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

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):

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, 2012 was approximately $10.3 million.

As of March 23, 2013, there were 12,508,268 shares of the registrant's common stock outstanding.

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

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 recent acquisition of Professional Business Bank, including the successful integration of the companies' businesses and the anticipated cost saving arising from the 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.

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 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. The Bank also originates residential mortgages to individuals within its service areas who are purchasing homes or refinancing their existing mortgages; these loans originated by the Bank are sold in the secondary market. The Bank operates from its headquarters office along with branch offices located in the California cities of Manhattan Beach, Glendale, Pasadena, and Montebello. The Bank offers mortgage loans through lending offices located at its headquarters office and in the California cities of Los Angeles, San Diego, Woodland Hills, Hermosa Beach, Huntington Beach, Newport Beach, and Santa Barbara. At December 31, 2012, the Company had consolidated total assets of $465.4 million, total net loans of $371.0 million, total deposits of $383.3 million and total stockholders' equity of $57.1 million.

Through a wholly-owned subsidiary, MBFS Holdings, Inc. ("MBFS"), Manhattan Bancorp also indirectly owned until November 9, 2012, a 70% interest in Manhattan Capital Markets LLC ("MCM"), which, either directly or through its wholly-owned subsidiaries, generates revenues primarily from trading income, facilitating trades in whole loans between institutional clients, and advisory services regarding the evaluation and packaging of bond portfolios of other institutions. As discussed in more detail below under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Sale of MBFS," Manhattan Bancorp sold its entire interest in MBFS, including its indirect interest in MCM, on November 9, 2012 to Carpenter Fund Manager GP, LLC and its affiliated investment funds (the "Carpenter Funds"), an affiliate of the 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" refer to MBFS Holdings, Inc. and its subsidiary Manhattan Capital Markets LLC and its direct and indirect wholly-owned subsidiaries respectively.

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

In the Merger, Manhattan Bancorp issued an aggregate of 8,195,469 shares of its common stock to the shareholders of Professional Business Bank, representing a ratio of 1.7991 shares of Manhattan Bancorp common stock for each share of Professional Business Bank common stock outstanding at the effective time of the Merger. The shares of Manhattan Bancorp common stock issued to the Professional Business Bank shareholders in the Merger constituted approximately 67.2% of the Manhattan Bancorp's outstanding common stock after giving effect to the Merger. Accounting principles generally accepted in the United States of America ("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.

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.

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.

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 derivative 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.

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").

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 headquarters office and branch offices 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.

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.

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.

As of December 31, 2012, the Company had 188 employees, all of which were full-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.

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, 2012, there were four relationships that had total deposits in excess of 2% of total deposits representing approximately 16.1% 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.

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 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.

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.

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.

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:

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.

Dodd-Frank requires that a bank holding company serve as a source of financial strength to its subsidiary banks and commit resources as necessary to support each subsidiary bank. In addition, if a subsidiary bank fails to maintain adequate capital levels, it could be required by the bank's federal regulator to take "prompt corrective action." In such a case, the bank holding company may be required to support the subsidiary bank's capital restoration plan. See "Prompt Corrective Action Provisions" below.

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:

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 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.

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.

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.

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, 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, 2012 and December 31, 2011, the Bank's Total Risk-Based Capital Ratio was 13.01% and 19.22% respectively, and its Tier 1 Risked-Based Capital Ratio was 12.21% and 17.96% respectively.

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, 2012, the Bank's leverage capital ratio was 10.18%, and the Company's leverage capital ratio was 10.39%. 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.

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.

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:

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 were originally to be phased in from January 1, 2013 until January 1, 2019. On November 9, 2012, the FRB, the FDIC, and the OCC issued a press release stating that they "do not expect" that any of the new regulatory capital rules they had proposed to implement pursuant to Basel III would become effective on January 1, 2013. There is no certainty when the phase in of these new regulatory standards will begin or to what extent they will apply to the Company. United States banking regulators must also implement Basel III in

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.

