALENTS:
         Beginning of period .................................................         9,516         54,168
                                                                                ------------   ------------
         End of period .......................................................  $     57,463   $     24,865
                                                                                ============   ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash paid for:
         Interest ............................................................  $     23,554   $     25,277
         Income taxes ........................................................           625            875
NONCASH INVESTING ACTIVITIES:
         Additions to real estate owned acquired in settlement of loans ......         1,645          1,954`

See notes to interim consolidated financial statements

8

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

## 1. BASIS OF
PRESENTATION

The accompanying  interim  consolidated  financial statements of Wilshire Financial Services Group Inc. and Subsidiaries ("WFSG"
or the  "Company")  are  unaudited  and should be read in  conjunction  with the 2000  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 the 2000 Annual Report
on Form 10-K.

In the opinion of management,  all  adjustments,  other than the  adjustments  described  below,  generally  comprised of normal
recurring accruals necessary for fair presentation of the interim condensed  consolidated  financial  statements,  have been included,
and all material  intercompany  accounts and  transactions  have been  eliminated  in  consolidation.  Operating  results for the nine
months ended  September 30, 2001 are not  necessarily  indicative of the results that may be expected for the year ending December 31,
2001.

The  preparation  of financial  statements in conformity  with  accounting  principles  generally  accepted in the United States
("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 results could differ from those estimates.

Certain  reclassifications  of 2000  amounts  were  made in order to  conform  to the 2001  presentation,  none of which  affect
previously reported net income.

## 2.
COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK

At September 30, 2001,  the Company's  banking  subsidiary,  First Bank of Beverly  Hills,  F.S.B.  ("FBBH" or the "Bank"),  had
outstanding commitments to fund $19.8 million in new mortgage loans.

The Company may be liable under an indemnification  agreement for additional  criminal and civil defense costs on behalf of some
of its former  executives.  Through  September  2001,  pursuant to this  agreement  and as a result of an  arbitration  decision,  the
Company has advanced  approximately $1.8 million in legal fees to the former  executives.  The Company believes that a portion of such
costs will be recoverable through its insurance carrier.

In connection with the transfer of the Company's minority  ownership interest in Wilshire Credit Corporation  ("WCC") to Capital
Consultants,  LLC  ("CCL") as part of its June 1999  restructuring  (described  in Note 7), the Company  provided to CCL a  contingent
Liquidation Bond in the form of a non-interest  bearing  obligation to pay CCL, in the event of any liquidation or dissolution of WCC,
$19.3  million less any  distributions  that CCL receives  from its minority  ownership  interest in WCC. WCC is obligated to keep the
bond  collateralized  with assets of WCC or the Company  having a fair market value equal to such bond and, to the extent that it does
not do so, the Company may be  responsible  for the  deficiency.  A receiver has been  appointed for CCL in  Securities  and Exchange
Commission  v. Capital  Consultants,  LLC, et al.,  U.S.  District  Court for the District of Oregon,  Case No. CV 00-1290 KI, and now
holds this Liquidation Bond and controls the minority ownership interest in WCC on behalf of CCL's investors.

In addition,  the holder of the minority ownership interest in WCC is entitled to convert its interest into WCC's voting Class A
common  stock.  The holder also may convert its interest  into the Company's  common stock or, under  certain  circumstances,  be paid
$19.3 million less any prior  distributions  received from the minority interest at any time upon a merger of the Company into a third
party,  the sale of substantially  all assets of the Company to a third party, or the purchase of  substantially  all the stock of the
Company by a single third party.  Upon the conversion  into WCC Class A common stock or into the Company's  common stock or payment of
the $19.3 million,  the  Liquidation  Bond is cancelled.  The formula for the conversion  into the Company's  common stock permits the
holder of the  minority  interest  in WCC to  convert  such  interest  into the number of shares of the  common  stock of the  Company
approximately equal to:

9

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

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

45% x WCC's trailing 12 month GAAP earnings
------------------------------------------------------------
WFSG's 12 trailing month GAAP earnings per share

Each calculation of earnings is adjusted for extraordinary items and is net of taxes.

## 3. INCOME TAXES

The Company files  consolidated  federal income tax returns with its eligible  subsidiaries.  WCC is not eligible to be included
in the  consolidated  federal income tax return as it does not meet the required  ownership  threshold of 80% (the Company's  economic
interest is 50.01%).

Although the Company has net operating  loss  carryforwards  and  deductible  temporary  differences  available to offset income
earned  during the nine months ended  September  30, 2001,  the Company  recorded  income tax expense of $4.1  million.  There are two
components  to the income tax  provision:  current  taxes of  approximately  $0.5 million and  deferred  taxes of  approximately  $3.6
million.  The current tax provision  results from excess inclusion income earned on certain residual  interests in REMICs which cannot
be offset by tax losses,  and is therefore a cash cost to the Company.  This excess  inclusion  income  increases  the  available  net
operating loss carryforward that may be utilized in future periods.  Deferred taxes are discussed below.

Deferred tax assets and liabilities  represent the tax effect of future deductible or taxable amounts.  They are attributable to
carryforwards,  such as net operating losses,  capital losses, and temporary  differences between amounts that have been recognized in
the  financial  statements  and amounts  that have been  recognized  in the income tax  returns.  The  deferred  component  of the tax
provision resulted in a decrease in the amount of deferred tax assets during the nine months ended September 30, 2001.

The Company  established a valuation  allowance against the net deferred tax asset at its restructuring  date (June 10, 1999) as
there was not  presumptive  evidence at that time that it was more likely than not that the deferred tax asset would be realized.  The
Company is currently  evaluating  the valuation  allowance in light of current  operating  results.  As these  pre-reorganization  tax
benefits are realized from reductions in the valuation  allowance,  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.  The
maximum  pre-reorganization  tax benefit available to the Company at September 30, 2001 was approximately  $67.6 million.  This amount
reflects a reduction for cancellation of indebtedness income that was excluded from taxable income in 1999.

The  Company  had  previously  reported  that  its  net  operating  loss  and  capital  loss  carryforwards,  generated  in  the
pre-reorganization  period,  were  subject to an annual  limitation  pursuant to Internal  Revenue  Code  ("I.R.C.")  Section 382. The
limitation  would have  limited the amount of net  operating  loss or capital loss  carryforward  that could  offset  current  taxable
income.  Subsequently,  the Company has determined  pursuant to I.R.C.  Section 382(l)(5),  also known as the "bankruptcy  exception",
that it qualifies for an exemption  from the annual  limitation.  Consequently,  the Company is not limited in the annual  utilization
of its net operating  loss and capital loss  carryforwards.  In addition,  there is no limitation on the Company's  ability to utilize
deductible temporary differences.

WCC  currently  has net operating  loss  carryforwards  of  approximately  $5.1 million that may be available to offset  taxable
income.  WCC's net operating loss carryforwards are not subject to any annual limitation.

## 4. SIGNIFICANT
TRANSACTIONS

In August 2001,  the Company's  Specialty  Servicing and Finance  Operations  purchased  approximately  600 loans totaling $10.5
million in aggregate principal balances from HomEq Servicing Corporation. The transfer of these loans was completed in October 2001.

