# UNITED STATES
SECURITIES
AND EXCHANGE COMMISSIONWashington,
D.C. 20549

---

# FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2002

# or

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

For the transition period from                    to

# Commission
file number 0-21845

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

|Delaware                                                       | 93-1223879                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
|                                                               |                                     
|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 July 31, 2002
|-------------------------------------- | ----------------------------
|Common Stock, par value $.01 per share | 18,152,995 shares           

# WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

                                                 INDEX

`PART I.        FINANCIAL INFORMATION

    Item 1.  Interim Condensed Consolidated Financial Statements (Unaudited):

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

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

             Consolidated Statements of Stockholders' Equity.....................5

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

             Notes to Interim Condensed Consolidated Financial Statements........8

    Item 2.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations...........................................17

    Item 3.  Quantitative and Qualitative Disclosures About Market Risk..........29

PART II. OTHER INFORMATION

    Item 1.  Legal Proceedings...................................................30

    Item 2.  Changes in Securities...............................................30

    Item 3.  Defaults Upon Senior Securities.....................................30

    Item 4.  Submission of Matters to a Vote of Security Holders.................30

    Item 5.  Other Information...................................................31

    Item 6.  Exhibits and Reports on Form 8-K....................................31`

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

`June 30,      December 31,
                                                                                       2002            2001
                                                                                   ------------    ------------
                                       ASSETS
Cash and cash equivalents......................................................... $     28,236    $     39,974
Government agency mortgage-backed securities available for sale, at fair value....       92,298          64,377
AAA mortgage-backed securities available for sale, at fair value..................      119,730          51,436
Other mortgage-backed securities available for sale, at fair value................        3,949           3,727
Investment securities available for sale, at fair value...........................       11,416           8,000
Treasury securities available for sale, at fair value.............................       10,481              --
Loans, net of allowance for loan losses of $8,154 and $8,384......................      465,115         526,070
Discounted loans, net of allowance for loan losses of $41,231 and $45,413.........        8,161          15,309
Stock in Federal Home Loan Bank of San Francisco, at cost.........................        9,740           9,475
Real estate owned, net............................................................          644             731
Leasehold improvements and equipment, net.........................................        3,135           3,198
Accrued interest receivable.......................................................        4,703           4,190
Servicer advance receivables, net.................................................       15,192          18,266
Service fees receivable...........................................................        3,192           3,100
Purchased mortgage servicing rights...............................................        5,980           8,473
Receivables from other loan servicers.............................................          938           1,788
Intangible assets, net............................................................        3,830           3,960
Prepaid expenses and other assets.................................................        7,617           7,966
                                                                                   ------------    ------------
          TOTAL................................................................... $    794,357    $    770,040
                                                                                   ============    ============


                        LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
     Noninterest-bearing deposits................................................. $      3,820    $      2,794
     Interest-bearing deposits....................................................      399,831         436,675
     Short-term borrowings........................................................       62,303           9,970
     Accounts payable and other liabilities.......................................       21,186          15,417
     FHLB advances................................................................      189,500         189,500
     Long-term investment financing...............................................        7,166          14,474
     Convertible subordinated debentures..........................................        7,690              --
     Investor participation liability.............................................        1,149             528
                                                                                   ------------    ------------
          Total liabilities.......................................................      692,645         669,358
                                                                                   ------------    ------------


MINORITY INTEREST.................................................................        9,387           9,262

COMMITMENTS AND CONTINGENCIES (NOTE 3)

STOCKHOLDERS' EQUITY:
     Preferred stock, $0.01 par value, 10,000,000 shares authorized, 0 shares
        outstanding...............................................................           --              --
     Common stock, $0.01 par value, 90,000,000 shares authorized, 20,382,791
        and 20,349,458 shares issued (including treasury shares of 4,168,854).....      105,796         105,530
     Treasury stock, 4,168,854 shares, at cost....................................      (10,005)        (10,005)
     Accumulated deficit..........................................................       (5,505)         (5,058)
     Accumulated other comprehensive income, net..................................        2,039             953
                                                                                   ------------    ------------
          Total stockholders' equity..............................................       92,325          91,420
                                                                                   ------------    ------------
          TOTAL................................................................... $    794,357    $    770,040
                                                                                   ============    ============

               See notes to unaudited interim condensed consolidated financial statements`

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

`June 30,                      June 30,
                                                                   ---------------------------   ---------------------------
                                                                       2002           2001           2002           2001
                                                                   ------------   ------------   ------------   ------------
INTEREST INCOME:
         Loans...................................................  $      9,638   $     12,751   $     20,483   $     26,423
         Mortgage-backed securities..............................         2,473            997          5,405          1,861
         Securities and federal funds sold.......................           300            785            640          1,183
                                                                   ------------   ------------   ------------   ------------
       Total interest income.....................................        12,411         14,533         26,528         29,467
                                                                   ------------   ------------   ------------   ------------
INTEREST EXPENSE:
         Deposits................................................         3,928          7,051          8,350         13,335
         Borrowings..............................................         3,234          2,711          6,505          5,181
                                                                   ------------   ------------   ------------   ------------
         Total interest expense..................................         7,162          9,762         14,855         18,516
                                                                   ------------   ------------   ------------   ------------
NET INTEREST INCOME..............................................         5,249          4,771         11,673         10,951
PROVISION FOR LOSSES ON LOANS....................................           223            135            236            285
                                                                   ------------   ------------   ------------   ------------
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS..........         5,026          4,636         11,437         10,666
                                                                   ------------   ------------   ------------   ------------
OTHER INCOME:
         Servicing income........................................         6,201          4,201         11,807          8,051
         Loan fees and charges...................................            29            885             71          1,865
         Real estate owned, net..................................           (65)            66           (111)          (177)
         Bankcard income, net....................................            --          1,381             --          2,286
         Gain on sale of loans...................................         2,436          1,018          2,480          1,504
         Loss on sale of securities..............................            --           (262)           (62)          (262)
         Market valuation losses and impairments.................        (1,373)            --         (1,373)            --
         Gain on sale of Bankcard Operations.....................            --          4,981             --          4,981
         Investor participation interest.........................        (1,219)          (287)        (1,545)          (709)
         Other, net..............................................          (232)          (274)           945          1,064
                                                                   ------------   ------------   ------------   ------------
         Total other income......................................         5,777         11,709         12,212         18,603
                                                                   ------------   ------------   ------------   ------------
OTHER EXPENSES:
         Compensation and employee benefits......................         6,177          7,135         11,818         14,181
         Professional services...................................         1,031          1,857          2,818          3,207
         Occupancy...............................................           539            503          1,082          1,046
         FDIC insurance premiums.................................           104            274            209            486
         Data processing.........................................           337            454            632            844
         Communication...........................................           290            334            602            723
         Insurance...............................................           275            293            554            541
         Corporate travel and development........................            79            132            169            245
         Depreciation............................................           437            565            859            919
         Amortization of intangibles.............................            64            123            129            393
         Postage and courier expense.............................           217            312            520            492
         Provision for litigation claims.........................            --             --          3,600             --
         Other general and administrative expenses...............           601            429          1,278          1,107
                                                                   ------------   ------------   ------------   ------------

         Total other expenses....................................        10,151         12,411         24,270         24,184
                                                                   ------------   ------------   ------------   ------------

INCOME (LOSS) BEFORE MINORITY INTEREST AND
     INCOME TAXES................................................           652          3,934           (621)         5,085
Minority interest................................................          (325)           574           (125)            14
                                                                   ------------   ------------   ------------   ------------
INCOME (LOSS) BEFORE INCOME TAXES................................           327          4,508           (746)         5,099
INCOME TAX PROVISION (BENEFIT)...................................             1          1,965           (299)         2,096
                                                                   ------------   ------------   ------------   ------------
NET INCOME (LOSS)................................................  $        326   $      2,543   $       (447)  $      3,003
                                                                   ============   ============   ============   ============

Earnings (loss) per share - basic................................  $       0.02   $       0.13   $      (0.03)  $       0.15
Earnings (loss) per share - diluted..............................  $       0.02   $       0.12   $      (0.03)  $       0.14

Weighted average shares outstanding - basic....................      16,196,365     20,079,125     16,188,615     20,063,239
Weighted average shares outstanding - diluted..................      21,379,651     21,427,492     16,188,615     21,163,601


               See notes to unaudited interim condensed consolidated financial statements`

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# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited)
(Dollars in thousands)

`Accumulated
                              Preferred Stock       Common Stock           Treasury Stock                        Other
                              ---------------  ----------------------  -----------------------  Accumulated  Comprehensive
                              Shares  Amount     Shares     Amount       Shares       Amount      Deficit       Income       Total
                              ------  -------  -----------  ---------  -----------  ----------  -----------  -------------  --------
BALANCE, January 1, 2002....      --  $    --   20,349,458  $ 105,530  (4,168,854)  $ (10,005)  $  (5,058)   $        953   $91,420
 Comprehensive income:
   Net loss................                                                                          (447)                     (447)
   Unrealized holding gains
     on available for sale
     securities - net of tax
     expense of $900 (1)....                                                                                        1,086       1,086
                                                                                                                            --------
 Total comprehensive income.                                                                                                    639
 Exercise of stock options..                        33,333         40                                                            40
    Receipt of income tax
      refund related to
      pre-reorganizational
      income (Note 4).......                                      226                                                           226
                              ------  -------  -----------  ---------  -----------  ----------  -----------  -------------  --------
BALANCE, June 30, 2002......      --  $    --   20,382,791  $ 105,796  (4,168,854)  $ (10,005)  $  (5,505)   $      2,039   $92,325
                              ======  =======  ===========  =========  ===========  ==========  ===========  =============  ========

(1) Includes reclassification adjustment for loss included in net loss of $16, net of tax benefit of $12.


