Use these links to rapidly review the document TABLE OF CONTENTS ~~TABLE~~ITEM OF8. ~~CONTENTS1~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

U.S. Securities and Exchange Commission
Washington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2012

For the fiscal year ended December 31, 2011

Commission File Number 000-54116

MANHATTAN BANCORP
(Exact name of registrant as specified in its charter)


California State or other jurisdiction of incorporation of organization		20-5344927 I.R.S. Employer Identification No.

2141 Rosecrans Avenue, Suite 1100
El Segundo, California 90245
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (310) 606-8000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Common Stock (Title of class)

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

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 o No ý

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 ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this From 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller Reporting Company) ý

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

The aggregate market value of common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity, as of June 30, ~~2011~~2012 was approximately $~~8,162,724~~10.3 million.

As of March 23, ~~2012~~2013, there were 312,~~997~~508,~~631~~268 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for the 2012 annual meeting of shareholders are incorporated by reference in Part III of this Annual Report.

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Manhattan Bancorp Annual Report on Form 10-K for the year ended December 31, ~~2011~~ 2012 TABLE OF CONTENTS


PART I
Item 1	Business	3
Item 1A	Risk Factors	1816
Item 1B	Unresolved Staff Comments	2926
Item 2	Properties	2926
Item 3	Legal Proceedings	2927
Item 4	Mine Safety Disclosures	2927
PART II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3027
Item 6	Selected Financial Data	3129
Item 7	Management's Discussion and Analysis of Financial Condition and Results of ~~Operation~~Operations	3330
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	6258
Item 8	Financial Statements and Supplementary Data	6359
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	~~119~~124
Item 9A	Controls and Procedures	~~119~~124
Item 9B	Other Information	~~119~~124
PART III
Item 10	Directors, Executive Officers and Corporate Governance	~~120~~125
Item 11	Executive Compensation	~~120~~131
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~120~~135
Item 13	Certain Relationships and Related Transactions, and Director Independence	~~120~~137
Item 14	Principal Accountant Fees and Services	~~120~~140
PART IV
Item 15	Exhibits and Financial Statement Schedules	~~121~~142
Signatures		~~122~~143

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K ("Form 10-K") contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. (the "Exchange Act"). Manhattan Bancorp and its subsidiaries (collectively, the "Company") intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these provisions. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws. Words such as "will likely result," "aims," "anticipates," "believes," "could," "estimates," "expects," "hopes," "intends," "may," "plans," "projects," "seeks," "should," "will," and variations of these words and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are based on the Company's current expectations and assumptions regarding its business, the regulatory environment, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. The Company's actual results may differ materially from those contemplated by the forward-looking statements. The Company cautions you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following: the impact of changes in interest rates; a continuing decline in economic conditions or the failure of economic conditions to improve; the impact of inflation; increased competition among financial service providers; the Company's ability to attract deposit and loan customers; the quality of the Company's earning assets; government regulation; risks associated with the ~~pending~~recent ~~merger~~acquisition ~~with~~of Professional Business Bank, including ~~risks and uncertainties relating to~~ the ~~receipt~~successful ~~of regulatory and shareholder approvals and the satisfaction of other conditions to the closing, the~~ integration of the companies' businesses, and the anticipated cost saving arising from the merger ~~and reputational risks and the reaction of the Company's customers and employees to the proposed merger~~; and management's ability to manage the Company's operations. For further discussion of these and other risk factors, see "Item 1A. Risk Factors" in this Form 10-K.

Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, whether as a result of new information, future developments or otherwise, except as may be required by law.

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PART I

ITEM 1. BUSINESS

General

Manhattan Bancorp is a bank holding company incorporated in California in August 2006 and registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Its principal subsidiary, Bank of Manhattan, N.A. (the "Bank"), is a nationally chartered banking association organized under the laws of the United States. The Bank, which commenced its banking operations in August 2007, is ~~located~~headquartered in the South Bay area of Southern California and offers relationship banking services and residential mortgages to entrepreneurs, family owned and closely-held middle market businesses, real estate investors and professional service firms. ~~Through~~The ~~its~~Bank ~~wholly-owned~~also ~~subsidiary,~~originates ~~MBFS~~residential ~~Holdings, Inc.~~mortgages ~~("MBFS"),~~to individuals ~~Manhattan~~within ~~Bancorp~~its ~~also~~service ~~indirectly~~areas ~~owns~~who aare ~~70%~~purchasing ~~interest~~homes inor ~~Manhattan~~refinancing ~~Capital~~their ~~Markets LLC~~existing ~~("MCM"),~~mortgages; ~~which,~~these ~~either~~loans ~~directly~~originated orby ~~through~~the ~~its~~Bank ~~wholly-owned~~are ~~subsidiaries,~~sold ~~generates~~in ~~revenues~~the ~~primarily~~ secondary market. The Bank operates from ~~trading~~its ~~income,~~headquarters office ~~facilitating~~along ~~trades~~with branch offices located in ~~whole~~the ~~loans~~California ~~between~~cities ~~institutional~~of ~~clients~~Manhattan Beach, Glendale, Pasadena, and ~~advisory~~Montebello. ~~services~~The ~~regarding~~Bank ~~the~~offers ~~evaluation~~mortgage loans through lending offices located at its headquarters office and ~~packaging~~in ofthe ~~bond~~California ~~portfolios~~cities of ~~other~~Los ~~institutions~~Angeles, San Diego, Woodland Hills, Hermosa Beach, Huntington Beach, Newport Beach, and Santa Barbara. At December 31, ~~2011~~2012, the Company had consolidated total assets of $~~201~~465.84 million, total net loans of $~~155~~371.80 million, total deposits of $~~169~~383.73 million and total stockholders' equity of $1857.01 million.

OnThrough ~~November 21,~~a ~~2011~~wholly-owned subsidiary, ~~the~~MBFS ~~Company~~Holdings, Inc. ~~and~~("MBFS"), ~~the~~Manhattan ~~Bank~~Bancorp ~~entered~~also ~~into~~indirectly anowned ~~Agreement~~until ~~and~~November 9, ~~Plan~~2012, ofa ~~Merger~~70% ~~(as~~interest ~~amended,~~in ~~the~~Manhattan ~~"Merger~~Capital Markets LLC ~~Agreement~~("MCM"), ~~under~~ which, weeither ~~have~~directly ~~agreed,~~or ~~subject~~through toits ~~the satisfaction~~wholly-owned ofsubsidiaries, ~~certain~~generates ~~terms~~revenues ~~and~~primarily ~~conditions~~from oftrading ~~the~~income, ~~Merger~~facilitating ~~Agreement,~~trades toin ~~merge~~whole ~~Professional~~loans ~~Business~~between ~~Bank~~institutional clients, aand ~~California~~advisory ~~chartered~~services ~~commercial~~regarding ~~bank~~the ~~("PBB")~~evaluation ~~with~~ and ~~into~~packaging ~~the~~of ~~Bank~~bond inportfolios anof ~~all~~other ~~stock transaction,~~institutions. ~~which~~As wediscussed ~~refer~~in tomore asdetail ~~the~~below under "~~Merger~~Item 7." WeManagement's ~~cannot~~Discussion ~~assure~~and Analysis ~~you~~of ~~that~~Financial ~~the~~Condition ~~Merger~~and ~~will~~Results beof ~~consummated~~Operations—Recent asDevelopments—Sale ~~scheduled~~of MBFS," orManhattan atBancorp ~~all.~~sold ~~See~~its ~~"Pending~~entire ~~Merger"~~interest ~~for~~in aMBFS, ~~description~~including ofits ~~the~~indirect ~~terms~~interest in ofMCM, ~~the~~on ~~Merger~~November 9, ~~and "Item~~2012 to Carpenter Fund Manager ~~1A.~~GP, LLC ~~Risk~~and ~~Factors—Risks~~its ~~Related~~affiliated toinvestment funds (the ~~Merger~~"Carpenter ~~for~~Funds"), aan ~~description~~affiliate of ~~risks relating to~~ the ~~Merger~~Company.

Unless the context requires otherwise, references in this Annual Report on Form 10-K to the "Company," "we" or "us" refers to Manhattan Bancorp and its consolidated subsidiaries; references to "Manhattan Bancorp" refer to Manhattan Bancorp on an unconsolidated basis;. References to "MBFS" and references to "MCM" ~~shall~~ refer to MBFS Holdings, Inc. and its subsidiary Manhattan Capital Markets LLC and its direct and indirect wholly-owned subsidiaries respectively.

~~Banking~~Acquisition ~~Activities~~of Professional Business Bank

~~The~~On ~~Bank~~May 31, ~~promotes~~2012, ~~relationship~~Manhattan ~~based~~Bancorp ~~products~~completed ~~and~~its ~~services~~acquisition toof ~~meet~~Professional ~~the~~Business ~~needs~~Bank ofthrough ~~its~~the ~~defined~~merger ~~customer~~of ~~base.~~Professional Business ItBank ~~offers~~with aand ~~full~~into ~~range~~the ofBank, ~~deposit~~with ~~products~~the ~~including~~Bank ~~non-interest~~as ~~bearing~~the ~~demand~~surviving ~~deposits~~institution ~~and~~(the ~~interest~~"Merger"). ~~bearing~~Immediately ~~checking~~prior ~~accounts~~to the Merger, ~~savings~~Professional ~~accounts~~Business ~~and~~Bank ~~certificates~~completed ofa ~~deposit.~~transaction ~~Wire~~in ~~transfers,~~which ~~electronic~~its ~~bill payment~~holding company, ~~overdraft~~CGB ~~protection~~Holdings, Inc., was ~~and~~merged ~~assorted~~into ~~retail~~Professional ~~banking~~Business ~~services~~Bank ~~are~~and ~~offered~~accounted tofor ~~all~~using ~~customers, and~~ the ~~Bank~~historical ~~offers~~balances ~~cash~~as ~~management~~entities ~~services~~under tocommon ~~its commercial checking account customers~~control.

~~The~~In ~~Bank~~the ~~originates~~Merger, ~~loans~~Manhattan ~~based~~Bancorp onissued ~~specific~~an ~~underwriting~~aggregate ~~guidelines.~~of A8,195,469 ~~large~~shares ~~portion~~ of ~~these~~its ~~loans~~common ~~are~~stock ~~secured~~to bythe ~~commercial~~shareholders ~~real~~of ~~estate.~~Professional ~~However,~~Business ~~the~~ Bank, ~~offers~~representing ~~both~~a ~~secured~~ratio ~~and unsecured~~of ~~commercial~~1.7991 ~~term~~shares ~~loans~~of Manhattan ~~and~~Bancorp ~~lines~~common ofstock ~~credit,~~for aseach ~~well~~share asof ~~construction~~Professional ~~loans~~Business ~~for~~Bank ~~individual~~common ~~residential~~stock ~~properties.~~outstanding Toat athe ~~much~~effective ~~lesser~~time ~~extent,~~of the ~~Bank~~Merger. ~~has~~The ~~made~~shares ~~home~~of ~~equity~~Manhattan ~~and~~Bancorp ~~other~~common ~~consumer loans.~~stock Inissued ~~October~~to ~~2010,~~ the Professional Business Bank ~~began~~shareholders toin ~~originate~~the ~~consumer~~Merger ~~residential~~constituted ~~real~~approximately ~~estate~~67.2% ~~mortgage~~of ~~loans with~~ the ~~intent~~Manhattan toBancorp's ~~sell~~outstanding ~~the~~common ~~majority~~stock ofafter ~~such~~giving ~~loans~~effect to ~~qualified~~the ~~investors~~Merger. ~~The~~Accounting ~~Bank~~principles generally ~~has~~accepted ~~not originated,~~in ~~nor~~the ~~does~~United itStates ~~intend~~of toAmerica ~~originate,~~("GAAP") ~~loans~~require that ~~are~~a ~~deemed~~company ~~sub-prime~~whose ~~credits.~~security ~~Additionally,~~holders ~~all~~retain ~~residential~~the ~~real~~majority ~~estate~~voting ~~mortgage~~interest ~~loans~~in ~~are~~the ~~full~~combined ~~income~~business ~~documented~~be ~~and~~treated ~~asset~~as the acquirer for ~~documented~~financial ~~loans.~~reporting

The Bank originates warehouse lines of credit for select mortgage bankers whereby the Bank controls both the cash disbursement process through an affiliate, Manhattan Mortgage Warehouse Inc. ("MMWI"), and the collateral through a third party custodian. The Bank also takes an assignment of each underlying loan.

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purposes. Other factors also considered in this determination include composition of the Board of Directors and executive management of the combined company. Accordingly, the Merger was accounted for as a reverse acquisition whereby Professional Business Bank was treated as the acquirer for accounting and financial reporting purposes.

As a result of the Merger, the Bank acquired four branches in central and east Pasadena, Montebello and Glendale, additional assets with an estimated fair value of $233.1 million and additional deposits with an estimated fair value of $200 million.

Banking Activities

The Bank promotes relationship based products and services to meet the needs of its defined customer base. It offers a full range of deposit products including non-interest bearing demand deposits and interest bearing checking accounts, savings accounts and certificates of deposit. Wire transfers, electronic bill payment, overdraft protection, and assorted retail banking services are offered to all customers, and the Bank offers cash management services to its commercial checking account customers.

The Bank originates loans based on specific underwriting guidelines. A large portion of these loans are secured by commercial real estate. However, the Bank offers both secured and unsecured commercial term loans and lines of credit, as well as construction loans for individual residential properties. To a much lesser extent, the Bank has made home equity and other consumer loans. The Bank also originates consumer residential real estate mortgage loans with the intent to sell the majority of such loans to qualified investors. The Bank has not originated, nor does it intend to originate, loans that are deemed sub-prime credits. Additionally, all residential real estate mortgage loans are full income documented and asset documented loans.

The Bank originates warehouse lines of credit for select mortgage banks whereby the Bank controls both the cash disbursement process through a third party vendor and the collateral through a third party custodian. The Bank also takes an assignment of each underlying loan.

The Bank offers Internet banking services, which allow customers to review their account information, issue stop payment orders, pay bills, transfer funds, order checks and inquire about credit products electronically. It also offers qualified customers the ability to process deposits through remote item capture from their place of business.

Secondary Marketing and Loan Servicing Activities

As part of its secondary marketing activities, the Bank originates residential real estate mortgage loans with the intent to sell the majority of such loans to qualified investors. It also purchases existing funded residential real estate mortgage loans from qualified institutions with the intent to resell these loans to qualified investors. The Bank underwrites all purchased loans for credit and regulatory compliance prior to acquisition to ensure each loan is eligible for sale to government agencies or government sponsored agencies (collectively referred to as "GSEs"). The Bank uses ~~hedging~~derivative ~~programs~~securities to hedge its funded and unfunded mortgage loan commitments to manage the interest rate risk of its secondary marketing activities.

Depending upon market pricing for mortgage servicing rights ("MSRs"), the Bank sells loans either servicing retained or servicing released. When it sells loans, it records realized gains or losses from these loans at the time of sale based on the difference between the net sales proceeds and the allocated basis of the loans sold. When it sells loans servicing retained, it capitalizes the resulting MSRs based on its estimated fair value and records the related gain. The Bank believes that servicing loans for others can provide it with an important opportunity to offer its other financial services to borrowers, a meaningful source of additional income with minimal additional overhead costs, and an important asset/liability management tool because it provides an asset whose value tends to move opposite to changes in market interest rates. In contrast to certain other components of the Bank's balance sheet, a loan servicing portfolio normally increases in value as interest rates rise and loan prepayments decrease and declines in value as interest rates fall and loan prepayments increase.

As part of the Bank's secondary marketing activities, it enters into forward sales commitments with qualified investors to deliver its loans at a future date, which typically is within 30 days of funding for loans originated by the Bank. Sales to GSEs typically are accomplished through a securitization transaction, which involves the receipt of a mortgage backed security from a GSE in exchange for loans that the Bank sells to that GSE. Typically, settlement of the forward sales commitment and the securitization transaction occurs on the same day, whereby the Bank does not retain the mortgage backed security. However, based on market conditions in the future, the Bank may retain the mortgage backed security for a period of time prior to selling it in the capital markets. In this event, the Bank will not record a realized gain or loss from the exchange on the date of securitization but rather when the mortgage backed security is sold. If the Bank intends to sell the mortgage backed security, it will designate the mortgage backed security as a trading security in its consolidated balance sheet with changes in fair value included in its consolidated statement of operations.

Capital Market Activities

Manhattan Bancorp offers mortgage related advisory and broker/dealer services through its indirect subsidiary, MCM. MCM provides both fee and incentive based consulting services to banks, mortgage bankers and institutional investors.

MCM's wholly owned subsidiary, BOM Capital, LLC, ("BOMC"), effectuates buy and sell orders from institutional investors in mortgaged backed to-be-announced securities. In order to mitigate principal risk, BOMC does not take a position in these transactions but rather arranges for simultaneous buyers and sellers for all transactions prior to executing either a buy trade or a sell trade. BOMC's transactions are deemed to be "Riskless Principal Transactions" per Federal Reserve System Regulation Y, Part 225—Subpart C—Sec. 225.28.

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~~MCM~~interest ~~also~~rates. ~~provides~~In ~~general~~contrast ~~consulting~~to ~~services~~certain ~~through~~other ~~its~~components ~~wholly~~of ~~owned~~the ~~subsidiary,~~Bank's ~~Manhattan~~balance ~~Advisory Services Inc. ("MASI")~~sheet, ~~and~~a ~~mortgage~~loan ~~warehouse~~servicing ~~lending~~portfolio ~~services~~normally ~~through~~increases ~~its wholly~~in ~~owned subsidiary,~~value ~~MMWI.~~as ~~MASI~~interest ~~also~~rates ~~provides~~rise and loan ~~trading~~prepayments ~~services~~decrease and declines ~~incentive~~in ~~based~~value ~~investment~~as ~~advisory~~interest ~~services~~rates ~~through~~fall ~~its~~and ~~wholly~~loan ~~owned~~prepayments ~~subsidiary, Manhattan Investment Management Services Inc~~increase. ~~("MIMS").~~

Capital Market Activities

From the period following the Merger through the sale of MBFS on November 9, 2012 (for accounting purposes effective October 31, 2012), the Company's statement of operations reflect mortgage related advisory and broker/dealer services offered through its indirect subsidiary, MCM. MCM provided both fee and incentive based consulting services to banks, mortgage bankers and institutional investors.

MCM's wholly owned subsidiary, BOM Capital, LLC, ("BOMC"), effectuated buy and sell orders from institutional investors in mortgaged backed to-be-announced securities. In order to mitigate principal risk, BOMC did not take a position in those transactions but rather arranged for simultaneous buyers and sellers for all transactions prior to executing either a buy trade or a sell trade. BOMC's transactions were deemed to be "Riskless Principal Transactions" per Federal Reserve System Regulation Y, Part 225—Subpart C—Sec. 225.28.

MCM also provided general consulting services through its wholly owned subsidiary, Manhattan Advisory Services Inc. ("MASI"), and mortgage warehouse lending services through its wholly owned subsidiary, MMWI. MASI also provided loan trading services and incentive based investment advisory services through its wholly owned subsidiary, Manhattan Investment Management Services Inc. ("MIMS").

Geographic Market Area

The majority of our mortgage loans are originated in Southern California, primarily in Los Angeles County and, to a lesser extent, Santa Barbara, Ventura, Orange and San Diego Counties.

Our commercial bank's business development officers use the Company's Elheadquarters ~~Segundo~~office ~~headquarters~~and asbranch aoffices ~~hub~~as hubs from which they serve and solicit prospective customers from outlying areas, primarily the surrounding communities of South Bay, Westside, downtown Los Angeles, and South Los Angeles.

Competition

The banking business in California, especially in the market areas in which we compete, is highly competitive with respect to virtually all products and services and has become increasingly so in recent years. The industry continues to consolidate, directly affected by the more recent economic downturn, and strong, unregulated competitors continue to enter the banking markets with focused products targeted at highly profitable customer segments. Many generally unregulated competitors have been able to compete ~~across geographic boundaries and provide customers increasing access to meaningful alternatives to banking services in nearly all significant products. These competitive trends are likely to continue.~~

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across geographic boundaries and provide customers increasing access to meaningful alternatives to banking services in nearly all significant products. These competitive trends are likely to continue.

We compete for loans and deposits with other commercial banks, savings and loan associations, credit unions, thrift and loan companies, and other financial and non-financial institutions, including finance companies, leasing companies, insurance companies, brokerage firms, and investment banking firms.

With respect to commercial bank competitors, our market is largely dominated by a relatively small number of major banks with many offices operating over a wide geographical area. These banks have, among other advantages, the ability to finance wide-ranging and effective advertising campaigns and to allocate their investment resources to regions of highest yield and demand. Many of the major banks operating in the area offer certain services which we do not offer directly (but some of which we offer through correspondent institutions). By virtue of their greater total capitalization, such banks also have substantially higher lending limits.

In recent years, increased competition also has developed from specialized finance and non-finance companies that offer money market and mutual funds, wholesale finance, credit card, and other consumer finance services, including on-line banking services and personal finance software. Strong competition for deposit and loan products affects the interest rates of those products as well as the other terms on which they are offered to customers. Mergers and acquisitions by and between financial institutions have placed additional pressure on banks within the industry to streamline their operations, reduce expenses, and increase revenues to remain competitive. Competition has also intensified due to federal and state interstate banking laws and failed bank receivership opportunities, which permit banking organizations to expand geographically.

Technological innovation has also resulted in increased competition in the financial services market as customers now expect a choice of several delivery systems and channels, including telephone, mail, home computer online banking, ATMs, self-service branches, and/or in-store branches.

We believe our primary competitors for the small and medium-sized business customer are other community banks that can provide the service and responsiveness attractive to small and medium-sized business customers. In order to compete effectively, we have created a sales and service culture that combines the experience of our senior officers, which includes the extensive sales orientation of larger financial institutions, with the commitment to service and a focus on the individual needs of our clients, which is found at the best community banks. We seek to provide a level of service and decision-making responsiveness not generally offered by larger institutions while at the same time providing a level of management sophistication typically not found at local community banks.

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which is found at the best community banks. We seek to provide a level of service and decision-making responsiveness not generally offered by larger institutions while at the same time providing a level of management sophistication typically not found at local community banks.

Employees

As of December 31, ~~2011~~2012, the Company had ~~120~~188 employees, all of which ~~118~~ were full-time ~~and two were part-time~~. None of our employees are represented by a union or covered by a collective-bargaining agreement. Management believes that its employee relations are good.

Client Concentrations

Neither the Company nor either of the reportable segments has any client relationships that individually account for 10% or more of consolidated or segment revenues, respectively. The Bank monitors concentrations of funds which are provided by a single investor or from a single related source on a monthly basis to assist in its assessment of liquidity. As of December 31, ~~2011~~2012, there were ~~nine~~four relationships that had total deposits in excess of 2% of total deposits representing approximately 2616.1% of all Bank deposits, less brokered and Certificate of Deposit Account Registry Service ("CDARS") deposits. At December 31, 2012 the Bank had brokered and CDARS deposits totaling $8.4 million and $29.7 million, or 2.2% and 7.7% of total deposits, respectively.

Pending Merger

On November 21, 2011, the Company and the Bank entered into the Merger Agreement with PBB, CGB Holdings, Inc., a Delaware corporation ("CGB Holdings"), and Carpenter Fund Manager GP, LLC, a Delaware limited liability company ("Fund Manager"), pursuant to which, on the terms and subject to the conditions set forth in the Merger Agreement, PBB will merge with and into the Bank with the Bank continuing as the surviving institution. As of November 21, 2011, CGB Holdings beneficially owned approximately 92% of the issued and outstanding common stock of PBB, and Fund Manager, which is the general partner of Carpenter Community BancFund, L.P., Carpenter Community BancFund-A, L.P. and Carpenter Community BancFund-CA, L.P. (collectively, the "Funds"), beneficially owned 100% of the issued and outstanding common stock of CGB Holdings and approximately 43% of the issued and outstanding common stock of the Company.

Under the terms of the Merger Agreement, each outstanding share of common stock of PBB (other than shares as to which statutory dissenters' rights have been exercised) will be converted into the right to receive a number of shares of common stock of the Company having an aggregate book value per share as of the last day of the month preceding the month in which the closing of the Merger occurs (the "Determination Date") equal to the book value per share of the common stock of PBB as of the Determination Date.

The Merger Agreement contains customary representations and warranties from the Company, the Bank, PBB and CGB Holdings, and each party has agreed to customary covenants, including, among others, covenants relating to (1) the conduct of each such party's respective business during the interim period between the execution of the Merger Agreement and the closing of the Merger, (2) the Company's and PBB's mutual obligations to facilitate their shareholders' consideration of, and voting upon, the approval of the Merger, including the preparation and filing with the Securities and Exchange Commission (the "SEC") of a joint proxy statement/prospectus relating to the shareholders meetings of the Company and PBB to approve the Merger (the "Proxy Statement") and the filing with the SEC by the Company of a registration statement on Form S-4 in which the Proxy Statement will be included as a prospectus, and (3) subject to certain exceptions, the recommendation by the board of directors of the Company in favor of the approval by its shareholders of the Merger Agreement and the transactions contemplated thereby. The Company also has agreed not to (1) solicit proposals relating to alternative business combination transactions or (2) subject to certain exceptions, enter into any discussions or any agreement concerning any proposals for alternative business combination transactions.

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Completion of the Merger is subject to certain customary conditions, including (1) approval of the Merger Agreement by the shareholders of each of the Company and PBB, (2) receipt of required regulatory approvals, and (3) the absence of any law or order prohibiting the consummation of the Merger. Each party's obligation to complete the Merger also is subject to certain additional customary conditions, including (1) subject to certain exceptions, the accuracy of the representations and warranties of the other parties, (2) performance in all material respects by the other parties of their obligations under the Merger Agreement, (3) the failure to occur of a Material Adverse Effect (as such term is defined in the Merger Agreement), and (4) receipt by both the Company and PBB of a fairness opinion by a nationally recognized investment banking firm, stating that the Exchange Ratio (as such term is defined in the Merger Agreement) is fair to the shareholders of each from a financial point of view.

The Merger Agreement provides certain termination rights for the Company, the Bank, PBB, CGB Holdings and Fund Manager, and further provides that upon termination of the Merger Agreement under certain circumstances, the Company will be obligated to pay PBB a termination fee of $300,000 and reimburse PBB for all expenses incurred by it in connection with the Merger Agreement and the transactions contemplated thereby in an amount not to exceed $450,000.

The foregoing description of the Merger and the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 and Exhibit 2.2 hereto and incorporated by reference herein. We cannot assure you that the Merger will be consummated as scheduled, or at all. See "Item 1A. Risk Factors—Risks Related to the Merger" for a description of risks relating to the Merger.

Economic Conditions and Legislative and Regulatory Developments

Historically, the Company's profitability, like most depository institutions, was dependent primarily on interest income, principally generated by our commercial banking business. However, as our mortgage ~~banking~~division business continues to grow, fee-based income is becoming an increasingly larger proportion of the Company's revenues. Both businesses are impacted significantly by market-driven interest rates. These rates are highly sensitive to many factors that are beyond the Company's control and cannot be predicted, including but not limited to inflation, recession, unemployment, federal monetary policy, and changes in domestic and foreign economic conditions.

The Company's business is also influenced by the monetary and fiscal policies of the Federal Government and the policies of regulatory agencies. The Board of Governors of the Federal Reserve System ("FRB") implements national monetary policies through various means, including open-market operations in U.S. Government securities, adjusting the required level of reserves for depository institutions, and varying the targeted federal funds and discount rates applicable to borrowings by depository institutions. These actions influence the growth of the Company's loans, investments, deposits, and borrowings which, in turn, impact the interest earned on interest-earning assets and interest paid on interest-bearing liabilities. The nature and impact of any future changes in federal monetary and fiscal policies on the Company cannot be predicted.

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From time to time, federal and state legislation is enacted that may have the effect of materially increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. In response to the recent economic downturn and ongoing instability in the financial industry, legislative and regulatory initiatives have been and will continue to be implemented which substantially intensify the regulation of the financial services industry. Moreover, especially in the current economic environment, bank regulatory agencies have been very aggressive in responding to concerns and trends identified in examinations. This has resulted in an increase in the issuance of new, and the continuation of existing, enforcement actions requiring financial institutions to address issues related to credit quality, liquidity and interest rate risk, and capital adequacy, as well as other safety and soundness concerns.

Supervision and Regulation

General

The Company and its subsidiaries are extensively regulated under both federal and state law. The following discussion of key laws and regulations is a summary and does not purport to be complete nor does it address all applicable laws and regulations. This discussion is qualified in its entirety by reference to the applicable laws and regulations referred to in this discussion.

Bank Holding Company Regulation

As a bank holding company, the Company is subject to regulation and examination by the FRB under the BHCA. Accordingly, the Company is subject to the FRB's regulations and its authority to:

•: Require periodic reports and such additional information as the FRB may require;
•: Require bank holding companies to maintain increased levels of capital;
•: Require that bank holding companies serve as a source of financial and managerial strength to subsidiary banks and commit resources as necessary to support each subsidiary bank;
•: Restrict the ability of bank holding companies to declare dividends or obtain dividends or other distributions from their subsidiary banks;

Subject to prior notice or FRB approval, bank holding companies may generally engage in, or acquire shares of companies engaged in, activities determined by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Bank holding companies which elect and 7

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•: Terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments if the FRB believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary;
•: Take formal or informal enforcement action or issue other supervisory directives and assess civil money penalties for non-compliance under certain circumstances;
•: Require the prior approval of senior executive officer or director changes and prohibit golden parachute payments, including change in control agreements, or new employment agreements with such payment terms, which are contingent upon termination;
•: Regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem securities in certain situations; and
•: Approve acquisitions and mergers with banks and consider certain competitive, management, financial or other factors in granting these approvals in addition to similar California or other state banking agency approvals which may also be required.

~~retain~~ Subject to prior notice or FRB approval, bank holding companies may generally engage in, or acquire shares of companies engaged in, activities determined by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Bank holding companies which elect and retain "financial holding company" status pursuant to the Gramm-Leach-Bliley Act of 1999 ("GLBA") may engage in these nonbanking activities and broader securities, insurance, merchant banking and other activities that are determined to be "financial in nature" or are incidental or complementary to activities that are financial in nature without prior FRB approval. Pursuant to GLBA and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank"), in order to elect and retain financial holding company status, a bank holding company and all depository institution subsidiaries of a bank holding company must be well capitalized and well managed, and, except in limited circumstances, depository subsidiaries must be in satisfactory compliance with the Community Reinvestment Act ("CRA"), which requires banks to help meet the credit needs of the communities in which they operate. Failure to sustain compliance with these requirements or correct any non-compliance within a fixed time period could lead to divestiture of subsidiary banks or require all activities to conform to those permissible for a bank holding company. The Company has not elected financial holding company status and neither the Company nor the Bank has engaged in any activities determined by the FRB to be financial in nature or incidental or complementary to activities that are financial in nature.

ItDodd-Frank isrequires ~~the~~that ~~FRB's~~a ~~view~~bank ~~that~~holding incompany ~~serving~~serve as a source of financial strength to its subsidiary banks, aand ~~bank~~commit ~~holding~~resources ~~company~~as ~~should~~necessary ~~stand ready~~ to ~~use~~support ~~available~~each ~~resources to provide adequate capital~~subsidiary ~~funds~~bank. toIn ~~its~~addition, ~~subsidiary~~if ~~banks~~a ~~during periods of financial stress or adversity and should maintain financial flexibility and capital-raising capacity to obtain additional resources for assisting its~~ subsidiary ~~banks. A~~ bank ~~holding~~fails ~~company's failure~~ to ~~meet~~maintain ~~its~~adequate ~~source-of-strength~~capital ~~obligations may constitute an unsafe and unsound practice or a violation of the FRB's regulations~~levels, orit ~~both.~~could ~~The~~be ~~source of strength doctrine, now~~ required by ~~statute~~the ~~pursuant to Dodd-Frank, most directly affects~~ bank ~~holding companies where a bank holding company~~'s ~~subsidiary~~ ~~bank~~federal ~~fails~~regulator to ~~maintain~~take ~~adequate~~"prompt ~~capital~~corrective ~~levels~~action." In such a ~~situation~~case, the ~~subsidiary~~ bank holding ~~will~~company may be required byto support the subsidiary bank's ~~federal~~capital ~~regulator~~restoration ~~to take "prompt corrective action~~plan." See "Prompt Corrective Action Provisions" below.

Bank Regulation

The Bank, as a nationally chartered bank, is subject to primary supervision, periodic examination, and regulation by the Office of the Comptroller of the Currency ("OCC"). To a lesser extent, the Bank is also subject to certain regulations promulgated by the FRB and the Federal Deposit Insurance Corporation ("FDIC"), as administrator of the Deposit Insurance Fund ("DIF"). The federal bank regulatory agencies have extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. The regulatory agencies have adopted guidelines to assist in identifying and addressing potential safety and soundness concerns before an institution's capital becomes impaired. The guidelines establish operational and managerial standards generally relating to: (1) internal controls, information systems, and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset growth and asset quality; and (6) compensation, fees, and benefits. Further, the regulatory agencies have adopted safety and soundness guidelines for asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves. If, as a result of an examination, the OCC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank's operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the OCC, and separately the FDIC as insurer of the Bank's deposits, have authority to:

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controls, information systems, and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset growth and asset quality; and (6) compensation, fees, and benefits. Further, the regulatory agencies have adopted safety and soundness guidelines for asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves. If, as a result of an examination, the OCC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank's operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the OCC, and separately the FDIC as insurer of the Bank's deposits, have authority to:

•: Require affirmative action to correct any conditions resulting from any violation or practice;
•: Restrict the Bank's ability to retain or generate deposits from wholesale sources, including brokered deposits;
•: Direct an increase in capital and the maintenance of higher specific minimum capital ratios, which may preclude the Bank from being deemed well capitalized and restrict its ability to accept certain brokered deposits;
•: Restrict the Bank's payment of dividends;
•: Restrict the Bank's growth geographically, by products and services, or by mergers and acquisitions;
•: Enter into informal or formal enforcement orders, including memoranda of understanding, written agreements and consent or cease and desist orders or prompt corrective action orders to take corrective action and cease unsafe and unsound practices;
•: Require the prior approval of senior executive officer or director changes and prohibit golden parachute payments, including change in control agreements, or new employment agreements with such payment terms, which are contingent upon termination;
•: Remove officers and directors and assess civil monetary penalties; and
•: Take possession of and close and liquidate the Bank.

The Dodd-Frank Wall Street Reform and Consumer Protection Act

Dodd-Frank significantly revised and expanded the rulemaking, supervisory and enforcement authority of the federal bank regulatory agencies. Dodd-Frank impacts many aspects of the financial industry and, in many cases, will impact larger and smaller financial institutions and community banks differently over time. Many of the following key provisions of Dodd-Frank affecting the financial industry are now either effective or are in the proposed rule or implementation stage:

•: The creation of a Financial Services Oversight Counsel to identify emerging systemic risks and improve interagency cooperation;
•: Expanded FDIC authority to conduct the orderly liquidation of certain systemically significant non-bank financial companies in addition to depository institutions;
•: The establishment of strengthened capital and liquidity requirements for banks and bank holding companies, including minimum leverage and risk-based capital requirements no less than the strictest requirements in effect for depository institutions as of the date of enactment;
•: The requirement by statute that bank holding companies serve as a source of financial strength for their depository institution subsidiaries;
•: Enhanced regulation of financial markets, including the derivative and securitization markets, and the elimination of certain proprietary trading activities by banks (the "Volcker Rule");

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•: The elimination and phase out of trust preferred securities from Tier 1 capital with certain exceptions;
•: A permanent increase of the previously implemented temporary increase of FDIC deposit insurance to $250,000 and an extension of federal deposit coverage until January 1, 2013, for the full net amount held by depositors in non-interesting bearing transaction accounts;
•: Authorization for financial institutions to pay interest on business checking accounts;
•: Changes in the calculation of FDIC deposit insurance assessments, such that the assessment base will no longer be the institution's deposit base, but instead, will be its average consolidated total assets less its average tangible equity;
•: The elimination of remaining barriers to de novo interstate branching by banks;
•: Expanded restrictions on transactions with affiliates and insiders under Section 23A and 23B of the Federal Reserve Act and lending limits for derivative transactions, repurchase agreements, and securities lending and borrowing transactions;
•: The elimination of the Office of Thrift Supervision and the transfer of oversight of thrift institutions and their holding companies to the OCC or the FDIC and FRB;
•: Provisions that affect corporate governance and executive compensation at most United States publicly traded companies, including (i) stockholder advisory votes on executive compensation beginning in 2013 for smaller reporting companies, such as the Company, (ii) executive compensation "clawback" requirements for companies listed on national securities exchanges in the event of materially inaccurate statements of earnings, revenues, gains or other criteria, (iii) enhanced independence requirements for compensation committee members, and (iv) giving the Securities and Exchange Commission (the "SEC") authority to adopt proxy access rules which would permit stockholders of publicly traded companies to nominate candidates for election as director and have those nominees included in a company's proxy statement; and
•: The creation of a Bureau of Consumer Financial Protection, which is authorized to promulgate and enforce consumer protection regulations relating to bank and non-bank financial products and which may examine and enforce its regulations on banks with more than $10 billion in assets.

The numerous rules and regulations that have been promulgated and are yet to be promulgated and finalized under Dodd-Frank are likely to significantly impact the Company's operations and compliance costs, such as changes in FDIC assessments, the permitted payment of interest on demand deposits and projected enhanced consumer compliance requirements. More stringent capital, liquidity and leverage requirements are expected to impact the Company's business as Dodd-Frank is fully implemented. The federal agencies have issued many proposed rules pursuant to provisions of Dodd-Frank which will apply directly to larger institutions with either more than $50 billion in assets or more than $10 billion in assets, such as proposed regulations for financial institutions deemed systemically significant, proposed rules requiring capital plans and stress tests and the FRB's proposed rules to implement the Volcker Rule, as well as a final rule for the largest (over $250 billion in assets) and internationally active banks setting a new minimum risk-based capital floor. These and other requirements and policies imposed on larger institutions, such as expected countercyclical requirements for increased capital in times of economic expansion and a decrease in times of contraction, may subsequently become expected "best practices" for smaller institutions. Therefore, as a result of the changes required by Dodd-Frank, the profitability of the Company's business activities may be impacted and the Company may be required to make changes to certain of its business practices. Such developments and new standards would require the Company to devote even more management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements.

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Dividends

The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends. The Bank is subject first to corporate restrictions on its ability to pay dividends. Prior OCC approval is also required for the Bank to declare a dividend if the total of all dividends (common and preferred), including the proposed dividend, declared by the Bank in any calendar year will exceed its net retained income of that year to date plus the retained net income of the preceding two calendar years. In addition, the banking agencies have the authority under their safety and soundness guidelines and prompt corrective action regulations to require their prior approval or to prohibit the Bank from paying dividends, depending upon the Bank's financial condition, if such payment is deemed to constitute an unsafe or unsound practice. Further, the Bank may not pay a dividend if it would be undercapitalized after the dividend payment is made.

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It is FRB policy that bank holding companies should generally pay dividends on common stock only out of income available over the past year, and only if prospective earnings retention is consistent with the organization's expected future needs and financial condition. It is also FRB policy that bank holding companies should not maintain dividend levels that undermine the company's ability to be a source of strength to its banking subsidiaries. In consideration of the recent financial and economic environment, the FRB has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are strong.

The ability of the Company and any non-bank subsidiary to pay dividends may also be limited by applicable state law. For example, the California General Corporation Law prohibits the Company from paying dividends on our common stock unless: (i) retained earnings, immediately prior to the dividend payment, equals or exceeds the amount of the dividend or (ii) immediately after giving effect to the dividend the sum of the Company's assets (exclusive of goodwill and deferred charges) would equal or exceed the sum of its liabilities and aggregate preferred shareholder preferences, if any.

