SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark one)

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

         For the quarterly period ended September 30, 2000

                                       or

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

         For the transition period from                          to

                         Commission file number 0-21845

                     Wilshire Financial Services Group Inc.

             (Exact name of registrant as specified in its charter)


                  Delaware                             93-1223879
      (State or other jurisdiction of     (I.R.S. Employer Identification No.)
       incorporation or organization)

    1776 SW Madison Street, Portland, OR                  97205
  (Address of principal executive offices)             (Zip Code)

                                 (503) 223-5600
              (Registrant's telephone number, including area code)


     Indicate  by check  mark  whether  the  registrant  has filed  all  reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

Yes   X         No ___
    -----

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

Yes   X         No ___
    -----
                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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

                  Class                        Outstanding at October 31, 2000
  Common Stock, par value $.01 per share              20,035,458 Shares



<PAGE>


             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

                                      INDEX

PART I.        FINANCIAL INFORMATION

   Item 1.  Interim Financial Statements (Unaudited):

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

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

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

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

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

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

   Item 3.  Quantitative and Qualitative Disclosures About Market Risk.......25

PART II. OTHER INFORMATION

   Item 1.  Legal Proceedings................................................27

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

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

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

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

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


<PAGE>




<TABLE>

             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                             (Dollars in thousands)

                                                                                  September 30,      December 31,
                                                                                       2000              1999
                                                                                  --------------     -------------
                                                                                      (Unaudited)
                                       ASSETS
<S>                                                                                       <C>               <C>
Cash and cash equivalents..................................................           $   24,865      $     54,168
Mortgage-backed securities available for sale, at fair value...............               33,720            43,583
Mortgage-backed securities held to maturity, at amortized cost.............                7,364            10,166
Securities held to maturity, at amortized cost.............................                6,018             5,979
Loans, net.................................................................              575,120           437,600
Discounted loans, net......................................................                1,289            11,424
Loans and discounted loans held for sale, net, at lower of cost or market..               11,133            34,150
Stock in Federal Home Loan Bank of San Francisco, at cost..................                6,507             5,575
Real estate owned, net.....................................................                2,975            11,571
Leasehold improvements and equipment, net..................................                3,766             4,425
Accrued interest receivable................................................                4,221             3,939
Servicer advance receivables, net..........................................               18,306            25,074
Prepaid expenses and other assets..........................................               16,614             6,864
                                                                                      ----------      ------------
TOTAL......................................................................           $  711,898      $    654,518
                                                                                      ==========      ============

                         LIABILITIES & STOCKHOLDERS' EQUITY

Liabilities:
<S>                                                                                   <C>             <C>
     Deposits..............................................................           $  448,872      $    419,285
     Short-term borrowings.................................................               21,479            31,927
     FHLB advances.........................................................              127,000            80,000
     Notes payable to Wilshire Real Estate Investment Inc..................                    0             5,275
     Accounts payable and other liabilities................................               18,991            28,586
     Minority interest in Wilshire Credit Corporation......................                9,902            11,112
                                                                                      ----------      ------------
        Total liabilities..................................................              626,244           576,185
                                                                                      ----------      ------------

Commitments and Contingencies (see Note 2)

Stockholders' Equity:
     Common stock..........................................................               95,616            92,542
     Retained deficit......................................................               (9,895)          (14,091)
     Accumulated other comprehensive loss, net.............................                  (67)             (118)
                                                                                      ----------      ------------
        Total stockholders' equity.........................................               85,654            78,333
                                                                                      ----------      ------------
TOTAL......................................................................           $  711,898      $    654,518
                                                                                      ==========      ============

                                      See notes to interim consolidated financial statements

</TABLE>


<PAGE>

<TABLE>

             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                    (Dollars in thousands, except share data)


                                                                                Three Months Ended   Three Months Ended
                                                                                September 30, 2000   September 30, 1999
                                                                                ------------------   ------------------
INTEREST INCOME:
<S>                                                                             <C>                  <C>
         Loans............................................................      $      12,967        $       13,108
         Mortgage-backed securities.......................................                936                 2,833
         Securities and federal funds sold................................                759                   732
                                                                                -------------        --------------
         Total interest income............................................             14,662                16,673
                                                                                -------------        --------------
INTEREST EXPENSE:
         Deposits.........................................................              6,813                 6,495
         Borrowings.......................................................              2,637                 2,924
                                                                                -------------        --------------
         Total interest expense...........................................              9,450                 9,419
                                                                                -------------        --------------
NET INTEREST INCOME.......................................................              5,212                 7,254
PROVISION FOR ESTIMATED LOSSES ON LOANS...................................             (1,131)                 (741)
                                                                                -------------        --------------
NET INTEREST INCOME AFTER PROVISION
   FOR ESTIMATED LOSSES ON LOANS..........................................              6,343                 7,995
                                                                                -------------        --------------
OTHER INCOME:
         Servicing revenue................................................              1,913                 1,922
         Real estate owned, net...........................................                 23                 2,622
         Bankcard income (loss), net......................................              1,209                  (139)
         Gain on sale of loans............................................                  0                   158
         (Loss) gain on sale of securities................................               (452)                  292
         Loan fees and charges............................................              1,536                 2,023
         Market valuation losses and impairments..........................                 --                (8,615)
         Other, net.......................................................              3,564                 1,174
                                                                                -------------        --------------
         Total other income (loss)........................................              7,793                  (563)
                                                                                -------------        --------------
OTHER EXPENSES:
         Compensation and employee benefits...............................              6,091                 8,696
         Loan service fees and expenses...................................                235                   139
         Professional services............................................              1,279                 1,654
         Occupancy........................................................                565                   568
         FDIC insurance premiums..........................................                240                   105
         Corporate travel and development.................................                191                 1,025
         Depreciation and amortization....................................              1,848                   415
         Other general and administrative expenses........................              1,449                 2,096
         Minority interest in WCC.........................................               (614)                 (434)
                                                                                -------------        --------------
         Total other expenses.............................................             11,284                14,264
                                                                                -------------        --------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE AND EXTRAORDINARY ITEM............              2,852                (6,832)
INCOME TAX EXPENSE........................................................              1,238                   304
                                                                                -------------        --------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM...................................              1,614                (7,136)
EXTRAORDINARY ITEM, NET OF TAX (see Note 5)...............................                239                    --
                                                                                -------------        --------------
NET INCOME (LOSS).........................................................      $       1,853        $       (7,136)
                                                                                =============        ==============

EARNINGS (LOSS) PER SHARE:
     Income (loss) before extraordinary item..............................      $        0.08        $        (0.36)
     Extraordinary item...................................................               0.01                    --
     Net income (loss)....................................................      $        0.09        $        (0.36)

Weighted average shares outstanding.......................................         20,035,458            20,033,600


                                      See notes to interim consolidated financial statements
</TABLE>

<PAGE>


<TABLE>
             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                    (Dollars in thousands, except share data)

                                                                                                                  Predecessor
                                                                                       Reorganized Company          Company
                                                                                -------------------------------  -------------
                                                                                 Nine Months      Four Months
                                                                                    Ended            Ended        Five Months
                                                                                 September 30,   September 30,       Ended
                                                                                     2000             1999        May 31, 1999
                                                                                --------------   -------------   -------------
INTEREST INCOME:
<S>                                                                             <C>              <C>             <C>
         Loans..............................................................    $       36,299   $      17,508   $      21,710
         Mortgage-backed securities.........................................             3,132           4,008           5,481
         Securities and federal funds sold..................................             2,614           1,038             674
                                                                                --------------   -------------   -------------
         Total interest income..............................................            42,045          22,554          27,865
                                                                                --------------   -------------   -------------
INTEREST EXPENSE:
         Deposits...........................................................            18,640           8,640          11,206
         Borrowings.........................................................             7,468           3,731          11,923
                                                                                --------------   -------------   -------------
         Total interest expense.............................................            26,108          12,371          23,129
                                                                                --------------   -------------   -------------
NET INTEREST INCOME.........................................................            15,937          10,183           4,736
PROVISION FOR ESTIMATED LOSSES ON LOANS.....................................            (4,227)           (660)          2,697
                                                                                --------------   -------------   -------------
NET INTEREST INCOME AFTER PROVISION
     FOR ESTIMATED LOSSES ON LOANS..........................................            20,164          10,843           2,039
                                                                                --------------   -------------   -------------
OTHER INCOME:
         Servicing revenue..................................................             6,432           3,364           3,309
         Real estate owned, net.............................................               202           2,775           1,466
         Bankcard income, net...............................................             2,968             268           2,381
         Gain on sale of loans..............................................             1,244             170           3,165
         (Loss) gain on sale of securities..................................              (452)            292              --
         Loan fees and charges..............................................             3,792           2,778           1,696
         Market valuation losses and impairments............................                --          (8,615)             --
         Other, net.........................................................             4,588           1,616           1,788
                                                                                --------------   -------------   -------------
         Total other income.................................................            18,774           2,648          13,805
                                                                                --------------   -------------   -------------
OTHER EXPENSES:
         Compensation and employee benefits.................................            18,330          11,906          11,796
         Loan service fees and expenses.....................................               174           1,342           8,523
         Professional services..............................................             3,732           2,257           2,752
         Occupancy..........................................................             1,883             772           1,385
         FDIC insurance premiums............................................               658             202             501
         Corporate travel and development...................................               529           1,546             775
         Depreciation and amortization......................................             3,064             631           1,161
         Other general and administrative expenses..........................             4,678           2,938           4,527
         Minority interest in WCC...........................................            (1,210)           (594)             --
                                                                                --------------   -------------   -------------
         Total other expenses...............................................            31,838          21,000          31,420
                                                                                --------------   -------------   -------------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS, INCOME TAX EXPENSE, AND
     EXTRAORDINARY ITEM.....................................................             7,100          (7,509)        (15,576)
REORGANIZATION ITEMS........................................................                --              --         (52,034)
                                                                                --------------   -------------   -------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE AND EXTRAORDINARY ITEM..............             7,100          (7,509)        (67,610)
INCOME TAX EXPENSE..........................................................             3,143             429             658
                                                                                --------------   -------------   -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.....................................             3,957          (7,938)        (68,268)
EXTRAORDINARY ITEM, NET OF TAX (See Note 5).................................               239              --         225,606
                                                                                --------------   -------------   -------------
NET INCOME (LOSS)...........................................................    $        4,196   $      (7,938)  $     157,338
                                                                                ==============   =============   =============

