10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

  For the fiscal year ended December 31, 2006

or

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

  For the transition period from              to             

Commission file number 0-21845

Beverly Hills Bancorp Inc.

(Exact name of registrant as specified in its charter)

Delaware	93-1223879
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
23901 Calabasas Road, Suite 1050 Calabasas, CA	91302
(Address of principal executive offices)	(Zip Code)

(818) 223-8084

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.01 per share	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of February 15, 2007 was $114,282,706.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer  ¨             Accelerated filer  x            Non-accelerated filer  ¨

As of February 15, 2007, 18,718,166 shares of common stock, par value $0.01 per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

FORM 10-K

INDEX

Item	Page
PART I	4
1. Business	4
1A. Risk Factors	21
1B. Unresolved Staff Comments	23
2. Properties	23
3. Legal Proceedings	23
4. Submission of Matters to a Vote of Security Holders	24
PART II	25
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
6. Selected Financial Data	27
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
7A. Quantitative and Qualitative Disclosures About Market Risk	45
8. Financial Statements and Supplementary Data	45
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	45
9A. Controls and Procedures	46
9B. Other Information	48
PART III	49
10. Directors and Executive Officers of the Registrant	49
11. Executive Compensation	50
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	60
13. Certain Relationships and Related Transactions	61
14. Principal Accountant Fees and Services	62
PART IV	64
15. Exhibits and Financial Statement Schedules	64

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FORWARD-LOOKING STATEMENTS

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

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PART I

ITEM 1. Business

General

The Company

Beverly Hills Bancorp Inc. (“BHBC”) is a financial holding company that conducts banking and lending operations in southern California and surrounding states primarily through its bank subsidiary, First Bank of Beverly Hills, (“FBBH” or the “Bank”). The Bank is a California state-chartered commercial bank, and its primary regulator is the California Department of Financial Institutions (“DFI”). As an insured institution, the Bank continues to be regulated by the Federal Deposit Insurance Corporation (“FDIC”). The Company was incorporated in 1996 and was known as Wilshire Financial Services Group Inc. (“WFSG”) until August 2004. References in this Form 10-K to the “Company,” “we” or “our” mean BHBC and its consolidated subsidiaries.

The Company is principally a real estate lender focusing on permanent and construction loans for commercial and multifamily properties in California and other western states. In addition, the Company invests in AAA-rated and government-sponsored enterprise (“GSE”) mortgage-backed securities. The Company’s primary sources of funding are deposits, Federal Home Loan Bank (“FHLB”) advances, repurchase agreements and various other short- and long-term borrowing facilities.

The administrative headquarters of BHBC and the Bank are located at 23901 Calabasas Road, Suite 1050, Calabasas, California 91302, and the main telephone number is (818) 223-8084. The Bank conducts its retail operations through its branch facility adjacent to the Company’s offices in Calabasas, California. As of December 31, 2006, the Company had 47 full-time-equivalent employees.

The Company maintains an internet web site at www.bhbc.com and makes available its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other relevant information free of charge.

Business Strategy

We conduct substantially all of our business activities through the Bank. We also conduct lending activities through the Company. We have a “modified wholesale” banking strategy that includes income property real estate lending funded by a mixture of borrowings and deposits generated principally through brokers and our money desk. Our goal is to maximize net interest income consistent with acceptable levels of credit and interest rate risk.

Income property loans include primarily adjustable rate loans secured by commercial and multifamily properties located in California and other western states, particularly Nevada and Arizona. Our adjustable rate loans, which represented 87% of our total loans at December 31, 2006, generally have interest rates tied to LIBOR or the Constant-Maturity Treasury index and adjust with changes in the rate on a daily, monthly or quarterly basis. The objective of our present lending strategy is to provide real estate financing to a diversified customer base, representing developers, investors, owners and users. We often tailor our loan products to meet the specific needs of our borrowers. Our strategy for increasing the Bank’s lending volume is to be a premier relationship portfolio lender by providing rapid response and processing for income property loan opportunities. In 2006, we expanded our product line to include construction lending for commercial and multifamily properties. We believe such loans will enable us to close loans with higher margins, generate fee income and create the potential for additional lending business upon completion of the construction.

We fund our assets primarily with deposits, advances from the Federal Home Loan Bank of San Francisco (“FHLB advances”) and repurchase agreements. In November 2006, we sold our Beverly Hills branch, including $157.5 million of retail deposits. At December 31, 2006, approximately 95% of the Bank’s deposits were

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wholesale deposits, or deposits generated through brokers and its money desk. Wholesale deposit funding is a function of setting and advertising the Bank’s deposit interest rates with trust departments and institutional investment fund managers. We believe that although the interest rates on other borrowings and wholesale deposits may be greater than the interest rate on retail deposits of comparable maturities, the cost of generating and maintaining retail deposits is greater because of the facilities and personnel expense of those deposits. We have, however, retained our Calabasas branch because we believe that the Calabasas deposit market is substantial and currently is penetrated only by four large institutions, and thus lacks the presence of a community bank.

Lending Activities

We originate and purchase income property loans secured primarily by commercial and multifamily real properties located in California and other western states, particularly Nevada and Arizona. Of our total loans outstanding, approximately 87% and 86% had adjustable rates (including loans with an initial fixed rate for 3 or 5 years which subsequently convert to adjustable) at December 31, 2006 and 2005, respectively. Our borrowers are typically entities that operate their businesses at the properties or derive their primary source of income from their portfolio of real properties. Our strategy is to be a premier relationship portfolio lender by providing rapid response and processing for income property loan opportunities, and we often tailor our loan products to meet the specific needs of our borrowers.

We have detailed written policies and procedures for our lending activities. Our board of directors reviews and approves these policies annually. These lending policies address the types of loans we seek, our target markets, underwriting and collateral requirements, the loan terms, interest rate and yield considerations, and compliance with applicable laws and regulations. All loans are subject to approval procedures and amount limitations. These limitations apply to the borrower’s total outstanding indebtedness, including indebtedness as a guarantor.

Our Officers’ Loan Committee (the “OLC”) oversees the loan approval process, including originations and purchases. The OLC reviews all loans and has loan approval authority of loan originations up to $2 million and participations and whole loan purchases up to $2 million as a pool. The Directors’ Loan Committee (“DLC”) approves all individual loans over $2 million, up to and including $12.0 million, and participations and purchases over $2 million and up to and including $20 million as a pool. Loans in excess of these limits are required to be approved by our board of directors.

Under applicable regulations, we may not make loans in excess of our legal lending limit. In general, under California law the legal limit to any single borrower is equal to 25% of our unimpaired capital and surplus for amortizing loans secured by a first trust deed on real estate. As of December 31, 2006, our loan-to-one borrower limit for secured loans was approximately $37.3 million. If a borrower requests a loan in excess of our legal lending limit, we may originate the loan with the participation of one or more lenders where our participation interest is pari passu with the other lender(s). As a matter of policy, we do not subordinate our interest to the other lending institution.

Commercial and Multifamily Lending.    Our commercial and multifamily loans generally have terms of approximately 10 years and payments based on a 25- or 30-year amortization schedule, often resulting in a balloon payment at maturity. The majority of our loans had loan-to-value ratios of 60% to 70% of the appraised value of the property at the time of origination. These loans are typically adjustable rate, with interest rates tied to LIBOR or the Constant-Maturity Treasury index, and adjust with changes in the rate on a daily, monthly or quarterly basis. The interest rate on any loan is based on a number of factors including, but not limited to, servicing costs, risk and desirability of the credit. We require a current appraisal in connection with each real estate loan originated.

Construction Lending.    We expanded our loan product line in 2006 by initiating a construction lending program. These loans finance the construction of multifamily residential properties and commercial properties, such as retail and industrial properties, office buildings and restaurants. Our construction loans generally have

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terms from one to three years and have adjustable interest rates tied to the prime rate. The loan-to-value ratio of our construction loans will not exceed 75% of the property’s estimated cost upon completion for commercial or multifamily residential properties. A third-party due diligence/fund control specialist performs all cost and completion analyses prior to loan funding. We retain a firm that specializes in construction loan fund control to perform all required site/progress inspections and necessary due diligence prior to loan funding, and all subsequent draw requests. We require a current appraisal in connection with each of our construction loans.

Loan Purchases and Sales.    We may from time to time purchase multifamily, commercial and construction loans on a whole-loan basis. These loan purchases are primarily bulk purchases, though occasionally such loans may be purchased on a single-asset basis. Sources for the purchase of loans include financial institutions and other third parties. The Bank’s policy for the purchase of loans from outside entities is restricted to 20% of the Bank’s total assets for any one originator. Any purchase that will increase the Bank’s exposure beyond the 20% must be identified and approved by the Bank’s board of directors. All of the Bank’s purchases must comply with all governing rules and regulations.

We also from time to time sell portions of our loans to other financial institutions and may purchase an interest in loans of other financial institutions. Any loan participation must be approved in accordance with our loan approval policies. The same information normally obtained to evaluate the inherent risk in lending directly to a customer will be obtained in relation to participations. In addition, sufficient due diligence will be performed with regard to the participating bank as well as the borrower.

The following table sets forth our total loan originations and purchases for the periods indicated:

Loan Originations and Purchases

	For the Year Ended December 31,
	2006		2005		2004
	(Dollars in thousands)
Originations (1)
Multifamily residential	$	26,602	$	44,225	$	124,617
Commercial real estate		185,199		74,764		164,737
Construction		34,148		—		—
Consumer and other		2,800		—		—
Total originations		248,749		118,989		289,354
Purchases
Multifamily residential		—		95,760		100,006
Commercial real estate		19,046		47,055		49,645
Construction		69,614		—		—
Total purchases		88,660		142,815		149,651
Total originations and purchases
Multifamily residential		26,602		139,985		224,623
Commercial real estate		204,245		121,819		214,382
Construction		103,762		—		—
Consumer and other		2,800		—		—
Total	$	337,409	$	261,804	$	439,005

(1) Includes disbursements on existing loans.

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The following table sets forth the composition of the Company’s portfolio of loans by type of loan as of the dates indicated.

Composition of Loans

	December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Single-family residential	$	18,797		$	29,393		$	44,569		$	71,031		$	119,539
Multifamily residential		356,992			436,805			412,074			231,374			171,974
Commercial real estate		569,840			483,718			462,961			311,457			194,423
Construction		98,869			—			—			—			—
Consumer and other		2,060			853			992			1,043			5,896
Loan portfolio principal balance		1,046,558			950,769			920,596			614,905			491,832
Premium and deferred fees		2,046			4,455			2,064			2,637			2,815
Allowance for loan losses (1)		(7,878	)		(7,080	)		(7,277	)		(6,735	)		(7,980	)
Total loan portfolio, net	$	1,040,726		$	948,144		$	915,383		$	610,807		$	486,667

(1) For discussion of the allowance for loan losses allocation for purchase discount, see “Asset Quality—Allowance for Loan Losses”

The real properties which secure the Company’s loans are located throughout the United States, but primarily in California and other western states. At December 31, 2006, the state with the greatest concentration of properties securing the loans was California, in which the Company held $514.1 million principal amount of loans, or approximately 49% of our total portfolio. No more than 10% of the Company’s total principal amount of loans were collateralized in any other state. The Company does not believe any of its residential loans have features such as interest-only loans or loans with negative amortization that would give rise to any additional concentration of credit risk required to be disclosed by Financial Accounting Standards Board Statement of Position (“FSP SOP”) No. 94-6-1.

The following table sets forth certain information at December 31, 2006 regarding the dollar amount of loans based on their contractual terms to maturity and includes scheduled payments but not potential prepayments, as well as the dollar amount of those loans which have fixed or adjustable interest rates. Loan balances have not been adjusted for unamortized discounts or premiums, deferred loan fees and the allowance for loan losses.

Maturity of Loans

	Maturing in
	One Year or Less		After One Year Through Five Years		After Five Years Through Ten Years		After Ten Years		Total
	(Dollars in thousands)
Single-family residential	$	14	$	126	$	1,261	$	17,396	$	18,797
Multifamily residential		14		35,329		103,605		218,044		356,992
Commercial real estate		64,592		69,864		391,869		43,515		569,840
Construction		53,979		44,890		—		—		98,869
Consumer and other		1,400		512		43		105		2,060
Interest rate terms on amounts due:
Fixed		20,659		62,551		34,300		23,186		140,696
Adjustable (1)		99,340		88,170		462,478		255,874		905,862

(1) Includes 3-year and 5-year fixed-rate loans which automatically convert to 6-month adjustable-rate mortgage loans.

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Scheduled contractual principal repayments do not reflect the actual maturities of mortgage loans because of prepayments and, in the case of conventional mortgage loans, due-on-sale clauses. The average life of mortgage loans, particularly fixed-rate loans, tends to increase when current mortgage loan rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when current mortgage loan rates are substantially lower than rates on existing mortgages.

Discounted Loans

We also have a portfolio of discounted loans held by our investment subsidiary, WFC Inc. (“WFC”). These loans are primarily sub-performing and non-performing residential and commercial loans that were acquired at substantial discounts prior to 2000. At December 31, 2006, WFC held $1.3 million unpaid principal balance of such loans and continues to pursue collection.

The following table sets forth the composition of discounted loans held by WFC by type of loan at the dates indicated.

Composition of Discounted Loans

	December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Single-family residential	$	1,117		$	1,758		$	2,668		$	2,229		$	3,025
Multifamily residential		—			—			—			1			238
Commercial real estate		—			—			2,562			817			980
Consumer and other (1)		195			206			692			33,031			41,954
Discounted loans principal balance		1,312			1,964			5,922			36,078			46,197
Unaccreted discount and deferred fees		(56	)		(76	)		(56	)		(220	)		(393	)
Allowance for loan losses (1)		(99	)		(209	)		(3,506	)		(32,041	)		(39,975	)
Investor participation interest (2)		—			—			(773	)		(1,169	)		(1,116	)
Total discounted loans, net	$	1,157		$	1,679		$	1,587		$	2,648		$	4,713

(1) In December 2004, WFC sold $24 million unpaid principal balance of discounted loans.

(2) In September 2005, WFC acquired a 100% interest in the cash flows on certain loan portfolios that previously were shared with a co-investor.

Mortgage-Backed and Investment Securities

We invest in securities to earn positive net interest spread pending deployment into loans or other assets. The following table sets forth our holdings of mortgage-backed and other securities as of the dates indicated:

Mortgage-Backed and Investment Securities

	December 31,
	2006		2005		2004
	(Dollars in thousands)
Available for sale, at fair value:
AAA mortgage-backed securities	$	216,844	$	222,290	$	166,339
GSE mortgage-backed securities		237,288		98,091		140,777
Other mortgage-backed securities		6,762		12,191		345
Trust preferred securities		3,228		8,000		8,000
Mutual funds		5,691		5,728		5,819
Held to maturity, at amortized cost:
Agency securities (fair value of $9,735, $9,650 and $9,795)		9,759		9,708		9,657
Total mortgage-backed and investment securities	$	479,572	$	356,008	$	330,937

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The amortized cost and fair value of our securities, by contractual maturity, are shown below as of December 31, 2006:

Amortized Cost and Fair Value by Maturity

	Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Due in five to ten years	$	16,596	$	16,426	4.65	%
Due after ten years		461,331		457,431	5.56	%
Mutual funds		5,750		5,691	4.49	%
Total	$	483,677	$	479,548	5.52	%

The following tables show the gross unrealized losses and fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2006 and 2005:

Unrealized Losses and Fair Values

	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
December 31, 2006
GSE mortgage-backed securities	$	18,509	$	79	$	72,595	$	1,610	$	91,104	$	1,689
AAA and other mortgage-backed securities		16,033		66		175,045		3,667		191,078		3,733
Mutual funds		—		—		1,916		84		1,916		84
Agency securities		9,735		24		—		—		9,735		24
Total	$	44,277	$	169	$	249,556	$	5,361	$	293,833	$	5,530
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
December 31, 2005
GSE mortgage-backed securities	$	50,251	$	827	$	40,903	$	1,239	$	91,154	$	2,066
AAA and other mortgage-backed securities		119,248		1,751		97,018		2,817		216,266		4,568
Mutual funds		—		—		1,920		80		1,920		80
Agency securities		9,650		58		—		—		9,650		58
Total	$	179,149	$	2,636	$	139,841	$	4,136	$	318,990	$	6,772

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

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The Company has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company expects to receive full value for the securities. Furthermore, as of December 31, 2006, the Company also had the ability and intent to hold the securities classified as available for sale for a period of time sufficient for a full recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2006 and 2005, management believes the impairments detailed in the table above are temporary, and as a result, no impairment loss has been realized in the Company’s consolidated statements of operations.

Funding Sources

Our principal funding sources consist of deposits, a short-term line of credit, repurchase agreements, FHLB advances and junior subordinated notes payable. The following table sets forth information relating to our deposits and borrowings at the dates indicated.

Deposits and Other Borrowings

	December 31,
	2006		2005		2004
	(Dollars in thousands)
Deposits (1)	$	863,470	$	625,635	$	580,085
Short-term borrowings		20,000		—		—
Repurchase agreements		40,000		63,000		120,000
FHLB advances		496,337		530,837		474,837
Junior subordinated notes payable to trusts		46,393		20,619		20,619
Total	$	1,466,200	$	1,240,091	$	1,195,541

(1) The Bank’s deposits at December 31, 2006 and 2005 included a total of $12.6 million and $21.0 million, respectively, in money market deposits held by BHBC and WFC. At December 31, 2004, the Bank’s deposits included a total of $38.1 million in noninterest-bearing deposits held by BHBC and WFC. These deposits are eliminated in consolidation and are not reflected in total deposits on the Company’s consolidated statements of financial condition.

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Deposits.    We offer checking, NOW, money market and savings accounts and certificates of deposit generated through brokers and our money desk (“wholesale deposits”) and at our Calabasas branch. Our deposits generally are not collateralized, with the exception of $40.2 million of public fund certificates of deposit from the State of California, which are secured by mortgage-backed securities. The following table sets forth information relating to our deposits at the dates indicated.

Composition of Deposits

	December 31,
	2006					2005					2004
	Amount			Weighted Average Rate		Amount			Weighted Average Rate		Amount			Weighted Average Rate
	(Dollars in thousands)
Checking accounts	$	2,038		0.00	%	$	4,655		0.00	%	$	42,597	(1)	0.00	%
NOW and money market accounts		24,630	(1)	3.43	%		84,179	(1)	2.81	%		111,761		2.09	%
Savings accounts		2,012		1.33	%		2,723		1.09	%		2,940		1.05	%
Certificates of deposit:
Less than $100,000		36,357		4.95	%		99,843		3.88	%		99,354		2.46	%
$100,000 or more		798,433		4.88	%		434,235		3.79	%		323,433		2.22	%
Total deposits	$	863,470		4.82	%	$	625,635		3.64	%	$	580,085		2.06	%

(1) The Bank’s deposits at December 31, 2006 and 2005 included a total of $12.6 million and $21.0 million, respectively, in money market deposits held by BHBC and WFC. At December 31, 2004, the Bank’s deposits included a total of $38.1 million in noninterest-bearing deposits held by BHBC and WFC. These deposits are eliminated in consolidation and are not reflected in total deposits on the Company’s consolidated statements of financial condition.

The following table presents the sources of our deposits as of the dates indicated.

Source of Deposits

	December 31,
	2006				2005				2004
	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
	(Dollars in thousands)
Retail deposit accounts (1)	$	47,492	5.5	%	$	202,323	32.3	%	$	255,724	44.1	%
Brokered deposits		722,843	83.7	%		346,272	55.4	%		239,109	41.2	%
Money Desk		93,135	10.8	%		77,040	12.3	%		85,252	14.7	%
Total deposits	$	863,470	100.0	%	$	625,635	100.0	%	$	580,085	100.0	%

(1) The decline in retail deposits in 2006 was due primarily to the sale of the Bank’s Beverly Hills branch in November 2006.

Wholesale deposit funding is a function of setting and advertising our deposit interest rates with trust departments and institutional investment fund managers. The wholesale deposit marketplace (primarily certificates of deposit) consists of the following three sources of funds: (1) indirect deposits placed by independent brokers; (2) direct wholesale deposits received from credit unions, savings associations, trust departments of banks, pension funds, insurance companies and government agencies; and (3) Depository Trust Corporation brokered deposits, which consist of retail deposits which have been pooled into large blocks by Wall Street firms and regional brokerage houses. We use all of these sources, depending on our funding and liquidity needs.

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Under FDIC regulations, FDIC-insured institutions that are not “well-capitalized” under the prompt corrective action rules may not accept brokered deposits without the prior approval of the FDIC. In addition, the Bank believes that if it is not “adequately capitalized” it would have greater difficulty in obtaining certificates of deposit through its money desk or deposit brokers and may have to pay higher rates to continue to attract those deposits. Accordingly, the failure of the Bank to remain well-capitalized or adequately capitalized could have a material adverse effect on the Bank.

The Bank obtains deposits through its retail branch in Calabasas, California. The Bank believes that the Calabasas deposit market is substantial and currently is penetrated only by four large institutions, and thus lacks the presence of a community bank. The Bank accumulates deposits at this branch through local media advertising and by participating in deposit rate surveys. The Bank competes for deposits to a large extent on the basis of rates and, therefore, could experience difficulties in attracting deposits if it could not continue to offer deposit rates at levels competitive with those of other banks and savings institutions.

The following table sets forth, by various interest rate categories, the Bank’s certificates of deposit at December 31, 2006.

Interest Rates for Certificates of Deposit

	December 31, 2006
	(Dollars in thousands)
2.50% or less	$	7,243
2.51-3.50%		27,431
3.51-4.50%		135,114
4.51-5.50%		645,002
5.51-6.50%		20,000
Total	$	834,790

The following table sets forth the amount and maturities of the Bank’s certificates of deposit at December 31, 2006.

Maturities of Certificates of Deposit

	Original Maturity in Months
	12 or Less			Over 12 to 36			Over 36
	(Dollars in thousands)
Balances maturing in 3 months or less	$	181,110		$	31,565		$	—
Weighted average rate		5.11	%		3.72	%		—
Balances maturing in over 3 months to 12 months	$	404,346		$	87,829		$	7,549
Weighted average rate		5.06	%		4.04	%		2.75	%
Balances maturing in over 12 months to 36 months	$	—		$	66,294		$	10,577
Weighted average rate		—			4.79	%		3.46	%
Balances maturing in over 36 months		—			—		$	45,520
Weighted average rate		—			—			5.61	%

At December 31, 2006, the Bank had outstanding an aggregate of $798.4 million of certificates of deposit in face amounts equal to or greater than $100,000 maturing as follows: $204.0 million within three months, $209.8 million over three months through six months, $271.1 million over six months through 12 months, and $113.5 million thereafter.

Short-Term Borrowings.    The Company has a loan agreement with a financial institution pursuant to which it may borrow up to $20.0 million under a revolving line of credit. At December 31, 2006, the Company

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had $20.0 million outstanding under this agreement, bearing interest at the 3-month LIBOR rate, plus 1.65% (7.02% at December 31, 2006). Interest is adjustable and payable quarterly beginning on March 1, 2007. The line of credit is due and payable in full on November 30, 2007. The loan is collateralized by 50% of the outstanding shares of the Bank’s common stock.

Repurchase Agreements.    The Bank borrows funds under repurchase agreements that provide immediate liquidity and financing for purchases of investment securities and pools of loans. The following table sets forth certain information related to the Bank’s repurchase agreements as of December 31, 2006, 2005 and 2004.

	At or for the Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Average amount outstanding during the period	$	43,538		$	116,000		$	89,951
Maximum month-end balance outstanding during the period		63,000			143,000			120,000
Weighted average rate:
During the period		3.53	%		3.17	%		2.26	%
At end of period		4.81	%		3.43	%		2.74	%

At December 31, 2006, all of the Bank’s $40.0 million in repurchase agreements had remaining maturities of one to two years.

FHLB Advances.    The Bank obtains FHLB advances based on the security of certain of its assets, provided the Bank has met certain standards related to its creditworthiness. FHLB advances are available to member financial institutions such as the Bank for investment and lending activities and other general business purposes. FHLB advances are made pursuant to several different credit programs (each of which has its own interest rate, which may be fixed or adjustable). The Bank is currently authorized to obtain FHLB advances in amounts up to 45% of the Bank’s total assets measured as of each previous quarter-end and for terms of up to 10 years.

The following table sets forth the Bank’s FHLB advances at and for the years ended December 31, 2006, 2005 and 2004:

	At or for the Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Average amount outstanding during the period	$	482,068		$	508,298		$	361,249
Maximum month-end balance outstanding during the period		557,837			555,837			474,837
Weighted average rate:
During the period		3.96	%		3.06	%		2.95	%
At end of period		4.53	%		3.42	%		2.75	%

As of December 31, 2006, the Bank had $156.3 million of FHLB advances maturing within one year, $95.0 million maturing between one and two years, $145.0 million maturing between two and three years, $30.0 million maturing between three and four years, and $70.0 million maturing between four and five years. These advances are secured by mortgage-backed securities and loans.

Junior Subordinated Notes Payable.    At December 31, 2006, the Company had outstanding $46.4 million in floating-rate junior subordinated notes payable to three wholly owned statutory business trusts. The Company issued the notes to the trusts in separate placements occurring in July 2002, May 2006 and December 2006. The trusts purchased the notes using the proceeds from private placements of trust preferred securities to unaffiliated third parties and from the issuance of common securities to the Company. The Company has used the proceeds from these borrowings for general corporate purposes and the repurchase of 2.75 million shares of its common stock in August 2006.

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The following table presents a summary of the Company’s junior subordinated notes payable issuances as of December 31, 2006:

	Year Ended December 31, 2006
	(Dollars in thousands)
Date of borrowing	7/11/2002	5/16/2006	12/28/2006
Amount of borrowing	$20,619	$20,619	$5,155
Interest terms (to be reset quarterly)	LIBOR + 3.65%	LIBOR + 1.55%	LIBOR + 1.78%
Interest rate at end of year	9.02%	6.92%	7.14%
Maturity date	10/7/2032	6/23/2036	3/6/2037
First date redeemable at par	7/11/2007	6/23/2011	3/6/2012

The following table sets forth the Company’s junior subordinated notes payable at and for the years indicated:

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Average amount outstanding during the year	$	33,704		$	20,619		$	20,619
Maximum month-end balance outstanding during the year		46,393			20,619			20,619
Weighted average rate:
During the period		8.23	%		7.21	%		5.59	%
At end of period		7.88	%		7.80	%		5.72	%

Asset Quality

The Company is exposed to certain credit risks related to the value of the collateral that secures its loans and the ability and willingness of borrowers to repay their loans. The Company closely monitors its loans and foreclosed real estate for potential problems on a periodic basis.

Allowance for Loan Losses.    The Company maintains an allowance for loan losses at a level believed adequate by management to absorb estimated losses inherent in the loan portfolios. The allowance is increased by provisions for loan losses charged against operations and recoveries of previously charged off loans, and is decreased by loan charge-offs. Loans are charged off when they are deemed to be uncollectible.

Although we believe that we have established adequate allowances for loan losses as of December 31, 2006, the credit quality of our assets is affected by many factors beyond our control, including local and national economic conditions, and the possible existence of facts which are not known to us which adversely affect the likelihood of repayment of various loans in our loan portfolio and realization of the collateral upon a default. Accordingly, we can give no assurance that we will not sustain loan losses materially in excess of the allowance for loan losses. In addition, the FDIC and DFI, as an integral part of their examination process, periodically review our allowance for loan losses and could require additional provisions for loan losses. Material future additions to the allowance for loan losses may also be necessary due to increases in the size and changes in the composition of our loan portfolio. Increases in our provisions for loan losses would adversely affect our results of operations.

For a complete discussion of our policies and procedures with respect to the allowance for loan losses, see “Critical Accounting Policies” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.

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The following table sets forth information with respect to the Company’s allowance for loan losses by category of loan.

Allocation of the Allowance for Loan Losses

	December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Allowance for loan losses:
Commercial	$	—		$	—		$	—		$	—		$	1
Real estate – construction		1,354			—			—			—			—
Real estate – mortgage		6,072			6,688			6,909			6,658			7,155
Installment loans		8			5			20			77			824
Unallocated		444			387			348			—			—
Total allowance for loan losses	$	7,878		$	7,080		$	7,277		$	6,735		$	7,980
Percentage of loans in each category to total loans:
Commercial		—	%		—	%		—	%		—	%		—	%
Real estate – construction		17.2			—			—			—			—
Real estate – mortgage		77.1			94.4			94.9			98.9			89.7
Installment		0.1			0.1			0.3			1.1			10.3
Unallocated		5.6			5.5			4.8			—			—
Total allowance for loan losses		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

The following table sets forth the activity in the allowance for loan losses during the periods indicated.

Analysis of the Allowance for Loan Losses

	December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Balance, beginning of period	$	7,080		$	7,277		$	6,735		$	7,980		$	8,384
Charge-offs:
Real estate – mortgage		(148	)		(206	)		(4	)		(117	)		(412	)
Installment loans		(2	)		(33	)		(22	)		(375	)		(62	)
Total charge-offs		(150	)		(239	)		(26	)		(492	)		(474	)
Recoveries:
Commercial		—			2			—			—			—
Real estate – mortgage		6			118			112			32			101
Installment loans		2			6			37			36			83
Total recoveries		8			126			149			68			184
Net (charge-offs) recoveries		(142	)		(113	)		123			(424	)		(290	)
Amortization of fresh-start adjustment		(10	)		(19	)		(19	)		(71	)		(114	)
Provision for (recapture of) loan losses		950			(65	)		438			(750	)		—
Balance, end of period	$	7,878		$	7,080		$	7,277		$	6,735		$	7,980
Ratio of net charge-offs during the period to average loans outstanding during the period		—			—			—			0.1	%		0.1	%

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Non-Performing Loans.    It is the Company’s policy to place a loan on non-accrual status when it is over 90 days past due, or at any time when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed by a charge to interest income.

The table below sets forth the delinquency status of the Company’s loans at the dates indicated.

Delinquency Experience for Loans

	December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Balance of delinquent loans:
31-60 days	$	1,583		$	6,300		$	2,364		$	2,326		$	2,269
61-90 days		2,528			916			902			123			1,052
91 days or more (1)		601			5,138			4,535			5,816			4,043
Total loans delinquent	$	4,712		$	12,354		$	7,801		$	8,265		$	7,364
Delinquent loans as a percentage of total loan portfolio:
31-60 days		0.2	%		0.7	%		0.2	%		0.4	%		0.5	%
61-90 days		0.2			0.1			0.1			—			0.2
91 days or more (1)		0.1			0.5			0.5			0.9			0.8
Total		0.5	%		1.3	%		0.8	%		1.3	%		1.5	%

(1) All loans delinquent over 90 days are on nonaccrual status.

Foreclosed Real Estate.    The Company carries its holdings of foreclosed real estate at the lower of the net carrying value of the underlying loan or fair value less estimated costs to sell. Holding and maintenance costs related to properties are recorded as expenses in the period incurred. Declines in values of foreclosed real estate subsequent to acquisition are charged to income and recorded as a provision for losses. The following table sets forth the aggregate carrying value of the Company’s holdings of foreclosed real estate (by source of acquisition) at the dates indicated.

Foreclosed Real Estate by Loan Type

	December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Loans:
Single-family residential	$	175		$	63		$	1,953		$	281		$	1,030
Multifamily residential (1)		1,330			—			—			—			—
Commercial real estate		—			—			21			—			38
Other mortgage loans		13			9			—			52			116
Total		1,518			72			1,974			333			1,184
Allowance for losses (1)		(865	)		(10	)		(205	)		(66	)		(83	)
Foreclosed real estate owned, net	$	653		$	62		$	1,769		$	267		$	1,101

(1) This increase reflects the foreclosure on one multifamily property of $1.3 million in October 2006. The Company subsequently recorded a write-down on this property of $865,000 and is actively marketing it for sale.

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Competition

The Company’s peer group consists of approximately six other local and regional banks that focus on smaller loan transactions, primarily in the $1-10 million range, with most originations less than $5 million. Some banks offer construction loans that have higher pricing and greater margins due to the inherent risks in these products. Recent acquisitions in the banking industry have reduced the number of financial institutions serving the Bank’s target deposit customers, and as a result, few independent banks remain in western Los Angeles County. The Bank believes that the super-regional financial institutions do not adequately service the customers who comprise the Bank’s target market, and that the smaller regional banks are better able to provide quality service through closer customer relationships and more rapid response to commercial loan opportunities.

Supervision and Regulation

Banking is a highly regulated industry. Congress and the states have enacted numerous laws that govern banks, bank holding companies and the financial services industry, and have created several largely autonomous regulatory agencies which have authority to examine and supervise banks and bank holding companies, and to adopt regulations furthering the purpose of the statutes. The primary goals of the regulatory agencies are to maintain a safe and sound banking system, to protect depositors and the FDIC insurance fund, and to facilitate the conduct of sound monetary policy. As a result, the financial condition and results of operation of the Company, and its ability to grow and engage in various business activities, can be affected not only by management decisions and general economic conditions, but the requirements of applicable federal and state laws, regulations and the policies of the various regulatory authorities.

Further, these laws, regulations and policies are continuously under review by Congress, state legislatures and federal and state regulatory agencies. Changes in laws, regulations and policies can materially increase in the cost of doing business, limit certain business activities or materially and adversely affect competition between banks and other financial intermediaries. While it can be predicted that changes will occur, what changes, when they will occur, and how they will impact the Company cannot be predicted.

The following is not intended to be an exhaustive description of the statutes and regulations applicable to the business of BHBC or the Bank. The description of statutory and regulatory provisions is qualified in its entirety by reference to the particular statutory or regulatory provisions.

Bank Holding Companies

Bank holding companies are regulated under the Bank Holding Company Act (the “BHC Act”) and are supervised by the Federal Reserve Board (the “FRB”). Under the BHC Act, BHBC files reports of its operations and other information with the FRB, and the FRB conducts examinations of BHBC and the Bank.

The BHC Act requires, among other things, the FRB’s prior approval whenever a bank holding company proposes to (i) acquire all or substantially all the assets of a bank; (ii) acquire direct or indirect ownership or control of more than 5% of the voting shares of a bank; (iii) merge or consolidate with another bank holding company; (iv) with certain exceptions, acquire more than 5% of the voting shares of any company that is not a bank; and (v) engage in any activities without the FRB’s prior approval other than managing or controlling banks and other subsidiaries authorized by the BHC Act, furnishing services to, or performing services for, its subsidiaries, or conducting a safe deposit business. The BHC Act authorizes the FRB to approve the ownership of shares in any company, the activities of which have been determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto.

Under the BHC Act and regulations adopted by the FRB, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or financing of services.

The FRB may, among other things, issue cease-and-desist orders with respect to activities of bank holding companies and nonbanking subsidiaries that represent unsafe or unsound practices or violate a law, administrative

17

order or written agreement with a federal banking regulator. The FRB can also assess civil money penalties against companies or individuals who violate the BHC Act or other federal laws or regulations, order termination of nonbanking activities by nonbanking subsidiaries of bank holding companies and order termination of ownership and control of a nonbanking subsidiary by a bank holding company.

A bank holding company may become a “financial holding company” which may engage in a range of activities that are financial in nature, including insurance and securities underwriting, insurance sales, merchant banking, providing financial, investment, or economic advisory services, any activity that a bank holding company may engage in outside of the United States, and additional activities that the FRB, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to a financial activity, or complementary to a financial activity. The FRB is the primary regulator of financial holding companies.

FDIC

The Bank is subject to examination and regulation by the FDIC under the Federal Deposit Insurance Act (“FDIA”) because its deposit accounts are insured by the FDIC. The FDIC has adopted regulations which affect a broad range of the Bank’s activities, including, among other things, lending, appraisals, formation of subsidiaries, and obtaining deposits through brokers.

Under FDIC regulations, each insured depository institution is assigned to one of the following three capital groups for insurance premium purposes: “well capitalized,” “adequately capitalized” and “undercapitalized.” These capital groups are defined in the same manner as the regulations establishing the prompt corrective action system of the FDIA, as discussed under “Capital Adequacy Requirements” below. These three groups are then divided into subgroups which are based on supervisory evaluations by the institution’s primary federal regulator, resulting in nine assessment classifications. Assessment rates for BIF-insured banks range from 0% of insured deposits for well-capitalized banks with minor supervisory concerns to 0.27% of insured deposits for undercapitalized banks with substantial supervisory concerns.

The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices which are not limited to cases of capital inadequacy, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation or order or any condition imposed in writing by the FDIC. In addition, FDIC regulations provide that any insured institution that falls below a 2% minimum leverage ratio (see below) will be subject to FDIC deposit insurance termination proceedings unless it has submitted, and is in compliance with, a capital plan with its primary federal regulator and the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process if the institution has no tangible capital. The FDIC is additionally authorized by statute to appoint itself as conservator or receiver of an insured depository institution (in addition to the powers of the institution’s primary federal regulatory authority) in cases, among others and upon compliance with certain procedures, of unsafe or unsound conditions or practices or willful violations of cease and desist orders.

Capital Adequacy Requirements

The FRB and the FDIC have adopted similar, but not identical, “risk-based” and “leverage” capital adequacy guidelines for bank holding companies and insured banks, respectively. Under the risk-based capital guidelines, different categories of assets are assigned different risk weights, ranging from zero percent for risk-free assets (e.g., cash) to 100% for relatively high-risk assets (e.g., commercial loans). These risk weights are multiplied by corresponding asset balances to determine a risk-adjusted asset base. Certain off-balance sheet items, such as standby letters of credit, are added to the risk-adjusted asset base. The minimum required ratio of total capital to risk-weighted assets for both bank holding companies and insured banks is presently 8%. At least half of the total capital is required to be “Tier 1 capital,” consisting principally of common stockholders’ equity, a limited amount of perpetual preferred stock, and minority interests in the equity. The remainder, designated

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“Tier 2 capital,” may consist of a limited amount of subordinated debt, certain hybrid capital instruments, the remaining portion of trust preferred securities and other debt securities, preferred stock and a limited amount of the general loan loss allowance.

Trust preferred securities are considered regulatory capital for purposes of determining BHBC’s capital ratios. In December 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46R (“FIN 46R”), “Consolidation of Variable Interest Entities,” which required companies that have issued trust preferred securities to deconsolidate the related entities and restate their balance sheets. However, the Board of Governors of the Federal Reserve System (“FRB”), BHBC’s banking regulator, continues to allow inclusion of trust preferred securities in regulatory capital following the issuance of FIN 46R.

The minimum Tier 1 leverage ratio, consisting of Tier 1 capital to average adjusted total assets, is 3% for bank holding companies and insured banks that have the highest regulatory examination rating and are not contemplating significant growth or expansion. All other bank holding companies and insured banks are expected to maintain a ratio of at least 1% to 2% or more above the stated minimum.

Under the prompt corrective action provisions of the FDIA, the FDIC has adopted regulations establishing five capital categories for insured banks designated as well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. If any one or more of a bank’s ratios are below the minimum ratios required to be classified as undercapitalized, it will be classified as significantly undercapitalized, and if its ratio of tangible equity to total assets is 2% or less, it will be classified as critically undercapitalized. A bank may be reclassified by the FDIC to the next level below that determined by the criteria described above if the FDIC finds that it is in an unsafe or unsound condition or if it has received a less-than-satisfactory rating for any of the categories of asset quality, management, earnings or liquidity in its most recent examination and the deficiency has not been corrected, except that a bank cannot be reclassified as critically undercapitalized for such reasons.

The FDIC may subject undercapitalized banks to a broad range of restrictions and regulatory requirements. An undercapitalized bank may not pay management fees to any person having control of the institution, nor, except under certain circumstances and with prior regulatory approval, make any capital distribution if, after doing so, it would be undercapitalized. Significantly undercapitalized banks are subject to increased monitoring by the FDIC, are restricted in their asset growth, must obtain regulatory approval for certain corporate activities, such as acquisitions, new branches and new lines of business, and, in most cases, must submit to the FDIC a plan to bring their capital levels to the minimum required in order to be classified as adequately capitalized. The FDIC may not approve a capital restoration plan unless each company that controls the bank guarantees that the bank will comply with it. Significantly and critically undercapitalized banks are subject to additional mandatory and discretionary restrictions and, in the case of critically undercapitalized institutions, must be placed into conservatorship or receivership unless the FDIC agrees otherwise.

Under FRB policy, a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to commit resources to support each such bank. In addition, a bank holding company is required to guarantee that its subsidiary bank will comply with any capital restoration plan. The amount of such a guarantee is limited to the lesser of (i) 5% of the bank’s total assets at the time it became undercapitalized or (ii) the amount which is necessary (or would have been necessary) to bring the bank into compliance with all applicable capital standards as of the time the bank fails to comply with the capital restoration plan. A holding company guarantee of a capital restoration plan results in a priority claim to the holding company’s assets ahead of its other unsecured creditors and shareholders that is enforceable even in the event of the holding company’s bankruptcy or the subsidiary bank’s insolvency.

Capital Distributions

BHBC may make capital distributions (dividends in cash or property, or repurchases of capital stock) subject to the California General Corporation Law and the policies, rules and regulations of the FRB. Under the California General Corporation Law, BHBC may not pay dividends in cash or property except (i) out of positive

19

retained earnings or (ii) if, after giving effect to the distribution, BHBC’s assets would be at least 1.25 times its liabilities and its current assets would exceed its liabilities (determined on a consolidated basis under generally accepted accounting principles). The FRB has stated that, as a matter of prudent banking, a bank holding company generally should not pay cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends, and that the prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition.

The ability of BHBC to continue to pay dividends will depend upon its cash resources. BHBC’s principal source of liquidity consists of proceeds received from the sale of its former loan subsidiary in 2004. In addition, in 2006, the Bank initiated a regular quarterly dividend to BHBC and paid a total of $11.4 million in such dividends for the year. As a California-chartered bank, without the approval of the California DFI, the Bank may pay dividends in an amount which does not exceed the lesser of its retained earnings or its net income for the last three fiscal years. Under regulations of the FDIC, the Bank may not make a capital distribution without prior approval of the FDIC if it would be undercapitalized, significantly undercapitalized or critically undercapitalized under the Prompt Corrective Action Rules.

CRA

Banks and bank holding companies are also subject to the Community Reinvestment Act of 1977, as amended (the “CRA”). The CRA requires the Bank to ascertain and meet the credit needs of the communities it serves, including low and moderate income neighborhoods. The Bank’s compliance with CRA is reviewed and evaluated by the FDIC, which assigns the Bank a publicly available CRA rating at the conclusion of the examination. Further, an assessment of CRA compliance is also required in connection with applications for FDIC approval of certain activities, including establishing or relocating a branch office that accepts deposits or merging or consolidating with, or acquiring the assets or assuming the liabilities of, a federally regulated financial institution. An unfavorable rating may be the basis for FDIC denial of such an application, or approval may be conditioned upon improvement of the applicant’s CRA record. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the FRB will assess the CRA record of each subsidiary bank of the applicant, and such records may be the basis for denying the application.

In the most recently completed CRA compliance examination, conducted in June 2004, the Bank received a rating of “satisfactory,” the second highest of four possible ratings. CRA regulations emphasize measurements of performance in the area of lending (specifically, a bank’s home mortgage, small business, small farm and community development loans), investment (a bank’s community development investments) and service (a bank’s community development services and the availability of its retail banking services), although examiners are still given a degree of flexibility in taking into account unique characteristics and needs of a bank’s community and its capacity and constraints in meeting such needs. The regulations also require certain levels of collection and reporting of data regarding certain kinds of loans.

California Banking Law

The Bank, as a California-chartered bank, is subject to examination, supervision and regulation by the DFI under the California Banking Law. These laws and regulations affect many aspects of the Bank’s operations, including investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, issuances of securities and other corporate governance provisions.

DISCONTINUED OPERATIONS—LOAN SERVICING

Through April 2004, the Company was a diversified financial services company that also conducted loan servicing operations through a wholly owned subsidiary, Wilshire Credit Corporation (“WCC”). WCC provided a variety of loan portfolio management services, including billing, portfolio administration and collection services for pools of loans. As of April 2004, WCC serviced over $6 billion principal balance of loans for more

20

than 500 individual and institutional investors and government agencies. On April 30, 2004, the Company sold WCC to Merrill Lynch Mortgage Capital Inc., a division of Merrill Lynch & Co., New York, NY, for net proceeds of $48.2 million, and realized a gain on the sale of $21.7 million before taxes.

WCC’s operating results, and the Company’s gain on its sale of WCC, have been removed from the Company’s results from continuing operations on the Consolidated Statements of Operations, and have been presented separately under the caption “Income from discontinued operations.”

ITEM 1A. Risk Factors

The Company is subject to a number of business risks that may adversely impact its financial position or results of operations. These risks could make the Company’s common stock a speculative investment. The Company believes that the following factors represent the most significant risks to its future financial performance.

We face risk from changes in interest rates.

The success of our business depends, to a large extent, on our net interest income. Changes in market interest rates can affect our net interest income by affecting the spread between our interest-earning assets and interest-bearing liabilities. This may be due to the different maturities of our interest-earning assets and interest-bearing liabilities, as well as an increase in the general level of interest rates. Changes in market interest rates also affect, among other things:

• Our ability to originate loans;

• The ability of our borrowers to make payments on their loans;

• The value of our interest-earning assets and our ability to realize gains from the sale of these assets;

• The average life of our interest-earning assets;

• Our ability to generate deposits instead of other available funding alternatives; and

• Our ability to access the wholesale funding market.

Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control.

We face risk from possible declines in the quality of our assets.

Our financial condition depends significantly on the quality of our assets. While we have developed and implemented underwriting policies and procedures to guide us in the funding of loans, compliance with these policies and procedures in making loans does not guarantee repayment of the loans. If the level of our non-performing assets rises, our results of operations and financial condition will be affected. A borrower’s ability to pay its loan in accordance with its terms can be adversely affected by a number of factors, such as a decrease in the borrower’s revenues and cash flows due to adverse changes in economic conditions or a decline in the demand for the borrower’s products and/or services.

Our allowances for loan losses may be inadequate.

