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 March 31, 2001

                                       or

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

         For the transition period from                          to

                         Commission file number 0-21845

                     Wilshire Financial Services Group Inc.
             (Exact name of registrant as specified in its charter)


               Delaware                               93-1223879
   (State or other jurisdiction of       (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  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.
Yes   X         No ___
    -----

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

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.
Yes   X         No ___
    -----

Applicable only to corporate issuers:

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

               Class                              Outstanding at April 30, 2001
Common Stock, par value $.01 per share                   20,079,125 shares



<PAGE>


             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

                                      INDEX

PART I.        FINANCIAL INFORMATION
<TABLE>

         Item 1.  Interim Financial Statements (Unaudited):
<S>                                                                                                             <C>

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

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

                  Consolidated Statements of Cash Flows............................................................5

                  Consolidated Statements of Stockholders' Equity..................................................7

                  Notes to Interim Financial Statements............................................................8

         Item 2.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations........................................................................13

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk.......................................22

PART II. OTHER INFORMATION

         Item 1.  Legal Proceedings................................................................................24

         Item 2.  Changes in Securities............................................................................24

         Item 3.  Defaults Upon Senior Securities..................................................................24

         Item 4.  Submission of Matters to a Vote of Security Holders..............................................24

         Item 5.  Other Information................................................................................24

         Item 6.  Exhibits and Reports on Form 8-K.................................................................24
</TABLE>

                                       2
<PAGE>




<TABLE>

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

                                                                                   March 31,    December 31,
                                                                                     2001          2000
                                                                                 ------------   ------------
                                       ASSETS
<S>                                                                              <C>             <C>
Cash and cash equivalents..................................................      $     25,963   $      9,516
Mortgage-backed securities available for sale, at fair value...............            57,727         54,138
Loans, net.................................................................           537,248        561,876
Loans and discounted loans held for sale, net, at lower of cost or market..            12,564         10,214
Stock in Federal Home Loan Bank of San Francisco, at cost..................             7,600          6,615
Real estate owned, net.....................................................             1,435          1,770
Leasehold improvements and equipment, net..................................             3,723          3,939
Accrued interest receivable................................................             3,791          4,133
Servicer advance receivables, net..........................................            20,942         21,261
Mortgage servicing rights..................................................            11,717          4,544
Receivables from loan servicers............................................            17,911          3,161
Prepaid expenses and other assets..........................................            12,153         14,397
                                                                                 ------------   ------------
TOTAL                                                                            $    712,774   $    695,564
                                                                                 ============   ============

     LIABILITIES & STOCKHOLDERS' EQUITY

Liabilities:
     Noninterest-bearing deposits..........................................      $     10,439   $     10,663
     Interest-bearing deposits.............................................           416,432        424,410
     Short-term borrowings.................................................             6,705          9,123
     FHLB advances.........................................................           152,000        132,000
     Long-term investment financing........................................             5,544          1,634
     Accounts payable and other liabilities................................            23,976         21,230
     Minority interest.....................................................            10,469          9,909
                                                                                 ------------   ------------
        Total liabilities..................................................           625,565        608,969
                                                                                 ------------   ------------

Commitments and Contingencies (see Note 2)

Stockholders' Equity:
     Common stock..........................................................            96,547         96,516
     Retained deficit......................................................           (10,210)       (10,670)
     Accumulated other comprehensive income, net...........................               872            749
                                                                                 ------------   ------------
        Total stockholders' equity.........................................            87,209         86,595
                                                                                 ------------   ------------
TOTAL                                                                            $    712,774   $    695,564
                                                                                 ============   ============

</TABLE>
                    See notes to interim financial statements

                                      3


<PAGE>

<TABLE>

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

                                                                                     Quarter Ended      Quarter Ended
                                                                                     March 31, 2001     March 31, 2000
                                                                                    ----------------   ----------------
INTEREST INCOME:
<S>                                                                                       <C>            <C>
         Loans....................................................................  $         13,672   $         10,761
         Mortgage-backed securities...............................................               864              1,149
         Securities and federal funds sold........................................               398                558
                                                                                    ----------------   ----------------
       Total interest income......................................................            14,934             12,468
                                                                                    ----------------   ----------------
INTEREST EXPENSE:
         Deposits.................................................................             6,284              5,582
         Borrowings...............................................................             2,470              1,727
                                                                                    ----------------   ----------------
         Total interest expense...................................................             8,754              7,309
                                                                                    ----------------   ----------------
NET INTEREST INCOME...............................................................             6,180              5,159
PROVISION FOR (RECAPTURE OF) ESTIMATED LOSSES ON LOANS............................               150             (1,396)
                                                                                    ----------------   ----------------
NET INTEREST INCOME AFTER PROVISION
         FOR (RECAPTURE OF) ESTIMATED LOSSES ON LOANS.............................             6,030              6,555
                                                                                    ----------------   ----------------
OTHER INCOME:
         Servicing revenue........................................................             3,850              3,086
         Real estate owned, net...................................................              (243)               748
         Bankcard income, net.....................................................               905                791
         Gain on sale of loans....................................................               486                945
         Loan fees and charges....................................................               980                238
         Other, net...............................................................             1,338                317
                                                                                    ----------------   ----------------
         Total other income.......................................................             7,316              6,125
                                                                                    ----------------   ----------------
OTHER EXPENSES:
         Compensation and employee benefits.......................................             7,046              6,549
         Professional services....................................................             1,350              1,067
         Occupancy................................................................               543                725
         FDIC insurance premiums..................................................               212                219
         Corporate travel and development.........................................               113                160
         Depreciation.............................................................               354                591
         Amortization.............................................................               270                135
         Other general and administrative expenses................................             1,885              1,541
                                                                                    ----------------   ----------------
         Total other expenses.....................................................            11,773             10,987
                                                                                    ----------------   ----------------
INCOME BEFORE INVESTOR PARTICIPATION AND MINORITY INTEREST
     AND INCOME TAXES ............................................................             1,573             1,693
Investor participation interest...................................................              (422)               --
Minority interest.................................................................              (560)              501
                                                                                    ----------------   ---------------
INCOME BEFORE INCOME TAXES........................................................               591             2,194
INCOME TAX PROVISION..............................................................               131               976
                                                                                    ----------------   ---------------
NET INCOME........................................................................  $            460   $         1,218
                                                                                    ================   ===============

Basic and diluted earnings per share..............................................  $           0.02   $          0.06

Weighted average shares outstanding - basic.......................................        20,047,177        20,035,458
Weighted average shares outstanding - diluted.....................................        20,790,426        20,035,458


                    See notes to interim financial statements
</TABLE>
                                       4
<PAGE>

