UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2005

or

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

For the transition period from              to             

Commission file number 0-21845

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)

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

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

Applicable only to corporate issuers:

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

Class	Outstanding at July 31, 2005
Common Stock, par value $0.01 per share	21,220,050 shares

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION
Item 1.	Interim Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Statements of Financial Condition	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Interim Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	31
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Submission of Matters to a Vote of Security Holders	32
Item 5.	Other Information	32
Item 6.	Exhibits	32
Signatures		33

2

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(Dollars in thousands, except share data)

	June 30, 2005			December 31, 2004
ASSETS
Cash and cash equivalents	$	17,228		$	15,526
Mortgage-backed securities available for sale, at fair value		346,373			307,461
Investment securities available for sale, at fair value		13,834			13,819
Investment securities held to maturity, at amortized cost (fair value of $9,884 and $9,795)		9,683			9,657
Loans, net of allowance for loan losses of $7,230 and $7,277		973,537			915,383
Discounted loans, net of allowance for loan losses of $193 and $367		916			1,587
Stock in Federal Home Loan Bank of San Francisco, at cost		25,889			22,681
Real estate owned, net		110			1,769
Leasehold improvements and equipment, net		1,425			854
Accrued interest receivable		6,408			5,333
Deferred tax asset, net		36,050			37,412
Goodwill, net		3,054			3,054
Other tangible assets, net		—			129
Prepaid expenses and other assets		4,056			3,449
TOTAL	$	1,438,563		$	1,338,114
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Noninterest-bearing deposits	$	4,101		$	4,473
Interest-bearing deposits		561,142			537,487
Repurchase agreements		118,000			120,000
Accounts payable and other liabilities		11,962			10,559
FHLB advances		550,837			474,837
Junior subordinated notes payable to trust		20,619			20,619
Total liabilities		1,266,661			1,167,975
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, 0 shares outstanding		—			—
Common stock, $0.01 par value, 90,000,000 shares authorized, 26,854,901 and 26,777,554 shares issued (including treasury shares of 5,639,368)		268			268
Additional paid-in capital		165,208			164,740
Treasury stock, 5,639,368 shares, at cost		(15,224	)		(15,224	)
Retained earnings		22,909			21,442
Accumulated other comprehensive loss, net		(1,259	)		(1,087	)
Total stockholders’ equity		171,902			170,139
TOTAL	$	1,438,563		$	1,338,114

See notes to unaudited interim condensed consolidated financial statements

3

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

	Three Months Ended June 30,					Six Months Ended June 30,
	2005			2004		2005			2004
INTEREST INCOME:
Loans	$	13,988		$	11,446	$	27,102		$	21,052
Mortgage-backed securities		3,575			2,870		7,002			5,490
Securities and federal funds sold		428			269		779			575
Total interest income		17,991			14,585		34,883			27,117
INTEREST EXPENSE:
Deposits		4,165			3,278		7,379			6,391
Borrowings		4,773			3,288		9,356			6,014
Total interest expense		8,938			6,566		16,735			12,405
NET INTEREST INCOME		9,053			8,019		18,148			14,712
PROVISION FOR (RECAPTURE OF) LOSSES ON LOANS		—			100		(4	)		214
NET INTEREST INCOME AFTER PROVISION FOR (RECAPTURE OF) LOSSES ON LOANS		9,053			7,919		18,152			14,498
OTHER INCOME:
Loan related fees and charges		550			312		863			521
Deposit fees and charges		16			97		36			195
(Loss) gain on sales of loans, net		(21	)		1		(21	)		48
Gain on sale of securities, net		—			—		—			273
Real estate owned, net		(15	)		12		192			70
Other income, net		216			154		388			219
Total other income		746			576		1,458			1,326
OTHER EXPENSES:
Compensation and employee benefits		1,895			1,572		3,764			3,394
Professional fees		922			807		1,628			1,627
Occupancy		251			217		511			402
FDIC insurance premiums		83			117		167			225
Data processing		125			123		230			267
Insurance		174			228		347			346
Depreciation		91			96		146			186
Amortization of intangibles		64			64		129			129
Directors expense		135			224		270			380
Other general and administrative expense		398			351		691			807
Total other expenses		4,138			3,799		7,883			7,763
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION		5,661			4,696		11,727			8,061
INCOME TAX PROVISION		2,388			2,016		4,966			3,412
INCOME FROM CONTINUING OPERATIONS		3,273			2,680		6,761			4,649
DISCONTINUED OPERATIONS (NOTE 3):
INCOME FROM OPERATIONS OF DISCONTINUED SEGMENT (INCLUDING GAIN ON DISPOSAL OF $18,516 IN 2004)		—			18,186		—			19,000
INCOME TAX PROVISION		—			7,547		—			7,885
INCOME FROM DISCONTINUED OPERATIONS		—			10,639		—			11,115
NET INCOME	$	3,273		$	13,319	$	6,761		$	15,764
Earnings per share – basic:
Income from continuing operations	$	0.15		$	0.13	$	0.32		$	0.23
Discontinued operations		—			0.51		—			0.54
Net income	$	0.15		$	0.64	$	0.32		$	0.77
Earnings per share – diluted:
Income from continuing operations	$	0.15		$	0.12	$	0.31		$	0.22
Discontinued operations		—			0.50		—			0.52
Net income	$	0.15		$	0.62	$	0.31		$	0.74
Weighted average number of shares – basic		21,179,399			20,786,803		21,159,293			20,404,896
Weighted average number of shares – diluted		21,484,285			21,475,649		21,473,869			21,393,533

See notes to unaudited interim condensed consolidated financial statements

4

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands, except share data)

	Six Months Ended June 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,761		$	15,764
Less: income from discontinued operations, net of taxes		—			(11,115	)
Income from continuing operations		6,761			4,649
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
(Recapture of) provision for estimated losses on loans		(4	)		263
Provision for losses on real estate owned		10			18
Change in valuation allowance for mortgage servicing rights		—			257
Depreciation and amortization		275			315
Deferred tax provision		1,487			—
Gain on sale of real estate owned		(218	)		(97	)
Loss on disposal of equipment		—			2
Loss (gain) on sale of loans		21			(48	)
Gain on sale of securities		—			(273	)
Amortization of discounts and deferred fees		825			1,609
Amortization of mortgage servicing rights		—			1,740
Federal Home Loan Bank stock dividends		(464	)		(120	)
Change in:
Servicer advance receivables		—			(3,456	)
Service fees receivable		—			182
Accrued interest receivable		(1,075	)		(1,084	)
Receivables from other loan servicers		—			773
Prepaid expenses and other assets		(607	)		(1,416	)
Accounts payable and other liabilities		1,403			1,486
Net cash used in operations of discontinued segment		—			6,697
Net cash provided by operating activities of continuing operations		8,414			11,497
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of loans		(89,824	)		(105,537	)
Loan repayments		89,909			79,273
Loan originations		(58,231	)		(191,270	)
Purchase of mortgage-backed securities available for sale		(83,627	)		(174,108	)
Repayments of mortgage-backed securities available for sale		44,078			68,383
Proceeds from sale of mortgage-backed securities available for sale		—			7,859
Proceeds from sale of investment securities available for sale		—			10,130
Purchases of FHLB stock		(2,744	)		(5,548	)
Proceeds from sale of real estate owned		1,987			987
Purchases of leasehold improvements and equipment		(717	)		(500	)
Net proceeds from sale of discontinued operations		—			48,709
Net cash provided by investing activities of discontinued segment		—			(495	)
Net cash used in investing activities of continuing operations		(99,169	)		(262,117	)

