##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(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, 2005



or



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



For the transition period from              to



Commission file number 0-21845



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Beverly Hills Bancorp Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)



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



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



Applicable only to corporate issuers:



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



|                                        |  |                             
|--------------------------------------- |  | ----------------------------
|Class                                   |  | Outstanding at July 31, 2005
|Common Stock, par value $0.01 per share |  | 21,220,050 shares           



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES



INDEX



|                              |  |                                                                                       |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION |  |                                                                                      
|Item 1.                       |  | Interim Condensed Consolidated Financial Statements (Unaudited):                      |  |   
|                              |  | Condensed Consolidated Statements of Financial Condition                              |  | 3 
|                              |  | Condensed Consolidated Statements of Operations                                       |  | 4 
|                              |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5 
|                              |  | Notes to Interim Condensed Consolidated Financial Statements                          |  | 7 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 16
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 29
|Item 4.                       |  | Controls and Procedures                                                               |  | 31
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 32
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 32
|Item 3.                       |  | Defaults Upon Senior Securities                                                       |  | 32
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 32
|Item 5.                       |  | Other Information                                                                     |  | 32
|Item 6.                       |  | Exhibits                                                                              |  | 32
|Signatures                    |  | 33                                                                                   



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(Dollars in thousands, except share data)



|                                                                                                                                              |  |               |           |   |                   |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                              |  | June 30, 2005 |           |   | December 31, 2004 |  
|ASSETS                                                                                                                                        |  |               |           |   |                   |   |           |  
|Cash and cash equivalents                                                                                                                     |  | $             | 17,228    |   |                   | $ | 15,526    |  
|Mortgage-backed securities available for sale, at fair value                                                                                  |  |               | 346,373   |   |                   |   | 307,461   |  
|Investment securities available for sale, at fair value                                                                                       |  |               | 13,834    |   |                   |   | 13,819    |  
|Investment securities held to maturity, at amortized cost (fair value of $9,884 and $9,795)                                                   |  |               | 9,683     |   |                   |   | 9,657     |  
|Loans, net of allowance for loan losses of $7,230 and $7,277                                                                                  |  |               | 973,537   |   |                   |   | 915,383   |  
|Discounted loans, net of allowance for loan losses of $193 and $367                                                                           |  |               | 916       |   |                   |   | 1,587     |  
|Stock in Federal Home Loan Bank of San Francisco, at cost                                                                                     |  |               | 25,889    |   |                   |   | 22,681    |  
|Real estate owned, net                                                                                                                        |  |               | 110       |   |                   |   | 1,769     |  
|Leasehold improvements and equipment, net                                                                                                     |  |               | 1,425     |   |                   |   | 854       |  
|Accrued interest receivable                                                                                                                   |  |               | 6,408     |   |                   |   | 5,333     |  
|Deferred tax asset, net                                                                                                                       |  |               | 36,050    |   |                   |   | 37,412    |  
|Goodwill, net                                                                                                                                 |  |               | 3,054     |   |                   |   | 3,054     |  
|Other tangible assets, net                                                                                                                    |  |               |          |   |                   |   | 129       |  
|Prepaid expenses and other assets                                                                                                             |  |               | 4,056     |   |                   |   | 3,449     |  
|                                                                                                                                              |  |               |           |   |                   |   |           |  
|TOTAL                                                                                                                                         |  | $             | 1,438,563 |   |                   | $ | 1,338,114 |  
|                                                                                                                                              |  |               |           |   |                   |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                          |  |               |           |   |                   |   |           |  
|                                                                                                                                              |  |              
|LIABILITIES:                                                                                                                                  |  |               |           |   |                   |   |           |  
|Noninterest-bearing deposits                                                                                                                  |  | $             | 4,101     |   |                   | $ | 4,473     |  
|Interest-bearing deposits                                                                                                                     |  |               | 561,142   |   |                   |   | 537,487   |  
|Repurchase agreements                                                                                                                         |  |               | 118,000   |   |                   |   | 120,000   |  
|Accounts payable and other liabilities                                                                                                        |  |               | 11,962    |   |                   |   | 10,559    |  
|FHLB advances                                                                                                                                 |  |               | 550,837   |   |                   |   | 474,837   |  
|Junior subordinated notes payable to trust                                                                                                    |  |               | 20,619    |   |                   |   | 20,619    |  
|                                                                                                                                              |  |               |           |   |                   |   |           |  
|Total liabilities                                                                                                                             |  |               | 1,266,661 |   |                   |   | 1,167,975 |  
|                                                                                                                                              |  |               |           |   |                   |   |           |  
|COMMITMENTS AND CONTINGENCIES (NOTE 4)                                                                                                        |  |               |           |   |                   |   |           |  
|                                                                                                                                              |  |              
|STOCKHOLDERS EQUITY:                                                                                                                         |  |               |           |   |                   |   |           |  
|Preferred stock, $0.01 par value, 10,000,000 shares authorized, 0 shares outstanding                                                          |  |               |          |   |                   |   |          |  
|Common stock, $0.01 par value, 90,000,000 shares authorized, 26,854,901 and 26,777,554 shares issued (including treasury shares of
5,639,368) |  |               | 268       |   |                   |   | 268       |  
|Additional paid-in capital                                                                                                                    |  |               | 165,208   |   |                   |   | 164,740   |  
|Treasury stock, 5,639,368 shares, at cost                                                                                                     |  |               | (15,224   | ) |                   |   | (15,224   | )
|Retained earnings                                                                                                                             |  |               | 22,909    |   |                   |   | 21,442    |  
|Accumulated other comprehensive loss, net                                                                                                     |  |               | (1,259    | ) |                   |   | (1,087    | )
|                                                                                                                                              |  |               |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                    |  |               | 171,902   |   |                   |   | 170,139   |  
|                                                                                                                                              |  |               |           |   |                   |   |           |  
|TOTAL                                                                                                                                         |  | $             | 1,438,563 |   |                   | $ | 1,338,114 |  
|                                                                                                                                              |  |               |           |   |                   |   |           |  



See notes to unaudited
interim condensed consolidated financial statements



3



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)



|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|---------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- | ---- | - | ---------- |  | - | ---------- | - |  | - | ----------
|                                                                                               |  | Three Months Ended June 30, |            | Six Months Ended June 30,
|                                                                                               |  | 2005                        |            |                           | 2004 |   | 2005       |  |   | 2004      
|INTEREST INCOME:                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Loans                                                                                          |  | $                           | 13,988     |                           |      | $ | 11,446     |  | $ | 27,102     |   |  | $ | 21,052    
|Mortgage-backed securities                                                                     |  |                             | 3,575      |                           |      |   | 2,870      |  |   | 7,002      |   |  |   | 5,490     
|Securities and federal funds sold                                                              |  |                             | 428        |                           |      |   | 269        |  |   | 779        |   |  |   | 575       
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Total interest income                                                                          |  |                             | 17,991     |                           |      |   | 14,585     |  |   | 34,883     |   |  |   | 27,117    
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|INTEREST EXPENSE:                                                                              |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Deposits                                                                                       |  |                             | 4,165      |                           |      |   | 3,278      |  |   | 7,379      |   |  |   | 6,391     
|Borrowings                                                                                     |  |                             | 4,773      |                           |      |   | 3,288      |  |   | 9,356      |   |  |   | 6,014     
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Total interest expense                                                                         |  |                             | 8,938      |                           |      |   | 6,566      |  |   | 16,735     |   |  |   | 12,405    
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|NET INTEREST INCOME                                                                            |  |                             | 9,053      |                           |      |   | 8,019      |  |   | 18,148     |   |  |   | 14,712    
|PROVISION FOR (RECAPTURE OF) LOSSES ON LOANS                                                   |  |                             |           |                           |      |   | 100        |  |   | (4         | ) |  |   | 214       
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|NET INTEREST INCOME AFTER PROVISION FOR (RECAPTURE OF) LOSSES ON LOANS                         |  |                             | 9,053      |                           |      |   | 7,919      |  |   | 18,152     |   |  |   | 14,498    
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|OTHER INCOME:                                                                                  |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Loan related fees and charges                                                                  |  |                             | 550        |                           |      |   | 312        |  |   | 863        |   |  |   | 521       
|Deposit fees and charges                                                                       |  |                             | 16         |                           |      |   | 97         |  |   | 36         |   |  |   | 195       
|(Loss) gain on sales of loans, net                                                             |  |                             | (21        | )                         |      |   | 1          |  |   | (21        | ) |  |   | 48        
|Gain on sale of securities, net                                                                |  |                             |           |                           |      |   |           |  |   |           |   |  |   | 273       
|Real estate owned, net                                                                         |  |                             | (15        | )                         |      |   | 12         |  |   | 192        |   |  |   | 70        
|Other income, net                                                                              |  |                             | 216        |                           |      |   | 154        |  |   | 388        |   |  |   | 219       
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Total other income                                                                             |  |                             | 746        |                           |      |   | 576        |  |   | 1,458      |   |  |   | 1,326     
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|OTHER EXPENSES:                                                                                |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Compensation and employee benefits                                                             |  |                             | 1,895      |                           |      |   | 1,572      |  |   | 3,764      |   |  |   | 3,394     
|Professional fees                                                                              |  |                             | 922        |                           |      |   | 807        |  |   | 1,628      |   |  |   | 1,627     
|Occupancy                                                                                      |  |                             | 251        |                           |      |   | 217        |  |   | 511        |   |  |   | 402       
|FDIC insurance premiums                                                                        |  |                             | 83         |                           |      |   | 117        |  |   | 167        |   |  |   | 225       
|Data processing                                                                                |  |                             | 125        |                           |      |   | 123        |  |   | 230        |   |  |   | 267       
|Insurance                                                                                      |  |                             | 174        |                           |      |   | 228        |  |   | 347        |   |  |   | 346       
|Depreciation                                                                                   |  |                             | 91         |                           |      |   | 96         |  |   | 146        |   |  |   | 186       
|Amortization of intangibles                                                                    |  |                             | 64         |                           |      |   | 64         |  |   | 129        |   |  |   | 129       
|Directors expense                                                                              |  |                             | 135        |                           |      |   | 224        |  |   | 270        |   |  |   | 380       
|Other general and administrative expense                                                       |  |                             | 398        |                           |      |   | 351        |  |   | 691        |   |  |   | 807       
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Total other expenses                                                                           |  |                             | 4,138      |                           |      |   | 3,799      |  |   | 7,883      |   |  |   | 7,763     
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION                                  |  |                             | 5,661      |                           |      |   | 4,696      |  |   | 11,727     |   |  |   | 8,061     
|INCOME TAX PROVISION                                                                           |  |                             | 2,388      |                           |      |   | 2,016      |  |   | 4,966      |   |  |   | 3,412     
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|INCOME FROM CONTINUING OPERATIONS                                                              |  |                             | 3,273      |                           |      |   | 2,680      |  |   | 6,761      |   |  |   | 4,649     
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|DISCONTINUED OPERATIONS (NOTE 3):                                                              |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|INCOME FROM OPERATIONS OF DISCONTINUED SEGMENT (INCLUDING GAIN ON DISPOSAL OF $18,516 IN 2004) |  |                             |           |                           |      |   | 18,186     |  |   |           |   |  |   | 19,000    
|INCOME TAX PROVISION                                                                           |  |                             |           |                           |      |   | 7,547      |  |   |           |   |  |   | 7,885     
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|INCOME FROM DISCONTINUED OPERATIONS                                                            |  |                             |           |                           |      |   | 10,639     |  |   |           |   |  |   | 11,115    
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|NET INCOME                                                                                     |  | $                           | 3,273      |                           |      | $ | 13,319     |  | $ | 6,761      |   |  | $ | 15,764    
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Earnings per share  basic:                                                                    |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Income from continuing operations                                                              |  | $                           | 0.15       |                           |      | $ | 0.13       |  | $ | 0.32       |   |  | $ | 0.23      
|Discontinued operations                                                                        |  |                             |           |                           |      |   | 0.51       |  |   |           |   |  |   | 0.54      
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Net income                                                                                     |  | $                           | 0.15       |                           |      | $ | 0.64       |  | $ | 0.32       |   |  | $ | 0.77      
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Earnings per share  diluted:                                                                  |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Income from continuing operations                                                              |  | $                           | 0.15       |                           |      | $ | 0.12       |  | $ | 0.31       |   |  | $ | 0.22      
|Discontinued operations                                                                        |  |                             |           |                           |      |   | 0.50       |  |   |           |   |  |   | 0.52      
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Net income                                                                                     |  | $                           | 0.15       |                           |      | $ | 0.62       |  | $ | 0.31       |   |  | $ | 0.74      
|                                                                                               |  |                             |            |                           |      |   |            |  |   |            |   |  |   |           
|Weighted average number of shares  basic                                                      |  |                             | 21,179,399 |                           |      |   | 20,786,803 |  |   | 21,159,293 |   |  |   | 20,404,896
|Weighted average number of shares  diluted                                                    |  |                             | 21,484,285 |                           |      |   | 21,475,649 |  |   | 21,473,869 |   |  |   | 21,393,533