10

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

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

## 5. 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 potential  dilutive stock options  outstanding  during the period.  The  computation of basic earnings per share and
diluted earnings per share is as follows:

`Quarter Ended               Nine Months Ended
                                                                September 30,                 September 30,
                                                         ---------------------------   ---------------------------
                                                             2001           2000           2001           2000
                                                         ------------   ------------   ------------   ------------
Net income ...........................................   $      2,908   $    1,853     $      5,911   $      4,196
                                                         ============   ============   ============   ============

Weighted average number of common shares
   outstanding - basic................................     20,166,009     20,035,458     20,097,872     20,035,458
Net effect of dilutive stock options - based on
   treasury stock method..............................      1,008,098             --      1,068,879             --
                                                         ------------   ------------   ------------   ------------
Weighted average number of common shares
   outstanding - diluted..............................     21,174,107     20,035,458     21,166,751     20,035,458
                                                         ============   ============   ============   ============
Net income per share - basic..........................   $       0.14   $       0.09   $       0.29   $       0.21
                                                         ============   ============   ============   ============
Net income per share - diluted........................   $       0.14   $       0.09   $       0.28   $       0.21
                                                         ============   ============   ============   ============`

## 6. OPERATING SEGMENTS

The Company's  reportable  operating  segments,  as defined by the Company's  management,  consist of its Banking operations and
Specialty  Servicing and Finance  operations.  The operating segments differ in terms of regulatory  environment,  funding sources and
asset acquisition strategies, as described below:

|o | Banking OperationsThrough FBBH, the Company conducts a retail
and wholesale banking business focused primarily on specialty-niche products,
including small-balance commercial and multi-family real estate lending. The
primary source of liquidity for the Banks acquisitions and originations is
wholesale certificates of deposit, retail deposits, FHLB advances, and, to a
lesser extent, short-term credit facilities. The Bank is a federally chartered
savings bank and is regulated by the Office of Thrift Supervision
(OTS). At September 30, 2001, FBBH had total assets of approximately
$667.1 million.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o | Specialty Servicing and Finance OperationsThrough its
majority-owned subsidiary, Wilshire Credit Corporation (WCC), the
Company conducts a full-service mortgage and consumer loan servicing business,
specializing in the servicing of labor-intensive mortgage pools requiring
expertise in loss mitigation and/or investor reporting. Through the
Companys wholly-owned subsidiary, Wilshire Funding Corporation
(WFC), the Company conducts an investment and co-investment business
with institutional investors where such investments (1) align the Companys
interests with those of such institutional investors and (2) provide operating
leverage for the servicing operations of WCC. Together, WCC and WFC are referred
to as Specialty Servicing and Finance Operations. As of September
30, 2001, the Companys Specialty Servicing and Finance Operations serviced
approximately $3.4 billion principal balance of residential and commercial
mortgage pools for approximately 800 individual and institutional investors and
government agencies. The Companys Specialty Servicing and Finance
Operations funding sources consist primarily of internal liquidity,
commercial bank financing, institutional lenders and co-investors under debt
service repayment terms which generally parallel the schedule of anticipated
cash flows of the underlying collateral.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o | 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 aforementioned business segments,
and includes eliminations of intercompany accounts and transactions. Primary
sources of liquidity include funds available from the Companys
wholly-owned non-Bank subsidiaries and payments received from FBBH pursuant to a
tax allocation agreement between the Company and the Bank. However, the OTS has
presently 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.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

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

Segment data for the quarters ended September 30, 2001 and 2000 are as follows:

`Three Months Ended September 30, 2001
                                                                ---------------------------------------------------------
                                                                                                Holding
                                                                                Specialty       Company
                                                                                Servicing         And
                                                                                   and        Miscellaneous
                                                                  Banking        Finance       Operations       Total
                                                                ------------   ------------   ------------   ------------
  Interest income ...........................................   $     13,464   $      1,935   $        136   $     15,535
  Interest expense ..........................................          8,857            480            (32)         9,305
                                                                ------------   ------------   ------------   ------------
  Net interest income .......................................          4,607          1,455            168          6,230
  Recapture of loan losses ..................................         (2,030)           (52)            --         (2,082)
                                                                ------------   ------------   ------------   ------------
  Net interest income after recapture of loan losses ........          6,637          1,507            168          8,312
  Other income ..............................................            664          5,600           (121)         6,143
  Other expense .............................................          2,262          6,010          1,053          9,325
                                                                ------------   ------------   ------------   ------------
  Income (loss) before investor participation and
    minority interest and taxes .............................          5,039          1,097         (1,006)         5,130
  Investor participation interest ...........................             --           (173)            --           (173)
  Minority interest .........................................             --             --            (94)           (94)
                                                                ------------   ------------   ------------   ------------
  Income (loss) before taxes ................................          5,039            924         (1,100)         4,863
  Income tax provision (benefit) ............................          2,257             --           (302)         1,955
                                                                ------------   ------------   ------------   ------------
  Net income (loss) .........................................   $      2,782   $        924   $       (798)  $      2,908
                                                                ============   ============   ============   ============
  Total assets ..............................................   $    667,081   $     69,030   $     (4,537)  $    731,574
                                                                ============   ============   ============   ============



                                                                          Three Months Ended September 30, 2000
                                                                ---------------------------------------------------------
                                                                                                Holding
                                                                                Specialty       Company
                                                                                Servicing         And
                                                                                   and        Miscellaneous
                                                                  Banking        Finance       Operations       Total
                                                                ------------   ------------   ------------   ------------
     Interest income ........................................   $     13,455   $        990   $       (154)  $     14,291
     Interest expense .......................................          8,953            371             (3)         9,321
                                                                ------------   ------------   ------------   ------------
     Net interest income (expense) ..........................          4,502            619           (151)         4,970
     (Recapture of) provision for loan losses ...............         (2,800)         1,669             --         (1,131)
                                                                ------------   ------------   ------------   ------------
     Net interest income (expense) after (recapture of)
        provision for loan losses ...........................          7,302         (1,050)          (151)         6,101
     Other income ...........................................          1,780          3,566          2,055          7,401
     Other expense ..........................................          7,156          5,946         (1,838)        11,264
                                                                ------------   ------------   ------------   ------------
     Income (loss) before minority interest, taxes and
       extraordinary item ...................................          1,926         (3,430)         3,742          2,238
     Minority interest ......................................             --             --            614            614
                                                                ------------   ------------   ------------   ------------
     Income (loss) before taxes and extraordinary item ......          1,926         (3,430)         4,356          2,852
     Income tax provision ...................................            828             --            410          1,238
                                                                ------------   ------------   ------------   ------------
     Income (loss) before extraordinary item ................          1,098         (3,430)         3,946          1,614
     Extraordinary item .....................................             --             --            239            239
                                                                ------------   ------------   ------------   ------------
     Net income (loss) ......................................   $      1,098   $     (3,430)  $      4,185   $      1,853
                                                                ============   ============   ============   ============
     Total assets ...........................................   $    665,413   $     51,777   $     (5,292)  $    711,898
                                                                ============   ============   ============   ============`

12

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

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

Segment data for the nine months ended September 30, 2001 and 2000 are as follows:

`Nine Months Ended September 30, 2001
                                                                ---------------------------------------------------------
                                                                                                Holding
                                                                                Specialty       Company
                                                                                Servicing         and
                                                                                   and        Miscellaneous
                                                                  Banking        Finance       Operations       Total
                                                                ------------   ------------   ------------   ------------
  Interest income ...........................................   $     40,487   $      4,080   $        250   $     44,817
  Interest expense ..........................................         26,977            916            (76)        27,817
                                                                ------------   ------------   ------------   ------------
  Net interest income .......................................         13,510          3,164            326         17,000
  Recapture of loan losses ..................................         (1,730)           (67)            --         (1,797)
                                                                ------------   ------------   ------------   ------------
  Net interest income after recapture of loan losses ........         15,240          3,231            326         18,797
  Other income ..............................................          9,060         16,061            496         25,617
  Other expense .............................................         13,362         17,555          2,573         33,490
                                                                ------------   ------------   ------------   ------------
  Income (loss) before investor participation and minority
     interest and taxes .....................................         10,938          1,737         (1,751)        10,924
  Investor participation interest ...........................             --           (882)            --           (882)
  Minority interest .........................................             --             --            (80)           (80)
                                                                ------------   ------------   ------------   ------------
  Income (loss) before taxes ................................         10,938            855         (1,831)         9,962
  Income tax provision (benefit) ............................          4,794             --           (743)         4,051
                                                                ------------   ------------   ------------   ------------
  Net income (loss) .........................................   $      6,144   $        855   $     (1,088)  $      5,911
                                                                ============   ============   ============   ============
  Total assets ..............................................   $    667,081   $     69,030   $     (4,537)  $    731,574
                                                                ============   ============   ============   ============