EARNINGS (LOSS) PER SHARE:
     Income (loss) before extraordinary item................................    $         0.20   $       (0.40)  $       (6.28)
     Extraordinary item.....................................................              0.01              --           20.73
     Net income (loss)......................................................    $         0.21   $       (0.40)  $       14.45

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



                                      See notes to interim consolidated financial statements
</TABLE>


<PAGE>



<TABLE>
             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Dollars in thousands)

                                                                                                                 Predecessor
                                                                                     Reorganized Company           Company
                                                                                -----------------------------   -------------
                                                                                 Nine Months     Four Months
                                                                                    Ended           Ended        Five Months
                                                                                September 30,   September 30,       Ended
                                                                                    2000             1999       May 31, 1999
                                                                                -------------   -------------   -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>             <C>             <C>
   Net income (loss)......................................................      $       4,196   $      (7,938)  $     157,338
    Adjustments to reconcile net income (loss) to net cash provided by
     operating activities:
        Market valuation losses and impairments......................                      --           8,615              --
        Provision for estimated losses on loans...........................             (4,227)           (660)          2,697
        Provision for losses on real estate owned.........................                 68             132              --
        Asset valuation adjustments.......................................                 --              --             647
        Depreciation and amortization.....................................              3,064             631           1,161
        Gain on sale of real estate owned.................................               (446)         (1,783)         (2,192)
        Loss on disposal of equipment.....................................                  6              --              62
        Origination of loans held for sale................................                 --            (229)             --
        Purchase of loans held for sale...................................             (5,158)             --          (1,629)
        Proceeds from sale of loans held for sale.........................             17,446           5,844         255,845
        Gain on sale of loans.............................................             (1,244)           (170)         (3,165)
        Loss (gain) on sale of securities.................................                452            (292)             --
        Amortization of discounts and deferred fees.......................              1,256            (103)            869
        Income on equity investments......................................               (282)            (64)           (291)
        Reorganization items:
          Write-off of unamortized debt issuance costs....................                 --              --          11,319
          European reorganization costs...................................                 --              --           2,492
          Adjustments to carrying amounts of assets and liabilities pursuant
             to fresh-start reporting.....................................                 --              --          37,601
          Gain on extinguishment of debt..................................                 --              --        (225,606)
        Change in:
          Servicer advance receivables....................................              6,768          (2,052)         (2,545)
          Accrued interest receivable.....................................               (282)            823             330
          Prepaid expenses and other assets...............................             (7,086)          2,491           9,039
          Accounts payable and other liabilities..........................             (9,566)          4,098          12,893
          Minority interest...............................................             (1,210)           (594)             --
                                                                                -------------   -------------   -------------
             Net cash provided by operating activities....................              3,755           8,749         256,865
                                                                                -------------   -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of loans.................................................           (155,384)        (46,637)        (87,988)
        Loan repayments...................................................             68,397          48,748          70,412
        Loan originations.................................................            (40,302)         (8,211)        (11,915)
        Proceeds from sale of loans.......................................             12,872             815              --
        Proceeds from sale of mortgage-backed securities available for sale             3,784          16,411              --
        Purchase of mortgage-backed securities available for sale.........             (9,919)             --              --
        Repayment of mortgage-backed securities available for sale........             15,394           3,501           9,010
        Repayments of mortgage-backed securities held to maturity.........              2,744           1,242           1,544
        Proceeds from redemption of FHLB stock............................                776              --             750
        Purchase of real estate owned.....................................               (244)             --            (708)
        Proceeds from sale of real estate owned...........................             10,932          22,616          28,359
        Purchase of FHLB stock............................................             (1,426)             --              --
        Purchases of leasehold improvements and equipment.................             (1,742)           (332)           (768)
        Proceeds from sale of leasehold improvements and equipment........                172              --              --
                                                                                -------------   -------------   -------------
          Net cash (used in) provided by investing activities.............            (93,946)         38,153           8,696
                                                                                -------------   -------------   -------------



                                      See notes to interim consolidated financial statements
</TABLE>
<PAGE>


<TABLE>
             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                                   (Unaudited)
                             (Dollars in thousands)

                                                                                                                 Predecessor
                                                                                     Reorganized Company           Company
                                                                                -----------------------------   -------------
                                                                                 Nine Months     Four Months
                                                                                    Ended           Ended        Five Months
                                                                                September 30,   September 30,       Ended
                                                                                    2000             1999       May 31, 1999
                                                                                -------------   -------------   -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S>                                                                             <C>             <C>             <C>
        Net increase (decrease) in deposits.................................    $      29,587   $     (37,716)  $     (13,256)
        Proceeds from FHLB advances.........................................           63,000              --              --
        Repayments of FHLB advances.........................................          (16,000)             --              --
        Proceeds from short-term borrowings.................................           81,800         144,428          99,579
        Repayments of short-term borrowings.................................          (92,224)       (152,150)       (353,800)
        Repayment of note payable to WREI...................................           (5,275)             --              --
        Proceeds from debtor-in-possession financing........................               --              --           5,000
                                                                                -------------   -------------   -------------
             Net cash provided by (used in) financing activities............           60,888         (45,438)       (262,477)
                                                                                -------------   -------------   -------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................          (29,303)          1,464           3,084
CASH AND CASH EQUIVALENTS:
        Beginning of period.................................................           54,168          26,552          23,468
                                                                                -------------   -------------   -------------
        End of period.......................................................    $      24,865   $      28,016   $      26,552
                                                                                =============   =============   =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash paid for:
        Interest............................................................    $      25,277   $       7,950   $      17,083
        Income taxes........................................................              875             240           6,252
NONCASH INVESTING ACTIVITIES:
        Additions to real estate owned acquired in settlement of loans......            1,954             742           3,547
        Transfer of loans classified as discounted to available for sale....               --          11,629              --
NONCASH REORGANIZATION ITEMS:
        Cancellation of old common stock....................................               --              --         114,856
        Issuance of new common stock in exchange for notes payable
             and accrued interest thereon...................................               --              --          88,900




                                      See notes to interim consolidated financial statements
</TABLE>

<PAGE>


<TABLE>
             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Unaudited)
            (Dollars in thousands, except share data and where noted)






                                                                                   Accumulated
                                               Common Stock                           Other
                                         ------------------------    Retained     Comprehensive
                                           Shares       Amount        Deficit         Loss          Total
                                         ----------- ------------  ------------  --------------  ------------
<S>                                      <C>         <C>           <C>           <C>             <C>
BALANCE, January 1, 2000                 20,033,600  $     92,542  $   (14,091)  $        (118)  $     78,333
  Comprehensive income:
   Net income..........................                                  4,196                          4,196
   Unrealized holding losses on
     available for sale securities
     - net of tax......................                                                    (38)           (38)
   Unrealized gain on foreign
     currency translation - net of tax                                                      89             89
                                                                                                 ------------
  Total comprehensive income...........                                                                 4,247
  Tax benefit from utilization of
    pre-reorganizational Net
    Operating Losses (Note 3)..........                     3,074                                       3,074
  Allocation of additional shares
    pursuant to reorganization.........       1,858
                                         ----------- ------------  ------------  --------------  ------------
BALANCE, September 30, 2000............  20,035,458  $     95,616  $    (9,895)  $         (67)  $     85,654
                                         =========== ============  ============  ==============  ============





                                      See notes to interim consolidated financial statements
</TABLE>











































<PAGE>


             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
         NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                   (Unaudited)
            (Dollars in thousands, except share data and where noted)



1.   BASIS OF PRESENTATION

     The  accompanying  interim  consolidated  financial  statements of Wilshire
Financial Services Group Inc. and Subsidiaries (the "Company") are unaudited and
should  be read in  conjunction  with the 1999  Annual  Report on Form  10-K.  A
summary of the Company's significant  accounting policies is set forth in Note 5
to the Consolidated Financial Statements in the 1999 Annual Report on Form 10-K.

     In the opinion of management,  all adjustments,  other than the adjustments
described below,  generally comprised of normal recurring accruals necessary for
fair presentation of the interim consolidated  financial  statements,  have been
included and all intercompany  accounts and transactions have been eliminated in
consolidation.  Operating  results for the three and nine months ended September
30, 2000 are not necessarily  indicative of the results that may be expected for
the year ending December 31, 2000.

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

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

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

2.   COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK

     The Company's  savings bank  subsidiary,  First Bank of Beverly Hills,  FSB
("First Bank" or the "Bank"), had approximately $23.5 million notional principal
amount in an interest  rate swap  agreement  outstanding  at September 30, 2000,
which was  designated as a hedge of certain fixed rate loans in order to convert
fixed rate income streams on loans to variable rate. This swap had the effect of
increasing the Company's net interest income by  approximately  $67 thousand and
$99 thousand,  respectively,  during the quarter and nine months ended September
30, 2000.  The market value of this swap  currently  deferred was  approximately
$0.1 million at September 30, 2000.

     At September  30, 2000 the Company,  through  First Bank,  had  outstanding
commitments to fund $6.9 million of loans.

     In  connection  with  the  transfer  of the  Company's  minority  ownership
interest in Wilshire  Credit  Corporation  ("WCC") to Capital  Consultants,  LLC
("CCL")  described  in  Note  7,  the  Company  provided  to  CCL  a  contingent
Liquidation Bond in the form of a non-interest bearing obligation to pay CCL, in
the event  (and only in the event) of any  liquidation  or  dissolution  of WCC,
$19.3  million  less any  distributions  that  CCL  receives  from its  minority
ownership interest in WCC. WCC is obligated to keep the bond collateralized with
assets of WCC or the Company  having a fair market value equal to such bond and,
to the extent  that it does not do so, the Company  may be  responsible  for the
deficiency.

3.   INCOME TAXES

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

     Although  the Company has net  operating  losses and  deductible  temporary
differences  available  to offset  income  earned  during the nine months  ended
September  30, 2000,  the Company  recorded  income tax expense of $3.3 million.
There are two  components  to the income tax  provision:  current  taxes of $0.2
million and deferred  taxes of $3.1 million.  The current tax provision  results
from excess  inclusion  income  earned on certain  residual  interests in REMICs
which cannot be offset by tax losses. Deferred taxes are discussed below.


