UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)



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

For the quarterly period ended June 30, 2008

or



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

For the transition period from                      to

Commission file
number 0-21845

Beverly Hills Bancorp Inc.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 93-1223879                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|23901 Calabasas Road, Suite 1050 Calabasas, CA                 |  | 91302                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(818) 223-8084

(Registrants telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                                              |  |                                       
|--------------------------------------------- |  | --------------------------------------
|Large Accelerated Filer     ̈                  |  | Accelerated
Filer                    x
|Non-accelerated Filer        ̈                 |  | Smaller reporting company     ̈        
|(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes   ̈    No  x

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, 2008
|Common Stock, par value $0.01 per share |  | 18,787,094 shares           









---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

INDEX



|           |  |                                                                                       |  |   
|---------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I.    |  | FINANCIAL INFORMATION                                                                 |  |   
|           |  |                                                                                      
|Item 1.    |  | Interim Condensed Consolidated Financial Statements (Unaudited):                      |  |   
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Financial Condition                              |  | 3 
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Operations                                       |  | 4 
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5 
|           |  |                                                                                      
|           |  | Notes to Interim Condensed Consolidated Financial Statements                          |  | 6 
|           |  |                                                                                      
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 18
|           |  |                                                                                      
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 31
|           |  |                                                                                      
|Item 4.    |  | Controls and Procedures                                                               |  | 33
|           |  |                                                                                      
|PART II.   |  | OTHER INFORMATION                                                                     |  |   
|           |  |                                                                                      
|Item 1.    |  | Legal Proceedings                                                                     |  | 34
|           |  |                                                                                      
|Item 1A.   |  | Risk Factors                                                                          |  | 34
|           |  |                                                                                      
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 34
|           |  |                                                                                      
|Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 34
|           |  |                                                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 34
|           |  |                                                                                      
|Item 5.    |  | Other Information                                                                     |  | 34
|           |  |                                                                                      
|Item 6.    |  | Exhibits                                                                              |  | 34
|           | 
|Signatures |  | 35                                                                                   



2



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(Dollars in thousands)



|                                                                                                                     |  |              |           |   |                  |   |           |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---------------- | - | --------- | -
|                                                                                                                     |  | June 30,2008 |           |   | December 31,2007 |  
|ASSETS                                                                                                               |  |              |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                            |  | $            | 16,363    |   |                  | $ | 12,964    |  
|Mortgage-backed securities available for sale, at fair value                                                         |  |              | 348,638   |   |                  |   | 413,875   |  
|Investment securities available for sale, at fair value                                                              |  |              | 6,477     |   |                  |   | 6,941     |  
|Investment securities held to maturity, at amortized cost (fair value of $10,147 in 2007)                            |  |              |          |   |                  |   | 9,809     |  
|Loans, net of allowance for loan losses of $21,529 in 2008 and $21,882 in 2007                                       |  |              | 925,163   |   |                  |   | 979,948   |  
|Stock in Federal Home Loan Bank of San Francisco, at cost                                                            |  |              | 25,834    |   |                  |   | 31,880    |  
|Real estate owned, net                                                                                               |  |              | 1,328     |   |                  |   | 44        |  
|Leasehold improvements and equipment, net                                                                            |  |              | 782       |   |                  |   | 927       |  
|Accrued interest receivable                                                                                          |  |              | 7,101     |   |                  |   | 8,663     |  
|Income taxes receivable                                                                                              |  |              | 4,621     |   |                  |   | 3,601     |  
|Deferred tax asset, net                                                                                              |  |              | 30,070    |   |                  |   | 28,340    |  
|Prepaid expenses and other assets                                                                                    |  |              | 6,180     |   |                  |   | 3,122     |  
|                                                                                                                     |  |              |           |   |                  |   |           |  
|TOTAL                                                                                                                |  | $            | 1,372,557 |   |                  | $ | 1,500,114 |  
|                                                                                                                     |  |              |           |   |                  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                 |  |              |           |   |                  |   |           |  
|LIABILITIES:                                                                                                         |  |              |           |   |                  |   |           |  
|Noninterest-bearing deposits                                                                                         |  | $            | 800       |   |                  | $ | 886       |  
|Interest-bearing deposits                                                                                            |  |              | 640,760   |   |                  |   | 636,585   |  
|                                                                                                                     |  |              |           |   |                  |   |           |  
|Total deposits                                                                                                       |  |              | 641,560   |   |                  |   | 637,471   |  
|Repurchase agreements                                                                                                |  |              | 30,000    |   |                  |   | 40,000    |  
|Federal Home Loan Bank advances                                                                                      |  |              | 507,000   |   |                  |   | 611,000   |  
|Junior subordinated notes payable to trusts                                                                          |  |              | 36,084    |   |                  |   | 46,393    |  
|Accounts payable and other liabilities                                                                               |  |              | 10,471    |   |                  |   | 17,142    |  
|                                                                                                                     |  |              |           |   |                  |   |           |  
|Total liabilities                                                                                                    |  |              | 1,225,115 |   |                  |   | 1,352,006 |  
|                                                                                                                     |  |              |           |   |                  |   |           |  
|COMMITMENTS AND CONTINGENCIES (NOTE 4)                                                                               |  |              |           |   |                  |   |           |  
|STOCKHOLDERS EQUITY:                                                                                                |  |              |           |   |                  |   |           |  
|Common stock, $0.01 par value, 30,000,000 shares authorized, 27,176,462 issued (including 8,389,368 treasury shares) |  |              | 272       |   |                  |   | 272       |  
|Additional paid-in capital                                                                                           |  |              | 166,558   |   |                  |   | 166,430   |  
|Treasury stock, 8,389,368 shares, at cost                                                                            |  |              | (39,974   | ) |                  |   | (39,974   | )
|Retained earnings                                                                                                    |  |              | 25,493    |   |                  |   | 22,902    |  
|Accumulated other comprehensive loss                                                                                 |  |              | (4,907    | ) |                  |   | (1,522    | )
|                                                                                                                     |  |              |           |   |                  |   |           |  
|Total stockholders equity                                                                                           |  |              | 147,442   |   |                  |   | 148,108   |  
|                                                                                                                     |  |              |           |   |                  |   |           |  
|TOTAL                                                                                                                |  | $            | 1,372,557 |   |                  | $ | 1,500,114 |  
|                                                                                                                     |  |              |           |   |                  |   |           |  

See notes to unaudited interim condensed consolidated financial statements



3



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)



|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|------------------------------------------------------- |  | -------------------------- | ---------- | ------------------------ | ---- | - | ---------- |  | - | ---------- | - |  | - | ----------
|                                                        |  | Three Months EndedJune 30, |            | Six Months EndedJune 30,
|                                                        |  | 2008                       |            |                          | 2007 |   | 2008       |  |   | 2007      
|INTEREST INCOME:                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|Loans                                                   |  | $                          | 15,830     |                          |      | $ | 20,064     |  | $ | 33,259     |   |  | $ | 39,057    
|Mortgage-backed securities                              |  |                            | 4,781      |                          |      |   | 5,901      |  |   | 9,936      |   |  |   | 11,900    
|Securities and federal funds sold                       |  |                            | 267        |                          |      |   | 404        |  |   | 603        |   |  |   | 889       
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|Total interest income                                   |  |                            | 20,878     |                          |      |   | 26,369     |  |   | 43,798     |   |  |   | 51,846    
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|INTEREST EXPENSE:                                       |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|Deposits                                                |  |                            | 6,555      |                          |      |   | 9,467      |  |   | 14,204     |   |  |   | 20,154    
|Borrowings                                              |  |                            | 6,780      |                          |      |   | 8,898      |  |   | 14,721     |   |  |   | 16,032    
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|Total interest expense                                  |  |                            | 13,335     |                          |      |   | 18,365     |  |   | 28,925     |   |  |   | 36,186    
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|NET INTEREST INCOME                                     |  |                            | 7,543      |                          |      |   | 8,004      |  |   | 14,873     |   |  |   | 15,660    
|PROVISION FOR LOSSES ON LOANS                           |  |                            | 4,037      |                          |      |   | 661        |  |   | 4,761      |   |  |   | 846       
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS |  |                            | 3,506      |                          |      |   | 7,343      |  |   | 10,112     |   |  |   | 14,814    
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|OTHER INCOME:                                           |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|FHLB stock dividends                                    |  |                            | 439        |                          |      |   | 361        |  |   | 873        |   |  |   | 767       
|Gain on sale of securities, net                         |  |                            |           |                          |      |   |           |  |   | 46         |   |  |   |          
|Other income, net                                       |  |                            | 26         |                          |      |   | 206        |  |   | 235        |   |  |   | 426       
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|Total other income                                      |  |                            | 465        |                          |      |   | 567        |  |   | 1,154      |   |  |   | 1,193     
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|OTHER EXPENSES:                                         |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|Compensation and employee benefits                      |  |                            | 1,731      |                          |      |   | 2,005      |  |   | 3,819      |   |  |   | 3,814     
|Professional fees                                       |  |                            | 431        |                          |      |   | 675        |  |   | 1,324      |   |  |   | 1,382     
|Occupancy                                               |  |                            | 163        |                          |      |   | 153        |  |   | 347        |   |  |   | 300       
|Loan expenses                                           |  |                            | 100        |                          |      |   | 29         |  |   | 221        |   |  |   | 82        
|Regulatory assessments                                  |  |                            | 65         |                          |      |   | 57         |  |   | 121        |   |  |   | 112       
|Data processing                                         |  |                            | 79         |                          |      |   | 86         |  |   | 155        |   |  |   | 176       
|Insurance                                               |  |                            | 184        |                          |      |   | 154        |  |   | 305        |   |  |   | 319       
|Depreciation                                            |  |                            | 72         |                          |      |   | 96         |  |   | 182        |   |  |   | 189       
|Directors expense                                       |  |                            | 95         |                          |      |   | 107        |  |   | 205        |   |  |   | 219       
|Real estate owned, net                                  |  |                            | (1         | )                        |      |   | 259        |  |   |           |   |  |   | 360       
|Impairment charge on securities                         |  |                            | 234        |                          |      |   |           |  |   | 234        |   |  |   |          
|Other general and administrative expense, net           |  |                            | (503       | )                        |      |   | 592        |  |   | (36        | ) |  |   | 794       
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|Total other expenses                                    |  |                            | 2,650      |                          |      |   | 4,213      |  |   | 6,877      |   |  |   | 7,747     
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|INCOME BEFORE INCOME TAX PROVISION                      |  |                            | 1,321      |                          |      |   | 3,697      |  |   | 4,389      |   |  |   | 8,260     
|INCOME TAX PROVISION                                    |  |                            | 547        |                          |      |   | 1,554      |  |   | 1,798      |   |  |   | 3,474     
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|NET INCOME                                              |  | $                          | 774        |                          |      | $ | 2,143      |  | $ | 2,591      |   |  | $ | 4,786     
|                                                        |  |                            |            |                          |      |   |            |  |   |            |   |  |   |           
|Earnings per sharebasic                                |  | $                          | 0.04       |                          |      | $ | 0.11       |  | $ | 0.14       |   |  | $ | 0.26      
|Earnings per sharediluted                              |  | $                          | 0.04       |                          |      | $ | 0.11       |  | $ | 0.14       |   |  | $ | 0.25      
|Dividends declared per share                            |  | $                          | 0.00       |                          |      | $ | 0.13       |  | $ | 0.00       |   |  | $ | 0.25      
|Weighted average number of sharesbasic                 |  |                            | 18,787,094 |                          |      |   | 18,785,550 |  |   | 18,787,094 |   |  |   | 18,759,427
|Weighted average number of sharesdiluted               |  |                            | 18,790,304 |                          |      |   | 18,813,673 |  |   | 18,796,115 |   |  |   | 18,805,146

See notes to unaudited interim condensed consolidated financial statements



4



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)