               See notes to unaudited interim condensed consolidated financial statements`

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

`Six Months Ended
                                                                                          June 30,
                                                                                 ---------------------------
                                                                                     2002           2001
                                                                                 ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net (loss) income .........................................................   $       (447)  $      3,003
   Adjustments to reconcile net (loss) income to net cash provided by
      operating activities:
        Provision for losses on loans ........................................            236            285
        Provision for losses on real estate owned ............................             18             18
        Valuation allowance for mortgage servicing rights ....................            421            795
        Market valuation losses and impairments ..............................          1,373             --
        Depreciation and amortization ........................................            988          1,312
        Tax effect from utilization of net operating loss carryforward .......             --          1,831
        Loss on sale of real estate owned ....................................             88            157
        Gain on sale of loans ................................................         (2,480)        (1,504)
        Loss on sale of securities ...........................................             62            262
        Loss on disposal of equipment ........................................              6             60
        Loss on sale of mortgage servicing rights ............................             22             --
        Amortization (accretion) of discounts and deferred fees ..............          1,522           (169)
        Amortization of mortgage servicing rights ............................          1,868          2,589
        Federal Home Loan Bank stock dividends ...............................           (265)          (110)
        Minority interest ....................................................            125            (14)
      Change in:
        Servicer advance receivables .........................................          3,074          2,924
        Service fees receivable ..............................................            (92)          (545)
        Accrued interest receivable ..........................................           (513)           686
        Receivables from other loan servicers ................................            850         (8,676)
        Prepaid expenses and other assets ....................................            564         (2,588)
        Accounts payable and other liabilities ...............................          4,965          2,595
        Investor participation liability .....................................            621            702
                                                                                 ------------   ------------
             Net cash provided by operating activities .......................         13,006          3,613
                                                                                 ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of loans ....................................................             --       (150,137)
        Proceeds from sale of loans ..........................................             --         32,101
        Loan repayments ......................................................        106,846        117,695
        Loan originations ....................................................        (44,938)       (30,411)
        Purchase of discounted loans .........................................            (10)        (7,418)
        Proceeds from sale of discounted loans ...............................          7,395          6,912
        Purchase of mortgage-backed securities available for sale ............       (131,979)        (6,343)
        Proceeds from sale of mortgage-backed securities available for sale ..         19,513          1,271
        Repayment of mortgage-backed securities available for sale ...........         15,345         14,110
        Purchase of investment securities available for sale .................        (13,731)            --
        Proceeds from sale of real estate owned ..............................            498            996
        Purchase of FHLB stock ...............................................             --         (1,000)
        Purchases of leasehold improvements and equipment ....................           (819)          (910)
        Proceeds from sale of leasehold improvements and equipment ...........             17            126
        Purchase of mortgage servicing rights ................................           (115)       (11,926)
        Proceeds from sale of mortgage servicing rights ......................            297             --
                                                                                 ------------   ------------
             Net cash used in investing activities ...........................        (41,681)       (34,934)
                                                                                 ------------   ------------


               See notes to unaudited interim condensed consolidated financial statements`

- 6 -

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

`Six Months Ended
                                                                                          June 30,
                                                                                 ---------------------------
                                                                                     2002           2001
                                                                                 ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Net (decrease) increase in deposits...................................   $    (35,818)  $    114,743
        Proceeds from FHLB advances...........................................             --         20,000
        Repayments of FHLB advances...........................................             --        (13,000)
        Net increase (decrease) in short-term borrowings......................         52,333         (3,328)
        Proceeds from long-term financing ....................................          2,444          7,344
        Repayment of long-term financing......................................         (9,752)        (2,296)
        Issuance of convertible subordinated debentures.......................          7,690             --
        Issuance of common stock pursuant to exercise of stock options........             40             46
                                                                                 ------------   ------------
             Net cash provided by financing activities........................         16,937        123,509
                                                                                 ------------   ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..........................        (11,738)        92,188
CASH AND CASH EQUIVALENTS:
        Beginning of period...................................................         39,974          9,516
                                                                                 ------------   ------------
        End of period.........................................................   $     28,236   $    101,704
                                                                                 ============   ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash  paid for:
        Interest..............................................................   $     15,292   $     15,596
        Income taxes..........................................................            423            450
NONCASH INVESTING ACTIVITIES:
        Additions to real estate owned acquired in settlement of loans........            517          1,449




               See notes to unaudited interim condensed consolidated financial statements`

- 7 -

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# WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED 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 its subsidiaries (WFSG or the
Company) are unaudited and should be read in conjunction with the
2001 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 2001 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 condensed consolidated financial statements, have
been included and all intercompany accounts and transactions have been
eliminated in consolidation. Operating results for the six months ended June 30,
2002 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2002.

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 amounts and results could differ from those estimates.

Certain
reclassifications of 2001 amounts were made in order to conform to the 2002
presentation, none of which affect previously reported net income.

## 2. SETTLEMENT
OF LITIGATION

On
May 13, 2002, the Company entered into a settlement agreement to resolve all
issues with all of the plaintiffs in various legal actions filed against the
Company arising from the financial collapse of Capital Consultants LLC
(CCL). The settlement agreement also provides for the Company to
enter into a purchase agreement to purchase the 49.99% minority interest in the
Companys subsidiary, Wilshire Credit Corporation (WCC). On
June 19, 2002, the settlement agreement and agreement to purchase the minority
interest in WCC were approved by the Federal District Court for the State of
Oregon. The execution of the settlement agreement does not affect WFSGs
complete denial of all such claims.

Under
the settlement agreement, the claimants release the Company and all of its
subsidiaries, as well as their present and former officers and directors, from
all liability. The legal actions are to be dismissed after the plaintiffs
complete various requirements which will entitle them to disbursement of the
settlement proceeds. The settlement agreement also includes provisions to
protect the Company in any future legal proceedings which the claimants may
pursue against other parties.

The
principal terms of the settlement provide that the Company, certain other
parties and their respective insurers will pay to the claimants $29.5 million
plus a share of the proceeds from a sale of real property. A portion of these
funds will be held in trust to protect the Company and other parties against
potential residual claims which might arise from claimants actions against
other non-settling parties.

In
addition, the Company will purchase from CCLs receiver a 49.99% equity
interest in WCC for $10.5 million. Upon completion of this purchase, WCC will
become a wholly-owned subsidiary of WFSG. The liquidation bond associated with
this minority interest, which would have entitled the holder thereof to a $19.3
million preference upon liquidation of WCC and the right to convert such
interest into the Companys common stock, will be terminated.

- 8 -

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

The
Companys cash cost of the settlement and stock acquisition will total
approximately $15 million plus a share of the proceeds from the above-mentioned
sale of real property. For the six-month period ended June 30, 2002, the Company
recorded charges of $3.6 million in connection with the settlement and minority
interest acquisition and approximately $0.8 million in legal fees relating to
the settlement and to the defense costs of some of its former executives. In
addition, the Company recorded approximately $0.55 million in legal fees and
expenses, net of insurance reimbursement, associated with finalizing and
implementing this settlement. The settlement is expected to eliminate most of
the Companys future costs arising from the financial collapse of CCL.
However, the Company does expect to incur additional expenses in connection with
legal costs for prior officers arising from the events that gave rise to the
litigation. The Company expects to fund its entire portion of the settlement in
the third quarter of 2002.

## 3.
COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK

At
June 30, 2002, the Companys banking subsidiary, First Bank of Beverly
Hills, F.S.B. (FBBH or the Bank), had outstanding
commitments to fund $10.4 million in new mortgage loans and to purchase $12.6
million in loans.

The
Company may be liable under an indemnification agreement for additional defense
costs (related to the previously-discussed litigation) on behalf of some of its
former executives.

## 4. INCOME TAXES

The
Company files consolidated federal income tax returns with its eligible
subsidiaries. For tax years through the year ended December 31, 2001, WCC was
not eligible to be included in WFSGs consolidated federal income tax
return because it did not meet the required ownership threshold of 80% (the
Companys economic interest was 50.01%). Assuming consummation of the
purchase of WCCs minority interest described above, WCC will be included
in the Companys consolidated tax return for the portion of
the 2002 tax year subsequent to the purchase since WFSG will then own 100% of WCC.

The Company  recorded a current net income tax benefit of  approximately  $0.3 million for the six
months ended June 30, 2002. During
the first quarter of 2002, the Company determined that it was due a refund of
approximately $0.6 million in federal income taxes pursuant to the filing of
amended tax returns for the years 1998-2000. In accordance with Accounting
Principles Board Opinion No. 28, the Company will recognize the benefit of
approximately $0.4 million of such refund relating to WFSGs
post-reorganizational period over the full year ending December 31, 2002 through
a reduction in its overall effective tax rate for the year. 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 timing differences between amounts that
have been recognized in the financial statements and amounts that have been
recognized in the income tax returns. On an annual basis, the Company evaluates
its net deferred tax asset and records decreases (increases) as a deferred tax
provision (benefit) in the consolidated statement of operations.

The
Company established a valuation allowance against the net deferred tax asset at
its restructuring date (June 10, 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. 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 at June 30, 2002 was
approximately $55.1 million. This amount reflects a reduction for cancellation
of indebtedness income that was excluded from taxable income in 1999.

- 9 -

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

During
the quarter ended June 30, 2002 and based upon preliminary calculations, the
Company believes it experienced a change in control as set forth by Section 382
of the Internal Revenue Code. In general, a change in control is defined as a
greater than 50% ownership shift as measured over the prior three-year period.
The change in control would limit the Companys ability to utilize certain
tax attributes, such as net operating loss and capital loss carryforwards, in
future periods. The Company is currently in the process of finalizing
calculations relating to the application of the annual limitation and, if the
annual limitation applies, quantifying the annual limitation on its tax
attributes.

At
December 31, 2001, WCC had net operating loss carryforwards of approximately
$0.9 million that may be available to offset taxable income. When WFSG acquires
the remaining minority interest in WCC, any tax attributes of WCC may be subject
to limitation as set forth by the Internal Revenue Code and applicable
regulations. At the time of acquisition, WFSG will calculate any tax attributes
available and reflect any such limitation in the financial statements as
appropriate.

## 5. SIGNIFICANT
TRANSACTIONS

During
the quarter and six-month periods ended June 30, 2002, the Bank purchased
approximately $36 million and $146 million, respectively, of federal agency and
AAA-rated mortgage-backed securities.

In
June 2002 our Specialty Servicing and Finance Operations sold $10.6 million in
aggregate unpaid principal balance of loans for a total gain of approximately
$2.4 million. Since these loans were purchased with a co-investor, approximately
one-half of the gain on sale was shared with the co-investor and included in
Investor participation interest in the consolidated statements of
operations.

In
June 2002 the Bank redeemed $5.0 million in preferred stock held by WFSG through
the Companys wholly-owned subsidiary, Wilshire Acquisitions Corporation
(WAC). The proceeds from this redemption will be used to fund a
portion of the Companys settlement agreement payment obligation and
minority interest purchase described in Note 2.