We establish allowances for loan losses against each segment of our loan portfolio. At December 31, 2006, our allowance for loan losses equaled 0.7% of loans. Although we believe that we have established adequate allowances for loan losses as of December 31, 2006, the credit quality of our assets is affected by many factors beyond our control, including local and national economic conditions, and the possible existence of facts which are not known to us which adversely affect the likelihood of repayment of various loans in our loan portfolio and

21

realization of the collateral upon a default. Accordingly, we can give no assurance that we will not sustain loan losses materially in excess of the allowance for loan losses. In addition, the FDIC and DFI, as an integral part of their examination processes, periodically review our allowance for loan losses and could require additional provisions for loan losses. Material future additions to the allowance for loan losses may also be necessary due to increases in the size and changes in the composition of our loan portfolio. Increases in our provisions for loan losses would adversely affect our financial condition and results of operations.

Economic conditions may decline.

Our business is strongly influenced by economic conditions in our market area (principally Southern California) as well as regional and national economic conditions. Should the economic condition in these areas deteriorate, the financial condition of our borrowers could weaken, which could lead to higher levels of loan defaults or a decline in the value of collateral for our loans. In addition, an unfavorable economy could reduce the demand for our loans and other products and services.

We have a significant concentration of loans in California.

At December 31, 2006, approximately 49% unpaid principal balance of our loans were collateralized by real estate located in California, and no more than 10% of our loans were collateralized in any other state. Because of this concentration, our financial position and results of operations have been and are expected to continue to be influenced by general trends in the California economy and its real estate market. Real estate market declines may adversely affect the values of the properties collateralizing loans. If the principal balances of our loans, together with any primary financing on the mortgaged properties, equal or exceed the value of the mortgaged properties, we could incur higher losses on sales of properties collateralizing foreclosed loans. In addition, California historically has been vulnerable to certain natural disaster risks, such as earthquakes and erosion-caused mudslides, which are not typically covered by the standard hazard insurance policies maintained by borrowers.

An increasing portion of our loan portfolio consists of construction loans to developers for properties for resale to unidentified buyers.

At December 31, 2006, we had outstanding construction loans to developers for residential and commercial properties for sale (or lease) totaling $98.9 million, representing 9.4% of our loan portfolio, and additional commitments for these projects in the amount of $105.6 million. These types of loans generally have greater risks than loans on completed residential and commercial properties. A construction loan generally does not cover the full amount of the construction costs; however, the borrower’s equity is required at loan closing. Risks include price increases, delays and unanticipated difficulties that may materially increase these costs, which are typically borne by the borrower. Further, even if completed, there is no assurance that the borrower will be able to sell the project on a timely or profitable basis, as these are closely related to real estate market conditions, which can fluctuate substantially between the start and completion of the project. If the borrower defaults prior to completion of the project, the value of the project will likely be less than the outstanding loan, and we could be required to complete construction with our own funds to minimize losses on the project.

Our business is highly competitive.

There is intense competition in Southern California and elsewhere in the United States for banking customers. We compete for loans primarily with other commercial banks, mortgage companies, commercial finance companies and savings institutions. In recent years, out-of-state financial institutions have entered the California market, which has also increased competition. Many of our competitors have greater financial strength, marketing capability and name recognition than we do, and operate on a statewide or nationwide basis. In addition, recent developments in technology and mass marketing have permitted larger companies to market loans more aggressively to our small business customers. Such advantages may give our competitors opportunities to realize greater efficiencies and economies of scale than we can. We can provide no assurance that we will be able to compete effectively against our competition.

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Our business is heavily regulated.

Both BHBC, as a bank holding company, and the Bank, as a California-chartered FDIC-insured bank, are subject to significant governmental supervision, regulation and legislation, which are intended primarily to maintain a safe and sound banking system, to protect depositors and the FDIC insurance fund, and to facilitate the conduct of sound monetary policy, and are not intended to protect bank and bank holding company shareholders. Statutes, regulations and regulatory policies affecting us may be changed at any time, and the interpretation of these statutes and regulations by examining authorities also may change. We cannot provide assurance that future changes in applicable statutes, regulations, legislation and policies or in their interpretation will not materially adversely affect our business.

We may not be able to fully utilize our deferred tax assets.

At December 31, 2006, we had net deferred tax assets totaling $28.3 million. This amount includes $27.7 million in anticipated tax savings that would result from the future usage of $81.5 million in available federal net operating loss (NOL) carryforwards. However, the maximum amount of NOL carryforward we may utilize in any year is limited to $6.0 million, as a result of our “ownership change” within the meaning of Section 382 of the Internal Revenue Code in 2002. Therefore, to fully utilize this NOL, we must earn an average of at least $6.0 million in taxable income per year through the year ended December 31, 2020, at which date the NOL carryforward will expire. There can be no assurance that we will generate sufficient taxable income in the next 14 years to enable us to utilize all of our available NOL. If at any time it appears more likely than not that we will not be able to realize this deferred tax asset, we would be required to increase the valuation allowance against the asset and record a corresponding charge to current earnings. This would have an adverse effect on our financial condition and results of operations.

The sale of the Beverly Hills branch may not produce the desired results.

In November 2006, we completed the sale of the Bank’s Beverly Hills branch. This sale was consistent with the Company’s objective of operating principally as a wholesale bank. In addition, management believes that this sale will enable us to (1) reduce overhead in future periods and (2) increase efficiency through the consolidation of all of the Bank’s operations into our Calabasas facility. However, there can be no assurance that the branch sale will cause the reduction in overhead or the increase in operating efficiencies to the extent anticipated by management. In addition, there can be no assurance that the overhead savings will not be offset by a higher cost of funds as a result of our increasing reliance on brokered, as opposed to retail, deposits.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

The headquarters of the Company and the Bank are located in Calabasas, California, where we lease approximately 16,500 square feet of office space pursuant to a lease agreement expiring in August 2014. This space includes our branch facility which opened in March 2005.

The Company believes that its facilities are suitable and adequate for its present business purposes and for the foreseeable future.

ITEM 3. Legal Proceedings

In October 2006, the Company reached a settlement with a former officer to recover amounts owed to the Company by the former officer. This settlement was subsequent to a favorable ruling from an arbitrator in May 2006. In that ruling, the arbitrator held that the Company was entitled to recover legal fees and expenses previously advanced on the former officer’s behalf, plus interest, and could also receive reimbursement of the

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Company’s own legal fees and costs incurred in connection with disputes with the former officer. The settlement agreement provides that the former officer will repay the Company a total of $2.0 million, plus interest on the unpaid balance at 6% per year. The initial payment of $200,000 was received in October 2006. All subsequent payments are to be made in semi-annual installments of $200,000 each, until the amount, including interest, is paid in full.

The Company is involved in litigation with its former loan servicing subsidiary, Wilshire Credit Corporation (“WCC”), and WCC’s parent, Merrill Lynch Mortgage Capital Inc. (“Merrill Lynch”), which purchased WCC from the Company on April 30, 2004. Beginning in June 2005, WCC made demands on the Company for reimbursement of certain costs purportedly incurred by WCC in connection with WCC’s performance under one of its loan servicing contracts. Through December 31, 2006, WCC had claimed a total of $890,000 of such costs. WCC further asserted that the Company is obligated to reimburse WCC for similar recurring costs it may incur through April 2008. The Company disagrees with this assertion. As a result, in July 2005 the Company filed a complaint for declaratory relief against WCC and Merrill Lynch. The complaint seeks, among other things, a declaration that the Company has no obligation to reimburse WCC for those costs, and that if such an obligation is found to exist, it is for a substantially lesser amount than that claimed by WCC. In September 2005, Merrill Lynch filed a cross-complaint against the Company alleging breach of contract. This litigation is expected to be resolved in 2007. The Company is not currently able to quantify the impact, if any, that the outcome of these actions may have on its financial condition or results of operations.

The Company has contractually agreed to indemnify Merrill Lynch for claims asserted against WCC by third parties arising out of acts taken by WCC prior to its sale on April 30, 2004. The indemnity is for settlements of judgments paid and for defense costs, and is for amounts which, in the aggregate, exceed $2.0 million. Merrill Lynch has notified the Company of a number of claims that have been or are being asserted against WCC, and for which Merrill Lynch is seeking indemnity from the Company. As of January 31, 2007, the total payments and defense costs of such claims was $1.1 million. It is unknown at the present whether the total claims for which Merrill Lynch asserts the Company is responsible will surpass the $2.0 million threshold and whether this matter will evolve into a formal claim. As of December 31, 2006, the Company determined that it was probable that a liability had been incurred in connection with this litigation. The Company believed $100,000 was a reasonable estimate of its potential liability, and accrued this amount as of December 31, 2006.

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

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

Not applicable.

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PART II

ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s Common Stock trades under the symbol “BHBC” and is traded on the Nasdaq Global Select Market. At February 15, 2007, there were 60 holders of record of the Company’s Common Stock.

The following table sets forth the range of high and low sales prices of the Common Stock and the cash dividends declared per share for the periods indicated:

	Sales Prices				Cash Dividends Declared
Period	High		Low
Year ended December 31, 2006:
Fourth Quarter	$	8.94	$	7.98	$	0.125
Third Quarter	$	9.27	$	7.89	$	0.125
Second Quarter	$	10.60	$	8.97	$	0.125
First Quarter	$	10.80	$	10.22	$	0.125
Year ended December 31, 2005:
Fourth Quarter	$	10.67	$	9.77	$	0.125
Third Quarter	$	11.00	$	9.97	$	0.125
Second Quarter	$	10.95	$	10.10	$	0.125
First Quarter	$	11.02	$	9.30	$	0.125

The Company has paid regular quarterly dividends of $0.125 per share, or $0.50 annually, since the second quarter of 2004. As discussed earlier, the ability of the Company to pay dividends is subject to regulation by California General Corporation Law and the FRB.

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PERFORMANCE GRAPH

The following Performance Graph covers the five-year period from December 31, 2001 through December 31, 2006. The graph compares the performance of the Company’s common stock to the S&P 500 and an index of other small banks in California (the “CSBI”) which the Company believes comprise its industry peer group.

2006 Measurement Period (1) (2) (3)

	December 31,
	2001		2002		2003		2004		2005		2006
Company (BHBC)	$	100.00	$	161.58	$	293.79	$	513.56	$	553.67	$	468.36
CSBI(3)	$	100.00	$	146.92	$	226.80	$	283.62	$	266.32	$	310.32
S&P 500	$	100.00	$	76.63	$	96.85	$	105.56	$	108.73	$	123.54

(1) Assumes all distributions to stockholders are reinvested on the payment dates.

(2) Assumes $100 invested on December 31, 2001 in the Company’s common stock, the S&P 500 Index and the CSBI.

(3) The companies included in the CSBI are First Regional Bancorp, ITLA Capital Corporation, Pacific Capital Bancorp, Provident Financial Holdings and UCBH Holdings.

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ITEM 6. Selected Financial Data

The following tables present selected financial information for the Company at the dates and for the periods indicated. The historical statements of operations and financial condition data for the five years presented have been derived from the audited consolidated financial statements of the Company. The financial data related to WCC in the Statements of Operations are presented separately under the caption “Discontinued operations.”

	Year Ended December 31,
	2006		2005			2004		2003			2002
	(Dollars in thousands, except per-share amounts)
Statements of Operations Data:
Total interest income	$	88,167	$	77,397		$	60,041	$	46,527		$	52,544
Total interest expense		55,172		38,343			26,494		23,685			28,622
Net interest income		32,995		39,054			33,547		22,842			23,922
Provision for (recapture of) loan losses		957		(41	)		351		(539	)		255
Net interest income after provision for (recapture of) loan losses		32,038		39,095			33,196		23,381			23,667
Other income		9,052		2,019			1,326		457			402
Other expenses		15,340		15,538			16,105		17,907			22,651
Income from continuing operations before income tax provision		25,750		25,576			18,417		5,931			1,418
Income tax provision		10,940		10,524			4,585		2,539			534
Income from continuing operations		14,810		15,052			13,832		3,392			884
Discontinued operations:
Income from operations of discontinued segment (including gain on sale of $21,716 in 2004)		—		—			22,200		5,726			1,955
Minority interest in discontinued segment		—		—			—		—			(686	)
Income tax provision		—		—			9,307		2,231			191
Income from discontinued operations		—		—			12,893		3,495			1,078
Net income	$	14,810	$	15,052		$	26,725	$	6,887		$	1,962
Earnings per share – basic:
Income from continuing operations	$	0.73	$	0.71		$	0.67	$	0.18		$	0.05
Discontinued operations		—		—			0.62		0.19			0.06
Net income	$	0.73	$	0.71		$	1.29	$	0.37		$	0.11
Earnings per share – diluted:
Income from continuing operations	$	0.72	$	0.70		$	0.65	$	0.17		$	0.04
Discontinued operations		—		—			0.60		0.17			0.06
Net income	$	0.72	$	0.70		$	1.25	$	0.34		$	0.10

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	As of December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands, except per-share amounts)
Financial Condition Data:
Cash and cash equivalents	$	27,005		$	20,954		$	15,526		$	16,739		$	15,981
Portfolio assets:
Mortgage-backed and other investment securities		479,572			356,008			330,937			258,005			273,497
Loans, net		1,040,726			948,144			915,383			610,807			486,667
Discounted loans, net		1,157			1,679			2,360			3,817			5,829
Real estate owned, net		653			62			1,769			267			1,101
Total portfolio assets		1,522,108			1,305,893			1,250,449			872,896			767,094
Total assets		1,623,836			1,403,739			1,335,623			975,282			843,588
Deposits		850,890			604,649			541,960			473,409			395,781
Short-term borrowings		20,000			—			—			—			—
Repurchase agreements		40,000			63,000			120,000			88,000			91,870
FHLB advances		496,337			530,837			474,837			249,337			216,000
Long-term investment financing		—			—			—			681			2,133
Junior subordinated notes payable to trusts (1)		46,393			20,619			20,619			20,619			—
Trust preferred securities (1)		—			—			—			—			20,000
Stockholders’ equity		155,438			173,870			171,062			125,483			100,023
	Year Ended December 31,
	2006			2005			2004			2003			2002
Financial Ratios and Other Data:
Return on average assets		1.02	%		1.08	%		2.22	%		0.80	%		0.24	%
Return on average equity		8.93	%		8.70	%		19.31	%		6.55	%		2.05	%
Average interest yield on total loans and discounted loans		6.99	%		6.41	%		5.64	%		6.31	%		7.03	%
Net interest spread (2)		2.02	%		2.66	%		2.59	%		2.34	%		2.42	%
Net interest margin (3)		2.38	%		2.94	%		2.88	%		2.76	%		3.01	%
Ratio of earnings to fixed charges (4):
Including interest on deposits		1.47			1.67			1.70			1.25			1.05
Excluding interest on deposits		2.10			2.23			2.31			1.48			1.11
Long-term debt to total capitalization (5)		0.78			0.76			0.74			0.69			0.70
Total financial liabilities to equity		9.45			7.07			6.81			6.78			7.43
Dividend payout ratio (6)		69.44	%		71.43	%		57.69	%		—			—
Average equity to average assets		11.42	%		12.40	%		11.50	%		12.24	%		11.73	%
Non-performing loans to loans at end of period (7)		0.11	%		0.54	%		0.49	%		0.95	%		0.82	%
Allowance for loan losses to total loans at end of period (8)		0.75	%		0.74	%		0.79	%		1.10	%		1.62	%

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	Year Ended December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Operating Data:
Investments and originations:
Loan purchases	$	88,660		$	142,814		$	149,652		$	86,928		$	74,689
Discounted loans and foreclosed real estate		—			—			—			2			10
Loan originations		248,749			118,989			289,353			206,042			70,754
Mortgage-backed and other investment securities		197,621			126,828			238,407			151,830			294,917
Total		535,030			388,631			677,412			444,802			440,370
Repayments		(318,672	)		(323,989	)		(259,314	)		(312,411	)		(245,417	)
Loan sales		—			—			(369	)		(8,072	)		(2,433	)
Net change in portfolio assets		216,215			55,444			377,553			105,802			101,236

(1) The Company issued notes in July 2002 to a trust, which purchased the notes using the proceeds from a private placement to unaffiliated third parties of $20 million of trust preferred securities and from the issuance to the Company of common securities for $619,000. Prior to the Company’s adoption of FASB Interpretation No. 46R (“FIN 46”) effective as of December 31, 2003, the Company reported the trust as a consolidated subsidiary, with the trust preferred securities included in the consolidated statements of financial condition of the Company and the common securities eliminated as an intercompany transaction. Following the adoption of FIN 46, the Company has reflected the notes under the caption “Junior subordinated notes payable to trust” and included its common securities in the trust in “other assets” in its consolidated statements of financial condition. The Company in 2006 issued $25.8 million in additional notes to trusts in two separate placements.

(2) Net interest spread represents average yield on interest-earning assets minus average rate paid on interest-bearing liabilities.

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

(4) The ratios of earnings to fixed charges were computed by dividing (x) income from continuing operations before income taxes plus fixed charges by (y) fixed charges. Fixed charges represent total interest expense, including and excluding interest on deposits, as applicable.

(5) Total capitalization equals long-term debt plus equity.

(6) Dividend payout ratio represents dividends per share divided by diluted income from continuing operations per share.

(7) Non-performing loans include all non-discounted loans that have been placed on non-accrual status by the Company. Non-discounted loans are placed on non-accrual status when they became past due more than 90 days or sooner when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. Discounted loans are not included in non-performing loans.

(8) Excludes discounted loans.

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements of Beverly Hills Bancorp Inc. and the notes thereto included elsewhere in this filing. References in this filing to “Beverly Hills Bancorp Inc.,” “BHBC,” the “Company,” “we,” “our,” and “us” refer to Beverly Hills Bancorp Inc. and our subsidiaries, unless the context indicates otherwise.

OVERVIEW

Beverly Hills Bancorp Inc. is a financial holding company that conducts primarily banking and lending operations in southern California and surrounding states through our bank subsidiary, First Bank of Beverly Hills. Our business strategy is focused on the growth and profitability of the Bank through (1) originations and purchases of commercial real estate and multifamily mortgage loans and (2) investments in primarily AAA-rated and government-sponsored enterprise (“GSE”) mortgage-backed securities. The Bank is a California state chartered commercial bank, and its primary regulator is the California Department of Financial Institutions (“DFI”). As an insured institution, the Bank continues to be regulated by the Federal Deposit Insurance Corporation (“FDIC”).

Our net income for the year ended December 31, 2006 was $14.8 million, or $0.72 per diluted share, compared with $15.1 million, or $0.70 per diluted share, for the year ended December 31, 2005. The higher earnings per share in 2006, despite the slight decline in net income for the year, was due to our repurchase of 2.75 million shares of outstanding common stock in August 2006.

The results for 2006 include a pre-tax gain of $8.5 million on the sale of the Bank’s Beverly Hills branch in November 2006. This sale reflected our efforts to reduce administrative overhead and our intention to operate principally as a wholesale bank. The gain from the sale of the Beverly Hills branch was offset in substantial part by a $6.1 million reduction in net interest income. This decline was due primarily to a decrease in our net interest margin, as the interest rate cost of our interest-bearing liabilities increased faster than the yields on our interest-earning assets. The year 2006 results also reflect a $1.5 million decline in other operating income and a $1.0 million increase in the provision for loan losses.

Our stockholders’ equity declined by $18.4 million for the year ended December 31, 2006 to $155.4 million, or $8.27 book value per diluted share, despite our net income of $14.8 million. This decrease was due primarily to the repurchase of 2.75 million shares of our common stock for a total price of $24.75 million and cash dividends of $10.0 million. These decreases were partially offset by net after-tax unrealized gains of $1.3 million on the portfolio of available-for-sale securities and a $0.2 million increase in paid-in capital representing stock-based compensation expense.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as disclosures included elsewhere in this Form 10-K, are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. On an ongoing basis, we evaluate the estimates used, including, but not limited to, those related to allowances for loan losses, other than temporary impairment in the market values of investment securities, the realizability of deferred tax assets, and contingencies. We base our estimates on historical experience, current conditions and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources as well as identifying and assessing our accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions.

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

Mortgage-Backed and Other Investment Securities Available for Sale.    The Company’s mortgage-backed and other investment securities available for sale are reported at their current fair market value. In determining current fair value when quotes from third parties are not available, we estimate the present value of the anticipated cash flows of the securities based on certain assumptions, including the amount and timing of future repayments, the discount rate to be used, and default rates and expected losses on the loans underlying the securities. If the change in market value is considered temporary, the unrealized holding gains and losses are reported net of tax, when applicable, as a separate component of accumulated other comprehensive income in stockholders’ equity. In the event of a decline in market value, management must evaluate whether the decline is temporary in nature or other than temporary. In making this evaluation, management must consider certain factors, including (a) whether the Company has the ability and intent to hold the investment for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of the investment, and (b) whether evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. Declines that are considered other than temporary are reflected as “Market valuation losses and impairments” in the consolidated statements of operations and not as a direct reduction to stockholders’ equity. The Company’s portfolio of mortgage-backed and other investment securities available for sale represented more than 25% of consolidated total assets as of December 31, 2006. Consequently, fluctuations in the securities’ values can have a significant impact on our financial condition and results of operations.

Allowance for Loan Losses.    The Company maintains an allowance for loan losses at a level believed adequate by management to absorb estimated losses inherent in the loan portfolios. The allowance is increased by provisions for loan losses charged against operations, recoveries of previously charged off loans, and allocations of discounts on purchased loans, and is decreased by loan charge-offs. Loans are charged off when they are deemed to be uncollectible.

The Company uses its internal asset review system to evaluate its loan portfolio and to classify loans as pass, special mention, substandard, substandard well-secured, doubtful or loss. These terms correspond to varying degrees of risk that the loans will not be collected in part or in full. The frequency at which a specific loan is subjected to internal asset review depends on the type and size of the loan and the presence or absence of other risk factors, such as delinquency and changes in collateral values. The allowance for loan losses consists of general valuation allowances (“GVAs”), which are derived primarily from the Company’s loss migration factors. Specific valuation allowances (“SVAs”) are established for impaired loans, and are equal to the excess of the unpaid principal balance over the fair value of the collateral for all impaired loans. For all loans except discounted loans, the SVAs are charged off at the end of the month in which they are established.

GVAs are based on loss migration factors that are updated each quarter. GVAs also include a qualitative adjustment, which represents management’s evaluation after consideration of certain credit risk characteristics. These risk characteristics include, but are not limited to, the following: the institution’s historical and recent loss experience in its portfolios; the volume, severity and trend of non-performing assets; the extent to which refinances or loan modifications are made to maintain loans in a current status; known deterioration in credit concentrations or certain classes of loans; loan to value ratios of real estate-secured loans; risks associated with specific types of collateral; the quality and effectiveness of the lending policy, loan purchase policy, internal asset review policy, charge-off, collection and recovery policies; current and anticipated conditions in the general and local economies which might affect the collectability of the institution’s asset; anticipated changes in the composition or volume of the loan portfolio; and reasonableness standards in accordance with regulatory agency policies. The evaluation of the inherent loss with respect to these risk characteristics is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio components. Apart from a qualitative adjustment, management currently maintains a risk-modeling reserve in the range of 3% to 6% of the total estimated allowance for loan losses, due to the inherent risk associated with the imprecision in estimating the allowance.

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To assess the adequacy of the Company’s allowance for loan losses, the portfolio is segmented into three components: impaired loans, homogeneous loans, and non-homogeneous loans.

• In determining which loans are impaired, the Company applies Statement of Financial Accounting Standards No. 114 (“SFAS No. 114”), Accounting by Creditors for Impairment of a Loan. The Company’s impaired loans include all loan types classified as substandard, doubtful or loss (including loans which may have been upgraded but which are troubled debt restructurings). SVAs are measured on a loan-by-loan basis utilizing either the discounted cash flow or fair market value approaches, as defined under SFAS No. 114.

• Homogeneous loans have been defined as loans secured by one to four single-family residences, mobile home loans and consumer loans, and are analyzed for impairment collectively by their respective loan group. GVA loss estimates are measured utilizing the Company’s loss migration factors.

• Non-homogeneous loans include the following loan types: multifamily, commercial real estate, “bridge” loans, construction loans, land loans and commercial unsecured. The non-homogeneous loans are analyzed individually for impairment. GVA loss estimates are measured utilizing the Company’s loss migration factors. A loss horizon of seven years has been developed with the objective of achieving loss data to capture a full business cycle.

When the Company increases the allowance for loan losses related to loans, it records a corresponding increase to the provision for loan losses in the statement of operations. The DFI and FDIC, as part of their examination process, periodically review the Company’s allowance for losses and the carrying values of its assets. There can be no assurance that the DFI or FDIC will not require additional reserves following future examinations.

Income Taxes.    At December 31, 2006 we had a total gross deferred tax asset of $34.0 million. This asset represents the tax effect of future deductible or taxable amounts and is attributable to net operating loss carryforwards and also to temporary differences between amounts that have been recognized in the financial statements and amounts that have been recognized in the Company’s income tax returns. In accounting for the deferred tax assets, we apply SFAS No. 109, Accounting for Income Taxes, which requires, among other things, that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

As of December 31, 2006, we evaluated the positive and negative evidence regarding the future realization of the deferred tax assets. Pursuant to this evaluation, we concluded that the available objective positive evidence regarding our ability to generate future federal taxable income substantially outweighed the available objective negative evidence regarding future federal taxable income. We also concluded that the objective negative evidence regarding the ability to generate certain future state taxable income outweighed the available objective positive evidence regarding certain future state taxable income, due primarily to the curtailment of our operations in the state of Oregon following the sale of WCC. As a result, we believe it is more likely than not that a substantial amount of our deferred tax asset will be realized in future years. Consequently, we believe that as of December 31, 2006, that the only valuation allowance required is approximately $5.7 million related to net operating loss carryforwards in Oregon and certain other states. As portions of the deferred tax asset are realized and the valuation allowance is reduced, the related benefits, to the extent they related to our post-reorganizational period, are recorded as a deferred tax benefit in our consolidated statements of operations. As benefits relating to our pre-reorganizational period are realized, they are recorded as a direct increase to stockholders’ equity.

The net deferred tax asset of $28.3 million is reported as an asset in our consolidated statement of financial condition as of December 31, 2006. However, there can be no assurance that the amount, if any, that we ultimately realize will not differ materially from our assessment.

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RESULTS OF OPERATIONS—2006 COMPARED TO 2005

Interest Income

A significant portion of our consolidated earnings arises from net interest income, which is the difference between interest income received and interest expense paid. Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the degree of mismatch in the maturity and repricing characteristics of interest-earning assets and interest-bearing liabilities.

The following table sets forth, for the periods indicated, information regarding the total amount of our income from interest-earning assets and the resulting average yields, the interest expense associated with interest-bearing liabilities, expressed in dollars and rates, and the net interest spread and net interest margin. (The interest income and expense amounts in the table below are consolidated, but reflect primarily the results of our banking operations.) Information is based on monthly balances during the indicated periods.

Interest-Earning Assets and Interest-Bearing Liabilities

	Year Ended December 31,
	2006							2005							2004
	Average Balance			Interest		Weighted Average Yield/ Rate		Average Balance			Interest		Weighted Average Yield/ Rate		Average Balance			Interest		Weighted Average Yield/ Rate
Assets:
Mortgage-backed securities	$	374,394		$	18,483	4.94	%	$	335,128		$	14,753	4.40	%	$	299,252		$	12,233	4.09	%
Loans, net of unaccreted discounts/unamortized premium (1)		966,479			67,527	6.99	%		950,140			60,895	6.41	%		826,916			46,632	5.64	%
Federal funds and other investments		43,926			2,157	4.91	%		42,793			1,749	4.09	%		37,868			1,176	3.11	%
Total interest-earning assets		1,384,799			88,167	6.37	%		1,328,061			77,397	5.83	%		1,164,036			60,041	5.16	%
Non-interest earning cash		1,698							2,082							4,625
Allowance for loan losses		(7,280	)						(8,337	)						(35,003	)
Other assets		73,060							73,994							69,793
Total assets	$	1,452,277						$	1,395,800						$	1,203,451
Liabilities and Stockholders’ Equity:
Interest-bearing deposits:
Savings, NOW and money market accounts	$	55,619		$	1,888	3.39	%	$	111,134		$	2,974	2.68	%	$	74,556		$	1,407	1.89	%
Certificates of deposit		652,875			29,814	4.57	%		452,601			14,649	3.24	%		485,981			11,020	2.27	%
Total interest-bearing deposits		708,494			31,702	4.47	%		563,735			17,623	3.13	%		560,537			12,427	2.22	%
Short-term borrowings		712			50	7.02	%		—			—	—			—			—	—
Repurchase agreements		43,538			1,539	3.53	%		116,000			3,681	3.17	%		89,951			2,032	2.26	%
FHLB advances		482,068			19,108	3.96	%		508,298			15,552	3.06	%		361,249			10,653	2.95	%
Other borrowings		33,704			2,773	8.23	%		20,619			1,487	7.21	%		20,822			1,382	6.64	%
Total interest-bearing liabilities		1,268,516			55,172	4.35	%		1,208,652			38,343	3.17	%		1,032,559			26,494	2.57	%
Noninterest-bearing deposits		4,857							4,375							4,092
Other liabilities		13,023							9,742							28,384
Total liabilities		1,286,396							1,222,769							1,065,035
Stockholders’ equity		165,881							173,031							138,416
Total liabilities and stockholders’ equity	$	1,452,277						$	1,395,800						$	1,203,451
Net interest income				$	32,995						$	39,054						$	33,547
Net interest spread (2)						2.02	%						2.66	%						2.59	%
Net interest margin (3)						2.38	%						2.94	%						2.88	%
Ratio of average interest-earning assets to average interest-bearing liabilities		109.17	%						109.88	%						112.73	%

(1) The average balances of the loan portfolio include discounted loans and non-performing loans, on which interest is recognized on a cash basis.

(2) Net interest spread represents the weighted-average yield on interest-earning assets minus the weighted-average rate paid on interest-bearing liabilities.

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

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The following table describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected our interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior rate), (ii) changes in rate (change in rate multiplied by prior volume) and (iii) total change in rate and volume. Changes attributable to both volume and rate have been allocated proportionately to the change due to volume and the change due to rate.

Changes in Net Interest Income

	Year Ended December 31,
	2006 v. 2005									2005 v. 2004
	Increase (Decrease) Rate			Increase (Decrease) Volume			Net Change			Increase Rate		Increase (Decrease) Volume			Net Change
	(Dollars in thousands)
Interest-earning assets:
Mortgage-backed securities	$	1,898		$	1,832		$	3,730		$	985	$	1,535		$	2,520
Loans		5,570			1,062			6,632			6,819		7,444			14,263
Federal funds and other investments		361			47			408			406		167			573
Total interest-earning assets		7,829			2,941			10,770			8,210		9,146			17,356
Interest-bearing liabilities:
Savings, NOW and money market accounts		659			(1,745	)		(1,086	)		721		846			1,567
Certificates of deposit		7,302			7,863			15,165			4,431		(802	)		3,629
Total interest-bearing deposits		7,961			6,118			14,079			5,152		44			5,196
Short-term borrowings		—			50			50			—		—			—
Repurchase agreements		379			(2,521	)		(2,142	)		961		688			1,649
FHLB advances		4,394			(838	)		3,556			414		4,485			4,899
Other borrowings		234			1,052			1,286			118		(13	)		105
Total interest-bearing liabilities		12,968			3,861			16,829			6,645		5,204			11,849
(Decrease) increase in net interest income	$	(5,139	)	$	(920	)	$	(6,059	)	$	1,565	$	3,942		$	5,507

Our net interest income was $33.0 million for the year ended December 31, 2006, compared with $39.1 million for the year ended December 31, 2005. This decrease was due primarily to a decline in our net interest margin, as the net interest earning assets in 2006 were comparable to those in 2005.

Our net interest margin was 2.38% for the year ended December 31, 2006, compared with 2.94% for the year ended December 31, 2005. This decline in the margin was primarily the result of the increase in market interest rates from 2005 to 2006. Because our interest bearing liabilities reprice more frequently than our interest earning assets, our net interest margin tends to decrease as interest rates rise. As a result, our weighted average cost of interest bearing liabilities increased by 118 basis points to 4.35% for the year ended December 31, 2006, compared with 3.17% for the year ended December 31, 2005. In contrast, our yield on interest-earning assets increased by only 54 basis points, to 6.37% for 2006 compared with 5.83% for 2005. We anticipate that the net interest margin may narrow further in future periods if the treasury yield remains relatively flat. In addition, the sale of the Beverly Hills branch may cause a reduction in the net interest margin, due to our reduced retail presence and our increasing reliance on higher-costing brokered deposits.

Interest income on mortgage-backed securities was $18.5 million for the year ended December 31, 2006, compared with $14.8 million for the year ended December 31, 2005. The increase in 2006 reflects both an increase in yields and a higher average earning-asset balance. The higher yields, which were precipitated by

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rising market interest rates, extended the expected lives of the securities and reduced the amortization of premiums. As a result, our yield on mortgage-backed securities increased by 54 basis points, from 4.40% for 2005 to 4.94% for 2006. The increase in the average investment balance from 2005 to 2006 reflects our purchase of $117.9 million in mortgage-backed securities in the second quarter of 2006, in addition to an increase in mortgage-backed securities throughout 2005.

Interest income on loans was $67.5 million for the year ended December 31, 2006, compared with $60.9 million for the year ended December 31, 2005. This increase was due primarily to a 58-basis point increase in the weighted-average yield on our loans, from 6.41% for 2005 to 6.99% for 2006, reflecting the continuing increase in market interest rates. Our adjustable-rate loans (including loans with an initial fixed rate for 3 or 5 years which subsequently convert to adjustable-rate) have comprised between 85-88% of our total loans for the past year, and therefore our portfolio is highly sensitive to interest rate fluctuations. The higher yield in 2006 was also a result of our expansion into construction loans, which had a weighted-average yield of 9.31% for the year. To a lesser extent, the increase in loan interest income was due to a $16.3 million increase in the average balance of loans from 2005 to 2006. This increase in average loan volume reflects the moderate growth in our loan portfolio throughout 2005 (the effects of which are realized in future periods) and loan portfolio acquisitions in the second and fourth quarters of 2006.

Interest expense on deposits was $31.7 million for the year ended December 31, 2006, compared with $17.6 million for the year ended December 31, 2005. This increase was due to both a 134-basis point increase in the average cost of our interest-bearing deposits (from 3.13% for 2005 to 4.47% for 2006) and a significant increase in the average balance of deposits during the year. The higher average cost of funds in 2006 was largely due to the continuing increase in market interest rates, which raised the cost of deposits as maturing certificates of deposit (CDs) were replaced with higher-costing CDs. In addition, the proportion of CDs to total deposits increased to an average of 92.1% for 2006, compared with an average of 80.3% for 2005. We have increasingly utilized deposits as our primary funding source in 2006 and raised a significant volume of wholesale CDs, resulting in a $144.8 million increase in the average balance of interest-bearing deposits over 2005.

Interest expense on repurchase agreements and FHLB advances totaled $20.6 million for the year ended December 31, 2006, compared with $19.2 million for the year ended December 31, 2005. This increase was due to the higher market interest rates in 2006. As a result, the cost of our repurchase agreements increased by 36 basis points, from 3.17% in 2005 to 3.53% in 2006, and the cost of our FHLB advances increased by 90 basis points, from 3.06% to 3.96% over the same periods. The effects of the higher rates more than offset a decline in the average balance of borrowings. The average volume or repurchase agreements and FHLB advances declined by $70.5 million and $26.2 million, respectively, from 2005 to 2006, as we increasingly utilized CDs as our primary funding source in 2006.

Interest expense on our junior subordinated notes payable was $2.8 million for the year ended December 31, 2006, compared with $1.5 million for the year ended December 31, 2005. This increase reflects both higher average borrowing balances and higher rates in 2006. In May 2006 we issued $20.6 million in junior subordinated notes payable to fund our anticipated stock repurchase, and in December 2006 we issued an additional $5.2 million. This new debt increased the average liability balance for 2006 by $13.1 million over the average balance for 2005. These new notes and our earlier notes, issued in July 2002, bear interest at a premium over LIBOR, and therefore generate higher interest expense in periods of rising rates. Consequently, the average cost of our junior subordinated notes payable increased by 102 basis points from 2005 to 2006.

Provision for Loan Losses

Provisions for losses on loans are charged to operations to maintain an allowance for losses on the loan portfolio at a level that we believe is adequate based on an evaluation of the inherent risks in the portfolio. Our evaluation is based on an analysis of the loan portfolio, historical loss experience, credit concentrations, current economic conditions and trends, the effects of interest rate changes on collateral values, and other relevant

35

factors. The evaluation of the inherent loss with respect to these factors is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio components. We currently intend to maintain an unallocated allowance in the range of 3% to 6% of the total estimated allowance for loan losses, due to the inherent risk associated with the imprecision in estimating the allowance.

We recorded a provision for loan losses of $957,000 for the year ended December 31, 2006, compared with net recaptures of loan loss reserves of $41,000 for the year ended December 31, 2005. The increase in the provision for 2006 was due primarily to a change in the composition of our loan portfolio. In 2006, we expanded our product line to include construction loans, and also saw a substantial increase in our loans secured by land. Because these categories of loans carry more risk than commercial and multifamily real estate loans, we increased our reserves accordingly to provide for possible estimated losses.

The credit quality of our assets is affected by many factors beyond our control, including local and national economic conditions, and the possible existence of facts which are not known to us which adversely affect the likelihood of repayment of various loans in our loan portfolio and realization of the collateral upon a default. Accordingly, we can give no assurance that we will not sustain loan losses materially in excess of the allowance for loan losses.

Other Income

Our other income was $9.1 million for the year ended December 31, 2006, compared with $2.0 million for the year ended December 31, 2005. The increase in 2006 was due to the $8.5 million pre-tax gain on the sale of our Beverly Hills branch in the fourth quarter. In addition, other income for 2006 includes the initial payment of $200,000 received from a former officer for reimbursement of legal fees the Company paid on his behalf in prior years. See Item 3 and Note 5 to the Consolidated Financial Statements. (Payments received pursuant to our settlement agreement with the former officer will be recorded as “other income” when received.) Partially offsetting these increases in other income was a $1.2 million decline in our real estate income, reflecting a provision for loss on a multifamily property which was acquired through foreclosure. In addition, our other income for 2005 included a one-time gain of $404,000 resulting from our payoff of a participation liability to a co-investor, which previously shared in the returns generated by certain loan portfolios.

Other Expenses

Compensation and employee benefits expense totaled $7.1 million for the year ended December 31, 2006, compared with $6.8 million for the year ended December 31, 2005. This increase was due primarily to a $347,000 increase in bonus expense in 2006. These higher bonuses include incentive bonuses paid to our Chief Executive Officer pursuant to our stock repurchase and sale of the Beverly Hills branch and a signing bonus paid to our new Executive Vice President and Chief Lending Officer.

Our legal expenses declined by $469,000 from the year ended December 31, 2005 to the year ended December 31, 2006. This decrease was due to the reversal of $746,000 in expenses previously accrued on behalf of a former officer after we received a favorable ruling from an arbitrator in May 2006. We continue to incur litigation-related costs in connection with our disputes with our former loan servicing subsidiary, Wilshire Credit Corporation, and its parent company, Merrill Lynch. This litigation is expected to be resolved in 2007.

Other professional fees increased by $425,000 from the year ended December 31, 2005 to the year ended December 31, 2006. This increase was largely due to $177,000 in consulting fees relating to our repurchase of common stock in August 2006. In addition, on an ongoing basis we incur consulting fees in connection with our information systems, which we began outsourcing in the fourth quarter of 2005.

Regulatory assessments were $145,000 for the year ended December 31, 2006, compared with $338,000 for the year ended December 31, 2005. The decrease in 2006 was due to the Bank’s conversion to a state charter in

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September 2005. Because the DFI assesses its annual fee effective July 1, the Bank did not incur such fees in 2006 until the third quarter. Our regulatory assessments in 2005 included fees paid to the Bank’s former regulator, the Office of Thrift Supervision, for the first three quarters of the year.

We no longer incur amortization expense related to our core deposit intangible because this asset had been amortized in full as of June 30, 2005. We recorded amortization expense of $129,000 on this asset through the first six months of 2005.

Our directors expenses declined by $132,000 from the year ended December 31, 2005 to the year ended December 31, 2006. These decreases were due primarily to the reduction in the size of our board of directors from ten members to seven in August 2005. In addition, the Chairman of our board of directors was hired as our Chief Executive Officer in August 2005, and as a result did not receive any director fees in 2006.

The Company anticipates that the sale of the Beverly Hills branch in November 2006 will result in annual savings of approximately $0.7 million in compensation, employee benefits and lease expenses in future years.

RESULTS OF OPERATIONS—2005 COMPARED TO 2004

Our net interest income was $39.1 million for the year ended December 31, 2005, compared with $33.5 million for the year ended December 31, 2004. The net interest spread increased by 7 basis points, from 2.59% for 2004 to 2.66% for 2005, and the net interest margin increased from 2.88% to 2.94% for the same periods.

The increase in net interest income was due primarily to a higher loan volume in 2005, reflecting the Bank’s significant loan originations and purchases throughout 2004. Our average balance of interest-earning assets for the year ended December 31, 2005 was more than $1.3 billion, an increase of $164.0 million over the average for the year ended December 31, 2004. In addition, interest income for 2005 included $4.7 million in loan prepayment fees, compared with $0.9 million of such fees in 2004. (We previously included loan prepayment fees in other income, but reclassified them to interest income in 2005 due to the Bank’s conversion to a state bank charter. The prior year results have been adjusted to conform to the current year classification.) These increases in interest income more than offset a substantial increase in our interest expense, which resulted from both a higher average balance of interest-bearing liabilities and an increase in cost of funds.

The 6-basis point increase in net interest margin from 2004 to 2005 was the result of the $3.8 million increase in loan prepayment fees, partially offset by accelerated premium amortization, in 2005. Excluding the effects of these loan prepayments, we experienced a compression in our net interest margin in 2005 due to the continuing rise in market interest rates and the flattening of the yield curve. Our overall cost of funds increased by 60 basis points, from 2.57% in 2004 to 3.17% in 2005, as maturing deposits and borrowings were replaced with higher costing funds.

Interest income on mortgage-backed securities was $14.8 million for the year ended December 31, 2005, compared with $12.2 million for the year ended December 31, 2004. The increase in 2005 reflects a $35.9 million increase in the average balance of mortgage-backed securities, primarily as a result of the our purchases of $238.4 million of mortgage-backed securities in 2004. The increase also was due to an increase in yield of 31-basis points, from 4.09% for the year ended December 31, 2004 to 4.40% for the year ended December 31, 2005. The higher average yield in 2005 resulted from the increase in market interest rates, which extended the expected lives of the securities and reduced the amortization of premiums.

Interest income on loans was $60.9 million for the year ended December 31, 2005, compared with $46.6 million for the year ended December 31, 2004. The increase in 2005 was due primarily to a $123.2 million increase in the average balance of loans, reflecting the Bank’s significant loan originations and purchases throughout 2004. The Bank’s loan fundings slowed during 2005, primarily due to the increase in interest rates, which reduced the number of refinancings, and also as a result of increasing competitiveness in loan pricing.

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Consequently, the Bank focused in 2005 on increasing its loan acquisition activity, and purchased an aggregate of $142.8 million unpaid principal balance of multifamily and commercial loans during the year. These purchases included one multifamily loan portfolio consisting of 109 loans with a total unpaid principal balance of $52.7 million, and another portfolio of four loans totaling $36.5 million. At December 31, 2005, the Bank’s pipeline of loans in process totaled $149.3 million. Our increase in loan interest income also reflects a 77-basis point increase in yield, from 5.64% for 2004 to 6.41% for 2005. This increase was due to primarily to the rise in interest rates during the year but also reflects the increase in prepayment fees, net of accelerated premium amortization, in 2005 over 2004.

Interest expense on deposits, consisting primarily of certificates of deposit, was $17.6 million for the year ended December 31, 2005, compared with $12.4 million for the year ended December 31, 2004. The increase was due to higher market interest rates in 2005. This increase in rates raised the cost of interest-bearing deposits by 91 basis points, from 2.22% for 2004 to 3.13% for 2005.

Interest expense on repurchase agreements and FHLB advances totaled $19.2 million for the year ended December 31, 2005, compared with $12.7 million for the year ended December 31, 2004. These increases were due primarily to a significant increase in the average balance of outstanding borrowings. In the latter half of 2004 we began to utilize our debt facilities in lieu of certificates of deposit to finance our asset growth. The increase in interest on borrowings also reflects the recent increases in market interest rates, which raised the average cost of repurchase agreements by 91 basis points from 2004 to 2005. Similarly, the cost of FHLB advances increased by 11 basis points, from an average of 2.95% for 2004 to 3.06% for 2005.

Provision for Loan Losses

In 2005, we recorded $65,000 in net recaptures of loan loss provisions previously taken, compared with a loan loss provision of $438,000 for the year ended December 31, 2004. On our discounted loans, we recorded a net loan loss provision of $24,000 for the year ended December 31, 2005, compared with net recaptures of $87,000 for the year ended December 31, 2004.

Gain on Sale of Securities

We realized a net gain of $418,000 on sales of $28.0 million in mortgage-backed securities for the year ended December 31, 2004. There was no such sales activity during 2005.

Net gains on sales of securities are generated primarily in declining interest rate environments. Accordingly, gains or losses from sales of securities may fluctuate significantly from period to period, and the results in any period are not necessarily indicative of the results that may be attained in future periods.

Other Expenses

Compensation and employee benefits expense totaled $6.8 million for the years ended December 31, 2005 and 2004. Our base employee compensation, primarily salaries and wages, increased by $0.7 million from 2004 to 2005, due to an increase in our lending staff and the opening of the Bank’s new Calabasas branch. This increase was offset by a $0.7 million decline in incentive compensation, as a result of a decline in loan fundings in 2005 as compared with 2004.