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 depends upon how its capital levels compare with various relevant capital measures and the 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 category may not constitute an accurate representation of the banks' overall financial condition or prospects for other purposes. A bank 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 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 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 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.

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 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 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, 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 $320 thousand for 2012. 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 $17 thousand for 2012.

The Bank is generally unable to control the amount of premiums that it is required to pay for FDIC insurance. If there are additional bank or financial institution failures or if the FDIC otherwise determines, the Bank may be required to pay even higher FDIC premiums than the recently increased levels. These announced increases and any future increases in FDIC insurance premiums may have a material and adverse effect on the Company's earnings and could have a material adverse effect on the value of, or market for, the Company's common 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 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.

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 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.

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.

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, 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 2012, the real estate market in Southern California showed signs of stabilization and some improvement, as evidenced by increasing prices, increased transaction volume, and decreased foreclosure rates. 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 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 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 divisions and other financial intermediaries. In particular, 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 advertising campaigns. Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions may have larger 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.

Our legal lending limit as of December 31, 2012 was approximately $7 million. Accordingly, the size of the loans which 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 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 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 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.

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.

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 5 to 30 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 division provides a significant portion of our non-interest income. We generate mortgage revenues 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 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.

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 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.

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

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, 2012, there were four relationships with deposits in excess of 2% of total deposits representing approximately 16.1% of our total deposits (excluding brokered deposits).

Our reliance on wholesale deposits has increased significantly due to the growth in our mortgage division business. Wholesale deposits are sourced from other financial institutions, deposit brokers, and the Certificate of Deposit Account Registry Service. At December 31, 2012, we had $48.8 million in wholesale deposits, representing 12.7% 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.

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 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:

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.

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 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:

Our common stock is quoted on the OTCQB Marketplace under the symbol "MNHN" 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 shares of 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.

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.

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.

As a result of the Merger, the Company acquired branch facilities in Glendale, Pasadena, East Pasadena and Montebello. As of December 31, 2012 the Glendale and Pasadena offices have remaining terms of six months and sixteen months, respectively. The Bank has notified its customers and regulators of its intention to consolidate its East Pasadena office into the Pasadena branch during the first quarter of 2013; the Bank has already sublet the upper floors at the East Pasadena location and is in the process of securing a sublease of the branch space. The land and building are owned by the Bank for its office in Montebello.

The Company entered into a lease on November 1, 2011 in the Woodland Hills area of Los Angeles, the entire space has been sublet to MCM and its subsidiaries. As of December 31, 2012 the remaining term on the lease is 73 months. This property also houses the Woodland Hills satellite office of the Bank's mortgage division, which the Bank has entered into a separate agreement to sublet the space it occupies from MCM on a month-to-month basis.

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.

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 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company's common stock (OTCQB: MNHN) is quoted on the OTCQB Marketplace, a marketplace for companies that are current in their reporting with a U.S. regulator. The Company's common stock is not listed on any exchange. Investors can find quotes and market information for the Company on www.otcmarkets.com. Any investment in 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 high and low 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 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.

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

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, the Company's ability to declare dividends depends primarily upon dividends it receives from the Bank. The dividend practice of the Bank, like the Company's dividend practice, will depend upon its earnings, financial position, current and anticipated cash requirements and other factors deemed relevant by its 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.

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.

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.

The following table provides information as of December 31, 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.

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

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.

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.

The Company recorded net income attributable to common shareholders of $686 thousand for the year ended December 31, 2012, which translates to net earnings of $0.08 per basic share and fully-diluted share of common stock. This compares with a net loss of $(238) thousand for the year ended December 31, 2011, which translated to a net loss of $(0. 05) per basic and fully-diluted share of common stock.

The Company's $686 thousand net income attributable to common shareholders in 2012 was $925 thousand greater than its net loss in the prior year, due to a $22.0 million increase in non-interest income, a $1.5 million decrease in provision for loan losses, partially offset by a $23.2 million increase in non-interest expense.

