The following discussion is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and other factors that have affected our reported results of operations and financial condition or may affect our future results or financial condition. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K.

The following discussion of our financial condition and results of operations has been revised from that contained in our Annual Report on Form 10-K for the year ended December 31, 2011 that we filed with the SEC on March 30, 2012 to reflect the restatement of our audited consolidated financial statements for that year. The restatement related to corrections of errors made in our determination of the appropriate provisions for losses and charge-offs during the fourth quarter of 2011. The errors resulted from failure in connection with preparation of our financial statements to obtain and take into account certain appraisals of the values of properties securing impaired loans that had been ordered and received by the Bank prior to the issuance date of our financial statements and failure to follow appropriate methods for calculating expected future payments on loans in connection with our discounted cash flow analysis for measuring impairment of loans deemed to be troubled debt restructurings. In addition, certain appraisals received after year-end 2011 indicated that impairment losses that had been determined using values based on broker provided opinions of value ("BPOs") understated the losses inherent in those loans. The cumulative effect of these corrections is an increase in net losses of $4.7 million. Following is a summary of the effects of these corrections on the Company's consolidated balance sheet as of December 31, 2011 and the Company's consolidated statement of operations for fiscal the year ended December 31, 2011:

                                     As Originally Filed                                      As Restated
                                      December 31, 2011             Adjustments            December 31, 2011
                                                        (In thousands, except per share)
BALANCE SHEET
Loans receivable held for
sale, net                           $              13,857          $        (874 )        $            12,983
Loans receivable, net               $             326,323          $      (3,553 )        $           322,770
Real estate owned (REO)             $               7,010          $        (311 )        $             6,699
Stockholders' Equity                $              23,013          $      (4,737 )        $            18,276
STATEMENT OF OPERATIONS
Provision for loan losses           $               8,600          $       3,553          $            12,153
Provision for losses on loans
held for sale                       $                 738          $         874          $             1,612
Provision for losses on REO         $               2,343          $         311          $             2,654
Net loss                            $               9,517          $       4,738          $            14,255
Comprehensive loss                  $               9,209          $       4,738          $            13,947
Earnings (loss) per common
share-basic                         $               (6.10 )        $       (2.71 )        $             (8.81 )
Earnings (loss) per common
share-diluted                       $               (6.10 )        $       (2.71 )        $             (8.81 )

Overview

The economic conditions in which we operate continued to be challenging through 2011. While there has been moderate job growth during 2011 and the national unemployment rate declined to 8.5% for December 2011, compared to 9.4% for December 2010, the unemployment rate remains substantially higher in Southern California where we operate and softness in the housing and real estate markets persists, consumer confidence remains less than strong and interest rates remain at historic lows. In addition to the economic environment, the regulation and oversight of our business changed during 2011. As described in more detail in Item 1 "Regulation," certain aspects of the Dodd-Frank Act have had and will continue to have an impact on us, including the combination on July 21, 2011 of our former primary banking regulator, the OTS, with the OCC, and transfer of the OTS's responsibilities as regulator of savings and loan holding companies to the FRB, the imposition of consolidated holding company capital requirements and changes to deposit insurance assessments.

Total assets decreased during the year 2011 primarily due to a decrease in our loan portfolio. The decrease in loans primarily reflects reduced levels of loan originations and purchases as well as elevated levels of loan repayments during 2011 as a result of continued low market interest rates. The decline in assets also reflects our strategy throughout 2011 to maintain our capital ratios above the required regulatory thresholds and strengthen our liquidity and deposit base, in part by reducing both potential problem loans and non-performing assets.

Total deposits decreased during 2011, as we continued to allow maturing certificates of deposit and brokered deposits, including deposits obtained through the CDARS reciprocal deposit referral system, to run off as total assets declined. Since the end of 2010, FHLB borrowings decreased by $4.0 million while subordinated debentures and other borrowings remained unchanged.