|                                                                                  |  |                          |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                  |  | Six Months EndedJune 30, |         
|                                                                                  |  | 2008                     |          |   | 2007 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                          |          |   |      |   |          |  
|Net income                                                                        |  | $                        | 2,591    |   |      | $ | 4,786    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |          |   |      |   |          |  
|Provision for losses on loans                                                     |  |                          | 4,761    |   |      |   | 846      |  
|Write-down of real estate owned                                                   |  |                          |         |   |      |   | 244      |  
|Depreciation and amortization                                                     |  |                          | 182      |   |      |   | 189      |  
|Impairment charges on securities                                                  |  |                          | 234      |   |      |   |         |  
|Stock-based compensation                                                          |  |                          | 126      |   |      |   | 326      |  
|Deferred tax provision                                                            |  |                          | 720      |   |      |   | 437      |  
|Gain on sale of mortgage-backed securities available for sale                     |  |                          | (46      | ) |      |   |         |  
|Loss (gain) on sale of assets                                                     |  |                          | 3        |   |      |   | (1       | )
|(Accretion) amortization of discounts and deferred fees                           |  |                          | (288     | ) |      |   | 123      |  
|Federal Home Loan Bank stock dividends                                            |  |                          | (887     | ) |      |   | (731     | )
|Changes in:                                                                       |  |                          |          |   |      |   |          |  
|Accrued interest receivable                                                       |  |                          | 1,562    |   |      |   | (18      | )
|Income taxes receivable                                                           |  |                          | (1,020   | ) |      |   |         |  
|Prepaid expenses and other assets                                                 |  |                          | (3,058   | ) |      |   | 334      |  
|Accounts payable and other liabilities                                            |  |                          | (4,321   | ) |      |   | 3,916    |  
|                                                                                  |  |                          |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                          | 559      |   |      |   | 10,451   |  
|                                                                                  |  |                          |          |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                          |          |   |      |   |          |  
|Purchase of loans                                                                 |  |                          |         |   |      |   | (8,212   | )
|Loan originations                                                                 |  |                          | (37,546  | ) |      |   | (157,199 | )
|Loan repayments                                                                   |  |                          | 86,738   |   |      |   | 125,267  |  
|Proceeds from sale of loans                                                       |  |                          |         |   |      |   | 16,276   |  
|Purchase of mortgage-backed securities available for sale                         |  |                          |         |   |      |   | (34,922  | )
|Repayments of mortgage-backed securities available for sale                       |  |                          | 37,268   |   |      |   | 44,748   |  
|Proceeds from sale of mortgage-backed securities available for sale               |  |                          | 21,590   |   |      |   |         |  
|Repayments of investment securities available for sale                            |  |                          | 235      |   |      |   | 2,018    |  
|Repayments of investment securities held to maturity                              |  |                          | 10,190   |   |      |   |         |  
|Purchases of Federal Home Loan Bank stock                                         |  |                          |         |   |      |   | (2,485   | )
|Proceeds from sale of Federal Home Loan Bank stock                                |  |                          | 6,933    |   |      |   | 1,148    |  
|Proceeds from sale of real estate owned                                           |  |                          | 43       |   |      |   | 45       |  
|Purchases of leasehold improvements and equipment                                 |  |                          | (43      | ) |      |   | (44      | )
|                                                                                  |  |                          |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                               |  |                          | 125,408  |   |      |   | (13,360  | )
|                                                                                  |  |                          |          |   |      |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                          |          |   |      |   |          |  
|Net increase (decrease) in deposits                                               |  |                          | 4,089    |   |      |   | (137,705 | )
|Decrease in short-term borrowings                                                 |  |                          |         |   |      |   | (7,700   | )
|Decrease in repurchase agreements                                                 |  |                          | (10,000  | ) |      |   |         |  
|Proceeds from Federal Home Loan Bank advances                                     |  |                          | 127,000  |   |      |   | 370,000  |  
|Repayments of Federal Home Loan Bank advances                                     |  |                          | (231,000 | ) |      |   | (225,000 | )
|Repayment of junior subordinated notes payable to trusts                          |  |                          | (10,309  | ) |      |   |         |  
|Proceeds from exercise of stock options                                           |  |                          |         |   |      |   | 174      |  
|Dividends paid on common stock                                                    |  |                          | (2,348   | ) |      |   | (4,696   | )
|                                                                                  |  |                          |          |   |      |   |          |  
|Net cash used in financing activities                                             |  |                          | (122,568 | ) |      |   | (4,927   | )
|                                                                                  |  |                          |          |   |      |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                              |  |                          | 3,399    |   |      |   | (7,836   | )
|CASH AND CASH EQUIVALENTS:                                                        |  |                          |          |   |      |   |          |  
|Beginning of period                                                               |  |                          | 12,964   |   |      |   | 27,005   |  
|                                                                                  |  |                          |          |   |      |   |          |  
|End of period                                                                     |  | $                        | 16,363   |   |      | $ | 19,169   |  
|                                                                                  |  |                          |          |   |      |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                |  |                          |          |   |      |   |          |  
|Cash paid during the period for:                                                  |  |                          |          |   |      |   |          |  
|Interest                                                                          |  | $                        | 32,523   |   |      | $ | 30,866   |  
|Income taxes, net                                                                 |  |                          | 2,097    |   |      |   | 4,760    |  
|NONCASH INVESTING ACTIVITY:                                                       |  |                          |          |   |      |   |          |  
|Real estate acquired through foreclosure                                          |  |                          | 1,328    |   |      |   |         |  

See notes to unaudited interim condensed consolidated financial statements



5



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



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

The accompanying interim
condensed consolidated financial statements of Beverly Hills Bancorp Inc. (BHBC, and with its consolidated subsidiaries, the Company) are unaudited and should be read in conjunction with the Companys Annual Report on
Form 10-K for the year ended December 31, 2007. A summary of the Companys significant accounting policies is set forth in Note 1 of the Notes to Consolidated Financial Statements in that Form 10-K. There were no significant changes to any
accounting policies during the six months ended June 30, 2008.

In the opinion of management, all adjustments, generally comprised of
normal recurring accruals necessary for a fair presentation of the interim condensed consolidated financial statements, have been included and all intercompany accounts and transactions have been eliminated in consolidation. Operating results for
the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts and results
could differ from those estimates.



|2. | PER-SHARE DATA
|-- | --------------

Basic earnings per share is
computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and potentially
dilutive stock options outstanding during the period. Following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the three month and six month periods ended June 30, 2008 and 2007.



|                                                                       |  |                                               |            |                          |   |            |  |      |            |  |   |           
|---------------------------------------------------------------------- |  | --------------------------------------------- | ---------- | ------------------------ | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                                       |  | Three Months EndedJune 30,                    |            | Six Months EndedJune 30,
|                                                                       |  | 2008                                          |            | 2007                     |   | 2008       |  | 2007
|                                                                       |  | (Dollars in thousands, except per-share data)
|Net income                                                             |  | $                                             | 774        |                          | $ | 2,143      |  | $    | 2,591      |  | $ | 4,786     
|                                                                       |  |                                               |            |                          |   |            |  |      |            |  |   |           
|Weighted average number of common shares Outstandingbasic             |  |                                               | 18,787,094 |                          |   | 18,785,550 |  |      | 18,787,094 |  |   | 18,759,427
|Net effect of dilutive stock optionsbased on treasury stock method(1) |  |                                               | 3,210      |                          |   | 28,123     |  |      | 9,021      |  |   | 45,719    
|                                                                       |  |                                               |            |                          |   |            |  |      |            |  |   |           
|Weighted average number of common shares Outstandingdiluted           |  |                                               | 18,790,304 |                          |   | 18,813,673 |  |      | 18,796,115 |  |   | 18,805,146
|                                                                       |  |                                               |            |                          |   |            |  |      |            |  |   |           
|Earnings per sharebasic                                               |  | $                                             | 0.04       |                          | $ | 0.11       |  | $    | 0.14       |  | $ | 0.26      
|                                                                       |  |                                               |            |                          |   |            |  |      |            |  |   |           
|Earnings per sharediluted                                             |  | $                                             | 0.04       |                          | $ | 0.11       |  | $    | 0.14       |  | $ | 0.25      
|                                                                       |  |                                               |            |                          |   |            |  |      |            |  |   |           



|(1) | Does not include options to purchase a weighted average 645,002 and 600,000 shares outstanding during the three months ended June 30, 2008 and 2007, respectively, and 635,002
shares and 600,000 shares outstanding during the six months ended June 30, 2008 and 2007, respectively, whose exercise would have had an anti-dilutive effect on earnings per share.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



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

Effective January 1,
2006, the Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment(SFAS No. 123R) using the
modified prospective transition method. Under this method, stock compensation cost recognized beginning January 1, 2006 includes (a) compensation cost for all previously granted stock options that were unvested as of January 1, 2006
and (b) compensation cost for all stock options granted on or after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R.

For the quarter ended June 30, 2008, the application of SFAS No. 123R resulted in a stock-based compensation expense of $64,000, deferred tax
benefits of $26,000 and a net reduction in net income of $38,000. There was an immaterial effect on basic and diluted earnings per share. For the quarter ended June 30, 2007, the Company recorded stock-based compensation expense of $267,932,
deferred tax benefits of $111,402 and a net reduction in net income of $156,530, reducing basic and diluted earnings per share by $0.01. For the three months ended June 30, 2008 and 2007, the Company did not record any tax benefits from the
exercise of non-qualified stock options.

For the six months ended June 30, 2008, the application of SFAS No. 123R resulted in a
stock-based compensation expense of $126,000, deferred tax benefits of $51,000 and a net reduction in net income of $75,000. There was an immaterial effect on basic and diluted earnings per share. In comparison, for the six months ended
June 30, 2007, the Company recorded stock-based compensation expense of $325,588, deferred tax benefits of $134,489 and a net reduction in net income of $191,099, reducing basis and diluted earnings per share by $0.01. For the six months ended
June 30, 2008 and 2007, the Company did not record any tax benefits from the exercise of non-qualified stock options.

The Company has
two stock-based employee compensation plans, the 1999 Equity Participation Plan and the 2002 Equity Participation Plan, pursuant to which stock options have been granted to directors and employees. All stock options have an exercise price that was
not less than the fair value of the Companys common stock on the date of grant. Outstanding stock options generally vest over a three-year period and have a maximum term of 10 years.

A summary of the Companys stock option activity for the six months ended June 30, 2008 is presented below:



|                                            |  |         |  |                              |      |                                      |      |                            |   |  
|------------------------------------------- |  | ------- |  | ---------------------------- | ---- | ------------------------------------ | ---- | -------------------------- | - | -
|                                            |  | Shares  |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingTerm (Years) |      | AggregateIntrinsicValue(1)
|Outstanding at beginning of period          |  | 675,002 |  | $                            | 9.63 |                                      |      |                            |   |  
|Granted                                     |  |        |  |                              |     |                                      |      |                            |   |  
|Exercised                                   |  |        |  |                              |     |                                      |      |                            |   |  
|Forfeited                                   |  |        |  |                              |     |                                      |      |                            |   |  
|                                            |  |         |  |                              |      |                                      |      |                            |   |  
|Outstanding at end of period                |  | 675,002 |  |                              | 9.63 |                                      | 7.09 |                            | $ | 
|                                            |  |         |  |                              |      |                                      |      |                            |   |  
|Vested or expected to vest at end of period |  | 675,002 |  |                              | 9.63 |                                      | 7.09 |                            | $ | 
|                                            |  |         |  |                              |      |                                      |      |                            |   |  
|Exercisable at end of period                |  | 575,002 |  |                              | 9.48 |                                      | 7.01 |                            | $ | 
|                                            |  |         |  |                              |      |                                      |      |                            |   |  



|(1) | Aggregate intrinsic value excludes options to purchase 675,002 shares of common stock (575,002 shares exercisable) whose strike price is greater than the fair market value of the
stock as of June 30, 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Additional information on the Companys stock option activity for the three and six months ended
June 30, 2008 is presented below:



|                                       |  |                                 |        |                               |   |        
|-------------------------------------- |  | ------------------------------- | ------ | ----------------------------- | - | -------
|                                       |  | Three Months EndedJune 30, 2008 |        | Six Months EndedJune 30, 2008
|Weighted average grant date fair value |  | $                               |       |                               | $ |       
|Intrinsic value of options exercised   |  | $                               |       |                               | $ |       
|Fair value of shares vested            |  | $                               | 63,835 |                               | $ | 127,670

The Company has granted stock appreciation rights (SARs) to certain executive officers
and directors. The SARs may be settled only in cash, and are classified as liabilities and not as equity instruments, per SFAS No. 123R. A summary of the Companys SARs activity for the period indicated is presented below:



|                                   |  |                                 |  |                               |      |            |         |                              |   |     
|---------------------------------- |  | ------------------------------- |  | ----------------------------- | ---- | ---------- | ------- | ---------------------------- | - | ----
|                                   |  | Three Months EndedJune 30, 2008 |  | Six Months EndedJune 30, 2008
|                                   |  | ShareUnits                      |  | WeightedAverageExercisePrice  |      | ShareUnits |         | WeightedAverageExercisePrice
|Outstanding at beginning of period |  | 616,000                         |  | $                             | 8.21 |            | 646,000 |                              | $ | 8.20
|Granted                            |  |                                |  |                               |     |            |        |                              |   |    
|Exercised                          |  |                                |  |                               |     |            |        |                              |   |    
|Forfeited                          |  | 30,000                          |  |                               | 9.00 |            | 60,000  |                              |   | 8.40
|                                   |  |                                 |  |                               |      |            |         |                              |   |     
|Outstanding at end of period       |  | 586,000                         |  |                               | 8.17 |            | 586,000 |                              |   | 8.17
|                                   |  |                                 |  |                               |      |            |         |                              |   |     
|Exercisable at end of period       |  | 462,000                         |  |                               | 7.99 |            | 462,000 |                              |   | 7.99
|                                   |  |                                 |  |                               |      |            |         |                              |   |     

At June 30, 2008, the Company had $128,000 of unrecognized compensation cost related to
unvested stock options. The Company expects to amortize this cost over a weighted-average period of 0.50 years, ending in December 2008. The unrecognized compensation related to the SARs at June 30, 2008 was $21 and is expected to be amortized
over the following 1.25 years, ending in September 2009. Because the Companys SARs are classified as liabilities and not equity instruments per SFAS No. 123R, the Company is required to remeasure the fair value of the liability at the end
of each subsequent reporting period and record a corresponding adjustment to the related compensation expense. Consequently, compensation cost related to the SARs may vary based on changes in the awards total estimated fair value.



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

At June 30, 2008, the Company had outstanding commitments to fund $77.5 million of loans. Loan commitments expose the Company to credit risk in excess of amounts reflected in the consolidated financial statements. The Company receives
collateral to support loans and commitments to extend credit for which collateral is deemed necessary. As of June 30, 2008, the Company did not have an allowance with respect to unfunded loan commitments.



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

The Company files consolidated
federal and state income tax returns with its eligible subsidiaries. The Company recorded income tax provisions of $0.5 million and $1.8 million, respectively, for the three and six months ended June 30, 2008, compared with $1.6 million and
$3.5 million, respectively, for the corresponding



8



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



2007 periods. A portion of the Companys income tax provision is not expected to be currently payable in cash, due to the utilization of the
Companys net operating loss carryforward. The Companys deferred tax provision (benefit) is determined on a quarterly basis pursuant to an evaluation of its net deferred tax asset. These deferred tax assets and liabilities represent the
tax effect of future deductible or taxable amounts and are primarily attributable to net operating loss carryforwards, in addition to other differences between amounts that have been recognized in the financial statements and amounts that have been
recognized in the income tax returns. An effective tax rate of approximately 42% is applied to each attribute in determining the amount of the related deferred tax asset or liability. Decreases (increases) in the net deferred tax asset are recorded
as a deferred tax provision (benefit) in the consolidated statements of operations.

The Companys net deferred tax asset was $30.1
million and $28.3 million, respectively, at June 30, 2008 and December 31, 2007. The Companys deferred tax asset is reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset
will not be realized. The Company has evaluated the positive and negative evidence regarding the future realization of its deferred tax asset and has recorded a valuation allowance of $7.9 million. The Company believes it is more likely than not
that its net deferred tax asset of $30.1 million will be realized in future periods.