See notes to unaudited
interim condensed consolidated financial statements



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands, except share data)



|                                                                                                         |  |                           |         |   |      |   |          |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | -------- | -
|                                                                                                         |  | Six Months Ended June 30, |        
|                                                                                                         |  | 2005                      |         |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                    |  |                           |         |   |      |   |          |  
|Net income                                                                                               |  | $                         | 6,761   |   |      | $ | 15,764   |  
|Less: income from discontinued operations, net of taxes                                                  |  |                           |        |   |      |   | (11,115  | )
|                                                                                                         |  |                           |         |   |      |   |          |  
|Income from continuing operations                                                                        |  |                           | 6,761   |   |      |   | 4,649    |  
|Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |  |                           |         |   |      |   |          |  
|(Recapture of) provision for estimated losses on loans                                                   |  |                           | (4      | ) |      |   | 263      |  
|Provision for losses on real estate owned                                                                |  |                           | 10      |   |      |   | 18       |  
|Change in valuation allowance for mortgage servicing rights                                              |  |                           |        |   |      |   | 257      |  
|Depreciation and amortization                                                                            |  |                           | 275     |   |      |   | 315      |  
|Deferred tax provision                                                                                   |  |                           | 1,487   |   |      |   |         |  
|Gain on sale of real estate owned                                                                        |  |                           | (218    | ) |      |   | (97      | )
|Loss on disposal of equipment                                                                            |  |                           |        |   |      |   | 2        |  
|Loss (gain) on sale of loans                                                                             |  |                           | 21      |   |      |   | (48      | )
|Gain on sale of securities                                                                               |  |                           |        |   |      |   | (273     | )
|Amortization of discounts and deferred fees                                                              |  |                           | 825     |   |      |   | 1,609    |  
|Amortization of mortgage servicing rights                                                                |  |                           |        |   |      |   | 1,740    |  
|Federal Home Loan Bank stock dividends                                                                   |  |                           | (464    | ) |      |   | (120     | )
|Change in:                                                                                               |  |                           |         |   |      |   |          |  
|Servicer advance receivables                                                                             |  |                           |        |   |      |   | (3,456   | )
|Service fees receivable                                                                                  |  |                           |        |   |      |   | 182      |  
|Accrued interest receivable                                                                              |  |                           | (1,075  | ) |      |   | (1,084   | )
|Receivables from other loan servicers                                                                    |  |                           |        |   |      |   | 773      |  
|Prepaid expenses and other assets                                                                        |  |                           | (607    | ) |      |   | (1,416   | )
|Accounts payable and other liabilities                                                                   |  |                           | 1,403   |   |      |   | 1,486    |  
|Net cash used in operations of discontinued segment                                                      |  |                           |        |   |      |   | 6,697    |  
|                                                                                                         |  |                           |         |   |      |   |          |  
|Net cash provided by operating activities of continuing operations                                       |  |                           | 8,414   |   |      |   | 11,497   |  
|                                                                                                         |  |                           |         |   |      |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                    |  |                           |         |   |      |   |          |  
|Purchase of loans                                                                                        |  |                           | (89,824 | ) |      |   | (105,537 | )
|Loan repayments                                                                                          |  |                           | 89,909  |   |      |   | 79,273   |  
|Loan originations                                                                                        |  |                           | (58,231 | ) |      |   | (191,270 | )
|Purchase of mortgage-backed securities available for sale                                                |  |                           | (83,627 | ) |      |   | (174,108 | )
|Repayments of mortgage-backed securities available for sale                                              |  |                           | 44,078  |   |      |   | 68,383   |  
|Proceeds from sale of mortgage-backed securities available for sale                                      |  |                           |        |   |      |   | 7,859    |  
|Proceeds from sale of investment securities available for sale                                           |  |                           |        |   |      |   | 10,130   |  
|Purchases of FHLB stock                                                                                  |  |                           | (2,744  | ) |      |   | (5,548   | )
|Proceeds from sale of real estate owned                                                                  |  |                           | 1,987   |   |      |   | 987      |  
|Purchases of leasehold improvements and equipment                                                        |  |                           | (717    | ) |      |   | (500     | )
|Net proceeds from sale of discontinued operations                                                        |  |                           |        |   |      |   | 48,709   |  
|Net cash provided by investing activities of discontinued segment                                        |  |                           |        |   |      |   | (495     | )
|                                                                                                         |  |                           |         |   |      |   |          |  
|Net cash used in investing activities of continuing operations                                           |  |                           | (99,169 | ) |      |   | (262,117 | )
|                                                                                                         |  |                           |         |   |      |   |          |  



See notes to unaudited
interim condensed consolidated financial statements



5



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)

(Unaudited)

(Dollars in thousands, except share data)



|                                                                                    |  |                           |          |   |      |   |          |  
|----------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                    |  | Six Months Ended June 30, |         
|                                                                                    |  | 2005                      |          |   | 2004 |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                               |  |                           |          |   |      |   |          |  
|Net increase in deposits                                                            |  | $                         | 23,283   |   |      | $ | 109,794  |  
|Proceeds from FHLB advances                                                         |  |                           | 200,000  |   |      |   | 554,900  |  
|Repayments of FHLB advances                                                         |  |                           | (124,000 | ) |      |   | (412,000 | )
|Decrease in repurchase agreements                                                   |  |                           | (2,000   | ) |      |   | (1,000   | )
|Repayments of long-term financing                                                   |  |                           |         |   |      |   | (1,871   | )
|Issuance of common stock                                                            |  |                           | 163      |   |      |   | 3,237    |  
|Tax benefit from exercise of nonqualified stock options                             |  |                           | 305      |   |      |   |         |  
|Dividends on common stock                                                           |  |                           | (5,294   | ) |      |   | (2,642   | )
|Net cash provided by financing activities of discontinued segment                   |  |                           |         |   |      |   | (5,810   | )
|                                                                                    |  |                           |          |   |      |   |          |  
|Net cash provided by financing activities of continuing operations                  |  |                           | 92,457   |   |      |   | 244,608  |  
|                                                                                    |  |                           |          |   |      |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                |  |                           | 1,702    |   |      |   | (6,012   | )
|CASH AND CASH EQUIVALENTS:                                                          |  |                           |          |   |      |   |          |  
|Beginning of period                                                                 |  |                           | 15,526   |   |      |   | 18,739   |  
|                                                                                    |  |                           |          |   |      |   |          |  
|End of period                                                                       |  | $                         | 17,228   |   |      | $ | 12,727   |  
|                                                                                    |  |                           |          |   |      |   |          |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: |  |                           |          |   |      |   |          |  
|Interest                                                                            |  | $                         | 15,365   |   |      | $ | 11,550   |  
|Income taxes, net                                                                   |  |                           | 3,028    |   |      |   | 82       |  
|NONCASH INVESTING ACTIVITIES:                                                       |  |                           |          |   |      |   |          |  
|Additions to real estate owned acquired in settlement of loans                      |  |                           | 120      |   |      |   | 2,074    |  





See notes to unaudited interim condensed consolidated financial statements



6



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BEVERLY HILLS BANCORP AND SUBSIDIARIES



NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



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



The accompanying interim condensed consolidated financial statements of Beverly Hills Bancorp Inc. (BHBC) and its subsidiaries (the
Company) are unaudited and should be read in conjunction with the Companys 2004 Annual Report on Form 10-K. A summary of the Companys significant accounting policies is set forth in Note 1 to the Consolidated Financial
Statements in such Annual Report on Form 10-K.



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



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



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



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



|                                                                      |  |                                           |            |                           |   |            |  |      |            |  |   |           
|--------------------------------------------------------------------- |  | ----------------------------------------- | ---------- | ------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                                      |  | Three Months Ended June 30,               |            | Six Months Ended June 30,
|                                                                      |  | 2005                                      |            | 2004                      |   | 2005       |  | 2004
|                                                                      |  | (Dollars in thousands, except share data)
|Income from continuing operations                                     |  | $                                         | 3,273      |                           | $ | 2,680      |  | $    | 6,761      |  | $ | 4,649     
|Discontinued operations                                               |  |                                           |           |                           |   | 10,639     |  |      |           |  |   | 11,115    
|                                                                      |  |                                           |            |                           |   |            |  |      |            |  |   |           
|Net income                                                            |  | $                                         | 3,273      |                           | $ | 13,319     |  | $    | 6,761      |  | $ | 15,764    
|                                                                      |  |                                           |            |                           |   |            |  |      |            |  |   |           
|Weighted average number of common shares outstanding  basic          |  |                                           | 21,179,399 |                           |   | 20,786,803 |  |      | 21,159,293 |  |   | 20,404,896
|Net effect of dilutive stock options  based on treasury stock method |  |                                           | 304,886    |                           |   | 688,846    |  |      | 314,576    |  |   | 988,637   
|                                                                      |  |                                           |            |                           |   |            |  |      |            |  |   |           
|Weighted average number of common shares outstanding  diluted        |  |                                           | 21,484,285 |                           |   | 21,475,649 |  |      | 21,473,869 |  |   | 21,393,533
|                                                                      |  |                                           |            |                           |   |            |  |      |            |  |   |           
|Earnings per share  basic:                                           |  |                                           |            |                           |   |            |  |      |            |  |   |           
|Income from continuing operations                                     |  | $                                         | 0.15       |                           | $ | 0.13       |  | $    | 0.32       |  | $ | 0.23      
|Discontinued operations                                               |  |                                           |           |                           |   | 0.51       |  |      |           |  |   | 0.54      
|                                                                      |  |                                           |            |                           |   |            |  |      |            |  |   |           
|Net income                                                            |  | $                                         | 0.15       |                           | $ | 0.64       |  | $    | 0.32       |  | $ | 0.77      
|                                                                      |  |                                           |            |                           |   |            |  |      |            |  |   |           
|Earnings per share  diluted:                                         |  |                                           |            |                           |   |            |  |      |            |  |   |           
|Income from continuing operations                                     |  | $                                         | 0.15       |                           | $ | 0.12       |  | $    | 0.31       |  | $ | 0.22      
|Discontinued operations                                               |  |                                           |           |                           |   | 0.50       |  |      |           |  |   | 0.52      
|                                                                      |  |                                           |            |                           |   |            |  |      |            |  |   |           
|Net income                                                            |  | $                                         | 0.15       |                           | $ | 0.62       |  | $    | 0.31       |  | $ | 0.74      
|                                                                      |  |                                           |            |                           |   |            |  |      |            |  |   |           



7



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BEVERLY HILLS BANCORP AND SUBSIDIARIES



NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(Unaudited)



The Company has two stock-based employee compensation plans, the 1999 Equity Participation Plan and
the 2002 Equity Participation Plan, pursuant to which stock options have been granted to its directors and certain employees. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. Had compensation expense for the Companys Equity Participation Plans been determined based on the fair value at the grant date consistent with the methods of Statement of Financial
Accounting Standards (SFAS) No. 123, the Companys net income and earnings per share for the three-month and six-month periods ended June 30, 2005 and 2004 would have been reduced to the pro-forma amounts indicated below.



|                                                                                                                                          |  |                                           |       |                           |   |        |  |      |       |  |   |       
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ----- | ------------------------- | - | ------ |  | ---- | ----- |  | - | ------
|                                                                                                                                          |  | Three Months Ended June 30,               |       | Six Months Ended June 30,
|                                                                                                                                          |  | 2005                                      |       | 2004                      |   | 2005   |  | 2004
|                                                                                                                                          |  | (Dollars in thousands, except share data)
|Net income, as reported                                                                                                                   |  | $                                         | 3,273 |                           | $ | 13,319 |  | $    | 6,761 |  | $ | 15,764
|Less: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax
effects |  |                                           | 62    |                           |   | 122    |  |      | 146   |  |   | 244   
|                                                                                                                                          |  |                                           |       |                           |   |        |  |      |       |  |   |       
|Pro forma net income                                                                                                                      |  | $                                         | 3,211 |                           | $ | 13,197 |  | $    | 6,615 |  | $ | 15,520
|                                                                                                                                          |  |                                           |       |                           |   |        |  |      |       |  |   |       
|                                                                                                                                          |  |                                           |       |                          
|Earnings per share  basic:                                                                                                               |  |                                           |       |                           |   |        |  |      |       |  |   |       
|As reported                                                                                                                               |  | $                                         | 0.15  |                           | $ | 0.64   |  | $    | 0.32  |  | $ | 0.77  
|                                                                                                                                          |  |                                           |       |                           |   |        |  |      |       |  |   |       
|Pro forma                                                                                                                                 |  | $                                         | 0.15  |                           | $ | 0.63   |  | $    | 0.31  |  | $ | 0.76  
|                                                                                                                                          |  |                                           |       |                           |   |        |  |      |       |  |   |       
|                                                                                                                                          |  |                                           |       |                          
|Earnings per share  diluted:                                                                                                             |  |                                           |       |                           |   |        |  |      |       |  |   |       
|As reported                                                                                                                               |  | $                                         | 0.15  |                           | $ | 0.62   |  | $    | 0.31  |  | $ | 0.74  
|                                                                                                                                          |  |                                           |       |                           |   |        |  |      |       |  |   |       
|Pro forma                                                                                                                                 |  | $                                         | 0.15  |                           | $ | 0.61   |  | $    | 0.31  |  | $ | 0.73  
|                                                                                                                                          |  |                                           |       |                           |   |        |  |      |       |  |   |       