## 6. MARKET
VALUATION LOSSES AND IMPAIRMENTS

In
March and April 2002, the Bank purchased a total of $8.5 million in
interest-only federal agency-guaranteed mortgage backed securities (I/Os) to
hedge the Banks exposure to possible increases in interest rates. The Bank
has classified the I/Os as available-for-sale in its portfolio of investment
securities. As of June 30, 2002, the fair market value of the I/Os had declined
to an estimated $6.2 million. Since this impairment was deemed to be other than
temporary, the write-down of $1.4 million has been reflected as Market
valuation losses and impairments in the accompanying statements of
operations for the quarter and six-month periods ended June 30, 2002, and not as
a direct reduction to stockholders equity.

## 7. PER SHARE
DATA

Basic
earnings per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
per share is computed by dividing net income by the weighted average number of
common shares and potential dilutive stock options and convertible debentures
outstanding during the period. Following is a reconciliation of the number of
shares used in the calculation of basic and diluted earnings per share for the
quarters and six-month periods ended June 30, 2002 and 2001. For the six months
ended June 30, 2002, the Company incurred a net loss, which resulted in common
stock equivalents having an anti-dilutive effect on loss per share. Therefore,
the weighted-average number of common shares outstanding was equivalent for both
basic and diluted loss per share.

- 10 -

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

`Quarter Ended                   Six Months Ended
                                                               June 30,                         June 30,
                                                     ----------------------------    ----------------------------
                                                         2002            2001            2002            2001
                                                     ------------    ------------    ------------    ------------
Basic earnings (loss) per share:
Net income (loss)..............................      $        326    $      2,543    $       (447)   $      3,003
Weighted average number of common shares
   outstanding - basic.........................        16,196,365      20,079,125      16,188,615      20,063,239
                                                     ------------    ------------    ------------    ------------
Net income (loss) per share - basic............      $       0.02    $       0.13    $      (0.03)   $       0.15
                                                     ============    ============    ============    ============

Diluted earnings (loss) per share:
Net income (loss)..............................      $        326    $      2,543    $       (447)   $      3,003
Tax-effected interest expense attributable to 8%
   Convertible Debentures......................               101              --             N/A              --
                                                     ------------    ------------    ------------    ------------
Net earnings (loss) assuming dilution..........      $        427    $      2,543    $       (447)   $      3,003
                                                     ------------    ------------    ------------    ------------
Weighted average number of common shares
   outstanding.................................        16,196,365      20,079,125      16,188,615      20,063,239
Effect of potentially dilutive securities:
   8% Convertible Debentures...................         3,396,416              --             N/A              --
   Outstanding stock options...................         1,786,870       1,348,367             N/A       1,100,362
                                                     ------------    ------------    ------------    ------------
Weighted average number of common shares
   outstanding - diluted.......................        21,379,651      21,427,492      16,188,615      21,163,601
                                                     ------------    ------------    ------------    ------------
Net income (loss) per share - diluted..........      $       0.02    $       0.12    $      (0.03)   $       0.14
                                                     ============    ============    ============    ============`

## 8. 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
banking business focused primarily on specialty-niche products, including
small-balance commercial and multi-family real estate lending and acquisitions
of mortgage-backed securities. The primary sources of liquidity for the
Banks acquisitions and originations are wholesale certificates of deposit,
retail deposits, FHLB advances and repurchase agreements. The Bank is a
federally chartered savings bank and is regulated by the Office of Thrift
Supervision (OTS). At June 30, 2002, FBBH had total assets of
approximately $746.7 million.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 servicing
operations of WCC. Together, WCC and WFC are referred to as Specialty
Servicing and Finance Operations. As of June 30, 2002, the Companys
Specialty Servicing and Finance Operations serviced approximately $3.9 billion
principal balance of residential and commercial mortgage pools for approximately
700 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 cash flows 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. Primary
sources of liquidity include funds available from the Companys
wholly-owned non-bank subsidiaries and 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.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 11 -

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

Segment data for the quarters ended June 30, 2002 and 2001 are as follows:

`Three Months Ended June 30, 2002
                                                                 -----------------------------------------------------------------
                                                                                                      Holding
                                                                                    Specialty       Company and
                                                                                  Servicing and    Miscellaneous
                                                                    Banking          Finance         Operations         Total
                                                                 --------------   --------------   --------------   --------------
  Interest income ............................................   $       11,135   $        1,243   $           33   $       12,411
  Interest expense ...........................................            6,770              294               98            7,162
                                                                 --------------   --------------   --------------   --------------
  Net interest income (expense) ..............................            4,365              949              (65)           5,249
  Provision for loan losses ..................................               --              223               --              223
                                                                 --------------   --------------   --------------   --------------
  Net interest income (expense) after provision for loan
     losses ..................................................            4,365              726              (65)           5,026
  Other (loss) income ........................................           (1,404)           7,273              (92)           5,777
  Other expense ..............................................            2,320            6,829            1,002           10,151
                                                                 --------------   --------------   --------------   --------------
  Income (loss) before minority interest and taxes ...........              641            1,170           (1,159)             652
  Minority interest ..........................................               --               --             (325)            (325)
                                                                 --------------   --------------   --------------   --------------
  Income (loss) before taxes .................................              641            1,170           (1,484)             327
  Income tax provision (benefit) .............................              255               --             (254)               1
                                                                 --------------   --------------   --------------   --------------
  Net income (loss) ..........................................   $          386   $        1,170   $       (1,230)  $          326
                                                                 ==============   ==============   ==============   ==============
  Total assets ...............................................   $      746,364   $       54,772   $       (6,779)  $      794,357
                                                                 ==============   ==============   ==============   ==============




                                                                                 Three Months Ended June 30, 2001
                                                                 -----------------------------------------------------------------
                                                                                                      Holding
                                                                                    Specialty       Company and
                                                                                  Servicing and    Miscellaneous
                                                                    Banking          Finance         Operations         Total
                                                                 --------------   --------------   --------------   --------------
  Interest income ............................................   $       13,673   $          792   $           68   $       14,533
  Interest expense ...........................................            9,474              318              (30)           9,762
                                                                 --------------   --------------   --------------   --------------
  Net interest income ........................................            4,199              474               98            4,771
  Provision for (recapture of) loan losses ...................              150              (15)              --              135
                                                                 --------------   --------------   --------------   --------------
  Net interest income after provision for (recapture
     of) loan losses .........................................            4,049              489               98            4,636
  Other income ...............................................            6,666            4,345              698           11,709
  Other expense ..............................................            5,255            6,128            1,028           12,411
                                                                 --------------   --------------   --------------   --------------
  Income (loss) before minority interest and taxes ...........            5,460           (1,294)            (232)           3,934
  Minority interest ..........................................               --               --              574              574
                                                                 --------------   --------------   --------------   --------------
  Income (loss) before taxes .................................            5,460           (1,294)             342            4,508
  Income tax provision (benefit) .............................            2,348               --             (383)           1,965
                                                                 --------------   --------------   --------------   --------------
  Net income (loss) ..........................................   $        3,112   $       (1,294)  $          725   $        2,543
                                                                 ==============   ==============   ==============   ==============
  Total assets ...............................................   $      769,803   $       61,723   $       (3,358)  $      828,168
                                                                 ==============   ==============   ==============   ==============`

- 12 -

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

Segment data for the six months ended June 30, 2002 and 2001 are as follows:

`Six Months Ended June 30, 2002
                                                                 -----------------------------------------------------------------
                                                                                                      Holding
                                                                                    Specialty       Company and
                                                                                  Servicing and    Miscellaneous
                                                                    Banking          Finance         Operations         Total
                                                                 --------------   --------------   --------------   --------------
  Interest income ............................................   $       23,086   $        3,121   $          321   $       26,528
  Interest expense ...........................................           13,996              675              184           14,855
                                                                 --------------   --------------   --------------   --------------
  Net interest income ........................................            9,090            2,446              137           11,673
  Provision for loan losses ..................................               --              236               --              236
                                                                 --------------   --------------   --------------   --------------
  Net interest income after provision for loan losses ........            9,090            2,210              137           11,437
  Other (loss) income ........................................           (1,229)          13,636             (195)          12,212
  Other expense ..............................................            4,580           13,913            5,777           24,270
                                                                 --------------   --------------   --------------   --------------
  Income (loss) before minority interest and taxes ...........            3,281            1,933           (5,835)            (621)
  Minority interest ..........................................               --               --             (125)            (125)
                                                                 --------------   --------------   --------------   --------------
  Income (loss) before taxes .................................            3,281            1,933           (5,960)            (746)
  Income tax provision (benefit) .............................            1,349               --           (1,648)            (299)
                                                                 --------------   --------------   --------------   --------------
  Net income (loss) ..........................................   $        1,932   $        1,933   $       (4,312)  $         (447)
                                                                 ==============   ==============   ==============   ==============
  Total assets ...............................................   $      746,364   $       54,772   $       (6,779)  $      794,357
                                                                 ==============   ==============   ==============   ==============




                                                                                  Six Months Ended June 30, 2001
                                                                 -----------------------------------------------------------------
                                                                                                      Holding
                                                                                    Specialty       Company and
                                                                                  Servicing and    Miscellaneous
                                                                    Banking          Finance         Operations         Total
                                                                 --------------   --------------   --------------   --------------
  Interest income ............................................   $       27,207   $        2,145   $          115   $       29,467
  Interest expense ...........................................           18,123              436              (43)          18,516
                                                                 --------------   --------------   --------------   --------------
  Net interest income ........................................            9,084            1,709              158           10,951
  Provision for (recapture of) loan losses ...................              300              (15)              --              285
                                                                 --------------   --------------   --------------   --------------
  Net interest income after provision for (recapture
     of) loan losses .........................................            8,784            1,724              158           10,666
  Other income ...............................................            8,230            9,752              621           18,603
  Other expense ..............................................           11,115           11,545            1,524           24,184
                                                                 --------------   --------------   --------------   --------------
  Income (loss) before minority interest and taxes ...........            5,899              (69)            (745)           5,085
  Minority interest ..........................................               --               --               14               14
                                                                 --------------   --------------   --------------   --------------
  Income (loss) before taxes .................................            5,899              (69)            (731)           5,099
  Income tax provision (benefit) .............................            2,537               --             (441)           2,096
                                                                 --------------   --------------   --------------   --------------
  Net income (loss) ..........................................   $        3,362   $          (69)  $         (290)  $        3,003
                                                                 ==============   ==============   ==============   ==============
  Total assets ...............................................   $      769,803   $       61,723   $       (3,358)  $      828,168
                                                                 ==============   ==============   ==============   ==============`

- 13 -

---

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

## 9. INTANGIBLE
ASSETS

In
June 2000, FBBH acquired a branch location and recorded goodwill of $3,393 and a
core deposit intangible of $1,294. Through December 31, 2001, the goodwill was
amortized on a straight-line basis over an estimated useful life of 15 years. In
January 2002 the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets,
and, as a result, no longer amortizes goodwill, but tests it at least annually
for impairment. The Company will continue to amortize the core deposit
intangible over an estimated useful life of 5 years.