The majority (96%) of the $22.0 million increase in non-interest 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 divisions. Increased expenses are also attributable to $1.2 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 the operating results for the year ended December 31, 2012 only include operations following the Merger, as Professional Business Bank did not have a mortgage division. Similarly, the results of MCM included in the operating results for the year ended December 31, 2012 only include operations following the Merger through the effective time of the spinoff of MCM that occurred on November 9, 2012, or October 31, 2012.

Assets at December 31, 2012 totaled $465.4 million, up $226.0 million or 94% from December 31, 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 division.

Net loans totaled $371.0 million at December 31, 2012, up $204.7 million or 123% from December 31, 2011. Approximately 47% of this growth was generated by our mortgage 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.

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."

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

In the Merger, we issued an aggregate of 8,195,469 shares of our common stock to the 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.

As a result of the Merger, we 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.

On November 9, 2012, we entered into a Securities Purchase Agreement (the "Purchase Agreement") with the Carpenter Lenders, which provided for (i) the sale of all of the shares of capital stock (the "MBFS Shares") of our wholly owned subsidiary, MBFS, and (ii) the assignment of our entire right in and to a promissory note dated as of July 25, 2011 (the "MCM Note"), made by MCM in favor of us in the aggregate principal amount of $5.0 million, in each case to the Carpenter 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. 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.

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

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 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:

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

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.

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.

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.

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.

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.

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.

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 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

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:

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.

Mortgage banking activity income is recognized when the Company records a derivative asset upon the commitment to originate a loan with a borrower for 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 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.

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.

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.

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

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 23 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.

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.

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 $15.6 million for the year ended December 31, 2012, an increase of $488 thousand or 3% compared with 2011. The increase in NII was largely due to an increase in earning assets as a result of the Merger partially offset by unfavorable changes in our NIM and spread. While average interest-bearing assets increased in 2012 by $73.6 million (29%) compared with 2011, our spread decreased by 119 basis points to 4.78% and our NIM decreased by 121 basis points to 4.80%.

The decrease in our spread and NIM during 2012 was due primarily to lower asset yields, partially offset by a small favorable change in our overall cost of funds. Loan yields decreased by 286 basis points to 5.71% in 2012 compared with 8.57% in 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 held on deposit with other financial institutions decreased by 62 basis points to 0.59% in 2012 from 1.21% in 2011. Our yield on investments on the other hand increased by 40 basis points to 3.58% in 2012 compared with 3.18% in 2011. The unfavorable loan yield trend was also mitigated by a slight reduction in funding costs, primarily due to a 5 basis point decrease in rates paid on our interest-bearing liabilities. The reduction in our overall cost of funding was due primarily to a $41.7 million increase in average non-interest bearing demand deposit accounts ("DDAs") within our commercial bank that largely resulted from the Merger. Our cost of borrowings during 2012 was more than offset by a the recognition of the Merger related discount on a mortgage loan used to finance the Manhattan Beach branch when that loan was paid off in December 2012; this resulted in a $232 thousand offset to interest expense on borrowings.

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:

	ANALYSIS OF NET INTEREST INCOME

	2012								2011							2010
	Average Balance		Interest Income/ Expense			Yield/ Cost			Average Balance		Interest Income/ Expense		Yield/ Cost			Average Balance		Interest Income/ Expense		Yield/ Cost
Interest-earning assets:
Federal funds sold	$	32,014	$	84			0.26	%	$	52,548	$	123		0.23	%	$	7,451	$	—		—
Deposits with other financial institutions		3,031		18			0.59	%		9,155		111		1.21	%		16,540		258		1.56	%
Investments(a)		7,784		279			3.58	%		10,871		346		3.18	%		6,603		123		1.86	%
Loans(b)		282,183		16,113			5.71	%		178,798		15,330		8.57	%		26,297		1,704		6.48	%

Total interest-earning assets		325,012		16,494			5.07	%		251,372		15,910		6.33	%		56,891		2,085		3.66	%