8



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##### Table of Contents

BEVERLY HILLS BANCORP AND SUBSIDIARIES



NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(Unaudited)



|3. | SALE OF WILSHIRE CREDIT CORPORATION
|-- | -----------------------------------



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



Results of operations for WCC are shown in the table below.
The amounts for the three- and six-month periods ended June 30, 2004 reflect WCCs results for only the month and four months ended April 30, 2004, respectively.



|                                                     |  |                                  |       |   |                                |   |        |  
|---------------------------------------------------- |  | -------------------------------- | ----- | - | ------------------------------ | - | ------ | -
|                                                     |  | Three Months Ended June 30, 2004 |       |   | Six Months Ended June 30, 2004 |  
|                                                     |  | (Dollars in thousands)           |      
|Interest income                                      |  | $                                |      |   |                                | $ | (10    | )
|Interest expense                                     |  |                                  | 37    |   |                                |   | 164    |  
|                                                     |  |                                  |       |   |                                |   |        |  
|Net interest expense                                 |  |                                  | (37   | ) |                                |   | (174   | )
|Provision for loan losses                            |  |                                  |      |   |                                |   | 49     |  
|                                                     |  |                                  |       |   |                                |   |        |  
|Net interest expense after provision for loan losses |  |                                  | (37   | ) |                                |   | (223   | )
|Servicing income                                     |  |                                  | 3,420 |   |                                |   | 11,754 |  
|Other income                                         |  |                                  | 223   |   |                                |   | 699    |  
|Compensation and employee benefits expense           |  |                                  | 3,324 |   |                                |   | 9,427  |  
|Other expenses                                       |  |                                  | 612   |   |                                |   | 2,319  |  
|                                                     |  |                                  |       |   |                                |   |        |  
|(Loss) income before income taxes                    |  |                                  | (330  | ) |                                |   | 484    |  
|Income tax (benefit) provision                       |  |                                  | (137  | ) |                                |   | 201    |  
|                                                     |  |                                  |       |   |                                |   |        |  
|Net (loss) income                                    |  | $                                | (193  | ) |                                | $ | 283    |  
|                                                     |  |                                  |       |   |                                |   |        |  



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



At June 30, 2005, the Companys banking subsidiary, First Bank of Beverly Hills, F.S.B. (FBBH, or the Bank), had outstanding
commitments to fund $13.0 million of loans. In addition, the Bank had unfunded commitments under lines of credit of $0.4 million.



The Company continues to incur legal expenses on behalf of former officers in connection with the events that gave rise to litigation arising from the
financial collapse of Capital Consultants LLC (CCL) in 2000. Such expenses totaled $0.2 million for the quarter and six months ended June 30, 2005, compared with $0.3 million and $0.5 million, respectively, for the corresponding 2004
periods (see Note 8Legal Matters).



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



The Company files consolidated federal and state income tax returns with its eligible subsidiaries. The Company recorded income tax provisions from
continuing operations of $2.4 million and $5.0 million, respectively, for the quarter and six months ended June 30, 2005, compared with $2.0 million and $3.4 million, respectively, for the quarter and six months ended June 30, 2004. A portion of the
Companys year 2005 income



9



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BEVERLY HILLS BANCORP AND SUBSIDIARIES



NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(Unaudited)



tax provision is not expected to be currently payable in cash, due to the utilization of the Companys net operating loss carryforwards. The
Companys deferred tax provision (benefit) is determined on a quarterly basis pursuant to an evaluation of its net deferred tax asset. These deferred tax assets and liabilities represent the tax effect of future deductible or taxable amounts
and are attributable to net operating loss carryforwards and also to other differences between amounts that have been recognized in the financial statements and amounts that have been recognized in the income tax returns. An effective tax rate of
approximately 42.5% is applied to each attribute in determining the amount of the related deferred tax asset or liability. Decreases (increases) in the net deferred tax asset are recorded as a deferred tax provision (benefit) in the consolidated
statements of operations.



The Companys net deferred tax
asset was $36.0 million and $37.4 million, respectively, at June 30, 2005 and December 31, 2004. In accounting for the deferred tax asset, the Company applies SFAS No. 109, Accounting for Income Taxes, which requires, among other things,
that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company has evaluated the positive and negative evidence regarding the future
realization of the deferred tax assets and has recorded a valuation allowance of $6.8 million. The Company believes it is more likely than not that its net deferred tax asset of $36.0 million will be realized in future periods.



As of June 30, 2005, the Company had U.S. net operating loss carryforwards of
approximately $104 million, and also had approximately $99 million in state net operating loss carryforwards. The federal carryforward period runs through 2024. However, in June 2002 the Company experienced a change in control as defined by Section
382 of the Internal Revenue Code. In general, a change in control is defined as a greater than 50% ownership shift as measured over the prior three-year period. As a result of the change in control, the Companys net operating loss
carryforwards that were generated prior to the change in control are subject to a limitation on the amount that may be used annually to offset taxable income. The Company has determined that the amount of this limitation is approximately $6 million
per year and believes that its valuation allowance against the deferred tax asset provides adequately for this limitation.



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



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



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



| |  |  | Banking OperationsThrough FBBH, the Company conducts a banking business focused primarily on specialty-niche products tailored to commercial and multi-family real
estate lending, in addition to investments in primarily AAA-rated and government-sponsored enterprise (GSE) mortgage-backed securities. The primary sources of liquidity for the Banks loan purchases and originations are wholesale
certificates of deposit, retail deposits, Federal Home Loan Bank advances and repurchase agreements. The Bank is a federally chartered savings bank and is regulated by the Office of Thrift Supervision (OTS). The Bank has filed an
application with the California Department of Financial Institutions (DFI) for conversion to a state commercial bank charter. On April 13, 2005, the DFI approved the Banks application subject to certain conditions, as amended on
April 28, 2005. The Bank expects to be in compliance with all such conditions prior to the effective date of the conversion, which is anticipated to occur in the third quarter of 2005.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10



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BEVERLY HILLS BANCORP AND SUBSIDIARIES



NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(Unaudited)



| |  |  | Mortgage Investment OperationsThe Companys investment subsidiary, WFC Inc. (WFC), manages a portfolio of mortgage-backed securities and pools of
performing, sub-performing and non-performing residential and commercial loans. WFC conducts certain of these activities with an institutional investor where such investments align the Companys interests with those of the institutional
investor. WFCs funding sources have consisted primarily of commercial bank financing and co-investors, with debt service repayment terms that generally parallel the cash flows of the underlying collateral.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



|                                                              |  |                                  |           |                      |   |        |                                              |  |   |        |   |  |   |           |  
|------------------------------------------------------------- |  | -------------------------------- | --------- | -------------------- | - | ------ | -------------------------------------------- |  | - | ------ | - |  | - | --------- | -
|                                                              |  | Three Months Ended June 30, 2005 |          
|                                                              |  | Banking                          |           | Mortgage Investments |   |        | Holding Company and Miscellaneous Operations |  |   | Total  |  
|                                                              |  | (Dollars in thousands)           |          
|Interest income                                               |  | $                                | 17,779    |                      | $ | 196    |                                              |  | $ | 16     |   |  | $ | 17,991    |  
|Interest expense                                              |  |                                  | 8,580     |                      |   |       |                                              |  |   | 358    |   |  |   | 8,938     |  
|                                                              |  |                                  |           |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net interest income (expense)                                 |  |                                  | 9,199     |                      |   | 196    |                                              |  |   | (342   | ) |  |   | 9,053     |  
|Provision for loan losses                                     |  |                                  |          |                      |   |       |                                              |  |   |       |   |  |   |          |  
|                                                              |  |                                  |           |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net interest income (expense) after provision for loan losses |  |                                  | 9,199     |                      |   | 196    |                                              |  |   | (342   | ) |  |   | 9,053     |  
|Realized losses                                               |  |                                  |          |                      |   | (21    | )                                            |  |   |       |   |  |   | (21       | )
|Other income (loss)                                           |  |                                  | 725       |                      |   | (9     | )                                            |  |   | 51     |   |  |   | 767       |  
|Compensation and employee benefits expense                    |  |                                  | 1,832     |                      |   |       |                                              |  |   | 63     |   |  |   | 1,895     |  
|Other expenses                                                |  |                                  | 1,393     |                      |   | 13     |                                              |  |   | 837    |   |  |   | 2,243     |  
|                                                              |  |                                  |           |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Income (loss) before taxes                                    |  |                                  | 6,699     |                      |   | 153    |                                              |  |   | (1,191 | ) |  |   | 5,661     |  
|Income tax provision (benefit)                                |  |                                  | 2,835     |                      |   | 65     |                                              |  |   | (512   | ) |  |   | 2,388     |  
|                                                              |  |                                  |           |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Net income (loss)                                             |  | $                                | 3,864     |                      | $ | 88     |                                              |  | $ | (679   | ) |  | $ | 3,273     |  
|                                                              |  |                                  |           |                      |   |        |                                              |  |   |        |   |  |   |           |  
|Total assets                                                  |  | $                                | 1,401,513 |                      | $ | 26,750 |                                              |  | $ | 10,300 |   |  | $ | 1,438,563 |  
|                                                              |  |                                  |           |                      |   |        |                                              |  |   |        |   |  |   |           |  



11



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BEVERLY HILLS BANCORP AND SUBSIDIARIES



NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(Unaudited)