<PAGE>



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

     The Company  established a valuation allowance against the net deferred tax
asset  at the  restructuring  date  (June  1999) as  there  was not  presumptive
evidence  at that time that it was more likely  than not that the  deferred  tax
asset would be  realized.  The Company is  currently  evaluating  the  valuation
allowance  in light of current  operating  results.  Deferred  tax  assets  that
existed on June 10, 1999,  the date of completion of the Plan,  were also offset
by a full  valuation  allowance.  As these  pre-reorganization  tax benefits are
realized from reductions in the valuation allowance,  the tax effect is recorded
as an increase to stockholders' equity in accordance with the American Institute
of Certified Public Accountants  Statement of Position 90-7, Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7"), and not as
a tax benefit in the  statement  of  operations.  Approximately  $7.5 million of
pre-reorganization tax benefits were realized in the nine months ended September
30, 2000.  This results in a corresponding  decrease in the valuation  allowance
and the tax effect, approximately $3.1 million, has been recorded as an increase
to stockholders' equity. The maximum pre-reorganization tax benefit available to
the  Company  (partially  subject  to the  annual  limits  discussed  below)  at
September 30, 2000 was $61.8 million.

     The  Company's net operating  losses have been reduced by  cancellation  of
indebtedness  income that was excluded from taxable  income in 1999.  All of the
Company's  remaining  net  operating  loss and capital loss  carryforwards  were
generated  in the  pre-reorganization  period  and  therefore  are  subject to a
limitation on the amount that may be utilized annually to offset taxable income.
The annual limitation on the use of pre-reorganization  net operating or capital
loss carryforwards is approximately $4.3 million.  There is no limitation on the
Company's  ability to utilize  deductible  temporary  differences.  For the nine
months ended  September  30, 2000 the  limitation  on the  Company's  ability to
utilize  pre-reorganization  net operating losses is approximately  $5.4 million
(75% of the current year limitation  plus a carryover of unused  limitation from
the prior year).

4.    SIGNIFICANT TRANSACTIONS

     During  the  quarter  ended  September  30,  2000 the  Company's  Specialty
Servicing and Finance operations, through WCC, acquired from two subsidiaries of
Transamerica  Finance  Corporation  and from DLJ Mortgage  Capital the servicing
rights  and  related  servicer  advance  receivables  to  approximately   10,500
residential  mortgage  loans  totaling  approximately  $370 million in aggregate
unpaid  principal  balances.  In addition,  WCC  contracted  with Wells Fargo as
Master  Servicer,  and MBIA as  certificate  insurer,  to service  approximately
27,000  residential  mortgage  loans  totaling  approximately  $424  million  in
aggregate  unpaid  principal  balances.  In connection  with each of these three
transactions,  the  transfer of  servicing  is expected to be  completed  in the
fourth quarter, 2000.

5.    EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT

     In August 2000,  the Company  entered into a settlement  agreement with its
former  affiliate,  Wilshire Real Estate Investment Inc.  ("WREI"),  pursuant to
which all disputes  between the two  companies  were  resolved.  As part of this
agreement,  the Company settled a note payable with a book value of $1.6 million
with cash payments of $1.2 million, resulting in a gain on the extinguishment of
debt (before income taxes) of  approximately  $0.4 million.  This  extraordinary
gain is reported in the  consolidated  statement  of  operations  net of related
income taxes of approximately $0.2 million.

6.    OPERATING SEGMENTS

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

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

     Specialty  Servicing  and  Finance - The  Company  conducts  its  Specialty
Servicing  and  Finance   Operations   through  its   majority-owned   servicing
subsidiary,  Wilshire Credit Corporation  ("WCC"),  and through its wholly-owned
investment  subsidiary,  Wilshire  Funding  Corporation  ("WFC").  As more fully
discussed  below,  WCC invests in and  services  mortgage  pools  which  require
special  expertise  in  potential  or actual  loss  mitigation  and/or  investor
reporting.  WFC co-invests with  institutional  investors in such mortgage pools
and servicing  rights (See  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations,"  below). The Company's Specialty Servicing
and Finance Operations' funding sources consist primarily of internal liquidity,
commercial banking,  institutional lenders and co-investors,  under debt service
repayment   terms  which  generally   parallel  the  principal   repayments  and
prepayments of the underlying loan pools.

     Holding  Company  and  Miscellaneous  Operations  - The  Company's  Holding
Company and  Miscellaneous  Operations  consist of other operating  revenues and
expenses not directly attributable to the aforementioned  business segments, and
includes  eliminations  of  intercompany  accounts and  transactions.  A primary
source of  liquidity  is  revenue  from the Bank  pursuant  to a tax  allocation
agreement  permitting  the Company to use its operating  loss  carryforwards  to
offset taxable amounts otherwise owed by the Bank.


<PAGE>
             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
         NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                   (Unaudited)
            (Dollars in thousands, except share data and where noted)


     Segment data for the three months ended  September 30, 2000 and 1999 are as
follows:
<TABLE>

                                                                               Reorganized Company
                                                                               -------------------
                                                                      Three Months Ended September 30, 2000
                                                           ----------------------------------------------------------
                                                                            Specialty
                                                                          Servicing and      Holding
                                                              Banking        Finance         Company        Total
                                                           -------------  -------------  -------------  -------------
<S>                                                        <C>            <C>            <C>            <C>
   Interest income........................................ $      13,455  $       1,361  $        (154) $      14,662
   Interest expense.......................................         8,953            500             (3)         9,450
                                                           -------------  -------------  -------------  -------------
   Net interest income (loss).............................         4,502            861           (151)         5,212
   Provision for loan losses..............................        (2,800)         1,669             --         (1,131)
                                                           -------------  -------------  -------------  -------------
   Net interest income (loss) after provision for loan
      losses..............................................         7,302           (808)          (151)         6,343
   Other income...........................................         2,327          3,544          1,922          7,793
   Other expense..........................................         7,703          6,166         (2,585)        11,284
                                                           -------------  -------------  -------------  -------------
   Income (loss) before taxes and extraordinary item......         1,926         (3,430)         4,356          2,852
   Income tax provision...................................           828             --            410          1,238
                                                           -------------  -------------  -------------  -------------
   Net income (loss) before extraordinary item............         1,098         (3,430)         3,946          1,614
   Extraordinary item.....................................            --             --            239            239
                                                           -------------  -------------  -------------  -------------
   Net income (loss)...................................... $       1,098  $      (3,430) $       4,185  $       1,853
                                                           =============  =============  =============  =============
   Total assets........................................... $     665,413  $      51,777  $      (5,292) $     711,898
                                                           =============  =============  =============  =============



                                                                              Reorganized Company
                                                                              -------------------
                                                                     Three Months Ended September 30, 1999
                                                           ----------------------------------------------------------
                                                                            Specialty
                                                               Thrift     Servicing and     Holding
                                                              Banking        Finance        Company         Total
                                                           -------------  -------------  -------------  -------------
<S>                                                        <C>            <C>            <C>            <C>
   Interest income......................................   $      11,903  $       4,529  $         241  $      16,673
   Interest expense.....................................           7,451          1,341            627          9,419
                                                           -------------  -------------  -------------  -------------
   Net interest income (loss)...........................           4,452          3,188           (386)         7,254
   Provision for loan losses............................          (1,250)           500              9           (741)
                                                           -------------  -------------  -------------  -------------
   Net interest income (loss) after
     provision for loan losses..........................           5,702          2,688           (395)         7,995
   Other income (loss)..................................           1,434         (1,136)          (861)          (563)
   Other expense........................................           4,552          7,890          1,822         14,264
                                                           -------------  -------------  -------------  -------------
   Income (loss) before taxes...........................           2,584         (6,338)        (3,078)        (6,832)
   Income tax provision (benefit).......................           1,111             --           (807)           304
                                                           -------------  -------------  -------------  -------------
   Net income (loss)....................................   $       1,473  $      (6,338) $      (2,271) $      (7,136)
                                                           =============  =============  =============  =============
   Total assets.........................................   $     612,743  $     106,269  $      26,014  $     745,026
                                                           =============  =============  =============  =============

</TABLE>



<PAGE>
            WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
         NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
                                   (Unaudited)
            (Dollars in thousands, except share data and where noted)


     Segment data for the nine months  ended  September  30,  2000,  four months
ended September 30, 1999, and five months ended May 31, 1999 are as follows:
<TABLE>

                                                                     Reorganized Company
                                                                     -------------------
                                                             Nine Months Ended September 30, 2000
                                                 ----------------------------------------------------------
                                                                  Specialty
                                                                Servicing and     Holding
                                                    Banking        Finance        Company         Total
                                                 -------------  -------------  -------------  -------------
<S>                                              <C>            <C>            <C>            <C>
   Interest income.............................. $      37,370  $       4,859  $        (184) $      42,045
   Interest expense.............................        24,375          1,390            343         26,108
                                                 -------------  -------------  -------------  -------------
   Net interest income (loss)...................        12,995          3,469           (527)        15,937
   Provision for loan losses....................        (6,000)         1,669            104         (4,227)
                                                 -------------  -------------  -------------  -------------
   Net interest income (loss) after
     provision for loan losses..................        18,995          1,800           (631)        20,164
   Other income.................................         6,205         11,878            691         18,774
   Other expense................................        17,541         17,476         (3,179)        31,838
                                                 -------------  -------------  -------------  -------------
   Income (loss) before taxes and extraordinary
     item.......................................         7,659         (3,798)         3,239          7,100
   Income tax provision (benefit)...............         3,293             --           (150)         3,143
                                                 -------------  -------------  -------------  -------------
   Net income (loss) before extraordinary item..         4,366         (3,798)         3,389          3,957
   Extraordinary item...........................            --             --            239            239
                                                 -------------  -------------  -------------  -------------
   Net income (loss)............................ $       4,366  $      (3,798) $       3,628  $       4,196
                                                 =============  =============  =============  =============
   Total assets................................. $     665,413  $      51,777  $      (5,292) $     711,898
                                                 =============  =============  =============  =============