Non-interest-earning assets		39,690								19,160							3,472

Total assets	$	364,702							$	270,532						$	60,363

Interest-bearing liabilities:
Demand		13,016		10			0.08	%		—		—		0.00	%		—		—		—
Savings and money market		93,857		410			0.44	%		71,160		191		0.27	%		18,451		210		1.14	%
Certificates of deposit		84,922		492			0.58	%		93,242		610		0.65	%		21,724		410		1.89	%
FHLB advances and other borrowings		11,598		(15	)		-0.13	%		—		—		0.00	%		—		—		0.00	%

Total interest-bearing liabilities		203,393		897			0.44	%		164,402		801		0.49	%		40,175		620		1.54	%

Non-interest-bearing demand deposits		109,794								68,133							5,328

Total funding sources		313,187					0.29	%		232,535				0.34	%		45,503				1.36	%
Non-interest-bearing liabilities		5,373								3,337							855
Shareholders' equity		46,142								34,660							14,005

Total liabilities and shareholders' equity	$	364,702							$	270,532						$	60,363

Excess of interest-earning assets over funding sources	$	11,825							$	18,837						$	11,388

Net interest income			$	15,597							$	15,109						$	1,465

Net interest rate spread							4.78	%						5.99	%						2.30	%
Net interest margin							4.80	%						6.01	%						2.58	%

(a): Dividend income from the Bank's investment in Non-Marketable Stocks of approximately $94 thousand, $7 thousand, and $26 thousand December 31, 2012, 2011 and 2010, respectively, is included in investment income; however, the corresponding average balances are included in other assets.
(b): 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 were approximately $166 thousand, $8 thousand and $32 thousand in 2012, 2011 and 2010, respectively.
(c): Spread is derived by subtracting the aggregate interest rate paid for deposits and borrowings from the interest yield on earning assets. Example: If a bank lends money at 6% and pays 1% on deposits and borrowings, 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.

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

(change in rate times the change in volume) have been allocated to changes in rate and changes in volume based upon the absolute values of those respective changes.

	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

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.

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.

Non-interest income for the years ended December 31, 2012 and 2011 was $24.4 million and $2.3 million, respectively. This $22.1 million increase was due primarily to revenue provided by our mortgage division activity along with revenues generated by MCM.

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

	For the Year Ended December 31,				Increase (Decrease)

	2012		2011		Amount			Percent
	(dollars in thousands)
Whole loan sales and warehouse lending fees	$	695	$	—	$	695			100.0	%
Advisory income		950		—		950			100.0	%
Trading income		3,622		—		3,622			100.0	%
Mortgage banking, including gain on sale on loans held for sale		15,923		—		15,923			100.0	%
Earnings on MIMS-1 limited partnership fund		399		—		399			100.0	%
Other bank fees and income		1,173		2,316		(1,143	)		-49.4	%
Rental income		324		17		307			1805.9	%
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 Merger, our non-interest revenues include revenues generated from our mortgage division, which totaled $15.9 million in 2012. Our mortgage division began originating loans in the fourth quarter of 2010 but due to the accounting treatment in the Merger, these revenues are not 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 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.

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.

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 Bank increased this reserve by $247 thousand, which totaled $362 thousand at December 31, 2012. The Bank did not experience any losses during 2012 for loans that it had sold in the past.

Non-interest expense for the years ended December 31, 2012 and 2011 was $38.0 million and $14.8 million, respectively, an increase of $23.2 million (157%). Most of the $23.2 million increase in non-interest expenses was driven by growth in the Company's staffing levels due to the Merger, including the increase in infrastructure to support expansions in our mortgage and commercial divisions. The Company also experienced increases in other categories of non-interest expense that were largely the result of the Merger.