|                                                              |  |                                  |           |                |   |      |                      |  |   |                                              |   |  |       |        |   |  |   |           |  
|------------------------------------------------------------- |  | -------------------------------- | --------- | -------------- | - | ---- | -------------------- |  | - | -------------------------------------------- | - |  | ----- | ------ | - |  | - | --------- | -
|                                                              |  | Three Months Ended June 30, 2004 |          
|                                                              |  | Banking                          |           | Loan Servicing |   |      | Mortgage Investments |  |   | Holding Company and Miscellaneous Operations |   |  | Total |       
|                                                              |  | (Dollars in thousands)           |          
|Interest income                                               |  | $                                | 14,148    |                | $ |     |                      |  | $ | 424                                          |   |  | $     | 13     |   |  | $ | 14,585    |  
|Interest expense                                              |  |                                  | 6,307     |                |   |     |                      |  |   | 3                                            |   |  |       | 256    |   |  |   | 6,566     |  
|                                                              |  |                                  |           |                |   |      |                      |  |   |                                              |   |  |       |        |   |  |   |           |  
|Net interest income (expense)                                 |  |                                  | 7,841     |                |   |     |                      |  |   | 421                                          |   |  |       | (243   | ) |  |   | 8,019     |  
|Provision for loan losses                                     |  |                                  | 100       |                |   |     |                      |  |   |                                             |   |  |       |       |   |  |   | 100       |  
|                                                              |  |                                  |           |                |   |      |                      |  |   |                                              |   |  |       |        |   |  |   |           |  
|Net interest income (expense) after provision for loan losses |  |                                  | 7,741     |                |   |     |                      |  |   | 421                                          |   |  |       | (243   | ) |  |   | 7,919     |  
|Realized gains                                                |  |                                  |          |                |   |     |                      |  |   | 1                                            |   |  |       |       |   |  |   | 1         |  
|Other income (loss)                                           |  |                                  | 591       |                |   |     |                      |  |   | (16                                          | ) |  |       |       |   |  |   | 575       |  
|Compensation and employee benefits expense                    |  |                                  | 1,445     |                |   |     |                      |  |   |                                             |   |  |       | 127    |   |  |   | 1,572     |  
|Other expenses                                                |  |                                  | 1,364     |                |   |     |                      |  |   | 5                                            |   |  |       | 858    |   |  |   | 2,227     |  
|                                                              |  |                                  |           |                |   |      |                      |  |   |                                              |   |  |       |        |   |  |   |           |  
|Income (loss) from continuing operations before taxes         |  |                                  | 5,523     |                |   |     |                      |  |   | 401                                          |   |  |       | (1,228 | ) |  |   | 4,696     |  
|Income tax provision (benefit)                                |  |                                  | 2,270     |                |   |     |                      |  |   | 167                                          |   |  |       | (421   | ) |  |   | 2,016     |  
|                                                              |  |                                  |           |                |   |      |                      |  |   |                                              |   |  |       |        |   |  |   |           |  
|Income (loss) from continuing operations                      |  |                                  | 3,253     |                |   |     |                      |  |   | 234                                          |   |  |       | (807   | ) |  |   | 2,680     |  
|Discontinued operations:                                      |  |                                  |           |                |   |      |                      |  |   |                                              |   |  |       |        |   |  |   |           |  
|Loss from operations of discontinued segment                  |  |                                  |          |                |   | (330 | )                    |  |   |                                             |   |  |       |       |   |  |   | (330      | )
|Gain on sale of discontinued segment                          |  |                                  |          |                |   |     |                      |  |   |                                             |   |  |       | 18,516 |   |  |   | 18,516    |  
|Income tax (benefit) provision                                |  |                                  |          |                |   | (137 | )                    |  |   |                                             |   |  |       | 7,684  |   |  |   | 7,547     |  
|                                                              |  |                                  |           |                |   |      |                      |  |   |                                              |   |  |       |        |   |  |   |           |  
|(Loss) income from discontinued operations                    |  |                                  |          |                |   | (193 | )                    |  |   |                                             |   |  |       | 10,832 |   |  |   | 10,639    |  
|                                                              |  |                                  |           |                |   |      |                      |  |   |                                              |   |  |       |        |   |  |   |           |  
|Net income (loss)                                             |  | $                                | 3,253     |                | $ | (193 | )                    |  | $ | 234                                          |   |  | $     | 10,025 |   |  | $ | 13,319    |  
|                                                              |  |                                  |           |                |   |      |                      |  |   |                                              |   |  |       |        |   |  |   |           |  
|Total assets                                                  |  | $                                | 1,210,140 |                | $ |     |                      |  | $ | 21,465                                       |   |  | $     | 3      |   |  | $ | 1,231,608 |  
|                                                              |  |                                  |           |                |   |      |                      |  |   |                                              |   |  |       |        |   |  |   |           |  



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BEVERLY HILLS BANCORP AND SUBSIDIARIES



NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(Unaudited)



Segment data for the six months ended June 30, 2005 and 2004 are as follows:



|                                                              |  |                                |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|------------------------------------------------------------- |  | ------------------------------ | --------- | -------------------- | - | ------ | ------------------------------------------- |  | - | ------ | - |  | - | --------- | -
|                                                              |  | Six Months Ended June 30, 2005 |          
|                                                              |  | Banking                        |           | Mortgage Investments |   |        | Holding Companyand Miscellaneous Operations |  |   | Total  |  
|                                                              |  | (Dollars in thousands)         |          
|Interest income                                               |  | $                              | 34,378    |                      | $ | 468    |                                             |  | $ | 37     |   |  | $ | 34,883    |  
|Interest expense                                              |  |                                | 16,048    |                      |   |       |                                             |  |   | 687    |   |  |   | 16,735    |  
|                                                              |  |                                |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|Net interest income (expense)                                 |  |                                | 18,330    |                      |   | 468    |                                             |  |   | (650   | ) |  |   | 18,148    |  
|Recapture of loan losses                                      |  |                                |          |                      |   | (4     | )                                           |  |   |       |   |  |   | (4        | )
|                                                              |  |                                |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|Net interest income (expense) after provision for loan losses |  |                                | 18,330    |                      |   | 472    |                                             |  |   | (650   | ) |  |   | 18,152    |  
|Realized losses                                               |  |                                |          |                      |   | (21    | )                                           |  |   |       |   |  |   | (21       | )
|Other income (loss)                                           |  |                                | 1,445     |                      |   | (17    | )                                           |  |   | 51     |   |  |   | 1,479     |  
|Compensation and employee benefits expense                    |  |                                | 3,611     |                      |   |       |                                             |  |   | 153    |   |  |   | 3,764     |  
|Other expenses                                                |  |                                | 2,659     |                      |   | 24     |                                             |  |   | 1,436  |   |  |   | 4,119     |  
|                                                              |  |                                |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|Income (loss) before taxes                                    |  |                                | 13,505    |                      |   | 410    |                                             |  |   | (2,188 | ) |  |   | 11,727    |  
|Income tax provision (benefit)                                |  |                                | 5,728     |                      |   | 174    |                                             |  |   | (936   | ) |  |   | 4,966     |  
|                                                              |  |                                |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|Net income (loss)                                             |  | $                              | 7,777     |                      | $ | 236    |                                             |  | $ | (1,252 | ) |  | $ | 6,761     |  
|                                                              |  |                                |           |                      |   |        |                                             |  |   |        |   |  |   |           |  
|Total assets                                                  |  | $                              | 1,401,513 |                      | $ | 26,750 |                                             |  | $ | 10,300 |   |  | $ | 1,438,563 |  
|                                                              |  |                                |           |                      |   |        |                                             |  |   |        |   |  |   |           |  



|                                                              |  |                                |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|------------------------------------------------------------- |  | ------------------------------ | --------- | -------------- | - | -------------------- |  | - | ------------------------------------------- | - |  | ----- | ------ | - |  | - | ---------
|                                                              |  | Six Months Ended June 30, 2004
|                                                              |  | Banking                        |           | Loan Servicing |   | Mortgage Investments |  |   | Holding Companyand Miscellaneous Operations |   |  | Total
|                                                              |  | (Dollars in thousands)        
|Interest income                                               |  | $                              | 26,196    |                | $ |                     |  | $ | 894                                         |   |  | $     | 27     |   |  | $ | 27,117   
|Interest expense                                              |  |                                | 11,879    |                |   |                     |  |   | 13                                          |   |  |       | 513    |   |  |   | 12,405   
|                                                              |  |                                |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Net interest income (expense)                                 |  |                                | 14,317    |                |   |                     |  |   | 881                                         |   |  |       | (486   | ) |  |   | 14,712   
|Provision for loan losses                                     |  |                                | 100       |                |   |                     |  |   | 114                                         |   |  |       |       |   |  |   | 214      
|                                                              |  |                                |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Net interest income (expense) after provision for loan losses |  |                                | 14,217    |                |   |                     |  |   | 767                                         |   |  |       | (486   | ) |  |   | 14,498   
|Realized gains                                                |  |                                | 273       |                |   |                     |  |   | 48                                          |   |  |       |       |   |  |   | 321      
|Other income (loss)                                           |  |                                | 1,069     |                |   |                     |  |   | (64                                         | ) |  |       |       |   |  |   | 1,005    
|Compensation and employee benefits expense                    |  |                                | 3,013     |                |   |                     |  |   |                                            |   |  |       | 381    |   |  |   | 3,394    
|Other expenses                                                |  |                                | 2,678     |                |   |                     |  |   | 8                                           |   |  |       | 1,683  |   |  |   | 4,369    
|                                                              |  |                                |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Income (loss) from continuing operations before taxes         |  |                                | 9,868     |                |   |                     |  |   | 743                                         |   |  |       | (2,550 | ) |  |   | 8,061    
|Income tax provision (benefit)                                |  |                                | 4,095     |                |   |                     |  |   | 309                                         |   |  |       | (992   | ) |  |   | 3,412    
|                                                              |  |                                |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Income (loss) from continuing operations                      |  |                                | 5,773     |                |   |                     |  |   | 434                                         |   |  |       | (1,558 | ) |  |   | 4,649    
|Discontinued operations:                                      |  |                                |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Income from operations of discontinued segment                |  |                                |          |                |   | 484                  |  |   |                                            |   |  |       |       |   |  |   | 484      
|Gain on sale of discontinued segment                          |  |                                |          |                |   |                     |  |   |                                            |   |  |       | 18,516 |   |  |   | 18,516   
|Income tax provision                                          |  |                                |          |                |   | 201                  |  |   |                                            |   |  |       | 7,684  |   |  |   | 7,885    
|                                                              |  |                                |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Income from discontinued operations                           |  |                                |          |                |   | 283                  |  |   |                                            |   |  |       | 10,832 |   |  |   | 11,115   
|                                                              |  |                                |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Net income                                                    |  | $                              | 5,773     |                | $ | 283                  |  | $ | 434                                         |   |  | $     | 9,274  |   |  | $ | 15,764   
|                                                              |  |                                |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          
|Total assets                                                  |  | $                              | 1,210,140 |                | $ |                     |  | $ | 21,465                                      |   |  | $     | 3      |   |  | $ | 1,231,608
|                                                              |  |                                |           |                |   |                      |  |   |                                             |   |  |       |        |   |  |   |          



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BEVERLY HILLS BANCORP AND SUBSIDIARIES



NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(Unaudited)



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



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



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



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



The Company recorded
amortization expense of $64 thousand and $129 thousand, respectively, related to the core deposit intangible for the three and six months ended June 30, 2005. As of June 30, 2005, the core deposit intangible no longer had a carrying value.



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



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



In June 2004, a former officer of the Company, pursuant to a plea bargain, pleaded guilty to two felony counts in connection with certain criminal
proceedings against him arising out of the financial collapse of CCL. As part of this plea bargain, the former officer agreed to pay restitution in the amount of $2.0 million. The former officer has made a claim against the Company for this amount,
asserting that he is entitled to indemnification under Delaware law. The Company disagrees with this assertion and is contesting the claim. In addition, the Company is seeking to recover some of the legal expenses that it paid on behalf of the
former officer in previous years. The Company is not currently able to quantify the impact, if any, that the outcome of these actions may have on its financial condition or results of operations.



In June 2005, WCC made a demand on the Company for reimbursement of certain
costs purportedly incurred by WCC in March 2005 in connection with WCCs performance under one of its loan servicing contracts. WCC further asserted that the Company is obligated to reimburse WCC for similar recurring costs it may incur through
April 2008. The Company disagrees with this assertion, and, accordingly, in July 2005 the Company filed a complaint for declaratory relief (the Complaint) against Merrill Lynch and WCC with the Superior Court of the State of California.
The Complaint seeks, among other things, a declaration that the Company has no obligation to reimburse WCC for those costs, and that if such an obligation does in fact exist, it is for a substantially lesser amount than that claimed by WCC. The
Company is attempting to resolve this matter through discussions with Merrill Lynch and WCC and thus avoid the need for further litigation. The Company is not currently able to quantify the impact, if any, that the outcome of this action may have on
its financial condition or results of operations.



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BEVERLY HILLS BANCORP AND SUBSIDIARIES



NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

(Unaudited)



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



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



The Company paid dividends totaling $2.7 million and $5.3 million, respectively, for the quarter and six months ended June 30, 2005. Commencing in the
second quarter of 2004, the Company has declared regular quarterly cash dividends of $0.125 per share, or $0.50 annually.



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



In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes and Error CorrectionsA
Replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 requires retrospective application to prior periods financial statements for changes in accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting
principle should be recognized in the period of the accounting change. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived non-financial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and
corrections of errors made in fiscal years beginning after the date this Statement is issued. The Company does not expect the adoption of SFAS No. 154 to have a material impact on its financial condition, results of operations or cash flows.



In June 2005, the FASB agreed to issue FASB Staff Position
(FSP) FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which will replace the guidance previously set forth in Emerging Issue Task Force Issue No. 03-1 (EITF 03-1),
The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.This FSP effectively eliminates the accounting guidance provided in EITF 03-1 in favor of existing impairment recognition guidance under SFAS 115. The
effective date of the FSP is for periods beginning after September 15, 2005, but is not expected to have a material impact on the Companys financial condition, results of operations or cash flows.



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES



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



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



Beverly Hills Bancorp Inc. (BHBC) is a financial holding company that conducts banking and lending operations in southern California and surrounding states through its wholly-owned subsidiary, First Bank of Beverly Hills, F.S.B.
(FBBH or the Bank), and mortgage investment operations through its investment subsidiary, WFC Inc. (WFC).



Subsequent to the April 30, 2004 sale of our loan servicing subsidiary, Wilshire Credit Corporation (WCC), we have operated primarily as a
unitary bank holding company. Consequently, our business strategy is focused on the growth and profitability of our banking subsidiary, FBBH, through (1) originations and purchases of commercial real estate and multi-family mortgage loans and (2)
investments in primarily AAA-rated and government-sponsored enterprise (GSE) mortgage-backed securities.