                                           Reorganized Company                           Predecessor Company
                                           -------------------                           -------------------
                                             Four Months Ended                             Five Months Ended
                                            September 30, 1999                               May 31, 1999
                               ---------------------------------------------  -----------------------------------------------
                                           Specialty                                       Specialty
                                           Servicing                                       Servicing
                                              and       Holding                               and       Holding
                                Banking     Finance     Company      Total      Banking     Finance     Company      Total
                               ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
<S>                            <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
   Interest income............ $   16,110  $    5,863  $      581  $   22,554  $   17,771  $    8,537  $    1,557  $   27,865
   Interest expense...........      9,849       1,782         740      12,371      11,680       4,732       6,717      23,129
                               ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
   Net interest income (loss).      6,261       4,081        (159)     10,183       6,091       3,805      (5,160)      4,736
   Provision for loan losses..     (1,250)        500          90        (660)         --       2,875        (178)      2,697
                               ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
   Net interest income (loss)
     after provision for loan
     losses...................      7,511       3,581        (249)     10,843       6,091         930      (4,982)      2,039
   Other income...............      2,355         701        (408)      2,648       4,232       6,554       3,019      13,805
   Other expense..............      6,166      11,925       2,909      21,000       7,632      16,437       7,351      31,420
                               ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
  Income (loss) before
     reorganization items,
     taxes and extraordinary
     item.....................      3,700      (7,643)     (3,566)     (7,509)      2,691      (8,953)     (9,314)    (15,576)
   Reorganization items.......         --          --          --          --          --     (27,636)    (24,398)    (52,034)
                               ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
   Income (loss) before taxes
     and extraordinary item...      3,700      (7,643)     (3,566)     (7,509)      2,691     (36,589)    (33,712)    (67,610)
   Income tax provision
     (benefit)................      1,591          --      (1,162)        429       1,357          --        (699)        658
                               ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
   Income (loss) before
     extraordinary item.......      2,109      (7,643)     (2,404)     (7,938)      1,334     (36,589)    (33,013)    (68,268)
   Extraordinary item.........         --          --          --          --          --      78,978     146,628     225,606
                               ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
   Net income (loss).......... $    2,109  $   (7,643) $   (2,404) $   (7,938) $    1,334  $   42,389  $  113,615  $  157,338
                               ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========
   Total assets............... $  612,743  $  106,269  $   26,014  $  745,026  $  606,954  $  127,627  $   54,787  $  789,368
                               ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========
</TABLE>

7.    LEGAL MATTERS

     As part of the Company's June 1999  restructuring,  it purchased the assets
of the Company's  prior privately owned servicer from a company owned by Capital
Consultants, LLC ("CCL") as agent for certain investors. In exchange it gave CCL
as agent a 49.99%  non-voting  ownership  interest in WCC with certain rights to
convert such interest to a portion of the Company's stock. On September 21, 2000
Thomas  F.  Lennon  was  appointed  by the  U.S.  District  Court of  Oregon  in
Securities  and Exchange  Commission  v. Capital  Consultants,  LLC, et al. as a
receiver for CCL.

     A number of CCL's clients have filed lawsuits against CCL, Jeffrey Grayson,
Barclay  Grayson,   Andrew  Wiederhorn,   Lawrence   Mendelsohn,   a  number  of
corporations  and a number of pension trust  trustees in Tom Hazzard,  et al. v.
Capital Consultants, LLC, et al.; Andrew McPherson, et al. v. Trustees of Eighth
Dist.  Electrical  Profit Sharing Pension and Health and Welfare Plans; and Mark
Keith  Eidem et al. v.  Trustees  United  Assoc.  Union  Local No. 290  Plumber,
Steamfitter  and Shipfitter  Industry  401(k),  Pension Trust and Welfare Trust,
each filed in the U.S. District Court for the District of Oregon. The plaintiffs
allege that CCL and the other  defendants  made improper  loans to WCC from 1995
through  1998,  thereafter  misled  the  CCL  clients  by  failing  to  disclose
significant  losses on $160  million of loans to WCC,  and used  additional  CCL
client funds (approximately $71 million) to cover up such losses. The plaintiffs
have named the Company and WCC as  defendants.  The Company does not  understand
the reason for the  plaintiffs'  inclusion of the Company and WCC as defendants.
Without limitation, as part of the June 1999 reorganization of the Company, CCL,
as agent for these  pension  funds,  provided  the Company with a release of all
claims that these  funds  might have had  against the Company  other than claims
covered  by  Company-held  insurance  policies.  While the  Company  has not yet
obtained  a  clarification  from  the  plaintiffs  as  to  the  basis  of  their
allegations,  or engaged in any discovery  proceedings,  the Company  intends to
deny the  allegations  and contest the claims  vigorously,  and does not believe
that the claims  should  materially  adversely  affect the  Company's  financial
position.

     As part of the Company's  June 1999  restructuring  CCL released any claims
that it might have against the Company except for claims that are covered by the
Company's insurance policies.  The Company,  CCL and the Company's insurers have
entered  into a tolling  agreement  effective  July 1, 2000 in which all parties
have agreed that any statutory periods in which these  insurance-covered  claims
must be filed are  suspended.  The Company has denied the validity of any of the
claims  CCL has  alleged.  Since  the only  claims  that CCL may bring are those
covered by  insurance,  the  Company  does not  believe  such claim would have a
material effect on the Company.

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

8.    NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement of Accounting  Standards ("SFAS") No. 133,  "Accounting for Derivative
Instruments and Hedging Activities".  The Statement  establishes  accounting and
reporting  standards  requiring  that  every  derivative  instrument  (including
certain derivative  instruments  embedded in other contracts) be recorded in the
consolidated  statement of  financial  condition as either an asset or liability
measured  at  its  fair  value.  The  Statement  requires  that  changes  in the
derivative's  fair value be  recognized  currently in earnings  unless  specific
hedge  accounting  criteria are met.  Accounting for qualifying  hedges allows a
derivative's  gain or loss to be offset with the  related  results on the hedged
item in the consolidated  statement of operations,  or in certain  circumstances
can be deferred in other comprehensive  income and later offset with the results
of the hedged item in the Consolidated  Statement of Operations.  A company must
formally document,  designate, and assess the effectiveness of transactions that
receive hedge  accounting.  Management  expects that the Company will adopt SFAS
No. 133  effective  January 1,  2001.  The  Company  does not  believe  that the
adoption of SFAS No. 133 will have a material  impact on its financial  position
or results of operations.

     In September 2000, the FASB issued SFAS No. 140,  "Accounting for Transfers
and Servicing of Financial  Assets and  Extinguishments  of  Liabilities."  This
pronouncement  replaces SFAS No. 125, issued in June 1996. SFAS is effective for
transfers  occurring  after  March  31,  2001 and for  disclosures  relating  to
securitization  transactions  and  collateral  for  fiscal  years  ending  after
December  15,  2000.  The Company does not believe that the adoption of SFAS No.
140 will  have a  material  impact  on its  financial  position  or  results  of
operations.


<PAGE>



             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS.

     The following  discussion and analysis  should be read in conjunction  with
the Consolidated  Financial Statements of Wilshire Financial Services Group Inc.
and the notes  thereto  included  elsewhere in this filing.  References  in this
filing to "Wilshire Financial Services Group Inc.," "WFSG," the "Company," "we,"
"our," and "us" refer to Wilshire  Financial  Services  Group  Inc.,  our wholly
owned subsidiaries,  and Wilshire Credit Corporation ("WCC"), our majority-owned
subsidiary, unless the context indicates otherwise.

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

OVERVIEW

     During the past quarter we have  continued to focus on the  Company's  core
competencies in the discrete markets served by each of our operating  platforms.
The quarter was highlighted by the following:

        o    We settled the  substantial  litigation  with Wilshire Real Estate
             Investment Inc. and Andrew Wiederhorn and Lawrence Mendelsohn.

        o    We repaid our $5 million debtor-in-possession financing.

        o    We integrated our Portland  banking  operations into our California
             headquarters  for First Bank of  Beverly  Hills and  commenced  the
             integration of our new branch in Beverly Hills.

        o    We  obtained new and  expanded  servicing  ratings from  Standard &
             Poor's and Fitch for our servicing platform.

        o    We continued our specific negotiations for new servicing rights for
             our  servicing  platform  which thus far in the fourth  quarter has
             resulted in the acquisition of new servicing rights for over 37,500
             loans having an aggregate balance of approximately $800 million.

RESULTS OF OPERATIONS--THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED
TO THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999

     In the  following  discussion,  the  amounts  for  the  nine  months  ended
September 30, 1999 represent the sum of the Predecessor Company's operations for
the five months ended May 31, 1999 and the Reorganized  Company's operations for
the  four  months  ended  September  1999,  as  reported  in  the   accompanying
consolidated statements of operations.

CONSOLIDATED RESULTS

     Our  consolidated net income was  approximately  $1.9 million for the three
months ended September 30, 2000,  compared with a net loss of approximately $7.1
million for the three months ended  September  30,  1999.  This  increase in net
income was primarily attributable to an $8.4 million increase in other operating
income and a $3.0 million  decrease in other expenses as compared with the third
quarter of the prior year.

     For the nine months ended September 30, 2000, our  consolidated  net income
was $4.2  million,  compared  with  $149.4  million  for the nine  months  ended
September  30,  1999.  However,  pre-tax  net income from  recurring  operations
(excluding  restructuring  costs in the prior year, and  extraordinary  gains in
both years) was $7.1  million  for the nine months  ended  September  30,  2000,
compared  with a net loss of $23.1  million for the nine months ended  September
30, 1999.  This increase in net income for the current year was primarily due to
a decrease in other expenses of $20.6 million,  a decrease in provision for loan
losses of $6.3  million,  an increase in other  income of $2.3  million,  and an
increase in net interest income of $1.0 million.

     These  improvements  in  operating  results  reflect  our efforts to reduce
corporate  overhead  and  manage  credit  and  liquidity  risk  in our  business
segments.  Following is a discussion of the  operating  results of the Company's
two discrete businesses:  our Banking Operations and our Specialty Servicing and
Finance Operations.

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

     In its  Banking  Operations,  the  Bank  seeks  to (1)  leverage  its  core
competencies in community banking, small-balance commercial mortgage lending and
Bankcard  processing  to grow its managed  asset  platform  and (2)  establish a
deposit franchise in Southern California.

     As  discussed   more  fully  below,   the  Bank   management   has  reduced
substantially  its  interest  rate-risk  profile  (through  sales of  fixed-rate
mortgages,   purchases  and  originations  of  adjustable-rate   mortgages,  and
replacement  of  interest-rate  sensitive  deposits  with FHLB  borrowings)  and
established  a California  deposit  franchise  through its recent  purchase of a
Beverly Hills branch office.