As of June 30, 2008, the Company had federal net
operating loss (NOL) carryforwards of $75.5 million and also had state NOL carryforwards. The federal NOL carryforward period runs through 2020. However, in June 2002, the Company experienced a change in control as defined by
Section 382 of the Internal Revenue Code. As a result of the change in control, the Companys NOL carryforwards that were generated prior to the change in control are subject to an annual limitation on the amount that may be used to offset
taxable income. The Company has determined that the limitation on the amount that may be used annually to offset taxable income is approximately $6.0 million.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 is an interpretation of FASB SFAS No. 109, Accounting for Income
Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition. The cumulative effect, if any, of applying FIN 48 is to be reported as an adjustment to the opening balance of retained earnings in the year of
adoption. On January 1, 2007, the Company adopted the provisions of FIN 48 and there was no effect on the financial statements. As a result, there was no cumulative effect recognized upon adoption of FIN 48. The Company did not have any
unrecognized tax benefits as a result of uncertainty during the three and six months ended June 30, 2008. It is the Companys policy to record any penalties or interest arising from the application of federal or state income taxes as other
expense. The Company paid penalties and interest of $15,000 during the three and six months ended June 30, 2008. There were no penalties or interest paid during the three and six months ended June 30, 2007.

The Company is subject to income tax in the U.S. federal jurisdiction and numerous state jurisdictions. The Companys income tax returns for years
2004 through 2007 are subject to examination by the Internal Revenue Service and California and other state jurisdictions. The California Franchise Tax Board has notified the Company that it will examine the Companys California income tax
returns for 2004 and 2005. Presently, no federal or other state income tax examination of the Companys tax returns is in process.



9



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



|6. | OPERATING SEGMENTS
|-- | ------------------

The Companys two
operating segments, as defined by the Companys management, consist of its Banking Operations and its Holding Company and Other Operations. The Companys operating segments are described in further detail as follows:



| |  |  | Banking OperationsThrough its bank subsidiary, First Bank of Beverly Hills (FBBH or the Bank), the Company conducts a banking
business focused primarily on products tailored to commercial and multifamily real estate lending, in addition to investments in primarily AAA-rated and government-sponsored enterprise (GSE) mortgage-backed securities. The primary
sources of funding for the Bank are wholesale deposits and Federal Home Loan Bank (FHLB) advances. The Bank is a state-chartered commercial bank and is regulated by the California Department of Financial Institutions (DFI)
and the Federal Deposit Insurance Corporation (FDIC).
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Holding Company and Other OperationsThe Companys Holding Company and Other Operations consist of other operating revenues and expenses not
attributable to its Banking Operations. This segment includes interest income on loans and other investments, the operations of its investment subsidiary, WFC Inc. (WFC), interest expense on $36.1 million of junior subordinated notes
payable, general corporate expenses and eliminations of intercompany accounts and transactions.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Segment data for the three months ended June 30, 2008 and 2007 are as follows:



|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|------------------------------------------------------------- |  | -------------------------------- | --------- | --------------------------------- | - | ------ | ----- |  | - | ---------
|                                                              |  | Three Months Ended June 30, 2008
|                                                              |  | Banking                          |           | HoldingCompany andOtherOperations |   |        | Total
|                                                              |  | (Dollars in thousands)          
|Interest income                                               |  | $                                | 20,491    |                                   | $ | 387    |       |  | $ | 20,878   
|Interest expense                                              |  |                                  | 12,905    |                                   |   | 430    |       |  |   | 13,335   
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|Net interest income (expense)                                 |  |                                  | 7,586     |                                   |   | (43    | )     |  |   | 7,543    
|Provision for loan losses                                     |  |                                  | 3,889     |                                   |   | 148    |       |  |   | 4,037    
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|Net interest income (expense) after provision for loan losses |  |                                  | 3,697     |                                   |   | (191   | )     |  |   | 3,506    
|Other income (expense)                                        |  |                                  | 467       |                                   |   | (2     | )     |  |   | 465      
|Compensation and employee benefits expense                    |  |                                  | 1,524     |                                   |   | 207    |       |  |   | 1,731    
|Other expenses (income)                                       |  |                                  | 1,253     |                                   |   | (334   | )     |  |   | 919      
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|Income (loss) before taxes                                    |  |                                  | 1,387     |                                   |   | (66    | )     |  |   | 1,321    
|Income tax provision (benefit)                                |  |                                  | 571       |                                   |   | (24    | )     |  |   | 547      
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|Net income (loss)                                             |  | $                                | 816       |                                   | $ | (42    | )     |  | $ | 774      
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|Total assets                                                  |  | $                                | 1,332,221 |                                   | $ | 40,336 |       |  | $ | 1,372,557
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          



|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|------------------------------------------------------------- |  | -------------------------------- | --------- | --------------------------------- | - | ------ | ----- |  | - | ---------
|                                                              |  | Three Months Ended June 30, 2007
|                                                              |  | Banking                          |           | HoldingCompany andOtherOperations |   |        | Total
|                                                              |  | (Dollars in thousands)          
|Interest income                                               |  | $                                | 25,441    |                                   | $ | 928    |       |  | $ | 26,369   
|Interest expense                                              |  |                                  | 17,233    |                                   |   | 1,132  |       |  |   | 18,365   
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|Net interest income (expense)                                 |  |                                  | 8,208     |                                   |   | (204   | )     |  |   | 8,004    
|Provision for loan losses                                     |  |                                  | 652       |                                   |   | 9      |       |  |   | 661      
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|Net interest income (expense) after provision for loan losses |  |                                  | 7,556     |                                   |   | (213   | )     |  |   | 7,343    
|Other income                                                  |  |                                  | 406       |                                   |   | 161    |       |  |   | 567      
|Compensation and employee benefits expense                    |  |                                  | 1,674     |                                   |   | 331    |       |  |   | 2,005    
|Other expenses                                                |  |                                  | 1,276     |                                   |   | 932    |       |  |   | 2,208    
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|Income (loss) before taxes                                    |  |                                  | 5,012     |                                   |   | (1,315 | )     |  |   | 3,697    
|Income tax provision (benefit)                                |  |                                  | 2,108     |                                   |   | (554   | )     |  |   | 1,554    
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|Net income (loss)                                             |  | $                                | 2,904     |                                   | $ | (761   | )     |  | $ | 2,143    
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|Goodwill                                                      |  | $                                | 3,054     |                                   | $ |       |       |  | $ | 3,054    
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          
|Total assets                                                  |  | $                                | 1,564,468 |                                   | $ | 61,525 |       |  | $ | 1,625,993
|                                                              |  |                                  |           |                                   |   |        |       |  |   |          



11



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



Segment data for the six months ended June 30, 2008 and 2007 are as follows:



|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|------------------------------------------------------------- |  | ------------------------------ | --------- | --------------------------------- | - | ------ | ----- |  | - | ---------
|                                                              |  | Six Months Ended June 30, 2008
|                                                              |  | Banking                        |           | HoldingCompany andOtherOperations |   |        | Total
|                                                              |  | (Dollars in thousands)        
|Interest income                                               |  | $                              | 42,855    |                                   | $ | 943    |       |  | $ | 43,798   
|Interest expense                                              |  |                                | 27,790    |                                   |   | 1,135  |       |  |   | 28,925   
|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|Net interest income (expense)                                 |  |                                | 15,065    |                                   |   | (192   | )     |  |   | 14,873   
|Provision for loan losses                                     |  |                                | 4,550     |                                   |   | 211    |       |  |   | 4,761    
|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|Net interest income (expense) after provision for loan losses |  |                                | 10,515    |                                   |   | (403   | )     |  |   | 10,112   
|Other income                                                  |  |                                | 975       |                                   |   | 179    |       |  |   | 1,154    
|Compensation and employee benefits expense                    |  |                                | 3,396     |                                   |   | 423    |       |  |   | 3,819    
|Other expenses                                                |  |                                | 2,332     |                                   |   | 726    |       |  |   | 3,058    
|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|Income (loss) before taxes                                    |  |                                | 5,762     |                                   |   | (1,373 | )     |  |   | 4,389    
|Income tax provision (benefit)                                |  |                                | 2,365     |                                   |   | (567   | )     |  |   | 1,798    
|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|Net income (loss)                                             |  | $                              | 3,397     |                                   | $ | (806   | )     |  | $ | 2,591    
|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|Total assets                                                  |  | $                              | 1,332,221 |                                   | $ | 40,336 |       |  | $ | 1,372,557
|                                                              |  |                                |           |                                   |   |        |       |  |   |          



|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|------------------------------------------------------------- |  | ------------------------------ | --------- | --------------------------------- | - | ------ | ----- |  | - | ---------
|                                                              |  | Six Months Ended June 30, 2007
|                                                              |  | Banking                        |           | HoldingCompany andOtherOperations |   |        | Total
|                                                              |  | (Dollars in thousands)        
|Interest income                                               |  | $                              | 50,231    |                                   | $ | 1,615  |       |  | $ | 51,846   
|Interest expense                                              |  |                                | 34,031    |                                   |   | 2,155  |       |  |   | 36,186   
|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|Net interest income (expense)                                 |  |                                | 16,200    |                                   |   | (540   | )     |  |   | 15,660   
|Provision for loan losses                                     |  |                                | 825       |                                   |   | 21     |       |  |   | 846      
|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|Net interest income (expense) after provision for loan losses |  |                                | 15,375    |                                   |   | (561   | )     |  |   | 14,814   
|Other income                                                  |  |                                | 851       |                                   |   | 342    |       |  |   | 1,193    
|Compensation and employee benefits expense                    |  |                                | 3,327     |                                   |   | 487    |       |  |   | 3,814    
|Other expenses                                                |  |                                | 2,406     |                                   |   | 1,527  |       |  |   | 3,933    
|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|Income (loss) before taxes                                    |  |                                | 10,493    |                                   |   | (2,233 | )     |  |   | 8,260    
|Income tax provision (benefit)                                |  |                                | 4,412     |                                   |   | (938   | )     |  |   | 3,474    
|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|Net income (loss)                                             |  | $                              | 6,081     |                                   | $ | (1,295 | )     |  | $ | 4,786    
|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|Goodwill                                                      |  | $                              | 3,054     |                                   | $ |       |       |  | $ | 3,054    
|                                                              |  |                                |           |                                   |   |        |       |  |   |          
|Total assets                                                  |  | $                              | 1,564,468 |                                   | $ | 61,525 |       |  | $ | 1,625,993
|                                                              |  |                                |           |                                   |   |        |       |  |   |          



12



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



|7. | FAIR VALUE MEASUREMENTS
|-- | -----------------------

Effective January 1,
2008, the Company adopted SFAS No. 157, Fair Value Measurements, which provides a definition of fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. The standard
applies when GAAP requires or allows assets or liabilities to be measured at fair value and, therefore, does not expand the use of fair value in any new circumstance.

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS
No. 157 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The
fair value hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. Additionally, SFAS No. 157 requires an entity to consider all aspects of nonperformance risk,
including the entitys own credit standing, when measuring fair value of a liability.

SFAS No. 157 describes three levels of
input that may be used to measure fair value:



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     Level 1 |  | Inputs are quoted prices in active markets for identical asset or liabilities as of the measurement date. Additionally, the entity must have the ability to access the active market and the
quoted prices cannot be adjusted by the entity.                                                                                                                                                                                                                                                     
|              | 
|              |  | The Company does not hold any Level 1 items. Level 1 instruments are valued using quoted prices in active markets.                                                                                                                                                                                                                                                                                                                                                                               
|              | 
|     Level 2 |  | Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices in active
markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation of other means for
substantially the full term of the assets or liabilities.
|              | 
|              |  | Significant Level 2 items the Company holds include, but are not limited to, government-sponsored enterprise and AAA-rated mortgage backed securities, trust preferred securities and mutual
funds whose fair values are determined using a pricing model with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data.                                                                                                          
|              | 
|     Level 3 |  | Unobservable inputs that are supported by little or no market activity. The unobservable inputs represent managements best assumptions of how market participants would price the assets
and liabilities. Generally Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.                                                                                                  
|              | 
|              |  | Significant Level 3 items the Company holds include, but are not limited to, non-rated mortgage-backed securities and impaired loans.                                                                                                                                                                                                                                                                                                                                                            



13



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



SFAS No. 157 requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. An instruments categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation.

Assets measured at fair value at June 30, 2008 are as follows:



|                                         |  |                                   |         |                                                             |   |                                             |  |                                        |         |  |   |       
|---------------------------------------- |  | --------------------------------- | ------- | ----------------------------------------------------------- | - | ------------------------------------------- |  | -------------------------------------- | ------- |  | - | ------
|                                         |  |                                   |         | Fair Value Measurements at June 30, 2008 Using             
|Description                              |  | Fair ValueMeasurementJune 30,2008 |         | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   | Significant OtherObservable Inputs(Level
2) |  | SignificantUnobservableInputs(Level
3)
|                                         |  | (Dollars in thousands)           
|Reoccurring:                             |  |                                   |         |                                                             |   |                                             |  |                                        |         |  |   |       
|Investment securities available-for-sale |  |                                   |         |                                                             |   |                                             |  |                                        |         |  |   |       
|GSE mortgage-backed securities           |  | $                                 | 173,438 |                                                             | $ |                                            |  | $                                      | 173,438 |  | $ |      
|AAA mortgage-backed securities           |  |                                   | 169,755 |                                                             |   |                                            |  |                                        | 169,755 |  |   |      
|Other mortgage-backed securities         |  |                                   | 5,445   |                                                             |   |                                            |  |                                        |        |  |   | 5,445 
|Trust preferred securities               |  |                                   | 947     |                                                             |   |                                            |  |                                        | 947     |  |   |      
|Mutual funds                             |  |                                   | 5,530   |                                                             |   |                                            |  |                                        | 5,530   |  |   |      
|Non-Reoccurring:                         |  |                                   |         |                                                             |   |                                             |  |                                        |         |  |   |       
|Impaired loans                           |  |                                   | 35,657  |                                                             |   |                                            |  |                                        |        |  |   | 35,657
|                                         |  |                                   |         |                                                             |   |                                             |  |                                        |         |  |   |       
|Total                                    |  | $                                 | 390,772 |                                                             | $ |                                            |  | $                                      | 349,670 |  | $ | 41,102
|                                         |  |                                   |         |                                                             |   |                                             |  |                                        |         |  |   |       

The Company did not identify any liabilities that are required to be presented at fair value as of
June 30, 2008.