The Bank has filed an application with the California Department of Financial Institutions (DFI) for conversion to a state commercial bank
charter. Management believes that a state bank charter is better aligned with the Banks strategic business plan, by providing FBBH with greater flexibility in its lending operations and increased opportunities for growth. On April 13, 2005,
the DFI approved the Banks application subject to certain conditions, as amended on April 28, 2005. The Bank expects to be in compliance with all such conditions prior to the effective date of the conversion, which is anticipated to occur in
the third quarter of 2005. On May 6, 2005, the DFI approved the Banks plan of conversion. Subsequently, on July 27, 2005, the Federal Deposit Insurance Corporation approved the Banks application for conversion from a federal to a state
commercial bank charter. In addition, in connection with the Banks DFI application, BHBC is required to be approved by the Federal Reserve Board (the Fed) as a holding company under the federal Bank Holding Company Act. BHBC filed
this application with the Fed in June 2005 and expects to obtain the required approval in August 2005.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



For a discussion of our Critical Accounting Policies and Estimates, see Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, of the Companys Report on
Form 10-K for the year ended December 31, 2004. There were no changes to our Critical Accounting Policies and Estimates in the quarter ended June 30, 2005.



RESULTS OF OPERATIONSTHREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2004



Our net income for the three months ended June 30, 2005
was $3.3 million, or $0.15 per diluted share, compared with income from continuing operations of $2.7 million, or $0.12 per diluted share, for the three months ended June 30, 2004. Our total net income for the second quarter of 2004, including
discontinued operations, was $13.3 million, or $0.62 per diluted share.



For the six-month period ended June 30, 2005, our net income was $6.8 million, or $0.31 per diluted share, compared with income from continuing operations of $4.6 million, or $0.22 per diluted share, for the six months ended June 30, 2004.
Total net income for the first six months of 2004, including discontinued operations, was $15.8 million, or $0.74 per diluted share.



16



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##### Table of Contents

Our consolidated results for the 2004 periods included a pre-tax gain of $18.5 million on the sale of our
former loan servicing subsidiary, WCC. (This gain was subsequently adjusted to $18.0 million as of December 31, 2004.) Our income from continuing operations, excluding the operating results of WCC and the gain on its sale, increased by 22%,
from $2.7 million for the second quarter of 2004 to $3.3 million for the second quarter of 2005. For the six-month periods ended June 30, our income from continuing operations increased by 45%, from $4.6 million for the 2004 period to $6.8 million
for the 2005 period.



Pre-tax income from continuing operations
increased from $4.7 million for the second quarter of 2004 to $5.7 million for the second quarter of 2005, and from $8.1 million for the six months ended June 30, 2004 to $11.7 million for the six months ended June 30, 2005. Our income tax provision
of $5.0 million for the first six months of 2005 includes approximately $1.7 million that is not expected to be currently payable in cash due to the utilization of our net operating loss carryforward.



The increase in income from continuing operations in the second quarter of
2005 over the second quarter of 2004 was due primarily to a $1.0 million increase in net interest income, as a result of a significant increase in loan volume at the Bank. Despite recent increases in market rates of interest, our consolidated
interest rate spread and margin were substantially the same in 2005 as in 2004. In addition, we realized a $0.2 million increase in loan charges, and did not record a provision for loan losses in the second quarter of 2005, compared with a provision
of $0.1 million for the second quarter of 2004. These factors were partially offset by a $0.3 million increase in operating expenses, due primarily to higher compensation expense in 2005.



Our results for the six months ended June 30, 2005 versus the comparable 2004 period reflect a $3.4 million increase in net
interest income, a $0.2 million decrease in provision for loan losses, and a $0.3 million increase in loan charges, partially offset by a $0.1 million increase in operating expenses.



17



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##### Table of Contents

Net Interest Income



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



|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|------------------------------------------ |  | -------------------------------- | --------- | - | -------------------------------- | - | --------------------- |  | ---- | --------------- |  | - | --------- | - | --------------------- | - | ------ |  | ---- | -
|                                           |  | Three Months Ended June 30, 2005 |           |   | Three Months Ended June 30, 2004 |  
|                                           |  | Average Balance                  |           |   | Interest                         |   | Annualized Yield/Rate |  |      | Average Balance |  |   | Interest  |   | Annualized Yield/Rate |  
|                                           |  | (Dollars in thousands)           |          
|Interest-Earning Assets:                   |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Investment securities and other            |  | $                                | 46,843    |   |                                  | $ | 428                   |  | 3.66 | %               |  | $ | 38,807    |   |                       | $ | 269    |  | 2.79 | %
|Mortgage-backed securities                 |  |                                  | 335,998   |   |                                  |   | 3,575                 |  | 4.27 | %               |  |   | 310,071   |   |                       |   | 2,870  |  | 3.72 | %
|Loans (1)(2)                               |  |                                  | 939,900   |   |                                  |   | 13,988                |  | 5.97 | %               |  |   | 834,771   |   |                       |   | 11,446 |  | 5.51 | %
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-earning assets              |  |                                  | 1,322,741 |   |                                  |   | 17,991                |  | 5.46 | %               |  |   | 1,183,649 |   |                       |   | 14,585 |  | 4.96 | %
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-earning cash                   |  |                                  | 2,153     |   |                                  |   |                       |  |      |                 |  |   | 5,068     |   |                       |   |        |  |      |  
|Allowance for loan losses                  |  |                                  | (8,135    | ) |                                  |   |                       |  |      |                 |  |   | (38,261   | ) |                       |   |        |  |      |  
|Other assets                               |  |                                  | 74,617    |   |                                  |   |                       |  |      |                 |  |   | 72,267    |   |                       |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total assets                               |  | $                                | 1,391,376 |   |                                  |   |                       |  |      |                 |  | $ | 1,222,723 |   |                       |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-bearing deposits                  |  | $                                | 557,507   |   |                                  | $ | 4,165                 |  | 3.00 | %               |  | $ | 609,577   |   |                       | $ | 3,278  |  | 2.16 | %
|Repurchase agreements                      |  |                                  | 136,750   |   |                                  |   | 1,059                 |  | 3.11 | %               |  |   | 76,250    |   |                       |   | 484    |  | 2.55 | %
|FHLB advances                              |  |                                  | 486,337   |   |                                  |   | 3,356                 |  | 2.77 | %               |  |   | 356,062   |   |                       |   | 2,545  |  | 2.87 | %
|Other borrowings                           |  |                                  | 20,619    |   |                                  |   | 358                   |  | 6.96 | %               |  |   | 20,779    |   |                       |   | 259    |  | 5.01 | %
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                  | 1,201,213 |   |                                  |   | 8,938                 |  | 2.98 | %               |  |   | 1,062,668 |   |                       |   | 6,566  |  | 2.49 | %
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                  | 4,028     |   |                                  |   |                       |  |      |                 |  |   | 4,028     |   |                       |   |        |  |      |  
|Other liabilities                          |  |                                  | 14,716    |   |                                  |   |                       |  |      |                 |  |   | 22,162    |   |                       |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities                          |  |                                  | 1,219,957 |   |                                  |   |                       |  |      |                 |  |   | 1,088,858 |   |                       |   |        |  |      |  
|Stockholders equity                       |  |                                  | 171,419   |   |                                  |   |                       |  |      |                 |  |   | 133,865   |   |                       |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                                | 1,391,376 |   |                                  |   |                       |  |      |                 |  | $ | 1,222,723 |   |                       |   |        |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest income                        |  |                                  |           |   |                                  | $ | 9,053                 |  |      |                 |  |   |           |   |                       | $ | 8,019  |  |      |  
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest spread                        |  |                                  |           |   |                                  |   |                       |  | 2.48 | %               |  |   |           |   |                       |   |        |  | 2.47 | %
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest margin                        |  |                                  |           |   |                                  |   |                       |  | 2.75 | %               |  |   |           |   |                       |   |        |  | 2.72 | %
|                                           |  |                                  |           |   |                                  |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  

---

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



|(2) | Interest income on loans includes the accretion of loan fees of $114 and $10, respectively, for the quarters ended June 30, 2005 and 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



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|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|------------------------------------------ |  | ------------------------------ | --------- | - | ------------------------------ | - | --------------------- |  | ---- | --------------- |  | - | --------- | - | --------------------- | - | ------ |  | ---- | -
|                                           |  | Six Months Ended June 30, 2005 |           |   | Six Months Ended June 30, 2004 |  
|                                           |  | Average Balance                |           |   | Interest                       |   | Annualized Yield/Rate |  |      | Average Balance |  |   | Interest  |   | Annualized Yield/Rate |  
|                                           |  | (Dollars in thousands)         |          
|Interest-Earning Assets:                   |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Investment securities and other            |  | $                              | 43,464    |   |                                | $ | 779                   |  | 3.61 | %               |  | $ | 41,844    |   |                       | $ | 575    |  | 2.78 | %
|Mortgage-backed securities                 |  |                                | 326,989   |   |                                |   | 7,002                 |  | 4.32 | %               |  |   | 276,571   |   |                       |   | 5,490  |  | 4.01 | %
|Loans (1)                                  |  |                                | 933,396   |   |                                |   | 27,102                |  | 5.86 | %               |  |   | 763,099   |   |                       |   | 21,052 |  | 5.58 | %
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-earning assets              |  |                                | 1,303,849 |   |                                |   | 34,883                |  | 5.40 | %               |  |   | 1,081,514 |   |                       |   | 27,117 |  | 5.07 | %
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-earning cash                   |  |                                | 2,319     |   |                                |   |                       |  |      |                 |  |   | 5,750     |   |                       |   |        |  |      |  
|Allowance for loan losses                  |  |                                | (9,268    | ) |                                |   |                       |  |      |                 |  |   | (38,431   | ) |                       |   |        |  |      |  
|Other assets                               |  |                                | 74,841    |   |                                |   |                       |  |      |                 |  |   | 79,887    |   |                       |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total assets                               |  | $                              | 1,371,741 |   |                                |   |                       |  |      |                 |  | $ | 1,128,720 |   |                       |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-Bearing Liabilities:              |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Interest-bearing deposits                  |  | $                              | 542,232   |   |                                | $ | 7,379                 |  | 2.74 | %               |  | $ | 565,332   |   |                       | $ | 6,391  |  | 2.29 | %
|Repurchase agreements                      |  |                                | 132,857   |   |                                |   | 1,962                 |  | 2.98 | %               |  |   | 77,571    |   |                       |   | 971    |  | 2.53 | %
|FHLB advances                              |  |                                | 487,123   |   |                                |   | 6,707                 |  | 2.78 | %               |  |   | 307,894   |   |                       |   | 4,516  |  | 2.97 | %
|Other borrowings                           |  |                                | 20,619    |   |                                |   | 687                   |  | 6.72 | %               |  |   | 20,995    |   |                       |   | 527    |  | 5.08 | %
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                | 1,182,831 |   |                                |   | 16,735                |  | 2.85 | %               |  |   | 971,792   |   |                       | $ | 12,405 |  | 2.58 | %
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Noninterest-bearing deposits               |  |                                | 4,272     |   |                                |   |                       |  |      |                 |  |   | 3,813     |   |                       |   |        |  |      |  
|Other liabilities                          |  |                                | 13,249    |   |                                |   |                       |  |      |                 |  |   | 21,666    |   |                       |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities                          |  |                                | 1,200,352 |   |                                |   |                       |  |      |                 |  |   | 997,271   |   |                       |   |        |  |      |  
|Stockholders equity                       |  |                                | 171,389   |   |                                |   |                       |  |      |                 |  |   | 131,449   |   |                       |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Total liabilities and stockholders equity |  | $                              | 1,371,741 |   |                                |   |                       |  |      |                 |  | $ | 1,128,720 |   |                       |   |        |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest income                        |  |                                |           |   |                                | $ | 18,148                |  |      |                 |  |   |           |   |                       | $ | 14,712 |  |      |  
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest spread                        |  |                                |           |   |                                |   |                       |  | 2.55 | %               |  |   |           |   |                       |   |        |  | 2.49 | %
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  
|Net interest margin                        |  |                                |           |   |                                |   |                       |  | 2.81 | %               |  |   |           |   |                       |   |        |  | 2.75 | %
|                                           |  |                                |           |   |                                |   |                       |  |      |                 |  |   |           |   |                       |   |        |  |      |  

---

|(1) | Interest income on loans includes the accretion of loan fees of $154 and $39, respectively, for the six months ended June 30, 2005 and 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



Net interest income was $9.1 million for the second quarter of 2005, compared
with $8.0 million for the second quarter of 2004. For the six-month period ended June 30, 2005, net interest income was $18.1 million, compared with $14.7 million for the six months ended June 30, 2004.