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

	For the Year Ended December 31,				Increase (Decrease)

	2012		2011		Amount			Percent
	(Dollars in thousands)
Compensation and benefits	$	25,005	$	6,772	$	18,233			269	%
Occupancy and equipment		2,724		1,404		1,320			94	%
Technology and communication		2,592		1,290		1,302			101	%
Professional fees		4,025		2,594		1,431			55	%
FDIC insurance and regulatory assessments		509		285		224			79	%
Amortization of intangibles		445		473		(28	)		-6	%
Other non-interest expenses		2,699		1,944		755			39	%

Total non-interest expense	$	37,999	$	14,762	$	23,237			157	%

Four expense categories comprised 90% and 82%, of the Company's operating expenses in 2012 and 2011, respectively: compensation and benefits, occupancy and equipment, technology and communication, and professional fees. These four expense categories, which totaled $34.3 million in 2012, increased by $22.3 million (185%) compared with 2011 and accounted for almost all of the total increase in our non-interest expenses in 2012 compared with 2011.

Compensation and benefits expense totaled $25.0 million and $6.8 million in the years ended December 31, 2012 and 2011. These expenses comprised 66% and 46% of total non-interest expenses in 2012 and 2011, respectively, the largest category of operating expenses.

Compensation and benefits expense grew by $18.2 million (269%) in 2012 compared with 2011. These increases primarily reflected growth in the Company's staffing levels due to the Merger and to support planned expansions in both our mortgage division and, to a lesser extent, commercial division. The

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

Occupancy and equipment costs, which totaled $2.7 million and $1.4 million in 2012 and 2011, respectively. These expenses, which comprised 7% and 10% of total operating expenses in 2012 and 2011, respectively, increased by $1.3 million (94%) in 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 divisions.

Technology and communication expense, which totaled $2.6 million and $1.3 million in 2012 and 2011, respectively, comprised 7% and 9% of the Company's total operating expenses in 2012 and 2011, respectively. These expenses increased by $1.3 million (101%) in 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 division and, to a lesser extent, commercial division.

Professional fees, which totaled $4.0 million and $2.6 million in 2012 and 2011, respectively, comprised 11% and 18% of the Company's total operating expenses during these same respective periods. This category of expense increased by $1.4 million (55%) in 2012 compared with the prior year, primarily due to outlays for professional services related to various strategic initiatives undertaken by the Company, including approximately $1.2 million related to the Merger and $34 thousand related to the sale of the Company's interest in MCM.

The Company segregates its operations into four primary segments: mortgage division operations ("Mortgage Division"), commercial banking operations ("Commercial Division"), non-banking financial operations ("MCM") and "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. 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.

	For the Years Ended December 31,

	2012			2011
	(in thousands)
Net interest income, after loan loss provision:
Commercial Division	$	13,270		$	12,392
Mortgage Division		1,207			—

Total Bank		14,477			12,392
MCM		(83	)		—
Other		—			—

Total net interest income, after loan loss provision	$	14,394		$	12,392

Non-interest income:
Commercial Division	$	3,161		$	2,333
Mortgage Division		15,923			—

Total Bank		19,084			2,333
MCM		5,878			—
Other		(598	)		—

Total non-interest income	$	24,364		$	2,333

Total revenue:
Commercial Division	$	18,355		$	18,243
Mortgage Division		17,482			—
Intra-company eliminations		(352	)		—

Total Bank		35,485			18,243
MCM		5,970			—
Other		(597	)		—

Total revenue	$	40,858		$	18,243

Segment profit (loss):
Commercial Division	$	(1,597	)	$	(239	)
Mortgage Division		2,661			—

Total Bank		1,064			(239	)
MCM		(175	)		—
Other		(150	)		—

Total segment profit (loss)	$	739		$	(239	)

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

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.

Assets at December 31, 2012 totaled $465.4 million, up $226.0 million from December 31, 2011. The significant increase in the Company's assets was driven almost entirely by the Merger.

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

We absorbed a significant portion of our loan growth by redeploying cash from our interest-bearing deposits and investment securities into funding loans. As a result, our interest-bearing deposits and investment securities decreased by $9.8 million (19%) to $42.4 million at December 31, 2012, compared with $52.2 million at December 31, 2011.