Capital Adequacy Requirements

Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal banking agencies. Increased capital requirements are expected as a result of expanded authority set forth in Dodd-Frank and the Basel III international supervisory developments discussed below. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting, and other factors. At December 31, ~~2011~~2012, the Company's and the Bank's capital ratios exceeded the minimum percentage requirements to be deemed "well capitalized" for regulatory purposes.

The current risk-based capital guidelines for bank holding companies and banks adopted by the federal banking agencies are expected to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets, such as loans, and those recorded as off-balance sheet items, such as commitments, letters of credit and recourse arrangements. The risk-based capital ratio is determined by classifying assets and certain off-balance sheet financial instruments into weighted categories, with higher levels of capital being required for those categories perceived as representing greater risks and dividing its qualifying capital by its total risk-adjusted assets and off-balance sheet items. Bank holding companies and banks engaged in significant trading activity may also be subject to the market risk capital guidelines and be required to incorporate additional market and interest rate risk components into their risk-based capital standards. As of December 31, ~~2011~~2012 and December 31, ~~2010~~2011, the Bank's Total Risk-Based Capital Ratio was 13.501% and 2219.422% respectively, and its Tier 1 Risked-Based Capital Ratio was 12.221% and 2117.296% respectively.

~~Qualifying capital is classified depending on the type of capital:~~11

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Qualifying capital is classified depending on the type of capital:

•: "Tier 1 capital" currently includes common equity and capital received from trust preferred offerings, subject to the provisions of Dodd-Frank. Under Dodd-Frank, depository institution holding companies with more than $15 billion in total consolidated assets as of December 31, 2009, are no longer be able to include trust preferred securities as Tier 1 regulatory capital after the end of a 3-year phase-out period beginning 2013, and would need to replace any outstanding trust preferred securities issued prior to May 19, 2010 with qualifying Tier 1 regulatory capital during the phase-out period. For institutions with less than $15 billion in total consolidated assets, existing trust preferred capital will still qualify as Tier 1. Small bank holding companies with less than $500 million in assets could issue new trust preferred securities that could still qualify as Tier 1, however the market for any new trust preferred capital offerings is uncertain.
•: "Tier 2 capital" includes hybrid capital instruments, other qualifying debt instruments, a limited amount of the allowance for loan and lease losses, and a limited amount of unrealized holding gains on equity securities. Following the phase-out period under Dodd-Frank, trust preferred securities will be treated as Tier 2 capital.
•: "Tier 3 capital" consists of qualifying unsecured debt. The sum of Tier 2 and Tier 3 capital may not exceed the amount of Tier 1capital.

Under the current capital guidelines, there are three fundamental capital ratios: a total risk-based capital ratio, a Tier 1 risk-based capital ratio and a Tier 1 leverage ratio. To be deemed "well capitalized" a bank must have a total risk-based capital ratio, a Tier 1 risk-based capital ratio and a Tier 1 leverage ratio of at least ten percent, six percent and five percent, respectively.

In addition to the requirements of Dodd-Frank and Basel III, the federal banking agencies may change existing capital guidelines or adopt new capital guidelines in the future and have required many banks and bank holding companies subject to enforcement actions to maintain capital ratios in excess of the minimum ratios otherwise required to be deemed well capitalized, in which case institutions may no longer be deemed well capitalized and may therefore be subject to restrictions on taking brokered deposits.

The Company and the Bank also are required to maintain a leverage capital ratio designed to supplement the risk-based capital guidelines. Banks and bank holding companies that have received the highest rating of the five categories used by regulators to rate banks and that are not anticipating or experiencing any significant growth must maintain a ratio of Tier 1 capital (net of all intangibles) to adjusted total assets of at least 3.0%. All other institutions are required to maintain a leverage ratio of at least 100 to 200 basis points above the 3.0% minimum, for a minimum of 4.0% to 5.0%. Pursuant to federal regulations, banks must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans. Federal regulators may, however, set higher capital requirements when a bank's particular circumstances warrant. As of December 31, ~~2011~~2012, the Bank's leverage capital ratio was 1110.518%, and the Company's leverage capital ratio was 1110.139%. Both ratios exceeded regulatory minimums as well as the threshold for "well capitalized" as defined by the regulatory agencies of both the Company and the Bank.

International Capital and Liquidity Initiatives

The current risk-based capital guidelines which apply to the Company and the Bank are based upon the 1988 capital accord (referred to as "Basel I") of the International Basel Committee on Banking Supervision (the "Basel Committee"), a committee of central banks and bank supervisors and regulators from the major industrialized countries. The Basel Committee develops broad policy guidelines for use by each country's supervisors in determining the supervisory policies they apply. A new framework and accord, referred to as Basel II, evolved from 2004 to 2006 out of the efforts to revise capital adequacy standards for internationally active banks. Basel II emphasizes internal assessment of credit, market and operational risk; supervisory assessment and market discipline in determining minimum capital requirements and became mandatory for large or "core" international banks outside the United States in 2008 (total assets of $250 billion or more or consolidated foreign exposures of $10 billion or more). Basel II was optional for others, and if adopted, must first be complied within a "parallel run" for two years along with the existing Basel I standards. The Company is not required to comply with Basel II and has not elected to apply the Basel II standards.

The United States federal banking agencies issued a proposed rule for banking organizations that do not use the "advanced approaches" under Basel II. While this proposed rule generally parallels the relevant approaches under Basel II, it diverges where United States markets have unique characteristics and risk profiles. A definitive final rule has not yet been issued. The United States banking agencies indicated, however, that they would retain the minimum leverage requirement for all United States banks. 12

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operational risk; supervisory assessment and market discipline in determining minimum capital requirements and became mandatory for large or "core" international banks outside the United States in 2008 (total assets of $250 billion or more or consolidated foreign exposures of $10 billion or more). Basel II was optional for others, and if adopted, must first be complied within a "parallel run" for two years along with the existing Basel I standards. The Company is not required to comply with Basel II and has not elected to apply the Basel II standards.

In 2010 and 2011, the Basel Committee finalized proposed reforms on capital and liquidity, generally referred to as Basel III, to reconsider regulatory capital standards, supervisory and risk-management requirements and additional disclosures to further strengthen the Basel II framework in response to the worldwide economic downturn. Although Basel III is intended to be implemented by participating countries for large, internationally active banks, its provisions are likely to be considered by United States banking regulators in developing new regulations applicable to other banks in the United States. Basel III provides for increases in the minimum Tier 1 common equity ratio and the minimum requirement for the Tier 1 capital ratio. Basel III additionally includes a "capital conservation buffer" on top of the minimum requirement designed to absorb losses in periods of financial and economic distress; and an additional required countercyclical buffer percentage to be implemented according to a particular nation's circumstances. These capital requirements are further supplemented under Basel III by a non-risk-based leverage ratio. Basel III also reaffirms the Basel Committee's intention to introduce higher capital requirements on securitization and trading activities.

The Basel III liquidity proposals have three main elements: (i) a "liquidity coverage ratio" designed to meet the bank's liquidity needs over a 30-day time horizon under an acute liquidity stress scenario, (ii) a "net stable funding ratio" designed to promote more medium and long-term funding over a one-year time horizon, and (iii) a set of monitoring tools that the Basel Committee indicates should be considered as the minimum types of information that banks should report to supervisors.

Implementation of Basel III in the United States will require regulations and guidelines by United States banking regulators, which may differ in significant ways from the recommendations published by the Basel Committee. It is unclear how United States banking regulators will define "well-capitalized" in their implementation of Basel III and to what extent and when smaller banking organizations in the United States will be subject to these regulations and guidelines. Basel III standards, if adopted, could lead to significantly higher capital requirements, higher capital charges and more restrictive leverage and liquidity ratios. The standards would, among other things:

•: Impose more restrictive eligibility requirements for Tier 1 and Tier 2 capital;
•: Increase the minimum Tier 1 common equity ratio to 4.5%, net of regulatory deductions, and introduce a capital conservation buffer of an additional 2.5% of common equity to risk-weighted assets, raising the target minimum common equity ratio to 7.0%;
•: Increase the minimum Tier 1 capital ratio to 8.5% inclusive of the capital conservation buffer;
•: Increase the minimum total capital ratio to 10.5% inclusive of the capital conservation buffer; and
•: Introduce a countercyclical capital buffer of up to 2.5% of common equity or other fully loss absorbing capital for periods of excess credit growth.

Basel III also introduces a non-risk adjusted Tier 1 leverage ratio of 3.0%, based on a measure of total exposure rather than total assets, and new liquidity standards. The new Basel III capital standards ~~will~~were originally to be phased in from January 1, 2013 until January 1, 2019. ~~United~~On ~~States~~November 9, ~~banking~~2012, ~~regulators~~the ~~must~~FRB, ~~also~~the ~~implement~~FDIC, ~~Basel~~and ~~III~~the inOCC issued ~~conjunction~~a ~~with~~press ~~the provisions~~release ofstating ~~Dodd-Frank~~that ~~related~~they to"do ~~increased~~not ~~capital~~expect" ~~and~~that ~~liquidity~~any ~~requirements.~~of ~~The~~the ~~regulations~~new ~~ultimately~~regulatory ~~applicable~~capital torules ~~the~~they ~~Company~~had ~~may~~proposed beto ~~substantially~~implement ~~different~~pursuant ~~from~~to ~~the~~ Basel III ~~final~~would become effective on January 1, ~~framework~~2013. ~~Requirements~~There tois ~~maintain~~no ~~higher~~certainty ~~levels~~when the phase in of ~~capital~~these ornew toregulatory ~~maintain~~standards ~~higher~~will ~~levels~~begin ofor ~~liquid~~to ~~assets~~what ~~could~~extent ~~adversely~~they ~~impact~~will apply to the Company's. ~~net~~United ~~income~~States ~~and~~banking ~~return~~regulators onmust ~~equity.~~also implement Basel III in

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conjunction with the provisions of Dodd-Frank related to increased capital and liquidity requirements. The regulations ultimately applicable to the Company may be substantially different from the Basel III final framework. Requirements to maintain higher levels of capital or to maintain higher levels of liquid assets could adversely impact the Company's net income and return on equity.

Prompt Corrective Action Provisions

The Federal Deposit Insurance Act ("FDI Act") provides a framework for regulation of depository institutions and their affiliates, including parent holding companies, by their federal banking regulators. Among other things, it requires the relevant federal banking regulator to take "prompt corrective action" with respect to a depository institution if that institution does not meet certain capital adequacy standards, including requiring the prompt submission of an acceptable capital restoration plan. Supervisory actions by the appropriate federal banking regulator under the prompt corrective action rules generally depend upon an institution's classification within five capital categories as defined in the regulations. The relevant capital measures are the capital ratio, the Tier 1 capital ratio, and the leverage ratio.

A depository institution's capital tier under the prompt corrective action regulations ~~will~~depends ~~depend~~ upon how its capital levels compare with various relevant capital measures and the ~~other~~ other factors established by the regulations. A bank's prompt corrective action capital category is determined solely for the purpose of applying the prompt corrective action regulations and the ~~capital~~ capital category may not constitute an accurate representation of the banks' overall financial condition or prospects for other purposes. A bank ~~will be~~is: (i) "well capitalized" if the institution has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 5.0% or greater and is not subject to ~~any~~ any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure; (ii) "adequately capitalized" if the institution has a ~~total~~ total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 4.0% or greater, and a leverage ratio of 4.0% or greater and is not "well capitalized"; (iii) "undercapitalized" if the institution has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio of less than 4.0%, or a leverage ratio of less than 4.0%; (iv) "significantly undercapitalized" if the institution has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 3.0%, or a leverage ratio of less than 3.0%; and (v) "critically undercapitalized" if the institution's tangible equity is equal to or less than 2.0% of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.

The FDI Act generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be "undercapitalized." "Undercapitalized" institutions are subject to growth limitations and are required to submit a capital restoration plan. The regulatory agencies may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The bank holding company must also provide appropriate assurances of performance. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5.0% of the depository institution's total assets at the time it became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is "significantly undercapitalized." "Significantly undercapitalized" depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become "adequately capitalized," requirements to reduce total assets, and cessation of ~~receipt of deposits from correspondent banks. "Critically undercapitalized" institutions are subject to the appointment of a receiver or conservator.~~

The appropriate federal banking agency may, under certain circumstances, reclassify a well capitalized insured depository institution as adequately capitalized. The FDI Act provides that an institution may be reclassified if the appropriate federal banking agency determines (after notice and opportunity for a hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in 14

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anreceipt ~~unsafe~~of ordeposits ~~unsound~~from ~~practice~~correspondent banks. ~~The~~"Critically ~~appropriate~~undercapitalized" ~~agency~~institutions isare ~~also~~subject ~~permitted~~ to ~~require an adequately capitalized or undercapitalized institution to comply with~~ the ~~supervisory~~appointment ~~provisions~~of ~~as if the institution were in the next lower category (but may not treat~~ a ~~significantly~~receiver ~~undercapitalized~~or ~~institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution~~conservator.

The appropriate federal banking agency may, under certain circumstances, reclassify a well-capitalized insured depository institution as adequately capitalized. The FDI Act provides that an institution may be reclassified if the appropriate federal banking agency determines (after notice and opportunity for a hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice. The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but may not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution.

Deposit Insurance

The FDIC is an independent federal agency that insures deposits, up to prescribed statutory limits, of federally insured banks and savings institutions and safeguards the safety and soundness of the banking and savings industries. The FDIC insures our ~~customer~~customers' deposits through the DIF up to prescribed limits for each depositor. Pursuant to Dodd-Frank, the maximum deposit insurance amount has been permanently increased to $250 thousand and all non-interest-bearing transaction accounts are insured through December 31, 2012. The amount of FDIC assessments paid by each DIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors. Due to the greatly increased number of bank failures and losses incurred by DIF, as well as the recent extraordinary programs in which the FDIC has been involved to support the banking industry generally, the DIF was substantially depleted and the FDIC has incurred substantially increased operating costs. In November 2009, the FDIC adopted a requirement for institutions to prepay in 2009 their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. The Bank prepaid its assessments based on the calculations of the projected assessments at that time.

As required by Dodd-Frank, the FDIC adopted a new DIF restoration plan which became effective on January 1, 2011. Among other things, the plan: (1) raises the minimum designated reserve ratio, which the FDIC is required to set each year, to 1.35% (from the former minimum of 1.15%) and removes the upper limit on the designated reserve ratio (which was formerly capped at 1.5%) and consequently on the size of the fund; (2) requires that the fund reserve ratio reach 1.35% by 2020; (3) eliminates the requirement that the FDIC provide dividends from the fund when the reserve ratio is between 1.35% and 1.5%; and (4) continues the FDIC's authority to declare dividends when the reserve ratio at the end of a calendar year is at least 1.5%, but grants the FDIC sole discretion in determining whether to suspend or limit the declaration or payment of dividends. The FDI Act continues to require that the FDIC's Board of Directors consider the appropriate level for the designated reserve ratio annually and, if changing the designated reserve ratio, engage in notice-and-comment rulemaking before the beginning of the calendar year. The FDIC has set a long-term goal of ~~getting~~increasing its reserve ratio up to 2% of insured deposits by 2027.

On February 7, 2011, the FDIC approved a final rule, which was effective for the quarter beginning April 1, 2011, as mandated by Dodd-Frank, changing the deposit insurance assessment system from one that is based on total domestic deposits to one that is based on average consolidated total assets minus average tangible equity. In addition, the final rule creates a scorecard-based assessment system for larger banks (those with more than $10 billion in assets) and suspends dividend payments if the DIF reserve ratio exceeds 1.5%, but provides for decreasing assessment rates when the DIF reserve ratio reaches certain thresholds. Larger insured depository institutions will likely pay higher assessments to the DIF than under the old system. Additionally, the final rule includes a new adjustment for depository institution debt whereby an institution would generally pay an additional premium equal to 50 basis points on every dollar of long-term, unsecured debt held as an asset that was issued by another insured depository institution, ~~excluding debt guaranteed under the Temporary Liquidity Guarantee Program (the "TLGP"),~~ to the extent that all such debt exceeds 3% of the other insured depository institution's Tier 1 capital.

The Bank's FDIC insurance expense totaled $151 thousand for 2011. FDIC insurance expense includes deposit insurance assessments and Financing Corporation ("FICO") assessments related to outstanding FICO bonds to fund interest payments on bonds to recapitalize the predecessor to the DIF. These assessments will continue until the FICO bonds mature in 2017. Total FICO assessments for the Company totaled $13 thousand for 2011. 15

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The Bank's isFDIC ~~generally~~insurance ~~unable~~expense tototaled ~~control~~$320 thousand ~~the amount of premiums that it is required to pay~~ for 2012. FDIC insurance. Ifexpense ~~there~~includes ~~are~~deposit ~~additional~~insurance ~~bank~~assessments orand ~~financial~~Financing ~~institution~~Corporation ~~failures~~("FICO") ~~or if the~~assessments ~~FDIC~~related ~~otherwise~~to ~~determines,~~outstanding ~~the~~FICO ~~Bank~~bonds ~~may be required~~ to ~~pay~~fund ~~even~~interest ~~higher~~payments ~~FDIC~~on ~~premiums~~bonds ~~than~~to recapitalize the ~~recently~~predecessor ~~increased~~to ~~levels~~the DIF. These ~~announced~~assessments ~~increases~~will ~~and~~continue ~~any~~until ~~future~~the ~~increases~~FICO bonds mature in ~~FDIC~~2017. ~~insurance~~Total ~~premiums~~FICO ~~may~~assessments ~~have~~for ~~a material and adverse affect on~~ the Company's ~~earnings~~totaled ~~and~~$17 thousand ~~could have a material adverse effect on the value of, or market~~ for, ~~the Company's common stock~~2012.

The ~~FDIC~~Bank ~~may~~is ~~terminate~~generally aunable ~~depository~~to ~~institution's~~control ~~deposit~~the ~~insurance~~amount ~~upon~~of apremiums ~~finding~~ that ~~the~~it ~~institution's~~is ~~financial~~required ~~condition~~to ispay ~~unsafe~~for orFDIC ~~unsound~~insurance. orIf ~~that~~there ~~the~~are additional bank or financial institution ~~has~~failures ~~engaged~~or inif the ~~unsafe~~FDIC orotherwise ~~unsound~~determines, ~~practices~~the ~~that~~Bank ~~pose~~may abe ~~risk~~required to ~~the~~pay ~~DIF~~even orhigher ~~that~~FDIC ~~may~~premiums ~~prejudice~~than the ~~interest~~recently ofincreased ~~the~~levels. ~~bank's~~These ~~depositors.~~announced ~~The~~increases ~~termination~~and ofany ~~deposit~~future increases in FDIC insurance ~~for~~premiums may have a material and adverse effect on the ~~Bank~~Company's ~~would~~earnings ~~also~~and ~~result~~could inhave a material adverse effect on the ~~revocation~~ value of, or market for, the ~~Bank~~Company's ~~charter~~common ~~by the OCC~~stock.

The FDIC may terminate a depository institution's deposit insurance upon a finding that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of the bank's depositors. The termination of deposit insurance for the Bank would also result in the revocation of the Bank's charter by the OCC.Operations and Consumer Compliance Laws

The Bank must comply with numerous federal anti-money laundering, data security, privacy and consumer protection statutes and implementing regulations, including the USA PATRIOT Act of 2001, the Foreign Account Tax Compliance Act (effective 2013), the Bank Secrecy Act, the CRA, the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act and various federal and state privacy protection laws. Noncompliance with these laws could subject the Bank to lawsuits and could also result in administrative penalties, including, fines and reimbursements. The Bank and the Company are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition.

These laws and regulations mandate certain disclosure and reporting requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans, and providing other services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to enforcement actions, injunctions, fines or criminal penalties, punitive damages to consumers, and the loss of certain contractual rights.

Dodd-Frank provides for the creation of the Bureau of Consumer Financial Protection as an independent entity within the FRB. This bureau is a new regulatory agency for United ~~States~~ States banks. It has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards, and contains provisions on mortgage-related matters such as steering incentives, determinations as to a borrower's ability to repay and prepayment penalties. The bureau's functions include investigating consumer complaints, conducting market research, rulemaking, supervising and examining bank's consumer transactions, and enforcing rules related to consumer financial products and services. While the Bank will generally be subject to rules issued by the bureau, Banks with less than $10 billion in assets, such as the Bank, will continue to be examined for compliance by their primary federal banking agency.

~~Securities~~ ITEM ~~Laws~~ 1A. RISK FACTORS

~~The~~In ~~Company~~addition ~~is subject~~ to the ~~public~~other ~~reporting~~information ~~requirements~~on ofthe risks the ~~Securities~~Company faces and ~~Exchange~~our ~~Act~~management of ~~1934,~~risk ascontained ~~amended,~~in ~~generally~~this ~~applicable~~Form 10-K toor ~~publicly~~in ~~held~~our ~~companies.~~regulatory ~~Its~~filings, ~~securities~~the following are ~~registered~~the ~~with~~most ~~the~~significant ~~SEC~~risks ~~under~~which ~~Section 12(g)~~may adversely affect our business and operations. Events or circumstances arising from one or more of ~~the~~these ~~Exchange~~risks ~~Act,~~could ~~which~~adversely ~~requires~~affect the ~~filing~~Company's ofbusiness, ~~periodic~~financial ~~reports~~condition, ~~and~~operating ~~proxy~~results ~~statements~~and prospects, ~~as well~~and asthe ~~certain~~value ~~other~~and ~~reporting~~price ~~obligation~~of our common stock could decline. The risks identified below are not

The Company is also subject to the accounting oversight and corporate governance requirements of Sarbanes-Oxley Act, including, among other things, required executive certification of financial presentations, requirements for board audit committees and their members, and disclosure of controls and procedures and internal control over financial reporting. 16

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intended to be a comprehensive list of all risks we face, and additional risk may also impair our business operations and results. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. This discussion of risk factors may include forward-looking statements. For cautions about relying on such forward- looking statements, please see the initial page of this Form 10-K.

We have a history of net losses and a limited history of profitability, and we may not be profitable in the future.

Prior to the Merger, Manhattan Bancorp reported net losses of $6.9 million, $4.7 million, $5.0 million, $4.4 million, and $2.2 million for the years ended December 31, 2011, 2010, 2009, 2008 and 2007, respectively and Professional Business Bank reported a net loss of $238 thousand and $61 thousand for the years ended December 31, 2011 and 2010, respectively and a net loss of $2.7 million for the period from March 9, 2009 (date of inception) to December 31, 2009. Although we had net income attributable to common shareholders of $686 thousand for the year ended December 31, 2012, the effects of the current economic downturn may continue to adversely impact our overall financial performance and results of operations.

We may fail to realize the cost savings we have estimated for the Merger or integrate the business operations and managements of our two companies in an efficient manner.

The success of the Merger will depend, in part, on our ability to realize anticipated cost savings and to successfully combine the businesses of the Bank and Professional Business Bank in a manner that permits growth opportunities to be realized and does not materially disrupt the existing customer relationships nor result in decreased revenues due to any loss of customers. We expect to realize annual cost savings from reductions in the number and amount of employees and reduced infrastructural costs (e.g., integration of information systems). While we have taken existing lease and other contractual obligations into consideration in developing our estimate of cost savings, changes in transaction volumes, operating systems and procedures and other factors may cause the actual cost savings to be different from these estimates. In addition, difficulties encountered in integrating our information systems could prevent us from realizing some of the estimated cost savings. Such difficulties could also jeopardize customer relationships, cause a loss of deposits or loan customers and the revenue associated with those customers. It is possible that the integration process could result in the loss of key employees, as well as the disruption of each company's ongoing businesses or inconsistencies in standards, controls, procedures and policies, any or all of which could adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the Merger. Integration efforts will also divert management attention and resources. A failure to successfully navigate the complicated integration process could have an adverse effect on our operations and financial results. If we are not able to achieve these cost-savings objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected.

Goodwill resulting from the Merger may adversely affect our results of operations.

Our goodwill and other intangible assets increased substantially as a result of the Merger. Potential impairment of goodwill and amortization of other intangible assets could adversely affect our financial condition and results of operations. We assess our goodwill and other intangible assets and long-lived assets for impairment annually and more frequently when required by GAAP. We are required to record an impairment charge if circumstances indicate that the asset carrying values exceed their fair values. Our assessment of goodwill, other intangible assets, or long-lived assets could indicate that an impairment of the carrying value of such assets may have occurred that could result in a material, non-cash write-down of such assets, which could have a material adverse effect on our results of operations and future earnings.

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Regulation of Non-bank Subsidiaries

BOMC is subject to regulatory supervision by the Financial Industry Regulatory Authority ("FINRA") and the SEC. Further, the federal banking agencies expect banking organizations in their oversight role over functionally regulated subsidiaries, such as registered investment advisors, to assure appropriate controls are maintained that include establishing alternative sources of emergency support from the parent holding company, non-bank affiliates or external third parties, prior to seeking support from the bank; instituting effective policies and procedures for identifying potential circumstances triggering the need for financial support and the process for obtaining such support; implementing effective controls, including stress testing and compliance reviews; implementing policies and procedures to ensure compliance with disclosure and advertising requirements to clearly differentiate the investments in advised funds from obligations of the bank or insured deposits; and ensuring proper management, regulatory and financial reporting of contingent liabilities arising out of its investment advisory activities. The Company believes it has taken appropriate action to implement and audit compliance with these requirements.

MIMS is a registered investment advisor subject to regulatory supervision by the State of California.

ITEM 1A. RISK FACTORS

In addition to the other information on the risks the Company faces and our management of risk contained in this Form 10-K or in our regulatory filings, the following are the most significant risks which may adversely affect our business and operations. Events or circumstances arising from one or more of these risks could adversely affect the Company's business, financial condition, operating results and prospects, and the value and price of our common stock could decline. The risks identified below are not intended to be a comprehensive list of all risks we face, and additional risk may also impair our business operations and results. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. This discussion of risk factors may include forward-looking statements. For cautions about relying on such forward- looking statements, please see the initial page of this Form 10-K.

We do not have a history of profitability.

We had net losses of $6.9 million, $4.7 million, $5.0 million, $4.4 million, and $2.2 million for the years ended December 31, 2011, 2010, 2009, 2008 and 2007, respectively. The effects of the current economic downturn may continue to adversely impact our overall financial performance and results of operations. There can be no assurance that we will achieve profitability in the future.

Continued or worsening general economic or business conditions, particularly in California where our business is concentrated, could have an adverse effect on our business, results of operations and financial condition.

Our operations, loans and the collateral securing our loan portfolio are concentrated in the State of California. Our success depends upon the business activity, population, income levels, deposits and real estate activity in this market. As a result, we may be particularly susceptible to the adverse economic conditions in California, and Southern California in particular.

Since late 2007, the United States and the State of California in particular have experienced difficult economic conditions. Weak economic conditions are characterized by, among other indicators, deflation, increased levels of unemployment, fluctuations in debt and equity capital markets, increased delinquencies on mortgage, commercial and consumer loans, residential and commercial real estate price declines and lower home sales and commercial activity. All of those factors are generally detrimental to our business.

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In addition, our ability to assess the creditworthiness of customers and to estimate the losses inherent in our credit exposure is made more complex by these difficult market and economic conditions. Adverse economic conditions could reduce our growth rate, affect the ability of our customers to repay their loans and generally affect our financial condition and results of operations.

While some economic trends have shown signs of improving in recent months, we cannot be certain that market and economic conditions will substantially improve in the near future. Recent and ongoing events at the state, national and international levels continue to create uncertainty in the economy and financial markets and could adversely impact economic conditions in our market area. A worsening of these conditions would likely exacerbate the adverse effects of the recent market and economic conditions on us and our customers. As a result, we may experience additional increases in foreclosures, delinquencies and customer bankruptcies as well as more restricted access to funds. Any such negative events may have an adverse effect on our business, financial condition, results of operations and stock price. Moreover, because of our geographic concentration, we are less able to diversify our credit risks across multiple markets to the same extent as regional or national financial institutions.

Poor economic conditions in the Southern California real estate market may cause us to suffer higher default rates on our loans and decreased value of the assets we hold as collateral.

The majority of our assets and deposits were generated in Southern California. At December 31, ~~2011~~2012, approximately half of our commercial loans and the majority of our mortgage loans held for sale were secured by real property in Southern California. During ~~2011~~2012, the real estate market in Southern California ~~continued~~showed tosigns of ~~deteriorate~~stabilization and some improvement, as evidenced by ~~declining~~increasing prices, ~~reduced~~increased transaction volume, and ~~increased~~decreased foreclosure rates. ~~This~~These improvements follow an extended period of deterioration and there is no certainty that improvements will continue, or that we not might return to further deterioration in the real estate market. Further deterioration may result in an increase in the level of our nonperforming loans, particularly commercial real estate loans. When real estate prices decline, the value of real estate collateral securing our loans is reduced. As a result, we may experience ~~greater~~ greater charge-offs and, similarly, our ability to recover on defaulted loans by foreclosing and selling the real estate collateral may be diminished and, as a result, we are more likely to suffer losses on defaulted loans. If this real estate trend in our market areas continues or worsens, the result could be reduced income, increased expenses, and less cash available for lending and other activities, which could have a material and adverse effect on our financial condition and results of operations.

We may suffer losses in our loan portfolio despite strict adherence to underwriting practices.

We attempt to mitigate the risks inherent in extending credit by adhering to specific underwriting practices, managed by credit professionals. These practices include analysis of a borrower's prior credit history, financial statements, tax returns, and cash flow projections, valuations of collateral based on reports of independent appraisers and verifications of liquid assets. Although we believe that our underwriting criteria is appropriate for the various kinds of loans we fund, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in the Bank's allowance for loan losses. If our underwriting practices prove to be ineffective, we may incur losses in our loan portfolio, which could have a material and adverse effect on our financial condition and results of operations.

Bank regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses. A review of a portion of our loans was completed in the third quarter of 2011 by a third party loan review, where all recommendations were implemented. While we believe that our allowance for loan losses is adequate to cover potential losses, we cannot guarantee that future increases to the allowance for loan losses may not be required by regulators or other third party loan review or financial audits. Any of these occurrences could materially and adversely affect our financial condition and results of operations. 18

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underwriting criteria is appropriate for the various kinds of loans we fund, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in the Bank's allowance for loan losses. If our underwriting practices prove to be ineffective, we may incur losses in our loan portfolio, which could have a material and adverse effect on our financial condition and results of operations.

Bank regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses. A review of a portion of our loans was completed in the fourth quarter of 2012 by a third party loan review, where all recommendations were implemented. While we believe that our allowance for loan losses is adequate to cover potential losses, we cannot guarantee that future increases to the allowance for loan losses may not be required by regulators or other third party loan review or financial audits. Any of these occurrences could materially and adversely affect our financial condition and results of operations.

We could be at a disadvantage when competing for deposits and loans with larger institutions that have larger lending limits and established customer contacts.

Within the Los Angeles metropolitan area, we face intense competition for loans, deposits, and other financial products and services. Increased competition within our pricing market may result in reduced loan originations and deposits. Ultimately, we may not be able to compete successfully against current and future competitors.

Many competitors offer the types of loans and banking services that we offer. These competitors include national banks, regional banks and other independent banks. We also face competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, mortgage ~~banks~~divisions and other financial intermediaries. In particular, ~~our~~ our competitors include financial institutions whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional ~~and~~ and advertising campaigns. Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions may have larger ~~lending~~ lending limits which would allow them to serve the credit needs of larger customers. These institutions may be able to offer the same loan products and services we offer at more competitive rates and prices.

If we are unable to attract and retain banking customers, we may be unable to maintain our loan portfolio and deposit levels, and our financial condition and results of operations may be materially and adversely affected.

We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.

Competition for qualified employees in the banking industry is intense, and there are limited numbers of qualified persons with knowledge of, and experience in, the California community banking industry. The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy. Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing and business development, and technical personnel, and upon the continued contributions of our management and personnel. In particular, our progress towards profitability had been and continues to be highly dependent upon the abilities of key executives and certain other employees. There have been several changes in key executive positions since our inception and there is no guarantee that other changes may not occur. If we fail to attract and retain the necessary personnel, our financial condition and results of operations may be materially and adversely affected.

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We face limits on our ability to lend and the limitation may increase.

Our legal lending limit as of December 31, ~~2011~~2012 was approximately $~~2.9~~7 million. Accordingly, the size of the loans which we we can offer to potential customers is less than the size of loans which many of our competitors with larger lending limits can offer. Our lending limit affects our ability to seek relationships with ~~the~~ the area's larger and more established businesses. We cannot be assured of any success in attracting or retaining customers seeking larger loans or that we can engage in participations of those loans on on terms favorable to us. Moreover, to the extent that we incur losses and do not obtain additional capital, our lending limit, which depends upon the amount of our capital, will decrease, which could have a material and adverse effect on our financial condition and results of operations.

Interest rate fluctuations and other conditions which are out of our control could harm profitability.

Our net interest income before provision for loan losses and net income depends to a great extent on "rate differentials," which is the difference between the income we receive from our loans, securities and other earning assets, and the interest expense we pay on our deposits and other liabilities. These rates will be highly sensitive to many factors which will be beyond our control, including general economic conditions, both domestic and foreign, and the monetary and fiscal policies of various governmental and regulatory authorities, in particular, the FRB. Changes in monetary policy, including changes in interest rates, will influence not only the interest we receive on our loans and investment securities and the amount of interest we pay on deposits, it will also affect our ability to originate loans and obtain deposits and our costs in doing so. It is impossible to predict the nature or extent of the effect on our operations of monetary policy changes or other economic trends over which we have no control, such as unemployment and inflation. In addition, factors like natural resource prices, international conflicts and terrorist attacks and other factors beyond our control may adversely affect our business. If the rate of interest we pay on our deposits and other borrowings increases more than the rate of interest we earn on our loans and other investments, our net interest income, and therefore our financial condition and results of operations, could be materially and adversely affected. Similarly, our financial condition and results of operations could be materially and adversely affected if the rates on our loans and other investments fall more quickly than those on our deposits and other borrowings.

Our mortgage division activities generate a significant portion of our non-interest income.

A significant portion of our business involves originating residential mortgage loans through our mortgage division business, which accounted for approximately 87% of our non-interest income for the year ended December 31, 2012. Real estate loan origination activity, including mortgage loan refinancing, is generally greater during periods of low or declining interest rates. During 2012 approximately 79% of the Bank's mortgage originations were mortgage loan refinancing. Adverse changes in market or competitive conditions could have an adverse impact on our earnings through lower origination volumes.

We face interest rate risk on our portfolio of loans held for sale.

We are exposed to interest rate risk in our pipeline of mortgage loans for which we have committed to fund the loans at a specified interest rate before the loans have been approved and funded. We also are exposed to interest rate risk from our portfolio of funded mortgage loans pending sales to investors. We attempt to manage this risk through hedging strategies that involve forward sale agreements that do not require the mandatory delivery of loans to private investors (i.e., investors other than the Federal Government or GSEs). However, our hedging strategy has been placing increasingly greater reliance on derivatives in the form of forward sale agreements that require mandatory delivery of loans to private investors and mortgage-backed securities. As our mortgage loan volumes continue to increase, we may also use other derivative instruments for hedging purposes, including the forward sales of U.S. Treasury securities. In the past, we have engaged MCM as an experienced third party to assist us in managing our hedging activities and sales strategy. We recently divested MCM and therefore the services of MCM may no longer be available to us.

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be highly sensitive to many factors which will be beyond our control, including general economic conditions, both domestic and foreign, and the monetary and fiscal policies of various governmental and regulatory authorities, in particular, the FRB. Changes in monetary policy, including changes in interest rates, will influence not only the interest we receive on our loans and investment securities and the amount of interest we pay on deposits, it will also affect our ability to originate loans and obtain deposits and our costs in doing so. It is impossible to predict the nature or extent of the effect on our operations of monetary policy changes or other economic trends over which we have no control, such as unemployment and inflation. In addition, factors like natural resource prices, international conflicts and terrorist attacks and other factors beyond our control may adversely affect our business. If the rate of interest we pay on our deposits and other borrowings increases more than the rate of interest we earn on our loans and other investments, our net interest income, and therefore our financial condition and results of operations, could be materially and adversely affected. Similarly, our financial condition and results of operations could be materially and adversely affected if the rates on our loans and other investments fall more quickly than those on our deposits and other borrowings.

Our mortgage banking activities generate a significant portion of our non-interest income.

A significant portion of our business involves originating residential mortgage loans through our mortgage banking business, which accounted for approximately 34% and 2% of our noninterest income for the years ended December 31, 2011 and 2010, respectively. Real estate loan origination activity, including mortgage loan refinancings, is generally greater during periods of low or declining interest rates. Adverse changes in market or competitive conditions could have an adverse impact on our earnings through lower origination volumes.

We face interest rate risk on our portfolio of loans held for sale.

We are exposed to interest rate risk in our pipeline of mortgage loans for which we have committed to fund the loans at a specified interest rate before the loans have been approved and funded. We also are exposed to interest rate risk from our portfolio of funded mortgage loans pending sales to investors. We have managed this risk through hedging strategies that involve forward sale agreements that do not require the mandatory delivery of loans to private investors (i.e., investors other than the Federal Government or GSEs). However, our hedging strategy has been placing increasingly greater reliance on derivatives in the form of forward sale agreements that require mandatory delivery of loans to private investors and mortgage-backed securities. As our mortgage loan volumes continue to increase, we may also use other derivative instruments for hedging purposes, including the forward sales of U.S. Treasury securities. We engage an affiliate, MCM, as an experienced third party to assist us in managing our hedging activities and sales strategy.

We expect these derivative financial instruments to experience changes in fair value that substantially offset the changes in the fair values of our mortgage loan commitments and funded mortgage loans held for sale. However, the use of derivative forward sales agreements for hedging purposes involves greater risk than selling loans through forward sales agreements that do not have mandatory delivery requirements. The use of derivative forward sales agreements for hedging purposes requires management to estimate the expected "fallout" rate of our mortgage loan pipeline, which is the percentage of loans in our pipeline with committed rates that will not be funded.

Our hedging activities may not be fully effective in mitigating interest rate risk due to variances between changes in the fair value of our derivative hedges and the fair value of our loan commitments and funded loans. Our hedging activities also may be ineffective due to variances between expected and actual fallout rates. These variances may arise from changes in market conditions, including changes in either borrower demand for loan products or the borrowing rates of our competitors.

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The ineffectiveness of our hedging strategy may result in higher volatility in our profits arising from the sale of mortgage loans originated for sale.

We face credit risk related to our residential mortgage production activities.

We face credit risk related to our residential mortgage production activities due to the failure of a borrower or an institution to honor its contractual obligations to us. We manage mortgage credit risk from borrowers principally by maintaining prudent credit underwriting standards and selling substantially all of the mortgage loans that we produce, thereby significantly mitigating credit recourse to us. The period of time between funding a mortgage loan and selling it to an investor typically ranges from 155 to 4530 days.

We also limit our risk of loss on mortgage loan sales by establishing limits on the maximum amount of activity with a single investor and by entering into contractual relationships with only those financial institutions that are approved by various management and Board committees.

An increase in interest rates may reduce our mortgage revenues, which would negatively impact our non-interest income.

Our mortgage ~~banking~~division ~~business~~ provides a significant portion of our non-interest income. We generate mortgage revenues ~~primarily~~ primarily from gains on the sale of mortgage loans to investors. In a rising or higher interest rate environment, our originations of mortgage loans may decrease, resulting in fewer loans that are available to be sold to investors. This would result in a decrease in mortgage revenues and a corresponding decrease in non-interest income. In addition, our results of operations are affected by the amount of non-interest expenses associated with mortgage ~~banking~~division activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs. During periods of reduced loan demand, our results of operations may be adversely affected to the extent we are unable to reduce expenses commensurate with the decline in mortgage loan origination activity.