The increase in net interest income in the 2005 periods as compared with the
first two quarters of 2004 was primarily attributable to the Banks significant loan originations throughout 2004, utilizing primarily borrowings and, to a lesser extent, deposits as funding sources. As a result, the average balance of the
earning-asset portfolio increased to more than $1.3 billion for the quarter and six months ended June 30, 2005, an increase of $139.1 million and $222.3 million, respectively, over the corresponding 2004 periods. Our consolidated interest rate
spread and interest margin were roughly the same in the 2005 periods as compared with 2004. While rising market interest rates increased both the yields on interest-earning assets and the cost of new deposits and borrowings, our weighted cost of
some borrowing facilities actually declined as a result of maturities of older, higher-costing debt. We currently anticipate that interest rate spreads may narrow in future periods if interest rates continue to rise and the yield curve continues to
flatten.



Interest income on mortgage-backed securities was
$3.6 million for the second quarter of 2005, compared with $2.9 million for the second quarter of 2004. For the six months ended June 30, 2005, interest on mortgage- backed



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securities totaled $7.0 million, compared with $5.5 million for the six months ended June 30, 2004. The increase in 2005 reflects primarily an increase in
yields due to rising market interest rates, which extended the expected lives of the securities and slowed the amortization of premiums. As a result, our yield on mortgage-backed securities increased by 55 basis points from the second quarter of
2004 to the second quarter of 2005, and by 31 basis points from the six-month period ended June 30, 2004 to the corresponding 2005 period. The increase in interest income also reflects an increase in the average investment balance, primarily as a
result of the Banks purchases of $238.4 million of mortgage-backed securities in 2004.



Interest income on loans was $14.0 million for the quarter ended June 30, 2005, compared with $11.4 million for the quarter ended June 30, 2004. For the six-month period ended June 30, 2005, interest on loans totaled
$27.1 million, compared with $21.1 million for the six-month period ended June 30, 2004. The increase in the 2005 periods was due to an increase in the average balance of loans, reflecting the Banks significant loan originations and purchases
throughout 2004. The Banks loan fundings slowed in the first two quarters of 2005, primarily due to the increase in interest rates, which reduced the number of refinancings, and also due to increasing competitiveness in loan pricing. However,
the Banks pipeline of loans in process increased by $30.1 million during the first six months of 2005 and totaled $137.3 million as of June 30, 2005. The Bank also anticipates increasing its loan acquisition activity. In the second quarter of
2005, the Bank purchased $85.1 million unpaid principal balance of loans, including one multi-family loan portfolio consisting of 109 loans with a total unpaid principal balance of $52.7 million. The increase in interest on loans also reflects an
increase in yields in 2005 as compared with 2004, as a result of rising market rates of interest.



Interest expense on deposits was $4.2 million for the quarter ended June 30, 2005, compared with $3.3 million for the quarter ended June 30, 2004. For the
six-month period ended June 30, 2005, interest on deposits was $7.4 million, compared with $6.4 million for the corresponding 2004 period. The increases in the 2005 periods were due to the increase in market interest rates, which raised the
Banks cost of its interest-bearing deposits by 84 basis points from the second quarter of 2004 to the second quarter of 2005, and by 45 basis points from the first six months of 2004 to the first six months of 2005. These increases in cost
were partially offset by a decline in the Banks average deposit volume from 2004 to 2005. Beginning in the second quarter of 2004, after receiving a deposit of $52 million from BHBC representing primarily the gross proceeds from the sale of
WCC, the Bank increasingly utilized borrowing facilities as its primary funding source, and permitted the run-off of its higher-costing certificates of deposit.



Interest expense on borrowings, consisting of repurchase agreements, Federal Home Loan Bank (FHLB) advances and subordinated debt, totaled
$4.8 million for the second quarter of 2005, compared with $3.3 million for the second quarter of 2004. For the six months ended June 30, 2005, interest expense on borrowings was $9.4 million, compared with $6.0 million for the first six months of
2004. This increase was due primarily to a significant increase in the average balance of outstanding borrowings. As discussed above, in the latter half of 2004 the Bank began to utilize its debt facilities in lieu of certificates of deposit to
finance its asset acquisitions. The increase in interest on borrowings also reflects the recent increases in market interest rates, which raised the Banks average cost of repurchase agreements by 56 basis points from the second quarter of 2004
to the second quarter of 2005, and by 45 basis points from the first six months of 2004 to the corresponding 2005 period. The Banks cost of FHLB advances declined slightly, despite the increase in market interest rates, due to the maturity of
some of its older, higher-costing advances in late 2004 and early 2005.



Provision for Loan Losses



Provisions
for losses on loans are charged to operations to maintain an allowance for losses on the loan portfolio at a level which the Company believes is adequate based on an evaluation of the inherent risks in the portfolio. Our evaluation is based on an
analysis of the loan portfolio, historical loss experience, credit concentrations, current economic conditions and trends, the effects of interest rate changes on collateral values, and other relevant factors. The evaluation of the inherent loss
with respect to these factors is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio components.



20



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##### Table of Contents

Management currently intends to maintain an unallocated allowance in the range of 3% to 6% of the total estimated allowance for loan losses, due to the
inherent risk associated with the imprecision in estimating the allowance.



Pursuant to the quarterly evaluation of the adequacy of our loan loss reserves, we determined that no provision for loan losses was required for the first two quarters of 2005. For the quarter and six months ended
June 30, 2004, we recorded provisions for loan losses of $0.1 million and $0.2 million, respectively.



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



Gain
on Sale of Securities



In the first quarter of 2004,
we realized a gain of $0.3 million on sales of $17.7 million of the Banks mortgage-backed securities. There was no such sales activity in the first two quarters of 2005.



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



Loan Fees and Charges



Loan fees and charges increased by $0.2 million from the second quarter of
2004 to the second quarter of 2005, and by $0.3 million from the six months ended June 30, 2004 to the six months ended June 30, 2005. The increases in the 2005 periods were due primarily to higher prepayment fees as a result of paydowns on
loans.



Other Expenses



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



|                                         |  |                            |       |                          |   |       |  |      |       |  |   |      
|---------------------------------------- |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                                         |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|                                         |  | 2005                       |       | 2004                     |   | 2005  |  | 2004
|                                         |  | (Dollars in thousands)    
|Compensation and employee benefits       |  | $                          | 1,895 |                          | $ | 1,572 |  | $    | 3,764 |  | $ | 3,394
|Professional fees                        |  |                            | 922   |                          |   | 807   |  |      | 1,628 |  |   | 1,627
|Occupancy                                |  |                            | 251   |                          |   | 217   |  |      | 511   |  |   | 402  
|FDIC insurance premiums                  |  |                            | 83    |                          |   | 117   |  |      | 167   |  |   | 225  
|Data processing                          |  |                            | 125   |                          |   | 123   |  |      | 230   |  |   | 267  
|Insurance                                |  |                            | 174   |                          |   | 228   |  |      | 347   |  |   | 346  
|Depreciation                             |  |                            | 91    |                          |   | 96    |  |      | 146   |  |   | 186  
|Amortization of intangibles              |  |                            | 64    |                          |   | 64    |  |      | 129   |  |   | 129  
|Directors expense                        |  |                            | 135   |                          |   | 224   |  |      | 270   |  |   | 380  
|Other general and administrative expense |  |                            | 398   |                          |   | 351   |  |      | 691   |  |   | 807  
|                                         |  |                            |       |                          |   |       |  |      |       |  |   |      
|Total other expenses                     |  | $                          | 4,138 |                          | $ | 3,799 |  | $    | 7,883 |  | $ | 7,763
|                                         |  |                            |       |                          |   |       |  |      |       |  |   |      



Compensation and
employee benefits expense increased by $0.3 million from the second quarter of 2004 to the second quarter of 2005, and by $0.4 million from the six months ended June 30, 2004 to the six months ended



21



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##### Table of Contents

June 30, 2005. These increases were due to higher staffing levels in 2005, primarily as a result of an increase in the Banks lending staff and the
opening of the Banks new branch at its Calabasas offices. Partially offsetting these increases was a decrease in incentive compensation, as a result of a decline in loan fundings as compared with the first two quarters of 2004.



Our legal expenses (included in Professional fees above)
increased by $0.3 million from the second quarter of 2004 to the second quarter of 2005. This increase primarily reflects expenses related to various ongoing issues with respect to a former officer (see Note 8 to the interim condensed consolidated
financial statements).



Occupancy expense increased slightly
from the 2004 periods to the 2005 periods as a result of the renewal of the lease at our Calabasas, California offices, which became effective on August 31, 2004. The amortization expense shown above represents the amortization recorded on the
Banks core deposit intangible asset, which it acquired in connection with its purchase of a new branch in June 2000. As of June 30, 2005, the core deposit intangible asset had been amortized in full and no longer had a book value (see Note 7
to the interim condensed consolidated financial statements). Accordingly, we do not expect to incur such amortization expense in future periods. Directors expense declined from the 2004 periods to the 2005 periods due to a change in director
compensation which became effective in late 2004. Under the new fee arrangement, we reduced the directors annual stipends and no longer pay additional fees for meetings attended. In most other expense categories, costs remained largely
consistent from 2004 to 2005, reflecting our efforts to control overhead.



CHANGES IN FINANCIAL CONDITION



Mortgage-Backed and Other Securities Available for Sale.    Our portfolio of mortgage-backed securities (MBS) available for sale increased by $38.9 million during the six months ended June 30, 2005. This
increase primarily reflects purchases of $83.6 million of AAA-rated MBS, partially offset by principal repayments of $44.1 million. Due to recent increases in market interest rates, we recorded unrealized holding losses of $0.3 million through June
30, 2005. However, these losses occurred primarily in the first quarter of 2005 in the amount of $3.9 million, and our portfolio recovered substantially all of such losses in the second quarter.



The balance of our other investment securities available for sale was
substantially the same at June 30, 2005 and December 31, 2004, reflecting minimal unrealized holding losses.



The following table sets forth the Companys holdings of mortgage-backed and other investment securities as of June 30, 2005 and December 31, 2004.



|                                                    |  |                        |         |                  |   |        
|--------------------------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                                    |  | June 30, 2005          |         | December 31,2004
|                                                    |  | (Dollars in thousands)
|Available for sale, at fair value:                  |  |                        |         |                  |   |        
|AAA mortgage-backed securities                      |  | $                      | 211,663 |                  | $ | 166,339
|GSE mortgage-backed securities                      |  |                        | 121,534 |                  |   | 140,777
|Other mortgage-backed securities                    |  |                        | 13,176  |                  |   | 345    
|Trust preferred securities                          |  |                        | 8,000   |                  |   | 8,000  
|Mutual funds                                        |  |                        | 5,834   |                  |   | 5,819  
|                                                    |  |                        |         |                  |   |        
|Total available for sale                            |  |                        | 360,207 |                  |   | 321,280
|Held to maturity:                                   |  |                        |         |                  |   |        
|Agency securities (fair value of $9,884 and $9,795) |  |                        | 9,683   |                  |   | 9,657  
|                                                    |  |                        |         |                  |   |        
|Total investment securities                         |  | $                      | 369,890 |                  | $ | 330,937
|                                                    |  |                        |         |                  |   |        



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



|                         |  |                        |         |            |   |        
|------------------------ |  | ---------------------- | ------- | ---------- | - | -------
|                         |  | Amortized Cost         |         | Fair Value
|                         |  | (Dollars in thousands)
|Due in five to ten years |  | $                      | 8,129   |            | $ | 8,191  
|Due after ten years      |  |                        | 357,678 |            |   | 356,066
|Mutual funds             |  |                        | 5,750   |            |   | 5,834  
|                         |  |                        |         |            |   |        
|Total                    |  | $                      | 371,557 |            | $ | 370,091
|                         |  |                        |         |            |   |        