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, 2012, the weighted average yield for the time deposits was 0.11% with a weighted average remaining life of approximately 1 month. As of December 31, 2011, the weighted average yield for the time deposits was 1.0% with a weighted average life of approximately five months.

As reflected in the following table, our securities portfolio as of December 31, 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,

	2012					2011					2010
	Fair Value		Percent of Total			Fair Value		Percent of Total			Fair Value		Percent of Total
	(dollars in thousands)
*Available for Sale*
U.S. government treasury securities	$	—		—		$	—		—		$	2,002		14.8	%
U.S. government and agency securities Debentures		—		—			1,518		16.0	%		2,604		19.3	%
Residential mortgage-backed securities		7,000		83.7	%		1,983		21.0	%		2,767		20.5	%
Private label mortgage-backed securities		1,364		16.3	%		—		—			—		—
Municipal Securities		—		—			5,959		63.0	%		6,131		45.4	%

Totals	$	8,364		100.0	%	$	9,460		100.0	%	$	13,504		100.0	%

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.

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.

Mortgage-backed securities are classified according to their estimated lives. Expected maturities may differ from contractual maturities because borrowers have the right to prepay their obligations.

Net unrealized gains and losses on available-for-sale securities of $112 thousand and $483 thousand at December 31, 2012 and 2011, respectively, were included in accumulated other comprehensive income.

During the year ended December 31, 2012, the Company sold $4.5 million in securities at a gain of $529 thousand. There were no sales during 2011.

For additional information regarding the composition, maturities and yields of the security portfolio as of December 31, 2012, see Note 3 of the Notes to Consolidated Financial Statement in Item 8 of this document.

We offer a broad range of products designed to meet the credit needs of our borrowers. Our lending activities consist of residential mortgage loans, commercial and industrial loans, commercial real estate loans, residential 1-4 family loans, real estate construction loans and other consumer loans.

Net loans totaled $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 division 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 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.

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.

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 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 the composition of our loans held for investment:

	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, 2012
(dollars in thousands)

Of the gross loans held for investment outstanding as of December 31, 2012, approximately 77% had adjustable rates that adjust daily based on changes in the nationally published prime rate. As reflected in the table below, 45% of these loans were due in one year or less, 25% were due in one to five years, and 30% 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
	(unaudited, in thousands)
Commercial	$	55,782	$	9,962	$	6,855	$	72,599
Commercial real estate		29,962		57,029		57,568		144,559
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.

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 2012 and 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.

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, 2012, there were $63.4 million in undisbursed commercial loan commitments whose contractual amounts represent credit risk.

The Company's reserve for commercial loan commitments totaled $177 thousand and $581 thousand as of December 31, 2012 and 2011, respectively.

In order to mitigate interest rate risk, the Bank typically locks interest rates on loans 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.

See Notes 15 and 20 in the Notes to Consolidated Financial Statements for additional information regarding the Company's off-balance sheet risk.

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 loans, excluding those accounted for under ASC 310-30, consisted of non-accrual loans held for investment totaling $1.8 million, $2.4 million and $1.4 million, respectively. The $1.8 million in non-accrual loans at December 31, 2012 includes $330 thousand in troubled debt restructurings that are non-accrual loans. At December 31, 2012 and 2011 the Company had one property that had been foreclosed upon in satisfaction of a loan, which has been written 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 were written down to the estimated collection value net of selling costs of $1.4 million. The Company had no non-performing assets at December 31, 2009.

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. The loans have been placed on non-accrual status and deemed to be credit impaired with no specific loan loss.

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, 2009.

	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	$	—
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		—		—		—		1,208		1,208		627

Subtotal		—		—		—		1,208		1,208		627

Totals	$	1,827	$	1,827	$	—	$	2,448	$	2,448	$	627

	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

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

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.

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.

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.