Secondary mortgage market conditions could have a material impact on our financial condition and results of operations.

In addition to being affected by interest rates, the secondary mortgage markets are also subject to investor demand for residential mortgage loans and increased investor yield requirements for those loans. These conditions may fluctuate or even worsen in the future. We believe our ability to retain fixed-rate residential mortgage loans is limited. As a result, a prolonged period of secondary market illiquidity may reduce our loan production volumes and could have a material adverse effect on our financial condition and results of operation. In addition, the rules and regulations under Dodd-Frank makes the future of GSEs uncertain and that may also have a negative impact on the secondary market for mortgage loans, which might cause a reduction in our loan production volumes.

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If we are required to repurchase mortgage loans that we have previously sold, it would negatively affect our earnings.

One of our primary business operations is our mortgage ~~banking business~~division, under which we sell residential mortgage loans in the secondary market under agreements that contain representations and warranties related to, among other things, the origination and characteristics of the mortgage loans. We may be required to repurchase mortgage loans that we have sold in cases of breaches of these representations and warranties. If we are required to repurchase mortgage loans or provide indemnification or other recourse, this could significantly increase our expenses and adversely affect our future earnings.

Any loans we are required to repurchase may be considered purchased impaired loans, with the potential for charge-offs and loan loss provision expenses.

There may be certain loans in our portfolio that were originated for sale, but for various reasons, are unable to be sold. These loans are transferred to our loan portfolio at the lower of historic cost or fair value, with any deterioration in value charged off.

If we were to sell our mortgage servicing portfolio, we may realize a material loss in the current market.

The book value of our MSRs reflects their fair value, not their market value. Given current market conditions, we likely would realize a loss if we were to sell our servicing portfolio in the current market and that loss could be material. Market conditions could change favorably or unfavorably in the future.

Our income is subject to significant volatility due to potential changes in the fair value of our MSRs.

We measure our MSRs at fair value. This election was made to facilitate the potential future implementation of a risk mitigation strategy to hedge against potential adverse changes in the fair value of our MSRs due to future changes in interest rates and other market factors.

Management periodically evaluates the need to employ risk management strategies designed to mitigate potential adverse changes in the value of our MSRs. Hedging strategies may involve securities as well as derivatives such as interest-rate swaps, options, and various forms of forward contracts. As interest rates change, these financial instruments would be expected to have changes in fair value inversely correlated to the change in the fair value of the hedged MSRs.

Our hedging activities may not be effective in mitigating adverse changes in the fair value of our MSRs which, in turn, could have a material adverse impact on net income.

We have not implemented hedging strategies for our MSRs at this time. Unexpected changes in market conditions prior to the implementation of a hedging strategy could have a significant adverse impact on our earnings.

Proposed regulatory rules could affect us.

The federal bank regulatory agencies recently issued joint proposed rules that would increase minimum capital ratios, add a new minimum common equity ratio, add a new capital conservation buffer, and would change the risk-weightings of certain assets. The proposed changes, if implemented, would be phased in from 2013 through 2019. Management is currently assessing the effect of the proposed rules on our capital position and the capital position of Bank of Manhattan. Community bank associations are currently discussing their concerns with the regulatory agencies regarding the additional regulatory burdens the proposals would place on community banks.

If we cannot maintain effective disclosure controls, we may not be able to accurately report our financial results on a timely basis.

We cannot be certain that our efforts to improve our disclosure controls will be successful or that we will be able to maintain adequate controls over our financial processes and reporting in the future. Any

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failure to maintain effective controls or timely effect any necessary improvement of our disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our securities.

We rely on communications, information, operating and financial control systems technology from third-party service providers.

We rely heavily on third-party service providers for much of our communications, information, operating and financial control systems technology, including customer relations management, general ledger, and loan servicing and loan origination systems. Any failure or interruption or breach in security of these systems could result in a material adverse effect on our ability to operate efficiently and expose the Company to regulatory, legal and reputation risks.

Our inability to properly manage liquidity risks may impair our operations and jeopardize our financial condition.

Liquidity is an essential component of our business. An inability to raise funds at reasonable costs, whether through deposits, borrowings, the sale of loans, or other sources, may have a material and adverse effect on our liquidity, financial condition, and results of operation. Lack of access to funding sources may at times affect our entire industry or may specially relate to us, such as a result of adverse regulatory actions against us, or a deterioration of the confidence of customers and potential customers in our ability to meet their financial needs.

We monitor concentrations of funds which are provided by a single related source on a monthly basis to assist in our assessment of liquidity. As of December 31, ~~2011~~2012, there were ~~nine~~four relationships with deposits in excess of 2% of total deposits representing approximately 2616.1% of our total deposits (excluding brokered deposits).

Our reliance on wholesale deposits has increased significantly due to the growth in our mortgage ~~banking~~division business. Wholesale deposits are sourced from other financial institutions, deposit brokers, and the Certificate of Deposit Account Registry Service. At December 31, ~~2011~~2012, we had $5648.38 million in wholesale deposits, representing 3312.7% of our total deposits. Our ability to retain existing, or generate new, wholesale deposits may be impaired by adverse changes in interest rates, market competition, bank regulations, or our financial performance.

We are subject to extensive regulation.

The financial services industry is extensively regulated. The Bank is subject to extensive regulation, supervision and examination by the OCC and the FDIC. As a bank holding company, the Company is subject to regulation and oversight by the ~~FRB~~Federal Reserve Bank of San Francisco. Federal and state regulation is designed primarily to protect the deposit insurance funds and consumers, and not to benefit our shareholders. Recent government efforts to strengthen the U.S. financial system have resulted in the imposition of additional regulatory requirements, including expansive financial services regulatory reform legislation in the form of Dodd-Frank. Dodd-Frank will have material implications for the Company and the entire financial services industry. Among other things it will or potentially could:

•: Affect the levels of capital and liquidity with which we must operate and how we plan capital and liquidity levels;
•: Subject us to new and/or higher fees paid to various regulatory entities, including but not limited to deposit insurance fees to the FDIC;
•: Impact our ability to invest in certain types of entities or engage in certain activities;
•: Restrict the nature of our incentive compensation programs for executive officers;

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•: Subject us to a new Consumer Financial Protection Bureau, with very broad rule-making and enforcement authorities; and
•: Subject us to new and different litigation and regulatory enforcement risks.

The full impact of this legislation on the Company and its business strategies and financial performance cannot be known at this time, and may not be known for a number of years. However, these impacts are expected to be substantial and some of them are likely to adversely affect the Company and its financial performance. Other regulations affecting banks and other financial institutions, such as Dodd-Frank, are undergoing continuous review and change frequently; the ultimate effect of such changes cannot be predicted. Because our business is highly regulated, compliance with such regulations and laws may increase our costs and limit our ability to pursue business opportunities. There can be no assurance that proposed laws, rules and regulations will not be adopted in the future, which could (i) make compliance much more difficult or expensive, (ii) restrict our ability to originate, broker or sell loans or accept certain deposits, (iii) further limit or restrict the amount of commissions, interest or other charges earned on loans originated or sold by us, or (iv) otherwise materially and adversely affect our business or prospects for business.

The price of the our common stock may be volatile or may decline.

The trading price of our common stock may fluctuate significantly as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations could adversely affect the market price of our common stock. Among the factors that could affect stock price are:

The trading volume of our common stock is limited.

Our common stock is quoted on the Over the Counter Bulletin Board under the symbol "MNHN.OB" and trading volume is modest. The limited trading market for our common stock may lead to exaggerated fluctuations in market prices and possible market inefficiencies, as compared to a more actively traded stock. It may also make it more difficult to dispose of such common stock at expected prices, especially for holders seeking to dispose of a large number of such stock.

We may not have the ability to attract capital necessary to maintain regulatory ratios and fund growth.

We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs, particularly if our asset quality or earnings were to deteriorate. Our ability to raise additional capital, if needed, will depend on several things, especially conditions in the capital markets at that time, which are outside of our control, as well our financial performance. Economic conditions and the loss of confidence in financial institutions may increase our cost of funds and limit our access to some customary sources of capital.

We cannot provide assurances that such capital will be available on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, depositors of the Bank, or counterparties participating in the capital markets may adversely affect our capital costs, ability to raise capital, and liquidity. Moreover, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital which, in turn, would require us to compete with myriad institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our financial condition and results of operations.

The price of our common stock may be volatile or may decline.

•: Actual or anticipated quarterly fluctuations in our operating results and financial condition;
•: Changes in financial estimates or publication of research reports and recommendations by financial analysts with respect to our common stock or those of other financial institutions;
•: Failure to meet analysts' loan and deposit volume, revenue, asset quality or earnings expectations;
•: Speculation in the press or investment community generally or relating to our reputation or the financial services industry;
•: Actions by our shareholders, including sales of common stock by existing shareholders and/or directors and executive officers;

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•: Fluctuations in the stock price and operating results of our competitors;
•: Future sales of our equity or equity-related securities;
•: Proposed or adopted regulatory changes or developments;
•: Investigations, proceedings, or litigation that involve or affect the Company;
•: The performance of the national and California economy and the real estate markets in California; or
•: General market conditions and, in particular, developments related to market conditions for the financial services industry.

~~financial performance.~~ ~~Economic~~The ~~conditions~~trading ~~and~~volume ~~the loss~~ of ~~confidence in financial institutions may increase~~ our ~~cost~~common ofstock ~~funds~~is ~~and limit our access to some customary sources of capital~~limited.

~~We cannot~~Our ~~provide~~common ~~assurances~~stock ~~that~~is ~~such~~quoted ~~capital will be available~~ on ~~acceptable terms or at all. Any occurrence that may limit our access to~~ the ~~capital~~OTCQB ~~markets,~~Marketplace ~~such~~under ~~as a decline in~~ the ~~confidence~~ ofsymbol ~~debt~~"MNHN" ~~purchasers,~~and ~~depositors~~trading ofvolume ~~the~~is ~~Bank,~~modest. orThe ~~counterparties~~limited ~~participating~~trading inmarket for ~~the~~our ~~capital~~common ~~markets~~stock may ~~adversely~~lead ~~affect~~to ~~our~~exaggerated ~~capital~~fluctuations ~~costs,~~in ~~ability~~market toprices ~~raise capital,~~ and ~~liquidity.~~possible ~~Moreover~~market inefficiencies, if weas ~~need~~compared to ~~raise~~a ~~capital~~more inactively ~~the~~traded ~~future,~~stock. weIt may ~~have~~also tomake doit somore ~~when~~difficult ~~many~~to dispose ~~other~~of ~~financial~~such ~~institutions~~common ~~are~~stock ~~also~~at ~~seeking~~expected ~~to raise capital which~~prices, inespecially ~~turn, would require us to compete with myriad institutions~~ for ~~investors.~~holders Anseeking ~~inability~~ to ~~raise~~dispose ~~additional~~of ~~capital on acceptable terms when needed could have~~ a ~~materially~~large ~~adverse~~number ~~effect~~of onshares ~~our financial condition and results~~ of ~~operations~~such stock.

We have filed a Form 15 with the Securities and Exchange Commission to deregister under the Exchange Act, which will result in a reduction in the amount and frequency of publicly-available information about us.

On February 15, 2013, we filed a Form 15 with the SEC to voluntarily deregister our common stock with the SEC and terminate our reporting obligations under the Exchange Act. Deregistration of our common stock will result in a reduction in the amount and frequency of publicly-available information about the Company and the Bank because we will no longer be required to file Exchange Act reports with the SEC, such as annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements. The Company and the Bank make regulatory filings that are available at http://www.ffiec.gov and https://cdr/ffiec.gov, respectively, which will continue to be available after the Exchange Act deregistration. Our common stock is quoted on the OTCQB Marketplace, which does not require Exchange Act registration or that we meet the reporting requirements of the Exchange Act. It is therefore possible that our common stock will continue to trade on the OTCQB Marketplace following deregistration, but there is no assurance that it will continue to do so. Some investors may not want to purchase or own shares of our common stock since we no longer file reports and make information available under the Exchange Act. So even if our common stock continues to trade on the OTCQB Marketplace or another market, deregistration could reduce the trading market for our common stock, which is already limited.

The Carpenter Funds collectively own a majority of our common stock and therefore have substantial control over our operations and future transactions in which we are involved, including future changes of control.

The Carpenter Funds collectively own approximately 75.6% of our common stock, and therefore exercise substantial control over the Company. As such, the Carpenter Funds will have substantial influence and control over matters voted upon by our shareholders and will have the ability to approve transactions that may have a significant impact on the operations of Manhattan Bancorp and the Bank, such as the election of the directors to the board of directors of each of Manhattan Bancorp and the Bank, mergers and sales of substantially all of the assets of Manhattan Bancorp or the Bank, and other matters upon which our shareholders may vote.

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Our common stock is equity and therefore is subordinate to our indebtedness and any preferred stock.

Shares of our common stock are equity interests in the Company, do not constitute indebtedness, and, therefore, are not insured against loss by the FDIC or by any other public or private entity. Such common stock will rank junior to all indebtedness and other non-equity claims on the Company with respect to assets available to satisfy claims on the Company, including in a liquidation of the Company. Additionally, holders of such common stock are subject to the prior dividend and liquidation rights of any holders of our preferred stock then outstanding.

We may issue securities that could dilute the ownership of our existing shareholders and may adversely affect the market price of our common stock.

We may elect to raise capital in the future to enhance our capital levels, improve our capital ratios, provide capital for acquisitions, increase liquidity available for operations and other opportunities, or for other reasons. If we raise funds by issuing equity securities or instruments that are convertible into equity securities, the percentage ownership of our existing shareholders will be reduced, the new equity securities may have rights, preferences and privileges superior to those of our common stock and additional issuances could be at a purchase price that is lower than the available market price for our common stock. The market price of our common stock could decline as a result of sales of a large number of shares of common stock, preferred stock or similar securities in the market or the perception that such sales could occur. We may also issue equity securities as consideration for acquisitions that could be dilutive to existing shareholders.

RISKS RELATED TO THE MERGER

The number of shares of our common stock to be received by PBB shareholders in the Merger is not fixed and will fluctuate based on changes in the book value of the common stock of the Company and PBB.

The Merger Agreement provides that, at the completion of the Merger, each share of PBB common stock outstanding immediately before the Merger (other than shares as to which statutory dissenters' appraisal rights have been exercised) will be converted into the right to receive a number of shares of our common stock having an aggregate book value per share as of the last day of the month preceding the month in which the closing of the Merger occurs, equal to the book value per share of PBB common stock as of the same date, in each case subject to adjustment and calculated in accordance with the Merger Agreement. This exchange ratio will therefore be adjusted for changes in the book value of either the Company or PBB, whether such changes in value result from an improvement or decline in the financial condition or operating results of either company, general market and economic conditions, regulatory considerations, the timing of the Merger or other factors. Changes in the book value of the Company or PBB prior to the closing of the Merger will therefore affect the value that we will pay, through the issuance of our common stock, and that PBB shareholders will receive in the Merger. Neither the Company nor PBB is permitted to terminate the Merger Agreement or re-solicit the vote of our respective shareholders solely because of changes in our respective book values. However, either party may terminate the Merger

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Agreement as a result of the occurrence of certain events that may also result in a decline in the book value of the other.

Consummation of the Merger will cause an immediate reduction in our shareholders' voting interests in us.

Our shareholders, other than the Funds, currently control approximately 57% of the outstanding shares of our common stock. After the Merger occurs, former shareholders of PBB, including the Funds, will beneficially own a majority of the issued and outstanding shares of our common stock. In addition, the Funds, which currently control approximately 43% of the outstanding shares of our common stock, are expected to control in excess of 75% of the outstanding shares of Manhattan Bancorp common stock after the Merger. Consequently, our shareholders will have less influence over the management and policies of the Company following the Merger than they currently exercise over our management and policies.

Following the Merger, the Funds will collectively own a majority of our common stock, and thus will also have substantial control over the outcome of key transactions involving either the Company or the combined bank, including future changes of control.

The Funds collectively own approximately 43% of our common stock and 100% of the common stock of CGB Holdings, which in turn owns approximately 92% of the common stock of PBB. Following the consummation of the Merger, the Funds will collectively own a majority of the common stock of Manhattan Bancorp, and thus will exercise substantial control over the Company and the combined bank. As such, the Funds will have substantial influence and control over matters voted upon by our shareholders and will have the ability to approve transactions that may have a significant impact upon the operations of the Company and the combined bank, such as the election of the directors to the board of directors of each of the Company and the combined bank, mergers and sales of substantially all the assets of either the Company or the combined bank, and other matters upon which our shareholders vote.

Required regulatory approvals and filings may not be received or completed, may take longer to receive or complete than expected or may impose conditions that are not anticipated, cannot be met or are materially burdensome.

Before the transactions contemplated in the merger agreement, including the Merger, may be completed, approvals must be obtained from bank regulatory authorities, and additional securities filings may be required with the SEC or under the "Blue Sky" securities laws of various states. The Company and PBB have each agreed to use its reasonable best efforts to complete these filings and obtain these approvals. The relevant bank regulatory authorities may impose conditions on the completion of the Merger or require changes to the terms of the Merger Agreement. Such conditions or changes could have the effect of delaying completion of the transactions contemplated in the Merger Agreement or imposing additional costs on or limiting the growth, revenues or other aspects of the business of the combined bank following the mergers.

Additionally, under the Merger Agreement each of the Company, the Bank and PBB have the right to terminate the Merger Agreement if any governmental approval required for the Merger to occur is denied by such governmental authority. Furthermore, each of the Company, the Bank, PBB and Fund Manager can terminate the Merger Agreement if any regulatory approvals required to consummate the Merger contain any conditions, restrictions, or requirements that such party determines would reduce the benefits of the Merger such that the party would not have entered into the Merger Agreement had such conditions, restrictions or requirements been known at the outset. In addition, any party may terminate the Merger Agreement if the Merger is not completed by June 30, 2012 or, if delayed because of the need for regulatory approval, September 30, 2012. Therefore, if such conditions or changes have the effect of delaying the Merger or imposing additional costs on or limiting the growth, revenues or other aspects of the business of the combined bank following the Merger, we can provide no assurance that the Merger will in fact occur, or that any of the aforementioned parties will not terminate the Merger Agreement.

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We will be subject to business uncertainties and contractual restrictions while the Merger is pending, which could have an adverse effect on our business and financial results.

Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on our business. These uncertainties may impair our ability to attract or motivate key personnel until the Merger is completed and could cause customers and others that deal with us to seek to change existing business relationships with us. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, our business following the Merger could be adversely affected. Furthermore, the attention of our management may be diverted toward the completion of the Merger and away from operational issues related to the Company.

In addition, the Merger Agreement restricts the Company from making acquisitions and taking other specified actions until the Merger occurs, without the consent of PBB. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Merger.

If the Merger is not completed, we will have incurred substantial expenses without realizing the expected benefits of the Merger, which could negatively affect the market price of our common stock and adversely impact our business.

We have incurred substantial expenses in connection with the negotiation and preparations for completion of the transactions contemplated by the Merger Agreement. If the Merger is not completed, we will have incurred these expenses without realizing the expected benefits of the Merger.

If the Merger is not completed for any reason, the market price of our common stock may decline to the extent that current market prices of our shares reflect a market assumption that the Merger will be completed. Our business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. Furthermore, this diversion of the attention of management from the day-to-day business operations and the potential disruption to employees and business relationships during the period before the completion of the Merger may make it difficult to regain financial and market positions if the Merger does not occur.

The Merger Agreement limits our ability to pursue an alternative acquisition proposal and requires us to pay a termination fee and reimburse certain expenses under certain circumstances relating to alternative acquisition proposals.

The Merger Agreement prohibits us from initiating, soliciting, encouraging or engaging in negotiations with, or providing any information to, any third party with respect to alternative acquisition proposals, subject to limited exceptions. The Merger Agreement also provides for the payment by the Company of a termination fee in the amount of $300,000 to PBB, plus reimbursement of the fees and expenses incurred in connection with the Merger by PBB, CGB Holdings or Fund Manager of up to $450,000, in the aggregate, in the event that we or PBB terminate the Merger Agreement for reasons related to a superior proposal. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company.

We have not obtained an updated fairness opinion from our financial advisor reflecting changes in circumstances that may have occurred since the signing of the Merger Agreement.

Sandler O'Neill & Partners, L.P., our financial advisor in connection with the proposed Merger, has delivered to the Company's board of directors its opinion, dated as of November 21, 2011, regarding the fairness, from a financial point of view, of the exchange ratio to be paid to PBB shareholders in connection with the Merger. We have not obtained an updated opinion as of the date of the filing of this Form 10-K from our financial advisor regarding the fairness, from a financial point of view, of the exchange ratio to be paid to PBB shareholders in connection with the Merger.

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Changes in the operations and prospects of the Company or PBB, general market and economic conditions and other factors which may be beyond the control of either of the Company or PBB, and on which the fairness opinion was based, may alter the value of the Company or PBB or the book value of shares of our common stock and shares of PBB common stock by the time the Merger is completed.

We are obligated by the Merger Agreement to conduct a rights offering of our common stock to existing shareholders (excluding the Funds) after the consummation of the Merger. The issuance of additional common stock may adversely affect the market price of our common stock.

Our ability to raise additional capital through the rights offering will depend on conditions in the capital markets, which are outside our control, and on the financial performance of the Company and the combined bank. Additional capital raised through the rights offering may dilute the interests of existing shareholders who choose not to participate in the offering to the extent of shares issued in the offering, and may cause the market price of our common stock to decline.

We may fail to realize the cost savings we have estimated for the Merger or integrate the business operations and managements of our two companies in an efficient manner.

The success of the Merger will depend, in part, on our ability to realize anticipated cost savings and to combine the businesses of the Bank and PBB in a manner that permits growth opportunities to be realized and does not materially disrupt the existing customer relationships of the Bank or PBB, nor result in decreased revenues due to any loss of customers.

The Bank and PBB have operated, and until the completion of the Merger, will continue to operate, independently. To realize these anticipated benefits, the businesses of the Bank and PBB must be successfully combined. While management has taken existing lease and other contractual obligations into consideration in developing its estimate of cost savings, changes in transaction volumes, operating systems and procedures and other factors may cause the actual cost savings to be different from these estimates. In addition, difficulties encountered in integrating our information systems could prevent us from realizing some of the estimated cost savings. Such difficulties could also jeopardize customer relationships, cause a loss of deposits or loan customers and the revenue associated with those customers. It is possible that the integration process could result in the loss of key employees, as well as the disruption of each company's ongoing businesses or inconsistencies in standards, controls, procedures and policies, any or all of which could adversely affect our ability to maintain relationships with clients, customers, depositors and employees after the Merger or to achieve the anticipated benefits of the Merger. Integration efforts between the two companies will also divert management attention and resources. A failure to successfully navigate the complicated integration process could have an adverse effect on the combined bank. If the combined bank is not able to achieve these cost-savings objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected.

Goodwill resulting from the Merger may adversely affect our results of operations.

Goodwill and other intangible assets are expected to increase substantially as a result of the Merger. Potential impairment of goodwill and amortization of other intangible assets could adversely affect our financial condition and results of operations. We assess our goodwill and other intangible assets and long-lived assets for impairment annually and more frequently when required by U.S. GAAP. We are required to record an impairment charge if circumstances indicate that the asset carrying values exceed their fair values. Our assessment of goodwill, other intangible assets, or long-lived assets could indicate that an impairment of the carrying value of such assets may have occurred that could result in a material, non-cash write-down of such assets, which could have a material adverse effect on our results of operations and future earnings.

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The market price of our common stock after the Merger may be affected by factors different from those currently affecting the shares of our common stock.

Our business and the business of PBB differ in important respects and, accordingly, the results of operations of the combined bank and the market price of our common stock after the Merger may be affected by factors different from those currently affecting the independent results of operations of the Company and PBB. For example, shareholders of PBB could decide to sell the shares of our common stock received in the Merger, which could cause the trading price of our common stock to decrease.

Unanticipated costs relating to the Merger could reduce our future earnings per share.

Our management believes that they have reasonably estimated the likely incremental costs of the combined operations of the Bank and PBB following the Merger. However, it is possible that unexpected transaction costs such as taxes, fees or professional expenses or unexpected future operating expenses such as unanticipated costs to integrate the two businesses, increased personnel costs or increased taxes, as well as other types of unanticipated adverse developments, could have a material adverse effect on our results of operations and financial condition following the Merger. In addition, if actual costs are materially different from expected costs, the Merger could have a significant dilutive effect on our earnings per share.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

In 2011, the Company expanded the size of its main office and corporate headquarters located at 2141 Rosecrans Avenue, Suite 1100, in the city of El Segundo, California. As a result the Company extended its original lease agreement, which commenced on July 1, 2007 for an additional seven year term, with one option to renew for seven years; as of December 31, 2012 the remaining term on this lease is 65 months.

~~The~~As ~~Company~~a ~~entered~~result ~~into~~of athe ~~lease~~Merger, onthe ~~November 1,~~Company ~~2011~~acquired branch facilities in ~~the~~Glendale, ~~Woodland~~Pasadena, ~~Hills~~East ~~area~~Pasadena ofand ~~Los~~Montebello. ~~Angeles~~As ~~for~~of December 31, 2012 the ~~use~~Glendale and Pasadena offices have remaining terms of ~~MCM~~six months and sixteen months, respectively. The Bank has notified its ~~subsidiaries~~customers and ~~the~~regulators ~~Woodland~~of ~~Hills~~its ~~satellite~~intention to consolidate its East Pasadena office ofinto the Pasadena branch during the first quarter of 2013; the Bank's ~~mortgage~~has ~~division~~already sublet the upper floors at the East Pasadena location and is in the process of securing a sublease of the branch space. The ~~term~~land isand building ~~84 months~~are owned by the Bank for its office in Montebello.

The Company ~~has~~entered ~~leases~~into ~~for~~a ~~its~~lease ~~mortgage~~on ~~bank's~~November 1, ~~satellite~~2011 ~~offices~~ in ~~San~~the ~~Diego~~Woodland ~~and~~Hills ~~West~~area of Los Angeles, ~~California.~~the ~~The~~entire ~~lease~~space ~~terms~~has ~~are~~been 26sublet to MCM and ~~18 months,~~its ~~respectively~~subsidiaries. InAs ~~November~~of ~~2011~~December 31, 2012 the ~~Company~~remaining ~~became~~term ~~obligated~~on tothe ~~enter~~lease ~~into~~is a73 months. ~~lease~~This ~~for~~property aalso ~~satellite~~houses ~~mortgage~~the ~~origination~~Woodland Hills satellite office inof ~~Hermosa~~the ~~Beach~~Bank's mortgage division, which ~~was~~the ~~executed~~Bank onhas ~~January 2012.~~entered into ~~The~~a ~~term~~separate ofagreement ~~this~~to ~~lease~~sublet ~~ends~~the ~~in December~~space ~~2019~~it occupies from MCM on a month-to-month basis.

~~The~~Prior to 2012 the Company also ~~maintains~~had aleases ~~satellite~~for ~~location~~its ~~for~~mortgage ~~MCM~~division's ~~located~~satellite offices in ~~New~~San ~~York~~Diego and West Los Angeles, ~~New~~California; ~~York.~~as ~~The~~of December 31, 2012 the remaining lease terms ~~term~~are is13 60and 17 months, respectively. In January 2012, the Company entered into a lease for a satellite mortgage origination office in Hermosa Beach; the term of this lease ends in December 2013. On March 1, 2012 the Company entered in to a lease for its mortgage office in Huntington Beach, which as of December 31, 2012 has a remaining

In April 2011, the Company purchased property in Manhattan Beach, California for $1.8 million to develop as a future branch location. The property was financed with a $1.1 million mortgage with interest-only payments at 5.00% and is due in April 2021. The total cost of the branch, including renovations, is expected to be approximately $2.9 million, and it is expected to open in the summer of 2012. 26

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term of 26 months. In April 2012 the Company entered into a lease for its mortgage office in Newport Beach, which as of December 31, 2012 has a remaining term of 51 months. In November 2012, the Company entered into a lease for a satellite mortgage origination office in Santa Barbara; the term of this lease ends in 2017.

In June 2011, the Company entered into a lease on behalf of MCM for its operations in New York, New York. This space has been sublet to MCM in its entirety. The lease expires in May 2016.

In April 2011, the Company purchased property in Manhattan Beach, California for $1.8 million to develop as a future branch location. Construction of this branch was completed during 2012 and opened in September 2012. The purchase of the property was financed with a $1.1 million mortgage with interest-only payments at 5.00% and is due in April 2021; this loan was paid off in December 2012. The total cost of the branch, including renovations, was $2.7 million.

Management believes that its existing facilities are adequate to support its operating activities.

ITEM 3. LEGAL PROCEEDINGS

To the best of our knowledge, there are no pending legal proceedings to which the Company is a party and which may have a materially adverse effect upon the Company's property, business or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

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

OnThe ~~September 4, 2007, shares of the~~ Company's common stock ~~began~~(OTCQB: ~~quotations~~MNHN) is quoted on the ~~Over~~OTCQB ~~the~~Marketplace, ~~Counter~~a ~~Bulletin~~marketplace ~~Board~~for ~~("OTCBB")~~companies that are current in their ~~under~~reporting ~~the~~with ~~symbol~~a ~~"MNHN~~U.OBS." regulator. The Company's common stock is not listed on any exchange. ~~The~~Investors ~~OTCBB~~can isfind aquotes ~~regulated quotation service that displays real-time bid~~ and ~~ask~~market ~~prices and volume~~ information ~~in over-the-counter~~for ~~equity securities. Unlike~~ the ~~NASDAQ~~Company ~~however,~~on ~~the OTCBB does not impose listing standards and does not provide automated trade executions~~www.otcmarkets.com. Any investment in ~~the~~ the Company's common stock should be considered a long-term investment as there is currently no active trading market for the Company's stock.

The information in the following table indicates the ~~highest~~high and ~~lowest~~low ~~trade~~bid prices and approximate volume of trading for the Company's common stock for each calendar quarter during each of the two most recent fiscal years, and is based upon information provided by the ~~OTCBB~~OTCQB Marketplace. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and do not reflect the actual transactions. The information also does not include transactions for which no public records are available. ~~These prices are based upon the actual prices of stock transactions.~~

Period/Calender Quarter Ended	High		Low		Approximate Trading Volume
Period/Calendar Quarter Ended	High		Low		Approximate Trading Volume
March 31, 2010	$	7.00	$	5.45		47,100
March 31, 2011	$	5.90	$	5.15		267,232
June 30, 2010	$	6.50	$	4.75		37,600
June 30, 2011	$	5.45	$	4.00		42,882
September 30, 2010	$	4.95	$	4.25		85,300
September 30, 2011	$	4.00	$	1.86		40,423
December 31, 2010	$	5.50	$	4.55		138,900
December 31, 2011	$	3.90	$	1.87		71,272
March 31, 2011	$	5.90	$	5.15		266,300
March 31, 2012	$	3.05	$	2.90		12,970
June 30, 2011	$	5.45	$	4.00		44,000
June 30, 2012	$	4.00	$	3.00		74,483
September 30, 2011	$	4.00	$	1.86		41,100
September 30, 2012	$	3.85	$	2.30		66,327
December 31, 2011	$	3.90	$	1.87		71,500
December 31, 2012	$	4.24	$	2.55		201,924

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Shareholders

As of March 27, ~~2012~~2013, we had approximately ~~171~~213 shareholders of record. There are no other classes of equity securities outstanding.

Dividends

To date, we have not paid any cash dividends. As a bank holding company that currently has no significant assets other than its equity interest in the Bank ~~and MBFS~~, the Company's ability to declare dividends depends primarily upon dividends it receives from ~~its~~the ~~subsidiaries~~Bank. The dividend practice of the Bank ~~and MBFS~~, like the Company's dividend practice, will depend upon its earnings, financial position, current and anticipated cash requirements and other factors deemed relevant by ~~the~~its ~~subsidiaries'~~ Board of Directors at the time.

Shareholders are entitled to receive dividends only when and if declared by the Company's Board of Directors. The Company presently intends to follow a policy of retaining earnings, if any, for the purpose of increasing the net worth and reserves of the Company. Accordingly, it is anticipated that no cash dividends will be declared in the foreseeable future, and no assurance can be given that the Company's earnings will permit the payment of dividends of any kind in the future. The future dividend policy of the Company will be subject to the discretion of the Board of Directors and will depend upon a number of factors, including future earnings, financial condition, liquidity, and general business conditions.

30 Please see Item 1, "Business—Supervision and Regulation—Dividends" for additional discussion of dividends and the statutes and regulations that restrict the ability of the Company and its subsidiaries to pay dividends.

Recent Sales of Unregistered Securities

Pursuant to and in accordance with the terms of a Credit Agreement dated as of June 25, 2011 (as amended, the "Credit Agreement") by and among the Company, Carpenter Fund Management Company, LLC, as administrative agent, and Carpenter Community Bancfund, L.P. and Carpenter Community Bancfund-A, L.P., as lenders (the "Carpenter Lenders"), the Carpenter Lenders converted the remaining $716,667 of the outstanding principal balance of the loans outstanding under the Credit Agreement into an aggregate of 169,424 shares of our common stock. The number of shares of our common stock issued to the Carpenter Lenders was determined by dividing the sum of the unpaid principal balance by the Book Value Per Share of the MNHN Common Stock (as defined in the Merger Agreement), or $4.23 per share.

No underwriters were involved in the foregoing sales of securities. The sale and issuance of the securities described above were exempt from registration under Section 4(2) of the Securities Act.

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Please see Item 1, "Business—Supervision and Regulation—Dividends" for additional discussion of dividends and the statutes and regulations that restrict the ability of the Company and its subsidiaries to pay dividends. . In addition, under the terms of the Merger Agreement, the Company may not pay cash dividends on its common stock without the prior approval of Professional Business Bank and CGB Holdings.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of December 31, ~~2011~~2012 with respect to the shares of our common stock that may be issued under existing equity compensation plans, inclusive of those plans assumed in the Merger.

Plan Category		Weighted- Average Price of Outstanding Options
Equity compensation approved by security holders	~~585~~485,~~693~~487	$	87.4004	~~247~~318,~~267~~433
Equity compensation not approved by security holders	—		—	—
Total	~~585~~485,~~693~~487	$	87.4004	~~247~~318,~~267~~433

ITEM 6. SELECTED FINANCIAL DATA

~~The~~Not ~~following~~applicable ~~table sets forth our statistical information as of and~~ for ~~the~~smaller ~~years~~reporting ~~ended December 31, 2011, 2010, 2009, 2008 and 2007~~companies. Also included is statistical information as of December 31, 2007 and for the period from August 15, 2007 (the date the Bank commenced operations) until December 31, 2007. The data should be read in conjunction with the Company's audited consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K. All averages for 2007 are calculated

3129

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~~based~~ ~~upon~~ ITEM ~~the initial operating period noted above~~7. MANAGEMENT'S ~~Amounts~~DISCUSSION ~~are~~AND inANALYSIS ~~thousands,~~OF ~~except~~FINANCIAL ~~for~~CONDITION ~~per~~AND ~~share~~RESULTS ~~figures.~~OF OPERATIONS

	As of or for the periods ended December 31,
	2011			2010			2009			2008			2007
Statements of Operations:
Interest income	$	6,079		$	6,518		$	4,601		$	3,074		$	611
Interest expense		1,142			1,002			846			828			102
Net interest income		4,937			5,516			3,755			2,246			509
Provision for loan losses		80			727			1,180			706			269
Net interest income after provision		4,857			4,789			2,575			1,540			240
Non-interest income		10,409			7,749			1,019			53			1
Non-interest expense		22,162			17,231			8,639			6,010			2,454
Net loss	$	(6,924	)	$	(4,698	)	$	(5,046	)	$	(4,419	)	$	(2,213	)
Net loss attributable to common stockholders of Manhattan Bancorp	$	(6,258	)	$	(4,610	)	$	(5,037	)	$	(4,419	)	$	(2,213	)
Per Share and Other Data:
Basic and diluted loss per share	$	(1.57	)	$	(1.16	)	$	(1.26	)	$	(1.72	)	$	(0.91	)
Book value per common share—period end	$	4.50		$	6.05		$	7.05		$	8.60		$	8.52
Weighted average shares outstanding basic and diluted		3,994			3,988			3,988			2,567			2,425
Balance Sheet Data:
Investments and fed funds sold	$	28,841		$	55,491		$	67,558		$	12,602		$	18,087
Loans held for sale	$	52,365		$	3,512		$	—		$	—		$	—
Loans, net	$	103,425		$	87,359		$	78,914		$	56,467		$	17,930
Assets	$	201,835		$	152,948		$	152,315		$	92,040		$	39,367
Deposits	$	169,700		$	122,245		$	110,920		$	47,991		$	17,862
Manhattan Bancorp equity	$	17,987		$	24,127		$	28,111		$	34,288		$	21,189
Total shareholders' equity	$	17,524		$	24,330		$	28,402		$	34,288		$	21,189
Selected Financial Ratios
Return on average assets(a)		(4.38	)%		(3.5	)%		(5.10	)%		(7.16	)%		(16.86	)%
Return on average equity(b)		(29.7	)%		(17.87	)%		(15.87	)%		(21.81	)%		(24.62	)%
Dividend payout ratio		—			—			—			—			—
Equity to assets ratio		8.68	%		15.91	%		18.65	%		37.25	%		53.82	%
Average equity to average assets		14.74	%		19.61	%		32.12	%		32.83	%		68.49	%
Net interest margin		3.75	%		4.46	%		4.00	%		3.89	%		4.28	%
Credit Quality
Allowance for loan losses	$	1,970		$	1,877		$	1,202		$	975		$	269
Allowance /total loans		1.87	%		2.10	%		1.5	%		1.70	%		1.48	%
Non-performing loans	$	2,264		$	—		$	—		$	—		$	—
Net (recoveries) charge-offs	$	(13	)	$	52		$	952		$	—		$	—

Management's discussion and analysis of financial condition and results of operations is intended to provide a better understanding of the significant changes in trends relating to the Company's financial condition, results of operations, liquidity and interest rate sensitivity. The following discussion and analysis should be read in conjunction with the audited financial statements contained within this Form 10-K, including the notes thereto. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Item 1A. Risk Factors" and elsewhere in this Form 10-K.

(a)Net loss as a percentage of average assets (b)Net loss as a percentage of average equity

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Management's discussion and analysis of financial condition and results of operation is intended to provide a better understanding of the significant changes in trends relating to the Company's financial condition, results of operation, liquidity and interest rate sensitivity. The following discussion and analysis should be read in conjunction with the audited financial statements contained within this Form 10-K, including the notes thereto. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under "Item 1A. Risk Factors" and elsewhere in this Form 10-K.

OVERVIEW

Accounting principles under GAAP require that a company whose security holders retain the majority voting interest in the combined business be treated as the acquirer for financial reporting purposes. Other factors also considered in this determination include composition of the Board of Directors and executive management of the combined company. Accordingly, the Merger was accounted for as a reverse acquisition whereby Professional Business Bank was treated as the acquirer for accounting and financial reporting purposes. Prior to the Merger, the balance sheet, statements of operations and statements of cash flows reflect that of only PBB. The assets and liabilities of Manhattan Bancorp were reported at fair value in a transaction that constituted a business combination subject to the acquisition method of accounting as detailed in Accounting Standards Codification ("ASC") 805, Business Combinations.

Earnings

The Company recorded a net ~~loss~~income attributable to common shareholders of $~~6.9~~686 ~~million~~thousand for the year ended December 31, ~~2011~~ 2012, which translates to a net ~~loss~~earnings of $10.~~57(1)~~08 per basic share and fully-diluted share of common stock. This compares with a net loss of $~~4.7~~(238) ~~million~~thousand for the year ended December 31, ~~2010~~ 2011, which translated to a net loss of $~~1.16~~(2)0. 05) per basic and fully-diluted share of common stock.