Following is a summary of the Company's intangible assets:

`Intangible Assets

                                                                As of June 30, 2002
                                                       ------------------------------------
                                                        Gross Carrying       Accumulated
                                                            Amount           Amortization
                                                       ----------------    ----------------

               Goodwill.............................   $          3,393    $           (339)
               Core deposit intangible..............              1,294                (518)
                                                       ----------------    ----------------
                  Total.............................   $          4,687    $           (857)
                                                       ================    ================`

For
the quarter and six months ended June 30, 2002 the Company recorded amortization
expense of $64 and $129, respectively, related to the core deposit intangible.
The estimated amortization of the June 30, 2002 balance for the remainder of
2002 and the five succeeding fiscal years is $129 (2002), $259 (2003), $259
(2004), $129 (2005), and none thereafter.

There
were no changes in the carrying value of goodwill during the quarter or six
months ended June 30, 2002. The Company tested goodwill for impairment in the
second quarter of 2002 and determined that no impairment valuation was required.

The
Companys purchased mortgage servicing rights (MSRs) totaled approximately
$6.0 million at June 30, 2002, $8.5 million at December 31, 2001, and $13.1
million at June 30, 2001. Amortization expense for MSRs was $0.9 million and
$1.5 million, respectively, for the quarter and six months ended June 30, 2002,
and $1.9 million $2.6 million, respectively, for the quarter and six months
ended June 30, 2001. The estimated amortization expense of the June 30, 2002
balance of MSRs for the remainder of 2002 and the five succeeding fiscal years
is $1.3 million (2002), $1.8 million (2003), $1.1 million (2004), $0.7 million
(2005), $0.4 million (2006) and $0.3 million (2007). The estimated amortization
expense is based only on currently held MSRs and on current information
regarding loan payments and prepayments. Actual results may vary as a result of
changes in the rate of prepayments and other market factors.

SFAS
No. 142 requires disclosure of what reported net income would have been in all
periods presented exclusive of amortization expense (including any related tax
effects) recognized in those periods related to goodwill, intangible assets that
are no longer being amortized, any deferred credit related to an excess over
cost, equity method goodwill, and changes in amortization periods for intangible
assets that will continue to be amortized (including any related tax effects).
The Companys amortization expense and net (loss) income for the quarters
and six-month periods ended June 30, 2002 and 2001 were as follows (net of
income taxes):

`Quarter Ended                 Six Months Ended
                                                              June 30,                       June 30,
                                                     ---------------------------    ---------------------------
                                                         2002           2001            2002           2001
                                                     ------------   ------------    ------------   ------------
Amortization of goodwill..........................   $         --   $        (20)   $         --   $       (126)
Amortization of deferred acquisition costs........             --            (15)             --            (30)
Amortization of core deposit intangible...........            (42)           (38)            (85)           (76)
Amortization of MSRs..............................           (580)          (911)         (1,225)        (1,528)
Net income (loss).................................   $        326   $      2,543    $       (447)  $      3,003`

- 14 -

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

Below
is a reconciliation of reported net income to adjusted net income (including
per-share amounts) showing the pro-forma effect if SFAS No. 142 had been adopted
in the prior year:

`Quarter Ended                Six Months Ended
                                                                       June 30,                      June 30,
                                                              ---------------------------   ---------------------------
                                                                  2002           2001           2002           2001
                                                              ------------   ------------   ------------   ------------
Reported net income (loss) .................................  $        326   $      2,543   $       (447)  $      3,003
Add back: Amortization of goodwill .........................            --             20             --            126
Add back: Amortization of deferred acquisition costs .......            --             15             --             30
                                                              ------------   ------------   ------------   ------------
Adjusted net income (loss) .................................  $        326   $      2,578   $       (447)  $      3,159
                                                              ============   ============   ============   ============

Basic earnings (loss) per share:
Reported net income (loss) .................................  $       0.02   $       0.13   $      (0.03)  $       0.15
Amortization of goodwill ...................................            --             --             --           0.01
Amortization of deferred acquisition costs .................            --             --             --             --
                                                              ------------   ------------   ------------   ------------
Adjusted net income (loss) .................................  $       0.02   $       0.13   $      (0.03)  $       0.16
                                                              ============   ============   ============   ============

Diluted earnings (loss) per share:
Reported net income (loss) .................................  $       0.02   $       0.12   $      (0.03)  $       0.14
Amortization of goodwill ...................................            --             --             --           0.01
Amortization of deferred acquisition costs .................            --             --             --             --
                                                              ------------   ------------   ------------   ------------
Adjusted net income (loss) .................................  $       0.02   $       0.12   $      (0.03)  $       0.15
                                                              ============   ============   ============   ============`

## 10. NEW
ACCOUNTING PRONOUNCEMENTS

In
April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. SFAS No. 145 rescinds
Statement 4, which required all gains and losses from extinguishments of debt to
be aggregated and, if material, classified as an extraordinary item, net of
related income tax effect. As a result, gains and losses from extinguishments of
debt should be classified as extraordinary items only if they meet the criteria
in APB Opinion 30. Statement 64 amended Statement 4 and is no longer necessary
because Statement 4 has been rescinded. Statement 44 was issued to establish
accounting requirements for the effects of transition to the provisions of the
Motor Carrier Act of 1980. Those transitions have been completed; therefore,
Statement 44 is no longer necessary. SFAS No. 145 also amends Statement 13 to
require that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. SFAS No. 145 also makes technical corrections to
existing pronouncements. The changes with respect to the reporting of gains and
losses from extinguishments of debt are effective for fiscal years beginning
after May 15, 2002, and the changes in the accounting for leases are effective
for lease transactions entered into after May 15, 2002. The Company does not
believe that the adoption of SFAS No. 145 will have a material impact on its
financial position or results of operations.

In
June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146 eliminates the definition and requirement
for recognition of exit costs in Emerging Issues Task Force Issue No. 94-3,
which required that a liability for an exit cost be recognized at the date of an
entitys commitment to an exit plan. This statement is effective for exit
or disposal activities initiated after December 31, 2002. The Company does not
believe that the adoption of SFAS No. 146 will have a material impact on its
results of operations, financial position or cash flows.

- 15 -

---

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

## 11. SUBSEQUENT
EVENTS

On
July 11, 2002, the Companys wholly-owned subsidiary, WAC, issued $20
million principal amount of thirty-year floating rate junior subordinated debt
in connection with its participation in a multi-issuer private placement of
trust pass through securities, issued by TPref Funding I, Ltd. The terms of the
long-term borrowing provide for the payment of interest quarterly at a rate
equal to the then previous three-month LIBOR rate plus 3.65% (approximately 5.5%
initially) and for the repayment of principal at maturity. The borrowing may be
prepaid after July 11, 2007 (in whole or in part) at par. A total of $5.1
million of the proceeds were used to repurchase Company stock as discussed
below. The remainder of the proceeds of the borrowing will be used primarily to
fund the cash costs associated with the Companys purchase of the minority
interest in WCC and for general corporate purposes. The purchase of the minority
interest in WCC is pursuant to the litigation settlement agreement which WFSG
entered into on May 13, 2002 (see Note 2).

On
July 11, 2002, the Company funded its $4.5 million portion of the settlement
agreement in discussed in Note 2. The amount was paid to a trust
established by the plaintiffs in the litigation.

On
July 15, 2002, the Company converted its $7.69 million in 8% convertible
subordinated debentures due December 15, 2005 into common stock pursuant to
elections of the holders of the debentures. Pursuant to this conversion, a total
of 3,396,416 shares of WFSG common stock were issued to the holders of the
debentures, and the debentures were canceled. The debentures were issued in
January and February 2002 to provide the majority of the financing for the
Companys December 2001 repurchase of approximately 4.2 million shares of
its common stock.

On
July 24, 2002, the Company repurchased a total of 1,457,358 shares of its common
stock from Thrivent Financial for Lutherans (TFL, formerly known as
Lutheran Brotherhood). These shares represented TFLs entire interest in
the Companys common stock, or approximately 7% of the total WFSG shares
previously outstanding. The purchase price for the shares was approximately $5.1
million, or $3.50 per share.

In
August 2002, the Federal Home Loan Bank of San Francisco (FHLB)
increased the Banks authorized borrowing limit for FHLB advances from 25%
to 30% of the Banks total assets as of the previous quarter-end.

- 16 -

---

# 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 Interim
Condensed 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 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.

RESULTS OF  OPERATIONS--QUARTER  AND SIX MONTHS  ENDED JUNE 30, 2002  COMPARED TO QUARTER AND SIX MONTHS
ENDED JUNE 30, 2001

Our
consolidated net income was approximately $0.3 million, or $0.02 per basic
share, for the quarter ended June 30, 2002, compared with $2.5 million, or $0.13
per basic share, for the quarter ended June 30, 2001. The decrease was primarily
due to net gains of $4.7 million in the 2001 period on FBBHs June 2001
sales of its Bankcard processing and Mortgage Banking divisions. Excluding the
effects of this one-time gain and the operations of these divisions prior to
their sale, our pre-tax income from recurring operations increased by
approximately $1.3 million from the quarter ended June 30, 2001 to the quarter
ended June 30, 2002. This improvement in core earnings for the second quarter of
2002 reflects a $2.0 million increase in servicing income and an increase in
gains on loan sales over the second quarter of 2001. However, the declining
interest-rate environment has continued to have a negative impact on our
operations, resulting in a $1.4 million impairment loss on certain investment
securities in our Banking segment (although the overall investment securities
portfolio has shown unrealized holding gains, which are reflected as a direct
increase to stockholders equity). In addition, the decline in rates has
impeded the growth in net servicing income in our Specialty Servicing and
Finance Operations due to rapid borrower prepayments on the underlying loans in
the servicing portfolio.