Our legal expenses (included in “Professional fees” in the statement of operations) increased by $0.4 million from the year ended December 31, 2004 to the year ended December 31, 2005. This increase was due primarily to expenses related to various ongoing issues with respect to a former officer (see “Item 3—Legal Proceedings” and Note 5 to the Consolidated Financial Statements). Other professional fees, particularly audit and consulting expenses, were higher in 2004 primarily as a result of expenses related to the implementation of Sarbanes-Oxley Section 404.

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Occupancy expense increased slightly from 2004 to 2005 as a result of the renewal of the lease at our Calabasas offices, effective in August 2004. The decline in FDIC insurance premiums in 2005 reflects an overall decline in our deposits from mid-2004, when we began to utilize borrowings as our primary funding source, to the third quarter of 2005. Our amortization expense represents the amortization recorded on our core deposit intangible asset, which we acquired in connection with our purchase of the Beverly Hills branch in June 2000. As of June 30, 2005, the core deposit intangible asset had been amortized in full and no longer had a book value. Our directors expense declined from 2004 to 2005, primarily due to the reduction in the size of our board of directors from ten members to seven in August 2005.

Provision for Income Taxes

Our provision for income taxes was $10.5 million for 2005, compared with income taxes on continuing operations of $4.6 million for 2004. The unusually low tax expense for 2004 was due to the elimination of nearly all of the valuation allowance against the Company’s deferred tax assets in the fourth quarter of 2004. A portion of the valuation allowance related to deferred tax assets (primarily net operating losses) that were generated in the Company’s post-reorganizational period, and the related benefit was recorded as a deferred tax benefit in our statement of operations. (The majority of the deferred tax assets that were realized were generated in our pre-reorganizational period, and the related tax benefits were realized by recording a direct increase to stockholders’ equity.) Our 2005 tax provision primarily reflects the statutory income tax rates. However, approximately $2.0 million of this expense is not expected to be currently payable in cash due to the utilization of our net operating loss carryforward.

CHANGES IN FINANCIAL CONDITION

General

At December 31, 2006, our total assets were $1.6 billion, an increase of $220.1 million, or 15.7%, from total assets at December 31, 2005. This increase was due primarily to acquisitions of mortgage-backed securities and new loan originations and purchases, which were funded primarily by new certificates of deposit. The following discussion summarizes the significant changes in our financial condition for the year ended December 31, 2006.

Mortgage-Backed and Other Securities Available for Sale

Our portfolio of mortgage-backed securities available for sale increased by $128.3 million during the year ended December 31, 2006. This increase was due primarily to purchases of securities of $197.6 million, partially offset by principal repayments of $71.3 million. In 2006, we substantially increased our investment activity to maintain our overall asset growth during periods of slowing demand for loans. Our purchases included $165.0 million in GSE mortgage-backed securities with a weighted-average yield of 5.91% and $32.6 million in AAA-rated mortgage-backed securities with a weighted-average yield of 6.25%.

In the third and fourth quarters of 2006, our mortgage-backed securities recovered approximately $7.4 million of their previously-recorded unrealized holding losses. This increase in market value was a result of the decline in longer-term treasury yields in the latter half of the year. While the portfolio’s aggregate market value is still less than its amortized cost, its results for the year reflect net holding gains of $2.2 million.

The balance of our other investment securities available for sale (consisting of trust preferred securities and mutual funds) declined by $4.8 million during the year ended December 31, 2006, primarily as a result of repayments.

Loans

Our portfolio of loans, net of discounts and allowances, increased by $92.6 million for the year ended December 31, 2006 to a total of $1.0 billion at year-end. This increase was due to loan originations and purchases

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totaling $337.4 million, partially offset by repayments of $242.1 million and a loan loss provision of $1.0 million. Our loan origination activity continued to be impeded by higher interest rates, which have reduced the number of refinancings, and also by increased competitiveness in loan pricing. However, in 2006 we expanded our product line to include construction loans, and originated and purchased a total of $103.8 million in loans for the construction of commercial and multifamily residential properties during the year. At December 31, 2006, we had outstanding commitments to fund $154.0 million in new construction, commercial and multifamily loans. Our asset quality remains strong, as the unpaid principal balance of nonperforming loans represented approximately 0.1% of our total loans as of December 31, 2006.

Real Estate Owned

Real estate owned increased by $591,000 for the year ended December 31, 2006. This increase was due to acquisitions of $1.5 million in new properties through foreclosure, including one multifamily property of $1.3 million. We subsequently recorded write-downs of $0.9 million on this property and are actively marketing it for sale.

Deposits

Deposits increased by $246.4 million during the year ended December 31, 2006, despite the elimination of $157.5 million in deposits as part of the sale of the Beverly Hills branch. This increase was due to a significant increase in wholesale CDs, which we used as our primary funding source. The weighted average interest cost of our deposits was 4.82% at December 31, 2006, compared with 3.64% at December 31, 2005. The increase in cost was due to both the increase in market interest rates over the prior year and the issuance of higher-costing wholesale CDs during the year. At December 31, 2006, our CDs comprised 96.7% of our total deposits, compared with 85.4% at December 31, 2005.

Short-Term Borrowings

At December 31, 2006, we had $20.0 million outstanding under a revolving line of credit agreement with another financial institution which we obtained in November 2006. This borrowing bears interest at the 3-month LIBOR rate, plus 1.65% (7.02% at December 31, 2006), adjusting quarterly. The proceeds from this debt facility will be used for working capital purposes. The line of credit is due and payable in full in November 2007.

Repurchase Agreements

Repurchase agreements decreased by $23.0 million for the year ended December 31, 2006, due to $53.0 million in maturities with a weighted average cost of 3.29%, partially offset by a renewal of $30.0 million bearing interest at 5.03%. Our outstanding repurchase agreements had a weighted average cost of 4.81% at December 31, 2006, compared with 3.43% at December 31, 2005. We did not enter into any additional repurchase agreements during 2006, as our funding requirements were met with new wholesale CDs.

FHLB Advances

FHLB advances decreased by $34.5 million during the year ended December 31, 2006. This decrease reflects $848.0 million in maturities, partially offset by $813.5 million in new advances. The significant activity in FHLB advances in 2006 was largely due to the sale of our Beverly Hills branch. At the close of the sale in November 2006, we borrowed $144.0 million in short-term FHLB advances to replace the deposits transferred in the sale. As these new advances matured, we replaced the funds with brokered CDs in order to maintain sufficient unused borrowing capacity. The FHLB has authorized a borrowing limit for total FHLB advances of 45% of the Bank’s total assets as of the previous quarter-end.

Junior Subordinated Notes Payable to Trusts

Our total junior subordinated notes payable to trusts increased from $20.6 million at December 31, 2005 to $46.4 million at December 31, 2006. This increase was due to two issuances of these borrowings during the year.

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In May 2006 we issued $20.6 million in junior subordinated notes payable (bearing interest at 1.55% over the 3-month LIBOR rate) to finance our anticipated stock repurchase, and in December 2006 we issued an additional $5.2 million, bearing interest at 1.78% over the 3-month LIBOR. The trusts purchased these notes using the proceeds from private placements of trust preferred securities to unaffiliated third parties and from the issuance of common securities to the Company.

Stockholders’ Equity

Our stockholders’ equity declined by $18.4 million for the year ended December 31, 2006 to $155.4 million, or $8.27 book value per diluted share, despite our net income of $14.8 million. This decrease was due primarily to the repurchase of 2.75 million shares of our common stock for a total price of $24.75 million and cash dividends of $10.0 million. These decreases were partially offset by net after-tax unrealized gains of $1.3 million on the portfolio of available-for-sale securities and a $0.2 million increase in paid-in capital representing stock-based compensation expense.

Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments include debt obligations and commitments to extend credit and involve, to varying degrees, elements of risk in excess of the amount recognized in the balance sheet.

At December 31, 2006, we had outstanding commitments to extend credit of $154.0 million. These commitments expose us to credit risk in excess of amounts reflected in the consolidated financial statements. We receive collateral to support loans and commitments to extend credit for which collateral is deemed necessary.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the measurement of an entity’s ability to meet potential cash requirements, including ongoing commitments to repay borrowings, originate loans, fund investments, purchase pools of loans, and make payments for general business purposes.

Our sources of liquidity include wholesale and retail deposits, FHLB advances (up to 45% of the Bank’s total assets as of the previous quarter-end), repurchase agreements, repayments of loans and mortgage-backed securities, and net interest income. We manage our liquidity on a daily basis, and our Board of Directors periodically reviews our liquidity. This process is intended to ensure the maintenance of sufficient funds to meet our operating needs. Based on our current and expected asset size, capital levels, and organizational infrastructure, we believe there will be sufficient available liquidity to meet our operating needs.

At December 31, 2006, we had $834.8 million of CDs. Scheduled maturities of CDs during the 12 months ending December 31, 2007 and thereafter amounted to $712.4 million and $122.4 million, respectively. Wholesale deposits generally are more responsive to changes in interest rates than core deposits, and thus are more likely to be withdrawn by the investor upon maturity as changes in interest rates and other factors are perceived by investors to make other investments more attractive. Management continues its effort to reduce our exposure to interest rate changes by utilizing funding sources whose repricing characteristics more closely match those of our interest-earning assets.

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The Company is party to various contractual financial obligations, including repayment of borrowings, operating lease payments and commitments to extend credit. The table below presents the Company’s future financial obligations (principal and interest payments) outstanding as of December 31, 2006:

Contractual Obligations

	Payments due within time period at December 31, 2006
	0-12 Months		1-3 Years		4-5 Years		After 5 Years		Total
	(Dollars in thousands)
Certificates of deposit	$	735,221	$	83,456	$	48,800	$	—	$	867,477
Short-term borrowings		21,287		—		—		—		21,287
Repurchase agreements		1,925		41,445		—		—		43,370
Employment contracts		535		545		—		—		1,080
Operating leases		422		857		890		1,237		3,406
FHLB advances		175,738		261,257		106,849		—		543,844
Junior subordinated notes payable to trust		3,655		7,310		7,310		128,834		147,109
Commitments to originate loans		154,012		—		—		—		154,012
Total	$	1,092,795	$	394,870	$	163,849	$	130,071	$	1,781,585

The sale of the Beverly Hills branch reduced our future obligations under operating leases. With the exception of the operating leases, employment contracts and loan commitments, the expected obligations presented above include anticipated interest accruals based on the current respective contractual terms. The amounts for the three issuances of junior subordinated debentures are based on the assumption that the debentures will be repaid in full at their respective maturities in July 2032, June 2036 and March 2037. However, the debentures may be repaid in full or in part at par commencing in July 2007, June 2011 and March 2012, respectively.

DFI regulations require each California-chartered bank to maintain adequate liquidity to assure safe and sound operation. It is the Bank’s responsibility to establish a liquidity policy that sets minimum liquidity requirements. As of December 31, 2006, the Bank was in compliance with its liquidity policy.

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REGULATORY CAPITAL REQUIREMENTS

Bank holding companies, such as BHBC, and FDIC-insured banks, such as FBBH, are required to meet certain minimum regulatory capital requirements. At December 31, 2006, BHBC and FBBH met all applicable regulatory capital requirements and FBBH was “well capitalized,” as defined under applicable regulations.

The following table sets forth the regulatory standards for well capitalized and adequately capitalized institutions and capital ratios for BHBC and FBBH at December 31, 2006:

Regulatory Capital Ratios

					Amount Required
	Actual				For Capital Adequacy Purposes					To be Categorized as “Well Capitalized”
	Amount		Ratio		Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
BHBC
Total capital to risk-weighted assets (Risk-based capital)	$	181,753	16.0	%	$	90,865	³	8.0	%		Not Applicable
Tier 1 capital to risk-weighted assets		173,811	15.3	%		45,433	³	4.0	%		Not Applicable
Tier 1 capital to average assets		173,811	11.9	%		58,654	³	4.0	%		Not Applicable
FBBH
Total capital to risk-weighted assets (Risk-based capital)	$	149,022	13.5	%	$	88,565	³	8.0	%	$	110,706	³	10.0	%
Tier 1 capital to risk-weighted assets		141,309	12.8	%		44,283	³	4.0	%		66,424	³	6.0	%
Tier 1 leverage ratio		141,309	9.8	%		57,965	³	4.0	%		72,456	³	5.0	%

In addition to the requirements shown in the above table, FBBH is required by the DFI to maintain a ratio of tangible shareholder’s equity to total tangible assets of at least 8.0% for the first three years following the effective date of the charter conversion, or through August 31, 2008. As of December 31, 2006, the Bank was in compliance with the DFI’s requirement.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Managing risk is an essential part of successfully operating a financial services company. The most prominent risk exposures are credit quality, interest rate sensitivity and liquidity. Credit quality risk is the risk of not collecting interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of net interest income as the result of changes in interest rates. Rate movements can affect the repricing of assets and liabilities differently, as well as their market values, and also can affect the ability of the borrower to repay. Liquidity risk is the possible inability to fund obligations to depositors, investors and borrowers.

Asset and Liability Management

It is our objective to attempt to control risks associated with interest rate movements. In general, management’s strategy is to limit our exposure to earnings volatility and variations in the value of assets and liabilities as interest rates change over time. Our asset and liability management strategy is formulated and monitored by the Asset and Liability Committees of the Company and of the Board of Directors (collectively, “ALCO”) which reviews, among other things, the sensitivity of our assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses (including those attributable to hedging transactions), purchase activity, and maturities of investments and borrowings. ALCO establishes rate sensitivity tolerances (within regulatory guidelines) which are approved by our Board of Directors, and coordinates with our Board with respect to overall asset and liability composition.

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ALCO is authorized to utilize off-balance sheet financial techniques to assist in the management of interest rate risk. These techniques include interest rate swap agreements, pursuant to which the parties exchange the difference between fixed-rate and floating-rate interest payments on a specified principal amount (referred to as the “notional amount”) for a specified period without the exchange of the underlying principal amount.

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

In addition, ALCO also regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on the interest rate sensitivity of Net Portfolio Value (“NPV”), which is defined as the net present value of an institution’s existing assets, liabilities and off-balance sheet instruments. ALCO further evaluates such impacts against the maximum tolerable change in interest income that is authorized by our Board of Directors.

The following table quantifies the potential changes in the Company’s net portfolio value at December 31, 2006, should interest rates increase or decrease by 100 to 300 basis points, assuming the yield curves of the rate shocks will be parallel to each other.

Interest Rate Sensitivity of Net Portfolio Value

	Net Portfolio Value							NPV as % of Assets
	$Amount		$Change			%Change		NPV Ratio		Change
	(Dollars in thousands)
Change in Rates
+ 300bp	$	118,300	$	(45,333	)	(28	)%	7.72	%	(234	) bp
+ 200bp		133,781		(29,852	)	(18	)	8.55		(151	) bp
+ 100bp		148,795		(14,838	)	(9	)	9.33		(73	) bp
0bp		163,633		—		—		10.06		—
- 100bp		166,777		3,144		2		10.14		8	bp
- 200bp		163,933		300		(0	)	9.89		(17	) bp
- 300bp		162,288		(1,345	)	(1	)	9.71		(35	) bp

In determining net portfolio value, we make various assumptions, including, but not limited to, prepayment speeds on the Company’s assets and the discount rates to be used. We review our assumptions regularly and adjust them when it is deemed appropriate based on current and future expected market conditions.

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

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Another tool used to identify and manage our interest rate risk profile is the static gap analysis. Interest sensitivity gap analysis measures the difference between the assets and liabilities repricing or maturing within specific time periods. The following table summarizes the scheduled maturities or repricing of the Bank’s assets and liabilities based on their contractual terms as of December 31, 2006.

	Within Twelve Months			More Than One Year to Three Years			More Than Three Years to Five Years			Over Five Years			Total
	(Dollars in thousands)
Assets:
Cash and due from banks	$	27,005		$	—		$	—		$	—		$	27,005
Mortgage-backed and other investment securities		41,632			124,910			57,554			255,476			479,572
Single-family residential loans		10,258			418			32			8,421			19,129
Multifamily residential loans		114,259			134,622			62,684			45,427			356,992
Commercial real estate loans		200,045			169,806			154,071			45,918			569,840
Construction loans		53,979			44,890			—			—			98,869
Consumer and other loans		1,427			589			118			905			3,039
Other assets (1)		—			—			—			69,390			69,390
Total assets		448,605			475,235			274,459			425,537			1,623,836
Liabilities:
Demand deposits		—			—			—			2,038			2,038
NOW and money market accounts		12,050			—			—			—			12,050
Savings accounts		2,012			—			—			—			2,012
Certificates of deposit		585,456			185,688			63,646			—			834,790
Short-term borrowings		20,000			—			—			—			20,000
Repurchase agreements		40,000			—			—			—			40,000
FHLB advances		156,337			240,000			100,000			—			496,337
Junior subordinated notes payable to trusts		46,393			—			—			—			46,393
Other liabilities		—			—			—			14,778			14,778
Total liabilities		862,248			425,688			163,646			16,816			1,468,398
(Deficiency) excess of assets over liabilities	$	(413,643	)	$	49,547		$	110,813		$	408,721		$	155,438
Cumulative (deficiency) excess	$	(413,643	)	$	(364,096	)	$	(253,283	)	$	155,438
Cumulative (deficiency) excess as a percent of total assets		(25.47	)%		(22.42	)%		(15.60	)%		9.57	%

(1) Includes unamortized premium on loans and allowance for loan losses.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

See Item 7—Qualitative and Quantitative Disclosures About Market Risk—Asset and Liability Management—of Part II of this Report.

ITEM 8. Financial Statements and Supplementary Data

See Item 15 of Part IV of this Report.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

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ITEM 9A. Controls and Procedures

Evaluation of Controls and Procedures

We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, our CEO and CFO concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s Exchange Act filings.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2006. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on the above evaluation, our management has concluded that, as of December 31, 2006, we did not have any material weaknesses in our internal control over financial reporting and our internal control over financial reporting was effective. Our management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Beverly Hills Bancorp Inc.

Calabasas, California

We have audited management’s assessment, included in the accompanying “Management’s Report on Internal Control over Financial Reporting,” that Beverly Hills Bancorp Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing, and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2006 of the Company and our report dated March 13, 2007 expresses an unqualified opinion on those financial statements.

/s/     Deloitte & Touche LLP

Los Angeles, California

March 13, 2007

ITEM 9B. Other Information

Not Applicable.

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PART III

ITEM 10. Directors and Executive Officers of the Registrant

Directors

Larry B. Faigin, age 64, was appointed to the Board of Directors in June 1999 and has been Chairman since September 1999. In addition, Mr. Faigin has been a director of FBBH since April 2001. Mr. Faigin has been the Chief Executive Officer of the Company since August 2005 and the Chief Executive Officer and President of FBBH since June 2006. From December 2005 to June 2006, Mr. Faigin was the Bank’s Executive Vice President of Development. From 2003 to 2005, Mr. Faigin was President and Chief Executive Officer of China Housing Partners, LLC, a residential developer in China. Previously, he was President and Chief Executive Officer of GreenPark Remediation, LLC, a company that specializes in acquiring environmentally impacted land and remediating and improving the property for further development.

Howard Amster, age 59, has been a director of the Company since November 2001 and a director of FBBH since October 2001. Mr. Amster is a professional real estate operator and also is a principal of Ramat Securities Ltd., a Cleveland-based investment firm. Mr. Amster also is a director of Horizon Group Properties, Inc., and Astrex Inc.

Stephen P. Glennon, age 62, has been a director of the Company since December 1999 and a director of FBBH since April 2001. Mr. Glennon is a retired financial executive. He was the Company’s Chief Executive Officer from September 1999 to May 2004 and its Chief Financial Officer from April 2003 to May 2004.

Robert H. Kanner, age 59, has been a director of the Company and FBBH since January 2002. Mr. Kanner has been Chairman of the Board and President of Pubco Corporation, a manufacturer and marketer of computer printer supplies and specialized construction products, since 1987.

Kathleen L. Kellogg, age 53, has been a director of the Company since August 2005 and a director of FBBH since October 2001. Ms. Kellogg has been President of her own independent consulting company since 2000.

William D. King, age 65, has been a director of the Company since May 2004 and a director of FBBH since April 2001. He has been Chairman of the Board of FBBH since December 2002. Mr. King is a retired Chairman and Chief Executive Officer of Aviation Distributors, Inc.

John J. Lannan, age 60, has been a director of the Company since May 2004 and a director of FBBH since June 2003. Mr. Lannan has been a Principal with Brentwood Partners, Inc., a real estate financing firm specializing in institutional equity and mezzanine debt placement, since 1998.

Executive Officers

Larry B. Faigin, age 64, has been Chief Executive Officer of the Company since August 2005 and Chief Executive Officer and President of FBBH since June 2006. Previously, from December 2005 to June 2006, Mr. Faigin served as Executive Vice President of Development of FBBH. From 2003 to 2005, Mr. Faigin was President and Chief Executive Officer of China Housing Partners, LLC, a residential developer in China. Previously, he was President and Chief Executive Officer of GreenPark Remediation, LLC, a company that specializes in acquiring environmentally impacted land and remediating and improving the property for further development.

Craig W. Kolasinski, age 44, has been employed by FBBH since 2001. He has been Executive Vice President of Business Development of FBBH since November 2006. Previously, from April 2006 to November 2006, he was Executive Vice President and Chief Lending Officer and also held that position from October 2001 to February 2005. From February 2005 to April 2006, he served as Executive Vice President and Chief Credit Officer.

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Bryce W. Miller, age 44, has been employed by the Bank since 2000. He has been Executive Vice President and Chief Administrative Officer of FBBH since January 2007. Previously, he served as Senior Vice President, Technology and Compliance (February 2003 to January 2007) and Vice President and Information Services Manager (July 2001 through February 2003) and Vice President and Controller (June 2000 through June 2001).

Eric C. Rosa, age 58, was appointed Executive Vice President and Chief Lending Officer of FBBH in November 2006. Previously, Mr. Rosa was an officer of Chinatrust Bank in Torrance, California, where he served as Executive Vice President of Commercial Real Estate Lending from January 2003 to November 2006 and Executive Vice President and Chief Credit Officer from April 1997 to January 2003.

Takeo K. Sasaki, age 38, has been Executive Vice President and Chief Financial Officer of the Company and FBBH since January 2007. Previously, he served as Chief Financial Officer of the Company from February 2005 to January 2007 and Senior Vice President and Chief Financial Officer of the Bank from February 2003 to January 2007. Prior to those appointments, Mr. Sasaki was the Bank’s Vice President and Controller from July 2001 to February 2003.

Annette J. Vecchio, age 56, has been employed by the Bank since 1985. She has been Executive Vice President and Chief Credit Officer of FBBH since April 2006 and served as the Bank’s Senior Vice President and Portfolio Manager from March 2002 to April 2006.

John A. Kardos, age 49, has been Senior Vice President, Funding and Investments for FBBH since June 2003.Previously, from July 2002 to June 2003, he was Senior Vice President and Liability Manager, and he has held other officer positions with FBBH since April 2000.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires a company’s directors and executive officers, and beneficial owners of more than 10% of the common stock of such company, to file with the Securities and Exchange Commission initial reports of ownership and periodic reports of changes in ownership of the company’s securities. To the knowledge of the Company, no director, officer, or beneficial owner of more than 10% of the Company’s Common Stock failed to timely furnish reports required of such person by Section 16(a) on Forms 3, 4 and 5 during the year ended December 31, 2006.

Code of Ethics

Beverly Hills Bancorp Inc. has adopted a written code of ethics that applies to all employees and members of the Board of Directors. A copy of the Company’s code of ethics is available on the Company’s web site at www.bhbc.com.

Audit Committee

The Audit Committee of the Board of Directors consists of William D. King (Chairman), Robert H. Kanner and Kathleen L. Kellogg. All of the Audit Committee members are non-employee directors who are independent within the listing standards of the Nasdaq Stock Market and the Securities Exchange Act of 1934. The Board of Directors has determined that Mr. King is a financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.

ITEM 11. Executive Compensation

Compensation Discussion and Analysis

The Company’s executive compensation program is designed to attract, retain, and motivate highly competent executives and to focus the interests of the executives on objectives that enhance stockholder value. These goals are attained by structuring the executives’ compensation so that a portion of each executive’s pay is a function of that executive’s performance for the year, and a portion is tied to the overall profitability of the Company.

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The Company’s Compensation Committee (the “Committee”) has overall responsibility for the Company’s compensation policies and procedures. The Committee reviews and approves all employment contracts and compensation arrangements, including compensation levels, programs and benefits for executive officers of the Company, based on recommendations of the CEO. The Committee also administers the Company’s 1999 and 2002 Equity Participation Plans.

On an annual basis, the Committee reviews the performance of the CEO and sets the key objectives and performance requirements of that position. Based on this review, the Committee recommends the CEO’s compensation level, benefits, programs and contracts to the Company’s board of directors. All actions of the Compensation Committee pertaining to executive compensation are submitted to the Board of Directors for approval.

The principal elements of the Company’s executive compensation program are base salary, bonuses and incentive compensation, stock-based compensation, long-term incentives, and other benefits, as discussed in further detail below. The Company does not utilize a specific formula to determine the allocation of each element of compensation for its executives. However, the Company does attempt to provide each executive with a number of incentives to improve individual performance as it relates to the objectives of the Company. Consequently, the executive officers’ total compensation is typically weighted heavily toward bonuses and incentive compensation.

Base Salary.    Base salaries for the Company’s executives are intended to reflect the scope of each executive’s responsibilities, the success of the Company, and contributions of each executive toward the Company’s attainment of its objectives. The Company has engaged an independent market researcher, HR Total Solutions, to aid in determining salary levels that are fair and competitive. HR Total Solutions provides the Company with industry and peer group studies, which the Company uses as a guideline for setting the salaries of its executives. The Company strives to pay salaries to its executives that approximate the peer group average for comparable positions.

Mr. Faigin’s salary was determined by the Committee based on the peer group studies. Under Mr. Faigin’s employment agreement, he is entitled to a base salary of $275,000 for 2006, $285,000 for 2007, $295,000 for 2008, and an amount to be agreed upon thereafter. The Committee believed that these salaries are competitive in the current marketplace and approximately average in comparison with those paid by the Company’s peers. The Committee also believed that it was in the Company’s best interests to provide Mr. Faigin with a longer, three-year agreement, so that in each year the Company and Mr. Faigin could negotiate an incentive compensation plan to set specific performance goals. This employment agreement was approved by a majority of the Company’s independent directors. Mr. Faigin did not participate in the directors’ deliberations with respect to his agreement, and he was not present during the vote on his agreement.

The other named executive officers’ salaries are also determined using the peer group analysis as a guideline. The Chief Executive Officer reviews each executive’s salary on an annual basis, and recommends adjustments to the Committee based on the executive’s performance for the year. Salaries also are typically adjusted upon the promotion of an executive officer. Increases in base salary may be moderated by other considerations, such as geographic or market data, industry trends or internal fairness within the Company. All salary adjustments for the other executives are ultimately reviewed and approved by the Committee.

Bonuses and Incentive Compensation.    The Company pays cash bonuses to its executive officers based on the overall financial performance of the Company and their individual contributions to the Company’s results.

Mr. Faigin’s cash bonuses in 2006 were determined in accordance with his incentive compensation plan. This plan provided for additional compensation if Mr. Faigin achieved certain performance measures that the Committee believed were in the best interests of the Company. The performance bonuses were payable under the following circumstances and in the following amounts: (1) if, prior to December 31, 2006, the Company

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repurchased 2,750,000 shares of its Common Stock (the number authorized by the board of directors), Mr. Faigin would receive a bonus of $100,000; (2) if the sale of the Bank’s Beverly Hills branch were completed by December 31, 2006, Mr. Faigin would receive a bonus equal to $250,000 plus 3% of the amount, if any, by which the sale price exceeded $6.0 million; and (3) if the Company’s general and administrative expenses for the year ended December 31, 2006 were less than a specified level, Mr. Faigin would receive a bonus of 10% of the amount by which the specified amount exceeded the actual total. Mr. Faigin achieved measures (1) and (2) above and, as a result, received cash bonuses of $100,000 and $330,406, respectively.

The amounts of the bonuses paid to the other executive officers for 2006 were determined by the Compensation Committee based on recommendations of Mr. Faigin. In recommending the executives’ bonuses, Mr. Faigin considered each executive’s overall contribution toward the Company’s performance for the year and whether the executives met or exceeded their specific individual goals that were established at the beginning of the year. The Committee determined that one fourth of the year 2006 bonuses for these executive officers will vest and become payable at the earlier to occur of termination of employment as a result of death, disability or termination by the Company without cause and December 31, 2009. If the executive officer’s employment terminates prior to December 31, 2009 by voluntary resignation or termination for cause by the Company, the officer is not entitled to the deferred portion of the bonus. The purpose of the deferral is to induce these executive officers to continue to work for the Company.

The executive officers’ bonuses comprised a portion of the Company’s total bonus pool for all of its employees. For 2006, the Compensation Committee determined that the size of this pool would total 6% of the Company’s pre-tax income before bonuses and excluding non-recurring income. The Company does not have a policy addressing whether the executives’ bonuses would be adjusted in the event the Company’s financial statements are later restated.

Stock-Based Compensation.    The Company from time to time grants stock-based compensation, such as stock options and stock appreciation rights (“SARs”), to its executive officers. These forms of compensation are intended provide further incentive for the executive officers to contribute towards meeting the Company’s goals by (1) aligning part of the executives’ compensation with the overall performance of the Company and (2) encouraging the executives to remain with the Company at least through the vesting period of the award (typically three to five years).

The Company has two stock plans, the 1999 Equity Participation Plan (the “1999 Plan”) and the 2002 Equity Participation Plan (the “2002 Plan”). Both the 1999 Plan and the 2002 Plan were approved by the shareholders of the Company. The Compensation Committee serves as the Administrator of the two plans. These plans permit the Committee to grant, at its discretion, stock options and other forms of stock-based compensation to directors and officers of the Company as the Committee deems appropriate. The exercise prices of awards granted may not be less than the fair value of the underlying shares on the date of grant.

From 2001 to April 2003, the Company’s named executive officers were granted options to purchase the Company’s common stock pursuant to the above plans. The Company subsequently suspended the granting of options through the year 2005 to prevent further dilution of its common stock.

In January 2006, the Company granted to Mr. Faigin options to purchase 600,000 shares of common stock at an exercise price of $10.50 per share, which was equal to the closing price on the grant date. Mr. Faigin’s options vest in quarterly installments of 50,000 each on the first day of each calendar quarter beginning in January 2006, and will vest in full in October 2008. His options expire on January 3, 2016. The Committee believes Mr. Faigin’s stock option arrangement is in the best interests of the Company and its stockholders because the potential value of the options to Mr. Faigin is directly related to the performance of the Company’s common stock.

In September 2006, the Company granted SARs with respect to 36,000 shares to Ms. Vecchio upon her promotion to Executive Vice President and Chief Credit Officer of FBBH. Ms. Vecchio’s SARs are exercisable

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at $8.23 per share and payable in cash only. Her SARs vest in three equal annual installments of 12,000 shares beginning September 28, 2007, and expire on September 28, 2011. The Committee believes this stock-based compensation provides Ms. Vecchio with additional incentive to contribute to the Company’s overall performance and that it is commensurate with her increased responsibilities in her new position.

Long-Term Incentives.    The Company has entered into various other agreements with its named executive officers to induce them to remain with the Company and to provide them with protection in the event of adverse changes in their employment conditions. The individual terms of each agreement are determined by the Committee.

The Bank has a “Stay Bonus” letter agreement with Mr. Kolasinski, the Bank’s executive Vice President of Development, to encourage his long-term employment with the Company. Pursuant to this agreement, if Mr. Kolasinski is in “Continuous Service” (as defined in the agreement) from the date of the agreement through and including January 1, 2007, the Bank would pay him a stay bonus in cash in the amount of $300,000 (the “First Stay Bonus”) on such date. If Mr. Kolasinski is in Continuous Service from the date of this letter agreement through and including January 1, 2008, the Bank will pay him an additional stay bonus in cash in the amount of $150,000 (the “Second Stay Bonus”) on such date. The First Stay Bonus was paid to Mr. Kolasinski in January 2007. If there is a “Change in Control” (as defined in the agreement), and (a) he is in Continuous Service through the end of the nine-month period following the occurrence of such Change in Control, and (b) if the end of such nine-month period falls on or after January 1, 2007 but before January 1, 2008, the Bank will accelerate payment of the Second Stay Bonus to the end of such nine-month period. If, before January 1, 2008, (i) the Bank involuntarily terminates Mr. Kolasinski’s employment for any reason other than “Cause” (as defined in the agreement), (ii) Mr. Kolasinski dies or suffers “Total Disability” (as defined in the agreement), or (iii) following a Change in Control of the Bank, Mr. Kolasinski terminates his employment with the Bank for “Good Reason” (as defined in the agreement), he will become entitled to receive a stay bonus, conditioned upon his (or his personal representative’s or beneficiary’s, if applicable) execution and delivery of the “Release Agreement” (as defined in the agreement). The amount of the stay bonus in such event would be the “Prorated Amount” (as defined in the agreement) less $300,000. The “Prorated Amount” means $450,000 multiplied by a fraction, (I) the numerator of which is the number of calendar months (or portion thereof) of Continuous Service that he has completed after the date of this letter agreement until his death, Total Disability or termination of employment, and (II) the denominator of which is 48. Any stay bonus to which Mr. Kolasinski is entitled shall be paid to him, in cash and in full, not later than the later of (i) eight calendar days after execution and delivery by Mr. Kolasinski (or his beneficiary or personal representative, if applicable) of the Release Agreement, or (ii) the date on which such Release Agreement becomes effective.

The Company also has a standard Change-In-Control agreement that it may grant to executive officers with the approval of the Committee. This agreement provides that, in the event of a change in control (as defined in the agreement) of the Company or the Bank, the executive would be entitled to receive a severance payment if, within one year after a change in control, either of the following occurs: (1) the executive’s employment is involuntarily terminated by the Company or the Bank for any reason other than cause or death or disability or (2) the executive voluntarily terminates his employment after certain adverse changes in the terms of his employment (“Good Reason”). The amount of each executive’s severance payment is determined at the discretion of the Committee and may vary depending on the executive’s position and responsibilities. Under Mr. Faigin’s change-in-control agreement, he would be entitled to his scheduled base salary for the two years following the change in control. The amount of the severance payment for Ms. Vecchio would be twice her annual base salary, the amount for Mr. Kolasinski would be equal to his base salary, and the amount for Messrs. Sasaki, Miller and Kardos would be equal to one half of their respective base salaries.

Other Benefits.    The Company in 2006 granted an automobile allowance of $12,000 to Mr. Faigin. The Company’s executive officers also share in the benefits available to all other employees, including, for example, medical, dental and vision insurance and participation in the Company’s matching 401(k) plan. A summary of the total compensation paid to the Company’s executive officers is set forth in the Summary Compensation Table below.

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Summary Compensation Table

The following table sets forth the total compensation paid or accrued by the Company for services rendered during the year ended December 31, 2006 to (i) the principal executive officer, (ii) the principal financial officer and (iii) each of the four other most highly compensated executive officers of the Company who were serving as executive officers at December 31, 2006 (the “Named Executive Officers”).

Name and Principal Position	Year	Salary ($)			Bonus ($)			Option Awards ($)			Non-Equity Incentive Plan Compen- sation ($)			All Other Compen- sation ($)			Total Compen- sation ($)
Larry B. Faigin Chief Executive Officer	2006 2005	$ $	275,000 91,667	(1)	$ $	— —		$ $	225,780 —	(3)	$ $	430,406 —	(4)	$ $	26,308 —	(5)	$ $	957,494 91,667
Takeo K. Sasaki Executive Vice President and Chief Financial Officer	2006 2005 2004	$ $ $	150,000 146,667 128,500		$ $ $	95,000 82,000 108,000	(2)	$ $ $	438 — —	(3)	$ $ $	— — —		$ $ $	10,618 11,151 5,726	(6)	$ $ $	256,056 239,818 242,226
Annette J. Vecchio Executive Vice President and Chief Credit Officer, FBBH	2006 2005 2004	$ $ $	193,750 135,000 124,167		$ $ $	85,000 82,000 108,000	(2)	$ $ $	2,573 — —	(3)	$ $ $	— — —		$ $ $	10,440 6,546 2,867	(6)	$ $ $	291,763 223,546 235,034
Bryce W. Miller Executive Vice President and Chief Administrative Officer, FBBH	2006 2005 2004	$ $ $	120,000 120,000 119,167		$ $ $	90,000 75,000 92,000	(2)	$ $ $	438 — —	(3)	$ $ $	— — —		$ $ $	5,797 5,548 5,984		$ $ $	216,235 200,548 217,151
John A. Kardos Senior Vice President of Funding and Investments, FBBH	2006 2005 2004	$ $ $	130,000 130,000 130,000		$ $ $	70,000 60,000 92,000	(2)	$ $ $	657 — —	(3)	$ $ $	— — —		$ $ $	3,280 3,278 6,141		$ $ $	203,937 193,278 228,141
Craig W. Kolasinski Executive Vice President of Development, FBBH	2006 2005 2004	$ $ $	185,000 185,000 185,000		$ $ $	— 160,000 260,000		$ $ $	2,189 — —	(3)	$ $ $	— — —		$ $ $	7,579 11,383 6,500		$ $ $	194,768 356,383 451,500

(1) Mr. Faigin was appointed Chief Executive Officer in August 2005.

(2) Of this amount, 75% was paid in March 2007. The remaining 25% will vest and become payable in December 2009.

(3) This amount represents the 2006 compensation cost of options granted in 2006 and prior years, as determined in accordance with Statement of Financial Accounting Standards No. 123R. The assumptions made in determining the value of the option awards are discussed in Note 4 (“Stock-Based Compensation”) to the Consolidated Financial Statements.

(4) Amount consists of $100,000 in connection with the Company’s repurchase of 2,750,000 shares of its common stock and $330,406 pursuant to the sale of the Bank’s Beverly Hills branch.

(5) Amount includes Company matching contributions to 401(k) plan of $14,308 and an automobile allowance of $12,000.

(6) Amount represents Company matching contributions to 401(k) plan.

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Grants of Plan-Based Awards

The following table provides information concerning option awards granted by the Company during the year ended December 31, 2006 to named executive officers.

Name	Grant Date	Date of Board of Directors Action	Estimated possible payouts under Non- Equity Incentive Plan Awards			Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Sh)		Grant Date Fair Value of Option Awards ($)
			Target($)
Larry B. Faigin
Incentive Stock Option Agreement	1/3/2006	12/30/2005				28,569	$	10.50	$	32,251
Non-Qualified Stock Option Agreement	1/3/2006	12/30/2005				571,431	$	10.50	$	645,084
2006 Incentive Compensation Plan	3/7/2006	12/30/2005	$	430,406	(1)

(1) Amount was paid in full during the year ended December 31, 2006.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards

Mr. Faigin’s employment agreement provided for a base salary of $275,000 for the year 2006. Mr. Faigin also received the following incentive compensation upon the attainment of certain performance measures during the year: (1) a bonus of $100,000 as a result of the Company’s repurchase of 2,750,000 shares of its Common Stock (the number authorized by the board of directors) and (2) a bonus of $330,406 for his efforts in connection with the sale of the Bank’s Beverly Hills branch (representing a base bonus of $250,000 plus 3% of the amount by which the sale price exceeded $6.0 million).

In January 2006, Mr. Faigin was granted options to purchase 600,000 shares of common stock at an exercise price of $10.50 per share. These options vest in quarterly installments of 50,000 each on the first day of each calendar quarter beginning in January 2006, and expire on January 3, 2016.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth the outstanding equity awards at December 31, 2006 for the Named Executive Officers.

Name	Number of Securities Underlying Unexcercised Options (#)			Option Exercise Price ($)		Option Expiration Date
	Exercisable	Unexercisable
Larry B. Faigin	200,000	400,000	(1)	$	10.50	1/3/2016
Takeo K. Sasaki	5,000	—			2.34	3/11/2012
	5,000	—			3.80	4/23/2013
Annette J. Vecchio	—	36,000	(2)		8.23	9/28/2011
John A. Kardos	2,500	—			3.80	4/23/2013
Craig W. Kolasinski	25,000	—			1.87	11/12/2011
	10,000	—			2.34	3/11/2012
	25,000	—			3.80	4/23/2013

(1) Mr. Faigin’s options vest in quarterly installments of 50,000 and vest in full on October 1, 2008.

(2) Ms. Vecchio’s SARs vest in annual installments of 12,000 and vest in full on September 28, 2009.

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Option Exercises

The following table presents the number and value of shares received upon the exercise of options during 2006 for the Named Executive Officers.

Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)
Annette J. Vecchio	7,040	$	51,906
Bryce W. Miller	6,659		41,333

Potential Payments Upon Termination or Change in Control

The Company does not have a stated policy with respect to severance payments upon the termination of its executive officers. However, each executive officer has an individual agreement that provides for a severance payment under specific circumstances.

Mr. Faigin’s employment agreement provides that if he is terminated by the Company without cause or he resigns for “Good Reason” (as defined in the agreement, which includes a change in control of the Company), he would be entitled to receive a continuation of his base salary and benefits as provided for in his employment agreement for two years following the change in control. This agreement requires that for two years following his termination, Mr. Faigin shall comply with certain provisions, including, but not limited to (1) a covenant not to participate in a business that is in competition with the Company and (2) a covenant not to offer employment to any person still employed by the Company. In addition, in the event Mr. Faigin is terminated without cause or there is a change in control of the Company, all of his unexercised stock options would immediately vest and become exercisable.

The Company also gave its standard Change-In-Control agreement to Ms. Vecchio and Messrs. Sasaki, Miller, Kardos and Kolasinski. Under these agreements, the executive would be entitled to receive a severance payment if, within one year after a change in control of the Company, either of the following occurs: (1) the executive’s employment is involuntarily terminated by the Company or the Bank for any reason other than cause or death or disability or (2) the executive voluntarily terminates his or her employment for “Good Reason”. Ms. Vecchio would receive a severance payment of twice her annual base salary, and all of her unexercised SARs would immediately vest and become exercisable. The amount of the severance payment for Mr. Kolasinski would be equal to his base salary, and the amounts for Messrs. Sasaki, Miller and Kardos would be equal to one half of their respective base salaries. In addition, following a change in control of the Company, these executive officers would be entitled to receive continued health benefits coverage until the earlier of one year or the date he or she becomes covered under any other group health plan.

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The following table summarizes the potential payments to the Company’s named executive officers upon their termination or a change in control of the Company, assuming such termination or change in control occurred on December 31, 2006.

Termination Payments and Benefits

Name	Salary ($)		Bonus ($)		Health Benefits ($)	Unvested Options ($) (3)	Total ($)
Larry B. Faigin
By BHBC for “Cause”	—		N/A		N/A	—	—
By BHBC without “Cause”	580,000	(1)	N/A		10,839	—	590,839
Resignation	—		N/A		N/A	—	—
Resignation for “Good Reason”	580,000	(1)	N/A		10,839	—	590,839
Change in Control	580,000	(1)	N/A		10,839	—	590,839
Takeo K. Sasaki
By BHBC for “Cause”	—		N/A		N/A	N/A	—
By BHBC without “Cause”	—		N/A		N/A	N/A	—
Resignation	—		N/A		N/A	N/A	—
Resignation for “Good Reason”	75,000	(2)	N/A		N/A	N/A	75,000
Change in Control	75,000	(2)	N/A		N/A	N/A	75,000
Annette J. Vecchio
By BHBC for “Cause”	—		N/A		N/A	—	—
By BHBC without “Cause”	—		N/A		N/A	—	—
Resignation	—		N/A		N/A	—	—
Resignation for “Good Reason”	450,000	(2)	N/A		N/A	—	450,000
Change in Control	450,000	(2)	N/A		N/A	2,160	452,160
Bryce W. Miller
By BHBC for “Cause”	—		N/A		N/A	N/A	—
By BHBC without “Cause”	—		N/A		N/A	N/A	—
Resignation	—		N/A		N/A	N/A	—
Resignation for “Good Reason”	60,000	(2)	N/A		N/A	N/A	60,000
Change in Control	60,000	(2)	N/A		N/A	N/A	60,000
John A. Kardos
By BHBC for “Cause”	—		N/A		N/A	N/A	—
By BHBC without “Cause”	—		N/A		N/A	N/A	—
Resignation	—		N/A		N/A	N/A	—
Resignation for “Good Reason”	65,000	(2)	N/A		N/A	N/A	65,000
Change in Control	65,000	(2)	N/A		N/A	N/A	65,000
Craig W. Kolasinski
By BHBC for “Cause”	—		N/A		N/A	N/A	—
By BHBC without “Cause”	—		337,500	(4)	N/A	N/A	337,500
Resignation	—		N/A		N/A	N/A	—
Resignation for “Good Reason”	185,000	(2)	337,500	(4)	N/A	N/A	522,500
Change in Control	185,000	(2)	337,500	(4)	N/A	N/A	522,500
Death	—		337,500	(4)	N/A	N/A	337,500
Disability	—		337,500	(4)	N/A	N/A	337,500

(1) Amount assumes termination occurred on December 31, 2006 and represents salaries for 2007 and 2008 of $285,000 and $295,000, respectively.

(2) Amount is based on each executive’s salary in effect at December 31, 2006.

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(3) Values of unvested options or SARs are based on the Company’s closing stock price of $8.29 as of December 31, 2006.

(4) Amount assumes Mr. Kolasinski’s employment terminated on December 31, 2006. Because Mr. Kolasinski continued to be employed by the Company as of January 1, 2007, he received his “First Stay Bonus” of $300,000 in January 2007.

Director Compensation

All of the members of the Company’s Board of Directors also serve as directors of FBBH. Officers and employees of the Company and FBBH who also serve as directors do not receive any retainer or additional fees for serving as a director. For 2006, Directors Kellogg, King and Lannan received a yearly stipend of $60,000, and directors Glennon and Kanner accepted a reduced yearly stipend of $30,000. Commencing in August 2006, Mr. Amster received a stipend at the rate of $30,000 per year. The chair of the Audit Committee receives an additional yearly stipend of $30,000, and the members of the Compensation Committee receive additional yearly stipends of $5,000.