The Company's $~~6.9~~686 ~~million~~thousand net ~~loss~~income attributable to common shareholders in ~~2011~~2012 was $~~2.2~~925 ~~million~~thousand ~~or 47%~~ greater than its net loss in the prior year, ~~primarily~~ due to a $422.90 million ~~or 29%~~ increase in non-interest ~~expenses.~~income, ~~The~~a ~~unfavorable~~$1.5 million ~~increase~~decrease in ~~expenses~~provision ~~was~~for ~~mitigated~~loan losses, partially offset by a $223.72 million ~~or 22%~~ increase in non-interest ~~net revenues(3)~~expense.

~~Almost~~The ~~all~~majority (9896%) of the $422.90 million increase in non-interest ~~expenses~~income was generated by our mortgage division and, to a much lesser extent, our commercial banking business. Revenue generated by MCM contributed $6.0 million to this increase and our participation in the MIMS-1 limited partnership fund (see Note 8 in the Notes to Consolidated Financial Statements) contributed $399 thousand. The $23.2 million increase in non-interest expense was driven by growth in the Company's staffing levels and infrastructure as a result of the Merger and to further support expansions in our mortgage and commercial ~~banks~~divisions. ~~The~~Increased ~~remainder~~expenses ~~was~~are ~~due~~also ~~primarily~~attributable to $~~584~~1.2 ~~thousand~~million of acquisition costs and $1.4 million of severance costs related to the Merger. Additionally, expenses for MCM for the year ended 2012 totaled $6.1 million. The results of the mortgage division included in ~~outlays~~the ~~associated~~operating ~~with~~results ~~our~~for ~~pending~~the ~~merger~~year ~~with~~ended December 31, 2012 only include operations following the Merger, as Professional Business Bank ~~and~~did not have a ~~$279~~mortgage division. Similarly, the results of MCM included in the operating results for the year ended December ~~thousand~~31, 2012 only include operations following the Merger through the effective time of the spinoff of MCM that ~~impairment~~occurred ~~charge~~on ~~related~~November 9, to2012, ~~subsidiary~~or ~~goodwill~~October 31, 2012.

The unfavorable change in non-interest expenses was mitigated by a $2.7 million increase in net revenues, primarily generated by our mortgage banking business and, to a much lesser extent, our commercial banking business. Net revenues from mortgage banking increased by $3.6 million, up from $154 thousand in 2010, reflecting a significant increase in loan production volumes. Our mortgage banking business attained breakeven funding volumes in the third quarter of 2011 and subsequently generated $285 thousand in net income in the fourth quarter of 2011. At the same time, net revenues from our commercial bank increased by $186 thousand or 4%, primarily due to incremental earnings from our participation in the MIMS-1 limited partnership fund(4). These favorable changes were mitigated by a $1.0 million or 14% decline in net revenues from MCM, primarily due to lower trading income. 30

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Financial Condition

Assets at December 31, ~~2011~~2012 totaled $~~201~~465.84 million, up $48226.90 million or 3294% from December 31, ~~2010~~2011. The significant increase in our assets was driven almost entirely by the Merger and growth in our loan portfolios, primarily driven by our mortgage ~~bank~~division.

Net loans totaled $~~155~~371.80 million at December 31, ~~2011~~2012, up $64204.97 million or 71123% from December 31, ~~2010~~2011. Approximately ~~three-quarters~~47% of this growth was generated by our mortgage ~~bank~~division, as reflected by the $96.0 million increase in loans held for sale compared with no loans held for sale at December 31, 2011. Loans held for investment, which increased due to the Merger and generated by our commercial bank, grew by $108.7 million or 65% compared with December 31, 2011.

33 As a result of the Merger and loan growth, our investable balances (Federal funds sold, interest-bearing deposits and investment securities) decreased by $9.8 million, or 19%, to $42.4 million at December 31, 2012, compared with $52.2 million at December 31, 2011.

Our increased funding requirements were met primarily by generating an additional $182.2 million in deposits, which totaled $383.3 million at December 31, 2012, a 91% increase from December 31, 2011. Most of the increase in savings and money market deposits which grew by $83.4 million to $146.0 million at December 31, 2012, a 133% increase from December 31, 2011. Additionally, certificates of deposits ("CDs") grew by $39.1 million to $96.9 million, at December 31, 2012, a 68% increase from December 31, 2011. As previously noted, our increased funding requirements were due primarily to the increase in our mortgage loans held for sale which, in turn, typically are sold within 30 days. Therefore, in order to mitigate risk, we utilized wholesale deposit channels to generate additional short-term CDs, almost all of which had one-month maturities, thereby approximating a "matched-funding" strategy for our mortgage division. To this end, we increased our wholesale CDs by $30.2 million to $48.8 million at December 31, 2012, of which $24.9 million had one-month maturities. We also replaced $4.5 million in existing longer-term wholesale deposits with time deposits that had two-month maturities.

As of December 31, 2012, borrowings totaled $19.6 million, compared with no borrowings at December 31, 2011.

At December 31, 2012, the Company's allowance for loan losses totaled $2.4 million or 0.87% of gross loans held for investment, compared with $2.4 million or 1.4% of gross loans held for investment at December 31, 2011. There were no commercial loans past due 90 days or more that had not been placed on non-accrual at December 31, 2012. However, the Company had $1.8 million in non-accrual loans at year-end 2012 consisting of ten loans held for investment. There were no non-performing loans held for sale. The non-performing loans held for investment were current as of December 31, 2012, with the exception of one $535 thousand loan that is 75 days past due at that same date. The loans have been placed on non-accrual status and deemed to be credit impaired with no specific loan loss. As of December 31, 2011, the Bank had $2.4 million in non-accrual loans, $2.4 in troubled debt restructurings and $6.8 million of loans past due 90 days or more.

Stockholders' equity totaled $57.1 million at December 31, 2012, an increase of $24.6 million or 75.6% from December 31, 2011. This increase was due primarily to the Merger plus $686 thousand of net income in 2012.

Capital ratios for the Company and the Bank continue to exceed levels required by banking regulators to be considered "well-capitalized" (the highest level specified by regulators). As of December 31, 2012, the Bank's total risk-adjusted capital ratio, tier 1 risk-adjusted capital ratio, and tier 1 capital ratio were 13.01%, 12.21%, and 10.18%, respectively, well above the regulatory requirements of 10%, 6%, and 5%, respectively, to be considered "well-capitalized."

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$48.9 million increase in loans held for sale compared with December 31, 2010. Loans held for investment, which were generated by our commercial bank, grew by $16.2 million or 18% compared with December 31, 2010.

We absorbed a significant portion of our loan growth by redeploying cash from our investable balances(5) into loan fundings. As a result, our interest-bearing deposits and investment securities decreased by $26.7 million (48%) to $28.8 million at December 31, 2011, compared with $55.5 million at December 31, 2010.

The remainder of our increased funding requirements were met primarily by generating an additional $47.5 million in deposits, which totaled $169.7 million at December 31, 2011, a 39% increase from December 31, 2010. Most of the increase in our deposits occurred in certificates of deposits ("CDs"), which grew by $39.2 million to $76.8 million, at December 31, 2011, a 104% increase from December 31, 2010. As previously noted, our increased funding requirements were due primarily to the increase in our mortgage loans held for sale which, in turn, typically are sold within 30 days. Therefore, in order to mitigate risk, we utilized wholesale deposit channels(6) to generate additional short-term CDs, almost all of which had one-month maturities, thereby approximating a "matched-funding" strategy for our mortgage banking business. To this end, we increased our wholesale CDs by $37.7 million to $56.3 million at December 31, 2011, of which $37.0 million had one-month maturities. We also replaced $4.5 million in existing longer-term wholesale deposits with time deposits that had two-month maturities.

As of December 31, 2011, borrowings totaled $10.5 million, up $6.0 million or 134% compared with December 31, 2010. Of this increase, $5 million represented the Company's borrowings pursuant to a Credit Agreement with Carpenter Community Bancfund, L.P. and Carpenter Community Bancfund-A, L.P. The Company used the proceeds from the Credit Agreement to make a $5 million loan to MCM, almost all of which was used by MCM to infuse capital into its various subsidiaries in order to grow business volumes and increase revenues. In addition to the Credit Agreement, the Bank also entered into a $1.1 million mortgage loan for a future branch location in Manhattan Beach, California.

At December 31, 2011, the Company's allowance for loan losses totaled $2.0 million or 1.87% of gross loans held for investment, compared with $1.9 million or 2.10% of gross loans held for investment at December 31, 2010. There were no commercial loans past due 90 days or more at December 31, 2011. However, the Company had $2.3 million in non-performing loans at year-end 2011, including one mortgage loan held for sale in the amount of $351 thousand as well as four loans held for investment totaling $1.9 million. Although the four non-performing loans held for investment were current as of December 31, 2011, they have been placed on non-accrual status and deemed to be credit impaired with specific loan loss allowances of $485 thousand. As of December 31, 2010, the Bank had no non-accrual loans, troubled debt restructurings or loans past due 90 days or more.

Stockholders' equity totaled $18.0 million at December 31, 2011, down $6.1 million or 25% from December 31, 2010. This decline was due primarily to the $6.3 million net loss attributable to shareholders in 2011.

Capital ratios for the Company and the Bank continue to exceed levels required by banking regulators to be considered "well-capitalized" (the highest level specified by regulators). For example, as of December 31, 2011, the Bank's total risk-adjusted capital ratio, tier 1 risk-adjusted capital ratio, and tier 1 capital ratio were 13.5%, 12.2%, and 11.5%, respectively, well above the regulatory requirements of 10%, 6%, and 5%, respectively, to be considered "well-capitalized."

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RECENT DEVELOPMENTS

~~Proposed~~Acquisition ~~Merger~~of ~~with~~ Professional Business Bank

On ~~November~~May 2131, ~~2011~~2012, ~~the~~we ~~Company~~completed ~~and~~our ~~the~~acquisition ~~Bank~~of ~~entered~~Professional ~~into~~Business ~~the~~Bank ~~Merger~~through ~~Agreement~~the ~~with~~merger ~~PBB,~~of ~~CGB~~Professional ~~Holdings,~~Business ~~and Fund Manager,~~Bank ~~pursuant~~with ~~to which, on the terms~~ and ~~subject~~into toBank ~~the~~of ~~conditions set forth in the Merger Agreement~~Manhattan, ~~PBB will merge~~ with ~~and into the~~ Bank ~~with~~of ~~the~~Manhattan ~~Bank continuing~~ as the surviving institution. AsImmediately ~~of November 21,~~prior ~~2011,~~to ~~CGB Holdings beneficially owned approximately 92% of~~ the ~~issued~~Merger, ~~and~~Professional ~~outstanding~~Business ~~common~~Bank ~~stock~~completed ofa ~~PBB,~~transaction ~~and~~in ~~Fund Manager,~~ which isits ~~the~~holding ~~general partner of the Funds~~company, ~~beneficially~~ ~~owned 100% of the issued and outstanding common stock of~~ CGB Holdings ~~and approximately 43% of the issued and outstanding common stock of the Company. We cannot assure you that the Merger will be consummated as scheduled~~, orwas atmerged ~~all.~~into ~~See~~Professional ~~"Item 1.~~ Business~~—Pending~~ ~~Merger"~~Bank ~~for a description of the terms of the Merger~~ and ~~"Item 1A.~~accounted ~~Risk~~for ~~Factors—Risks~~using ~~Related to~~ the ~~Merger"~~historical ~~for~~balances aas ~~description~~entities ofunder ~~risks~~common ~~relating to the Merger~~control.

In the ~~Second~~Merger, ~~Amendment~~we issued an aggregate of 8,195,469 shares of our common stock to ~~Credit~~the ~~Agreement~~ shareholders of Professional Business Bank, representing a ratio of 1.7991 shares of our common stock for each share of Professional Business Bank common stock outstanding at the effective time of the Merger. The shares of our common stock issued to the Professional Business Bank shareholders in the Merger constituted approximately 67.2% of the our outstanding common stock after giving effect to the Merger.

~~On January 18, 2012, the Company entered into~~ As a ~~Second~~result ~~Amendment~~of ~~to Credit Agreement (~~the ~~"Second Amendment") with Carpenter Fund Management Company~~Merger, ~~LLC,~~ aswe ~~administrative~~acquired ~~agent~~four ~~(the~~branches ~~"Agent"),~~in ~~and~~central ~~Carpenter Community Bancfund, L.P.~~ and ~~Carpenter~~east ~~Community Bancfund-A~~Pasadena, ~~L.P.,~~ asMontebello ~~lenders~~and ~~(the "Lenders")~~Glendale, ~~which~~additional ~~amends~~assets ~~the~~with ~~Credit~~an ~~Agreement~~estimated ~~dated~~fair asvalue of ~~July~~$233.1 ~~25,~~million ~~2011,~~and additional asdeposits ~~amended~~with onan ~~November 21,~~estimated ~~2011~~fair ~~(as~~value ~~amended,~~of ~~the "Credit Agreement")~~$200 million.

~~The Second~~ ~~Amendment~~Sale ~~provides for the following changes to the Credit Agreement, which will take effect upon closing~~ of the Merger: (1) an extension of the maturity date of the loans outstanding under the Credit Agreement from June 30, 2012 to September 15, 2012; (2) a reduction in the total tier one leverage capital ratio that must be maintained by the Company from 10% to 7%; (3) a reduction in the total risk based capital and tier one leverage capital ratios that must be maintained by the Bank from 12% and 10% to 10% and 7%, respectively; and (4) the addition of a provision that will allow either the Company or the Agent (on behalf of the Lenders), at its option, to convert all or any portion of the unpaid principal balance of the loans outstanding under the Credit Agreement (not to exceed $4,000,000, in the aggregate) into shares of common stock of the Company, with the number of shares of common stock to be issued upon conversion to be equal to the quotient obtained by dividing (a) the principal amount to be so converted by (b) the Book Value Per Share of Manhattan Common Stock (as such term is defined in the Merger Agreement). This conversion option may be exercised prior to September 15, 2012 and at any time commencing on or after the earlier of (i) 10 business days after the closing of the rights offering to be conducted by the Company pursuant to the terms of the Merger Agreement after the closing of the Merger; or (ii) September 1, 2012. MBFS

~~The~~On November 9, 2012, we entered into a Securities Purchase Agreement (the "Purchase Agreement") with the Carpenter Lenders, ~~foregoing~~which ~~description~~provided for (i) the sale of all of the ~~Second~~shares ~~Amendment~~of ~~does~~capital ~~not~~stock ~~purport~~(the to"MBFS beShares") ~~complete~~of our wholly owned subsidiary, MBFS, and is(ii) the ~~qualified~~assignment of our entire right in ~~its~~and ~~entirety~~to a promissory note dated as of July 25, 2011 (the "MCM Note"), made by ~~reference~~MCM toin favor of us in the ~~Second~~aggregate ~~Amendment~~principal amount of $5.0 million, ~~which~~in iseach ~~filed~~case asto the Carpenter Lenders for an ~~Exhibit~~aggregate purchase price of $5.0 10million (the "Purchase Price").22 ~~hereto~~The ~~and~~consummation ~~incorporated~~of the transactions contemplated by ~~reference~~the ~~herein~~Purchase Agreement was completed simultaneously with the signing of the Purchase Agreement on November 9, 2012. Prior to the consummation of such transactions, we received an opinion from our financial advisor, Sandler O'Neill & Partners, L.P., confirming that the portion of the Purchase Price attributable to the sale of the MBFS Shares is fair, from a financial point of view, to us. The value of consideration received exceeded the carrying amount of the assets exchanged by $1.3 million, which was recognized as additional paid in capital.

Pursuant to the terms of the Purchase Agreement, we used a portion of the Purchase Price to repay $516,667 of accrued but unpaid interest and $4,283,333 of the outstanding principal balance of the loans outstanding under the Credit Agreement. In addition, and pursuant to and in accordance with the terms of the Credit Agreement, the Carpenter Lenders converted the remaining $716,667 of the outstanding principal balance of the loans outstanding under the Credit Agreement into an aggregate of 169,424 shares of our common stock. The number of shares of our common stock issued to the Carpenter Lenders was determined by dividing the sum of the unpaid principal balance by the book value per share of our common stock (as defined in the Merger Agreement), or $4.23 per share. As a result of the consummation of these transactions, the principal balance and all accrued interest under the Credit Agreement has been repaid in full.

Rights Offering

Beginning on December 20, 2012 we conducted an offering of up to 2,212,389 shares our common stock to the Company's shareholders. The holders of record of our common stock as of 5:00 p.m., Eastern Time, on November 28, 2012, referred to as the record date, received one nontransferable subscription right for every two shares of common stock owned on the record date. However, neither Carpenter Fund Manager GP, LLC, nor any of its affiliated investment funds (the "Carpenter Funds"), which collectively owned a total of 75.6% of our outstanding common stock as of the record date, received any subscription

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rights and was not entitled to purchase shares of common stock in the offering. Each subscription right entitled each shareholder of record to a basic subscription right and an over-subscription privilege. Under the basic subscription right, the shareholder was entitled to purchase one share of our common stock at a subscription price of $4.52 per share. Under the over-subscription privilege, upon exercise of all of their basic subscription rights, the shareholder was entitled to subscribe, at the same subscription price, for an unlimited number of additional shares of common stock, provided that (i) no shareholder could own more than 4.9% of our common stock, and (ii) the aggregate subscription price of all shares of common stock purchased in the rights offering could not exceed $10 million.

The rights offering expired at 5:00 p.m. Eastern Time, on January 25, 2013. As a result of the offering, we received basic subscriptions for a total of 152,411 shares of common stock representing gross proceeds of $689 thousand. None of our shareholders exercised their over-subscription rights.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe our most critical accounting policies upon which our financial condition depends, and which involve the most complex or subjective decisions or assessments, are as follows:

Investment Securities

~~Bonds,~~Securities ~~notes and debentures~~ for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts.

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Investments not classified as held-to-maturity securities are classified as available-for-sale securities. Under the available-for-sale classification, securities can be sold in response to a variety of situations, including but not limited to changes in interest rates, fluctuations in deposit levels or loan demand, liquidity requirements, or the need to restructure the portfolio to better match the maturity or interest rate characteristics of liabilities with assets. Securities classified as available-for-sale are accounted for at their current fair value rather than amortized historical cost. Unrealized gains or losses are excluded from net income (loss) and reported as an amount net of taxes as a separate component of accumulated other comprehensive income (loss) included in shareholders' equity. Premiums or discounts on held-to-maturity and available-for-sale securities are amortized or accreted into income using the interest method.

At each reporting date, investment securities are assessed to determine whether there is any other-than-temporary impairment. The classification of other-than-temporary impairment depends on whether the Company intends to sell the security before recovery of its cost basis, and on the nature of the impairment. If the Company intends to sell a security or it is more likely than not it will be required to sell a security prior to recovery of its cost basis, it would be required to record an other than temporary loss in an amount equal to the entire difference between the fair value and amortized cost. If a security is determined to be other-than-temporarily impaired but the Company does not intend to sell the security, only the credit component of impairment is recognized in earnings and the impairment associated with non-credit factors, such as market liquidity, is recognized in other comprehensive income, net of tax. The cost basis of any other-than-temporarily impaired security is written down by the amount of any impairment adjustment recognized in earnings.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable losses embedded in the Company's existing loan portfolios as of the measurement date. In order to determine the adequacy of our loan loss allowance to absorb future losses, management performs periodic credit reviews of the loan portfolio. In so doing, management considers current economic conditions, historical credit loss experiences and other factors. Although management uses the best information available to make these estimates, future adjustments to the allowance may be necessary due to changes in economic, operating, and regulatory conditions, most of which are beyond the Company's control. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off.

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adjustments to the allowance may be necessary due to changes in economic, operating, and regulatory conditions, most of which are beyond the Company's control. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off.

When establishing the allowance for loan losses, management categorizes loans into risk categories generally based on the nature of the collateral and the basis of repayment. Loss estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the results of operations in the periods in which they become known. The allowance is increased by provisions for loan losses which, in turn, are charged to expense. The balance of a loan deemed uncollectible is charged against the allowance for loan losses when management believes that collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

Commitments to extend credit, commercial letters of credit, and standby letters of credit are recorded in the financial statements when they become payable. The credit risk associated with these commitments, when indistinguishable from the underlying funded loan, is considered in our determination of the allowance for loan losses. Other liabilities in the balance sheet include the portion of the allowance which was distinguishable and related to undrawn commitments to extend credit.

The allowance consists of specific and general components. The specific component relates to individual loans that are classified as impaired on a case-by-case basis. The general component of the Company's allowance for loan losses, which covers potential losses for all non-impaired loans, typically is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company with consideration also given to peer bank loss experience. This historic loss experience is supplemented with the consideration of how current factors and trends might impact each portfolio segment. These factors and trends include the current levels of, and trends in: delinquencies and impaired loans; charge-offs and recoveries; changes in underwriting standards; changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit and geographic concentrations.

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consideration also given to peer bank loss experience. This historic loss experience is supplemented with the consideration of how current factors and trends might impact each portfolio segment. These factors and trends include the current levels of, and trends in: delinquencies and impaired loans; charge-offs and recoveries; changes in underwriting standards; changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit and geographic concentrations.

In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses and such agencies may require the Company to recognize additional provisions to the allowance based upon judgments that differ from those of management.

Impaired Loans

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Troubled debt restructurings ("TDRs"), which are described in more detail below, also are classified as impaired.

Commercial and commercial real estate loans classified as substandard or doubtful are individually evaluated for impairment. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, may collectively be evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

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If a loan is classified impaired, a specific reserve is recorded for the loan equal to the difference between the loan's carrying value and the present value of estimated future cash flows using the loan's effective rate or at the fair value of collateral if repayment is expected solely from the collateral. TDRs are identified separately for impairment disclosures, as described in more detail below.

Troubled Debt Restructurings

A TDR is a loan for which the Company grants a concession to the borrower that the Company would not otherwise consider due to a borrower's financial difficulties. A loan's terms which may be modified or restructured due to a borrower's financial difficulty include, but are not limited to, a reduction in the loan's stated interest rate below the market rate for a borrower with similar credit characteristics, an extension of the loan's maturity, and/or a reduction in the face amount of the debt. The amount of a debt reduction, if any, is charged off at the time of restructuring. For other concessions, a specific reserve typically is recorded for the difference between the loan's book value and the present value of the TDR's expected future cash flows discounted at the current market rate for loans with similar terms, conditions, and credit characteristics. This specific reserve is accreted into interest income over the expected remaining life of the TDR using the interest method. TDRs typically are placed on non-accrual status until a sustained period of repayment performance, usually six months or longer. However, the borrower's performance prior to the restructuring, or other significant events at the time of restructuring, may be considered in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status after a shorter performance period. If the borrower's performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan.

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Subsequent to being restructured, a TDR may be classified "substandard" or "doubtful" based on the borrower's repayment performance as well as any other changes in the borrower's creditworthiness. Loans that were paid current at the time of modification may be upgraded in their classification after a sustained period of repayment performance, usually six months or longer. TDRs are identified separately for impairment disclosures and are measured at the present value of estimated future cash flows using the loan's effective rate at the time of restructuring. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For any TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

Acquired Loans

Acquired loans are recorded at fair value at the date of acquisition and include both nonperforming loans with evidence of credit deterioration since their origination date and performing loans with no such credit deterioration. The Company is accounting for a significant majority of the loans, including loans with evidence of credit deterioration acquired in the Merger in accordance with Accounting Standards Codification ("ASC") 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. In accordance with ASC 310-30, the Company has pooled performing loans at the date of purchase. The loans were aggregated into pools based on the common risk characteristics.

The difference between the undiscounted cash flows expected to be collected at acquisition and the investment in the loan, or the "accretable yield," is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the "nonaccretable difference," are not recognized as a yield adjustment, loss accrual or valuation allowance. Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows are recognized as impairment. If the Company does not have the information necessary to reasonably estimate cash flows to be expected, it may use the cost recovery method or cash basis method of income recognition. Valuation allowances on these impaired

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loans reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be received).

The excess of cash flows expected to be collected over the initial fair value of acquired loans is referred to as accretable yield and is accreted into interest income over the estimated life of the acquired loans using the effective yield method. The acceptable yield will change due to:

•: Estimate of the remaining life of acquired loans which may change the amount of future interest income
•: Estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the nonaccretable difference)
•: Indices for acquired loans with variable rates of interest
•: Improvement in the amount of expected cash flows

Acquired loans not accounted for under ASC 310-30 are subject to the provisions of ASC 310-20, Nonrefundable Fees and Costs. The cash flows associated with these loans determine the amount of the purchase discount that is to be accreted over the life of the loan using the effective interest method. Management periodically reassesses the net realizable value and in the event that credit losses inherent in the portfolio are higher than expectations, records an allowance for loan losses to the extent that the carrying value exceeds the amounts expected to be collected.

Gains From Mortgage Banking Activities

Mortgage banking activity income is recognized when the Company records a derivative asset upon the commitment to originate a loan with a borrower ~~and~~for ~~sells~~the sale of the loan to an investor. This commitment asset is recognized at fair value, which reflects the fair value of the commitment after considering the contractual loan origination-related fees, estimated sale premiums, direct loan origination costs, estimated pull-through rate and the estimated fair value of the expected net future cash flows associated with servicing of loans. Also included in gains from mortgage ~~banking~~division activities are changes to the fair value of loan commitments, forward sale commitments and loans held for sale that occur during their respective holding periods. Substantially all the gains or losses are recognized during the loan holding period as such loans are recorded at fair value. Mortgage servicing rights are recognized as assets based on the fair value upon the sale of loans when the servicing is retained by the Company.

The Company records an estimated liability for obligations associated with loans sold which it may be required to repurchase due to breaches of representations and warranties, early payment defaults or to indemnify an investor for loss incurred which the investor attributes to underwriting or other issues that the Company is responsible for. The Company periodically evaluates the estimates used in calculating these expected losses and adjustments are reported in earnings. As uncertainty is inherent in these estimates, actual amounts paid or charged off could differ from the amount recorded. The provision for repurchases is recorded in miscellaneous loan expense in the consolidated statements of operations.

Mortgage Servicing Rights

The Company measures its MSRs at fair value. This election was made to facilitate the potential future implementation of a risk mitigation strategy to hedge against potential adverse changes in the fair value of its MSRs which may arise from future changes in interest rates and other market factors. The Company has not implemented hedging strategies for its MSRs at this time.

The fair value of MSRs is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, servicing costs, ancillary income, and other economic factors based on current market conditions.

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Assumptions incorporated into the MSRs valuation model reflect management's best estimate of factors that a market participant would use in valuing the MSRs. Although sales of MSRs do occur, MSRs do not trade in an active market with readily observable prices so the precise terms and conditions of sales are not available. The Company considers its MSR values to represent a reasonable estimate of their fair value.

Income Taxes

Deferred income taxes are recognized for estimated future tax effects attributable to income tax carry forwards as well as temporary differences between income tax and financial reporting purposes. Valuation allowances are established when necessary to reduce the deferred tax asset to the amount expected to be realized. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted accordingly through the provision for income taxes.

We are required to establish a valuation ~~reserve~~allowance to cover the potential loss of these benefits, primarily due to the Company's net loss since inception. Therefore, a valuation ~~allowance~~ allowance was recorded for the entire amount of the Company's deferred tax asset at December 31, ~~2011~~2012 and ~~2010~~2011.

The Company has adopted the most current accounting guidance that clarifies the accounting for uncertainty in tax positions taken or expected to be taken on a tax return and provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by taxing authorities. Management believes that all tax positions taken to date are highly certain and, accordingly, no accounting adjustment has been made to the financial statements. Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.

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Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 2223 in the Notes to Consolidated Financial Statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income ("NII"), a key component of the Company's ability to generate earnings, is the difference between the interest income we earn on interest-bearing assets, such as loans and other interest-earning assets, and the interest we pay on deposits and borrowed funds. Since NII is impacted by the relative amounts of interest- earning assets and liabilities and interest rates earned and paid on those balances, total NII can fluctuate based upon the mix of earning assets (e.g., loans and investments) and funding liabilities (e.g., demand deposits and borrowings).

NII oftentimes is expressed as interest rate spread ("spread") and net interest margin ("NIM"). Spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate paid on funding sources or liabilities. NIM represents NII as a percentage of total average interest-earning assets. Spread is similar to NIM; however, unlike NIM, spread expresses the nominal average difference between borrowing and lending rates without compensating for the fact that the amount of earning assets and borrowed funds may be different.

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Spread and NIM are affected primarily by two factors: 1) changes in the yields on earning assets and funding liabilities due to changes in interest rates, and 2) changes in the amounts and mix of average interest-earning assets and funding liabilities (i.e., volume changes). Interest rates earned and paid are affected primarily by our competition, general economic conditions, and other factors beyond our control, including FRB policies and actions as well as governmental economic, tax, and budget initiatives.

The Company's NII totaled $415.96 million for the year ended December 31, ~~2011~~2012, ~~down~~an increase of $~~0.6~~488 ~~million~~thousand or 103% compared with ~~2010~~2011. The ~~decline~~increase in NII was largely due to ~~unfavorable changes~~an increase in ~~our~~earning ~~NIM~~assets ~~and~~as ~~spread,~~a ~~which~~result ~~more~~of ~~than~~the Merger partially offset ~~the~~by ~~favorable~~unfavorable ~~earnings~~changes ~~impact~~in ofour ~~increased~~NIM ~~interest-bearing~~and ~~assets~~spread. While average interest-bearing assets increased in ~~2011~~2012 by $773.86 million (~~6.3~~29%) compared with ~~2010~~2011, our spread decreased by ~~0.58%~~119 basis points to 34.6678% and our NIM decreased by ~~0.71%~~121 basis points to 34.7580% ~~which, in turn, adversely affected NII by 14% and 16%, respectively~~.

The ~~declines~~decrease in our spread and NIM during ~~2011~~2012 ~~were~~was due primarily to lower asset yields, ~~which~~partially ~~more than~~ offset by a small favorable change in our overall cost of funds. Loan yields ~~dropped~~decreased by ~~0.45%~~286 basis points to 5.8371% in ~~2011~~2012 compared with 68.2857% in ~~2010~~2011, reflecting heightened competition in an unprecedented low interest rate environment. Higher loan yields in 2011 were reflective of a greater amount of yield accretion associated with loans accounted for under ASC 310-30 during 2011 compared to 2012. During this same period, yields on our interest-bearing deposits ~~and~~held on deposit ~~investments~~with ~~("investable~~other ~~balances")~~financial ~~declined~~institutions decreased by ~~1.13%~~62 basis points to 20.0259% ~~compared~~in ~~with~~2012 3from 1.1521% in ~~2010,~~2011. ~~due~~Our toyield ~~a reduction~~on ininvestments ~~market~~on ~~rates~~the ~~coupled~~other ~~with~~hand aincreased ~~heavier~~by ~~concentration~~40 ofbasis ~~investable~~points ~~balances~~to 3.58% in ~~lower-yielding~~2012 compared ~~overnight~~with ~~deposits~~3.18% ~~These~~in 2011. The unfavorable ~~trends~~loan ~~were~~yield trend was also mitigated by a slight reduction in funding costs, primarily due to a ~~0.25%~~5 basis point decrease in rates paid on our ~~deposits. Since deposits represented 94% of our total funding sources, the reduction in deposit rates more than offset a 1.78% increase in~~interest-bearing ~~borrowing rates~~liabilities. The reduction in our overall ~~deposit~~cost ~~rates~~of funding was due primarily to a $1941.87 million increase in average non-interest bearing demand deposit accounts ("DDAs") within our commercial bank. ~~The~~that ~~increased~~largely ~~rates~~resulted ~~paid~~from onthe ~~our~~Merger. Our cost of borrowings, ~~which~~during ~~represented~~2012 ~~just~~was 6%more ofthan ~~our~~offset ~~total~~by ~~funding~~a ~~sources,~~the ~~were~~recognition ~~due~~of ~~primarily~~the toMerger ~~our~~related ~~borrowings~~discount ~~under~~on ~~the~~a ~~Credit~~mortgage ~~Agreement~~loan ~~and,~~used to ~~a lesser~~finance ~~extent,~~ the ~~interest~~Manhattan ~~rate~~Beach branch when that loan was paid onoff ~~the~~in ~~mortgage~~December ~~loan~~2012; ~~for~~this resulted in a ~~future~~$232 thousand ~~branch~~offset ~~location~~to interest expense on borrowings.

3938

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The following table presents the weighted average yield on each specified category of interest-earning assets, the weighted average rate paid on each specified category of interest-bearing liabilities, the resulting interest rate spread, and the net interest margin for the periods indicated:

	As Of and For Years Ended December 31,
	ANALYSIS OF NET INTEREST INCOME
	2011								2010								2009
	2012								2011								2010
	Average Balance		Interest Income/ Expense			~~Weighted Average Rate Earned~~Yield/~~Paid~~ Cost			Average Balance		Interest Income/ Expense			~~Weighted Average Rate Earned~~Yield/~~Paid~~ Cost			Average Balance		Interest Income/ Expense		~~Weighted Average Rate Earned~~Yield/~~Paid~~ Cost
	(dollars in thousands)
Interest-earning assets:
Federal funds sold/interest-bearing demand funds	$	23,496	$	54			0.23	%	$	16,532	$	39			0.24	%	$	14,223	$	38		0.27	%
Federal funds sold	$	32,014	$	84			0.26	%	$	52,548	$	123			0.23	%	$	7,451	$	—		—
Deposits with other financial institutions		13,~~951~~031		3618			10.8559	%		39,~~420~~155		52111			1.5221	%		516,~~161~~540		~~108~~258		21.0956	%
Investments(A)		16,237		752			4.63	%		20,054		1,167			5.82	%		8,033		457		5.69	%
Investments(a)		7,784		279			3.58	%		10,871		346			3.18	%		6,603		123		1.86	%
Loans(B)		89,817		5,237			5.83	%		83,734		5,260			6.28	%		66,432		3,998		6.02	%
Loans(b)		282,183		16,113			5.71	%		178,798		15,330			8.57	%		26,297		1,704		6.48	%
Total interest-earning assets		~~131~~325,~~501~~012		616,~~079~~494			45.6207	%		~~123~~251,~~740~~372		615,~~518~~910			56.2733	%		9356,~~849~~891		42,~~601~~085		43.9066	%
Non-interest-earning assets		1139,~~463~~690								719,~~799~~160								43,~~959~~472
Total assets	$	~~142~~364,~~964~~702							$	~~131~~270,~~539~~532							$	9860,~~808~~363
Interest-bearing liabilities:
Demand	$	313,~~568~~016	$	410			0.1108	%	$	~~3,018~~—	$	3—			0.1000	%	$	~~2,334~~—	$	2—		~~0.09~~—	%
Savings and money market		2693,~~471~~857		~~178~~410			0.6744	%		2571,~~271~~160		~~225~~191			0.8927	%		1418,~~001~~451		~~161~~210		1.1514	%
Certificates of deposit		3684,~~218~~922		~~496~~492			10.3758	%		4093,~~010~~242		~~574~~610			10.4365	%		2621,~~610~~724		~~483~~410		1.8289	%
Short term FHLB advances and other borrowings		2,214		224			10.12	%		63		0	(E)		0.04	%		92		0		0.10	%
FHLB advances and other borrowings		11,598		(15	)		-0.13	%		—		—			0.00	%		—		—		0.00	%
Long term FHLB advances and other borrowings		5,317		240			4.52	%		4,500		200			4.44	%		4,500		200		4.44	%
Total interest-bearing liabilities		203,393		897			0.44	%		164,402		801			0.49	%		40,175		620		1.54	%
Total interest-bearing liabilities		73,788		1,142			1.55	%		72,862		1,002			1.38	%		47,537		846		1.78	%
Non-interest-bearing demand deposits		109,794								68,133								5,328
Non-interest-bearing demand deposits		44,469								24,641								18,669
Total funding sources		313,187					0.29	%		232,535					0.34	%		45,503				1.36	%
Total funding sources		118,257					0.97	%		97,503					1.03	%		66,206				1.28	%
Non-interest-bearing liabilities		5,373								3,337								855
Non-interest-bearing liabilities		3,635								8,238								863
Shareholders' equity		46,142								34,660								14,005
Shareholders' equity		21,072								25,798								31,739
Total liabilities and shareholders' equity	$	364,702							$	270,532							$	60,363
Total liabilities and stockholders' equity	$	142,964							$	131,539							$	98,808
Excess of interest-earning assets over funding sources	$	11,825							$	18,837							$	11,388
Excess of interest-earning assets over funding sources	$	13,244							$	26,237							$	27,643
Net interest income			$	15,597							$	15,109							$	1,465
Net interest income			$	4,937							$	5,516							$	3,755
Net interest rate spread							4.78	%							5.99	%						2.30	%
Net interest rate spread(C)							3.66	%							4.24	%						3.62	%
Net interest margin							4.80	%							6.01	%						2.58	%
Net interest margin(D)							3.75	%							4.46	%						4.00	%

(Aa)Dividend income from the Bank's investment in Non-Marketable Stocks of approximately $3894 thousand, $427 thousand, and $5526 thousand ~~for 2011~~December 31, ~~2010~~2012, 2011 and ~~2009~~2010, respectively, is included in investment income; however, the corresponding average balances are included in other assets. (Bb)The average balance of loans includes loans held for sale and loans held for investment and is calculated net of deferred loan fees/costs but includes non-accrual loans, if any, with a zero yield. Loan fees net of amortized costs ~~included in total net income~~ were approximately $35166 thousand, $818 thousand, and $6132 thousand in ~~2011~~2012, 2011 and 2010, respectively. (c)Spread is derived by subtracting the aggregate interest rate paid for deposits and ~~2009~~borrowings from the interest yield on earning assets. Example: If a bank lends money at 6% and pays 1% on deposits and borrowings, ~~respectively~~its spread is 5%. (d)NIM is calculated by dividing net interest income by average earning assets. Net interest income is derived by subtracting interest expense from interest income.

40 A volume and rate variance table is provided below which sets forth the dollar differences in interest income and expense for each major category of interest-earning assets and interest-bearing liabilities for the periods indicated. The changes in interest income and expense associated with both rate and volume

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(~~C)Spread~~change isin ~~derived by subtracting the aggregate interest~~ rate ~~paid~~times ~~for deposits and borrowings from~~ the ~~interest~~change ~~yield~~in onvolume) ~~earning~~have ~~assets.~~been ~~Example:~~allocated Ifto achanges ~~bank lends~~in ~~money~~rate ~~at 6%~~ and ~~pays~~changes 1%in onvolume ~~deposits~~based ~~and~~upon ~~borrowings,~~the ~~its~~absolute ~~spread~~values isof ~~5%. (D)NIM is~~those ~~calculated~~respective ~~by dividing net interest income by average earning assets~~changes. ~~Net interest income is derived by subtracting interest expense from interest income. (E)Interest expense was $25, which rounds to $0 thousand.~~

A volume and rate variance table is provided below which sets forth the dollar differences in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the periods indicated:

	Rate/Volume Analysis of Net Interest Income Years Ended December 31,

	2012 vs 2011									2011 vs 2010
	Total			Rate			Volume			Total			Rate			Volume
Interest income:
Federal funds sold/ interest-bearing demand funds	$	(39	)	$	(4	)	$	(35	)	$	106		$	3		$	103
Deposits with other financial institutions		(93	)		(66	)		(27	)		(129	)		(58	)		(71	)
Investments		(67	)		(7	)		(60	)		222			65			157
Loans		783			(10,290	)		11,073			13,626			2,695			10,931

Net increase (decrease)		584			(10,367	)		10,951			13,825			2,705			11,120

Interest expense:
Interest bearing demand		10			5			5			—			—			—
Savings and money market		218			60			158			(18	)		(306	)		288
Certificates of deposit		(117	)		(124	)		7			199			(664	)		863
FHLB advances and other borrowings		(15	)		(8	)		(7	)		—			—			—

Net increase (decrease)		96			(67	)		163			181			(970	)		1,151

Total net increase (decrease)	$	488		$	(10,300	)	$	10,788		$	13,644		$	3,675		$	9,969

VOLUME/RATE ANALYSIS

	For the Years Ended December 31, 2011 over 2010									For the Years Ended December 31, 2010 over 2009
	Volume			Rate			Total			Volume			Rate			Total
	(in thousands)									(in thousands)
Interest income:
Federal funds sold/ interest-bearing demand funds	$	16		$	(1	)	$	15		$	6		$	(5	)	$	1
Deposits with other financial institutions		(22	)		6			(16	)		(36	)		(20	)		(56	)
Investments		(222	)		(193	)		(415	)		684			27			711
Loans		382			(405	)		(23	)		1,040			221			1,261
Net increase (decrease)		154			(593	)		(439	)		1,694			223			1,917
Interest expense:
Interest bearing demand		1			—			1			1			—			1
Savings and money market		11			(58	)		(47	)		130			(66	)		64
Certificates of deposit		(54	)		(23	)		(77	)		243			(152	)		91
Short term borrowings		—			223			223			—			—			—
FHLB advances and other borrowings		36			4			40			(1	)		1			—
Net increase (decrease)		(6	)		146			140			373			(217	)		156
Total net increase (decrease)	$	160		$	(739	)	$	(579	)	$	1,321		$	440		$	1,761

As reflected in the above tables, NII declined by $579 thousand (10%) in 2011 compared with 2010 due to unfavorable changes in interest rates, primarily related to loans and, to a lesser extent, investments and borrowings. The impact of the unfavorable change in rates was mitigated by the favorable impact of increased loan balances.