See notes to unaudited interim condensed consolidated financial statements

5

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(Unaudited)

(Dollars in thousands, except share data)

	Six Months Ended June 30,
	2005			2004
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	$	23,283		$	109,794
Proceeds from FHLB advances		200,000			554,900
Repayments of FHLB advances		(124,000	)		(412,000	)
Decrease in repurchase agreements		(2,000	)		(1,000	)
Repayments of long-term financing		—			(1,871	)
Issuance of common stock		163			3,237
Tax benefit from exercise of nonqualified stock options		305			—
Dividends on common stock		(5,294	)		(2,642	)
Net cash provided by financing activities of discontinued segment		—			(5,810	)
Net cash provided by financing activities of continuing operations		92,457			244,608
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,702			(6,012	)
CASH AND CASH EQUIVALENTS:
Beginning of period		15,526			18,739
End of period	$	17,228		$	12,727
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION – Cash paid during the period for:
Interest	$	15,365		$	11,550
Income taxes, net		3,028			82
NONCASH INVESTING ACTIVITIES:
Additions to real estate owned acquired in settlement of loans		120			2,074

See notes to unaudited interim condensed consolidated financial statements

6

BEVERLY HILLS BANCORP AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements of Beverly Hills Bancorp Inc. (“BHBC”) and its subsidiaries (the “Company”) are unaudited and should be read in conjunction with the Company’s 2004 Annual Report on Form 10-K. A summary of the Company’s significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements in such Annual Report on Form 10-K.

In the opinion of management, all adjustments, generally comprised of normal recurring accruals necessary for a fair presentation of the interim condensed consolidated financial statements, have been included and all intercompany accounts and transactions have been eliminated in consolidation. Operating results for the quarter and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts and results could differ from those estimates. Certain reclassifications of 2004 amounts were made in order to conform to the 2005 presentation, none of which affected previously reported net income.

2. PER-SHARE DATA

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares and 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 three-month and six-month periods ended June 30, 2005 and 2004.

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
	(Dollars in thousands, except share data)
Income from continuing operations	$	3,273	$	2,680	$	6,761	$	4,649
Discontinued operations		—		10,639		—		11,115
Net income	$	3,273	$	13,319	$	6,761	$	15,764
Weighted average number of common shares outstanding – basic		21,179,399		20,786,803		21,159,293		20,404,896
Net effect of dilutive stock options – based on treasury stock method		304,886		688,846		314,576		988,637
Weighted average number of common shares outstanding – diluted		21,484,285		21,475,649		21,473,869		21,393,533
Earnings per share – basic:
Income from continuing operations	$	0.15	$	0.13	$	0.32	$	0.23
Discontinued operations		—		0.51		—		0.54
Net income	$	0.15	$	0.64	$	0.32	$	0.77
Earnings per share – diluted:
Income from continuing operations	$	0.15	$	0.12	$	0.31	$	0.22
Discontinued operations		—		0.50		—		0.52
Net income	$	0.15	$	0.62	$	0.31	$	0.74

7

BEVERLY HILLS BANCORP AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The Company has two stock-based employee compensation plans, the 1999 Equity Participation Plan and the 2002 Equity Participation Plan, pursuant to which stock options have been granted to its directors and certain employees. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Had compensation expense for the Company’s Equity Participation Plans been determined based on the fair value at the grant date consistent with the methods of Statement of Financial Accounting Standards (“SFAS”) No. 123, the Company’s net income and earnings per share for the three-month and six-month periods ended June 30, 2005 and 2004 would have been reduced to the pro-forma amounts indicated below.

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
	(Dollars in thousands, except share data)
Net income, as reported	$	3,273	$	13,319	$	6,761	$	15,764
Less: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects		62		122		146		244
Pro forma net income	$	3,211	$	13,197	$	6,615	$	15,520
Earnings per share – basic:
As reported	$	0.15	$	0.64	$	0.32	$	0.77
Pro forma	$	0.15	$	0.63	$	0.31	$	0.76
Earnings per share – diluted:
As reported	$	0.15	$	0.62	$	0.31	$	0.74
Pro forma	$	0.15	$	0.61	$	0.31	$	0.73

8

BEVERLY HILLS BANCORP AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

3. SALE OF WILSHIRE CREDIT CORPORATION

On April 30, 2004, the Company completed the sale of its wholly owned mortgage servicing subsidiary, Wilshire Credit Corporation (“WCC”), to Merrill Lynch Mortgage Capital Inc. (“Merrill Lynch”) for a pre-tax gain of $18.5 million. (This gain was subsequently adjusted to $18.0 million as of December 31, 2004.) Effective January 1, 2004, the Company began accounting for WCC as a disposal group held for sale in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, WCC’s operating results for the quarter and six months ended June 30, 2004, and the Company’s gain on the sale of WCC, have been removed from the Company’s results from continuing operations on the Consolidated Statements of Operations, and are presented separately under the caption “Discontinued operations.”

Results of operations for WCC are shown in the table below. The amounts for the three- and six-month periods ended June 30, 2004 reflect WCC’s results for only the month and four months ended April 30, 2004, respectively.

	Three Months Ended June 30, 2004			Six Months Ended June 30, 2004
	(Dollars in thousands)
Interest income	$	—		$	(10	)
Interest expense		37			164
Net interest expense		(37	)		(174	)
Provision for loan losses		—			49
Net interest expense after provision for loan losses		(37	)		(223	)
Servicing income		3,420			11,754
Other income		223			699
Compensation and employee benefits expense		3,324			9,427
Other expenses		612			2,319
(Loss) income before income taxes		(330	)		484
Income tax (benefit) provision		(137	)		201
Net (loss) income	$	(193	)	$	283

4. COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK

At June 30, 2005, the Company’s banking subsidiary, First Bank of Beverly Hills, F.S.B. (“FBBH,” or the “Bank”), had outstanding commitments to fund $13.0 million of loans. In addition, the Bank had unfunded commitments under lines of credit of $0.4 million.

The Company continues to incur legal expenses on behalf of former officers in connection with the events that gave rise to litigation arising from the financial collapse of Capital Consultants LLC (“CCL”) in 2000. Such expenses totaled $0.2 million for the quarter and six months ended June 30, 2005, compared with $0.3 million and $0.5 million, respectively, for the corresponding 2004 periods (see Note 8—“Legal Matters”).

5. INCOME TAXES

The Company files consolidated federal and state income tax returns with its eligible subsidiaries. The Company recorded income tax provisions from continuing operations of $2.4 million and $5.0 million, respectively, for the quarter and six months ended June 30, 2005, compared with $2.0 million and $3.4 million, respectively, for the quarter and six months ended June 30, 2004. A portion of the Company’s year 2005 income

9

BEVERLY HILLS BANCORP AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

tax provision is not expected to be currently payable in cash, due to the utilization of the Company’s net operating loss carryforwards. The Company’s deferred tax provision (benefit) is determined on a quarterly basis pursuant to an evaluation of its net deferred tax asset. These deferred tax assets and liabilities represent the tax effect of future deductible or taxable amounts and are attributable to net operating loss carryforwards and also to other differences between amounts that have been recognized in the financial statements and amounts that have been recognized in the income tax returns. An effective tax rate of approximately 42.5% is applied to each attribute in determining the amount of the related deferred tax asset or liability. Decreases (increases) in the net deferred tax asset are recorded as a deferred tax provision (benefit) in the consolidated statements of operations.

