<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-Q

(MARK ONE)

<TABLE>
<C>        <S>
   /X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999

                                       OR

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                          COMMISSION FILE NO. 0-23911

                            ------------------------

                      WILSHIRE REAL ESTATE INVESTMENT INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
               MARYLAND                                     52-2081138
    (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                     Identification No.)
</TABLE>

                              1310 SW 17TH STREET
                               PORTLAND, OR 97201
              (Address of principal executive offices) (Zip Code)
                                 (503) 721-6500
              (Registrant's telephone number, including area code)
                   Wilshire Real Estate Investment Trust Inc.
                             1776 SW Madison Street
                               Portland, OR 97205
                    (Former name and address of Registrant)

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

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

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

<TABLE>
<S>                                              <C>
                  CLASS                          OUTSTANDING AT OCTOBER 31, 1999
Common Stock, par value $0.0001 per share               11,500,000 shares
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                      WILSHIRE REAL ESTATE INVESTMENT INC.

                                   FORM 10-Q

                                     INDEX

<TABLE>
<CAPTION>
                                                              PAGE NO.
                                                              --------
<S>                                                           <C>
PART I--FINANCIAL INFORMATION

Item 1. Interim Financial Statements (Unaudited):

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

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

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

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

      Notes to Consolidated Financial Statements............      7

Item 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations.................     14

Item 3. Quantitative and Qualitative Disclosures about
Market Risk.................................................     30

PART II--OTHER INFORMATION

Item 1. Legal Proceedings...................................     33

Item 2. Changes in Securities...............................     34

Item 3. Defaults Upon Senior Securities.....................     34

Item 4. Submission of Matters to a Vote of Security
Holders.....................................................     34

Item 5. Other Information...................................     35

Item 6. Exhibits............................................     35

Signatures..................................................     36
</TABLE>

                                       2
<PAGE>
PART I--FINANCIAL INFORMATION

ITEM 1. INTERIM FINANCIAL STATEMENTS

                      WILSHIRE REAL ESTATE INVESTMENT INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  1999            1998
                                                              -------------   ------------
                                                               (UNAUDITED)
<S>                                                           <C>             <C>
ASSETS

    Cash and cash equivalents...............................    $  7,802        $  4,782
    Securities available for sale, at fair value............     105,087         158,738
    Loans held for sale, net................................          --          44,006
    Loans, net..............................................      30,393          69,124
    Discounted loans, net...................................       1,191           2,498
    Investments in real estate, net.........................      69,424          85,005
    Investment in WFSG (see Note 6).........................       3,594              --
    Notes receivable from WFSG (see Note 6).................      10,977              --
    Due from WFSG (see Note 6)..............................          --          12,352
    Accrued interest receivable.............................       1,156           1,939
    Prepaid servicing fees to WCC (see Note 6)..............       2,953              --
    Other assets............................................       1,887           2,673
                                                                --------        --------
        Total assets........................................    $234,464        $381,117
                                                                ========        ========

LIABILITIES AND STOCKHOLDERS' EQUITY

  Liabilities:
    Short-term borrowings...................................    $121,662        $225,566
    Other borrowings........................................      48,986          60,577
    Accounts payable and accrued liabilities................       7,120           6,233
    Payable to Old WCC (see Notes 2 & 6)....................          --          11,698
    Dividends payable.......................................       4,600           4,600
                                                                --------        --------
        Total liabilities...................................     182,368         308,674
                                                                --------        --------

  Commitments and Contingencies (see Note 7)

  Stockholders' Equity:
    Preferred stock, $.0001 par value; 25,000,000 shares
      authorized; no shares issued and outstanding..........          --              --
    Common stock, $.0001 par value; 200,000,000 shares
      authorized; 11,500,000 shares issued and
      outstanding...........................................     166,981         166,981
    Accumulated deficit.....................................     (91,874)        (64,093)
    Accumulated other comprehensive loss....................     (23,011)        (30,445)
                                                                --------        --------
        Total stockholders' equity..........................      52,096          72,443
                                                                --------        --------
        Total liabilities and stockholders' equity..........    $234,464        $381,117
                                                                ========        ========
</TABLE>

                                       3
<PAGE>
                      WILSHIRE REAL ESTATE INVESTMENT INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                  (UNAUDITED)

                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                  THREE MONTHS
                                                      ENDED              NINE MONTHS     SIX MONTHS
                                                  SEPTEMBER 30,             ENDED           ENDED
                                            -------------------------   SEPTEMBER 30,   SEPTEMBER 30,
                                               1999          1998           1999            1998
                                            -----------   -----------   -------------   -------------
<S>                                         <C>           <C>           <C>             <C>
Net Interest Income:
  Loans and discounted loans..............  $       959   $     4,167    $     4,081     $     5,491
  Securities..............................        3,291         7,152         12,025          10,758
  Other investments.......................          555           326          2,063             486
                                            -----------   -----------    -----------     -----------
    Total interest income.................        4,805        11,645         18,169          16,735
  Interest expense........................        2,803         6,012          9,841           7,513
                                            -----------   -----------    -----------     -----------
    Net interest income before provision
      for losses..........................        2,002         5,633          8,328           9,222
  Provision for (recovery of) losses......           --         3,000         (1,150)          3,000
                                            -----------   -----------    -----------     -----------
    Net interest income after provision
      for losses..........................        2,002         2,633          9,478           6,222
                                            -----------   -----------    -----------     -----------
Real Estate Operations:
  Operating income........................        1,625         2,011          5,468           2,960
  Operating expense.......................          (35)         (129)          (158)           (192)
  Interest expense........................       (1,043)       (1,060)        (3,579)         (1,408)
  Provision for losses on real estate.....         (325)           --           (892)             --
  Gain on sale of real estate.............          708            --            718              --
  Depreciation............................         (333)         (394)        (1,102)           (569)
                                            -----------   -----------    -----------     -----------
    Net income from real estate
      operations..........................          597           428            455             791
                                            -----------   -----------    -----------     -----------
Other Operating Income (Loss):
  Gain (loss) on sale of securities.......          232           934           (697)            934
  Gain (loss) on foreign currency
    translation...........................           35            --            (41)             --
  Other revenue...........................           53            --            242              --
  Provision for disputes with WFSG........       (4,077)           --         (4,077)             --
  Market valuation losses and
    impairments...........................       (6,339)      (49,520)       (28,527)        (49,520)
                                            -----------   -----------    -----------     -----------
      Total other operating loss..........      (10,096)      (48,586)       (33,100)        (48,586)
                                            -----------   -----------    -----------     -----------
Operating Expenses:
  Management fees to WRSC.................          663         1,340          2,414           1,942
  Servicing fees..........................          127           204            175             252
  Loan expenses...........................           31           193             36             278
  Other...................................          854         1,618          1,789           1,793
                                            -----------   -----------    -----------     -----------
      Total operating expenses............        1,675         3,355          4,414           4,265
                                            -----------   -----------    -----------     -----------
Net loss before provision for income
  taxes...................................       (9,172)      (48,880)       (27,581)        (45,838)
Provision for income taxes................          200            --            200              --
                                            -----------   -----------    -----------     -----------
NET LOSS..................................  $    (9,372)  $   (48,880)   $   (27,781)    $   (45,838)
                                            ===========   ===========    ===========     ===========
BASIC AND DILUTED LOSS PER SHARE..........  $     (0.82)  $     (4.25)   $     (2.42)    $     (4.03)
WEIGHTED AVERAGE SHARES OUTSTANDING.......   11,500,000    11,500,000     11,500,000      11,381,356
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                   statements

                                       4
<PAGE>
                      WILSHIRE REAL ESTATE INVESTMENT INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                             ACCUMULATED
                                                         COMMON STOCK                           OTHER
                                                     ---------------------   ACCUMULATED    COMPREHENSIVE
                                                       SHARES      AMOUNT      DEFICIT           LOSS         TOTAL
                                                     ----------   --------   ------------   --------------   --------
<S>                                                  <C>          <C>        <C>            <C>              <C>
Initial capital....................................          --   $      2     $     --        $     --      $      2
Issuance of common stock...........................  11,500,000    166,979           --              --       166,979
Comprehensive loss:
  Net loss.........................................          --         --      (56,388)             --       (56,388)
  Other comprehensive (loss) income:
    Foreign currency translation...................          --         --           --              (7)           (7)
    Unrealized holding losses on securities
      available for sale...........................          --         --           --         (67,817)      (67,817)
    Reclassification adjustment for losses on
      securities included in net loss..............          --         --           --          37,379        37,379
                                                                                                             --------
Total comprehensive loss...........................          --         --           --              --       (86,833)
Dividends declared.................................          --         --       (7,705)             --        (7,705)
                                                     ----------   --------     --------        --------      --------
Balance at December 31, 1998.......................  11,500,000    166,981      (64,093)        (30,445)       72,443
Comprehensive loss:
  Net loss (unaudited).............................          --         --      (27,781)             --       (27,781)
  Other comprehensive (loss) income (unaudited):
    Unrealized holding losses on securities
      available for sale (unaudited)...............          --         --           --         (11,512)      (11,512)
    Reclassification adjustment for losses on
      securities included in net loss
      (unaudited)..................................          --         --           --          19,013        19,013
    Foreign currency translation (unaudited).......          --         --           --             (67)          (67)
                                                                                                             --------
Total comprehensive loss...........................          --         --           --              --       (20,347)
                                                     ----------   --------     --------        --------      --------
Balance at September 30, 1999 (unaudited)..........  11,500,000   $166,981     $(91,874)       $(23,011)     $ 52,096
                                                     ==========   ========     ========        ========      ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                   statements

                                       5
<PAGE>
                      WILSHIRE REAL ESTATE INVESTMENT INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (UNAUDITED)

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               NINE MONTHS     SIX MONTHS
                                                                  ENDED           ENDED
                                                              SEPTEMBER 30,   SEPTEMBER 30,
                                                                  1999            1998
                                                              -------------   -------------
<S>                                                           <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................................    $ (27,781)     $   (45,838)
  Adjustments to reconcile net loss to net cash (used in)
    provided by operating activities:
      Provision for (recovery of) losses....................       (1,150)           3,000
      Provision for losses on real estate owned.............          892               --
      Depreciation..........................................        1,102              569
      Amortization of premiums and discounts, net...........         (290)            (336)
      Market valuation losses and impairments...............       28,527           49,520
      Loss (gain) on sale of securities.....................          697             (934)
      Gain on sale of real estate...........................         (718)              --
      Loss on foreign currency translation..................            5               --
      Change in:
        Due from WFSG.......................................        1,159             (325)
        Accrued interest receivable.........................          783           (4,809)
        Prepaid servicing fees to WCC.......................       (2,953)              --
        Other assets........................................         (237)          (2,934)
        Payable to Old WCC..................................      (11,698)              --
        Accounts payable and accrued liabilities............          844            4,540
      Other, net............................................           --              400
                                                                ---------      -----------
      Net cash (used in) provided by operating activities...      (10,818)           2,853
                                                                ---------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of securities available for sale.................       (8,885)        (365,918)
  Purchase of loans and discounted loans....................           --         (651,100)
  Repayments of securities available for sale...............        9,100            3,859
  Proceeds from sale of securities available for sale.......       32,331           16,817
  Loan originations.........................................         (489)              --
  Proceeds on sale of loans.................................       48,366               --
  Principal payments received on loans and discounted
    loans...................................................       39,764            6,338
  Investments in real estate................................         (223)         (81,256)
  Proceeds on sale of real estate...........................       14,019               --
  Loan to WFSG..............................................       (5,000)              --
  Other.....................................................          247               28
                                                                ---------      -----------
      Net cash provided by (used in) investing activities...      129,230       (1,071,232)
                                                                ---------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from short-term borrowings.......................        1,251          508,230
  Proceeds from other borrowings............................           --           60,940
  Proceeds from securitized mortgage obligations............           --          372,318
  Repayments on short-term borrowings.......................     (105,185)         (32,879)
  Repayments on other borrowings............................      (11,454)            (136)
  Dividend payments on common stock.........................           --           (3,105)
  Proceeds from issuance of common stock, net of offering
    costs...................................................           --          166,979
                                                                ---------      -----------
      Net cash (used in) provided by financing activities...     (115,388)       1,072,347
                                                                ---------      -----------
Effect of exchange rate changes on cash.....................           (4)              --
                                                                ---------      -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS...................        3,020            3,968
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............        4,782                2
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................    $   7,802      $     3,970
                                                                =========      ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--
      Cash paid for interest................................    $   9,475      $     7,347
NON CASH INVESTING ACTIVITIES--
      Investment in WFSG....................................       12,289               --
NON CASH FINANCING ACTIVITIES--
      Common stock dividends declared but not paid..........           --            4,600
      Additions to investment real estate acquired in
       settlement of loans..................................           26              276
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                   statements

                                       6
<PAGE>
                      WILSHIRE REAL ESTATE INVESTMENT INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1999

           (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND WHERE NOTED)

NOTE 1--BASIS OF PRESENTATION

    The accompanying interim consolidated financial statements of Wilshire Real
Estate Investment Inc. and Subsidiaries ("WREI" or the "Company") (previously
Wilshire Real Estate Investment Trust Inc. and Subsidiaries) are unaudited and
have been prepared in conformity with the requirements of Regulation S-X
promulgated under the Securities Exchange Act of 1934 as amended (the "Exchange
Act"), particularly Rule 10-01 thereof, which governs the presentation of
interim financial statements. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
("GAAP") for complete financial statements. The accompanying interim
consolidated financial statements should be read in conjunction with the
Company's 1998 Annual Report on Form 10-K/A. A summary of the Company's
significant accounting policies is set forth in Note 4 to the consolidated
financial statements in the 1998 Annual Report on Form 10-K/A.

