SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

```

(Mark one)

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

         For the quarterly period ended June 30, 2000

                                                        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                 (I.R.S. Employer Identification No.)
                        organization)

            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  has filed all reports  required to be filed by Section 13 or
15 (d) of the  Securities  Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports),  and (2) has been subject to such filing  requirements  for the past
90 days.
Yes   X         No ___
    -----

     Indicate by check mark whether the  registrant  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 July 31, 2000
          Common Stock, par value $.01 per share                              20,035,458 Shares
```

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

INDEX

```

         Item 1.  Interim Financial Statements (Unaudited):

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

                  Consolidated Statements of Operations............................................................4

                  Consolidated Statements of Cash Flows............................................................6

                  Consolidated Statement of Stockholders' Equity...................................................8

                  Notes to Interim Financial Statements............................................................9

         Item 2.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations........................................................................15

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk.......................................26

PART II. OTHER INFORMATION

         Item 1.  Legal Proceedings................................................................................28

         Item 2.  Changes in Securities............................................................................28

         Item 3.  Defaults Upon Senior Securities..................................................................28

         Item 4.  Submission of Matters to a Vote of Security Holders..............................................28

         Item 5.  Other Information................................................................................28

         Item 6.  Exhibits and Reports on Form 8-K.................................................................28
```

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands)

```

                                                                                       June 30,       December 31,
                                                                                         2000             1999
                                                                                      ----------     -------------
                                                                                      (Unaudited)
                                       ASSETS

Cash and cash equivalents..................................................           $   49,828      $     54,168
Mortgage-backed securities available for sale, at fair value...............               39,678            43,583
Mortgage-backed securities held to maturity, at amortized cost.............                8,313            10,166
Securities held to maturity, at amortized cost.............................                6,025             5,979
Loans, net.................................................................              566,479           437,600
Discounted loans, net......................................................                1,646            11,424
Loans and discounted loans held for sale, net, at lower of cost or market..               14,123            34,150
Stock in Federal Home Loan Bank of San Francisco, at cost..................                6,400             5,575
Real estate owned, net.....................................................                3,653            11,571
Leasehold improvements and equipment, net..................................                3,515             4,425
Accrued interest receivable................................................                4,152             3,939
Servicer advances, net.....................................................               18,448            25,074
Prepaid expenses and other assets..........................................               14,979             6,864
                                                                                      ----------      ------------
TOTAL                                                                                 $  737,239      $    654,518
                                                                                      ==========      ============

     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Deposits..............................................................           $  495,612      $    419,285
     Short-term borrowings.................................................               12,628            31,927
     FHLB advances.........................................................              112,000            80,000
     Notes payable to Wilshire Real Estate Investment Inc..................                4,583             5,275
     Accounts payable and other liabilities................................               19,728            28,586
     Minority interest in Wilshire Credit Corporation......................               10,515            11,112
                                                                                      ----------      ------------
        Total liabilities..................................................              655,066           576,185
                                                                                      ----------      ------------

Commitments and Contingencies (see Note 2)

Stockholders' Equity:
     Common stock..........................................................               94,070            92,542
     Retained deficit......................................................              (11,748)          (14,091)
     Accumulated other comprehensive loss, net.............................                 (149)             (118)
                                                                                      ----------      ------------
        Total stockholders' equity.........................................               82,173            78,333
                                                                                      ----------      ------------
TOTAL                                                                                 $  737,239      $    654,518
                                                                                      ==========      ============
```

See notes to interim consolidated financial statements

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

```
                                                                                                               Predecessor
                                                                                    Reorganized Company          Company
                                                                                ----------------------------  -------------
                                                                                Three Months     One Month     Two Months
                                                                                    Ended          Ended          Ended
                                                                                June 30, 2000  June 30, 1999  May 31, 1999
                                                                                -------------  -------------  -------------
INTEREST INCOME:
    Loans............................................................           $     12,571   $      4,400   $      8,163
    Mortgage-backed securities.......................................                  1,047          1,175          2,190
    Securities and federal funds sold................................                    910            306            309
                                                                                ------------   ------------   ------------
    Total interest income............................................                 14,528          5,881         10,662
                                                                                ------------   ------------   ------------
INTEREST EXPENSE:
    Deposits.........................................................                  6,245          2,145          4,437
    Borrowings.......................................................                  2,955            706          2,065
                                                                                ------------   ------------   ------------
    Total interest expense...........................................                  9,200          2,851          6,502
                                                                                ------------   ------------   ------------
NET INTEREST INCOME..................................................                  5,328          3,030          4,160
PROVISION FOR ESTIMATED LOSSES ON LOANS..............................                 (1,700)            81          2,627
                                                                                ------------   ------------   ------------
NET INTEREST INCOME AFTER PROVISION
    FOR ESTIMATED LOSSES ON LOANS....................................                  7,028          2,949          1,533
                                                                                ------------   ------------   ------------
OTHER INCOME:
    Servicing revenue................................................                  2,219          1,442          1,394
    Real estate owned, net...........................................                   (569)           153             (7)
    Bankcard income, net.............................................                    968            407          1,084
    Gain on sale of loans............................................                    299             12            610
    Loan fees and charges............................................                  1,470            755            736
    Other, net.......................................................                    660            341            524
                                                                                ------------   ------------   ------------
    Total other income...............................................                  5,047          3,110          4,341
                                                                                ------------   ------------   ------------
OTHER EXPENSES:
    Compensation and employee benefits...............................                  5,690          3,210          4,324
    Loan service fees and expenses...................................                   (108)         1,203          3,256
    Professional services............................................                  1,386            603           (588)
    Occupancy........................................................                    593            204            586
    FDIC insurance premiums..........................................                    199             97            194
    Corporate travel and development.................................                    178            521            395
    Depreciation and amortization....................................                    490            216            452
    Other general and administrative expenses........................                  1,688            842          1,686
    Minority interest in WCC.........................................                    (95)          (160)             -
                                                                                ------------   ------------   ------------
    Total other expenses.............................................                 10,021          6,736         10,305
                                                                                ------------   ------------   ------------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS, INCOME TAX
    EXPENSE AND EXTRAORDINARY ITEM...................................                  2,054           (677)        (4,431)
REORGANIZATION ITEMS.................................................                      -              -        (37,601)
                                                                                ------------   ------------   ------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE AND EXTRAORDINARY
    ITEM.............................................................                  2,054           (677)       (42,032)
INCOME TAX EXPENSE...................................................                    929            125            283
                                                                                ------------   ------------   ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..............................                  1,125           (802)       (42,315)
EXTRAORDINARY ITEM, NET OF TAX.......................................                      -              -        225,606
                                                                                ------------   ------------   ------------
NET INCOME (LOSS)....................................................           $      1,125   $       (802)  $    183,291
                                                                                ============   ============   ============

EARNINGS (LOSS) PER SHARE:

    Income (loss) before extraordinary item..........................           $       0.06   $      (0.04)  $      (3.89)
    Extraordinary item...............................................                      -              -          20.73
    Net income (loss)................................................                   0.06          (0.04)         16.84

Weighted average shares outstanding..................................             20,035,458     20,033,600     10,885,000
```

See notes to interim consolidated financial statements

WILSHIRE FINANCIAL SERVICES GROUP INC. ANDSUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

```
                                                                                                               Predecessor
                                                                                   Reorganized Company           Company
                                                                                ----------------------------  -------------
                                                                                 Six Months      One Month     Five Months
                                                                                    Ended          Ended          Ended
                                                                                June 30, 2000  June 30, 1999  May 31, 1999
                                                                                -------------  -------------  -------------
INTEREST INCOME:
    Loans............................................................           $     23,332   $      4,400   $     21,710
    Mortgage-backed securities.......................................                  2,196          1,175          5,481
    Securities and federal funds sold................................                  1,855            306            674
                                                                                ------------   ------------   ------------
    Total interest income............................................                 27,383          5,881         27,865
                                                                                ------------   ------------   ------------
INTEREST EXPENSE:
    Deposits.........................................................                 11,827          2,145         11,206
    Borrowings.......................................................                  4,831            706         11,923
                                                                                ------------   ------------   ------------
    Total interest expense...........................................                 16,658          2,851         23,129
                                                                                ------------   ------------   ------------
NET INTEREST INCOME..................................................                 10,725          3,030          4,736
PROVISION FOR ESTIMATED LOSSES ON LOANS..............................                 (3,096)            81          2,697
                                                                                ------------   ------------   ------------
NET INTEREST INCOME AFTER PROVISION
    FOR ESTIMATED LOSSES ON LOANS....................................                 13,821          2,949          2,039
                                                                                ------------   ------------   ------------
OTHER INCOME:
    Servicing revenue................................................                  4,519          1,442          3,309
    Real estate owned, net...........................................                    179            153          1,466
    Bankcard income, net.............................................                  1,759            407          2,381
    Gain on sale of loans............................................                  1,244             12          3,165
    Loan fees and charges............................................                  2,256            755          1,696
    Other, net.......................................................                  1,024            341          1,788
                                                                                ------------   ------------   ------------
    Total other income...............................................                 10,981          3,110         13,805
                                                                                ------------   ------------   ------------
OTHER EXPENSES:
    Compensation and employee benefits...............................                 12,239          3,210         11,796
    Loan service fees and expenses...................................                    (61)         1,203          8,523
    Professional services............................................                  2,453            603          2,752
    Occupancy........................................................                  1,318            204          1,385
    FDIC insurance premiums..........................................                    418             97            501
    Corporate travel and development.................................                    338            521            775
    Depreciation and amortization....................................                  1,216            216          1,161
    Other general and administrative expenses........................                  3,229            842          4,527
    Minority interest in WCC.........................................                   (596)          (160)             -
                                                                                ------------   ------------   ------------
    Total other expenses.............................................                 20,554          6,736         31,420
                                                                                ------------   ------------   ------------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS, INCOME TAX
    EXPENSE AND EXTRAORDINARY ITEM...................................                  4,248           (677)       (15,576)
REORGANIZATION ITEMS.................................................                      -              -        (52,034)
                                                                                ------------   ------------   ------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE AND
    EXTRAORDINARY ITEM...............................................                  4,248           (677)       (67,610)
INCOME TAX EXPENSE...................................................                  1,905            125            658
                                                                                ------------   ------------   ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM..............................                  2,343           (802)       (68,268)
EXTRAORDINARY ITEM, NET OF TAX.......................................                      -              -        225,606
                                                                                ------------   ------------   ------------
NET INCOME (LOSS)....................................................           $      2,343   $       (802)  $    157,338
                                                                                ============   ============   ============

EARNINGS (LOSS) PER SHARE:
    Income (loss) before extraordinary item..........................           $       0.12   $      (0.04)  $      (6.28)
    Extraordinary item...............................................                      -              -          20.73
    Net income (loss)................................................                   0.12          (0.04)         14.45

Weighted average shares outstanding..................................             20,035,458     20,033,600     10,885,000
```