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

information from in order to evaluate risk. The following table presents information regarding potential problem loans, consisting of loans graded watch, substandard, doubtful and loss, but still performing:

As of December 31, 2012,we had $5.1 million in MSRs. We acquired MSRs totaling $1.9 million as a part of the Merger, which 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 pay offs. MSRs are initially recorded at fair value. The fair value of servicing assets is determined based on the present value of estimated net future cash flows related to contractually-specified servicing fees. The primary determinants of the fair 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.

The Company's deposits at December 31, 2012 totaled $383.3 million, up $182.2 million (91%) compared with year-end 2011. Most of the increase in deposits resulted from the Merger. The following table sets forth the amount of deposits outstanding by category at December 31, 2012 and 2011:

As of December 31, 2012, certificates of deposit comprised 25% of the Company's total deposits, of which 78% of had balances of $100,000 or more and 57% had maturities of three months or less.

As of December 31, 2012, borrowings totaled $19.5 million. There were no outstanding borrowings at December 31, 2011, 2010 or 2009. The Bank utilizes short-term and long-term 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. The Company had one outstanding long-term advance for $4.5 million at December 31, 2012, which matures on June 27, 2013 and bears a fixed rate of 4.38%. As a result of the Merger, we adjusted the carrying value of this long-term advance to reflect the market rates at the time, which was a discount that totaled $90 thousand at December 31, 2012 and is being accreted to interest expense over the remaining term of the advance. Based on eligible collateral available as of December 31, 2012, the Company's total borrowing capacity from the FHLB was $95.8 million. FHLB short-term advances as of December 31, 2012 were $15.0 million. FHLB advances are collateralized by loans with unpaid principal balances of $194.7 million and a market value of $192.6 million (as determined by the FHLB) and securities with a market value of $0.9 million.

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

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

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

institutions, and available-for-sale investment securities that have not been pledged as collateral. The decline in this ratio reflects the redeployment of liquid assets in higher-yielding loans, primarily generated by our mortgage division. The 11% ratio at year-end 2012 was deemed adequate for managing the Company's liquidity.

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.

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.

Under regulatory capital adequacy guidelines, capital adequacy is measured (1) as a percentage of risk-adjusted assets in which risk percentages are applied to assets on the balance sheet as well as off-balance sheet, such as unused loan commitments and standby letters of credit, and (2) as a percentage of the most recent quarter's average tangible assets. 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 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.

We have audited the accompanying consolidated balance sheets of Manhattan Bancorp and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income, changes in total equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 audits provide 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, 2012 and 2011 and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Manhattan Bancorp and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands)

	December 31, 2012			December 31, 2011

*Assets*
Cash and due from banks	$	6,949		$	6,779
Federal funds sold/interest bearing demand funds		33,221			38,756

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

Manhattan Bancorp and Subsidiaries

Consolidated Statements of Operations

(Dollars in thousands, except per share amounts)

	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	)

Manhattan Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

Manhattan Bancorp and Subsidiaries

Consolidated Statements of Changes in Total Equity

For the Years Ended December 31, 2012 and 2011

(Dollars in thousands)

	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

Manhattan Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

(Dollars in thousands)

	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

	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	$	—

	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

MANHATTAN BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012

The accompanying 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. MBFS held a 70% interest in MCM. As discussed in more detail in this Note 1, Bancorp sold its entire interest in MBFS, including its indirect interest in MCM, on November 9, 2012. References throughout these financial statements 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

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.

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.

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 U.S. GAAP and general industry practices.

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 division activities, goodwill, the valuation of deferred tax assets, and ongoing cash flow on loans accounted for under ASC 310-30.

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.

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.

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 $700 thousand at December 31, 2011. 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 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.

The Company classifies its investment securities 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. Realized gains and losses on sales of available-for-sale securities are recorded using the specific identification 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. The cost basis of any other-than-temporarily impaired security is written down by the amount of any impairment adjustment recognized in earnings.

The Company has elected to record its loans held for sale at fair value for all loans 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, 2012 was $96.0 million. There were no loans held for sale at December 31, 2011.