<TABLE>

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

                                                                                       Quarter Ended      Quarter Ended
                                                                                       March 31, 2001     March 31, 2000
                                                                                      ----------------   ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                          <C>               <C>
   Net income...................................................................      $            460   $          1,218
   Adjustments to reconcile net income to net cash (used in) provided by
      operating activities:
        Provision for (recapture of) estimated losses on loans..................                   150             (1,396)
        Provision for losses on real estate owned...............................                    12                 49
        Depreciation and amortization...........................................                   624                726
        Loss (gain) on sale of real estate owned................................                   212               (870)
        Purchase of loans held for sale.........................................                (5,570)                --
        Proceeds from sale of loans held for sale...............................                 3,806             10,176
        Gain on sale of loans...................................................                  (486)              (945)
        (Accretion) amortization of discounts and deferred fees.................                  (498)               203
        Federal Home Loan Bank stock dividends..................................                  (110)                --
        Minority interest.......................................................                   560               (501)
        Other...................................................................                    --                  8
      Change in:
        Servicer advance receivables............................................                   319              3,363
        Mortgage servicing rights...............................................                (7,173)                32
        Accrued interest receivable.............................................                   342               (434)
        Receivables from loan servicers.........................................               (14,750)               192
        Prepaid expenses and other assets.......................................                 1,974               (606)
        Accounts payable and other liabilities..................................                 2,211             (2,535)
                                                                                      ----------------   ----------------
             Net cash (used in) provided by operating activities................               (17,917)             8,680
                                                                                      ----------------   ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of loans.......................................................               (12,861)           (86,960)
        Loan repayments.........................................................                46,723             22,884
        Loan originations.......................................................                (8,833)            (5,270)
        Purchase of mortgage-backed securities available for sale...............                (6,343)            (9,919)
        Repayment of mortgage-backed securities available for sale..............                 2,943             11,759
        Repayments of mortgage-backed securities held to maturity...............                    --                452
        Purchase of real estate owned...........................................                    --                (33)
        Proceeds from sale of real estate owned.................................                   412              2,272
        Purchase of FHLB stock..................................................                  (875)               (25)
        Purchases of leasehold improvements and equipment.......................                  (138)               (98)
                                                                                      ----------------   ----------------
             Net cash provided by (used in) investing activities................                21,028            (64,938)
                                                                                      ----------------   ----------------


</TABLE>
                    See notes to interim financial statements

                                       5
<PAGE>

<TABLE>

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

                                                                                       Quarter Ended      Quarter Ended
                                                                                       March 31, 2001     March 31, 2000
                                                                                      ----------------   ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S>                                                                                      <C>             <C>
        Net (decrease) increase in deposits........................................   $         (8,202)  $          5,129
        Proceeds from FHLB advances................................................             20,000             32,000
        Proceeds from short-term borrowings........................................             13,860             10,933
        Repayments of short-term borrowings........................................            (16,278)           (17,591)
        Proceeds from long-term financing .........................................              5,659                 --
        Repayment of long-term financing...........................................             (1,749)                --
        Repayment of note payable to WREI..........................................                 --               (165)
        Issuance of common stock pursuant to exercise of stock options.............                 46                 --
                                                                                      ----------------   ----------------
             Net cash provided by financing activities.............................             13,336             30,306
                                                                                      ----------------   ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...............................             16,447            (25,952)
CASH AND CASH EQUIVALENTS:
        Beginning of period........................................................              9,516             54,168
                                                                                      ----------------   ----------------
        End of period..............................................................   $         25,963   $         28,216
                                                                                      ================   ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash paid for:
        Interest...................................................................   $          6,660   $          6,483
        Income taxes...............................................................                100                625
NONCASH INVESTING ACTIVITIES:
        Additions to real estate owned acquired in settlement of loans.............                217                877


</TABLE>
                    See notes to interim financial statements

                                       6
<PAGE>




<TABLE>


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


                                                                                                 Accumulated
                                       Preferred Stock         Common Stock                         Other
                                      ------------------  -----------------------    Retained   Comprehensive
                                      Shares    Amount      Shares      Amount       Deficit        Income         Total
                                      -------  ---------  -----------  ----------  ------------  -----------  ----------
<S>                                       <C>        <C>         <C>         <C>          <C>           <C>    <C>
BALANCE, January 1, 2001                    -  $       -   20,035,458  $   96,516  $   (10,670)  $       749  $   86,595
  Comprehensive income:
    Net income.....................                                                        460                       460
    Unrealized holding gains on
     available for sale securities
     - net of tax liability of $96.                                                                      123         123
                                                                                                              ----------
  Total comprehensive income.......                                                                                  583
  Exercise of stock options........                            43,667          46                                     46
  Tax effect from utilization of
   pre-reorganizational Net
   Operating Losses (Note 3).......                                           (15)                                   (15)
                                      -------  ---------  -----------  ----------  ------------  -----------  ----------
BALANCE, March 31, 2001............        --         --   20,079,125  $   96,547  $    (10,210) $       872  $   87,209
                                      =======  =========  ===========  ==========  ============  ===========  ==========


                                   See notes to interim financial statements
</TABLE>
                                       7

<PAGE>




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

1.   BASIS OF PRESENTATION

     The  accompanying  interim  consolidated  financial  statements of Wilshire
Financial Services Group Inc. and Subsidiaries (the "Company") are unaudited and
should  be read in  conjunction  with the 2000  Annual  Report on Form  10-K.  A
summary of the Company's significant  accounting policies is set forth in Note 1
to the Consolidated Financial Statements in the 2000 Annual Report on Form 10-K.

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

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

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

2.   COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK

     The Company's  savings bank  subsidiary,  First Bank of Beverly Hills,  FSB
("FBBH" or the "Bank"),  had  approximately  $18.2  million  notional  principal
amount in an interest rate swap agreement  outstanding at March 31, 2001,  which
was  designated as a hedge of certain fixed rate loans in order to convert fixed
rate income streams on loans to variable rate. The effect of this swap agreement
on the Company's  financial  condition  and results of  operations  has not been
material. In April 2001, this swap agreement expired.

     At March 31, 2001, the Company,  through FBBH, had outstanding  commitments
to fund $7.4  million in new  mortgage  loans and to  purchase  $2.1  million in
loans.

