# 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 March 31, 2003

# 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.)
|                                                               |                                     
|14523 SW Millikan Way, Suite 200, Beaverton, OR                | 97005                               
|(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 [___]

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

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

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

# Applicable only to corporate issuers:

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

|Class                                  | Outstanding at April 30, 2003
|-------------------------------------- | -----------------------------
|Common Stock, par value $.01 per share | 18,253,994 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.....................................................15

         Item 3.   Quantitative and Qualitative Disclosures About Market Risk....................26

         Item 4.   Controls and Procedures.......................................................28

PART II. OTHER INFORMATION

         Item 1.   Legal Proceedings.............................................................29

         Item 2.   Changes in Securities.........................................................29

         Item 3.   Defaults Upon Senior Securities...............................................29

         Item 4.   Submission of Matters to a vote of Security Holders...........................29

         Item 5.   Other Information.............................................................29

         Item 6.   Exhibits and Reports on Form 8-K..............................................29

         Signature...............................................................................30

         Certification...........................................................................31`

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

`March 31,     December 31,
                                                                                                    2003           2002
                                                                                                ------------   ------------
                                        ASSETS

Cash and cash equivalents ........................................................              $     12,273   $     17,579
Government agency mortgage-backed securities available for sale, at fair value ...                   190,107        211,082
AAA mortgage-backed securities available for sale, at fair value .................                    42,605         48,320
Other mortgage-backed securities available for sale, at fair value ...............                     1,864          2,133
Investment securities available for sale, at fair value ..........................                    22,260         11,962
Loans, net of allowance for loan losses of $7,822 and $7,980 .....................                   481,600        486,667
Discounted loans, net of allowance for loan losses of $40,235 and $40,920 ........                     6,062          6,630
Stock in Federal Home Loan Bank of San Francisco, at cost ........................                    10,952         10,808
Real estate owned, net ...........................................................                       772          1,101
Leasehold improvements and equipment, net ........................................                     3,224          3,218
Accrued interest receivable ......................................................                     3,945          4,043
Servicer advance receivables, net ................................................                    26,383         19,922
Service fees receivable ..........................................................                     2,707          2,334
Purchased mortgage servicing rights, net .........................................                    10,842          5,405
Receivables from loan servicers ..................................................                     1,108            462
Intangible assets, net ...........................................................                     3,636          3,701
Prepaid expenses and other assets ................................................                     7,402          7,654
                                                                                                ------------   ------------
          TOTAL ..................................................................              $    827,742   $    843,021
                                                                                                ============   ============

                        LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
     Noninterest-bearing deposits ................................................              $      3,836   $      3,659
     Interest-bearing deposits ...................................................                   381,261        392,122
     Short-term borrowings .......................................................                    92,098         91,870
     Accounts payable and other liabilities ......................................                    14,654         14,284
     FHLB advances ...............................................................                   206,000        216,000
     Long-term investment financing ..............................................                     7,132          4,284
     Trust preferred subordinated debt ...........................................                    20,000         20,000
     Investor participation liability ............................................                     1,386          1,346
                                                                                                ------------   ------------
          Total liabilities ......................................................                   726,367        743,565
                                                                                                ------------   ------------

COMMITMENTS AND CONTINGENCIES (NOTE 2)

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, 23,874,206
        and 23,820,874 shares issued (including treasury shares of 5,626,212) ....                   115,135        114,357
     Treasury stock, 5,626,212 shares, at cost ...................................                   (15,106)       (15,106)
     Accumulated deficit .........................................................                    (1,532)        (3,096)
     Accumulated other comprehensive income, net .................................                     2,878          3,301
                                                                                                ------------   ------------
          Total stockholders' equity .............................................                   101,375         99,456
                                                                                                ------------   ------------
          TOTAL ..................................................................              $    827,742   $    843,021
                                                                                                ============   ============`

See notes to unaudited interim condensed consolidated financial statements

- 3 -

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

`Quarter Ended
                                                                                           March 31,
                                                                                  ---------------------------
                                                                                      2003           2002
                                                                                  ------------   ------------
INTEREST INCOME:
         Loans .................................................................  $      8,470   $     10,845
         Mortgage-backed securities ............................................         3,467          2,932
         Securities and federal funds sold .....................................           172            340
                                                                                  ------------   ------------
         Total interest income .................................................        12,109         14,117
                                                                                  ------------   ------------
INTEREST EXPENSE:
         Deposits ..............................................................         3,213          4,422
         Borrowings ............................................................         3,463          3,271
                                                                                  ------------   ------------
         Total interest expense ................................................         6,676          7,693
                                                                                  ------------   ------------
NET INTEREST INCOME ............................................................         5,433          6,424
PROVISION FOR LOSSES ON LOANS ..................................................            30             13
                                                                                  ------------   ------------
NET INTEREST INCOME AFTER PROVISION FOR LOSSES ON LOANS ........................         5,403          6,411
                                                                                  ------------   ------------
OTHER INCOME:
         Servicing income ......................................................         7,841          5,522
         Loan fees and charges .................................................            23             42
         Real estate owned, net ................................................            25            (46)
         Gain on sale of loans .................................................             5             44
         Loss on sale of securities ............................................            --            (62)
         Investor participation interest .......................................           (70)          (326)
         Other, net ............................................................           214          1,261
                                                                                  ------------   ------------
         Total other income ....................................................         8,038          6,435
                                                                                  ------------   ------------
OTHER EXPENSES:
         Compensation and employee benefits ....................................         6,771          5,641
         Professional services .................................................         1,149          1,787
         Occupancy .............................................................           553            543
         FDIC insurance premiums ...............................................           108            105
         Data processing .......................................................           254            288
         Communication .........................................................           233            312
         Insurance .............................................................           340            279
         Corporate travel and development ......................................            83             90
         Depreciation ..........................................................           408            422
         Amortization of intangibles ...........................................            65             65
         Postage and courier expense ...........................................           260            303
         Provision for litigation claims .......................................            --          3,600
         Other general and administrative expenses .............................           574            684
                                                                                  ------------   ------------
         Total other expenses ..................................................        10,798         14,119
                                                                                  ------------   ------------
INCOME (LOSS) BEFORE MINORITY INTEREST AND INCOME TAXES ........................         2,643         (1,273)
MINORITY INTEREST ..............................................................            --            200
                                                                                  ------------   ------------
INCOME (LOSS) BEFORE INCOME TAXES ..............................................         2,643         (1,073)
INCOME TAX PROVISION (BENEFIT) .................................................         1,079           (300)
                                                                                  ------------   ------------
NET INCOME (LOSS) ..............................................................  $      1,564   $       (773)
                                                                                  ============   ============

Earnings (loss) per share - basic...............................................  $       0.09   $      (0.05)
Earnings (loss) per share - diluted.............................................  $       0.08   $      (0.05)

Weighted average shares outstanding - basic.....................................    18,223,698     16,180,604
Weighted average shares outstanding - diluted...................................    20,236,356     16,180,604`