At each reporting period, all assets and liabilities for which the fair value measurement is based on significant
unobservable inputs are classified as Level 3. The following table provides a reconciliation of the beginning and ending balances for asset categories measured at fair value using significant unobservable inputs (Level 3):



|                                                    |  |                                        |       |   |                               |   |        |                                        |  |   |               |   |  |   |        |  
|--------------------------------------------------- |  | -------------------------------------- | ----- | - | ----------------------------- | - | ------ | -------------------------------------- |  | - | ------------- | - |  | - | ------ | -
|                                                    |  | Three months EndedJune 30, 2008        |       |   | Six Months EndedJune 30, 2008 |  
|                                                    |  | InvestmentSecuritiesAvailable-for-Sale |       |   | ImpairedLoans                 |   |        | InvestmentSecuritiesAvailable-for-Sale |  |   | ImpairedLoans |  
|                                                    |  | (Dollars in thousands)                 |      
|Beginning balance                                   |  | $                                      | 5,516 |   |                               | $ | 37,949 |                                        |  | $ | 5,593         |   |  | $ | 21,562 |  
|Total gains or losses                               |  |                                        |       |   |                               |   |        |                                        |  |   |               |   |  |   |        |  
|Included in earnings (realized)                     |  |                                        |      |   |                               |   | (5,795 | )                                      |  |   |              |   |  |   | (5,831 | )
|Included in other comprehensive income (unrealized) |  |                                        |      |   |                               |   |       |                                        |  |   | (13           | ) |  |   |       |  
|Purchases, issuances, sales, settlements            |  |                                        | (71   | ) |                               |   |       |                                        |  |   | (135          | ) |  |   |       |  
|Transfers in and/or out of Level 3                  |  |                                        |      |   |                               |   | 3,503  |                                        |  |   |              |   |  |   | 19,926 |  
|                                                    |  |                                        |       |   |                               |   |        |                                        |  |   |               |   |  |   |        |  
|Ending balance                                      |  | $                                      | 5,445 |   |                               | $ | 35,657 |                                        |  | $ | 5,445         |   |  | $ | 35,657 |  
|                                                    |  |                                        |       |   |                               |   |        |                                        |  |   |               |   |  |   |        |  

Following is a description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

SecuritiesWhere quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 inputs include securities that have quoted prices in active markets for
identical assets. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted



14



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



prices of securities with similar characteristics, or discounted cash flow. Examples of such instruments, which would generally be classified within Level 2
of the valuation hierarchy, included certain collateralized mortgage and debt obligations and certain high-yield debt securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are
classified within Level 3 of the valuation hierarchy. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Companys evaluations are based on market data and
the Company employs combinations of these approaches for its valuation methods depending on the asset class.

Impaired
loansSFAS No. 157 applies to loans measured for impairment using the practical expedients permitted by SFAS No. 114, Accounting by Creditors for Impairment of a Loan, including impaired loans measured at an observable
market price (if available), or at the fair value of the loans collateral (if the loan is collateral dependent). Fair value of the loans collateral, when the loan is dependent on collateral, is determined by appraisals or independent
valuation which is then adjusted for the cost related to liquidation of the collateral. Impaired loans at June 30, 2008 had a carrying value of $47.3 million with a valuation allowance of $11.6 million.

The FASB has also provided for a one-year deferral of the implementation of this standard for other nonfinancial assets and liabilities, effective for
the fiscal years beginning after November 15, 2008. This additional guidance is not expected to have a material impact on the Companys consolidated financial condition, results or operations, or cash flows upon adoption.



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

In connection with its sale of
Wilshire Credit Corporation (WCC) to Merrill Lynch Mortgage Capital Inc. (Merrill Lynch) in 2004, the Company agreed to indemnify Merrill Lynch for claims asserted against WCC by third parties arising out of acts taken by WCC
prior to the sale. The indemnity is for settlements, judgments and defense costs that exceed $2.0 million in the aggregate. Merrill Lynch has notified the Company of a number of claims that have been or are being asserted against WCC, and for which
Merrill Lynch is seeking indemnity from the Company. As of June 30, 2008, the total payments and defense costs of such claims which Merrill Lynch has formally tendered to the Company was approximately $1.5 million. The Company expects that the
total claims for which Merrill Lynch will demand indemnification will exceed $2.0 million and the Company has accrued a liability for these estimated costs.

The Company is a defendant in other legal actions arising from transactions conducted in the ordinary course of business. Some of these claims involve borrowers demanding material amounts for alleged damages.
Management, after consultation with legal counsel, and based on prior experience with similar litigation, believes the ultimate liability, if any, arising from such actions will not materially affect the Companys consolidated results of
operations, financial position or cash flows.



|9. | CASH DIVIDENDS
|-- | --------------

The Company did not declare a
dividend during the six months ended June 30, 2008.



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

In September 2006,
the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which provides a definition of fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value
measurements. SFAS No. 157 provides a definition of fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States (GAAP),



15



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at
fair value and, therefore, does not expand the use of fair value in any new circumstance. The Company adopted SFAS No. 157 on a prospective basis. The Company adopt of SFAS No. No. 157 as of January 1, 2008; such adoption has not had
any impact on the Companys financial condition, results of operations, or cash flows for the periods covered by this Report. The adoption of this standard resulted in additional disclosures that are presented in Note 7 of Notes to Interim
Condensed Consolidated Financial Statements in this Report. In February 2008, the FASB issued SFAS No. No. 157-2, Effective Date of FASB Statement No. 157, which provided for a one-year deferral of the implementation of this
standard for other non-financial assets and liabilities, effective for fiscal years beginning after November 15, 2008. The Company does not expect this additional guidance to have a material impact on the Companys consolidated financial
condition or results of operations upon adoption.

In September 2006, the FASB issued SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS No. 158). SFAS No. 158 requires companies to recognize an asset or
liability for the overfunded or underfunded status of their benefit plans in their financial statements. The asset or liability is the offset to other accumulated comprehensive income, consisting of previously unrecognized prior service costs and
credits, actuarial gains or losses, and accumulated transition obligations and assets. SFAS 158 also requires the measurement date for plan assets and liabilities to coincide with the sponsors year-end. The Company does not expect the adoption
of SFAS No. 158 to have a material impact on the Companys financial condition or results of operations.

In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115 (SFAS No. 159). SFAS No. 159 would allow the
Company a one-time irrevocable election to measure certain financial assets and liabilities on the balance sheet at fair value and report the unrealized gains and losses on the elected items in earnings at each subsequent reporting date. SFAS
No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the companys choice to use fair value on its earnings. SFAS No. 159
is effective for fiscal years beginning after November 15, 2007. The Company has elected not to measure any new financial instruments at fair value, as permitted in SFAS No. 159, but to continue recording its financial instruments in
accordance with current practice.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS
No. 141R), which replaces SFAS No. 141, Business Combinations. SFAS No. 141R establishes principles and requirements for how an acquiring company (1) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree, (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (3) determines
what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective for business combinations occurring on or after the beginning of the
fiscal year beginning on or after December 15, 2008. SFAS No. 141R, effective for the Company on January 1, 2009, applies to all transactions or other events in which the Company obtains control in one or more businesses. The Company
will assess each transaction on a case-by-case basis as it occurs.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statementsan amendment of ARB No. 51 (SFAS No. 160), which requires the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and
presented in the consolidated statement of financial position within equity, but separate from the parents equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of operations. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, and early adoption is



16



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(Unaudited)



prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the
presentation and disclosure requirements. The presentation and disclosure requirements must be applied retrospectively for all periods presented. The adoption of SFAS No. 160 is not expected to have a material impact on the Companys
consolidated financial condition and results of operations.

In February 2008, the FASB issued FASB Staff Position No. FAS 140-3,
Accounting for Transfers of Financial Assets and Repurchase Financing Transactions (FSP SFAS No. 140-3). FSP SFAS No. 140-3 assumes that an initial transfer of a financial asset and a repurchase financing are considered
part of the same arrangement, or a linked transaction. However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under SFAS No. 140. FSP
SFAS No. 140-3 is effective for repurchase financings in which the initial transfer is entered into in fiscal years beginning after November 15, 2008 and early adoption is not permitted. The Company does not expect the adoption of FSP SFAS
No. 140-3 to have a material impact on the Companys financial condition and results of operations.

In March 2008, the FASB
issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133 (SFAS No. 161). SFAS No. 161 requires enhanced qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The Company
will include the additional disclosures required by SFAS No. 161 in the Companys consolidated financial statements beginning with the first quarter of fiscal 2009.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS No. 162). SFAS
No. 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles for nongovernmental
entities (the Hierarchy). The Hierarchy within SFAS No. 162 is consistent with that previously defined in the AICPA Statement on Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles (SAS No. 69). SFAS No. 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The adoption of SFAS No. 162 will not have a material effect on our consolidated financial statements because we have utilized the guidance within SAS No. 69.

On January 1, 2008, the Company adopted SEC Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value Through
Earnings(SAB No. 109). SAB No. 109 provides the SEC staffs views on the accounting for written loan commitments recorded at fair value under GAAP and revises and rescinds portions of SAB No. 105, Application
of Accounting Principles to Loan Commitments (SAB No. 105). SAB No. 105 provided the views of the SEC staff regarding derivative loan commitments that are accounted for at fair value through earnings pursuant to SFAS
No. 133. SAB No. 105 states that in measuring the fair value of a derivative loan commitment, the staff believed it would be inappropriate to incorporate the expected net future cash flows related to the associated servicing of the loan.
SAB No. 109 supersedes SAB No. 105 and expresses the current view of the SEC staff that, consistent with the guidance in SFAS No. 156, Accounting for Servicing of Financial Assets, and SFAS No. 159, the expected net future
cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. SAB No. 105 also indicated that the SEC staff believed that
internally developed intangible assets (such as customer relationship intangible assets) should not be recorded as part of the fair value of a derivative loan commitment. SAB No. 109 retains that SEC staff view and broadens its application to
all written loan commitments that are accounted for at fair value through earnings. The adoption of SAB No. 109 has not had any impact on the Companys financial condition or results of operations.



17



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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis should be read in conjunction with the Interim Condensed Consolidated Financial Statements of Beverly Hills
Bancorp Inc. (BHBC) and the notes thereto included elsewhere in this filing. References in this filing to the Company, we, our, and us refer to BHBC and its consolidated subsidiaries,
including First Bank of Beverly Hills (FBBH or the Bank), unless the context indicates otherwise.

OVERVIEW

Beverly Hills Bancorp Inc. is a financial holding company that conducts primarily banking and lending operations in southern California and surrounding
states through our bank subsidiary, First Bank of Beverly Hills. Our business strategy is focused on the growth and profitability of the Bank through (1) originations and purchases of commercial real estate and multifamily mortgage loans and
(2) investments in primarily AAA-rated and government-sponsored enterprise (GSE) mortgage-backed securities. The Bank is a California state-chartered commercial bank whose primary regulator is the California Department of Financial
Institutions (DFI). As an insured institution, the Bank is also regulated by the Federal Deposit Insurance Corporation (FDIC).

Our net income for the three months ended June 30, 2008 was $0.8 million, or $0.04 per diluted share, compared with $2.1 million, or $0.11 per diluted share, for the three months ended June 30, 2007. The
decrease in net income was attributable to a $3.3 million increase in the provision for loan losses and a $0.5 million decrease in net interest income. These income decreases were partially offset by a $1.6 million reduction in operating expenses.
The annualized returns on average assets and equity for the second quarter of 2008 were 0.22% and 2.05%, respectively, compared with 0.53% and 5.38%, respectively, for the second quarter in 2007.

For the six months ended June 30, 2008, our net income was $2.6 million, or $0.14 per diluted share, compared with $4.8 million, or $0.25 per
diluted share, for the six months ended June 30, 2007. The decrease in net income was attributable to a $3.9 million increase in the provision for loan losses and a $0.8 million decrease in net interest income. These income decreases were
partially offset by a $0.9 million reduction in operating expenses. The annualized returns on average assets and equity for the first six months of 2008 were 0.36% and 3.42%, respectively, compared with 0.60% and 6.07%, respectively, for the same
period in 2007.

During the first six months of 2008, we continued to slowly reduce our asset size, as total assets decreased from $1.50
billion at December 31, 2007 to $1.37 billion at June 30, 2008. We currently originate only selected higher-quality commercial real estate and multifamily loans and are not replacing principal paydowns on mortgage-backed securities. As a
result, loans receivable declined $54.8 million and mortgage-backed securities declined $65.2 million during these six months.

The
decrease in assets has enabled us to allow higher cost CDs and other borrowings mature without being replaced, reducing our cost of funds. Our weighted average cost of deposits, consisting principally of CDs, was 1.02% lower in the second quarter of
2008 versus the second quarter of 2007. Our Board of Directors periodically reviews our strategy, and may determine at any time to increase loan origination and purchase activity or use our excess capital for growth.

At June 30, 2008, BHBCs and Banks risk-based capital ratios were 17.25% and 15.22%, respectively. The Banks risk-based capital
ratio was well above the 8.0% and 10.0% requirements to be adequately and well capitalized under applicable regulations, and at that date the Banks risk based capital exceeded the requirements to be adequately capitalized and well capitalized
by $71.1 million and $51.4 million, respectively. In addition, the Bank had a tangible equity to tangible assets ratio at June 30, 2008 of 9.94%.



18



---

Our asset quality continues to be negatively impacted by the weakening economy and residential real
estate market, which has severely impacted the residential construction market. We increased our provision for loan losses for the second quarter of 2008 to $4.0 million, as compared with a provision of $0.7 million in the second quarter of 2007.
The higher loan loss provision resulted from a decline in the collateral value of two construction loans. As of June 30, 2008, our allowance for loan losses totaled $21.5 million or 2.28% of our loan portfolio.