Provision for Loan Losses

In order to determine the adequacy of our loan loss allowance to absorb probable future losses, management periodically assesses the need to replenish the Bank's loan loss allowance based on management's periodic review of the inherent credit risk in our held for investment loans.

41 For the year ended December 31, 2012, our provision for loan losses totaled $1.2 million, compared with $2.7 million in 2011, a 56% decrease. Our risk factors were adjusted favorably in 2012 due to increased depth in managerial experience as well as improved loan reviews, as evidenced by external third-party reviews. Decreases in net charge-offs and decreases in loan balances more than 90 days past due also positively impacted the reserve requirements. Additionally, the loans acquired in the Merger were acquired at their fair value and were accounted for pursuant to ASC 310-20 and ASC 310-30, and as such did not require any further provision during 2012.

The proportion of our loan portfolio rated "pass" remained consistent at 90% at December 31, 2012 compared to 89% at December 31, 2011. Consistent with industry practice, the Bank sets aside reserves for all loans held for investment, including performing new loans with no known credit issues. For a discussion of risk categories, see Note 4 in the Notes to Consolidated Financial Statements.

In 2012, the Company recorded net charge-offs of $1.1 million, compared with net charge-offs of $1.5 million in 2011, a 26% decrease.

The Bank also maintains a reserve totaling $177 thousand for its off balance sheet exposure related to unfunded commitments. Consistent with industry practice, the Bank has established a contingent liability account for fraud, early payoffs and early payment defaults that may arise from mortgage loans sold to investors. This liability account was $366 thousand as of December 31, 2012.

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For the year ended December 31, 2011, our provision for loan losses totaled $80 thousand, compared with $727 thousand in 2010. Rather than reflecting increased risk in our loan portfolio, this year's provision was driven primarily by a $16.2 million (18%) growth in our loans held for investment(7). This year's provision was $647 thousand or 89% less than provisions recorded in 2010, primarily due to a recalibration of various risk factors and favorable changes in the credit performance of certain loans. Our risk factors were adjusted favorably in 2011 due to increased depth in managerial experience as well as improved loan reviews, as evidenced by external third-party reviews. The improved credit performance of our loan portfolio was reflected by a $4.2 million or 47% decline in loans risk graded as either "pass-watch" or non-pass(8), which comprised 4% of our loans held for investment as of December 31, 2011 compared with 10% at the end of the 2010.

In 2011, the Company recorded net loan loss recoveries of $13 thousand, compared with net charge-offs of $52 thousand in 2010.

The Bank also made provisions totaling $64 thousand for its off balance sheet exposure related to potential losses from residential mortgage loans sold to investors. Consistent with industry practice, the Bank has established a contingent liability account for fraud, early payoffs and early payment defaults that may arise from mortgage loans sold to investors. This liability account was $64 thousand as of December 31, 2011. Since we did not begin funding mortgage loans until the fourth quarter of 2010, loan sales were minimal in 2010; therefore, the Bank did not have a contingent liability account for sold loans as of December 31, 2010.

Non-Interest Income

Non-interest income for the years ended December 31, ~~2011~~2012 and ~~2010~~2011 was $1024.4 million and $72.73 million, respectively. This $222.71 million ~~(34%)~~ increase was due primarily to ~~significant~~revenue ~~increases~~provided inby our mortgage ~~banking~~division ~~revenues~~activity ~~which~~along ~~more~~with ~~than~~revenues ~~offset~~generated ~~decreases~~by in MCM~~'s revenues~~.

The following table reflects the major components of the Company's non-interest income:

	For the Years Ended December 31,				Variance
	For the Year Ended December 31,				Increase (Decrease)
	2011		2010		Dollars			Percent
	2012		2011		Amount			Percent
	(dollars in thousands)
Other bank fees and income	$	335	$	220	$	115			52.4	%
Whole loan sales and warehouse lending fees	$	695	$	—	$	695			100.0	%
Gain on sale of securities		45		19		26			136.8	%
Advisory income		950		—		950			100.0	%
MIMS-1 limited partnership fund(a)		299		—		299			n/a
Trading income		3,622		—		3,622			100.0	%
Mortgage-related fees		3,564		154		3,410			2214.3	%
Mortgage banking, including gain on sale on loans held for sale		15,923		—		15,923			100.0	%
Riskless trading income		4,574		4,972		(398	)		(8.0	)%
Earnings on MIMS-1 limited partnership fund		399		—		399			100.0	%
Whole loan sales and warehouse lending fees		914		1,652		(738	)		(44.7	)%
Other bank fees and income		1,173		2,316		(1,143	)		-49.4	%
Advisory income		678		732		(54	)		(7.4	)%
Rental income		324		17		307			1805.9	%
Total non-interest income	$	10,409	$	7,749	$	2,660			34.3	%
Gain on recovery of acquired loans		749		—		749			100.0	%
Gain on sale of securities		529		—		529			100.0	%
Total non-interest income	$	24,364	$	2,333	$	22,031			944.3	%

Following the ~~(a)Includes~~ Merger, our non-interest revenues include revenues generated from our mortgage division, which totaled $~~138~~15.9 ~~thousand~~million in ~~cash~~2012. ~~revenues~~Our ~~realized~~mortgage bydivision began originating loans in the ~~commercial~~fourth ~~bank~~quarter ~~and~~of ~~$160 thousand~~2010 but due to the accounting treatment in ~~non-cash~~the Merger, these revenues ~~realized~~are bynot ~~MCM~~reflected in the historic earnings of the Company prior to the Merger. The mortgage division revenue is a function of the volume of loan origination during ~~2011~~the period beginning with the Merger through the end of the year, which totaled $653 million. The loans originated during 2012 were comprised of approximately 79% in loans made to refinance existing mortgages and 21% to finance the purchase of a home.

For the year ended December 31, 2012, non-interest income from our commercial bank totaled $3.1 million, up $810 thousand (35%) from 2011. The increase was partly related to gains on the recovery of acquired loans totaling $755 thousand in 2012, where none were recognized in 2011. The increase was also related to incremental earnings from the Bank's participation in the MIMS-1 limited partnership fund, service charges on customer accounts and gains from the sale of investment securities. These increases were partially offset by decreases in banking service charges and other fees.

Following the Merger, the Company generated revenues from MCM, which came from three primary sources: trading income, facilitating trades in whole loans between institutional clients, and advisory services regarding the evaluation and packaging of other institutions' bond portfolios. We no longer have these sources of revenue after the sale of the Company's interest in MCM effective November 9, 2012.

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The following schedule summarizes loan related fees and income earned by our mortgage division for the year ended December 31, 2012:

	Year Ended December 31, 2012

	(in thousands)
Loss on rate lock commitments	$	(789	)
Gain on forward sale commitments		1,432
Fair value adjustments on loans held for sale		361
Gain on sale of loans, including value of mortgage servicing rights		15,915
Change in fair value mortgage servicing rights		(1,124	)
Servicing income		438
Servicing cost		(103	)
Mortgage origination income		32
Mortgage administration fee income		1,705
Premiums paid for rate adjustments		(2,773	)
Brokered loan income		808
Other income		21

	$	15,923

Our mortgage division originates loans almost entirely for sale to external investors. Cash gains on loan sales totaled $11.6 million in 2012, representing 73% of our mortgage division's non-interest income. We recognize the value of the MSRs for those loans sold that we have retained the servicing at the time loans are sold, for which we capitalized a total of $4.4 million in 2012. As borrowers repay their loans or we make changes to any valuation assumptions in our MSR the value of the MSRs decrease; we recorded a total of $1.1 million in decreases to the MSRs during 2012.

In order to mitigate interest rate risk, the Bank typically locks interest rates on loans held for sale at fair value prior to funding while simultaneously locking a price to sell the loans to investors. According to relevant accounting guidance, rate lock commitments with borrowers are derivatives and must be recorded at fair value. The Bank recorded a $789 thousand decrease in the fair value of its rate lock commitments reflecting a gain position of $1.1 million on a notional amount of $96.7 million in rate lock commitments as of December 31, 2012 from a gain position of $1.9 million on a notional amount of $105.7 million in rate lock commitments at the date of the Merger. The loss related to the decrease in fair value of rate lock commitments is included in the Company's mortgage banking income under non interest income in the statements of operations. The fair value of the rate lock commitments are included in the Company's other assets in the statements of condition.

All mandatory obligations to sell or purchase loans at a specific price in the future are considered to be derivatives and must be recorded at value. The Bank recorded an increase in the fair value of its forward commitments of $1.4 million, reflecting a net gain position of $19 thousand on a notional amount of $161.5 million in forward commitments as of December 31, 2012 from a loss position of $1.4 million on a notional amount of $128.7 million in forward commitments at the date of the Merger. The gain related to the increase in fair value of forward commitments is included in the Company's mortgage banking income under non interest income in the statements of operations. The fair value of the forward commitments that were in a gain position are included in the Company's other assets in the statements of condition and totaled $254 thousand at December 31, 2012 and the fair value of the forward commitments that are in a loss position are included in the Company's other liabilities in the statements of condition and totaled $235 thousand at December 31, 2012.A fair value gain of $368 thousand was recorded related to loans held for sale at fair value, which primarily relates to the increase in the amount of loans held for sale since the Merger.

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For mortgage loans sold, the Bank has established a contingency reserve in the event the Bank is required to repurchase a sold loan and incurs a loss in the process of collecting those loans. During 2012 the ~~year~~Bank ~~ended~~increased this reserve by $247 thousand, which totaled $362 thousand at December 31, ~~2011~~2012. asThe ~~compared~~Bank ~~with~~did ~~the~~not ~~same~~experience ~~period~~any losses during 2012 for loans that it had sold in ~~2010:~~the past.

During 2010, 95% of our non-interest income was generated by MCM, 2% was generated by our mortgage bank, and 3% was generated by our commercial bank.

Revenues from MCM come from three primary sources: trading income, facilitating trades in whole loans between institutional clients, and advisory services regarding the evaluation and packaging of other institutions' bond portfolios.

The $1.0 million or 14% unfavorable change in MCM's revenues primarily reflects the non-recurring nature of a substantial portion of MCM's various revenue streams which, in turn, are largely dependent on non-recurring market opportunities as they arise. Compared with 2010, MCM's revenues from riskless trading decreased $398 thousand or 8%, primarily due to increased market efficiencies which, in turn, reduced the amount of arbitrage opportunities. Also, revenues from whole loan sales and advisory income declined by $738 thousand or 45% and $54 thousand or 7%, respectively, during 2011 compared with 2010. These unfavorable changes, which reflected a decline in significant one-time projects in 2011 compared with similar periods in 2010, were mitigated by $160 thousand in increased earnings from the MIMS-1 limited partnership fund.

The decline in MCM's revenues was more than offset by increased revenues from our mortgage bank and, to a much lesser extent, commercial bank.

For the year ended December 31, 2011, non-interest income from our commercial bank totaled $518 thousand, up $279 thousand or 117% from 2010. Approximately half of this favorable increase was due to incremental earnings from the Bank's participation in the MIMS-1 limited partnership fund(9). The remainder was related primarily to service charges on customer accounts and gains from the sale of investment securities.

Non-interest revenues from our mortgage banking business totaled $3.6 million in 2011, up $3.4 million from the prior year. Our mortgage banking business, which began originating loans in the fourth quarter of 2010, generated $154 thousand in fees in 2010. The increase in mortgage banking revenues reflects a significant increase in loan fundings, which totaled $184.7 million in 2011 compared with $9.0 million in 2010.

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The following schedule summarizes loan related fees and income earned by our mortgage banking business in 2011 compared with 2010:

	Mortgage Related Fees and Income
	December 31,
	2011			2010
	(in thousands)
Gains on Rate Lock Commitments	$	487		$	—
Losses on Forward Sale Commitments		(518	)		—
Fair Value Adjustments on Loans Held for Sale		1,155			—
Cash Gains (Losses) on Sale of Loans		2,130			36
Mortgage Origination Income		106			62
Mortgage Administration Fee Income		269			34
Premiums (Paid) Received for Rate Adjustments		(134	)		22
Brokered Loan Income		69			—
Total	$	3,564		$	154

Our mortgage bank originates loans almost entirely for sale to external investors. Cash gains on loan sales of $139.2 million totaled $2.1 million in 2011, representing 60% of our mortgage bank's non-interest income. Cash gains on loan sales of $5.5 million totaled $36 thousand in 2010, representing 23% of our mortgage bank's non-interest income.

Fair value adjustments and derivative income comprised $1.1 million or 32% of our mortgage bank's non-interest income in 2011. Our mortgage bank had no fair value adjustments or derivative income in 2010.

In the third quarter of 2011, the Bank elected to record its loans held for sale at fair value for all loans originated by the Bank and held for sale as well as all loans which were both purchased and hedged. A fair value gain of $1.2 million was recorded at December 31, 2011 on $51.5 million in loans held for sale at fair value. The Bank recorded no loans held for sale at fair value in 2010.

All mandatory obligations to sell or purchase loans at a specific price in the future are considered to be derivatives and must be recorded at value. Also, in the third quarter of 2011, the Bank elected to record all of its forward sale commitments at fair value provided such commitments qualified for fair value treatment and are not otherwise considered to be derivatives. The Bank recorded a fair value loss of $518 thousand on a notional $94.1 million in forward commitments as of December 31, 2011.

Non-Interest Expense

Non-interest expense for the years ended December 31, ~~2011~~2012 and ~~2010~~2011 was $2238.20 million and $1714.28 million, respectively, an increase of $423.92 million (29157%). ~~Almost all~~Most ~~(98%)~~ of the $423.92 million increase in non-interest expenses was driven by growth in the Company's staffing levels ~~and~~due to the Merger, including the increase in infrastructure to support expansions in our mortgage and commercial ~~banks~~divisions. The ~~remainder~~Company ~~was~~also ~~due~~experienced ~~primarily~~increases ~~to $584 thousand~~ in ~~outlays~~other ~~associated~~categories of ~~with~~non-interest ~~our~~expense ~~merger~~that ~~with~~were ~~Professional~~largely ~~Business~~the ~~Bank~~result ~~and~~of athe ~~$279 thousand impairment charge related to subsidiary goodwill~~Merger.

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The following table lists the major components of the Company's non-interest expense:

					Variances
	For the Year Ended December 31,				Increase (Decrease)
	For The Year Ended December 31, 2011		For The Year Ended December 31, 2010
	2012		2011		Amount			Percent
					Dollars			Percentage
	(Dollars in thousands)
	(dollars in thousands)
Compensation and benefits	$	25,005	$	6,772	$	18,233			269	%
Compensation and benefits	$	14,798	$	11,771	$	3,027			25.7	%
Occupancy and equipment		2,724		1,404		1,320			94	%
Occupancy and equipment		1,606		1,110		496			44.7	%
Technology and communication		2,592		1,290		1,302			101	%
Technology and communication		1,830		1,417		413			29.1	%
Professional fees		4,025		2,594		1,431			55	%
Professional fees		1,906		1,421		485			34.1	%
FDIC insurance and regulatory assessments		509		285		224			79	%
Marketing and business development		554		365		189			51.8	%
Amortization of intangibles		445		473		(28	)		-6	%
Regulatory assessments		273		314		(41	)		(13.1	)%
Other non-interest expenses		2,699		1,944		755			39	%
Loan expenses		302		42		260			619.0	%
Total non-interest expense	$	37,999	$	14,762	$	23,237			157	%
Directors fees		123		202		(79	)		(39.1	)%
Education and dues		106		211		(105	)		(49.8	)%
Postage and supplies		166		115		51			44.3	%
Other non-interest operating expenses		219		263		(44	)		(16.7	)%
Impairment of subsidiary goodwill		279		—		279			N/A
Total non-interest expenses	$	22,162	$	17,231	$	4,931			28.6	%

Four expense categories comprised 9190% and 82%, of the Company's operating expenses in ~~both~~2012 ~~2011~~ and ~~2010~~2011, respectively: compensation and benefits, occupancy and equipment, technology and communication, and professional fees. These four expense categories, which totaled $2034.13 million in ~~2011~~2012, increased by $422.43 million (28185%) compared with ~~2010~~2011 and accounted for almost all ~~(90%)~~ of the total increase in our non-interest expenses in ~~2011~~2012 compared with ~~2010~~2011.

Compensation and Benefits

Compensation and benefits expense totaled $1425.80 million and $116.8 million in the years ended December 31, ~~2011~~2012 and ~~2010~~2011. These expenses comprised 6766% and 6846% of total non-interest expenses in ~~2011~~2012 and ~~2010~~2011, respectively, the largest category of operating expenses.

Compensation and benefits expense grew by $318.02 million (26269%) in ~~2011~~2012 compared with ~~2010~~2011. These increases primarily reflected growth in the Company's staffing levels due to ~~support~~the Merger and to support planned expansions in both our mortgage ~~bank~~division and, to a lesser extent, commercial ~~bank~~division. AsThe ~~reflected in the table below, the Company's mortgage bank and commercial bank increased their respective staff counts by 206% and 38%, respectively, in 2011 compared with 2010.~~

	Years Ended				Variance
Compensation Expense by Operating Segment	12/31/2011		12/31/2010		$			%
(Dollars in Thousands)
Commercial Bank	$	5,339	$	3,386	$	1,953			58	%
Mortgage Bank		3,069		543		2,526			465	%
MCM		5,975		5,766		209			4	%
Other		415		2,076		(1,661	)		(80	)%
Total segment compensation expense	$	14,798	$	11,771	$	3,027			26	%

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	As of				Variance
Number of Employees by Operating Segment	12/31/2011		12/31/2010		#			%
Commercial Bank		40		29		11			38	%
Mortgage Division		52		17		35			206	%
MCM		28		22		6			27	%
Other		—		5		(5	)		(100	)%
Total employees		120		73		47			64	%

following table provides a breakdown of the Company's compensation expense by operating segments for the years ended 2012 and 2011.

	For the Years Ended December 31,				Variance

Compensation Expense by Operating Segment	2012		2011		Amount		Percent
	(dollars in thousands)
Commercial Bank	$	9,472	$	6,772	$	2,700		40	%
Mortgage Bank		10,947		—		10,947		100	%

Total Bank		20,419		6,772		13,647		202	%
MCM		4,508		—		4,508		100	%
Other		78		—		78		100	%

Total compensation expense	$	25,005	$	6,772	$	18,233		269	%

	December 31,				Increase

Number of Employees by Operating Segment	2012		2011		Number		Percent
	(unaudited)
Commercial Bank		78		50		28		56.0	%
Mortgage Bank		110		—		110		100.0	%

Total employees		188		50		138		276.0	%

Occupancy and Equipment

Occupancy and equipment costs, which totaled $12.67 million and $1.14 million in ~~2011~~2012 and ~~2010~~2011, respectively. These expenses, which comprised 7% and 610% of total operating expenses in ~~2011~~2012 and ~~2010~~2011, respectively, increased by $~~496~~1.3 ~~thousand~~million (4594%) in ~~2011~~2012 compared with the prior year. This increase primarily reflected the additional offices acquired in the Merger along with the requisite growth in the Company's infrastructure to support expansions in our mortgage and commercial ~~banks~~divisions. Subsequent to commencing operations in the fourth quarter of 2010, our mortgage bank opened three new mortgage loan offices. Also, the commercial bank remodeled and significantly expanded its headquarters and branch facilities in 2011.

Technology and Communication

Technology and communication expense, which totaled $12.86 million and $1.43 million in ~~2011~~2012 and ~~2010~~2011, respectively, comprised 87% and 9% of the Company's total operating expenses in ~~both~~2012 ~~2011~~ and ~~2010~~2011, respectively. These expenses increased by $~~413~~1.3 ~~thousand~~million (29101%) in ~~2011~~2012 compared with the prior year. These increases primarily reflected the additional cost of operations acquired in the Merger and the requisite growth in the Company's infrastructure to support expansions in our mortgage ~~bank~~division and, to a lesser extent, commercial ~~bank, as noted above~~division.

Professional Fees

Professional fees, which totaled $14.90 million and $12.46 million in ~~2011~~2012 and ~~2010~~2011, respectively, comprised 911% and 818% of ~~the~~ the Company's total operating expenses during these same respective periods. This category of expense increased by $~~485~~1.4 ~~thousand~~million (3455%) in ~~2011~~2012 compared with the prior year, primarily due to ~~outlays~~ outlays for professional services related to various strategic initiatives undertaken by the Company, including approximately $1.2 million related to the ~~pending~~Merger ~~merger~~and ~~with~~$34 thousand ~~Professional~~related to ~~Business~~the ~~Bank~~sale of the Company's interest in MCM.

Segment Information

The Company segregates its operations into four primary segments: mortgage ~~banking~~division operations ("Mortgage ~~Bank~~Division"), commercial ~~banking~~ banking operations ("Commercial ~~Bank~~Division"), non-banking financial operations ("MCM") and "Other", which includes the holding company, ~~MBSF~~MBFS and eliminations between the Company's bank and non-bank segments. Internal financial information is used to report the financial position and operating results of each of these segments. The accounting policies of the individual

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the Company's bank and non-bank segments. Internal financial information is used to report the financial position and operating results of each of these segments. The accounting policies of the individual segments are the same as those of the Company. Operating results by business segment are presented in the following table. The Company added the mortgage division as a result of the Merger and the reported results of operations only include the seven months in 2012 since the Merger. As a result of the Merger and the sale of MBFS, the operating results provided for MCM and MBFS only reflect the five months in 2012 of operations from the Merger through the sale of MBFS on November 9, 2012, which for accounting purposes was effective on October 31, 2012.

	As of and for the Years Ended
	For the Years Ended December 31,
	12/31/2011			12/31/2010
	2012			2011
	(Dollars in Thousands)
	(in thousands)
Net interest income, after loan loss provision:
Commercial Bank	$	4,759		$	4,746
Commercial Division	$	13,270		$	12,392
Mortgage Bank		308			13
Mortgage Division		1,207			—
MCM		(134	)		30
Total Bank		14,477			12,392
Other		(76	)		—
MCM		(83	)		—
Total net interest income, after loan loss provision	$	4,857		$	4,789
Other		—			—
Total net interest income, after loan loss provision	$	14,394		$	12,392
Non-interest income:
Commercial Bank	$	462		$	240
Commercial Division	$	3,161		$	2,333
Mortgage Bank		3,423			154
Mortgage Division		15,923			—
MCM		6,519			7,397
Total Bank		19,084			2,333
Other		5			(42	)
MCM		5,878			—
Total non-interest income	$	10,409		$	7,749
Other		(598	)		—
Total non-interest income	$	24,364		$	2,333
Total revenue:
Commercial Bank		6,220			6,715
Commercial Division	$	18,355		$	18,243
Mortgage Bank		3,731			167
Mortgage Division		17,482			—
MCM		6,532			7,397
Intra-company eliminations		(352	)		—
Other		5			(12	)
Total Bank		35,485			18,243
Total revenue		16,488			14,267
MCM		5,970			—
Other		(597	)		—
Total revenue	$	40,858		$	18,243
Segment profit (loss):
Commercial Bank	$	(3,373	)	$	(1,067	)
Commercial Division	$	(1,597	)	$	(239	)
Mortgage Bank		(191	)		(598	)
Mortgage Division		2,661			—
MCM		(2,196	)		(290	)
Total Bank		1,064			(239	)
Other		(1,136	)		(2,738	)
MCM		(175	)		—
Total segment loss before taxes	$	(6,896	)	$	(4,693	)
Other		(150	)		—
Segment assets:
Total segment profit (loss)	$	739		$	(239	)
Commercial Bank	$	192,026		$	151,547
Mortgage Bank		53,278			3,748
Intra-company eliminations		(46,592	)		(4,372	)
Total Bank		198,712			150,923
MCM		5,279			2,225
Other		(2,156	)		(200	)
Total segment assets	$	201,835		$	152,948

The differences in the results of the Commercial Division for 2012 as compared to 2011 are largely related to the Merger. Net interest income after the provision for loan losses increased due to the addition of earning assets, partially offset by the addition of interest-bearing liabilities, in the Merger. Similarly, the increases in the commercial bank's non-interest income and revenue are also related to the increased

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balance sheet and customer base resulting from the Merger. The Company did not have a mortgage division or MCM segment in 2011, which were both acquired in the Merger, thus the changes in these segment line items are entirely as a result of the Merger.

FINANCIAL CONDITION

Assets

Assets at December 31, ~~2011~~2012 totaled $~~201~~465.84 million, up $48226.90 million ~~(32%)~~ from December 31, ~~2010~~2011. The significant increase in the Company's assets was driven almost entirely by ~~growth~~the ~~in our loan portfolios, especially in our mortgage bank~~Merger.

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Time Deposits at Other Financial Institutions and Investment Securities

The Bank invests in time deposits with other financial institutions as well as investment securities primarily to:

•: Provide the necessary liquidity to fund the Company's operations and meet its obligations and other commitments on a timely and cost efficient basis;
•: Mitigate the Company's interest rate risk; and
•: Generate interest income, albeit subject to the Company's liquidity needs, credit limits, and interest rate risk strategy.

We absorbed a significant portion of our loan growth by redeploying cash from our interest-bearing deposits and investment securities into ~~loan~~funding ~~fundings~~loans. As a result, our interest-bearing deposits and investment securities decreased by $269.78 million (4819%) to $2842.84 million at December 31, ~~2011~~2012, compared with $5552.52 million at December 31, ~~2010~~2011.

Time Deposits at Other Financial Institutions

Our time deposit investments generally have terms of less than two years and are placed with financial institutions in amounts that are fully insured by the FDIC. As of December 31, ~~2011~~2012, the weighted average yield for the time deposits was 0.6411% with a weighted average remaining life of approximately ~~three months~~1 month. As of December 31, ~~2010~~2011, the weighted average yield for the time deposits was 1.40% with a weighted average life of approximately ~~six~~five months.

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Investment Securities

As reflected in the following table, our securities portfolio as of December 31, ~~2011~~2012 consists primarily of securities issued by the U.S. government and government sponsored agencies (GSEs), as well as private label mortgage-backed securities.

	December 31, 2011					December 31, 2010					December 31, 2009
	December 31,
	Amount Outstanding		Percentage of Total			Amount Outstanding		Percentage of Total			Amount Outstanding		Percentage of Total
	2012					2011					2010
	(in thousands)
	Fair Value		Percent of Total			Fair Value		Percent of Total			Fair Value		Percent of Total
Held to Maturity
	(dollars in thousands)
Municipal obligations	$	—		0.0	%	$	498		3.2	%	$	498		3.2	%
Available for Sale
U.S. government and agency securities:
U.S. government treasury securities	$	—		—		$	—		—		$	2,002		14.8	%
Fixed rate note		—		0.0	%		1,449		9.4	%		1,449		9.4	%
U.S. government and agency securities Debentures		—		—			1,518		16.0	%		2,604		19.3	%
Mortgage-backed securities		7,337		63.9	%		3,947		25.7	%		3,947		25.7	%
Residential mortgage-backed securities		7,000		83.7	%		1,983		21.0	%		2,767		20.5	%
Private label mortgage-backed securities		41,~~149~~364		3616.13	%		~~9,480~~—		~~61.7~~—	%		~~9,480~~—		~~61.7~~—	%
Total investments	$	11,486		100.0	%	$	15,374		100.0	%	$	15,374		100.0	%
Municipal Securities		—		—			5,959		63.0	%		6,131		45.4	%
Totals	$	8,364		100.0	%	$	9,460		100.0	%	$	13,504		100.0	%

48 The following table reflects our investment securities at their amortized cost and estimated fair value with gross unrealized gains and losses at December 31, 2012.

	December 31, 2012

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Available-for-sale securities:
U.S. government and agency securities:	$	—	$	—	$	—		$	—
Residential mortgage-backed securities		6,942		59		(1	)		7,000
Private label mortgage-backed securities		1,310		54		—			1,364

Total available-for-sale securities	$	8,252	$	113	$	(1	)	$	8,364

Our private label mortgage-backed securities ("MBS"), which totaled $1.4 million, had a net unrealized gain of $54 thousand or 4.1% of their book values as of December 31, 2012. Of this, two securities totaling $213 thousand were rated investment grade and had no unrealized gain or loss and two securities totaling $1.2 million were rated below investment grade and had an unrealized gain of $54 thousand or 4.7% of their book values. At December 31, 2012, there were no securities issued by one issuer which exceeded 10% of our equity.

The amortized cost, estimated fair value, and average yield of our debt securities at December 31, 2012 are shown by expected maturity period in the table below. The weighted average yields are based on the estimated effective yields at period end. The estimated effective yields are computed based on interest income at the coupon interest rate, adjusted for the amortization of premiums and accretion of discounts.

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~~The~~Mortgage-backed ~~following~~securities ~~table~~are ~~reflects~~classified ~~our~~according ~~investment~~to ~~securities~~their atestimated ~~their~~lives. ~~amortized~~Expected ~~cost~~maturities ~~and~~may ~~estimated~~differ ~~fair~~from ~~value~~contractual ~~with~~maturities ~~gross~~because ~~unrealized~~borrowers ~~gains~~have ~~and~~the ~~losses~~right atto ~~December 31, 2011~~prepay their obligations.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	December 31, 2012
	(in thousands)
	Amortized Cost		Fair Value		Weighted Average Yield
December 31, 2011:
	(in thousands)
Available-for-sale securities:
U.S. government and agency securities:
Due in One Year or Less	$	2,205	$	2,226		0.94	%
Fixed rate note	$	—	$	—	$	—		$	—
Due from One Year to Five Years		5,336		5,690		2.12	%
Residential mortgage-backed securities		7,057		280		—			7,337
Due from Five Years to Ten Years		378		382		2.31	%
Private label mortgage-backed securities		4,152		79		(82	)		4,149
Due after Ten Years		333		336		5.02	%
Total available-for-sale securities	$	11,209	$	359	$	(82	)	$	11,486
Totals	$	8,252	$	8,634		1.94	%

~~Our~~Net ~~private label mortgage-backed securities ("MBS"), which include 13 securities totaling $4.2 million, had a net~~ unrealized ~~loss~~gains ofand ~~$3 thousand~~losses oron ~~0.1%~~available-for-sale ~~of their book values as of December 31, 2011. Of this, nine~~ securities ~~totaling $1.7 million were rated investment grade and had an unrealized gain~~ of $72112 thousand ~~or 4.3% of their book values~~ and ~~four securities totaling~~ $~~2.5~~483 ~~million were rated below investment grade and had an unrealized loss of $74~~ thousand orat ~~3.0% of their book values. At~~ December 31, ~~2011,~~2012 ~~nine~~and of2011, ~~our private label MBS~~respectively, ~~totaling $2.2 million,~~ were ~~issued~~included byin ~~one~~accumulated ~~issuer,~~other ~~which~~comprehensive ~~exceeded 10% of our equity~~income.

~~All~~During ofthe ~~our~~year ~~MBS~~ended ~~are backed by loans secured by first and second lien residential mortgage loans on single family residential 1-4 units. The Company's private label MBS were purchased at significant discounts to par~~December 31, ~~primarily in 2010~~2012, ~~well after~~ the ~~collapse~~Company insold ~~home~~$4.5 million ~~values that began~~ in ~~2007. These~~ securities ~~were selected specifically because of the structure and collateral of each security significantly enhanced the repayment of both principal and interest cash flows~~ at ~~par.~~a ~~The~~gain ~~weighted average purchase price~~ of ~~our MBS was 92~~$529 thousand.~~845%~~ ~~compared~~There ~~with~~were ~~the December 31,~~no ~~2011~~sales ~~market-to-market~~during ~~value of 95~~2011.~~708%,~~ ~~an increase of 2.863%.~~

~~The~~For ~~amortized~~additional ~~cost,~~information ~~estimated~~regarding ~~fair~~the ~~value~~composition, maturities and ~~average~~yields ~~yield~~ of ~~our~~the ~~debt~~security ~~securities~~portfolio atas of December 31, 2011 are shown by expected maturity period in the table below. The weighted average yields are based on the estimated effective yields at period end. The estimated effective yields are computed based on interest income at the coupon interest rate2012, ~~adjusted~~see ~~for~~Note 3 ~~the amortization~~ of ~~premiums~~the ~~and~~Notes ~~accretion of discounts. Mortgage-backed securities are classified according~~ to ~~their estimated lives. Expected maturities may differ from contractual maturities because~~Consolidated ~~borrowers~~Financial ~~have~~Statement ~~the~~in ~~right~~Item 8 toof ~~prepay~~this ~~their obligations~~document.

	Available-for-Sale Securities
	Amortized Cost		Fair Value		Weighted Average Yield
	(in thousands)
Due in One Year or Less	$	3,052	$	3,099		3.06	%
Due from One Year to Five Years		5,223		5,392		2.94	%
Due from Five Years to Ten Years		544		590		5.04	%
Due after Ten Years		2,390		2,405		4.84	%
	$	11,209	$	11,486		3.48	%

Net unrealized gains and losses on available-for-sale securities of $277 thousand and $335 thousand at December 31, 2011 and 2010, respectively, were included in accumulated other comprehensive income.

During the year ended December 31, 2011, the Company sold $1.5 million in securities at a gain of $60 thousand and $2.9 million in securities at a loss of $15 thousand. During the year ended December 31, 2010, the Company sold $1.8 million in securities for a gain of $20 thousand.

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For additional information regarding the composition, maturities and yields of the security portfolio as of December 31, 2011, see Note 3 of the Notes to Consolidated Financial Statement in Item 8 of this document.

Loans

~~Net~~We ~~loans~~offer ~~totaled~~a ~~$155.8 million~~broad atrange ~~December 31,~~of ~~2011,~~products updesigned ~~$64.9 million~~to ~~(71%)~~meet ~~from~~the ~~December 31,~~credit ~~2010. Approximately~~needs ~~three-quarters~~ of ~~this growth was generated by~~ our ~~mortgage~~borrowers. ~~bank,~~Our aslending ~~reflected~~activities byconsist ~~the~~of ~~$48.9 million~~residential mortgage ~~increase in~~ loans, ~~held~~commercial ~~for~~and ~~sale~~industrial ~~compared with December 31~~loans, ~~2010.~~commercial ~~Loans held~~real ~~for~~estate ~~investment~~loans, ~~which~~residential ~~were~~1-4 ~~generated~~family ~~by our commercial bank~~loans, ~~grew~~real byestate ~~$16.2 million~~construction ~~(18%)~~loans ~~compared~~and ~~with~~other ~~December 31,~~consumer ~~2010~~loans.

Net loans ~~Mortgage~~totaled ~~Bank~~$371.0 million at December 31, 2012, up $204.7 million (123%) from December 31, 2011. The majority of this growth was a result of the Merger, including loans generated by our mortgage division, as reflected by the $96.0 million increase in loans held for sale compared with none at December 31, 2011. Loans held for investment, which were generated by our commercial bank, grew by $108.7 million (64%) compared with December 31, 2011.

~~Our~~ ~~mortgage~~Residential ~~bank~~Mortgage originates residential real estate mortgage loans with the intent to sell the majority of such loans to qualified investors. It also purchases existing funded residential real estate mortgage loans from qualified institutions with the intent to resell these loans to qualified investors. The Bank underwrites all purchased loans for credit and regulatory compliance prior to acquisition to ensure each loan is eligible for sale to government agencies or GSEs. Our mortgage bank typically sells the loans it originates or purchases within 30 days of funding. The Company uses hedging programs to manage the interest rate risk of its secondary marketing activities. Loans

~~The outstanding~~Our ~~principal~~mortgage ~~balances~~division oforiginates ~~our~~residential real estate mortgage ~~loan~~loans ~~portfolios~~with ~~comprise~~the ~~approximately~~intent ~~32%~~to sell the majority of such loans to qualified investors. It also purchases existing funded residential real estate mortgage loans from qualified institutions with the ~~contractual~~intent ~~amount~~to ofresell ~~principal~~these ~~owed~~loans byto ~~borrowers~~qualified investors. The Bank underwrites all purchased loans for ~~our~~credit ~~entire~~and regulatory compliance prior to acquisition to ensure each loan ~~portfolio~~is eligible for sale to government agencies or GSEs. Our mortgage division typically sells the loans it originates or purchases within 30 days of funding. The Company uses hedging programs to manage the interest rate risk of its secondary marketing activities.

Commercial Bank Loans

Our commercial bank extends credit to its customers in the form of commercial loans and lines of credit, commercial real estate, residential real estate, and consumer loans, as summarized below.

Commercial and Industrial (C&I) loans: C&I loans include loans, lines of credit, and letters of credit for commercial and corporate purposes. C&I loans, which are underwritten for a variety of purposes, generally are secured by accounts receivable, inventory, equipment, machinery, and other business assets. Commercial term loans typically have maturities of four years or less as well as interest rates that float in accordance with a designated published index. Commercial lines of credit generally have one-year terms and interest rates that float in accordance with a designated published index. Substantially all of the Bank's C&I loans are secured by the personal guarantees of the business owners. C&I loans are underwritten based on an evaluation of the borrower's ability to operate and expand the borrower's business prudently and profitably. Historic and projected cash flows are analyzed to determine the borrower's ability to repay their obligations as agreed. The creditworthiness of C&I loans is based primarily on the expected cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. However, the actual cash flows from borrowers may differ significantly from projected amounts and the collateral securing these loans may materially fluctuate in value. 48

Commercial real estate loans: Commercial real estate loans are secured primarily by apartment buildings, office and industrial buildings, warehouses, small retail shopping centers and various special-purpose properties (e.g., restaurants, etc.). Although terms vary, commercial real estate loans generally have amortization periods of 25 to 30 years, balloon payments of five to ten years, and terms which provide that the interest rates thereon may be adjusted at least annually after the fixed-rate period, typically three to ten years, based on a designated index. Commercial real estate and multifamily real estate loan underwriting standards are governed by the Bank's loan policies in place at the time the loan is approved. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the

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Commercial and Industrial (C&I) loans: C&I loans include loans, lines of credit, and letters of credit for commercial and corporate purposes. C&I loans, which are underwritten for a variety of purposes, generally are secured by accounts receivable, inventory, equipment, machinery, and other business assets. Commercial term loans typically have ~~conducted~~maturities onof ~~the~~four ~~property~~years ~~securing~~or ~~the~~less ~~loan~~as well as interest rates that float in accordance with a designated published index. Commercial ~~real~~lines ~~estate~~of ~~loans~~credit ~~may~~generally behave ~~more~~one-year ~~adversely~~terms ~~affected~~and byinterest rates ~~conditions~~that float in accordance with a designated published index. Substantially all of the ~~real~~Bank's ~~estate~~C&I ~~markets~~loans orare insecured by the ~~general~~personal ~~economy~~guarantees of the business owners. ~~The~~C&I ~~properties~~loans are underwritten ~~securing~~based on an evaluation of the ~~Bank~~borrower's ~~commercial~~ability ~~real~~to ~~estate~~operate ~~portfolio~~and expand the borrower's business prudently and profitably. Historic and projected cash flows are ~~diverse~~analyzed into ~~terms~~determine the borrower's ability to repay their obligations as agreed. The creditworthiness of ~~type~~C&I loans is based primarily on the expected cash flows of the borrower and ~~geographic~~secondarily ~~location~~on the underlying collateral provided by the borrower. However, the actual cash flows from borrowers may differ significantly from projected amounts and the collateral securing these loans may materially fluctuate in value.