                                                                          Nine Months Ended September 30, 2000
                                                                ---------------------------------------------------------
                                                                                                Holding
                                                                                Specialty       Company
                                                                                Servicing         and
                                                                                   and        Miscellaneous
                                                                  Banking        Finance       Operations       Total
                                                                ------------   ------------   ------------   ------------
  Interest income ...........................................   $     37,370   $      3,661   $       (184)  $     40,847
  Interest expense ..........................................         24,375            944            343         25,662
                                                                ------------   ------------   ------------   ------------
  Net interest income (expense) .............................         12,995          2,717           (527)        15,185
  (Recapture of) provision for loan losses ..................         (6,000)         1,669            104         (4,227)
                                                                ------------   ------------   ------------   ------------
  Net interest income (expense) after (recapture of)
     provision for loan losses ..............................         18,995          1,048           (631)        19,412
  Other income ..............................................          4,891         12,160          1,903         18,954
  Other expense .............................................         16,227         17,006           (757)        32,476
                                                                ------------   ------------   ------------   ------------
  Income (loss) before minority interest, taxes and
    extraordinary item ......................................          7,659         (3,798)         2,029          5,890
  Minority interest .........................................             --             --          1,210          1,210
                                                                ------------   ------------   ------------   ------------
  Income (loss) before taxes and extraordinary item .........          7,659         (3,798)         3,239          7,100
  Income tax provision (benefit) ............................          3,293             --           (150)         3,143
                                                                ------------   ------------   ------------   ------------
  Income (loss) before extraordinary item ...................          4,366         (3,798)         3,389          3,957
  Extraordinary item ........................................             --             --            239            239
                                                                ------------   ------------   ------------   ------------
  Net income (loss) .........................................   $      4,366   $     (3,798)  $      3,628   $      4,196
                                                                ============   ============   ============   ============
  Total assets ..............................................   $    665,413   $     51,777   $     (5,292)  $    711,898
                                                                ============   ============   ============   ============`

13

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

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

## 7. LEGAL
MATTERS

Between 1994 and 1998 Capital  Consultants,  LLC ("CCL"),  as  investment  advisor to and on behalf of various  clients,  made a
number of loans to the  privately-owned  company then known as Wilshire Credit  Corporation and now known as Capital Wilshire Holdings
Inc.  ("CWH").  As part of the  Company's  June 1999  restructuring,  it purchased  the assets of CWH. In exchange it gave CCL for the
benefit of its clients a 49.99%  non-voting  ownership  interest in WCC with certain  rights to convert such  interest to a portion of
the Company's stock.

On September 21, 2000 Thomas F. Lennon was appointed by the U.S. District Court of Oregon in Securities and Exchange Commission
v. Capital Consultants, LLC, et al. as a receiver for CCL.

The receiver and a number of CCL's clients ("CCL  Investors") have filed lawsuits in the U.S. District Court for the District of
Oregon against CCL, some of its former executives,  the Company, WCC and the Bank and some of their executives,  and a number of other
corporations  and pension trust  trustees.  Some of the defendants in these cases, in turn,  have filed lawsuits  against others.  The
Company has been named as a defendant in the following cases which were filed on the dates indicated:

| | Schultz v. Kirkland, et al, U.S. District Court Case No. CV 00-1377 KI (October 10, 2000)                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | Miller v. Clinton, et al, U.S. District Court Case No. CV 00-1317 HA (September 26, 2000)                                                           
| | Eidem and Malcolm v. Trustees, et al, U.S. District Court Case No. CV 00-1446 HE (October 26, 2000)                                                 
| | Hazzard, et al. v. Trustees, et al, U.S. District Court Case No. CV 00-1338 HU (September 29, 2000)                                                 
| | Madole v. Capital Consultants, LLC, et al, U.S. District Court Case No. CV 00-1660 AS (December 1, 2000)                                            
| | Chilia,  et al. v. Capital  Consultants,  LLC, U.S.  District  Court Case No. CV 00-1633-JE  (November 29, 2000)                                    
| | American  Funeral & Cemetery Trust Services,  et al. v. Capital  Consultants,  LLC, et al., U.S.  District Court Case No. CV 01-609-HU (May 4, 2001)
| | Dyer, et al. v. Grayson, et al., U.S. District Court Case No. CV 01-1496-JO (October 9, 2001)                                                       

The plaintiffs allege that
the Company, WCC and the Bank and some of their executives wrongfully
participated in various transactions in which CCL made improper loans to WCC
from 1994 through 1998, thereafter misled the CCL clients by failing to disclose
significant losses on $160 million of loans to WCC, and used additional CCL
client funds (approximately $71 million) to cover up such losses.

The Company  believes that it has strong defenses with regard to such  allegations and intends to contest the claims  vigorously
unless a satisfactory  settlement can be reached.  Without limitation,  as part of the June 1999  reorganization of the Company,  CCL,
on behalf of the CCL  Investors,  provided  the Company  with a release of all claims  that they might have had  against the  Company,
pursuant to the Plan of  Reorganization  approved by the  Delaware  Bankruptcy  Court.  The  plaintiffs  contend that CCL did not have
authority to provide this release and that the releases were fraudulently obtained.  In addition,  the Company executives have requested that the Company indemnify them as directors and officers of the Company for
their costs and potential liability to the extent such amounts are not covered by insurance.

The District Court of Oregon appointed a mediator to supervise a limited  discovery  procedure in most of the above cases and to
determine if the claims can be resolved by settlement.  The Company is  participating  in the mediation  process.  The parties to this
process are under a confidentiality order prohibiting any disclosure of the status of any settlement discussions.

The Company is a defendant in other legal  actions  arising  from  transactions  conducted  in the ordinary  course of business.
Management,  after  consultation  with legal  counsel,  believes the ultimate  liability,  if any,  arising from such actions will not
materially affect the Company's consolidated results of operations or financial position.

14

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

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

## 8. NEW
ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial  Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
143,  "Accounting for Asset Retirement  Obligations,"  which is effective for fiscal years beginning after June 15, 2002. SFAS No. 143
requires,  among other things,  that the fair value of a liability for an asset  retirement  obligation be recognized in the period in
which it is incurred if a reasonable  estimate of fair value can be made. The associated  asset  retirement costs are then capitalized
as part of the carrying  amount of the  long-lived  asset.  The Company does not believe that the adoption of SFAS No. 143 will have a
material impact on its financial position or results of operations.

In August 2001,  the FASB issued SFAS No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived  Assets,"  which is
effective for fiscal years  beginning  after  December 15, 2001.  This  pronouncement  supercedes  SFAS No. 121 and the accounting and
reporting  provisions  of  Accounting  Principles  Board  Opinion No. 30 for the  disposal of a segment of a business.  The Company is
currently evaluating the impact that the adoption of SFAS No. 144 may have on its financial position and results of operations.

15

# WILSHIRE
FINANCIAL SERVICES GROUP 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  Consolidated  Financial  Statements of Wilshire
Financial  Services  Group Inc.  and the notes  thereto  included  elsewhere in this  filing.  References  in this filing to "Wilshire
Financial  Services  Group Inc.," "WFSG," the "Company,"  "we," "our," and "us" refer to Wilshire  Financial  Services Group Inc., our
wholly owned  subsidiaries,  and Wilshire Credit  Corporation  ("WCC"),  our majority-owned  subsidiary,  unless the context indicates
otherwise.

Wilshire  Financial Services Group Inc., a financial  services company,  conducts (1) community banking operations  (referred to
herein as our "Banking Operations") through our wholly-owned  subsidiary,  First Bank of Beverly Hills, F.S.B. ("FBBH" or the "Bank");
and (2) specialized  mortgage loan servicing and investment  operations through our subsidiaries,  Wilshire Credit Corporation ("WCC")
and  Wilshire  Funding  Corporation  ("WFC").  Together,  WCC  and  WFC  are  referred  to as our  "Specialty  Servicing  and  Finance
Operations."  WFSG's  administrative,  investment  and loan  servicing  headquarters  are  located in  Portland,  Oregon.  The Bank is
headquartered in Calabasas, California and conducts its branch banking activities in Beverly Hills, California.

RESULTS OF OPERATIONS--QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000

Our consolidated net income was approximately $2.9 million for the quarter ended September 30, 2001,  compared with $1.9 million
for the quarter  ended  September 30, 2000.  This  increase in net income was  primarily  due to a decrease in other  expenses of $1.9
million,  an increase in net interest  income of $1.3 million,  and an increase in recaptures of loan loss provisions of $0.9 million.
Partially  offsetting these increases was a $1.3 million decline in other income.  While our servicing income has grown  significantly
over the prior year,  our total other income for the third  quarter of 2000 included  $1.2 million in Bankcard  income (this  division
was sold in the second quarter of 2001) and other income related to the settlement of litigation with our former  affiliate,  Wilshire
Real Estate  Investment  Inc. (now known as Fog Cutter  Capital Group Inc.),  and two of its  executives.  Our results  continue to be
impacted by litigation  that arose from events prior to our  restructuring.  During the quarter ended  September 30, 2001, we incurred
approximately $1.0 million in legal expenses related to such litigation.  These expenses consisted  primarily of fees that we advanced
to two of the  Company's  former  executives  for their  criminal and civil  defenses  (see Notes 2 and 7 to the interim  consolidated
financial statements). A portion of these advances may be recoverable through insurance.