See notes to unaudited interim condensed consolidated financial statements

- 4 -

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# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 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 income................                                                                  1,962                       1,962
    Unrealized holding gains
      on available for sale
      securities - net of tax
      expense of $1,851(1)....                                                                                  2,490       2,490
    Unrealized loss on
      interest-rate swap - net                                                                                   (142)       (142)
      of tax benefit of $101..                                                                                           --------
Total comprehensive income....                                                                                              4,310
Tax benefit from utilization
    of pre-reorganizational Net
    Operating Losses (Note 3).                                  815                                                           815
Exercise of stock options.....                     75,000        96                                                            96
Conversion of subordinated
    debentures................                  3,396,416     7,690                                                         7,690
Receipt of income tax refund
    related to pre-
    reorganizational income...                                  226                                                           226
Treasury stock acquired.......                                       (1,457,358)    (5,101)                                (5,101)
                                ------ ------ ----------- --------- -----------  ----------  ----------  -------------  ---------
BALANCE, December 31, 2002....      --     --  23,820,874   114,357  (5,626,212)   (15,106)     (3,096)         3,301      99,456
Comprehensive income:
    Net income................                                                                   1,564                      1,564
    Unrealized holding loss
      on available for sale
      securities - net of tax
      benefit of $305.........                                                                                   (364)       (364)
    Unrealized loss on
      interest-rate swap - net
      of tax benefit of $42...                                                                                    (59)        (59)
                                                                                                                         --------
Total comprehensive income....                                                                                              1,141
Tax benefit from utilization
    of pre-reorganizational
    Net Operating Losses
    (Note 3)..................                                  709                                                           709
 Exercise of stock options....                     53,332        69                                                            69
                                ------ ------ ----------- --------- -----------  ----------  ----------  -------------  ---------
BALANCE, March 31, 2003.......      -- $   --  23,874,206 $ 115,135  (5,626,212) $ (15,106)  $  (1,532)  $       2,878  $ 101,375
                                ====== ====== =========== ========= ===========  ==========  ==========  =============  =========
__________`

See notes to unaudited interim condensed consolidated financial statements

- 5 -

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

`Quarter Ended
                                                                                                March 31,
                                                                                       ---------------------------
                                                                                           2003           2002
                                                                                       ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss) ................................................................  $      1,564           (773)
   Adjustments to reconcile net income (loss) to net cash (used in) provided by
      operating activities:
        Provision for losses on loans ...............................................            30             13
        Provision for losses on real estate owned ...................................             9              5
        Valuation adjustment for mortgage servicing rights ..........................          (225)           103
        Depreciation and amortization ...............................................           473            487
        Tax effect from utilization of net operating loss carryforward ..............           709             --
        (Gain) loss on sale of real estate owned ....................................           (54)            39
        Gain on sale of loans .......................................................            (5)           (44)
        Loss on sale of securities ..................................................            --             62
        (Gain) loss on disposal of equipment ........................................            (8)             7
        Amortization of discounts and deferred fees .................................           522            198
        Amortization of mortgage servicing rights ...................................           878            977
        Federal Home Loan Bank stock dividends ......................................          (144)          (132)
        Minority interest ...........................................................            --           (200)
      Change in:
        Servicer advance receivables ................................................        (6,461)         1,221
        Service fees receivable .....................................................          (373)          (624)
        Accrued interest receivable .................................................            98           (140)
        Receivables from other loan servicers .......................................          (646)          (176)
        Prepaid expenses and other assets ...........................................           151         (1,915)
        Accounts payable and other liabilities ......................................           722          6,110
        Investor participation liability ............................................            40            326
                                                                                       ------------   ------------
             Net cash (used in) provided by operating activities ....................        (2,720)         5,544
                                                                                       ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of loans ...........................................................        (7,036)            --
        Loan repayments .............................................................        41,428         61,851
        Loan originations ...........................................................       (29,791)       (15,807)
        Purchase of discounted loans ................................................            --            (10)
        Proceeds from sale of discounted loans ......................................           340             --
        Purchase of mortgage-backed securities available for sale ...................        (7,632)       (99,750)
        Proceeds from sale of mortgage-backed securities available for sale .........            --         19,513
        Repayment of mortgage-backed securities available for sale ..................        33,369          6,859
        Purchase of investment securities available for sale ........................       (10,000)        (9,981)
        Proceeds from sale of real estate owned .....................................           771            287
        Purchases of leasehold improvements and equipment ...........................          (418)          (271)
        Proceeds from sale of leasehold improvements and equipment ..................            12             --
        Purchase of mortgage servicing rights .......................................        (6,092)          (115)
        Proceeds from sale of mortgage servicing rights .............................             2             --
                                                                                       ------------   ------------
             Net cash provided by (used in) investing activities ....................        14,953        (37,424)
                                                                                       ------------   ------------`

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)

`Quarter Ended
                                                                                            March 31,
                                                                                   ---------------------------
                                                                                       2003           2002
                                                                                   ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Net decrease in deposits ...............................................   $    (10,684)  $    (14,092)
        Proceeds from FHLB advances ............................................          6,000             --
        Repayments of FHLB advances ............................................        (16,000)            --
        Net increase in short-term borrowings ..................................            228         27,970
        Proceeds from long-term financing ......................................          4,005             --
        Repayment of long-term financing .......................................         (1,157)        (1,869)
        Issuance of convertible subordinated debentures ........................             --          7,690
        Issuance of common stock pursuant to exercise of stock options .........             69             --
                                                                                   ------------   ------------
             Net cash (used in) provided by financing activities ...............        (17,539)        19,699
                                                                                   ------------   ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ......................................         (5,306)       (12,181)
CASH AND CASH EQUIVALENTS:
        Beginning of period ....................................................         17,579         39,974
                                                                                   ------------   ------------
        End of period ..........................................................   $     12,273   $     27,793
                                                                                   ============   ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash  paid for:
        Interest ...............................................................   $      4,723   $      5,641
        Income taxes ...........................................................            270            270
NONCASH INVESTING ACTIVITIES:
        Additions to real estate owned acquired in settlement of loans .........            397            181`

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  condensed   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 2002  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 2002  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 three  months ended March 31, 2003 are not
necessarily  indicative  of the  results  that may be  expected  for the year  ending
December 31, 2003.

The   preparation  of  financial   statements  in  conformity   with  accounting
principles  generally accepted in the United States of America 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 2002 amounts were made in order to conform to the
2003 presentation, none of which affect previously reported net loss.

## 2.
COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK

At March 31,  2003,  the  Company's  banking  subsidiary,  First  Bank of Beverly
Hills,  F.S.B.  ("FBBH" or the  "Bank"),  had  outstanding  commitments  to fund $5.2
million in new  mortgage  loans and to  purchase  $10.0  million  of  mortgage-backed
securities.

The Company expects to incur additional  expenses in connection with legal costs
for prior officers.  These costs,  which totaled  approximately  $0.5 million for the
quarter  ended  March 31,  2003,  relate to the events  that gave rise to  litigation
arising from the financial collapse of Capital  Consultants LLC ("CCL").  The Company
on May 13, 2002 entered into a settlement  agreement to resolve that  litigation  and
has completed all of its obligations under the settlement  agreement.  The litigation
will be dismissed when  plaintiffs  complete  their  obligations.  Management,  after
consultation  with legal  counsel,  believes  that it is likely that this  litigation
will be dismissed.

## 3. INCOME TAXES

The  Company  files  consolidated  federal  income tax  returns  with all of its
subsidiaries.  The operations of Wilshire Credit Corporation  ("WCC"),  the Company's
loan  servicing  subsidiary,  will be  included  in WFSG's  consolidated  income  tax
returns for periods  beginning October 1, 2002, the effective date of WFSG's purchase
of WCC's 49.99% minority interest.  For tax years through the year ended December 31,
2001 and for the first three quarters of 2002,  WCC's  operations  were excluded from
WFSG's  consolidated  federal income tax return because WCC did not meet the required
ownership threshold of 80% (the Company's economic interest was 50.01%).