The Company’s net deferred tax asset was $36.0 million and $37.4 million, respectively, at June 30, 2005 and December 31, 2004. In accounting for the deferred tax asset, the Company applies 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. The Company has evaluated the positive and negative evidence regarding the future realization of the deferred tax assets and has recorded a valuation allowance of $6.8 million. The Company believes it is more likely than not that its net deferred tax asset of $36.0 million will be realized in future periods.

As of June 30, 2005, the Company had U.S. net operating loss carryforwards of approximately $104 million, and also had approximately $99 million in state net operating loss carryforwards. The federal carryforward period runs through 2024. However, in June 2002 the Company experienced a change in control as defined 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. As a result of the change in control, the Company’s net operating loss carryforwards that were generated prior to the change in control are subject to a limitation on the amount that may be used annually to offset taxable income. The Company has determined that the amount of this limitation is approximately $6 million per year and believes that its valuation allowance against the deferred tax asset provides adequately for this limitation.

6. OPERATING SEGMENTS

The Company reports segment data in accordance with the accounting principles discussed in Note 1 to the Consolidated Financial Statements in the 2004 Annual Report on Form 10-K. As discussed in Note 3, the Company completed the sale of WCC, which comprised the Company’s Loan Servicing segment, to Merrill Lynch effective April 30, 2004. Accordingly, the operating results of WCC are presented separately under the caption “Discontinued operations” in the consolidated statements of operations for the quarter and six months ended June 30, 2004.

The operating segments differ in terms of regulatory environment, funding sources and asset acquisition strategies, as described below:

• Banking Operations—Through FBBH, the Company conducts a banking business focused primarily on specialty-niche products tailored to commercial and multi-family real estate lending, in addition to investments in primarily AAA-rated and government-sponsored enterprise (“GSE”) mortgage-backed securities. The primary sources of liquidity for the Bank’s loan purchases and originations are wholesale certificates of deposit, retail deposits, Federal Home Loan Bank advances and repurchase agreements. The Bank is a federally chartered savings bank and is regulated by the Office of Thrift Supervision (“OTS”). The Bank has filed an application with the California Department of Financial Institutions (“DFI”) for conversion to a state commercial bank charter. On April 13, 2005, the DFI approved the Bank’s application subject to certain conditions, as amended on April 28, 2005. The Bank expects to be in compliance with all such conditions prior to the effective date of the conversion, which is anticipated to occur in the third quarter of 2005.

10

BEVERLY HILLS BANCORP AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

• Mortgage Investment Operations—The Company’s investment subsidiary, WFC Inc. (“WFC”), manages a portfolio of mortgage-backed securities and pools of performing, sub-performing and non-performing residential and commercial loans. WFC conducts certain of these activities with an institutional investor where such investments align the Company’s interests with those of the institutional investor. WFC’s funding sources have consisted primarily of commercial bank financing and co-investors, with debt service repayment terms that generally parallel the cash flows of the underlying collateral.

• Holding Company and Miscellaneous Operations—The Company’s Holding Company and Miscellaneous Operations consist of other operating revenues and expenses not directly attributable to the Company’s defined business segments. In addition, this segment includes interest expense on the $20.6 million of junior subordinated notes payable issued in July 2002 and eliminations of intercompany accounts and transactions.

Segment data for the three months ended June 30, 2005 and 2004 are as follows:

	Three Months Ended June 30, 2005
	Banking		Mortgage Investments			Holding Company and Miscellaneous Operations			Total
	(Dollars in thousands)
Interest income	$	17,779	$	196		$	16		$	17,991
Interest expense		8,580		—			358			8,938
Net interest income (expense)		9,199		196			(342	)		9,053
Provision for loan losses		—		—			—			—
Net interest income (expense) after provision for loan losses		9,199		196			(342	)		9,053
Realized losses		—		(21	)		—			(21	)
Other income (loss)		725		(9	)		51			767
Compensation and employee benefits expense		1,832		—			63			1,895
Other expenses		1,393		13			837			2,243
Income (loss) before taxes		6,699		153			(1,191	)		5,661
Income tax provision (benefit)		2,835		65			(512	)		2,388
Net income (loss)	$	3,864	$	88		$	(679	)	$	3,273
Total assets	$	1,401,513	$	26,750		$	10,300		$	1,438,563

11

BEVERLY HILLS BANCORP AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

	Three Months Ended June 30, 2004
	Banking		Loan Servicing			Mortgage Investments			Holding Company and Miscellaneous Operations			Total
	(Dollars in thousands)
Interest income	$	14,148	$	—		$	424		$	13		$	14,585
Interest expense		6,307		—			3			256			6,566
Net interest income (expense)		7,841		—			421			(243	)		8,019
Provision for loan losses		100		—			—			—			100
Net interest income (expense) after provision for loan losses		7,741		—			421			(243	)		7,919
Realized gains		—		—			1			—			1
Other income (loss)		591		—			(16	)		—			575
Compensation and employee benefits expense		1,445		—			—			127			1,572
Other expenses		1,364		—			5			858			2,227
Income (loss) from continuing operations before taxes		5,523		—			401			(1,228	)		4,696
Income tax provision (benefit)		2,270		—			167			(421	)		2,016
Income (loss) from continuing operations		3,253		—			234			(807	)		2,680
Discontinued operations:
Loss from operations of discontinued segment		—		(330	)		—			—			(330	)
Gain on sale of discontinued segment		—		—			—			18,516			18,516
Income tax (benefit) provision		—		(137	)		—			7,684			7,547
(Loss) income from discontinued operations		—		(193	)		—			10,832			10,639
Net income (loss)	$	3,253	$	(193	)	$	234		$	10,025		$	13,319
Total assets	$	1,210,140	$	—		$	21,465		$	3		$	1,231,608

12

BEVERLY HILLS BANCORP AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Segment data for the six months ended June 30, 2005 and 2004 are as follows:

	Six Months Ended June 30, 2005
	Banking		Mortgage Investments			Holding Company and Miscellaneous Operations			Total
	(Dollars in thousands)
Interest income	$	34,378	$	468		$	37		$	34,883
Interest expense		16,048		—			687			16,735
Net interest income (expense)		18,330		468			(650	)		18,148
Recapture of loan losses		—		(4	)		—			(4	)
Net interest income (expense) after provision for loan losses		18,330		472			(650	)		18,152
Realized losses		—		(21	)		—			(21	)
Other income (loss)		1,445		(17	)		51			1,479
Compensation and employee benefits expense		3,611		—			153			3,764
Other expenses		2,659		24			1,436			4,119
Income (loss) before taxes		13,505		410			(2,188	)		11,727
Income tax provision (benefit)		5,728		174			(936	)		4,966
Net income (loss)	$	7,777	$	236		$	(1,252	)	$	6,761
Total assets	$	1,401,513	$	26,750		$	10,300		$	1,438,563