For the nine months ended September 30, 2001, our consolidated  net income was  approximately  $5.9 million,  compared with $4.2
million for the nine months  ended  September  30,  2000.  This  increase in net income was  primarily  due to a pre-tax  gain of $5.0
million on the sale of the Bank's bankcard  processing  division in June 2001, an increase of $4.6 million in servicing income, and an
increase in net interest  income of $1.8  million.  During the current  year,  we have  incurred  approximately  $2.0 million in legal
expenses related to litigation that arose from events prior to our restructuring  (described  above),  including $1.8 million of costs
that we advanced to two of the Company's former executives.  A portion of these advances may be recoverable  through insurance.  These
legal expenses  contributed to a $1.0 million  increase in other expenses,  which partially  offset the gains  described  above.  Also
offsetting our increases in revenue was a decrease in recaptures of loan loss  provisions  from $4.2 million for the nine months ended
September 30, 2000 to $1.8 million for the nine months ended  September 30, 2001,  and a decrease in  miscellaneous  income due to the
prior year gain from litigation settlement described above.

Following is a discussion of the operating  results of the Company's two discrete  businesses:  our Banking  Operations  and our
Specialty Servicing and Finance Operations.

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

16

The following  tables compare  operating  income (before taxes) for FBBH for the quarter and nine-month  periods ended September
30, 2001 and 2000 (dollars in thousands):

`Quarter Ended September 30,          Nine Months Ended September 30,
                                         ------------------------------------   ------------------------------------
                                                                    Increase                               Increase
                                            2001         2000      (Decrease)      2001         2000      (Decrease)
                                         ----------   ----------   ----------   ----------   ----------   ----------
Interest income ......................   $   13,464   $   13,455   $        9   $   40,487   $   37,370   $    3,117
Interest expense .....................        8,857        8,953          (96)      26,977       24,375        2,602
                                         ----------   ----------   ----------   ----------   ----------   ----------
Net interest income ..................        4,607        4,502          105       13,510       12,995          515
Recapture of loan losses .............       (2,030)      (2,800)         770       (1,730)      (6,000)       4,270
                                         ----------   ----------   ----------   ----------   ----------   ----------
Net interest income after recapture of
   loan losses .......................        6,637        7,302         (665)      15,240       18,995       (3,755)
Other income .........................          664        1,780       (1,116)       9,060        4,891        4,169
Other expense ........................        2,262        7,156       (4,894)      13,362       16,227       (2,865)
                                         ----------   ----------   ----------   ----------   ----------   ----------
Income before taxes ..................   $    5,039   $    1,926   $    3,113   $   10,938   $    7,659   $    3,279
                                         ==========   ==========   ==========   ==========   ==========   ==========`

Net Interest Income
        The Bank's net  interest  income for the quarter  ended  September  30,  2001 was  approximately  $4.6  million,  compared  with
approximately  $4.5 million for the quarter ended  September 30, 2000. The declining  interest-rate  environment in 2001  particularly
affected  the Bank's  interest-earning  assets,  which  generally  reprice in advance of its  interest-bearing  liabilities.  Interest
income was approximately $13.5 million for both quarters, as increases in the average balances of the Bank's  interest-earning  assets
were offset by decreases in yields in the 2001 period.  The Bank's average loan balance  increased by  approximately  $23.4 million in
the third  quarter of 2001 over the  comparable  2000 period as a result of  purchases of  approximately  $131 million in loans in the
second  quarter of 2001.  However,  interest-bearing  liabilities  increased by  approximately  $103.7 million in the third quarter of
2001 over the  comparable  2000 period,  resulting in a $66.8 million  increase in overnight  investments in the third quarter of 2001
over the comparable  2000 period.  Overnight  investments  negatively  impacted our net income during the third quarter.  As a result,
the  continued  precipitous  decline in interest  rates during the third  quarter  further  reduced the Bank's  potential net interest
income.  In addition,  unusually rapid loan prepayments  associated with the continued  decline in interest rates negatively  impacted
the Bank's  potential  increase in long-term  earning  assets  during the third  quarter.  Interest  income  during the third  quarter
included $0.8 million  associated  with the payoff of a troubled  loan in August 2001.  (See  Provision  for Loan Losses,  below.) The
Bank's  interest  expense  decreased by  approximately  $0.1 million from the quarter  ended  September  30, 2000 to the quarter ended
September  30,  2001.  Interest  expense on deposits  decreased by  approximately  $0.3 million as a result of the decline in interest
rates from the 2000 period to the 2001  period,  partially  offset by a $92.1  million  increase in the average  balance of  deposits.
Interest  expense on borrowings  increased by $0.2 million  primarily due to an $11.6 million  increase in the average balance of FHLB
advances over the comparable 2000 period.

For the nine months ended  September 30, 2001, the Bank's net interest  income was  approximately  $13.5 million,  compared with
approximately  $13.0  million for the nine months ended  September  30,  2000.  Interest  income  increased by $3.1 million due to the
higher average loan volume in the current year to date,  resulting from the loan purchases  described  above,  and also as a result of
the increase in the average  balance of overnight  investments,  partially  offset by a decline in yields on  interest-earning  assets
from the 2000 period to the 2001 period.  The Bank's interest  expense  increased by  approximately  $2.6 million from the nine months
ended September 30, 2000 to the nine months ended September 30, 2001.  Interest expense on deposits  increased by  approximately  $1.1
million as a result of an increase in the average  balance of deposits  from $414.1  million for the nine months ended  September  30,
2000 to $478.4 million for the nine months ended  September 30, 2001. In addition,  interest  expense on borrowings  increased by $1.5
million due to a $31.5  million  increase in the average  balance of  short-term  borrowings  and FHLB  advances.  These  increases in
balances of interest-bearing liabilities were partially offset by declines in interest rates from the 2000 period to the 2001 period.

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,  current economic  conditions and trends,  collateral  values,  and
other relevant factors.

18

The Bank's  provision for loan losses for the quarter and  nine-month  periods ended  September 30, 2001, was a net recapture of
$2.0 million and $1.7 million,  respectively.  In September  2001,  pursuant to the settlement and payoff of a troubled loan, the Bank
recaptured $2.1 million in provision  previously  taken on such loan.  This recapture was partially  offset by loan loss provisions of
approximately  $0.3 million  during the current  year.  For the quarter and  nine-month  periods ended  September  30, 2000,  the Bank
recaptured $2.8 million and $6.0 million,  respectively,  of loan loss  provisions.  The reversals of reserves in 2000 were the result
of two factors:  (1) the Bank sold $13.1 million book value of  non-performing  and  sub-performing  loans in June 2000 and recaptured
the related  reserves and (2) the Bank's  periodic  analyses of the adequacy of loan loss  reserves  indicated  that the reserves were
excessive due to the continued seasoning and improved loss performance of the Bank's loan portfolio.

Other Income
        The Bank's other income was  approximately  $0.7 million for the quarter ended September 30, 2001,  compared with  approximately
$1.8 million for the quarter  ended  September 30, 2000.  This  decrease was  primarily  due to the absence of Bankcard  income in the
2001 period  (compared  with  Bankcard  revenues of $1.2 million in the third  quarter of 2000) as a result of the Bank's sale of this
division  in June 2001,  and a decline in loan fees of  approximately  $0.7  million  due to the sale of the Bank's  mortgage  banking
subsidiary,  George Elkins Mortgage  Banking ("GEMB") in June 2001,  partially offset by approximately  $0.4 million in fees and other
income received pursuant to the settlement and payoff of a troubled loan in August 2001.