The  Company  recorded a current  income tax  provision  of  approximately  $1.1
million for the quarter ended March 31, 2003.  The  Company's  deferred tax provision
(benefit) is determined on a quarterly  basis pursuant to an evaluation of WFSG's net
deferred tax asset.  These  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  and  capital  losses,  and  also  to
temporary  timing  differences  between  amounts  that  have been  recognized  in the
financial  statements  and  amounts  that  have been  recognized  in the  income  tax
returns.  An effective tax rate of approximately  41% is applied to each attribute in
determining  the amount of the related  deferred  tax asset or  liability.  Decreases
(increases)  in the net deferred  tax asset are recorded as a deferred tax  provision
(benefit) in the consolidated statement of operations.

- 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)

WFSG's net deferred tax asset at March 31, 2003 is included in prepaid  expenses
and other assets on the accompanying  consolidated statements of financial condition.
In accounting for the deferred tax asset, the Company applies  Statement of Financial
Accounting  Standards  ("SFAS") No. 109,  "Accounting for Income Taxes." SFAS No. 109
requires,  among other  things,  that  deferred  tax assets be reduced by a valuation
allowance  if it is more likely than not that some portion or all of the deferred tax
asset will not be  realized.  Management  believes  that it is more  likely  than not
that the Company  will  realize a portion of the  deferred tax asset and has recorded
the  valuation  allowance   accordingly.   As  benefits  relating  to  the  Company's
pre-reorganization  (before June 10,  1999)  period are  realized  and the  valuation
allowance  is reduced,  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.

In June  2002 the  Company  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 will limit the  Company's  ability to utilize  certain
tax attributes, such as net operating loss and capital loss carryforwards,  in future
periods.  In  addition,  if the Company is found to have a net overall  built-in-gain
or  built-in-loss  at the  change  in  control  date,  the  realization  of  the  tax
attributes  could  be  enhanced  or  limited.  If  the  Company  has  a  net  overall
built-in-gain,  it will be allowed  to  utilize  additional  tax  attributes.  If the
Company  has  a  net  overall  built-in-loss,   it  will  be  subject  to  additional
limitations on the use of its tax attributes.

As of December 31, 2002, the Company had U.S. net operating  loss  carryforwards
and capital  loss  carryforwards  of  approximately  $109  million  and $12  million,
respectively.  In addition,  the Company has state net operating loss  carryforwards.
The federal  carryforward  period  runs  through  2021.  As a result of the change in
control  described above, the Company's net operating loss  carryforwards and capital
loss  carryforwards  that  were  generated  in the  pre-reorganizational  period  are
subject to a  limitation  on the amount that may be used  annually to offset  taxable
income.  The Company is  currently  in the process of  finalizing  calculations  with
respect to the amount of the annual limitation,  but estimates that the limitation is
approximately  $5 million  per year.  The Company has  adequately  provided  for this
limitation with its valuation allowance against the deferred tax asset.

## 4. SIGNIFICANT
TRANSACTIONS

In the first  quarter of 2003,  WCC increased  its loan  servicing  portfolio by
approximately   26%,  primarily  through  the  purchase  of  the  rights  to  service
approximately  5,000 loans with an aggregate unpaid principal balance of $789 million
and by contracting to service  approximately  17,000  additional  loans totaling $766
million in unpaid principal. The transfer of these loans was completed in March 2003.

## 5. PER SHARE DATA

Basic  earnings  per share is  computed  by  dividing  net income  (loss) by the
weighted  average  number of shares of common  stock  outstanding  during the period.
Diluted  earnings per share is computed by dividing net income (loss) by the weighted
average number of common shares and  potentially  dilutive stock options  outstanding
during the period.  Following is a reconciliation of the number of shares used in the
calculation of basic and diluted  earnings per share for the quarters ended March 31,
2003 and 2002.

`Quarter Ended
                                                                   March 31,
                                                          ---------------------------
                                                              2003           2002
                                                          ------------   ------------
Net income (loss)......................................   $      1,564   $       (773)
                                                          ============   ============
Weighted average number of common
   shares outstanding - basic..........................     18,223,698     16,180,604
                                                          ------------   ------------
Net effect of dilutive stock options - based on
   treasury stock method...............................      2,012,658            N/A
                                                          ------------   ------------
Weighted average number of common
   shares outstanding - diluted........................     20,236,356     16,180,604
                                                          ------------   ------------
Net income (loss) per share - basic....................   $       0.09   $      (0.05)
                                                          ============   ============
Net income (loss) per share - diluted..................   $       0.08   $      (0.05)
                                                          ============   ============`

- 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)

For the quarter ended March
31, 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 shares outstanding was equivalent for both basic and diluted
loss per share.

The Company has two
stock-based employee compensation plans, the 1999 Equity Participation Plan and
the 2002 Equity Participation Plan, pursuant to which stock options have been
granted to its directors and certain employees. The Company accounts for these
plans under the recognition and measurement principles of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation cost is reflected
in net income, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income (loss) and earnings
(loss) per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.

`Quarter Ended
                                                                   March 31,
                                                          ---------------------------
                                                              2003           2002
                                                          ------------   ------------

Net income (loss), as reported.........................   $      1,564   $       (773)
Less:  Total stock-based employee compensation
   expense determined under fair value-based method
   for all awards, net of related tax effects..........            123            134
                                                          ------------   ------------
Pro forma net income (loss)............................   $      1,441   $       (907)
                                                          ============   ============

Earnings (loss) per share:
   Basic - as reported.................................   $       0.09   $      (0.05)
                                                          ============   ============
   Basic - pro forma...................................   $       0.08   $      (0.06)
                                                          ============   ============

   Diluted - as reported...............................   $       0.08   $      (0.05)
                                                          ============   ============
   Diluted - pro forma.................................   $       0.07   $      (0.06)
                                                          ============   ============`

## 6. OPERATING
SEGMENTS

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

| | Banking 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, investments in
residential whole loans, and investments in primarily AAA-rated and government
agency mortgage-backed securities. The primary sources of liquidity for the
Banks acquisitions and originations are FHLB advances, repurchase
agreements, wholesale certificates of deposit and retail deposits. The Bank is a
federally chartered savings bank and is regulated by the Office of Thrift
Supervision (OTS). At March 31, 2003, FBBH had total assets of
$772.1 million.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 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)

| | Specialty Servicing and Finance OperationsThrough its servicing
subsidiary, 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 investment 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 March 31, 2003,
the Companys Specialty Servicing and Finance Operations serviced
approximately $5.1 billion principal balance of residential and commercial
mortgage pools for over 500 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, and co-investors, under debt service repayment terms
which generally parallel the schedule of anticipated cash flows and actual cash
flows of the underlying collateral.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Holding Company and Miscellaneous OperationsThe Companys
Holding Company and Miscellaneous Operations consist of other operating revenues
and expenses not directly attributable to the 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, proceeds from the July 2002 issuance of
junior subordinated debt, 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 March 31, 2003 and 2002 are as follows:

`Three Months Ended March 31, 2003
                                                                 ---------------------------------------------------------
                                                                                                 Holding
                                                                                 Specialty     Company and
                                                                               Servicing and  Miscellaneous
                                                                   Banking        Finance       Operations       Total
                                                                 ------------   ------------   ------------   ------------
  Interest income ............................................   $     11,012   $      1,084   $         13   $     12,109
  Interest expense ...........................................          6,243            169            264          6,676
                                                                 ------------   ------------   ------------   ------------
  Net interest income (expense) ..............................          4,769            915           (251)         5,433
  Provision for loan losses ..................................             --             30             --             30
                                                                 ------------   ------------   ------------   ------------
  Net interest income (expense) after provision for loan
     losses ..................................................          4,769            885           (251)         5,403
  Realized gains on asset sales ..............................             --              5             --              5
  Servicing income ...........................................            299          7,879           (337)         7,841
  Other (loss) income ........................................            (38)          (156)           386            192
  Compensation and benefits ..................................          1,131          5,314            326          6,771
  Other expense ..............................................          1,298          1,967            762          4,027
                                                                 ------------   ------------   ------------   ------------
  Income (loss) before taxes .................................          2,601          1,332         (1,290)         2,643
  Income tax provision (benefit) .............................          1,092            204           (217)         1,079
                                                                 ------------   ------------   ------------   ------------
  Net income (loss) ..........................................   $      1,509   $      1,128   $     (1,073)  $      1,564
                                                                 ============   ============   ============   ============
  Total assets ...............................................   $    772,069   $     67,272   $    (11,599)  $    827,742
                                                                 ============   ============   ============   ============



                                                                             Three Months Ended March 31, 2002
                                                                 ---------------------------------------------------------
                                                                                                 Holding
                                                                                 Specialty     Company and
                                                                               Servicing and  Miscellaneous
                                                                   Banking        Finance       Operations       Total
                                                                 ------------   ------------   ------------   ------------
  Interest income ............................................   $     11,951   $      1,878   $        288   $     14,117
  Interest expense ...........................................          7,226            381             86          7,693
                                                                 ------------   ------------   ------------   ------------
  Net interest income ........................................          4,725          1,497            202          6,424
  Provision for loan losses ..................................             --             13             --             13
                                                                 ------------   ------------   ------------   ------------
  Net interest income after provision for loan losses ........          4,725          1,484            202          6,411
  Realized (losses) gains on asset sales .....................            (62)            44             --            (18)
  Servicing income ...........................................            223          5,776           (477)         5,522
  Other income ...............................................             14            543            374            931
  Compensation and benefits ..................................            944          4,353            344          5,641
  Other expense ..............................................          1,316          2,731          4,431          8,478
                                                                 ------------   ------------   ------------   ------------
  Income (loss) before minority interest and taxes ...........          2,640            763         (4,676)        (1,273)
  Minority interest ..........................................             --             --            200            200
                                                                 ------------   ------------   ------------   ------------
  Income (loss) before taxes .................................          2,640            763         (4,476)        (1,073)
  Income tax provision (benefit) .............................          1,094             --         (1,394)          (300)
                                                                 ------------   ------------   ------------   ------------
  Net income (loss) ..........................................   $      1,546   $        763   $     (3,082)  $       (773)
                                                                 ============   ============   ============   ============
  Total assets ...............................................   $    741,748   $     61,711   $    (10,162)  $    793,297
                                                                 ============   ============   ============   ============`

- 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)

## 7.   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 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 March 31, 2003
                                                       ---------------------------------
                                                       Gross Carrying      Accumulated
                                                            Amount        Amortization
                                                       ---------------   ---------------

               Goodwill.............................   $         3,393   $          (339)
               Core deposit intangible..............             1,294              (712)
                                                       ---------------   ---------------
                  Total.............................   $         4,687   $        (1,051)
                                                       ===============   ===============`

For the quarter ended March
31, 2003 the Company recorded amortization expense of $65 related to the core
deposit intangible. The estimated amortization of the balance for the remainder
of 2003 and the five succeeding fiscal years is $194 (2003), $259 (2004), $129
(2005), and none thereafter.

There were no changes in
the carrying value of goodwill during the quarter ended March 31, 2003. The
Company tested goodwill for impairment as of March 31, 2003 and determined that
no impairment charge was required.

The Companys
purchased mortgage servicing rights (MSRs) totaled approximately $10.8 million
at March 31, 2003, $5.4 million at December 31, 2002, and $7.5 million at March
31, 2002. Amortization expense for MSRs was $0.9 million for the quarter ended
March 31, 2003, and $1.0 million for the quarter ended March 31, 2002. The
estimated amortization expense of the March 31, 2003 balance of MSRs for the
remainder of 2003 and the five succeeding fiscal years is $3.2 million (2003),
$3.1 million (2004), $1.9 million (2005), $1.1 million (2006), $0.7 million
(2007), and $0.4 million (2008). 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.

## 8.  LEGAL MATTERS

In June 2001, the Bank sold
its Bankcard Division to iPayment Holdings, Inc. for a purchase price of
approximately $6.2 million. In a lawsuit commenced by the Bank for payment of
part of the purchase price, iPayment, in September 2002, filed a cross-complaint
against the Bank for fraud, breach of contract and negligent misrepresentation.
iPayment contends that the Bank knew, or should have known, that a merchant was
concealing significant product returns by issuing checks as refunds, rather than
issuing credit card refunds as required by MasterCard operating rules. iPayment
claims damages for the difference in the purchase price due to the decreased
value to iPayment of the merchants account; chargebacks that iPayment may
have to pay and will not be able to recover from the merchant which may total
$5-6 million; and punitive damages. The Bank denies the claims, in part because
the portion of the purchase price for which the Bank is suing iPayment was held
back by iPayment and was dependent upon the processing volume of this merchant,
and the Bank also maintains that iPayment failed to mitigate any claimed
damages. The Bank intends to defend the cross-complaint vigorously. The factual
discovery process has not been completed. Although the Company expects to incur
costs in defending these claims, based on the results of the discovery
proceedings thus far and preliminary discussions with its lawyers, the Company
currently does not believe the ultimate resolution of the claims will have a
material impact on its financial condition or results of operations. The Company
has not recognized, for accounting purposes, the contingency payment from
iPayment which is the subject of this litigation.

- 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)

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

## 9. SUBSEQUENT
EVENTS

On April 23, 2003, the
Companys Board of Directors revised the Companys 1999 Equity
Participation Plan to remove the automatic grant of WFSG stock options to board
members of the Company and FBBH upon their re-election to their respective
boards.

In April 2003 the Federal
Home Loan Bank increased the Banks borrowing authority from 30% to 35% of
the Banks total assets as of the previous quarter-end.

- 14 -

---

# 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.   and  our   wholly   owned
subsidiaries,    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   Beaverton,   Oregon.   The  Bank  is
headquartered   in   Calabasas,    California   and
conducts its branch  banking  activities in Beverly
Hills, California.

## RESULTS OF
OPERATIONSQUARTER ENDED MARCH 31, 2003 COMPARED TO QUARTER ENDED MARCH
31, 2002

Our  consolidated  net income for the  quarter
ended  March  31,  2003  was   approximately   $1.6
million, or $0.09 per basic share,  compared with a
net  loss of  $0.8  million,  or  $0.05  per  basic
share,  for  the  quarter  ended  March  31,  2002.
WFSG's  pre-tax  income  was   approximately   $2.6
million  for the first  quarter  of 2003,  compared
with a pre-tax  loss of $1.1  million for the first
quarter of 2002.

Our  consolidated   stockholders'   equity  at
March 31, 2003 was $101.4  million ($5.56 and $5.04
per  basic and  diluted  share,  respectively),  an
increase of $1.9  million  over  December  31, 2002
equity.  The  increase  reflects net income for the
quarter and $0.7 million in tax  benefits  relating
to    losses    generated    in    the    Company's
pre-reorganizational  period,  partially  offset by
after-tax   unrealized   losses  on  the  Company's
portfolio    of    available-for-sale    securities
(approximately  $0.4  million)  and on its  hedging
transactions (approximately $59 thousand).