At June 30, 2008, our non-performing assets consisted of $41.9 million of non-accrual loans, including $34.9 million of construction loans, and $1.3
million of real estate owned, consisting of one unfinished condominium project. During the second quarter of 2008, one construction loan with an outstanding principal balance of $6.6 million was placed on non-accrual status. In addition, during the
second quarter of 2008, the Company foreclosed on another construction loan of $4.3 million, and the underlying property was purchased by a third party at the Companys foreclosure sale.

Our stockholders equity decreased by $0.7 million during the six months ended June 30, 2008 to $147.4 million, or $7.85 book value per diluted
share. This decrease was mainly due to net after-tax unrealized losses of $3.4 million on our portfolio of available-for-sale securities, which offset net income of $2.6 million and a $0.1 million increase in paid-in capital representing stock-based
compensation expense.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a discussion of our Critical Accounting Policies and Estimates, see Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form
10-K for the year ended December 31, 2007. There were no changes to our Critical Accounting Policies and Estimates in the six months ended June 30, 2008.

RESULTS OF OPERATIONSTHREE AND SIX MONTHS ENDED JUNE 30, 2008 COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2007

Net Interest
Income

Our net interest income was $7.5 million for the quarter ended June 30, 2008, compared with $8.0 million for the
quarter ended June 30, 2007. Net interest income for the six months ended June 30, 2008, totaled $14.9 million, compared with $15.7 million for the first six months of 2007. The declines in net interest income from the 2007 periods were
due to reductions in average interest-earning assets, which more than offset an increase in the net interest margins.

Our net interest
margin was 2.21% for the second quarter of 2008, compared with 2.06% for the second quarter of 2007. The net interest margin for the first six months of 2008 was 2.12% compared with 2.03% for the first six months of 2007. Our interest-bearing
liabilities mature and reprice more frequently as compared with our interest-earning assets. Accordingly, the net interest margin has widened over the prior year as higher costing liabilities have matured and are replaced with funds in a lower
interest rate environment. The weighted average cost of our interest-bearing liabilities decreased 84 basis points from the quarter ended June 30, 2007 to the quarter ended June 30, 2008. In comparison, the average yield on our
interest-earning assets decreased 69 basis points over the same period. For the six months ended June 30, 2008, our costs of funds declined 55 basis points from the year ago period while the weighted average yield on our earning assets yield
declined 47 basis points.



19



---

The following tables set forth, for the periods indicated, information regarding the total amount of our
income from interest-earning assets and the resulting weighted average yields, the interest expense associated with interest-bearing liabilities along with the resulting weighted average rates, in addition to net interest income, interest rate
spread and net interest margin. The interest income and expense amounts in the tables below are consolidated, but primarily reflect the results of the Bank.



|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|------------------------------------------ |  | -------------------------------- | --------- | - | -------------------------------- | - | -------------------- |  | ---- | -------------- |  | - | --------- | - | -------------------- | - | ------ |  | ---- | -
|                                           |  | Three Months Ended June 30, 2008 |           |   | Three Months Ended June 30, 2007 |  
|                                           |  | AverageBalance                   |           |   | Interest                         |   | AnnualizedYield/Rate |  |      | AverageBalance |  |   | Interest  |   | AnnualizedYield/Rate |  
|                                           |  | (Dollars in thousands)           |          
|Interest-Earning Assets:                   |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Mortgage-backed securities                 |  | $                                | 362,413   |   |                                  | $ | 4,781                |  | 5.22 | %              |  | $ | 454,136   |   |                      | $ | 5,901  |  | 5.14 | %
|Loans(1)(2)                                |  |                                  | 966,319   |   |                                  |   | 15,830               |  | 6.48 | %              |  |   | 1,068,972 |   |                      |   | 20,064 |  | 7.43 | %
|Federal funds and other investments        |  |                                  | 43,147    |   |                                  |   | 267                  |  | 2.45 | %              |  |   | 32,308    |   |                      |   | 404    |  | 4.95 | %
|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total interest-earning assets              |  |                                  | 1,371,879 |   |                                  |   | 20,878               |  | 6.02 | %              |  |   | 1,555,416 |   |                      |   | 26,369 |  | 6.71 | %
|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Noninterest-earning cash                   |  |                                  | 537       |   |                                  |   |                      |  |      |                |  |   | 553       |   |                      |   |        |  |      |  
|Allowance for loan losses                  |  |                                  | (22,621   | ) |                                  |   |                      |  |      |                |  |   | (8,447    | ) |                      |   |        |  |      |  
|Other assets                               |  |                                  | 66,761    |   |                                  |   |                      |  |      |                |  |   | 72,470    |   |                      |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total assets                               |  | $                                | 1,416,556 |   |                                  |   |                      |  |      |                |  | $ | 1,619,992 |   |                      |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Interest-bearing deposits:                 |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Savings, NOW and money market accounts     |  | $                                | 5,514     |   |                                  | $ | 25                   |  | 1.82 | %              |  | $ | 9,383     |   |                      | $ | 83     |  | 3.55 | %
|Certificates of deposit                    |  |                                  | 650,851   |   |                                  |   | 6,530                |  | 4.02 | %              |  |   | 745,924   |   |                      |   | 9,384  |  | 5.05 | %
|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total interest-bearing deposits            |  |                                  | 656,365   |   |                                  |   | 6,555                |  | 4.01 | %              |  |   | 755,307   |   |                      |   | 9,467  |  | 5.03 | %
|Short-term borrowings                      |  |                                  |          |   |                                  |   |                     |  |     | %              |  |   | 11,275    |   |                      |   | 207    |  | 7.26 | %
|Repurchase agreements                      |  |                                  | 32,222    |   |                                  |   | 404                  |  | 4.96 | %              |  |   | 40,000    |   |                      |   | 487    |  | 4.82 | %
|FHLB advances                              |  |                                  | 528,870   |   |                                  |   | 5,927                |  | 4.50 | %              |  |   | 588,848   |   |                      |   | 7,277  |  | 4.96 | %
|Junior subordinated notes payable          |  |                                  | 36,084    |   |                                  |   | 449                  |  | 4.99 | %              |  |   | 46,393    |   |                      |   | 927    |  | 8.01 | %
|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                  | 1,253,541 |   |                                  |   | 13,335               |  | 4.27 | %              |  |   | 1,441,823 |   |                      |   | 18,365 |  | 5.11 | %
|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                  | 1,203     |   |                                  |   |                      |  |      |                |  |   | 1,342     |   |                      |   |        |  |      |  
|Other liabilities                          |  |                                  | 10,241    |   |                                  |   |                      |  |      |                |  |   | 17,049    |   |                      |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total liabilities                          |  |                                  | 1,264,985 |   |                                  |   |                      |  |      |                |  |   | 1,460,214 |   |                      |   |        |  |      |  
|Stockholders equity                       |  |                                  | 151,571   |   |                                  |   |                      |  |      |                |  |   | 159,778   |   |                      |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                                | 1,416,556 |   |                                  |   |                      |  |      |                |  | $ | 1,619,992 |   |                      |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Net interest income                        |  |                                  |           |   |                                  | $ | 7,543                |  |      |                |  |   |           |   |                      | $ | 8,004  |  |      |  
|                                           |  |                                  |           |   |                                  |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Net interest spread                        |  |                                  |           |   |                                  |   |                      |  | 1.75 | %              |  |   |           |   |                      |   |        |  | 1.60 | %
|Net interest margin                        |  |                                  |           |   |                                  |   |                      |  | 2.21 | %              |  |   |           |   |                      |   |        |  | 2.06 | %



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

|(2) | Interest income on loans includes the accretion of deferred loan fees of $350 and $549, respectively, for the three months ended June 30, 2008 and 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------



20



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|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|------------------------------------------ |  | ------------------------------ | --------- | - | ------------------------------ | - | -------------------- |  | ---- | -------------- |  | - | --------- | - | -------------------- | - | ------ |  | ---- | -
|                                           |  | Six Months Ended June 30, 2008 |           |   | Six Months Ended June 30, 2007 |  
|                                           |  | AverageBalance                 |           |   | Interest                       |   | AnnualizedYield/Rate |  |      | AverageBalance |  |   | Interest  |   | AnnualizedYield/Rate |  
|                                           |  | (Dollars in thousands)         |          
|Interest-Earning Assets:                   |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Mortgage-backed securities                 |  | $                              | 380,814   |   |                                | $ | 9,936                |  | 5.16 | %              |  | $ | 456,990   |   |                      | $ | 11,900 |  | 5.18 | %
|Loans(1)(2)                                |  |                                | 982,670   |   |                                |   | 33,259               |  | 6.69 | %              |  |   | 1,060,994 |   |                      |   | 39,057 |  | 7.32 | %
|Federal funds and other investments        |  |                                | 40,180    |   |                                |   | 603                  |  | 2.97 | %              |  |   | 35,262    |   |                      |   | 889    |  | 5.01 | %
|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total interest-earning assets              |  |                                | 1,403,664 |   |                                |   | 43,798               |  | 6.17 | %              |  |   | 1,553,246 |   |                      |   | 51,846 |  | 6.64 | %
|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Noninterest-earning cash                   |  |                                | 480       |   |                                |   |                      |  |      |                |  |   | 572       |   |                      |   |        |  |      |  
|Allowance for loan losses                  |  |                                | (22,254   | ) |                                |   |                      |  |      |                |  |   | (8,340    | ) |                      |   |        |  |      |  
|Other assets                               |  |                                | 67,394    |   |                                |   |                      |  |      |                |  |   | 72,817    |   |                      |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total assets                               |  | $                              | 1,449,284 |   |                                |   |                      |  |      |                |  | $ | 1,618,295 |   |                      |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Interest-bearing deposits:                 |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Savings, NOW and money market accounts     |  | $                              | 5,743     |   |                                | $ | 65                   |  | 2.27 | %              |  | $ | 10,933    |   |                      | $ | 220    |  | 4.06 | %
|Certificates of deposit                    |  |                                | 639,851   |   |                                |   | 14,139               |  | 4.43 | %              |  |   | 781,059   |   |                      |   | 19,934 |  | 5.15 | %
|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total interest-bearing deposits            |  |                                | 645,594   |   |                                |   | 14,204               |  | 4.41 | %              |  |   | 791,992   |   |                      |   | 20,154 |  | 5.13 | %
|Short-term borrowings                      |  |                                |          |   |                                |   |                     |  |     | %              |  |   | 9,413     |   |                      |   | 336    |  | 7.10 | %
|Repurchase agreements                      |  |                                | 36,111    |   |                                |   | 891                  |  | 4.88 | %              |  |   | 40,000    |   |                      |   | 968    |  | 4.81 | %
|FHLB advances                              |  |                                | 567,393   |   |                                |   | 12,660               |  | 4.47 | %              |  |   | 554,194   |   |                      |   | 12,882 |  | 4.69 | %
|Junior subordinated notes payable          |  |                                | 36,417    |   |                                |   | 1,170                |  | 6.44 | %              |  |   | 46,393    |   |                      |   | 1,846  |  | 8.02 | %
|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                | 1,285,515 |   |                                |   | 28,925               |  | 4.51 | %              |  |   | 1,441,992 |   |                      |   | 36,186 |  | 5.06 | %
|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                | 1,355     |   |                                |   |                      |  |      |                |  |   | 1,343     |   |                      |   |        |  |      |  
|Other liabilities                          |  |                                | 10,399    |   |                                |   |                      |  |      |                |  |   | 15,966    |   |                      |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total liabilities                          |  |                                | 1,297,269 |   |                                |   |                      |  |      |                |  |   | 1,459,301 |   |                      |   |        |  |      |  
|Stockholders equity                       |  |                                | 152,015   |   |                                |   |                      |  |      |                |  |   | 158,994   |   |                      |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                              | 1,449,284 |   |                                |   |                      |  |      |                |  | $ | 1,618,295 |   |                      |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Net interest income                        |  |                                |           |   |                                | $ | 14,873               |  |      |                |  |   |           |   |                      | $ | 15,660 |  |      |  
|                                           |  |                                |           |   |                                |   |                      |  |      |                |  |   |           |   |                      |   |        |  |      |  
|Net interest spread                        |  |                                |           |   |                                |   |                      |  | 1.66 | %              |  |   |           |   |                      |   |        |  | 1.58 | %
|Net interest margin                        |  |                                |           |   |                                |   |                      |  | 2.12 | %              |  |   |           |   |                      |   |        |  | 2.03 | %



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

|(2) | Interest income on loans includes the accretion of deferred loan fees of $903 and $938, respectively, for the six months ended June 30, 2008 and 2007.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

Interest income on mortgage-backed securities was $4.8 million for the second quarter of 2008, compared with $5.9 million for the second quarter of
2007. For the six months ended June 30, 2008, interest income on mortgage-backed securities totaled $9.9 million, as compared with $11.9 million for the six months ended June 30, 2007. Interest income decreased as average investment
balances for the three and six months ended June 30, 2008, were lower than the 2007 periods by $91.7 million and $76.2 million, respectively. Our investment balances have declined due to principal repayments, security sales, and our decision to
not purchase mortgage-backed securities in 2008. The weighted average yield on mortgage-backed securities for the second quarter of 2008 was eight basis points above the weighted average yield for the second quarter of 2007, while the



21



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weighted average yield for the first six months of 2008 was two basis points below the weighted average yield for the first six months of 2007. The weighted
average yield did not change materially as substantially all of our mortgage backed securities have fixed interest rates, and we did not replace maturing or sold securities, which have lower yields as a result of lower market interest rates.

Interest income on loans was $15.8 million for the quarter ended June 30, 2008, compared with $20.1 million for the quarter ended
June 30, 2007. For the six months ended June 30, 2008, loan interest income totaled $33.3 million, as compared with $39.1 million for the six months ended June 30, 2007. Loan interest income decreased as average loans for the three
and six months ended June 30, 2008, were below the corresponding 2007 periods by $102.7 million and $78.3 million, respectively. Our total loans have declined due to a reduction in loan originations, and during the six months ended
June 30, 2008 we originated only selected higher quality commercial real estate and multifamily loans, and no construction loans. Loan interest income was also reduced as the average loan yield declined 95 basis points from the second quarter
of 2007 to the second quarter of 2008. The average loan yield for the first six months of 2008 was 63 basis points below the yield for the first six months of 2007. Our loan yield has declined as the adjustable rate loans were reset to rate indices
in a lower interest rate environment.