The following tables
show the gross unrealized losses and fair value of the Companys investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2005 and December
31, 2004:



|                                         |  |                        |         |                   |   |            |  |                   |        |            |   |                   |  |   |         |  |   |      
|---------------------------------------- |  | ---------------------- | ------- | ----------------- | - | ---------- |  | ----------------- | ------ | ---------- | - | ----------------- |  | - | ------- |  | - | -----
|                                         |  | Less than 12 months    |         | 12 months or more |   | Total     
|                                         |  | Fair Value             |         | Unrealized Losses |   | Fair Value |  | Unrealized Losses |        | Fair Value |   | Unrealized Losses
|                                         |  | (Dollars in thousands)
|June 30, 2005                            |  |                        |         |                   |   |            |  |                   |        |            |   |                   |  |   |         |  |   |      
|GSE mortgage-backed securities           |  | $                      | 36,325  |                   | $ | 205        |  | $                 | 46,799 |            | $ | 565               |  | $ | 83,124  |  | $ | 770  
|AAA and other mortgage-backed securities |  |                        | 103,961 |                   |   | 953        |  |                   | 48,427 |            |   | 846               |  |   | 152,388 |  |   | 1,799
|Mutual funds                             |  |                        | 1,932   |                   |   | 68         |  |                   |       |            |   |                  |  |   | 1,932   |  |   | 68   
|                                         |  |                        |         |                   |   |            |  |                   |        |            |   |                   |  |   |         |  |   |      
|Total                                    |  | $                      | 142,218 |                   | $ | 1,226      |  | $                 | 95,226 |            | $ | 1,411             |  | $ | 237,444 |  | $ | 2,637
|                                         |  |                        |         |                   |   |            |  |                   |        |            |   |                   |  |   |         |  |   |      



|                                         |  |                        |         |                   |   |            |  |                   |       |            |   |                   |  |   |         |  |   |      
|---------------------------------------- |  | ---------------------- | ------- | ----------------- | - | ---------- |  | ----------------- | ----- | ---------- | - | ----------------- |  | - | ------- |  | - | -----
|                                         |  | Less than 12 months    |         | 12 months or more |   | Total     
|                                         |  | Fair Value             |         | Unrealized Losses |   | Fair Value |  | Unrealized Losses |       | Fair Value |   | Unrealized Losses
|                                         |  | (Dollars in thousands)
|December 31, 2004                        |  |                        |         |                   |   |            |  |                   |       |            |   |                   |  |   |         |  |   |      
|GSE mortgage-backed securities           |  | $                      | 88,695  |                   | $ | 745        |  | $                 |      |            | $ |                  |  | $ | 88,695  |  | $ | 745  
|AAA and other mortgage-backed securities |  |                        | 136,404 |                   |   | 1,379      |  |                   | 3,616 |            |   | 89                |  |   | 140,020 |  |   | 1,468
|Mutual funds                             |  |                        | 1,946   |                   |   | 54         |  |                   |      |            |   |                  |  |   | 1,946   |  |   | 54   
|                                         |  |                        |         |                   |   |            |  |                   |       |            |   |                   |  |   |         |  |   |      
|Total                                    |  | $                      | 227,045 |                   | $ | 2,178      |  | $                 | 3,616 |            | $ | 89                |  | $ | 230,661 |  | $ | 2,267
|                                         |  |                        |         |                   |   |            |  |                   |       |            |   |                   |  |   |         |  |   |      



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



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



23



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##### Table of Contents

Loans, net.    Our portfolio of loans, net of discounts and allowances,
increased by $58.2 million in the first six months of 2005. This increase reflects loan purchases of $89.8 million and loan originations of $58.2 million, partially offset by repayments of $89.9 million. The Banks loan purchases included a
June 2005 acquisition of a multi-family loan portfolio consisting of 109 loans with an aggregate unpaid principal balance of $52.7 million. The Banks loan originations improved from $21.6 million in the first quarter of 2005 to $36.6 million
for the second quarter, but still have declined substantially from the first two quarters of 2004. This decrease is primarily a result of the increase in interest rates, which reduced the number and amount of refinancings, and also reflects
increasing competitiveness in loan pricing.



Following is a
summary of the Banks loan portfolio as of June 30, 2005 and December 31, 2004:



|                                 |  |                        |         |   |                   |   |         |  
|-------------------------------- |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                 |  | June 30, 2005          |         |   | December 31, 2004 |  
|                                 |  | (Dollars in thousands) |        
|Single-family residential        |  | $                      | 37,608  |   |                   | $ | 44,569  |  
|Multi-family residential         |  |                        | 449,849 |   |                   |   | 412,074 |  
|Commercial real estate           |  |                        | 487,379 |   |                   |   | 462,961 |  
|Consumer and other               |  |                        | 982     |   |                   |   | 992     |  
|                                 |  |                        |         |   |                   |   |         |  
|Loan portfolio principal balance |  |                        | 975,818 |   |                   |   | 920,596 |  
|Net premium and deferred fees    |  |                        | 4,949   |   |                   |   | 2,064   |  
|Allowance for loan losses        |  |                        | (7,230  | ) |                   |   | (7,277  | )
|                                 |  |                        |         |   |                   |   |         |  
|Total loan portfolio, net        |  | $                      | 973,537 |   |                   | $ | 915,383 |  
|                                 |  |                        |         |   |                   |   |         |  



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



|                                       |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|-------------------------------------- |  | -------------------------- | ----- | - | ------------------------ | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                       |  | Three Months EndedJune 30, |       |   | Six Months EndedJune 30, |  
|                                       |  | 2005                       |       |   | 2004                     |   |       | 2005 |  |   | 2004  |  
|                                       |  | (Dollars in thousands)     |      
|Balance, beginning of period           |  | $                          | 7,260 |   |                          | $ | 6,740 |      |  | $ | 7,277 |   |  | $ | 6,735 |  
|Provision for loan losses              |  |                            |      |   |                          |   | 100   |      |  |   |      |   |  |   | 100   |  
|Charge-offs                            |  |                            | (27   | ) |                          |   | (15   | )    |  |   | (33   | ) |  |   | (15   | )
|Recoveries                             |  |                            | 1     |   |                          |   | 58    |      |  |   | 2     |   |  |   | 70    |  
|Amortization of fresh-start adjustment |  |                            | (4    | ) |                          |   | (7    | )    |  |   | (16   | ) |  |   | (14   | )
|                                       |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Balance, end of period                 |  | $                          | 7,230 |   |                          | $ | 6,876 |      |  | $ | 7,230 |   |  | $ | 6,876 |  
|                                       |  |                            |       |   |                          |   |       |      |  |   |       |   |  |   |       |  



The following table
sets forth the delinquency status of the Banks loans as of June 30, 2005 and December 31, 2004:



|                                                          |  |                        |       |   |                   |   |       |  
|--------------------------------------------------------- |  | ---------------------- | ----- | - | ----------------- | - | ----- | -
|                                                          |  | June 30, 2005          |       |   | December 31, 2004 |  
|                                                          |  | (Dollars in thousands) |      
|Balance of delinquent loans:                              |  |                        |       |   |                   |   |       |  
|31-60 days                                                |  | $                      | 23    |   |                   | $ | 2,364 |  
|61-90 days                                                |  |                        | 1,631 |   |                   |   | 902   |  
|91 days or more (1)                                       |  |                        | 3,275 |   |                   |   | 4,535 |  
|                                                          |  |                        |       |   |                   |   |       |  
|Total delinquent loans                                    |  | $                      | 4,929 |   |                   | $ | 7,801 |  
|                                                          |  |                        |       |   |                   |   |       |  
|Delinquent loans as a percentage of total loan portfolio: |  |                        |       |   |                   |   |       |  
|31-60 days                                                |  |                        | 0.0   | % |                   |   | 0.2   | %
|61-90 days                                                |  |                        | 0.2   |   |                   |   | 0.1   |  
|91 days or more (1)                                       |  |                        | 0.3   |   |                   |   | 0.5   |  
|                                                          |  |                        |       |   |                   |   |       |  
|Total                                                     |  |                        | 0.5   | % |                   |   | 0.8   | %
|                                                          |  |                        |       |   |                   |   |       |  

---

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



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##### Table of Contents

Discounted Loans, net.    Our discounted loans, net, consist of
WFCs portfolio of discounted loans. WFC conducts its loan investment and portfolio management operations with an institutional investor, which has participation interests in the returns generated by the assets serving as collateral for the
loans. The carrying value of WFCs discounted loans is reported net of the co-investors interest. During the six months ended June 30, 2005, the balance of discounted loans, net decreased by $0.7 million, primarily reflecting WFCs
share of the loan principal payments received.



Real
Estate Owned.    Real estate owned decreased by $1.7 million in the first six months of 2005. This decrease was due to the Banks sales of three properties with an aggregate carrying value of $1.8 million for a net
gain of $0.2 million, partially offset by $0.1 million in new foreclosures.



Deposits.    Deposits increased by $23.3 million during the first six months of 2005, due primarily to an increase in brokered certificates of deposit. The weighted-average interest
cost of the Banks total deposit balance at June 30, 2005 was 2.86%, compared with 2.06% at December 31, 2004. The Banks deposits at June 30, 2005 included a total of $28.3 million in demand deposits held by BHBC and WFC. However, those
deposits are eliminated in consolidation and are not reflected in total deposits on our consolidated statements of financial condition.



Repurchase Agreements.    Repurchase agreements decreased by $2.0 million during the six months ended June 30, 2005, as
a result of repayments of $35.0 million, offset by repurchase agreement renewals totaling $33.0 million. At June 30, 2005, the Bank had total repurchase agreements of $118.0 million, bearing interest at a weighted-average rate of 3.19%, compared
with the December 31, 2004 weighted-average rate of 2.74%. These borrowings are used primarily to finance the Banks lending and investment activities.



FHLB Advances.    FHLB advances increased by $76.0 million in the six months ended June 30, 2005, as a result of $200.0
million in new advances, partially offset by maturities of $124.0 million. This increase occurred primarily in June 2005, as the Bank obtained $155.0 million in new advances to fund loan acquisitions and also to replace maturing advances. As
discussed above, the Bank has utilized FHLB advances as the primary funding source for its asset acquisitions after receiving BHBCs deposit of the proceeds from the sale of WCC. The FHLB has authorized a borrowing limit for the Banks
total FHLB advances of 45% of the Banks total assets as of the previous quarter-end. The following table sets forth the Banks FHLB advances at the dates and for the periods indicated:



|                                                        |  |                                |         |   |                              |   |         |  
|------------------------------------------------------- |  | ------------------------------ | ------- | - | ---------------------------- | - | ------- | -
|                                                        |  | Six Months Ended June 30, 2005 |         |   | Year Ended December 31, 2004 |  
|                                                        |  | (Dollars in thousands)         |        
|Average amount outstanding during the period            |  | $                              | 487,123 |   |                              | $ | 361,249 |  
|Maximum month-end balance outstanding during the period |  |                                | 550,837 |   |                              |   | 474,837 |  
|Weighted average rate:                                  |  |                                |         |   |                              |   |         |  
|During the period                                       |  |                                | 2.78    | % |                              |   | 2.95    | %
|At end of period                                        |  |                                | 3.19    | % |                              |   | 2.75    | %



Net
Worth.    Our consolidated stockholders equity increased by $1.8 million during the six months ended June 30, 2005, to $171.9 million, or $7.99 book value per diluted share. This increase reflects our net income of
$6.8 million, the issuance of additional shares of common stock pursuant to the exercise of stock options, and a $0.3 million tax benefit from the exercise of non-qualified stock options. These increases were partially offset by cash dividends of
$5.3 million on common stock and net after-tax unrealized losses of $0.2 million on our portfolio of available-for-sale securities.



Regulatory Capital Requirements



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



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##### Table of Contents

The following table sets forth the Banks regulatory capital ratios at June 30, 2005.



Regulatory Capital Ratios



|                                                          |  |                        |         |       |                              |   |                 |                                        |                |  |      |        |        |       |                |     |   |      |  
|--------------------------------------------------------- |  | ---------------------- | ------- | ----- | ---------------------------- | - | --------------- | -------------------------------------- | -------------- |  | ---- | ------ | ------ | ----- | -------------- | --- | - | ---- | -
|                                                          |  |                        |         |       |                              |   | Amount Required |                                       
|                                                          |  | Actual                 |         |       | For Capital AdequacyPurposes |   |                 | To be Categorized asWell Capitalized |               
|                                                          |  | Amount                 |         | Ratio |                              |   | Amount          |                                        | Ratio          |  |      | Amount |        | Ratio |               
|                                                          |  | (Dollars in thousands) |        
|Total capital to risk-weighted assets(Risk-based capital) |  | $                      | 122,871 |       | 12.3                         | % |                 | $                                      | 79,706         |  | 38.0 | %      |        | $     | 99,632         |     | 3 | 10.0 | %
|Tier 1 capital to risk-weighted assets                    |  |                        | 115,786 |       | 11.6                         | % |                 |                                        | Not Applicable |  |      |        | 59,779 |       | 3              | 6.0 | %
|Core capital to tangible assets                           |  |                        | 115,786 |       | 8.3                          | % |                 |                                        | 56,040         |  | 34.0 | %      |        |       | 70,050         |     | 3 | 5.0  | %
|Tangible capital to tangible assets                       |  |                        | 115,786 |       | 8.3                          | % |                 |                                        | 21,015         |  | 31.5 | %      |        |       | Not Applicable |    



Upon conversion to a
state commercial bank charter, the Bank would be subject to the same capital requirements, and expects to continue to be in compliance with such requirements.