     In  connection  with  the  transfer  of the  Company's  minority  ownership
interest in Wilshire  Credit  Corporation  ("WCC") to Capital  Consultants,  LLC
("CCL")  as part of its June  1999  restructuring  (described  in Note  6),  the
Company  provided  to  CCL a  contingent  Liquidation  Bond  in  the  form  of a
non-interest  bearing  obligation to pay CCL, in the event of any liquidation or
dissolution of WCC, $19.3 million less any distributions  that CCL receives from
its  minority  ownership  interest  in WCC.  WCC is  obligated  to keep the bond
collateralized  with  assets of WCC or the Company  having a fair  market  value
equal to such bond and, to the extent that it does not do so, the Company may be
responsible  for the  deficiency.  A  receiver  has  been  appointed  for CCL in
Securities  and Exchange  Commission v. Capital  Consultants,  LLC, et al., U.S.
District Court for the District of Oregon, Case No. CV 00-1290 KI, and now holds
this  Liquidation  Bond and controls the minority  ownership  interest in WCC on
behalf of CCL's investors.

     In  addition,  the  holder of the  minority  ownership  interest  in WCC is
entitled to convert its  interest  into the  Company's  common stock at any time
after June 10, 2001. The holder also may convert its interest into the Company's
common stock or be paid $19.3 million less any prior distributions received from
the  minority  interest  at any time upon a merger of the  Company  into a third
party or the purchase of substantially  all the stock of the Company by a single
third party.  Upon the stock  conversion  or payment of the $19.3  million,  the
Liquidation Bond is cancelled.  The formula for the stock conversion permits the

                                       8
<PAGE>




holder of the minority  interest in WCC to convert such interest into the number
of shares of the common stock of the Company approximately equal to:

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

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

3.   INCOME TAXES

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

     Although the Company has net operating  loss  carryforwards  and deductible
temporary  differences available to offset income earned during the three months
ended March 31, 2001, the Company  recorded  income tax expense of $0.1 million.
There  are  two  components  to the  income  tax  provision:  current  taxes  of
approximately  $0.2 million and a deferred tax (benefit) of approximately  ($0.1
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.

     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 benefit  results from an
increase in the amount of the net  deferred  tax asset  during the three  months
ended March 31, 2001.

     The Company  established a valuation allowance against the net deferred tax
asset  at its  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 effective  date of the  restructuring,  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.  The  maximum
pre-reorganization  tax benefit available to the Company  (partially  subject to
the annual limits discussed below) at March 31, 2001 was $71.3 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.

4.   SUBSEQUENT EVENTS

     In April 2001, the Bank purchased approximately $48 million of
adjustable-rate single-family residential mortgages.

     The Company's  Specialty Servicing and Finance Operations acquired from DLJ
Mortgage Capital the servicing  rights and related servicer advance  receivables
to approximately  5,500 residential  mortgage loans totaling  approximately $240
million in  aggregate  principal  balances.  The  transfer of this  servicing is
expected to be completed in the second quarter of 2001.




                                       9
<PAGE>
             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
                NOTES TO INTERIM FINANCIAL STATEMENTS-(Continued)
                                   (Unaudited)
            (Dollars in thousands, except share data and where noted)



     In May 2001 the  Company  obtained a renewal  and  extension  of its credit
facility with a major  commercial  bank and an increase in the  borrowing  limit
from $8 million to $12 million.  In addition,  in May 2001 the Company  received
credit approval,  subject to documentation,  from the same institution for a $10
million debt facility to support the acquisition of certain  mortgage  servicing
rights.

5.   OPERATING SEGMENTS

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

 o   Banking Operations--Through FBBH, the Company conducts a retail and
     wholesale banking business focused primarily on specialty-niche products,
     including small-balance commercial lending and merchant bankcard
     processing. The primary source of liquidity for the Bank's acquisitions and
     originations is wholesale certificates of deposit, retail deposits, FHLB
     advances, and, to a lesser extent, committed short-term line of credit
     facilities. The Bank is a federally chartered savings bank and is regulated
     by the Office of Thrift Supervision ("OTS"). FBBH has total assets of
     approximately $655.0 million and employs 129 people.

o    Specialty  Servicing and Finance  Operations--Through  its  majority-owned
     subsidiary,  Wilshire Credit Corporation  ("WCC"),  the Company conducts a
     full-service  mortgage and consumer loan servicing  business, specializing
     in the servicing of labor-intensive mortgage pools requiring expertise in
     loss mitigation and/or investor  reporting.  Through its wholly-owned
     subsidiary,  Wilshire  Funding  Corporation  ("WFC"),  the Company conducts
     an investment and co-investment business with institutional investors where
     such investments (1) align the Company's  interests with those of such
     institutional  investors and (2) provide operating leverage for the
     portfolio of mortgages serviced by WCC.  Together, WCC and WFC are referred
     to as  "Specialty  Servicing  and Finance  Operations".  In its  Specialty
     Servicing  and  Finance  Operations,  the Company  employs  246 people and
     as of March 31,  2001, services  approximately  $2.7 billion  principal
     balance of residential and commercial mortgage pools for approximately  800
     individual and institutional  investors and government agencies. The
     Company's Specialty Servicing and Finance Operations' funding  sources
     consist primarily of internal liquidity,  commercial bank financing,
     institutional lenders and co-investors,  under debt service repayment terms
     which generally parallel the schedule of anticipated principal repayments
     of the underlying collateral.

o    Holding Company and Miscellaneous Operations--The Company's Holding Company
     and Miscellaneous Operations consist of other operating revenues and
     expenses not directly attributable to the aforementioned business segments,
     and includes eliminations of intercompany accounts and transactions. A
     primary source of liquidity includes payments received from FBBH pursuant
     to a tax allocation agreement between the Company and the Bank. However,
     the OTS has limited the amount of these payments to the lesser of (1) the
     Bank's stand-alone tax liability and (2) the total tax payments made by the
     Company.


                                       10
<PAGE>
             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
                NOTES TO INTERIM FINANCIAL STATEMENTS-(Continued)
                                   (Unaudited)
            (Dollars in thousands, except share data and where noted)



          Segment data for the quarters ended March 31, 2001 and 2000 is as
follows:
<TABLE>