     In implementing  its strategic  focus, the Bank is committed to growing its
asset  platform  with  high-quality  earning  assets  while  at  the  same  time
augmenting  its earnings  growth  potential  through its core  competencies  and
achieving a growing  deposit  franchise.  Management  of the Bank  believes that
opportunities to execute this strategy will continue due to the recent exodus of
larger banking  institutions  from the community  banking business in California
and  from  what  it  believes  to be  growing  opportunities  to  service  small
businesses  and  professionals  in  this  marketplace  in  a  more  personalized
relationship.

     The  following  table  compares  operating  income  for  the  Bank  for the
three-month  and nine-month  periods ended  September 30, 2000 and September 30,
1999 (dollars in thousands):

<TABLE>
                                      Three Months Ended September 30,        Nine Months Ended September 30,
                                      -----------------------------------     -----------------------------------
                                                                Increase                               Increase
                                         2000        1999      (Decrease)        2000        1999     (Decrease)
                                      ----------  ----------  -----------     ----------  ----------  -----------
<S>                                   <C>         <C>         <C>             <C>         <C>         <C>
   Interest income..............      $   13,455  $   11,903  $     1,552     $   37,370  $   33,881  $     3,489
   Interest expense.............           8,953       7,451        1,502         24,375      21,529        2,846
                                      ----------  ----------  -----------     ----------  ----------  -----------
   Net interest income..........           4,502       4,452           50         12,995      12,352          643
   Provision for loan losses....          (2,800)     (1,250)      (1,550)        (6,000)     (1,250)      (4,750)
                                      ----------  ----------  -----------     ----------  ----------  -----------
   Net interest income after
     provision for loan losses..           7,302       5,702        1,600         18,995      13,602        5,393
   Other income.................           2,327       1,434          893          6,205       6,587         (382)
   Other expense................           7,703       4,552        3,151         17,541      13,798        3,743
                                      ----------  ----------  -----------     ----------  ----------  -----------
   Income before taxes..........           1,926       2,584         (658)         7,659       6,391        1,268
   Income tax provision ........             828       1,111         (283)         3,293       2,948          345
                                      ----------  ----------  -----------     ----------  ----------  -----------
   Net income...................      $    1,098  $    1,473  $      (375)    $    4,366  $    3,443  $       923
                                      ==========  ==========  ===========     ==========  ==========  ===========
</TABLE>

Net Interest Income

     The Bank's net interest  income for the three months  ended  September  30,
2000 was $4.5 million, compared with a similar result for the three months ended
September 30, 1999. Net interest  income for the nine months ended September 30,
2000 was $13.0  million,  compared  with $12.4 million for the nine months ended
September  30, 1999.  This increase was primarily due to an increase in interest
income  on  loans of  approximately  $3.2  million,  resulting  from the  Bank's
purchase of  approximately  $156.4  million of mortgage  loans  during the first
three quarters of 2000. The increase in interest income was partially  offset by
a  $2.8  million  increase  in  interest  expense  which  primarily  related  to
borrowings, as the Bank utilized FHLB advances and short-term borrowings to fund
its loan acquisitions.

Provision for Loan Losses

     Provision for loan losses for the three months ended September 30, 2000 was
a net recovery of $2.8 million. This reversal of reserves on purchased loans was
a result of the quarterly  analysis  performed to determine the adequacy of loan
loss reserve levels,  which were deemed excessive due to the continued seasoning
and improved loss performance of the Bank's loan portfolio.  For the nine months
ended September 30, 2000, the Bank reversed a total of $6.0 million of loan loss
reserves into income.

Other Income

     The  Bank's  other  income  was $2.3  million  for the three  months  ended
September  30,  2000,  compared  with $1.4  million for the three  months  ended
September 30, 1999.  This increase was primarily due to a $1.3 million  increase
in Bankcard  income,  net,  partially  offset by a $0.6 million decrease in loan
fees and charges. For the nine months ended September 30, 2000, other income was
$6.2 million, a $0.4 million decrease from the prior year. This decrease was due
to a $1.3 million decrease in loan fees and charges,  partially offset by a $0.7
million  increase  in income  from real  estate and a $0.4  million  increase in
bankcard,  net.  The  financial  results of the  Bank's  Bankcard  division  are
discussed in further detail below.

Other Expenses

     The Bank's other expenses  increased by approximately  $3.1 million for the
three months ended September 30, 2000 and $3.7 million for the nine months ended
September  30,  2000.  These  increases  were  primarily  due to a $2.0  million
write-down  of  goodwill  and other  capitalized  costs  related  to the  Bank's
mortgage banking  operations,  and increases in professional  services and other
expenses incurred in connection with the Bank's June, 2000 branch acquisition.

Operating Segments

     For the nine months  ended  September  30,  2000 and 1999,  the Bank's core
businesses  consist of three  primary  segments:  lending  and  deposit  banking
services,  mortgage loan  origination  and brokerage  services  ("George  Elkins
Mortgage  Banking" or "GEMB"),  and Bankcard  processing.  The operating results
(before income taxes) of these  businesses are summarized in the following table
and discussed in further detail below:
<TABLE>

                                                            Three Months Ended        Nine Months Ended
                                                               September 30,             September 30,
                                                          ----------------------    ----------------------
                                                             2000        1999          2000        1999
                                                          ----------  ----------    ----------  ----------
                                                                         (Dollars in thousands)

<S>                                                       <C>         <C>           <C>         <C>
        Lending and deposit banking services..............$    1,590  $    3,248    $    7,965  $    5,584
        George Elkins.....................................       (79)        275          (655)        416
        Bankcard income, net..............................       415        (939)          349         391
                                                          ----------  ----------    ----------  ----------
        Total Bank net income (pre-tax)...................$    1,926  $    2,584    $    7,659  $    6,391
                                                          ==========  ==========    ==========  ==========
</TABLE>


Lending and Deposit Banking

     Net income in our  commercial  banking  operations was  approximately  $7.6
million for the nine months ended September 30, 2000, compared with $5.6 million
for the nine months ended September 30, 1999. This increase was primarily due to
net  recoveries  of $6.0  million  in loan  loss  provisions  recorded  in prior
periods,  as discussed  previously,  compared  with  recoveries of $1.25 million
during the nine months ended  September 30, 1999. The increase in recoveries was
partially  offset by the  write-downs  of $2.0  million  of  goodwill  and other
capitalized costs related to the Bank's mortgage banking operations.

     The banking segment's operating results for the nine months ended September
30,  2000  were  highlighted  by  the  following  events:   (1)  The  Bank  sold
approximately   $14.8   million   principal   balance  of   non-performing   and
sub-performing  loans.  This sale reflected the Bank's  strategy of reducing its
exposure through the sale of sub-standard  assets.  As a result of the sale, the
Bank incurred a loss of approximately $0.2 million,  but recaptured $1.7 million
of loan loss reserves  through a provision  reversal.  (2) The Bank  purchased a
branch in Beverly Hills,  California.  This branch, which contains approximately
$82 million in retail  deposits,  is expected to lower our overall cost of funds
and increase our retail deposit  growth and fee revenue.  (3) The Bank relocated
its  administrative  headquarters  to  Calabasas,   California,  at  a  cost  of
approximately $0.5 million.

George Elkins

     The net loss from our mortgage loan origination and brokerage  services was
approximately  $0.7  million  for the nine  months  ended  September  30,  2000,
compared  with net  income  of  approximately  $0.4 for the  nine  months  ended
September  30, 1999.  The decrease was  primarily  due to a decrease in loan fee
income from $3.0  million for the nine months ended  September  30, 1999 to $2.4
million for the current year to date, as the volume of loans  brokered  declined
from  $342.3  million  for the nine months  ended  September  30, 1999 to $237.2
million for the current year.

Bankcard Division

     Bankcard income,  net of other related  expenses,  was $0.4 million for the
three months ended September 30, 2000,  compared with a loss of $0.9 million for
the three months ended  September  30, 1999.  This increase was primarily due to
net recoveries of $0.2 million in the 2000 period,  compared with provisions for
losses of $1.2 million in the 1999 period.  Bankcard  income for the nine months
ended  September  30, 2000 was $0.3  million,  down slightly from income of $0.4
million for the comparable 1999 period.

     The financial results of the Bank's merchant bankcard processing operations
for the  three-month  and nine-month  periods ended  September 30, 2000 and 1999
were as follows:
<TABLE>

                                                   Three Months Ended         Nine Months Ended
                                                      September 30,              September 30,
                                                 ----------------------     ----------------------
                                                    2000        1999           2000        1999
                                                 ----------  ----------     ----------  ----------
                                                                  (Dollars in thousands)
<S>                                              <C>         <C>            <C>         <C>
Bankcard revenues................................$    3,370  $    4,440     $   10,948  $   12,190
Bankcard processing expenses.....................    (2,351)     (3,379)        (7,590)     (8,387)
Provision for losses.............................      (190)      1,200            390       1,200
                                                 ----------  ----------     ----------  ----------
Bankcard income, net.............................     1,209        (139)         2,968       2,603
Other expenses...................................      (794)       (800)        (2,619)     (2,212)
                                                 ----------  ----------     ----------  ----------
Income (loss) after other expenses..........     $      415  $     (939)    $      349  $      391
                                                 ==========  ==========     ==========  ==========
</TABLE>


     In  addition  to  focusing  on  continued  internal  growth,  the  Bank  is
evaluating strategic  alternatives for the bankcard operations which may include
developing  a debit  card  processing  program  and  acquisitions  of similar or
complimentary business.

Changes in Financial Condition - First Bank of Beverly Hills

     Mortgage-Backed and Other Securities.  For accounting purposes,  the Bank's
mortgage-backed  and other  securities  are classified as available for sale and
held to  maturity.  Mortgage-backed  securities  available  for  sale  decreased
approximately $5.5 million during the nine months ended September 30, 2000. This
decrease was  primarily  due to  principal  repayments  of $15.2  million and an
increase in  unrealized  holding  losses of $0.1  million,  partially  offset by
purchases of $9.9  million.  The Bank's  holdings of  mortgage-backed  and other
securities held to maturity decreased approximately $2.8 million during the nine
months ended  September  30, 2000  primarily  due to principal  repayments.  The
following table sets forth our holdings of mortgage-backed  and other securities
as of September 30, 2000 and December 31, 1999:

                 Mortgage-Backed Securities and Other Securities
<TABLE>

                                                                                     September 30,      December 31,
                                                                                         2000              1999
                                                                                     -------------      ------------
                                                                                         (Dollars in thousands)
Available for sale:
<S>                                                                                  <C>                <C>
    Mortgage-backed securities..................................................     $         778      $        802
    Agency mortgage-backed securities...........................................            27,709            33,152
Held to maturity:
    U.S. Government and other securities........................................             5,992             5,979
    Mortgage-backed securities..................................................             7,413            10,196
                                                                                     -------------      ------------
        Total investment securities.............................................     $      41,892      $     50,129
                                                                                     =============      ============
</TABLE>

     Loans, net. The Bank's portfolio of loans, net of discounts and allowances,
increased by approximately $137.5 million during the nine months ended September
30,  2000.  This  increase  is  primarily  attributable  to the  acquisition  of
performing loans,  reflecting our emphasis on increasing the level of investment
in performing loans as a percentage of the total loan portfolio. See "Discounted
Loans, net" below.