See notes to interim consolidated financial statements

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

```

                                                                                                               Predecessor
                                                                                    Reorganized Company          Company
                                                                                ----------------------------  -------------
                                                                                  Six Months     One Month     Five Months
                                                                                    Ended          Ended          Ended
                                                                                June 30, 2000  June 30, 1999  May 31, 1999
                                                                                -------------  -------------  -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)......................................................      $      2,343   $       (802)  $    157,338
   Adjustments to reconcile net income (loss) to net cash provided by
    operating activities:.................................................
        Provision for estimated losses on loans...........................            (3,096)            81          2,697
        Provision for losses on real estate owned.........................                68              -              -
        Asset valuation adjustments.......................................                 -              -            647
        Depreciation and amortization.....................................             1,216            216          1,161
        Gain on sale of real estate owned.................................              (338)          (217)        (2,192)
        Loss on disposal of equipment.....................................                 6              -             62
        Origination of loans held for sale................................                 -            (30)             -
        Purchase of loans held for sale...................................            (5,058)             -         (1,629)
        Proceeds from sale of loans held for sale.........................            17,446              -        255,845
        Gain on sale of loans.............................................            (1,244)           (12)        (3,165)
        Amortization of discounts and deferred fees.......................               736             (6)           869
        (Income) loss on equity investments...............................              (175)             7           (291)
        Reorganization items:
          Write-off of unamortized debt issuance costs....................                 -              -         11,319
          European reorganization costs...................................                 -              -          2,492
          Adjustments to carrying amounts of assets and liabilities
             pursuant to fresh-start reporting............................                 -              -         37,601
          Gain on extinguishment of debt..................................                 -              -       (225,606)
   Change in:
        Servicer advances.................................................             6,626        (12,016)        (2,545)
        Accrued interest receivable.......................................              (213)           629            330
        Prepaid expenses and other assets.................................            (6,323)         4,250          9,039
        Accounts payable and other liabilities............................            (8,767)         2,106         12,893
        Minority interest.................................................              (597)         5,857              -
                                                                                ------------   ------------   ------------
          Net cash provided by operating activities.......................             2,630             63        256,865
                                                                                ------------   ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of loans.................................................          (155,384)       (17,694)       (87,988)
        Loan repayments...................................................            49,204         13,940         70,412
        Loan originations.................................................           (16,097)        (6,504)       (11,915)
        Proceeds from sale of loans.......................................            12,872             12              -
        Purchase of mortgage-backed securities available for sale.........            (9,919)             -              -
        Repayment of mortgage-backed securities available for sale........            13,580          1,085          9,010
        Repayments of mortgage-backed securities held to maturity.........             1,801            438          1,544
        Proceeds from redemption of FHLB stock............................               776              -            750
        Purchase of real estate owned.....................................              (244)             -           (708)
        Proceeds from sale of real estate owned...........................             9,639          4,580         28,359
        Purchase of FHLB stock............................................            (1,426)             -              -
        Purchases of leasehold improvements and equipment.................              (293)          (128)          (768)
        Proceeds from sale of leasehold improvements and equipment........               148              -              -
                                                                                ------------   ------------   ------------
          Net cash (used in) provided by investing activities.............           (95,343)        (4,271)         8,696
                                                                                ------------   ------------   ------------
```

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(Dollars in thousands)

```

                                                                                                               Predecessor
                                                                                    Reorganized Company          Company
                                                                                ----------------------------  -------------
                                                                                  Six Months     One Month     Five Months
                                                                                    Ended          Ended          Ended
                                                                                June 30, 2000  June 30, 1999  May 31, 1999
                                                                                -------------  -------------  -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Net increase (decrease) in deposits.................................    $     76,327   $     (4,695)  $    (13,256)
        Proceeds from FHLB advances.........................................          48,000              -              -
        Repayments of FHLB advances.........................................         (16,000)             -              -
        Proceeds from short-term borrowings.................................          66,172         24,559         99,579
        Repayments of short-term borrowings.................................         (85,434)       (17,904)      (353,800)
        Repayment of note payable to WREI...................................            (692)             -              -
        Proceeds from debtor-in-possession financing........................               -              -          5,000
                                                                                ------------   ------------   ------------
             Net cash provided by (used in) financing activities............          88,373          1,960       (262,477)
                                                                                ------------   ------------   ------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................          (4,340)        (2,248)         3,084
CASH AND CASH EQUIVALENTS:
        Beginning of period.................................................          54,168         26,552         23,468
                                                                                ------------   ------------   ------------
        End of period.......................................................    $     49,828   $     24,304   $     26,552
                                                                                ============   ============   ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash paid
  for:
        Interest............................................................    $     15,566   $      2,768   $     17,083
        Income taxes........................................................             601              -          6,252
NONCASH INVESTING ACTIVITIES:
        Additions to real estate owned acquired in settlement of loans......           1,447            355          3,547
NONCASH REORGANIZATION ITEMS:
        Cancellation of old common stock....................................               -              -        114,856
        Issuance of new common stock in exchange for notes payable
             and accrued interest thereon...................................               -              -         88,900
```

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 

(Unaudited)

(Dollars in thousands, except share data)

```

                                                                                         Accumulated
                                                      Common Stock                          Other
                                              --------------------------   Retained     Comprehensive
                                                 Shares       Amount        Deficit          Loss           Total
                                              -----------   ------------  ------------  ---------------  -----------

BALANCE, January 1, 2000                       20,033,600   $    92,542   $   (14,091)  $         (118)  $   78,333
  Comprehensive income:
   Net income.................                                                  2,343                         2,343
   Unrealized holding losses on available
      for sale securities - net of tax                                                            (120)        (120)
   Unrealized gain on foreign
      currency translation - net of tax                                                             89           89
                                                                                                         -----------
  Total comprehensive income..                                                                                2,312
  Tax benefit from utilization of pre-
    reorganizational Net Operating Losses
    (Note 3)                                                      1,528                                       1,528
  Allocation of additional shares pursuant
    to reorganization (Note 5)                      1,858
                                              -----------   ------------  ------------  --------------- ------------
BALANCE, June 30, 2000........                 20,035,458   $    94,070   $   (11,748)  $         (149) $    82,173
                                              ===========   ============  ============  =============== ============
```

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

1. BASIS OF PRESENTATION

        The  accompanying  interim  consolidated  financialstatements of Wilshire Financial Services Group Inc. and Subsidiaries (the "Company") are unaudited andshould  be read in  conjunction  with the 1999  Annual  Report on Form  10-K.  Asummary of the Company's significant  accounting policies is set forth in Note 5to the Consolidated Financial Statements in the 1999 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 fairpresentation  of the interim  consolidated  financial statements,   have  been  included  and  all  intercompany  accountsand  transactions  have  been  eliminated  in consolidation.  Operating  results for the six months  ended June 30, 2000are not  necessarily  indicative  of the results that may be expected for the year ending December 31, 2000.

        On June 10, 1999,  the Company  completed  its plan ofreorganization  (the "Plan")  under  Chapter 11 of the United  States  Bankruptcy  Code  and  emerged  from  bankruptcy.The  financial   statements  presented  include consolidated  statements  of financial  condition of the  reorganizedcompany as of December 31, 1999 and June 30, 2000;  consolidated  statements of operations of the predecessor  companyfor the two-month and five-month  periods ended May 31, 1999; and consolidated  statements of operations of the reorganizedcompany for the one-month period ended June 30, 1999, and the three-month and six-month periods ended June 30, 2000.

        The preparation of financial  statements in conformitywith generally accepted accounting  principles requires management  to make  estimates  and  assumptions  that affectthe reported  amounts of assets and  liabilities  and disclosures of contingent  assets and liabilities at the date ofthe financial  statements and the reported amounts of revenues and expenses during the reporting period.  Actual resultscould differ from those estimates.

        Certain  reclassifications  of 1999  amounts were made inorder to conform to the 2000  presentation,  none of which affect previously reported net income.

2. COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEETRISK

        The Company's  savings bank  subsidiary,  First Bankof Beverly Hills,  FSB ("First Bank" or the "Bank"),  had approximately  $26.1 million notional  principal amount inan interest rate swap agreement  outstanding at June 30, 2000,  which was  designated as a hedge of certain  fixed rateloans in order to convert fixed rate income  streams on loans to  variable  rate.  This  swap had the  effect  ofincreasing  the  Company's  net  interest  income  by approximately  $22  thousand  and $27  thousand,  respectively,during the quarter  and six months  ended June 30, 2000.  The market value of this swap currently deferred was $0.2million at June 30, 2000.

        At June 30, 2000 the Company, through First Bank, had outstanding commitments to fund $3.6 million of loans.

        The Company and some of its  directors  are  currentlydefendants  to a lawsuit  brought on behalf of each of Andrew A. Wiederhorn,  the Company's  former Chief ExecutiveOfficer,  and Lawrence A.  Mendelsohn,  the Company's former  President.  On August 19, 1999, the Board of Directorsof the Company  notified each of Messrs.  Wiederhorn and  Mendelsohn  of the Company's  intention to terminate hisemployment  for "cause"  pursuant to his  employment agreement  with the Company.  The Company  suspended theemployment of each of Messrs.  Wiederhorn  and Mendelsohn that same day. On September 2, 1999,  the Company  terminatedthe  employment of each of them for cause.  Mr.  Wiederhorn  and Mr.  Mendelsohn  have  brought  suit  alleging,  interalia,  that they were wrongfully  terminated  and defamed by the Company's  and the  directors'  actions.  The Companyfiled its response denying the allegations and filed  counterclaims  against Messrs.  Wiederhorn and Mendelsohn.  Thecourt recently determined that a prior release  issued in connection  with the Company's  reorganization barred the Company frompursuing its principal counterclaims.  Depending on the final outcome of the litigation, the Company will consider whetherto appeal this decision.