For
the six months ended June 30, 2002, we incurred a net loss of approximately $0.4
million, or $0.03 per basic share, compared with net income of approximately
$3.0 million, or $0.15 per basic share, for the six months ended June 30, 2001.
Our loss for the first six months of 2002 resulted from $3.6 million in
estimated charges and approximately $0.6 million in legal fees incurred in the
first quarter relating to the settlement of litigation arising from events prior
to our June 1999 restructuring, and approximately $0.2 million in legal fees
which were advanced to some of the Companys former executives for their
defense costs related to such litigation. In addition, the Company recorded
$0.55 million in estimated legal fees and expenses associated with finalizing
and implementing this settlement, net of reimbursements from insurance. The
Company believes that this settlement agreement resolves all of the outstanding
issues pertaining to this litigation, and that any ongoing expenses associated
with the settlement and its implementation will not have a material impact on
WFSGs financial condition or results of operations. However, the Company
does expect to incur additional expenses in connection with legal costs for
prior officers arising from the events that gave rise to the litigation.
Excluding the effects of this litigation and the one-time net gain on the June
2001 sales of the Bankcard processing and Mortgage Banking divisions (and the
operating results of these divisions prior to their sale), our pre-tax operating
income from recurring items was approximately $3.4 million for the six months
ended June 30, 2002, compared with a loss of $0.1 million for the six months
ended June 30, 2001. This increase in our core operating results was primarily
due to an increase in servicing income of approximately $3.8 million, in
addition to increases in loan sales and net interest income, partially offset by
the $1.4 million impairment loss discussed above.

- 17 -

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Following is a discussion of the operating  results of the  Company's two business  segments:  our
Banking Operations and our Specialty Servicing and Finance Operations.

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

The
following table compares operating income before taxes for FBBH for the quarters
and six-month periods ended June 30, 2002 and 2001 (dollars in thousands):

`Quarter Ended June 30,                Six Months Ended June 30,
                                     ------------------------------------   ------------------------------------
                                                                Increase                               Increase
                                        2002         2001      (Decrease)      2002         2001      (Decrease)
                                     ----------   ----------   ----------   ----------   ----------   ----------
Interest income ...................  $   11,135   $   13,673   $   (2,538)  $   23,086   $   27,207   $   (4,121)
Interest expense ..................       6,770        9,474       (2,704)      13,996       18,123       (4,127)
                                     ----------   ----------   ----------   ----------   ----------   ----------
Net interest income ...............       4,365        4,199          166        9,090        9,084            6
Provision for loan losses .........          --          150         (150)          --          300         (300)
                                     ----------   ----------   ----------   ----------   ----------   ----------
Net interest income after
  provision for loan losses .......       4,365        4,049          316        9,090        8,784          306
Other (loss) income ...............      (1,404)       6,666       (8,070)      (1,229)       8,230       (9,459)
Other expense .....................       2,320        5,255       (2,935)       4,580       11,115       (6,535)
                                     ----------   ----------   ----------   ----------   ----------   ----------
Income before taxes ...............  $      641   $    5,460   $   (4,819)  $    3,281   $    5,899   $   (2,618)
                                     ==========   ==========   ==========   ==========   ==========   ==========`

Net Interest Income
        The
Banks net interest income was approximately $4.4 million for the quarter
ended June 30, 2002, compared with $4.2 million for the quarter ended June 30,
2001. For the six months ended June 30, 2002, the Banks net interest
income was approximately $9.1 million, compared with a similar result for the
six months ended June 30, 2001.

The
Banks net interest spread and interest margin did not change significantly
for the periods, as the decline in rates impacted its interest-earning assets to
a roughly similar extent as its interest-bearing liabilities. The Banks
net interest spread increased from 1.89% for the quarter ended June 30, 2001 to
1.97% for the quarter ended June 30, 2002, and the interest margin increased
from 2.39% to 2.45% for the same periods. For the six-month periods ended June
30, 2001 and 2002, interest spread decreased from 2.17% to 2.05%, respectively,
and interest margin decreased from 2.74% to 2.55% for the same periods.

The
Banks interest income on loans decreased by $3.7 million from the second
quarter of 2001 to the second quarter of 2002 and by $6.8 million from the six
months ended June 30, 2001 to the six months ended June 30, 2002, as the drop in
interest rates triggered both an acceleration of prepayments on FBBHs
fixed-rate loans and repricing of its variable-rate loans. Consequently, the
average loan balance declined by $81.9 million from the six months ended June
30, 2001 to the six months ended June 30, 2002, and the yield decreased by 132
basis points, from 8.54% to 7.22%, for the same periods.

Interest
income on investment securities increased by $1.7 million and $3.2 million,
respectively, from the quarter and six months ended June 30, 2001 to the
corresponding 2002 periods, primarily as a result of purchases of $146 million
in federal agency and AAA-rated mortgage-backed securities during the first six
months of 2002. However, the Banks yield on these investments decreased by
265 basis points from the second quarter of 2001 to the second quarter of 2002
and by 220 basis points from the first six months of 2001 to the first six
months of 2002, partially offsetting the higher asset volume. The Bank incurred
net interest expense of $0.2 million on two interest-only federal agency
mortgage-backed securities due to accelerated amortization resulting from
prepayments. (The Bank also recorded a $1.4 million impairment loss on these
securities, which is reflected as Market valuation losses and
impairments in the accompanying consolidated statements of operations.)
However, the Banks overall securities portfolio has shown unrealized
holding gains, which are reflected as a direct increase to stockholders
equity.

- 18 -

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FBBHs
interest expense on deposits decreased by $3.1 million and $5.0 million,
respectively, from the quarter and six months ended June 30, 2001 to the quarter
and six months ended June 30, 2002. These decreases were a result of declines in
both the average balance and average rates paid. The Bank raised significant
amounts of certificates of deposit throughout 2001 to fund certain loan
acquisitions in the prior year but has since permitted the run-off of the
higher-rate CDs to reduce its overall cost of funds. As a result, the average
balance of deposits decreased by $90.5 million from the second quarter of 2001
to the second quarter of 2002, and by $42.9 million from the first six months of
2001 to the corresponding 2002 period. In addition, the average rate paid on
deposits declined by 180 basis points (from 5.60% to 3.80%) from the second
quarter of 2001 to the second quarter of 2002, and by 179 basis points (from
5.75% to 3.96%) from the first six months of 2001 to the first six months of
2002.

The
Banks interest expense on borrowings increased by approximately $0.4
million and $0.9 million, respectively, from the quarter and six months ended
June 30, 2001 to the quarter and six months ended June 30, 2002. This increase
was due to a $81.5 million increase in the total average balance of borrowings
for the quarterly periods and $78.3 million increase for the six-month periods.
The proceeds from these borrowings were used primarily to fund the purchases of
mortgage-backed and other securities described above and, to a lesser extent, to
replace matured certificates of deposit. This increase in the volume of
borrowings was partially offset by a decrease in the weighted-average rate paid
from 6.42% for the second quarter of 2001 to 4.89% for the second quarter of
2002, and from 6.42% for the first six months of 2001 to 4.80% for the first six
months of 2002. The decrease in market interest rates primarily affected the
cost of the Banks short-term repurchase agreements only; substantially all
of the Banks FHLB Advances had fixed rates of interest and thus were
unaffected by rate changes.

Provision for Loan Losses
        Based
on its quarterly evaluation of the adequacy of its loan loss reserves, the Bank
did not record a provision for loan losses for the quarter or six months ended
June 30, 2002. The provisions for loan losses for the quarter and six months
ended June 30, 2001 were $0.15 million and $0.3 million, respectively.

Other (Loss) Income
        The
Banks other loss was approximately $1.4 million for the quarter ended June
30, 2002, compared with other income of $6.7 million for the quarter ended June
30, 2001. For the six months ended June 30, 2002, the Banks other loss was
approximately $1.2 million, compared with other income of $8.2 million for the
six months ended June 30, 2001. The losses for the 2002 periods were due to a
write-down in market value of approximately $1.4 million related to two
interest-only mortgage-backed securities which were purchased in March and April
2002 as a hedge against possible interest rate increases. Since this decline in
market value was deemed to be other than temporary, the write-down has been
reflected as Market valuation losses and impairments in the
accompanying statements of operations for the quarter and six-month periods
ended June 30, 2002, and not as a direct reduction to stockholders equity.
However, the Banks overall investment securities portfolio has shown
unrealized holding gains which are reflected as a direct increase to
stockholders equity.

The
decreases in other income from the 2001 periods also were largely due to a net
gain of $4.7 million in June 2001 on the Banks sales of its Bankcard
processing division and its mortgage loan origination subsidiary, George Elkins
Mortgage Banking. In addition, loan fees decreased by $0.9 million and $1.8
million, respectively, from the quarter and six months ended June 30, 2001, and
Bankcard income decreased by $1.4 million and $2.3 million, respectively, from
the 2001 amounts due to the absence of such activity in 2002.

Other Expenses
        The
Banks other expenses were approximately $2.3 million for the quarter ended
June 30, 2002, compared with $5.3 million for the quarter ended June 30, 2001.
For the six months ended June 30, 2002, the Banks other expenses totaled
approximately $4.6 million, compared with $11.1 million for the six months ended
June 30, 2001. These decreases were largely due to the Banks sales of its
mortgage banking and Bankcard processing operations in June 2001. The disposals
of these divisions have resulted in savings in compensation and employee
benefits and, to a lesser extent, occupancy, amortization, and other general and
administrative expenses totaling approximately $1.5 million and $3.6 million,
respectively, for the quarter and six months ended June 30, 2002 as compared
with the corresponding 2001 periods. The Banks 2002 compensation and
employee benefits decreased by an additional $1.4 million primarily as a result
of severance pay and bonuses for some of the Banks former executives in
the first six months of 2001. In addition, professional services decreased
further by approximately $0.9 million due to consulting fees associated with
conversions of the Banks accounting and deposit systems in the 2001
period, and also due to legal fees incurred in 2001 in connection with
litigation that has since been resolved in the Banks favor. The Bank
realized cost savings in several other general and administrative expense
categories through its efforts to reduce corporate overhead.