    In the Company's opinion, all adjustments, comprised of normal recurring
accruals necessary for the fair presentation of the interim financial
statements, have been included in the accompanying financial statements.
Operating results for the three and nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.

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

    Prior to April 6, 1998, the Company had substantially no operating activity
and, therefore, comparative 1998 consolidated statements of operations are
presented only for the three and six months ended September 30, 1998.

    Certain items in the previously reported consolidated financial statements
were reclassified to conform to the September 30, 1999 presentation, none of
which affect previously reported net loss.

NOTE 2--ORGANIZATION AND RELATIONSHIPS

    The Company was originally incorporated as Wilshire Real Estate Investment
Trust Inc. ("WREIT") in the State of Maryland on October 24, 1997. However, due
to the benefit of significant net operating loss carryforwards and to avoid any
risk of not qualifying as a real estate investment trust ("REIT"), the Company
elected in September 1999 (with shareholder approval) not to be taxed as a REIT
(see Note 3), and the Company's name was changed to Wilshire Real Estate
Investment Inc. The Company was initially formed with a capital investment of
$2 thousand. On April 6, 1998, the Company was capitalized with the sale of
11,500,000 shares of common stock, par value $.0001 per share, at a price of
$16.00 per share (the "Offering"). Total net proceeds of the Offering after
underwriting and offering expenses were $167.0 million.

    Until recently, the Company was a party to a management agreement with
Wilshire Realty Services Corporation ("WRSC"), a wholly-owned subsidiary of
Wilshire Financial Services Group Inc. ("WFSG"), under which WRSC advised the
Company on various facets of its business and managed its day-to-day operations,
subject to the supervision of the Company's Board of Directors. WFSG currently
owns 992,587

                                       7
<PAGE>
                      WILSHIRE REAL ESTATE INVESTMENT INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 1999

           (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND WHERE NOTED)

NOTE 2--ORGANIZATION AND RELATIONSHIPS (CONTINUED)

shares, or 8.6%, of the Company's outstanding common stock and has options to
purchase an additional 1,135,000 shares (of which options on 57,500 shares were
granted to officers of WRSC) at an exercise price of $16.00 per share. For its
services, WRSC received a base management fee of 1% per annum of the first
$1.0 billion of average invested assets, as defined in the agreement, 0.75% of
the next $500 million of average invested assets and 0.50% of average invested
assets above $1.5 billion, payable quarterly. In addition, WRSC could receive
additional incentive compensation in an amount generally equal to 25% of the
dollar amount by which funds from operations ("FFO"), as adjusted, exceeded an
amount equal to the product of: (i) $16.00; and, (ii) the ten-year Treasury rate
plus 5% per annum, multiplied by the weighted average number of shares of common
stock outstanding during such period. Finally, WRSC was entitled to receive
reimbursements of all due diligence costs and reasonable out-of-pocket expenses.
For the three months and nine months ended September 30, 1999, the Company
incurred approximately $663 and $2,414, respectively, of management fees.
Management fees for the three months and six months ended September 30, 1998
were approximately $1,340 and $1,942. No incentive fees have been incurred under
the management agreement.

    WFSG experienced financial difficulties in 1998 resulting in its bankruptcy
restructuring. On March 3, 1999, WFSG submitted a prepackaged plan of
reorganization as part of a Chapter 11 bankruptcy filing in the Federal Court of
Wilmington, Delaware. On April 12, 1999, the WFSG restructuring plan was
approved by the Bankruptcy Court, and on June 10, 1999, WFSG emerged from
bankruptcy pursuant to the restructuring plan. See Note 6 for discussion of
accounting matters related to this restructuring.

    Prior to WFSG's reorganization, Wilshire Credit Corporation ("Old WCC"), an
affiliate of WFSG, provided loan and real property servicing to the Company. As
part of the Restructuring Plan, the servicing operations conducted by Old WCC
were transferred to WCC Inc. ("WCC"), a newly formed company controlled by WFSG.

    Relations between WFSG and the Company declined as the Company was not
allowed to fully participate in the restructuring of WFSG and did not obtain any
representation on WFSG's new board of directors despite a 14.4% ownership
interest. On August 19, 1999, the Company was notified that WFSG had suspended
its Chief Executive Officer, Andrew Wiederhorn, and its President, Lawrence
Mendelsohn, from their duties as employees of WFSG and its subsidiaries and
terminated their employment with WFSG and its subsidiaries purportedly for cause
on September 3, 1999. Mr. Wiederhorn and Mr. Mendelsohn were also terminated as
Chief Executive Officer and President of WRSC. The Company and its independent
directors have long considered that Mr. Wiederhorn and Mr. Mendelsohn are key
personnel on which the stability and future growth of the Company are dependent.
As the principal architects of the development of both WFSG and the Company,
Mr. Wiederhorn and Mr. Mendelsohn are familiar with the Company's strengths and
weaknesses, have a firm understanding of the complex real estate and financial
markets in which the Company operates, have longstanding relationships within
the industry (and in particular with the Company's lenders) and are familiar
with the Company's assets (including its portfolio of subordinated
mortgage-backed securities) and its liabilities (including short-term repurchase
agreements). Accordingly, the independent directors of the Company believe that
the termination of Mr. Wiederhorn and Mr. Mendelsohn had a material, adverse
effect on WRSC's ability to perform its obligations under the management
agreement.

                                       8
<PAGE>
                      WILSHIRE REAL ESTATE INVESTMENT INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 1999

           (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND WHERE NOTED)

NOTE 2--ORGANIZATION AND RELATIONSHIPS (CONTINUED)

    During the third quarter of 1999, the Company decided to become internally
managed, and this has resulted in disputes between the Company, on the one hand,
and WRSC and WFSG on the other. Prior to this decision, the Company's business
and investment affairs had been managed by WRSC pursuant to a management
agreement, and the Company had received managerial and administrative services
from WRSC thereunder. Accordingly, prior to this decision, the Company had no
employees and instead relied on WRSC for management, facilities, reporting, and
other services. WRSC itself is a shell company and has no employees. WFSG
provided managerial and administrative services to WRSC to allow it to fulfil
its obligations under the management agreement.

    On August 20, 1999, the Company filed a lawsuit against WFSG in the Circuit
Court of the State of Oregon for Multnomah County. On August 23, 1999, the
Company filed an amended Complaint in the lawsuit adding as additional
defendants WRSC, WCC, a 50.01% subsidiary of WFSG, and Wilshire Management
Leasing Company ("WML"), a wholly-owned subsidiary of WFSG alleging: (1) the
termination of Wiederhorn and Mendelsohn made WFSG and WRSC unable and/or
unwilling to provide management to the Company as required under the management
agreement; (2) the inability of WFSG and WRSC to manage the Company's business
affairs triggered application of a facilities sharing agreement dated
February 19, 1999 between the Company, WFSG, WRSC, WCC, and WML (the "Facilities
Sharing Agreement"); and (3) WFSG's refusal to allow Wiederhorn and Mendelsohn
access to WFSG's facilities, personnel, and equipment for the Company's business
violated the terms of the Facilities Sharing Agreement. Messrs. Wiederhorn and
Mendelsohn have also brought suit against WFSG and its directors alleging
wrongful termination and defamation. The Facilities Sharing Agreement had been
entered into by the parties to provide for the orderly transition of the
Company's management in the event the management agreement was no longer
operative and the Company was to become internally, rather than externally,
managed. Under the Facilities Sharing Agreement, WFSG, WRSC, and the other
parties were required to provide to the Company, for a period of two years, the
facilities, services, equipment, and personnel necessary for the Company to
internally manage itself, in return for the payment by the Company of the
pro-rata cost to provide facilities, services, equipment, and personnel. On
September 22, 1999, WFSG and WRSC filed papers in the above litigation alleging
various affirmative defenses and counterclaims, including allegations that the
Facilities Sharing Agreement was not in effect and was unenforceable, and that
the Company breached the management agreement, obligating the Company to pay a
termination fee.

    On September 22, 1999, the Company sent a letter to WRSC reserving its
rights with respect to prior declarations of default by WRSC, and providing
formal notice of non-renewal and termination "for cause" of the management
agreement. The letter outlined various breaches of the management agreement by
WRSC, including: failing to provide competent management to the Company; failing
to provide necessary services and facilities; and taking actions contrary to the
interests of the Company. WRSC has disputed the characterization of the
termination as one "for cause" and has claimed that under the management
agreement it is entitled to a termination fee (a sum equal to the management
fees paid to WRSC for the preceding twelve months) from the Company.
Notwithstanding the foregoing, the Company has sought to discuss the parties'
disagreements with a view to reaching an amicable arrangement for severing the
relationships between WFSG and the Company. As a result of the Company's
overtures, the Company and WFSG began discussions to resolve their differences
in late September. There can be no assurance that

                                       9
<PAGE>
                      WILSHIRE REAL ESTATE INVESTMENT INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 1999

           (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND WHERE NOTED)

NOTE 2--ORGANIZATION AND RELATIONSHIPS (CONTINUED)

these discussions will result in a resolution of these disagreements. In
connection with this matter, the Company, without admission, recorded a
provision for potential resolution of disputes with WFSG of $4.1 million as of
September 30, 1999.

    As part of the Company's decision to become independently managed, the
Company has entered into employment agreements with Andrew Wiederhorn, as
Chairman and Chief Executive Officer; Lawrence Mendelsohn, as President; Chris
Tassos, as Chief Financial Officer and Executive Vice President; Richard
Brennan, as Executive Vice President; and Robert Rosen, as Executive Vice
President.

NOTE 3--INCOME TAXES

    Due to the significant net operating loss carryforwards of the Company and
risks of not qualifying as a REIT, the Company reevaluated its original plan to
elect to be taxed as a REIT. The Company's Board of Directors had been informed
that potentially serious adverse tax consequences could result (including tax
penalties) in the event that the Company elected to be a REIT but was unable to
qualify as such under the Internal Revenue Code of 1986, as amended. As a result
of these factors and the Company's significant net loss during the year ended
December 31, 1998, the Company concluded that it was in the best interests of
the Company and its shareholders not to elect REIT status, and included for vote
at the annual shareholders' meeting a proposal to proceed in that manner. On
September 10, 1999, the Company's shareholders voted not to elect REIT status
and, as a result, the Company will be subject to corporate taxation.

    As of September 30, 1999, the Company had, for U.S. Federal tax purposes, a
net operating loss carryforward in excess of $65 million, which expires in 2018.
U.S. tax regulations impose limitations on the use of net operating loss
carryforwards following certain changes in ownership. If such a change were to
occur with respect to the Company, the limitation could significantly reduce the
amount of benefits that would be available to offset future taxable income each
year, starting with the year of ownership change. The Company has not recorded
any tax assets for the future benefits of the net operating loss carryforwards.

NOTE 4--SIGNIFICANT TRANSACTIONS

    In October 1999, the Company and Credit Suisse First Boston, the Company's
largest lender, agreed to replace the existing monthly repurchase facility with
a longer-term facility, for the continued financing of certain mortgage-backed
securities and a $25 million commercial mortgage loan. The Company believes that
this arrangement significantly reduces risk and reliance on short-term
borrowings while still providing adequate amortization and collateral
requirements for its lender.

    In July 1999, the Company sold a commercial warehouse in Salem, Oregon for
net proceeds of approximately $7.4 million, and in August 1999, the Company sold
a commercial warehouse in Eugene, Oregon for net proceeds of approximately
$2.3 million. The gains on these sales of $0.2 million and $0.5 million,
respectively, are reported in the consolidated statements of operations for the
three and nine months ended September 30, 1999. Proceeds were used to repay
$7.4 million of other borrowings.

                                       10
<PAGE>
                      WILSHIRE REAL ESTATE INVESTMENT INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 1999

           (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND WHERE NOTED)

NOTE 4--SIGNIFICANT TRANSACTIONS (CONTINUED)

    During the three months ended September 30, 1999, the Company sold
mortgage-backed securities with a carrying value of $5.5 million. The cumulative
gain on these sales of $0.2 million is reported in the consolidated statements
of operations for the three and nine months ended September 30, 1999. Proceeds
of $5.7 million were used to repay short-term borrowings.