	Six Months Ended June 30, 2004
	Banking		Loan Servicing		Mortgage Investments			Holding Company and Miscellaneous Operations			Total
	(Dollars in thousands)
Interest income	$	26,196	$	—	$	894		$	27		$	27,117
Interest expense		11,879		—		13			513			12,405
Net interest income (expense)		14,317		—		881			(486	)		14,712
Provision for loan losses		100		—		114			—			214
Net interest income (expense) after provision for loan losses		14,217		—		767			(486	)		14,498
Realized gains		273		—		48			—			321
Other income (loss)		1,069		—		(64	)		—			1,005
Compensation and employee benefits expense		3,013		—		—			381			3,394
Other expenses		2,678		—		8			1,683			4,369
Income (loss) from continuing operations before taxes		9,868		—		743			(2,550	)		8,061
Income tax provision (benefit)		4,095		—		309			(992	)		3,412
Income (loss) from continuing operations		5,773		—		434			(1,558	)		4,649
Discontinued operations:
Income from operations of discontinued segment		—		484		—			—			484
Gain on sale of discontinued segment		—		—		—			18,516			18,516
Income tax provision		—		201		—			7,684			7,885
Income from discontinued operations		—		283		—			10,832			11,115
Net income	$	5,773	$	283	$	434		$	9,274		$	15,764
Total assets	$	1,210,140	$	—	$	21,465		$	3		$	1,231,608

13

BEVERLY HILLS BANCORP AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

7. GOODWILL AND INTANGIBLE ASSETS

In June 2000, the Bank acquired a branch location and recorded goodwill of $3.4 million and a core deposit intangible of $1.3 million. 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 continued to amortize the core deposit intangible over an estimated useful life of 5 years and had amortized it in full as of June 30, 2005.

Following is a summary of the Company’s goodwill and intangible assets:

	As of June 30, 2005					As of December 31, 2004
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
	(Dollars in thousands)
Goodwill	$	3,393	$	(339	)	$	3,393	$	(339	)
Core deposit intangible		1,294		(1,294	)		1,294		(1,165	)
Total	$	4,687	$	(1,633	)	$	4,687	$	(1,504	)

The Company recorded amortization expense of $64 thousand and $129 thousand, respectively, related to the core deposit intangible for the three and six months ended June 30, 2005. As of June 30, 2005, the core deposit intangible no longer had a carrying value.

There were no changes in the carrying value of goodwill during the quarter ended June 30, 2005. The Company tested goodwill for impairment as of March 31, 2005 and determined that no impairment charge was required.

8. LEGAL MATTERS

In June 2004, a former officer of the Company, pursuant to a plea bargain, pleaded guilty to two felony counts in connection with certain criminal proceedings against him arising out of the financial collapse of CCL. As part of this plea bargain, the former officer agreed to pay restitution in the amount of $2.0 million. The former officer has made a claim against the Company for this amount, asserting that he is entitled to indemnification under Delaware law. The Company disagrees with this assertion and is contesting the claim. In addition, the Company is seeking to recover some of the legal expenses that it paid on behalf of the former officer in previous years. 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.

In June 2005, WCC made a demand on the Company for reimbursement of certain costs purportedly incurred by WCC in March 2005 in connection with WCC’s performance under one of its loan servicing contracts. 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, and, accordingly, in July 2005 the Company filed a complaint for declaratory relief (the “Complaint”) against Merrill Lynch and WCC with the Superior Court of the State of California. 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 does in fact exist, it is for a substantially lesser amount than that claimed by WCC. The Company is attempting to resolve this matter through discussions with Merrill Lynch and WCC and thus avoid the need for further litigation. The Company is not currently able to quantify the impact, if any, that the outcome of this action may have on its financial condition or results of operations.

14

BEVERLY HILLS BANCORP AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 consumer claims, 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.

9. CASH DIVIDENDS

The Company paid dividends totaling $2.7 million and $5.3 million, respectively, for the quarter and six months ended June 30, 2005. Commencing in the second quarter of 2004, the Company has declared regular quarterly cash dividends of $0.125 per share, or $0.50 annually.

10. NEW ACCOUNTING PRONOUNCEMENTS

In May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, “Accounting Changes and Error Corrections—A Replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle should be recognized in the period of the accounting change. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. The Company does not expect the adoption of SFAS No. 154 to have a material impact on its financial condition, results of operations or cash flows.

In June 2005, the FASB agreed to issue FASB Staff Position (“FSP”) FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which will replace the guidance previously set forth in Emerging Issue Task Force Issue No. 03-1 (“EITF 03-1”), The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP effectively eliminates the accounting guidance provided in EITF 03-1 in favor of existing impairment recognition guidance under SFAS 115. The effective date of the FSP is for periods beginning after September 15, 2005, but is not expected to have a material impact on the Company’s financial condition, results of operations or cash flows.

15

BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Beverly Hills Bancorp Inc. (“BHBC”) is a financial holding company that conducts banking and lending operations in southern California and surrounding states through its wholly-owned subsidiary, First Bank of Beverly Hills, F.S.B. (“FBBH” or the “Bank”), and mortgage investment operations through its investment subsidiary, WFC Inc. (“WFC”).

Subsequent to the April 30, 2004 sale of our loan servicing subsidiary, Wilshire Credit Corporation (“WCC”), we have operated primarily as a unitary bank holding company. Consequently, our business strategy is focused on the growth and profitability of our banking subsidiary, FBBH, through (1) originations and purchases of commercial real estate and multi-family mortgage loans and (2) investments in primarily AAA-rated and government-sponsored enterprise (“GSE”) mortgage-backed securities.

The Bank has filed an application with the California Department of Financial Institutions (“DFI”) for conversion to a state commercial bank charter. Management believes that a state bank charter is better aligned with the Bank’s strategic business plan, by providing FBBH with greater flexibility in its lending operations and increased opportunities for growth. On April 13, 2005, the DFI approved the Bank’s application subject to certain conditions, as amended on April 28, 2005. The Bank expects to be in compliance with all such conditions prior to the effective date of the conversion, which is anticipated to occur in the third quarter of 2005. On May 6, 2005, the DFI approved the Bank’s plan of conversion. Subsequently, on July 27, 2005, the Federal Deposit Insurance Corporation approved the Bank’s application for conversion from a federal to a state commercial bank charter. In addition, in connection with the Bank’s DFI application, BHBC is required to be approved by the Federal Reserve Board (the “Fed”) as a holding company under the federal Bank Holding Company Act. BHBC filed this application with the Fed in June 2005 and expects to obtain the required approval in August 2005.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a discussion of our Critical Accounting Policies and Estimates, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the Company’s Report on Form 10-K for the year ended December 31, 2004. There were no changes to our Critical Accounting Policies and Estimates in the quarter ended June 30, 2005.

RESULTS OF OPERATIONS—THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2004

Our net income for the three months ended June 30, 2005 was $3.3 million, or $0.15 per diluted share, compared with income from continuing operations of $2.7 million, or $0.12 per diluted share, for the three months ended June 30, 2004. Our total net income for the second quarter of 2004, including discontinued operations, was $13.3 million, or $0.62 per diluted share.

For the six-month period ended June 30, 2005, our net income was $6.8 million, or $0.31 per diluted share, compared with income from continuing operations of $4.6 million, or $0.22 per diluted share, for the six months ended June 30, 2004. Total net income for the first six months of 2004, including discontinued operations, was $15.8 million, or $0.74 per diluted share.

16

Our consolidated results for the 2004 periods included a pre-tax gain of $18.5 million on the sale of our former loan servicing subsidiary, WCC. (This gain was subsequently adjusted to $18.0 million as of December 31, 2004.) Our income from continuing operations, excluding the operating results of WCC and the gain on its sale, increased by 22%, from $2.7 million for the second quarter of 2004 to $3.3 million for the second quarter of 2005. For the six-month periods ended June 30, our income from continuing operations increased by 45%, from $4.6 million for the 2004 period to $6.8 million for the 2005 period.