The Chairman of the Board of the Bank receives an additional yearly stipend of $30,000. The chairs of the Bank’s Asset and Liability Committee and Internal Asset Review Committee receive additional yearly stipends of $10,000.

In September 2006, the Company granted SARs with respect to 30,000 shares to each of its non-employee directors. The directors’ SARs are exercisable at $9.00 per share and payable in cash only. The SARs vest in three equal annual installments of 10,000 shares beginning September 28, 2007, and expire on September 28, 2011.

Mr. Lannan has an additional compensation arrangement that provides for the payment of a fee of 25 basis points (0.25%) of the principal amount of new loans funded by the Company which were referred by Mr. Lannan. The Company paid Mr. Lannan fees totaling $104,000 pursuant to this arrangement in 2006.

The following table sets forth the compensation of the Company’s non-employee directors for the year ended December 31, 2006.

Name	Fees Earned or Paid in Cash ($)		Option Awards ($)			All Other Compensation ($)			Total ($)
Howard Amster	$	12,500	$	1,160	(1)(2)	$	—		$	13,660
Stephen P. Glennon		40,000		1,160	(1)(3)		—			41,160
Robert H. Kanner		31,667		1,160	(1)(4)		—			32,827
Kathleen L. Kellogg		73,333		1,160	(1)(5)		10,000	(8)		84,493
William D. King		120,000		1,160	(1)(6)		10,000	(8)		131,160
John J. Lannan		60,000		1,160	(1)(7)		104,000	(9)		165,160

(1) This amount represents the 2006 compensation cost of SARs granted in 2006, as determined in accordance with Statement of Financial Accounting Standards No. 123R. The assumptions made in determining the value of the awards are discussed in Note 4 (“Stock-Based Compensation”) to the Consolidated Financial Statements.

(2) Mr. Amster had 50,000 options and 30,000 SARs outstanding at December 31, 2006.

(3) Mr. Glennon had 30,000 SARs outstanding at December 31, 2006.

(4) Mr. Kanner had 23,334 options and 30,000 SARs outstanding at December 31, 2006.

(5) Ms. Kellogg had 30,000 SARs outstanding at December 31, 2006.

(6) Mr. King had 30,000 SARs outstanding at December 31, 2006.

(7) Mr. Lannan had 30,000 SARs outstanding at December 31, 2006.

(8) Represents fees for additional committee meetings in connection with the Company’s repurchase of its common stock.

(9) Represents fees earned for the referral of loans to the Company.

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Compensation Committee Interlocks and Insider Participation

Directors Faigin, Amster, Kanner and Kellogg served on the Compensation Committee of the Board of Directors during 2006. Mr. Faigin, the Company’s Chief Executive Officer, resigned from the committee in April 2006. None of the other members of the Compensation Committee is or was an officer or employee of the Company or any of its subsidiaries, and during 2006 there existed no interlocking relationship between any member of the Compensation Committee and any member of any other company’s board of directors or compensation committee of the type required to be disclosed under Section 404 of Regulation S-K of the Securities Act.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with the Company’s management. Based on such review and discussions, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, for filing with the Securities and Exchange Commission.

COMPENSATION COMMITTEE

Robert H. Kanner, Chair

Howard Amster

Kathleen L. Kellogg

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ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table shows, as of February 15, 2007, the beneficial ownership of common stock with respect to (i) each person who was known by the Company to own beneficially more than 5% of the outstanding shares of common stock, (ii) each director, (iii) each Named Executive Officer, and (iv) all directors and executive officers as a group.

Name, Title and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership(1)		Percent of Class
Capital Research and Management 333 South Hope Street, 55th Floor Los Angeles, CA 90071	1,800,000		9.6	%
Wilshire 19, LLC (2) 12121 Wilshire Blvd., Suite 1400 Los Angeles, CA 90025	1,538,800		8.2	%
Namco Financial, Inc. (2) 12121 Wilshire Blvd., Suite 1400 Los Angeles, CA 90025	1,538,800		8.2	%
Ezri Namvar (2) 12121 Wilshire Blvd., Suite 1400 Los Angeles, CA 90025	1,538,800		8.2	%
Dimensional Fund Advisors LP 1299 Ocean Avenue Santa Monica, CA 90401	1,534,112		8.2	%
Directors and executive officers:
Larry B. Faigin (3)	467,550	(4)	2.5	%
Howard Amster 23811 Chagrin Blvd. #200 Beachwood, OH 44122	1,586,512	(5)	8.5	%
Stephen P. Glennon 720 Milton Road Rye, NY 10580	626,789		3.3	%
Robert H. Kanner 3830 Kelley Ave Cleveland, OH 44114	1,120,001	(6)	6.0	%
Kathleen L. Kellogg (3)	15,000			*
William D. King (3)	51,250			*
John J. Lannan (3)	502,100		2.7	%
Takeo K. Sasaki (3)	10,000	(7)		*
Annette J. Vecchio (3)	7,040			*
Bryce W. Miller (3)	7,059			*
John A. Kardos (3)	2,500	(7)		*
Craig W. Kolasinski (3)	60,000	(7)		*
All directors and executive officers as a group (13 persons)	4,455,801	(8)	23.3	%

(1) Amounts include stock options vesting within 60 days of February 15, 2007.

(2) These beneficial owners have shared voting and dispositive power with respect to 1,538,800 shares.

(3) The address for this stockholder is c/o Beverly Hills Bancorp Inc., 23901 Calabasas Road, Suite 1050, Calabasas, CA 91302.

(4) Includes 300,000 shares that may be acquired upon the exercise of options.

(5) Includes 50,000 shares that may be acquired upon the exercise of options.

(6) Includes 23,334 shares that may be acquired upon the exercise of options.

(7) Represents shares that may be acquired upon the exercise of options.

(8) Includes 445,834 shares that may be acquired upon the exercise of options.

 * Less than 1%

60

The following table presents information regarding stock-based compensation awards outstanding and available for future grants as of December 31, 2006, segregated between stock-based compensation plans approved by shareholders and stock-based compensation plans not approved by shareholders:

Plan Category	Number of securities to be issued upon exercise of outstanding options	Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders	747,502	$	8.98	576,863
Equity compensation plans not approved by security holders	—		—	—
Total	747,502	$	8.98	576,863

ITEM 13. Certain Relationships and Related Transactions

Related Party Transactions

In August 2006, pursuant to a public “Dutch auction” tender offer, the Company repurchased 982,819 shares of its common stock from Howard Amster for $8.8 million and repurchased 784,999 shares from Robert H. Kanner for $7.1 million. Messrs. Amster and Kanner are directors of the Company. The Company purchased these shares at a price of $9.00 per share, which was the same price paid for the shares of unrelated persons who participated in the tender offer.

In December 2006, the Company originated a loan in the amount of $14.0 million, bearing interest at 9.015%, to an entity controlled by Mr. Ezri Namvar, a stockholder of the Company. (At the date of the transaction, Mr. Namvar owned 6.9% of the Company’s outstanding common stock; his ownership has since increased to 8.2%.) This loan was secured by the borrower’s equity in land, and payment on the loan was guaranteed by Mr. Namvar and the Namvar Family Trust. Because Mr. Namvar owned less than 10% of the Company’s stock at the date of the transaction, the loan was not covered under Federal Reserve Board Regulation O, “Loans to Executive Officers, Directors and Principal Shareholders of Member Banks”. However, the loan was underwritten to comply with the provisions of that Regulation. This transaction was approved by the full board of directors of the Company prior to the funding of the loan. As the loan was funded near year-end, no principal or interest was paid in 2006. In January 2007, the loan was repaid in full.

The Company has written policies and procedures that govern the review and approval of all extensions of credit to affiliates and related persons. These policies cover the following types of transactions:

• Any loan to a related person;

• A purchase under repurchase agreement of securities, other assets or obligations;

• An advance by means of an overdraft, cash item, or otherwise;

• Issuance of a standby letter of credit or other similar arrangement;

• An acquisition by discount, purchase, exchange, or otherwise of any note, draft, bill or exchange, or other evidence of indebtedness upon which a related person may be liable as maker, drawer, endorser, guarantor, or surety;

• An increase of an existing indebtedness, but not if the additional funds are advanced by the Company for its own protection for accrued interest or taxes, insurance, or other expenses incidental to the existing indebtedness;

• An advance of unearned salary or other unearned compensation for a period in excess of 30 days; and

• Any other similar transaction as a result of which a person becomes obligated to pay money to the Company, w whether the obligation arises directly or indirectly, or because of an endorsement on an obligation or otherwise.

61

The Company’s policy is to ensure proper adherence to the provisions and intent of Federal banking regulations with respect to transactions with affiliates and related persons. These regulations require, among other things, that an extension of credit (1) be made on substantially the same terms as those prevailing at the time for comparable transactions with other persons who are not related and (2) must not include more than the normal risk of repayment or present other favorable features.

On an annual basis, the board of directors reviews and approves the Company’s policies and procedures with respect to transactions with related persons.

Director Independence

The Company’s Board of Directors has determined that Howard Amster, Robert H. Kanner, William D. King and Kathleen L. Kellogg are “independent” directors within the listing standards of the Nasdaq Stock Market. In making this determination, the Board considered whether the director had any relationship with the Company which, in the opinion of the board of directors, would interfere with the director’s exercise of independent judgment in carrying out his or her responsibilities. The board of directors determined that these directors (1) were not employed by the Company at any time in the past three years, (2) did not have any family members who were executive officers of the Company or of another company with a financial or business relationship with the Company, (3) received no fees from the Company other than for board or committee service and (4) were not principal shareholders in the Company.

ITEM 14. Principal Accountant Fees and Services

Principal Accounting Firm Fees

Aggregate fees billed to the Company for the fiscal years ended December 31, 2006 and 2005 by the Company’s principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte & Touche”), were as follows:

	Year ended December 31,
	2006		2005
	(Dollars in thousands)
Audit fees	$	560	$	516
Audit-related fees		—		—
Total audit and audit-related fees		560		516
Tax fees (a)		153		285
All other fees		—		—
Total fees	$	713	$	801

(a) Includes fees for tax compliance and tax consulting services, including tax planning and tax research. The audit committee of the board of directors determined that the provision of such services is compatible with maintaining the principal accountant’s independence.

Pre-Approval Policy

The services performed by Deloitte & Touche in 2006 and 2005 were pre-approved in accordance with the pre-approval policy and procedures adopted by the Audit Committee. This policy describes the permitted audit, audit-related, tax, and other services (collectively, the “Disclosure Categories”) that Deloitte & Touche may perform. The policy requires that prior to the beginning of each fiscal year, a description of the services (the “Service List”) expected to be performed by Deloitte & Touche in each of the Disclosure Categories in the following fiscal year be presented to the Audit Committee for approval.

62

Any requests for audit, audit-related, tax, and other services not contemplated on the Service List must be submitted to the Audit Committee for specific pre-approval and may not commence until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings. However, the Audit Committee has delegated its duties to pre-approve auditing services and permitted non-audit services to its chairman. The chairman must update the Audit Committee at the next regularly scheduled meeting of any services that were granted specific pre-approval.

In addition, although not required by the rules and regulations of the SEC, the Audit Committee generally requests an estimate of the maximum fees associated with each proposed service on the Service List and any services that were not originally included on the Service List. Providing an estimate of the maximum fees for a service incorporates appropriate oversight and control of the Company’s relationship with Deloitte & Touche, while permitting the Company to receive immediate assistance from Deloitte & Touche when time is of the essence.

On a quarterly basis, the Audit Committee reviews the status of services and fees incurred year-to-date against the original Service List and the forecast of remaining services and fees for the fiscal year.

The policy contains a de minimis provision that permits retroactive approval for permissible non-audit services under certain circumstances. The provision allows for the pre-approval requirement to be waived if all of the following criteria are met:

1. The service is not an audit, review or other attest service;

2. The aggregate amount of all such services provided under this provision does not exceed 5% of total fees paid to Deloitte & Touche in a given fiscal year;

3. Such services were not recognized at the time of the engagement to be non-audit services;

4. Such services are promptly brought to the attention of the Audit Committee and approved by the Audit Committee or its designee prior to the completion of the audit; and

5. The service and fee are specifically disclosed in the Proxy Statement as meeting the de minimis requirements.

63

PART IV

ITEM 15. Exhibits and Financial Statement Schedules

(a) Financial Statements

See Index to Financial Statements immediately following Exhibit Index.

(b) Exhibits

See Exhibit Index immediately following the signature page.

64

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf on March 15, 2007 by the undersigned, thereunto duly authorized.

BEVERLY HILLS BANCORP INC.
By:	/s/ LARRY B. FAIGIN
	Larry B. Faigin
	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 15, 2007 by the following persons on behalf of the Registrant and in the capacities indicated.

	Signature	Title
By	/S/    LARRY B. FAIGIN Larry B. Faigin	Chairman of the Board and Chief Executive Officer
By	/S/    TAKEO K. SASAKI Takeo K. Sasaki	Chief Financial Officer
By	/S/    HOWARD AMSTER Howard Amster	Director
By	/S/    STEPHEN P. GLENNON Stephen P. Glennon	Director
By	/S/    ROBERT H. KANNER Robert H. Kanner	Director
By	/S/    KATHLEEN L. KELLOGG Kathleen L. Kellogg	Director
By	/S/    WILLIAM D. KING William D. King	Director
By	/S/    JOHN J. LANNAN John J. Lannan	Director

65

Exhibit Index

The following exhibits are filed as part of this report.

3.1	Certificate of Incorporation, as amended (incorporated by reference to the Company’s Report on Form 10-Q as filed on November 7, 2005)
3.2	Third Amended and Restated Bylaws (incorporated by reference to the Company’s Report on Form 10-Q as filed on August 13, 2004)
4.1	Form of Capital Security Certificate evidencing the capital securities of Beverly Hills Statutory Trust 2006 (incorporated by reference to the Company’s Report on Form 8-K as filed on May 22, 2006)
4.2	Form of Common Security Certificate evidencing common securities of Beverly Hills Statutory Trust 2006 (incorporated by reference to the Company’s Report on Form 8-K as filed on May 22, 2006)
4.3	Form of Beverly Hills Bancorp Inc. Floating Rate Junior Subordinated Debt Security due 2036 (incorporated by reference to the Company’s Report on Form 8-K as filed on May 22, 2006)
4.4	Form of Capital Security Certificate evidencing the capital securities of Beverly Hills Statutory Trust II (incorporated by reference to the Company’s Report on Form 8-K as filed on January 3, 2007)
4.5	Form of Common Security Certificate evidencing common securities of Beverly Hills Statutory Trust II (incorporated by reference to the Company’s Report on Form 8-K as filed on January 3, 2007)
4.6	Form of Beverly Hills Bancorp Inc. Floating Rate Junior Subordinated Debt Security due 2037 (incorporated by reference to the Company’s Report on Form 8-K as filed on January 3, 2007)
10.1	Amended and Restated Stock Purchase Agreement dated April 30, 2004 by and between the Company and Merrill Lynch Mortgage Capital Inc. (incorporated by reference to the Company’s Report on Form 8-K as filed on May 14, 2004)
10.2	Amended and Restated 1999 Equity Participation Plan dated January 31, 2001 (incorporated by reference to the Company’s Report on Form 10-K as filed on March 30, 2001)
10.3	2002 Equity Participation Plan (incorporated by reference to the Company’s Report on Form 10-Q as filed on August 14, 2002)
10.4	Lease dated June 28, 2004 between Century National Properties, Inc. and First Bank of Beverly Hills (incorporated by reference to the Company’s Report on Form 10-K as filed on March 16, 2005)
10.5	Change In Control Agreement dated November 1, 2003 between First Bank of Beverly Hills and Craig W. Kolasinski (incorporated by reference to the Company’s Report on Form 10-K dated March 16, 2005)
10.6	Stay Bonus Agreement dated January 1, 2004 between First Bank of Beverly Hills and Craig W. Kolasinski (incorporated by reference to the Company’s Report on Form 10-K dated March 16, 2005)
10.7	Form of Change In Control Agreement dated November 1, 2003 between First Bank of Beverly Hills and Takeo K. Sasaki, Bryce W. Miller and John A. Kardos (incorporated by reference to the Company’s Report on Form 10-K as filed on March 16, 2005)
10.8	Employment Agreement between Beverly Hills Bancorp Inc. and Larry B. Faigin dated March 7, 2006 (incorporated by reference to the Company’s Report on Form 10-Q as filed on May 5, 2006)
10.9	Incentive Stock Option Agreement between Beverly Hills Bancorp Inc. and Larry B. Faigin dated January 3, 2006 (incorporated by reference to the Company’s Report on Form 10-Q as filed on May 5, 2006)
10.10	Nonqualified Stock Option Agreement between Beverly Hills Bancorp Inc. and Larry B. Faigin dated January 3, 2006 (incorporated by reference to the Company’s Report on Form 10-Q as filed on May 5, 2006)

66

10.11	Trust Indenture dated July 11, 2002 between Wilshire Acquisitions Corporation and Wilmington Trust Company (incorporated by reference to the Company’s Report on Form 10-K as filed on March 31, 2006)
*10.12	Change In Control Agreement between First Bank of Beverly Hills and Annette J. Vecchio effective May 1, 2006
10.13	Placement Agreement, dated May 16, 2006, among Beverly Hills Bancorp Inc., Beverly Hills Bancorp Statutory Trust 2006, and ABN AMRO, Inc. (incorporated by reference to the Company’s Report on Form 8-K as filed on May 22, 2006)
10.14	Amended and Restated Declaration of Trust, dated May 16, 2006, among Beverly Hills Bancorp Inc., as sponsor, the Administrators named therein, Wilmington Trust Company, as institutional and Delaware trustee (incorporated by reference to the Company’s Report on Form 8-K as filed on May 22, 2006)
10.15	Guarantee Agreement, dated May 16, 2006, between Beverly Hills Bancorp Inc. and Wilmington Trust Company, as guarantee trustee (incorporated by reference to the Company’s Report on Form 8-K as filed on May 22, 2006)
10.16	Indenture, dated May 16, 2006, between Beverly Hills Bancorp Inc. and Wilmington Trust Company, as indenture trustee (incorporated by reference to the Company’s Report on Form 8-K as filed on May 22, 2006)
10.17	Branch Purchase and Assumption Agreement dated August 7, 2006 between First Bank of Beverly Hills and First Bank (incorporated by reference to the Company’s Report on Form 10-Q as filed on November 7, 2006)
10.18	Form of Stock Appreciation Right Agreement dated September 28, 2006 between the Company and Howard Amster, Stephen P. Glennon, Robert H. Kanner, Kathleen L. Kellogg, William D. King, John J. Lannan and Annette J. Vecchio (incorporated by reference to the Company’s Report on Form 10-Q as filed on November 7, 2006)
*10.19	Employment Agreement between First Bank of Beverly Hills and Eric Rosa dated October 31, 2006
*10.20	Change In Control Agreement between First Bank of Beverly Hills and Eric Rosa dated October 31, 2006
*10.21	Loan Agreement between the Company, Wilshire Acquisitions Corporation and First Tennessee Bank National Association dated November 30, 2006
*10.22	Revolving Credit Note Agreement between the Company and First Tennessee Bank National Association dated November 30, 2006
*10.23	Commercial Guaranty Agreement between the Company and First Tennessee Bank National Association dated November 30, 2006
10.24	Purchase Agreement, dated December 28, 2006, among Beverly Hills Bancorp Inc., Beverly Hills Bancorp Statutory Trust II, and Zions First National Bank (incorporated by reference to the Company’s Report on Form 8-K as filed on January 3, 2007)
10.25	Amended and Restated Declaration of Trust among Beverly Hills Bancorp Inc., as sponsor, the Administrators named therein, and Wilmington Trust Company, as institutional and Delaware trustee (incorporated by reference to the Company’s Report on Form 8-K as filed on January 3, 2007)
10.26	Guarantee Agreement between Beverly Hills Bancorp Inc. and Wilmington Trust Company, as guarantee trustee (incorporated by reference to the Company’s Report on Form 8-K as filed on January 3, 2007)
10.27	Indenture between Beverly Hills Bancorp Inc. and Wilmington Trust Company, as indenture trustee (incorporated by reference to the Company’s Report on Form 8-K as filed on January 3, 2007)
*10.28	Stock Appreciation Right Agreement dated January 25, 2007 between Beverly Hills Bancorp Inc. and Eric Rosa
*21	Subsidiaries
*23	Consent of Independent Registered Public Accounting Firm

67

*31.1	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1	Certification by the Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2	Certification by the Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith

68

INDEX TO FINANCIAL STATEMENTS

	Page
Beverly Hills Bancorp Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Financial Statements:
Consolidated Statements of Financial Condition December 31, 2006 and 2005	F-3
Consolidated Statements of Operations Years ended December 31, 2006, 2005 and 2004	F-4
Consolidated Statements of Stockholders’ Equity Years ended December 31, 2006, 2005 and 2004	F-5
Consolidated Statements of Cash Flows Years ended December 31, 2006, 2005 and 2004	F-6
Notes to Consolidated Financial Statements	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Beverly Hills Bancorp Inc.

Calabasas, California

We have audited the accompanying consolidated statements of financial condition of Beverly Hills Bancorp Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Beverly Hills Bancorp Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/    Deloitte & Touche LLP

Los Angeles, California

March 13, 2007

F-2

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands)

	December 31,
	2006			2005
ASSETS
Cash and cash equivalents	$	27,005		$	20,954
Mortgage-backed securities available for sale, at fair value		460,893			332,572
Investment securities available for sale, at fair value		8,920			13,728
Investment securities held to maturity, at amortized cost (fair value of $9,735 and $9,650)		9,759			9,708
Loans, net of allowance for loan losses of $7,878 and $7,080		1,040,726			948,144
Discounted loans, net of allowance for loan losses of $99 and $209		1,157			1,679
Stock in Federal Home Loan Bank of San Francisco, at cost		29,015			27,625
Real estate owned, net		653			62
Leasehold improvements and equipment, net		1,244			1,539
Accrued interest receivable		8,685			6,284
Income taxes receivable		—			3,910
Deferred tax asset, net		28,276			30,739
Goodwill		3,054			3,054
Prepaid expenses and other assets		4,449			3,741
TOTAL	$	1,623,836		$	1,403,739
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Noninterest-bearing deposits	$	2,038		$	4,655
Interest-bearing deposits		848,852			599,994
Total deposits		850,890			604,649
Short-term borrowings		20,000			—
Repurchase agreements		40,000			63,000
FHLB advances		496,337			530,837
Junior subordinated notes payable to trusts		46,393			20,619
Accounts payable and other liabilities		14,778			10,764
Total liabilities		1,468,398			1,229,869
COMMITMENTS AND CONTINGENCIES (NOTE 15)
STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value, 30,000,000 shares authorized, 27,107,534 and 26,965,874 shares issued (including 8,389,368 and 5,639,368 treasury shares)		271			270
Additional paid-in capital		165,972			165,710
Treasury stock, 8,389,368 and 5,639,368 shares, at cost		(39,974	)		(15,224	)
Retained earnings		31,800			27,019
Accumulated other comprehensive loss		(2,631	)		(3,905	)
Total stockholders’ equity		155,438			173,870
TOTAL	$	1,623,836		$	1,403,739

See notes to consolidated financial statements

F-3

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per-share data)

	Year Ended December 31,
	2006			2005			2004
INTEREST INCOME:
Loans	$	67,527		$	60,895		$	46,632
Mortgage-backed securities		18,483			14,753			12,233
Securities and federal funds sold		2,157			1,749			1,176
Total interest income		88,167			77,397			60,041
INTEREST EXPENSE:
Deposits		31,702			17,623			12,427
Borrowings		23,470			20,720			14,067
Total interest expense		55,172			38,343			26,494
NET INTEREST INCOME		32,995			39,054			33,547
PROVISION FOR (RECAPTURE OF) LOSSES ON LOANS		957			(41	)		351
NET INTEREST INCOME AFTER PROVISION FOR (RECAPTURE OF) LOSSES ON LOANS		32,038			39,095			33,196
OTHER INCOME:
Loan related fees and charges		14			52			37
Deposit fees and charges		53			63			78
Gain on sale of loans, net		—			—			20
Gain on sale of securities, net		—			—			418
Real estate owned, net		(984	)		187			(136	)
FHLB stock dividend income		1,397			1,120			711
Gain on sale of Beverly Hills branch		8,531			—			—
Other income, net		41			597			198
Total other income		9,052			2,019			1,326
OTHER EXPENSES:
Compensation and employee benefits		7,069			6,773			6,811
Professional fees		3,644			3,555			3,637
Occupancy		930			989			851
Loan expenses		245			360			366
Regulatory assessments		145			338			476
Data processing		420			406			555
Insurance		686			689			813
Depreciation		366			327			331
Amortization of intangibles		—			129			259
Directors expense		407			539			614
Other general and administrative expense		1,428			1,433			1,392
Total other expenses		15,340			15,538			16,105
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION		25,750			25,576			18,417
INCOME TAX PROVISION		10,940			10,524			4,585
INCOME FROM CONTINUING OPERATIONS		14,810			15,052			13,832
DISCONTINUED OPERATIONS (NOTE 2):
INCOME FROM OPERATIONS OF DISCONTINUED SEGMENT (INCLUDING GAIN ON DISPOSAL OF $21,716)		—			—			22,200
INCOME TAX PROVISION		—			—			9,307
INCOME FROM DISCONTINUED OPERATIONS		—			—			12,893
NET INCOME	$	14,810		$	15,052		$	26,725
Earnings per share – basic:
Income from continuing operations	$	0.73		$	0.71		$	0.67
Discontinued operations		—			—			0.62
Net income	$	0.73		$	0.71		$	1.29
Earnings per share – diluted:
Income from continuing operations	$	0.72		$	0.70		$	0.65
Discontinued operations		—			—			0.60
Net income	$	0.72		$	0.70		$	1.25
Weighted average number of shares – basic		20,360,919			21,220,777			20,772,752
Weighted average number of shares – diluted		20,501,857			21,503,961			21,376,083

See notes to consolidated financial statements

F-4

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

	Common Stock			Additional Paid-In Capital		Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	Shares	Amount				Shares		Amount
BALANCE, January 1, 2004	24,491,703	$	245	$	136,118	(5,626,212	)	$	(15,106	)	$	3,791			435			125,483
Comprehensive income:
Net income												26,725						26,725
Unrealized holding losses on available for sale securities – net of tax benefit of $1,204 (1)															(1,671	)		(1,671	)
Unrealized gain on interest-rate swap – net of tax expense of $108															149			149
Total comprehensive income																		25,203
Cash dividends on common stock												(7,926	)					(7,926	)
Tax benefit from recognition of pre- reorganizational deferred tax assets					21,761													21,761
Exercise of stock options	2,285,826		23		3,336	(13,156	)		(118	)								3,241
Conversion of pre-reorganizational Company stock	25
Tax benefit from exercise of non-qualified stock options					3,300													3,300
BALANCE, December 31, 2004	26,777,554		268		164,515	(5,639,368	)		(15,224	)		22,590			(1,087	)		171,062
Comprehensive income:
Net income												15,052						15,052
Unrealized holding losses on available for sale securities – net of tax benefit of $2,042 (1)															(2,818	)		(2,818	)
Total comprehensive income																		12,234
Cash dividends on common stock												(10,623	)					(10,623	)
Tax benefit from recognition of pre- reorganizational deferred tax assets					203													203
Exercise of stock options	188,320		2		410													412
Tax benefit from exercise of non-qualified stock options					582													582
BALANCE, December 31, 2005	26,965,874		270		165,710	(5,639,368	)		(15,224	)		27,019			(3,905	)		173,870
Comprehensive income:
Net income												14,810						14,810
Unrealized holding gains on available for sale securities – net of tax provision of $926 (1)															1,274			1,274
Total comprehensive income																		16,084
Cash dividends on common stock												(10,029	)					(10,029	)
Stock-based compensation					231													231
Exercise of stock options	141,660		1		16													17
Tax benefit from exercise of non-qualified stock options					15													15
Repurchase of common stock						(2,750,000	)		(24,750	)								(24,750	)
BALANCE, December 31, 2006	27,107,534	$	271	$	165,972	(8,389,368	)	$	(39,974	)	$	31,800		$	(2,631	)	$	155,438

(1) Disclosure of reclassification amount:
	Year Ended December 31,
	2006		2005			2004
Unrealized holding gain (loss) on securities arising during the year, net of tax provision (benefit) of $926 in 2006, $(2,042) in 2005 and $(1,030) in 2004	$	1,274	$	(2,818	)	$	(1,427	)
Less: Reclassification adjustment for gain included in net income, net of tax expense of $174		—		—			(244	)
Net unrealized gain (loss) on securities, net of tax provision (benefit) of $926 in 2006, $(2,042) in 2005 and $(1,204) in 2004	$	1,274	$	(2,818	)	$	(1,671	)

See notes to consolidated financial statements

F-5

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Year Ended December 31,
	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	14,810		$	15,052		$	26,725
Less: income from discontinued operations, net of taxes		—			—			(12,893	)
Income from continuing operations		14,810			15,052			13,832
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Provision for (recapture of) estimated losses on loans		957			(41	)		400
Provision for losses on real estate owned		872			10			223
Change in valuation allowance for mortgage servicing rights		—			—			280
Depreciation and amortization		366			456			590
Stock-based compensation		240			—			—
Deferred tax provision		1,537			6,276			5,304
Loss (gain) on sale of real estate owned		22			(214	)		(97	)
Loss (gain) on disposal of equipment		6			15			(1	)
Gain on sale of loans		—			—			(20	)
Gain on sale of securities		—			—			(418	)
Gain on sale of Beverly Hills branch		(8,531	)		—			—
Gain on extinguishment of investor participation liability		—			(404	)		—
Amortization of premiums and deferred fees		434			2,825			2,515
Amortization of mortgage servicing rights		—			—			1,717
Tax benefit from exercise of non-qualified stock options		—			582			3,300
Federal Home Loan Bank stock dividends		(1,363	)		(1,025	)		(618	)
Change in:
Servicer advance receivables		—			—			(3,456	)
Service fees receivable		—			—			182
Accrued interest receivable		(2,402	)		(951	)		(1,125	)
Income taxes receivable		3,910			(3,759	)		511
Receivables from other loan servicers		—			—			773
Prepaid expenses and other assets		(708	)		(292	)		(774	)
Accounts payable and other liabilities		5,382			3,627			(6,466	)
Net cash used in operations of discontinued segment		—			—			6,580
Net cash provided by operating activities		15,532			22,157			23,232
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of loans		(88,660	)		(142,814	)		(149,652	)
Loan repayments		242,553			227,636			132,150
Loan originations		(248,749	)		(118,989	)		(289,353	)
Proceeds from sale of discounted loans		—			—			342
Purchase of mortgage-backed securities available for sale		(197,621	)		(126,828	)		(238,407	)
Repayments of mortgage-backed securities available for sale		71,348			96,353			126,565
Proceeds from sale of mortgage-backed securities available for sale		—			—			24,594
Repayment of investment securities available for sale		4,771			—			—
Proceeds from sale of investment securities available for sale		—			—			10,130
Purchases of FHLB stock		(6,472	)		(3,919	)		(9,296	)
Proceeds from sale of FHLB stock		6,445			—			—
Proceeds from sale of real estate owned		33			2,031			1,057
Purchases of leasehold improvements and equipment		(141	)		(1,029	)		(968	)
Proceeds from sale of leasehold improvements and equipment		—			2			8
Net payment in settlement of branch sale		(148,885	)		—			—
Net proceeds from sale of discontinued segment		—			—			48,195
Net cash provided by investing activities of discontinued segment		—			—			(495	)
Net cash used in investing activities		(365,378	)		(67,557	)		(345,130	)

See notes to consolidated financial statements

F-6

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Dollars in thousands)

	Year Ended December 31,
	2006			2005			2004
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	$	402,370		$	62,689		$	68,551
Increase in short-term borrowings		20,000			—			—
(Decrease) increase in repurchase agreements		(23,000	)		(57,000	)		39,000
Proceeds from FHLB advances		813,500			366,000			530,800
Repayments of FHLB advances		(848,000	)		(310,000	)		(305,300	)
Repayments of long-term financing		—			—			(1,871	)
Repayment of investor participation liability		—			(650	)		—
Issuance of junior subordinated notes payable		25,774			—			—
Issuance of common stock		17			412			3,241
Tax benefit from exercise of non-qualified stock options		15			—			—
Repurchase of common stock		(24,750	)		—			—
Dividends on common stock		(10,029	)		(10,623	)		(7,926	)
Net cash provided by financing activities of discontinued segment		—			—			(5,810	)
Net cash provided by financing activities		355,897			50,828			320,685
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		6,051			5,428			(1,213	)
CASH AND CASH EQUIVALENTS:
Beginning of the year		20,954			15,526			16,739
End of year	$	27,005		$	20,954		$	15,526
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION – Cash paid during the year for:
Interest	$	50,630		$	34,286		$	25,061
Income taxes, net		4,132			7,344			451
NONCASH INVESTING ACTIVITIES:
Additions to real estate owned acquired in settlement of loans		1,518			120			2,104
NONCASH FINANCING ACTIVITIES:
Issuance of common stock upon acquisition of treasury stock		—			—			118
Release of valuation allowance related to pre-reorganizational net operating losses		—			—			21,761

See notes to consolidated financial statements

F-7

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations—Beverly Hills Bancorp Inc. (“BHBC,” and with its consolidated subsidiaries, the “Company”) is a financial holding company that conducts primarily banking and lending operations through a subsidiary bank, First Bank of Beverly Hills (“FBBH” or the “Bank”).

The Bank is engaged in a banking business focused primarily on commercial and multifamily real estate lending, and investments in primarily AAA-rated and government-sponsored enterprise (“GSE”) mortgage-backed securities. In 2006 the Bank expanded its product line to include construction loans for multifamily and commercial properties. The Bank is a state-chartered commercial bank and is regulated by the California Department of Financial Institutions (“DFI”) and the Federal Deposit Insurance Corporation (“FDIC”).

The Company previously conducted loan servicing operations through a servicing subsidiary, Wilshire Credit Corporation (“WCC”). WCC conducted a full-service mortgage loan servicing business, specializing in the servicing of labor-intensive mortgage pools. Effective April 30, 2004, the Company sold WCC to Merrill Lynch Mortgage Capital Inc., a division of Merrill Lynch & Co. See Note 2 for a further discussion of the sale of WCC.

Administrative headquarters of the Company and the Bank are located in Calabasas, California, where the Bank also maintains its retail branch. The Bank sold its Beverly Hills branch in November 2006 (see Note 3).

Discontinued Operations—Prior to the April 2004 sale of WCC, the Company accounted for WCC as a discontinued operation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Accordingly, the assets and liabilities of WCC have each been combined and presented as separate captions on the consolidated statements of financial condition, and WCC’s results of operations have been removed from the Company’s results from continuing operations on the consolidated statements of operations and presented separately under the caption “Discontinued operations.”

Principles of Consolidation—The Company was incorporated in 1996 to be the holding company for Wilshire Acquisitions Corporation (“WAC”), which is the holding company for the Bank. The Company formed certain non-bank subsidiaries, and completed an initial public offering of common stock and a public debt offering in the fourth quarter of 1996. Intercompany accounts have been eliminated in consolidation.

Fresh-Start Reporting—Effective May 31, 1999, the Company completed a restructuring under Chapter 11 of the U.S. Bankruptcy Code. The Company accounted for its reorganization in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”), which resulted in the creation of a new entity for financial reporting purposes. Pursuant to SOP 90-7, the Company adopted “fresh-start” reporting, whereby the carrying values of its assets and liabilities were adjusted to reflect their estimated fair values as of the May 31, 1999 effective date. The Company amortizes the fresh-start adjustments on a monthly basis over the expected remaining life of the related assets and liabilities.

Use of Estimates in the Preparation of the Consolidated Financial Statements—The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Significant estimates include allowances for loan losses, valuation allowances for real estate owned and net deferred tax assets, the evaluation of other-than-temporary impairment in the market values of investment

F-8

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

securities and other assets, the selection of yields utilized to recognize interest income on certain mortgage-backed securities, and the outcome of pending legal matters. Estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents—For purposes of reporting financial condition and cash flows, cash and cash equivalents include cash and due from banks, federal funds sold, and securities with original maturities less than 90 days.

Mortgage-Backed and Other Securities—The Company’s securities portfolios consist of mortgage-backed and other debt securities that are classified as held to maturity and available for sale. Securities are classified as held to maturity when the Company has the ability and the positive intent to hold the securities to maturity. Securities classified as held to maturity are carried at their cost basis, adjusted for the amortization of premiums and accretion of discounts using the effective yield method. Holding losses on securities classified as held to maturity that are determined by management to be other than temporary are recorded as market valuation losses and impairments in the consolidated statements of operations. Securities not classified as held to maturity are classified as available for sale. Securities classified as available for sale are reported at their fair market values with unrealized holding gains and losses on securities reported, net of tax, when applicable, as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. Holding losses on securities classified as available for sale that are determined by management to be other than temporary in nature are reclassified from the unrealized holding losses included in accumulated other comprehensive income to current operations. Realized gains and losses from the sales of available-for-sale securities are reported separately in the consolidated statements of operations and are calculated using the specific-identification method.

Loans and Discounted Loans, and Allowance for Loan Losses—Loans are presented in the consolidated statements of financial condition net of unamortized deferred origination fees and costs and net of allowance for loan losses. Deferred fees and costs are recognized in interest income over the terms of the loans using the effective yield method. Interest income is recognized on an accrual basis.

The Company evaluates commercial and multifamily real estate loans and construction loans (whether purchased or originated and whether classified as loans or discounted loans) for impairment. Loans are considered to be impaired, for financial reporting purposes, when it is probable that the Company will be unable to collect all principal or interest when due. Specific valuation allowances (SVAs) are established through provisions for losses for impaired loans based on the fair value of the underlying real estate collateral, less estimated costs to sell, or the present value of anticipated cash flows. For all loans except discounted loans, the SVAs are charged off at the end of the month in which they are established.

The Company evaluates single-family real estate, consumer and other smaller balance, homogeneous loans for impairment on a collective basis. Management evaluates these loans for impairment by comparing management’s estimate of net realizable value to the net carrying value of the portfolios.

All specific and general valuation allowances established for pools of loans and discounted loans are recorded in the allowance for loan losses. The allowance for each pool is decreased by the amount of loans charged off and is increased by the provision for estimated losses on loans and recoveries of previously charged-off loans. The allowance for each pool is maintained at a level believed adequate by management to absorb probable losses. Management’s determination of the adequacy of the allowance is based on a number of factors, including, but not limited to, the following: the Company’s historical and recent loss experience in its loan portfolios; the volume, severity and trend of non-performing assets; the extent to which refinances or loan modifications are made to maintain loans in a current status; known deterioration in credit concentrations or

F-9

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

certain classes of loans; loan-to-value ratios of real estate secured loans; risks associated with specific types of collateral; the quality and effectiveness of the lending policy, loan purchase policy, internal asset review policy, charge-off, collection and recovery policies; current conditions in the general and local economies which might affect the collectability of the loan; anticipated changes in the composition or volume of the portfolio; and reasonableness standards in accordance with regulatory agency policies.

It is the Company’s policy to place loans on non-accrual status when they are past due more than 90 days, or sooner when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed by a charge to interest income.

Discounted loans are carried net of unaccreted discount and allowance for loan losses established for those loans. Unaccreted discounts represent the portion of the difference between the purchase price and the principal face amount on specific loans that is available for accretion to interest income. The allowance for loan losses is increased for subsequent valuation adjustments that are provided for through current period earnings. These additional provisions for loan losses are based on discounted future cash flows or the fair value of the underlying real estate collateral for collateral-dependent loans. If total cash received on a pool of loans exceeds original estimates, excess specific valuation allowances are recorded as additional discount accretion on the cost-recovery method. The allocated specific valuation allowances are included in the allowance for loan losses.

Goodwill—The Company accounts for goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Accordingly, the Company tests goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Real Estate Owned—Real estate acquired in settlement of loans is held for sale and is originally recorded at the lower of fair value less estimated costs to sell, the carrying value of the underlying loan, or purchase price. Any excess of net loan cost basis over the fair value less estimated selling costs of real estate acquired through foreclosure is charged to the allowance for loan losses. Any subsequent operating expenses or income, reductions in estimated fair values, as well as gains or losses on disposition of such properties, are recorded in current operations.

Leasehold Improvements and Equipment—Office leasehold improvements and equipment are stated at cost, less accumulated depreciation and amortization, computed on the straight-line method over the estimated useful lives of the assets, which currently range from one to seven years. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter.

Income Taxes—The provision for income taxes is based on income recognized for financial statement purposes. The Company files a consolidated U.S. federal income tax return with its eligible subsidiaries.

Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not that all or some portion of the potential deferred tax asset will not be realized.

The Company and its subsidiaries have entered into a tax-sharing agreement under which the tax liability is to be allocated pro rata among entities that would have paid tax if they had filed separate income tax returns. In addition, those entities reimburse loss entities pro rata for the reduction in tax liability as a result of their losses.

F-10

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Stock-Based Compensation—The Company issues stock-based compensation to certain employees, officers and directors. The Company adopted SFAS No. 123(R), Share-Based Payment, on January 1, 2006 using the modified prospective method. SFAS No. 123(R) requires companies to account for stock options using the fair value method, which generally results in compensation expense recognition. Prior to December 31, 2005, the Company accounted for its fixed stock options using the intrinsic-value method, as prescribed in APB Opinion No. 25. Accordingly, no stock option expense was recorded in periods prior to December 31, 2005.

The Company adopted the revised accounting standards for stock based compensation effective January 1, 2006. SFAS No. 123(R) allows for two alternative transition methods. The Company follows the modified prospective method, which requires application of the new Statement to new awards and to awards modified, repurchased or cancelled after the required effective date. Accordingly, prior period amounts have not been restated. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of January 1, 2006 will be recognized as the requisite services are rendered on or after January 1, 2006. The compensation cost of that portion of awards is based on the grant-date fair value of those awards as calculated for pro forma disclosures under the original SFAS No. 123.

Earnings per Share—Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if the Company’s outstanding stock option contracts were exercised and resulted in the issuance of common stock that then shared in the earnings of the Company.

New Accounting Pronouncements—In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”) which supplements Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS No. 109”), by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. The Interpretation requires that the tax effects of a position be recognized only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the position are to be recognized. Moreover, the more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. At adoption, companies must adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained as of the adoption date. Any necessary adjustment would be recorded directly to retained earnings in the period of adoption and reported as a change in accounting principle. For the Company, FIN 48 is effective as of January 1, 2007. The Company does not expect the adoption of FIN 48 to have a material impact on its financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (“SFAS No. 158”). SFAS No. 158 requires an entity to recognize in its statement of financial position an asset for a defined benefit pension or postretirement plan’s overfunded status or a liability for a plan’s underfunded status, and to recognize changes in that funded status through other comprehensive income in the year in which the changes occur. SFAS No. 158 will not change the amount of net periodic benefit expense recognized in an entity’s results of operations. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. The Company does not expect the adoption of SFAS No. 158 to have an impact on its financial position, results of operations and cash flows.

In September 2006 the SEC issued Staff Accounting Bulletin (SAB) No. 108, Quantifying Financial Misstatements, which expresses the Staff’s views regarding the process of quantifying financial statement

F-11

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

misstatements. Registrants are required to quantify the impact of correcting all misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. The techniques most commonly used in practice to accumulate and quantify misstatements are generally referred to as the “rollover” (current year income statement perspective) and “iron curtain” (year-end balance perspective) approaches. The financial statements would require adjustment when either approach results in quantifying a misstatement that is material, after considering all relevant quantitative and qualitative factors. The adoption of SAB No. 108 did not have a material effect on the Company’s financial condition, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115, which establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. This standard requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. This new guidance does not eliminate disclosure requirements included in other accounting standards, including fair value measurement disclosures required by SFAS No. 157 and SFAS No. 107, Disclosures about Fair Value of Financial Instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157. Management does not expect this guidance to have a material effect on the Company’s financial condition or results of operations.

2. DISCONTINUED OPERATIONS—SALE OF WILSHIRE CREDIT CORPORATION

On April 30, 2004, BHBC sold WCC to Merrill Lynch Mortgage Capital Inc. for net proceeds of $48.2 million and realized a gain on the sale of $21.7 million before taxes. WCC was formed in 1999 pursuant to the Company’s reorganization, and comprised the Company’s Loan Servicing Operations business segment. At the time of its sale, WCC serviced over $6 billion principal balance of loans for more than 500 individual and institutional investors and governmental agencies.

Effective January 1, 2004, the Company began accounting for WCC as a disposal group held for sale in accordance with SFAS No. 144. Accordingly, WCC’s results of operations have been removed from the Company’s results from continuing operations on the consolidated statements of operations, and have been presented separately under the caption “Income from discontinued operations.”

F-12

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Results of operations for WCC for the year ended December 31, 2004 are shown in the following table. The amounts represent WCC’s results only for the four-month period from January 1 to April 30, 2004, prior to its sale.

	Year Ended December 31, 2004
	(Dollars in thousands)
Interest income	$	(10	)
Interest expense		164
Net interest expense		(174	)
Provision for loan losses		49
Net interest expense after provision for loan losses		(223	)
Servicing income		11,754
Other income		699
Compensation and employee benefits expense		9,427
Other expenses		2,319
Income before income taxes		484
Income tax provision		318
Net income	$	166

3. SALE OF BEVERLY HILLS BRANCH

On November 3, 2006, the Company sold its Beverly Hills branch to First Bank, a subsidiary of First Banks, Inc., headquartered in St. Louis, Missouri. In the sale, First Bank assumed all of the deposits at the branch and certain liabilities associated with the branch, including the branch lease, and acquired certain assets at the branch at their book values. First Bank paid a deposit premium of 5.5% of the deposits. The Company will continue to operate its Calabasas branch and will continue its deposit gathering strategies. The Company recorded a gain on the sale of $8.5 million, after related selling expenses.

4. STOCK-BASED COMPENSATION

The Company has two stock-based employee compensation plans, the 1999 Equity Participation Plan and the 2002 Equity Participation Plan, pursuant to which stock options have been granted to its directors and certain employees. All stock options have an exercise price that is equal to the fair value of the Company’s stock on the date of grant. Options generally vest over a three-year period and have a maximum term of 10 years.