NOTE 5--MARKET VALUATION LOSSES AND IMPAIRMENTS

    The Company evaluates, on an ongoing basis, the carrying value of its
securities portfolio, which is accounted for as available-for-sale. To the
extent differences between the book basis of the securities and their current
market values are deemed to be temporary in nature, such unrealized gains or
losses are reflected directly in equity, as "other comprehensive income or
loss." In calculating the extent to which declines in the value of
available-for-sale securities are other than temporary, the Company analyzes
actual performance of the securities and underlying collateral, including
prepayment and default statistics, as well as expectations for such performance
in the future. To the extent reasonable expectations for future performance are
not likely to offset reductions in current market valuations, a write down is
recorded in "Market Valuation Losses and Impairments."

    During the three and nine months ended September 30, 1999, market valuation
losses and impairments of $6.3 million and $28.5 million, respectively, were
recorded. An $8.7 million write down of the Company's interest in WFSG stock and
$1.0 million of fees for advisory services in connection with its investment in
WFSG stock (see Note 6) are included in the nine months ended September 30,
1999. The Company believes that the decline in value of its investment in WFSG
stock is other than temporary, based on WFSG's operating results and other
factors, and has written down such investment to the market price of $1.25 per
share as of September 29, 1999. In addition, during such periods, $6.3 million
and $18.0 million, respectively, of market valuation losses and impairments were
recorded related to our portfolio of mortgage-backed securities primarily
reflecting unprecedented prepayment rates on certain residual securities. During
the three months ended September 30, 1999, the Company impaired its investment
in Cityscape 1997-A, 1997-B, and 1997-C economic residual interests by
$4.9 million. This charge primarily reflects the continuation of rapid
prepayment on the loans underlying these securities despite an overall increase
in the level of prevailing market mortgage rates. The remaining carrying value
of all our economic residuals is $16.6 million at September 30, 1999. The
Company also impaired its investment in Wilshire Consumer Obligation Structured
Trust 1995-A by $1.4 million. This charge primarily reflects the potential
impairment of two related loans secured by a commercial property that sustained
considerable flooding. The loans represent approximately 30% of the remaining
loan pool balance underlying the trust. The recording of this market valuation
loss and impairment had the effect of transferring such amounts between
components of equity (from "other comprehensive loss" to "accumulated deficit"),
but had no net effect on net equity of the Company. See also the Consolidated
Statements of Changes in Stockholders' Equity.

NOTE 6--TRANSACTIONS WITH WFSG, ITS SUBSIDIARIES OR OLD WCC

    In January 1999, the Company entered into an agreement to provide WFSG with
debtor-in-possession financing of up to $10.0 million (the "DIP Facility") as
part of a compromise and settlement of a $17.0 million receivable due from WFSG.
The DIP Facility bears interest at 12% and is secured by the

                                       11
<PAGE>
                      WILSHIRE REAL ESTATE INVESTMENT INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 1999

           (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND WHERE NOTED)

NOTE 6--TRANSACTIONS WITH WFSG, ITS SUBSIDIARIES OR OLD WCC (CONTINUED)

stock of First Bank of Beverly Hills, FSB, WFSG's savings bank subsidiary. The
DIP Facility matures on February 29, 2004 and repayment is made through fully
amortizing principal and interest payments commencing on February 29, 2000.
Prior to February 29, 2000, only interest payments are required. The Company
loaned $5.0 million under the DIP Facility (which is included in "Notes
receivable from WFSG" in the statements of financial condition) on March 3,
1999, but did not provide WFSG with the remaining half. Accordingly, under the
agreement negotiated by the Company's Independent Directors with WFSG and its
creditors, 50%, or approximately $8.5 million, of WFSG's obligation was treated
PARI PASSU with the claims of WFSG's noteholders and converted, together with
approximately $21.4 million (in principal plus accrued but unpaid interest) of
WFSG's 13% Series B Notes held by WREI, to 2,874,791 shares of newly issued
common stock of WFSG on June 10, 1999, the effective date of the Restructuring
Plan. Additionally, on the effective date of the Restructuring Plan, the Company
received approximately $8.5 million in principal amount ($6.0 million carrying
value) of WFSG's 6% Convertible PIK Notes due 2006 (the "PIK Notes"), which is
also included in "Notes receivable from WFSG" in the statements of financial
condition, in exchange for the remaining 50% of the $17.0 million aforementioned
receivable due from WFSG. The Company may elect to convert the PIK Notes into
new common stock of WFSG upon receipt of a notice of redemption of the PIK Notes
by WFSG.

    On June 30, 1999 the Company filed an H-(e)1 application with the Office of
Thrift Supervision. The application requests OTS approval to be a material
shareholder of a savings and loan holding company (WFSG). Currently, the Company
is not obligated to obtain such approval under OTS regulations. The Company has
filed such application; however, to protect itself from circumstances such as
dilution or sales by other holders that would obligate the Company at a later
date to obtain such OTS approval.

    In January 1999, the Company remitted $15 million to Old WCC, consisting of
a payment of amounts owed by the Company to Old WCC of $11.8 million and the
prepayment of $3.2 million of future servicing fees for a release of a guarantee
by the Company of $35 million of Old WCC's indebtedness and of any and all
claims against the Company relating thereto. The amortized balance of the
prepaid servicing fee is included in the accompanying consolidated statement of
financial condition as of September 30, 1999. However, the noteholders of WFSG
claim that less than $3.2 million of future servicing fees were prepaid by the
Company. The noteholders of WFSG claim that the amount owed to Old WCC was
approximately $900,000 higher, thereby reducing the amount of the prepayment
credit to $2.3 million. The Company believes that the $3.2 million figure is
correct and is currently negotiating this issue with WFSG as part of an overall
settlement between WFSG and the Company.

NOTE 7--COMMITMENTS, CONTINGENCIES & OFF-BALANCE SHEET RISK

    The Company's Asset and Liability Committee is authorized to utilize a wide
variety of off-balance sheet financial techniques to assist the Company in the
management of interest rate risk. In hedging the interest rate and/or exchange
rate exposure of a foreign currency denominated asset or liability, the Company
may enter into hedge transactions to counter movements in the different
currencies, as well as interest rates in those currencies. These hedges may be
in the form of currency and interest rate swaps, options, and forwards, or
combinations thereof. At September 30, 1999, the Company had no outstanding
positions in these instruments.

                                       12
<PAGE>
                      WILSHIRE REAL ESTATE INVESTMENT INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               SEPTEMBER 30, 1999

           (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND WHERE NOTED)

NOTE 7--COMMITMENTS, CONTINGENCIES & OFF-BALANCE SHEET RISK (CONTINUED)

    With the exception of disputes with WFSG and WRSC discussed in Notes 2 and
6, the Company is involved in various legal proceedings occurring in the
ordinary course of business which the Company believes will not have a material
adverse effect on the financial condition or operations of the Company.

NOTE 8--SUBSEQUENT EVENTS

    In October 1999, the Company acquired mortgage-backed securities from WFSG
for approximately $20.9 million by assuming short-term borrowings of
$18.5 million and a $2.4 million reduction in the carrying amount of the PIK
Notes.

    The Company is currently in the process of marketing certain commercial
properties for sale during the fourth quarter 1999, many of which are under
contract for sale. Management expects net proceeds to approximate or exceed the
carrying values of such properties. The net proceeds resulting from these
transactions are expected to be used to reduce short-term and other borrowings.
There can be no assurance, however, that the Company will sell such properties,
that any outstanding sale contracts will close, or the Company will receive net
proceeds in excess of their respective carrying values.

                                       13
<PAGE>
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 CONSOLIDATED FINANCIAL STATEMENTS OF WILSHIRE REAL ESTATE
INVESTMENT INC. AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS FILING.
REFERENCES IN THIS FILING TO "WILSHIRE REAL ESTATE INVESTMENT INC.," "WE,"
"OUR," AND "US" REFER TO WILSHIRE REAL ESTATE INVESTMENT INC. AND ITS
SUBSIDIARIES UNLESS THE CONTEXT INDICATES OTHERWISE.

GENERAL

    Wilshire Real Estate Investment Inc. ("WREI" or the "Company") (formerly
known as Wilshire Real Estate Investment Trust Inc.) is a Nasdaq-listed
corporation that was formed in October 1997 and commenced operations in
April 1998 following the completion of our initial public offering.

    In response to adverse market conditions in the second half of 1998 and the
resulting effect on our operations, we focused our efforts on stabilizing our
existing asset base and greatly reduced acquisition activities during the nine
months ended September 30, 1999. General market conditions and availability of
financing for certain of our asset categories, especially subordinated
mortgage-backed securities and mezzanine loans, continue to be uncertain. Our
results of operations for the three and nine months ended September 30, 1999
reflect this continued difficult marketplace, which include further impairment
write downs of mortgage-backed securities, the preponderance of which had
previously been deducted from stockholders' equity, through "Accumulated other
comprehensive loss."

    Notwithstanding this uncertainty, we expect gradually to resume acquisition
activities, with an increased emphasis on investment in loans and related assets
and a decreased emphasis on commercial operating properties. We believe that
investments in loans provide higher yields and allow us to more efficiently
leverage our existing capital, thereby providing us a higher return on equity.
In addition, we believe there may be attractive opportunities for additional
investments in Europe. We may also seek to invest in other companies that invest
in real estate related assets, especially where the market capitalizations of
such companies do not reflect the inherent values of the underlying assets or
franchises. Nonetheless, we continue to make investment decisions on an
opportunistic basis and will evaluate investment opportunities as they arise.

RESTRUCTURING OF WFSG

    As a result of the market turmoil in the second half of 1998, Wilshire
Financial Services Group Inc. ("WFSG"), the parent of Wilshire Realty Services
Corporation ("WRSC"), submitted on March 3, 1999 a prepackaged plan of
reorganization as part of a Chapter 11 bankruptcy filing in the Federal Court of
Wilmington, Delaware. On April 12, 1999, the WFSG restructuring plan was
approved by the Bankruptcy Court and on June 10, 1999, WFSG's bankruptcy
reorganization was consummated.

    Through our independent directors, we were a party to the restructuring
negotiations since we owned $20 million in principal amount of WFSG's 13%
Series B Notes and had a $17.0 million unsecured receivable from WFSG, bearing
interest at 13%. In January 1999, we entered into an agreement to provide WFSG
with debtor-in-possession financing of up to $10.0 million (the "DIP Facility")
as part of a compromise and settlement of the $17.0 million receivable due from
WFSG. Under this compromise and settlement, if the Company funded the full
amount of the DIP Facility, the Company would have received a new note for the
full amount of the receivable, bearing interest at 6% per annum payable monthly
in arrears. The DIP Facility bears interest at 12% and is secured by the stock
of First Bank of Beverly Hills, FSB, WFSG's savings bank subsidiary. The DIP
Facility matures on February 29, 2004 and repayment is made through fully
amortizing principal and interest payments commencing on February 29, 2000.
Prior to February 29, 2000, only interest payments are required. The business
decision to provide the DIP Facility was based on the independent directors'
desire to obtain the best possible treatment for the Company's holdings of
WFSG's 13% Series B Notes and the account receivable due from WFSG and the fact
that the

                                       14
<PAGE>
debtor-in-possession facility was fully secured by the stock of WFSG's bank
subsidiary. We funded $5.0 million of the DIP Facility on March 3, 1999 but did
not provide WFSG with the remaining half. Accordingly, under the agreement
negotiated by the Company's independent directors with WFSG and its creditors,
50%, or approximately $8.5 million, of WFSG's obligation was treated pari passu
with the claims of WFSG's noteholders and converted, together with approximately
$21.4 million (in principal plus accrued but unpaid interest) of WFSG's 13%
Series B Notes, to 2,874,791 shares of newly issued common stock of WFSG on
June 10, 1999, the effective date of the restructuring plan. Additionally, on
the effective date of the restructuring plan, we received approximately
$8.5 million in principal amount of WFSG's 6% Convertible PIK Notes due 2006
(the "PIK Notes") in exchange for the remaining 50% of the $17.0 million
intercompany receivable due from WFSG. We may elect to convert the PIK Notes
into new common stock of WFSG upon receipt of a notice of redemption of the PIK
Notes by WFSG. Following the completion of WFSG's restructuring plan, we held
2,874,791 shares, or approximately 14.4%, of common stock of WFSG.

    The following table sets forth the Company's investments in WFSG and
subsidiaries as of December 31, 1998, which was prior to WFSG's bankruptcy
filings, and as of September 30, 1999, which was following the completion of
WFSG's bankruptcy. Following the completion of WFSG's restructuring plan on
June 10, 1999, the $5 million loaned to WFSG under the DIP Facility no longer
has priority over other creditors and will be treated like any other secured
loan.