- 19 -

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## Changes in
Financial Condition  First Bank of Beverly Hills

Following  are condensed  statements  of financial  condition for FBBH as of June 30, 2002 and
December 31, 2001:

`June 30,     December 31,
                                                                                       2002           2001
                                                                                   ------------   ------------
                                                                                     (Dollars in thousands)
ASSETS:
Cash and cash equivalents.......................................................   $     17,876   $     37,939
Mortgage-backed securities available for sale, at fair value....................        212,348        116,173
Other investment securities available for sale, at fair value...................         21,897          8,000
Loans, net......................................................................        465,322        526,338
Real estate owned, net..........................................................            285            429
Receivables from loan servicers.................................................            740          1,114
Other assets....................................................................         27,896         27,809
                                                                                   ------------   ------------
    Total assets................................................................   $    746,364   $    717,802
                                                                                   ============   ============

LIABILITIES:
Deposits  ......................................................................   $    403,651   $    439,469
Short-term borrowings...........................................................         62,148             --
FHLB advances...................................................................        189,500        189,500
Other liabilities...............................................................         19,165         20,239
                                                                                   ------------   ------------
    Total liabilities...........................................................        674,464        649,208

NET WORTH                                                                                71,900         68,594
                                                                                   ------------   ------------
    Total liabilities and net worth.............................................   $    746,364   $    717,802
                                                                                   ============   ============`

Mortgage-Backed
and Other Securities Available for Sale. The Banks total portfolio of
mortgage-backed securities available for sale increased by approximately $96.2
million during the six months ended June 30, 2002, primarily as a result of
purchases of $132.0 million which were funded with the Banks excess
liquidity and a one-year repurchase agreement facility. In addition, the Bank
recorded unrealized holding gains of approximately $1.3 million on its
securities portfolio during the first six months of 2002. These increases were
partially offset by sales of approximately $19.6 million and principal
repayments of $14.9 million. Included in the Banks $132.0 million in
purchases were $8.5 million in interest-only federal agency mortgage-backed
securities (I/Os) to hedge the Banks exposure to rising interest rates.
However, as rates continued to decline, the actual and estimated future
prepayments on the assets underlying the I/Os accelerated, resulting in a
deterioration in their market value of approximately $1.4 million for the second
quarter of 2002. Since the decline in the market value of the I/Os was
considered other than temporary, this write-down is reflected as Market
valuation losses and impairments in the consolidated statements of
operations, and not as a direct reduction to the Banks net worth.

The
Banks portfolio of treasury and other investment securities available for
sale increased approximately $13.9 million during the six-month period ended
June 30, 2002 due to purchases of $13.7 million and unrealized holding gains of
approximately $0.2 million.

Loans,
net. The Banks portfolio of loans, net of discounts and allowances,
decreased by approximately $61.0 million during the six months ended June 30,
2002. This decrease is primarily attributable to principal repayments of $105.0
million resulting from the continuing decline in market rates of interest,
partially offset by new loan originations of $44.9 million.

- 20 -

---

Real
Estate Owned, net. The Banks portfolio of real estate owned, net
decreased by approximately $0.1 million during the six months ended June 30,
2002, due to sales of properties for proceeds of approximately $0.3 million,
partially offset by new acquisitions of real estate through foreclosure.

Deposits.
The Banks deposits decreased by approximately $35.8 million during the six
months ended June 30, 2002, 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.

Short-Term  Borrowings.  The Bank  borrowed  $69.2 million in the first six months of
2002 under a  repurchase  agreement  to fund its  purchases  of  mortgage-backed  and other  investment
securities. These borrowings were partially offset by $7.1 million in repayments.

Net
Worth. The Banks total net worth increased by approximately $3.3
million during the six months ended June 30, 2002. In March 2002, the Company
contributed $5.5 million of capital to the Bank through the forgiveness of a
portion of the Banks income tax liability to WFSG. In addition, the Bank
earned net income for the six months ended June 30, 2002 of $1.9 million and
recorded $0.9 million in after-tax unrealized gains on available-for-sale
securities. These increases in net worth were partially offset by the
Banks redemption in June 2002 of $5.0 million of its preferred stock held
by the Company.

## Regulatory
Capital Requirements

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

The
following table sets forth the Banks regulatory capital ratios at June 30,
2002.

`Regulatory Capital Ratios

                                                                              Amount Required
                                                                                For Capital           To be Categorized
                                                                                  Adequacy                    as
                                                             Actual               Purposes            "Well Capitalized"
                                                      -------------------------------------------   ----------------------
                                                       Amount      Ratio      Amount      Ratio      Amount       Ratio
                                                      ---------   --------   ---------   --------   ---------   ----------
                                                                         (Dollars in thousands)
Total Capital to Risk-Weighted Assets (Risk-Based
    Capital)......................................... $  73,804      16.8%   $  35,236     =>8.0%   $  44,045      =>10.0%
Tier 1 Capital to Risk-Weighted Assets...............    68,274      15.5%      Not Applicable         26,427      => 6.0%
Core Capital to Tangible Assets......................    68,274       9.2%      29,742     =>4.0%      37,177      => 5.0%
Tangible Capital to Tangible Assets..................    68,274       9.2%      11,153     =>1.5%        Not Applicable`

## 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,  Federal Home Loan Bank ("FHLB") advances,  repurchase  agreements,  whole loan and
mortgage-backed  securities  sales,  and net interest  income.  In August 2002,  the FHLB increased the
Bank's  authorized  borrowing  limit  from 25% to 30% of the  Bank's  total  assets as of the  previous
quarter-end.  Liquidity in the Bank's  operations is actively managed on a daily basis and periodically
reviewed by the Bank's Board of Directors.

At
June 30, 2002, the Banks cash balances totaled approximately $17.9
million, compared with $37.9 million at December 31, 2001. The decrease in cash
was primarily due to purchases of mortgage-backed and other investment
securities and maturities of certificates of deposit during the first six months
of 2002, partially offset by principal repayments of loans and proceeds from
short-term borrowings.

- 21 -

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At
June 30, 2002, the Bank had approximately $361.1 million of certificates of
deposit. Scheduled maturities of certificates of deposit during the 12 months
ending June 30, 2003 and thereafter amounted to approximately $254.5 million and
approximately $106.6 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. Bank management continues its effort to reduce its exposure to
interest rate changes by utilizing funding sources whose repricing
characteristics more closely match those of the Banks interest-earning
assets.

In
March 2001, the OTS rescinded the regulatory requirement that institutions
maintain an average daily balance of liquid assets of at least 4% of its
liquidity base. Even though the percentage requirement has been eliminated, each
bank is still required by the OTS to maintain adequate liquidity to assure safe
and sound operation. It is the Banks responsibility to determine the
appropriate level of liquidity to be maintained.

## 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 has shared 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. As part of WFSGs litigation
settlement, the Company will purchase the 49.99% minority interest and, as a
result, own 100% of WCC upon consummation of the settlement, which is expected
to occur in the third quarter of 2002.

Certain
of WFCs and WCCs activities are conducted with lenders which have
participation interests in the returns generated by the assets that serve as
collateral for the loans. The share of such activities held by these lenders 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 quarters and six-month periods ended
June 30, 2002 and 2001 (dollars in thousands).

`WCC and WFC for the Quarter                WCC and WFC for the Six Months
                                                      Ended June 30,                               Ended June 30,
                                        ------------------------------------------   ------------------------------------------
                                                                        Increase                                     Increase
                                            2002           2001        (Decrease)        2002           2001        (Decrease)
                                        ------------   ------------   ------------   ------------   ------------   ------------
Servicing income .....................  $      6,672   $      4,522   $      2,150   $     12,531   $      8,909   $      3,622
Interest income ......................         1,243            792            451          3,121          2,145            976
Investment and other income (loss) ...           601           (177)           778          1,105            843            262
                                        ------------   ------------   ------------   ------------   ------------   ------------
   Total income ......................         8,516          5,137          3,379         16,757         11,897          4,860
                                        ------------   ------------   ------------   ------------   ------------   ------------
Interest expense .....................           294            318            (24)           675            436            239
Provision for (recapture of) loan
   losses ............................           223            (15)           238            236            (15)           251
Compensation expense .................         4,879          3,777          1,102          9,232          7,431          1,801
Other expenses .......................         1,950          2,351           (401)         4,681          4,114            567
                                        ------------   ------------   ------------   ------------   ------------   ------------
   Total expenses ....................         7,346          6,431            915         14,824         11,966          2,858
                                        ------------   ------------   ------------   ------------   ------------   ------------
Income (loss) before taxes ...........  $      1,170   $     (1,294)  $      2,464   $      1,933   $        (69)  $      2,002
                                        ============   ============   ============   ============   ============   ============`

- 22 -

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Servicing Income
        The
components of servicing income in our Specialty Servicing and Finance Operations
are reflected in the following table:

`June 30,                      June 30,
                                                         ---------------------------   ---------------------------
                                                             2002           2001           2002           2001
                                                         ------------   ------------   ------------   ------------
                                                            (Dollars in thousands)        (Dollars in thousands)
Servicing revenue......................................  $      6,845   $      5,687   $     12,801   $     10,007
Ancillary fees ........................................         1,501          1,268          2,963          2,413
Amortization of mortgage servicing rights .............          (890)        (1,543)        (1,868)        (2,589)
Valuation allowance for mortgage servicing rights .....          (318)          (795)          (421)          (795)
Custodial float .......................................           373            662            680            940
Prepayment interest shortfall expense .................          (839)          (757)        (1,624)        (1,067)
                                                         ------------   ------------   ------------   ------------
    Total servicing income.............................  $      6,672   $      4,522   $     12,531   $      8,909
                                                         ============   ============   ============   ============`

Total
servicing income for the quarter ended June 30, 2002 was approximately $6.7
million, compared with $4.5 million for the quarter ended June 30, 2001. For the
six months ended June 30, 2002, servicing income was approximately $12.5
million, compared with $8.9 million for the six months ended June 30, 2001.
WCCs servicing operations have grown significantly over the prior year
levels, as shown by the portfolio totals in the table below, due to new
contractual flow agreements and, to a lesser extent, servicing portfolio
acquisitions. As a result of this continued expansion, our gross servicing
revenues and ancillary fees (primarily late charges and prepayment penalties)
increased by approximately 20% and 18%, respectively, from the second quarter of
2001 to the second quarter of 2002, and by approximately 28% and 23%,
respectively, from the first six months of 2001 to the first six months of 2002.