Pre-tax income from continuing operations increased from $4.7 million for the second quarter of 2004 to $5.7 million for the second quarter of 2005, and from $8.1 million for the six months ended June 30, 2004 to $11.7 million for the six months ended June 30, 2005. Our income tax provision of $5.0 million for the first six months of 2005 includes approximately $1.7 million that is not expected to be currently payable in cash due to the utilization of our net operating loss carryforward.

The increase in income from continuing operations in the second quarter of 2005 over the second quarter of 2004 was due primarily to a $1.0 million increase in net interest income, as a result of a significant increase in loan volume at the Bank. Despite recent increases in market rates of interest, our consolidated interest rate spread and margin were substantially the same in 2005 as in 2004. In addition, we realized a $0.2 million increase in loan charges, and did not record a provision for loan losses in the second quarter of 2005, compared with a provision of $0.1 million for the second quarter of 2004. These factors were partially offset by a $0.3 million increase in operating expenses, due primarily to higher compensation expense in 2005.

Our results for the six months ended June 30, 2005 versus the comparable 2004 period reflect a $3.4 million increase in net interest income, a $0.2 million decrease in provision for loan losses, and a $0.3 million increase in loan charges, partially offset by a $0.1 million increase in operating expenses.

17

Net Interest Income

The following tables set forth, for the periods indicated, information regarding the total amount of the Company’s income from interest-earning assets and the resulting average yields, the interest expense associated with interest-bearing liabilities and the resulting average rate, the net interest income, interest rate spread and net interest margin. The interest income and expense amounts in the tables below are consolidated, but reflect primarily the results of the Bank.

	Three Months Ended June 30, 2005							Three Months Ended June 30, 2004
	Average Balance			Interest		Annualized Yield/Rate		Average Balance			Interest		Annualized Yield/Rate
	(Dollars in thousands)
Interest-Earning Assets:
Investment securities and other	$	46,843		$	428	3.66	%	$	38,807		$	269	2.79	%
Mortgage-backed securities		335,998			3,575	4.27	%		310,071			2,870	3.72	%
Loans (1)(2)		939,900			13,988	5.97	%		834,771			11,446	5.51	%
Total interest-earning assets		1,322,741			17,991	5.46	%		1,183,649			14,585	4.96	%
Noninterest-earning cash		2,153							5,068
Allowance for loan losses		(8,135	)						(38,261	)
Other assets		74,617							72,267
Total assets	$	1,391,376						$	1,222,723
Interest-Bearing Liabilities:
Interest-bearing deposits	$	557,507		$	4,165	3.00	%	$	609,577		$	3,278	2.16	%
Repurchase agreements		136,750			1,059	3.11	%		76,250			484	2.55	%
FHLB advances		486,337			3,356	2.77	%		356,062			2,545	2.87	%
Other borrowings		20,619			358	6.96	%		20,779			259	5.01	%
Total interest-bearing liabilities		1,201,213			8,938	2.98	%		1,062,668			6,566	2.49	%
Noninterest-bearing deposits		4,028							4,028
Other liabilities		14,716							22,162
Total liabilities		1,219,957							1,088,858
Stockholders’ equity		171,419							133,865
Total liabilities and stockholders’ equity	$	1,391,376						$	1,222,723
Net interest income				$	9,053						$	8,019
Net interest spread						2.48	%						2.47	%
Net interest margin						2.75	%						2.72	%

(1) It is the Company’s policy to discontinue the accrual of interest on loans that are 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. Upon such a determination, those loans are placed on non-accrual status and deemed to be non-performing. When a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed by a charge to interest income.

(2) Interest income on loans includes the accretion of loan fees of $114 and $10, respectively, for the quarters ended June 30, 2005 and 2004.

18

	Six Months Ended June 30, 2005							Six Months Ended June 30, 2004
	Average Balance			Interest		Annualized Yield/Rate		Average Balance			Interest		Annualized Yield/Rate
	(Dollars in thousands)
Interest-Earning Assets:
Investment securities and other	$	43,464		$	779	3.61	%	$	41,844		$	575	2.78	%
Mortgage-backed securities		326,989			7,002	4.32	%		276,571			5,490	4.01	%
Loans (1)		933,396			27,102	5.86	%		763,099			21,052	5.58	%
Total interest-earning assets		1,303,849			34,883	5.40	%		1,081,514			27,117	5.07	%
Noninterest-earning cash		2,319							5,750
Allowance for loan losses		(9,268	)						(38,431	)
Other assets		74,841							79,887
Total assets	$	1,371,741						$	1,128,720
Interest-Bearing Liabilities:
Interest-bearing deposits	$	542,232		$	7,379	2.74	%	$	565,332		$	6,391	2.29	%
Repurchase agreements		132,857			1,962	2.98	%		77,571			971	2.53	%
FHLB advances		487,123			6,707	2.78	%		307,894			4,516	2.97	%
Other borrowings		20,619			687	6.72	%		20,995			527	5.08	%
Total interest-bearing liabilities		1,182,831			16,735	2.85	%		971,792		$	12,405	2.58	%
Noninterest-bearing deposits		4,272							3,813
Other liabilities		13,249							21,666
Total liabilities		1,200,352							997,271
Stockholders’ equity		171,389							131,449
Total liabilities and stockholders’ equity	$	1,371,741						$	1,128,720
Net interest income				$	18,148						$	14,712
Net interest spread						2.55	%						2.49	%
Net interest margin						2.81	%						2.75	%

(1) Interest income on loans includes the accretion of loan fees of $154 and $39, respectively, for the six months ended June 30, 2005 and 2004.

Net interest income was $9.1 million for the second quarter of 2005, compared with $8.0 million for the second quarter of 2004. For the six-month period ended June 30, 2005, net interest income was $18.1 million, compared with $14.7 million for the six months ended June 30, 2004.

The increase in net interest income in the 2005 periods as compared with the first two quarters of 2004 was primarily attributable to the Bank’s significant loan originations throughout 2004, utilizing primarily borrowings and, to a lesser extent, deposits as funding sources. As a result, the average balance of the earning-asset portfolio increased to more than $1.3 billion for the quarter and six months ended June 30, 2005, an increase of $139.1 million and $222.3 million, respectively, over the corresponding 2004 periods. Our consolidated interest rate spread and interest margin were roughly the same in the 2005 periods as compared with 2004. While rising market interest rates increased both the yields on interest-earning assets and the cost of new deposits and borrowings, our weighted cost of some borrowing facilities actually declined as a result of maturities of older, higher-costing debt. We currently anticipate that interest rate spreads may narrow in future periods if interest rates continue to rise and the yield curve continues to flatten.

Interest income on mortgage-backed securities was $3.6 million for the second quarter of 2005, compared with $2.9 million for the second quarter of 2004. For the six months ended June 30, 2005, interest on mortgage- backed

19

securities totaled $7.0 million, compared with $5.5 million for the six months ended June 30, 2004. The increase in 2005 reflects primarily an increase in yields due to rising market interest rates, which extended the expected lives of the securities and slowed the amortization of premiums. As a result, our yield on mortgage-backed securities increased by 55 basis points from the second quarter of 2004 to the second quarter of 2005, and by 31 basis points from the six-month period ended June 30, 2004 to the corresponding 2005 period. The increase in interest income also reflects an increase in the average investment balance, primarily as a result of the Bank’s purchases of $238.4 million of mortgage-backed securities in 2004.