Our net losses for the year ended December 31, 2011 were ($14.3) million, compared to net earnings of $1.9 million for the same period a year ago. The net loss was primarily due to higher provision for losses, lower net interest income, lower non-interest income and higher income tax provision expense, which resulted from tax provision true-ups and an increase in the valuation allowance against our federal and state deferred tax assets.

Analysis of Net Interest Income

Net interest income is the difference between income on interest-earning assets and the expense on interest-bearing liabilities. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred loan fees, and discounts and premiums that are amortized or accreted to interest income or expense. We do not accrue interest on loans on non-accrual status; however, the balance of these loans is included in the total average balance, which has the effect of reducing average loan yields.

                                                                                      For the Year Ended December 31,
                                                      2011                                          2010                                         2009
                                                                   Average                                       Average                                      Average
                                      Average                       Yield/          Average                       Yield/         Average                       Yield/
(Dollars in Thousands)                Balance       Interest         Cost           Balance       Interest         Cost          Balance       Interest         Cost
Assets
Interest-earning assets:
Interest-earning deposits            $   6,271      $      14          0.22 %      $   4,224      $      10          0.24 %     $   8,051      $      83          1.03 %
Federal Funds sold and other
short-term investments                  17,881             14          0.08 %         20,968             23          0.11 %         1,281              2          0.16 %
Investment securities                    1,000             50          5.00 %          1,000             50          5.00 %         1,000             50          5.00 %
Residential mortgage-backed
securities                              19,388            650          3.35 %         25,761            914          3.55 %        26,795          1,158          4.32 %
Loans receivable (1)(2)                397,402         24,376          6.13 %        462,800         29,047          6.28 %       429,040         27,669          6.54 %
FHLB stock                               4,089             11          0.27 %          4,336             19          0.44 %         4,140              9          0.22 %

Total interest-earning assets          446,031      $  25,115          5.63 %        519,089      $  30,063          5.79 %       470,307      $  28,971          6.24 %

Non-interest-earning assets              6,629                                         4,424                                        9,325

Total assets                         $ 452,660                                     $ 523,513                                    $ 479,632

Liabilities and Stockholders'
Equity
Interest-bearing liabilities:
Money market deposits                $  24,063      $      98          0.41 %      $  27,701      $     182          0.66 %     $  33,719      $     530          1.57 %
Passbook deposits                       38,176            129          0.34 %         37,574            163          0.43 %        37,763            311          0.82 %
NOW and other demand deposits           42,210             40          0.09 %         47,077            104          0.22 %        64,967            763          1.17 %
Certificate accounts                   215,611          4,226          1.96 %        274,641          5,461          1.99 %       221,863          5,318          2.40 %

Total deposits                         320,060          4,493          1.40 %        386,993          5,910          1.53 %       358,312          6,922          1.93 %
FHLB advances                           86,967          2,699          3.10 %         87,897          2,930          3.33 %        76,433          2,830          3.70 %
Junior subordinated debentures
and other borrowings                    11,000            859          7.81 %         10,231            433          4.23 %         6,385            236          3.70 %

Total interest-bearing
liabilities                            418,027      $   8,051          1.93 %        485,121      $   9,273          1.91 %       441,130      $   9,988          2.26 %

Non-interest-bearing liabilities         5,519                                         5,631                                        5,328
Stockholders' Equity                    29,114                                        32,761                                       33,174

Total liabilities and
stockholders' equity                 $ 452,660                                     $ 523,513                                    $ 479,632

Net interest rate spread (3)                        $  17,064          3.70 %                     $  20,790          3.88 %                    $  18,680          3.97 %

Net interest rate margin (4)                                           3.83 %                                        4.01 %                                       4.09 %
Ratio of interest-earning assets
to interest-bearing liabilities                                      106.70 %                                      107.00 %                                     106.61 %
Return on average assets                                              (3.15 %)                                       0.37 %                                      (1.35 %)
Return on average equity                                             (48.96 %)                                       5.85 %                                     (19.47 %)
Average equity to average assets
ratio                                                                  6.43 %                                        6.26 %                                       6.92 %
Dividend payout ratio (5)                                                -                                             -                                            -

(1) Amount is net of deferred loan fees, loan discounts, and loans in process, and includes loans held for sale.