                       THE COMPANY'S INVESTMENTS IN WFSG

<TABLE>
<CAPTION>
                                                               PRE-BANKRUPTCY    POST BANKRUPTCY
TYPE OF INVESTMENT                                            (AS OF 12/31/98)   (AS OF 9/30/99)
------------------                                            ----------------   ---------------
<S>                                                           <C>                <C>
WFSG's 13% Series B Notes...................................    $9,933,000(1)      $        --
Receivable From WFSG........................................    17,000,000(2)               --
PIK Notes...................................................              --       5,977,000(3)
WFSG's Common Stock.........................................              --       3,594,000(4)
DIP Facility................................................              --         5,000,000
Prepaid Servicing Fees to WCC...............................              --         2,953,000
                                                                ------------       -----------
TOTAL.......................................................    $ 26,933,000       $17,524,000
                                                                ============       ===========
</TABLE>

------------------------

(1) Based on the value of the 13% Series B Notes as shown on the Company's
    financial statements as of December 31, 1998. The principal amount of the
    13% Series B Notes held by the Company was $20 million.

(2) Based on the face amount owed.

(3) In October 1999, the Company acquired approximately $20.9 million of
    mortgage-backed securities from WFSG by assuming short-term borrowings of
    $18.5 million and a $2.4 million reduction in the carrying amount of the PIK
    Notes.

(4) Based on $1.25 per share. WFSG's common stock currently trades on the OTC
    Bulletin Board and the closing price as of September 29, 1999 was $1.25 per
    share.

INCOME TAX STATUS

    Due to the significant net operating loss carryforwards and risks of not
qualifying as a real estate investment trust ("REIT"), we reevaluated our
original plan to elect to be taxed as a REIT. Our Board of Directors had been
informed that potentially serious adverse tax consequences could result
(including tax penalties) in the event that we elected to be a REIT but were
unable to qualify as such under the Internal Revenue Code of 1986, as amended.
As a result of these factors and our significant net loss during the year

                                       15
<PAGE>
ended December 31, 1998, we concluded that it was in our best interests not to
elect REIT status. On September 10, 1999, our shareholders voted not to elect
REIT status.

    Since we elected not to be taxed as a REIT, we will be subject to corporate
taxation. However, as of September 30, 1999 we had, for U.S. Federal tax
purposes, a net operating loss carryforward in excess of $65 million, which
expires in 2018. U.S. tax regulations impose limitations on the use of net
operating loss carryforwards following certain changes in ownership. If such a
change were to occur with respect to the Company, the limitation could
significantly reduce the amount of benefits that would be available to offset
future taxable income each year starting with the year of the ownership change.
The Company has not recorded any tax assets for the future benefits of the net
operating loss carryforwards.

RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1999

    NET LOSS. Our net loss for the nine months ended September 30, 1999 was
$27.8 million, or $2.42 per share. The net loss is primarily attributable to
market valuation losses and impairments of $28.5 million (of which
$18.0 million is attributable to our portfolio of mortgage-backed securities,
$8.7 million is attributable to our investment in WFSG stock, $1.0 million is
attributable to fees for advisory services in connection with our investment in
WFSG stock and $0.8 million is attributable to our holdings of WFSG 13% Notes
due 2004, which were subsequently converted to newly issued common stock of
WFSG), a provision for potential resolution of disputes with WFSG of
$4.1 million, operating expenses and management fees of $4.4 million, partially
offset by net interest income after recovery of losses of $9.5 million and
income on real estate operations of $0.5 million.

    NET INTEREST INCOME. The following table sets forth information regarding
the total amount of income from interest-earning assets and expense from
interest-bearing liabilities and the resulting average yields and rates:

<TABLE>
<CAPTION>
                                                                 FOR THE NINE MONTHS ENDED
                                                                     SEPTEMBER 30, 1999
                                                              --------------------------------
                                                              AVERAGE    INTEREST   ANNUALIZED
                                                              BALANCE     INCOME    YIELD/RATE
                                                              --------   --------   ----------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Interest-Earning Assets:
  Loan portfolios (1).......................................  $ 52,703   $ 4,081       10.2%
  Mortgage-backed securities available for sale.............   131,061    12,025       12.1
  Other securities available for sale (2)...................     9,325       108        1.5
  Due from WFSG.............................................    13,001     1,251       12.7
  Notes receivable from WFSG................................     4,190       382       12.0
  Other investments.........................................     8,858       322        4.8
                                                              --------   -------       ----
    Total interest-earning assets...........................   219,138    18,169       10.9
                                                              --------   -------       ----
Interest-Bearing Liabilities:
  Short-term and other borrowings...........................   166,933     9,841        7.8
                                                              --------   -------       ----
    Total interest-bearing liabilities......................   166,933     9,841        7.8
                                                              --------   -------       ----
  Net interest income before provision for loan
    losses/spread (3).......................................             $ 8,328        3.1%
                                                                         -------       ----
  Net interest margin (4)...................................                            5.0%
                                                                                       ----
</TABLE>

------------------------

(1) In April 1999, we sold a loan secured by five luxury hotels in London,
    England, including the Savoy Hotel, the Connaught and Claridge's Hotel, with
    a carrying value of approximately $47.9 million. The net interest margin
    attributable to this loan, net of related swaps, was approximately 5.2%
    during the nine months ended September 30, 1999.

                                       16
<PAGE>
(2) Other securities available for sale consists of a U.S. Treasury Bill
    yielding approximately 4.7%, which was purchased in June 1999, and WFSG's
    13% Series B Notes, which we held from January 1999 to June 10, 1999. On
    June 10, 1999, on WFSG's emergence from bankruptcy, WFSG's 13% Series B
    Notes due 2004 were converted to common stock of WFSG. Accordingly, we did
    not accrue interest income on these securities during the nine months ended
    September 30, 1999.

(3) Net interest spread represents the difference between the average rate on
    interest-earning assets and the average cost of interest-bearing
    liabilities.

(4) Net interest margin represents net interest income divided by average
    interest-earning assets.

    RECOVERY OF LOSSES. During the nine months ended September 30, 1999, we
reversed a provision for losses of $3.9 million taken in prior periods for a
loan held for sale. This loan, which was secured by five luxury hotels in
London, England, including the Savoy Hotel, the Connaught and Claridge's Hotel,
was sold on April 29, 1999 and resulted in this recovery. This provision
reversal was partially offset by a provision for losses on loans of
$0.1 million. In addition, during the nine months ended September 30, 1999 we
recognized a net write down of $2.7 million in the carrying value of a
$17.0 million note receivable from WFSG to reflect the estimated value of the
common stock of WFSG to be received in exchange for a portion of the note (see
also Note 6 to the interim consolidated financial statements). The write down is
included in provision for losses in the consolidated statements of operations
for the nine months ended September 30, 1999.

    REAL ESTATE OPERATIONS. Real estate operations represent activity from our
investment in various office buildings, retail stores, and other commercial
property located in Oregon, California and the United Kingdom. During the nine
months ended September 30, 1999, we realized income of approximately
$0.5 million on these properties. This income was attributable to rental income
of $5.5 million, partially offset by interest expense of $3.6 million,
depreciation expense of $1.1 million, gain on sale of real estate of
$0.7 million, provision for losses on real estate of $0.9 million and operating
expenses of $0.2 million.

    OTHER LOSS. Our other loss was approximately $33.1 million for the nine
months ended September 30, 1999. This loss was primarily due to $28.5 million of
market valuation losses and impairments, a provision for potential resolution of
disputes with WFSG of $4.1 million, and a loss on sales of mortgage-backed
securities of $0.7 million, partially offset by other revenue of $0.2 million.
During the nine months ended September 30, 1999, we recorded $18.0 million of
market valuation losses and impairments related to our portfolio of
mortgage-backed securities available for sale, $8.7 million related to our
investment in newly-issued WFSG stock, $1.0 million related to fees for advisory
services in connection with our investment in WFSG stock and $0.8 million
related to our holdings of WFSG's 13% Series B Notes prior to their conversion
to newly-issued WFSG stock.

    These market valuation losses and impairments were deemed by the Company to
be other than temporary in nature. In calculating the extent to which declines
in the value of available-for-sale securities are other than temporary, the
Company analyzes actual performance of the securities and underlying collateral,
including prepayment and default statistics, as well as expectations for such
performance in the future. To the extent reasonable expectations for future
performance are not likely to offset reductions in current market valuations, a
write down is recorded in "Market valuation losses and impairments." The decline
in value and subsequent write down of mortgage-backed securities available for
sale generally reflects unprecedentedly high prepayment rates on certain
residual securities. During the three months ended September 30, 1999, the
Company impaired its investment in Cityscape 1997-A, 1997-B, and 1997-C economic
residual interests by $4.9 million. This charge primarily reflects the
continuation of rapid prepayment on the loans underlying these securities
despite an overall increase in the level of prevailing market mortgage rates.
The remaining carrying value of all our economic residuals is $16.6 million at
September 30, 1999. The Company also impaired its investment in Wilshire
Consumer Obligation Structured Trust 1995-A by $1.4 million. This charge
primarily reflects the potential impairment of two

                                       17
<PAGE>
related loans secured by a commercial property that sustained considerable
flooding. The loans represent approximately 30% of the remaining loan pool
balance underlying the trust.

    The Company believes that the decline in value of its investment in WFSG
stock is other than temporary, based on WFSG's operating results and other
factors, and has written down such investment to the market value of $1.25 per
share as of September 29, 1999.

    Without admission, a provision for potential resolution of disputes with
WFSG of $4.1 million was recorded in the three months ended September 30, 1999.
The Company has sought to discuss the parties' disagreements with a view to
reaching an amicable arrangement for severing the relationships between WFSG and
the Company. As a result of the Company's overtures, the Company and WFSG began
discussions to resolve their differences in late September. There can be no
assurance that these discussions will result in a resolution of these
disagreements. See Notes 2 and 6 to the consolidated financial statements and
Part II, Item 1, Legal Proceedings.

    OPERATING EXPENSES. Management fees of $2.4 million for the nine months
ended September 30, 1999 were comprised of the 1% (per annum) base management
fee to WRSC for the period, as provided pursuant to our management agreement
with WRSC. WRSC earned no incentive fee for this period. Other expenses were
comprised of professional services, insurance premiums and other sundry
expenses. During the nine months ended September 30, 1999, we recaptured loan
service fees of approximately $0.1 million. The recapture of service fees
resulted from a review of, and retroactive reduction in, certain property
servicing fees charged to us by Old WCC.

RESULTS OF OPERATIONS--SIX MONTHS ENDED SEPTEMBER 30, 1998

    NET LOSS. Our net loss for the six months ended September 30, 1998 was
$45.8 million, or $4.03 per share. The net loss was primarily attributable to
$49.5 million of market valuation adjustments and a provision for loan losses of
$3.0 million.

    NET INTEREST INCOME. The following tables set forth information regarding
the total amount of income from interest-earning assets and expense from
interest-bearing liabilities and the resultant average yields and rates:

<TABLE>
<CAPTION>
                                                                  FOR THE SIX MONTHS ENDED
                                                                     SEPTEMBER 30, 1998
                                                              --------------------------------
                                                              AVERAGE    INTEREST   ANNUALIZED
                                                              BALANCE     INCOME    YIELD/RATE
                                                              --------   --------   ----------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Interest-Earning Assets:
  Loan portfolios...........................................  $ 92,585   $ 5,491       11.9%
  Mortgage-backed securities available for sale.............   205,444     9,723        9.5
  Other securities available for sale.......................    19,700     1,035       10.5
  Other investments.........................................    24,963       486        3.9
                                                              --------   -------       ----
    Total interest-earning assets...........................   342,692    16,735        9.7
                                                              --------   -------       ----
Interest-Bearing Liabilities:
  Short-term and other borrowings...........................   231,328     7,513        6.5
                                                              --------   -------       ----
    Total interest-bearing liabilities......................  $231,328     7,513        6.5
                                                              --------   -------       ----
  Net interest income before provision for loan
    losses/spread (1).......................................             $ 9,222        3.2%
                                                                         -------       ----
  Net interest margin (2)...................................                            5.4%
                                                                                       ----
</TABLE>

------------------------

(1) Net interest spread represents the difference between the average rate on
    interest-earning assets and the average cost of interest-bearing
    liabilities.

(2) Net interest margin represents net interest income divided by average
    interest-earning assets.

                                       18
<PAGE>
    For the six months ended September 30, 1998, we provided $3.0 million for
the allowance for loan losses. This provision is not reflected in net interest
income/spread above.

    REAL ESTATE OPERATIONS. Such income represents income generated from our
investment in various office buildings, retail stores, and other commercial
property located in Oregon, California and the United Kingdom. During the six
months ended September 30, 1998, operating income was comprised primarily of
$3.0 million in gross rental and other income earned on such investments.
Additionally, expenses incurred on real estate investments include $1.4 million
of interest expense, $0.2 million of rental operations and $0.6 million of
depreciation expense.

    OTHER LOSS. Our other loss was approximately $48.6 million for the six
months ended September 30, 1998. The components of our net non-interest loss is
comprised of the following:

    MARKET VALUATION LOSSES AND IMPAIRMENTS.  During the six months ended
September 30, 1998, we recorded $49.5 million of market valuation losses and
impairments that were deemed by management to be other than temporary in nature
and duration.