Interest expense on deposits was $6.6 million for the quarter ended June 30, 2008, compared
with $9.5 million for the quarter ended June 30, 2007. Interest expense on deposits for the first six months of 2008 totaled $14.2 million, compared with $20.2 million for the first six months of 2007. The decrease in interest expense during
2008 resulted from a lower average cost of deposits and a decline in deposit balances, as we elected not to replace certain maturing deposits due to the reduction in our total assets. Average interest-bearing deposits for the three and six months
ended June 30, 2008 were below the 2007 periods by $98.9 million and $146.4 million, respectively. The average term of our CDs is generally less than one year; thus, our cost of deposits has been reduced as market interest rates have declined
over the prior year. The average cost of our interest-bearing deposits for the three and six months ended June 30, 2008, was below the corresponding 2007 periods by 102 basis points and 72 basis points, respectively.

We did not have any short-term borrowings during 2008. For the three and six months ended June 30, 2007, interest expense on short-term borrowings
was $207,000 and $336,000, respectively. Our only short-term borrowing in 2007 was pursuant to a $20.0 million revolving line of credit that we terminated March 2008.

Interest expense on repurchase agreements and FHLB advances totaled $6.3 million for three months ended June 30, 2008, compared with $7.8 million for three months ended June 30, 2007. For the six months
ended June 30, 2008, interest on repurchase agreements and FHLB advances totaled $13.6 million, as compared with $13.9 million for the six months ended June 30, 2007. The average cost of FHLB advances for the three and six months ended
June 30, 2008, was below the 2007 periods by 46 basis points and 22 basis points, respectively. The average FHLB borrowing cost has declined due to the maturity of higher-rate advances and a lower interest rate environment. Average FHLB
advances for the first six months of 2008 were $13.2 million higher than the average balance for the first six months of 2007. However, FHLB advances for the second quarter of 2008 were $60.0 million below the 2007 period as our total assets
declined and we increased the use of brokered deposits since the end of 2007. Interest expense on repurchase agreements was slightly lower in 2008 as compared with 2007 due to the maturity of a $10 million repurchase agreement in the second quarter
of 2008. There were no other repurchase agreement transactions during 2007 and 2008.

Interest expense on the junior subordinated notes
(these notes were issued in connection with issuance of trust preferred securities by non-consolidated subsidiaries) was $0.4 million for the second quarter of 2008, compared with $0.9 million for the second quarter of 2007. For the six months ended
June 30, 2008, interest on junior subordinated notes payable was $1.2 million, compared with $1.8 million for the first six months of 2007. The reduction in interest expense on these notes was mainly due to our redemption in January 2008 at par
of $10.3 million of the notes bearing interest at the rate of 3.65% over the 3-month LIBOR. The redemption of notes reduced our average borrowings for the three and six months ended June 30, 2008 by $10.3 million and



22



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$10.0 million, respectively. The interest rates on the notes are at various spreads to 3-month LIBOR, which has declined significantly over the prior year.
As a result, the weighted average cost of the notes for the three and six months ended June 30, 2008, were below the 2007 periods by 302 basis points and 158 basis points, respectively.

Provision for Loan Losses

Provision for
losses on loans are charged to operations to maintain an allowance for losses on the loan portfolio at a level that we believe is adequate based on an evaluation of the inherent risks in the portfolio. Our evaluation is based on an analysis of the
loan portfolio, historical loss experience, credit concentrations, current economic conditions and trends, the effects of interest rate changes on collateral values, and other relevant factors. Specific reserves are established for impaired loans
when the fair value of the collateral for each impaired loan is less than the unpaid principal balance of the loan. We currently intend to maintain an unallocated allowance in the range of 3% to 6% of the total estimated allowance for loan losses,
excluding specific reserves, due to the inherent risk associated with the imprecision in estimating the allowance.

We recorded a provision
for loan losses of $4.0 million for three months ended June 30, 2008, compared with a provision for loan losses of $661,000 for the three months ended June 30, 2007. For the six months ended June 30, 2008, our provision for loan
losses was $4.8 million, compared with a provision of $846,000 for the corresponding 2007 period. The provision for loan losses was increased in the second quarter of 2008 largely due to a decline in the collateral value of two construction loans.
Management evaluated recent valuations of each loans collateral and concluded additional reserves of $5.8 million were required. These additional reserves were partially offset by lower reserve requirements for certain qualitative factors used
in our general valuation allowance and a reduction in the size of the loan portfolio.

The credit quality of our assets is affected by many
factors beyond our control, including local and national economic conditions, and the possible existence of facts that are not known to us which adversely affect the likelihood of repayment of various loans in our loan portfolio and realization of
the collateral upon a default. Accordingly, we can give no assurance that we will not sustain loan losses materially in excess of the allowance for loan losses.

Other Income

Our other income, primarily FHLB stock dividends, was $465,000 and $567,000 for the three months ended
June 30, 2008 and 2007, respectively. Other income for the six months ended June 30, 2008 was $1.2 million, compared with $1.2 million for the corresponding 2007 period.

Other Expenses

Compensation and employee benefits expense totaled $1.7 million for the
quarter ended June 30, 2008, as compared with $2.0 million for the second quarter of 2007. For the six months ended June 30, 2008, compensation and employee benefits expense totaled $3.8 million, as compared with $3.8 million for the first
six months of 2007. Compensation expense for the second quarter of 2008 was lower than the prior period mainly due to a staffing reduction in the first quarter of 2008. Stock-based compensation expense was also higher in the second quarter of 2007
due to newly granted stock appreciation rights. These reductions in compensation expense were partially offset by increased bonus expense during 2008 due to the stay bonus agreements for certain officers awarded in 2007.

Our legal expenses (included in Professional fees in the statement of operations) for the second quarter of 2008 were $59,000, compared with
$133,000 in the second quarter of 2007. Legal expenses for the first six months of 2008 were $418,000, as compared with $254,000 for the first six months of 2007. Legal expenses for 2008 were incurred primarily in connection with litigation with
Merrill Lynch Mortgage Capital Inc. regarding our former loan servicing subsidiary Wilshire Credit Corporation, which was resolved in the first quarter of 2008.



23



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Loan expenses were $100,000 for the second quarter of 2008, as compared with $29,000 for the second
quarter of 2007. Loan expenses for the first six months of 2008 and 2007 were $221,000 and $82,000, respectively. Loan expenses were higher in the 2008 periods primarily due to costs incurred on loans in the process of foreclosure.

Insurance expense for the second quarter of 2008 was $184,000, as compared with $154,000 for the second quarter of 2007. For the first six months of
2008, insurance expense was $305,000, as compared with $319,000 for the corresponding 2007 period. At the end of May 2008, the Company renewed its directors and officers liability coverage with premiums for the one-year period totaling $1.0 million,
as compared with premiums of $271,000 for the prior one-year period.

Other general and administrative expenses for the second quarter of
2008 were a credit of $503,000, compared with an expense of $592,000 for the second quarter of 2007. For the first six months of 2008, other general and administrative expenses were a credit of $36,000, as compared with an expense of $794,000, for
the 2007 period. A significant component of this improvement was the reversal of a reserve accrued in the second quarter of 2007 for indemnification obligations to Merrill Lynch Mortgage Capital Inc. This obligation was incurred in connection with
the sale of our former loan servicing subsidiary, Wilshire Credit Corporation, to Merrill Lynch in 2004. The reversal was based on a withdrawal of one indemnification claim following a court dismissal of the underlying third-party claim against
Wilshire Credit Corporation.

CHANGES IN FINANCIAL CONDITION

General

At June 30, 2008, our total assets were $1.37 billion, a decrease of $127.6 million from total assets
as of December 31, 2007. The following discussion summarizes the significant changes in our financial condition for the six months ended June 30, 2008.

Securities

Our portfolio of mortgage-backed securities available for sale decreased by $65.2 million during the six
months ended June 30, 2008. This decrease was due to principal repayments of $37.3 million and security sales of $21.6 million. A gain of $46,000 was realized on the sale of the securities in the first quarter of 2008. We purchased no
mortgage-backed securities during the first six months of 2008. We recorded unrealized holding losses on our mortgage-backed securities portfolio of approximately $6.2 million during the first six months of 2008, due to a widening of spreads on our
AAA-rated mortgage-backed securities.

The balance of our other investment securities available for sale (consisting of trust preferred
securities and mutual funds) decreased $0.5 million during the six months ended June 30, 2008. This decrease was due to principal repayments of $0.3 million and an impairment charge of $0.2 million. Due to the continuous and significant decline
in the net asset value of a mutual fund, we determined the impairment was other than temporary.

The balance of our investment securities
held to maturity declined $9.8 million during the six months ended June 30, 2008, as our two callable securities were redeemed in March 2008 and April 2008.



24



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The following table sets forth our holdings of securities as of the dates indicated:



|                                                |  |                        |         |                  |   |        
|----------------------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                                |  | June 30,2008           |         | December 31,2007
|                                                |  | (Dollars in thousands)
|Available for sale, at fair value:              |  |                        |         |                  |   |        
|GSE mortgage-backed securities                  |  | $                      | 173,438 |                  | $ | 191,740
|AAA mortgage-backed securities                  |  |                        | 169,755 |                  |   | 216,542
|Other mortgage-backed securities                |  |                        | 5,445   |                  |   | 5,593  
|Trust preferred securities                      |  |                        | 947     |                  |   | 1,210  
|Mutual funds                                    |  |                        | 5,530   |                  |   | 5,731  
|                                                |  |                        |         |                  |   |        
|Total available for sale                        |  |                        | 355,115 |                  |   | 420,816
|Held to maturity:                               |  |                        |         |                  |   |        
|Agency securities (fair value of $and $10,147) |  |                        |        |                  |   | 9,809  
|                                                |  |                        |         |                  |   |        
|Total mortgage-backed and investment securities |  | $                      | 355,115 |                  | $ | 430,625
|                                                |  |                        |         |                  |   |        

The amortized cost and fair value of our securities, by contractual maturity, are shown below as
of June 30, 2008:



|                    |  |                        |         |           |   |                      |  |      |  
|------------------- |  | ---------------------- | ------- | --------- | - | -------------------- |  | ---- | -
|                    |  | AmortizedCost          |         | FairValue |   | WeightedAverageYield | 
|                    |  | (Dollars in thousands) |        
|Due after ten years |  | $                      | 358,058 |           | $ | 349,585              |  | 5.40 | %
|Mutual funds        |  |                        | 5,516   |           |   | 5,530                |  | 4.12 | %
|                    |  |                        |         |           |   |                      |  |      |  
|Total               |  | $                      | 363,574 |           | $ | 355,115              |  | 5.38 | %
|                    |  |                        |         |           |   |                      |  |      |  

The following tables show the gross unrealized losses and fair value of our securities, aggregated
by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates indicated:



|                                         |  |                        |         |                   |   |           |  |                  |        |           |   |                  |  |   |         |  |   |      
|---------------------------------------- |  | ---------------------- | ------- | ----------------- | - | --------- |  | ---------------- | ------ | --------- | - | ---------------- |  | - | ------- |  | - | -----
|                                         |  | Less than 12 months    |         | 12 months or more |   | Total    
|                                         |  | FairValue              |         | UnrealizedLosses  |   | FairValue |  | UnrealizedLosses |        | FairValue |   | UnrealizedLosses
|                                         |  | (Dollars in thousands)
|June 30, 2008                            |  |                        |        
|GSE mortgage-backed securities           |  | $                      | 49,822  |                   | $ | 624       |  | $                | 8,787  |           | $ | 118              |  | $ | 58,609  |  | $ | 742  
|AAA and other mortgage-backed Securities |  |                        | 117,321 |                   |   | 5,847     |  |                  | 50,731 |           |   | 2,817            |  |   | 168,052 |  |   | 8,664
|Trust preferred securities               |  |                        | 947     |                   |   | 29        |  |                  |       |           |   |                 |  |   | 947     |  |   | 29   
|Mutual funds                             |  |                        |        |                   |   |          |  |                  |       |           |   |                 |  |   |        |  |   |     
|                                         |  |                        |         |                   |   |           |  |                  |        |           |   |                  |  |   |         |  |   |      
|Total                                    |  | $                      | 168,090 |                   | $ | 6,500     |  | $                | 59,518 |           | $ | 2,935            |  | $ | 227,608 |  | $ | 9,435
|                                         |  |                        |         |                   |   |           |  |                  |        |           |   |                  |  |   |         |  |   |      



|                                         |  |                        |        |                   |   |           |  |                  |         |           |   |                  |  |   |         |  |   |      
|---------------------------------------- |  | ---------------------- | ------ | ----------------- | - | --------- |  | ---------------- | ------- | --------- | - | ---------------- |  | - | ------- |  | - | -----
|                                         |  | Less than 12 months    |        | 12 months or more |   | Total    
|                                         |  | FairValue              |        | UnrealizedLosses  |   | FairValue |  | UnrealizedLosses |         | FairValue |   | UnrealizedLosses
|                                         |  | (Dollars in thousands)
|December 31, 2007                        |  |                        |       
|GSE mortgage-backed securities           |  | $                      | 39,585 |                   | $ | 168       |  | $                | 46,388  |           | $ | 732              |  | $ | 85,973  |  | $ | 900  
|AAA and other mortgage-backed Securities |  |                        | 42,832 |                   |   | 343       |  |                  | 134,686 |           |   | 2,409            |  |   | 177,518 |  |   | 2,752
|Mutual funds                             |  |                        |       |                   |   |          |  |                  | 1,908   |           |   | 92               |  |   | 1,908   |  |   | 92   
|                                         |  |                        |        |                   |   |           |  |                  |         |           |   |                  |  |   |         |  |   |      
|Total                                    |  | $                      | 82,417 |                   | $ | 511       |  | $                | 182,982 |           | $ | 3,233            |  | $ | 265,399 |  | $ | 3,744
|                                         |  |                        |        |                   |   |           |  |                  |         |           |   |                  |  |   |         |  |   |      



25



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

As of June 30, 2008, we have the ability and intent to hold the securities classified as available for sale until they
mature, at which time we expect to receive full value for the securities. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected
to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. We do not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of June 30,
2008 and December 31, 2007, we believe the impairments detailed in the table above are temporary, and as a result, no impairment loss has been recognized in our consolidated statements of operations except for the impairment charge on a mutual
fund described above.