Interest income on loans was $14.0 million for the quarter ended June 30, 2005, compared with $11.4 million for the quarter ended June 30, 2004. For the six-month period ended June 30, 2005, interest on loans totaled $27.1 million, compared with $21.1 million for the six-month period ended June 30, 2004. The increase in the 2005 periods was due to an increase in the average balance of loans, reflecting the Bank’s significant loan originations and purchases throughout 2004. The Bank’s loan fundings slowed in the first two quarters of 2005, primarily due to the increase in interest rates, which reduced the number of refinancings, and also due to increasing competitiveness in loan pricing. However, the Bank’s pipeline of loans in process increased by $30.1 million during the first six months of 2005 and totaled $137.3 million as of June 30, 2005. The Bank also anticipates increasing its loan acquisition activity. In the second quarter of 2005, the Bank purchased $85.1 million unpaid principal balance of loans, including one multi-family loan portfolio consisting of 109 loans with a total unpaid principal balance of $52.7 million. The increase in interest on loans also reflects an increase in yields in 2005 as compared with 2004, as a result of rising market rates of interest.

Interest expense on deposits was $4.2 million for the quarter ended June 30, 2005, compared with $3.3 million for the quarter ended June 30, 2004. For the six-month period ended June 30, 2005, interest on deposits was $7.4 million, compared with $6.4 million for the corresponding 2004 period. The increases in the 2005 periods were due to the increase in market interest rates, which raised the Bank’s cost of its interest-bearing deposits by 84 basis points from the second quarter of 2004 to the second quarter of 2005, and by 45 basis points from the first six months of 2004 to the first six months of 2005. These increases in cost were partially offset by a decline in the Bank’s average deposit volume from 2004 to 2005. Beginning in the second quarter of 2004, after receiving a deposit of $52 million from BHBC representing primarily the gross proceeds from the sale of WCC, the Bank increasingly utilized borrowing facilities as its primary funding source, and permitted the run-off of its higher-costing certificates of deposit.

Interest expense on borrowings, consisting of repurchase agreements, Federal Home Loan Bank (“FHLB”) advances and subordinated debt, totaled $4.8 million for the second quarter of 2005, compared with $3.3 million for the second quarter of 2004. For the six months ended June 30, 2005, interest expense on borrowings was $9.4 million, compared with $6.0 million for the first six months of 2004. This increase was due primarily to a significant increase in the average balance of outstanding borrowings. As discussed above, in the latter half of 2004 the Bank began to utilize its debt facilities in lieu of certificates of deposit to finance its asset acquisitions. The increase in interest on borrowings also reflects the recent increases in market interest rates, which raised the Bank’s average cost of repurchase agreements by 56 basis points from the second quarter of 2004 to the second quarter of 2005, and by 45 basis points from the first six months of 2004 to the corresponding 2005 period. The Bank’s cost of FHLB advances declined slightly, despite the increase in market interest rates, due to the maturity of some of its older, higher-costing advances in late 2004 and early 2005.

Provision for Loan Losses

Provisions for losses on loans are charged to operations to maintain an allowance for losses on the loan portfolio at a level which the Company believes 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 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.

20

Management currently intends 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.

Pursuant to the quarterly evaluation of the adequacy of our loan loss reserves, we determined that no provision for loan losses was required for the first two quarters of 2005. For the quarter and six months ended June 30, 2004, we recorded provisions for loan losses of $0.1 million and $0.2 million, respectively.

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.

Gain on Sale of Securities

In the first quarter of 2004, we realized a gain of $0.3 million on sales of $17.7 million of the Bank’s mortgage-backed securities. There was no such sales activity in the first two quarters of 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.

Loan Fees and Charges

Loan fees and charges increased by $0.2 million from the second quarter of 2004 to the second quarter of 2005, and by $0.3 million from the six months ended June 30, 2004 to the six months ended June 30, 2005. The increases in the 2005 periods were due primarily to higher prepayment fees as a result of paydowns on loans.

Other Expenses

The Company’s other operating expenses for the three months and six months ended June 30, 2005 and 2004 consisted of the following:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
	(Dollars in thousands)
Compensation and employee benefits	$	1,895	$	1,572	$	3,764	$	3,394
Professional fees		922		807		1,628		1,627
Occupancy		251		217		511		402
FDIC insurance premiums		83		117		167		225
Data processing		125		123		230		267
Insurance		174		228		347		346
Depreciation		91		96		146		186
Amortization of intangibles		64		64		129		129
Directors expense		135		224		270		380
Other general and administrative expense		398		351		691		807
Total other expenses	$	4,138	$	3,799	$	7,883	$	7,763

Compensation and employee benefits expense increased by $0.3 million from the second quarter of 2004 to the second quarter of 2005, and by $0.4 million from the six months ended June 30, 2004 to the six months ended

21

June 30, 2005. These increases were due to higher staffing levels in 2005, primarily as a result of an increase in the Bank’s lending staff and the opening of the Bank’s new branch at its Calabasas offices. Partially offsetting these increases was a decrease in incentive compensation, as a result of a decline in loan fundings as compared with the first two quarters of 2004.

Our legal expenses (included in “Professional fees” above) increased by $0.3 million from the second quarter of 2004 to the second quarter of 2005. This increase primarily reflects expenses related to various ongoing issues with respect to a former officer (see Note 8 to the interim condensed consolidated financial statements).

Occupancy expense increased slightly from the 2004 periods to the 2005 periods as a result of the renewal of the lease at our Calabasas, California offices, which became effective on August 31, 2004. The amortization expense shown above represents the amortization recorded on the Bank’s core deposit intangible asset, which it acquired in connection with its purchase of a new 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 (see Note 7 to the interim condensed consolidated financial statements). Accordingly, we do not expect to incur such amortization expense in future periods. Directors expense declined from the 2004 periods to the 2005 periods due to a change in director compensation which became effective in late 2004. Under the new fee arrangement, we reduced the directors’ annual stipends and no longer pay additional fees for meetings attended. In most other expense categories, costs remained largely consistent from 2004 to 2005, reflecting our efforts to control overhead.

CHANGES IN FINANCIAL CONDITION

Mortgage-Backed and Other Securities Available for Sale.    Our portfolio of mortgage-backed securities (MBS) available for sale increased by $38.9 million during the six months ended June 30, 2005. This increase primarily reflects purchases of $83.6 million of AAA-rated MBS, partially offset by principal repayments of $44.1 million. Due to recent increases in market interest rates, we recorded unrealized holding losses of $0.3 million through June 30, 2005. However, these losses occurred primarily in the first quarter of 2005 in the amount of $3.9 million, and our portfolio recovered substantially all of such losses in the second quarter.

The balance of our other investment securities available for sale was substantially the same at June 30, 2005 and December 31, 2004, reflecting minimal unrealized holding losses.

The following table sets forth the Company’s holdings of mortgage-backed and other investment securities as of June 30, 2005 and December 31, 2004.