                                                                        Three Months Ended March 31, 2001
                                                           --------------------------------------------------------
                                                                                            Holding
                                                                            Specialty     Company and
                                                                          Servicing and  Miscellaneous
                                                             Banking         Finance       Operations      Total
                                                            ----------    -------------  -------------  -----------
<S>                                                         <C>            <C>           <C>            <C>
   Interest income........................................  $   13,534     $      1,354  $        46    $    14,934
   Interest expense.......................................       8,649              118          (13)         8,754
                                                            ----------     ------------  -----------    -----------
   Net interest income....................................       4,885            1,236           59          6,180
   Provision for loan losses..............................         150               --           --            150
                                                               -------     ------------  -----------    -----------
   Net interest income after provision for loan losses....       4,735            1,236           59          6,030
   Other income...........................................       1,564            5,829          (77)         7,316
   Other expense..........................................       5,860            5,418          495         11,773
                                                            ----------     ------------  -----------    -----------
   Income (loss) before investor participation and
     minority interest and taxes..........................         439            1,647         (513)         1,573
   Investor participation interest........................          --             (422)          --           (422)
   Minority interest......................................          --               --         (560)          (560)
                                                            ----------     ------------  -----------    -----------
   Income (loss) before taxes.............................         439            1,225       (1,073)           591
   Income tax provision (benefit).........................         189               --          (58)           131
                                                            ----------     ------------  -----------    -----------
   Net income (loss)......................................  $      250     $      1,225  $    (1,015)   $       460
                                                            ==========     ============  ===========    ===========
   Total assets...........................................  $  652,155     $     62,771  $    (2,152)   $   712,774
                                                            ==========     ============  ===========    ===========
</TABLE>


<TABLE>

                                                                       Three Months Ended March 31, 2000
                                                         --------------------------------------------------------------
                                                                                            Holding
                                                                            Specialty     Company and
                                                                          Servicing and  Miscellaneous
                                                             Banking         Finance       Operations       Total
                                                          -----------     -------------  -------------  ------------
<S>                                                       <C>             <C>            <C>            <C>
   Interest income......................................  $    10,972     $       1,428  $          68  $     12,468
   Interest expense.....................................        6,933               204            172         7,309
                                                          -----------     -------------  -------------  ------------
   Net interest income (loss)...........................        4,039             1,224           (104)        5,159
   (Recapture of) provision for loan losses.............       (1,500)               --            104        (1,396)
                                                          -----------     -------------  -------------  ------------
   Net interest income (loss) after (recapture of)
     provision for loan losses..........................        5,539             1,224           (208)        6,555
   Other income ........................................        1,226             4,252            647         6,125
   Other expense........................................        4,432             5,862            693        10,987
                                                          -----------     -------------  -------------  ------------
   Income (loss) before minority interest and taxes.....        2,333              (386)          (254)        1,693

   Minority interest....................................           --                --            501           501
                                                          -----------     -------------  -------------  ------------
   Income (loss) before taxes...........................        2,333              (386)           247         2,194

   Income tax provision (benefit).......................        1,003                --            (27)          976
                                                          -----------     -------------  -------------  ------------
   Net income (loss)....................................  $     1,330     $        (386) $         274  $      1,218
                                                          ===========     =============  =============  ============
   Total assets.........................................  $   613,133     $      60,511  $       9,250  $    682,894
                                                          ===========     =============  =============  ============

</TABLE>


                                       11
<PAGE>
             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
                NOTES TO INTERIM FINANCIAL STATEMENTS-(Continued)
                                   (Unaudited)
            (Dollars in thousands, except share data and where noted)



6.   LEGAL MATTERS

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

     On September 21, 2000 Thomas F. Lennon was  appointed by the U.S.  District
Court of Oregon in Securities  and Exchange  Commission v. Capital  Consultants,
LLC, et al. as a receiver for CCL. Mr. Lennon currently is reviewing  claims, if
any, that he may have against parties that engaged in transactions with CCL.

     A number of CCL's clients ("CCL Investors") have filed lawsuits in the U.S.
District  Court for the  District  of Oregon  against  CCL;  some of its  former
executives;  the Company,  WCC and the Bank and some of their executives;  and a
number of other  corporations  and pension trust trustees in the following cases
on the dates indicated:

         Schultz v. Kirkland, et al, U.S. District Court Case No. CV 00-1377 KI
         (October 10, 2000)
         Miller v. Clinton, et al, U.S. District Court Case No. CV 00-1317 HA
         (September 26, 2000)
         Eidem and Malcolm v. Trustees, et al, U.S. District Court Case No. CV
         00-1446 HE (October 26, 2000)
         Hazzard, et al. v. Trustees, et al, U.S. District Court Case No. CV
         00-1338 HU (September 29, 2000)
         McPherson v. Trustees, et al, U.S. District Court Case No. CV 00-1445
         HA (October 26, 2000)
         Madole v. Capital Consultants, LLC, et al, U.S. District Court Case No.
         CV 00-1660 AS (December 1, 2000)
         Herman v. Capital Consultants, LLC, U.S. District Court Case No. CV
         00-1291 KI (September 21, 2000)
         Chilia, et al. v. Capital Consultants, LLC, U.S. District Court Case
         No. CV 00-1633-JE (November 29, 2000)



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

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

     The  District  Court of Oregon has  appointed  a mediator  to  supervise  a
limited  procedure  to  permit  all of the  parties  to  discover  the  relevant
documents  held by each party and to interview  some of the relevant  witnesses.
The mediator then will conduct a mediation  proceeding  (currently scheduled for
June 2001) to determine if the numerous claims among the parties can be settled.
The Company currently is participating in the limited discovery procedure.

     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.

                                       12
<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  (referred  to  herein  as  our  "Banking  Operations")  through  our
wholly-owned  subsidiary,  First Bank of Beverly  Hills,  F.S.B.  ("FBBH" or the
"Bank"); and (2) specialized  mortgage loan servicing and investment  operations
through our  subsidiaries,  Wilshire  Credit  Corporation  ("WCC") and  Wilshire
Funding  Corporation  ("WFC").  Together,  WCC and WFC  are  referred  to as our
"Specialty Servicing and Finance Operations." WFSG's administrative,  investment
and loan servicing  headquarters  are located in Portland,  Oregon.  The Bank is
headquartered   in  Calabasas,   California  and  conducts  its  branch  banking
activities in Beverly Hills, California.

OVERVIEW

     During the past  quarter we have  continued  our efforts to grow and expand
our two discrete businesses. In particular,  was have focused on improvements in
the following specific areas:

o        Our net interest spread in our Banking Operations, primarily through
         growth in all categories of our earning assets and the generation of
         lower-cost retail deposits at our Beverly Hills branch;

o        The profitability of our Bankcard processing business, through our
         focus in attracting and retaining new merchant accounts with meaningful
         volume potential;

o        The profitability of our Specialty Servicing and Finance Operations,
         through contract servicing and acquisitions of servicing rights at
         contract rates and at acquisition prices which reflect our low
         tolerance for operating and investment risk;

o        Reduction of our G&A expenses and expense ratios in each of our
         business units; and

o        Our access to capital partners in growing our managed asset base and
         maintaining sufficient liquidity and capacity to respond to growth
         opportunities.