At June 30, 2008 and December 31, 2007, securities with amortized cost of $351.7 million and $382.1
million, respectively, and market values of $343.2 million and $380.3 million, respectively, were pledged to secure FHLB advances, repurchase agreements and public deposits.

Loans

Our loan portfolio, net of discounts and allowances, decreased by $54.8 million during
the six months ended June 30, 2008. The loan portfolio declined as loan repayments of $86.7 million exceeded our loan fundings of $37.5 million. Loan fundings in the first six months of 2008 consisted of $20.3 million in construction loans,
$12.5 million in commercial real estate loans and $4.7 million in multifamily loans. All of the construction loan fundings, and $8.7 million of the other loan fundings, were pursuant to commitments existing at December 31, 2007. During 2008, we
have not originated any new construction loans and originated $8.5 million of commercial real estate and multifamily loans. At June 30, 2008, we had outstanding commitments to fund $54.5 million of construction loans and $23.0 million in new
commercial and multifamily loans.

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



|                                 |  |                        |         |   |                  |   |           |  
|-------------------------------- |  | ---------------------- | ------- | - | ---------------- | - | --------- | -
|                                 |  | June 30,2008           |         |   | December 31,2007 |  
|                                 |  | (Dollars in thousands) |        
|Single-family residential        |  | $                      | 15,631  |   |                  | $ | 16,938    |  
|Multifamily residential          |  |                        | 279,200 |   |                  |   | 313,154   |  
|Commercial real estate           |  |                        | 513,156 |   |                  |   | 503,086   |  
|Construction                     |  |                        | 129,538 |   |                  |   | 153,178   |  
|Other                            |  |                        | 8,464   |   |                  |   | 14,731    |  
|                                 |  |                        |         |   |                  |   |           |  
|Loan portfolio principal balance |  |                        | 945,989 |   |                  |   | 1,001,087 |  
|Net premium and deferred fees    |  |                        | 703     |   |                  |   | 743       |  
|Allowance for loan losses        |  |                        | (21,529 | ) |                  |   | (21,882   | )
|                                 |  |                        |         |   |                  |   |           |  
|Total loan portfolio, net        |  | $                      | 925,163 |   |                  | $ | 979,948   |  
|                                 |  |                        |         |   |                  |   |           |  



26



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



|                                       |  |                            |        |   |                          |   |       |      |  |   |        |   |  |   |       |  
|-------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ----- | ---- |  | - | ------ | - |  | - | ----- | -
|                                       |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                       |  | 2008                       |        |   | 2007                     |   |       | 2008 |  |   | 2007   |  
|                                       |  | (Dollars in thousands)     |       
|Balance, beginning of period           |  | $                          | 22,576 |   |                          | $ | 8,094 |      |  | $ | 21,882 |   |  | $ | 7,977 |  
|Provision for loan losses              |  |                            | 4,037  |   |                          |   | 661   |      |  |   | 4,761  |   |  |   | 846   |  
|Charge-offs                            |  |                            | (5,078 | ) |                          |   | (288  | )    |  |   | (5,116 | ) |  |   | (354  | )
|Recoveries                             |  |                            |       |   |                          |   | 23    |      |  |   | 9      |   |  |   | 23    |  
|Amortization of fresh-start adjustment |  |                            | (6     | ) |                          |   | (2    | )    |  |   | (7     | ) |  |   | (4    | )
|                                       |  |                            |        |   |                          |   |       |      |  |   |        |   |  |   |       |  
|Balance, end of period                 |  | $                          | 21,529 |   |                          | $ | 8,488 |      |  | $ | 21,529 |   |  | $ | 8,488 |  
|                                       |  |                            |        |   |                          |   |       |      |  |   |        |   |  |   |       |  

Loan charge-offs in the second quarter of 2008 consisted of $3.3 million for a loan transferred to
real estate owned, and $1.7 million for a loan sold at the foreclosure sale to a third party bidder. These charge-off amounts were fully reserved for during 2007.

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



|                                                          |  |                        |        |   |                  |   |        |  
|--------------------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                          |  | June 30,2008           |        |   | December 31,2007 |  
|                                                          |  | (Dollars in thousands) |       
|Balance of delinquent loans:                              |  |                        |        |   |                  |   |        |  
|31-60 days                                                |  | $                      | 14,918 |   |                  | $ | 31,457 |  
|61-90 days                                                |  |                        | 1,474  |   |                  |   | 4,663  |  
|91 days or more(1)                                        |  |                        | 41,907 |   |                  |   | 20,934 |  
|                                                          |  |                        |        |   |                  |   |        |  
|Total delinquent loans                                    |  | $                      | 58,299 |   |                  | $ | 57,054 |  
|                                                          |  |                        |        |   |                  |   |        |  
|Delinquent loans as a percentage of total loan portfolio: |  |                        |        |   |                  |   |        |  
|31-60 days                                                |  |                        | 1.6    | % |                  |   | 3.1    | %
|61-90 days                                                |  |                        | 0.2    |   |                  |   | 0.5    |  
|91 days or more(1)                                        |  |                        | 4.4    |   |                  |   | 2.1    |  
|                                                          |  |                        |        |   |                  |   |        |  
|Total                                                     |  |                        | 6.2    | % |                  |   | 5.7    | %
|                                                          |  |                        |        |   |                  |   |        |  



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

At June 30, 2008, nonaccrual loans of $41.9 million included construction loans totaling $34.9 million. One construction loan of $6.6 million was placed on nonaccrual status during the second quarter of 2008. Delinquent loans included
a matured $13.8 million land loan that is in the process of being extended and reinstated.

We evaluate loan impairment according to the
provisions of SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as amended. Under SFAS No. 114, loans are considered impaired when it is probable that we will be unable to collect all amounts due according to the
contractual terms of the loan agreement, including scheduled interest payments. An impaired loan is measured based on the present value of expected future cash flows discounted at the loans effective interest rate or, as an expedient, at the
loans observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency will be charged-off
against the allowance for loan losses, or alternatively, a specific allocation will be established. Also, in accordance with SFAS No. 114, loans that are considered impaired are specifically excluded from the general valuation allowance when
determining the amount of the allowance for loan and lease losses required for the period.

At June 30, 2008, we classified $47.3
million of our loans as impaired, compared with $33.2 million at December 31, 2007. Specific reserves on impaired loans amounted to $11.6 million at June 30, 2008 and December 31, 2007. During the six months ended June 30, 2008
and 2007, gross interest income that would have



27



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been recorded on impaired loans, had they performed in accordance with their original terms, totaled $1.8 million and $1.4 million, respectively. Of this
amount, actual interest recognized on impaired loans, on a cash basis, was $0.7 million and $0.7 million, respectively.

Real Estate Owned

Real estate owned increased by $1.3 million during the six months ended June 30, 2008 due to the foreclosure of an unfinished
condominium project in the second quarter of 2008.

Deposits

Deposits increased by $4.1 million during the six months ended June 30, 2008. Although our total assets have declined since the end of 2007, deposits have slightly increased as we have become more dependent on
money desk and brokered CDs. The weighted average cost of our deposits was 3.49% at June 30, 2008, compared with 4.88% at December 31, 2007. The weighted average cost of deposits has declined as higher-costing CDs have matured and been
replaced with CD balances in a lower interest rate environment.

Repurchase Agreements

Repurchase agreements decreased by $10.0 million during the six months ended June 30, 2008 due to the maturity of one borrowing. The weighted-average
cost of our repurchase agreements at June 30, 2008 was 5.03%, compared with 4.81% at December 31, 2007. We did not enter into any new repurchase agreements during the first six months of 2008.

FHLB Advances

FHLB advances decreased by
$104.0 million during the six months ended June 30, 2008. This decrease reflects $231.0 million in payoffs of maturing advances, partially offset by $127.0 million in new advances. We have lowered our outstanding FHLB advances due to principal
paydowns on collateral pledged to the FHLB.

The FHLB has authorized a borrowing limit for total FHLB advances of 45% of the Banks
total assets as of the previous quarter-end. Accordingly, our FHLB borrowing limit decreases as the Banks total assets are reduced. Collateral pledged to the FHLB has decreased due to paydowns in the Banks investment securities and loan
portfolios. As of June 30, 2008, we had available collateral of $54.5 million pledged to the FHLB and were able to obtain FHLB advances borrow funds up to this amount. As a result of our CRA rating, we may not obtain FHLB advances with a
maturity in excess of one year. In addition, in August 2008, we were notified by the FHLB that it was in the process of reviewing the credit of all of its member banks that had met certain specified factors, including having engaged in construction
lending, and that pending its review of the Bank (which is expected to be completed in August 2008), the Bank may not increase the aggregate amount of its FHLB advances.

Junior Subordinated Notes

Our junior subordinated notes decreased from $46.4 million at
December 31, 2007 to $36.1 million at June 30, 2008. This decrease was due to the redemption in January 2008 at par of $10.3 million of notes bearing interest at the rate of 3.65% over the 3-month LIBOR. At June 30, 2008, the weighted
average rate paid on our junior subordinated notes was 4.94% per annum.



28



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REGULATORY CAPITAL REQUIREMENTS

Bank holding companies, such as BHBC, and FDIC-insured banks, such as FBBH, are required to meet certain minimum regulatory capital requirements. At June 30, 2008, BHBC and FBBH met all applicable regulatory
capital requirements and FBBH was well capitalized, as defined under applicable regulations.

The following table sets forth
the regulatory standards for well capitalized and adequately capitalized institutions and capital ratios for BHBC and FBBH at June 30, 2008.

Regulatory Capital Ratios



|                                                          |  |                        |         |       |                              |   |        |                                        |        |  |   |        |   |       |   |                |  |   |       |  
|--------------------------------------------------------- |  | ---------------------- | ------- | ----- | ---------------------------- | - | ------ | -------------------------------------- | ------ |  | - | ------ | - | ----- | - | -------------- |  | - | ----- | -
|                                                          |  |                        |         |       | Amount Required              |  
|                                                          |  | Actual                 |         |       | For Capital AdequacyPurposes |   |        | To be Categorized asWell
Capitalized |       
|                                                          |  | Amount                 |         | Ratio |                              |   | Amount |                                        | Ratio  |  |   | Amount |   | Ratio |  
|                                                          |  | (Dollars in thousands) |        
|BHBC                                                      |  |                        |         |       |                              |   |        |                                        |        |  |   |        |   |       |   |                |  |   |       |  
|Total capital to risk-weighted assets(Risk-based capital) |  | $                      | 171,973 |       | 17.25                        | % |        | $                                      | 79,766 |  | 3 | 8.00   | % |       |   | Not Applicable | 
|Tier 1 capital to risk-weighted assets                    |  |                        | 159,384 |       | 15.99                        | % |        |                                        | 39,883 |  | 3 | 4.00   | % |       |   | Not Applicable | 
|Tier 1 leverage ratio                                     |  |                        | 159,384 |       | 11.43                        | % |        |                                        | 55,758 |  | 3 | 4.00   | % |       |   | Not Applicable | 
|FBBH                                                      |  |                        |         |       |                              |   |        |                                        |        |  |   |        |   |       |   |                |  |   |       |  
|Total capital to risk-weighted assets(Risk-based capital) |  | $                      | 149,859 |       | 15.22                        | % |        | $                                      | 78,764 |  | 3 | 8.00   | % |       | $ | 98,455         |  | 3 | 10.00 | %
|Tier 1 capital to risk-weighted assets                    |  |                        | 137,442 |       | 13.96                        | % |        |                                        | 39,382 |  | 3 | 4.00   | % |       |   | 59,073         |  | 3 | 6.00  | %
|Tier 1 leverage ratio                                     |  |                        | 137,442 |       | 9.95                         | % |        |                                        | 55,236 |  | 3 | 4.00   | % |       |   | 69,045         |  | 3 | 5.00  | %

In addition to the requirements shown in the above table, FBBH is required by the DFI to maintain
a ratio of tangible shareholders equity to total tangible assets of at least 8.0% for the first three years following the effective date of the charter conversion, or through August 31, 2008. As of June 30, 2008, FBBHs tangible
shareholders equity to tangible assets ratio was 9.94% and in compliance with the DFIs requirement.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the measurement of an entitys ability to meet potential cash requirements, including ongoing commitments to repay
borrowings, originate loans, fund investments, purchase pools of loans, and make payments for general business purposes.

Our sources of
liquidity include wholesale and retail deposits, FHLB advances (up to 45% of the Banks total assets as of the previous quarter-end), repurchase agreements, repayments of loans and mortgage-backed securities, and net interest income. We manage
our liquidity on a daily basis, and our Board of Directors periodically reviews our liquidity. This process is intended to ensure the maintenance of sufficient funds to meet our operating needs. In August 2008, we were notified by the FHLB that it
was in the process of reviewing the credit of all of its member banks that had met certain specified factors, including having engaged in construction lending, and that pending its review of the Bank (which is expected to be completed in August
2008), the Bank may not increase the aggregate amount of its FHLB advances. We believe that, based on our current and expected asset size, capital levels, and organizational infrastructure, there will be sufficient available liquidity to meet our
operating needs for the foreseeable future notwithstanding our present inability to increase our FHLB advances.

At June 30, 2008, we
had $635.5 million of CDs. Scheduled maturities of CDs during the 12 months ending June 30, 2009 and thereafter amounted to $488.3 million and $147.2 million, respectively. Wholesale deposits generally are more responsive to changes in interest
rates than core deposits, and thus are more likely to be



29



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withdrawn by the investor upon maturity as changes in interest rates and other factors are perceived by investors to make other investments more attractive.
Management continues its effort to reduce our exposure to interest rate changes by utilizing funding sources whose repricing characteristics more closely match those of our interest-earning assets.