     Discounted  Loans,  net. The Bank's portfolio of discounted loans decreased
by approximately  $10.1 million during the nine months ended September 30, 2000.
This decrease was primarily  due to the sale of  approximately  $12.4 million in
carrying value of  non-performing  discounted  loans.  The Bank has continued to
reduce its level of investment in discounted loans, which comprised less than 1%
of the total loans in its portfolio at September 30, 2000.

     Deposits.  First Bank's deposits  increased by approximately  $29.6 million
during the nine months ended  September 30, 2000,  primarily due to the purchase
of a branch of Fidelity  Federal Bank,  which had  approximately  $82 million in
retail  deposits.  The increase was partially offset by maturities of the Bank's
time deposits, some of which were not renewed.

     FHLB Advances. First Bank's FHLB advances increased by $47.0 million during
the nine months ended  September 30, 2000, as these  borrowings were utilized to
fund the Bank's new loan  acquisitions.  These advances have maturities  ranging
from three to five years,  which assists in reducing the Bank's  sensitivity  to
market interest-rate fluctuations and enables the Bank to more closely match the
maturities of its investments and borrowings.

Liquidity and Capital Resources

     Liquidity is the  measurement  of the Bank's ability to meet potential cash
requirements,   including  ongoing   commitments  to  repay   borrowings,   fund
investments,  purchase pools of loans,  and for general business  purposes.  The
Bank's  sources  of  liquidity  include  retail  and  wholesale  deposits,  FHLB
advances,  whole loan and  mortgage-backed  securities  sales,  and net interest
income.  Liquidity in the Bank's operations is actively managed on a daily basis
and periodically reviewed by the Bank's Board of Directors.

     At September 30, 2000, the Bank's cash balances totaled approximately $21.4
million,  compared with $48.4 million at December 31, 1999. The decrease in cash
during the nine  months was  primarily  due to the  Bank's  acquisitions  of new
loans, as described above,  partially offset by additional borrowings to finance
the acquisitions.

     At  September  30,  2000,  the Bank had  approximately  $416.0  million  of
certificates of deposit.  Scheduled maturities of certificates of deposit during
the 12 months ending September 30, 2001 and thereafter amounted to approximately
$367.7 million and approximately $48.3 million, respectively. Wholesale deposits
generally are more  responsive  to changes in interest  rates than core deposits
and,  thus,  are more likely to be withdrawn by the  investor  upon  maturity as
changes in interest  rates and other  factors are perceived by investors to make
other investments more attractive. The Bank's management has continued to reduce
exposure to changes in interest  rates by increasing  the amount of FHLB advance
borrowings as a percentage of total borrowings,  developing core deposits (which
are less  sensitive to interest rate changes),  and  purchasing and  originating
variable-rate  loans.  The retail  branch  acquisition  should reduce the Bank's
overall cost of funds,  rebalance the mix of retail/wholesale  deposits, and add
new core relationships to further retail deposit growth.

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

SPECIALTY SERVICING AND FINANCE OPERATIONS

     Our Specialty  Servicing and Finance  operations  are conducted by WCC, the
Company's majority-owned servicing subsidiary which commenced operations in June
1999, and by WFC, the Company's wholly-owned investment subsidiary. As discussed
in more detail below (see Restructuring of the Company), the Company's servicing
operations were conducted by a company  previously owned by the Company's former
management and principal stockholders before the Company's reorganization.

     WCC provides  general and specialized loan portfolio  management  services,
including billing,  portfolio administration,  collection and investor reporting
services  for pools of  loans.  WCC has  developed  specialized  procedures  and
proprietary software designed to effectively service performing,  non-performing
and  sub-performing  loans and foreclosed real estate.  As part of its loan pool
servicing  analysis,  WCC designs  servicing plans that are intended to maximize
cash flow.  Problem loans are generally resolved within one to two years through
foreclosure,  compromise, a discounted payoff or reinstatement.  Other loans are
actively  serviced to  facilitate  timely  collection  of payments  and accurate
investor reporting over their remaining lives.

     The Company uses WFC to co-invest in loan pool  acquisitions  and servicing
investments  with  institutional  investors,  where  such  co-investment  by WFC
increases the platform of loans serviced by WCC.

     The  following   table   compares   operating   income  (before  taxes  and
extraordinary  item) for our Specialty  Finance and Loan Servicing  platform for
the  three-month  and  nine-month  periods  ended  September  30, 2000 and 1999.
However,  comparisons of  year-to-date  amounts  between 2000 and 1999 are often
difficult,  as WCC did not effectively  commence  operations until our June 1999
reorganization.
<TABLE>

                                     Three Months Ended September 30,           Nine Months Ended September 30,
                                  ---------------------------------------  ----------------------------------------
                                                               Increase                                  Increase
                                      2000          1999      (Decrease)       2000          1999       (Decrease)
                                  -----------   -----------   -----------   -----------   -----------   -----------
<S>                               <C>           <C>           <C>           <C>           <C>           <C>
   Servicing revenue............. $     2,218   $     3,326   $    (1,108)  $     7,330   $     7,813   $      (483)
   Ancillary income .............         681           439           242         1,755           660         1,095
   Interest income...............       1,361         4,529        (3,168)        4,859        14,400        (9,541)
   Other income (loss)...........         645        (4,901)        5,546         2,793        (1,218)        4,011
                                  -----------   -----------   -----------   -----------   -----------   -----------
   Total revenues................       4,905         3,393         1,512        16,737        21,655        (4,918)
                                  -----------   -----------   -----------   -----------   -----------   -----------
   Interest expense..............         500         1,341          (841)        1,390         6,514        (5,124)
   Provision for loan losses.....       1,669           500         1,169         1,669         3,375        (1,706)
   Compensation expense..........       2,914         4,582        (1,668)        9,807        11,281        (1,474)
   Other expenses................       3,252         3,308           (56)        7,669        17,081        (9,412)
                                  -----------   -----------   -----------   -----------   -----------   -----------
   Total provisions and expenses.       8,335         9,731        (1,396)       20,535        38,251       (17,716)
                                  -----------   -----------   -----------   -----------   -----------   -----------
   Operating loss................ $    (3,430)  $    (6,338)  $     2,908   $    (3,798)  $   (16,596)  $    12,798
                                  ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>

Servicing Revenue

     Servicing  revenue for the three months ended  September  30, 2000 was $2.2
million,  compared  with $3.3 million for the three months ended  September  30,
1999, a decrease of $1.1 million.  For the nine months ended September 30, 2000,
servicing  revenue was $7.3  million,  compared  with $7.8  million for the nine
months ended September 30, 1999. The decrease in servicing  revenue is primarily
attributable  to sales of loans by the  Company's  subsidiaries  which  had been
serviced by WCC (thereby  reducing WCC's fees  earned), and, to a lesser extent,
the  run-off  of loans  in the  servicing  portfolio,  partially  offset  by new
servicing  acquired  during the  period.  Our  servicing  revenue  reflects  the
servicing activity of WCC, a majority-owned subsidiary formed in connection with
the Company's  reorganization  in June 1999.  Such  operations  were  previously
performed by a former affiliate,  now called Capital Wilshire Holdings Inc., and
were  not  included  in the  consolidated  financial  statements  of  WFSG.  WCC
effectively  commenced its servicing  operations in June 1999 at the time of our
reorganization.
     The following  table sets forth the composition of loans serviced by WCC by
type of loan at the dates indicated.
<TABLE>

                                                   September 30,     December 31,
                                                       2000             1999
                                                   -------------     -------------
                                                       (Dollars in thousands)
<S>                                                <C>               <C>
Single-family residential.......................   $   1,276,835     $   1,516,536
Multi-family residential........................         156,622           104,307
Commercial real estate..........................         209,457           221,605
Consumer and other.............................          260,235           271,515
                                                   -------------     -------------
    Total.......................................   $   1,903,149     $   2,113,963
                                                   =============     =============
</TABLE>


     During the quarter ended  September  30, 2000 our  Specialty  Servicing and
Finance operations,  through WCC, acquired from two subsidiaries of Transamerica
Finance  Corporation  and from DLJ  Mortgage  Capital the  servicing  rights and
related  servicer  advance  receivables  to  approximately   10,500  residential
mortgage loans totaling approximately $370 million in aggregate unpaid principal
balances. In addition,  WCC contracted with Wells Fargo as Master Servicer,  and
MBIA  as  certificate  insurer,  to  service  approximately  27,000  residential
mortgage loans totaling approximately $424 million in aggregate unpaid principal
balances.  In connection with each of these three transactions,  the transfer of
servicing is expected to be completed in the fourth quarter, 2000.

 Ancillary Income

     Ancillary  income  (primarily late charges) for the quarter ended September
30, 2000 was  approximately  $0.7  million,  compared  with $0.4 million for the
quarter ended  September 30, 1999. For the nine months ended September 30, 2000,
ancillary income was approximately $1.8 million,  compared with $0.7 million for
the nine months ended  September  30, 1999.  These  increases  resulted from our
efforts in the current year to improve late fee collections.

Interest Income and Interest Expense

     Interest  income  decreased by  approximately  $3.2 million for the quarter
ended  September  30, 2000 and $9.5 million for the nine months ended  September
30, 2000.  Interest  expense  decreased by  approximately  $0.8 million and $5.1
million,  respectively, for the same periods. These decreases were primarily due
to the sale of certain loans and other  interest-earning  assets throughout 1999
and 2000 to provide liquidity and pay down the related debt facilities.