	June 30, 2005		December 31, 2004
	(Dollars in thousands)
Available for sale, at fair value:
AAA mortgage-backed securities	$	211,663	$	166,339
GSE mortgage-backed securities		121,534		140,777
Other mortgage-backed securities		13,176		345
Trust preferred securities		8,000		8,000
Mutual funds		5,834		5,819
Total available for sale		360,207		321,280
Held to maturity:
Agency securities (fair value of $9,884 and $9,795)		9,683		9,657
Total investment securities	$	369,890	$	330,937

22

The amortized cost and fair value of the Company’s securities, by contractual maturity, are shown below as of June 30, 2005:

	Amortized Cost		Fair Value
	(Dollars in thousands)
Due in five to ten years	$	8,129	$	8,191
Due after ten years		357,678		356,066
Mutual funds		5,750		5,834
Total	$	371,557	$	370,091

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, as of June 30, 2005 and December 31, 2004:

	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
June 30, 2005
GSE mortgage-backed securities	$	36,325	$	205	$	46,799	$	565	$	83,124	$	770
AAA and other mortgage-backed securities		103,961		953		48,427		846		152,388		1,799
Mutual funds		1,932		68		—		—		1,932		68
Total	$	142,218	$	1,226	$	95,226	$	1,411	$	237,444	$	2,637

	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, 2004
GSE mortgage-backed securities	$	88,695	$	745	$	—	$	—	$	88,695	$	745
AAA and other mortgage-backed securities		136,404		1,379		3,616		89		140,020		1,468
Mutual funds		1,946		54		—		—		1,946		54
Total	$	227,045	$	2,178	$	3,616	$	89	$	230,661	$	2,267

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 Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Management 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 June 30, 2005, management also had the ability and intent to hold the securities classified as available for sale for a period of time sufficient for a recovery of cost. The unrealized losses are largely 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 bonds 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 June 30, 2005, management believes the impairments detailed in the table above are temporary, and no impairment loss has been realized in the Company’s consolidated statement of operations.

23

Loans, net.    Our portfolio of loans, net of discounts and allowances, increased by $58.2 million in the first six months of 2005. This increase reflects loan purchases of $89.8 million and loan originations of $58.2 million, partially offset by repayments of $89.9 million. The Bank’s loan purchases included a June 2005 acquisition of a multi-family loan portfolio consisting of 109 loans with an aggregate unpaid principal balance of $52.7 million. The Bank’s loan originations improved from $21.6 million in the first quarter of 2005 to $36.6 million for the second quarter, but still have declined substantially from the first two quarters of 2004. This decrease is primarily a result of the increase in interest rates, which reduced the number and amount of refinancings, and also reflects increasing competitiveness in loan pricing.

Following is a summary of the Bank’s loan portfolio as of June 30, 2005 and December 31, 2004:

	June 30, 2005			December 31, 2004
	(Dollars in thousands)
Single-family residential	$	37,608		$	44,569
Multi-family residential		449,849			412,074
Commercial real estate		487,379			462,961
Consumer and other		982			992
Loan portfolio principal balance		975,818			920,596
Net premium and deferred fees		4,949			2,064
Allowance for loan losses		(7,230	)		(7,277	)
Total loan portfolio, net	$	973,537		$	915,383

The following table summarizes the activity in the Bank’s allowance for loan losses for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
	(Dollars in thousands)
Balance, beginning of period	$	7,260		$	6,740		$	7,277		$	6,735
Provision for loan losses		—			100			—			100
Charge-offs		(27	)		(15	)		(33	)		(15	)
Recoveries		1			58			2			70
Amortization of fresh-start adjustment		(4	)		(7	)		(16	)		(14	)
Balance, end of period	$	7,230		$	6,876		$	7,230		$	6,876

The following table sets forth the delinquency status of the Bank’s loans as of June 30, 2005 and December 31, 2004:

	June 30, 2005			December 31, 2004
	(Dollars in thousands)
Balance of delinquent loans:
31-60 days	$	23		$	2,364
61-90 days		1,631			902
91 days or more (1)		3,275			4,535
Total delinquent loans	$	4,929		$	7,801
Delinquent loans as a percentage of total loan portfolio:
31-60 days		0.0	%		0.2	%
61-90 days		0.2			0.1
91 days or more (1)		0.3			0.5
Total		0.5	%		0.8	%

(1) All loans delinquent more than 90 days were on nonaccrual status.

24

Discounted Loans, net.    Our discounted loans, net, consist of WFC’s portfolio of discounted loans. WFC conducts its loan investment and portfolio management operations with an institutional investor, which has participation interests in the returns generated by the assets serving as collateral for the loans. The carrying value of WFC’s discounted loans is reported net of the co-investor’s interest. During the six months ended June 30, 2005, the balance of discounted loans, net decreased by $0.7 million, primarily reflecting WFC’s share of the loan principal payments received.

Real Estate Owned.    Real estate owned decreased by $1.7 million in the first six months of 2005. This decrease was due to the Bank’s sales of three properties with an aggregate carrying value of $1.8 million for a net gain of $0.2 million, partially offset by $0.1 million in new foreclosures.

Deposits.    Deposits increased by $23.3 million during the first six months of 2005, due primarily to an increase in brokered certificates of deposit. The weighted-average interest cost of the Bank’s total deposit balance at June 30, 2005 was 2.86%, compared with 2.06% at December 31, 2004. The Bank’s deposits at June 30, 2005 included a total of $28.3 million in demand deposits held by BHBC and WFC. However, those deposits are eliminated in consolidation and are not reflected in total deposits on our consolidated statements of financial condition.

Repurchase Agreements.    Repurchase agreements decreased by $2.0 million during the six months ended June 30, 2005, as a result of repayments of $35.0 million, offset by repurchase agreement renewals totaling $33.0 million. At June 30, 2005, the Bank had total repurchase agreements of $118.0 million, bearing interest at a weighted-average rate of 3.19%, compared with the December 31, 2004 weighted-average rate of 2.74%. These borrowings are used primarily to finance the Bank’s lending and investment activities.

FHLB Advances.    FHLB advances increased by $76.0 million in the six months ended June 30, 2005, as a result of $200.0 million in new advances, partially offset by maturities of $124.0 million. This increase occurred primarily in June 2005, as the Bank obtained $155.0 million in new advances to fund loan acquisitions and also to replace maturing advances. As discussed above, the Bank has utilized FHLB advances as the primary funding source for its asset acquisitions after receiving BHBC’s deposit of the proceeds from the sale of WCC. The FHLB has authorized a borrowing limit for the Bank’s total FHLB advances of 45% of the Bank’s total assets as of the previous quarter-end. The following table sets forth the Bank’s FHLB advances at the dates and for the periods indicated:

	Six Months Ended June 30, 2005			Year Ended December 31, 2004
	(Dollars in thousands)
Average amount outstanding during the period	$	487,123		$	361,249
Maximum month-end balance outstanding during the period		550,837			474,837
Weighted average rate:
During the period		2.78	%		2.95	%
At end of period		3.19	%		2.75	%

Net Worth.    Our consolidated stockholders’ equity increased by $1.8 million during the six months ended June 30, 2005, to $171.9 million, or $7.99 book value per diluted share. This increase reflects our net income of $6.8 million, the issuance of additional shares of common stock pursuant to the exercise of stock options, and a $0.3 million tax benefit from the exercise of non-qualified stock options. These increases were partially offset by cash dividends of $5.3 million on common stock and net after-tax unrealized losses of $0.2 million on our portfolio of available-for-sale securities.

Regulatory Capital Requirements

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

25

The following table sets forth the Bank’s regulatory capital ratios at June 30, 2005.