The  increase  in  net  income  in  the  first
quarter of 2003 over the corresponding  2002 period
reflects a $1.6  million  increase in  consolidated
other  income,  primarily as a result of higher net
servicing  income at the Company's  loan  servicing
subsidiary,  partially  offset  by a  $1.0  million
decline in net interest income.

In   addition,   our  total  other   operating
expenses  declined by  approximately  $3.3  million
from  the  first  quarter  of 2002.  The  Company's
first   quarter  2002  other   operating   expenses
included    approximately    $4.75    million    of
non-recurring  charges and legal  expenses  related
to the  settlement of  litigation  which arose from
events   prior   to   the   Company's   June   1999
restructuring.     The     absence     of     these
settlement-related  charges in the 2003  period was
partially  offset  by a $1.1  million  increase  in
compensation expense,  primarily as a result of the
expansion of the Company's  Specialty Servicing and
Finance  Operations.  The Company's other operating
expenses  continue to include expenses on behalf of
prior  officers in connection  with the events that
gave rise to the  litigation.  Such  costs  totaled
approximately   $0.5   million   for  each  of  the
quarters ended March 31, 2003 and 2002.

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.

- 15 -

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

The  following  table  compares  income before
taxes  for FBBH for the  quarters  ended  March 31,
2003 and 2002 (dollars in thousands):

`Quarter Ended March 31,
                                               ------------------------------------------
                                                                               Increase
                                                   2003           2002        (Decrease)
                                               ------------   ------------   ------------
Interest income .............................  $     11,012   $     11,951   $       (939)
Interest expense ............................         6,243          7,226           (983)
                                               ------------   ------------   ------------
Net interest income .........................         4,769          4,725             44
Provision for loan losses ...................            --             --             --
                                               ------------   ------------   ------------
Net interest income after provision
  for loan losses ...........................         4,769          4,725             44
Realized losses on sales ....................            --            (62)            62
Other income ................................           261            237             24
Compensation and benefits ...................         1,131            944            187
Other expense ...............................         1,298          1,316            (18)
                                               ------------   ------------   ------------
Income before taxes .........................  $      2,601   $      2,640   $        (39)
                                               ============   ============   ============`

Net Interest Income
        The Banks net
interest income was approximately $4.8 million for the quarter ended March 31,
2003, an increase of $44 thousand over net interest income for the first quarter
of 2002. Average interest-earning assets increased by $41 million in the first
quarter of 2003 over the corresponding 2002 period, and interest-bearing
liabilities increased by approximately $37 million over the same periods.
Partially offsetting this net increase in interest-earning assets was a 3-basis
point drop in interest spread, from 2.14% for the first quarter of 2002 to 2.11%
for the first quarter of 2003. The Banks net interest margin decreased
slightly, from 2.64% for the quarter ended March 31, 2002 to 2.52% for the
quarter ended March 31, 2003.

The Banks interest
income on loans was approximately $8.1 million for the first quarter of 2003,
compared with $9.4 million for the first quarter of 2002. The decline in
interest rates triggered both a repricing of FBBHs variable-rate loans and
rapid prepayments on its fixed-rate loans throughout 2002 and continuing into
2003. Consequently, the average aggregate loan balances decreased by $20.9
million from the quarter ended March 31, 2002 to the quarter ended March 31,
2003, and the yield decreased by 75 basis points, from 7.38% to 6.63%, for the
same periods. In the first quarter of 2003, the Banks loan originations
and purchases totaled $36.6 million, compared with principal repayments of $41.0
million.

Interest income on
investment securities increased from $2.4 million for the quarter ended March
31, 2002 to $2.9 million for the quarter ended March 31, 2003. Utilizing new
borrowing sources and its excess liquidity, the Bank purchased approximately
$281 million in AAA-rated mortgage-backed and other investment securities in
2002 and an additional $18 million in the first quarter of 2003. Despite
significant prepayments on these assets throughout the past year, the
Banks average balance of securities increased by $81.8 million from the
first quarter of 2002 to the first quarter of 2003. This significantly higher
volume more than offset the effects of the 89-basis point drop in yield, from
5.24% to 4.35%, over the same periods.

FBBHs interest
expense on deposits decreased by $1.2 million from the quarter ended March 31,
2002 to the quarter ended March 31, 2003. This decrease was a result of declines
in both the average balance and average rates paid. The Bank raised significant
amounts of certificates of deposit in prior years to fund certain loan
acquisitions, but has since permitted the run-off of the higher-rate CDs and
utilized debt facilities as its primary funding source. As a result, the average
balance of deposits decreased by $42.9 million from the first quarter of 2002 to
the first quarter of 2003. In addition, the average rate paid on deposits
declined by 80 basis points, from 4.13% to 3.33%, over the same periods.

The Banks interest
expense on borrowings increased by approximately $0.2 million from the first
quarter of 2002 to the first quarter of 2003. This increase was due to an $80.2
million increase in the total average balance of borrowings for the 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 5.07% for the first quarter of 2002 to 4.03% for the first quarter of 2003.
The decrease in market interest rates primarily affected the cost of the
Banks repurchase agreements only; substantially all of the Banks
FHLB advances had fixed rates of interest and thus were unaffected by rate
changes.

- 16 -

---

Provision for Loan Losses
        Provisions for losses on
loans are charged to operations to maintain an allowance for losses on the loan
portfolio at a level which the Bank believes is adequate based on an evaluation
of the inherent risks in the portfolio. The Banks evaluation is based on
an analysis of the loan portfolio, historical loss experience, current economic
conditions and trends, collateral values, and other relevant factors. Based on
its quarterly evaluations of the adequacy of its loan loss reserves, the Bank
did not record a provision for loan losses in 2002 or in the first quarter of
2003.

Realized Losses on Sales
        The Bank sold approximately
$19.6 million of mortgage-backed securities for a realized loss of $62 thousand
during the quarter ended March 31, 2002, with no such sales activity in the
first quarter of 2003.

Compensation and Benefits
        The Banks
compensation and benefits totaled approximately $1.1 million for the first
quarter of 2003, compared with $0.9 million for the first quarter of 2002. This
increase was due to an increase in the Banks employee head count from
March 31, 2002 to March 31, 2003, primarily as a result of the expansion of its
commercial lending operations.

Other Expenses
        The Banks other
expenses totaled approximately $1.3 million for the quarter ended March 31,
2003, compared with a similar amount for the quarter ended March 31, 2002. Costs
remained largely consistent in most expense categories, reflecting the
Banks efforts to control overhead.

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

Following are condensed statements of financial condition for FBBH as of March 31, 2003 and December 31, 2002:

`March 31,    December 31,
                                                                                 2003           2002
                                                                             ------------   ------------
                                                                                (Dollars in thousands)
ASSETS:
Cash and cash equivalents .................................................  $      9,234   $     10,003
Mortgage-backed securities available for sale, at fair value ..............       233,000        259,707
Other investment securities available for sale, at fair value .............        22,260         11,962
Loans, net ................................................................       481,741        486,821
Real estate owned, net ....................................................           725          1,040
Other assets ..............................................................        25,109         24,545
                                                                             ------------   ------------
    Total assets ..........................................................  $    772,069   $    794,078
                                                                             ============   ============

LIABILITIES:
Deposits ..................................................................  $    385,097   $    395,781
Short-term borrowings .....................................................        87,098         91,870
FHLB advances .............................................................       206,000        216,000
Other liabilities .........................................................        16,036         13,795
                                                                             ------------   ------------
    Total liabilities .....................................................       694,231        717,446

NET WORTH .................................................................        77,838         76,632
                                                                             ------------   ------------
    Total liabilities and net worth .......................................  $    772,069   $    794,078
                                                                             ============   ============`

- 17 -

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Mortgage-Backed and
Other Securities Available for Sale. The Banks total portfolio of
mortgage-backed securities (MBS) available for sale decreased by $26.7 million
during the quarter ended March 31, 2003. This decrease was primarily due to
$33.4 million in principal repayments and $0.4 million in unrealized losses. The
declining interest-rate environment continued to trigger significant paydowns on
the loans underlying the securities in the portfolio and, as a result of an
acceleration of our prepayment-rate assumptions, negatively impacted the
securities market values. These decreases were partially offset by $7.6
million in purchases of AAA-rated MBS during the quarter.