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

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

        The Company is also  currently a party to a lawsuit  with Wilshire Real Estate Investment Inc. ("WREI").  In August  1999,  WREI filed suit against theCompany  alleging that the  aforementioned  suspensions of Mr.  Wiederhorn and Mr.  Mendelsohn  caused a facilitiessharing agreement between the Company and WREI to come into effect,  thereby  suspending WREI's obligations under amanagement  agreement between WREI and Wilshire Realty Services  Corporation  ("WRSC"), a subsidiary of the Company(Messrs.  Wiederhorn and Mendelsohn were  simultaneously  serving as the senior executive officers of WREI).  WREI  thereafter  amended  itscomplaint to assert that, as a result of the  termination  of Messrs.  Wiederhorn and  Mendelsohn,  (i) the Companyhad breached  the  management  agreement  with WREI (which  permitted  WREI to terminate  that  agreement),  (ii) afacilities  sharing  agreement  between the Company and WREI had been triggered,  requiring WREI to pay the Companyonly for the cost of the  management  provided by the  Company's  employees  (and no further  fees would be payableunder the  management  agreement),  and (iii) WFSG is in default  under a $5 million loan  agreement due to allegedmaterial adverse changes.  WREI also alleges that the Company's  subsidiary,  Wilshire Credit Corporation  ("WCC"),has provided WREI with a prepaid  credit for servicing  WREI's assets in the amount of $3.2 million,  and that WREImay use this  credit  for loans  that WCC  services  for  securitization  trustees  where  WREI  owns the  residualsecurities.  The Company has denied the  allegations and  counterclaimed,  alleging that (i) WREI has failed to paymanagement  fees owed to the  Company  under the  management  agreement,  which  approximate  $1.3  million  in theaggregate for the quarters ended  December 31, 1999 and March 31, 2000,  (ii) WREI is not entitled to terminate themanagement  agreement  until  April 6,  2000  (because  WRSC had not  breached  the  agreement)  and any  purportedtermination  of that  agreement by WREI  entitles  the Company to a  termination  fee in excess of $3 million,  and(iii) the facilities  sharing agreement is inapplicable  and/or invalid.  The Company also asserts that the prepaidservicing  credit is only $2.3  million,  and that it may only be used for assets  owned by WREI.

        The Company will continue to  vigorously  contest theclaims made by Messrs.  Wiederhorn  and  Mendelsohn  and WREI and assert its counterclaims against WREI.

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

        As part of the Company's June 1999 restructuring, and in connectionwith the transfer of a minority ownership interest in WCC to Capital Consultants, Inc. ("CCI"), the Company provided to CCI acontingent Liquidation Bond in the form of a  non-interest  bearing  obligation to pay CCI, in the event (and only in the event) ofany  liquidation or dissolution of WCC, $19.3 million less any  distributions  that CCI receives from its minority ownership  interest in WCC. WCC is obligated to keep the bondcollateralized  with assets of WCC or WFSG having a fair market  value equal to such bond and, to the extent that itdoes not do so, WFSG may be responsible for the deficiency.

        As part of the Company's June 1999 restructuring CCI released any claims that it might have against the Company except forclaims that are covered by the Company's insurance policies.  The Company, CCI and the Company's insurers have entered intoa tolling agreement effective July 1, 2000 in which all parties have agreed that any statutory periods in which theseinsurance-covered claims must be filed are suspended.  The Company has denied the validity of any of the claims CCI has alleged.Since the only claims that CCI may bring are those covered by insurance, if any claim were initiated the Company doesnot believe such claim would have a material effect on the Company.

3. INCOME TAXES

        The Company files  consolidated  federal income tax returns with its eligible domestic  subsidiaries.  WCC andcertain foreign  subsidiaries  that are included in the  consolidated  financial  statements are not eligible to beincluded in the  consolidated  federal  income tax return.  WCC is not eligible to be  consolidated  as the companydoes not meet the required  ownership  threshold  of 80% (the  Company's  interest is 50.01%).  WCC incurred a lossduring the six  months  ended  June 30,  2000.  This loss  cannot  offset  earnings  of the  Company  and its othersubsidiaries  for  purposes  of  determining  income  tax  liabilities, thus affecting the overall effective tax rate of theCompany.  Due to the  uncertainty  regarding  future profitability of WCC, the Company has not recorded a tax benefit for theWCC loss.

        Although  the Company has net  operating  losses and  deductible  temporary  differences  available  to offsetincome  earned  during  the six  months  ended June 30,  2000,  the  Company  recorded  income tax  expense of $1.9million.  There are two  components to the income tax  provision:  current taxes of $0.4 million and deferred taxesof $1.5 million.  The current tax provision  results from excess inclusion earned on certain residual  interests inREMICs which cannot be offset by tax losses.  Deferred taxes are discussed below.

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

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

        Deferred tax assets and liabilities  represent the tax effect of future  deductible or taxable  amounts.  Theyare attributable to carryforwards,  such as net operating losses,  and temporary  differences  between amounts thathave been  recognized  in the  financial  statements  and  amounts  that have been  recognized  in the  income  taxreturns.  The  deferred tax  provision  results from a reduction in the amount of the deferred tax asset during thesix months ended June 30, 2000.

        The Company  has  established  a  valuation  allowance  against  the net  deferred  tax asset as there is notpresumptive  evidence  that it is more likely than not that the deferred  tax asset will be realized.  Deferred taxassets that existed on June 10, 1999,  the date of  completion  of the Plan,  were also offset by a full  valuationallowance.  As these  pre-reorganization tax benefits are realized from reductions in the valuation allowance,  thetax effect is  recorded as an increase  to  stockholders'  equity in  accordance  with the  American  Institute  ofCertified Public Accountants  Statement of Position 90-7,  Financial Reporting by Entities in Reorganization  Underthe  Bankruptcy  Code ("SOP 90-7"),  and not as a tax benefit in the statement of  operations.  Approximately  $3.7million of  pre-reorganization  tax benefits were  realized in the six months ended June 30, 2000.  This results ina  corresponding  decrease in the valuation  allowance  and the tax effect,  approximately  $1.5 million,  has beenrecorded as an increase to  stockholders'  equity.  The maximum  pre-reorganization  tax benefit  available  to theCompany (partially subject to the annual limits discussed below) at June 30, 2000 was $64.9 million.

        The  Company's  net  operating  losses  have been  reduced by  cancellation  of  indebtedness  income that wasexcluded  from  taxable  income in 1999.  All of the  Company's  remaining  net  operating  loss and  capital  losscarryforwards  were  generated in the  pre-reorganization  period and  therefore are subject to a limitation on theamount  that  may  be  utilized  annually  to  offset  taxable  income.   The  annual  limitation  on  the  use  ofpre-reorganization  net  operating  or capital  loss  carryforwards  is  approximately  $4.3  million.  There is nolimitation on the  Company's  ability to utilize  deductible  temporary  differences.  In the six months ended June30,  2000  the  limitation  on the  Company's  ability  to  utilize  pre-reorganization  net  operating  losses  isapproximately  $4.5 million  (50% of the current year  limitation  plus a carryover of unused  limitation  from theprior year).

4. SIGNIFICANT TRANSACTIONS

        During the quarter ended June 30, 2000, the Company  disposed of its French loan  acquisition  and servicingoperations and its U.K. loan  portfolio.  In the fourth quarter of 1999, the Company  provided  approximately  $2.4 million to cover expected losses from theclosure of its European  operations.  No further  provisions  were recorded  during the quarter or six months endedJune 30, 2000. In connection  with these  dispositions,  the Company has recorded a deferred loss of  approximately$0.2 million.  The extent,  if any, to which this loss will be recognized is  contingent  upon the  liquidation  ofremaining assets and resolution of remaining accrued liabilities.

        On June 30, 2000,  First Bank purchased a branch of Fidelity  Federal  Savings Bank located in Beverly Hills,California.  Approximately  $82  million in retail  deposits  were  acquired at a premium of 6%, with the intent oflowering overall cost of funds,  rebalancing the mix of retail/wholesale  deposits held by the Bank, and adding newcustomer relationships to fuel further retail deposit growth and increase fee revenue.

        During the quarter and six months ended June 30, 2000,  the Bank  purchased  approximately  $68.9 million and$156.4 million,  respectively,  in unpaid principal balance of  adjustable-rate  loans. In addition,  in June 2000,the Bank sold $14.8 million  principal  balance of  non-performing  and  sub-performing  loans. The book balance ofthe loans sold was $13.2 million.  General  Valuation  Allowances (GVAs) associated with the nine contracts totaled$2.0  million.  Of this amount,  approximately  $0.3 million of GVAs were  determined  to be necessary for the $1.4million  book balance of loans  remaining in the  contracts.  The other $1.7  million of GVAs  associated  with thecontracts were recaptured as a loan loss reserve provision reversal.

5. COMMON STOCK

        In June 2000,  additional  shares of the Company's common stock were issued to WREI. This issuance  completedthe delivery of all shares that were  allocable to WREI  (2,874,741)  pursuant to the Company's  reorganization  inJune 1999.

6. REGULATORY MATTERS

        On June 8, 2000, the Office of Thrift Supervision rescinded a series of supervisory directives previouslyissued to First Bank.  These directives had imposed various restrictions on the Bank's growth and operationalauthority.

7. OPERATING SEGMENTS

        The  Company's  reportable  operating  segments,  as defined by the  Company's  management,  are  banking  andnon-banking  (primarily  loan  servicing)   operations.   The  operating  segments  vary  in  terms  of  regulatoryenvironment,  funding sources and asset  acquisition  focus. A description of the Company's  operating  segments isas follows:

        Banking - The  Company's  banking  operations  are conducted  through  First Bank.  The Bank is engaged in theacquisition and origination of mortgage loans, and merchant  bankcard  processing.  The primary source of liquidityfor First Bank's  acquisitions  and  originations  is wholesale  certificates  of deposit,  retail  deposits,  FHLBadvances,  and,  to a lesser  extent,  committed  short-term  line of credit  facilities.  The Bank is a  federallychartered savings bank and is regulated by the Office of Thrift Supervision.

        Non-banking  -  The  Company's  non-banking  operations  are  conducted  primarily  through  Wilshire  CreditCorporation  ("WCC") and Wilshire  Funding  Corporation  ("WFC").  In addition to loan  servicing  operations,  thenon-banking  operating  segment acquires and sells mortgage loan pools, primarily in instances where such acquisitionsand/or sales provide operating leverage in increasing the Company's loan servicing operations.  Currently, funding sources for theCompany's non-banking operations consist primarily of institutional and commercial banking investors, under debt service repaymentterms which generally parallel the principal repayments and prepayments of the underlying collateral.  Historically,  the primary  funding  sources  were line of credit andrepurchase agreement facilities with nationally recognized investment and commercial banking firms.

WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Unaudited)

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

        Segment data for the three months ended June 30, 2000, one month ended June 30, 1999, and two months   ended May 31, 1999 are as follows:

```

                                                       Reorganized Company
                                                       -------------------
                                                 Three Months Ended June 30, 2000
                                              ---------------------------------------
                                                 Thrift         Non-
                                                Banking       Banking        Total
                                              -----------   -----------   -----------

   Interest income...................         $    12,943   $     1,585   $    14,528
   Interest expense..................               8,489           711         9,200
                                              -----------   -----------   -----------
   Net interest income...............               4,454           874         5,328
   Provision for loan losses.........              (1,700)            -        (1,700)
                                              -----------   -----------   -----------
   Net interest income after
     provision for loan losses.......               6,154           874         7,028
   Other income......................               2,652         2,395         5,047
   Other expense.....................               5,406         4,615        10,021
                                              -----------   -----------   -----------
   Income (loss) before taxes........               3,400        (1,346)        2,054
   Income tax provision (benefit)....               1,462          (533)          929
                                              -----------   -----------   -----------
   Net income (loss).................         $     1,938   $      (813)  $     1,125
                                              ===========   ===========   ===========
   Total assets......................         $   676,546   $    60,693   $   737,239
                                              ===========   ===========   ===========

                                                       Reorganized Company                Predecessor Company
                                                       -------------------                -------------------
                                                One Month Ended June 30, 1999         Two Months Ended May 31, 1999
                                              -----------------------------------    -------------------------------
                                                Thrift       Non-                    Thrift       Non-
                                               Banking     Banking      Total       Banking     Banking      Total
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Interest income...................         $   4,207   $   1,674   $   5,881    $   7,368   $   3,294   $  10,662
   Interest expense..................             2,398         453       2,851        4,829       1,673       6,502
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Net interest income...............             1,809       1,221       3,030        2,539       1,621       4,160
   Provision for loan losses.........                 -          81          81            -       2,627       2,627
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Net interest income (loss) after
     provision for loan losses.......             1,809       1,140       2,949        2,539      (1,006)      1,533
   Other income......................               921       2,189       3,110        1,701       2,640       4,341
   Other expense.....................             1,614       5,122       6,736        3,312       6,993      10,305
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Income (loss) before reorganization
     items, taxes and extraordinary item          1,116      (1,793)       (677)         928      (5,359)     (4,431)
   Reorganization items..............                 -           -           -            -     (37,601)    (37,601)
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Income (loss) before taxes and
     extraordinary item..............             1,116      (1,793)       (677)         928     (42,960)    (42,032)
   Income tax provision (benefit)....               480        (355)        125          399        (116)        283
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Income (loss) before extraordinary item          636      (1,438)       (802)         529     (42,844)    (42,315)
   Extraordinary item, net of tax....                 -           -           -            -     225,606     225,606
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Net income (loss).................         $     636   $  (1,438)  $    (802)   $     529   $ 182,762   $ 183,291
                                              ==========  ==========  ==========   ==========  ==========  ==========
   Total assets......................         $ 611,304   $ 186,636   $ 797,940    $ 606,954   $ 182,414   $ 789,368
                                              ==========  ==========  ==========   ==========  ==========  ==========
```

        Segment  data for the six months  ended June 30,  2000,  one month  ended June 30,  1999,  and five monthsended May 31, 1999 are as follows:

```

                                                       Reorganized Company
                                                       -------------------
                                                  Six Months Ended June 30, 2000
                                              ---------------------------------------
                                                 Thrift        Non-
                                                Banking      Banking        Total
                                              -----------  -----------  -----------

   Interest income...................         $   23,915   $    3,468  $    27,383
   Interest expense..................             15,422        1,236       16,658
                                              -----------  -----------  -----------
   Net interest income...............              8,493        2,232       10,725
   Provision for loan losses.........             (3,200)         104       (3,096)
                                              -----------  -----------  -----------
   Net interest income after
     provision for loan losses.......             11,693        2,128       13,821
   Other income......................              3,878        7,103       10,981
   Other expense.....................              9,838       10,716       20,554
                                              -----------  -----------  -----------
   Income (loss) before taxes........              5,733       (1,485)       4,248
   Income tax provision (benefit)....              2,465         (560)       1,905
                                              -----------  -----------  -----------
   Net income (loss).................         $    3,268   $     (925)       2,343
                                              ===========  ===========  ===========
   Total assets......................         $  676,546   $   60,693   $  737,239
                                              ===========  ===========  ===========

                                                       Reorganized Company                Predecessor Company
                                                       -------------------                -------------------
                                                One Month Ended June 30, 1999        Five Months Ended May 31, 1999
                                              -----------------------------------   --------------------------------
                                                Thrift       Non-                    Thrift       Non-
                                               Banking     Banking      Total       Banking     Banking      Total
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Interest income...................         $   4,207   $   1,674   $   5,881    $  17,771   $  10,094   $  27,865
   Interest expense..................             2,398         453       2,851       11,680      11,449      23,129
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Net interest income...............             1,809       1,221       3,030        6,091      (1,355)      4,736
   Provision for loan losses.........                 -          81          81            -       2,697       2,697
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Net interest income (loss) after
     provision for loan losses.......             1,809       1,140       2,949        6,091      (4,052)      2,039
   Other income......................               921       2,189       3,110        4,278       9,527      13,805
   Other expense.....................             1,614       5,122       6,736        7,678      23,742      31,420
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Income (loss) before reorganization
     items, taxes and extraordinary item          1,116      (1,793)       (677)       2,691     (18,267)    (15,576)
   Reorganization items..............                 -           -           -            -     (52,034)    (52,034)
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Income (loss) before taxes and
     extraordinary item..............             1,116      (1,793)       (677)       2,691     (70,301)    (67,610)
   Income tax provision (benefit)....               480        (355)        125        1,357        (699)        658
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Income (loss) before extraordinary item          636      (1,438)       (802)       1,334     (69,602)    (68,268)
   Extraordinary item, net of tax....                 -           -           -            -     225,606     225,606
                                              ----------  ----------  ----------   ----------  ----------  ----------
   Net income (loss).................         $     636   $  (1,438)  $    (802)   $   1,334   $ 156,004   $ 157,338
                                              ==========  ==========  ==========   ==========  ==========  ==========
   Total assets......................         $ 611,304   $ 186,636   $ 797,940    $ 606,954   $ 182,414   $ 789,368
                                              ==========  ==========  ==========   ==========  ==========  ==========
```

WILSHIRE FINANCIAL SERVICES GROUP INC. ANDSUBSIDIARIES

        The  following  discussion  and  analysis  should  be read in  conjunction  with  the  Consolidated  FinancialStatements  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  CreditCorporation ("WCC"), our majority-owned subsidiary, unless the context indicates otherwise.

        Wilshire  Financial  Services  Group Inc. is a financial  services  company.  We specialize in loan  portfolioacquisition and servicing,  and offer banking through our subsidiary,  First Bank of Beverly Hills, F.S.B.  ("FirstBank").  First Bank is a federally  chartered  savings bank regulated by the Office of Thrift  Supervision  ("OTS")with one  branch,  a merchant  bankcard  processing  center,  and a lending  center in  Southern  California.  Loanservicing and administrative headquarters of WFSG are located in Portland, Oregon.

*   OVERVIEW*

        During the period  subsequent to our  restructuring  (which was effective June 10, 1999), we haveinstituted a new business  strategy  emphasizing our core strengths in our loan pool  acquisition,  loan servicing,and banking operations.  In general we describe these discrete businesses as "Bank" and "Non-Bank" operations.  Inaddition, we have focused on the following specific objectives:

```

o        addressing regulatory concerns and restrictions at First Bank;

o        managing effectively our interest rate and credit risks at each of our business units;

o        completing the wind-down of our European operations;

o        reducing corporate overhead; and

o        expanding our loan servicing and investment relationships with strategic partners.
```

        We  believe  we  have  made  significant  progress  in this  regard.  Additional  discussion  andanalysis of our results of operations appears below.

        In the  following  discussion,  the amounts for the six months ended June 30, 1999  represent  the sum ofthe  Predecessor's  Company's  operations  for the five  months  ended May 31, 1999 and the  Reorganized  Company'soperations  for the one month ended June 30,  1999,  as reported in the  accompanying  consolidated  statements  ofoperations.

Net Income

        Our net income  was  approximately  $2.3  million  for the six  months  ended  June 30,  2000,  compared  withapproximately  $156.5  million  for the six  months  ended  June 30,  1999.  Excluding  the  extraordinary  gain onextinguishment  of debt of $225.6  million and  restructuring  costs of $52.0  million  during the 1999 period,  weincurred a net loss of $17.0  million  for the six  months  ended  June 30,  1999.  The  improvement  in  operatingresults  over the prior year is  primarily  due to a decrease  in other  expenses of $17.6  million,  a decrease inprovision for loan losses of $5.9 million,  and an increase in interest  income of $3.0 million,  partially  offsetby a decrease in other income of $5.9 million.

Net Interest Income

        Our net interest income was  approximately  $10.7 million for the six months ended June 30, 2000,compared  with  approximately  $7.8  million for the six months  ended June 30,  1999.  This  increase was due to adecline in interest  expense of $9.3  million,  partially  offset by a decline in interest  income of $6.4 million,reflecting our reduction  during 1999 in the levels of loans and other  interest-earning  assets and paydown of therelated short-term borrowing facilities.

        Interest  Income.  Our interest income was  approximately  $27.4 million for the six months endedJune 30, 2000  compared  with  approximately  $33.8  million for the six months  ended June 30, 1999, a decrease of$6.4 million.  The decrease was primarily due to a decrease in the average balance of our  interest-earning  assetsfrom approximately  $809.1 million for the six months ended June 30, 1999, to approximately  $589.6 million for thesix months ended June 30,  2000,  resulting  from the sale of certain  loans and other  assets  throughout  1999 toprovide liquidity and repay certain short-term borrowing facilities in our non-banking operations.

        Interest  Expense.  Our  interest  expense  was  approximately  $16.7  million for the six monthsended June 30, 2000,  compared with approximately  $26.0 million for the six months ended June 30, 1999, a decreaseof $9.3 million.  The decrease in interest  expense was  primarily due to a decrease in the average  balance of ourinterest-bearing  liabilities  from  approximately  $903.6  million  for the six  months  ended  June  30,  1999 toapproximately  $580.7  million for the six months ended June 30, 2000,  resulting  primarily from the repayments ofshort-term  borrowing  facilities with proceeds from the asset sales described  above. In addition,  during the sixmonths ended June 30,  1999,  we  recognized  $4.2 million of interest on our 13% Notes and 13% Series B Notes (the"Notes")  payable  through the date on which we filed our voluntary  Chapter 11 petition,  which was March 3, 1999.As part of our restructuring, in June 1999 the Notes were converted to equity of WFSG.