Other Income

     The  components of other income in our  Specialty  Servicing  and Finance
operations  are reflected in the following table:
<TABLE>

                                                        Three Months Ended               Nine Months Ended
                                                           September 30,                   September 30,
                                                 -------------------------------   ----------------------------
                                                      2000             1999             2000          1999
                                                 ---------------  --------------   -------------  -------------
                                                      (Dollars in thousands)            (Dollars in thousands)
Other income:
<S>                                               <C>             <C>              <C>            <C>
Real estate owned, net............................$          150  $        1,009   $        (288) $       1,322
Gain on sale of loans.............................            --             152           1,484          3,239
(Loss) gain on sale of securities.................          (516)            402            (503)           535
Market valuation losses and impairments...........            --          (6,583)             --         (6,583)
Other, net........................................         1,011             119           2,100            269
                                                  --------------  --------------   -------------  -------------
    Total other income (loss).....................$          645  $       (4,901)  $       2,793  $      (1,218)
                                                  ==============  ==============   =============  =============

</TABLE>

     The  increase in other  income  during the  quarter  and nine months  ended
September 30, 2000 was primarily due to the absence of market  valuation  losses
and impairments in the current year. (We incurred $6.6 million of such losses in
the third quarter of 1999, as we wrote down the carrying  value of our portfolio
of mortgage-backed  securities and certain other assets.) This increase in other
income was partially  offset by decreases in income from real estate  operations
and a decrease in gain on sales of loans,  due to reduced sales activity in 2000
as compared to 1999. In addition,  we incurred  losses on sales of securities in
2000, compared with gains on such sales in 1999.

Compensation Expense

     Compensation and employee benefits  decreased by approximately $1.7 million
from the  three  months  ended  September  30,  1999 to the three  months  ended
September 30, 2000, and by approximately $1.5 million from the nine months ended
September 30, 1999 to the nine months ended September 30, 2000. This decrease in
compensation  was primarily  due to  reductions  in our  workforce  during 1999,
resulting in savings during the current year.

Other Expenses

     Other expenses decreased by approximately $9.4 million from the nine months
ended September 30, 1999 to the nine months ended September 30, 2000,  primarily
due to a $7.0 million decrease in loan service fees and expenses.  This decrease
resulted from the inclusion of WCC's  operating  results with WFSG  beginning in
June 1999 pursuant to the  restructuring.  Any expenses  incurred by WFC for the
servicing of its loan  portfolio are now eliminated in  consolidation.  Prior to
June 1999, our servicing operations were performed by CWH, which was not part of
the  consolidated  group.  Consequently,  for periods prior to June 1999,  WFC's
expenses  related to the servicing of its loan portfolio were included in WFSG's
consolidated operating results.

     In addition to the aforementioned decrease in loan service fees, our travel
and  development  costs  decreased by  approximately  $1.5 million from the nine
months ended  September  30, 1999 to the nine months ended  September  30, 2000,
reflecting our efforts to reduce general corporate overhead.

Changes in Financial Condition - Specialty Servicing and Finance Operations

     Mortgage-Backed   Securities  Available  for  Sale.  WFC's  mortgage-backed
securities  available  for  sale are  reported  at  current  fair  value.  WFC's
portfolio  of  mortgage-backed   securities  available  for  sale  decreased  by
approximately  $4.4 million during the nine months ended September 30, 2000, due
to sales of  approximately  $4.2  million in carrying  value of  securities  and
principal repayments of $0.2 million.

     Loans and Discounted  Loans Held for Sale, Net, at Lower of Cost or Market.
In our Specialty  Servicing and Finance  Operations,  loans and discounted loans
held for sale, net, at lower of cost or market decreased by approximately  $15.3
million  during the nine months ended  September 30, 2000,  primarily due to the
sale of loans to increase  liquidity  and reduce  outstanding  borrowings,  to a
lesser extent bulk sales of loans considered  opportunistic  by management,  and
loan resolutions that occur in the ordinary course of business.

     Real Estate Owned,  net. Real estate owned,  net decreased by approximately
$1.0 million  during the nine months ended  September 30, 2000. The decrease was
primarily due to sales of properties for proceeds of approximately $2.2 million,
partially  offset  by  acquisitions  of  real  estate  through   foreclosure  or
deed-in-lieu thereof from our portfolio of discounted loans.

     Servicer  Advance  Receivables,  net.  Servicer  advance  receivables,  net
decreased by  approximately  $6.8 million during the nine months ended September
30, 2000.  This  decrease was  primarily  due to  recoveries by WCC of scheduled
principal and interest  advances on loans previously  made,  partially offset by
new advances made during the period.

     Short-Term Borrowings. Short-term borrowings in our Specialty Servicing and
Finance  operations  decreased by  approximately  $20.4 million  during the nine
months ended  September 30, 2000.  This decrease was primarily due to repayments
of debt facilities with the proceeds from the asset sales described above.

Liquidity and Capital Resources

     Liquidity  is the  measurement  of  our  ability  to  meet  potential  cash
requirements,   including  ongoing   commitments  to  repay   borrowings,   fund
investments,  purchase pools of loans,  and for general business  purposes.  Our
sources of cash flow for our Specialty  Servicing and Finance Operations include
servicing revenue, whole loan and mortgage-backed securities sales, net interest
income,  borrowings under repurchase financing facilities,  lines of credit from
commercial  banks  (including  an  $8  million  credit  facility  with  a  major
commercial  bank  that  was  obtained  in  May,   2000),   and  borrowings  from
institutional investors and other lenders.  Liquidity in our Specialty Servicing
and Finance  operations is actively managed on a daily basis and is periodically
reviewed  by our Board of  Directors.  This  process is  intended  to ensure the
maintenance of sufficient funds to meet the needs of the Company.

     At September 30, 2000, cash balances in our Specialty Servicing and Finance
Operations totaled approximately $3.1 million,  compared with approximately $5.8
million at December  31,  1999.  Based on our current and  expected  asset size,
capital  levels,  and  organizational  infrastructure,  we believe there will be
sufficient  available cash to meet our needs. We continue to  aggressively  seek
new capital partners and financing. There can be no assurance,  however, that we
will be able to obtain  new  capital  or will have  sufficient  cash  flows.  In
addition,  as  part of our  business  strategy  to use  bank  and  institutional
co-investment  financing,  we intend to use our  available  capital  in a manner
which will not make us dependent on securitizations as a source of liquidity. As
a result, we likely will not securitize loans as a source of liquidity.

     During 1999, we sold all subordinated  mortgage-backed securities backed by
loan pools originated or serviced by unaffiliated third parties.  Currently,  we
hold only such securities where we act as servicer of the loan pools backing the
securities.  At September 30, 2000 we held $5.1 million of such  mortgage-backed
securities, which in turn are financed by a short-term repurchase agreement with
a remaining  unpaid  principal  balance of $3.0  million.  Also at September 30,
2000, we held loans and real estate with a carrying value of $14.9 million which
were  subject to  short-term  indebtedness  of $2.8  million in  addition to the
aforementioned short-term repurchase agreement.

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

IMPORTANT FACTORS RELATING TO FORWARD-LOOKING 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.  The
Company notes that there are various  factors that could cause actual results to
differ  materially  from  those set forth in  forward-looking  statements.  Such
factors include, but are not limited to, the real estate market, interest rates,
regulatory  matters,  the availability of pools of servicing rights and loans at
acceptable  prices,  the  availability  of financing for existing  assets,  loan
portfolio  acquisitions and servicing portfolio  expansion,  the availability of
additional  financing,  and the outcome of the pension fund litigation described
in Note 7.  Accordingly,  there  can be no  assurance  that the  forward-looking
statements  contained in this Quarterly  Report on Form 10-Q will be realized or
that  actual   results  will  not  be   significantly   higher  or  lower.   The
forward-looking statements have not been audited by, examined by or subjected to
agreed-upon  procedures  by  independent  accountants,  and no third  party  has
independently  verified or reviewed such  statements.  Readers of this Quarterly
Report on Form 10-Q should  consider these factors 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.


<PAGE>



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     It is our  objective to attempt to control risks  associated  with interest
rate movements.  In general,  management's  strategy is to limit our exposure to
earnings  variations  and  variations in the value of assets and  liabilities as
interest rates change over time. Our asset and liability  management strategy is
formulated  and monitored by the asset and liability  committees for the Company
and First Bank (the  "Asset  and  Liability  Committees")  which meet to review,
among other things,  the  sensitivity of our assets and  liabilities to interest
rate changes,  the book and market values of assets and liabilities,  unrealized
gains and losses, including those attributable to hedging transactions, purchase
and securitization activity, and maturities of investments and borrowings. First
Bank's  Asset and  Liability  Committee  coordinates  with the  Bank's  Board of
Directors with respect to overall asset and liability composition.

     The Asset and Liability Committees are authorized to utilize a wide variety
of  off-balance  sheet  financial  techniques to assist it 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.  Interest  rate swap  agreements  are utilized to
reduce our exposure caused by the narrowing of the interest spread between fixed
rate loans held for investment and  associated  liabilities  funding those loans
caused by changes in market interest rates.  First Bank had approximately  $23.5
million notional principal amount in an interest rate swap agreement outstanding
at September  30, 2000,  which was  designated  as a hedge of certain fixed rate
loans in order to convert  variable rate liabilities to fixed rate. The swap had
the effect of increasing our net interest income by  approximately  $67 thousand
and $99  thousand,  respectively,  during  the  quarter  and nine  months  ended
September 30, 2000.

     At times,  we also have hedged the interest  rate exposure of fixed-rate or
lagging-index  loans or  securities  that are either held or available for sale.
The Company  creates a hedge which  matches the principal  amortization  of such
assets against the maturity of our liabilities  generally by entering into short
sales or  forward  sales of U.S.  Treasury  securities,  Government  securities,
interest rate futures  contracts or interest rate swap agreements.  This results
in market gains or losses on hedging  instruments,  in response to interest rate
increases  or  decreases,   respectively,   which   approximate  the  amount  of
corresponding market losses or gains,  respectively,  on assets being hedged. We
evaluate the interest  rate  sensitivity  of each pool of loans or securities in
conjunction  with the current  interest rate  environment  and decide whether to
hedge the interest rate exposure of a particular pool. We generally do not hedge
the interest rate risk associated with holding non-lagging index adjustable-rate
mortgages pending their sale or securitization due to the decreased significance
of such risk. In general,  when a pool of loans or securities  are acquired,  we
will  determine  whether  or not to  hedge  and,  with  respect  to any  sale or
financing of any pool of loans through securitization, will determine whether or
not to discontinue its  duration-matched  hedging activities with respect to the
relevant loans.