Liquidity and Capital Resources



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



The Banks sources of liquidity include wholesale and retail deposits, FHLB advances (up to 45% of the Banks total assets as of the previous quarter-end), repurchase agreements, whole loan and
mortgage-backed securities sales, and net interest income. WFCs sources of liquidity consist of net interest income and repayments on its portfolio of loans and mortgage-backed securities. Liquidity in the Banks and WFCs operations
is actively managed on a daily basis and periodically reviewed by the Companys Board of Directors. This process is intended to ensure the maintenance of sufficient funds to meet the Companys operating needs. Based on our current and
expected asset size, capital levels, and organizational infrastructure, we believe there will be sufficient available liquidity to meet our operating needs.



At June 30, 2005, our cash balances totaled $17.2 million, compared with $15.5 million at December 31, 2004. The increase in cash was due primarily to new
borrowings and repayments on loans, partially offset by purchases of loans and mortgage-backed securities and new loan originations.



At June 30, 2005, the Bank had $454.1 million of certificates of deposit. Scheduled maturities of certificates of deposit during the 12 months ending June
30, 2006 and thereafter amounted to $307.0 million and $147.1 million, respectively. Wholesale deposits generally are more responsive to changes in interest rates than core deposits, and thus are more likely to be withdrawn by the investor upon
maturity as changes in interest rates and other factors are perceived by investors to make other investments more attractive. Management continues its effort to reduce the Banks exposure to interest rate changes by utilizing funding sources
whose repricing characteristics more closely match those of the Banks interest-earning assets.



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##### Table of Contents

The Company is party to various contractual financial obligations, including repayment of borrowings,
operating lease payments and commitments to extend credit. The table below presents the Companys future financial obligations outstanding as of June 30, 2005:



|                                           |  |                                                  |         |           |   |           |  |               |         |       |   |        |  |   |          
|------------------------------------------ |  | ------------------------------------------------ | ------- | --------- | - | --------- |  | ------------- | ------- | ----- | - | ------ |  | - | ---------
|                                           |  | Payments due within time period at June 30, 2005
|                                           |  | 0-12 Months                                      |         | 1-3 Years |   | 4-5 Years |  | After 5 Years |         | Total
|                                           |  | (Dollars in thousands)                          
|Certificates of deposit                    |  | $                                                | 316,177 |           | $ | 142,472   |  | $             | 10,331  |       | $ |       |  | $ | 468,980  
|Repurchase agreements                      |  |                                                  | 80,469  |           |   | 41,097    |  |               |        |       |   |       |  |   | 121,566  
|Employment contracts                       |  |                                                  | 138     |           |   |          |  |               |        |       |   |       |  |   | 138      
|Operating leases                           |  |                                                  | 698     |           |   | 1,418     |  |               | 940     |       |   | 1,904  |  |   | 4,960    
|FHLB advances                              |  |                                                  | 198,681 |           |   | 268,436   |  |               | 119,828 |       |   |       |  |   | 586,945  
|Junior subordinated notes payable to trust |  |                                                  | 1,400   |           |   | 2,800     |  |               | 2,800   |       |   | 51,423 |  |   | 58,423   
|                                           |  |                                                  |         |           |   |           |  |               |         |       |   |        |  |   |          
|Total                                      |  | $                                                | 597,563 |           | $ | 456,223   |  | $             | 133,899 |       | $ | 53,327 |  | $ | 1,241,012
|                                           |  |                                                  |         |           |   |           |  |               |         |       |   |        |  |   |          



With the exception of
the operating leases, the expected obligations presented above include anticipated interest accruals based on the current respective contractual terms. The amounts for the junior subordinated debentures are based on the assumption that the
debentures will be repaid in full at maturity in July 2032. However, commencing July 12, 2007, the debentures may be repaid in full or in part at par.



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



DISCONTINUED OPERATIONS - LOAN SERVICING



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



|                                           |  |                                  |       |   |                                |   |       
|------------------------------------------ |  | -------------------------------- | ----- | - | ------------------------------ | - | ------
|                                           |  | Three Months Ended June 30, 2004 |       |   | Six Months Ended June 30, 2004
|                                           |  | (Dollars in thousands)          
|Servicing income                           |  | $                                | 3,420 |   |                                | $ | 11,754
|Other income                               |  |                                  | 223   |   |                                |   | 689   
|                                           |  |                                  |       |   |                                |   |       
|Total revenues                             |  |                                  | 3,643 |   |                                |   | 12,443
|                                           |  |                                  |       |   |                                |   |       
|Interest expense                           |  |                                  | 37    |   |                                |   | 164   
|Provision for loan losses                  |  |                                  |      |   |                                |   | 49    
|Compensation and employee benefits expense |  |                                  | 3,324 |   |                                |   | 9,427 
|Other expenses                             |  |                                  | 612   |   |                                |   | 2,319 
|                                           |  |                                  |       |   |                                |   |       
|Total provision and expenses               |  |                                  | 3,973 |   |                                |   | 11,959
|                                           |  |                                  |       |   |                                |   |       
|Income before taxes                        |  | $                                | (330  | ) |                                | $ | 484   
|                                           |  |                                  |       |   |                                |   |       



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



27



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##### Table of Contents

IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS



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



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##### Table of Contents

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



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



Asset and Liability
Management



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



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



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



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



The following table quantifies the potential changes in the Companys net portfolio value at June 30, 2005, should interest rates increase or
decrease by 100 to 300 basis points, assuming the yield curves of the rate shocks will be parallel to each other.



Interest Rate Sensitivity of Net Portfolio Value



|                |  |                        |         |         |                    |         |         |  |     |           |  |       |        |  |      |    
|--------------- |  | ---------------------- | ------- | ------- | ------------------ | ------- | ------- |  | --- | --------- |  | ----- | ------ |  | ---- | ---
|                |  | Net Portfolio Value    |         |         | NPV as % of Assets |        
|                |  | $Amount                |         | $Change |                    |         | %Change |  |     | NPV Ratio |  |       | Change | 
|                |  | (Dollars in thousands) |         |         |                    |         |         |  |    
|Change in Rates |  |                        |         |         |                    |         |         |  |     |           |  |       |        |  |      |    
|+ 300bp         |  | $                      | 163,322 |         | $                  | (28,208 | )       |  | (15 | )%        |  | 11.89 | %      |  | (134 | )bp
|+ 200bp         |  |                        | 171,427 |         |                    | (20,103 | )       |  | (10 | )         |  | 12.28 |        |  | (95  | )bp
|+ 100bp         |  |                        | 180,848 |         |                    | (10,682 | )       |  | (6  | )         |  | 12.72 |        |  | (51  | )bp
|0bp             |  |                        | 191,530 |         |                    |        |         |  |    |           |  | 13.23 |        |  |     |    
|- 100bp         |  |                        | 191,864 |         |                    | 334     |         |  | 0   |           |  | 13.10 |        |  | (13  | )bp
|- 200bp         |  |                        | 189,345 |         |                    | (2,185  | )       |  | (1  | )         |  | 12.80 |        |  | (43  | )bp
|- 300bp         |  |                        | 187,388 |         |                    | (4,142  | )       |  | (2  | )         |  | 12.54 |        |  | (69  | )bp



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##### Table of Contents

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



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



Another tool used to identify and manage our interest rate risk profile is the static gap analysis. Interest sensitivity gap
analysis measures the difference between the assets and liabilities repricing or maturing within specific time periods. The following table summarizes the anticipated maturities or repricing of the Banks assets and liabilities based on their
contractual terms as of June 30, 2005.



|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|----------------------------------------------------------- |  | ---------------------- | -------- | -- | --------------------------------- | - | -------- | ----------------------------------- |  | - | --------------- | -- |  | ----- | ------- | - |  | - | ---------
|                                                            |  | Within Twelve Months   |          |    | More Than One Year to Three Years |   |          | More Than Three Years to Five Years |  |   | Over Five Years |    |  | Total
|                                                            |  | (Dollars in thousands)
|Assets:                                                     |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Cash and due from banks                                     |  | $                      | 17,228   |    |                                   | $ |         |                                     |  | $ |                |    |  | $     |        |   |  | $ | 17,228   
|Mortgage-backed and other investment securities             |  |                        | 26,662   |    |                                   |   | 61,759   |                                     |  |   | 186,046         |    |  |       | 95,075  |   |  |   | 369,542  
|Single-family residential loans                             |  |                        | 20,264   |    |                                   |   | 3,895    |                                     |  |   | 135             |    |  |       | 13,314  |   |  |   | 37,608   
|Multi-family residential loans                              |  |                        | 180,103  |    |                                   |   | 63,590   |                                     |  |   | 139,792         |    |  |       | 66,364  |   |  |   | 449,849  
|Commercial real estate loans                                |  |                        | 164,506  |    |                                   |   | 94,471   |                                     |  |   | 168,308         |    |  |       | 60,094  |   |  |   | 487,379  
|Consumer and other loans                                    |  |                        | 655      |    |                                   |   | 13       |                                     |  |   | 24              |    |  |       | 290     |   |  |   | 982      
|Other assets (1)                                            |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 38,925  |   |  |   | 38,925   
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Total assets                                                |  |                        | 409,418  |    |                                   |   | 223,728  |                                     |  |   | 494,305         |    |  |       | 274,062 |   |  |   | 1,401,513
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Liabilities:                                                |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Demand deposits                                             |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 32,511  |   |  |   | 32,511   
|NOW and money market accounts                               |  |                        | 104,682  |    |                                   |   |         |                                     |  |   |                |    |  |       |        |   |  |   | 104,682  
|Savings accounts                                            |  |                        | 2,278    |    |                                   |   |         |                                     |  |   |                |    |  |       |        |   |  |   | 2,278    
|Certificates of deposit                                     |  |                        | 306,981  |    |                                   |   | 136,838  |                                     |  |   | 10,268          |    |  |       |        |   |  |   | 454,087  
|Repurchase agreements                                       |  |                        | 78,000   |    |                                   |   | 40,000   |                                     |  |   |                |    |  |       |        |   |  |   | 118,000  
|FHLB advances                                               |  |                        | 209,500  |    |                                   |   | 226,337  |                                     |  |   | 115,000         |    |  |       |        |   |  |   | 550,837  
|Other liabilities                                           |  |                        |         |    |                                   |   |         |                                     |  |   |                |    |  |       | 21,741  |   |  |   | 21,741   
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Total liabilities                                           |  |                        | 701,441  |    |                                   |   | 403,175  |                                     |  |   | 125,268         |    |  |       | 54,252  |   |  |   | 1,284,136
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|(Deficiency) excess of assets over liabilities              |  | $                      | (292,023 | )  |                                   | $ | (179,447 | )                                   |  | $ | 369,037         |    |  | $     | 219,810 |   |  | $ | 117,377  
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess                              |  | $                      | (292,023 | )  |                                   | $ | (471,470 | )                                   |  | $ | (102,433        | )  |  | $     | 117,377 |   |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          
|Cumulative (deficiency) excess as a percent of total assets |  |                        | (20.84   | )% |                                   |   | (33.64   | )%                                  |  |   | (7.31           | )% |  |       | 8.38    | % |  |   |          
|                                                            |  |                        |          |    |                                   |   |          |                                     |  |   |                 |    |  |       |         |   |  |   |          

---

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



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##### Table of Contents

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



Evaluation of Controls and Procedures



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



Changes in internal controls



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



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##### Table of Contents

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES



PART II. OTHER INFORMATION



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



Not applicable.



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



Not applicable.



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



Not applicable.



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



Not applicable.



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



Not applicable.



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



|     |  |                                                                                                                                               
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|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 18U.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 18U.S.C. §1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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SIGNATURES



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



|                     |  |  |  |                            |  |                         |  |                        
|-------------------- |  |  |  | -------------------------- |  | ----------------------- |  | -----------------------
|                     |  |  |  | BEVERLY HILLS BANCORP INC.
|                     |  |  | 
|Date: August 5, 2005 |  |  |  | By:                        |  | /s/ JOSEPH W. KILEY III
|                     |  |  |  |                            |  |                         |  | Joseph W. Kiley III    
|                     |  |  |  |                            |  |                         |  | Chief Executive Officer
|                     |  |  | 
|                     |  |  |  | By:                        |  | /s/ TAKEO K. SASAKI    
|                     |  |  |  |                            |  |                         |  | Takeo K. Sasaki        
|                     |  |  |  |                            |  |                         |  | Chief Financial Officer



33