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)
Total capital to risk-weighted assets (Risk-based capital)	$	122,871	12.3	%	$	79,706	³ 8.0	%	$	99,632	³	10.0	%
Tier 1 capital to risk-weighted assets		115,786	11.6	%		Not Applicable				59,779	³	6.0	%
Core capital to tangible assets		115,786	8.3	%		56,040	³ 4.0	%		70,050	³	5.0	%
Tangible capital to tangible assets		115,786	8.3	%		21,015	³ 1.5	%		Not Applicable

Upon conversion to a state commercial bank charter, the Bank would be subject to the same capital requirements, and expects to continue to be in compliance with such requirements.

Liquidity and Capital Resources

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

The Bank’s sources of liquidity include wholesale and retail deposits, FHLB advances (up to 45% of the Bank’s total assets as of the previous quarter-end), repurchase agreements, whole loan and mortgage-backed securities sales, and net interest income. WFC’s sources of liquidity consist of net interest income and repayments on its portfolio of loans and mortgage-backed securities. Liquidity in the Bank’s and WFC’s operations is actively managed on a daily basis and periodically reviewed by the Company’s Board of Directors. This process is intended to ensure the maintenance of sufficient funds to meet the Company’s 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 June 30, 2005, our cash balances totaled $17.2 million, compared with $15.5 million at December 31, 2004. The increase in cash was due primarily to new borrowings and repayments on loans, partially offset by purchases of loans and mortgage-backed securities and new loan originations.

At June 30, 2005, the Bank had $454.1 million of certificates of deposit. Scheduled maturities of certificates of deposit during the 12 months ending June 30, 2006 and thereafter amounted to $307.0 million and $147.1 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 the Bank’s exposure to interest rate changes by utilizing funding sources whose repricing characteristics more closely match those of the Bank’s 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 outstanding as of June 30, 2005:

	Payments due within time period at June 30, 2005
	0-12 Months		1-3 Years		4-5 Years		After 5 Years		Total
	(Dollars in thousands)
Certificates of deposit	$	316,177	$	142,472	$	10,331	$	—	$	468,980
Repurchase agreements		80,469		41,097		—		—		121,566
Employment contracts		138		—		—		—		138
Operating leases		698		1,418		940		1,904		4,960
FHLB advances		198,681		268,436		119,828		—		586,945
Junior subordinated notes payable to trust		1,400		2,800		2,800		51,423		58,423
Total	$	597,563	$	456,223	$	133,899	$	53,327	$	1,241,012

With the exception of the operating leases, the expected obligations presented above include anticipated interest accruals based on the current respective contractual terms. The amounts for the junior subordinated debentures are based on the assumption that the debentures will be repaid in full at maturity in July 2032. However, commencing July 12, 2007, the debentures may be repaid in full or in part at par.

OTS regulations require each 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 June 30, 2005, the Bank was in compliance with its liquidity policy.

DISCONTINUED OPERATIONS - LOAN SERVICING

The Company previously conducted its Loan Servicing Operations through WCC, our loan servicing subsidiary which was formed pursuant to our June 10, 1999 reorganization. As discussed earlier, on April 30, 2004 we completed the sale of WCC to Merrill Lynch Mortgage Capital Inc. Results of operations for WCC are shown in the table below. The amounts for the three and six months ended June 30, 2004 reflect WCC’s results for only the month and four months ended April 30, 2004, respectively.

	Three Months Ended June 30, 2004			Six Months Ended June 30, 2004
	(Dollars in thousands)
Servicing income	$	3,420		$	11,754
Other income		223			689
Total revenues		3,643			12,443
Interest expense		37			164
Provision for loan losses		—			49
Compensation and employee benefits expense		3,324			9,427
Other expenses		612			2,319
Total provision and expenses		3,973			11,959
Income before taxes	$	(330	)	$	484

As a result of WCC’s sale, its results of operations have been removed from the Company’s results from continuing operations on the accompanying Consolidated Statements of Operations, and have been presented separately in a single caption as “Income from operations of discontinued segment” for the periods presented.

27

IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. All of the statements contained in this Quarterly Report on Form 10-Q which are not identified as historical should be considered forward-looking. In connection with certain forward-looking statements contained in this Quarterly Report on Form 10-Q and those that may be made in the future by or on behalf of the Company which are identified as forward-looking, the Company notes that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. Such factors include, but are not limited to, the condition of the real estate market, interest rates, regulatory matters, the availability of pools of 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q should consider these facts in evaluating the information contained herein. The inclusion of the forward-looking statements contained in this Quarterly Report on Form 10-Q should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Quarterly Report on Form 10-Q will be achieved. In light of the foregoing, readers of this Quarterly Report on Form 10-Q are cautioned not to place undue reliance on the forward-looking statements contained herein.

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ITEM 3. 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 Committee (“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 the Board of Directors, and coordinates with the Board with respect to overall asset and liability composition.

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, as required by OTS regulations, 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 the Board of Directors.

The following table quantifies the potential changes in the Company’s net portfolio value at June 30, 2005, 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	$	163,322	$	(28,208	)	(15	)%	11.89	%	(134	)bp
+ 200bp		171,427		(20,103	)	(10	)	12.28		(95	)bp
+ 100bp		180,848		(10,682	)	(6	)	12.72		(51	)bp
0bp		191,530		—		—		13.23		—
- 100bp		191,864		334		0		13.10		(13	)bp
- 200bp		189,345		(2,185	)	(1	)	12.80		(43	)bp
- 300bp		187,388		(4,142	)	(2	)	12.54		(69	)bp

29

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

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

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 anticipated maturities or repricing of the Bank’s assets and liabilities based on their contractual terms as of June 30, 2005.

	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	$	17,228		$	—		$	—		$	—		$	17,228
Mortgage-backed and other investment securities		26,662			61,759			186,046			95,075			369,542
Single-family residential loans		20,264			3,895			135			13,314			37,608
Multi-family residential loans		180,103			63,590			139,792			66,364			449,849
Commercial real estate loans		164,506			94,471			168,308			60,094			487,379
Consumer and other loans		655			13			24			290			982
Other assets (1)		—			—			—			38,925			38,925
Total assets		409,418			223,728			494,305			274,062			1,401,513
Liabilities:
Demand deposits		—			—			—			32,511			32,511
NOW and money market accounts		104,682			—			—			—			104,682
Savings accounts		2,278			—			—			—			2,278
Certificates of deposit		306,981			136,838			10,268			—			454,087
Repurchase agreements		78,000			40,000			—			—			118,000
FHLB advances		209,500			226,337			115,000			—			550,837
Other liabilities		—			—			—			21,741			21,741
Total liabilities		701,441			403,175			125,268			54,252			1,284,136
(Deficiency) excess of assets over liabilities	$	(292,023	)	$	(179,447	)	$	369,037		$	219,810		$	117,377
Cumulative (deficiency) excess	$	(292,023	)	$	(471,470	)	$	(102,433	)	$	117,377
Cumulative (deficiency) excess as a percent of total assets		(20.84	)%		(33.64	)%		(7.31	)%		8.38	%

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

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures

The Company’s chief executive officer and chief financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in internal controls

There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed 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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BEVERLY HILLS BANCORP INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits

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 18U.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 18U.S.C. §1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32

SIGNATURES

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

	BEVERLY HILLS BANCORP INC.
Date: August 5, 2005	By:	/s/ JOSEPH W. KILEY III
		Joseph W. Kiley III
		Chief Executive Officer
	By:	/s/ TAKEO K. SASAKI
		Takeo K. Sasaki
		Chief Financial Officer

33