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

     At  September  30,  2000 the  Company's  Specialty  Servicing  and  Finance
operations  carried no  significant  assets or  liabilities  which  might have a
material impact on the value of the Company's assets or liabilities, as interest
rates change over time.

     The following  table  quantifies  the  potential  changes in the Bank's net
portfolio  value at  September  30,  2000,  should  interest  rates  increase or
decrease (shocked) by 100 to 300 basis points,  assuming the yield curves of the
rate shocks will be parallel to each other.  (The table does not include the net
portfolio  value of our  Specialty  Servicing  and Finance  operations,  as such
portfolio is not currently  material to our  consolidated  operations and is not
currently sensitive to interest rate fluctuations.)


<PAGE>


<TABLE>

                Interest Rate Sensitivity of Net Portfolio Value

                                                          Net Portfolio Value          NPV as % of PV of Assets
                                                    --------------------------------   ------------------------
                                                    $ Amount     $ Change    %Change    NPV Ratio       Change
                                                    ---------   ----------  --------   ------------   ---------
        Change in Rates                                  (Dollars in thousands)
<S>       <C>                                       <C>         <C>             <C>         <C>        <C>
         +300bp.....................................$  33,733   $  (21,738)     (39)%       5.45%      (300)bp
         +200bp.....................................   41,932      (13,539)     (24)        6.63       (182)bp
         +100bp.....................................   49,352       (6,119)     (11)        7.65        (80)bp
            0bp.....................................   55,471           --        0         8.45         --
         -100bp.....................................   59,625        4,154        7         8.95         50bp
         -200bp.....................................   61,503        6,032       11         9.13         68bp
         -300bp.....................................   61,718        6,247       11         9.07         62bp
</TABLE>


     Management  also  believes  that  the  assumptions   (including  prepayment
assumptions)  used by it 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.

<PAGE>



                  WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

PART II.          OTHER INFORMATION

     Item 1.      Legal Proceedings.

                        As part of the  Company's  June 1999  restructuring,  it
                  purchased the assets of the Company's  prior  privately  owned
                  servicer  from a company  owned by  Capital  Consultants,  LLC
                  ("CCL") as agent for  certain  investors.  In exchange it gave
                  CCL as agent a 49.99%  non-voting  ownership  interest  in WCC
                  with certain  rights to convert such  interest to a portion of
                  the  Company's  stock.  On September 21, 2000 Thomas F. Lennon
                  was  appointed  by  the  U.S.  District  Court  of  Oregon  in
                  Securities  and Exchange  Commission  v. Capital  Consultants,
                  LLC, et al. as a receiver for CCL.

                        A number of CCL's  clients have filed  lawsuits  against
                  CCL, Jeffrey  Grayson,  Barclay  Grayson,  Andrew  Wiederhorn,
                  Lawrence Mendelsohn,  a number of corporations and a number of
                  pension  trust  trustees  in Tom  Hazzard,  et al. v.  Capital
                  Consultants, LLC, et al.; Andrew McPherson, et al. v. Trustees
                  of Eighth Dist.  Electrical  Profit Sharing Pension and Health
                  and Welfare  Plans;  and Mark Keith  Eidem et al. v.  Trustees
                  United  Assoc.  Union Local No. 290 Plumber,  Steamfitter  and
                  Shipfitter  Industry 401(k),  Pension Trust and Welfare Trust,
                  each  filed in the U.S.  District  Court for the  District  of
                  Oregon.   The  plaintiffs   allege  that  CCL  and  the  other
                  defendants  made improper loans to WCC from 1995 through 1998,
                  thereafter  misled the CCL  clients  by  failing  to  disclose
                  significant  losses on $160  million of loans to WCC, and used
                  additional  CCL client  funds  (approximately  $71 million) to
                  cover up such losses.  The  plaintiffs  have named the Company
                  and WCC as  defendants.  The Company does not  understand  the
                  reason for the plaintiffs' inclusion of the Company and WCC as
                  defendants.  Without  limitation,  as part of the  June,  1999
                  reorganization of the Company, CCL, as agent for these pension
                  funds,  provided the Company with a release of all claims that
                  these funds  might have had  against  the  Company  other than
                  claims covered by Company-held  insurance policies.  While the
                  Company  has  not  yet  obtained  a  clarification   from  the
                  plaintiffs as to the basis of their allegations, or engaged in
                  any  discovery  proceedings,  the Company  intends to deny the
                  allegations  and contest the claims  vigorously,  and does not
                  believe that the claims should materially adversely affect the
                  Company's financial position.

                        As part of the  Company's  June 1999  restructuring  CCL
                  released  any claims  that it might have  against  the Company
                  except for claims that are covered by the Company's  insurance
                  policies.  The Company,  CCL and the  Company's  insurers have
                  entered  into a tolling  agreement  effective  July 1, 2000 in
                  which all parties  have agreed that any  statutory  periods in
                  which  these  insurance-covered   claims  must  be  filed  are
                  suspended.  The Company has denied the  validity of any of the
                  claims CCL has  alleged.  Since the only  claims  that CCL may
                  bring are those  covered by  insurance,  the Company  does not
                  believe  such  claim  would  have  a  material  effect  on the
                  Company.

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

                        On  September  2,  1999,  the  Company   terminated  the
                  employment of Andrew A. Wiederhorn and Lawrence A. Mendelsohn.
                  Messrs.  Wiederhorn  and  Mendelsohn  subsequently  filed suit
                  against  the  Company  and  its  outside  directors,  alleging
                  defamation and wrongful termination.  On August 28, 2000,  the
                  Company  entered  into a  settlement  agreement  with  Messrs.
                  Wiederhorn and Mendelsohn  which resolved all disputes between
                  the Company and the former executives.

                        In August 1999,  Wilshire  Real Estate  Investment  Inc.
                  ("WREI")  filed suit  against the Company,  alleging  that the
                  aforementioned   terminations   of  Mr.   Wiederhorn  and  Mr.
                  Mendelsohn  caused a facilities  sharing agreement between the
                  Company  and  WREI to come  into  effect,  thereby  suspending
                  WREI's  obligations under a management  agreement between WREI
                  and  Wilshire  Realty   Services   Corporation   ("WRSC"),   a
                  subsidiary  of  the  Company.   WREI  thereafter  amended  its
                  complaint  to assert  that (i) the Company  had  breached  the
                  management  agreement  with WREI,  (ii) a  facilities  sharing
                  agreement  between the  Company  and WREI had been  triggered,
                  requiring  WREI to pay the  Company  only  for the cost of the
                  management provided by the Company's employees, and (iii) WFSG
                  was in  default  under  a $5  million  loan  agreement  due to
                  alleged material  adverse changes.  WREI also alleged that the
                  Company's subsidiary, Wilshire Credit Corporation ("WCC"), had
                  provided  WREI  with a prepaid  credit  for  servicing  WREI's
                  assets in the  amount of $3.2  million,  and that WREI may use
                  this  credit for loans that WCC  services  for  securitization
                  trustees where WREI owns the residual securities.  The Company
                  denied the allegations and  counterclaimed,  alleging that (i)
                  WREI failed to pay  management  fees owed to the Company under
                  the  management  agreement  (ii)  WREI  was  not  entitled  to
                  terminate the management agreement until April 6, 2000 and any
                  purported  termination  of that agreement by WREI entitled the
                  Company  to a  termination  fee in  excess of $3  million.  In
                  August 2000 the Company and WREI settled this lawsuit pursuant
                  to which all of these disputes were  resolved.  The settlement
                  included an agreement on the amount of the prepaid  credit for
                  servicing,  that WREI could not use the  credit  for  existing
                  WREI residual  securities,  and new  agreements for use of the
                  credits.

     Item 2.      Changes in Securities.

                      Not applicable.

     Item 3.      Defaults Upon Senior Securities.

                      Not applicable.

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

                      Not applicable.

     Item 5.      Other Information.

                      Not applicable.

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

                  (a) Exhibits.
                          11    Statement re:  Computation of Per-Share Earnings
                          27    Financial Data Schedule




<PAGE>


                                   SIGNATURES

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

                                        WILSHIRE FINANCIAL SERVICES GROUP INC.


Date: November 14, 2000


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

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


<PAGE>



                                                                     Exhibit 11

<TABLE>

                                                                           Three Months          Three Months
                                                                              Ended                 Ended
                                                                           September 30,         September 30,
                                                                               2000                 1999
                                                                         -----------------    -----------------
                                                                       (Dollars in thousands, except share data)
Diluted net income (loss) per share:
<S>                                                                      <C>                  <C>
    Net income (loss)..............................................      $           1,853    $          (7,136)
                                                                         -----------------    -----------------
    Average number of shares outstanding...........................             20,035,458           20,033,600
    Net effect of dilutive stock options-based on treasury stock method            130,195                   --
                                                                         -----------------    -----------------
        Total average shares.......................................             20,165,653           20,033,600
                                                                         =================    =================
    Diluted net income (loss) per share............................      $            0.09    $           (0.36)
                                                                         =================    =================



                                                                                                              Predecessor
                                                                             Reorganized Company                Company
                                                                      ----------------------------------   -----------------
                                                                         Nine Months      Four Months         Five Months
                                                                            Ended           Ended                Ended
                                                                        September 30,     September 30,         May 31,
                                                                            2000              1999               1999
                                                                      ---------------   ----------------   -----------------
                                                                             (Dollars in thousands, except share data)
Diluted net income (loss) per share:
<S>                                                                   <C>               <C>                <C>
     Net income (loss).........................................       $        4,196    $        (7,938)   $         157,338
                                                                      --------------    ---------------    -----------------
     Average number of shares outstanding......................           20,035,458         20,033,600           10,885,000
     Net effect of dilutive stock options-based on treasury
        stock method...........................................               47,839                 --                   --
                                                                      --------------    ---------------    -----------------
        Total average shares...................................           20,083,297         20,033,600           10,885,000
                                                                      ==============    ===============    =================
     Diluted net income (loss) per share.......................       $         0.21    $         (0.40)   $           14.45
                                                                      ==============    ===============    =================

</TABLE>


<PAGE>