The Banks portfolio
of treasury and other investment securities available for sale increased by
approximately $10.3 million during the first quarter of 2003 as a result of the
purchase of an agency security during the quarter.

Loans, net.
The Banks portfolio of loans, net of discounts and allowances, decreased
by approximately $5.1 million during the quarter ended March 31, 2003. This net
decrease was attributable to principal repayments of $41.0 million as a result
of the continuing decline in market interest rates. The Bank partially offset
these paydowns with $29.8 million in new loan originations and $6.8 million in
new loan portfolio acquisitions in the quarter.

Real Estate Owned,
net. The Banks portfolio of real estate owned, net decreased by
approximately $0.3 million in the first quarter of 2003, as a result of sales of
$0.7 million of properties, partially offset by $0.4 million in new acquisitions
through foreclosure.

Deposits.  The Bank's deposits decreased by approximately $10.7 million during the quarter ended March 31, 2003,  primarily due to
maturities  of  higher-rate  certificates  of deposit.  The Bank has  permitted the run-off of such deposits in an effort to reduce its
overall cost of funds, and is utilizing short-term repurchase agreements and FHLB advances as its primary funding source.

Short-Term
Borrowings. The Banks short-term borrowings decreased by
approximately $4.8 million in the first quarter of 2003.  This decrease was due to repayments of $52.8
million of repurchase agreements bearing interest at an average rate of 1.57%, partially offset by $48 million in new
borrowings with an average rate of 1.35%. These borrowings are
used primarily to finance the Banks purchases of mortgage-backed and other
investment securities.

FHLB
Advances. The Banks FHLB advances decreased by $10 million in the
first quarter of 2003. This decrease was due to the maturity in March 2003 of a
$16 million, 3-year advance bearing interest at 7.10%. The Bank replaced a
portion of this matured advance with a new $6 million advance bearing interest
at 2.81% and maturing in 2007.

Net
Worth. The Banks total net worth increased by approximately
$1.2 million during the quarter ended March 31, 2003. The Bank earned net income
for the first quarter of $1.5 million, which was partially offset by after-tax
unrealized losses of approximately $0.2 million on its portfolio of
available-for-sale securities and $59 thousand on its hedging transactions.

## 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.

- 18 -

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The following table sets forth the Bank's regulatory capital ratios at March 31, 2003.

# 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)........................................... $ 78,412    15.9%  $ 39,490   =>8.0%  $ 49,363   =>10.0%
Tier 1 Capital to Risk-Weighted Assets.................   72,235    14.6%   Not Applicable      29,618   => 6.0%
Core Capital to Tangible Assets........................   72,235     9.4%    30,700   =>4.0%    38,375   => 5.0%
Tangible Capital to Tangible Assets....................   72,235     9.4%    11,513   =>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 FHLB advances, repurchase agreements, retail and
wholesale deposits, whole loan and mortgage-backed securities sales, and net
interest income. In April 2003, the FHLB raised the Banks authorized
borrowing limit from 30% to 35% 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 March 31, 2003 the
Banks cash balances totaled approximately $9.2 million, compared with
$10.0 million at December 31, 2002. The slight decrease in cash was primarily
due to repayments of debt facilities and maturities of certificates of deposit
during the first quarter of 2003, partially offset by principal repayments of
loans and mortgage-backed securities.

At March 31, 2003, the Bank
had approximately $334.7 million of certificates of deposit. Scheduled
maturities of certificates of deposit during the 12 months ending March 31, 2004
and thereafter amounted to approximately $223.7 million and approximately $111.0
million, respectively. Wholesale deposits generally are more responsive to
changes in interest rates than core deposits, and thus are more likely to be
withdrawn by the investor upon maturity as changes in interest rates and other
factors are perceived by investors to make other investments more attractive.
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 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 WCC, our servicing subsidiary which was
formed pursuant to our June 10, 1999 reorganization, and through WFC, our
investment subsidiary. Certain of WCCs and WFCs activities are
conducted with a lender which has participation interests in the returns
generated by the assets that serve as collateral for the related borrowings. The
share of such activities held by this lender is reflected as Investor
participation interest in the Companys consolidated statements of
operations.

- 19 -

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The following table
compares operating income before taxes of our Specialty Servicing and Finance
Operations for the quarters ended March 31, 2003 and 2002 (dollars in
thousands).

`WCC and WFC for the Quarter
                                                       Ended March 31,
                                          ------------------------------------------
                                                                          Increase
                                              2003           2002        (Decrease)
                                          ------------   ------------   ------------
Servicing income .......................  $      7,879   $      5,776   $      2,103
Interest income ........................         1,084          1,878           (794)
Realized gains on sales ................             5             44            (39)
Other (loss) income ....................          (156)           543           (699)
                                          ------------   ------------   ------------
   Total income ........................         8,812          8,241            571
                                          ------------   ------------   ------------
Interest expense .......................           169            381           (212)
Provision for loan losses ..............            30             13             17
Compensation and benefits ..............         5,314          4,353            961
Other expenses .........................         1,967          2,731           (764)
                                          ------------   ------------   ------------
   Total expenses ......................         7,480          7,478              2
                                          ------------   ------------   ------------
Income before taxes ....................  $      1,332   $        763   $        569
                                          ============   ============   ============`

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

`Quarter Ended
                                                                       March 31,
                                                              ---------------------------
                                                                  2003           2002
                                                              ------------   ------------
                                                                 (Dollars in thousands)
Servicing revenue...........................................  $      7,009   $      5,955
Ancillary fees .............................................         2,320          1,462
Amortization of mortgage servicing rights ..................          (881)          (977)
Valuation adjustment for mortgage servicing rights..........           228           (103)
Custodial float ............................................           279            308
Unreimbursed servicing expenses ............................          (268)           (84)
Prepayment interest shortfall expense ......................          (808)          (785)
                                                              ------------   ------------
    Total servicing income..................................  $      7,879   $      5,776
                                                              ============   ============`

Total servicing income for
the quarter ended March 31, 2003 was approximately $7.9 million, compared with
$5.8 million for the quarter ended March 31, 2002. The increase was due to the
continuing growth in WCCs servicing volume (see portfolio growth, below).
As a result of new contractual flow agreements and, to a lesser extent,
servicing rights acquisitions, WCC has increased its portfolio of serviced loans
by approximately $1.5 billion since March 31, 2002, despite significant
repayments precipitated by the decline in interest rates. As a result of this
expansion, our total servicing income increased by approximately 36% from the
first quarter of 2002 to the first quarter of 2003.