    During the week of October 12, 1998, we sold certain assets in response to
adverse global market conditions. The carrying values of these assets were
reduced by $32.6 million, and the reductions were recognized in the market
valuation losses and impairments for the six months ended September 30, 1998.
Additionally, a market valuation loss and impairment of $16.9 million relates to
other than temporary impairment on other investment securities not sold.

    The following table sets forth information regarding the total amount of
losses recognized in earnings from the market valuation losses and impairments.
Valuation of the other than temporary losses were determined primarily through
the subsequent sales of certain assets and by analyzing actual performance of
the securities and underlying collateral, as well as expectations for such
performance in the future for our securities available-for-sale that were
retained.

<TABLE>
<CAPTION>
                                                                    FOR THE SIX MONTHS ENDED
                                                                       SEPTEMBER 30, 1998
                                                              ------------------------------------
                                                                            ASSETS        TOTAL
                                                              RETAINED   SUBSEQUENTLY     MARKET
                                                               ASSETS        SOLD       ADJUSTMENT
                                                              --------   ------------   ----------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>            <C>
Loan portfolio..............................................  $    --       $16,499      $16,499
Mortgage-backed securities available for sale...............    9,646        16,096       25,742
Other securities available for sale.........................    7,279            --        7,279
                                                              -------       -------      -------
Total.......................................................  $16,925       $32,595      $49,520
                                                              =======       =======      =======
</TABLE>

    GAIN ON THE SALE OF SECURITIES.  During the six months ended September 30,
1998, we sold to unrelated third parties mortgage-backed securities for
approximately $16.8 million, resulting in gains of approximately $0.9 million.
The carrying values of assets sold subsequent to September 30, 1998 have been
reduced through market valuation losses and impairments for the six months ended
September 30, 1998.

    OPERATING EXPENSES. Management fees of $1.9 million for the six months ended
September 30, 1998, were comprised solely of the 1% (per annum) base management
fee to WRSC as provided pursuant to our management agreement with WRSC. WRSC
earned no incentive fee for this period. In addition to the management fee, we
incurred loan service fees and expenses of $0.5 million during the six months
ended September 30, 1998, which were paid by WRSC on behalf of us and for which
WRSC was subsequently reimbursed by us. Other expenses were comprised of
professional services, insurance premiums and other sundry expenses.

                                       19
<PAGE>
RESULTS OF OPERATIONS--QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER
ENDED SEPTEMBER 30, 1998

    NET LOSS. Our net loss for the quarter ended September 30, 1999 was
$9.4 million, or $0.82 per share, compared with a loss of $48.9 million, or
$4.25 per share, for the quarter ended September 30, 1998. The net loss for the
1999 period is attributable to market valuation losses and impairments on our
portfolio of mortgage-backed securities of $6.3 million, other operating
expenses of $1.7 million and a provision for potential resolution of disputes
with WFSG of $4.1 million, partially offset by net interest income of
$2.0 million and income from real estate operations of $0.6 million. Our net
loss for the corresponding 1998 period was primarily due to market valuation
losses and impairments as a result of the market turmoil which occurred in the
second half of 1998.

    NET INTEREST INCOME. Our net interest income for the three months ended
September 30, 1999 was $2.0 million, compared with $5.6 million for the three
months ended September 30, 1998. The decrease is primarily attributable to a
significantly smaller balance sheet resulting in decreases in interest income on
securities and loans of $3.9 million and $3.2 million, respectively, partially
offset by a decrease in interest expense of $3.2 million, reflecting our sales
of mortgage-backed securities, real estate, and loans and paydowns of the
related debt facilities. The following tables set forth information regarding
the total amount of income from interest-earning assets and expense from
interest-bearing liabilities and the resulting average yields and rates:

<TABLE>
<CAPTION>
                                                                 FOR THE THREE MONTHS ENDED
                                                                     SEPTEMBER 30, 1999
                                                              --------------------------------
                                                              AVERAGE    INTEREST   ANNUALIZED
                                                              BALANCE     INCOME    YIELD/RATE
                                                              --------   --------   ----------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Interest-Earning Assets:
      Loan portfolios.......................................  $ 31,591   $   959       11.9%
      Mortgage-backed securities available for sale.........   100,609     3,291       12.8
      Other securities available for sale (1)...............     8,958       108        4.7
      Due from WFSG.........................................     5,917       185       12.2
      Notes receivable from WFSG............................     5,000       153       12.0
      Other investments.....................................     8,056       109        5.3
                                                              --------   -------       ----
          Total interest-earning assets.....................   160,131     4,805       11.7
                                                              --------   -------       ----
Interest-Bearing Liabilities:
      Short-term and other borrowings.......................   124,546     2,803        8.8
                                                              --------   -------       ----
          Total interest-bearing liabilities................   124,546     2,803        8.8
                                                              --------   -------       ----
      Net interest income before provision for loan
        losses/spread (2)...................................             $ 2,002        2.9%
                                                                         -------       ----
      Net interest margin (3)...............................                            4.9%
                                                                                       ----
</TABLE>

------------------------

(1) Other securities available for sale consist of a U.S. Treasury Bill yielding
    approximately 4.7%.

(2) Net interest spread represents the difference between the average rate on
    interest-earning assets and the average cost of interest-bearing
    liabilities.

(3) Net interest margin represents net interest income divided by average
    interest-earning assets.

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                                 FOR THE THREE MONTHS ENDED
                                                                     SEPTEMBER 30, 1998
                                                              --------------------------------
                                                              AVERAGE    INTEREST   ANNUALIZED
                                                              BALANCE     INCOME    YIELD/RATE
                                                              --------   --------   ----------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Interest-Earning Assets:
      Loan portfolios.......................................  $151,632   $ 4,167       11.0%
      Mortgage-backed securities available for sale.........   274,093     6,575        9.6
      Other securities available for sale...................    21,500       577       10.7
      Other investments.....................................    23,486       326        5.6
                                                              --------   -------       ----
          Total interest-earning assets.....................   470,711    11,645        9.9
                                                              --------   -------       ----
Interest-Bearing Liabilities:
      Short-term and other borrowings.......................   363,133     6,012        6.6
                                                              --------   -------       ----
          Total interest-bearing liabilities................   363,133     6,012        6.6
                                                              --------   -------       ----
      Net interest income before provision for loan
        losses/spread (1)...................................             $ 5,633        3.3%
                                                                         -------       ----
      Net interest margin (2)...............................                            4.8%
                                                                                       ----
</TABLE>

------------------------

(1) Net interest spread represents the difference between the average rate on
    interest-earning assets and the average cost of interest-bearing
    liabilities.

(2) Net interest margin represents net interest income divided by average
    interest-earning assets.

    REAL ESTATE OPERATIONS. Such operations represent activity from our
investment in various office buildings, retail stores, and other commercial
property located in Oregon, California and the United Kingdom. During the three
months ended September 30, 1999, we realized income from real estate operations
of approximately $0.6 million, compared with income of $0.4 million for the
three months ended September 30, 1998. This increase was primarily attributable
to gain on sale of real estate of $0.7 million partially offset by provision for
loss of $0.3 million.

    OTHER INCOME (LOSS). Our other loss was approximately $10.1 million for the
three months ended September 30, 1999, compared with a loss of approximately
$48.6 million for the three months ended September 30, 1998. The loss for the
1999 period was primarily due to a provision for potential resolution of
disputes with WFSG of $4.1 million and market valuation losses and impairments
on our portfolio of mortgage-backed securities of $6.3 million. The loss for the
1998 period was primarily due to market valuation losses and impairments of
$49.5 million reflecting the adverse global market conditions experienced in the
second half of 1998, partially offset by gains on sales of securities of
$0.9 million.

    OPERATING EXPENSES. Our other operating expenses were approximately
$1.7 million for the three months ended September 30, 1999, compared with
approximately $3.4 million for the three months ended September 30, 1998. This
decrease was primarily due to a decrease in management fees of $0.7 million, a
decrease in investment due diligence costs of $0.5 million and a decrease in
debt offering costs of $0.3 million.

CHANGES IN FINANCIAL CONDITION

    GENERAL. Total assets decreased from approximately $381.1 million at
December 31, 1998 to approximately $234.5 million at September 30, 1999. The
decrease in total assets is primarily attributable to sales of $33.0 million of
mortgage-backed securities available-for-sale, the sale of a loan held for sale
with a carrying value of $44.0 million at December 31, 1998, and a reduction of
$38.9 million in loans, net resulting primarily from the payoff of a loan with a
carrying value of $38.6 million at December 31, 1998. Total liabilities
decreased from approximately $308.7 million at December 31, 1998 to
approximately $182.4 million at September 30, 1999 primarily as a result of a
reduction in short-term borrowings related

                                       21
<PAGE>
to the repayment of borrowings used to finance such mortgage-backed securities
and loans and the payment of an $11.7 million payable to Old WCC. Stockholders'
equity decreased by approximately $20.3 million resulting primarily from the net
loss of $27.8 million for the nine months ended September 30, 1999, partially
offset by a reduction of $7.5 million in unrealized loss on available-for-sale
securities.

    SECURITIES AVAILABLE FOR SALE. The balance of securities available for sale
decreased from $158.7 million at December 31, 1998 to $105.1 million at
September 30, 1999. This decrease was comprised of a decrease in mortgage-backed
securities available for sale of $52.7 million and a decrease in other
securities available for sale of $0.9 million. The decrease in mortgage-backed
securities available for sale was primarily due to the sale of mortgage-backed
securities with a carrying value of $33.0 million, the recognition of other than
temporary impairment of approximately $18.0 million, and cash receipts in excess
of income accrued of approximately $9.1 million due to high rates of prepayments
on non-interest only securities, partially offset by a net decrease in the
unrealized loss on available-for-sale securities of approximately $7.5 million
from December 31, 1998 to September 30, 1999.

    The decrease in other securities available for sale resulted from the
conversion of our WFSG 13% Series B Notes with a carrying value of approximately
$9.9 million at December 31, 1998 into new common stock of WFSG, partially
offset by the purchase of a U.S. Treasury Bill for approximately $8.9 million
and discount accretion thereon of $0.1 million.

    We mark our securities portfolio to fair value at the end of each month
based upon broker/dealer valuations, subject to an internal review process. With
respect to many of our subordinate securities, valuations are typically
available from either a single or a small group of broker/dealers. For those
securities that are subject to repurchase or other financing arrangements with
broker/dealers, we employ the valuation supplied by the financing broker even
if, as is sometimes the case, we believe that the valuation represents less than
fair value.

    The difference between our amortized cost of available for sale securities
and current market values, which was $22.9 million at September 30, 1999, is
included in "Accumulated Other Comprehensive Loss" in stockholders' equity. This
amount, unlike "market valuation losses and impairments," represents a market
value decline that we believe is temporary. If held to maturity, the anticipated
cash flow on these securities based on current interest rates, rate of
prepayment and the amount and severity of defaults would result in our receiving
amounts in excess of the current market value and would allow us to recover our
amortized cost plus our original expected return from the time of acquisition.
Notwithstanding the foregoing, payments on mortgage-backed securities are
subject to a number of market factors which can significantly affect the amount
and rate of payments on mortgage-backed securities, including defaults on the
underlying mortgage loans, the level of subordination of the mortgage-backed
securities, changes in interest rates and the rate of prepayments on the
underlying mortgage loans. To the extent that these factors change, the
anticipated cash flow on our mortgage-backed securities may not be sufficient to
cover our amortized cost or if we sell one of these mortgage-backed securities
at market prices which are below its amortized cost, we will realize a loss in
the amount of that portion of "Accumulated Other Comprehensive Loss"
attributable to such mortgage-backed security. In calculating the extent to
which declines in the value of available-for-sale securities are other than
temporary, we analyze actual performance of the securities and underlying
collateral, including prepayment and default statistics, as well as expectation
for such performance in the future. To the extent reasonable expectations for
future performance are not likely to offset reductions in current market
valuations, a writedown is recorded in "Market valuation losses and
impairments."

                                       22
<PAGE>
    At September 30, 1999, we valued our securities available for sale portfolio
and gross unrealized gains and losses thereon as follows:

<TABLE>
<CAPTION>
                                                                       GROSS        GROSS
                                                                     UNREALIZED   UNREALIZED
                                                AMORTIZED COST (1)     GAINS        LOSSES     FAIR VALUE
                                                ------------------   ----------   ----------   ----------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                             <C>                  <C>          <C>          <C>
Mortgage-backed securities....................       $119,031           $755       $(23,692)    $ 96,094
Other securities (2)..........................          8,993             --             --        8,993
                                                     --------           ----       --------     --------
                                                     $128,024           $755       $(23,692)    $105,087
                                                     ========           ====       ========     ========
</TABLE>

(1) The amortized cost of the investment securities reflects the market
    valuation losses and impairments discussed above and in "Results of
    Operations".

(2) U.S. Treasury Bill.

    LOAN PORTFOLIO. During the nine months ended September 30, 1999, our loan
portfolio of non-discounted loans (including loans and loans held for sale)
decreased by approximately $82.7 million due primarily to the sale of a loan
held for sale (secured by five luxury hotels in London, England, including the
Savoy Hotel, the Connaught and Claridge's Hotel) with a carrying value of
approximately $44.0 million at December 31, 1998 and the payoff of a loan to
Southern Pacific Funding Corporation (secured by certain mortgage-backed
securities) with a carrying value of approximately $38.6 million.