~~Residential~~Commercial ~~1 - 4 family~~ real estate loans: ~~Compared~~Commercial ~~with~~real ~~typical~~estate ~~commercial~~ loans, ~~residential~~are ~~real~~secured ~~estate~~primarily ~~loans~~by ~~are~~apartment buildings, office and industrial ~~generally~~buildings, ~~comprised~~warehouses, small ofretail ~~smaller~~shopping ~~loans~~centers ~~which~~and ~~have~~various ~~more~~special-purpose ~~homogenous~~properties ~~characteristics~~(e.g., restaurants, ~~These~~etc.). ~~loans~~Although ~~typically~~terms ~~have~~vary, ~~30-year~~commercial ~~maturities,~~real ~~with~~estate aloans ~~fixed~~generally ~~rate~~have amortization periods of ~~interest~~25 ~~for~~to 30 years, ~~the~~balloon ~~first~~payments of five to ten years, and an ~~adjustable~~terms which provide that the interest rates thereon may be adjusted at least annually after the fixed-rate ~~thereafter~~period, typically three to ten years, based on a designated index. Commercial real estate and multifamily real estate loan underwriting standards are governed by the Bank's loan policies in place at the time the loan is approved. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Bank's commercial real estate portfolio are diverse in terms of type and geographic location.

Residential 1 - 4 family real estate loans: Compared with typical commercial loans, residential real estate loans are generally comprised of smaller loans which have more homogenous characteristics. These loans typically have 30-year maturities, with a fixed rate of interest for the first five years and an adjustable interest rate thereafter, based on a designated index. Changes in real property values and employment status of the borrower are key risk factors that may impact the collectability of these loans, along with the condition of collateral foreclosed.

Real estate construction loans: Construction loans consist of real estate that is in the process of improvement. Repayment of these loans may be dependent on the sale of the property to third parties or the successful completion of the improvements by the builder for the end user. Construction loans also run the risk that improvements will not be completed on time or in accordance with specifications and projected costs. Construction loans generally have terms of one year to eighteen months consistent with the anticipated construction period and interest rates based on a designated index. Substantially all construction loans have built in interest reserve accounts.

Other loans: These loans are primarily home equity line of credit loans, overdrafts and consumer loans.

Commitments and Letters of Credit: In the ordinary course of business, the Company may enter into commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.

~~The following tables summarize our loans held for investment:~~ 49

	December 31, 2011						December 31, 2010
	Amount Outstanding			Percentage of Total			Amount Outstanding			Percentage of Total
	(in thousands)
Commercial loans	$	36,481			34.6	%	$	28,697			32.2	%
Commercial real estate loans		45,504			43.2	%		48,115			53.9	%
Residential real estate loans		5,644			5.4	%		—			0.0	%
Real estate—construction		4,059			3.8	%		4,069			4.6	%
Other loans		13,707			13.0	%		8,355			9.3	%
Total loans, including net loan costs		105,395			100.0	%		89,236			100.0	%
Allowance for loan losses		(1,970	)					(1,877	)
Net loans	$	103,425					$	87,359

	December 31, 2009						December 31, 2008						December 31, 2007
	Amount Outstanding			Percentage of Total			Amount Outstanding			Percentage of Total			Amount Outstanding			Percentage of Total
							(in thousands)
Commercial loans	$	26,531			33.1	%	$	18,319			31.9	%	$	7,876			43.3	%
Commercial real estate loans		46,055			57.5	%		32,956			57.4	%		9,293			51.1	%
Residential real estate loans		—			0.0	%		—			0.0	%		—			0.0	%
Real estate—construction		—			0.0	%		—			0.0	%		—			0.0	%
Other loans		7,530			9.4	%		6,167			10.7	%		1,030			5.6	%
Total loans, including net loan costs		80,116			100.0	%		57,442			100.0	%		18,199			100.0	%
Allowance for loan losses		(1,202	)					(975	)					(269	)
Net loans	$	78,914					$	56,467					$	17,930

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AsThe following ~~reflected in the above~~ tables, ~~our~~summarize ~~commercial loans and commercial real estate ("CRE") loans have historically comprised~~ the ~~majority~~composition of our ~~commercial bank's total loan portfolios, representing 78% of total~~ loans held for investment: ~~as of December 31, 2011.~~

	December 31,

	2012						2011						2010						2009
	Amount Outstanding			Percentage of Total			Amount Outstanding			Percentage of Total			Amount Outstanding			Percentage of Total			Amount Outstanding			Percentage of Total
	(Dollars in thousands)
Commercial	$	72,599			26.2	%	$	46,474			27.5	%	$	48,365			22.9	%	$	6,053			35.9	%
Commercial real estate		144,559			52.1	%		98,934			58.6	%		124,793			59.0	%		6,281			37.2	%
Residential real estate		55,250			19.9	%		20,907			12.4	%		23,134			10.9	%		4,501			26.7	%
Real estate—construction		1,873			0.7	%		35			0.1	%		11,937			5.7	%		—			—
Other		3,162			1.1	%		2,386			1.4	%		3,335			1.6	%		37			0.2	%

Total loans, including net loan costs		277,443			100.0	%		168,736			100.0	%		211,564			100.0	%		16,872			100.0	%

Allowance for loan losses		(2,414	)					(2,355	)					(1,178	)					(254	)

Net loans	$	275,029					$	166,381					$	210,386					$	16,618

As reflected in the above tables, our commercial loans and commercial real estate ("CRE") loans have historically comprised the majority of our commercial bank's total loan portfolios, representing 78.3% of total loans held for investment as of December 31, 2012.

We do not have loans to foreign entities. In addition, we have not made loans to finance leveraged buyouts or for highly leveraged transactions. We do not have any concentrations in our commercial loan portfolio by industry or group of industries, except for the level of commercial loans that are secured by real estate. The following table provides a breakdown of our CRE portfolio by type of loan.

Composition of Commercial Real Estate Loans As of December 31, ~~2011~~2012 (dollars in thousands)

	Balance		Percent of Total Loans
	Principal balance(a)		Percentage of total loans
Owner Occupied	$	9,586		9.1	%
Owner occupied	$	63,711		23.0	%
Investor Owned
Investor
Industrial		1024,~~009~~955		9.50	%
Mixed Use		4,113		3.9	%
Mixed use		12,013		4.3	%
Office		213,~~076~~110		24.07	%
Retail		1226,~~110~~337		119.5	%
Multifamily		7,610		7.2	%
Other		4,433		1.6	%
Total Investor Owned		35,918		34.1	%
Total investor		80,848		29.1	%
Total Commerical Real Estate Loans	$	45,504		43.2	%
Total	$	144,559		52.1	%

Of the gross loans held for investment outstanding as of December 31, ~~2011~~2012, approximately 9277% had adjustable rates that adjust daily based on changes in the nationally published prime rate. As reflected in the table below, 3245% of these loans were due in one year or less, 1825% were due in one to five years, and 5030% were due after 5 years. As is customary in the banking industry, loans can be renewed by mutual agreement between borrower and the Company. Because we are unable to accurately estimate the extent ~~to which our borrowers will renew their loans, the following table of commercial loan maturities is based on contractual maturities of each loan.~~

	Maturing
	Within One Year		One to Five Years		After Five Years		Total
	(in thousands)
Commercial	$	25,392	$	9,293	$	1,796	$	36,481
Commercial real estate		711		9,609		35,184		45,504
Residential real estate loans		—		—		5,644		5,644
Real estate-construction		4,059		—		—		4,059
Other Loans		3,631		60		10,016		13,707
Total	$	33,793	$	18,962	$	52,640	$	105,395
Loans with pre-determined interest rates	$	1,471	$	4,336	$	3,079	$	8,886
Loans with floating or adjustable rates		32,322		14,626		49,561		96,509
Total	$	33,793	$	18,962	$	52,640	$	105,395

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~~The~~to which our borrowers will renew their loans, the following table ~~reflects~~of ~~the~~commercial ~~Company's~~loan ~~non-accrual~~maturities ~~loans~~is atbased ~~the~~on ~~end~~contractual maturities of each ~~year~~loan. ~~indicated:~~

	December 31,
	Maturing
Non-accrual Loans	2011		2010		2009		2008		2007
	Within One Year		One to Five Years		After Five Years		Total
	(in thousands)
	(unaudited, in thousands)
Commercial and industrial		1,821		—		—		—		—
Commercial	$	55,782	$	9,962	$	6,855	$	72,599
Personal		92		—		—		—		—
Commercial real estate		29,962		57,029		57,568		144,559
Total	$	1,913	$	—	$	—	$	—	$	—
Residential real estate		10,372		14,017		30,861		55,250
Real estate—construction		1,782		54		37		1,873
Other		1,499		1,663		—		3,162
Total, excluding deferred loan fees	$	99,397	$	82,725	$	95,321	$	277,443
Loans with pre-determined interest rates	$	3,207	$	28,144	$	31,752	$	63,103
Loans with floating or adjustable rates		96,190		54,581		63,569		214,340
Total	$	99,397	$	82,725	$	95,321	$	277,443

See Note 4 in the Notes to Consolidated Financial Statements for additional information relative to the credit quality of the Company's loans held for investment.

Off-Balance Sheet Credit Commitments and Contingent Obligations

We enter into or may issue financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our customers. In both ~~2011~~2012 and ~~2010~~2011, these instruments primarily consisted of undisbursed loan commitments and forward buy/sell contracts, as discussed in more detail below. Commitments generally have fixed expiration dates or other termination clauses which may require payment of a fee.

Commercial Bank Instruments With Off-Balance-Sheet Risk

In the ordinary course of business, the Company's commercial bank enters into financial commitments to meet the financing needs of its customers, primarily through commitments to extend credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized in the Company's consolidated financial statements.

The Company's exposure to loan loss in the event of nonperformance on commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for loans reflected in its consolidated financial statements. As of December 31, ~~2011~~2012, there were $2663.4 million in undisbursed commercial loan commitments whose contractual amounts represent credit risk.

The Company's reserve for commercial loan commitments totaled $60177 thousand and $55581 thousand as of December 31, ~~2011~~2012 and ~~2010~~2011, respectively.

Mortgage Bank Instruments with Off-Balance-Sheet Risk

In order to mitigate interest rate risk, the Bank typically locks interest rates on loans ~~held for sale at fair value~~ prior to funding while simultaneously locking a price to sell the loans to investors. According to relevant accounting guidance, rate lock commitments with borrowers are derivatives and must be recorded at fair value. The Bank recorded a $789 thousand decrease in the fair value of its rate lock commitments reflecting a gain position of $~~487~~1.1 ~~thousand~~million on a notional amount of $3196.17 million in rate lock commitments as of December 31, ~~2011~~2012 from a gain position of $1.9 million on a notional amount of $105.7 million in rate lock commitments at the date of the Merger. The loss related to the decrease in fair value of rate lock

All mandatory obligations to sell or purchase loans at a specific price in the future are considered to be derivatives and must be recorded at fair value. Also, in the third quarter of 2011, the Bank elected to record all of its forward sale commitments at fair value provided such commitments qualified for fair value treatment and are not otherwise considered to be derivatives. The Bank recorded a fair value loss of $518 thousand on a notional $94.1 million in forward commitments as of December 31, 2011. 51

BOMC Instruments with Off-Balance-Sheet Risk

In the normal course of business, BOMC effectuates buy and sell orders from customers in mortgaged backed to-be-announced ("TBA") securities. In order to mitigate principal risk, BOMC does not take a

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~~position~~commitments inis ~~these~~included ~~transactions~~in ~~but~~the ~~rather~~Company's ~~arranges~~mortgage ~~for~~banking ~~simultaneous~~income ~~buyers~~under ~~and~~non-interest ~~sellers~~income ~~for~~in ~~all~~the ~~transactions~~statements ~~prior~~of tooperations. ~~executing~~The ~~either~~fair avalue ~~buy~~of ~~trade~~the orrate alock ~~sell~~commitments ~~trade. (BOMC's transactions~~ are ~~deemed~~included toin bethe ~~"Riskless~~Company's ~~Principal~~other ~~Transactions"~~assets ~~per~~in ~~Federal~~the ~~Reserve~~statements ~~System~~of ~~Regulation Y, Part 225—Subpart C—Sec~~condition. ~~225.28.)~~

~~TBAs,~~All ~~which~~mandatory ~~provide~~obligations ~~for~~to ~~the~~sell ~~delayed~~or ~~delivery~~purchase ofloans ~~the~~at ~~underlying~~a ~~financial~~specific ~~instruments,~~price in the future are ~~deemed~~considered to be derivatives and ~~involve~~must ~~off-balance~~be ~~sheet~~recorded ~~financial~~at ~~risk~~value. The Bank recorded an increase in the ~~contractual~~fair orvalue ~~notional~~of ~~amounts~~its ~~related~~forward tocommitments ~~these~~of ~~transactions~~$1.4 million, ~~reflect~~reflecting ~~BOMC's~~a ~~volume~~net ~~and~~gain ~~activity~~position ~~rather~~of ~~than~~$19 thousand ~~the~~on ~~amounts~~a atnotional ~~risk~~amount of $161.5 million ~~Instead~~in forward commitments as of December 31, 2012 from a loss position of $1.4 million on a notional amount of $128.7 million in forward commitments at the ~~risk~~date ~~related~~of tothe ~~BOMC's~~Merger. ~~TBA~~The ~~activity,~~gain ~~which~~related isto ~~due~~the increase in ~~primarily~~fair tovalue ~~counterparty~~of ~~risk,~~forward commitments is ~~limited~~included toin the ~~unrealized~~Company's ~~fair~~mortgage ~~valuation~~banking ~~gains~~income ~~recorded~~under non-interest income in the ~~Consolidated~~statements ~~Balance~~of ~~Sheets~~operations. ~~These~~The ~~gains~~fair value of the forward commitments that were in a gain position are ~~substantially~~included ~~dependent~~in ~~upon~~the Company's other assets in the statements of condition and totaled $254 thousand at December 31, 2012 and the fair value of the ~~underlying~~forward ~~financial~~commitments ~~instruments~~that ~~and~~are in a loss position are ~~affected~~included byin ~~market~~the ~~forces~~Company's ~~such~~other asliabilities ~~market~~in ~~volatility~~the statements of condition and ~~changes~~totaled in$235 thousand ~~interest~~at ~~rates~~December 31, 2012.

~~All~~See ~~of BOMC's transactions in TBAs with off-balance sheet risk outstanding at December~~Notes ~~31,~~15 ~~2011~~and ~~were~~20 ~~short-term~~ in ~~nature with maturities of three months or less. The fair values of these derivative financial instruments are included in other assets in~~ the ~~net~~Notes ~~amount~~to ofConsolidated ~~$120 thousand~~Financial onStatements afor ~~notional~~additional ~~$2.2 billion~~information inregarding ~~forward contracts as of December 31, 2011. The unrealized gains are netted against unrealized losses on~~ the ~~Consolidated~~Company's ~~Statements~~off-balance ofsheet ~~Operations~~risk.

Included in the above amounts for BOMC are forward buy contracts with our mortgage bank at a gain of $375 thousand on a notional $39.4 million as of December 31, 2011.

Additional Information

See Notes 14 and 19 in the Notes to Consolidated Financial Statements for additional information regarding the Company's off-balance sheet risk.

Non-Performing Assets

The accrual of interest on loans typically is discontinued and the loan is placed on non-accrual status at the time the loan becomes 90-days delinquent. In some cases, loans can be placed on non-accrual status or be charged-off at an earlier date if collection of principal or interest is considered doubtful.

Non-performing assets consist of non-performing loans and other real estate owned ("OREO"). Non-performing loans are (i) loans which have been placed on non-accrual status; (ii) loans which are contractually past-due 90 days or more with respect to principal or interest, have not been restructured or placed on non-accrual status, and are accruing interest; and (iii) troubled debt restructurings. OREO is comprised of real estate acquired in satisfaction of a loan either through foreclosure or deed in lieu of foreclosure.

As of December 31, 2012, 2011 and 2010, non-performing ~~assets~~loans, excluding those accounted for under ASC 310-30, consisted of ~~four~~ non-accrual ~~commercial~~ loans held for investment totaling $1.98 million, $2.4 million and ~~one~~$1.4 million, respectively. The $1.8 million in non-accrual loans at December 31, 2012 90includes $330 thousand in troubled debt restructurings that are non-~~day~~accrual ~~delinquent~~loans. ~~mortgage~~At December 31, 2012 and 2011 the Company had one property that had been foreclosed upon in satisfaction of a loan, ~~available~~which ~~for~~has ~~sale~~been atwritten ~~fair~~down to the estimated collection value net of selling costs of $3.6 million. At December 31, 2010 the Company had two properties that had been foreclosed upon in satisfaction of loans, which ~~totaled~~were written down to the estimated collection value net of selling costs of $~~351~~1.4 ~~thousand~~million. The Company had no non-performing assets at December 31, ~~2010,~~ 2009~~, 2008, or 2007~~.

The table below reflects the Company's loans held for investment on non-accrual status as of the end of the years indicated.

	As of December 31,

	2012		2011		2010
	(in thousands)
Loans on nonaccrual status	$	1,497	$	2,448	$	1,366
Loans accruing past 90 days		—		21		2,621
Troubled debt restructurings		330		2,391		1,350

Total non-performing loans		1,827		4,860		5,337
Other real estate owned		3,581		3,581		1,447

Total non-performing assets	$	5,408	$	8,441	$	6,784

	As of December 31,
Non-accrual Loans	2011		2010		2009		2008		2007
	(in thousands)
Commercial and industrial	$	1,821	$	—	$	—	$	—	$	—
Personal		92		—		—		—		—
Total	$	1,913	$	—	$	—	$	—	$	—

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~~Although~~The ~~the four~~ non-performing loans held for investment were current as of December 31, ~~2011~~2012, ~~they~~with the exception of one $535 thousand loan that is 75 days past due. The loans have been placed on non-accrual status and deemed to be credit impaired with no specific loan loss ~~allowances of $485 thousand~~.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The table below reflects the Company's impaired loans as of December 31, 2012, 2011 and 2010. There were no impaired loans as of December 31, ~~2010,~~ 2009~~, 2008, and 2007~~.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Income Recognized
	December 31,
	2012						2011
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(in thousands)
With no related allowance recorded:
Commercial	$	—1,245	$	—1,245	$	—	$	—937	$	—937	$	—
Personal		—		—		—		—		—		—
Commercial real estate		246		246		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate		326		326		—		244		244		—
Other		10		10		—		59		59		—
Subtotal		1,827		1,827		—		1,240		1,240		—
With an allowance recorded:
Commercial	$	~~1,821~~—	$	~~1,821~~—	$	~~464~~—	$	~~484~~1,208	$	—1,208	$	—627
Personal		92		92		21		61		—		—
Subtotal		—		—		—		1,208		1,208		627
Total	$	1,913	$	1,913	$	485	$	545	$	—	$	—
Totals	$	1,827	$	1,827	$	—	$	2,448	$	2,448	$	627

TDRs, which are described in Note 1 in the Notes to Consolidated Financial Statements, also are classified as impaired. As of December 31, 2011, the Company had three TDRs for which the required payment period was extended by six months to one year and their interest rates were increased by 1.5% to 2.0%. All TDRs were current in principal and interest payments due as of December 31, 2011. The Company had no TDRs at December 31, 2010, 2009, 2008, and 2007.

	2010

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(in thousands)
With no related allowance recorded:
Commercial	$	—	$	—	$	—
Commercial real estate		—		—		—
Residential real estate		—		—		—
Other		—		—		—

Subtotal		—		—		—
With an allowance recorded:
Commercial		1,300		1,300		395
Commercial real estate		—		—		—
Residential real estate		—		—		—
Other		66		66		14

Subtotal		1,366		1,366		409

Totals	$	1,366	$	1,366	$	409

	Year Ended December 31, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Forgiven Principal		Lost Interest Income
	(in thousands)
Commercial and industrial		2	$	121	$	121	$	—	$	—
Consumer		1		92		92		—		—
Total		3	$	213	$	213	$	—	$	—

TDRs, which are described in Note 1 in the Notes to Consolidated Financial Statements, also are classified as impaired. As of December 31, 2012, the Company had four TDRs for which the required payment period was extended by six months to one year and their interest rates were increased by 1.5% to 2.0%. All TDRs were current in principal and interest payments due as of December 31, 2012. At December 31, 2011, there were six TDRs, which totaled $2.8 million. The TDRs resulted from concessions

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being provided to the client in order to assist them with repayment. There was no principal forgiven on troubled debt restructurings in 2012, 2011 or 2010. The reduction in total TDRs in 2012 compared to 2011 was the result of loan payoffs. There are no commitments to lend additional funds to borrowers whose terms have been modified in a troubled debt restructuring. There were no troubled debt restructurings at December 31, 2009.

Allowance for Loan Losses and Credit Quality

The allowance for loan losses is a valuation allowance for probable losses embedded in the Bank's existing loan portfolios as of the measurement date. In order to determine the adequacy of our loan loss allowance to absorb future losses, management performs periodic credit reviews of the loan portfolio. In so doing, management considers current economic conditions, historical credit loss experiences and other factors. Although management uses the best information available to make these estimates, future adjustments to the allowance may be necessary due to changes in economic, operating, and regulatory conditions, most of which are beyond the Company's control. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off.

We categorize loans into various risk categories and employ a 10-point grading system to assess the inherent quality of our loan portfolio. Our risk categories and grading system are described in more detail in Note 4 of the Notes to Consolidated Financial Statements.

The following table provides a breakdown of the allowance for loan losses as of the end of the years indicated along with the total amount of the loans in that category shown as a percent of total loans:

	December 31,

	2012					2011					2010					2009
	Allowance		Loan Balance as a Percent of Total Loans			Allowance		Loan Balance as a Percent of Total Loans			Allowance		Loan Balance as a Percent of Total Loans			Allowance		Loan Balance as a Percent of Total Loans
Commercial	$	1,308		26.17	%		1,813		71.02	%	$	748		23.00	%	$	91		35.90	%
Commercial real estate		758		52.10	%		355		27.54	%		429		69.90	%		94		37.20	%
Residential real estate		112		19.91	%		75		0.00	%		—		0.00	%		68		26.70	%
Real estate—construction		22		0.68	%		—		0.02	%		—		5.60	%		—		0.00	%
Other		214		1.14	%		112		1.42	%		1		1.50	%		1		0.20	%

Total	$	2,414		100.00	%	$	2,355		100.00	%	$	1,178		100.00	%	$	254		100.00	%

As of December 31, 2012, 60% of our total allowance is for commercial and commercial real estate loans, which comprised 78% of total loans held for investment. This compares with December 31, 2011, at which time these same loan portfolios comprised 97% of our total allowance and 99% of total loans held for investment.

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During the year ended December 31, 2012, we recognized net charge-offs of $1.1 million, representing approximately 0.40% of the Company's average gross loan portfolio. Consistent with industry practice, the Bank sets aside reserves for all loans held for investment, including performing new loans with no known credit issues. The following table summarizes changes in our allowance for loan losses as well as the Company's loan loss experience for the periods indicated.

	For the Years Ended December 31,									For the Period March 9 (Inception) to December 31,

	2012			2011			2010			2009
	(in thousands)
Balance, beginning of period	$	2,355		$	1,178		$	254		$	—
Charged off loans
Commercial		1,133			1,129			—			20
Commercial real estate		—			254			—			—
Residential real estate held for investment		—			59			—			—
Other		12			98			—			—

Total charge-offs		1,145			1,540			—			20

Recoveries of previously charged off loans
Commercial		—			—			—			—
Commercial real estate		—			—			20			—
Residential real estate held for investment		—			—			—			—
Real estate—construction		—			—			—			—
Other		1			—			—			—

Total recoveries		1			—			20			—

Net charge-offs		(1,144	)		(1,540	)		20			(20	)

Total Provision		1,203			2,717			904			274

Balance, end of period	$	2,414		$	2,355		$	1,178		$	254

Net charge-offs to total loans		-0.41	%		-0.91	%		0.01	%		-0.12	%
Allowance for loan losses to toal loans at end of year		0.87	%		1.40	%		0.56	%		1.51	%

For the year ended December 31, 2012, our provision for loan losses totaled $1.2 million, compared with $2.7 million in 2011. This year's reduced provision was driven primarily by improved credit performance. The 2011 provision of $2.7 million, or 26% more than provisions recorded in 2012, was primarily due to higher charge-offs. Our risk factors were adjusted favorably in 2012 due to increased depth in managerial experience as well as improved loan reviews, as evidenced by external third-party reviews. Additionally, the loans acquired in the Merger were acquired at their fair value pursuant to ASC 310-20 and ASC 310-30, and as such did not require any further provision during 2012.

Potential Problem Loans

The Company classifies loans consistent with federal banking regulations using a nine category grading system. Our potential problem loans consisted of 14 loans and totaled approximately $14.5 million at December 31, 2012, compared to $6.1 million at December 31, 2011. The potential problem loans at December 31, 2012 consist primarily of loans that the Bank is attempting to obtain current financial

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~~We categorize loans into various risk categories and employ a 10-point grading system to assess the inherent quality of our loan portfolio. Our risk~~information ~~categories~~from ~~and grading system are described~~ in ~~more~~order ~~detail in Note 4 of the Notes~~ to ~~Consolidated~~evaluate ~~Financial Statements~~risk. ~~Based~~The onfollowing ~~management's~~table ~~most~~presents ~~recent~~information ~~analysis,~~regarding ~~the~~potential ~~risk~~problem ~~category of~~ loans, ~~by type~~consisting of ~~loan~~loans asgraded ofwatch, ~~December 31~~substandard, ~~2011~~doubtful and ~~2010~~loss, isbut ~~as follows~~still performing:

	December 31, 2011
	At December 31, 2012
	Pass		Special Mention		Substandard			Doubtful			Total
	Number of Loans		Loan Balance		Percent			Percent of Total Net Loans
	(in thousands)
	(dollars in thousands)
Commercial loans	$	33,468	$	736	$	2,242		$	35		$	36,481
Construction and land development		—				0.00	%		0.00	%
Commercial real estate		~~43,985~~6		16,~~519~~813		—46.77	%		—2.45	%		~~45,504~~
Residential real estate loans		5,644		—		—			—			5,644
Residential real estate		1		872		5.99	%		0.31	%
Real estate—construction		4,059		—		—			—			4,059
Commercial and industrial		7		6,882		47.24	%		2.48	%
Other loans		13,609		—		98			—			13,707
Other		—		—		0.00	%		0.00	%
Total Loans	$	100,765	$	2,255	$	2,340		$	35		$	105,395
Total		14	$	14,567		100.00	%		5.25	%

	December 31, 2010
	Pass		Special Mention		Substandard		Doubtful		Total
	(in thousands)
Commercial loans	$	25,065	$	2,000	$	1,632	$	—	$	28,697
Commericial real estate		41,547		1,884		—		—		43,431
Construction		8,753		—		—		—		8,753
Other loans		8,110		—		245		—		8,355
Total Loans	$	83,475	$	3,884	$	1,877	$	—	$	89,236

Mortgage Servicing Rights

~~The following~~As ~~table~~of ~~provides~~December 31, 2012,we had $5.1 million in MSRs. We acquired MSRs totaling $1.9 million as a ~~breakdown~~part of the Merger, ~~allowance~~which ~~for~~increased by $4.4 million due to loans sold with servicing retained that was partially offset by a decrease of $1.2 million due to loan ~~losses~~pay asoffs. MSRs are initially recorded at fair value. The fair value of servicing assets is determined based on the ~~end~~present value of estimated net future cash flows related to contractually-specified servicing fees. The primary determinants of the ~~years~~fair ~~indicated:~~value of MSRs are prepayment speeds and discount rates. Published industry standards are used to derive market-based assumptions. Changes in the assumption used may have a significant impact on the valuation of mortgage servicing assets. Evaluation of impairment is performed on a quarterly basis. We record MSRs for loans sold for which servicing has been retained by the Company when it securitizes loans with the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac"); the Company uses a third party sub-servicer to service these loans.

There was ~~Allocation~~no impairment of ~~the~~mortgage ~~Allowance~~servicing ~~for~~rights ~~Loan~~during ~~Losses~~ 2012.

	December 31,
	2011					2010					2009					2008					2007
	Allowance		% of Total Loans			Allowance		% of Total Loans			Allowance		% of Total Loans			Allowance		% of Total Loans			Allowance		% of Total Loans
	(Dollars in Thousands)
Commercial loans	$	990		34.6	%	$	553		32.2	%	$	552		33.1	%	$	975		31.9	%	$	269		43.3	%
Commercial real estate		740		43.2	%		1,059		53.9	%		486		57.5	%		—		57.4	%		—		51.1	%
Residential real estate		—		5.3	%		—		0.0	%		—		0.0	%		—		0.0	%		—		0.0	%
Real estate—construction		55		3.9	%		131		4.6	%		70		0.0	%		—		0.0	%		—		0.0	%
Other loans		185		13.0	%		134		9.3	%		94		9.4	%		—		10.7	%		—		5.6	%
Total Loans	$	1,970		100.0	%	$	1,877		100.0	%	$	1,202		100.0	%	$	975		100.0	%	$	269		100.0	%

Deposits and Borrowed Funds

AtThe ~~December 31, 2011, the~~ Company's ~~allowance~~deposits ~~for~~at ~~loan~~December 31, ~~losses~~2012 totaled $2383.03 million, orup 1$182.872 million (91%) compared with year-end 2011. Most of ~~gross~~the ~~loans~~increase ~~held~~in ~~for~~deposits ~~investment, compared~~resulted ~~with~~from $1the Merger.~~9 million~~ orThe ~~2.10%~~following oftable ~~gross~~sets ~~loans~~forth ~~held~~the ~~for~~amount ~~investment~~of deposits outstanding by category at December 31, ~~2010.~~2012 and 2011:

As of December 31, 2011, 88% of our total allowance is for commercial and commercial real estate loans, which comprised 78% of total loans held for investment. This compares with December 31, 2010, at which time these same loan portfolios comprised 86% of our total allowance and 86% of total loans held for investment.

	December 31, 2012					December 31, 2011

	Amount		Percent			Amount		Percent
	(dollars in thousands)
Non-interest bearing deposits	$	125,254		32.7	%	$	70,188		34.9	%
Interest bearing demand		15,156		4.0	%		10,480		5.2	%
Savings and money market		146,042		38.1	%		62,678		31.2	%
Certificate of deposit less than $100,000		21,079		5.5	%		25,949		12.9	%
Certificate of deposit $100,000 and over		75,800		19.8	%		31,857		15.8	%

Total deposits	$	383,331		100.0	%	$	201,152		100.0	%

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~~During~~As ~~the~~of ~~year ended~~ December 31, ~~2011~~2012, wecertificates ~~recognized net loan recoveries~~ of ~~$13 thousand.~~deposit Incomprised ~~2010, the Bank recognized net charge-offs of $52 thousand, representing approximately 0.06~~25% of the Company's ~~average~~total ~~gross~~deposits, ~~loan~~of ~~portfolio.~~which ~~The~~78% ~~following~~of ~~table~~had ~~summarizes~~balances ~~changes~~of in$100,000 ~~our~~or ~~allowance~~more ~~for~~and ~~loan~~57% ~~losses~~had asmaturities ~~well~~of ~~as the Company's loan loss experience~~three ~~for~~months ~~the~~or ~~periods indicated~~less.

	For the Years ended December 31,
	December 31, 2012
	2011			2010			2009			2008		2007
	Less than $100,000			Greater Than or Equal to $100,000			Total
	(in thousands)
Balance at beginning of period	$	1,877		$	1,202		$	975		$	269	$	—
Three months or less	$	11,323		$	43,551		$	54,874
Provision for loan losses		80			727			1,179			706		269
Over three and through twelve months		8,371			19,604			27,975
Charge-offs
Over twelve months		1,385			12,645			14,030
Commercial		—			(100	)		(967	)		—		—
Total	$	21,079		$	75,800		$	96,879
Commercial real estate		—			—			—			—		—
Construction real estate		—			—			—			—		—
Residential 1- 4 family real estate		—			—			—			—		—
Other		(2	)		—			(23	)		—		—
Total charge-offs		(2	)		(100	)		(990	)		—		—
Recoveries
Commercial		14			47			37			—		—
Commercial real estate		—			—						—		—
Construction real estate		—			—						—		—
Residential 1- 4 family real estate		1			1			1			—		—
Other		15			48			38			—		—
Net recoveries (charge-offs)		13			(52	)		(952	)		—		—
Balance at end of period	$	1,970		$	1,877		$	1,202		$	975	$	269
Ratio of net recoveries (charge-offs) during the period to average loans outstanding during the period		0.014	%		(0.06	)%		(1.49	)%		—		—

~~For~~As ~~the~~of ~~year~~December 31, ~~ended~~2012, borrowings totaled $19.5 million. There were no outstanding borrowings at December 31, 2011, ~~our~~2010 ~~provision~~or ~~for~~2009. ~~loan~~The ~~losses~~Bank ~~totaled~~utilizes short-term ~~$80 thousand,~~and ~~compared~~long-term ~~with~~advances ~~$727 thousand~~from inthe ~~2010~~FHLB as a funding source. ~~Rather~~The ~~than~~maximum ~~reflecting~~amount ~~increased~~the ~~risk in~~Bank ~~our~~may ~~loan~~borrow ~~portfolio,~~under this ~~year's~~arrangement ~~provision~~is ~~was~~limited ~~driven~~to ~~primarily~~the bylesser of a ~~$16.2 million~~percentage ~~(18%)~~of eligible ~~growth~~collateral inor ~~our~~25% ~~loans~~of ~~held~~the ~~for~~Bank's ~~investment(10)~~total assets. ~~This~~The ~~year's~~Company ~~provision~~had ~~was~~one outstanding long-term advance for $~~647~~4.5 ~~thousand~~million orat ~~89% less~~December 31, ~~than~~2012, ~~provisions~~which ~~recorded~~matures ~~in 2010~~on June 27, ~~primarily~~2013 ~~due~~and tobears a ~~recalibration~~fixed rate of ~~various~~4.38%. ~~risk~~As ~~factors~~a ~~and~~result ~~favorable~~of ~~changes~~the inMerger, we adjusted the ~~credit~~carrying ~~performance~~value of ~~certain~~this ~~loans.~~long-term ~~Our~~advance ~~risk~~to ~~factors~~reflect ~~were~~the ~~adjusted~~market rates at the time, which was ~~favorably~~a indiscount ~~2011~~that ~~due~~totaled to$90 thousand ~~increased~~at ~~depth~~December 31, in2012 ~~managerial~~and ~~experience~~is asbeing ~~well~~accreted asto ~~improved~~interest ~~loan~~expense ~~reviews,~~over asthe ~~evidenced~~remaining byterm ~~external~~of ~~third-party~~the ~~reviews~~advance. ~~The~~Based ~~improved~~on ~~credit~~eligible ~~performance~~collateral available as of December 31, ~~our~~2012, ~~loan~~the ~~portfolio was~~Company's ~~reflected~~total byborrowing acapacity from the FHLB was $495.28 million. orFHLB ~~47%~~short-term ~~decline~~advances inas ~~loans~~of ~~risk~~December 31, ~~graded~~2012 aswere ~~either~~$15.0 million. FHLB ~~"pass-watch"~~advances orare ~~non-pass,~~collateralized ~~which~~by ~~comprised~~loans 4%with ofunpaid ~~our~~principal ~~loans~~balances ~~held~~of ~~for~~$194.7 million and ~~investment~~a asmarket value of ~~December~~ $192.6 ~~31,~~million ~~2011~~(as ~~compared~~determined ~~with~~by ~~10%~~the atFHLB) ~~the~~and ~~end~~securities ofwith ~~the~~a ~~2010~~market value of $0.9 million.

At December 31, 2012, the scheduled maturity of the Company's FHLB long-term advance follows:

		Interest

Amount		Rate			Type	Maturity Date
(in thousands)
$	4,500		4.38	%	Fixed	6/27/2013

$	4,500

The following table reflects the Company's short-term borrowings for the periods indicated:

	End of Period							Average

	End of Period					Maximum Month- end Outstanding Balance during the Period		Average
	Balance Outstanding		Rate			Maximum Month- end Outstanding Balance during the Period		Balance Outstanding		Rate
	(dollars in thousands)
*2012*
Short term FHLB advances and other borrowings	$	15,000		0.28	%	$	40,000	$	6,398		0.26	%

Liquidity and Liquidity Management

The adequacy of the Company's liquidity is favorably reflected in its interest-bearing overnight deposit balances at a level that would cushion unexpected increases in loans or decreases in customer deposits. During 2012, we had an average balance of $32 million in interest-bearing overnight deposit balances, representing 10% of our average assets. During 2011, we had an average balance of $54.6 million in interest-bearing overnight deposit balances, representing 22% of our average assets.

As of December 31, 2012 and 2011, liquid assets represented 11% and 35% of our total deposits, respectively. Liquid assets include cash, federal funds sold, interest-bearing deposits in other financial

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Asinstitutions, ~~reflected~~and available-for-sale investment securities that have not been pledged as collateral. The decline in this ratio reflects the ~~table~~redeployment ~~below~~of liquid assets in higher-yielding loans, ~~all~~primarily ofgenerated by our ~~loans~~mortgage ~~held~~division. ~~for~~The ~~investment~~11% ~~were~~ratio ~~current~~at asyear-end of2012 ~~December 31,~~was ~~2011~~deemed adequate for managing the Company's liquidity.

	December 31, 2011
	Current		30 to 59 Days		60 to 89 Days		Greater than 90 Days		Total
	(in thousands)
Commercial loans	$	36,481	$	—	$	—	$	—	$	36,481
Commercial real estate loans		45,504		—		—		—		45,504
Residential real estate loans		5,644		—		—		—		5,644
Real estate—construction		4,059		—		—		—		4,059
Other loans		13,707		—		—		—		13,707
Total loans, including net loan costs	$	105,395	$	—	$	—	$	—	$	105,395

While liquidity has not been a major concern in either 2012 or 2011, management has established secondary sources of liquidity in addition to the previously noted borrowing capacity at the FHLB. At present, the Company maintains a line of credit totaling $17 million with correspondent banks for obtaining overnight funds. (These lines are subject to availability and have restrictions as to the number of days funds can be used each month.) Another method that the Bank currently has available for acquiring additional deposits is through the use of "reciprocal brokered deposits" through the CDARS program. No reciprocal deposits through CDARS were outstanding as of December 31, 2012 or 2011.

	December 31, 2010
	Current		30 to 59 Days		60 to 89 Days		Greater than 90 Days		Total
	(in thousands)
Commercial loans	$	28,697	$	—	$	—	$	—	$	28,697
Commercial real estate loans		48,115		—		—		—		48,115
Residential real estate loans		—		—		—		—		—
Real estate—construction		2,712		1,357		—		—		4,069
Other loans		8,355		—		—		—		8,355
Total loans, including net loan costs	$	87,879	$	1,357	$	—	$	—	$	89,236

The Bank monitors concentrations of funds which are provided by a single investor or from a single related source on a monthly basis to assist in its assessment of liquidity. As of December 31, 2012 there were four relationships representing approximately 16% of the Company's total deposits, excluding brokered deposits.