(2) Amount excludes interest on non-performing loans.

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

(4) Net interest rate margin represents net interest income as a percentage of average interest-earning assets.

(5) Percentage is calculated based on dividends on common stock divided by net earnings (loss) less dividends and accretion on preferred stock.

Changes in our net interest income are a function of changes in both rates and volumes of interest-earning assets and interest-bearing liabilities. The following table sets forth information regarding changes in our interest income and expense for the years indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the total change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

                                            Year ended December 31, 2011               Year ended December 31, 2010
                                                    Compared to                                 Compared to
                                            Year ended December 31, 2010               Year ended December 31, 2009
                                             Increase (Decrease) in Net                 Increase (Decrease) in Net
                                                  Interest Income                             Interest Income
                                         Due to         Due to                      Due to          Due to
                                         Volume          Rate         Total         Volume           Rate         Total
                                                                        (In thousands)
Interest-earning assets:
Interest-earning deposits              $        5       $    (1 )    $      4      $     (28 )     $    (45 )    $   (73 )
Federal funds sold and other short
term investments                               (3 )          (6 )          (9 )           22             (1 )         21
Investment securities, net                     -             -             -              -              -            -
Mortgage backed securities, net              (216 )         (48 )        (264 )          (43 )         (201 )       (244 )
Loans receivable, net                      (4,024 )        (647 )      (4,671 )        2,525         (1,147 )      1,378
FHLB stock                                     (1 )          (7 )          (8 )           -              10           10

Total interest-earning assets              (4,239 )        (709 )      (4,948 )        2,476         (1,384 )      1,092

Interest-bearing liabilities:
Money market deposits                         (22 )         (62 )         (84 )          (82 )         (266 )       (348 )
Passbook deposits                               3           (37 )         (34 )           (2 )         (146 )       (148 )
NOW and other demand deposits                 (10 )         (54 )         (64 )         (167 )         (492 )       (659 )
Certificate accounts                       (1,158 )         (77 )      (1,235 )        1,139           (996 )        143
FHLB advances                                 (31 )        (200 )        (231 )          399           (299 )        100
Junior subordinated debentures                 -             (2 )          (2 )           -             (38 )        (38 )
Other borrowings                               54           374           428            235              0          235

Total interest-bearing liabilities         (1,164 )         (58 )      (1,222 )        1,522         (2,237 )       (715 )

Change in net interest income          $   (3,075 )     $  (651 )    $ (3,726 )    $     954       $    853      $ 1,807

Comparison of Operating Results for the Years Ended December 31, 2011 and 2010

General

Our most significant source of income is net interest income, which is the difference between our interest income and our interest expense. Generally, interest income is generated from our loans and investments (interest-earning assets) and interest expense is generated from deposits and borrowings (interest-bearing liabilities). Our results of operations are also affected by our provision for losses, non-interest income generated from service charges and fees on loan and deposit accounts, gain or loss on the sale of loans and securities, non-interest expenses and income taxes.

Net Earnings (Loss)

We recorded a net loss of ($14.3) million, or ($8.81) per diluted common share, for the year ended December 31, 2011, compared to net earnings of $1.9 million, or $0.44 per diluted common share, for the year ended December 31, 2010. The decrease from net earnings to net loss primarily reflected higher provisions for losses, lower net interest income, lower non-interest income, higher non-interest expense and higher income tax provision expense.

Net Interest Income

For the year ended December 31, 2011, net interest income before provision for loan losses totaled $17.1 million, down $3.7 million, or 18%, from $20.8 million of net interest income before provision for loan losses for the year ended December 31, 2010. The $3.7 million decrease in net interest income primarily resulted from a $73.1 million decrease in average interest-earning assets and an 18 basis point decrease in net interest margin.