    As we begin to return our focus to execution of our business plan, it is
likely that our investment activities will focus more on the purchase of loans
and related assets and less on investments in commercial operating properties.
We remain optimistic about investment opportunities in Europe, as well as
investments in other real estate related operating companies. Nonetheless, we
continue to make investment decisions on an opportunistic basis and will
evaluate investment opportunities as they arise.

    The following table sets forth certain information relating to the payment
status of loans in the Company's loan portfolio at September 30, 1999:

<TABLE>
<CAPTION>
                                                  UNPAID PRINCIPAL
                                                      BALANCE        CARRYING VALUE
                                                  ----------------   --------------
                                                       (DOLLARS IN THOUSANDS)
<S>                                               <C>                <C>
Current.........................................      $30,778           $30,393
Past due less than 31 days......................           --                --
Past due 31 to 89 days..........................           --                --
                                                      -------           -------
                                                      $30,778           $30,393
                                                      =======           =======
</TABLE>

    We maintain an allowance for loan losses on non-discounted loans at a level
that we consider adequate to provide for probable losses based upon an
evaluation of known and inherent risks.

    DISCOUNTED LOAN PORTFOLIO. The balance of discounted loans declined from
$2.5 million at December 31, 1998 to $1.2 million at September 30, 1999
primarily due to principal repayments of $1.0 million. During the nine months
ended September 30, 1999, we did not purchase or sell any discounted loan
assets. As noted above, we currently plan to increase our concentration of
investment into loan related assets, including discounted loans when
appropriate.

                                       23
<PAGE>
    The following table sets forth certain information relating to the payment
status of loans in our discounted loan portfolio at September 30, 1999:

<TABLE>
<CAPTION>
                                                  UNPAID PRINCIPAL
                                                      BALANCE        CARRYING VALUE
                                                  ----------------   --------------
                                                       (DOLLARS IN THOUSANDS)
<S>                                               <C>                <C>
Current.........................................       $1,198            $  971
Past due less than 31 days......................           --                --
Past due 31 to 89 days..........................           --                --
Past due 90 days or greater.....................        2,959               220
                                                       ------            ------
                                                       $4,157            $1,191
                                                       ======            ======
</TABLE>

    We maintain an allowance for loan losses on discounted loans at a level that
we consider adequate to provide for probable losses on discounted loans based
upon an evaluation of known and inherent risks. No additional allowance for loan
losses for discounted loans was provided for during the nine months ended
September 30, 1999.

    INVESTMENTS IN REAL ESTATE. Investments in real estate decreased
approximately $15.6 million from December 31, 1998 to September 30, 1999. This
decrease was primarily due to sales of an industrial business park located in
Tigard, Oregon for proceeds of approximately $4.1 million, a commercial
warehouse in Salem, Oregon for proceeds of approximately $7.4 million, and a
commercial warehouse in Eugene, Oregon for proceeds of approximately
$2.3 million. In addition, we recognized approximately $1.1 million of
depreciation expense related to operating properties and recorded a
$0.9 million provision for real estate losses during the nine months ended
September 30, 1999.

    We are currently in the process of marketing other commercial properties for
sale during the fourth quarter of 1999 (many of which are under contract for
sale) as we continue to reduce our level of investment in commercial real estate
income properties.

    INVESTMENT IN WFSG, NOTES RECEIVABLE FROM WFSG, DUE FROM WFSG, PREPAID
SERVICING FEES TO WCC, PAYABLE TO OLD WCC. As a result of the market turmoil in
the second half of 1998, on March 3, 1999, Wilshire Financial Services
Group Inc. ("WFSG"), the parent of our former manager, Wilshire Realty Services
Corporation ("WRSC"), submitted a prepackage plan of reorganization as part of a
Chapter 11 bankruptcy filing in the Federal Court of Wilmington, Delaware. On
April 12, 1999, the WFSG restructuring plan was approved by the Bankruptcy Court
and on June 10, 1999, WFSG's bankruptcy reorganization was consummated.

    Through our independent directors, we were a party to the restructuring
negotiations since we owned $20 million of principal amount of WFSG's 13%
Series B Notes and we had a $17.0 million unsecured receivable from WFSG,
bearing interest at 13%. In January 1999, we entered into an agreement to
provide WFSG with debtor-in-possession financing of up to $10.0 million (the
"DIP Facility") as part of a compromise and settlement of the $17.0 million
receivable due from WFSG. Under this compromise and settlement, if the Company
funded the full amount of the DIP Facility, the Company would have received a
new note for the full amount of the receivable, bearing interest at 6% per annum
payable monthly in arrears. The DIP Facility bears interest at 12% and is
secured by the stock of First Bank of Beverly Hills, FSB, WFSG's savings bank
subsidiary. The DIP Facility matures on February 29, 2004 and repayment is made
through fully amortizing principal and interest payments commencing on
February 29, 2000. Prior to February 29, 2000, only interest payments are
required. The business decision to provide the DIP Facility was based on the
independent directors' desire to obtain the best possible treatment for the
Company's holdings of WFSG's 13% Series B Notes and the account receivable due
from WFSG and the fact that the debtor-in-possession facility was fully secured
by the stock of WFSG's bank subsidiary. We funded $5.0 million of the DIP
Facility on March 3, 1999 but did not provide WFSG with the remaining half.
Accordingly, under the agreement negotiated by the Company's independent
directors with WFSG and its

                                       24
<PAGE>
creditors, 50%, or approximately $8.5 million, of WFSG's obligation was treated
PARI PASSU with the claims of WFSG's noteholders and converted, together with
approximately $21.4 million (in principal plus accrued but unpaid interest) of
WFSG's 13% Series B Notes, to 2,874,791 shares of newly issued common stock of
WFSG on June 10, 1999, the effective date of the restructuring plan.
Additionally, on the effective date of the restructuring plan, we received
approximately $8.5 million in principal amount of WFSG's 6% Convertible PIK
Notes due 2006 (the "PIK Notes") in exchange for the remaining 50% of the
$17.0 million intercompany receivable due from WFSG. We may elect to convert the
PIK Notes into new common stock of WFSG upon receipt of a notice of redemption
of the PIK Notes by WFSG. Following the completion of WFSG's restructuring plan,
we held 2,874,791 shares, or approximately 14.4%, of common stock of WFSG.

    In January 1999, the Company remitted $15 million to Old WCC, consisting of
a payment of amounts owed by the Company to Old WCC of $11.8 million and the
prepayment of $3.2 million of future servicing fees for a release of a guarantee
by the Company of $35 million of Old WCC's indebtedness and of any and all
claims against the Company relating thereto. The amortized balance of the
prepaid servicing fee of approximately $3.0 million as of September 30, 1999 is
included in Prepaid Servicing Fees to WCC in the accompanying consolidated
statement of financial condition. However, the noteholders of WFSG claim that
the amount owed to Old WCC was approximately $900,000 higher, thereby reducing
the amount of the prepayment credit to $2.3 million. The Company believes that
the $3.2 million figure is correct and is currently negotiating this issue with
WFSG as part of an overall settlement of the disputes between WFSG and the
Company.

    The following table sets forth the Company's investments in WFSG and
subsidiaries as of December 31, 1998, which was prior to WFSG's bankruptcy
filing, and as of September 30, 1999, which was after the completion of WFSG's
bankruptcy reorganization. Following the completion of WFSG's restructuring plan
on June 10, 1999, the $5 million loaned to WFSG under the DIP Facility no longer
has priority over other creditors and will be treated like any other secured
loan.

                       THE COMPANY'S INVESTMENTS IN WFSG

<TABLE>
<CAPTION>
                                                               PRE-BANKRUPTCY    POST BANKRUPTCY
TYPE OF INVESTMENT                                            (AS OF 12/31/98)   (AS OF 9/30/99)
------------------                                            ----------------   ---------------
<S>                                                           <C>                <C>
WFSG's 13% Series B Notes...................................    $9,933,000(1)      $        --
Receivable From WFSG........................................    17,000,000(2)               --
WFSG's 6% Convertible PIK Notes.............................              --       5,977,000(3)
WFSG's Common Stock.........................................              --       3,594,000(4)
DIP Loan....................................................              --         5,000,000
Prepaid Servicing Fees to WCC...............................              --         2,953,000
                                                                ------------       -----------
TOTAL.......................................................    $ 26,933,000       $17,524,000
                                                                ============       ===========
</TABLE>

------------------------

(1) Based on the value of the 13% Series B Notes as shown on the Company's
    financial statements as of December 31, 1998. The principal amount of the
    13% Series B Notes held by the Company was $20 million.

(2) Based on the face amount owed.

(3) In October 1999, the Company acquired approximately $20.9 million of
    mortgage-backed securities from WFSG by assuming short-term borrowings of
    $18.5 million and a $2.4 million reduction in the carrying amount of the PIK
    Notes.

(4) Based on $1.25 per share. WFSG's common stock currently trades on the OTC
    Bulletin Board and the closing price as of September 29, 1999 was $1.25 per
    share.

                                       25
<PAGE>
    SHORT-TERM BORROWINGS. Short-term borrowings decreased by approximately
$103.9 million during the nine months ended September 30, 1999 due to the
repayment of borrowings related to a loan held for sale and mortgage-backed
securities which were sold and a loan which paid off. The balances of the
outstanding borrowings related to these loans were approximately $33.3 million
and $20.0 million, respectively. The remaining decrease in short-term borrowings
is primarily attributable to the repayment of short-term borrowings from sales
proceeds and other payments on our mortgage-backed securities. On October 12,
1999, the Company and Credit Suisse First Boston, the Company's largest lender,
agreed to replace the Company's short-term (monthly) repurchase facility with a
longer-term repurchase facility for the financing of approximately
$64.0 million of subordinate mortgage-backed securities and approximately
$20 million for the financing of a $25 million commercial loan. The Company
believes that this significantly reduces the Company's reliance on short-term
borrowings.

    OTHER BORROWINGS. Other borrowings decreased approximately $11.6 million
during the nine months ended September 30, 1999 due primarily to the repayment
of borrowings related to the commercial properties which were sold during the
reporting period.

    STOCKHOLDERS' EQUITY. Stockholders' equity decreased by approximately
$20.3 million during the nine months ended September 30, 1999. This decrease was
primarily due to a net loss of $27.8 million for the nine months ended
September 30, 1999, partially offset by a $7.5 million decrease in unrealized
holding losses on available for sale securities. This decrease in unrealized
holding losses resulted from the recognition of other than temporary impairment
in the value of our mortgage-backed securities portfolio of $19.0 million,
partially offset by additional unrealized holding losses of $11.5 million.

LIQUIDITY AND CAPITAL RESOURCES

    Liquidity is a measurement of our ability to meet potential cash
requirements, including ongoing commitments to repay borrowings, fund
investments, engage in loan acquisition and lending activities, meet collateral
calls and for other general business purposes. The primary sources of funds for
liquidity during the nine months ended September 30, 1999 consisted of net cash
provided by investing activities, including the cash repayments related to our
mortgage-backed securities portfolio, a loan receivable which paid off in
January 1999, a loan which was sold in April 1999, and sales of mortgage-backed
securities in June 1999.

    The adverse market conditions, which negatively impacted us during the third
and fourth quarters of 1998, began to stabilize during the nine months ended
September 30, 1999, but remained somewhat uncertain. As of September 30, 1999,
we had outstanding collateral calls as determined by one of our lenders, net of
cash retained, of approximately $2.3 million, compared with collateral calls
outstanding as of December 31, 1998 of $4.4 million. As of November 12, 1999, we
have met all collateral calls and have no outstanding amounts owed to lenders
for such collateral calls.

    On October 12, 1999, the Company and Credit Suisse First Boston, the
Company's largest lender, agreed to replace the Company's short-term (monthly)
repurchase facility with a longer-term repurchase facility for the financing of
approximately $64 million of subordinate mortgage-backed securities and
approximately $20 million facility for the financing of a $25 million commercial
mortgage loan. The Company believes that this significantly reduces the
Company's reliance on short-term borrowings and eliminated all remaining
outstanding collateral calls.

    Our short-term borrowings and the availability of further borrowings are
substantially affected by, among other things, changes in interest rates,
changes in market spreads whereby the market value of the collateral securing
such borrowings may decline substantially, or decreases in credit quality of
underlying assets. In the event of declines in market value or credit quality,
we may be required to provide additional collateral for, or repay a portion of
outstanding balances of, our short-term, floating-rate borrowing facilities. For
additional information with respect to our monthly mark-to-market of our
securities available for sale portfolio, see "Changes in Financial
Condition--Securities Available for Sale."

                                       26
<PAGE>
    In addition, given the current relative lack of liquidity for
below-investment grade securities and the possibility that Y2K concerns may
adversely affect market liquidity, we are maintaining a relatively high degree
of liquidity in the form of cash and treasury securities.