For the nine months ended  September  30, 2001,  other income was $9.1  million,  compared with $4.9 million for the nine months
ended September 30, 2000. The increase in year-to-date  other income was primarily due to the Bank's sale of its Bankcard  division in
June 2001 for a gain of  approximately  $5.0 million,  and a $0.9 million  increase in gains on sales of loans.  These  increases were
partially  offset by a $0.7 million  decline in Bankcard  income as a result of the sale of the division,  a $0.5 million  decrease in
real estate income due to reduced sales activity in 2001, and a loss of approximately $0.3 million on the Bank's sale of GEMB.

Other Expenses
        The Bank's other expenses were approximately $2.3 million for the quarter ended September 30, 2001,  compared with approximately
$7.2 million for the quarter ended  September 30, 2000, a decrease of $4.9 million.  This decrease was largely due to the Bank's sales
of its Bankcard  and mortgage  banking  operations  in June 2001,  which  resulted in savings of  approximately  $2.4 million in other
operating  expenses  (primarily  compensation  and employee  benefits) for the third  quarter of 2001,  and, to a lesser  extent,  the
recovery of professional  fees and loan expenses  associated  with the August 2001 payoff of a troubled loan,  totaling $0.24 million.
In addition,  the third quarter 2000 expenses  contained  approximately  $2.0 million in write-downs  of goodwill  related to GEMB and
other capitalized costs, with no such expenses in the third quarter of 2001.

For the nine months ended  September 30, 2001,  other expenses  totaled $13.4 million,  compared with $16.2 million for the nine
months ended  September 30, 2000.  This decrease in the 2001 period was  primarily  due to the decreases in  compensation  expense and
amortization of intangibles  discussed above.  However,  these decreases were partially offset by additional  charges earlier in 2001,
including  severance pay for some of the Bank's former  executives,  and  professional  services and consulting  fees  associated with
conversions of the Bank's accounting and deposit systems.

Operating Segments

Through June 30, 2001,  the Bank's  businesses  consisted  of three  primary  segments:  lending and deposit  banking  services,
mortgage loan  origination  and brokerage  services (GEMB) and Bankcard  processing.  As discussed  previously,  the GEMB and Bankcard
divisions were sold in June 2001.  Consequently,  subsequent to June 30, 2001 the Bank's income is derived solely from its core retail
banking and lending activities.

The operating results (before income taxes) of the Bank's businesses for the quarter and nine-month  periods ended September 30,
2001 and 2000 are summarized in the following table and discussed in further detail below:

18

`Quarter Ended               Nine Months Ended
                                                              September 30,                 September 30,
                                                       ---------------------------   ---------------------------
                                                           2001           2000           2001           2000
                                                       ------------   ------------   ------------   ------------
                                                                        (Dollars in thousands)
               Lending and deposit banking services... $      5,039   $      1,590   $     10,440   $      7,965
               George Elkins..........................           --            (79)          (341)          (655)
               Bankcard income, net...................           --            415            839            349
                                                       ------------   ------------   -------------   ------------
                  Total Bank income (pre-tax)......... $      5,039   $      1,926   $     10,938   $      7,659
                                                       ============   ============   ============   ============`

Lending and Deposit Banking
        Income in FBBH's banking operations was approximately $5.0 million for the quarter ended September 30, 2001,  compared with $1.6
million for the quarter ended September 30, 2000.  This increase in income was primarily due to a decrease in  amortization  and other
expenses  resulting from the Bank's  write-down of $2.0 million in goodwill  related to GEMB and other  capitalized  costs in the 2000
period.  For the nine months  ended  September  30, 2001,  income was $10.4  million,  compared  with $8.0 million for the nine months
ended  September  30,  2000.  This $2.4 million  increase  reflects the Bank's $5.0 million gain on its June 2001 sale of its Bankcard
division and the $2.0 million decrease in amortization  and other costs described  above,  partially offset by a $4.3 million decrease
in recaptures of loan loss provisions and a $0.3 million loss on the sale of GEMB.

George Elkins
        The net loss from the  Bank's  mortgage  loan  origination  and  brokerage  services  in 2001 was  approximately  $0.3  million,
reflecting GEMB's operations  through June 30, 2001. For the nine months ended September 30, 2000, GEMB's loss was approximately  $0.7
million.  Effective June 30, 2001, the Bank sold this division for a net loss of approximately $0.3 million.

Bankcard Division
        The financial  results of the Bank's  merchant  bankcard  processing  operations  for the quarter and  nine-month  periods ended
September 30, 2001 and 2000 are summarized in the following  table. As discussed  earlier,  the Bank disposed of this division in June
2001.  Consequently, the year-to-date amounts for 2001 reflect only six months' activity.

`Quarter Ended               Nine Months Ended
                                                                   September 30,                 September 30,
                                                            ---------------------------   ---------------------------
                                                                2001           2000           2001           2000
                                                            ------------   ------------   ------------   ------------
                                                                             (Dollars in thousands)
               Bankcard revenues, net of
                    processing expenses................     $         --   $      1,019   $      2,046   $      3,358
               (Recapture of) provision for losses.....               --           (190)          (240)           390
                                                            ------------   ------------   ------------   ------------
               Bankcard income, net....................               --          1,209          2,286          2,968
               Other expenses..........................               --           (794)        (1,447)        (2,619)
                                                            ------------   ------------   ------------   ------------
               Income after other expenses.............     $         --   $        415   $        839   $        349
                                                            ============   ============   ============   ============`

## Changes in Financial
Condition  First Bank of Beverly Hills

Following are condensed statements of financial condition for FBBH as of September 30, 2001 and December 31, 2000:

`September 30,  December 31,
                                                                              2001           2000
                                                                          ------------   ------------
                                                                             (Dollars in thousands)
ASSETS:
Cash and cash equivalents ..............................................  $     51,690   $      7,907
Mortgage-backed securities available for sale, at fair value ...........        32,990         47,738
Loans, net .............................................................       555,946        562,257
Real estate owned, net .................................................           433            779
Receivables from loan servicers ........................................         2,596          3,089
Other assets ...........................................................        23,426         27,142
                                                                          ------------   ------------
    Total assets .......................................................  $    667,081   $    648,912
                                                                          ============   ============

LIABILITIES:
Deposits ...............................................................  $    442,900   $    435,073
FHLB advances ..........................................................       139,000        132,000
Other liabilities ......................................................        16,677         19,861
                                                                          ------------   ------------
    Total liabilities ..................................................       598,577        586,934

NET WORTH ..............................................................        68,504         61,978
                                                                          ------------   ------------
    Total liabilities and net worth ....................................  $    667,081   $    648,912
                                                                          ============   ============`

19

Mortgage-Backed and Other Securities.  The Bank's portfolio of mortgage-backed and other securities available for sale decreased
by  approximately  $14.7 million  during the nine months ended  September 30, 2001.  This decrease was due to principal  repayments of
$21.5 million, partially offset by purchases of $6.3 million and an increase in unrealized holding gains of $0.7 million.

Loans, net. The Bank's portfolio of loans, net of discounts and allowances,  decreased by approximately  $6.3 million during the
nine months ended  September  30, 2001.  The  continuing  decline in interest  rates during the year has triggered an increase in loan
repayments,  which totaled $176.7 million through September 30, 2001. The Bank also sold approximately  $31.4 million of loans in June
2001.  Partially  offsetting  these  repayments  and  sales  were  loan  purchases  during  the year of  $150.1  million  and new loan
originations of $50.8 million.

Real Estate Owned,  net. The Bank's real estate owned, net decreased by approximately  $0.3 million during the nine months ended
September 30, 2001 due to sales of properties for proceeds of  approximately  $0.8 million,  partially  offset by acquisitions of real
estate during the year through foreclosures from its portfolio of loans.

Deposits.  The Bank's  deposits  increased by  approximately  $7.8 million during the nine months ended September 30, 2001. As a
result of the decline in interest rates,  the Bank  significantly  increased its certificates of deposit in the second quarter of 2001
to fund its loan  acquisitions.  This increase was largely  offset by subsequent  maturities of time  deposits,  substantially  all of
which were not renewed, and by a decrease in Bankcard reserve deposits pursuant to the sale of the Bankcard division in June 2001.