Average interest-earning assets for the year 2011 decreased $73.1 million to $446.0 million from $519.1 million for the year 2010, which resulted in a $4.2 million reduction in interest income. The decline in average interest-earning assets reflects our strategy throughout 2011 to maintain our capital ratios above the required regulatory thresholds and strengthen our liquidity and deposit base, in part by shrinking total assets and reducing both potential problem loans and non-performing assets. Our net loan portfolio accounted for a substantial portion of the decrease in our average interest-earning assets. In 2011, average loans outstanding decreased by $65.4 million, or 14%. The yield on our average interest-earning assets decreased 16 basis points to 5.63% for the year 2011 from 5.79% for the same period a year ago. The 16 basis point decrease in the yield on our average interest-earning assets lowered interest income by $709 thousand in 2011. The decrease in yield was primarily the result of a 15 basis point decrease in the yield on loans to 6.13%, which was primarily due to higher levels of non-accrual loans.

Average interest-bearing liabilities for the year 2011 decreased $67.1 million to $418.0 million from $485.1 million for the year 2010. The decrease in average interest-bearing liabilities resulted in a $1.2 million reduction in interest expense. The cost of our average interest-bearing liabilities increased 2 basis points to 1.93% for the year 2011 from 1.91% for the same period a year ago.

Provision for Loan Losses

We record a provision for loan losses as a charge to earnings when necessary in order to maintain the allowance for loan losses at a level sufficient, in management's judgment, to absorb losses inherent in the loan portfolio. At least quarterly, we conduct an assessment of the overall quality of the loan portfolio and general economic trends in the local market. The determination of the appropriate level for the allowance is based on that review, considering such factors as historical loss experience for each type of loan, the size and composition of our loan portfolio, the levels and composition of our loan delinquencies, non-performing loans and net loan charge-offs, the value of underlying collateral on problem loans, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.

For the year 2011, the provision for loan losses totaled $12.2 million, up $7.7 million, from a year ago. The increase in the provision for loan losses for the year 2011 was due primarily to the increase in net loan charge-offs. This factor was tempered by the decrease in the size of the loan portfolio.

At December 31, 2011 our allowance for loan losses was $17.3 million, or 5.09% of our gross loans receivable, compared to $20.5 million, or 5.08% of our gross loans, at year-end 2010. The ratio of the allowance for loan losses to NPLs, excluding loans held for sale, decreased to 44.20% at December 31, 2011, compared to 54.53% at year-end 2010. Despite the decrease in the allowance ratio, management believes that the remaining loss potential has been reduced as certain losses inherent in our NPLs have been recognized as charge-offs which resulted in a lower ratio of the allowance for loan losses to NPLs. As of December 31, 2011, 70% of our NPLs had already been written down to their adjusted fair value less estimated selling costs, by establishing specific reserves or charged-off as necessary.

Net loan charge-offs during 2011 were $15.3 million, or 3.85% of average loans, compared to $4.5 million, or 0.97% of average loans, during 2010. Of the $15.4 million gross charge-offs during 2011, $3.9 million were specifically reserved for at year-end 2010. Charge-offs in commercial real estate loans totaled $4.5 million and represented 29% of charge-offs during 2011. Charge-offs in church loans totaled $3.8 million and represented 25% of charge-offs during 2011. Charge-offs in commercial loans totaled $3.9 million and represented 25% of charge-offs during 2011. Charge-offs in consumer loans totaled $1.8 million and represented 12% of charge-offs during 2011. Charge-offs in multi-family and one-to-four family residential real estate loans totaled $1.3 million and represented the remaining 9% of charge-offs during 2011.