The continuing decline in
mortgage interest rates which began in 2001 and the currently prevailing low
interest rate environment have resulted in relatively rapid prepayments of loans
comprising our serviced asset base which, in turn, has impacted negatively
servicing revenues. However, prepayment speeds have generally declined or
remained stable over the past two quarters ending March 31, 2003. Our
amortization of MSRs was approximately $0.9 million for the quarter ended March
31, 2003, compared with approximately $1.0 million for the first quarter of
2002. In addition, our float income earned on deposit balances remained constant
at $0.3 million for each period, and the interest we are required to pay to
securitization trusts (prepayment interest shortfall expense) under
our servicing agreements was approximately $0.8 million for both quarters.

WCCs serviced loan
assets increased by approximately $1.05 billion during the quarter, reflecting
WCCs purchase of the rights to service approximately 5,000 loans with an
aggregate unpaid principal balance of $789 million, and additional contracts to
service approximately 17,000 loans totaling $766 million in unpaid principal.
The transfer of these loans was completed in March 2003. These additions were
offset by an approximate $503 million runoff of WCCs serviced asset base,
primarily from prepayments.

- 20 -

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

`March 31,     December 31,    March 31,
                                                        2003           2002           2002
                                                    ------------   ------------   ------------
                                                              (Dollars in thousands)
Single-family residential ........................  $  4,700,019   $  3,668,401   $  3,290,208
Multi-family residential .........................       120,876        121,908        117,274
Commercial real estate ...........................       236,809        218,976        188,699
Consumer and other ...............................        81,868         78,880         89,693
                                                    ------------   ------------   ------------
     Total (1) ...................................  $  5,139,572   $  4,088,165   $  3,685,874
                                                    ============   ============   ============`

(1)  WCC's  servicing  portfolio at March 31, 2003 and December 31, 2002 also  included  approximately  $0.3 billion  unpaid  principal
balance of non-performing consumer loans in addition to those reflected in the above table.

Interest Income and Interest Expense
        Interest income in our
Specialty Servicing and Finance Operations was approximately $1.1 million for
the quarter ended March 31, 2003, compared with $1.9 million for the quarter
ended March 31, 2002. The decrease was due to a drop in loan volume as a result
of WCCs and WFCs sales of $10.6 million unpaid principal balance of
loans in the second quarter of 2002. Proceeds from these sales were used to pay
down certain debt facilities, resulting in a decrease in interest expense for
the corresponding periods.

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

`Quarter Ended
                                                             March 31,
                                                    ---------------------------
                                                        2003           2002
                                                    ------------   ------------
                                                       (Dollars in thousands)
Other (loss) income:
Real estate owned, net ...........................  $        (15)  $        (74)
Investor participation interest ..................           (70)          (326)
Other, net .......................................           (71)           943
                                                    ------------   ------------
    Total other (loss) income ....................  $       (156)  $        543
                                                    ============   ============`

Other (loss) income
includes the co-investors share of certain investment activities conducted
with WCC and WFC, which is reported as Investor participation
interest. Other, net decreased from the first quarter of 2002 to the first
quarter of 2003, primarily as a result of a $0.7 million gain from recoveries in
connection with certain servicer advances during the 2002 period.

Compensation and Benefits
        Compensation and employee
benefits totaled approximately $5.3 million for the quarter ended March 31,
2003, compared with approximately $4.4 million for the quarter ended March 31,
2002. This increase was due to a continuing increase in WCCs employee head
count as a result of the expansion of our loan servicing operations.

Other Expenses
        Other expenses in our
Specialty Servicing and Finance Operations were approximately $2.0 million for
the quarter ended March 31, 2003, compared with $2.7 million for the quarter
ended March 31, 2002. This decrease was due to a $0.7 million decline in legal
expenses. In March 2002 we accrued significant expenses and charges related to
the settlement of litigation arising from events prior to our June 1999
restructuring. (See RESULTS OF OPERATIONS  QUARTER ENDED MARCH 31,
2003 COMPARED TO QUARTER ENDED MARCH 31, 2002 above.)

- 21 -

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## Changes in
Financial Condition  Specialty Servicing and Finance Operations

Following are condensed
statements of financial condition for our Specialty Servicing and Finance
Operations as of March 31, 2003 and December 31, 2002:

`March 31,        December 31,
                                                                                        2003               2002
                                                                                    ------------       ------------
                                                                                        (Dollars in thousands)
ASSETS:
Cash and cash equivalents.......................................................    $         --       $     2,770
Mortgage-backed securities available for sale, at fair value....................           1,575             1,828
Discounted loans, net...........................................................           6,062             6,630
Real estate owned, net..........................................................              47                61
Servicer advance receivables, net...............................................          26,383            19,922
Purchased mortgage servicing rights, net........................................          10,842             5,405
Intercompany receivables........................................................          16,224            15,144
Other assets....................................................................           6,139             5,807
                                                                                    ------------       -----------
    Total assets................................................................    $     67,272       $    57,567
                                                                                    ============       ===========

LIABILITIES:
Short-term borrowings...........................................................    $      5,000       $        --
Long-term investment financing..................................................           7,132             4,284
Other liabilities...............................................................          10,786             8,958
                                                                                    ------------       -----------
     Total liabilities..........................................................          22,918            13,242
NET WORTH.......................................................................          44,354            44,325
                                                                                    ------------       -----------
    Total liabilities and net worth.............................................    $     67,272       $    57,567
                                                                                    ============       ===========`

Mortgage-Backed
Securities Available for Sale. WFCs portfolio of mortgage-backed
securities available for sale decreased by approximately $0.3 million during the
quarter ended March 31, 2003 as a result of a decrease in net unrealized gains.
WFC received $0.7 million in principal repayments in the first quarter of 2003
on its mortgage-backed securities, which have been written down to a book value
of zero. Any subsequent payments received are recorded directly to interest
income. 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. Discounted loans, net decreased by approximately $0.6 million from
December 31, 2002 to March 31, 2003 primarily as a result of principal payments
received during the quarter.

Servicer Advance
Receivables, net.Servicer advance receivables, net increased by
approximately $6.5 million during the quarter ended March 31, 2003. This
increase resulted from new principal and interest advances by WCC during the
quarter, partially offset by recoveries of advances on loans previously made.

Purchased Mortgage
Servicing Rights, net. Purchased mortgage servicing rights, net (MSRs)
increased by approximately $5.4 million for the quarter ended March 31, 2003,
primarily as a result of purchases of $6.1 million of MSRs associated with new
servicing portfolio acquisitions. In addition, we recorded a net recovery of
approximately $0.2 million in impairment charges previously taken. These
increases were partially offset by $0.9 million of amortization of MSRs during
the quarter.

Intercompany
Receivables.Intercompany receivables increased by approximately $1.1
million from year-end 2002 to March 31, 2003. This increase was primarily due to
an ongoing transfer of funds from WFC to WFSG to meet WFSGs operating
costs.

Short-Term Borrowings
and Long-Term Investment Financing. Short-term borrowings and long-term
investment financing in our Specialty Servicing and Finance Operations increased
by approximately $7.8 million during the quarter ended March 31, 2003. WCC
utilized its commercial bank lines of credit to fund new servicer advances and
its acquisitions of servicing rights during the quarter.

- 22 -

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## 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 primarily servicing
revenue, sales of mortgage servicing assets and/or interest-earning assets, net
interest income and lines of credit from commercial banks. 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 March 31, 2003,
liquidity in our Specialty Servicing and Finance Operations (including cash and
unused borrowings under our credit facilities) totaled $10.0 million, compared
with approximately $22.3 million at December 31, 2002. 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, 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 serviced by
unaffiliated third parties, and currently hold subordinated mortgage-backed
securities only where we act as servicer of the loan pools backing these
securities. At March 31, 2003 we held $1.6 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 and contract for servicing assets and to
acquire pools of loans. The Companys 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. This strategy will depend largely on
the Companys ability to find and use capital partners for our Specialty
Servicing and Finance Operations. Otherwise, our business 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, proceeds from the July 2002
issuance of junior subordinated debt, 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. In
January 2003 the Bank remitted $0.4 million to the Company for a portion of its
2001 liability under the foregoing formula. WFSG will continue to depend on its
non-Bank subsidiaries to meet its liquidity needs.