However,
the decline in mortgage interest rates throughout 2001 and thus far in 2002 has
continued to have an adverse effect on our net servicing income. As interest
rates have fallen, the prepayment rates and refinancings of the underlying loans
in our servicing portfolio have increased. As a result, we have recorded
significant amortization expense on our mortgage servicing rights (MSRs) during
the past year, though the amortization slowed somewhat in the second quarter of
2002. Our amortization of MSRs was approximately $0.9 million and $1.9 million,
respectively, for the quarter and six months ended June 30, 2002, compared with
$1.5 million and $2.6 million for the corresponding 2001 periods. In addition,
we recorded further valuation allowances on our MSRs of $0.3 million and $0.4
million for the second quarter and first six months of 2002. As a result of
underlying loan prepayments, we also have incurred an increase in the interest
we are required to pay to securitization trusts (prepayment interest
shortfall expense) under our servicing agreements. Further, the decline in
interest rates has adversely affected our float income earned on deposit
balances, which has decreased by approximately $0.3 million for both the quarter
and six-month periods ended June 30, 2002 compared with the same periods in the
prior year.

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

`June 30,        December 31,        June 30,
                                                       2002               2001              2001
                                                   --------------    --------------    --------------
                                                                 (Dollars in thousands)
Single-family residential.......................   $    3,555,128    $    3,020,267    $    2,465,920
Multi-family residential........................          118,672           141,297           134,816
Commercial real estate..........................          195,741           192,275           226,149
Consumer and other..............................           80,060            90,497            93,826
                                                   --------------    --------------    --------------
     Total......................................   $    3,949,601    $    3,444,336    $    2,920,711
                                                   ==============    ==============    ==============`

Interest Income and Interest Expense
        Interest
income was approximately $1.2 million for the quarter ended June 30, 2002,
compared with $0.8 million for the quarter ended June 30, 2001. For the six
months ended June 30, 2002, interest income was approximately $3.1 million,
compared with $2.1 million for the six months ended June 30, 2001. This increase
was primarily due to higher loan interest income resulting from WFCs
purchase of approximately $10.5 million in principal balance of discounted loans
in the third quarter of 2001. Loan interest increased also as a result of the
recovery of approximately $0.3 million in discounts and reserves on loans which
terminated during the first quarter of 2002 (although approximately 50% of this
recapture was shared by a co-investor and recorded as Investor
participation interest expense in the consolidated statements of
operations).

- 23 -

---

Interest
expense was approximately $0.3 million for the quarter ended June 30, 2002,
compared with a similar amount for the quarter ended June 30, 2001. For the six
months ended June 30, 2002, interest expense was approximately $0.7 million,
compared with approximately $0.4 million for the six months ended June 30, 2001.
The increase for the six-month period was due to new long-term financing and
other borrowings by WFC in the third quarter of 2001 to fund the loan
acquisition described above in addition to acquisitions of servicing rights. WFC
substantially repaid the long-term financing in the second quarter of 2002 with
proceeds from sales of loans, thereby reducing its interest expense for the
quarter.

Investment and Other Income (Loss)
        The
components of investment and other income (loss) in our Specialty Servicing and
Finance Operations are reflected in the following table:

`Quarter Ended                Six Months Ended
                                                             June 30,                      June 30,
                                                    ---------------------------   ---------------------------
                                                        2002           2001           2002           2001
                                                    ------------   ------------   ------------   ------------
                                                      (Dollars in thousands)         (Dollars in thousands)
Investment and other income (loss):
Real estate owned, net ...........................  $        (31)  $         50   $       (105)  $       (210)
Gain on sale of loans ............................         2,436            306          2,480            792
Loss on sale of securities .......................            --           (262)            --           (262)
Investor participation interest ..................        (1,219)          (287)        (1,545)          (709)
Other, net .......................................          (585)            16            275          1,232
                                                    ------------   ------------   ------------   ------------
    Total investment and other income (loss) .....  $        601   $       (177)  $      1,105   $        843
                                                    ============   ============   ============   ============`

The
increase in total investment and other income for the quarter and six-month
periods ended June 30, 2002 was primarily due to higher gains on sales of loans
in the 2002 periods. In June 2002, WCC and WFC sold approximately $7.3 million
and $3.3 million, respectively, in unpaid principal balance of loans for gains
of $1.9 million and $0.5 million. Since these loans were acquired with a
co-investor, one-half of the total gain was shared with the co-investor and
included in Investor participation interest in the consolidated
statements of operations. Other, net decreased by approximately $0.6 million for the second quarter of 2002 compared with the second
quarter of 2001 due to write-offs of uncollected servicer advances upon the liquidation of certain loan servicing
pools in the 2002 period, and also due to an increase in various servicing-related charges incurred by WCC. For
the six months ended June 30, 2002, Other, net decreased by approximately $1.0 million from the corresponding
2001 period primarily as a result of a recovery in February 2001 of approximately $0.8 million beyond our basis
in certain assets.

Compensation Expense
        Compensation
and employee benefits were approximately $4.9 million for the quarter ended June
30, 2002, compared with approximately $3.8 million for the quarter ended June
30, 2001. For the six months ended June 30, 2002, compensation and employee
benefits were approximately $9.2 million, compared with $7.4 million for the six
months ended June 30, 2001. These increases in the 2002 periods were due to
higher salary expenses, employee benefits and contract labor costs over the
corresponding 2001 periods. WCCs employee head count increased by
approximately 35% from June 30, 2001 to June 30, 2002, reflecting the growth in
the volume of its servicing business.

Other Expenses
        Other
expenses in our Specialty Servicing and Finance Operations were approximately
$2.0 million for the quarter ended June 30, 2002, compared with approximately
$2.4 million for the quarter ended June 30, 2001. This decrease was primarily
attributable to a $0.5 million decline in legal expenses due to significant
litigation-related accruals and advances in the second quarter of 2001.

For
the six months ended June 30, 2002, other expenses totaled $4.7 million,
compared with $4.1 million for the six months ended June 30, 2001. We incurred
higher legal fees in the first six months of 2002 than in the corresponding 2001
period due to approximately $0.7 in additional legal defense costs and advances
to former executives in the first six months of 2002 in connection with the
litigation that arose from events prior to our 1999 restructuring.

- 24 -

---

## 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 June 30, 2002 and December 31, 2001:

`June 30,         December 31,
                                                                                        2002               2001
                                                                                    ------------       ------------
                                                                                       (Dollars in thousands)
ASSETS:
Cash and cash equivalents.......................................................    $      3,183       $        262
Mortgage-backed securities available for sale, at fair value....................           3,630              3,367
Discounted loans, net...........................................................           8,161             15,309
Real estate owned, net..........................................................             358                302
Servicer advance receivables, net...............................................          15,192             18,266
Purchased mortgage servicing rights, net........................................           5,980              8,473
Intercompany receivables........................................................          13,586             18,544
Other assets....................................................................           4,682              5,641
                                                                                    ------------       ------------
    Total assets................................................................    $     54,772       $     70,164
                                                                                    ============       ============

LIABILITIES:
Short-term borrowings...........................................................    $        155       $      9,970
Long-term investment financing..................................................           7,166             14,474
Other liabilities...............................................................           8,092              8,643
                                                                                    ------------       ------------
     Total liabilities..........................................................          15,413             33,087

NET WORTH.......................................................................          39,359             37,077
                                                                                    ------------       ------------
    Total liabilities and net worth.............................................    $     54,772       $     70,164
                                                                                    ============       ============`

Mortgage-Backed
Securities Available for Sale. WFCs portfolio of mortgage-backed
securities available for sale increased by approximately $0.3 million during the
six months ended June 30, 2002 as a result of $0.7 million in unrealized holding
gains, partially offset by $0.4 million in principal repayments. 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.

Discounted
Loans, net. In our Specialty Servicing and Finance Operations, discounted
loans, net decreased by approximately $7.1 million from December 31, 2001 to
June 30, 2002. WCC and WFC sold approximately $5.1 million in book value of
loans in the second quarter of 2002 for an aggregate gain of $2.4 million
(though one-half of these gains were shared with an outside party co-investor
and reported as Investor participation interest). In addition, the
discounted loans portfolio balance decreased due to loan principal payments of
$1.8 million and loan loss provisions of $0.2 million.

Servicer
Advance Receivables, net. Servicer advance receivables, net decreased by
approximately $3.1 million during the six months ended June 30, 2002. This
decrease resulted from recoveries by WCC of scheduled principal and interest
advances on loans previously made, partially offset by new advances during the
year to date.

Purchased
Mortgage Servicing Rights, net. Purchased mortgage servicing rights, net
(MSRs) decreased by approximately $2.5 million for the six-month period ended
June 30, 2002. The steady decline in mortgage interest rates throughout 2001 and
continuing into 2002 has caused rapid prepayments of the underlying loans being
serviced, which, in turn, resulted in accelerated amortization of our servicing
rights. Consequently, we recorded approximately $1.9 million in amortization of
MSRs and a valuation write-down of $0.4 million for the six months ended June
30, 2002.

Intercompany
Receivables. Intercompany receivables decreased by approximately $5.0
million from year-end 2001 to June 30, 2002. In December 2001 WFSG borrowed
funds from WCC to finance the majority of the repurchase of approximately 4.2
million shares of the Companys stock. In January 2002, WCC received
settlement on this receivable from WFSG with the proceeds from WFSGs
issuance of 8% convertible subordinated debentures.

Short-Term
Borrowings and Long-Term Investment Financing. Short-term borrowings and
long-term investment financing in our Specialty Servicing and Finance Operations
decreased by a total of approximately $17.1 million during the six months ended
June 30, 2002. In December 2001 WCC borrowed $9.2 million under one of our line
of credit facilities to provide financing for WFSGs repurchase of
approximately 4.2 million shares of common stock from a shareholder. This
borrowing has been repaid in full by WFSG, primarily with the proceeds from
WFSGs issuance of 8% convertible subordinated debentures. In addition, in
June 2002 WCC and WFC repaid approximately $5.3 million in borrowings with
proceeds from the loan sales described above.

- 25 -

---

## 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 lenders. The
availability of liquidity from our line of credit facilities is subject to the
Companys maintenance of sufficient available collateral to pledge against
such borrowings. We are currently maintaining sufficient collateral under the
credit agreements. 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
June 30, 2002, liquidity in our Specialty Servicing and Finance Operations
(including cash and unused borrowings under our credit facilities) totaled $20.8
million, compared with approximately $9.8 million at December 31, 2001. 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. 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 have no present intent to 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 June 30, 2002 we held $3.6 million of
such mortgage-backed securities.

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. Primary sources of liquidity include funds available
from the Companys wholly-owned non-bank subsidiaries and 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.