~~A discussion~~ ofRegulatory ~~our loans on non-accrual status can be found in "Non-Performing Assets" within "FINANCIAL CONDITION."~~ Capital

~~A loan~~Under isregulatory ~~impaired~~capital ~~when~~adequacy guidelines, ~~based~~capital onadequacy ~~current~~is ~~information~~measured ~~and~~(1) as ~~events,~~a itpercentage isof ~~probable~~risk-adjusted assets ~~that~~in wewhich ~~will~~risk bepercentages ~~unable~~are applied to ~~collect~~assets ~~all~~on ~~amounts~~the ~~due~~balance ~~according~~sheet toas ~~the~~well ~~contractual~~as ~~terms~~off-balance ofsheet, ~~the~~such as unused loan commitments and standby letters of credit, and (2) as a ~~agreement~~percentage of the most recent quarter's average tangible assets. The ~~table~~guidelines ~~below~~require ~~reflects~~that ~~our~~a ~~impaired~~portion ~~loans~~of astotal ofcapital ~~December~~be core, or Tier 311, ~~2011.~~capital Weconsisting ~~had~~of nocommon ~~impaired~~shareholder's ~~loans~~equity after asremoving the effects of ~~December 31~~unrealized gain or loss on available-for-sale securities. Total capital consists of other elements, ~~2010~~primarily allowance for loan losses.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Income Recognized
With no related allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—	$	—
Personal		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	—
With an allowance recorded:
Commercial	$	1,821	$	1,821	$	464	$	484	$	—	$	—
Personal		92		92		21		61		—		—
Total	$	1,913	$	1,913	$	485	$	545	$	—	$	—

As discussed in Note 16 in the Notes to Consolidated Financial Statements, our capital exceeded the minimum regulatory requirements and exceeded the regulatory definition required to be "well capitalized" as defined in the regulations issued by our regulatory agencies.

~~There~~ ~~were~~ ITEM no7A. QUANTITATIVE ~~other~~AND ~~potential~~QUALITATIVE ~~problem~~DISCLOSURES ~~loans~~ABOUT ~~other~~MARKET ~~than what has been disclosed in the above discussions.~~ RISK

Not applicable for smaller reporting companies.

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ITEM ~~Deposits~~8. FINANCIAL ~~and~~STATEMENTS ~~Borrowed~~AND ~~Funds~~ SUPPLEMENTARY DATA

The Company's deposits at December 31, 2011 totaled $169.7 million, up $47.5 million (39%) compared with year-end 2010. Most of the increase in deposits occurred in certificates of deposits (CDs), which grew by $39.2 million (104%) to $76.8 million. The significant increase in our deposits reflected the Company's additional funding requirements arising a $48.9 million increase in our mortgage loans held for sale which, in turn, typically are sold within 30 days. Therefore, in order to mitigate risk, we utilized wholesale deposit channels to generate additional short-term CDs, thereby approximating a "matched-funding" strategy for our mortgage banking business. To this end, we increased our wholesale CDs by $37.7 million, of which $37.0 million had one-month maturities. We also replaced $4.5 million in existing longer-term wholesale deposits with wholesale deposit accounts that had two-month maturities.

		Page

Report of Independent Registered Public Accounting Firms			60
Financial Statements:
Consolidated Balance Sheets			61
Consolidated Statements of Operations			62
Consolidated Statements of Other Comprehensive Income			63
Consolidated Statements of Changes in Total Equity			64
Consolidated Statements of Cash Flows			65
Notes to Consolidated Financial Statements			68

The following table sets forth the amount of deposits outstanding by category at December 31, 2011 and 2010:

					Variance
	December 31, 2011		December 31, 2010
(dollars in thousands)					Dollars			Percent
Deposit Classifications:
Non-interest bearing deposits	$	51,736	$	52,894	$	(1,158	)		(2.2	)%
Interest bearing demand		4,599		3,165		1,434			45.3	%
Savings and money market		36,545		28,556		7,989			28.0	%
Certificate of deposit $100,000 and over		37,387		33,934		3,453			10.2	%
Certificate of deposit less than $100,000		39,433		3,696		35,737			966.9	%
Total deposits	$	169,700	$	122,245	$	47,455			38.8	%

As of December 31, 2011, certificates of deposit comprised 45% of the Company's total deposits, of which 97% of had balances of $100,000 or more and 84% had maturities of three months or less.

	As of December 31, 2011
	Less than $100,000		Greater Than or Equal to $100,000		Total
			(in thousands)
Three months or less	$	678	$	46,141	$	46,819
Over three and through twelve months		1,471		16,516		17,987
Over twelve months		384		11,630		12,014
Total	$	2,533	$	74,287	$	76,820

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~~Approximately~~ ~~27%~~ ~~of the Company's time deposits were generated organically(11), most of which mature in 2012. The following table reflects the remaining scheduled maturities of the~~ ~~Company's~~ REPORT ~~time~~OF ~~deposits~~INDEPENDENT byREGISTERED ~~calendar~~PUBLIC ~~year~~ACCOUNTING ~~and source as of December 31, 2011:~~ FIRM

	Time Deposit Maturities by Funding Source As of December 31, 2011
	Organic(a)		Listed(b)		Broker(c)		CDARS(d)		Total
	(in thousands)
2012	$	15,877	$	11,929	$	37,000	$	—	$	64,806
2013		4,127		2,690		—		—		6,817
2014		25		250		—		—		275
2015		445		—		—		—		445
2016		—		4,477		—		—		4,477
Total	$	20,475	$	19,346	$	37,000	$	—	$	76,820

To the Board of Directors and Stockholders
Manhattan Bancorp and subsidiaries

We have ~~(a)Organic deposits~~audited ~~are~~the ~~deposits~~accompanying ~~held~~consolidated bybalance ~~the~~sheets ~~Company's~~of ~~commercial~~Manhattan Bancorp and ~~retail~~subsidiaries ~~banking~~as ~~customers. (b)Listed deposits~~of ~~are~~December 31, ~~deposits~~2012 ~~held~~and by2011, ~~other~~and ~~financial~~the ~~institutions. (c)Broker deposits~~related ~~are~~consolidated ~~certificates~~statements of operations, ~~deposit~~comprehensive ~~purchased~~income, ~~from~~changes ain ~~broker~~total ~~acting~~equity, asand ancash ~~agent~~flows for ~~depositors~~the years then ended. ~~(d)CDARS are~~ ~~deposits~~These ~~sourced~~financial ~~through~~statements ~~Certificate~~are ofthe ~~Deposit~~responsibility ~~Account~~of ~~Registry~~the ~~Service~~Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

AsWe ofconducted ~~December 31,~~our ~~2011,~~audits ~~borrowings~~in ~~totaled~~accordance ~~$10.5~~with ~~million,~~the upstandards ~~$6.0~~of ~~million~~the ~~(134%)~~Public ~~compared~~Company ~~with~~Accounting ~~December 31,~~Oversight ~~2010~~Board (United States). OfThose ~~this~~standards ~~increase,~~require $5that ~~million~~we ~~represented~~plan and perform the ~~Company's~~audit to ~~borrowings~~obtain ~~pursuant~~reasonable toassurance aabout ~~Credit~~whether ~~Agreement~~the ~~with~~financial ~~Carpenter~~statements ~~Community~~are ~~Bancfund, L~~free of material misstatement.P. ~~and~~The ~~Carpenter~~Company ~~Community~~is ~~Bancfund-A~~not required to have, ~~L.P.~~ ~~This~~nor ~~loan~~were ~~accrues~~we ~~interest~~engaged atto ~~the~~perform, ~~rate~~an audit of ~~5.00%~~its ~~and~~internal iscontrol ~~due~~over infinancial ~~June 2012~~reporting. ~~The~~Our ~~Company~~audit ~~used~~included ~~these~~consideration ~~proceeds~~of tointernal ~~make~~control over financial reporting as a $5basis ~~million~~for ~~loan~~designing toaudit ~~MCM~~procedures that are appropriate in the circumstances, ~~almost~~but not ~~all~~for the purpose of ~~which~~expressing ~~was~~an ~~used~~opinion byon ~~MCM~~the toeffectiveness ~~infuse~~of ~~capital~~the ~~into~~Company's ~~its~~internal ~~various~~control ~~subsidiaries~~over infinancial ~~order~~reporting. toAccordingly, ~~grow~~we ~~business volumes~~express ~~and~~no ~~increase~~such ~~revenues~~opinion. ~~(See~~An ~~Note 9~~audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the ~~Notes~~financial tostatements, ~~Consolidated~~assessing ~~Financial~~the ~~Statements~~accounting ~~for~~principles ~~further~~used ~~details~~and ~~regarding~~significant estimates made by management, as well as evaluating the ~~Credit~~overall ~~Agreement~~financial statement presentation.) We believe that our audits provide a reasonable basis for our opinion.

In ~~addition~~our ~~to the Credit Agreement~~opinion, the ~~Bank~~consolidated ~~also~~financial ~~entered~~statements ~~into~~referred ato ~~$1.1~~above ~~million~~present ~~mortgage loan in April 2011 for a future branch location in Manhattan Beach~~fairly, ~~California with interest-only payments at 5.00%, due~~ in ~~full~~all onmaterial ~~April 5~~respects, ~~2021.~~the ~~There~~financial ~~was~~position noof ~~mortgage~~Manhattan ~~payable~~Bancorp ~~outstanding~~and atsubsidiaries as of December 31, ~~2010.~~2012 ~~The~~and ~~total~~2011 ~~cost~~and of the ~~branch,~~results ~~including renovations,~~of istheir ~~expected~~operations toand betheir ~~approximately~~cash ~~$2.9~~flows ~~million,~~for ~~and~~the ityears isthen ~~expected~~ended, toin ~~open~~conformity inwith ~~the~~U.S. ~~summer~~generally ofaccepted ~~2012~~accounting principles.

The Bank also utilizes advances from the FHLB as a funding source. The maximum amount the Bank may borrow under this arrangement is limited to the lesser of a percentage of eligible collateral or 25% of the Bank'/s ~~total assets. Outstanding advances were $4.5 million at both December 31, 2011 and 2010. Based on eligible collateral available as of December 31, 2011,~~/ ~~the Company's total borrowing capacity from the FHLB was $31.7 million. FHLB advances as of December~~McGladrey ~~31,~~LLP ~~2011 were collateralized by loans with unpaid principal balances of $53.9 million and a market value of $48.8 million (as determined by the FHLB) and securities with a market value of $7.2 million.~~

Los Angeles, CA

March 29, 2013

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At ~~December 31,~~ Manhattan ~~2011,~~Bancorp ~~the~~and ~~scheduled~~Subsidiaries Consolidated ~~maturity~~Balance ofSheets (Dollars ~~the~~in ~~Company's FHLB advances is as follows:~~ thousands)

			Interest
		December 31, 2012			December 31, 2011
Amount			Rate			Type		Maturity Date
Assets
(in thousands)
Cash and due from banks		$	6,949		$	6,779
$	4,500			4.38	%	Fixed		6/27/2013
Federal funds sold/interest bearing demand funds			33,221			38,756
$	4,500
Total cash and cash equivalents			40,170			45,535
Time deposits—other financial institutions			829			3,952
Investment securities—available for sale, at fair value			8,364			9,460
Loans held for sale, at fair value			96,014			—
Loans held for investment			277,443			168,736
Allowance for loan losses			(2,414	)		(2,355	)
Net loans held for investment			275,029			166,381
Total loans, net			371,043			166,381
Premises and equipment, net			9,039			4,201
Federal Home Loan Bank and Federal Reserve stock			4,526			1,986
Goodwill			7,396			—
Core deposit intangible			2,574			1,863
Other real estate owned			3,581			3,581
Investment in limited partnership fund			6,655			—
Mortgage servicing rights			5,123			—
Accrued interest receivable			754			675
Other assets			5,333			1,750
Total assets			465,387			239,384
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing demand			125,254			70,188
Interest bearing:
Demand			15,156			10,480
Savings and money market			146,042			62,678
Certificates of deposit equal to or greater than $100,000			75,800			25,949
Certificates of deposit less than $100,000			21,079			31,857
Total deposits			383,331			201,152
FHLB advances and other borrowings			19,590			—
Accrued interest payable and other liabilities			5,338			3,044
Total liabilities			408,259			204,196
Stockholders' equity
Serial preferred stock—no par value; 10,000,000 shares authorized; issued and outstanding: none in 2012 and 2011			—			—
Common stock—no par value; 30,000,000 authorized; issued and outstanding: 12,355,857 in 2012 and 357,500 in 2011			—			—
Additional paid in capital			61,617			36,006
Accumulated other comprehensive income			112			483
Accumulated defecit			(4,601	)		(3,992	)
Total stockholders' equity			57,128			32,497
Non-controlling interest			—			2,691
Total equity			57,128			35,188
Total liabilities and stockholders' equity		$	465,387		$	239,384

~~The~~ ~~following~~The ~~table~~accompanying ~~reflects~~notes ~~the~~are ~~Company's~~an ~~short-term~~integral ~~borrowings~~part ~~for~~of ~~the~~these ~~periods~~financial ~~indicated:~~ statements.

	End of Perod							Average
						Maximum Month- end Outstanding Balance during the Period
	Balance Outstanding		Rate					Balance Outstanding		Rate
	(dollars in thousands)
2011
Short term FHLB advances and other borrowings	$	—		—		$	5,000	$	2,214		10.12	%
2010
Short term FHLB advances and other borrowings		—		—			7,500		63		0.04	%
2009
Short term FHLB advances and other borrowings	$	7,500		0.04	%	$	7,500	$	92		0.10	%

Liquidity and Liquidity Management

The adequacy of the Company's liquidity is favorably reflected in its interest-bearing overnight deposit balances at a level that would cushion unexpected increases in loans or decreases in customer deposits. During 2011, we had an average balance of $23.5 million in interest-bearing overnight deposit balances, representing 16% of our average assets. During 2010, we had an average balance of $16.5 million in interest-bearing overnight deposit balances, representing 13% of our average assets.

As of December 31, 2011 and 2010, liquid assets(12) represented 19% and 46% of our total deposits, respectively. The decline in this ratio reflects the redeployment of liquid assets in higher-yielding loans, primarily generated by our mortgage bank. The 19% ratio at year-end 2011 was deemed adequate for managing the Company's liquidity, especially given the "matched-funding" strategy being employed for our mortgage bank. (See "Deposits and Borrowed Funds" for further details.)

While liquidity has not been a major concern in either 2011 or 2010, management has established secondary sources of liquidity in addition to the previously noted borrowing capacity at the FHLB. At present, the Company maintains a line of credit totaling $3 million with a correspondent bank for obtaining overnight funds. (This line is subject to availability and has restrictions as to the number of days funds can be used each month.) Another method that the Bank currently has available for acquiring additional deposits is through the use of "reciprocal brokered deposits" through the CDARS program. No deposits through CDARS were outstanding as of December 31, 2011 or 2010.

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~~were~~ ~~nine~~ Manhattan ~~relationships~~Bancorp ~~representing~~and ~~approximately~~Subsidiaries Consolidated ~~26%~~Statements of ~~the~~Operations (Dollars ~~Company's~~in ~~total deposits~~thousands, ~~excluding~~except ~~brokered~~per ~~deposits.~~share amounts)

Regulatory Capital

	For the Year Ended December 31,

	2012			2011
Interest income
Interest and fees on loans	$	16,113		$	15,330
Interest on investment securities		279			346
Interest on federal funds sold		84			123
Interest on time deposits-other financial institutions		18			111

Total interest income		16,494			15,910
Interest expense
NOW, money market and savings		420			191
Time deposits		492			610
FHLB advances and other borrowed funds		(15	)		—

Total interest expense		897			801

Net interest income		15,597			15,109
Provision for loan losses		1,203			2,717

Net interest income after provision for loan losses		14,394			12,392

Non-interest income
Whole loan sales and warehouse lending fees		695			—
Advisory income		950			—
Trading income		3,622			—
Mortgage banking, including gain on sale on loans held for sale		15,923			—
Earnings on MIMS-1 limited partnership fund		399			—
Other bank fees and income		1,173			2,316
Rental income		324			17
Gain on recovery of acquired loans		749
Gain on sale of securities		529			—

Total non-interest income		24,364			2,333
Non-interest expenses
Compensation and benefits		25,005			6,772
Occupancy and equipment		2,724			1,404
Technology and communication		2,592			1,290
Professional fees		4,025			2,594
FDIC insurance and regulatory assessments		509			285
Amortization of intangibles		445			473
Other non-interest expenses		2,699			1,944

Total non-interest expenses		37,999			14,762

Income (loss) before income taxes		759			(37	)
Provision for income taxes		20			202

Net income (loss)		739			(239	)
Less: Net income attributable to the non-controlling interest		53			(1	)

Net income (loss) attributable to common stockholders of Manhattan Bancorp	$	686		$	(238	)

Weighted average number of shares outstanding (basic and diluted)		9,035,070			4,513,501
Basic and diluted earnings (loss) per share	$	0.08		$	(0.05	)

~~Under regulatory capital adequacy guidelines, capital adequacy is measured (1) as a percentage of risk-adjusted~~ ~~assets~~The inaccompanying ~~which~~notes ~~risk percentages~~ are ~~applied~~an tointegral ~~assets~~part ~~on the balance sheet as well as off-balance sheet, such as unused loan commitments and standby letters~~ of ~~credit,~~these ~~and~~financial ~~(2) as a percentage of the most recent quarter's average tangible assets~~statements. The guidelines require that a portion of total capital be core, or Tier 1, capital consisting of common shareholder's equity after removing the effects of unrealized gain or loss on available-for-sale securities. Total capital consists of other elements, primarily allowance for loan losses.

As discussed in Note 15 in the Notes to Consolidated Financial Statements, our capital exceeded the minimum regulatory requirements and exceeded the regulatory definition required to be "well capitalized" as defined in the regulations issued by our regulatory agencies.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for smaller reporting companies.

Table of Contents

~~ITEM~~Manhattan ~~8. FINANCIAL~~Bancorp ~~STATEMENTS~~and ~~AND~~Subsidiaries Consolidated ~~SUPPLEMENTARY~~Statements ~~DATA~~of Comprehensive Income (Dollars in thousands)

	Page
	For the Years Ended December 31,
Report of Independent Registered Public Accounting Firms		64
	2012			2011
Financial Statements:
Net income (loss)	$	739		$	(239	)
Consolidated Balance Sheets		66
Other comprehensive income (loss):
Consolidated Statements of Operations		67
Unrealized gains (losses) on securities:
Consolidated Statements of Changes in Total Equity		68
Unrealized holding gains arising during periods		132			484
Consolidated Statements of Cash Flows		69
Less: reclassification adjustment for realized gains included in net income		(529	)		—
Notes to Consolidated Financial Statements		70
Other comprehensive income (loss):		(397	)		484
Comprehensive income	$	342		$	245

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

Table of Contents

Manhattan ~~REPORT~~Bancorp OFand ~~INDEPENDENT~~Subsidiaries Consolidated ~~REGISTERED~~Statements ~~PUBLIC~~of ~~ACCOUNTING~~Changes ~~FIRM~~in Total Equity For the Years Ended December 31, 2012 and 2011 (Dollars in thousands)

To the Board of Directors and Stockholders Manhattan Bancorp and subsidiaries

	Common Stock									Accumulated Other Comprehensive Income

	Common Stock						Accumulated Deficit						Non-controlling Interest			Total Equity
	Shares			Amount			Accumulated Deficit						Non-controlling Interest			Total Equity
Balance at December 31, 2010		392,500		$	39,538		$	(3,754	)	$	(1	)	$	2,659		$	38,442
Divestiture and repurchase of common stock		(35,000	)		(3,622	)											(3,622	)
Stock based compensation					90									8			98
Other comprehensive income											484			25			509
Net loss								(238	)					(1	)		(239	)

Balance at December 31, 2011		357,500			36,006			(3,992	)		483			2,691			35,188
Merger of entities under common control on May 31, 2012		(357,500	)		3,733			(1,401	)		26			(2,691	)		(333	)
Issuance of common stock to accounting acquirer in business combination		8,195,469			—			—			—			—			—
Issuance of common stock in subsidiary spinoff to a related party		169,424			717			—			—			—			717
Consideration received in excess of carrying value of spinoff to a related party		—			1,310			53			—			—			1,363
Cancellation of restricted stock		(6,667	)		—			—			—			—			—
Transfer of legal acquirer's common stock in business combination		3,997,631			19,823			—			—			—			19,823
Share-based compensation expense		—			28			—			—			—			28
Other comprehensive loss		—			—			—			(397	)		—			(397	)
Net income		—			—			739			—			—			739

Balance at December 31, 2012		12,355,857		$	61,617		$	(4,601	)	$	112		$	—		$	57,128

We ~~have~~The ~~audited the~~ accompanying ~~consolidated~~notes balance sheet of Manhattan Bancorp and subsidiaries as of December 31, 2011, and the related consolidated statements of operations, total equity, and cash flows for the year then ended. These financial statements are ~~the responsibility of the Company's management. Our responsibility is to express~~ an ~~opinion~~integral onpart of these financial ~~statements~~ ~~based on our audit.~~ statements

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 the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Manhattan Bancorp and subsidiaries as of December 31, 2011 and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

/s/ McGladrey & Pullen, LLP

Los Angeles, CA March 30, 2012

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Manhattan ~~REPORT~~Bancorp OFand ~~INDEPENDENT~~Subsidiaries Consolidated ~~REGISTERED~~Statements ~~PUBLIC~~of ~~ACCOUNTING~~Cash ~~FIRM~~Flows (Dollars in thousands)

Board of Directors and Stockholders Manhattan Bancorp and Subsidiaries El Segundo, California

	For the Year Ended, December 31,

	2012			2011
Cash flows from operating activities
Net income (loss)	$	739		$	(239	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Proceeds from sales and principal reductions of mortgage loans held for sale		650,062			—
Originations and purchases of mortgage loans held for sale		(653,075	)		—
Net gains on sales of loans held for sale		(15,915	)		—
Net mark to market on mortgage loans held for sale		(361	)		—
Net increase in mortgage servicing asset		(3,246	)		—
Provision for loan losses		1,203			2,717
Net accretion (amortization) of discount/premium on securities		(415	)		193
Net gains on sales of securities available for sale		(529	)		—
Earnings on limited partnership fund		(399	)		—
Depreciation and amortization		523			472
Amortization of core deposit intangibles		445			473
Stock-based compensation expense		28			98
Gain on sale of other real estate owned		—			(215	)
Net decrease in other assets		7,986			175
Net increase in other liabilities		4,242			417

Net cash (used in) provided by operating activities		(8,712	)		4,091

Cash flows from investing activities
Net (increase) decrease in loans held for investment		(15,217	)		23,791
Decrease in time deposits—other financial institutions		3,123			13,391
Proceeds from principal payments and maturities of investment securities		5,250			4,360
Proceeds from the sale of investment securities		5,029			—
Proceeds from sale of other real estate owned		—			1,761
Investment in limited partnership fund		(3,500	)		—
Redemption (purchase) of Federal Reserve and Federal Home Loan Bank stock		(1,008	)		373
Purchase of premises and equipment		(49	)		(225	)
Transactions with affiliates		(331	)		—
Net cash paid in business spinoff to a related party		(2,602	)		—
Net cash acquired in business combination (see Note 22)		21,550			—

Net cash provided by investing activities		12,245			43,451

Cash flows from financing activities
Issuance (repurchase) of Common stock		—			(2	)
Net decrease in deposits		(17,455	)		(74,315	)
Net increase (decrease) in borrowings		8,557			—
Transfer of net assets to affiliate, cash paid		—			(1,868	)

Net cash used in financing activities		(8,898	)		(76,185	)

Net (decrease) in cash and cash equivalents		(5,365	)		(28,643	)

Cash and cash equivalents at beginning of period		45,535			74,178

Cash and cash equivalents at end of period	$	40,170		$	45,535

We ~~have~~The ~~audited the~~ accompanying ~~consolidated~~notes balance sheet of Manhattan Bancorp and Subsidiaries (the "Company") as of December 31, 2010, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year ended December 31, 2010. These financial statements are ~~the responsibility of the Company's management. Our responsibility is to express~~ an ~~opinion~~integral onpart of 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 audits 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, the financial statements referred to above present fairly, in all material respects, the financial position of Manhattan Bancorp and Subsidiaries as of December 31, 2010, and the results of its operations and its cash flows for the year ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.

/s/ Vavrinek, Trine, Day & Co., LLP Rancho Cucamonga, California March 30, 2011

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Manhattan Bancorp and Subsidiaries ~~Consolidated~~ ~~Balance Sheets~~

	December 31, 2011			December 31, 2010
Assets
Cash and due from banks	$	2,930,427		$	1,845,808
Federal funds sold/interest-bearing demand funds		16,761,111			37,249,872
Total cash and cash equivalents		19,691,538			39,095,680
Time deposits-other financial institutions		594,000			2,868,000
Investments securities-available for sale, at fair value		11,486,080			14,875,814
Investments securities-held to maturity		—			497,521
Loans held for sale, at fair value		51,450,663			—
Loans held for sale, at lower of cost or fair value		913,890			3,512,417
Loans held for investment		105,395,058			89,236,265
Allowance for loan losses		(1,969,912	)		(1,877,133	)
Net loans		103,425,146			87,359,132
Total loans, net		155,789,699			90,871,549
Property and equipment, net		4,716,258			1,259,457
Federal Home Loan Bank and Federal Reserve Bank stock		1,132,050			1,155,600
Investment in Limited Partnership Fund		2,638,402			—
Accrued interest receivable and other assets		5,787,453			2,324,602
Total assets	$	201,835,480		$	152,948,223
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing demand	$	51,735,925		$	52,893,770
Interest bearing:
Demand		4,599,128			3,165,267
Savings and money market		36,544,492			28,556,155
Certificates of deposit equal to or greater than $100,000		37,386,891			33,934,109
Certificates of deposit less than $100,000		39,433,339			3,696,069
Total deposits		169,699,775			122,245,370
FHLB advances and other borrowings		10,546,628			4,500,000
Incentives payable		862,791			469,499
Accrued interest payable and other liabilities		3,202,224			1,403,321
Total liabilities		184,311,418			128,618,190
Commitments and contingencies (Note 14)		—			—
Stockholders' equity
Manhattan Bancorp stockholders' equity:
Serial preferred stock-no par value; 10,000,000 shares authorized: issued and outstanding, none in 2011 and 2010		—			—
Common stock-no par value; 30,000,000 shares authorized; issued and outstanding, 3,997,631 in 2011 and 3,987,631 in 2010		38,977,282			38,977,282
Additional paid-in capital		2,337,168			2,162,124
Unrealized gain on available-for-sale securities		277,493			334,773
Accumulated deficit		(23,605,171	)		(17,347,612	)
Total Manhattan Bancorp stockholders' equity		17,986,772			24,126,567
Non-controlling interest		(462,710	)		203,466
Total equity		17,524,062			24,330,033
Total liabilities and stockholders' equity	$	201,835,480		$	152,948,223

Consolidated Statements of Cash Flows (Continued)

(Dollars in thousands)

	For the Year Ended, December 31,

	2012		2011
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	1,028	$	809

Cash paid for income taxes	$	20	$	271

Acquistion of Manhattan Bancorp:
Consideration, common stock	$	19,823	$	—

Cash and cash equivalents acquired	$	21,550	$	—
Investment securities available for sale		8,239		—
Loans		176,362		—
Premises and equipment		5,534		—
Core deposit intangible		1,156		—
Other assets		20,302		—
Goodwill		7,396		—

Total assets	$	240,539	$	—

Deposits	$	199,633	$	—
Borrowings		16,034		—
Acccrued expenses and other liabilities		5,049		—

Total liabilities	$	220,716	$	—

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

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Manhattan Bancorp and Subsidiaries ~~Consolidated~~ ~~Statements of Operations~~

	For the Year ended December 31,
	2011			2010
Interest income
Interest and fees on loans	$	5,237,034		$	5,259,952
Interest on investment securities		751,766			1,167,534
Interest on federal funds sold		54,562			38,606
Interest on time deposits-other financial institutions		36,039			51,992
Total interest income		6,079,401			6,518,084
Interest expense
NOW, money market and savings		181,988			228,626
Time deposits		496,331			573,714
FHLB advances and other borrowed funds		463,916			199,873
Total interest expense		1,142,235			1,002,213
Net interest income		4,937,166			5,515,871
Provision for loan losses		80,300			727,230
Net interest income after provision for loan losses		4,856,866			4,788,641
Non-interest income
Whole loan sales and warehouse lending fees		914,415			1,652,186
Advisory income		677,918			731,902
Trading income		4,573,284			4,972,413
Gain on rate lock commitments		486,932			—
Losses on forward sale commitments		(517,504	)		—
Fair value adjustments on loans held for sale		1,154,982			—
Gain on sale of loans		2,130,088			35,753
Other mortgage related income		309,671			118,231
Other bank fees and income		633,921			219,401
Gain on sale of securities		44,799			19,528
Total non-interest income		10,408,506			7,749,414
Non-interest expense
Compensation and benefits		14,797,930			11,770,519
Occupancy and equipment		1,605,909			1,109,607
Technology and communication		1,830,202			1,417,203
Professional fees		1,905,602			1,420,780
Impairment of subsidiary goodwill		279,391			—
Other non-interest expenses		1,742,763			1,513,337
Total non-interest expenses		22,161,797			17,231,446
Loss before income taxes		(6,896,425	)		(4,693,391	)
Provision for income taxes		27,310			4,128
Net loss	$	(6,923,735	)	$	(4,697,519	)
Less: Net (loss) gain attributable to the non-controlling interest		(666,176	)		(87,444	)
Net loss attributable to common stockholders of Manhattan Bancorp	$	(6,257,559	)	$	(4,610,075	)
Weighted average number of shares outstanding (basic and diluted)		3,993,850			3,987,631
Basic and diluted loss per share	$	(1.57	)	$	(1.16	)

Consolidated Statements of Cash Flows (Continued)

(Dollars in thousands)

	For the Year Ended, December 31,

	2012			2011
Sale of MBFS Holdings, Inc.
Loans	$	5,000		$	—
Other assets		2,315			—

Total assets	$	7,315		$	—

Borrowings	$	5,000		$	—
Other liabilities		6,997			—

Total liabilities	$	11,997		$	—

Common stock issued	$	(717	)	$	—
Additional paid-in capital		(1,363	)		—

Total shareholders' equity	$	(2,080	)	$	—

Cash and cash equivalents used	$	2,602		$	—

Sale of CGB Asset Management, Inc.
Loans	$	—		$	13,361
Other real estate owned		—			433
Other assets		—			44

Total assets	$	—		$	13,838

Borrowings	$	—		$	12,000
Other liabilities		—			86

Total liabilities	$	—		$	12,086

Exchange of common stock	$	—		$	3,620

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

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~~Manhattan~~MANHATTAN ~~Bancorp~~BANCORP ~~and~~AND ~~Subsidiaries~~SUBSIDIARIES ~~Consolidated~~NOTES ~~Statements~~TO ofCONSOLIDATED ~~Changes~~FINANCIAL ~~in Total Equity~~STATEMENTS ~~for the years ended~~ December 31, ~~2011 and 2010~~ 2012

	Common Stock												Accumulated Other Comprehensive Income
					Additional Paid-in Capital		Comprehensive Income (Loss)			Accumulated Deficit						Non- controlling Interest			Total Equity
	Shares		Amount
Balance at December 31, 2009		3,987,631	$	38,977,282	$	1,566,396	$	—		$	(12,737,537	)	$	305,152		$	290,910		$	28,402,203
Share-based compensation expense						595,728														595,728
Unrealized gain on investment securities, net of reclassification of realized gains of $19,528								29,621						29,621						29,621
Net loss								(4,610,075	)		(4,610,075	)					(87,444	)		(4,697,519	)
Total comprehensive loss								(4,580,454	)
Balance at December 31, 2010		3,987,631		38,977,282		2,162,124					(17,347,612	)		334,773			203,466			24,330,033
Share-based compensation expense		10,000				175,044														175,044
Unrealized loss on investment securities, net of reclassification of realized gains of $44,799								(57,280	)					(57,280	)					(57,280	)
Net loss								(6,257,559	)		(6,257,559	)					(666,176	)		(6,923,735	)
Total comprehensive loss							$	(6,314,839	)
Balance at December 31, 2011		3,997,631	$	38,977,282	$	2,337,168				$	(23,605,171	)	$	277,493		$	(462,710	)	$	17,524,062

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

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Manhattan Bancorp and Subsidiaries Consolidated Statements of Cash Flows

	For the Years ended December 31,
	2011			2010
Cash flows from operating activities
Net loss	$	(6,923,735	)	$	(4,697,519	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loans originated or purchased for sale		(184,716,535	)		(8,964,050	)
Proceeds from sales of loans		139,149,469			5,487,803
Gain on sales of loans		(2,130,088	)		(35,753	)
Gain on sale of investments		(44,799	)		(19,528	)
Valuation adjustment on loans held for sale		(1,154,982	)		—
Fair value adjustment on interest rate lock commitments		(486,932	)		—
Fair value adjustment on forward sale commitments		517,504			—
Increase in servicing asset on loans sold		(38,301	)		—
Impairment of subsidiary goodwill		279,391			—
Earnings on limited partnership fund		(138,402	)		—
Net amortization of discounts and premiums on securities		(191,298	)		(388,953	)
Depreciation and amortization		441,552			393,841
Provision for loan losses		80,300			727,230
Share-based compensation		175,044			595,728
Increase in accrued interest receivable and other assets		(2,603,964	)		(251,858	)
Increase in accrued interest payable and other liabilities		1,661,888			880,172
Net cash used in operating activities		(56,123,888	)		(6,272,887	)
Cash flows from investing activities
Net increase in loans		(16,111,056	)		(9,173,254	)
Decrease in time deposits—other financial institutions		2,274,000			594,000
Increase in deposit for securities clearing		(600,241	)		—
Proceeds from principal payments, calls and maturities of investment securities		7,885,250			12,470,120
Purchase of investments		(8,310,562	)		(15,314,798	)
Proceeds from sales of investment securities		4,491,383			1,764,137
Investment in limited partnership fund		(2,500,000	)		—
Redemption of Federal Reserve and Federal Home Loan Bank stock		118,550			119,050
Purchase of Federal Home Loan Bank stock		(95,000	)		—
Purchase of premises and equipment		(2,786,983	)		(371,358	)
Net cash used in investing activities		(15,634,659	)		(9,912,103	)
Cash flows from financing activities
Net increase (decrease) in:
Demand deposits		(1,157,845	)		23,246,571
NOW, savings and money market accounts		9,422,198			9,795,831
Certificates of deposit equal to or greater than $100,000		3,452,782			(20,417,792	)
Certificates of deposit less than $100,000		35,737,270			(1,299,232	)
Increase (decrease) in FHLB advances and other borrowings		4,900,000			(7,500,000	)
Net cash provided by financing activities		52,354,405			3,825,378
Net decrease in cash and cash equivalents		(19,404,142	)		(12,359,612	)
Cash and cash equivalents at beginning of period		39,095,680			51,455,292
Cash and cash equivalents at end of period	$	19,691,538		$	39,095,680
Supplementary information:
Interest paid	$	915,675		$	1,013,453
Income taxes paid	$	29,980		$	4,128
Non-cash investing activities:
Purchase of land financed with mortgage	$	1,100,000		$	—

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

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MANHATTAN BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidated Financial Statements

The accompanying ~~unaudited~~ condensed consolidated financial statements of Manhattan Bancorp (the "Bancorp") and its wholly-owned subsidiaries, Bank of Manhattan, N.A. (the "Bank") and MBFS Holdings, Inc. ("MBFS"), together referred to as the "Company" have been prepared in accordance with Article 8 of Regulation S-X. ~~On October 1, 2009, the Bancorp, through its wholly-owned subsidiary~~ MBFS, ~~acquired~~held a 70% interest in ~~BOM~~MCM. ~~Capital, LLC~~As ~~("BOMC,"~~discussed ~~formerly~~in ~~Bodi Capital LLC),~~more adetail ~~mortgage-centric~~in ~~institutional~~this ~~broker-dealer. On November~~Note 301, ~~2010,~~Bancorp asold ~~recapitalization~~its ~~and~~entire ~~restructuring~~interest ~~was~~in ~~completed~~MBFS, ~~whereby~~including aits ~~newly-formed~~indirect ~~limited~~interest ~~liability~~in ~~company~~MCM, ~~Manhattan~~on ~~Capital Markets~~November ~~LLC ("MCM")~~9, ~~acquired 100% of BOMC in a multi-step transaction~~2012. ~~MBFS holds a 70% interest in MCM.~~ References throughout ~~the~~these ~~remainder~~financial ofstatements ~~this Annual Report on Form 10-K~~ to MCM shall be deemed to include BOMC and MCM's other direct and indirect subsidiaries.

On May 31, 2012, the Bancorp completed its acquisition of Professional Business Bank ("PBB") through a merger of PBB with and into the Bank, with the Bank as the surviving institution (the "Merger"). Immediately prior to the Merger, PBB completed a transaction in which its holding company, CGB Holdings, Inc. ("CGB Holdings"), was merged into PBB and accounted for using the historical balances as entities under common control.

In the Merger, Bancorp issued an aggregate of 8,195,469 shares of its common stock to the shareholders of PBB, representing a ratio of 1.7991 shares of Bancorp common stock for each share of PBB common stock outstanding at the effective time of the Merger. The Bancorp shares issued to the PBB shareholders in the Merger constituted approximately 67.2% of the Bancorp's common stock after giving effect to the Merger.

Accounting principles generally accepted in the United States of America ("U.S. GAAP") require that a company whose security holders retain the majority voting interest in the combined business be treated as the acquirer for financial reporting purposes. Accordingly, the Merger was accounted for as a reverse acquisition whereby PBB was treated as the acquirer for accounting and financial reporting purposes. Prior to the Merger the statements of operations and the balance sheet reflect that of PBB. The assets and liabilities of Manhattan Bancorp were reported at fair value in a transaction that constituted a business combination subject to the acquisition method of accounting as detailed in ASC 805. See Note 22 for additional information on the Merger.

Bancorp entered into a Credit Agreement dated July 25, 2011 (the "Credit Agreement") with Carpenter Fund Management Company, LLC, as administrative agent ("Agent"), and Carpenter Community Bancfund, L.P. and Carpenter Community Bancfund-A, L.P., as lenders (the "Lenders"). On November 9, 2012, the Bancorp and the Lenders entered into a Securities Purchase Agreement (the "Purchase Agreement"), which provided for (i) the sale by the Bancorp of all of the shares of capital stock (the "Shares") of its wholly owned subsidiary, MBFS, and (ii) the assignment by the Bancorp of its entire right in and to that certain Promissory Note dated as of July 25, 2011 (the "MCM Note"), made by MCM in favor of the Bancorp in the aggregate principal amount of $5.0 million, in each case to the Lenders for an aggregate purchase price of $5.0 million (the "Purchase Price"). The consummation of the transactions contemplated by the Purchase Agreement was completed simultaneously with the signing of the Purchase Agreement on November 9, 2012, and for accounting purposes was effective October 31, 2012. Prior to the consummation of such transactions, the Bancorp received an opinion from its financial advisor, Sandler O'Neill & Partners, L.P. confirming that the portion of the Purchase Price attributable to the sale of the Shares is fair, from a financial point of view, to the Bancorp. The value of consideration received exceeded

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

the carrying amount of the assets exchanged by $1.3 million, which was recognized as additional paid in capital.