Provision for Losses on Loans

        Provision  for losses on loans for the six months  ended June 30,  2000 was a net  recovery  of  approximately$3.1  million,  compared  with a provision  of  approximately  $2.8 million for the six months ended June 30, 1999.During the six months ended June 30, 2000 the Bank  reversed $3.2 million of  provisions  for loan losses  recordedin prior  periods.  The reversal of these prior  provisions was a result of the sale of $13.1 million book value ofnon-performing  and  sub-performing  loans in June,  2000 and the  quarterly  analysis  performed to determine  theadequacy of current loan loss reserve  levels,  which were deemed  excessive  due to the  continued  seasoning  andimproved loss  performance  of the Bank's loan  portfolio.  These  provision  reversals  were  partially  offset byadditional provisions of approximately $0.1 million taken on discounted loans in our non-banking operations.

Other Income

        Our other  income  decreased  to  approximately  $11.0  million for the six months ended June 30,2000 from  approximately  $16.9 million for the six months ended June 30, 1999.  The components of our other incomeare reflected in the following table:

```

                                                                                      Six Months Ended
                                                                                          June 30,
                                                                                ---------------------------
                                                                                    2000           1999
                                                                                ------------   ------------
                                                                                   (Dollars in thousands)
Other income:
        Servicing revenue..............................................         $      4,519   $      4,751
        Real estate owned, net.........................................                  179          1,619
        Bankcard income, net...........................................                1,759          2,788
        Gain on sale of loans..........................................                1,244          3,177
        Loan fees and charges..........................................                2,256          2,451
        Other, net.....................................................                1,024          2,129
                                                                                ------------   ------------
                  Total other income...................................         $     10,981   $     16,915
                                                                                ============   ============
```

        The decrease in other income was  primarily  attributable  to a $1.9 million  decrease in gain onsale of loans,  a $1.4 million  decrease in real estate owned,  net, a $1.1 million  decrease in other,  net, and a$1.0 million decrease in bankcard income, net.  The components of other income are further described below.

        Servicing  Revenue.  Servicing  revenue for the six months ended June 30, 2000 was $4.5  million,compared  with $4.8 million for the six months ended June 30,  1999,  a decrease of $0.3  million.  The decrease isprimarily  attributable  to the run-off of loans in the  servicing  portfolio,  partially  offset by new  servicingacquired  during the period.  Our  servicing  revenue  reflects  the  servicing  activity  of WCC, a newly  formed,majority-owned  subsidiary.  Such operations  were previously  performed by a former  affiliate,  Capital  WilshireHoldings Inc.  (CWH,  formerly known as Wilshire  Credit  Corporation),  and were not included in the  consolidatedfinancial  statements of WFSG. Certain assets and liabilities of Wilshire Credit  Corporation  (including its name)were transferred to WCC effective June 10, 1999 as part of our reorganization.

        Real Estate  Owned,  net. Real estate owned,  net decreased  approximately  $1.4 million from thesix  months  ended  June 30,  1999 to the six  months  ended  June 30,  2000 due to a decline  in gains on sales ofproperties acquired through foreclosure or deed-in-lieu thereof.

        Bankcard  Income,  net.  Bankcard  income,  net was  approximately  $1.8  million  during the sixmonths  ended June 30,  2000,  compared  with  approximately  $2.8  million for the six months ended June 30, 1999.This decrease is attributable in part to a management  decision to discontinue  processing for high-risk  audiotextmerchants at the end of 1999,  focusing on growth in internet,  mail order and retail  merchant  processing.  Totalprocessing  volume  decreased  slightly  during the first six months of 2000 from the  similar  period in the prioryear,  and  bankcard  income,  net  declined  further  due to  smaller  processing  margins on the  current  mix ofmerchants.  In addition,  approximately  $0.6 million in loss reserves  were  recorded  during the six months endedJune 30, 2000, with no such provision during the first six months of 1999.  These  additional  reserves were neededto offset remaining losses incurred principally as a result of terminating audiotext merchant relationships.

        The  financial  results of First  Bank's  merchant  bankcard  processing  operations  for the sixmonths ended June 30, 2000 and 1999 were as follows:

```

                                                                                     Six Months Ended
                                                                                         June 30,
                                                                                --------------------------
                                                                                    2000          1999
                                                                                ------------  ------------
                                                                                  (Dollars in thousands)
Bankcard revenues......................................................         $      7,578  $      7,750
Bankcard processing expenses...........................................               (5,239)       (4,962)
Provision for losses...................................................                 (580)            -
                                                                                ------------  ------------
Bankcard income, net...................................................                1,759         2,788
Other expenses.........................................................               (1,825)       (1,458)
                                                                                ------------  ------------
(Loss) income after other expenses.....................................         $        (66)        1,330
                                                                                ============  ============
```

        Gain on Sale of Loans.  Gain on sale of loans  decreased  by  approximately  $1.9  million from the six monthsended  June 30,  1999 to the six  months  ended June 30,  2000.  The  decrease  is  primarily  due to gains of $3.2million on sales of  approximately  $252.7  million  carrying  value of loans  during the six months ended June 30,1999,  compared with gains of $1.2 million on sales of approximately  $29.1 million carrying value of loans for the2000 period.

        Loan Fees and  Charges.  Loan fees and  charges  decreased  from  approximately  $2.5  million for the sixmonths ended June 30, 1999 to  approximately  $2.3  million for the six months  ended June 30,  2000.  The decreasewas primarily  due to a decline in new loan  production at First Bank,  partially  offset by ancillary  charges andlate fee income on loans  serviced by WCC. Such servicing  operations  were  previously  performed by CWH, but weretransferred to WCC effective June 10, 1999 as part of our reorganization.

        Other,  net. Other, net was  approximately  $1.0 million for the six months ended June 30, 2000,  comparedwith  approximately  $2.1 million for the six months ended June 30,  1999.  The decrease is primarily  attributableto  management  fees earned from WREI of $1.4  million for the six months  ended June 30,  1999.  No such fees havebeen  accrued  during  the six  months  ended  June 30,  2000.  See Note 2 to the  interim  consolidated  financialstatements.

Other Expenses

        Our other expenses totaled  approximately  $20.6 million for the six months ended June 30, 2000,  comparedwith  approximately  $38.2  million  for the six months  ended June 30,  1999,  a decrease of $17.6  million.  Thisdecrease was  primarily  due to decreases in loan  service  fees and  expenses of $9.8  million,  compensation  andemployee  benefits of $2.8  million,  other  general  and  administrative  of $2.1  million,  corporate  travel anddevelopment of $1.0 million, and professional services of $0.9 million.

        Loan  Service  Fees and  Expenses  Paid to  Affiliate.  Loan  service  fees  and  expenses  paid to  affiliatedecreased  from $9.7 million for the six months  ended June 30, 1999 to  approximately  ($0.1  million) for the sixmonths ended June 30, 2000.  This  decrease was  primarily  due to the  inclusion of WCC's  operating  results withWFSG beginning in June 1999 resulting from the restructuring.  Our servicing  operations were previously  performedby a former affiliate,  Capital Wilshire Holdings Inc. (CWH,  formerly known as Wilshire Credit  Corporation),  andthe related  expenses  were not included in the  consolidated  financial  statements  of WFSG.  Certain  assets andliabilities of Wilshire  Credit  Corporation  (including its name) were  transferred to WCC effective June 10, 1999as part of our  reorganization.  The net  negative  expense  amount for the 2000 period  reflects  the  recovery ofapproximately $0.2 million of loan service fees and expenses associated with real property which was sold.

        Compensation and Employee  Benefits.  Compensation and employee benefits totaled  approximately  $12.2 millionfor the six months ended June 30, 2000,  compared  with  approximately  $15.0 million for the six months ended June30, 1999.  This  decrease was primarily due to  reductions  in our  workforce,  including our European  operations,during 1999,  resulting in savings for the first six months of 2000 of approximately $6.2 million,  and a reductionin employee  bonuses of  approximately  $1.2  million.  However,  these  reductions  in  compensation  expense werepartially  offset by the inclusion of  approximately  $6.0 million of total  compensation  and benefits for WCC, ofwhich the Company owns a 50.01%  interest.  Such  expenses were  previously  incurred by CWH, and were not includedin WFSG's  consolidated  financial  statements  prior to our  reorganization,  which was  effective  June 10, 1999.Consequently,  only $1.3  million  of  compensation  and  benefits  for WCC were  included  in WFSG's  consolidatedoperating results for the six months ended June 30, 1999.

        Professional  Services.  Professional  services  decreased  to  approximately  $2.5 million for the six monthsended  June 30,  2000 from  approximately  $3.4  million  during the six months  ended June 30,  1999.  In the 1999period, we incurred higher legal,  accounting and consulting fees in connection with our  restructuring  plan priorto the March 3, 1999  Chapter 11 petition  filing.  No such  non-recurring  costs were  incurred for the six monthsended June 30,  2000.  In  addition,  certain of our legal  expenses  during 2000 will be  reimbursed  by insurancepolicies,  as such expenses  represent  defense costs  incurred in connection  with  litigation.  See Note 2 to theinterim consolidated financial statements.

        Other General and Administrative  Expenses.  Other general and administrative  expenses decreasedto approximately  $3.2 million for the six months ended June 30, 2000 from  approximately  $5.4 million for the sixmonths ended June 30, 1999, reflecting our efforts to reduce corporate overhead.

        Corporate   Travel  and   Development.   Corporate   travel  and   development   decreased   fromapproximately  $1.3  million  for the six months  ended June 30,  1999 to  approximately  $0.3  million for the sixmonths ended June 30, 2000, primarily due to substantial expense controls that were imposed in this area.

        In the following  discussion,  the amounts for the three months ended June 30, 1999 represent thesum of the Predecessor  Company's  operations for the two months ended May 31, 1999 and the  Reorganized  Company'soperations  for the one month ended June 30,  1999,  as reported in the  accompanying  consolidated  statements  ofoperations.

Net Income

        Our net  income  was  approximately  $1.1  million  for  the  quarter  ended  June  30,  2000,  compared  withapproximately  $182.5  million  for  the  quarter  ended  June  30,  1999.  Excluding  the  extraordinary  gain  onextinguishment  of debt of $225.6  million and  restructuring  costs of $37.6  million  during the 1999 period,  weincurred a net loss of $5.5  million for the quarter  ended June 30, 1999.  The  improvement  in operating  resultsover the prior year is  primarily  due to a decrease in other  expenses of $7.0 million and a decrease in provisionfor loan losses of $4.4  million,  partially  offset by  decreases in other income of $2.4 million and net interestincome of $1.9 million.

Net Interest Income

        Our net  interest  income was  approximately  $5.3  million for the quarter  ended June 30, 2000,compared with  approximately  $7.2 million for the quarter ended June 30, 1999.  This decrease was due to a declinein interest income of $2.0 million,  partially offset by a decline in interest expense of $0.1 million,  reflectingour  reduction  during  1999 in the levels of loans and other  interest-earning  assets and  paydown of the relatedshort-term borrowing facilities.