Impaired loans at December 31, 2011 were $56.3 million compared to $58.0 million at December 31, 2010. Specific reserves for impaired loans were $3.9 million, or 7.00% of the aggregate impaired loan amount at December 31, 2011, compared to $6.0 million, or 10.39%, at December 31, 2010. Excluding specific reserves for impaired loans, our coverage ratio (general allowance as a percentage of total non-impaired loans) was 4.71% at December 31, 2011, compared to 4.19% at December 31, 2010.

We performed an impairment analysis for all non-performing and restructured loans, and established specific loss allocations for impaired loans of $3.9 million at December 31, 2011. Of the $3.9 million specific loss allocations at December 31, 2011, $1.3 million were related to $6.1 million of loans that are non-performing and with respect to which the recent valuation of the underlying collateral reflected a decrease in values. Additionally, we recorded $2.6 million of specific loss allocations for impairment related to $16.7 million of accruing loans that were modified in troubled debt restructurings. On $14.9 million of impaired loans, the fair value of collateral less estimated selling costs exceeded the recorded investment in the loan and did not require a specific loss allocation. The remaining $18.6 million of impaired loans had been written down to fair value after charge-offs of $13.3 million

Management believes that the allowance for loan losses is adequate to cover probable incurred losses in the loan portfolio as of December 31, 2011, but there can be no assurance that actual losses will not exceed the estimated amounts. In addition, the OCC and the FDIC periodically review the allowance for loan losses as an integral part of their examination process. These agencies may require an increase in the allowance for loan losses based on their judgments of the information available to them at the time of their examinations.

Non-Interest Income

Non-interest income for the year ended December 31, 2011 totaled $713 thousand, compared to $2.4 million for the same period a year ago. The $1.7 million decrease in 2011 was primarily due to $1.5 million in grants received from the U.S. Department of the Treasury's Community Development Financial Institutions (CDFI) Fund, which were included in other non-interest income for 2010. Also contributing to lower non-interest income in 2011 were lower service charges for loan-related fees and retail banking fees.

Non-Interest Expense

For the year ended December 31, 2011, non-interest expense totaled $18.0 million compared to $15.5 million for the same period a year ago. The $2.5 million increase in non-interest expense during 2011 primarily reflected higher provision for losses on loans held for sale and REO and higher other expenses, primarily due to increases in investment amortization expense, REO expenses and appraisal expenses related to delinquent loans. Partially offsetting these increases was a decrease in professional services expense.

Income Taxes

Income tax expense totaled $1.8 million for 2011 and $1.3 million for 2010. The Company recorded a tax expense in 2011 despite having a pre-tax loss, whereas in 2010 the Company reported income tax expense equal to an effective tax rate of 41.19%. The tax expense in 2011 reflected the impact of tax provision true-ups and an increase in the valuation allowance related to the projected utilization of its federal and state deferred tax assets. The increase in the valuation allowance against our federal and state deferred tax assets was due to current year losses and the Company's inability to project sufficient future taxable income. See Note 1 "Summary of Significant Accounting Principles" and Note 13 "Income Taxes" of the Notes to Consolidated Financial Statements for a further discussion of income taxes and a reconciliation of income tax at the federal statutory tax rate to actual tax expense (benefit).

Comparison of Financial Condition at December 31, 2011 and 2010

Total Assets

Total assets were $413.7 million at December 31, 2011, which represented a decrease of $70.2 million, or 14%, from December 31, 2010. During 2011, net loans decreased by $59.8 million, loans held for sale decreased by $16.4 million, securities decreased by $4.3 million, and deferred tax assets decreased by $4.5 million, while cash and cash equivalents increased by $9.6 million, REO increased by $3.7 million and other assets (primarily income tax receivable) increased by $2.8 million.

The C&Ds issued to us by the OTS effective September 9, 2010, which are now administered by the OCC with respect to the Bank, limit the increase in the Bank's total assets during any quarter to an amount equal to the net interest credited on deposit liabilities during the prior quarter without the prior . . .