RESULTS OF OPERATIONS--QUARTER ENDED MARCH 31, 2001 COMPARED TO QUARTER ENDED
MARCH 31, 2000

     Our consolidated net income was approximately  $0.5 million for the quarter
ended March 31, 2001, compared with $1.2 million for the quarter ended March 31,
2000.  This  decrease  in net income was due  primarily  to  recoveries  of $1.5
million of loan loss  provisions  in the 2000 period,  compared with a provision
for loan losses of $0.15  million for the  current  quarter,  and an increase in
other operating expenses of $0.8 million, partially offset by increases in other
income of $1.2 million and net interest  income of $1.0 million.  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.



                                       13
<PAGE>

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

     The following table compares operating income (before taxes) for FBBH for
the three months ended March 31, 2001 and 2000 (dollars in thousands):
<TABLE>

                                                        Three Months Ended March 31,
                                                    ------------------------------------
                                                                               Increase
                                                       2001         2000      (Decrease)
                                                    ----------   ----------   ----------
<S>                                                 <C>          <C>          <C>
                 Interest income................... $   13,534   $   10,972   $    2,562
                 Interest expense..................      8,649        6,933        1,716
                                                    ----------   ----------   ----------
                 Net interest income...............      4,885        4,039          846
                 Provision for (recapture of)
                   loan losses.....................        150       (1,500)       1,650
                                                    ----------   ----------   ----------
                 Net interest income after
                   provision  for (recapture of)
                   loan losses.....................      4,735        5,539         (804)
                 Other income......................      1,564        1,226          338
                 Other expense.....................      5,860        4,432        1,428
                                                    ----------   ----------   ----------
                 Income before taxes............... $      439   $    2,333   $   (1,894)
                                                    ==========   ==========   ==========
</TABLE>

Net Interest Income
     The Bank's net  interest  income for the three  months ended March 31, 2001
was approximately $4.9 million, compared with approximately $4.0 million for the
three months ended March 31, 2000. Interest income increased by $2.6 million due
to a higher  average loan volume in the current  year,  which  resulted from the
Bank's  purchase of  approximately  $155.3  million of mortgage loans during the
second quarter of 2000. In April 2001 the Bank acquired an additional  portfolio
of approximately $48 million of adjustable-rate single-family mortgages.

     This  increase in interest  income was  partially  offset by a $1.7 million
increase  in  interest  expense  from the  quarter  ended  March 31, 2000 to the
quarter ended March 31, 2001.  Interest on deposits  increased by  approximately
$0.6  million as a result of the Bank's prior year  acquisition  of a new branch
containing $81.5 million in retail deposits,  partially offset by the subsequent
maturities  of  higher-rate  certificates  of deposit.  Interest  on  borrowings
increased  by  approximately  $1.1  million,  as the Bank  continues  to utilize
advances from the Federal Home Loan Bank of San  Francisco  ("FHLB") as a source
of liquidity.

Provision for Loan Losses
     Provision  for loan  losses for the three  months  ended March 31, 2001 was
$0.15 million. During the quarter ended March 31, 2000, the Bank recaptured $1.5
million of such provisions. These reversals of reserves in 2000 were a result of
periodic  analyses  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.

Other Income
     The Bank's  other  income was $1.6 million for the three months ended March
31, 2001,  compared with $1.2 million for the three months ended March 31, 2000.
This  increase  was  primarily  due to an  increase  in loan  fees and  charges,
resulting from increased brokerage activity, and an increase in bankcard income.
The financial  results of the Bank's Bankcard  division are discussed in further
detail below.

Other Expenses
     The Bank's other  expenses  were  approximately  $5.9 million for the three
months ended March 31, 2001,  compared with  approximately  $4.4 million for the
three  months  ended  March  31,  2000.   Professional   services  increased  by
approximately $0.6 million during the 2001 period due to planned consulting fees
associated with conversions of the Bank's  accounting and deposit  systems,  and
also due to legal fees incurred in  connection  with  litigation  that has since
been  resolved in the Bank's  favor.  In  addition,  compensation  and  employee
benefits increased by approximately $0.6 million primarily as a result of higher
compensation   costs  and  commissions  paid  at  the  Bank's  mortgage  banking
subsidiary.



                                       14
<PAGE>
Operating Segments

     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 for the three months
ended  March  31,  2001 and 2000  are  summarized  in the  following  table  and
discussed in further detail below:

<TABLE>
                                                               Three Months Ended
                                                                    March 31,
                                                             -----------------------
                                                                2001         2000
                                                             ----------   ----------
                                                             (Dollars in thousands)
<S>                                                                  <C>        <C>
                 Lending and deposit banking services....... $      718   $    2,826
                 George Elkins..............................       (424)        (351)
                 Bankcard income (loss), net................        145         (142)
                                                             ----------   ----------
                 Total Bank income (pre-tax)................ $      439   $    2,333
                                                             ==========   ==========
</TABLE>

Lending and Deposit Banking
     Net income in our  commercial  banking  operations was  approximately  $0.7
million for the three months ended March 31,  2001,  compared  with $2.8 million
for the three months ended March 31, 2000.  This decrease was primarily due to a
loan loss provision of $0.15 million in the first quarter of 2001 (compared with
net  recaptures of $1.5 million in the first quarter of 2000),  and increases in
general and administrative expenses, as discussed previously.

George Elkins
     The net loss from our mortgage loan origination and brokerage  services was
approximately  $0.4 million for the three months ended March 31, 2001,  compared
with approximately $0.4 million for the three months ended March 31, 2000. While
loan origination fee income  increased by approximately  $0.4 million during the
2001 period,  this  increase was offset by a $0.5 million  increase in operating
expenses,  primarily  compensation and employee benefits,  professional services
and miscellaneous expenses.

Bankcard Division
     Bankcard income,  net of other related  expenses,  was  approximately  $0.1
million for the three months ended March 31, 2001,  compared  with a net loss of
$0.1 million for the three months ended March 31, 2000.  This increase in income
was primarily due to a $0.4 million  decrease in provision for losses and a $0.2
million decrease in other expenses during the 2001 period, partially offset by a
decline in net bankcard revenues resulting from lower processing volumes.