A summary of the Company’s stock option activity for the period indicated is presented below:

	Year Ended December 31, 2006
	Shares		Weighted Average Exercise Price
Outstanding at beginning of period	322,106		$	2.29
Granted	600,000			10.50
Exercised	(141,660	)		1.87
Forfeited	(32,944	)		1.98
Outstanding at end of period	747,502			8.98
Exercisable at end of period	347,502			7.22

F-13

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In January 2006, the Company granted an option to purchase 600,000 shares of common stock at an exercise price of $10.50 per share. The weighted average fair value of this option grant was $1.13 per share. This fair value was estimated using the Black-Scholes option-pricing model based on the following assumptions: expected volatility of 19%, risk-free interest rate of 4.30%, a dividend yield of 5% and an expected life of five years. There were no grants of stock options in 2005 or 2004.

The volatility assumption was based on the historical weekly price data of BHBC’s common stock over the one-year period prior to the grant. The Company believes the volatility over this period is a reasonable predictor of future volatility. The Company did not believe the historical volatility over the most recent period equal to the expected life of the option (i.e., the 5-year period ended January 2006) was indicative of future volatility, because the price of the Company’s stock increased more than 800% during that period, and similar volatility is considered unlikely to recur over the following 5-year period. The risk-free interest rate was equal to the 5-year U. S. Treasury rate in effect on the date of the grant. The dividend yield was based on the most recent year and is considered a reasonable estimate of future dividend yields. The expected life of the option represents the period that the stock options are expected to be outstanding and is based on historical experience. The Company has assumed a forfeiture rate of 0% as all of these options were granted to its Chief Executive Officer.

The Company’s stock-based compensation for the year ended December 31, 2006 also includes costs related to stock options granted in 2003 that were unvested as of January 1, 2006. The fair value of stock options granted in 2003 was estimated using the Black-Scholes option-pricing model based on the following assumptions: expected volatility of 16%, risk-free interest rate of 2.8%, no dividend yield (the Company did not pay any dividends until 2004) and an expected life of five years.

Additional information on the Company’s stock option activity for the years ended December 31, 2006, 2005 and 2004 is presented below:

	Year Ended December 31,
	2006		2005		2004
Weighted average grant date fair value	$	1.13		N/A		N/A
Intrinsic value of options exercised	$	1,080,949	$	1,550,921	$	13,750,794
Fair value of shares vested	$	247,758	$	666,934	$	830,652

A summary of the status of the Company’s nonvested options as of December 31, 2006, and changes during the year then ended, is presented below:

	Year Ended December 31, 2006
	Shares		Weighted Average Grant Date Fair Value
Nonvested at beginning of period	17,502		$	0.79
Granted	600,000			1.13
Vested	(217,502	)		1.18
Forfeited	—			—
Nonvested at end of period	400,000			1.09

F-14

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Additional information regarding options outstanding as of December 31, 2006 is as follows:

	Total Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Term (Years)
Total options outstanding	747,502	$	8.98	$	813,901	8.29
Fully-vested options	347,502	$	7.22	$	813,901	7.47
Options expected to vest	400,000	$	10.50	$	—	9.01

The Company in 2006 also granted stock appreciation rights (SARs) to certain directors and an executive officer. The SARs are exercisable only for cash, and are classified as liabilities, and not equity instruments, per SFAS No. 123R. Consequently, the Company is required to remeasure the fair value of the liability at the end of each reporting period and record a corresponding adjustment to the related compensation expense. The weighted-average fair value of the Company’s SARs was $0.51 per share at December 31, 2006. This fair value was estimated using the Black-Scholes option-pricing model based on the following assumptions: expected volatility of 19%, dividend yield of 6.03%, risk-free interest rate of 4.70% and an expected life of four years. There were no grants of SARs in 2005 or 2004.

A summary of the Company’s SARs activity for the period indicated is presented below:

	Year Ended December 31, 2006
	Share Units	Weighted Average Exercise Price
Outstanding at beginning of period	—	$	—
Granted	216,000		8.87
Exercised	—		—
Forfeited	—		—
Outstanding at end of period	216,000		8.87
Exercisable at end of period	—		—

A summary of the status of the Company’s nonvested SARs as of December 31, 2006, and changes during the year then ended, is presented below:

	Year Ended December 31, 2006
	Share Units	Weighted Average Fair Value
Nonvested at beginning of period	—	$	—
Granted	216,000		0.51
Vested	—		—
Forfeited	—		—
Nonvested at end of period	216,000		0.51

F-15

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Additional information regarding SARs outstanding as of December 31, 2006 is as follows:

Range of Exercise Prices	Total Share Units	Exercisable Share Units	Weighted Average Remaining Life (Years)	Weighted Average Exercise Price
				Share Units Outstanding		Share Units Exercisable
$8.23	36,000	—	4.75	$	8.23	$	—
$9.00	180,000	—	4.75		9.00		—

Prior to 2006, the Company accounted for its stock option plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations (“APB 25”), as permitted by FASB Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”).

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”). Under this standard, companies are no longer able to account for share-based compensation transactions using the intrinsic value method in accordance with APB 25. Instead, companies are required to account for such transactions using a fair-value method and recognize the expense in the consolidated statement of operations.

Effective January 1, 2006, the Company adopted SFAS No. 123R using the modified prospective transition method. Under this method, stock compensation cost recognized beginning January 1, 2006 includes (a) compensation cost for all previously granted stock options that were unvested as of January 1, 2006 and (b) compensation cost for all stock options granted on or subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. Results for prior periods have not been restated.

For the year ended December 31, 2006, the application of SFAS No. 123R resulted in stock-based compensation expense of $239,817, deferred tax benefits of $94,671 and a net reduction in net income of $145,146, reducing diluted earnings per share by $0.01. There was a negligible effect on basic earnings per share.

The compensation expense and deferred tax benefits are reflected as adjustments to cash flows from operating activities on the Company’s consolidated statement of cash flows. The Company recorded tax benefits from the exercise of non-qualified stock options of $14,441, which are included in cash flows from financing activities for the year ended December 31, 2006. Prior to the adoption of SFAS No. 123R, such tax benefits were presented as adjustments to cash flows from operating activities.

At December 31, 2006, the Company had $451,557 of unrecognized compensation cost related to unvested stock options. This cost is expected to be amortized over a weighted-average period of 2.0 years, ending in December 2008. The unrecognized compensation related to the SARs at December 31, 2006 was $100,028 and is expected to be amortized over the following 2.75 years, ending in September 2009. Because the SARs are classified as liabilities and not equity instruments per SFAS No. 123R, the Company is required to remeasure the fair value of the liability at the end of each subsequent reporting period and record a corresponding adjustment to the related compensation expense. Consequently, compensation cost related to the SARs may vary based on changes in the awards’ total estimated fair value.

F-16

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Prior to the adoption of SFAS No. 123R, the Company applied APB 25 to account for its stock-based awards. The following table illustrates the effect on net income and earnings per share had the Company accounted for share-based compensation in accordance with SFAS No. 123R for the period indicated:

	Year Ended December 31,
	2005		2004
	(Dollars in thousands, except per-share amounts)
Net income to common shareholders:
As reported	$	15,052	$	26,725
Add: Stock-based employee compensation included in reported net income, net of related tax effects		—		—
Less: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects		392		547
Pro forma	$	14,660	$	26,178
Net income per common and common share equivalent:
Basic earnings per share:
As reported	$	0.71	$	1.29
Pro forma		0.69		1.26
Diluted earnings per share:
As reported	$	0.70	$	1.25
Pro forma		0.68		1.22

5. SETTLEMENT OF LITIGATION

In May 2006, the Company received a favorable ruling from an arbitrator on all matters in connection with the Company’s disputes with a former officer. Pursuant to a binding arbitration held in February 2006, the arbitrator ruled that the Company has no obligation to indemnify the former officer for his monetary penalties or his legal expenses which arose from a criminal investigation of the officer. As a result of this ruling, the Company is entitled to recover legal fees and expenses previously advanced on the former officer’s behalf, plus interest on such advances calculated from the date of original payment. In addition, as the prevailing party, the Company is entitled to reimbursement of its own legal fees and costs incurred in connection with these claims. In the second quarter of 2006, following this ruling, the Company reversed $746,000 in unpaid expenses it had previously accrued on behalf of the former officer.

In October 2006, the Company reached a settlement with the former officer to recover amounts owed to the Company by the former officer. This settlement provides that the former officer will repay the Company a total of $2.0 million, plus interest on the unpaid balance at 6% per year. In October 2006, the Company received an initial payment of $200,000. All subsequent payments are to be made in semi-annual installments of $200,000 each, until the amount, including interest, is paid in full.

Effective in December 2004, the Bank reached a settlement in the bankruptcy of Commercial Loan Corporation (“CLC”) in connection with a lawsuit filed by the Bank against CLC and others regarding a $10.5 million loan portfolio which the Bank purchased from CLC in 2003. As a result of the settlement, the CLC bankruptcy trustee released to the Bank in December 2004 $0.4 million of previously escrowed interest payments made on the loans in this portfolio, and the Bank assumed the servicing of the loans. Accordingly, these loans were reclassified as performing assets, and the Bank recorded previously unrecognized interest income of $0.4 million. The impact of this settlement was reflected in the Company’s financial results as of and for the year ended December 31, 2004.

F-17

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

6. SECURITIES

The amortized cost, fair value and gross unrealized gains and losses on mortgage-backed and other investment securities as of December 31, 2006 and 2005 are shown below. Fair market value estimates were obtained using discounted cash-flow models or from independent parties.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Market Values
	(Dollars in thousands)
December 31, 2006
Available-for-sale:
GSE mortgage-backed securities	$	237,903	$	1,074	$	1,689	$	237,288
AAA mortgage-backed securities		220,435		142		3,733		216,844
Other mortgage-backed securities		6,602		160		—		6,762
Trust preferred securities		3,228		—		—		3,228
Mutual funds		5,750		25		84		5,691
Total available for sale		473,918		1,401		5,506		469,813
Held-to-maturity:
Agency securities		9,759		—		24		9,735
Total	$	483,677	$	1,401	$	5,530	$	479,548
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Market Values
	(Dollars in thousands)
December 31, 2005
Available-for-sale:
GSE mortgage-backed securities	$	100,126	$	31	$	2,066	$	98,091
AAA mortgage-backed securities		226,857		1		4,568		222,290
Other mortgage-backed securities		11,822		369		—		12,191
Trust preferred securities		8,000		—		—		8,000
Mutual funds		5,750		58		80		5,728
Total available for sale		352,555		459		6,714		346,300
Held-to-maturity:
Agency securities		9,708		—		58		9,650
Total	$	362,263	$	459	$	6,772	$	355,950

F-18

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables show the gross unrealized losses and fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at the dates indicated:

	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
December 31, 2006
GSE mortgage-backed securities	$	18,509	$	79	$	72,595	$	1,610	$	91,104	$	1,689
AAA and other mortgage-backed securities		16,033		66		175,045		3,667		191,078		3,733
Mutual funds		—		—		1,916		84		1,916		84
Agency securities		9,735		24		—		—		9,735		24
Total	$	44,277	$	169	$	249,556	$	5,361	$	293,833	$	5,530
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
December 31, 2005
GSE mortgage-backed securities	$	50,251	$	827	$	40,903	$	1,239	$	91,154	$	2,066
AAA and other mortgage-backed securities		119,248		1,751		97,018		2,817		216,266		4,568
Mutual funds		—		—		1,920		80		1,920		80
Agency securities		9,650		58		—		—		9,650		58
Total	$	179,149	$	2,636	$	139,841	$	4,136	$	318,990	$	6,772

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

The Company has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company expects to receive full value for the securities. Furthermore, as of December 31, 2006, the Company also had the ability and intent to hold the securities classified as available for sale for a period of time sufficient for a full recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2006 and 2005, management believes the impairments detailed in the table above are temporary, and as a result, no impairment loss has been realized in the Company’s consolidated statements of operations.

As of December 31, 2006, the Company had no securities maturing in less than five years, $16.4 million fair value and $16.6 million unamortized cost of securities maturing in over five years through ten years, and

F-19

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

$457.4 million fair value and $461.3 million unamortized cost of securities maturing after ten years. However, the Company expects to receive payments on its securities over periods considerably shorter than their contractual maturities.

There were no sales of securities during the years ended December 31, 2006 or 2005. The Company received proceeds of $34.7 million on sales of available-for-sale securities during the year ended December 31, 2004. Gross realized gains and losses from sales of available-for-sale securities were $420,000 and $2,000, respectively, for the year ended December 31, 2004.

At December 31, 2006 and 2005, securities with amortized cost of $362.6 million and $260.5 million, respectively, and market values of $358.8 million and $254.8 million, respectively, were pledged to secure repurchase agreements, FHLB advances and public deposits.

7. LOANS AND DISCOUNTED LOANS

The following is a summary of the Company’s loans and discounted loans by each loan category at the dates indicated:

	December 31,
	2006			2005
	(Dollars in thousands)
Loans
Real estate loans:
Single-family	$	18,797		$	29,393
Multifamily		356,992			436,805
Commercial		569,840			483,718
Construction		98,869			—
Total real estate loans		1,044,498			949,916
Consumer and other		2,060			853
		1,046,558			950,769
Add: Net premium on loans and deferred fees		2,046			4,455
Less: Allowance for loan losses		(7,878	)		(7,080	)
	$	1,040,726		$	948,144
	December 31,
	2006			2005
	(Dollars in thousands)
Discounted Loans
Real estate loans:
Single-family	$	1,117		$	1,758
Total real estate loans		1,117			1,758
Consumer and other		195			206
		1,312			1,964
Less: Discounts on purchased loans		(56	)		(76	)
Allowance for loan losses		(99	)		(209	)
	$	1,157		$	1,679

F-20

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of December 31, 2006 and 2005, loans and discounted loans with adjustable rates of interest (including loans with an initial fixed rate for 3 or 5 years which subsequently convert to adjustable) totaled $906.0 million and $816.7 million, respectively, and loans with fixed rates of interest were $141.9 million and $136.0 million, respectively. Adjustable-rate loans are generally indexed to constant maturity treasury rates, LIBOR, Prime or the FHLB’s Eleventh District Cost of Funds Index, and are subject to limitations on the timing and extent of adjustment. Most variable-rate loans adjust within six months of changes in the index.

At December 31, 2006 and 2005, loans with unpaid principal balances totaling $1,018.8 million and $950.8 million, respectively, were pledged against Federal Home Loan Bank advances.

Activity in the allowance for loan losses (combined for loans and discounted loans) is summarized as follows:

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Balance, beginning of year	$	7,289		$	10,783		$	38,776
Allocations of purchased reserves:
at acquisition		—			—			854
at disposition		—			—			(23,595	)
Net change pursuant to fresh-start reporting		(10	)		(19	)		(19	)
Charge-offs		(309	)		(2,993	)		(5,733	)
Recoveries		50			126			149
Reclassification to investor participant’s share		—			(567	)		—
Provision for (recapture of) losses on loans		957			(41	)		351
Balance, end of year	$	7,977		$	7,289		$	10,783

The recorded investment in loans that are considered to be impaired is as follows:

	At or for the Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Impaired loans without specific valuation allowances	$	6,919		$	9,615		$	5,479
Impaired loans with specific valuation allowances		126			311			4,060
Specific valuation allowance related to impaired loans		(64	)		(175	)		(3,588	)
Impaired loans, net	$	6,981		$	9,751		$	5,951
Average investment in impaired loans	$	10,763		$	9,364		$	8,021
Interest income recognized on impaired loans	$	842		$	649		$	458
Interest income recognized on impaired loans on a cash basis	$	842		$	649		$	458

When the Company receives payments on impaired loans that are more than 90 days past due, the payment is applied to principal and interest if the payment brings the loan to less than 90 days delinquent (or, in cases where payments are made in accordance with a bankruptcy plan, the borrower is current under the terms of that plan). If a payment is received on a loan in foreclosure, the payment is returned to the borrower. In some

F-21

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

instances, a partial payment is accepted if the borrower executes a forbearance agreement. Payments received on impaired loans less than 90 days past due are recorded as both principal and interest in accordance with the terms of the loan. No additional funds are committed to be advanced in connection with impaired loans. For the year ended December 31, 2006, the Company would have recorded approximately $915,000 in gross interest income if its impaired loans had been current in accordance with their original terms.

At December 31, 2006 and 2005, the Company had a total of $1.6 million and $5.9 million, respectively, of loans on nonaccrual status.

The Company has a geographic concentration of mortgage loans in the western United States, primarily in southern California. The five states with the greatest concentration of the Company’s loans at December 31, 2006 were California, Nevada, Arizona, Texas and Illinois, which had $514.1 million, $79.9 million, $67.1 million, $55.7 million and $33.4 million of loans, respectively. The five states with the greatest concentration of the Company’s discounted loans were Texas, California, Florida, Georgia and Illinois, which had $247,000, $167,000, $127,000, $91,000 and $87,000 principal amount of loans, respectively, at December 31, 2006. The Company does not believe any of its residential loans have features such as interest-only loans or loans with negative amortization that would give rise to any additional concentration of credit risk required to be disclosed by FSP SOP 94-6-1.

Management’s estimates are utilized to determine the adequacy of the allowance for loan losses. Estimates are also involved in determining the ultimate recoverability of purchased loans. These estimates are inherently uncertain and depend on the outcome of future events. Although management believes the levels of the allowance as of December 31, 2006 and 2005 are sufficient to absorb losses inherent in the loan portfolio, changes in interest rates, various other economic factors and regulatory requirements may result in increasing levels of losses. Those losses will be recognized if and when these events occur.

8. REAL ESTATE OWNED

Real estate owned consists of property that was obtained through foreclosure or deed in lieu of foreclosure, and is reported at the lower of its fair value less estimated costs to sell, the net carrying value of the underlying loan, or the acquisition cost. Activity in real estate owned is as follows for the years indicated:

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Balance, beginning of year	$	62		$	1,769		$	267
Foreclosures		1,518			120			2,104
Sales and exchanges, net		(55	)		(1,817	)		(379	)
Provision for losses		(872	)		(10	)		(223	)
Balance, end of year	$	653		$	62		$	1,769

F-22

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Activity in the valuation allowance on real estate owned is summarized as follows for the dates indicated:

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Balance, beginning of year	$	10		$	205		$	66
Specific reserves on properties sold		(17	)		(205	)		(52	)
Charge-offs		—			—			(32	)
Provision for losses		872			10			223
Balance, end of year	$	865		$	10		$	205

9. LEASEHOLD IMPROVEMENTS AND EQUIPMENT

Leasehold improvements and equipment consisted of the following at the dates indicated:

	December 31,
	2006			2005
	(Dollars in thousands)
Leasehold improvements	$	1,208		$	1,452
Construction in progress		4			116
Furniture and equipment		1,756			1,783
Total cost		2,968			3,351
Accumulated depreciation and amortization		(1,724	)		(1,812	)
	$	1,244		$	1,539

10. GOODWILL AND INTANGIBLE ASSETS

The Company has goodwill of $3.1 million as a result of the Bank’s purchase of its Beverly Hills branch in June 2000. Through December 31, 2001, the goodwill was amortized on a straight-line basis over an estimated useful life of 15 years. In January 2002 the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, and, as a result, no longer amortizes goodwill, but tests it at least annually for impairment. The Company tested goodwill for impairment as of March 31, 2006 and determined that no impairment charge was required. There were no conditions that indicated impairment at December 31, 2006.

The Company also recorded a core deposit intangible of $1.3 million in connection with the Bank’s purchase of the branch. The core deposit intangible was amortized on a straight-line basis over an estimated useful life of 5 years and had been amortized in full as of June 30, 2005.

F-23

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

11. DEPOSITS

Deposits consisted of the following at the dates indicated:

	December 31,
	2006		2005
	(Dollars in thousands)
Savings accounts	$	2,012	$	2,723
NOW and money market accounts		12,050		63,193
Noninterest-bearing deposit accounts		2,038		4,655
Certificates of deposit:
Less than $100,000		36,357		99,843
$100,000 or more		798,433		434,235
Total deposits	$	850,890	$	604,649

At December 31, 2006, the Bank held $12.6 million in money market deposits for BHBC and WFC. These deposits have been eliminated in consolidation and are not reflected in the above amounts.

A summary of certificates of deposit by maturity is as follows:

	December 31, 2006
	(Dollars in thousands)
2007	$	712,399
2008		75,602
2009		1,268
2010		281
2011		45,240
	$	834,790

The Bank’s deposits generally are not collateralized, with the exception of $60.0 million of public fund certificates of deposit from the State of California, which are secured by mortgage-backed securities.

F-24

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

12. REPURCHASE AGREEMENTS AND FHLB ADVANCES

At December 31, 2006 and 2005, the Company had outstanding repurchase agreements totaling $40.0 million and $63.0 million, respectively, which provide liquidity and financing for the Company’s acquisitions of loan pools and mortgage-backed securities. Following is information about repurchase agreements for the years indicated:

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Repurchase agreements:
Average amount outstanding during the year	$	43,538		$	116,000		$	89,951
Maximum month-end balance outstanding during the year		63,000			143,000			120,000
Weighted average rate:
During the period		3.53	%		3.17	%		2.26	%
At end of period		4.81	%		3.43	%		2.74	%

The Company’s repurchase agreements outstanding at December 31, 2006 mature in 2008. These borrowings are secured by mortgage-backed securities.

The Company has an agreement with the Federal Home Loan Bank of San Francisco (the “FHLB”) whereby the Company can apply for advances not to exceed 45% of the Bank’s total assets as of the previous quarter-end. These advances are secured by mortgage-backed securities and loans. The balances of FHLB advances outstanding as of December 31, 2006 and 2005 were $496.3 million and $530.8 million, respectively. At December 31, 2006, the Company had $146.3 million in unused FHLB borrowing capacity.

The following table sets forth the Company’s FHLB advances at and for the years indicated:

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
FHLB advances:
Average amount outstanding during the year	$	482,068		$	508,298		$	361,249
Maximum month-end balance outstanding during the year		557,837			555,837			474,837
Weighted average rate:
During the period		3.96	%		3.06	%		2.95	%
At end of period		4.53	%		3.42	%		2.75	%

The Company’s repurchase agreements and FHLB advances mature as follows:

	December 31, 2006
	(Dollars in thousands)
2007	$	156,337
2008		135,000
2009		145,000
2010		30,000
2011		70,000
Total	$	536,337

F-25

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company also has a loan agreement with a financial institution pursuant to which it may borrow up to $20.0 million under a revolving line of credit. At December 31, 2006, the Company had $20.0 million outstanding under this agreement, bearing interest at the 3-month LIBOR rate, plus 1.65% (7.02% at December 31, 2006). Interest is adjustable and payable quarterly beginning on March 1, 2007. The line of credit is due and payable in full on November 30, 2007.

13. LONG-TERM DEBT

At December 31, 2006, the Company had outstanding $46.4 million in floating-rate junior subordinated notes payable to three wholly owned statutory business trusts. The Company issued the notes to the trusts in separate placements occurring in July 2002, May 2006 and December 2006. The trusts purchased the notes using the proceeds from private placements of trust preferred securities to unaffiliated third parties and from the issuance of common securities to the Company. In accordance with FASB Interpretation No. 46R (“FIN 46R”), the Company has reflected the notes under the caption “Junior subordinated notes payable to trust” and included its common securities in the trust in “other assets” in its consolidated statements of financial condition.

The following table summarizes the Company’s subordinated notes payable outstanding as of December 31, 2006:

	Year Ended December 31, 2006
	(Dollars in thousands)
Date of borrowing		7/11/2002			5/16/2006			12/28/2006
Amount of borrowing	$	20,619		$	20,619		$	5,155
Interest terms (to be reset quarterly)		LIBOR + 3.65	%		LIBOR + 1.55	%		LIBOR + 1.78	%
Interest rate at end of year		9.02	%		6.92	%		7.14	%
Maturity date		10/7/2032			6/23/2036			3/6/2037
First date redeemable at par		7/11/2007			6/23/2011			3/6/2012

The following table sets forth the Company’s total subordinated notes payable at and for the years indicated:

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Average amount outstanding during the year	$	33,704		$	20,619		$	20,619
Maximum month-end balance outstanding during the year		46,393			20,619			20,619
Weighted average rate:
During the period		8.23	%		7.21	%		5.59	%
At end of period		7.88	%		7.80	%		5.72	%

F-26

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

14. INCOME TAXES

The Company files consolidated federal and state income tax returns with its eligible subsidiaries. The components of the income tax provision were as follows for the years indicated:

	Year Ended December 31,
	2006			2005		2004
	(Dollars in thousands)
Current tax provision (benefit):
Federal	$	5,977		$	3,982	$	(1,103	)
State		3,426			266		(220	)
Total current tax provision (benefit)		9,403			4,248		(1,323	)
Deferred tax provision (benefit):
Federal		1,767			3,887		(15,442	)
State		(230	)		2,186		(411	)
Total deferred tax provision (benefit)		1,537			6,073		(15,853	)
Allocation to stockholders’ equity:
Utilization of pre-reorganizational deferred tax assets		—			203		21,761
Total allocation to stockholders’ equity		—			203		21,761
Total income tax provision	$	10,940		$	10,524	$	4,585

The difference between the effective tax rate applicable to income from continuing operations and the statutory federal income tax rate can be attributed to the following for the years indicated:

	Year Ended December 31,
	2006		2005		2004
Federal income tax provision at statutory rate	35.0	%	34.0	%	34.0	%
State taxes, net of federal tax effect	7.0		6.8		9.9
Excess inclusion income from residual interests in REMICs	—		—		8.9
Reduction in valuation allowance related to post-reorganizational deferred tax assets	—		—		(31.2	)
Other	0.5		0.3		3.3
Effective income tax rate	42.5	%	41.1	%	24.9	%

The Company’s deferred tax assets and liabilities represent the tax effect of future deductible or taxable amounts. They are attributable to net operating loss carryforwards and also to temporary timing differences between amounts that have been recognized in the financial statements and amounts that have been recognized in the income tax returns. A tax rate of approximately 41.0% is applied to each attribute in determining the amount of the related deferred tax asset or liability.

F-27

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company’s deferred income tax assets and liabilities are summarized as follows at the dates indicated:

	December 31,
	2006			2005
	(Dollars in thousands)
Deferred tax assets:
Loans – purchase discounts, allowances for loan losses and market valuation adjustments	$	1,031		$	649
Market adjustment on mortgage-backed securities		1,594			566
Depreciation and amortization		433			322
Net operating loss carryforward, net of cancellation of debt income		33,862			35,648
Accrued expenses		36			346
Goodwill		—			306
State taxes		910			194
Stock-based compensation		92			—
Other		177			805
Gross deferred tax assets		38,135			38,836
Deferred tax liabilities:
Pass-through income		(1,977	)		(1,854	)
Deferred loan fees		(1,087	)		(401	)
Goodwill		(1,064	)		—
Gross deferred tax liabilities		(4,128	)		(2,255	)
Total deferred tax asset, net		34,007			36,581
Valuation allowance		(5,731	)		(5,842	)
Net deferred tax asset	$	28,276		$	30,739

SFAS No. 109, Accounting for Income Taxes, requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. As of December 31, 2006, the Company evaluated the positive and negative evidence regarding the future realization of the deferred tax assets. Pursuant to this evaluation, the Company concluded that the available objective positive evidence regarding its ability to generate future federal taxable income substantially outweighed the available objective negative evidence regarding future federal taxable income. The Company also concluded that the objective negative evidence regarding the ability to generate certain future state taxable income outweighed the available objective positive evidence regarding certain future state taxable income, due primarily to the significant reduction in its operations in the state of Oregon following the sale of WCC. As a result, the Company believes it is more likely than not that a substantial amount of its deferred tax assets will be realized in future years, and that, as of December 31, 2006, the only valuation allowance required was approximately $5.7 million related to net operating loss carryforwards in Oregon and certain other states. The net deferred tax asset of $28.3 million is reported as an asset in the consolidated statement of financial condition as of December 31, 2006.

In accordance with AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”), as portions of the deferred tax asset are realized and the valuation allowance is reduced, the related benefits, to the extent they relate to the Company’s post-reorganizational period, are recorded as a tax benefit in the consolidated statements of operations. As benefits relating to the Company’s pre-reorganizational period are realized, they are recorded as a direct increase to stockholders’ equity.

F-28

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In June 2002 the Company experienced a change in control as set forth by Section 382 of the Internal Revenue Code. In general, a change in control is defined as a greater than 50% ownership shift as measured over the prior three-year period. The change in control will limit the Company’s ability to utilize its net operating loss carryforwards in future periods. The Company has determined that the limitation on the amount that may be used annually to offset taxable income is approximately $6 million.

As of December 31, 2006, the Company had federal net operating loss carryforwards (NOLs) of approximately $81.5 million, and also had NOLs in various states. The federal carryforward period runs through 2020. As discussed above, the Company’s net operating loss carryforwards that were generated prior to the change in control are subject to an annual limitation on the amount that may be used to offset taxable income.

15. COMMITMENTS AND CONTINGENCIES

Lease Commitments—The following is a schedule of future minimum rental payments under operating leases as of the date indicated:

	December 31, 2006
	(Dollars in thousands)
2007	$	422
2008		425
2009		432
2010		445
2011		445
Thereafter		1,237
Total	$	3,406

The Company’s lease expense totaled $699,000, $745,000 and $654,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

Loan Commitments—At December 31, 2006, the Company had outstanding commitments to fund $154.0 million of loans. Loan commitments expose the Bank to credit risk in excess of amounts reflected in the consolidated financial statements. The Bank receives collateral to support loans and commitments to extend credit for which collateral is deemed necessary.

Purchase Commitments—From time to time, the Company enters into various commitments and letters of intent relating to purchases of loans, foreclosed real estate portfolios and other investments. There can be no assurance that any of these transactions will ultimately be consummated. It is the Company’s policy generally to record such transactions in the financial statements in the period in which such transactions are closed. There were no such commitments outstanding at December 31, 2006.

Litigation—Beginning in June 2005, WCC made demands on the Company for reimbursement of certain costs purportedly incurred by WCC in connection with WCC’s performance under one of its loan servicing contracts. Through December 31, 2006, WCC had claimed a total of $890,000 of such costs. WCC further asserted that the Company is obligated to reimburse WCC for similar recurring costs it may incur through April 2008. The Company disagrees with this assertion. As a result, in July 2005 the Company filed a complaint for declaratory relief against WCC and Merrill Lynch. The complaint seeks, among other things, a declaration that the Company has no obligation to reimburse WCC for those costs, and that if such an obligation is found to exist,

F-29

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

it is for a substantially lesser amount than that claimed by WCC. In September 2005, Merrill Lynch filed a cross-complaint against the Company alleging breach of contract. This litigation is expected to be resolved in 2007. The Company is not currently able to quantify the impact, if any, that the outcome of these actions may have on its financial condition or results of operations.

The Company has contractually agreed to indemnify Merrill Lynch for claims asserted against WCC by third parties arising out of acts taken by WCC prior to its sale on April 30, 2004. The indemnity is for settlements of judgments paid and for defense costs, and is for amounts which, in the aggregate, exceed $2.0 million. Merrill Lynch has notified the Company of a number of claims that have been or are being asserted against WCC, and for which Merrill Lynch is seeking indemnity from the Company. As of January 31, 2007, the total payments and defense costs of such claims was $1.1 million. It is unknown at the present whether the total claims for which Merrill Lynch asserts the Company is responsible will surpass the $2.0 million threshold and whether this matter will evolve into a formal claim. As of December 31, 2006, the Company determined that it was probable that a liability had been incurred in connection with this litigation. The Company believed $100,000 was a reasonable estimate of its potential liability, and accrued this amount as of December 31, 2006.

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

16. REGULATORY MATTERS

Capital Requirements—Bank holding companies, such as BHBC, and FDIC-insured banks, such as FBBH, are required to meet certain minimum regulatory capital requirements. At December 31, 2006, BHBC and FBBH met all applicable regulatory capital requirements and FBBH was “well capitalized,” as defined under applicable regulations.

F-30

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table sets forth the regulatory standards for well capitalized and adequately capitalized institutions and capital ratios for BHBC and FBBH at the date indicated:

Regulatory Capital Ratios

					Amount Required
	Actual				For Capital Adequacy Purposes					To be Categorized as “Well Capitalized”
	Amount		Ratio		Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
December 31, 2006
BHBC
Total capital to risk-weighted assets (Risk-based capital)	$	181,753	16.0	%	$	90,865	³	8.0	%		Not Applicable
Tier 1 capital to risk-weighted assets		173,811	15.3	%		45,433	³	4.0	%		Not Applicable
Tier 1 leverage ratio		173,811	11.9	%		58,654	³	4.0	%		Not Applicable
FBBH
Total capital to risk-weighted assets (Risk-based capital)	$	149,022	13.5	%	$	88,565	³	8.0	%	$	110,706	³	10.0	%
Tier 1 capital to risk-weighted assets		141,309	12.8	%		44,283	³	4.0	%		66,424	³	6.0	%
Tier 1 capital to average assets		141,309	9.8	%		57,965	³	4.0	%		72,456	³	5.0	%

In addition to the requirements shown in the above table, FBBH is required by the DFI to maintain a ratio of tangible shareholder’s equity to total tangible assets of at least 8.0% for the first three years following the effective date of the charter conversion, or through August 31, 2008. As of December 31, 2006, FBBH was in compliance with the DFI’s requirement.

					Amount Required
	Actual				For Capital Adequacy Purposes					To be Categorized as “Well Capitalized”
	Amount		Ratio		Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
December 31, 2005
BHBC
Total capital to risk-weighted assets (Risk-based capital)	$	173,250	18.5	%	$	74,941	³	8.0	%		Not Applicable
Tier 1 capital to risk-weighted assets		166,006	17.7	%		37,470	³	4.0	%		Not Applicable
Tier 1 leverage ratio		166,006	11.8	%		56,270	³	4.0	%		Not Applicable
FBBH
Total capital to risk-weighted assets (Risk-based capital)	$	142,103	15.2	%	$	74,596	³	8.0	%	$	93,244	³	10.0	%
Tier 1 capital to risk-weighted assets		135,068	14.5	%		37,298	³	4.0	%		55,947	³	6.0	%
Tier 1 capital to average assets		135,068	9.6	%		56,110	³	4.0	%		70,138	³	5.0	%

F-31

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

17. RELATED PARTY TRANSACTIONS

In August 2006, pursuant to a public “Dutch auction” tender offer, the Company repurchased 982,819 shares of its common stock from Howard Amster for $8.8 million and repurchased 784,999 shares from Robert H. Kanner for $7.1 million. Messrs. Amster and Kanner are directors of the Company. The Company purchased these shares at a price of $9.00 per share, which was the same price paid for the shares of unrelated persons who participated in the tender offer.

At December 31, 2006, the Company had an outstanding loan of $14.0 million, bearing interest at 9.015%, to an entity controlled by Mr. Ezri Namvar, who owned 6.9% of the Company’s stock at the date of the transaction. Payment on the loan was guaranteed by Mr. Namvar and the Namvar Family Trust. In January 2007, this loan was repaid in full.

In the normal course of business, both BHBC and the Bank incur various operating expenses, including income taxes, on behalf of the other, and each company reimburses the other on a monthly basis for those expenses. For the year ended December 31, 2006, BHBC made net reimbursements to the Bank totaling $156,000. For the year ended December 31, 2005, the Bank made net reimbursements to BHBC of $2.9 million, and for the year ended December 31, 2004, BHBC made net reimbursements to the Bank of $58,000.

The Bank paid dividends of $11.4 million to BHBC for the year ended December 31, 2006. In 2005, BHBC made capital contributions to the Bank totaling $10.0 million. Of this amount, $2.2 million was in cash and $7.8 million was contributed through the forgiveness of a portion of the Bank’s intercompany income tax liability to BHBC. In 2004, BHBC made capital contributions to the Bank totaling $17.1 million, consisting of $7.5 million in cash and $9.6 million in forgiveness of the Bank’s intercompany income tax liability. These transactions have been eliminated in consolidation.

At December 31, 2006, BHBC and WFC held money market accounts at the Bank in the amount of $12.6 million and $1,000, respectively. The Company believes the terms of these accounts are the same as those of money market deposits held by non-affiliates. These deposit accounts have been eliminated in consolidation.

F-32

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

18. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and potentially dilutive stock options outstanding during the period. Following is a reconciliation of the number of shares used in the calculation of basic and diluted earnings per share for the years indicated:

	Year Ended December 31,
	2006			2005		2004
	(Dollars in thousands, except per-share amounts)
Income from continuing operations	$	14,810		$	15,052	$	13,832
Discontinued operations		—			—		12,893
Net income	$	14,810		$	15,052	$	26,725
Weighted average number of common shares outstanding – basic		20,360,919			21,220,777		20,772,752
Net effect of dilutive stock options – based on treasury stock method		140,938	(1)		283,184		603,331
Weighted average number of common shares outstanding – diluted		20,501,857			21,503,961		21,376,083
Earnings per share – basic:
Income from continuing operations	$	0.73		$	0.71	$	0.67
Discontinued operations		—			—		0.62
Net income	$	0.73		$	0.71	$	1.29
Earnings per share – diluted:
Income from continuing operations	$	0.72		$	0.70	$	0.65
Discontinued operations		—			—		0.60
Net income	$	0.72		$	0.70	$	1.25

(1) Does not include a weighted average of 596,712 options outstanding during the period whose exercise would have had an anti-dilutive effect on earnings per share.

19. EMPLOYEE BENEFITS AND AGREEMENTS

Profit Sharing Plan—The Company’s employees may participate in a defined contribution profit sharing and 401(k) plan. At the discretion of the Company’s Board of Directors, the Company may elect to contribute to the plan based on profits of the Company or based on matching participants’ contributions. The Company contributed $202,000, $96,000 and $129,000, respectively, for the years ended December 31, 2006, 2005 and 2004.

Employment Agreements—The Company has employment agreements with certain executive officers. These agreements provide for the payment of base salaries, performance bonuses subject to certain restrictions, and/or the payment of severance benefits upon termination.

Stock Plans—The Company has two stock plans, the 1999 Equity Participation Plan (the “1999 Plan”) and the 2002 Equity Participation Plan (the “2002 Plan”). The 1999 Plan and the 2002 Plan were approved by the shareholders of the Company.

F-33

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Under the 1999 Plan, the Company may issue to directors, employees and consultants up to an aggregate of 4,000,000 shares of common stock upon exercise of incentive stock options (“ISOs”), non-statutory stock options (“NSOs”) or stock appreciation rights (“SARs”), or the grant of restricted stock. No participant may receive awards under the 1999 Plan of more than 1,000,000 shares per year. The exercise price of any ISO or NSO, and the base value of any SAR, may not be less than the fair value of the underlying shares on the date of grant. The Company may sell restricted stock under the 1999 Plan at any price and any terms and conditions. The 1999 Plan expires in 2009.

Under the 2002 Plan, the Company may issue to directors, employees and consultants up to an aggregate of 1,000,000 shares of common stock upon exercise of ISOs or NSOs or the grant or sale of restricted stock. The exercise price of any ISO may not be less than the fair value of the underlying shares on the date of grant; there is no restriction under the 2002 Plan regarding the exercise price of any NSO. The Company may sell restricted stock under the 1999 Plan at any price and any terms and conditions. The 2002 Plan expires in 2012.

20. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

	December 31, 2006				December 31, 2005
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	27,005	$	27,005	$	20,954	$	20,954
Mortgage-backed securities available for sale		460,893		460,893		332,572		332,572
Investment securities available for sale		8,920		8,920		13,728		13,728
Investment securities held to maturity		9,759		9,735		9,708		9,650
Loans, net		1,040,726		1,045,144		948,144		952,399
Discounted loans, net		1,157		1,204		1,679		1,749
Accrued interest receivable		8,685		8,685		6,284		6,284
Federal Home Loan Bank stock		29,015		29,015		27,625		27,625
Liabilities:
Deposits		850,890		848,021		604,649		596,742
Short-term borrowings		20,000		20,000		—		—
Repurchase agreements		40,000		39,829		63,000		62,370
FHLB advances		496,337		492,098		530,837		523,872
Junior subordinated notes payable to trusts		46,393		46,393		20,619		20,619
Accrued interest payable		10,676		10,676		6,877		6,877

The methods and assumptions used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value are explained below:

Cash and Cash Equivalents—The carrying amounts approximate fair values due to the short-term nature of these instruments.

F-34

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Investment Securities and Mortgage-Backed Securities—The fair values of securities are generally obtained from discounted cash flow models, market bids for similar or identical securities, independent security brokers or dealers.

Loans and Discounted Loans—Loans are segregated by type, such as fixed- and adjustable-rate interest terms. The fair values of fixed-rate mortgage loans are based on discounted cash flows utilizing applicable risk-adjusted spreads relative to the current pricing of similar fixed-rate loans as well as anticipated prepayment schedules. The fair values of adjustable-rate mortgage loans are based on discounted cash flows utilizing discount rates that approximate the pricing of available mortgage-backed securities having similar rate and repricing characteristics, as well as anticipated prepayment schedules. No value adjustments have been made for changes in credit within the loan portfolio. It is management’s opinion that the allowance for estimated loan losses pertaining to loans results in a fair value adjustment of the credit risk of such loans. The fair value of discounted loans, which are predominantly non-performing loans, is more difficult to estimate due to uncertainties as to the nature, timing and extent to which the loans will be either collected according to original terms, restructured, or foreclosed upon. Discounted loans’ fair values were estimated using the Company’s best judgment for these factors in determining the estimated present value of future net cash flows discounted at a risk-adjusted market rate of return. For other loans, fair values are estimated for portfolios of loans with similar financial characteristics.

Accrued Interest Receivable and Accrued Interest Payable—The carrying amounts approximate fair values due to the short-term nature of these assets and liabilities.

Federal Home Loan Bank Stock—The carrying amounts approximate fair values because the stock may be sold back to the Federal Home Loan Bank at carrying value.

Deposits—The fair values of deposits are estimated based on the type of deposit. Demand accounts, which include passbook and transaction accounts, are presumed to have equal book and fair values, since the interest rates paid on these accounts are based on prevailing market rates. The estimated fair values of time deposits are determined by discounting the cash flows of settlements of deposits having similar maturities and rates, utilizing a yield curve that approximated the prevailing rates offered to depositors as of the reporting date.

Short-Term Borrowings—The carrying value of the Company’s borrowings under the revolving line of credit agreement is a reasonable approximation of fair value, as this debt agreement expires in less than one year, is repaid on a continual basis, and bears interest at prevailing market rates, adjusting quarterly.

Repurchase Agreements and FHLB Advances—The carrying value of repurchase agreements and FHLB advances maturing within one year is a reasonable approximation of fair value. The fair value of repurchase agreements and FHLB advances with maturities greater than one year is estimated using rates currently offered for borrowings and advances of similar maturities.

Junior Subordinated Notes Payable to Trusts—The carrying value of the Company’s notes payable to trusts is a reasonable approximation of fair value, as these borrowings bear interest at prevailing market rates, adjusting quarterly.

The fair value estimates presented herein are based on pertinent information available to management as of each reporting date. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented herein.

F-35

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

21. OPERATING SEGMENTS

The Company’s two operating segments, as defined by the Company’s management, consist of its Banking Operations and its Holding Company and Other Operations. Through the year ended December 31, 2005, the Company reported the results of its investment subsidiary, WFC, as an additional segment known as “Mortgage Investments.” In 2006, the Company determined that WFC no longer meets the qualitative definition or quantitative thresholds of an operating segment as set forth in SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. Consequently, WFC’s results for the year ended December 31, 2006 are not presented as a separate segment but are included in the Holding Company and Other Operations segment. Segment data for the years ended December 31, 2005 and 2004 have been restated to conform to the current format.

As discussed in Note 2, the Company sold WCC, which comprised the Company’s Loan Servicing segment, in April 2004. Accordingly, the operating results of WCC are presented separately, in a single caption titled “Income from operations of discontinued segment” in the Company’s consolidated statements of operations.

The Company’s operating segments are described in further detail as follows:

• Banking Operations—Through its subsidiary FBBH, the Company conducts a banking business focused primarily on products tailored to commercial, multifamily and construction real estate lending, in addition to investments in primarily AAA-rated and GSE mortgage-backed securities. The primary sources of funding for the Bank are deposits, FHLB advances and repurchase agreements. The Bank is a state-chartered commercial bank and is regulated by the DFI and the FDIC.

• Holding Company and Other Operations—The Company’s Holding Company and Other Operations consist of other operating revenues and expenses not attributable to its Banking Operations. This segment includes interest income on loans and other investments, interest expense on $46.4 million of junior subordinated notes payable, general corporate expenses and eliminations of intercompany accounts and transactions.

Segment results for the years ended December 31, 2006, 2005 and 2004 are shown in the following tables. This data has been prepared in accordance with the accounting principles discussed in Note 1.