        Interest  Income.  Our interest  income was  approximately  $14.5  million for the quarter ended June 30, 2000compared with  approximately  $16.5  million for the quarter ended June 30, 1999, a decrease of $2.0 million.  Thisdecrease was primarily due to a decrease in the average balance of our  interest-earning  assets from approximately$708.8  million for the quarter ended June 30, 1999,  to  approximately  $618.2  million for the quarter ended June30, 2000,  resulting  from the sale of certain  loans and other assets  throughout  1999 to provide  liquidity  andrepay certain short-term borrowing facilities in our non-banking operations.

        Interest  Expense.  Our interest expense was  approximately  $9.2 million for the quarter ended June 30, 2000,compared  with  approximately  $9.3 million for the quarter  ended June 30, 1999, a decrease of $0.1  million.  Thedecrease  in interest  expense was  primarily  due to a decrease  in the  average  balance of our  interest-bearingliabilities from approximately  $687.3 million for the quarter ended June 30, 1999 to approximately  $595.8 millionfor the quarter ended June 30, 2000,  resulting  primarily from the repayments of short-term  borrowing  facilitieswith proceeds from the asset sales described  above.  However,  this decrease in interest on short-term  borrowingswas  partially  offset by  approximately  $1.9 million in interest  expense on FHLB  advances at First Bank, as theBank used these  longer-term  borrowings  to fund its loan  acquisitions  and to  improve  its  interest-rate  riskposition.

Provision for Losses on Loans

        Provision  for  losses on loans for the  quarter  ended  June 30,  2000 was a net  recovery  of $1.7  million,compared with a provision of  approximately  $2.7 million for the quarter  ended June 30, 1999.  During the quarterended June 30, 2000 the Bank  reversed  $1.7  million of  provisions  for loan losses  associated  with the sale ofnon-performing and sub-performing loans in June 2000.

Other Income

        Our other income  decreased  to  approximately  $5.0 million for the quarter  ended June 30, 2000from  approximately  $7.5  million for the quarter  ended June 30,  1999.  The  components  of our other income arereflected in the following table:

```

                                                                                    Quarter Ended
                                                                                        June 30,
                                                                                --------------------------
                                                                                    2000          1999
                                                                                ------------  ------------
                                                                                  (Dollars in thousands)
Other income:
        Servicing revenue..............................................         $      2,219  $      2,836
        Real estate owned, net.........................................                 (569)          146
        Bankcard income, net...........................................                  968         1,491
        Gain on sale of loans..........................................                  299           622
        Loan fees and charges..........................................                1,470         1,491
        Other, net.....................................................                  660           865
                                                                                ------------  ------------
                  Total other income...................................         $      5,047  $      7,451
                                                                                ============  ============
```

        The  decrease in other  income was  primarily  attributable  to a $0.7  million  decrease in realestate owned,  net, a $0.6 million decrease in servicing  revenue,  and a $0.5 million decrease in bankcard income,net.  The components of other income are further described below.

        Servicing  Revenue.  Servicing  revenue  for the quarter  ended June 30,  2000 was $2.2  million,compared  with $2.8  million for the quarter  ended June 30,  1999, a decrease of $0.6  million.  This  decrease isprimarily  attributable  to the run-off of loans in the  servicing  portfolio,  partially  offset by new  servicingacquired  during the period.  Our  servicing  revenue  reflects  the  servicing  activity  of WCC, a newly  formed,majority-owned  subsidiary.  Such operations  were previously  performed by a former  affiliate,  Capital  WilshireHoldings Inc.  (CWH,  formerly known as Wilshire  Credit  Corporation),  and were not included in the  consolidatedfinancial  statements of WFSG. Certain assets and liabilities of Wilshire Credit  Corporation  (including its name)were transferred to WCC effective June 10, 1999 as part of our reorganization.

        Real Estate  Owned,  net.  Real estate owned,  net was a loss of  approximately  $0.6 million for the quarterended June 30, 2000 compared  with income of  approximately  $0.1 million for the quarter ended June 30, 1999.  Theloss for the 2000 period was primarily due to net losses on sales of properties  acquired  through  foreclosure  ordeed-in-lieu thereof.

        Bankcard Income,  net.  Bankcard income,  net was  approximately  $1.0 million during the quarterended June 30, 2000,  compared with  approximately  $1.5 million for the quarter ended June 30, 1999. This decreaseis attributable in part to a management  decision to discontinue  processing for high-risk  audiotext  merchants atthe end of 1999,  focusing on growth in  internet,  mail order and retail  merchant  processing.  Total  processingvolume  decreased  during the second  quarter  of 2000 from the  similar  period in the prior  year,  and  bankcardincome,  net  declined  due  to  smaller  processing  margins  on  the  current  mix  of  merchants.  In  addition,approximately  $0.2 million in loss reserves  were  recorded  during the current  quarter,  with no such  provisionduring the second  quarter of 1999.  These  additional  reserves were needed to offset  remaining  losses  incurredprincipally as a result of terminating audiotext merchant relationships.

        The financial  results of First Bank's merchant bankcard  processing  operations for the quartersended June 30, 2000 and 1999 were as follows:

```

                                                                                    Quarter Ended
                                                                                        June 30,
                                                                                --------------------------
                                                                                    2000          1999
                                                                                ------------  ------------
                                                                                  (Dollars in thousands)

Bankcard revenues......................................................         $      3,608  $      4,264
Bankcard processing expenses...........................................               (2,490)       (2,773)
Provision for losses...................................................                 (150)            -
                                                                                ------------  ------------
Bankcard income, net...................................................                  968         1,491
Other expenses.........................................................                 (892)         (733)
                                                                                ------------  ------------
Income after other expenses............................................         $         76  $        758
                                                                                ============  ============
```

        Gain on Sale of Loans.  Gain on sale of loans decreased by  approximately  $0.3 million from the quarter endedJune 30,  1999 to the quarter  ended June 30,  2000.  The  decrease is  primarily  due to gains of $0.6  million onsales of  approximately  $60.0  million  carrying  value of loans  during the three  months  ended  June 30,  1999,compared with gains of $0.3 million on sales of  approximately  $19.5 million  carrying value of loans for the 2000period.

        Loan Fees and Charges.  Loan fees and charges were  approximately  $1.5 million for the quarter ended June30, 1999 and for the quarter  ended June 30, 2000. A decrease in loan  origination  fees resulted from a decline innew loan  production  at First Bank,  but such  decrease was  partially  offset by  ancillary  charges and late feeincome  on  loans  serviced  by  WCC.  Such  servicing  operations  were  previously  performed  by CWH,  but  weretransferred to WCC effective June 10, 1999 as part of our reorganization.

        Other,  net.  Other,  net was  approximately  $0.7 million for the quarter  ended June 30, 2000,  compared withapproximately  $0.9  million  for the quarter  ended June 30,  1999.  The  decrease is  primarily  attributable  tomanagement  fees earned  from WREI of $0.7  million for the  quarter  ended June 30,  1999.  No such fees have beenaccrued during the quarter ended June 30, 2000. See Note 2 to the interim consolidated  financial statements.  Thisdecrease was partially offset by $0.5 in miscellaneous  income from a settlement  received on a claim relating to aprior year loan pool purchase.

Other Expenses

        Our other  expenses  totaled  approximately  $10.0 million for the quarter  ended June 30, 2000,  compared withapproximately  $17.0  million for the quarter  ended June 30, 1999, a decrease of $7.0  million.  This decrease wasprimarily due to decreases in loan service fees and expenses of $4.6 million,  compensation  and employee  benefitsof $1.8 million,  other general and  administrative  of $0.8 million,  and travel and  development of $0.7 million,partially offset by an increase in professional services of $1.4 million.

        Loan Service Fees and Expenses  Paid to Affiliate.  Loan service fees and expenses paid to affiliate  decreasedfrom $4.5  million  for the quarter  ended June 30, 1999 to ($0.1  million)  for the quarter  ended June 30,  2000.This decrease was primarily due to the inclusion of WCC's  operating  results with WFSG in 1999  resulting from therestructuring.  Our  servicing  operations  were  previously  performed  by a former  affiliate,  Capital  WilshireHoldings Inc. (CWH, formerly known as Wilshire Credit  Corporation),  and the related expenses were not included inthe  consolidated  financial  statements of WFSG.  Certain assets and  liabilities of Wilshire  Credit  Corporation(including  its name) were  transferred  to WCC  effective  June 10,  1999 as part of our  reorganization.  The netnegative  expense amount for the 2000 period  reflects the recovery of  approximately  $0.2 million of loan servicefees and expenses associated with real property which was sold.

        Compensation and Employee  Benefits.  Compensation and employee  benefits totaled  approximately  $5.7 millionfor the quarter  ended June 30, 2000,  compared  with  approximately  $7.5  million for the quarter  ended June 30,1999.  This decrease was primarily due to reductions in our workforce,  including our European  operations,  during1999,  resulting  in savings for the second  quarter of 2000 of  approximately  $3.1  million,  and a reduction  inemployee bonuses of approximately $0.4 million.  However,  these reductions in compensation  expense were partiallyoffset by the  inclusion of  approximately  $2.9 million of total  compensation  and benefits for WCC, of which theCompany owns a 50.01%  interest.  Such  expenses were  previously  incurred by CWH, and were not included in WFSG'sconsolidated  financial  statements prior to our reorganization,  which was effective June 10, 1999.  Consequently,only $1.3 million of compensation and benefits for WCC were included in WFSG's  consolidated  operating results forthe quarter ended June 30, 1999.

        Other General and Administrative  Expenses.  Other general and administrative  expenses decreasedto approximately  $1.7 million for the quarter ended June 30, 2000 from  approximately $2.5 million for the quarterended June 30, 1999, reflecting our efforts to reduce corporate overhead.

        Corporate   Travel  and   Development.   Corporate   travel  and   development   decreased   fromapproximately  $0.9  million for the  quarter  ended June 30, 1999 to  approximately  $0.2  million for the quarterended June 30, 2000, due to substantial expense controls that were imposed in this area.

        Professional  Services.  Professional  services increased by approximately $1.4 million from the quarter endedJune 30,  1999 to the  quarter  ended  June 30,  2000.  Expense  for the 1999  quarter  included  the  reversal  ofapproximately  $1.5 million of previously  accrued  expenses  pursuant to a review by management and  determinationthat the recorded  liability balance exceeded revised estimated  liabilities.  Certain of our legal expenses during2000 will be reimbursed by insurance  policies,  as such expenses  represent  defense costs  incurred in connectionwith litigation.  See Note 2 to the interim consolidated financial statements.