    Fluctuations in interest rates will continue to impact our net interest
income to the extent our fixed rate assets are funded by variable rate debt or
our variable rate assets reprice on a different schedule or in relation to a
different index than any floating rate debt which in turn could impact potential
returns to shareholders. See "Item 3--Quantitative and Qualitative Disclosures
about Market Risk."

    At September 30, 1999, we had total consolidated secured indebtedness of
$170.6 million, a reserve relating to the provision for the potential resolution
of disputes with WFSG of $4.1 million, accrued interest payable of
$1.0 million, accrued management fee of $0.7 million, a dividend payable of
$4.6 million, as well as $1.4 million of other liabilities. The consolidated
secured indebtedness consisted of (i) $82.4 million of repurchase agreements,
(ii) lines of credit aggregating $39.2 million which are secured by loans and
securities and (iii) $49.0 million outstanding of other borrowings maturing
between 2000 and 2008 which are secured by real estate.

    We often finance acquisitions of mortgage-backed securities through
uncommitted thirty-day repurchase agreements with major Wall Street investment
banks. Loans are financed through short-term warehouse facilities or
intermediate term loans. Warehouse agreements are secured lending arrangements.
If the value of the assets securing the loan declines as determined by the
lender, the lender may request that the amount of the loan be reduced by cash
payments from the borrower or additional collateral be provided by the borrower
(generally know as "collateral calls"). Accordingly, in an environment where
lenders consistently mark down the value of the underlying assets, a borrower
can become subject to collateral calls, which can have a significant impact on
liquidity. Similarly, if interest rates increase significantly, the borrowing
cost under the short-term warehouse agreement may also increase while the
interest rate on the assets securing the loan may not increase at the same time
or to the same degree. Real property acquisitions are financed with intermediate
or long-term mortgages with banks and other financial institutions.

    Repurchase agreements are secured lending arrangements which involve the
borrower selling an asset to a lender at a fixed price with the borrower having
an obligation to repurchase the asset within a specified period (generally
30 days) at a higher price reflecting the interest cost of the loan. As with
warehouse agreements, if the lender marks the asset lower, the lender may
request that the amount of the loan be reduced by cash payments from the
borrower or additional collateral be provided by the borrower (generally known
as "collateral calls"). Mortgage-backed securities which are subject to
repurchase agreements, as well as loans which secure other indebtedness,
periodically are revalued by the lender, and a decline in the value that is
recognized by the lender (whether or not the lender recognizes the full fair
value of the security) may result in the lender requiring us to provide
additional collateral to secure the indebtedness. As of September 30, 1999, the
Company had approximately $105.7 million of indebtedness under the terms of
which the lender could request additional collateral if the value of the
underlying collateral declined. Although the Company believes that the
likelihood of significant declines in asset values has decreased since the
fourth quarter of 1998, the Company is seeking to maintain a larger cash
position and more unencumbered assets to deal with future potential collateral
calls. In addition, the Company is seeking to refinance some of this
indebtedness with longer-term indebtedness which would not be subject to the
same collateral calls.

    If we are unable to fund additional collateral requirements or to repay,
renew or replace maturing indebtedness on terms reasonably satisfactory to us,
we may be required to sell (on short notice) a portion of our assets, and could
incur losses as a result. Furthermore, since from time to time there is
extremely limited liquidity in the market for subordinate and residual interests
in mortgage-related securities, there can be no assurance that we will be able
to dispose of such securities promptly for fair value in such situations.

                                       27
<PAGE>
    Based on our monthly interest and other expenses, monthly cash receipts and
collateral calls through October 31, 1999, we believe that our existing sources
of funds will be adequate for purposes of meeting our short-term liquidity
needs. There can be no assurance that this will be the case, however. Material
increases in interest expense from variable rate funding sources, collateral
calls, or material decreases in monthly cash receipts, generally would
negatively impact our liquidity. On the other hand, material decreases in
interest expense from variable rate funding sources or in collateral calls
generally would positively affect our liquidity.

YEAR 2000 COMPLIANCE

    Many existing computer software programs and other technologically dependent
systems use two digits to identify the year in date fields and, as such, could
fail or create erroneous results by or at the Year 2000. We, WRSC and the
companies that service our loan portfolio (our "Servicers") utilize a number of
technologically dependent systems to operate, service mortgage loans and manage
mortgage assets. WRSC, together with WCC Inc. (a subsidiary controlled by WFSG)
and Wilshire Servicing Company U.K. Limited (a wholly-owned subsidiary of WFSG),
who are our two Servicers, formed a committee to address Year 2000 issues (the
"Committee") that reports directly to WFSG's executive committee. The Committee
is headed by WFSG's Chief Information Officer and includes representatives from
across departments within WRSC and our Servicers as well as our management.

    The Committee established and completed a project plan with respect to Year
2000 readiness. In the first phase of the project, the Committee conducted an
inventory of all systems for WRSC and our Servicers, classifying each as either
"critical" or "non-critical". For systems deemed "critical", the Committee
developed detailed test plans and created separate Year 2000 test environments.
After the testing phase, in which Year 2000 issues were identified, phases of
resolution, retesting, implementation and certification were completed.

    WRSC and our Servicers began testing of all critical systems in 1997 and
completed all necessary testing of such systems, including both systems supplied
by outside vendors and internally developed systems, by the end of
February 1999. In each case, issues which were identified were resolved. Changes
which resulted from testing were coded, retested and implemented and moved into
production. Following these phases, each department's executive management
certified that their staff had tested critical code and deemed it adequate. In
addition, for all critical systems supplied by outside vendors, the Committee
obtained a written certification from the vendor that the applicable package is
"Year 2000 compliant". With respect to non-critical systems supplied by outside
vendors, the Committee has consulted substantially all of the vendors' Internet
sites and has obtained copies of Year 2000 compliance certifications from those
sites. All phases of the Committee's Year 2000 readiness project were completed
by the end of April 1999. As a result, WRSC's management believes that the
Company is Year 2000 compliant in all material respects.

    In addition to the information technology systems ("IT systems"), various
"environmental systems" ("non-IT systems") used for the Company's business,
including the telephone and security systems, incorporate technology that could
be impaired by the Year 2000 date change. The Committee has received written
certification that each significant non-IT system is Year 2000 compliant.

    Our operations were overseen by WRSC, and in accordance with the management
agreement, all operating costs including costs related to the Year 2000 issue
were covered in the management fee agreement. The financial impact of becoming
Year 2000 compliant has not been and is not expected to be material to us or our
results of operations. Aside from limited hardware costs, WRSC's parent
company's primary expense related to Year 2000 compliance is allocation of
existing staff. The Committee estimates the total cost related to Year 2000
compliance to be approximately $0.5 million, substantially all of which had been
incurred by December 31, 1998.

                                       28
<PAGE>
    Our most likely worst case Year 2000 scenario would be one in which our
Servicers are unable to perform necessary loan servicing activities. To the
extent the loan servicing system is not Year 2000 compliant, the ability to
service loans would be in jeopardy. This, in turn, would limit the collections
of payments on mortgage loans, which would, further, hinder the Company's
ability to meet its own debt service and other cash requirements. Although WRSC
and the Company do not believe that it is reasonably likely that the Year 2000
date change will cause such a scenario to occur, the Committee has developed a
contingency plan with procedures for manual loan servicing, for up to a week,
should the loan servicing system cease to be operational. The loan servicing
system was developed internally, and WRSC has advised us that it believes that,
in the event of an unexpected Year 2000 issue, the source of the issue could be
isolated, and the issue could be corrected, rapidly by WRSC's existing staff
without significant cost. Accordingly, we do not believe that such a failure of
the loan servicing system would result in any material loss of revenue or have
any other material impact on the Company.

    Based on the results of Committee's Year 2000 readiness project, we are
confident that we, WRSC, and our Servicers have/or are appropriately addressing
the Year 2000 issues. Critical IT systems supplied by outside vendors have
undergone testing not only by WRSC and our Servicers, but by other customers of
the vendors as well. WCC's loan servicing system is an internally developed
system and therefore, information technology personnel are very familiar with
the system and believe their efforts will have favorable results. The Company
does not expect the disputes between WREI and WFSG to have a material effect on
Y2K risk.

    The Company also owns mortgage-backed securities which are serviced by
mortgage loan servicers other than WFSG entities. These mortgage loan servicers
consist primarily of Norwest, General Electric Capital Mortgage Services,
Residential Funding Corporation, and Bank of America. We have not done a Y2K
analysis of these entities but understand that these entities have been reviewed
extensively by their other customers, rating agencies, and in some cases,
government regulatory agencies.

                                       29
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Market risk is the exposure to loss resulting from changes in interest
rates, foreign currency exchange rates, commodity prices, and equity prices. The
primary market risk to which the Company is exposed is interest rate risk, which
is highly sensitive to many factors, including governmental monetary and tax
policies, domestic and international economic and political considerations, and
other factors beyond the control of the Company. Changes in the general level of
interest rates can affect the Company's net interest income, which is the
difference between the interest income earned on interest-earning assets and the
interest expense incurred in connection with its interest-bearing liabilities,
by affecting the spread between the Company's interest-earning assets and
interest-bearing liabilities. Changes in the level of interest rates also can
affect, among other things, the ability of the Company to acquire loans, the
value of the Company's mortgage-backed securities and other interest-earning
assets, and its ability to realize gains from the sale of such assets.

    It is the objective of the Company to attempt to control risks associated
with interest rate movements. In general, the Company's strategy is to limit its
exposure to earnings variations and variations in the value of assets and
liabilities as interest rates change over time. The Company's asset and
liability management strategy is formulated and monitored regularly to review,
among other things, the sensitivity of the Company's assets and liabilities to
interest rate changes, the book and market values of assets and liabilities,
unrealized gains and losses, including those attributable to hedging
transactions, purchase and securitization activity, and maturities of
investments and borrowings.

    The following table quantifies the potential changes in net interest income
and net portfolio value, at September 30, 1999, should interest rates go up or
down (shocked) by 100 to 400 basis points, assuming the yield curves of the rate
shocks will be parallel to each other. Net portfolio value is calculated as the
sum of the value of off-balance sheet instruments and the present value of cash
in-flows generated from interest-earning assets net of cash out-flows in respect
of interest-bearing liabilities. The cash flows associated with the loan
portfolios and securities available for sale are calculated based on prepayment
and default rates that vary by asset. Projected losses, as well as prepayments,
are generated based upon the actual experience with the subject pool, as well as
similar, more seasoned pools. To the extent available, loan characteristics such
as loan-to-value ratio, interest rate, credit history and product types are used
to produce the projected loss and prepayment assumptions that are included in
the cash flow projections of the securities. Actual results could differ
significantly from those estimated in the table.

<TABLE>
<CAPTION>
                    PROJECTED PERCENT CHANGE IN
--------------------------------------------------------------------
CHANGE IN INTEREST RATES   NET INTEREST INCOME   NET PORTFOLIO VALUE
------------------------   -------------------   -------------------
<S>                        <C>                   <C>
   -400 Basis Points               35.6%                 20.0%
   -300 Basis Points               26.7%                 14.1%
   -200 Basis Points               17.8%                 10.1%
   -100 Basis Points                8.9%                  6.1%
      0 Basis Points                0.0%                  0.0%
    100 Basis Points               (8.9%)                (2.0%)
    200 Basis Points              (17.8%)                (6.0%)
    300 Basis Points              (26.7%)               (10.0%)
    400 Basis Points              (35.6%)               (13.8%)
</TABLE>

    Asset and liability management involves managing the timing and magnitude of
the repricing of assets and liabilities. It is the objective of the Company to
attempt to control risks associated with interest rate movements. In general,
the Company's strategy is to match asset and liability balances within maturity
categories to limit its exposure to earnings variations in the value of assets
and liabilities as interest rates change over time.

                                       30
<PAGE>
    The Company's Asset and Liability Committee is authorized to utilize a wide
variety of off-balance sheet financial techniques to assist us in the management
of interest rate risk. In hedging the interest rate and exchange rate exposure
of a foreign currency denominated asset or liability, we may enter into hedge
transactions to counter movements in the different currencies as well as
interest rates in those currencies. No such techniques were in use as of
September 30, 1999.

    Methods for evaluating interest rate risk include an analysis of the
Company's interest rate sensitivity "gap", which is defined as the difference
between interest-earning assets and interest-bearing liabilities maturing or
repricing within a given time period. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities. A gap is considered negative when the amount of
interest-rate sensitive liabilities exceeds interest-rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income, while a positive gap would tend to result in an
increase in net interest income. During a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to affect net interest income adversely. Since different
types of assets and liabilities with the same or similar maturities may react
differently to changes in overall market rates or conditions, changes in
interest rates may affect net interest income positively or negatively even if
an institution were perfectly matched in each maturity category.

    The following table sets forth the estimated maturity or repricing of the
Company's interest-earning assets and interest-bearing liabilities at
September 30, 1999.