	Year Ended December 31, 2006
	Banking		Holding Company and Other			Total
	(Dollars in thousands)
Interest income	$	86,536	$	1,631		$	88,167
Interest expense		52,784		2,388			55,172
Net interest income (expense)		33,752		(757	)		32,995
Provision for loan losses		820		137			957
Net interest income (expense) after provision for loan losses		32,932		(894	)		32,038
Realized gains		8,531		—			8,531
Other income (loss)		543		(22	)		521
Compensation and employee benefits expense		6,152		917			7,069
Other expenses		4,711		3,560			8,271
Income (loss) before taxes		31,143		(5,393	)		25,750
Income tax provision (benefit)		12,978		(2,038	)		10,940
Net income (loss)	$	18,165	$	(3,355	)	$	14,810
Total assets	$	1,565,328	$	58,508		$	1,623,836

F-36

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Year Ended December 31, 2005
	Banking			Holding Company and and Other			Total
	(Dollars in thousands)
Interest income	$	76,442		$	955		$	77,397
Interest expense		37,150			1,193			38,343
Net interest income (expense)		39,292			(238	)		39,054
(Recapture of) provision for loan losses		(65	)		24			(41	)
Net interest income (expense) after (recapture of) provision for loan losses		39,357			(262	)		39,095
Other income		1,416			603			2,019
Compensation and employee benefits expense		6,392			381			6,773
Other expenses		5,568			3,197			8,765
Income (loss) before taxes		28,813			(3,237	)		25,576
Income tax provision (benefit)		11,732			(1,208	)		10,524
Net income (loss)	$	17,081		$	(2,029	)	$	15,052
Total assets	$	1,367,320		$	36,419		$	1,403,739

	Year Ended December 31, 2004
	Banking		Loan Servicing		Holding Company and Other			Total
	(Dollars in thousands)
Interest income	$	58,593	$	—	$	1,448		$	60,041
Interest expense		25,381		—		1,113			26,494
Net interest income		33,212		—		335			33,547
Provision for (recapture of) loan losses		438		—		(87	)		351
Net interest income after provision for (recapture of) loan losses		32,774		—		422			33,196
Realized gains		418		—		20			438
Other income		653		—		235			888
Compensation and employee benefits expense		6,164		—		647			6,811
Other expenses		5,413		—		3,881			9,294
Income (loss) from continuing operations before income tax provision (benefit)		22,268		—		(3,851	)		18,417
Income tax provision (benefit)		9,251		—		(4,666	)		4,585
Income from continuing operations		13,017		—		815			13,832
Discontinued operations:
Income from operations of discontinued segment		—		484		—			484
Gain on disposal of discontinued segment		—		—		21,716			21,716
Income tax provision		—		318		8,989			9,307
Income from discontinued operations		—		166		12,727			12,893
Net income	$	13,017	$	166	$	13,542		$	26,725
Total assets	$	1,298,625	$	—	$	36,998		$	1,335,623

F-37

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

22. QUARTERLY RESULTS OF OPERATIONS (Unaudited)

	Quarter Ended
	December 31, 2006			September 30, 2006		June 30, 2006			March 31, 2006
	(Dollars in thousands, except per-share amounts)
Statements of Operations
Interest income	$	23,811		$	22,471	$	21,530		$	20,355
Interest expense		16,273			14,488		12,932			11,479
Net interest income		7,538			7,983		8,598			8,876
Provision for (recapture of) loan losses		906			120		(109	)		40
Net interest income after provision for (recapture of) loan losses		6,632			7,863		8,707			8,836
Realized gains		8,531			—		—			—
Other (loss) income		(557	)		381		339			358
Compensation and employee benefits expense		1,312			1,726		2,018			2,013
Other expenses		1,595			2,343		1,502			2,831
Income before income tax provision		11,699			4,175		5,526			4,350
Income tax provision		5,298			1,540		2,250			1,852
Net income	$	6,401		$	2,635	$	3,276		$	2,498
Earnings per share – basic	$	0.33		$	0.13	$	0.15		$	0.12
Earnings per share – diluted	$	0.32		$	0.13	$	0.15		$	0.12

	Quarter Ended
	December 31, 2005		September 30, 2005			June 30, 2005		March 31, 2005
	(Dollars in thousands, except per-share amounts)
Statements of Operations
Interest income	$	20,761	$	20,890		$	18,541	$	17,205
Interest expense		11,248		10,360			8,938		7,797
Net interest income		9,513		10,530			9,603		9,408
Provision for (recapture of) loan losses		11		(48	)		—		(4	)
Net interest income after provision for (recapture of) loan losses		9,502		10,578			9,603		9,412
Other income		392		836			298		493
Compensation and employee benefits expense		1,098		1,911			1,895		1,869
Other expenses		2,422		2,028			2,345		1,970
Income before income tax provision		6,374		7,475			5,661		6,066
Income tax provision		2,505		3,053			2,388		2,578
Net income	$	3,869	$	4,422		$	3,273	$	3,488
Earnings per share – basic	$	0.19	$	0.21		$	0.15	$	0.16
Earnings per share – diluted	$	0.18	$	0.21		$	0.15	$	0.16

F-38

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

23. PARENT COMPANY INFORMATION

Condensed Statements of Financial Condition

	December 31,
	2006		2005
	(Dollars in thousands)
ASSETS
Cash and cash equivalents	$	12,579	$	20,986
Loans, net		27,557		—
Investment in subsidiaries		145,784		135,999
Prepaid expenses and other assets		32,064		34,570
	$	217,984	$	191,555
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other liabilities	$	574	$	795
Intercompany borrowings		25,774		—
Due to affiliates, net		36,198		16,890
Total liabilities		62,546		17,685
Stockholders’ equity		155,438		173,870
	$	217,984	$	191,555

Condensed Statements of Operations

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
Interest income	$	1,302		$	293		$	—
Interest expense		863			—			4
Net interest income (expense)		439			293			(4	)
Provision for loan losses		130			—			—
Net interest income (expense) after provision for losses on loans		309			293			(4	)
Other (loss) income		(9	)		81			3
Gain on sale of discontinued segment		—			—			21,716
Non-interest expense		4,404			3,505			4,300
(Loss) income before income tax (benefit) provision and equity in net earnings of subsidiaries		(4,104	)		(3,131	)		17,415
Income tax (benefit) provision		(2,106	)		(1,748	)		3,849
Equity in net earnings of subsidiaries		16,808			16,435			13,159
Net income	$	14,810		$	15,052		$	26,725

F-39

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Condensed Statements of Cash Flows

	Year Ended December 31,
	2006			2005			2004
	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	14,810		$	15,052		$	26,725
Adjustments to reconcile net income to net cash used in operating activities:
Gain on sale of WCC		—			—			(21,716	)
Provision for loan losses		130			—			—
Accretion of discounts		(178	)		—			—
Stock-based compensation		240			—			—
Deferred tax provision		1,050			222			7,304
Equity in net earnings of subsidiaries		(16,808	)		(16,435	)		(13,159	)
Tax benefit from exercise of non-qualified stock options		—			582			3,300
Change in:
Prepaid expenses and other assets		1,456			(3,508	)		(4,315	)
Accounts payable and other liabilities		(230	)		(418	)		(1,912	)
Due to affiliates, net		16,205			170			2,519
Net cash provided by (used in) operating activities		16,675			(4,335	)		(1,254	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations		(36,929	)		—			—
Loan repayments		9,420			—			—
Capital contribution to subsidiary		—			(2,241	)		(7,500	)
Dividends from subsidiary		11,400			—			—
Proceeds on sale of WCC		—			—			48,225
Net cash (used in) provided by investing activities		(16,109	)		(2,241	)		40,725
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from affiliates		25,774			—			—
Issuance of common stock		17			412			3,241
Tax benefit from exercise of non-qualified stock options		15			—			—
Repurchase of common stock		(24,750	)		—			—
Dividends on common stock		(10,029	)		(10,623	)		(7,926	)
Net cash (used in) provided by financing activities		(8,973	)		(10,211	)		(4,685	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(8,407	)		(16,787	)		34,786
CASH AND CASH EQUIVALENTS:
Beginning of year		20,986			37,773			2,987
End of year	$	12,579		$	20,986		$	37,773
NONCASH FINANCING ACTIVITIES:
Release of additional valuation allowance related to pre- reorganizational net operating losses	$	—		$	203		$	21,761
Issuance of common stock upon acquisition of treasury stock		—			—			118

F-40

EX-10.12

EXHIBIT 10.12

FIRST BANK OF BEVERLY HILLS

23901 Calabasas Road

Suite 1050

Calabasas, CA 91302

May 1, 2006

To: ANNETTE VECCHIO

Subject: First Bank of Beverly Hills, Change in Control Plan

First Bank of Beverly Hills, has adopted the First Bank of Beverly Hills, Change in Control Plan (the “Plan”). The provisions of the Plan, as they apply to you, are as follows:

Article I

DEFINITIONS

1.1 Definitions

Whenever used in this Plan, the following capitalized terms shall have the meanings set forth in this Section 1.1, certain other capitalized terms being defined elsewhere in this Plan:

(a) “Bank” means First Bank of Beverly Hills, and any successor or assignee as provided in Article IV.

(b) “Board” means the Board of Directors of the Bank.

(c) “Cause” means any of the following acts or circumstances: (i) willful destruction by you of property of the Bank or a Subsidiary having a material value to the Bank or such Subsidiary; (ii) fraud, embezzlement, theft, or comparable dishonest activity committed by you (excluding acts involving a de minimis dollar value and not related to the Bank or a Subsidiary); (iii) your conviction of or entering a plea of guilty or nolo contendere to any crime constituting a felony or any misdemeanor involving fraud, dishonesty or moral turpitude (excluding acts involving a de minimis dollar value and not related to the Bank or a Subsidiary); (iv) your breach or neglect of, or refusal or failure to materially discharge, your duties (other than due to physical or mental illness) commensurate with your title and function or your failure to comply with the lawful directions of the Board or the Chief Executive Officer of the Bank, or of the Board of Directors or the Chief Executive Officer of the Subsidiary that employs you, in any such case that is not cured within fifteen (15) days after you have received written notice thereof from such Board of Directors or Chief Executive Officer; or (v) a willful and knowing material misrepresentation to the Board or the Chief Executive Officer of the Bank or to the Board of Directors or the Chief Executive Officer of the Subsidiary that employs you.

(d) “Change in Control” shall mean the occurrence of any of the following:

(i) Any “Person” or “Group” (as such terms are defined in Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations promulgated thereunder) is or becomes the “Beneficial Owner” (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Beverly Hills Bancorp Inc. (“BHBC”), or of any entity resulting from a merger or consolidation involving BHBC, representing more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of BHBC or such entity.

(ii) The individuals who, as of the date hereof, are members of the Board of Directors of BHBC (the “Existing Directors”), cease, for any reason, to constitute more than fifty percent (50%) of the number of authorized directors of BHBC as determined in the manner prescribed in the Certificate of Incorporation and Bylaws; provided, however, that if the election, or nomination for election, by BHBC stockholders of any new director was approved by a vote of at least fifty percent (50%) of the Existing Directors, such new director shall be considered an Existing Director; provided further, however, that no individual shall be considered an Existing Director if such individual initially assumed office as a result of either an actual or threatened “Election Contest” (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies by or on behalf of anyone other than the Board of Directors of BHBC (a “Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest.

(iii) The consummation of (x) a merger, consolidation or reorganization to which BHBC is a party, whether or not BHBC is the Person surviving or resulting therefrom, or (y) a sale, assignment, lease, conveyance or other disposition of all or substantially all of the assets of BHBC, in one transaction or a series of related transactions, to any Person other than BHBC, where any such transaction or series of related transactions referred to in clause (x) or clause (y) above in this subparagraph (iii) (a “Transaction”) does not otherwise result in a “Change in Control” pursuant to subparagraph (i) of this definition of “Change in Control”; provided, however, that no such Transaction shall constitute a “Change in Control” under this subparagraph (iii) if the Persons who were the stockholders of BHBC immediately before the consummation of such Transaction are the Beneficial Owners, immediately following the consummation of such Transaction, of fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Person surviving or resulting from any merger, consolidation or reorganization referred to in clause (x) above in this subparagraph (iii) or the Person to whom the assets of BHBC are sold, assigned, leased, conveyed or disposed of in any transaction or series of related transactions referred in clause (y) above in this subparagraph (iii), in substantially the same proportions in which such Beneficial Owners held voting stock in BHBC immediately before such Transaction or series of related transactions.

(iv) Any “Person” or “Group,” other than BHBC or any of its subsidiaries, is or becomes the “Beneficial Owner,” directly or indirectly, of securities

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representing more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the the Bank Business Entity. “FBBH Business Entity” shall mean, at any time, the principal corporation or other entity that is then engaged in the banking and related business activities in which the Bank is currently engaged, which entity may be (i) the Bank, (ii) any entity resulting from a merger, consolidation, reorganization or other similar transaction involving the Bank or a successor entity thereto, or (iii) any entity that has succeeded to the business of the Bank through the sale, transfer, contribution or other disposition of all or substantially all of the assets of the Bank or a successor entity thereto.

(e) “BHBC” means Beverly Hills Bancorp Inc., a Delaware corporation.

(f) “Compensation” means and includes all of your base annual salary attributable to your employment with the Bank and/or any of its Subsidiaries (including, but not limited to, any amounts excludable from your gross income for federal income tax purposes pursuant to Section 125 or Section 401(k) of the Internal Revenue Code of 1986, as amended), in effect immediately before the Change in Control. “Compensation” shall not include your bonuses, annual incentive awards, non-cash compensation or reimbursements, if any (e.g., the grant or vesting of restricted stock, the grant, vesting, or exercise of stock options, automobile allowance and gasoline reimbursement).

(g) “Disability” means a physical or mental infirmity which substantially impairs your ability to perform your material duties for a period of at least one hundred eighty (180) consecutive calendar days, and, as a result of such Disability, you have not returned to your full-time regular employment prior to termination.

(h) “Eligible Employee” means any employee of the Bank or any of its Subsidiaries who is designated by the Board or any committee thereof to participate in this Plan.

(i) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(j) “Good Reason” means the occurrence, on or after the occurrence of a Change in Control, of any of the following:

(i) The Bank or any of its Subsidiaries reduces your base salary.

(ii) The Bank amends the method for computing bonuses in a way which is not generally applicable to executives of the Bank and its Subsidiaries and which materially reduces your potential bonus given any particular level of performance of the Bank and its Subsidiaries.

(iii) Without your express written consent, the Bank or any of its Subsidiaries requires you to change the location of your job or office, so that you will be based at a location more than 100 miles from the location of your job or office.

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(iv) Without your express written consent, the Bank or any of its Subsidiaries reduces your responsibilities or directs you to report to a person of lower rank or responsibilities than the person to whom you reported before the Change in Control.

(v) A successor to the Bank fails or refuses to assume the obligations of the Bank under this Plan.

(k) “Person” shall have the meaning set forth in the definition of “Change in Control.”

(l) “Plan” means this Change in Control Plan.

(m) “Release” means the Separation and General Release Agreement in the form attached hereto as Exhibit “A”.

(n) “Severance Payment” means the payment of severance compensation as provided in Article II.

(o) “Subsidiary” means any corporation or other Person, a majority of the voting power, equity securities or equity interest of which is owned directly or indirectly by the Bank.

(p) “WARN” means the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §2101 et seq.

Article II

SEVERANCE PAYMENTS

2.1 Right to Severance Payment; Release

Conditioned on the execution and delivery by you (or your beneficiary or personal representative, if applicable) of the Release, and subject to the provisions of Section 2.7, you shall be entitled to receive a Severance Payment from the Bank in the amount provided in Section 2.2 if (a) you are an Eligible Employee, and (b) within two years after the occurrence of a Change in Control, your employment is involuntarily terminated by the Bank or any of its Subsidiaries for any reason other than Cause or your death or Disability, or you voluntarily terminate your employment with the Bank and all Subsidiaries for Good Reason. Notwithstanding the foregoing, you will not be entitled to receive a Severance Payment to the extent you receive payments which the Bank or its Subsidiaries are required to make to you under WARN.

2.2 Amount of Severance Payment

If you become entitled to a Severance Payment under this Plan, the amount of your Severance Payment, when added to any payments which the Bank or its Subsidiaries are required to make to you under WARN, shall equal two years your Compensation.

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2.3 No Mitigation

The Bank acknowledges and agrees that you shall be entitled to receive your entire Severance Payment regardless of any income which you may receive from other sources following your termination on or after the Change in Control.

2.4 Payment of Severance Payment

The Severance Payment to which you are entitled shall be paid to you, in cash and in full, not later than the later of (i) eight (8) calendar days after execution and delivery by you (or your beneficiary or personal representative, if applicable) of the Release Agreement, or (ii) the date on which such Release becomes effective. If you should die before all amounts payable to you have been paid, such unpaid amounts shall be paid to your beneficiary under this Agreement or, if you have not designated such a beneficiary in writing to the Bank, to the personal representative(s) of your estate.

2.5 Health Benefits Coverage

If you are entitled to receive a Severance Payment under Section 2.1, you will also be entitled to receive health benefits coverage for you and your dependents under the same plan(s) or arrangement(s) under which you were covered immediately before your termination of employment or plan(s) established or arrangement(s) provided by the Bank or any of its Subsidiaries thereafter. Such health benefits coverage shall be paid for by the Bank to the same extent as if you were still employed by the Bank, and you will be required to make such payments as you would be required to make if you were still employed by the Bank. The benefits provided under this Section 2.5 shall continue until the earlier of (a) the expiration of two (2) year following your termination of employment with the Bank and all of its Subsidiaries, or (b) the date you become covered under any other group health plan not maintained by the Bank or any of its Subsidiaries; provided, however, that if such other group health plan excludes any pre-existing condition that you or your dependents may have when coverage under such group health plan would otherwise begin, coverage under this Section 2.5 shall continue (but not beyond the six (6) month period described in clause (a) of this sentence) with respect to such pre-existing condition until such exclusion under such other group health plan lapses or expires. In the event you are required to make an election under Sections 601 through 607 of ERISA (commonly known as COBRA) to qualify for the benefits described in this Section 2.5, the obligations of the Bank and its Subsidiaries under this Section 2.5 shall be conditioned upon your timely making such an election.

2.6 Withholding of Taxes

The Bank may withhold from any amounts payable under this Plan all federal, state, city or other taxes required by applicable law to be withheld by the Bank.

2.7 Governmental Approval

The Bank’s obligation to pay you any amounts under this Plan is conditioned upon approval of the Plan or of payment of such amounts (or upon review of the Plan or of payment of such amounts, and failure to object thereto) by the OTS, the FDIC, or any other governmental agency having jurisdiction over the Bank or its Subsidiaries, to the extent such approval (or review) is required by applicable laws or regulations.

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Article III

OTHER RIGHTS AND BENEFITS NOT AFFECTED

3.1 Other Benefits

This Plan does not provide a pension for you, nor shall any payment hereunder be characterized as deferred compensation. Except as set forth in Section 3.2, neither the provisions of this Plan nor the Severance Payment provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish your rights as an employee, whether existing now or hereafter, under any written benefit, incentive, retirement, stock option, stock bonus or stock purchase plan or any written employment agreement or other written plan or arrangement not related to severance.

3.2 Other Severance Plans Superseded

When you become entitled to a Severance Payment under this Plan, this Plan will supersede, as to you, any and all other severance plans of the Bank or its Subsidiaries and severance agreements between you and the Bank and its Subsidiaries, and your participation in any other severance plan of the Bank and its Subsidiaries will be hereby terminated.

3.3 Employment Status

This Plan does not constitute a contract of employment or impose on you any obligation to remain in the employ of the Bank, nor does it impose on the Bank or any of its Subsidiaries any obligation to retain you in your present or any other position, nor does it change the status of your employment as an employee at will. Nothing in this Plan shall in any way affect the right of the Bank or any of its Subsidiaries in its absolute discretion to change or reduce your compensation at any time, or to change at any time one or more benefit plans, including but not limited to pension plans, dental plans, health care plans, savings plans, bonus plans, vacation pay plans, disability plans, and the like.

Article IV

SUCCESSOR TO BANK

The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank, expressly and unconditionally to assume and agree to perform the Bank’s obligations under this Plan, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place. In such event, the term “Bank,” as used in this Plan, shall mean (from and after, but not before, the occurrence of such event) the Bank as herein before defined and any successor or assignee to the business or assets which by reason hereof becomes bound by the terms and provisions of this Plan.

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Article V

CONFIDENTIALITY

5.1 Nondisclosure of Confidential Material

In the performance of your duties, you have previously had, and may in the future have, access to confidential records and information, including, but not limited to, development, marketing, purchasing, organizational, strategic, financial, managerial, administrative, manufacturing, production, distribution and sales information, data, specifications and processes now owned or at any time hereafter developed by the Bank or its agents or consultants or used at present or at any time hereafter in the course of its business, that are not otherwise part of the public domain (collectively, the “Confidential Material”). All such Confidential Material is considered secret and has been and/or will be disclosed to you in confidence. By your acceptance of your Severance Payment under this Plan, you shall be deemed to have acknowledged that the Confidential Material constitutes proprietary information of the Bank which draws independent economic value, actual or potential, from not being generally known to the public or to other persons who could obtain economic value from its disclosure or use, and that the Bank has taken efforts reasonable under the circumstances, of which this Section 5.1 is an example, to maintain its secrecy. Except in the performance of your duties to the Bank, you shall not, directly or indirectly for any reason whatsoever, disclose or use any such Confidential Material, except that the foregoing disclosure prohibition shall not apply as to Confidential Material that (i) has been publicly disclosed or was within your possession prior to its being furnished to you by the Bank or becomes available to you on a nonconfidential basis from a third party (in any of such cases, not due to a breach by you of your obligations to the Bank or by breach of any other person of a confidential, fiduciary or confidential obligation, the breach of which you know or reasonably should know), (ii) is required to be disclosed by you pursuant to applicable law, provided that you provide notice to the Bank of such requirement as promptly as possible, or (iii) was independently acquired or developed by you without violating any of the obligations under this Plan and without relying on Confidential Material of the Bank. All records, files, drawings, documents, equipment and other tangible items, wherever located, relating in any way to the Confidential Material or otherwise to the Bank’s business, which you have prepared, used or encountered or shall in the future prepare, use or encounter, shall be and remain the Bank’s sole and exclusive property and shall be included in the Confidential Material. Upon your termination of employment with the Bank, or whenever requested by the Bank, you shall promptly deliver to the Bank any and all of the Confidential Material and copies thereof, not previously delivered to the Bank, that may be, or at any previous time has been, in your possession or under your control.

5.2 Nonsolicitation of Employees

By your acceptance of your Severance Payment under this Plan, you agree that, for a period of one (1) year following your termination of employment with the Bank or its Subsidiaries, neither you nor any Person or entity in which you have an interest shall solicit any person who was employed on the date of your termination of employment by the Bank or any of its Subsidiaries to leave the employ of the Bank or any of its Subsidiaries. Nothing in this Section 5.2, however, shall prohibit you or any Person or entity in which you have an

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interest from placing advertisements in periodicals of general circulation soliciting applications for employment, or from employing any person who answers any such advertisement. For purposes of this Section 5.2, you shall not be deemed to have an interest in any corporation whose stock is publicly traded merely because you are the owner of not more than two percent (2%) of the outstanding shares of any class of stock of such corporation, provided you have no active participation in the business of such corporation (other than voting your stock) and you do not provide services to such corporation in any capacity (whether as an employee, an independent contractor or consultant, a board member, or otherwise).

5.3 Equitable Relief

By your acceptance of your Severance Payment under this Plan, you shall be deemed to have acknowledged that violation of Sections 5.1 or 5.2 would cause the Bank irreparable damage for which the Bank cannot be reasonably compensated in damages in an action at law, and that therefore in the event of any breach by you of Sections 5.1 or 5.2, the Bank shall be entitled to make application to a court of competent jurisdiction for equitable relief by way of injunction or otherwise (without being required to post a bond). This provision shall not, however, be construed as a waiver of any of the rights which the Bank may have for damages under this Plan or otherwise, and, except as limited in Article VI, all of the Bank’s rights and remedies shall be unrestricted.

Article VI

ARBITRATION

Except for equitable relief as provided in Section 5.3, arbitration in accordance with the then most applicable rules of the American Arbitration Association shall be the exclusive remedy for resolving any dispute or controversy between you and the Bank or any of its Subsidiaries, including, but not limited to, any dispute regarding your employment or the termination of your employment or any dispute regarding the application, interpretation or validity of this Plan not otherwise resolved through the claims procedure set forth in Section 9.10. The arbitrator shall be empowered to grant only such relief as would be available in a court of law. In the event of any conflict between this Plan and the rules of the American Arbitration Association, the provisions of this Plan shall be determinative. If the parties are unable to agree upon an arbitrator, they shall select a single arbitrator from a list designated by the office of the American Arbitration Association having responsibility for the city in which you primarily performed services for the Bank or its Subsidiaries immediately before your termination of employment of seven arbitrators, all of whom shall be retired judges who are actively involved in hearing private cases or members of the National Academy of Arbitrators, and who, in either event, are residents of the area in which you primarily performed services for the Bank or its Subsidiaries immediately before your termination of employment. If the parties are unable to agree upon an arbitrator from such list, they shall each strike names alternatively from the list, with the first to strike being determined by lot. After each party has used three strikes, the remaining name on the list shall be the arbitrator. The fees and expenses of the arbitrator shall initially be borne equally by the parties; provided, however, that each party shall initially be responsible for the fees and expenses of its own representatives and witnesses. Unless mutually agreed otherwise by the parties, any

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arbitration shall be conducted at a location within fifty (50) miles from the location in which you primarily performed services for the Bank or any of its Subsidiaries immediately before your termination of employment. If the parties cannot agree upon a location for the arbitration, the arbitrator shall determine the location within such fifty (50) mile radius. Judgment may be entered on the award of the arbitrator in any court having jurisdiction. The prevailing party in the arbitration proceeding, as determined by the arbitrator, and in any enforcement or other court proceedings, shall be entitled to the extent provided by law to reimbursement from the other party for all of the prevailing party’s costs (including but not limited to the arbitrator’s compensation), expenses and reasonable attorney’s fees.

Article VII

MISCELLANEOUS

7.1 Applicable Law

To the extent not preempted by the laws of the United States, the laws of the State of California shall be the controlling law in all matters relating to this Plan, regardless of the choice-of-law rules of the State of California or any other jurisdiction.

7.2 Construction

No term or provision of this Plan shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this Plan and any present or future statute, law, ordinance, or regulation, the latter shall prevail, but in such event the affected provision of this Plan shall be curtailed and limited only to the extent necessary to bring such provision within the requirements of the law.

7.3 Severability

If a provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of this Plan and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

7.4 Headings

The Section headings in this Plan are inserted only as a matter of convenience, and in no way define, limit, or extend or interpret the scope of this Plan or of any particular Section.

7.5 Assignability

Your rights or interests under this Plan shall not be assignable or transferable (whether by pledge, grant of a security interest, or otherwise) by you, your beneficiaries or legal representatives, except by will or by the laws of descent and distribution.

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7.6 Amendment

This Plan may be amended in any respect by resolution adopted by the Board until a Change in Control occurs. After a Change in Control occurs, this Plan shall no longer be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever. No agreement or representations, written or oral, express or implied, with respect to the subject matter hereof, have been made by the Bank which are not expressly set forth in this Plan.

7.7 Notices

For purposes of this Plan, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered, telecopied, or sent by certified or overnight mail, return receipt requested, postage prepaid, addressed to the respective addresses, or sent to the respective telecopier numbers, last given by each party to the other, provided that all notices to the Bank shall be directed to the attention of the Board of Directors with a copy to the General Counsel. All notices and communications shall be deemed to have been received on the date of delivery thereof if personally delivered, upon return confirmation if telecopied, on the third business day after the mailing thereof, or on the date after sending by overnight mail, except that notice of change of address shall be effective only upon actual receipt. No objection to the method of delivery may be made if the written notice or other communication is actually received.

7.8 Administration

This Plan constitutes a welfare benefit plan within the meaning of Section 3(1) of ERISA. This letter constitutes the governing document of the Plan. The Administrator of the Plan, within the meaning of Section 3(16) of ERISA, and the Named Fiduciary thereof, within the meaning of Section 402 of ERISA, is the Bank. Attached hereto as Exhibit “B” is a statement of your rights under ERISA.

7.9 Claims

If you believe you are entitled to a benefit under this Plan, you may make a claim for such benefit by filing with the Bank a written statement setting forth the amount and type of payment so claimed. The statement shall also set forth the facts supporting the claim. The claim may be filed by mailing or delivering it to the Secretary of the Bank.

Within sixty (60) calendar days after receipt of such a claim, the Bank shall notify you in writing of its action on such claim and if such claim is not allowed in full, shall state the following in a manner calculated to be understood by you:

(a) The specific reason or reasons for the denial;

(b) Specific reference to pertinent provisions of this Plan on which the denial is based;

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(c) A description of any additional material or information necessary for you to be entitled to the benefits that have been denied and an explanation of why such material or information is necessary; and

(d) An explanation of this Plan’s claim review procedure.

If you disagree with the action taken by the Bank, you or your duly authorized representative may apply to the Bank for a review of such action. Such application shall be made within one hundred twenty (120) calendar days after receipt by you of the notice of the Bank’s action on your claim. The application for review shall be filed in the same manner as the claim for benefits. In connection with such review, you may inspect any documents or records pertinent to the matter and may submit issues and comments in writing to the Bank. A decision by the Bank shall be communicated to you within sixty (60) calendar days after receipt of the application. The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by you, and specific references to the pertinent provisions of this Plan on which the decision is based.

Sincerely,

FIRST BANK OF BEVERLY HILLS

By:

I AGREE TO BE BOUND BY THE

TERMS OF THE ABOVE PLAN

Annette Vecchio

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EX-10.19

EXHIBIT 10.19

EMPLOYMENT AGREEMENT

This Employment Agreement is made and entered into as of October 31, 2006 by and between First Bank of Beverly Hills, a California chartered bank (the “Bank”), and Eric Rosa (“Executive”).

1. Engagement and Responsibilities

1.1 Upon the terms and subject to the conditions set forth in this Agreement, the Bank hereby engages and employs Executive as an officer of the Bank, with the title “Executive Vice President,” as of the Employment Commencement Date. Executive hereby accepts such engagement and employment as of the Employment Commencement Date.

1.2 Executive’s duties and responsibilities shall be to head the loan department of the Bank and those duties that are normally and customarily vested in such position. Executive’s duties shall also include those duties and services for the Bank and its affiliates as the Chief Executive Officer or Board shall in his or its discretion from time to time reasonably direct which are not inconsistent with Executive’s position as head of the loan department.

1.3 During the Employment Term, Executive agrees to devote all of Executive’s business time, energy and efforts to the business of the Bank and will use Executive’s best efforts and abilities faithfully and diligently to promote the Bank’s business interests. For so long as Executive is employed by the Bank, Executive shall not, directly or indirectly, either as an employee, employer, consultant, agent, investor, principal, partner, stockholder (except as the holder of less than 1% of the issued and outstanding stock of a publicly held corporation), corporate officer or director, or in any other individual or representative capacity, engage or participate in any business that is in competition in any manner whatsoever with the business of the Bank Group, as such businesses are now or hereafter conducted. Subject to the foregoing prohibition and provided such services or investments do not violate any applicable law, regulation or order, or interfere in any way with the faithful and diligent performance by Executive of the services to the Bank otherwise required or contemplated by this Agreement, the Bank expressly acknowledges that Executive may:

1.3.1 make and manage personal business investments of Executive’s choice without consulting the Board; and

1.3.2 serve in any capacity with any non-profit civic, educational or charitable organization without consulting with the Board.

1.4 Covenants of Executive

1.4.1 Best Efforts; Exclusive Duty. Executive shall use his best efforts and skills in the business and interests of the Bank, do his utmost to enhance and develop the interests and welfare of the Bank, and devote substantially all of his professional time and attention to the Bank’s business.

1.4.2 Rules and Regulations. Executive shall obey all rules, regulations and special instructions of the Bank and all other rules, regulations, guides, handbooks, procedures, policies and special instructions applicable to the Bank’s business in connection with his duties hereunder and shall endeavor to improve his ability and knowledge of the Bank’s business in an effort to increase the value of his services for the mutual benefit of the Bank and Executive.

1.4.3 Compliance. Executive shall use his best efforts and skills to cause the Bank to comply with all of its contractual obligations and commitments and applicable laws, rules and regulations.

2. Definitions

2.1 “Bank Group” as of any date shall mean the Bank and each corporation or other entity controlled by, controlling or under common control with the Bank as of such date. As of the date of this Agreement, the Bank Group includes the Bank, Beverly Hills Bancorp Inc. and all subsidiaries of Beverly Hills Bancorp Inc.

2.2 “Board” shall mean the Board of Directors of the Bank; to the extent that functions of the Board under or in connection with this Agreement have been delegated to a compensation or other Board committee, references in this Agreement to the Board shall refer to such compensation or other committee.

2.3 “Change of Control Plan” shall mean the Change of Control Plan entered in on or about the same date as this Agreement between the Bank and Executive.

2.4 “Employment Commencement Date” shall mean the date Executive commences employment with the Bank.

2.5 “Employment Term” shall mean the period commencing the Employment Commencement Date and ending upon the date of termination of Executive’s employment with the Bank.

2.6 “For Cause” shall mean, in the context of a basis for termination of Executive’s employment with the Bank, that:

2.6.1 Executive breaches any obligation, duty or agreement under this Agreement, which breach is not cured or corrected within 15 days of written notice thereof from the Bank (except for breaches of Sections 1.3, 6 and 7 of this Agreement, which cannot be cured and for which the Bank need not give any opportunity to cure); or

2.6.2 Executive commits any act of personal dishonesty, fraud, breach of fiduciary duty or trust; or

2.6.3 Executive is convicted of, or pleads guilty or nolo contendere with respect to, theft, fraud, a crime involving moral turpitude, or a felony under federal or applicable state law; or

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2.6.4 Executive commits any act of personal conduct that, in the reasonable opinion of the Board, gives rise to a material risk of liability under federal or applicable state law for discrimination or sexual or other forms of harassment or other similar liabilities to subordinate employees; or

2.6.5 Executive commits continued and repeated substantive violations of specific written directions of the Board of Chief Executive Officer, which directions are consistent with this Agreement and Executive’s positions with the Bank or continued and repeated substantive failure to perform duties assigned by or pursuant to this Agreement; provided that no discharge shall be deemed for Cause under this subsection 2.6.5 unless Executive first receives written notice from the Bank advising him of the specific acts or omissions alleged to constitute violations of written directions or a material failure to perform his duties, and such violations or material failure continue after he shall have had a reasonable opportunity to correct the acts or omissions so complained of; or

2.6.6 Executive commits any act, or fails to commit any act, that, in the reasonable opinion of the Board, gives rise to a material risk of material liability under federal or state banking or lending laws (the type of liability that could result in a cease and desist order, civil monetary penalty, consent decree, memorandum of agreement or similar regulatory action) or could adversely affect the Bank’s CAMEL rating or could otherwise materially and adversely impact the Bank’s relationship with its regulators; provided that the Board may not terminate Executive for Cause under this Section 2.6.6 unless the Board: (a) gives Executive notice of its intent to terminate Executive under this Section and provides Executive an opportunity to appear before the Board to explain his conduct, and (b) if such action (or failure to act) is capable of being cured or corrected by Executive (and was not a fraudulent act by Executive) in a manner that could mitigate material risk of liability, the Board gives Executive the opportunity to cure or correct such action or failure to act for 60 days, and Executive promptly commences to cure and correct such conduct; or

2.6.7 Executive willfully commits or willfully causes any member of the Bank Group to commit any material violation of law, rule or regulation affecting the Bank Group or regulatory order or consent to which any member of the Bank Group is subject; or

2.6.8 Any of Executive’s representations or warranties under this Agreement is incorrect in any material respect.

2.7 “Good Reason” shall mean the occurrence of one or more of the following:

2.7.1 without the consent of Executive, the Board assigns any duties to Executive substantially inconsistent with, or reflecting an adverse change in, Executive’s position, duties, responsibilities or status as the executive vice president of the Bank, provided that Executive must advise the Board within five days of assignment of such duties that he believes such duties would give him the right to terminate his employment for Good Reason and the Board does not withdraw such assignment; or

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2.7.2 without the consent of Executive, the Bank relocates Executive’s principal place of employment to a location that is not in either Los Angeles County or Ventura County, California.

2.8 “Person” shall mean an individual or a partnership, corporation, trust, association, limited liability company, governmental authority or other entity.

2.9 “2007 Loan Origination Goal” shall mean that the Bank shall have closed in 2007 Funded Loans with an aggregate principal amount in excess of $400,000,000. For this purpose:

2.9.1 Funded Loans shall mean loans closed in 2007 except as otherwise set forth in this Section 2.9;

2.9.2 a loan closed in 2006 but funded in 2007 shall not be a Funded Loan;

2.9.3 a construction loan or revolving line of credit closed in 2007 shall be a Funded Loan to the maximum stated commitment of the Bank, notwithstanding how much, if any, of the commitment is funded in 2007;

2.9.4 a loan made to any Person, or affiliate of such Person, shall not be a Funded Loan if such Person or affiliate of such Person has as of the date of this Agreement, or had at any time within the three years prior to the date of this Agreement, a loan from any member of the Bank Group;

2.9.5 an originated loan shall be deemed closed when the Bank and the borrower have become legally bound unto one another pursuant to a written loan agreement and the loan has been funded (or the initial funding on the loan has occurred); a purchased loan or loan participation shall be deemed closed when the Bank and the seller have become legally bound unto one another pursuant to a written purchase and sale agreement and the purchase and sale have “closed” under the agreement (or in absence of a closing the Bank has paid the purchase price for the loan);

2.9.6 any loan that is not in accordance with the policies and procedures of the Bank shall not be a Funded Loan unless the deviations or variances have been brought to the attention of the Board (or appropriate committee with loan approval authority for such loan) and the Board or committee approves the loan;

2.9.7 a loan originated by the Bank in which the Bank concurrently or thereafter sells a participation interest or interests shall be a Funded Loan for the full amount of the Loan up to the Bank’s legal lending limit at the time of origination (e.g., if the Bank’s legal lending limit for that type of loan is $20 million, the loan is for $25 million and the Bank sell a $10 million participation interest in the loan, $20 million shall be a Funded Loan); and

2.9.8 a loan or loan participation purchased by the Bank in 2007 (and with respect to which the closing of the purchase occurs in 2007) shall be a Funded Loan unless the Bank had purchased a loan or loan participation at any time between December 31, 2003 and the date of this Agreement from the seller or any affiliate of the seller.

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Executive acknowledges that approval of any loan is within the sole and absolute discretion of the Board (or persons/committees to whom such authority is delegated by the Board).

3. Compensation and Benefits

3.1 Base Salary. The Bank shall pay to Executive a base salary of $250,000 per year during the Employment Term. The Bank shall pay base salary to Executive in installments in the same manner and at the same times the Bank pays base salaries to other executive officers of the Bank, but in no event less frequently than equal monthly installments.

3.2 Bonus.

3.2.1 The Bank shall pay to Executive a “signing bonus” of $150,000 within 10 days of the Employment Commencement Date. However, Executive understands that it is the intention of the Bank that Executive continue employment with the Bank for at least six months to earn the signing bonus. Accordingly, if Executive agrees that if he terminates his employment for any reason other than Good Reason, or if the Bank terminates his employment For Cause, in either case prior to six months from the Employment Commencement Date, he shall concurrently with such termination if he terminates his employment, or 10 days from termination if the Bank terminates his employment, repay the full (and not prorated) signing bonus. If he fails to repay the signing bonus when due, the obligation to repay shall accrue interest at the rate of 10% per annum until repaid.

3.2.2 The Board may, in its sole discretion, award performance bonuses to Executive from time to time.

3.3 Expense Reimbursement. Executive shall be entitled to reimbursement from the Bank for the reasonable costs and expenses that Executive incurs in connection with the performance of Executive’s duties and obligations under this Agreement in a manner consistent with the Bank’s practices and policies therefor.

3.4 Employee Benefit Plans. During the Employment Term, Executive shall be entitled to participate in any pension, savings and group term life, medical, dental, disability and other group benefit plans which the Bank makes available to its executive officers generally.

3.5 Automobile Allowance. During the Employment Term, Executive shall be entitled to an automobile allowance of $1,000 per month, payable in a manner consistent with the Bank’s practices and policies therefor.

3.6 Vacation. During the Employment Term, Executive shall be entitled to paid vacation that accrues at the rate of one and two-thirds (1 2/3) days per calendar month, provided that no vacation shall accrue at any time when Executive has 15 days of accrued and unused vacation. Vacation shall be subject to the general policies of the Bank regarding vacation.

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3.7 Disability. In the event of any disability or illness of Executive, if Executive shall receive payments as a result of such disability or illness under any disability plan maintained by the Bank, the Bank shall be entitled to deduct the amount of such payments received from base salary payable to Executive during the period of such illness and/or disability.

3.8 Withholding. The Bank may deduct from any compensation payable to Executive (including payments made pursuant to Sections 3 and 5 of this Agreement in connection with or following termination of employment) amounts sufficient to cover Executive’s share of applicable federal, state and/or local income tax withholding, old-age and survivors’ and other social security payments, state disability and other insurance premiums and payments.

4. Termination of Employment

Executive’s employment shall terminate on the earliest to occur of the following:

4.1 December 31, 2008;

4.2 upon the death of Executive;

4.3 upon the delivery to Executive of written notice of termination by the Bank if Executive shall suffer a physical or mental disability which renders Executive, in the reasonable judgment of the Board, unable to perform his duties and obligations under this Agreement for either 60 consecutive days or 90 days in any 12-month period;

4.4 upon written notice from Executive to the Bank for Good Reason provided that such notice is received within 90 days of the event or circumstance constituting Good Reason;

4.5 upon delivery to Executive of written notice of termination by the Bank For Cause; or

4.6 upon delivery (or such later date specified in the notice) to Executive of written notice of termination by the Bank without cause.

4.7 Upon delivery (or such later date specified in the notice) on or prior to January 31, 2008 to Executive of written notice of termination by the Bank at any time after December 31, 2007 if the 2007 Loan Origination Goal is not met.

5. Effect of Termination upon Compensation and Benefits

5.1 Upon termination of Executive’s employment for any reason:

5.1.1 Executive shall be entitled to base salary accrued through the date of termination of employment;

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5.1.2 Executive shall be entitled to reimbursement of expenses incurred prior to termination of employment that are payable in accordance with Section 3.4 of this Agreement; and

5.1.3 Executive shall be entitled to any benefits accrued or earned in accordance with the terms of any applicable benefit plans and programs of the Bank.

5.2 If Executive’s employment is terminated by the Bank pursuant to Section 4.6 (without cause) by the Executive pursuant to Section 4.4 (for Good Reason), and provided that Executive executes and delivers to the Bank, and does not revoke, a written release (the “Release”) of any and all claims against the Bank Group with respect to all matters arising out of Executive’s employment by the Bank, or the termination thereof (other than claims for any entitlements under the terms of this Agreement, claims under any plans or programs of the Bank under which Executive has accrued a benefit, and rights to indemnification under applicable law or agreement), the Bank agrees to pay to Executive base salary when and in the manner as if Executive’s employment had not terminated through December 31, 2008. The Bank shall be entitled to defer payment of any amounts under this Section 5.2 until the expiration of any period during which Executive shall have the right to revoke the Release. Notwithstanding the foregoing, if Executive would be entitled to a Severance Payment under the Change of Control Plan as a result of the termination of his employment (assuming Executive (or his beneficiary or personal representative, if applicable) executes and delivers the release referred to in the Change of Control Plan and assuming satisfaction of all conditions under Section 2.7 of the Change of Control Plan), Executive shall not be entitled to any payment under Section 5.2 of this Agreement.

5.3 Executive acknowledges that the Bank has the right to terminate Executive’s employment without cause and that such termination shall not be a breach of this Agreement or any other express or implied agreement between the Bank and Executive. Accordingly, in the event of such termination, Executive shall be entitled only to those benefits specifically provided for in this Agreement in the event of such termination, and shall not have any other rights to any compensation or damages from the Bank for breach of contract or tort arising from such termination.

5.4 Executive acknowledges that in the event of termination of his employment for any reason: (a) Executive shall not be entitled to any severance or other compensation from the Bank except as specifically provided in Section 5.2; and (b) Executive shall not be entitled to participate in any employee benefits plans except as provided in such plans or as required by law. Without limitation on the generality of the foregoing, this Section supersedes any plan or policy of the Bank that provides for severance to its officers or employees, and Executive shall not be entitled to any benefits under any such plan or policy.

5.5 Executive shall have no obligation to offset any payments he receives from the Bank following the termination of his employment by any payments he receives from his subsequent employer.

5.6 Notwithstanding the timing of payments set forth in this Agreement, if the Bank determines that Executive is a “specified employee” within the meaning of Section

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409A of the Internal Revenue Code of 1986, as amended, and that, as a result of such status, any portion of the payment under this Agreement would be subject to additional taxation, the Bank will delay paying any portion of such payment until the earliest permissible date on which payments may commence without triggering such additional taxation (with such delay not to exceed six months), with the first such payment to include the amounts that would have been paid earlier but for the above delay.

6. Non-Solicitation Covenants. Executive agrees that during the Employment Term and thereafter until the later to occur of one year from termination of Executive’s employment and the date Executive is not entitled to severance payments under Section 5.2 of this Agreement, Executive will not directly or indirectly, either alone or by action in concert with others:

6.1 induce or attempt to influence any employee of any member of the Bank Group to engage in any activity in which Executive is prohibited from engaging by Section 1.3 of this Agreement during the Employment Term or to terminate his or her employment with any member of the Bank Group; or

6.2 employ or offer employment to any person who was employed by any member of the Bank Group at the time of termination of Executive’s employment with the Bank; or

6.3 contact or solicit any of the Bank Group’s borrowers, depositors or other customers, other than those customers with whom the Executive had a business relationship prior to the Employment Commencement Date, for the purpose of such borrower, depositor or customer obtaining a loan, from, or making a deposit or investment with, any Person other than a member of the Bank Group.

7. Confidentiality. Executive agrees not to disclose or use at any time (whether during or after the Employment Term) for Executive’s own benefit or purposes or the benefit or purposes of any other Person any non-public information regarding the Bank Group and its business, operations, assets, financial condition and properties, including without limitation, trade secrets, business plans, policies, pricing information and customer data provided that the foregoing covenant shall not restrict Executive from disclosing information to the extent required by law. Executive agrees that upon termination of his employment with the Bank for any reason, he will return to the Bank immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Bank Group except that he may retain personal notes, notebooks, diaries, Rolodexes and addresses and phone numbers. Executive further agrees that he will not retain or use for his account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of any member of the Bank Group.

8. Non-Compliance. Subject to the following sentence, but notwithstanding any other provision of this Agreement to the contrary, if Executive is employed by the Bank, any breach of the provisions of Sections 1.3, 6 and 7 hereof shall entitle the Bank to terminate the employment of Executive for Cause, and, whether or not Executive is employed by the Bank, from and after any breach by Executive of the provisions of Sections 6 and 7, the Bank shall cease to have any obligations to make payments to Executive under this Agreement, including payments under Section 5.2, or the Change of Control Plan.