     The financial results of the Bank's merchant bankcard processing operations
for the three months ended March 31, 2001 and 2000 were as follows:

<TABLE>
                                                            Three Months Ended
                                                                 March 31,
                                                          -----------------------
                                                             2001         2000
                                                          ----------   ----------
                                                          (Dollars in thousands)
             Bankcard revenues, net of processing
<S>                                                       <C>          <C>
                 expenses................................ $      980   $    1,221
             Provision for losses........................        (75)        (430)
                                                          ----------   ----------
             Bankcard income, net........................        905          791
             Other expenses..............................       (760)        (933)
                                                          ----------   ----------
             Income (loss) after other expenses.......... $      145   $     (142)
                                                          ==========   ==========
</TABLE>


                                       15
<PAGE>
Changes in Financial Condition - First Bank of Beverly Hills

         Following are condensed statements of financial condition for FBBH as
of March 31, 2001 and December 31, 2000:
<TABLE>

                                                                                  March 31,     December 31,
                                                                                     2001           2000
                                                                                 ------------   ------------
                                                                                   (Dollars in thousands)
ASSETS:
<S>                                                                               <C>                 <C>
Cash and cash equivalents....................................................... $     25,424   $      7,907
Mortgage-backed securities available for sale, at fair value....................       51,328         47,738
Loans, net......................................................................      537,607        562,257
Real estate owned, net..........................................................          786            779
Receivables from loan servicers.................................................       17,380          3,089
Other assets....................................................................       19,630         27,142
                                                                                 ------------   ------------
    Total assets................................................................ $    652,155   $    648,912
                                                                                 ============   ============

LIABILITIES:
Deposits  ...................................................................... $    426,871   $    435,073
FHLB advances...................................................................      152,000        132,000
Other liabilities...............................................................       10,922         19,861
                                                                                 ------------   ------------
    Total liabilities...........................................................      589,793        586,934

NET WORTH                                                                              62,362         61,978
                                                                                 ------------   ------------
    Total liabilities and net worth............................................. $    652,155   $    648,912
                                                                                 ============   ============
</TABLE>


     Mortgage-Backed   and   Other   Securities.   The   Bank's   portfolio   of
mortgage-backed and other securities available for sale increased  approximately
$3.6 million  during the three months  ended March 31, 2001.  This  increase was
primarily  due to  purchases  of  $6.3  million  of  mortgage-backed  and  other
securities  and an  increase  in  unrealized  holding  gains  of  $0.2  million,
partially offset by principal repayments of $2.9 million.

     Loans, net. The Bank's portfolio of loans, net of discounts and allowances,
decreased by approximately $24.7 million during the three months ended March 31,
2001. This decrease is primarily  attributable to principal  repayments of $46.5
million (resulting from declines in market rates of interest during the quarter)
and provision for losses of $0.15 million, partially offset by loan purchases of
$12.9 million and new loan originations of $8.8 million.

     Receivables from Loan Servicers. The Bank's receivables from loan servicers
increased by approximately $14.3 million during the three months ended March 31,
2001.  This increase was primarily due to  significant  principal  repayments on
loans occurring at quarter-end which were initially remitted to the servicers of
such  loans.  The Bank  collected  the  amounts  due from the  servicers  at the
beginning of the second quarter.

     Deposits.  The Bank's  deposits  decreased  by  approximately  $8.2 million
during the three months ended March 31, 2001,  primarily  due to  maturities  of
higher-rate  certificates of deposit,  as the Bank permitted the run-off of such
deposits in an effort to reduce its overall cost of funds.

     FHLB Advances.  The Bank's FHLB advances  increased by $20.0 million during
the three months ended March 31, 2001, as these borrowings were utilized to fund
the Bank's new loan  acquisitions.  These advances have maturities  ranging from
two 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 make payments for general  business
purposes. The Bank's sources of liquidity include retail and wholesale deposits,
FHLB advances, whole loan and mortgage-backed securities sales, and net interest
income.  Liquidity in the Bank's operations is actively managed on a daily basis
and periodically reviewed by the Bank's Board of Directors.



                                       16
<PAGE>

     At March 31, 2001,  the Bank's cash balances  totaled  approximately  $25.4
million,  compared with $7.9 million at December 31, 2000.  The increase in cash
during 2001 was primarily due to repayments of loans and additional FHLB advance
borrowings,  as described above,  partially offset by originations and purchases
of our new loans and by maturities of certificates of deposit.

     At  March  31,  2001,  the  Bank  had   approximately   $392.1  million  of
certificates of deposit.  Scheduled maturities of certificates of deposit during
the 12 months  ending March 31, 2002 and  thereafter  amounted to  approximately
$365.1 million and approximately $27.0 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 is attempting to reduce
exposure to changes in interest  rates by increasing  the amount of  longer-term
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 Bank is  required  under  applicable  federal  regulations  to maintain
specified levels of "liquid" investments in qualifying types of U.S. Government,
federal agency and other  investments  having  maturities of five years or less.
Current OTS  regulations  require  that a savings  association  maintain  liquid
assets of not less than 4% of its  average  daily  balance  of net  withdrawable
deposit  accounts and borrowings  payable in one year or less, of which at least
1% must consist of short-term  liquid  assets.  The Bank has complied with these
requirements.

SPECIALTY SERVICING AND FINANCE OPERATIONS

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

     The  following  table  compares  operating  income  (before  taxes)  of our
Specialty  Servicing and Finance Operations for the three months ended March 31,
2001 and 2000.
<TABLE>

                                                       WCC and WFC for the Three Months
                                                               Ended March 31,
                                                  ------------------------------------------
                                                           (Dollars in thousands)
                                                                                  Increase
                                                      2001           2000        (Decrease)
                                                  ------------   ------------   ------------
<S>                                               <C>            <C>            <C>
                 Servicing income...............  $      4,379   $      3,303   $      1,076
                 Interest income................         1,354          1,428            (74)
                 Other income ..................         1,450            949            501
                                                  ------------   ------------   ------------
                    Total revenues..............         7,183          5,680          1,503
                                                  ------------   ------------   ------------
                 Interest expense...............           118            204            (86)
                 Compensation expense...........         3,660          3,613             47
                 Other expenses.................         1,758          2,249           (491)
                                                  ------------   ------------   ------------
                    Total expenses..............         5,536          6,066           (530)
                                                  ------------   ------------   ------------
                 Income (loss) before taxes.....  $      1,647   $       (386)  $      2,033
                                                  ============   ============   ============
</TABLE>


Servicing Income
     Servicing   income  for  the  three   months   ended  March  31,  2001  was
approximately  $4.4 million,  compared with  approximately  $3.3 million for the
three  months ended March 31, 2000.  This  increase was due to the  expansion of
WCC's servicing  operations through several acquisitions of servicing portfolios
throughout 2000. WCC also acquired the servicing rights to approximately  10,000
additional loans with an aggregate principal balance of over $600 million during
the first  quarter  of 2001,  and is  currently  pursuing  additional  potential
acquisitions.



                                       17
<PAGE>

     The increase in servicing  revenue  described above was partially offset by
approximately  $1.0 million in amortization of mortgage  servicing rights during
the quarter ended March 31, 2001. This higher than expected amortization was the
result  of  accelerated  prepayments  on the  underlying  loans  resulting  from
declines in interest rates.