<TABLE>
<CAPTION>
                                                AS OF SEPTEMBER 30, 1999
                                             ------------------------------
                                                 (DOLLARS IN THOUSANDS)
                                                                     ONE
                                              WITHIN    4 TO 12    YEAR TO    MORE THAN
                                             3 MONTHS    MONTHS    3 YEARS     3 YEARS     TOTAL
                                             --------   --------   --------   ---------   --------
<S>                                          <C>        <C>        <C>        <C>         <C>
INTEREST SENSITIVE ASSETS (1):
Cash and cash equivalents..................  $  7,802   $     --   $     --   $     --    $  7,802
Securities available for sale (2)..........     8,993         --         --     96,094     105,087
Loans(3)...................................    25,199        596        397      5,393      31,585
Notes receivable from WFSG.................        --         --         --     10,977      10,977
                                             --------   --------   --------   --------    --------
Total rate sensitive assets................  $ 41,994   $    596   $    397   $112,464    $155,451
                                             ========   ========   ========   ========    ========
INTEREST SENSITIVE LIABILITIES:
Short-term borrowings:
  Reverse repurchase agreements............  $ 85,779   $     --   $     --   $     --    $ 85,779
  Notes payable............................    35,883         --         --         --      35,883
Other borrowings...........................        --      1,082         --     47,904      48,986
Dividends payable..........................     4,600         --         --         --       4,600
                                             --------   --------   --------   --------    --------
Total rate sensitive liabilities...........  $126,262   $  1,082   $     --   $ 47,904    $175,248
                                             ========   ========   ========   ========    ========
Interest rate sensitivity gap..............  $(84,268)  $   (486)  $    397   $ 64,560
Cumulative interest rate sensitivity gap...  $(84,268)  $(84,754)  $(84,357)  $(19,797)
Cumulative interest rate sensitivity gap
  As a percentage of total rate sensitive
    assets.................................       (54%)      (55%)      (54%)      (13%)
</TABLE>

------------------------

(1) Real estate property holdings are not considered interest rate sensitive. At
    September 30, 1999 the Company had $69.4 million of real estate property
    holdings.

(2) Includes U.S. Treasury Bill maturing in October 1999.

(3) Discounted (non-performing) loans are assumed to be converted to cash at a
    constant rate over 18 months.

    In hedging the interest rate and exchange rate exposure of a foreign
currency denominated asset or liability, the Company may enter into hedge
transactions to counter movements in the different currencies as well as
interest rates in those currencies. These hedges may be in the form of currency
and interest rate swaps, options, and forwards, or combinations thereof. No such
instruments were in use as of September 30, 1999.

                                       31
<PAGE>
FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS CONTAINED HEREIN AND CERTAIN STATEMENTS CONTAINED IN FUTURE
FILINGS BY THE COMPANY WITH THE SEC MAY NOT BE BASED ON HISTORICAL FACTS AND ARE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. FORWARD- LOOKING STATEMENTS WHICH ARE BASED ON VARIOUS ASSUMPTIONS
(SOME OF WHICH ARE BEYOND THE COMPANY'S CONTROL) MAY BE IDENTIFIED BY REFERENCE
TO A FUTURE PERIOD OR PERIODS, OR BY THE USE OF FORWARD-LOOKING TERMINOLOGY,
SUCH AS "MAY," "WILL," "BELIEVE," "EXPECT," "ANTICIPATE," "CONTINUE," OR SIMILAR
TERMS OR VARIATIONS ON THOSE TERMS, OR THE NEGATIVE OF THOSE TERMS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN FORWARD-LOOKING
STATEMENTS DUE TO A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE
RELATED TO THE ECONOMIC ENVIRONMENT, PARTICULARLY IN THE MARKET AREAS IN WHICH
THE COMPANY OPERATES, COMPETITIVE PRODUCTS AND PRICING, FISCAL AND MONETARY
POLICIES OF THE U.S. GOVERNMENT, CHANGES IN PREVAILING INTEREST RATES,
ACQUISITIONS AND THE INTEGRATION OF ACQUIRED BUSINESSES, CREDIT RISK MANAGEMENT,
ASSET/LIABILITY MANAGEMENT, YEAR 2000 COMPLIANCE ISSUES, THE FINANCIAL AND
SECURITIES MARKETS AND UNLESS OTHERWISE REQUIRED BY LAW, THE AVAILABILITY OF AND
COSTS ASSOCIATED WITH SOURCES OF LIQUIDITY. THE COMPANY DOES NOT UNDERTAKE, AND
SPECIFICALLY DISCLAIMS ANY OBLIGATION, TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS WHICH MAY BE MADE TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT THE
OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE
DATE OF SUCH STATEMENTS.

                                       32
<PAGE>
PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

    Except as set forth below, the registrant is not a party to any other
material legal proceedings. The Company recently decided to become internally
managed, and this has resulted in disputes between the Company, on the one hand,
and WRSC and WFSG on the other. Until recently, the Company's business and
investment affairs have been managed by WRSC pursuant to a management agreement,
and the Company has received managerial and administrative services from WRSC
thereunder. Accordingly, during this period, the Company has had no employees
and instead has relied on WRSC for management, facilities, reporting, and other
services. WRSC itself is a shell company and has no employees. WFSG provided
managerial and administrative services to WRSC to allow it to fulfil its
obligations under the management agreement.

    WFSG has experienced financial difficulties resulting in its bankruptcy
restructuring. On March 3, 1999, WFSG submitted a prepackaged plan of
reorganization as part of a Chapter 11 bankruptcy filing in the Federal Court of
Wilmington, Delaware. On April 12, 1999, the WFSG restructuring plan was
approved by the Bankruptcy Court, and on June 10, 1999, WFSG emerged from
bankruptcy pursuant to the restructuring plan. See Note 6 of Notes to
Consolidated Financial Statements for discussion of accounting matters related
to this restructuring.

    Prior to WFSG's reorganization, Wilshire Credit Corporation ("Old WCC"), an
affiliate of WFSG, provided loan and real property servicing to the Company. As
part of the Restructuring Plan, the servicing operations conducted by Old WCC
were transferred to WCC Inc. ("WCC"), a newly formed company controlled by WFSG.

    Relations between WFSG and the Company declined as the Company was not
allowed to fully participate in the restructuring of WFSG and did not obtain any
representation on WFSG's new board of directors despite a 14.4% ownership
interest. On August 19, 1999, the Company was notified that WFSG had suspended
its Chief Executive Officer, Andrew Wiederhorn, and its President, Lawrence
Mendelsohn, from their duties as employees of WFSG and its subsidiaries and
terminated their employment with WFSG and its subsidiaries purportedly for cause
on September 3, 1999. Mr. Wiederhorn and Mr. Mendelsohn were also terminated as
Chief Executive Officer and President of WRSC. The Company and its independent
directors have long considered that Mr. Wiederhorn and Mr. Mendelsohn are key
personnel on which the stability and future growth of the Company are dependent.
As the principal architects of the development of both WFSG and the Company,
Mr. Wiederhorn and Mr. Mendelsohn are familiar with the Company's strengths and
weaknesses, have a firm understanding of the complex real estate and financial
markets in which the Company operates, have longstanding relationships within
the industry (and in particular with the Company's lenders) and are familiar
with the Company's assets (including its portfolio of subordinated
mortgage-backed securities) and its liabilities (including short-term repurchase
agreements). Accordingly, the independent directors of the Company believe that
the termination of Mr. Wiederhorn and Mr. Mendelsohn had a material, adverse
effect on WRSC's ability to perform its obligations under the management
agreement.

    On August 20, 1999, the Company filed a lawsuit against WFSG in the Circuit
Court of the State of Oregon for Multnomah County. On August 23, 1999, the
Company filed an amended Complaint in the lawsuit adding as additional
defendants WRSC, WCC, a 50.01% subsidiary of WFSG, and Wilshire Management
Leasing Company ("WML"), a wholly-owned subsidiary of WFSG alleging: (1) the
termination of Wiederhorn and Mendelsohn made WFSG and WRSC unable and/or
unwilling to provide management to the Company as required under the Management
Agreement; (2) the inability of WFSG and WRSC to manage the Company's business
affairs triggered application of a facilities sharing agreement dated
February 19, 1999 between the Company, WFSG, WRSC, WCC, and WML (the "Facilities
Sharing Agreement"); and (3) WFSG's refusal to allow Wiederhorn and Mendelsohn
access to WFSG's facilities, personnel, and equipment for the Company's business
violated the terms of the

                                       33
<PAGE>
Facilities Sharing Agreement. Messrs. Wiederhorn and Mendelsohn have also
brought suit against WFSG and its directors alleging wrongful termination and
defamation. The Facilities Sharing Agreement had been entered into by the
parties to provide for the orderly transition of the Company's management in the
event the management agreement was no longer operative and the Company was to
become internally, rather than externally, managed. Under the Facilities Sharing
Agreement, WFSG, WRSC, and the other parties were required to provide to the
Company, for a period of two years, the facilities, services, equipment, and
personnel necessary for the Company to internally manage itself, in return for
the payment by the Company of the pro-rata cost to provide facilities, services,
equipment, and personnel. On September 22, 1999, WFSG and WRSC filed papers in
the above litigation alleging various affirmative defenses and counterclaims,
including allegations that the Facilities Sharing Agreement was not in effect
and was unenforceable, and that the Company breached the management agreement,
obligating the Company to pay a termination fee.

    On September 22, 1999, the Company sent a letter to WRSC reserving its
rights with respect to prior declarations of default by WRSC, and providing
formal notice of non-renewal and termination "for cause" of the management
agreement. The letter outlined various breaches of the management agreement by
WRSC, including: failing to provide competent management to the Company; failing
to provide necessary services and facilities; and taking actions contrary to the
interests of the Company. WRSC has disputed the characterization of the
termination as one "for cause" and has claimed that under the management
agreement it is entitled to a termination fee (a sum equal to the management
fees paid to WRSC for the preceding twelve months) from the Company.
Notwithstanding the foregoing, the Company has sought to discuss the parties'
disagreements with a view to reaching an amicable arrangement for severing the
relationships between WFSG and the Company. As a result of the Company's
overtures, the Company and WFSG began discussions to resolve their differences
in late September. There can be no assurance that these discussions will result
in a resolution of these disagreements. In connection with this matter, the
Company, without admission, recorded a provision for potential resolution of
disputes with WFSG of $4.1 million as of September 30, 1999.

    As part of the Company's decision to become independently managed as
described above, the Company has entered into employment agreements with Andrew
Wiederhorn, as Chairman and Chief Executive Officer; Lawrence Mendelsohn, as
President; Chris Tassos, as Chief Financial Officer and Executive Vice
President; Richard Brennan, as Executive Vice President; and Robert Rosen, as
Executive Vice President.

ITEM 2. CHANGES IN SECURITIES.

    Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

    Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    On September 10, 1999, at the annual stockholders' meeting, the Company's
shareholders voted 8,055,504 to 20,481, with 5,372 abstentions, not to elect
Real Estate Investment Trust (REIT) status for the Company.

    The stockholders also ratified the appointment of Arthur Andersen LLP as the
independent accountants for the fiscal year ending December 31, 1999, (with
10,050,890 shares voting for, 60,711 shares voting against, and 5,847 shares
abstaining).   On November 12, 1999, the Board of Directors of the Company
appointed the firm of Ernst & Young LLP to replace Arthur Andersen LLP as the
principal accountant to audit the Company's financial statements. Arthur
Andersen LLP was replaced due to a potential conflict

                                       34
<PAGE>
of interest with the services it performs for Wilshire Realty Services
Corporation ("WRSC"), the Company's former manager, and Wilshire Financial
Services Group Inc. ("WFSG"), the parent of WRSC.

    The stockholders also voted to change the Company's name from Wilshire Real
Estate Investment Trust Inc. to Wilshire Real Estate Investment Inc. (with
7,976,112 shares voting for, 25,961 voting against, and 5,772 shares
abstaining).

ITEM 5. OTHER INFORMATION.

    Not Applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

    (a) Exhibits

       3.1 Amended and Restated Articles of Incorporation

       11  Statement re Computation of Per Share Earnings

       27  Financial Data Schedule

    (b) Report on 8-K during and after the three months ended September 30,
1999:

       Report on Form 8-K dated August 19, 1999, reporting the Company's
       determination to become internally managed and its termination of its
       management agreement with Wilshire Realty Services Corporation.

       Report on Form 8-K dated November 15, 1999 reporting the replacement of
       Arthur Andersen LLP as the independent accountant and appointment of
       Ernst & Young LLP to serve in that capacity.

                                       35
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of the exchange act, the registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

<TABLE>
<S>                                                    <C>  <C>
                                                       WILSHIRE REAL ESTATE INVESTMENT INC.

                                                       By:  /s/ LAWRENCE A. MENDELSOHN
                                                            -----------------------------------------
                                                            Lawrence A. Mendelsohn
                                                            President

                                                       By:  /s/ CHRIS TASSOS
                                                            -----------------------------------------
                                                            Chris Tassos
                                                            Executive Vice President and Chief
                                                            Financial Officer
</TABLE>

Date: November 22, 1999

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