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9. Specific Performance. Executive acknowledges and agrees that the Bank’s remedies at law for a breach or threatened breach of any of the provisions of Sections 1.3, 6 and 7 hereof would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Bank, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available.

10. Arbitration

10.1 IN CONSIDERATION FOR AND AS A MATERIAL CONDITION OF EMPLOYMENT WITH THE COMPANY, EXECUTIVE AGREES THAT FINAL AND BINDING ARBITRATION UNDER THE THEN APPLICABLE RULES AND PROCEDURES OF JAMS/ENDISPUTE SHALL BE THE EXCLUSIVE MEANS FOR RESOLVING ANY DISPUTE WHICH ARISES UNDER OR RELATING TO THIS AGREEMENT (EXCEPT THOSE LISTED IN SECTION 10.4 BELOW). NO OTHER ACTION MAY BE BROUGHT IN COURT OR IN ANY OTHER FORUM. THIS AGREEMENT IS A WAIVER OF ALL RIGHTS TO A CIVIL COURT ACTION FOR A COVERED CLAIM. ONLY AN ARBITRATOR, NOT A JUDGE OR JURY, WILL DECIDE THE CLAIM.

10.2 Executive or the Bank shall begin the arbitration process by delivering a written request for arbitration to the other party within the time limits that would apply to the filing of a civil court action. Failure to deliver a timely written request for arbitration shall preclude the aggrieved party from instituting any legal, arbitration or other proceeding and shall constitute a complete waiver of all such claims. Statutory claims can be raised within the limitations period provided by the applicable statute.

10.3 Claims covered by this provision include, but are not limited to, the following: (i) alleged violations of federal, state and/or local constitutions, statutes, regulations or ordinances, including, but not limited to, laws dealing with unlawful discrimination and harassment; (ii) claims based on any purported breach of contractual obligation, including but not limited to breach of the covenant of good faith and fair dealing, wrongful termination or constructive discharge; (iii) violations of public policy; (iv) claims relating to a transfer, reassignment, denial of promotion, demotion, reduction in pay, or any other term or condition of employment; (v) claims based on contract or tort; and (vi) any and all other claims arising out of Executive’s employment with or termination by the Bank. This includes, but is not limited to, claims brought under Title VII of the Civil Rights act of 1964; California Government Code Section 12960, et seq.; and any other federal, state or local anti-discrimination laws relating to discrimination, including, but not limited to, those based on the following protected categories: genetic information or characteristics; sex and gender; race; religion; national origin; mental or physical disability (including claims under the American With Disabilities Act); medical condition; veteran or military status; marital status; sexual orientation or preference; age; pregnancy; and retaliation or wrongful termination in violation of public policy for alleging or filing or participating in any grievance or otherwise complaining of any wrong relating to the aforementioned categories or any public policy.

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10.4 The following claims are expressly excluded and not covered by this Agreement for final and binding arbitration: (i) claims related to Workers’ Compensation and Unemployment Insurance; (ii) administrative filings with governmental agencies such as the California Department of Fair Employment & Housing, the Equal Employment Opportunity Commission, the U.S. Department of Labor or the National Labor Relations Board; (iii) claims that are expressly excluded by statute or are expressly required to be arbitrated under a different procedure pursuant to the terms of an employee benefit plan; and (iv) claims within the jurisdictional limits of small claims court. This Agreement does not preclude either party from seeking appropriate interim injunctive relief pursuant to the California Code of Civil Procedure or applicable federal law before arbitration or while arbitration proceedings are pending.

10.5 Any claim arising between Executive and the Bank covered by the arbitration provisions of this Agreement shall be submitted to final and binding arbitration under the rules and procedures of JAMS/Endispute, or any successor entity thereto, in effect upon the date the claim is submitted in writing to the Bank, to which rules and procedures the parties hereby expressly agree. The rules allow for discovery by each party as ordered by the arbitrator. The arbitrator must allow discovery adequate to arbitrate all claims, including access to essential documents and witnesses. In making his or her award, the arbitrator shall have the authority to make any finding and provide any remedy.

10.6 The arbitrator must issue a written award. The arbitrator shall, in the award or separately, make specific findings of fact, and set forth such facts in support of his or her decision, as well as the reasons and basis for his or her opinion. Should the arbitrator exceed the jurisdiction or authority here conferred, any party aggrieved thereby may file a petition to vacate, amend or correct the arbitrator’s award in a court of competent jurisdiction, pursuant to applicable law.

10.7 The party initiating the mediation shall pay the arbitrator’s fees and the administrative costs of the arbitration unless such party prevails in the arbitration, in which event each party shall pay one-half of the arbitrator’s fees. Each party shall pay for its own attorney’s fees and will not request any fees or costs from the other party.

11. Representations and Covenants of Executive. As an inducement to Bank to enter into this Agreement, Executive represents and warrants to the Bank that:

11.1 Executive is under no contractual or other restriction or obligation that is inconsistent with the execution of this Agreement, and as of the Employment Commencement Date Executive shall be under no contractual or other restriction or obligation that is inconsistent with the performance of his duties hereunder or the other rights of the Bank hereunder (and Executive acknowledges that if he has such contractual obligations or restriction the Bank expects Executive to honor such obligations or restrictions in lieu of entering into this Agreement or accepting employment with the Bank);

11.2 Executive is not a party to any litigation, nor is aware of any threatened action, proceeding or litigation that: (a) could in any way involve the Bank; or (b) will result in Executive’s inability to perform his obligations hereunder, including any action which could be reasonably foreseen to require a significant amount of Executive’s time;

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11.3 Executive has fully disclosed in writing any debarment, suspension or material sanctions imposed within the last ten years by any federal or state governmental agency or instrumentality or government-sponsored enterprise on either Executive or any company for which Executive was a senior officer with respect to operations under Executive’s supervision.

11.4 This Agreement is the result of full and otherwise good faith bargaining over its terms and the Executive has been provided a full and otherwise fair opportunity to have legal counsel for Executive review and provide counsel on the terms and provisions of this Agreement.

11.5 The Bank has advised Executive that it desires to employ him because of his skill and experience, and not because of any information that he may have relating to his present employer (and Executive agrees not to disclose to the Bank Group any protected trade secrets or protected confidential or proprietary information or materials belonging to Executive’s present employer or any other Person).

11.6 Executive acknowledges that the Bank has not asked him to solicit any other employees of his current employer about coming to work with the Bank and has requested that Executive not do so while he remains employed by his current employer.

12. Employment Following Employment Term. If Executive’s employment continues after December 31, 2008: (a) such employment shall continue to be “at will,” and may be terminated either by the Executive upon 30 days’ written notice to the Bank or by the Bank at any time for any reason; and (b) except as otherwise provided in writing, all of the provisions of this Agreement shall be applicable to such continued employment, except: (i) Executive’s compensation shall only be the base salary, at the rate in effect at December 31, 2008; and (ii) the provisions of Section 4 shall be superseded to the extent discussed in this paragraph; and (iii) Section 5.2 shall not be applicable to any termination of Executive’s employment after December 31, 2008.

13. Miscellaneous

13.1 Notices. All notices, requests, demands and other communications (collectively, “Notices”) given pursuant to this Agreement shall be in writing, and shall be delivered by personal service, courier, facsimile transmission or by United States first class, registered or certified mail, addressed as follows: (a) if to the Bank, to the Bank’s executive offices, to the attention of the chief Executive Officer; and (b) if to Executive, to Executive’s address as set forth on the books and records of the Bank. Any Notice, other than a Notice sent by registered or certified mail, shall be effective when received; a Notice sent by registered or certified mail, postage prepaid return receipt requested, shall be effective on the earlier of when received or the third day following deposit in the United States mails (or on the seventh day if sent to or from an address outside the United States). Any party may from time to time change its address for further Notices hereunder by giving notice to the other party in the manner prescribed in this Section.

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13.2 Entire Agreement. This Agreement and the Change of Control Plan contain the sole and entire agreement and understanding of the parties with respect to the entire subject matter of this Agreement, and any and all prior discussions, negotiations, commitments and understandings, whether oral or otherwise, between the Bank and Executive, related to the subject matter of this Agreement are hereby merged herein. No representations, oral or otherwise, express or implied, other than those contained in this Agreement have been relied upon by any party to this Agreement.

13.3 Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

13.4 Governing Law. This Agreement has been made and entered into in the State of California and shall be construed in accordance with the laws of the State of California.

13.5 Captions. The various captions of this Agreement are for reference only and shall not be considered or referred to in resolving questions of interpretation of this Agreement.

13.6 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

13.7 Business Day. If the last day permissible for delivery of any Notice under any provision of this Agreement, or for the performance of any obligation under this Agreement, shall be other than a business day, such last day for such notice or performance shall be extended to the next following business day (provided, however, that under no circumstances shall this provision be construed to extend the date of termination of this Agreement).

13.8 Attorneys’ Fees. If any action or proceeding is brought to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover as an element of its costs, and not its damages, its reasonable attorneys’ fees, costs and expenses. The prevailing party is the party who is entitled to recover its costs in the action or proceeding. A party not entitled to recover its costs may not recover attorneys’ fees. No sum for attorneys’ fees shall be counted in calculating the amount of a judgment for purposes of determining whether a party is entitled to recover its costs or attorneys’ fees.

13.9 Advice from Independent Counsel. The parties hereto understand that this Agreement is legally binding and may affect such party’s rights. Each party represents to the other that it has received legal advice from counsel of its choice regarding the meaning and legal significance of this Agreement to which it is a party and that it is satisfied with its legal counsel and the advice received from it.

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13.10 Judicial Interpretation. Should any provision of this Agreement require judicial interpretation, it is agreed that a court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against any Person by reason of the rule of construction that a document is to be construed more strictly against the Person who itself or through its agent prepared the same, it being agreed that all parties have participated in the preparation of this Agreement.

13.11 Waiver of Jury Trial. IF NOTWITHSTANDING THE AGREEMENT THAT ALL DISPUTES BE SUBMITTED TO BINDING ARBITRATION, A DISPUTE IS SUBMITTED TO A COURT, EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY DISPUTE IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY RELATED AGREEMENT OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN, AND AGREE TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT SUCH WAIVER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS WRITTEN CONSENT TO A TRIAL BY THE COURT.

13.12 No Assignment. Executive may not assign any of his rights or obligations under this Agreement except that Executive’s benefits may be assigned by will or by the laws of descent and distribution.

13.13 Limitation on Payments. The Bank shall have no obligation make any payments under this Agreement that it believes would violate applicable law or regulation. If any payment would require any filing with, notice to or approval of any governmental or regulatory agency, the Bank will make such filing, provide such notice and/or seek such approval, as applicable.

13.14 Construction. No term or provision of this Agreement shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this Agreement and any present or future statute, law, ordinance, or regulation, the latter shall prevail, but in such event the affected provision of this Agreement Plan shall be curtailed and limited only to the extent necessary to bring such provision within the requirements of the law.

14. Employment Commencement Date. This Agreement has been entered into prior to the date Executive can commence employment with the Bank. Executive will advise the Bank as soon as possible of the date he can commence employment. If Executive does not commence employment by December 1, 2006, the Bank may terminate this Agreement by oral or written notice to Executive, with the effect neither party shall have any rights, obligations or liabilities under this Agreement.

IN WITNESS WHEREOF, this Agreement has been made and entered into as of the date and year first above written.

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FIRST BANK OF BEVERLY HILLS

By

Title

EXECUTIVE

Eric Rosa

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EX-10.20

EXHIBIT 10.20

FIRST BANK OF BEVERLY HILLS

23901 Calabasas Road

Suite 1050

Calabasas, CA 91302

October 31, 2006

(Revised & Board Approved 8-31-06)

To: ERIC ROSA

Subject: First Bank of Beverly Hills, Change in Control Plan

First Bank of Beverly Hills, has adopted the First Bank of Beverly Hills, Change in Control Plan (the “Plan”). The provisions of the Plan, as they apply to you, are as follows:

Article I

DEFINITIONS

1.1 Definitions

Whenever used in this Plan, the following capitalized terms shall have the meanings set forth in this Section 1.1, certain other capitalized terms being defined elsewhere in this Plan:

(a) “Bank” means First Bank of Beverly Hills, and any successor or assignee as provided in Article IV.

(b) “Board” means the Board of Directors of the Bank.

(c) “Cause” means any of the following acts or circumstances: (i) willful destruction by you of property of the Bank or a Subsidiary having a material value to the Bank or such Subsidiary; (ii) fraud, embezzlement, theft, or comparable dishonest activity committed by you (excluding acts involving a de minimis dollar value and not related to the Bank or a Subsidiary); (iii) your conviction of or entering a plea of guilty or nolo contendere to any crime constituting a felony or any misdemeanor involving fraud, dishonesty or moral turpitude (excluding acts involving a de minimis dollar value and not related to the Bank or a Subsidiary); (iv) your breach or neglect of, or refusal or failure to materially discharge, your duties (other than due to physical or mental illness) commensurate with your title and function or your failure to comply with the lawful directions of the Board or the Chief Executive Officer of the Bank, or of the Board of Directors or the Chief Executive Officer of the Subsidiary that employs you, in any such case that is not cured within fifteen (15) days after you have received written notice thereof from such Board of Directors or Chief Executive Officer; or (v) a willful and knowing material misrepresentation to the Board or the Chief Executive Officer of the Bank or to the Board of Directors or the Chief Executive Officer of the Subsidiary that employs you.

(d) “Change in Control” shall mean the occurrence of any of the following:

(i) Any “Person” or “Group” (as such terms are defined in Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations promulgated thereunder) is or becomes the “Beneficial Owner” (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of BHBC, or of any entity resulting from a merger or consolidation involving BHBC, representing more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of BHBC or such entity.

(ii) The individuals who, as of the date hereof, are members of the Board of Directors of BHBC (the “Existing Directors”), cease, for any reason, to constitute more than fifty percent (50%) of the number of authorized directors of BHBC as determined in the manner prescribed in the Certificate of Incorporation and Bylaws; provided, however, that if the election, or nomination for election, by BHBC stockholders of any new director was approved by a vote of at least fifty percent (50%) of the Existing Directors, such new director shall be considered an Existing Director; provided further, however, that no individual shall be considered an Existing Director if such individual initially assumed office as a result of either an actual or threatened “Election Contest” (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies by or on behalf of anyone other than the Board of Directors of BHBC (a “Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest.

(iii) The consummation of (x) a merger, consolidation or reorganization to which BHBC is a party, whether or not BHBC is the Person surviving or resulting therefrom, or (y) a sale, assignment, lease, conveyance or other disposition of all or substantially all of the assets of BHBC, in one transaction or a series of related transactions, to any Person other than BHBC, where any such transaction or series of related transactions referred to in clause (x) or clause (y) above in this subparagraph (iii) (a “Transaction”) does not otherwise result in a “Change in Control” pursuant to subparagraph (i) of this definition of “Change in Control”; provided, however, that no such Transaction shall constitute a “Change in Control” under this subparagraph (iii) if the Persons who were the stockholders of BHBC immediately before the consummation of such Transaction are the Beneficial Owners, immediately following the consummation of such Transaction, of fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Person surviving or resulting from any merger, consolidation or reorganization referred to in clause (x) above in this subparagraph (iii) or the Person to whom the assets of BHBC are sold, assigned, leased, conveyed or disposed of in any transaction or series of related transactions referred in clause (y) above in this subparagraph (iii), in substantially the same proportions in which such Beneficial Owners held voting stock in BHBC immediately before such Transaction or series of related transactions.

(iv) Any “Person” or “Group,” other than BHBC or any of its subsidiaries, is or becomes the “Beneficial Owner,” directly or indirectly, of securities representing more than fifty percent (50%) of the combined voting power of the then

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outstanding voting securities of the the Bank Business Entity. “FBBH Business Entity” shall mean, at any time, the principal corporation or other entity that is then engaged in the banking and related business activities in which the Bank is currently engaged, which entity may be (i) the Bank, (ii) any entity resulting from a merger, consolidation, reorganization or other similar transaction involving the Bank or a successor entity thereto, or (iii) any entity that has succeeded to the business of the Bank through the sale, transfer, contribution or other disposition of all or substantially all of the assets of the Bank or a successor entity thereto.

(e) “BHBC” means Beverly Hills Bancorp, Inc., a Delaware corporation.

(f) “Compensation” means and includes all of your base annual salary attributable to your employment with the Bank and/or any of its Subsidiaries (including, but not limited to, any amounts excludable from your gross income for federal income tax purposes pursuant to Section 125 or Section 401(k) of the Internal Revenue Code of 1986, as amended), in effect immediately before the Change in Control. “Compensation” shall not include your bonuses, annual incentive awards, non-cash compensation or reimbursements, if any (e.g., the grant or vesting of restricted stock, the grant, vesting, or exercise of stock options, automobile allowance and gasoline reimbursement).

(g) “Disability” means a physical or mental infirmity which substantially impairs your ability to perform your material duties for a period of at least one hundred eighty (180) consecutive calendar days, and, as a result of such Disability, you have not returned to your full-time regular employment prior to termination.

(h) “Eligible Employee” means any employee of the Bank or any of its Subsidiaries who is designated by the Board or any committee thereof to participate in this Plan.

(i) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(j) “Good Reason” means the occurrence, on or after the occurrence of a Change in Control, of any of the following:

(i) The Bank or any of its Subsidiaries reduces your base salary.

(ii) The Bank amends the method for computing bonuses in a way which is not generally applicable to executives of the Bank and its Subsidiaries and which materially reduces your potential bonus given any particular level of performance of the Bank and its Subsidiaries.

(iii) Without your express written consent, the Bank or any of its Subsidiaries requires you to change the location of your job or office, so that you will be based at a location more than 100 miles from the location of your job or office.

(iv) Without your express written consent, the Bank or any of its Subsidiaries reduces your responsibilities or directs you to report to a person of lower rank or responsibilities than the person to whom you reported before the Change in Control.

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(v) A successor to the Bank fails or refuses to assume the obligations of the Bank under this Plan.

(k) “Person” shall have the meaning set forth in the definition of “Change in Control.”

(l) “Plan” means this Change in Control Plan.

(m) “Release” means the Separation and General Release Agreement in the form attached hereto as Exhibit “A”.

(n) “Severance Payment” means the payment of severance compensation as provided in Article II.

(o) “Subsidiary” means any corporation or other Person, a majority of the voting power, equity securities or equity interest of which is owned directly or indirectly by the Bank.

(p) “WARN” means the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §2101 et seq.

Article II

SEVERANCE PAYMENTS

2.1 Right to Severance Payment; Release

Conditioned on the execution and delivery by you (or your beneficiary or personal representative, if applicable) of the Release, and subject to the provisions of Section 2.7, you shall be entitled to receive a Severance Payment from the Bank in the amount provided in Section 2.2 if (a) you are an Eligible Employee, and (b) within one year after the occurrence of a Change in Control, your employment is involuntarily terminated by the Bank or any of its Subsidiaries for any reason other than Cause or your death or Disability, or you voluntarily terminate your employment with the Bank and all Subsidiaries for Good Reason. Notwithstanding the foregoing, you will not be entitled to receive a Severance Payment to the extent you receive payments which the Bank or its Subsidiaries are required to make to you under WARN.

2.2 Amount of Severance Payment

If you become entitled to a Severance Payment under this Plan, the amount of your Severance Payment, when added to any payments which the Bank or its Subsidiaries are required to make to you under WARN, shall equal your Compensation.

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2.3 No Mitigation

The Bank acknowledges and agrees that you shall be entitled to receive your entire Severance Payment regardless of any income which you may receive from other sources following your termination on or after the Change in Control.

2.4 Payment of Severance Payment

The Severance Payment to which you are entitled shall be paid to you, in cash and in full, not later than the later of (i) eight (8) calendar days after execution and delivery by you (or your beneficiary or personal representative, if applicable) of the Release Agreement, or (ii) the date on which such Release becomes effective. If you should die before all amounts payable to you have been paid, such unpaid amounts shall be paid to your beneficiary under this Agreement or, if you have not designated such a beneficiary in writing to the Bank, to the personal representative(s) of your estate.

2.5 Health Benefits Coverage

If you are entitled to receive a Severance Payment under Section 2.1, you will also be entitled to receive health benefits coverage for you and your dependents under the same plan(s) or arrangement(s) under which you were covered immediately before your termination of employment or plan(s) established or arrangement(s) provided by the Bank or any of its Subsidiaries thereafter. Such health benefits coverage shall be paid for by the Bank to the same extent as if you were still employed by the Bank, and you will be required to make such payments as you would be required to make if you were still employed by the Bank. The benefits provided under this Section 2.5 shall continue until the earlier of (a) the expiration of one (1) year following your termination of employment with the Bank and all of its Subsidiaries, or (b) the date you become covered under any other group health plan not maintained by the Bank or any of its Subsidiaries; provided, however, that if such other group health plan excludes any pre-existing condition that you or your dependents may have when coverage under such group health plan would otherwise begin, coverage under this Section 2.5 shall continue (but not beyond the six (6) month period described in clause (a) of this sentence) with respect to such pre-existing condition until such exclusion under such other group health plan lapses or expires. In the event you are required to make an election under Sections 601 through 607 of ERISA (commonly known as COBRA) to qualify for the benefits described in this Section 2.5, the obligations of the Bank and its Subsidiaries under this Section 2.5 shall be conditioned upon your timely making such an election.

2.6 Withholding of Taxes

The Bank may withhold from any amounts payable under this Plan all federal, state, city or other taxes required by applicable law to be withheld by the Bank.

2.7 Governmental Approval

The Bank’s obligation to pay you any amounts under this Plan is conditioned upon approval of the Plan or of payment of such amounts (or upon review of the Plan or of payment of such amounts, and failure to object thereto) by the OTS, the FDIC, or any other governmental agency having jurisdiction over the Bank or its Subsidiaries, to the extent such approval (or review) is required by applicable laws or regulations.

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Article III

OTHER RIGHTS AND BENEFITS NOT AFFECTED

3.1 Other Benefits

This Plan does not provide a pension for you, nor shall any payment hereunder be characterized as deferred compensation. Except as set forth in Section 3.2, neither the provisions of this Plan nor the Severance Payment provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish your rights as an employee, whether existing now or hereafter, under any written benefit, incentive, retirement, stock option, stock bonus or stock purchase plan or any written employment agreement or other written plan or arrangement not related to severance.

3.2 Other Severance Plans Superseded

When you become entitled to a Severance Payment under this Plan, this Plan will supersede, as to you, any and all other severance plans of the Bank or its Subsidiaries and severance agreements between you and the Bank and its Subsidiaries, and your participation in any other severance plan of the Bank and its Subsidiaries will be hereby terminated.

3.3 Employment Status

This Plan does not constitute a contract of employment or impose on you any obligation to remain in the employ of the Bank, nor does it impose on the Bank or any of its Subsidiaries any obligation to retain you in your present or any other position, nor does it change the status of your employment as an employee at will. Nothing in this Plan shall in any way affect the right of the Bank or any of its Subsidiaries in its absolute discretion to change or reduce your compensation at any time, or to change at any time one or more benefit plans, including but not limited to pension plans, dental plans, health care plans, savings plans, bonus plans, vacation pay plans, disability plans, and the like.

Article IV

SUCCESSOR TO BANK

The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank, expressly and unconditionally to assume and agree to perform the Bank’s obligations under this Plan, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place. In such event, the term “Bank,” as used in this Plan, shall mean (from and after, but not before, the occurrence of such event) the Bank as herein before defined and any successor or assignee to the business or assets which by reason hereof becomes bound by the terms and provisions of this Plan.

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Article V

CONFIDENTIALITY

5.1 Nondisclosure of Confidential Material

In the performance of your duties, you have previously had, and may in the future have, access to confidential records and information, including, but not limited to, development, marketing, purchasing, organizational, strategic, financial, managerial, administrative, manufacturing, production, distribution and sales information, data, specifications and processes now owned or at any time hereafter developed by the Bank or its agents or consultants or used at present or at any time hereafter in the course of its business, that are not otherwise part of the public domain (collectively, the “Confidential Material”). All such Confidential Material is considered secret and has been and/or will be disclosed to you in confidence. By your acceptance of your Severance Payment under this Plan, you shall be deemed to have acknowledged that the Confidential Material constitutes proprietary information of the Bank which draws independent economic value, actual or potential, from not being generally known to the public or to other persons who could obtain economic value from its disclosure or use, and that the Bank has taken efforts reasonable under the circumstances, of which this Section 5.1 is an example, to maintain its secrecy. Except in the performance of your duties to the Bank, you shall not, directly or indirectly for any reason whatsoever, disclose or use any such Confidential Material, except that the foregoing disclosure prohibition shall not apply as to Confidential Material that (i) has been publicly disclosed or was within your possession prior to its being furnished to you by the Bank or becomes available to you on a nonconfidential basis from a third party (in any of such cases, not due to a breach by you of your obligations to the Bank or by breach of any other person of a confidential, fiduciary or confidential obligation, the breach of which you know or reasonably should know), (ii) is required to be disclosed by you pursuant to applicable law, provided that you provide notice to the Bank of such requirement as promptly as possible, or (iii) was independently acquired or developed by you without violating any of the obligations under this Plan and without relying on Confidential Material of the Bank. All records, files, drawings, documents, equipment and other tangible items, wherever located, relating in any way to the Confidential Material or otherwise to the Bank’s business, which you have prepared, used or encountered or shall in the future prepare, use or encounter, shall be and remain the Bank’s sole and exclusive property and shall be included in the Confidential Material. Upon your termination of employment with the Bank, or whenever requested by the Bank, you shall promptly deliver to the Bank any and all of the Confidential Material and copies thereof, not previously delivered to the Bank, that may be, or at any previous time has been, in your possession or under your control.

5.2 Nonsolicitation of Employees

By your acceptance of your Severance Payment under this Plan, you agree that, for a period of one (1) year following your termination of employment with the Bank or its Subsidiaries, neither you nor any Person or entity in which you have an interest shall solicit any person who was employed on the date of your termination of employment by the Bank or any of its Subsidiaries to leave the employ of the Bank or any of its Subsidiaries. Nothing in this Section 5.2, however, shall prohibit you or any Person or entity in which you have an

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interest from placing advertisements in periodicals of general circulation soliciting applications for employment, or from employing any person who answers any such advertisement. For purposes of this Section 5.2, you shall not be deemed to have an interest in any corporation whose stock is publicly traded merely because you are the owner of not more than two percent (2%) of the outstanding shares of any class of stock of such corporation, provided you have no active participation in the business of such corporation (other than voting your stock) and you do not provide services to such corporation in any capacity (whether as an employee, an independent contractor or consultant, a board member, or otherwise).

5.3 Equitable Relief

By your acceptance of your Severance Payment under this Plan, you shall be deemed to have acknowledged that violation of Sections 5.1 or 5.2 would cause the Bank irreparable damage for which the Bank cannot be reasonably compensated in damages in an action at law, and that therefore in the event of any breach by you of Sections 5.1 or 5.2, the Bank shall be entitled to make application to a court of competent jurisdiction for equitable relief by way of injunction or otherwise (without being required to post a bond). This provision shall not, however, be construed as a waiver of any of the rights which the Bank may have for damages under this Plan or otherwise, and, except as limited in Article VI, all of the Bank’s rights and remedies shall be unrestricted.

Article VI

ARBITRATION

Except for equitable relief as provided in Section 5.3, arbitration in accordance with the then most applicable rules of the American Arbitration Association shall be the exclusive remedy for resolving any dispute or controversy between you and the Bank or any of its Subsidiaries, including, but not limited to, any dispute regarding your employment or the termination of your employment or any dispute regarding the application, interpretation or validity of this Plan not otherwise resolved through the claims procedure set forth in Section 9.10. The arbitrator shall be empowered to grant only such relief as would be available in a court of law. In the event of any conflict between this Plan and the rules of the American Arbitration Association, the provisions of this Plan shall be determinative. If the parties are unable to agree upon an arbitrator, they shall select a single arbitrator from a list designated by the office of the American Arbitration Association having responsibility for the city in which you primarily performed services for the Bank or its Subsidiaries immediately before your termination of employment of seven arbitrators, all of whom shall be retired judges who are actively involved in hearing private cases or members of the National Academy of Arbitrators, and who, in either event, are residents of the area in which you primarily performed services for the Bank or its Subsidiaries immediately before your termination of employment. If the parties are unable to agree upon an arbitrator from such list, they shall each strike names alternatively from the list, with the first to strike being determined by lot. After each party has used three strikes, the remaining name on the list shall be the arbitrator. The fees and expenses of the arbitrator shall initially be borne equally by the parties; provided, however, that each party shall initially be responsible for the fees and expenses of its own representatives and witnesses. Unless mutually agreed otherwise by the parties, any

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arbitration shall be conducted at a location within fifty (50) miles from the location in which you primarily performed services for the Bank or any of its Subsidiaries immediately before your termination of employment. If the parties cannot agree upon a location for the arbitration, the arbitrator shall determine the location within such fifty (50) mile radius. Judgment may be entered on the award of the arbitrator in any court having jurisdiction. The prevailing party in the arbitration proceeding, as determined by the arbitrator, and in any enforcement or other court proceedings, shall be entitled to the extent provided by law to reimbursement from the other party for all of the prevailing party’s costs (including but not limited to the arbitrator’s compensation), expenses and reasonable attorney’s fees.

Article VII

MISCELLANEOUS

7.1 Applicable Law

To the extent not preempted by the laws of the United States, the laws of the State of California shall be the controlling law in all matters relating to this Plan, regardless of the choice-of-law rules of the State of California or any other jurisdiction.

7.2 Construction

No term or provision of this Plan shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this Plan and any present or future statute, law, ordinance, or regulation, the latter shall prevail, but in such event the affected provision of this Plan shall be curtailed and limited only to the extent necessary to bring such provision within the requirements of the law.

7.3 Severability

If a provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of this Plan and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

7.4 Headings

The Section headings in this Plan are inserted only as a matter of convenience, and in no way define, limit, or extend or interpret the scope of this Plan or of any particular Section.

7.5 Assignability

Your rights or interests under this Plan shall not be assignable or transferable (whether by pledge, grant of a security interest, or otherwise) by you, your beneficiaries or legal representatives, except by will or by the laws of descent and distribution.

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7.6 Amendment

This Plan may be amended in any respect by resolution adopted by the Board until a Change in Control occurs. After a Change in Control occurs, this Plan shall no longer be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever. No agreement or representations, written or oral, express or implied, with respect to the subject matter hereof, have been made by the Bank which are not expressly set forth in this Plan.

7.7 Notices

For purposes of this Plan, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered, telecopied, or sent by certified or overnight mail, return receipt requested, postage prepaid, addressed to the respective addresses, or sent to the respective telecopier numbers, last given by each party to the other, provided that all notices to the Bank shall be directed to the attention of the Board of Directors with a copy to the General Counsel. All notices and communications shall be deemed to have been received on the date of delivery thereof if personally delivered, upon return confirmation if telecopied, on the third business day after the mailing thereof, or on the date after sending by overnight mail, except that notice of change of address shall be effective only upon actual receipt. No objection to the method of delivery may be made if the written notice or other communication is actually received.

7.8 Administration

This Plan constitutes a welfare benefit plan within the meaning of Section 3(1) of ERISA. This letter constitutes the governing document of the Plan. The Administrator of the Plan, within the meaning of Section 3(16) of ERISA, and the Named Fiduciary thereof, within the meaning of Section 402 of ERISA, is the Bank. Attached hereto as Exhibit “B” is a statement of your rights under ERISA.

7.9 Claims

If you believe you are entitled to a benefit under this Plan, you may make a claim for such benefit by filing with the Bank a written statement setting forth the amount and type of payment so claimed. The statement shall also set forth the facts supporting the claim. The claim may be filed by mailing or delivering it to the Secretary of the Bank.

Within sixty (60) calendar days after receipt of such a claim, the Bank shall notify you in writing of its action on such claim and if such claim is not allowed in full, shall state the following in a manner calculated to be understood by you:

(a) The specific reason or reasons for the denial;

(b) Specific reference to pertinent provisions of this Plan on which the denial is based;

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(c) A description of any additional material or information necessary for you to be entitled to the benefits that have been denied and an explanation of why such material or information is necessary; and

(d) An explanation of this Plan’s claim review procedure.

If you disagree with the action taken by the Bank, you or your duly authorized representative may apply to the Bank for a review of such action. Such application shall be made within one hundred twenty (120) calendar days after receipt by you of the notice of the Bank’s action on your claim. The application for review shall be filed in the same manner as the claim for benefits. In connection with such review, you may inspect any documents or records pertinent to the matter and may submit issues and comments in writing to the Bank. A decision by the Bank shall be communicated to you within sixty (60) calendar days after receipt of the application. The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by you, and specific references to the pertinent provisions of this Plan on which the decision is based.

Sincerely,
FIRST BANK OF BEVERLY HILLS
By:
	Larry B. Faigin, President & CEO

I AGREE TO BE BOUND BY THE

TERMS OF THE ABOVE PLAN

Eric Rosa

- 11 -

EX-10.21

EXHIBIT 10.21

LOAN AGREEMENT

THIS LOAN AGREEMENT (hereinafter called this “Agreement”) is made and entered into this 30th day of November, 2006 by and between WILSHIRE ACQUISITIONS CORPORATION, a Nevada corporation (hereinafter called “Borrower”), BEVERLY HILLS BANCORP INC., a Delaware corporation, (hereinafter called “Guarantor”) and FIRST TENNESSEE BANK NATIONAL ASSOCIATION, a national banking association having its principal office located in Memphis, Tennessee (“Lender”).

W I T N E S S E T H :

WHEREAS, Borrower desires to borrow from Lender up to Twenty Million Dollars ($20,000,000.00) from time to time outstanding pursuant to a revolving line of credit;

WHEREAS, Borrower is an indirect wholly owned subsidiary of Guarantor

NOW, THEREFORE, in consideration of the premises and the mutual agreements, covenants and conditions herein contained, the parties hereto hereby agree as follows:

AGREEMENTS

1. COMMITMENT AND FUNDING.

1.1 The Commitment. Subject to the terms and conditions herein set out, Lender agrees and commits to provide a revolving line of credit (the “Loan”) to Borrower for up to Twenty Million Dollars ($20,000,000.00) outstanding from time to time. Such borrowing shall be evidenced by, and shall be payable in accordance with the terms and provisions of, a promissory note executed by Borrower, as maker, attached hereto and incorporated herein by reference (such promissory note together with any renewals, modifications and extensions thereof is herein referred to as the “Note”).

1.2 Funding. The advance of Loan proceeds hereunder shall be made, upon Borrower’s request, by depositing the same into a demand deposit account with Lender or wiring of funds per specific instructions of Borrower. The Loan to Borrower may be made, at Borrower’s request, in one or more advances, each of which shall be subject to the terms and conditions of this Agreement, including but not limited to Sections 2.1 and 2.2 hereof.

1.3 Application of Payments; Prepayments. All payments will be applied first to accrued and unpaid interest, then to principal. Borrower may, at its option, at any time and from time to time, without prepayment penalty or premium, prepay the Loan in whole or in part. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments of accrued and unpaid interest.

1.4 Interest Rate. The Loan indebtedness evidenced by the Note shall bear interest from date at the variable rate determined in accordance with the terms and provisions of the Note.

2. CONDITIONS OF LENDING.

2.1 Loan Documents. The obligation of Lender to fund the Loan is subject to the condition precedent that Lender shall have received at or before the execution of this Agreement all of the following

in form and substance satisfactory to Lender; provided that if any of the following shall not have been furnished to Lender at or before the date of this Agreement, the same shall be furnished promptly thereafter unless Lender shall waive any such requirement in writing.

(a) The Note;

(b) This Agreement;

(c) Guaranty Agreement between Lender and Guarantor (the “Guaranty”);

(d) Commercial Pledge Agreement covering the stock in First Bank of Beverly Hills, a California state chartered bank (“Bank”), a subsidiary of Borrower (the “Pledge Agreement”, and together with the Note, the Guaranty and this Agreement, the “Loan Documents”);

(e) Current certificate of good standing for Borrower and Guarantor in the State of California;

(f) Certified corporate resolutions of Borrower and Guarantor authorizing the execution, delivery and performance of the Loan Documents;

(g) A copy of Guarantor’s Form 10-Q for the quarter ended September 30, 2006 and Form 10-K for the year ended December 31, 2005, it being understood that Lender is relying upon the audit report of Deloitte & Touche LLP contained in the Form 10-K in entering into this Loan Agreement, and Guarantor’s FR Y-9 Parent Company Only financial statement(s).

(h) The opinion of Borrower’s independent, third party counsel in the form approved by Lender, as to the due incorporation and valid existence and good standing of Borrower, the due authorization and execution by Borrower of the Loan Documents, the validity and enforceability of the Loan Documents against Borrower and such other matters as Lender shall require.

2.2 Other Conditions. The obligation of Lender to fund the Loan is subject to each of the following further terms and conditions:

(a) At the time of funding of any Loan advances hereunder, each of Borrower’s warranties and representations contained herein shall be and remain true and correct in all material respects. In addition, no Event of Default (as defined in Section 6 hereof) shall have occurred and be continuing, and, if requested by Lender, Borrower shall execute a certificate verifying each of such matters to be true in all material respects, if such be the case.

(b) At the time the Loan is closed hereunder, there shall have occurred, in the reasonable opinion of Lender, no material adverse changes in the condition, financial or otherwise, of Borrower or the Bank from the condition reflected in the most recent balance sheet included financial statements furnished pursuant to Section 2.1 hereof.

3. REPRESENTATIONS AND WARRANTIES.

In order to induce the Lender to enter into this Agreement and to make the Loan, Borrower and Guarantor represents and warrants to the Lender (which representations and warranties shall survive the delivery of the Loan Documents and the funding of the Loan) that:

3.1 Corporate Status. Borrower is a corporation duly organized and existing under the laws of the State of Nevada, is duly qualified to do business and is in good standing under the laws of the State of California, and has the corporate power and authority to own its properties and assets and conduct its affairs and business.

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3.2 Corporate Power and Authority. Borrower has full power and authority to enter into this Agreement, to borrow funds contemplated herein, to execute and deliver this Agreement, the Note and the Pledge Agreement (the “Borrower Loan Documents”) executed and delivered by it, and to incur the obligations provided for herein, all of which have been duly authorized by all proper and necessary corporate action; and the officer executing each of the Borrower Loan Documents is duly authorized to do so by all necessary corporate action. Any consents or approvals of shareholders of Borrower required as a condition to the validity of any Loan Document have been obtained; and each of the Borrower Loan Documents is the valid, legal, and binding obligation of Borrower enforceable in accordance with its terms.

3.3 No Violation of Agreements or Law. Neither Borrower nor Bank is in default under any indenture, agreement or instrument to which it is a party or by which it may be bound, which default would have a material adverse affect on the financial condition of Borrower and its consolidated subsidiaries taken as a whole. Neither the execution and delivery of the Borrower Loan Documents nor the consummation of the transactions therein contemplated, nor compliance with the provisions of the Borrower Loan Documents will conflict with, or result in the breach of, or constitute a default under, any indenture, agreement or other instrument to which Borrower is a party or by which it may be bound, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property of Borrower (other than pursuant to the Borrower Loan Documents), or violate or be in conflict with any provision of the charter or bylaws of Borrower.

3.4 Compliance With Law; Government Approvals.

(a) Borrower has complied and is complying with in all material respects all requirements, made all applications, and submitted all reports required by The Bank Holding Company Act of 1956, as amended, and any regulations or rulings issued in connection therewith, and the transaction contemplated hereby will not violate any such statutes, rules, rulings, or regulations nor will the consummation of said actions and transactions cause Borrower to be in violation thereof. Borrower has, as required, received all governmental approvals necessary for the consummation of the transaction contemplated herein.

(b) Borrower has complied and is complying with all other applicable state or federal statutes, rules, rulings and regulations except where the failure to have complied or be in compliance would not have a material adverse affect on the financial condition or results of operations of the Guarantor and its consolidated subsidiaries taken as a whole (a “Material Adverse Affect”). The borrowing of money as described herein and said actions and transactions will not violate any of such statutes, rules, rulings, or regulations.

3.5 Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Borrower threatened against Borrower, Guarantor or Bank before any court, arbitrator or governmental or administrative body or agency that, if adversely determined, would result in a Material Adverse Affect. Without limiting the generality of the foregoing, neither Borrower, Guarantor nor Bank is subject to any Supervisory Action (herein defined) by any federal or state bank regulatory authority. As used herein, “Supervisory Action” shall mean and include the issuance by any bank regulatory authority of a letter agreement or memorandum of understanding (regardless of whether consented or agreed to by the party to whom it is addressed); or the issuance by or at the behest of any bank regulatory authority of a cease and desist order, injunction, directive, restraining order, notice of charges, or civil money penalties, against Borrower, Guarantor or Bank or the directors or officers of either of them, whether temporary or permanent.

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3.6 Financial Condition. The consolidated balance sheets and the related statements of income of Guarantor, which have been delivered to the Lender pursuant to Section 2.1 hereof and the consolidated financial statements of Guarantor which will be delivered to Lender pursuant to Section 4.5 hereof are, or will be as of their respective dates and for the respective periods stated therein, complete and correct and fairly present the financial condition of Guarantor or Bank, as the case may be, and the results of operations of Guarantor or Bank, as the case may be, as of the dates and for the periods stated therein, and have been, or will be as of their respective dates and for the respective periods stated therein, prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved. There has been no material adverse change in the business, properties or financial condition of Guarantor and its consolidated subsidiaries since the date of the most consolidated financial statements furnished to Lender pursuant to Section 2.1 or 4.5 hereof except as set forth in Section 2.2(b) or otherwise disclosed to Lender in writing.

3.7 Tax Liability. Guarantor and its consolidated subsidiaries have filed all tax returns that are required to be filed by them, and have paid all taxes which have become due pursuant to such returns or pursuant to any assessments received by them except to the extent that Guarantor or any of its subsidiaries is contesting such taxes or assessments in good faith by appropriate proceedings.

3.8 Subsidiaries. Guarantor has separately provided to Lender a true and correct list of the subsidiaries of Guarantor as of the date of this Agreement.

4. AFFIRMATIVE COVENANTS. Guarantor covenants and agrees that, until the Note together with interest thereon is paid in full, unless specifically waived or approved by the Lender in writing (which waiver or approval will not be unreasonably withheld), Guarantor will, and will cause Borrower and Bank to:

4.1 Business and Existence. Perform all things necessary to preserve and keep in full force and effect the existence, rights and franchises of Guarantor and to comply in all material respects with all laws and regulations applicable to Guarantor, Borrower and Bank (the “Guarantor Group”), including, but not limited to, laws and regulations of state and federal authorities applicable to banks and bank holding companies.

4.2 Maintain Property. Maintain, preserve, and protect all properties used or useful in the conduct of the Guarantor Group’s business and keep the same in good repair, working order and condition.

4.3 Insurance. At all times keep the insurable properties of the Guarantor Group adequately insured and maintain in force (a) insurance, to such an extent and against such risks, including fire, as is customary with companies in the same or similar business, (b) necessary workmen’s compensation insurance, fidelity bonds and directors’ and officers’ insurance coverage in amounts reasonably satisfactory to Lender, and (c) such other insurance as may be required by law; and if required by Lender, deliver to the Lender a copy of the bonds and policies providing such coverage and a certificate of Guarantor executed by Guarantor’s chief executive officer or chief financial officer, as the case may be, setting forth the nature of the risks covered by such insurance, the amount carried with respect to each risk, and the name of the insurer.

4.4 Taxes and Liens. Pay and discharge promptly all taxes, assessments, and governmental charges or levies imposed upon the Guarantor Group or upon any of their respective income and profits, or

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their properties, real, personal or mixed, or any part thereof, before the same shall become delinquent; provided, however, that the Guarantor Group shall not be required to pay and discharge or to cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the amount or validity thereof shall be contested in good faith by appropriate proceedings.

4.5 Financial Reports. Furnish to Lender (a) as soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year, consolidated balance sheet of Guarantor as of the end of such year and consolidated statements of income of Guarantor for the year then ended, together with the audit report and opinion of independent Certified Public Accountants acceptable to the Lender with respect thereto (and Deloitte & Touche LLP is acceptable), which audit report and opinion shall contain no exceptions or qualifications unacceptable to Lender; (b) promptly upon receipt, copies of all management letters and other written assessments submitted by the Certified Public Accountants to Guarantor; and (c) a copy of Guarantor ‘s FR Y-9 Parent Company Only financial statement(s); and (d) a copy of Bank’s Quarterly Report of Condition and Income (“Call Report”) promptly upon the filing with the appropriate regulatory agency.

4.6 Regulatory Examinations. If legally permitted to do so, (a) promptly notify Lender upon receipt of any material correspondence, report, memoranda or other written communication between any federal or state regulatory body or authority, with respect to the properties, loans, operations and/or condition of the Guarantor Group; and (b) if required by Lender, fully and completely assist and cooperate with Lender in requesting approval by such regulatory body or authority of the furnishing to Lender of any such report, and furnish such report to Lender if such approval is given; provided, however, that Lender shall take such steps as may be necessary to assure that all such reports shall remain confidential and shall be used by Lender solely in connection with the administration of the Loan in accordance with the provisions of this Agreement.

4.7 Additional Information. Furnish such other information regarding the operations, business affairs and financial condition of the Guarantor Group as Lender may from time to time reasonably request, including but not limited to true and exact copies of any monthly management reports to their respective directors, their respective tax returns, and all information furnished to shareholders.

4.8 Right of Inspection. Except to the extent, if any, prohibited by applicable law, permit any person designated by Lender, to inspect any of the properties, books and financial and other reports and records of Borrower and Bank, including, but not limited to, all documentation and records pertaining to the Guarantor Group’s loans, investments and deposits; and to discuss their affairs; finances and accounts with the Guarantor Group’s principal executive officers, at all such reasonable times and as often as Lender may reasonable request provided that Lender and each person reviewing such information on behalf of Lender shall keep such information strictly confidential and acknowledge the legal restrictions of trading of securities with material non-public information, and if requested by Borrower or Guarantor, shall enter into an agreement to this effect in form and substance reasonably acceptable to Borrower.