CHANGES IN FINANCIAL CONDITION

        Mortgage-Backed and Other Securities.  For accounting  purposes,  our mortgage-backed and other securitiesare classified as available for sale and held to maturity.  Our holdings of  mortgage-backed  securities  availablefor sale  decreased  approximately  $3.9  million  during the six months  ended June 30,  2000.  This  decrease wasprimarily  due to  principal  repayments  of $13.6  million and an increase in  unrealized  holding  losses of $0.2million,  partially  offset by  purchases  of $9.9  million.  Our holdings of  mortgage-backed  securities  held tomaturity  decreased  approximately  $1.9  million  during  the six  months  ended June 30,  2000  primarily  due toprincipal  repayments.  The following table sets forth our holdings of  mortgage-backed  and other securities as ofJune 30, 2000 and December 31, 1999:

Mortgage-Backed Securities and Other Securities

```

                                                                                  June 30,    December 31,
                                                                                    2000          1999
                                                                                ------------  ------------
                                                                                  (Dollars in thousands)
Available for sale:
    Mortgage-backed securities.........................................         $     10,201  $     10,362
    Agency mortgage-backed securities..................................               29,477        33,221
Held to maturity:
    U.S. Government and other securities...............................                6,025         5,979
    Mortgage-backed securities.........................................                8,313        10,166
                                                                                ------------  ------------
        Total investment securities....................................         $     54,016  $     59,728
                                                                                ============  ============
```

        Loans,   net.  Our  portfolio  of  loans,   net  of  discounts  and   allowances,   increased  byapproximately  $128.9  million during the six months ended June 30, 2000.  This increase is primarily  attributableto the  acquisition  of  Performing  loans at First  Bank,  reflecting  our  emphasis  on  increasing  the level ofinvestment in performing loans as a percentage of the total loan portfolio.  See "Discounted Loans, net" below.

        Discounted  Loans,  net. Our portfolio of discounted loans decreased by approximately  $9.8 million during thesix months ended June 30, 2000.  This  decrease was  primarily  due to the sale of  approximately  $13.1 million incarrying  value of  non-performing  discounted  loans at First Bank. We have  continued to reduce the percentage ofdiscounted loans to total loans in our portfolio.  Discounted loans require  significant capital resources prior toresolution, which is generally six to twenty-four months following acquisition.

        Loans and Discounted  Loans Held for Sale,  Net, at Lower of Cost or Market.  Loans and  discounted  loansheld for sale,  net, at lower of cost or market  decreased by  approximately  $20.0  million  during the six monthsended June 30,  2000.  This  decrease  was  primarily  due to the sale of loans to  increase  liquidity  and reduceoutstanding  borrowings, and to a lesser extent bulk sales of loans considered opportunistic by management, and resolutions thatoccur in the ordinary course of business.  In addition,  during the second  quarter of 2000,  we completed  the sale of our Europeanloan portfolio.  See Note 4 to the interim consolidated financial statements.

        Real Estate Owned,  net. Real estate owned,  net decreased by  approximately  $7.9 million  during the sixmonths ended June 30, 2000.  The decrease was primarily due to sales of  properties  for proceeds of  approximately$9.6 million,  partially  offset by  acquisitions of real estate through  foreclosure or deed-in-lieu  thereof fromour portfolio of discounted  loans.  In addition,  during the second  quarter of 2000, we disposed of our remainingproperties in Europe.  See Note 4 to the interim consolidated financial statements.

        Servicer  Advances,  net.  Servicer  advances,  net  decreased by  approximately  $6.6 million  during the sixmonths ended June 30, 2000.  This  decrease was  primarily  due to  recoveries  by WCC of scheduled  principal  andinterest advances on loans previously serviced, partially offset by new advances made during the period.

        Deposits.  First Bank's deposits  increased by  approximately  $76.3 million during the six months ended June30, 2000,  primarily due to the purchase of a branch of Fidelity Federal Bank, which had  approximately $82 millionin retail  deposits.  See Note 4 to the interim  consolidated  financial  statements.  The increase  was  partiallyoffset by maturities of the Bank's time deposits, some of which were not renewed.

        Short-Term  Borrowings.  Short-term  borrowings  decreased by approximately  $19.3 million duringthe six months ended June 30, 2000.  This decrease was primarily  due to  repayments  of debt  facilities  with theproceeds from the loan sales and branch acquisition described above.

        FHLB  Advances.  First  Bank's FHLB  advances  increased by $32.0  million  during the six monthsended June 30, 2000, as these  borrowings  were utilized to fund the Bank's new loan  acquisitions.  These advanceshave  maturities  ranging  from  three  to five  years,  which  assists  in  reducing  our  sensitivity  to  marketinterest-rate  fluctuations  and enables the Bank to more  closely  match the  maturities  of its  investments  andborrowings.

        Accounts Payable and Other Liabilities.  Accounts payable and other liabilities decreased by approximately $9.1 millionduring the six months ended June 30, 2000.  This decrease was primarily due to repayments of liabilities and accruedexpenses related to our European operations with proceeds from the sales of our French and U.K. assets.  See Note 4to the interim consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

        Liquidity  is  the  measurement  of our  ability  to  meet  potential  cash  requirements,  including  ongoingcommitments to repay  borrowings,  fund  investments,  purchase pools of loans, and for general business  purposes.Our sources of cash flow include  retail and wholesale  deposits,  FHLB  advances,  whole loan and  mortgage-backedsecurities sales, net interest income,  borrowings under repurchase financing  facilities,  lines ofcredit from commercial banks (including a new $8 million credit facility with a major commercial bank that was obtainedin May 2000), and borrowings from institutional  investors and other  lenders.  Liquidity in our banking and non-bankingoperations is actively managed on a daily basis.  In addition, the Company's and the Bank's Boards of Directorsperiodically review the liquidity of their respective operations.  This  process  is  intended  to  ensure  the  maintenance  ofsufficient funds to meet the needs of the Company.

        At June 30, 2000, our cash balances totaled  approximately  $49.8 million,  $40.1million of which was held at First Bank and $9.7 million of which is available for use in our non-banking operations.  At December 31, 1999,  our cash balance was  approximately  $54.2  million,  of which $48.4 million washeld at First Bank.  The decrease in cash during the six months was  primarily  due to the Bank's  acquisitions  ofnew loans, as described above, partially offset by additional borrowings to finance the acquisitions.

        Based on our current and expected asset size, capital levels, and  organizational  infrastructure,  we believethere  will be  sufficient  available  cash to meet our  needs.  We continue to aggressively seek new  capital  andfinancing  to permit us to more fully and more  efficiently  utilize  our  banking  and loan  servicing  platforms.There can be no  assurance,  however,  that we will be able to obtain  new  capital  or will have  sufficient  cashflows.  In  addition,  given  current  market  conditions,  we  likely  will not  securitize  loans as a source  ofliquidity.

        Sources  of  liquidity  for  First  Bank  include  retail  and  wholesale  deposits,  FHLB  advances,  andmortgage-backed  securities  repurchase  borrowings.  At June 30, 2000, First Bank had approximately $466.3 millionof  certificates  of deposit.  At June 30, 2000,  scheduled  maturities of  certificates  of deposit  during the 12months  ending June 30, 2001 and  thereafter  amounted to  approximately  $416.9  million and  approximately  $49.4million,  respectively.  Wholesale  deposits  generally are more  responsive to changes in interest rates than coredeposits and,  thus,  are more likely to be withdrawn by the investor  upon  maturity as changes in interest  ratesand other factors are perceived by investors to make other  investments  more  attractive.  However,  management ofFirst Bank  believes  it can  adjust the rates paid on  certificates  of  deposit to retain  deposits  in  changinginterest rate  environments  and that  wholesale  deposits can be both a relatively  efficient and stable source offunds. In addition,  First Bank management has recently increased the amount of its FHLB advance  borrowings as apercentage  of its total  borrowings  and deposits  and is exploring  new ways to reduce its exposure to changes ininterest  rates,  including  efforts to develop core deposits  (which are less  sensitive to interest rate changes)and the purchase and  origination of  variable-rate  loans.  The retail branch  acquisition  will reduce the Bank'soverall cost of funds,  rebalance the mix of  retail/wholesale  deposits and add new core  relationships to furtherretail deposit growth and increase fee revenue.

        Mortgage-backed  securities  which are  subject to  repurchase  agreements,  as well as loans and real estatewhich  secure  other  indebtedness,  periodically  are  revalued by the lender,  and a decline in the value that isrecognized by the lender  (whether or not the lender  recognized the full fair value of the security) may result inthe lender  requiring us to provide  additional  collateral  to secure the  indebtedness.  Primarily as a result ofasset sales,  we have had adequate cash and cash  equivalents  to meet calls for  additional  collateral to repay aportion  of the  related  indebtedness  or to  meet  our  other  operating  and  financing  requirements.  In  mostinstances,  lenders under  repurchase  agreements  secured by  mortgage-backed  securities have withheld  principaland/or  interest  payments on such  securities in order to reduce  outstanding,  unpaid  margin calls.  At June 30,2000,  there were no outstanding  collateral  calls,  as determined by our lenders,  net of withheld  principal andinterest  payments.  If we are unable to fund  additional  collateral  requirements  or to repay,  renew or replacematuring  indebtedness  on terms  reasonably  satisfactory  to us, we may be required  to sell (on short  notice) aportion  of our  assets,  and could  incur  losses as a result.  Furthermore,  since,  from time to time,  there isextremely limited liquidity in the market for subordinate and residual  interests in  mortgage-related  securities,there can be no  assurance  that we will be able to  dispose  of such  securities  promptly  for fair value in suchsituations.

        Adequate  credit  facilities and other sources of funding are essential to the  continuation  of the Company'sability to purchase  pools of loans and  servicing  assets.  The  Company's  growth  strategy is  dependent  on itsability to raise  additional debt and/or equity  financing and growth at First Bank and to find credit facilities and equity partners forpurchases of loan pools and servicing  assets by our  servicing  operation.  To the extent that the current  marketenvironment  persists,  such growth will depend  largely on the Company's  ability to find and use equity  partnersfor growth of our  servicing  operation  portfolios  and on growth at First  Bank.  Otherwise,  such  growth may besignificantly curtailed or delayed.

        First 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 offive years or less.  Current OTS  regulations  require that a savings  association  maintain  liquid  assets of notless than 4% of its average daily balance of net withdrawable  deposit accounts and borrowings  payable in one yearor less,  of which  short-term  liquid assets must consist of not less than 1%.  Monetary  penalties may be imposedfor failure to meet applicable liquidity requirements.  First Bank has complied with these requirements.