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

                                                     March 31,    December 31,
                                                       2001           2000
                                                   ------------   ------------
                                                      (Dollars in thousands)
<S>                                                <C>            <C>
Single-family residential.......................   $  2,259,491   $  1,909,761
Multi-family residential........................        140,845        163,511
Commercial real estate..........................        225,661        223,539
Consumer and other.............................          89,930        265,598
                                                   ------------   ------------
    Total.......................................   $  2,715,927   $  2,562,409
                                                   ============   ============
</TABLE>

Interest Income and Interest Expense
     Interest income and interest expense declined by approximately $0.1 million
from the three  months  ended March 31, 2000 to the three months ended March 31,
2001.  These decreases were primarily due to the sale of certain loans and other
interest-earning  assets  during  2000 to  provide  liquidity  and pay  down the
related  debt.  However,  during the quarter  ended March 31, 2001 our Specialty
Servicing and Finance  Operations made additional  borrowings using certain debt
facilities.  The proceeds  from such  borrowings  are expected to be deployed in
future   acquisitions   of   interest-earning   assets  and  servicing   rights.
Consequently, it is anticipated that interest income and expense may increase in
subsequent periods.

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

<TABLE>
                                                                  Three Months Ended
                                                                       March 31,
                                                              ---------------------------
                                                                  2001           2000
                                                              ------------   ------------
                                                                (Dollars in thousands)
             Other income:
<S>                                                           <C>            <C>
             Real estate owned, net.......................... $       (260)  $       (101)
             Gain on sale of loans...........................          486            945
             Other, net......................................        1,224            105
                                                              ------------   ------------
                 Total other income.......................... $      1,450   $        949
                                                              ============   ============
</TABLE>

     The increase in other  income  during the three months ended March 31, 2001
was  primarily  due to a recovery  of $0.8  million  beyond our basis in certain
assets  purchased in the prior year. This increase in other income was partially
offset by losses from real estate operations and a decrease in gains on sales of
loans, due to reduced sales activity.

Compensation Expense
     Compensation and employee  benefits in our Specialty  Servicing and Finance
Operations were  approximately $3.7 million for the three months ended March 31,
2001,  compared with approximately $3.6 million for the three months ended March
31, 2000.  The slight  increase  during the 2001 period was primarily due to the
hiring of additional personnel at WCC in late 2000, reflecting the growth in our
servicing operations.



                                       18
<PAGE>

Other Expenses
     Other expenses in our Specialty  Servicing and Finance Operations  declined
by approximately  $0.5 million from the three months ended March 31, 2000 to the
three months ended March 31, 2001.  This decrease was due to declines in several
expense  categories,   particularly   professional   services,   reflecting  our
continuing efforts to reduce corporate overhead.

Changes in Financial Condition - Specialty Servicing and Finance Operations

     Following are condensed statements of financial condition for our Specialty
Servicing and Finance Operations as of March 31, 2001 and December 31, 2000:
<TABLE>

                                                                                  March 31,     December 31,
                                                                                     2001           2000
                                                                                 ------------   ------------
                                                                                    (Dollars in thousands)
ASSETS:
<S>                                                                              <C>            <C>
Cash and cash equivalents....................................................... $         --   $      1,143
Mortgage-backed securities available for sale, at fair value....................        6,340          6,400
Loans and discounted loans held for sale, net, at lower of cost or market.......       12,564         10,214
Real estate owned, net..........................................................          649            991
Servicer advance receivables, net...............................................       20,942         21,261
Mortgage servicing rights, net..................................................       11,717          4,544
Other assets....................................................................       10,559         10,312
                                                                                 ------------   ------------
    Total assets................................................................ $     62,771   $     54,865
                                                                                 ============   ============

LIABILITIES:
Short-term borrowings........................................................... $      6,660   $      4,851
Long-term investment financing..................................................        5,544          1,634
Other liabilities...............................................................       11,162          9,623
                                                                                 ------------   ------------
     Total liabilities..........................................................       23,366         16,108

NET WORTH.......................................................................       39,405         38,757
                                                                                 ------------   ------------
    Total liabilities and net worth............................................. $     62,771   $     54,865
                                                                                 ============   ============
</TABLE>


     Mortgage-Backed   Securities   Available  for  Sale.   WFC's  portfolio  of
mortgage-backed  securities  available for sale decreased by approximately  $0.1
million during the three months ended March 31, 2001, due to unrealized  holding
losses.  We currently  hold only those  securities  which are backed by loans in
WCC's servicing portfolio, as such investments provide operating leverage to our
core business.

     Loans and Discounted  Loans Held for Sale, Net, at Lower of Cost or Market.
In our Specialty  Servicing and Finance  Operations,  loans and discounted loans
held for sale, net, at lower of cost or market increased by  approximately  $2.4
million  during  the three  months  ended  March 31,  2001.  This  increase  was
primarily  due to purchases of  approximately  $5.6 million of loans,  partially
offset by sales of approximately $3.0 million and loan resolutions  occurring in
the ordinary course of business.

     Real Estate Owned,  net. Real estate owned,  net decreased by approximately
$0.3 million  during the three  months  ended March 31,  2001.  The decrease was
primarily due to sales of properties for proceeds of approximately $0.3 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  $0.3 million during the three months ended March 31,
2001.  This  decrease  was  primarily  due to  recoveries  by  WCC of  scheduled
principal and interest  advances on loans previously  made,  partially offset by
new advances made during the period.



                                       19
<PAGE>

     Mortgage servicing rights, net. Mortgage servicing rights, net increased by
approximately  $7.2 million  during the three  months ended March 31, 2001.  The
increase was due to purchases  of $8.2  million of servicing  rights  associated
with new servicing portfolio  acquisitions during the quarter,  partially offset
by amortization  of $1.0 million of such rights.  As discussed  previously,  the
decline  in  interest  rates  during  the  quarter   triggered  an  increase  in
prepayments of the underlying loans being serviced,  which, in turn, resulted in
accelerated amortization of our servicing rights.

     Short-Term  Borrowings  and  Long-Term  Investment  Financing.   Short-term
borrowings  and long-term  investment  financing in our Specialty  Servicing and
Finance Operations  increased by a total of $5.7 million during the three months
ended March 31, 2001.  This increase was primarily due to additional  borrowings
during the quarter,  to fund future  acquisitions  of  investments  and mortgage
servicing rights.