## 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.

- 23 -

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

 Mortgage-Backed
and Other Investment Securities Available for Sale.The Companys
mortgage-backed and other investment securities available for sale are reported
at their current fair market value. In determining current fair value when
quotes from third parties are not available, we estimate the present value of
the anticipated cash flows of the securities based on certain assumptions,
including the amount and timing of future repayments, the discount rate to be
used, and default rates and expected losses on the loans underlying the
securities. If the change in market value is considered temporary, the
unrealized holding gains and losses are reported net of tax, when applicable, as
a separate component of accumulated other comprehensive income in
stockholders equity. In the event of a decline in market value, management
must evaluate whether the decline is temporary in nature or other than
temporary. Declines that are considered other than temporary are reflected as
Market valuation losses and impairments in the consolidated
statements of operations and not as a direct reduction to stockholders
equity. The Companys portfolio of mortgage-backed and other investment
securities available for sale has increased significantly over the past two
years and, as of March 31, 2003, represented more than 30% of consolidated total
assets. Consequently, fluctuations in the securities values can have a
significant impact on our financial condition and results of operations.

 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 core operations. In determining the fair value of
our mortgage servicing rights (MSRs), we make assumptions of market discount
rates, prepayment speeds, default rates and related servicing costs 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.

 Income
Taxes. At March 31, 2003 we had a total deferred tax asset of approximately
$53.6 million. This asset represents the tax effect of future deductible or
taxable amounts and is attributable to carryforwards, such as net operating
losses and capital losses, and also to temporary differences between amounts
that have been recognized in the financial statements and amounts that have been
recognized in the Companys income tax returns. In accounting for the
deferred tax asset, we apply Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, which requires that deferred tax
assets be reduced by a valuation allowance if it is more likely than not that
some portion or all of the deferred tax asset will not be realized. We evaluate
the deferred tax asset quarterly and, as of March 31, 2003,
have recorded a valuation allowance of approximately $49.2 million. The net
deferred tax asset, $4.4 million, is included in prepaid expenses and other
assets in our consolidated statement of financial condition as of March 31,
2003. We currently believe that it is more likely than not that this portion of
the deferred tax asset will be realized. However, there can be no assurance that
the amount, if any, that we ultimately realize will not differ materially from
our assessment. As portions of the deferred tax asset are realized and the
valuation allowance is reduced, the related benefits, to the extent they relate
to our post-reorganizational period, are recorded as a deferred tax benefit in
our consolidated statements of operations. As benefits relating to our
pre-reorganizational period are realized, they are recorded as a direct increase
to stockholders equity.

- 24 -

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
Contingencies. We are party to various legal proceedings, as discussed
above and in the notes to the consolidated financial statements.  These
matters have a degree of uncertainty associated with them.  We continually
assess the likely outcomes of these proceedings, the amounts of any related
ongoing costs, and the adequacy of amounts provided for these
matters.   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.

- 25 -

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## 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.

- 26 -

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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 volatility and
variations in the value of assets and liabilities as interest rates change over
time. Our asset and liability management strategy is formulated and monitored by
the investment committee of the Company and the asset and liability committee of
the Bank (the 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 establishes rate sensitivity tolerances (within regulatory guidelines)
which are approved by the Banks Board of Directors, and coordinates with
the Banks Board with respect to overall asset and liability composition.

The
Committees are authorized to utilize 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. The
Bank has entered into a $35 million notional principal amount interest rate swap
agreement, which became effective in December 2002 and matures in December 2004.
Pursuant to the agreement, the Bank will pay interest at a fixed rate of 2.22%
and receive quarterly interest payments at the three-month LIBOR rate.

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

In addition, as required by
OTS regulations, 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
tolerable change in interest income 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
March 31, 2003, 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.............................   $   97,815    $ (34,337)      (26)%        12.08%    (315)bp
         +200bp.............................      112,684      (19,468)      (15)         13.54     (169)bp
         +100bp.............................      127,363       (4,789)       (4)         14.90      (33)bp
            0bp.............................      132,152           --        --          15.23       --
         -100bp.............................      129,908       (2,244)       (2)         14.86      (37)bp
         -200bp.............................      126,158       (5,994)       (5)         14.38      (85)bp
         -300bp.............................      123,150       (9,002)       (7)         14.04     (119)bp`

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In determining net
portfolio value, Management relies upon various assumptions, including, but not
limited to, prepayment speeds on the Companys assets and the discount
rates to be used. We review our assumptions regularly and adjust them when it is
deemed appropriate based on current and future expected market conditions. At
March 31, 2003, we utilized a lower discount rate than at the previous
quarter-end because we believe the lower rate represents a more typical coupon
rate that could be earned on newly-originated commercial and multi-family loans.
As a result, our consolidated NPV increased substantially over the prior quarter
under every rate-change scenario.

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

- 28 -

---

## ITEM 4.
CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures
        We maintain a set of
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our reports filed under the Securities Exchange Act
of 1934, as amended (Exchange Act) is recorded, processed,
summarized and reported within the time periods specified in the SECs
rules and forms. Within the 90 days prior to the date of this report, we carried
out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-14 of the Exchange Act.
Based on that evaluation, our CEO and CFO concluded that the Companys
disclosure controls and procedures are effective in timely alerting him to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Companys Exchange Act
filings.

Changes in internal controls
        There have been no
significant changes in the Companys internal controls or in other factors
that could significantly affect internal controls subsequent to the date of that
evaluation.

- 29 -

---

# WILSHIRE
FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES

|PART II. |  | OTHER INFORMATION
|-------- |  | -----------------

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

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

|Item 2. |  | Changes in Securities.
|------- |  | ----------------------

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

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

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

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

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

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

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

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

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

| |  | 99.1   Certification of Chief Executive  Officer and Chief Financial Officer Pursuant to 18 U.S.C.§1350
| |  | -------------------------------------------------------------------------------------------------------

| | (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 April 18, 2003, reporting the resignation of the
Companys Executive Vice President and Chief Financial Officer and
appointment of its interim Chief Financial Officer.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Current
Report on Form 8-K dated April 30, 2003, reporting the Companys operating
results for the quarter ended March 31, 2003.
| | --------------------------------------------------------------------------------------------------------------------------------

| | Current
Report on Form 8-K dated May 6, 2003, announcing the date of the Companys
annual shareholder meeting.
| | --------------------------------------------------------------------------------------------------------------

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---

# SIGNATURE

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

| | WILSHIRE FINANCIAL SERVICES GROUP INC.
| | --------------------------------------

Date: May 12, 2003

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

- 31 -

---

# CERTIFICATIONS
PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Stephen P. Glennon, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Wilshire Financial Services Group Inc.;
|-- | ---------------------------------------------------------------------------------------------

|2. | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge,
the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors (or persons performing the       equivalent
function):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal controls; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The registrants
other certifying officers and I have indicated in this quarterly report whether
or not there were significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date: May 12, 2003 | /s/   STEPHEN P. GLENNON   
|------------------ | ---------------------------
|                   | Stephen P. Glennon         
|                   | Chief Executive Officer and
|                   | Chief Financial Officer    

- 32 -

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