IMPORTANT FACTORS RELATING TO FORWARD-LOOKINGSTATEMENTS

        All of the statements  contained in this  Quarterly  Report on Form 10-Q which are not identifiedas historical  should be considered  forward-looking.  The Company notes that there are various  factors that couldcause  actual  results  to differ  materially  from those set forth in  forward-looking  statements.  Such  factorsinclude,  but are not limited to, the real estate market,  interest  rates,  cease and desist orders  existing withregard to the Company,  other  regulatory  matters,  the availability of pools of loans at acceptable  prices,  theavailability of financing for existing assets, loan portfolio  acquisitions and servicing portfolio expansion,  theavailability  of  additional  financing,  and the  outcome  of the  Company's  litigation  with  WREI  and  Messrs.Wiederhorn and Mendelsohn.  Accordingly,  there can be no assurance that the forward-looking  statements  containedin this Quarterly Report on Form 10-Q will be realized or that actual results will not be  significantly  higher orlower.  The  forward-looking  statements  have not  been  audited  by,  examined  by or  subjected  to  agreed-uponprocedures  by  independent   accountants,   and  no  third-party  has  independently  verified  or  reviewed  suchstatements.  Readers of this Quarterly  Report on Form 10-Q should  consider these factors in evaluating the informationcontained  herein.  The inclusion of the  forward-looking  statements  contained in this  Quarterly  Report on Form10-Q should not be  regarded  as a  representation  by the  Company or any other  person  that the  forward-lookingstatements  contained in this Quarterly  Report on Form 10-Q will be achieved.  In light of the foregoing,  readersof this Quarterly Report on Form 10-Q are cautioned not to place undue reliance on the  forward-looking  statementscontained herein.

        It is our objective to attempt to control risks  associated  with  interest  rate  movements.  Ingeneral,  management's  strategy is to limit our exposure to earnings  variations  and  variations  in the value ofassets and  liabilities  as  interest  rates  change  over time.  Our asset and  liability  management  strategy isformulated  and  monitored  by the asset and  liability  committees  for the Company and First Bank (the "Asset andLiability  Committee")  which meets  regularly to review,  among other things,  the  sensitivity  of our assets andliabilities to interest rate changes,  the book and market values of assets and  liabilities,  unrealized gains andlosses,  including  those  attributable  to  hedging  transactions,   purchase  and  securitization  activity,  andmaturities of investments and borrowings.  First Bank's Asset and Liability  Committee  coordinates with the Bank'sBoard  of  Directors  and the  Company's  investment  committees  with  respect  to  overall  asset  and  liabilitycomposition.

        The Asset and  Liability  Committee is  authorized to utilize a wide variety of  off-balance  sheet  financialtechniques to assist it in the  management  of interest  rate risk.  These  techniques  include  interest rate swapagreements,  pursuant to which the parties exchange the difference  between  fixed-rate and floating-rate  interestpayments on a specified  principal  amount  (referred to as the "notional  amount") for a specified  period withoutthe  exchange  of the  underlying  principal  amount.  Interest  rate swap  agreements  are  utilized to reduce ourexposure  caused by the  narrowing  of the  interest  spread  between  fixed  rate loans  held for  investment  andassociated  liabilities  funding  those  loans  caused  by  changes  in  market  interest  rates.  First  Bank  hadapproximately  $26.1 million notional  principal amount in an interest rate swap agreement  outstanding at June 30,2000,  which was  designated as a hedge of certain fixed rate loans in order to convert  variable rate  liabilitiesto fixed rate.  The swap had the effect of increasing  our net interest  income by  approximately  $22 thousand and$27 thousand, respectively, during the quarter and six months ended June 30, 2000.

        At times,  we have also hedged the interest rate exposure of  fixed-rate or  lagging-index  loansor  securities  that are  either  held or  available  for sale.  The  Company  creates a hedge  which  matches  theprincipal  amortization  of such assets  against the maturity of our  liabilities  generally by entering into shortsales or forward sales of U.S.  Treasury  securities,  Government  securities,  interest rate futures  contracts orinterest  rate swap  agreements.  This  results in market  gains or losses on hedging  instruments,  in response tointerest rate increases or decreases,  respectively,  which  approximate the amount of corresponding  market lossesor gains,  respectively,  on assets being hedged.  We evaluate the interest rate  sensitivity of each pool of loansor securities in conjunction  with the current  interest rate  environment and decide whether to hedge the interestrate  exposure of a particular  pool.  We generally do not hedge the  interest  rate risk  associated  with holdingnon-lagging  index   adjustable-rate   mortgages  pending  their  sale  or  securitization  due  to  the  decreasedsignificance  of such  risk.  In  general,  when a pool of loans or  securities  are  acquired,  we will  determinewhether 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 relevantloans.

        In addition,  as required by OTS  regulations,  First Bank's Asset and Liability  Committee  alsoregularly  reviews  interest rate risk by forecasting the impact of alternative  interest rate  environments on theinterest  rate  sensitivity  of Net  Portfolio  Value  ("NPV"),  which is  defined as the net  present  value of aninstitution's  existing assets,  liabilities and off-balance  sheet  instruments.  The Committee  further evaluatessuch impacts against the maximum  potential  changes in the interest rate  sensitivity of NPV that is authorized bythe Board of Directors of First Bank.

        The  following  table  quantifies  the potential  changes in our net portfolio  value at June 30,2000,  should interest rates increase or decrease  (shocked) by 100 to 300 basis points,  assuming the yield curvesof the rate shocks will be parallel to each other.

Interest Rate Sensitivity of Net Portfolio Value

```

                                                                     Net Portfolio Value            NPV as % of PV of Assets
                                                               ----------------------------------   ------------------------
                                                               $ Amount    $ Change     % Change    NPV Ratio        Change
                                                               ----------- -----------  ---------   ----------      --------
        Change in Rates                                               (Dollars in thousands)
         +300bp.............................................   $  62,743   $  (34,876)     (36)%        9.17%       (412)bp
         +200bp.............................................      74,608      (23,011)     (24)        10.64        (265)bp
         +100bp.............................................      86,544      (11,075)     (11)        12.05        (124)bp
            0bp.............................................      97,619            -        0         13.29           -
         -100bp.............................................     106,063        8,444        9         14.18          89bp
         -200bp.............................................     110,025       12,406       13         14.52         123bp
         -300bp.............................................     110,620       13,001       13         14.46         117bp
```

        Management also believes that the assumptions  (including  prepayment  assumptions) used by it toevaluate the  vulnerability  of our  operations to changes in interest  rates  approximate  actual  experience  andconsiders them reasonable;  however,  the interest rate sensitivity of our assets and liabilities and the estimatedeffects of changes in interest rates on NPV could vary  substantially if different  assumptions were used or actualexperience differs from the historical experience on which they are based.

WILSHIRE FINANCIAL SERVICES GROUP INC. ANDSUBSIDIARIES

```

PART II. OTHER INFORMATION

     Item 1.      Legal Proceedings.

                        The Company is  involved  in 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.

                        On June 22, 2000, at the annual stockholders'  meeting, the Company's  stockholders elected
                  the  following  seven (7) persons to the Board of  Directors  of the  Company:  Larry B.  Faigin,
                  Elizabeth  F. Aaroe,  Robert M.  Deutschman,  Peter S.  Fishman,  Stephen P.  Glennon,  Edmund M.
                  Kaufman, and Daniel A. Markee.

                        The stockholders also voted 13,478,382 to 3,761,018,  with 4,530 abstentions,  to amend the
                  Company's  1999 Equity  Participation  Plan to (i) authorize an additional  1,200,000  shares for
                  issuance  under the Plan and (ii)  increase  the  yearly  allocation  of  options  that  could be
                  granted to any individual.

     Item 5.      Other Information.

                        Not applicable.

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

                  (a)      Exhibits.
                           3.3      By-laws, as amended
                           10.21    Amended and Restated 1999 Equity Participation Plan
                           11       Statement re:  Computation of Per-Share Earnings
                           27       Financial Data Schedule

                  (b)      Reports on Form 8-K during the quarter ended June 30, 2000:
                                    (i)      Report on Form 8-K dated April 13,  2000,  reporting  the  resignation  of the
                                             Company's  Executive  Vice President and Chief Financial Officer.
                                    (ii)     Report on Form 8-K dated April 21, 2000, reporting the date of the Company's
                                             annual stockholders meeting.
                                    (iii)    Report on Form 8-K/A dated May 3, 2000,  reporting  the  revision  of the
                                             record date with  respect to the annual stockholders meeting.
```

SIGNATURES

```

Date: August 14, 2000

                                            By:      /s/   STEPHEN P. GLENNON
                                                     ------------------------
                                                     Stephen P. Glennon
                                                     Chief Executive Officer

                                            By:      /s/   BRUCE A. WEINSTEIN
                                                     ------------------------
                                                     Bruce A. Weinstein
                                                     Chief Financial Officer
```

```

                                                                                                 Exhibit  11

                                                                                                                 Predecessor
                                                                                     Reorganized Company           Company
                                                                                -----------------------------   -------------
                                                                                Three Months      One Month      Two Months
                                                                                    Ended           Ended           Ended
                                                                                June 30, 2000  June 30, 1999    May 31, 1999
                                                                                -------------  -------------   --------------
                                                                                   (Dollars in thousands, except share data)
Diluted net income (loss) per share:
    Net income (loss).....................................................      $       1,125  $        (802)  $      183,291
                                                                                -------------  -------------   --------------
    Average number of shares outstanding..................................         20,035,458     20,033,600       10,885,000
    Net effect of dilutive stock options-based on treasury stock method...             53,392              -                -
                                                                                -------------  -------------   --------------
        Total average shares..............................................         20,088,850     20,033,600       10,885,000
                                                                                =============  =============   ==============
    Diluted net income (loss) per share...................................      $        0.06  $       (0.04)  $        16.84
                                                                                =============  =============   ==============

                                                                                                Reorganized     Predecessor
                                                                                                  Company         Company
                                                                                               -------------   -------------
                                                                                                 Six Months     Five Months
                                                                                                   Ended           Ended
                                                                                               June 30, 2000   May 31, 1999
                                                                                               -------------   -------------
                                                                                    (Dollars in thousands, except share data)
Diluted net income per share:
     Net income........................................................................        $       2,343   $     157,338
                                                                                               -------------   -------------
     Average number of shares outstanding..............................................           20,035,458      10,885,000
     Net effect of dilutive stock options-based on treasury stock method...............               24,789               -
                                                                                               -------------   -------------
        Total average shares...........................................................           20,060,247      10,885,000
                                                                                               =============   =============
     Diluted net income per share......................................................        $        0.12   $       14.45
                                                                                               =============   =============
```

----