FHLB  Advances.  The Bank's FHLB Advances  increased by $7.0 million  during the nine months ended  September 30,
2001, as a result of new
borrowings of $20.0 million, partially offset by repayments of $13.0 million.
These advances have original maturities ranging from three to five years, which
assists in reducing the Banks sensitivity to market interest-rate
fluctuations and enables the Bank to more closely match the maturities of its
investments and borrowings.

## 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 also is authorized
to impose capital  requirements  in excess of these standards on a case-by-case  basis. In connection with the year 2000  examination,
the OTS 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 regulatory capital ratios of the Bank at September 30, 2001.

20

# Regulatory
Capital Ratios

`To be Categorized
                                                                                                             as
                                                                                Amount Required      "Well Capitalized"
                                                                                  For Capital           under Prompt
                                                                                    Adequacy         Corrective Action
                                                               Actual               Purposes             Provisions
                                                       --------------------  --------------------  --------------------
                                                         Amount     Ratio      Amount      Ratio     Amount     Ratio
                                                       ----------  --------  ----------  --------  ----------  --------
                                                                            (Dollars in thousands)
Total Capital to Risk-Weighted Assets (Risk-.Based
   Capital)..........................................  $   70,105     15.2%  $   36,956    =>8.0%  $   46,195   =>10.0%
Tier 1 Capital to Risk-Weighted Assets...............      64,305     13.9%       Not Applicable       27,717   => 6.0%
Core Capital to Tangible Assets......................      64,305      9.7%      26,582    =>4.0%      33,228   => 5.0%
Tangible Capital to Tangible Assets..................      64,305      9.7%       9,968    =>1.5%      Not Applicable`

## 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 retail and wholesale  deposits,  FHLB advances,  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 September 30, 2001, the Bank's cash balances totaled approximately $51.7 million,  compared with $7.9 million at December 31,
2000. The increase in cash during 2001 was primarily due to a significant  increase in  certificates  of deposit in the second quarter
of 2001.  The Bank utilized the proceeds from these deposits in its loan portfolio acquisitions.

At  September  30,  2001,  the Bank had  approximately  $409.9  million of  certificates  of deposit.  Scheduled  maturities  of
certificates of deposit during the 12 months ending  September 30, 2002 and thereafter  amounted to  approximately  $275.7 million and
approximately  $134.2 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 cost of its
interest-bearing  liabilities and its exposure to interest rate changes by replacing certain  short-term  deposits and FHLB fixed-rate
advances with lower cost  variable-rate  FHLB  advances and other  public-fund  deposits,  developing  core  deposits  (which are less
sensitive to interest rate changes) and purchasing and originating variable-rate loans.

The Bank is required under applicable  federal  regulations to maintain  specified levels of "liquid"  investments in qualifying
types of U.S.  Government,  federal agency and other  investments  having  maturities of five years or less.  Current OTS  regulations
require  that a savings  association  maintain  liquid  assets of not less than 4% of its average  daily  balance of net  withdrawable
deposit  accounts and  borrowings  payable in one year or less, of which at least 1% must consist of  short-term  liquid  assets.  The
Bank has complied with these requirements.

# SPECIALTY SERVICING AND FINANCE OPERATIONS

WFSG conducts its Specialty Servicing and Finance Operations through WFC, our wholly-owned  investment  subsidiary,  and through
WCC, our majority-owned  servicing subsidiary which was formed pursuant to our June 10, 1999 reorganization.  As the majority owner of
WCC, the Company shares in 50.01% of WCC's revenues and expenses.  The remaining  49.99% interest in WCC's  operations is reflected as
"Minority interest" in the Company's  consolidated  statements of operations.  In addition,  certain of WFC's and WCC's activities are
conducted  with lenders who have  participation  interests  in the assets that serve as  collateral  for the loans.  The share of such
activities  held by these  lenders is reflected as "Investor  participation  interest" in the  Company's  consolidated  statements  of
operations.

21

The following table compares operating income (before taxes and minority and investor participation  interests) of our Specialty
Servicing and Finance Operations for the quarter and nine-month periods ended September 30, 2001 and 2000 (dollars in thousands).

`WCC and WFC for the Quarter          WCC and WFC for the Nine Months
                                             Ended September 30,                    Ended September 30,
                                     ------------------------------------   ------------------------------------
                                                                Increase                               Increase
                                        2001         2000      (Decrease)      2001         2000      (Decrease)
                                     ----------   ----------   ----------   ----------   ----------   ----------
Servicing income ..................  $    5,522   $    3,141   $    2,381   $   14,422   $    9,837   $    4,585
Interest income ...................       1,935          990          945        4,080        3,661          419
Investment and other income .......          78          425         (347)       1,639        2,323         (684)
                                     ----------   ----------   ----------   ----------   ----------   ----------
     Total revenues ...............       7,535        4,556        2,979       20,141       15,821        4,320
                                     ----------   ----------   ----------   ----------   ----------   ----------
Interest expense ..................         480          371          109          916          944          (28)
(Recapture of) provision for
   loan losses ....................         (52)       1,669       (1,721)         (67)       1,669       (1,736)
Compensation expense ..............       3,807        2,914          893       11,238        9,807        1,431
Other expenses ....................       2,203        3,032         (829)       6,317        7,199         (882)
                                     ----------   ----------   ----------   ----------   ----------   ----------
     Total expenses ...............       6,438        7,986       (1,548)      18,404       19,619       (1,215)
                                     ----------   ----------   ----------   ----------   ----------   ----------
Income (loss) before taxes ........  $    1,097   $   (3,430)  $    4,527   $    1,737   $   (3,798)  $    5,535
                                     ==========   ==========   ==========   ==========   ==========   ==========`

Servicing Income
        The components of servicing income in our Specialty Servicing and Finance Operations are reflected in the following table:

`Quarter Ended               Nine Months Ended
                                                                       September 30,                 September 30,
                                                                ---------------------------   ---------------------------
                                                                    2001           2000           2001           2000
                                                                ------------   ------------   ------------   ------------
                                                                                 (Dollars in thousands)
Servicing revenue ............................................  $      5,826   $      2,267   $     15,833   $      7,455
Ancillary fees ...............................................         1,278            681          3,682          1,755
Amortization of mortgage servicing rights ....................        (1,943)           (49)        (4,532)          (125)
Write-down of mortgage servicing rights ......................            --             --           (795)            --
Custodial float ..............................................         1,035            371          1,975          1,198
Curtailment expense ..........................................          (674)          (129)        (1,741)          (446)
                                                                ------------   ------------   ------------   ------------
    Total servicing income ...................................  $      5,522   $      3,141   $     14,422   $      9,837
                                                                ============   ============   ============   ============`

Servicing  income for the quarter ended September 30, 2001 was  approximately  $5.5 million,  compared with  approximately  $3.1
million for the quarter ended  September 30, 2000. For the nine months ended September 30, 2001,  servicing  income was $14.4 million,
compared with  approximately  $9.8 million for the nine months ended September 30, 2000.  Gross servicing  revenues and ancillary fees
(primarily  late charges and  prepayment  penalties)  have  increased  significantly  from 2000 to 2001 due to the  expansion of WCC's
servicing  operations  through several  acquisitions of servicing  portfolios.  However,  the continuing  decline in mortgage interest
rates during 2001 has adversely impacted our servicing income in a number of ways.

First,  the drop in mortgage rates  triggered a significant  increase in  prepayments  on the underlying  loans in our servicing
portfolio,  which in turn resulted in accelerated  amortization  of our mortgage  servicing  rights (MSRs).  Amortization  of MSRs was
$1.9 million and $4.5  million,  respectively,  for the quarter and  nine-month  periods ended  September 30, 2001,  compared with $49
thousand and $0.1 million for the comparable 2000 periods (though a portion of the increase in  amortization  was  attributable to the
larger volume of our servicing  portfolio).  In addition,  in June 2001 we wrote down our MSRs by an additional  $0.8 million to their
estimated  market  value.  Further,  as a result of  underlying  loan  prepayments,  we incurred  an  increase in the  interest we are
required to pay to securitization trusts ("curtailment interest expense") under our servicing agreements.

22

The following table sets forth the composition of loans serviced by WCC by type of loan at the dates indicated.