The
Company will fund the costs of the litigation settlement described above and
acquisition of the minority interest in WCC through a combination of proceeds
from the issuance of junior subordinated debt and $5 million WFSG received from
FBBHs redemption of preferred stock.

- 26 -

---

## CRITICAL
ACCOUNTING POLICIES AND ESTIMATES

The
Managements Discussion and Analysis of Financial Condition and
Results of Operations, as well as disclosures included elsewhere in this
Form 10-Q, are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America.  The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingencies.  On an ongoing basis, we evaluate the estimates used,
including those related to allowances for loan losses, other than temporary
impairment in the market values of investment securities and other assets,
assumptions used to estimate fair values of certain financial instruments for
which there is not an active market, the allocation of basis between assets sold
and retained, the selection of yields utilized to recognize interest income on
certain mortgage-backed securities, and contingencies and litigation. We
base our estimates on historical experience, current conditions and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources as well as identifying and assessing our accounting treatment with
respect to commitments and contingencies.  Actual results may differ from
these estimates under different assumptions or conditions.

We
believe the following critical accounting policies involve the more significant
judgments and estimates used in the preparation of the consolidated financial
statements:

 Allowance
for Loan Losses. In estimating the allowance for loan losses, management
utilizes historical experience as well as other factors, including the effect of
changes in the real estate market on collateral values, the effect on the loan
portfolio of current economic indicators and their probable impact on borrowers,
and increases or decreases in nonperforming and impaired loans. Changes in these
factors may cause managements estimate of the allowance to increase or
decrease and result in adjustments to the Companys provision for loan
losses in its consolidated statements of operations and the carrying value of
the Companys loans on its consolidated statement of financial condition.

 Mortgage
Servicing Rights. Our loan servicing business represents an increasingly
significant proportion of our operations. In determining the fair value of our
mortgage servicing rights (MSRs), we make assumptions of market discount rates,
prepayment speeds and default rates which affect the estimated present value of
future cash flows. Changes in these assumptions and economic factors may result
in increases or decreases in the carrying value of our MSRs and increases or
decreases in the amortization of MSRs and valuation allowances related to MSRs.


Contingencies. We are party to various legal proceedings, as discussed
above and in the notes to the consolidated financial statements.  These
matters have a high degree of uncertainty associated with them.  We
continually assess the likely outcomes of these matters, the amounts of any
ongoing costs associated with these matters, and the adequacy of amounts
provided for these matters.  There can be no assurance that the ultimate
outcome will not differ materially from our assessment of them.  There also
can be no assurance that all matters that may be brought against us or that we
may bring against other parties are known to us at any point in time.

- 27 -

---

## IMPORTANT
FACTORS RELATING TO FORWARD-LOOKING STATEMENTS

The
Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. All of the statements
contained in this Quarterly Report on Form 10-Q which are not identified as
historical should be considered forward-looking. In connection with certain
forward-looking statements contained in this Quarterly Report on Form 10-Q and
those that may be made in the future by or on behalf of the Company which are
identified as forward-looking, the Company notes that there are various factors
that could cause actual results to differ materially from those set forth in any
such forward-looking statements. Such factors include, but are not limited to,
the condition of the real estate market, interest rates, regulatory matters, the
availability of pools of servicing rights and loans at acceptable prices, and
the availability and conditions of financing for loan pool acquisitions,
mortgage loan servicing rights and other financial assets. Accordingly, there
can be no assurance that the forward-looking statements contained in this
Quarterly Report on Form 10-Q will be realized or that actual results will not
be significantly higher or lower. 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.

- 28 -

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## 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.  In the past, we have utilized  interest rate swap agreements 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.

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.

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.

The
following table quantifies the potential changes in the Companys net
portfolio value at June 30, 2002, should interest rates increase or decrease by
100 to 300 basis points, assuming the yield curves of the rate shocks will be
parallel to each other.

`Interest Rate Sensitivity of Net Portfolio Value

                                                       Net Portfolio Value             NPV as % of Assets
                                               -----------------------------------   -----------------------
                                                $ Amount     $ Change    % Change    NPV Ratio      Change
                                               ----------    ---------   ---------   ---------     ---------
        Change in Rates                              (Dollars in thousands)
         +300bp.............................   $   77,651    $ (23,695)      (23)%      10.12%       (235)bp
         +200bp.............................       86,898      (14,448)      (14)       11.09        (138)bp
         +100bp.............................       97,597       (3,749)       (4)       12.18         (30)bp
            0bp.............................      101,346           --        --        12.47          --
         -100bp.............................       95,791       (5,555)       (5)       11.76         (71)bp
         -200bp.............................       90,262      (11,084)      (11)       11.05        (142)bp
         -300bp.............................       88,304      (13,042)      (13)       10.75        (172)bp`

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.

- 29 -

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## WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

## PART II. OTHER INFORMATION

Item 1.        Legal Proceedings.

On May 13, 2002,  the Company  entered into a settlement  agreement to resolve all issues with all
of the  plaintiffs  in various  legal  actions  filed  against the Company  arising from the  financial
collapse of Capital  Consultants  LLC ("CCL").  The settlement  agreement also provides for the Company
to enter  into a  purchase  agreement  to  purchase  the  49.99%  minority  interest  in the  Company's
subsidiary,  Wilshire  Credit  Corporation  ("WCC").  On June 19, 2002,  the  settlement  agreement and
agreement to purchase  the minority  interest in WCC were  approved by the Federal  District  Court for
the State of Oregon.  The execution of the settlement  agreement does not affect WFSG's complete denial
of all such claims.

Under the settlement  agreement the claimants release the Company and all of its subsidiaries,  as
well as their present and former officers and directors,  from all liability.  The legal actions are to
be  dismissed  after  the  plaintiffs  complete  various   requirements  which  will  entitle  them  to
disbursement of the settlement  proceeds.  The settlement agreement also includes provisions to protect
the Company in any future legal proceedings which the claimants may pursue against other parties.

The principal  terms of the settlement  provide that the Company,  certain other parties and their
respective  insurers will pay to the  claimants  $29.5 million plus a share of the proceeds from a sale
of real  property.  A portion of these  funds will be held in trust to protect  the  Company  and other
parties  against  potential  residual  claims which might arise from  claimants'  actions against other
non-settling parties.

In addition,  the Company will  purchase from CCL's  receiver a 49.99% equity  interest in WCC for
$10.5 million.  Upon  completion of this purchase,  WCC will become a wholly-owned  subsidiary of WFSG.
The  liquidation  bond  associated  with this minority  interest,  which would have entitled the holder
thereof to a $19.3 million  preference  upon  liquidation of WCC and the right to convert such interest
into the Company's common stock, will be terminated.

The Company's cash cost of the  settlement  and stock  acquisition  will total  approximately  $15
million  plus a share of the  proceeds  from the  above-described  sale of real  property.  The Company
recorded  charges of $3.6  million in the first six months of 2002 in  connection  with the  settlement
and  minority  interest  acquisition  and  approximately  $0.8  million  in legal  fees  related to the
settlement  and to the defense  costs of some of the  Company's  former  executives.  In addition,  the
Company  has  recorded  approximately  $0.55  million  in legal  fees and  expenses,  net of  insurance
reimbursement,  associated  with  finalizing  and  implementing  this  settlement.  The  settlement  is
expected to eliminate  most of the Company's  future costs arising from the financial  collapse of CCL.
However,  the Company  does expect to incur  additional  expenses  in  connection  with legal costs for
prior officers arising from the events that gave rise to the litigation.

Item 2.        Changes in Securities.

| | Not applicable.
| | ---------------

Item 3.        Defaults Upon Senior Securities.

| | Not applicable.
| | ---------------

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

| | On June 25, 2002, at the annual shareholder meeting,  the Company's  stockholders
                  elected the  following  nine (9) persons to the Board of  Directors  of the  Company:
                  Larry B. Faigin,  Howard Amster, Robert M. Deutschman,  Peter S. Fishman,  Stephen P.
                  Glennon,  Robert  H.  Kanner,  Edmund  M.  Kaufman,  Daniel  A.  Markee  and Bruce A.
                  Weinstein.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 30 -

---

| | The stockholders  also voted 8,212,117 (for) to 1,331,973  (against),  with 3,204
abstentions, to approve the Company's 2002 Equity Participation Plan.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

Item 5.        Other Information.

| | Not applicable.
| | ---------------

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

| | (a) | Exhibits.
| | --- | ---------

| |  | 10.1 | Wilshire Financial Services Group Inc. 2002 Equity Participation Plan                                         
| |  | ---- | --------------------------------------------------------------------------------------------------------------
| |  | 10.2 | Change in Control Agreement between Wilshire  Financial  Services Group Inc. and Mark H. Peterman             
| |  | 10.3 | Amendment No. 2 to Stock Option Agreement  between Wilshire  Financial  Services
Group Inc. and Jay H. Memmott
| |  | 99.1 | CEO and CFO Certification                                                                                     

| | (b) | The following  reports on Form 8-K were filed during the quarter  covered by this report,  and
subsequently through the date of issuance:                                                                                                                                                                                                                          
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                    
| |     | Current  Report on Form 8-K dated May 13, 2002,  reporting  that the Company
                           had entered into a  settlement  agreement to resolve all issues with respect
                           to the litigation discussed in Part II, Item I.                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                    
| |     | Current  Report on Form 8-K dated May 20, 2002,  announcing  the date of the
                           Company's annual shareholder meeting.                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                    
| |     | Current  Report on Form 8-K dated  June 19,  2002,  reporting  that the U.S.
                           District Court of Oregon had approved the settlement  agreement  between the
                           Company and the  plaintiffs  with  respect to the  litigation  discussed  in
                           Part II, Item 1.                           
| |     |                                                                                                                                                                                                                                                                                                                                                                    
| |     | Current  Report on Form 8-K dated July 11,  2002,  reporting  the  Company's
                           issuance of $20 million in  thirty-year  floating  rate junior  subordinated
                           debt  in  connection  with  its  participation  in  a  multi-issuer  private
                           placement of trust pass-through securities.
| |     |                                                                                                                                                                                                                                                                                                                                                                    
| |     | Current  Report on Form 8-K dated July 15,  2002,  reporting  the  Company's
                           conversion of its $7.69 million in 8%  convertible  subordinated  debentures
                           into 3,396,416 shares of common stock.                                                                                                             

- 31 -

---

# 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: August 14, 2002

|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     

- 32 -

---