We are party to various contractual financial obligations, including repayment of borrowings, operating lease payments and commitments to extend credit.
The table below presents our future financial obligations, including anticipated interest payments, outstanding as of June 30, 2008:



|                                           |  |                                                  |         |           |   |           |  |               |        |       |   |        |  |   |          
|------------------------------------------ |  | ------------------------------------------------ | ------- | --------- | - | --------- |  | ------------- | ------ | ----- | - | ------ |  | - | ---------
|                                           |  | Payments due within time period at June 30, 2008
|                                           |  | 0-12 Months                                      |         | 1-3 Years |   | 4-5 Years |  | After 5 Years |        | Total
|                                           |  | (Dollars in thousands)                          
|Certificates of deposit                    |  | $                                                | 501,999 |           | $ | 149,578   |  | $             | 240    |       | $ |       |  | $ | 651,817  
|Repurchase agreements                      |  |                                                  | 30,566  |           |   |          |  |               |       |       |   |       |  |   | 30,566   
|Employment contracts                       |  |                                                  | 150     |           |   |          |  |               |       |       |   |       |  |   | 150      
|Operating leases                           |  |                                                  | 441     |           |   | 887       |  |               | 917    |       |   | 542    |  |   | 2,787    
|FHLB advances                              |  |                                                  | 240,023 |           |   | 248,050   |  |               | 51,128 |       |   |       |  |   | 539,201  
|Junior subordinated notes payable to trust |  |                                                  | 1,782   |           |   | 3,564     |  |               | 3,564  |       |   | 74,657 |  |   | 83,567   
|Commitments to originate loans             |  |                                                  | 77,487  |           |   |          |  |               |       |       |   |       |  |   | 77,487   
|                                           |  |                                                  |         |           |   |           |  |               |        |       |   |        |  |   |          
|Total                                      |  | $                                                | 852,448 |           | $ | 402,079   |  | $             | 55,849 |       | $ | 75,199 |  | $ | 1,385,575
|                                           |  |                                                  |         |           |   |           |  |               |        |       |   |        |  |   |          

With the exception of the operating leases and loan commitments, the expected obligations
presented above include anticipated interest accruals based on the current respective contractual terms. The amounts for the three issuances of junior subordinated notes are based on the assumption that the notes will be repaid in full at their
respective maturities in July 2032, June 2036 and March 2037. However, we may pay the notes in full or in part at par commencing in July 2007, June 2011 and March 2012, respectively, and quarterly thereafter.

IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ materially from those projected in such statements. All of the statements contained in Report that are not identified as historical should be considered forward-looking. In
connection with certain forward-looking statements contained in this Report and those that may be made in the future by or on behalf of the Company which are identified as forward-looking, the Company notes that there are various factors that could
cause actual results to differ materially from those set forth in any such forward-looking statements. These factors include, but are not limited to, the condition of the real estate market, interest rates, regulatory matters, the availability of
pools of loans at acceptable prices, and the availability and conditions of financing for loan pool acquisitions and other financial assets. Accordingly, there can be no assurance that the forward-looking statements contained in this Report will be
realized or that actual results will not be significantly higher or lower. Statements regarding policies and procedures are not intended, and should not be interpreted, to mean that such policies and procedures will not be amended, modified or
repealed at any time in the future. The forward-looking statements have not been audited by, examined by or subjected to agreed-upon procedures by independent accountants, and no third party has independently verified or reviewed such statements.
Readers of this Report should consider these facts in evaluating the information contained herein. The inclusion of the forward-looking statements contained in this Report should not be regarded as a representation by the Company or any other person
that the forward-looking statements contained in this Report will be achieved. In light of the foregoing, readers of this Report are cautioned not to place undue reliance on the forward-looking statements contained herein. There are no material
changes to the Companys risk factors as presented in the Companys 2007 Annual Report on Form 10-K under the heading Item 1A. Risk Factors.



30



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

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

Asset and Liability Management

It is our objective
to attempt to control risks associated with interest rate movements. In general, our strategy is to limit our exposure to earnings volatility and variations in the value of assets and liabilities as interest rates change over time. Our asset and
liability management strategy is formulated and monitored by the Asset and Liability Committees of the Company and of the Board of Directors (collectively, ALCO) which reviews, among other things, the sensitivity of our assets and
liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses (including those attributable to hedging transactions), purchase activity, and maturities of investments and borrowings. ALCO
establishes rate sensitivity tolerances (within regulatory guidelines) that are approved by our Board of Directors, and coordinates with our Board with respect to overall asset and liability composition.

ALCO is authorized to utilize off-balance sheet financial techniques to assist in the management of interest rate risk. These techniques include interest
rate swap agreements, pursuant to which the parties exchange the difference between fixed-rate and floating-rate interest payments on a specified principal amount (referred to as the notional amount) for a specified period without the
exchange of the underlying principal amount. At March 31, 2008, we were not a party to any swap agreement or other off-balance sheet financial instrument.

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

In addition, ALCO also regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on the interest rate sensitivity of Net Portfolio Value (NPV), which is
defined as the net present value of an institutions existing assets, liabilities and off-balance sheet instruments. ALCO further evaluates such impacts against the maximum tolerable change in interest income that is authorized by our Board of
Directors.

The following table quantifies the potential changes in our NPV at June 30, 2008, should interest rates increase or
decrease by 100 to 300 basis points, assuming the yield curves of the rate shocks will be parallel to each other.

Interest Rate
Sensitivity of Net Portfolio Value



|                |  |                        |         |          |                    |         |          |  |     |           |  |       |        |  |      |     
|--------------- |  | ---------------------- | ------- | -------- | ------------------ | ------- | -------- |  | --- | --------- |  | ----- | ------ |  | ---- | ----
|                |  | Net Portfolio Value    |         |          | NPV as % of Assets |        
|                |  | $ Amount               |         | $ Change |                    |         | % Change |  |     | NPV Ratio |  |       | Change | 
|                |  | (Dollars in thousands) |         |          |                    |         |          |  |    
|Change in Rates |  |                        |         |         
|+ 300bp         |  | $                      | 111,084 |          | $                  | (29,970 | )        |  | (21 | )%        |  | 8.54  | %      |  | (180 | ) bp
|+ 200bp         |  |                        | 119,442 |          |                    | (21,612 | )        |  | (15 | )         |  | 9.05  |        |  | (129 | ) bp
|+ 100bp         |  |                        | 129,153 |          |                    | (11,901 | )        |  | (8  | )         |  | 9.63  |        |  | (71  | ) bp
|0bp             |  |                        | 141,054 |          |                    |        |          |  |    |           |  | 10.34 |        |  |     |     
|- 100bp         |  |                        | 153,340 |          |                    | 12,286  |          |  | 9   |           |  | 11.05 |        |  | 71   | bp  
|- 200bp         |  |                        | 157,884 |          |                    | 16,830  |          |  | 12  |           |  | 11.25 |        |  | 91   | bp  
|- 300bp         |  |                        | 161,377 |          |                    | 20,323  |          |  | 14  |           |  | 11.38 |        |  | 104  | bp  



31



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

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

Another tool we use to identify and manage our
interest rate risk profile is the static gap analysis. Interest sensitivity gap analysis measures the difference between the assets and liabilities repricing or maturing within specific time periods. The following table summarizes the scheduled
maturities or repricing of our assets and liabilities based on their contractual terms as of June 30, 2008.



|                                                            |  |                        |          |    |                                 |   |          |                                   |  |   |                |    |  |       |         |   |  |   |          
|----------------------------------------------------------- |  | ---------------------- | -------- | -- | ------------------------------- | - | -------- | --------------------------------- |  | - | -------------- | -- |  | ----- | ------- | - |  | - | ---------
|                                                            |  | WithinTwelveMonths     |          |    | More ThanOne Year toThree Years |   |          | More ThanThree Years toFive Years |  |   | Over FiveYears |    |  | Total
|                                                            |  | (Dollars in thousands)
|Assets:                                                     |  |                        |          |    |                                 |   |          |                                   |  |   |                |    |  |       |         |   |  |   |          
|Cash and cash equivalents                                   |  | $                      | 16,363   |    |                                 | $ |         |                                   |  | $ |               |    |  | $     |        |   |  | $ | 16,363   
|Mortgage-backed and other investment securities             |  |                        | 71,832   |    |                                 |   | 59,539   |                                   |  |   | 24,845         |    |  |       | 198,899 |   |  |   | 355,115  
|Single-family residential loans                             |  |                        | 8,100    |    |                                 |   | 519      |                                   |  |   | 903            |    |  |       | 6,109   |   |  |   | 15,631   
|Multifamily residential loans                               |  |                        | 147,222  |    |                                 |   | 70,289   |                                   |  |   | 47,206         |    |  |       | 14,483  |   |  |   | 279,200  
|Commercial real estate loans                                |  |                        | 263,132  |    |                                 |   | 132,731  |                                   |  |   | 86,565         |    |  |       | 30,728  |   |  |   | 513,156  
|Construction loans                                          |  |                        | 129,538  |    |                                 |   |         |                                   |  |   |               |    |  |       |        |   |  |   | 129,538  
|Other loans                                                 |  |                        | 8,146    |    |                                 |   | 15       |                                   |  |   | 8              |    |  |       | 295     |   |  |   | 8,464    
|Other assets(1)                                             |  |                        |         |    |                                 |   |         |                                   |  |   |               |    |  |       | 55,090  |   |  |   | 55,090   
|                                                            |  |                        |          |    |                                 |   |          |                                   |  |   |                |    |  |       |         |   |  |   |          
|Total assets                                                |  |                        | 644,333  |    |                                 |   | 263,093  |                                   |  |   | 159,527        |    |  |       | 305,604 |   |  |   | 1,372,557
|                                                            |  |                        |          |    |                                 |   |          |                                   |  |   |                |    |  |       |         |   |  |   |          
|Liabilities:                                                |  |                        |          |    |                                 |   |          |                                   |  |   |                |    |  |       |         |   |  |   |          
|Noninterest-bearing deposits                                |  |                        |         |    |                                 |   |         |                                   |  |   |               |    |  |       | 800     |   |  |   | 800      
|Savings, NOW and money market accounts(2)                   |  |                        | 5,256    |    |                                 |   |         |                                   |  |   |               |    |  |       |        |   |  |   | 5,256    
|Certificates of deposit                                     |  |                        | 488,285  |    |                                 |   | 146,983  |                                   |  |   | 236            |    |  |       |        |   |  |   | 635,504  
|Repurchase agreements                                       |  |                        | 30,000   |    |                                 |   |         |                                   |  |   |               |    |  |       |        |   |  |   | 30,000   
|FHLB advances                                               |  |                        | 222,000  |    |                                 |   | 235,000  |                                   |  |   | 50,000         |    |  |       |        |   |  |   | 507,000  
|Junior subordinated notes payable                           |  |                        | 36,084   |    |                                 |   |         |                                   |  |   |               |    |  |       |        |   |  |   | 36,084   
|Other liabilities                                           |  |                        |         |    |                                 |   |         |                                   |  |   |               |    |  |       | 10,471  |   |  |   | 10,471   
|                                                            |  |                        |          |    |                                 |   |          |                                   |  |   |                |    |  |       |         |   |  |   |          
|Total liabilities                                           |  |                        | 781,625  |    |                                 |   | 381,983  |                                   |  |   | 50,236         |    |  |       | 11,271  |   |  |   | 1,225,115
|                                                            |  |                        |          |    |                                 |   |          |                                   |  |   |                |    |  |       |         |   |  |   |          
|(Deficiency) excess of assets over liabilities              |  | $                      | (137,292 | )  |                                 | $ | (118,890 | )                                 |  | $ | 109,291        |    |  | $     | 294,333 |   |  | $ | 147,442  
|                                                            |  |                        |          |    |                                 |   |          |                                   |  |   |                |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess                              |  | $                      | (137,292 | )  |                                 | $ | (256,182 | )                                 |  | $ | (146,891       | )  |  | $     | 147,442 |   |  |   |          
|                                                            |  |                        |          |    |                                 |   |          |                                   |  |   |                |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess as a percent of total assets |  |                        | (10.00   | )% |                                 |   | (18.67   | )%                                |  |   | (10.70         | )% |  |       | 10.74   | % |  |   |          
|                                                            |  |                        |          |    |                                 |   |          |                                   |  |   |                |    |  |       |         |   |  |   |          



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

|(2) | Excludes $6.7 million of money market deposits held by BHBC and WFC. These deposits are eliminated in consolidation and are not reflected in the consolidated statement of financial
condition.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



32



---

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

Evaluation of Controls and Procedures

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

Changes in
Internal Controls

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



33



---

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION



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

Nothing to report.



|Item 1A. | Risk Factors.
|-------- | -------------

Nothing to report.



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

Nothing to report.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

Nothing to report.



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

Nothing to report.



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

Nothing to report.



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



|     |  |                                                                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                         
|     | 
|31.2 |  | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                         
|     | 
|32.1 |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|32.2 |  | Certification by the Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



34



---

SIGNATURES

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



|                      |  |  |  |                            |  |                        |  |                        
|--------------------- |  |  |  | -------------------------- |  | ---------------------- |  | -----------------------
|                      |  |  |  | BEVERLY HILLS BANCORP INC.
|Date: August 11, 2008 |  |  |  |                           
|                      |  |  | 
|                      |  |  |  | By:                        |  | /s/    LARRY B. FAIGIN
|                      |  |  |  |                            |  |                        |  | Larry B. Faigin        
|                      |  |  |  |                            |  |                        |  | Chief Executive Officer
|                      |  |  |  |                           
|                      |  |  |  |                            |  | By:                    |  | /s/    TAKEO K.
SASAKI 
|                      |  |  |  |                            |  |                        |  | Takeo K. Sasaki        
|                      |  |  |  |                            |  |                        |  | Chief Financial Officer



35