Liquidity and Capital Resources

     Liquidity  is the  measurement  of  our  ability  to  meet  potential  cash
requirements,   including  ongoing   commitments  to  repay   borrowings,   fund
investments,  purchase  pools of loans,  and make payments for general  business
purposes.  Our  sources of cash flow for our  Specialty  Servicing  and  Finance
Operations include servicing revenue, whole loan and mortgage-backed  securities
sales, net interest income, lines of credit from commercial banks and borrowings
from  institutional  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 March  31,  2001,  liquidity  in our  Specialty  Servicing  and  Finance
Operations  (including  cash and unused  borrowings  under our $8 million credit
facility)  totaled $4.0  million,  compared with  approximately  $5.6 million at
December 31, 2000.  Subsequent to quarter-end,  this credit facility was renewed
and increased to $12 million. In addition, we received credit approval,  subject
to  documentation,   for  a  $10  million  borrowing  facility  to  support  the
acquisition  of mortgage  servicing  rights.  Based on our current and  expected
asset size, capital levels, and organizational infrastructure,  we believe there
will be  sufficient  available  liquidity  to meet our  needs.  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.

     We no longer own  subordinated  mortgage-backed  securities  backed by loan
pools originated or serviced by unaffiliated  third parties,  and currently hold
subordinated  mortgage-backed  securities  only where we act as  servicer of the
loan pools backing these  securities.  At March 31, 2001 we held $6.3 million of
such  mortgage-backed  securities.  The related short-term  repurchase agreement
which financed these securities was repaid in full on February 15, 2001.

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

HOLDING COMPANY AND MISCELLANEOUS OPERATIONS

     Our Holding Company and Miscellaneous Operations consist of other operating
revenues and expenses not directly  attributable  to our Banking  Operations  or
Specialty  Servicing and Finance Operations,  and also includes  eliminations of
intercompany  accounts and transactions.  A primary source of liquidity includes
payments  received from FBBH pursuant to a tax allocation  agreement between the
Company and the Bank. However,  the OTS has limited the amount of these payments
to the lesser of (1) the Bank's  stand-alone tax liability and (2) the total tax
payments made by the Company.  In April 2001,  the Bank remitted $2.0 million to
the Company for prior years' liabilities.




                                       20
<PAGE>


IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS

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


                                       21
<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 the Bank (the "Asset and Liability  Committees") which meet to review, among
other things,  the  sensitivity  of our assets and  liabilities to interest rate
changes, the book and market values of assets and liabilities,  unrealized gains
and losses  (including  those  attributable to hedging  transactions),  purchase
activity,  and  maturities  of  investments  and  borrowings.  FBBH's  Asset and
Liability Committee  coordinates with the Bank's Board of Directors with respect
to overall asset and liability composition.

     The Asset and Liability Committees are authorized to utilize a wide variety
of off-balance  sheet  financial  techniques to assist them in the management of
interest rate risk.  These  techniques  include  interest rate swap  agreements,
pursuant to which the parties  exchange the  difference  between  fixed-rate and
floating-rate  interest payments on a specified principal amount (referred to as
the  "notional  amount")  for a specified  period  without  the  exchange of the
underlying  principal  amount.  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.  The Bank had  approximately  $18.2
million notional principal amount in an interest rate swap agreement outstanding
at March 31, 2001,  which was  designated as a hedge of certain fixed rate loans
in order to convert  fixed rate  income  streams on loans to variable  rate.  In
April 2001, this swap agreement expired.

     At times,  we have also 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. In general,  when a pool
of loans, securities or mortgage servicing rights is acquired, we will determine
whether or not to hedge and,  with  respect to any sale or financing of any pool
of loans through  securitization,  will determine  whether or not to discontinue
its duration-matched hedging activities with respect to the relevant assets.

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

     At March 31, 2001 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 March 31, 2001, should interest rates increase or decrease by
100 to 300 basis  points,  assuming  the yield curves of the rate shocks will be
parallel to each other.  The table does not include the net  portfolio  value of
our  Specialty  Servicing  and  Finance  Operations,  as  the  portfolio  is not
currently material to our consolidated operations and is not currently sensitive
to interest rate  fluctuations.  However,  it is anticipated that the effects of
interest rate  fluctuations on our Specialty  Servicing and Finance  Operations'
portfolio will temper such effects on the Bank's net portfolio value.


                                       22
<PAGE>


<TABLE>

                Interest Rate Sensitivity of Net Portfolio Value

                                                      Net Portfolio Value              NPV as % of Assets
                                              ------------------------------------   -----------------------
                                              $   Amount   $   Change   %   Change   NPV Ratio      Change
                                              ----------   ----------   ----------   ----------   ----------
        Change in Rates                              (Dollars in thousands)
<S>       <C>                                     <C>         <C>             <C>         <C>        <C>
         +300bp...............................    38,652      (24,459)        (39)%       6.29%      (336)bp
         +200bp...............................    47,730      (15,381)        (24)        7.60       (205)bp
         +100bp...............................    55,972       (7,139)        (11)        8.72        (93)bp
            0bp...............................    63,111            -           -         9.65          -
         -100bp...............................    69,339        6,228          10        10.41         76bp
         -200bp...............................    74,739       11,628          18        11.03        138bp
         -300bp...............................    80,215       17,104          27        11.64        199bp
</TABLE>

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



                                       23
<PAGE>



             WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES



PART II. OTHER INFORMATION

     Item 1.      Legal Proceedings.

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

     Item 2.      Changes in Securities.

                        Not applicable.


     Item 3.      Defaults Upon Senior Securities.

                        Not applicable.


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

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


     Item 5.      Other Information.

                        Not applicable.


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

                   (a)    Exhibits.
                             11   Statement re Computation of Per Share Earnings

                   (b)    Report on Form 8-K dated March 26, 2001, reporting the
                          date of the Company's annual stockholders meeting.


                                       24
<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: May 15, 2001


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


                                          By:      /s/   BRUCE A. WEINSTEIN
                                                   ----------------------------
                                                   Bruce A. Weinstein
                                                   Executive Vice President and
                                                   Chief Financial Officer


                                       25
<PAGE>

<TABLE>


                                                                                                        Exhibit 11

                                                                            Three Months            Three Months
                                                                               Ended                   Ended
                                                                           March 31, 2001          March 31, 2000
                                                                          ----------------        ----------------
                                                                          (Dollars in thousands, except share data)
Diluted net income per share:
<S>                                                                       <C>                     <C>
    Net income ....................................................       $            460        $          1,218
                                                                          ----------------        ----------------
    Average number of shares outstanding...........................             20,047,177              20,035,458
    Net effect of dilutive stock options - based on treasury stock.
      method                                                                       743,249                      --
                                                                          ----------------        ----------------
        Total average shares.......................................             20,790,426              20,035,458
                                                                          ================        ================
    Diluted net income per share...................................       $           0.02        $           0.06
                                                                          ================        ================
</TABLE>



                                       26