4.9 Notice of Default. At the time of Borrower’s first knowledge or notice, furnish the Lender with written notice of the occurrence of any event or the existence of any condition which constitutes or upon written notice or lapse of time or both would constitute an Event of Default under the terms of this Agreement.

4.10 Compliance with Banking Regulations. Cause the Guarantor Group to be in compliance with all banking and bank holding company laws, rules and regulations applicable to the Guarantor Group, except to the extent that such non-compliance would not result in a Material Adverse Affect.

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4.11 Loan Loss Reserves. With respect to Bank, maintain at all times loan loss reserves in amounts deemed adequate by all federal and state regulatory authorities; if any federal or state regulatory authority advises Bank that its loan loss reserves are not adequate, Bank shall not be in violation of this covenant if it increases its loan loss reserves to the level deemed adequate by the such regulatory authority.

4.12 Compliance Certificate. Furnish Lender a certificate of compliance of Guarantor duly executed by the chief financial officer or chief executive officer of Guarantor within thirty (30) days after the end of each calendar quarter stating that the Guarantor Group is in compliance in all material respects with all representations, warranties and agreements in the Loan Documents.

5. NEGATIVE COVENANTS. Guarantor covenants and agrees that, until the Note together with interest thereon is paid in full, unless specifically waived or approved by the Lender in writing (which waiver or approval will not be unreasonably withheld), Guarantor will, and will cause Borrower and Bank to:

5.1 Indebtedness. Guarantor agrees to notify Lender should it or any subsidiary, create, incur, assume or suffer to exist, contingently or otherwise, any indebtedness, except for the following indebtedness:

(a) the indebtedness of Borrower under the Loan;

(b) operating expenses, trade payables and leases incurred by Guarantor or its subsidiaries in the ordinary course of business;

(c) indebtedness owed by the Guarantor to any other subsidiary;

(d) indebtedness reflected on the consolidated financial statements of Guarantor as of September 30, 2006;

(e) indebtedness between Guarantor or any of its subsidiaries or between any of Guarantor’s subsidiaries;

(f) deposits from customers, Federal Funds purchased, borrowings from the Federal Home Loan Bank, mortgage warehouse borrowings and other such borrowings in ordinary course of business; and

(g) Trust Preferred Securities outstanding.

5.2 Dividends, Redemptions and Other Payments. Only in the case where there is outstanding debt owed to Lender under this Agreement, Guarantor will not declare or pay any dividends if an Event of Default has occurred and is continuing under this Agreement or the payment of a dividend would create an Event of Default. The payment of any dividend shall in all respects comply with the Rules and Regulations of the Federal Reserve Board.

5.3 Relocation. Notify the Lender in advance of any change in the location of the principal executive office of any member of the Guarantor Group.

5.4 Stock. Sell, transfer or otherwise dispose of any of its common capital stock in Bank.

5.5 Sale of Assets. Sell, lease, transfer or dispose of all or any substantial part of its assets, including the assets of any of its subsidiaries, other than in the normal course of business.

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6. DEFAULT AND REMEDIES.

6.1 Events of Default. Subject to Section 6.2, the occurrence of any one or more of the following events shall constitute a default (“Event of Default”) under the terms of this Agreement:

(a) Default in the payment when due of the principal of or interest on the Note.

(b) Material default in the performance of any provisions or breach of any covenant of this Agreement or any other Loan Document.

(c) If any representation or warranty or any other statement of fact contained herein, in any other Loan Document, or in any writing, certificate, or report or statement at any time furnished to Lender pursuant to or in connection with this Agreement shall prove to be false or misleading in any material respect.

(d) If any member of the Guarantor Group files a petition in bankruptcy or seeks reorganization or arrangements under the Bankruptcy Code (as it now exists or as amended); is unable or admits in writing its inability to pay its debts as they become due or is not generally paying its debts as they come due; makes an assignment for the benefit of creditors; has a receiver, custodian or trustee appointed voluntarily or involuntarily, for its property; or is adjudicated bankrupt; or if an involuntary petition is filed in bankruptcy, for reorganization or arrangements, or for the appointment of a receiver, custodian or trustee of any member of the Guarantor Group on its respective properties and if any member of the Guarantor Group either acquiesces therein or fails to have such petition dismissed within ninety (90) days of the filing thereof.

(e) Bank’s return on total average assets for any four consecutive calendar quarters commencing with the quarter ended September 30, 2006 is less than 0.60%.

(f) If the Guarantor Group’s non-performing loans exceed two percent (2.00%) of total gross loans as of the end of any calendar quarter after the date of this Agreement. For purposes hereof, “non-performing loans” shall be defined as the sum of all loans whose installments or prepayments are 90 days or more past due plus all loans that are on non-accrual plus those loans which have been renegotiated (as defined by the regulatory agencies) or restructured to provide a reduction in either interest or principal because of a deterioration in the financial position of the borrower.

(g) As of the end of any calendar quarter Bank shall not be “Well Capitalized” under the Prompt Corrective Action rules of the FDIC.

(h) As of the end of any calendar quarter Guarantor shall have a consolidated leverage ratio (Tier 1 Capital to tangible assets) of less than Six and One-Half Percent (6.50%); for purposes hereof, “Tier 1 Capital” is defined in Appendix A to Title 12, Code of Federal Regulations, Part 225n, Capital Adequacy Guidelines for Bank Holding Companies.

(i) If there shall at any time occur without the prior written approval of Lender a Change of Control of Borrower or Bank; for this purpose, a Change of Control shall have occurred of Borrower or Bank if any person or entity, or group of persons or entities acting in concert, other than an Excluded Person, acquires more than 50% of the outstanding voting securities of Borrower or Bank, as applicable; and an “Excluded Person” shall mean Borrower or any subsidiary of Borrower, or any person who is presently a director or officer of Borrower or any affiliates of any such person or persons;

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(j) The issuance by or at the request of any bank regulatory authority of any Supervisory Action (as defined in Section 3.5 hereof) or the prohibition by any regulatory authority on the Borrower or Guarantor to prevent Borrower or Guarantor from engaging in any commercial real estate lending activity.

6.2 Remedies. If an Event of Default shall occur, at any time thereafter that such Event of Default shall be continuing, Lender may, at its option without demand or notice (except as otherwise provided herein), the same being expressly waived, declare the Loan, with interest thereon, to be immediately due and payable, and may proceed to exercise all rights and remedies available under the Loan Documents, at law or in equity, concurrently or sequentially, in such order as Lender may elect, all such rights and remedies being cumulative. If any default, other than a default on payment of the Note, is curable and if Borrower has not been given a notice of a similar default within the preceding 12 months, such default shall not be an Event of Default unless within 30 days of notice thereof from Lender Borrower fails to cure such default or, if the cure requires more than 30 days, Borrower fails to initiate steps to cure said default.

7. MISCELLANEOUS.

7.1 Amendments. The provisions of this Agreement and the other Loan Documents may be amended or modified only by an instrument in writing signed by the parties thereto.

7.2 Notices. All notices and other communications provided for hereunder shall be in writing and if mailed, shall be mailed to the Borrower, at 23901 Calabasas Road, Suite 1050, Calabasas, California 91320 Attn: Carol Schardt, and to the Lender, to it at 845 Crossover Lane, Suite 150, Memphis, Tennessee, 38117, Attention: Correspondent Services; or as to any such person at such other address as shall be designated by such person in a written notice to the other parties hereto complying as to delivery with the terms of this Section 7.2. All such notices and other communications shall be effective upon delivery or, if sent by first class registered or certified mail, postage prepaid, shall be effective on the earlier of delivery or three business days after deposit in the United States mail.

7.3 No Waiver, Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Lender, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Waiver of any right, power, or privilege hereunder or under any instrument or document now or hereafter evidencing or securing the Loan is a waiver only as to the specified item. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law.

7.4 Binding Effect. This Agreement shall be binding upon, and inure to the benefit of the parties hereto and their respective heirs, successors, and assigns, except that Borrower shall not have the right to assign its rights hereunder or any interest therein without the prior written consent of Lender.

7.5 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Tennessee; except that the provisions hereof which relate to the payment of interest shall be governed by (a) the laws of the United States or (b) the laws of the State of Tennessee, whichever permits the Lender to charge the higher rate, as more particularly set out in the Note.

7.6 Venue of Actions. As an integral part of the consideration for the making of the Loan hereunder, it is expressly understood and agreed that no suit or action shall be commenced by the Borrower or Guarantor, or by any successor, personal representative or assignee of it, with respect to the Loan contemplated hereby, or with respect to any of the Loan Documents, other than in a state court of

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competent jurisdiction in and for the County of the State in which the principal place of business of the Lender is situated, or in the United States District Court for the District in which the principal place of business of the Lender is situated, and not elsewhere. Nothing in this paragraph contained shall prohibit Lender from instituting suit in any court of competent jurisdiction for the enforcement of its rights hereunder or under any other Loan Document, but the parties stipulate and agree that the courts specified in the preceding sentence of this section shall be an appropriate forum for any such suit.

7.7 Terminology; Section Headings. All personal pronouns used in this Loan Agreement whether used in the masculine, feminine, or neuter gender, shall include all other genders; and the singular of any such pronoun or of any term defined herein shall include the plural, and vice versa. Section headings are for convenience only and neither limit nor amplify the provisions of this Agreement.

7.8 Enforceability of Agreement. Should any one or more of the provisions of this Agreement be determined to be illegal or unenforceable, all other provisions nevertheless shall remain effective and binding on the parties hereto. In the event that the provisions of the Note or this Agreement governing the determination of the rate of interest on the Loan should be construed by a court of competent jurisdiction not to constitute a valid, enforceable designation of a rate of interest or method of determining the same, the Loan indebtedness shall bear interest at the maximum effective variable contract rate which may be charged by Lender under applicable law from time to time in effect.

7.9 Interest Limitations. It is the intention of the parties hereto to comply strictly with all applicable usury laws; and, accordingly, in no event and upon no contingency shall Lender ever be entitled to receive, collect, or apply as interest any interest, fees, charges or other payments equivalent to interest, in excess of the maximum rate for which Borrower may lawfully contract under applicable law, from time to time in effect. Any provision hereof, or of any other agreement executed by Borrower that would otherwise operate to bind, obligate or compel Borrower to pay interest in excess of such maximum lawful rate shall be construed to require the payment of the maximum rate only. The provisions of this paragraph shall be given precedence over any other provisions of this paragraph shall be given precedence over any other provisions contained herein or in any other agreement applicable to the Loan, that is in conflict with the provisions of this paragraph.

7.10 Non-Control. In no event shall Lender’s rights hereunder be deemed to indicate that Lender is in control of the business, management or properties of the Guarantor Group or has power over the daily management functions and operating decisions made by the Guarantor Group.

7.11 Fees and Expenses. Borrower agrees to pay Lender a fee of Two Thousand Five Hundred Dollars ($2,500) for actual out-of-pocket expenses, including due diligence expenses and legal fees incurred by Lender in connection with the development, preparation, execution, recording of the Loan and the Loan Documents. Any expenses related to future amendment or enforcement of, or the preservation of any rights under this Agreement and the other Loan Documents, or the collection of the Loan therefore will also be at the expense of the Borrower. In addition, if Borrower does not have at least $4,000,000 outstanding under the Loan for 30-days during commitment period, Borrower will pay to Lender a $2,000 non-usage fee.

7.12 Indemnification. Guarantor and Borrower hereby agree to indemnify Lender against, and hold Lender harmless from, any and all claims, suits and damages asserted against Lender by any person or entity other than any member of the Guarantor Group, but including, but not limited to, shareholders and former shareholders of Guarantor, arising out of or asserted with respect to the transactions contemplated by this Agreement and shall pay all attorneys’ fees and costs in connection with the defense of any such claim.

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7.13 Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, WHETHER NOW EXISTING OR HEREAFTER ARISING: AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

IN WITNESS WHEREOF, Guarantor, Borrower and Lender have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

WILSHIRE ACQUISITIONS CORPORATION (“Borrower”)	BEVERLY HILLS BANCORP INC. (“Guarantor”)
By:	By:
Title:	Title:
	FIRST TENNESSEE BANK NATIONAL ASSOCIATION (“Lender”)
	By:
	Title:

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EX-10.22

EXHIBIT 10.22

REVOLVING CREDIT NOTE

$20,000,000.00	Memphis, Tennessee
	November 30, 2006

Wilshire Acquisitions Corporation, a Nevada corporation, (the “Borrower”) promises to pay to the order of FIRST TENNESSEE BANK NATIONAL ASSOCIATION, (the “Lender”), in lawful money of the United States of America, the principal amount of Twenty Million and 00/100 Dollars ($20,000,000.00) or so much as may be outstanding, together with interest on the unpaid principal balance from time to time outstanding. Interest shall be calculated from the date of each advance until repayment of each advance. This Note is the note referenced in that certain Loan Agreement of even date herewith between Borrower, Lender and Beverly Hills Bancorp Inc. (the “Loan Agreement”). Unless otherwise defined in this Note, capitalized terms used herein shall have the meanings ascribed to them in the Loan Agreement.

This Note, including unpaid principal and all accrued and unpaid interest, is due and payable in full on November 30, 2007 (the “Maturity Date”). In addition, on each Interest Payment Date, Borrower will make quarterly payments of all accrued and unpaid interest due as of such Date, beginning March 1, 2007. For purposes of this Note, the “Interest Payment Dates” shall be March 1, June 1, September 1 and November 30. Unless other wise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All installments of interest, and the principal hereof, are payable at the office of Lender, 845 Crossover Lane, Suite 150, Memphis, TN, 38117, or such other address as the Lender may from time to time specify in writing in accordance with the Loan Agreement.

The interest rate on this Note is subject to change from time to time based on changes in an independent index (the “Index”) which is the LIBOR Rate (as hereinafter defined). The interest rate shall be subject to adjustment on each Interest Payment Date (each such date an “Interest Rate Change Date”). The “LIBOR Rate” shall mean the London Interbank Offered Rate of interest for an interest period of three (3) months, as reported in The Wall Street Journal published on each Interest Rate Change Date or, if The Wall Street Journal is not published on such date, the last date immediately preceding such date on which The Wall Street Journal is published. Each change in the Index which results from a change in the LIBOR Rate shall become effective, without notice to Borrower, on each Interest Rate Change Date. The Index is not necessarily the lowest rate charged by Lender on its loans. If during the term of this Note publication of the The Wall Street Journal is terminated or suspended, Lender may designate an alternative publication to determine the LIBOR Rate. If the LIBOR Rate ceases to be available, Lender may substitute an alternative but comparable index upon at least 45 days prior written notice to Borrower. Lender will tell Borrower the current LIBOR Rate upon Borrower’s request. The interest rate will not change except on an Interest Rate Change Date. Borrower understands

that Lender may make loans based on indices other than the Index. The initial interest rate on this Note is 7.02% per annum. The interest rate of any Interest Rate Change Date shall be the rate of 1.65% over the LIBOR Rate as of the Interest Rate Change Date. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law.

Borrower may, at its option, at any time and from time to time, without prepayment penalty or premium, prepay this Note in whole or in part. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments of accrued unpaid interest.

Any amounts not paid when due hereunder (whether by acceleration or otherwise) shall bear interest after maturity at the lesser of (a) twenty percent (20%) per annum or (b) the maximum effective variable contract rate which it is lawful for the holder hereof to charge.

If an Event of Default shall occur, at any time thereafter that such Event of Default shall be continuing, Lender may, at its option without demand or notice (except as otherwise provided herein), the same being expressly waived, declare the Loan, with interest thereon, to be immediately due and payable, and may proceed to exercise all rights and remedies available under the Loan Documents, at law or in equity, concurrently or sequentially, in such order as Lender may elect, all such rights and remedies being cumulative. If any default, other than a default on payment of the Note, is curable and if Borrower has not been given a notice of a similar default within the preceding 12 months, such default shall not be an Event of Default unless within 30 days of notice thereof from Lender Borrower fails to cure such default or, if the cure requires more than 30 days, Borrower fails to initiate steps to cure said default.

If this Note is placed in the hands of an attorney for collection, by suit or otherwise, or to enforce its collection, or to represent the rights of the Lender in connection with any loan documentation executed in connection herewith, or to defend successfully against any claim, cause of action or suit brought by the Borrower against the Lender, the Borrower shall pay on demand all costs of collection and litigation (including court costs), together with a reasonable attorney’s fee.

Borrower and any endorsers or guarantors hereof waive protest, demand, presentment, and notice of dishonor, and agree that this Note may be extended, in whole or in part, without limit as to the number of such extensions or the period or periods thereof, without notice to them and without affecting their liability hereon.

It is the intention of the Lender and Borrower to comply strictly with applicable usury laws; and, accordingly, in no event and upon no contingency shall the Lender ever be entitled to receive, collect, or apply as interest any interest, fees, charges or other payments equivalent to interest, in excess of the maximum rate which the Lender may lawfully charge under applicable statutes and laws from time to time in effect; and in the event that the holder hereof ever receives, collects, or applies as interest any such excess, such amount which, but for this provision, would be excessive interest, shall be applied to the reduction of the principal amount of the indebtedness hereby evidenced; and if the principal amount of the indebtedness evidenced hereby, and all lawful interest thereon, is paid in full, any remaining excess shall forthwith be

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paid to Borrower, or other party lawfully entitled thereto. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the highest rate which Lender may lawfully charge under applicable law from time to time in effect, the Borrower and the Lender shall, to the maximum extent permitted under applicable law, characterize any non-principal payment as a reasonable loan charge, rather than as interest. Any provision hereof, or of any other agreement between the Lender and Borrower, that operates to bind, obligate, or compel the Borrower to pay interest in excess of such maximum rate shall be construed to require the payment of the maximum rate only. The provisions of this paragraph shall be given precedence over any other provision contained herein or in any other agreement between the Lender and Borrower that is in conflict with the provisions of this paragraph.

This Note evidences a revolving line of credit. Advances under this Note, as well as directions for payment from Borrower’s accounts, may be requested orally or in writing by Borrower or by an authorized person. Until the Maturity Date, Borrower may reborrow funds available under the Loan. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower’s accounts with Lender in accordance with the Loan Agreement.

The terms of this Note shall be binding upon Borrower, and upon Borrower’s successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

This Note shall be governed and construed according to the statutes and laws of the State of Tennessee from time to time in effect, except to the extent that Section 85 of Title 12 of the United States Code (or other applicable federal statue) may permit the charging of a higher rate of interest than applicable state law, in which event such applicable federal statute, as amended and supplemented from time to time shall govern and control the maximum rate of interest permitted to be charged hereunder; it being intended that, as to the maximum rate of interest which may be charged, received, and collected hereunder, those applicable statutes and laws, whether state or federal, from time to time in effect, which permit the charging of a higher rate of interest, shall govern and control; provided, always, however, that in no event and under no circumstances shall the Maker be liable for the payment of interest in excess of the maximum rate permitted by such applicable law, from time to time in effect.

BORROWER: Wilshire Acquisitions Corporation
By:	By:
Title:	Title:

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EX-10.23

EXHIBIT 10.23

COMMERCIAL GUARANTY

Principal Amount: $20,000,000.00

Loan Date: November 30, 2006

Maturity: November 30, 2007

Borrower:	Wilshire Acquisitions Corporation
Guarantor:	Beverly Hills Bancorp Inc.
	23901 Calabasas Rd, Ste. 1050
	Calabasas, CA 91302
Lender:	First Tennessee Bank National Association
	Financial Institutions
	845 Crossover Lane, Ste. 150
	Memphis, TN 38117

AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.

CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, Beverly Hills Bancorp, Inc. (“Guarantor”) absolutely and unconditionally guarantees to First Tennessee Bank National Association (“Lender”) or its order, the timely performance and payment by Wilshire Acquisitions Corporation (“Borrower”) of the Indebtedness on the terms and conditions set forth in this Guaranty. Under this Guaranty, the liability of Guarantor is unlimited and the obligations of Guarantor are continuing.

INDEBTEDNESS GUARANTEED. The Indebtedness guaranteed by this Guaranty includes any and all of Borrower’s indebtedness to Lender and is used in the moat comprehensive sense and means and includes any and all of Borrower’s liabilities, obligations and debts to Lender, now existing or hereinafter incurred or created, including, without limitation, all loans, advances, interest, costs, debts, overdraft indebtedness, credit card indebtedness, lease obligations, other obligations, and liabilities of Borrower, or any of them, and any present or future judgments against Borrower, or any of them; and whether any such Indebtedness is voluntarily or involuntarily incurred, due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined; whether Borrower may be liable individually or jointly with others, or primarily or secondarily, or as guarantor or surety; whether recovery on the Indebtedness may be or may become barred or unenforceable against Borrower for any reason whatsoever; and whether the Indebtedness arises from transactions which may be voidable on account of infancy, insanity, ultra vires, or otherwise.

DURATION OF GUARANTY. This Guaranty will take effect when received by Lender without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and will continue in full force until all Indebtedness incurred or contracted before receipt by Lender of any notice of revocation shall have been fully and finally paid and satisfied and all of Guarantor’s other obligations under this Guaranty shall have been performed in full. If Guarantor elects to revoke this Guaranty, Guarantor may only do so in writing. Guarantor’s written notice of revocation must be mailed to Lender, by certified mail, at Lender’s address listed above or such other place as Lender may designate in writing. Written revocation of this Guaranty will apply only to advances or new Indebtedness created after actual receipt by Lender of Guarantor’s written revocation. For this purpose and without limitation, the term “new Indebtedness” does not include Indebtedness which at the time of notice of revocation is contingent, unliquidated, undetermined or not due and which later becomes absolute, liquidated, determined or due. This Guaranty will continue to bind Guarantor for all Indebtedness incurred by Borrower or committed by Lender prior to receipt of Guarantor’s written notice of revocation, including any extensions, renewals, substitutions or modifications of the Indebtedness. All renewals, extensions, substitutions, and modifications of the Indebtedness granted after Guarantor’s revocation, are contemplated under this Guaranty and, specifically will not be considered to be new Indebtedness. Release of any other guarantor or termination of any other guaranty of the Indebtedness shall not affect the liability of Guarantor under this Guaranty. A revocation Lender receives from any one or more Guarantors shall not affect the liability of any remaining Guarantors under this Guaranty. It is anticipated that fluctuations may occur in the aggregate amount of Indebtedness covered by this Guaranty, and Guarantor specifically acknowledges and agrees that reductions in the amount of Indebtedness, even to zero dollars ($0.00), prior to Guarantor’s written revocation of this Guaranty shall not constitute a termination of this Guaranty. This Guaranty is binding upon Guarantor and Guarantor’s heirs, successors and assigns so long as any of the guaranteed Indebtedness remains unpaid and even though the Indebtedness guaranteed may from time to time be zero dollars ($0.00). Upon payment and satisfaction of the Indebtedness in full, and at such time as Lender shall have no further obligation to extend credit under that certain Loan Agreement dated the date hereof by and among Lender, Borrower and Guarantor, Lender shall execute and deliver to Guarantor a written release and termination of this Guaranty.

GUARANTOR’S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before or after any revocation hereof, without notice or demand and without lessening Guarantor’s liability under this Guaranty, from time to time: (A) prior to revocation as set forth above, to make one or more additional secured or unsecured loans to Borrower, to lease equipment or other goods to Borrower, or otherwise to extend additional credit to Borrower; (B) to alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of the Indebtedness or any part of the Indebtedness, including increases and decreases of the rate of interest on the Indebtedness; extensions may be repeated and may be for longer than the original loan term; (C) to take and hold security for the payment of this Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fail or decide not to

perfect, and release any such security, with or without the substitution of new collateral; (D) to release, substitute, agree not to sue, or deal with any one or more of Borrower’s sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; (E) to determine how, when and what application of payments and credits shall be made on the Indebtedness; (F) to apply such security and direct the order or manner of sale thereof, including without limitation, any nonjudicial sale permitted by the terms of the controlling security agreement or deed of trust, as Lender in its discretion may determine; (G) to sell, transfer, assign or grant participations in all or any part of the Indebtedness; and (H) to assign or transfer this Guaranty in whole or in part.

GUARANTOR’S REPRESENTATIONS AND WARRANTIES, Guarantor represents and warrants to Lender that (A) no representations or agreements of any kind have been made to Guarantor which would limit or qualify in any way the terms of this Guaranty; (B) this Guaranty is executed at Borrower’s request and not at the request of Lender; (C) Guarantor has full power, right and authority to enter into this Guaranty; (D) the provisions of this Guaranty do not conflict with or result in a default under any agreement or other instrument binding upon Guarantor and do not result in a violation of any law, regulation, court decree or order applicable to Guarantor; (E) Guarantor has not and will not, without the prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise dispose of all or substantially all of Guarantor’s assets, or any interest therein;(F) Lender has made no representation to Guarantor as to the creditworthiness of Borrower; and (G) Guarantor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower’s financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Guarantor’s risks under this Guaranty, and Guarantor further agrees that, absent a request for information, Lender shall have no obligation to disclose to Guarantor any information or documents acquired by Lender in the course of its relationship with Borrower.

GUARANTOR’S WAIVERS. Except as prohibited by applicable law, Guarantor waives any right to require Lender (A) to continue lending money or to extend other credit to Borrower; (B) to make any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the Indebtedness or of any nonpayment related to any collateral, or notice of any action or non-action on the part of Borrower, Lender, any surety, endorser, or other guarantor in connection with the Indebtedness or in connection with the creation of new or additional loans or obligations; (C) to resort for payment or to proceed directly or at once against any person, including Borrower or any other guarantor; (D) to proceed directly against or exhaust any collateral held by Lender from Borrower, any other guarantor, or any other person; (F) to give notice of the terms, time, and place of any public or private sale of personal property security held by Lender from Borrower or to comply with any other applicable provisions of the Uniform Commercial Code; (F) to pursue any other remedy within Lender’s power; or (G) to commit any act or omission of any kind, or at any time, with respect to any matter whatsoever.

Guarantor also waives any and all rights or defenses arising by reason of (A) any “one action” or “anti-deficiency” law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender’s commencement or completion of any foreclosure action, either judicially or by

exercise of a power of sale; (B) any election of remedies by Lender which destroys or otherwise adversely affects Guarantor’s subrogation rights or Guarantor’s rights to proceed against Borrower for reimbursement, including without limitation, any loss of rights Guarantor may suffer by reason of any law limiting, qualifying, or discharging the Indebtedness; (C) any disability or other defense of Borrower, of any other guarantor, or of any other person, or by reason of the cessation of Borrower’s liability from any cause whatsoever, other than payment in full in legal tender, of the Indebtedness; (D) any right to claim discharge of the Indebtedness on the basis of unjustified impairment of any collateral for the Indebtedness; (E) any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced, there is outstanding Indebtedness of Borrower to Lender which is not barred by any applicable statute of limitations; or (F) any defenses given to guarantors at law or in equity other than actual payment and performance of the Indebtedness. If payment is made by Borrower, whether voluntarily or otherwise, or by any third party, on the Indebtedness and thereafter Lender is forced to remit the amount of that payment to Borrower’s trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for the relief of debtors, the Indebtedness shall be considered unpaid for the purpose of the enforcement of this Guaranty.

Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both.

GUARANTOR’S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor’s full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any such waiver is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law or public policy.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Guarantor’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Guarantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Guarantor authorizes Lender, to the extent permitted by applicable law, to hold these funds if there is a default, and Lender may apply the funds in these accounts to pay what Guarantor owes under the terms of this Guaranty.

SUBORDINATION OF BORROWER’S DEBTS TO GUARANTOR. Guarantor agrees that the Indebtedness of Borrower to Lender, whether now existing or hereafter created, shall be superior to any claim that Guarantor may have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby expressly subordinates any claim Guarantor may have against Borrower, upon any account whatsoever, to any claim that Lender may now or hereafter have against Borrower. In the event of insolvency and consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Borrower applicable to the payment of the claims of both Lender and Guarantor shall be paid to Lender and shall be first applied by Lender to the

Indebtedness of Borrower to Lender. If Lender so requests, any totes or credit agreements now or hereafter evidencing any debts or obligations of Borrower to Guarantor shall be marked with a legend that the same are subject to this Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender is hereby authorized, in the name of Guarantor, from time to time to file financing statements and continuation statements end to execute documents and to take such other actions as Lender deems necessary or appropriate to perfect, preserve and enforce its rights under this Guaranty.

EXCLUSION FROM INDEBTEDNESS. Excluded from indebtedness shall be any indebtedness governed by the Federal Truth in Lending Act.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Guaranty:

Amendments. This Guaranty, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Guaranty. No alteration of or amendment to this Guaranty shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys’ Fees; Expenses. Guarantor agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Guaranty. Lender may hire or pay someone else to help enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s attorneys’ fees and legal expenses whether or not there is a lawsuit, including attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Guarantor also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Guaranty are for convenience purposes only and are not to be used to interpret or define the provisions of this Guaranty.

Governing Law. This Guaranty will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Tennessee without regard to its conflicts of law provisions. This Guaranty has been accepted by Lender in the State of Tennessee.

Choice of Venue. If there is a lawsuit, Guarantor agrees upon Lender’s request to submit to the jurisdiction of the courts of Shelby County, State of Tennessee.

Integration. Guarantor further agrees that Guarantor has read and fully understands the terms of this Guaranty; Guarantor has had the opportunity to be advised by Guarantor’s attorney with respect to this Guaranty; the Guaranty fully reflects Guarantor’s intentions and parol evidence is not required to interpret the terms of this Guaranty. Guarantor hereby indemnifies and holds Lender harmless from all losses, claims, damages, and costs (including Lender’s attorneys’ fees) suffered or incurred by Lender as a result of any breach by Guarantor of the warranties, representations and agreements of this paragraph.

Interpretation. In all cases where there is more than one Borrower or Guarantor, then all words used in this Guaranty in the singular shall be deemed to have been used in the

plural where the context and construction so require; and where there is more than one Borrower named in this Guaranty or when this Guaranty is executed by more than one Guarantor, the words “Borrower” and “Guarantor” respectively shall mean all and any one or more of them. The words “Guarantor,” “Borrower,” and “Lender” include the heirs, successors, assigns, and transferees of each of them. If a court finds that any provision of this Guaranty is not valid or should not be enforced, that fact by itself will not mean that the rest of this Guaranty will not be valid or enforced. Therefore, a court will enforce the rest of the provisions of this Guaranty even if a provision of this Guaranty may be found to be invalid or unenforceable. If any one or more of Borrower or Guarantor are corporations, partnerships, limited liability companies, or similar entities, it is not necessary for Lender to inquire into the powers of Borrower or Guarantor or of the officers, directors, partners, managers, or other agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty.

Notices. Any notice required to be given under this Guaranty shall be given in writing. and, except for revocation notices by Guarantor, shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, three (3) days after the date when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Guaranty. All revocation notices by Guarantor shall be in writing and shall be effective upon delivery to Lender as provided in the section of this Guaranty entitled “DURATION OF GUARANTY.” Any party may change its address for notices under this Guaranty by giving formal written notice to the ether parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Guarantor agrees to keep Lender informed at all times of Guarantor’s current address. Unless otherwise provided or required by law, if there is more than one Guarantor, any notice given by Lender to any Guarantor is deemed to be notice given to all Guarantors.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Guaranty unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Guaranty shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender and Guarantor, shall constitute a waiver of any of Lender’s rights or of any of Guarantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Guaranty, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Successors and Assigns. Subject to any limitations stated in this Guaranty on transfer of Guarantor’s interest, this Guaranty shall be binding upon and inure to the benefit of the parties, their successors and assigns

Waive Jury. Lender and Guarantor hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Guaranty. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words end terms not otherwise defined in this Guaranty shall have the meanings attributed to such terms in the Uniform Commercial Code:

GAAP. The word “GAAP” means generally accepted accounting principles.

Guaranty. The word “Guaranty” means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

Indebtedness. The word “Indebtedness” means Borrower’s indebtedness to Lender as more particularly described in this Guaranty.

Lender. The word “Lender” means First Tennessee Bank National Association, its successors end assigns.

Note. The word “Note” means end includes without limitation all of Borrower’s promissory notes and/or credit agreements evidencing Borrower’s loan obligations in favor of Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of and substitutions for promissory notes or credit agreements.

Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgagee, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

NOTICE AND AGREEMENT. The indebtedness is a commercial obligation and not a personal, family or household obligation. This guaranty shall apply in all respects to both present and future advances made and to be made to Borrower. Guarantor acknowledges that the provisions of T.C.A. Section 47-12-107 (which concern guaranties of future indebtedness) are not applicable to this Guaranty. If a court of competent jurisdiction nonetheless should hold the act to be applicable, Guarantor waives any and all rights and benefits Guarantor could or might have pursuant to the act. Guarantor also waives the rights granted under T.C.A. Section 47-12-101, which may allow Guarantor to require Lender to proceed to sue Borrower within thirty (30) days if Borrower is likely to become insolvent or to migrate from the state without paying the Indebtedness.

GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR’S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED “DURATION OF GUARANTY”. NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY IS DATED                         , 2006.

GUARANTOR:

BEVERLY HILLS BANCORP INC.

By:

Title:

By:

Title:

CORPORATE ACKNOWLEDGMENT

STATE OF                                                 

COUNTY OF                                             

Before me,                                                                                                       , a Notary Public in end for the State end County aforesaid, personally appeared                                                                                        of Beverly Hills Bancorp Inc., with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself or herself to be the                                                                                            of Beverly Hills Bancorp Inc., the within-named bargainor, a corporation, and that he or she as such                                                                                        of Beverly Hills Bancorp Inc., being duly authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself or herself as such                                                                                                                                                                          of Beverly Hills Bancorp Inc.

WITNESS my hand and seal at office, on the                                                           day of                                                                          

Notary Public:                                                                             

My Commission Expires:                                                                          

EX-10.28

EXHIBIT 10.28

BEVERLY HILLS BANCORP INC.

STOCK APPRECIATION RIGHT CERTIFICATE

(SAR)

THIS IS TO CERTIFY that Beverly Hills Bancorp Inc., a Delaware corporation (the “Company”), has granted to the director and/or officer named below (“Holder”) a stock appreciation right (“SAR”) with respect to the number of shares of the Company’s common stock (the “Common Stock”) set forth below (the “Shares”) to receive cash as of each exercise equal to the excess of the fair market value of a Share at that time over the fair market value of a Share at the Date of Grant of the SAR (the “Base Value”) upon the terms and conditions set forth below:

Name of Holder:	Eric Rosa
Address of Holder:	85 West Wistaria Arcadia, CA 91107-8006
Number of Shares:	30,000 shares
Base Value (Fair Market Value as of the Date of Grant) Per Share:	$7.80
Date of Grant:	January 25, 2007
Expiration Date:	January 25, 2012

Exercise Schedule: The SAR shall become exercisable (“vest”) as follows:

Exercise Date	No. of Shares
January 25, 2008	10,000
January 25, 2009	10,000
September 28, 2010	10,000

IN WITNESS WHEREOF, the Company has granted to Holder the SAR as of the Date of Grant set forth above.

HOLDER	BEVERLY HILLS BANCORP INC. 23901 Calabasas Road, Suite 1050 Calabasas, CA 91302
Eric Rosa	By
	Its	Chairman of the Board

STOCK APPRECIATION RIGHT AGREEMENT

This STOCK APPRECIATION RIGHT AGREEMENT (this “Agreement”) is made and entered into as of the Date of Grant set forth in the Stock Appreciation Right Certificate to which this Agreement is attached (the “Certificate”) by and between Beverly Hills Bancorp Inc., a Delaware corporation (the “Company”), and the holder (the “Holder”) named in the Certificate.

Capitalized terms not otherwise defined in this Agreement shall have the meanings ascribed to them in the Certificate.

The Company and Holder agree as follows:

1. Grant of SAR. The Company hereby grants to Holder, upon the terms and subject to the conditions set forth in this Agreement, a stock appreciation right (the “SAR”) to receive upon each exercise cash in the amount equal to the number of Shares with respect to which the SAR is exercised multiplied by the amount by which the Fair Market Value exceeds the Base Value set forth in the Certificate.

2. Fair Market Value. The “Fair Market Value” shall be determined as follows:

2.1. If on the date of exercise (or deemed exercise) of the SAR the Common Stock is listed or traded on a national securities exchange, the Nasdaq Stock Market, the OTC Bulletin Board, or similar trading market, or is regularly quoted by a recognized securities dealer and selling prices are reported, the Fair Market Value shall be the closing price of the Common Stock on the date of exercise or if, a closing sales price is not reported, the Fair Market Value shall be the mean between the high bid and low asked quotations for the Common Stock on the date of exercise. If the exercise occurs on a date that the securities markets are not open, the Fair Market Value shall be determined as of the first date after the date of exercise that the securities markets are open.

2.2. If the Fair Market Value cannot be determined in accordance with Section 2.1, the Fair Market Value shall be determined in good faith by the Board of Directors (or a committee of the Board authorized to make such determination) (the “Administrator”), with reference to various factors determined to be appropriate by the Administrator, which might include the Company’s net worth, amounts paid for stock of the Company in financings involving sophisticated investors, prospective earning power, dividend-paying capacity, and other relevant factors, including the goodwill of the Company, the economic outlook in the Company’s industry, the Company’s position in the industry, the Company’s management, and the values of stock of other corporations in the same or a similar line of business.

3. Vesting

3.1. The SAR shall “vest” and become exercisable in installments upon and after the date[s] set forth under the caption “Exercise Schedule” in the Certificate. The installments shall be cumulative; i.e., the SAR may be exercised, with respect to any or all Shares covered by an installment, at any time or times after the installment first becomes exercisable and until the Expiration Date.

3.2. No vesting shall occur after the Service Termination Date (as defined in Section 4.5 of this Agreement).

4. Exercise of the SAR

4.1. Except in circumstances where the SAR is deemed exercised, the SAR may be exercised, in whole or in part, only by delivery to the Company of written notice of the exercise of the SAR substantially in the form of Exhibit “A” attached to this Agreement stating the number of Shares with respect to which the SAR is being exercised.

4.2. The SAR may only be exercised during such period that under policies approved by the Board of Directors of the Company, directors and officers of the Company may publicly sell securities of the Company. If the Board of Directors does not have such a policy, the SAR may not be exercised during the period commencing 15 days before the end of each calendar quarter and ending two business days after the first to occur of the filing of the Form 10-Q with the Securities and Exchange Commission for such quarter (or Form 10-K with respect to the fourth quarter of the fiscal year) or the public announcement of the Company’s earnings for such period. This limitation shall not be applicable in connection with a deemed exercise upon consummation of a Corporate Transaction or upon the Expiration Date or Service Termination Date.

4.3. Following receipt of the exercise notice, the Company shall, within five days, make the cash payment provided for in this Agreement, without interest; provided, however, that if the determination of the Fair Market Value must be made by the Administrator in accordance with Section 2.2 of this Agreement, the payment may be deferred until that Administrator makes the determination, but not more than 35 days after the date of exercise.

4.4. Upon request, Holder shall also deliver this Agreement and Certificate to the Secretary of the Company, who shall endorse a notation of the exercise and return the Agreement and Certificate to Holder.

4.5. Termination of SAR; Deemed Exercise. The SAR shall terminate and expire upon the earliest to occur of: (a) the Expiration Date; (b) the date Holder ceases to be in the service (as a director or employee) of the Company (or its successor by reason of a merger or consolidation) and any subsidiary of the Company (the “Service Termination Date”); and (c) the consummation of a Corporate Transaction. For purposes of clarification, if Holder is a director of the Company and of a subsidiary of the Company, the fact that the Holder ceases being a director only of the subsidiary shall not trigger the Service Termination Date. If on the Expiration Date or the Service Termination Date the Fair Market Value exceeds the Base Value, notwithstanding the limitations under Section 4.2 of this Agreement, the SAR shall be deemed exercised (to the extent vested) immediately prior to such termination and the Company shall pay Holder (or his estate) the amount contemplated by Section 1 of this Agreement. For this purpose, if the Corporate Transaction is a merger or consolidation in which the shareholders of the Company receive only cash for their shares of Common Stock, the Fair Market Value shall be deemed to be the amount of cash per share to which the common shareholders are entitled to receive in the transaction (excluding any funds held back or deposited into an escrow for indemnification claims).

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5. Changes in Capital Structure

5.1. If outstanding shares of Common Stock shall be subdivided into a greater number of shares, or a dividend in Common Stock shall be paid in respect of Common Stock, the Base Value of the SAR in effect immediately prior to such subdivision or at the record date of such dividend shall, simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend, be proportionately reduced, and conversely, if outstanding shares of the Common Stock shall be combined into a smaller number of shares, the Base Value of the SAR in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased.

5.2. When any adjustment is required to be made in the Base Value, the number of Shares with respect to which the SAR is then unexercised shall be adjusted to that number of Shares determined by dividing (a) an amount equal to the number of such Shares immediately prior to such adjustment, multiplied by the Base Value in effect immediately prior to such adjustment, by (b) the Base Value in effect immediately after such adjustment.

6. Corporate Transactions

6.1. In the event of a Corporate Transaction, the SAR shall be deemed exercised in full as of the consummation of the Corporate Transaction, irrespective of the vesting provisions, and for this purpose, the Fair Market Value shall be determined as if the exercise date was the trading day immediately preceding the consummation of the Corporate Transaction.

6.2. A “Corporate Transaction” means:

6.2.1 a liquidation or dissolution of the Company;

6.2.2 a merger or consolidation of the Company with or into another corporation or entity in which the Company is not the surviving corporation (other than a merger with a wholly owned subsidiary);

6.2.3 a merger or consolidation of the Company (or a triangular merger involving a subsidiary of the Company) where the Company is the surviving corporation but with respect to which the shareholders of the Company immediately prior to the merger or consolidation hold less than 50% of the outstanding Common Stock of the Company immediately following the merger or consolidation; or

6.2.4 the sale of all or substantially all of the assets of the Company in a single transaction or a series of related transactions.

7. General Provisions

7.1. Notices. All notices, requests, demands and other communications (collectively, “Notices”) given pursuant to this Agreement shall be in writing, and shall be delivered by personal service, courier, or by United States first class, registered or certified mail, postage prepaid, addressed to the party at the address set forth on the signature page of this Agreement. Any Notice, other than a Notice sent by registered or certified mail, shall be

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effective when received; a Notice sent by registered or certified mail, postage prepaid return receipt requested, shall be effective on the earlier of when received or the third day following deposit in the United States mails. Any party may from time to time change its address for further Notices hereunder by giving notice to the other party in the manner prescribed in this section.

7.2. Failure to Enforce Not a Waiver. The failure of the Company to enforce any provision of this Agreement shall is no way be construed to be a waiver of such provision or of any other provision hereof.

7.3. Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of California applicable to contracts made in, and to be performed within, that State.

7.4. SAR Non-transferable. Holder may not sell, transfer, assign or otherwise dispose of the SAR except by will or the laws of descent and distribution, and only Holder or his or her legal representative or guardian may exercise the SAR during Holder’s lifetime.

7.5. Successors and Assigns. Except to the extent specifically limited by the terms and provision of this Agreement, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and personal representatives.

7.6. Miscellaneous. Titles and captions contained in this Agreement are inserted for convenience of reference only and do not constitute a part of this Agreement for any other purpose. Except as specifically provided herein, neither this Agreement nor any right pursuant hereto or interest herein shall be assignable by any of the parties hereto without the prior written consent of the other party hereto.

7.7. Tax Treatment. Holder understands that the exercise of the SAR will give rise to ordinary taxable income to him or her. The Company makes no representations with respect to and hereby disclaims all responsibility as to the tax treatment of the SAR.

The signature page of this Agreement consists of the last page of the Certificate.

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EXHIBIT “A”

NOTICE OF EXERCISE

(To be signed only upon exercise of the SAR)

TO: Beverly Hills Bancorp Inc.

The undersigned, the holder of the Stock Appreciation Right (SAR), Date of Grant             , 20__. hereby irrevocably elects to exercise the SAR to receive in cash the appreciation with respect to              shares of Common Stock of Beverly Hills Bancorp Inc.

Dated:
	(Signature must conform in all respects to name of holder as specified on the face of the SAR)
	(Address)
	Social Security Number

EX-21

EXHIBIT 21

PRINCIPAL SUBSIDIARIES

WFC Inc.

Wilshire Acquisitions Corporation

First Bank of Beverly Hills

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-106357 and 333-54710 on Form S-8 of our reports dated March 13, 2007, relating to the consolidated financial statements of Beverly Hills Bancorp Inc. and subsidiaries and management’s report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Beverly Hills Bancorp Inc. and subsidiaries for the year ended December 31, 2006.

/s/ Deloitte & Touche LLP

Los Angeles, California

March 13, 2007

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Larry B. Faigin, certify that:

1. I have reviewed this Annual Report on Form 10-K of Beverly Hills Bancorp Inc. (the “registrant”);

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2007	/s/ LARRY B. FAIGIN
	Larry B. Faigin
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Takeo K. Sasaki, certify that:

1. I have reviewed this Annual Report on Form 10-K of Beverly Hills Bancorp Inc. (the “registrant”);

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2007	/s/ TAKEO K. SASAKI
	Takeo K. Sasaki
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification Pursuant to 18 U.S.C. § 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the filing of the Annual Report on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) by Beverly Hills Bancorp Inc. (the “Company”), the undersigned officer of the Company hereby certifies pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

	BEVERLY HILLS BANCORP INC.
Date: March 15, 2007	/s/ LARRY B. FAIGIN
	Larry B. Faigin
	Chief Executive Officer

The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-K and shall not be considered filed as part of the Form 10-K.

EX-32.2

EXHIBIT 32.2

Certification Pursuant to 18 U.S.C. § 1350,

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the filing of the Annual Report on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) by Beverly Hills Bancorp Inc. (the “Company”), the undersigned officer of the Company hereby certifies pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

	BEVERLY HILLS BANCORP INC.
Date: March 15, 2007	/s/ TAKEO K. SASAKI
	Takeo K. Sasaki
	Chief Financial Officer

The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-K and shall not be considered filed as part of the Form 10-K.