Pursuant to the terms of the Purchase Agreement, the Bancorp used a portion of the Purchase Price to repay $516,667 of accrued but unpaid interest and $4,283,333 of the outstanding principal balance of the loans outstanding under the Credit Agreement. In addition, and pursuant to and in accordance with the terms of the Credit Agreement, the Lenders converted the remaining $716,667 of the outstanding principal balance of the loans outstanding under the Credit Agreement into an aggregate of 169,425 shares of the Bancorp's common stock. The number of shares of common stock issued by the Bancorp was determined by dividing the sum of the unpaid principal balance by the Book Value Per Share of the MNHN Common Stock (as defined in the Merger Agreement), or $4.23 per share. As a result of the consummation of these transactions, the principal balance and all accrued but unpaid interest under the Credit Agreement was repaid in full.

Nature of Operations

Manhattan Bancorp is a bank holding company organized under the laws of the state of California. Its principal subsidiary, Bank of Manhattan, N.A., is a national banking association located in the South Bay area of Southern California that offers relationship banking services and residential mortgages to entrepreneurs, family-owned and closely-held middle market businesses, real estate investors and professional service firms. Deposits with the Bank are insured by the Federal Deposit Insurance Corporation ("FDIC") up to the applicable limits of the law. The Bank is a member bank of the Federal Reserve System.

Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of Bancorp and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform to ~~accounting principles generally accepted in the United States of America ("~~U.S. GAAP") and general industry practices.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses. Other significant estimates which may be subject to change include fair value determinations and disclosures, impaired investments and loans (including troubled debt restructurings), gains from mortgage ~~banking~~division activities, ~~and~~goodwill, the valuation of deferred tax assets, and ongoing cash flow on loans accounted for under ASC 310-30.

7069

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reclassifications

Certain amounts in prior presentations have been reclassified to conform to the current presentation. These reclassifications had no effect on previously reported shareholders' equity, net loss or loss per share amounts.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash, non-interest deposits at other financial institutions, federal funds sold including interest-bearing deposits held at the Federal Reserve Bank for and on behalf of the Bank. Cash on hand or on deposit with the Federal Reserve Bank is used to meet regulatory reserve and clearing requirements. The Company has not experienced any losses in such accounts.

Cash and Due from Banks

Banking regulations require all banks to maintain a percentage of their deposits as reserves in cash or on deposit with the Federal Reserve Bank, which is computed on a bi-weekly average basis. There was no requirement to maintain a balance at the Federal Reserve Bank at December 31, 2012, as that requirement was met through cash reserves and the average deposit balance at the Federal Reserve Bank for the reserve measurement period. The reserve required to be maintained at the Federal Reserve Bank was $~~1.4~~700 ~~million~~thousand ~~and $0.7 million~~ at December 31, 2011 ~~and 2010, respectively~~. The Bank may maintain deposits with other financial institutions in amounts that exceed federal deposit insurance coverage. Federal funds sold are similar to uncollateralized loans. Management regularly evaluates the credit risk of these transactions and believes that the Company is not exposed to any significant credit risk on cash or cash equivalents.

Interest-earning Deposits at Other Financial Institutions

Interest-earning deposits in other financial institutions represent short term deposits that mature over a period of no more than 12 months. Investment balances are maintained within federal deposit insurance limits.

Investment Securities

~~Bonds,~~The ~~notes~~Company ~~and~~classifies ~~debentures~~its investment securities as available-for-sale ~~which~~securities. Under the available-for-sale ~~Company~~classification, ~~has~~securities ~~the~~can ~~positive~~be ~~intent~~sold ~~and~~in ~~ability~~response to ~~hold~~a variety of situations, including but not limited to changes in interest rates, fluctuations in deposit levels or loan demand, liquidity requirements, or the need to restructure the portfolio to better match the maturity or interest rate characteristics of liabilities with assets. Securities classified as available-for-sale are ~~reported~~accounted for at their current fair value rather than amortized historical cost,. Unrealized gains or losses are excluded from net income ~~adjusted~~(loss) and reported as an amount net of taxes as a separate component of accumulated other comprehensive income (loss) included in shareholders' equity. Premiums or discounts on held-to-maturity and available-for-sale ~~premiums~~securities are amortized or accreted into income using the interest method. Realized gains and ~~discounts~~losses on sales of available-for-sale securities are recorded using the specific identification method.

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

At each reporting date, investment securities are assessed to determine whether there is any other-than-temporary impairment. The classification of other-than-temporary impairment depends on whether the Company intends to sell the security before recovery of its cost basis, and on the nature of the impairment. If the Company intends to sell a security or it is more likely than not it will be required to sell a security prior to recovery of its cost basis, it would be required to record an other-than-temporary loss in an amount equal to the entire difference between the fair value and amortized cost. If a security is determined to be other-than-temporarily impaired but the Company does not intend to sell the security, only the credit component of impairment is recognized in earnings and the impairment associated with non-credit factors, such as market liquidity, is recognized in other comprehensive income. The cost basis of any other-than-temporarily impaired security is written down by the amount of any impairment adjustment recognized in earnings.

Loans Held for Sale at Fair Value

InThe ~~the third quarter of 2011, the~~ Company has elected ~~prospectively~~ to record its loans held for sale at fair value for all loans ~~prospectively~~ originated by the Company and held for sale as well as all loans which were both purchased and hedged. Valuation gains and losses are recorded through earnings. Loans originated by the Company and held for sale typically are sold within 30 days after origination. The unpaid principal balance of loans held for sale at fair value at December 31, ~~2011~~2012 was $5096.40 million. There were no loans held for sale at December 31, 2011.

Loans Held for Sale at Lower of Cost or Fair Value

Certain mortgage loans originated for sale in the secondary market that are not hedged are carried at the lower of historic cost or fair value. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Interest on Loans

Interest income is recognized on an accrual basis daily and credited to income based on the principal amount outstanding. The accrual of interest on a loan typically is discontinued at the time the loan becomes 90-days delinquent. In some cases, loans can be placed on non-accrual status or be charged-off at an earlier date if collection of principal or interest is considered doubtful. For all interest income that has been accrued but not yet collected, if a loan is either placed on a non-accrual status or has been charged-off, the unpaid accrued interest receivable is reversed against interest income. Subsequently, collections of cash are applied as reductions to the principal balance unless the loan is returned to accrual status. Nonaccrual loans may be returned to accrual status when principal and interest income become current and when the borrower is able to demonstrate payment performance for a sustained period, typically for six months.

~~Loans~~Originated ~~Held for Investment~~loans

~~The~~Loans ~~Company~~receivable ~~currently~~that ~~extends~~management ~~credit~~has tothe ~~its~~intent ~~customers~~and inability to hold for the ~~form~~foreseeable offuture ~~commercial,~~or ~~commercial~~until ~~real~~maturity ~~estate~~or payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs, ~~residential~~net ~~real~~of ~~estate~~deferred loan fees or costs, unearned discounts, and net of allowance for loan losses or specific ~~consumer~~valuation ~~loans~~accounts. ~~Loans~~Loan ~~that~~origination ~~management~~fees ~~has~~and ~~the~~certain ~~intent~~direct origination costs are capitalized and ~~ability~~recognized toas ~~hold~~an ~~for~~adjustment of the ~~foreseeable~~yield ~~future~~of orthe ~~until~~related ~~maturity~~loan. orInterest ~~payoff~~on ~~are~~loans ~~reported~~is ataccrued ~~the~~daily ~~principal~~and recognized ~~amount~~over ~~outstanding,~~the ~~net~~terms of ~~unearned income~~the loans and is calculated using the simple-interest method based on principal amounts outstanding.

Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Generally, the accrual of interest on loans is discontinued when principal or interest is past due 90 days based on the contractual terms of the loan or when, in the opinion of management, there is reasonable

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

doubt as to collectability. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan's principal balance is deemed collectable. Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal for a period of at least nine months and when, in the judgment of management, the loans are estimated to be fully collectible as to all principal and interest.

Acquired Loans

Acquired loans are recorded at fair value at the date of acquisition and include both nonperforming loans with evidence of credit deterioration since their origination date and performing loans with no such credit deterioration. The Company is accounting for a significant majority of the loans, including loans with evidence of credit deterioration acquired in the Merger in accordance with ASC 310-30. In accordance with ASC 310-30, the Company has pooled performing loans at the date of purchase. The loans were aggregated into pools based on the common risk characteristics.

•: Estimate of the remaining life of acquired loans which may change the amount of future interest income
•: Estimate of the amount of contractually required principal and interest payments over the estimated life that will not be collected (the nonaccretable difference)
•: Indices for acquired loans with variable rates of interest
•: Improvement in the amount of expected cash flows

Acquired loans not accounted for under ASC 310-30 are subject to the provisions of ASC 310-20, Nonrefundable Fees and Costs. The cash flows associated with these loans determine the amount of the purchase discount that is to be accreted over the life of the loan using the effective interest method. Management periodically reassesses the net realizable value and in the event that credit losses inherent in the portfolio are higher than expectations, records an allowance for loan losses to the extent that the carrying value exceeds the amounts expected to be collected.

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Concentration of Credit Risk

Most of the Company's loan activity is with customers located in Southern California. Accordingly, the Company's exposure to credit risk is significantly affected by changes in the economy of this area. The Company has no significant industry concentrations.

Allowance for Loan Losses

When establishing the allowance for loan losses, management categorizes loans into risk categories generally based on the nature of the collateral and the basis of repayment (see Note 4). Loss estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the results of operations in the periods in which they become known. The allowance is increased by provisions for loan losses which, in turn, are charged to expense. The balance of a loan deemed uncollectible is charged against the allowance for loan losses when management believes that collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impaired Loans

Troubled Debt Restructurings

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

impairment disclosures and are measured at the present value of estimated future cash flows using the loan's effective rate at the time of restructuring. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For any TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

The Company also sells participating interests, as defined in applicable accounting guidance, in loans to other banks to allow the Company to service customers with needs in excess of the Company's limit on loans to a single borrower and, occasionally, to provide funds for additional lending or to increase liquidity. Under most agreements, the Company continues to service the loans and the buyer receives its share of principal collected together with interest at an agreed-upon rate.

Gains From Mortgage Banking Activities

Mortgage banking activity income is recognized when the Company records a derivative asset upon the commitment to originate a loan with a borrower and sells the loan to an investor. This commitment asset is recognized at fair value, which reflects the fair value of the commitment after considering the contractual loan origination-related fees, estimated sale premiums, direct loan origination costs, estimated pull-through rate and the estimated fair value of the expected net future cash flows associated with servicing of loans. Also included in gains from mortgage ~~banking~~division activities are changes to the fair value of loan commitments, forward sale commitments and loans held for sale that occur during their respective holding periods. Substantially all the gains or losses are recognized during the loan holding period as such loans are recorded at fair value. Mortgage servicing rights are recognized as assets based on the fair value upon the sale of loans when the servicing is retained by the Company.

Mortgage Servicing Rights

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

value of ~~Servicing~~its ~~Asset~~ MSRs which may arise from future changes in interest rates and other market factors. The Company has not implemented hedging strategies for its MSRs at this time.

The fair ~~Company's~~value ~~mortgage~~of ~~bank~~MSRs ~~recorded~~is aestimated ~~servicing~~by ~~asset~~using ofa ~~$38 thousand~~cash inflow ~~connection~~valuation ~~with~~model which calculates the ~~sale~~present value of ~~$2.9 million~~estimated infuture net servicing cash flows, taking into consideration actual ~~loans~~and inexpected ~~December~~mortgage ofloan ~~2011.~~prepayment ~~The~~rates, servicing ~~asset~~costs, ~~was~~ancillary ~~recorded~~income, ~~based~~and onother ~~its~~economic ~~fair~~factors ~~market~~based ~~value~~ on ~~the~~current ~~date~~market ~~of sale~~conditions.

Gains and Losses on Riskless Principal Transactions

~~The~~During 2012 and through November 9, 2012 (effective for accounting purpose on October 31, 2012), the Company ~~trades~~through MCM traded for its own account on a riskless principal transactions basis to effectuate buy and sell orders for its customers. ~~The~~ ~~Company~~MCM ~~does~~did not take a position in these transactions but rather arranges for simultaneous buyers and sellers for all transactions prior to executing either a buy trade or a sell trade. (~~BOMC~~MCM's transactions are deemed to be "Riskless Principal Transactions" per ~~Federal Reserve System~~ FRB Regulation Y, Part 225—Subpart C—Sec. 225.28.) Gains and losses on riskless principal securities transactions, related clearing expenses, and commissions were ~~are~~ recorded on a trade-date basis as securities transactions ~~occur~~occured.

Whole Loan Broker Fees

~~The~~During 2012 and through November 9, 2012 (effective for accounting purposes on October 31, 2012), the Company ~~acts~~through MCM acted as agent on certain transactions involving whole loan mortgages, matching prospective buyers and sellers for these transactions. Fees earned on these transactions ~~are~~were accounted for on the date cash is received, which iswas on or shortly after the settlement date of the transaction. ~~Until such time, the probability that the transaction may be abandoned is relatively high for a number of reasons including the fact that the loan population will not meet the buyer's requirements.~~

Property and Equipment

The Company purchased land tothat bewas developed for a ~~future~~ branch ~~during~~completed ~~2011~~and opened in 2012, which was recorded at cost. Furniture and equipment are stated at cost less accumulated depreciation. Depreciation is recorded in amounts that relate the cost of depreciable assets to operations over the estimated service lives of the assets. Leasehold improvements are amortized over the estimated useful lives of the improvements but not more than the remaining lease term, whichever is shorter. The straight-line method of depreciation is followed for financial reporting purposes, while both accelerated and straight-line methods are followed for income tax reporting purposes. Outlays for material improvements and major repairs are capitalized; expenses for ordinary repairs and maintenance are charged to operations as incurred.

Furniture and ~~Federal~~equipment ~~Home~~are ~~Loan~~stated ~~Bank~~at cost less accumulated depreciation. Depreciation is recorded in amounts that relate the cost of depreciable assets to operations over the estimated service lives of the assets. Leasehold improvements are amortized over the estimated useful lives of the improvements but not more than the remaining lease term, whichever is shorter. The straight-line method of depreciation is followed for financial reporting purposes, while both accelerated and ~~Federal~~straight-line ~~Reserve~~methods ~~Stock~~ are followed for income tax reporting purposes. Outlays for material improvements and major repairs are capitalized; expenses for ordinary repairs and maintenance are charged to operations as incurred.

The Company is a member of the Federal Home Loan Bank of San Francisco ("FHLB") and, as such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of loans eligible to be pledged and advances outstanding with the FHLB. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and, as such, is classified as restricted stock, carried at cost and evaluated for impairment in accordance with Accounting Standards Codification ("ASC") 942-325-35. In accordance with this guidance, the stock's value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as (a) the significance of the decline in net assets of the FHLB as compared to the capital stock

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~amount and~~ ~~the~~Federal ~~length~~Home ofLoan time this situation has persisted, (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB. No impairment losses have been recorded during the years ended December 31, 2011 and 2010. Cash and stock dividends on FHLB stock are recorded as income when received. In addition, the Company is a member of the Federal Reserve Bank and ~~is also required to maintain a minimum investment in~~ Federal Reserve ~~Bank stock which is also recorded at cost.~~ Stock

The ~~Impairment~~Company is a member of ~~Goodwill~~ the Federal Home Loan Bank of San Francisco ("FHLB") and, as such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of loans eligible to be pledged and advances outstanding with the FHLB. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not have a readily determinable fair value and, as such, is classified as restricted stock, carried at cost and evaluated for impairment in accordance with Accounting Standards Codification ("ASC") 942-325-35. In accordance with this guidance, the stock's value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. No impairment losses have been recorded during the years ended December 31, 2012 and 2011. Cash and stock dividends on FHLB stock are recorded as income when received. In addition, the Company is a member of the Federal Reserve Bank and is also required to maintain a minimum investment in Federal Reserve Bank stock which is also recorded at cost.

~~Goodwill~~ totaling $279 thousand was recorded on BOMC's balance sheet when it was acquired by MBSF in 2009. In the third quarter of 2011, all of BOMC's goodwill was determined to be impaired because, under current accounting guidance, the Company was unable to demonstrate that BOMC's current market value was sufficient to support the carrying value of goodwill. As a result, the entire $279 thousand balance of goodwill was charged off during the third quarter of 2011. Goodwill

Net ~~Other~~assets ~~Real~~of ~~Estate~~entities ~~Owned~~ acquired in purchase transactions are recorded at fair value at the date of acquisition. The historical cost basis of individual assets and liabilities are adjusted to reflect their fair value. Any excess of the purchase price over the estimated fair value of net assets acquired is recorded as goodwill. Goodwill is not amortized for book purposes, although it is reviewed for potential impairment on an annual basis, or if events or circumstances indicate a potential impairment. The impairment test is performed in two phases. The first step of the goodwill impairment test compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, the Company must proceed with step two. In step two the implied fair value of goodwill, defined as the excess of fair value of the reporting unit over the fair values of the assets and liabilities of the reporting unit as they would be determined in an acquisition, is estimated. If the carrying amount of the goodwill is more than its implied fair value, it is impaired and an impairment charge must be recognized. The test for potential impairment of goodwill must be conducted at least annually, which the Company will conduct such test as of April 30 of each year beginning in the year following the recording of goodwill.

It isCore ~~the~~Deposit Company's policy that any real estate properties acquired through, or in lieu of, loan foreclosure be initially recorded at fair value, less estimated costs to sell, at the date of foreclosure. After foreclosure, valuations would be periodically performed by management and the real estate would be carried at the lower of cost or fair value minus costs to sell. Any revenues and expenses from operations and additions to the valuation allowance would be included in other expenses. The Company did not have any Other Real Estate Owned at December 31, 2011 or 2010. Intangible

The ~~Income~~Company ~~Taxes~~ has a premium on acquired deposits which represents the intangible value of deposit relationships resulting from deposit liabilities assumed in the Merger. Core deposit intangible assets are amortized over five to seven years. The Company evaluates the remaining useful lives of its core deposit intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of an intangible asset's remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The balance of core deposit intangibles, net of accumulated amortization at December 31, 2012 and December 31, 2011 is $2.6 million and $1.9 million, respectively. Amortization expense for the year ended December 31, 2012 and 2011 totaled $445 thousand and $473 thousand, respectively. Amortization of core deposit intangibles, totaling approximately $540 thousand per year, is expected to continue until fully amortized in 2017.

The Company establishes a valuation reserve for its deferred tax assets. A valuation allowance was recorded for the total net amount of the Company's deferred tax asset at December 31, 2011 and 2010 due to the Company's net loss history.

The Company records the tax benefits from an uncertain tax position in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by taxing authorities. Management believes that all tax positions taken to date are highly certain and, accordingly, no accounting adjustment has been made to the financial statements. Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Other Real Estate Owned

It is the Company's policy that any real estate properties acquired through, or in lieu of, loan foreclosure be initially recorded at fair value, less estimated costs to sell, at the date of foreclosure. After foreclosure, valuations would be periodically performed by management and the real estate would be carried at the lower of cost or fair value minus costs to sell. Any revenues and expenses from operations and additions to the valuation allowance would be included in other expenses. The Company had $3.6 million of Other Real Estate Owned at December 31, 2012 and 2011.

Income Taxes

The Company establishes a valuation allowance for its deferred tax assets. A valuation allowance was recorded for the total net amount of the Company's deferred tax asset at December 31, 2012 and 2011 due to the Company's net loss history.

The Company provides that the tax effects from an uncertain income tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by taxing authorities. Interest and penalties related to uncertain tax positions, if any, are recorded as part of income tax expense. Management believes that all tax positions taken to date are highly certain and, accordingly, no provision has been made to the financial statements.

Advertising Costs

Advertising costs are expensed as incurred.

Other Comprehensive Income (Loss)

Changes in unrealized gain (loss) on available-for-sale securities are the only component of other comprehensive income and Accumulated Other Comprehensive Income (Loss) for the Company.

Loss Contingencies

Loss contingencies, other than loss contingencies related to loans, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the financial statements as of December 31, ~~2011~~2012.

Loss per Share

Basic loss per share represents the loss reported to common stockholders divided by the weighted average number of shares of common stock outstanding during the periods reported on the Statements of Operations. Diluted loss per share does not include any effects of common stock equivalents as they would be dilutive due to the Company's net loss.

There were no potential dilutive securities as of December 31, 2011 or 2010 other than stock options awarded to employees of the Company and its subsidiaries. At December 31, 2011 and 2010, there were 585,693 and 564,491 stock options outstanding, respectively. However, these stock options were considered to be anti-dilutive because their exercise price exceeded the market value of the Company's shares. (See Note 11 for further details on the Company's share-based compensation.)

The weighted average number of shares used to calculate loss per share for the years ended December 31, 2011 and 2010 was 3,993,850 and 3,987,631, respectively.

Equity Compensation Plans/Share-based Compensation

The Manhattan Bancorp 2010 Equity Incentive Plan ("2010 Plan"), which was approved on March 25, 2010, provides for the issuance of up to 444,348 shares of the Bancorp's authorized and unissued common stock. The 2010 Plan expires on March 25, 2020. Options granted and outstanding under the 2010 Plan totaled 197,081 as of December 31, 2011. Prior to the adoption of the 2010 Plan, options were granted under the Manhattan Bancorp 2007 Stock Option Plan ("2007 Plan"), which terminated upon the approval of the 2010 Plan. Options granted and still outstanding under the 2007 Plan totaled 388,612 as of December 31, 2011.

The Company recognizes the cost of recipient service received in exchange for awards of stock options, or other equity instruments in the consolidate statements of income over the vesting period of the award. The plans provide that each option must have an exercise price not less than the fair market value of the stock at the date of grant, have a term no longer than ten years, and vest as determined by the Board of Directors. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Bancorp's common stock at the date of grant is used for restricted stock awards.

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~Fair~~Income/(Loss) ~~Value~~per ~~of Financial Instruments~~Share

~~Fair~~Basic ~~values~~income of(loss) ~~financial~~per ~~instruments~~share ~~are~~represents ~~estimated~~the ~~using~~income ~~relevant~~(loss) ~~market~~reported ~~information~~to ~~and~~common ~~other~~stockholders ~~assumptions,~~divided asby ~~more~~the ~~fully~~weighted ~~disclosed~~average innumber of ashares ~~separate~~of ~~note.~~common ~~Fair~~stock ~~value~~outstanding ~~estimates~~during ~~involve~~the ~~uncertainties~~periods ~~and~~reported ~~matters~~on ofthe ~~significant~~Consolidated ~~judgment~~Statements ~~regarding~~of ~~interest~~Operations. ~~rates,~~Diluted ~~credit~~income ~~risk,~~per ~~prepayments,~~share ~~and~~for ~~other~~the ~~factors~~year ended December 31, ~~especially~~2012 indoes ~~the~~not ~~absence~~include any effects of common stock equivalents as these stock options were considered to be anti-dilutive because their exercise price ~~broad~~exceeded ~~markets~~the ~~for~~market ~~particular~~value ~~items~~of the Company's shares. ~~Changes~~Diluted inloss ~~assumptions~~per orshare indoes ~~market~~not ~~conditions~~include ~~could~~any ~~significantly~~effects ~~affect~~of ~~these~~common ~~estimates~~stock equivalents as they would not be dilutive due to the Company's net loss for the year ended December 31, 2011.

There were ~~Operating~~no ~~Segments~~ potential dilutive securities as of December 31, 2012 or 2011 other than stock options awarded to employees of the Company and its subsidiaries. At December 31, 2012 and 2011, there were 485,487 and 108,159 stock options outstanding, respectively. In 2012 these stock options were considered to be anti-dilutive because their exercise price exceeded the market value of the Company's shares. (See Note 11 for further details on the Company's share-based compensation.)

The weighted ~~Company~~average ~~segregates~~number ~~its~~of ~~operations~~shares ~~into~~used ~~four~~to ~~primary~~calculate ~~segments:~~net ~~mortgage~~income ~~banking operations~~ (~~"mortgage bank"~~loss)~~, non-mortgage~~ ~~banking~~per ~~operations~~share ~~("commercial~~for ~~bank"),~~the ~~non-banking~~years ~~financial~~ended ~~operations ("MCM")~~December 31, 2012 and ~~other~~2011 ~~operations~~was ~~("other")~~9,035,070 ~~which~~and ~~includes~~4,513,501, ~~the~~respectively. ~~holding~~The weighted ~~company,~~average ~~MBSF,~~number ~~and eliminations~~of ~~between~~shares ~~the~~for ~~Company's~~2011 ~~bank~~represents ~~and~~the ~~non-bank~~average ~~segments.~~PBB ~~Internal~~shares ~~financial~~for ~~information~~2011, iswhich ~~used~~were converted to ~~report~~ the ~~financial~~Company's ~~position~~common ~~and~~stock ~~operating~~at ~~results~~the time of ~~each~~the ofMerger; ~~these~~share ~~segments~~changes ~~and~~such as the reverse ismerger ~~disclosed~~are inretrospectively apresented ~~separate~~for ~~footnote~~all periods.

~~Derivatives~~Equity ~~and~~Compensation ~~Hedging~~Plans/Share-based Compensation

The ~~Company~~Manhattan ~~utilizes~~Bancorp ~~derivatives~~2010 Equity Incentive Plan ("2010 Plan"), which was approved on March 25, 2010, provides for ~~hedging~~the ~~purposes~~issuance of up to ~~mitigate~~444,348 ~~interest~~shares ~~rate~~of ~~risk~~the Bancorp's authorized and unissued common stock. The ~~Company~~2010 ~~does~~Plan ~~not~~expires ~~utilize~~on ~~derivatives~~March 25, on2020. aOptions granted and outstanding under the 2010 Plan totaled 122,582 as of ~~speculative~~December 31, ~~basis~~2012. In addition, there are 3,333 shares of restricted stock that have been issued and outstanding under the 2010 Plan. Prior to the adoption of the 2010 Plan, options were granted under the Manhattan Bancorp 2007 Stock Option Plan ("2007 Plan"). Options granted and still outstanding under the 2007 Plan totaled 177,314 as of December 31, 2012.

ToIn ~~this~~conjunction ~~end~~with the Merger, Bancorp assumed the ~~Company~~California ~~typically~~General ~~locks~~Bank, ~~interest~~N.A. ~~rates~~2009 onStock ~~loans~~Option ~~held~~Plan ~~for~~("2009 ~~sale~~Plan") atand ~~fair~~the ~~value~~Professional ~~prior~~Business toBank ~~funding~~2011 ~~while~~Equity ~~simultaneously~~Incentive ~~locking~~Plan ("2011 aPlan"), ~~price~~although tono ~~sell~~further grants may be made under these plans. Options granted and still outstanding under the ~~loans~~2009 toPlan ~~investors~~totaled 185,591 as of December 31, 2012. Unvested restricted ~~According~~stock togrants ~~relevant~~outstanding ~~accounting~~under ~~guidance~~the 2011 Plan totaled 28,800 ~~rate~~as ~~lock~~of ~~commitments~~December 31, ~~with~~2012. ~~borrowers~~The ~~are~~holders ~~derivatives~~of ~~and~~these ~~must~~unvested berestricted ~~recorded~~stock atgrants ~~fair~~would ~~value~~receive dividends, if declared, and have rights to vote those shares.

~~All~~The ~~mandatory~~Company ~~obligations~~recognizes tothe ~~sell~~cost orof ~~purchase~~recipient ~~loans~~service atreceived ain ~~specific~~exchange ~~price~~for awards of stock options, or other equity instruments in the ~~future~~consolidated ~~are~~statements ~~considered~~of tooperations beover ~~derivatives~~the vesting ~~and~~period of the award. The plans provide that each option must behave ~~recorded~~an atexercise price not less than the fair market value. Inof the ~~third~~stock ~~quarter~~at the date of ~~2011~~grant, have a term no longer than ten years, ~~the~~and ~~Company~~vest ~~elected~~as todetermined ~~record~~by ~~all~~the Board of ~~its~~Directors. ~~forward~~A ~~sale~~Black-Scholes ~~commitments~~model atis utilized to estimate the fair value ~~provided~~of ~~such~~stock ~~commitments~~options, while ~~qualified~~the ~~for~~market ~~fair~~price ~~value~~of ~~treatment~~the ~~and~~Bancorp's ~~are~~common ~~not~~stock ~~otherwise~~at ~~considered~~the todate beof ~~derivatives~~grant is used for the fair value of restricted stock awards.

In the third quarter of 2011, the Company elected prospectively to record its loans held for sale at fair value for all loans originated prospectively by the Company and held for sale as well as all loans which were both purchased and hedged.

New Accounting Pronouncements

In April of 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-02, Receivables (Topic 310), A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring. ASU 2011-02 requires that, in evaluating whether a restructuring constitutes a TDR, a creditor must separately conclude that both of the following exist: (1) the restructuring constitutes a concession, and (2) the debtor is experiencing financial difficulties. ASU 2011-02 clarifies the guidance on whether a lender has granted a concession, and on the lender's evaluation of whether a borrower is experiencing financial difficulties. ASU 2011-02 is effective for interim and annual periods ending after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the year. Thus, the Company was required to apply the new guidance to determine whether modifications that were not previously considered TDRs and that have occurred since the beginning of the year would now be

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~considered TDRs.~~ ~~The~~Fair ~~Company~~Value ~~did not identify any modifications that were not previously considered TDRs to be TDRs as a result~~ of ~~this~~Financial ~~new guidance.~~ Instruments

~~In May of 2011, the FASB issued ASU 2011-04,~~ Fair ~~Value~~values ~~Measurement~~of ~~(Topic~~financial ~~820),~~instruments ~~Amendments~~are toestimated ~~Achieve~~using ~~Common~~relevant ~~Fair~~market ~~Value~~information ~~Measurement~~ and ~~Disclosure Requirements~~other inassumptions, ~~U.S. GAAP~~as ~~and~~more ~~IFRSs.~~fully ~~The~~disclosed ~~primary purpose of ASU 2011-04 is to improve the comparability of fair value measurement and disclosure requirements~~ in ~~U.S. GAAP~~a ~~and~~separate ~~International Financial Reporting Standards ("IFRSs")~~note. ~~ASU~~Fair ~~2011-04~~value ~~does~~estimates ~~not~~involve ~~require~~uncertainties ~~additional fair value measurements~~ and ismatters ~~not intended to establish valuation standards or affect valuation practices outside~~ of ~~financial~~significant ~~reporting.~~judgment ~~Certain~~regarding ~~amendments~~interest ~~clarify~~rates, ~~the~~credit ~~intent~~risk, ~~about~~prepayments, ~~the application of existing fair value measurement~~ and ~~disclosure~~other ~~requirements.~~factors, ~~The~~especially ~~amendments~~ in ~~ASU~~ ~~2011-04 apply to all reporting entities that are required or permitted to measure or disclose~~ the ~~fair~~absence ~~value~~ of broad anmarkets ~~asset,~~for aparticular ~~liability,~~items. orChanges ~~an instrument classified~~ in aassumptions ~~reporting entity's~~or ~~shareholders' equity~~ in ~~the~~market ~~financial~~conditions ~~statements.~~could ~~ASU~~significantly ~~2011-04~~affect isthese ~~to be applied prospectively for interim and annual periods beginning after December 15, 2011 and is not expected to have a material impact on the Company's results of operations or financial position~~estimates.

~~In June~~ ofOperating 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. ASU 2011-05 eliminates the option of presenting changes in other comprehensive income as part of the statement of changes in stockholders' equity. All non-owner changes in stockholders' equity must be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements(s) where the components of net income and the components of other comprehensive income are presented. The revisions in the presentation of comprehensive income in the financial statements are effective for all annual and interim reporting periods beginning after December 15, 2011. The revisions should be applied retrospectively. Since ASU 2011-05 affects only disclosure requirements related to comprehensive income, the adoption of this update is not expected to have a material impact on the Company's results of operations or financial position. Segments

The Company segregates its operations into four primary segments: mortgage division operations ("mortgage division"), non-mortgage division operations ("commercial bank"), non-banking financial operations ("MCM"), and other operations ("other"), which includes the holding company, MBFS, and eliminations between the Company's bank and non-bank segments. Internal financial information is used to report the financial position and operating results of each of these segments and is disclosed in a separate footnote.

Derivatives and Hedging

The Company utilizes derivatives to achieve economic hedging to mitigate interest rate risk. The Company does not utilize derivatives on a speculative basis.

To this end, the Company typically locks interest rates on loans held for sale at fair value prior to funding while simultaneously locking a price to sell the loans to investors. According to relevant accounting guidance, rate lock commitments with borrowers are derivatives and must be recorded at fair value.

All mandatory obligations to sell or purchase loans at a specific price in the future are considered to be derivatives and must be recorded at fair value. The Company has elected to record all of its forward sale commitments at fair value provided such commitments qualified for fair value treatment and are not otherwise considered to be derivatives.

Pending Accounting Pronouncements

In December of 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires that entities disclose both gross information and net information about instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements prepared under IFRSs. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Retrospective application is required for all comparative periods. Adoption of ASU 2011-11 is not expected to have a significant impact on the Company's financial position.

In December of 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 to defer only those changes in ASU 2011-05 that relate to the

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~ 2012

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

presentation of reclassification adjustments. The amendments were made to allow the FASB time to re-deliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. Entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-5. All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements.

Note 2. TIME DEPOSITS WITH OTHER FINANCIAL INSTITUTIONS

At December 31, ~~2011~~2012, the Company had interest-earning deposits with other financial institutions of $~~594~~829 thousand with a weighted average yield of 0.6411%, and a weighted average remaining life of approximately 2.7 months. At December 31, ~~2010~~2011, the Company had interest-earning deposits with other financial institutions of $24.90 million with a weighted average yield of 1.36%, and a weighted average remaining life of approximately 5.2 months.

Note 3. INVESTMENT SECURITIES

The Company's investment securities have been classified in the consolidated balance sheets as either available-for-sale or held-to-maturity according to management's intent. Our securities portfolio consists primarily of securities issued the U.S. government and government sponsored agencies ("GSEs") as well as private label mortgage-backed securities. The following is a summary of the investment securities at their amortized cost and estimated fair value with gross unrealized gains and losses at December 31, ~~2011~~2012 and ~~2010~~2011:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
December 31, 2011:
December 31, 2012
Available-for-sale securities:
U.S. government and agency securities:	$	—	$	—	$	—		$	—
Fixed rate note	$	—	$	—	$	—		$	—
Residential mortgage-backed securities		6,942		59		(1	)		7,000
Residential mortgage-backed securities		7,057		280		—			7,337
Private label mortgage-backed securities		1,310		54		—			1,364
Private label mortgage-backed securities		4,152		79		(82	)		4,149
Total available-for-sale securities	$	8,252	$	113	$	(1	)	$	8,364
Total available-for-sale securities	$	11,209	$	359	$	(82	)	$	11,486

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
December 31, 2010:
Available-for-sale securities:
U.S. government and agency securities:
Fixed rate note	$	1,500	$	—	$	(51	)	$	1,449
Residential mortgage-backed securities		3,696		251		—			3,947
Private label mortgage-backed securities		9,345		212		(77	)		9,480
Total available-for-sale securities	$	14,541	$	463	$	(128	)	$	14,876
Held-to-maturity securities:
State and municipal securities	$	498	$	6	$	—		$	504

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~ 2012

Note 3. INVESTMENT SECURITIES (Continued)

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

	(in thousands)
December 31, 2011:
Available-for-sale securities:
U.S. government and agency securities:
Debentures	$	1,517	$	1	$	—	$	1,518
Residential mortgage-backed securities		1,941		42		—		1,983
Municipal Securities		5,492		467		—		5,959

Total available-for-sale securities	$	8,950	$	510	$	—	$	9,460

~~Securities~~Net ~~with~~unrealized agains ~~fair~~on ~~value~~available-for-sale ~~gain~~securities of $~~7.2~~113 ~~million~~thousand and $~~5.0~~510 ~~million~~thousand at December 31, ~~2011and~~2012 ~~2010~~and 2011, respectively, were included ~~pledged~~in toaccumulated ~~secure~~other ~~borrowings~~comprehensive ~~from the FHLB~~income.

AtDuring ~~December~~the year ended December 31, ~~2011~~2012, ~~nine of~~ the Company's ~~private~~sold ~~label MBS, totaling~~ $24.25 million, ~~were~~in ~~issued~~securities byat ~~one~~a ~~issuer,~~gain ~~which~~of ~~exceeded~~$529 thousand. ~~10%~~There ofwere ~~the~~no ~~Company's~~sales ~~equity~~in 2011.

~~The~~Securities ~~Company's~~with ~~private~~a ~~label~~fair ~~mortgage-backed~~value ~~securities~~of ~~("MBS"), which include 13 securities totaling~~ $45.28 million, ~~had~~and ~~a net unrealized loss of~~ $7.2 ~~thousand~~million orat ~~0.1% of their book values as of~~ December 31, ~~2011.~~2012 Ofand ~~this~~2011, ~~nine~~respectively, ~~securities totaling $1.7 million~~ were ~~rated~~pledged ~~investment~~to ~~grade~~secure ~~and~~borrowings ~~had~~from anthe ~~unrealized gain of $72 thousand or 4~~FHLB.3% ~~of their book values and four securities totaling $2.5 million were rated below investment grade and had an unrealized loss of $74 thousand or 3.0% of their book values.~~

~~All~~Our ofprivate ~~the~~label ~~MBS are~~ mortgage-backed bysecurities ~~loans~~("MBS"), ~~secured~~which bytotaled ~~first~~$1.4 million, ~~and~~had ~~second~~a ~~lien~~net ~~residential~~unrealized ~~mortgage~~gain ~~loans~~of on$54 thousand ~~single~~or ~~family residential 1-~~4 ~~units~~.1% ~~The~~of ~~Company's~~their ~~private~~book ~~label~~values ~~MBS~~as ~~were~~of ~~purchased~~December 31, at2012. ~~significant~~Of ~~discounts~~this, totwo ~~par,~~securities ~~primarily~~totaling in$213 thousand ~~2010,~~were ~~well~~rated ~~after~~investment ~~the~~grade ~~collapse~~and inhad ~~home~~no ~~values~~unrealized ~~that~~gain ~~began~~or inloss ~~2007.~~and ~~These~~two securities ~~were~~totaling ~~selected~~$1.2 million ~~specifically~~were rated ~~because~~below ofinvestment ~~the~~grade ~~structure~~ and ~~collateral~~ ofhad ~~each~~an ~~security significantly~~unrealized ~~enhanced~~gain ~~the repayment~~ of ~~both~~$54 thousand ~~principal~~or ~~and~~4.7% ~~interest~~of ~~cash~~their ~~flows~~book ~~at par~~values. ~~The~~At ~~weighted~~December 31, ~~average~~2012, ~~purchase~~there ~~price~~were ofno ~~the~~securities ~~MBS~~issued ~~was~~by ~~92.845%~~one ~~compared~~issuer ~~with~~which ~~the December 31, 2011~~exceeded ~~mark-to-market value of 95.708~~10%, ~~an increase~~ of 2our equity.~~863%.~~

The fair value of securities was derived by a nationally recognized pricing service provided through a third-party broker/dealer (Vining Sparks) who, in turn, provides mark-to-market levels based on Interactive Data 360 view ("IDC"). IDC utilizes real time market price discovery along with actual security performance including cash flow structure to determine market values. Based on the December 31, ~~2011~~2012 valuation analysis, the Company believes it will receive all principal and interest due to each security.

In estimating other-than-temporary 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. Any intra-period decline in the market value of the Company's investment securities during ~~2011~~2012 or ~~2010~~2011 was attributable to changes in market rates of interest rather than credit quality. Accordingly, as of December 31, ~~2011~~2012 and ~~2010~~2011, management believes that the gross unrealized losses detailed in the table above are temporary and no impairment loss should be realized in the Company's consolidated ~~statement~~statements of operations.

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MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, ~~2011~~2012

Note 3. INVESTMENT SECURITIES (Continued)

The following table reflects the periods for which the Company's investment securities were in a continual loss position as of December 31, ~~2011 and 2010~~2012:

		December 31, 2011

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