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 receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs, net of deferred loan fees or costs, unearned discounts, and net of allowance for loan losses or specific valuation accounts. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan. Interest on loans is accrued daily and recognized over the terms of 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

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 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.

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.

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.

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.

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.

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 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.

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 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.

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.

During 2012 and through November 9, 2012 (effective for accounting purpose on October 31, 2012), the Company through MCM traded for its own account on a riskless principal transactions basis to effectuate buy and sell orders for its customers. MCM 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. (MCM's transactions are deemed to be "Riskless Principal Transactions" per FRB Regulation Y, Part 225—Subpart C—Sec. 225.28.) Gains and losses on riskless principal securities transactions, related clearing expenses, and commissions were recorded on a trade-date basis as securities transactions occured.

During 2012 and through November 9, 2012 (effective for accounting purposes on October 31, 2012), the Company 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 were accounted for on the date cash is received, which was on or shortly after the settlement date of the transaction.

The Company purchased land that was developed for a branch completed 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.

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. 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.

Net assets of entities 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.

The Company 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.

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.

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.

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, 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, 2012.

Basic income (loss) per share represents the income (loss) reported to common stockholders divided by the weighted average number of shares of common stock outstanding during the periods reported on the Consolidated Statements of Operations. Diluted income per share for the year ended December 31, 2012 does not include any effects of common stock equivalents as these stock options were considered to be anti-dilutive because their exercise price exceeded the market value of the Company's shares. Diluted loss per share does not include any effects of common stock equivalents as they would not be dilutive due to the Company's net loss for the year ended December 31, 2011.

There were no 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 average number of shares used to calculate net income (loss) per share for the years ended December 31, 2012 and 2011 was 9,035,070 and 4,513,501, respectively. The weighted average number of shares for 2011 represents the average PBB shares for 2011, which were converted to the Company's common stock at the time of the Merger; share changes such as the reverse merger are retrospectively presented for all periods.

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 122,582 as of December 31, 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.

In conjunction with the Merger, Bancorp assumed the California General Bank, N.A. 2009 Stock Option Plan ("2009 Plan") and the Professional Business Bank 2011 Equity Incentive Plan ("2011 Plan"), although no further grants may be made under these plans. Options granted and still outstanding under the 2009 Plan totaled 185,591 as of December 31, 2012. Unvested restricted stock grants outstanding under the 2011 Plan totaled 28,800 as of December 31, 2012. The holders of these unvested restricted stock grants would receive dividends, if declared, and have rights to vote those shares.

The Company recognizes the cost of recipient service received in exchange for awards of stock options, or other equity instruments in the consolidated statements of operations 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 the fair value of restricted stock awards.

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. 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.

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.

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.

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

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.

At December 31, 2012, the Company had interest-earning deposits with other financial institutions of $829 thousand with a weighted average yield of 0.11%, and a weighted average remaining life of approximately 2.7 months. At December 31, 2011, the Company had interest-earning deposits with other financial institutions of $4.0 million with a weighted average yield of 1.36%, and a weighted average remaining life of approximately 5.2 months.

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, 2012 and 2011:

Net unrealized gains on available-for-sale securities of $113 thousand and $510 thousand at December 31, 2012 and 2011, respectively, were included in accumulated other comprehensive income.

During the year ended December 31, 2012, the Company sold $4.5 million in securities at a gain of $529 thousand. There were no sales in 2011.

Securities with a fair value of $5.8 million and $7.2 million at December 31, 2012 and 2011, respectively, were pledged to secure borrowings from the FHLB.

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, 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 2012 or 2011 was attributable to changes in market rates of interest rather than credit quality. Accordingly, as of December 31, 2012 and 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 statements of operations.

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

There were no investment securities with continuous unrealized losses greater than 12 months at December 31, 2011.

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. Mortgage-backed securities are classified according to their estimated lives. Expected maturities may differ from contractual maturities because borrowers have the right to prepay their obligations.

The Company currently extends credit to its customers in the form of commercial loans and lines of credit, commercial real estate, residential real estate, and consumer loans.