`September 30,      December 31,
                                                                 2001             2000
                                                           ---------------   ---------------
                                                                 (Dollars in thousands)
Single-family residential.............................     $     2,983,655   $     1,909,761
Multi-family residential.............................              141,144           163,511
Commercial real estate...............................              187,208           223,539
Consumer and other...................................               93,837           265,598
                                                           ---------------   ---------------
      Total...........................................     $     3,405,844   $     2,562,409
                                                           ===============   ===============`

In July  2001 WCC  purchased  the  servicing  platform  of Old Kent  Mortgage  Company  consisting  of the  servicing  rights to
approximately  1,500 loans totaling $178 million aggregate principal balances of subprime  first-lien  mortgages.  In August 2001, WFC
purchased  approximately  600 loans totaling  $10.5 million in aggregate  principal  balances from HomEq  Servicing  Corporation.  The
transfer of these loans was completed in October 2001.

Interest Income and Interest Expense
        Interest  income was  approximately  $1.9 million for the quarter ended  September 30, 2001,  compared with  approximately  $1.0
million for the quarter ended  September 30, 2000. For the nine months ended  September 30, 2001,  interest  income was  approximately
$4.1 million,  compared with  approximately $3.7 million for the nine months ended September 30, 2000. This increase was primarily due
to higher loan interest  income  resulting from WFC's  purchase of  approximately  $10.5 million in principal  balance of loans in the
third  quarter of 2001.  In  addition,  during the third  quarter of 2001 we  recorded  an  additional  $0.3  million in  interest  on
mortgage-backed securities as a result of increases in cash flows received on a particular security.

Interest  expense was  approximately  $0.5 million for the quarter ended September 30, 2001,  compared with  approximately  $0.4
million for the quarter ended September 30, 2000.  This increase was due to additional  borrowings  which funded the loan  acquisition
described above in addition to acquisitions of servicing  rights.  For the nine months ended September 30, 2001,  interest expense was
approximately  $0.9 million,  compared with a similar amount for the nine months ended September 30, 2000. The  year-to-date  interest
expense amounts were largely unchanged,  as the additional  interest expense generated by the third quarter 2001 borrowings was offset
by paydowns of borrowings in late 2000 and early 2001 with proceeds from asset sales, and by lower interest rates in 2001.

Investment and Other Income
        The components of investment and other income in our Specialty  Servicing and Finance  Operations are reflected in the following
table:

`Quarter Ended           Nine Months Ended
                                                           September 30,             September 30,
                                                      -----------------------   -----------------------
                                                         2001         2000         2001         2000
                                                      ----------   ----------   ----------   ----------
                                                                    (Dollars in thousands)
  Investment and other income:
  Real estate owned, net ..........................   $       51   $      150   $     (159)  $     (288)
  Gain on sale of loans ...........................           14           --          806        1,484
  Loss on sale of securities ......................           --         (503)        (262)        (503)
  Other, net ......................................           13          778        1,254        1,630
                                                      ----------   ----------   ----------   ----------
     Total investment and other income ...........    $       78   $      425   $    1,639   $    2,323
                                                      ==========   ==========   ==========   ==========`

The decrease in  investment  and other income in 2001 as compared with 2000 is primarily a result of a decline in gains on sales
of loans due to reduced  sales  activity in the current  year. In addition,  other,  net  decreased  primarily due to the receipt of a
$0.5 million settlement in the second quarter of 2000 on a prior loan purchase.

23

Compensation Expense
        Compensation  and employee  benefits were  approximately  $3.8 million for the quarter ended  September 30, 2001,  compared with
approximately  $2.9 million for the quarter ended September 30, 2000. For the nine months ended September 30, 2001,  compensation  and
employee  benefits were $11.2  million,  compared  with $9.8 million for the nine months ended  September  30, 2000.  These  increases
during the current  quarter and year to date are  primarily  due to higher  salary  expenses and  contract  labor costs over the prior
year.  WCC's employee head count increased 30% during the twelve-month  period ended September 30, 2001,  reflecting the growth in the
size of our servicing business.

Other Expenses
        Other  expenses in our  Specialty  Servicing  and Finance  Operations  were  approximately  $2.2  million for the quarter  ended
September 30, 2001,  compared with  approximately  $3.0 million for the quarter  ended  September 30, 2000.  For the nine months ended
September 30, 2001,  other expenses were $6.3 million,  compared with $7.2 million for the nine months ended  September 30, 2000. This
decrease in other expenses was largely due to a one-time charge to  depreciation  expense of  approximately  $0.8 million in September
2000 pursuant to a change in the  estimated  lives of  depreciable  assets.  In addition,  our expenses for  occupancy,  audit and tax
services,  insurance,  and business  travel have declined by a total of $0.6 million in the current year,  reflecting  our  continuing
efforts to reduce  corporate  overhead.  These  decreases in operating  costs were  partially  offset by an increase in legal expenses
related to  litigation  that arose prior to our  restructuring,  as  discussed  earlier.  However,  we believe  that a portion of such
expenses will be recoverable in future periods through our insurance carrier.

## Changes in
Financial Condition  Specialty Servicing and Finance Operations

Following are condensed  statements of financial  condition for our Specialty  Servicing and Finance  Operations as of September

`September 30,  December 31,
                                                                                    2001          2000
                                                                                -----------   ------------
                                                                                  (Dollars in thousands)
ASSETS:
Cash and cash equivalents ...................................................  $        387   $      1,143
Mortgage-backed securities available for sale, at fair value ................         3,035          6,400
Loans and discounted loans held for sale, net, at lower of cost or market ...        16,375         10,214
Real estate owned, net ......................................................           407            991
Servicer advance receivables, net ...........................................        17,525         19,062
Service fees receivable .....................................................         3,110          2,199
Mortgage servicing rights, net ..............................................        10,169          4,544
Other assets (includes intercompany receivables) ............................        18,022         10,312
                                                                               ------------   ------------
    Total assets ............................................................  $     69,030   $     54,865
                                                                               ============   ============

LIABILITIES:
Short-term borrowings .......................................................  $      3,330   $      4,851
Long-term investment financing ..............................................        16,494          1,634
Other liabilities ...........................................................         9,888          9,623
                                                                               ------------   ------------
      Total liabilities .....................................................        29,712         16,108

NET WORTH ...................................................................        39,318         38,757
                                                                               ------------   ------------
      Total liabilities and net worth .......................................  $     69,030   $     54,865
                                                                               ============   ============`

Mortgage-Backed  Securities  Available for Sale. WFC's portfolio of mortgage-backed  securities  available for sale decreased by
approximately  $3.4 million during the nine months ended September 30, 2001. This decrease was primarily due to principal  paydowns of
$1.3 million and a disposition of $2.6 million of securities.  In April 2001 WFC sold  approximately  $1.5 million of loans underlying
such securities,  and retained an interest in real property comprising the remaining $1.1 million of the securitization.  In September
2001 this property was sold for a gain of  approximately  $0.1 million.  We currently hold only those  securities  which are backed by
loans in WCC's servicing portfolio, as such investments provide operating leverage to our core business.

24

Loans and Discounted Loans Held for Sale, Net, at Lower of Cost or Market.  In our Specialty  Servicing and Finance  Operations,
loans and discounted  loans held for sale,  net, at lower of cost or market  increased by  approximately  $6.2 million during the nine
months ended  September 30, 2001.  This increase was  primarily  due to purchases of  approximately  $14.8 million book value of loans
(including $7.4 million in the third quarter of 2001),  partially offset by sales of  approximately  $5.8 million and loan resolutions
occurring in the ordinary course of business.

Real Estate Owned,  net. Real estate owned, net decreased by  approximately  $0.6 million during the nine months ended September
30, 2001.  The decrease was primarily due to sales of  properties  for proceeds of  approximately  $1.8 million,  partially  offset by
acquisitions of real estate during the year through foreclosure from our portfolio of loans.

Servicer Advance  Receivables,  net. Servicer advance  receivables,  net decreased by approximately $1.5 million during the nine
months ended  September 30, 2001.  This decrease was primarily due to recoveries by WCC of scheduled  principal and interest  advances
on loans previously made, partially offset by new advances made during the year.

Mortgage  servicing rights,  net. Mortgage  servicing rights, net (MSRs) increased by approximately $5.6 million during the nine
months ended  September 30, 2001,  primarily due to our purchases of $11.7  million in MSRs  associated  with new servicing  portfolio
acquisitions.  However, as discussed  previously,  the decline in mortgage interest rates during the year has triggered an increase in
prepayments of the underlying loans being serviced,  which, in turn, resulted in accelerated  amortization of our servicing rights. As
a result, through September 30, 2001 we recorded amortization of $4.5 million and a valuation write-down of MSRs of $0.8 million.

Short-Term  Borrowings  and Long-Term  Investment  Financing.  Short-term  borrowings  and  long-term  investment
financing in our Specialty
Servicing and Finance Operations increased by a total of $13.3 million during
the nine months ended September 30, 2001. This increase was primarily due to
additional borrowings during the current year to fund acquisitions of
investments, including a $7.4 million loan purchase in the third quarter of
2001, and mortgage servicing rights.

## Liquidity and
Capital Resources

Liquidity is the  measurement  of our 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. Our sources of cash flow for
our Specialty  Servicing and Finance  Operations  include  servicing  revenue,  whole loan and  mortgage-backed  securities sales, net
interest income,  lines of credit from commercial  banks,  and borrowings from  institutional  lenders.  The availability of liquidity
from our line of credit facilities is subject to the Company's  maintenance of sufficient  available collateral to pledge against such
borrowings.  We are currently maintaining sufficient collateral under the credit agreements.  Liquidity in our Specialty Servicing and
Finance  Operations  is actively  managed on a daily basis and is  periodically  reviewed by our Board of  Directors.  This process is
intended to ensure the maintenance of sufficient funds to meet the needs of the Company.

At September 30, 2001,  liquidity in our Specialty Servicing and Finance Operations  (including cash and unused borrowings under
our credit  facilities)  totaled $16.2 million,  compared with  approximately  $5.6 million at December 31, 2000. Based on our current
and expected asset size, capital levels, and organizational  infrastructure,  we believe there will be sufficient  available liquidity
to meet our needs. In addition,  as part of our business strategy to use bank and  institutional  co-investment  financing,  we intend
to use our available capital in a manner which will not make us dependent on  securitizations  as a source of liquidity.  As a result,
we have no present intent to securitize loans as a source of liquidity.

We no longer own  subordinated  mortgage-backed  securities  backed by loan pools  originated or serviced by unaffiliated  third
parties,  and currently hold  subordinated  mortgage-backed  securities  only where we act as servicer of the loan pools backing these
securities.  At  September  30,  2001 we held $3.0  million of such  mortgage-backed  securities.  The related  short-term  repurchase
agreement which financed these securities was repaid in full in February 2001.

25

Adequate credit  facilities and other sources of funding are essential to the continuation of the Company's  ability to purchase
servicing assets and pools of loans.  The Company's growth strategy is dependent in part on its ability to find credit  facilities and
equity  partners  for  purchases of  servicing  assets and, to a lesser  extent,  loan pools.  Such growth will depend  largely on the
Company's  ability to find and use capital  partners for growth of our Specialty  Servicing and Finance  Operations.  Otherwise,  such
growth could be significantly curtailed or delayed.

## HOLDING COMPANY AND MISCELLANEOUS OPERATIONS

Our Holding Company and Miscellaneous  Operations consist of other operating revenues and expenses not directly  attributable to
our Banking Operations or Specialty  Servicing and Finance  Operations,  and also includes  eliminations of intercompany  accounts and
transactions.  Primary  sources of liquidity  include  funds  available  from the Company's  wholly-owned  non-Bank  subsidiaries  and
payments received from FBBH pursuant to a tax allocation  agreement between the Company and the Bank.  However,  the OTS has presently
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.  In April 2001, the Bank remitted $2.0 million to the Company for a portion of  prior years' liabilities.

26

## 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,  the  availability  and  conditions  of financing  for loan pool  acquisitions,
mortgage-backed  securities,  mortgage loan servicing rights and other financial assets as well as interest rates. 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.  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.

27

## ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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 variations and variations in the value of
assets and liabilities as interest rates change over time. Our asset and
liability management strategy is formulated and monitored by the asset and
liability committees for the Company and the Bank (the Asset and Liability
Committees) which meet to review, 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. FBBHs Asset and Liability Committee
coordinates with the Banks Board of Directors with respect to overall
asset and liability composition.

The Asset and Liability  Committees  are  authorized  to utilize a wide variety of  off-balance  sheet  financial
techniques to assist them
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. In the past, we have utilized
interest rate swap agreements to reduce our exposure caused by the narrowing of
the interest spread between fixed rate loans held for investment and associated
liabilities funding those loans caused by changes in market interest rates. The
Bank had approximately $18.2 million notional principal amount in an interest
rate swap agreement which was designated as a hedge of certain fixed rate loans
in order to convert fixed rate income streams on loans to a variable rate. In
April 2001, this swap agreement expired.

We evaluate the interest rate  sensitivity  of each pool of loans or securities in  conjunction  with the current
interest rate  environment  and decide  whether to hedge the interest rate exposure of a particular  pool. In general,  when a pool of
loans,  securities or mortgage  servicing rights is acquired,  we will determine whether or not to hedge and, with respect to any sale
or financing of any pool of loans through  securitization,  will determine whether or not to discontinue its duration-matched  hedging
activities with respect to the relevant assets.

In addition,  as required by OTS  regulations,  the Bank's Asset and Liability  Committee 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.  The  Committee  further  evaluates  such  impacts  against the maximum  potential  changes in the  interest  rate
sensitivity of NPV that is authorized by the Board of Directors of the Bank.

The following  table  quantifies  the potential  changes in the  Company's  net  portfolio  value at September 30, 2001,  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.

28

# Interest
Rate Sensitivity of Net Portfolio Value

`Net Portfolio Value           NPV as % of Assets
                                                    ----------------------------------  ----------------------
                                                     $ Amount    $ Change    % Change   NPV Ratio     Change
                                               ----------  ----------  ----------  ----------  ----------
         Change in Rates                                         (Dollars in thousands)
           +300bp................................       76,396     (19,783)      (21)%      10.85%    (201) bp
           +200bp................................       80,392     (15,787)      (16)       11.22     (164) bp
           +100bp................................       86,812      (9,367)      (10)       11.88      (98) bp
               0bp...............................       96,179           -         -        12.86       --
           -100bp................................      104,996       8,817         9        13.72       86 bp
           -200bp................................      114,371      18,192        19        14.60      174 bp
           -300bp................................      128,319      32,140        33        15.93      307 bp`

Management  also  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.

29

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

## PART II. OTHER
INFORMATION

## Item 1. Legal
Proceedings.

The
Company is a defendant in other legal actions arising from transactions
conducted in the ordinary course of business. Management, after consultation
with legal counsel, believes the ultimate liability, if any, arising from such
actions will not materially affect the Companys consolidated results of
operations or financial position.

## Item 2.
Changes in Securities.

Not applicable.

## Item 3. Defaults
Upon Senior Securities.

Not applicable.

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

No
matter was submitted to a vote of security holders during the period covered by
this report.

## Item 5. Other
Information.

Not applicable.

## Item 6.
Exhibits and Reports on Form 8-K.

|(a) | Exhibits. |                                                                                                                                                                                                                                                     
|--- | --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | None.     |                                                                                                                                                                                                                                                     
|    |           |                                                                                                                                                                                                                                                     
|(b) | Reports   | on Form 8-K during the quarter ended September 30, 2001:                                                                                                                                                                                            
|    | (i)       | Report on Form 8-K
dated July 10, 2001, reporting the sale of two operating divisions by the Company's banking subsidiary, First Bank of Beverly Hills, F.S.B. (the "Bank"), and the retirement of the Bank's Chief Executive Officer and President.
|    | (ii)      | Report on Form 8-K dated September 7, 2001, reporting the
Banks appointment of its new Chief Executive Officer and President, subject to regulatory approval.                                                                                      

30

# 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.

| | WILSHIRE FINANCIAL SERVICES GROUP INC.
| | --------------------------------------

Date: November 6, 2001

|By: | /s/   STEPHEN P. GLENNON    
|--- | ----------------------------
|    | Stephen P. Glennon          
|    | Chief Executive Officer     
|    |                             
|    |                             
|By: | /s/      BRUCE A. WEINSTEIN 
|    | Bruce A. Weinstein          
|    | Executive Vice President and
|    | Chief Financial Officer     

31